-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, V6OQPM3A2RHjXg9Xd9JjDrzlvdsiedPkSDGetkNddU3JYHmijsXSBmhufm8Kpwhx Cc9mEi5kfdx2o0epdE1Q3g== 0000912057-02-009901.txt : 20020415 0000912057-02-009901.hdr.sgml : 20020415 ACCESSION NUMBER: 0000912057-02-009901 CONFORMED SUBMISSION TYPE: S-4 PUBLIC DOCUMENT COUNT: 41 FILED AS OF DATE: 20020314 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERICAN ACHIEVEMENT CORP CENTRAL INDEX KEY: 0001168468 IRS NUMBER: 314126506 STATE OF INCORPORATION: DE FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: S-4 SEC ACT: 1933 Act SEC FILE NUMBER: 333-84294 FILM NUMBER: 02574825 MAIL ADDRESS: STREET 1: 7211 CIRCLES S ROAD CITY: AUSTIN STATE: TX ZIP: 78745 FILER: COMPANY DATA: COMPANY CONFORMED NAME: EDUCATIONAL COMMUNICATIONS INC CENTRAL INDEX KEY: 0001168472 IRS NUMBER: 362613715 STATE OF INCORPORATION: DE FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: S-4 SEC ACT: 1933 Act SEC FILE NUMBER: 333-84294-01 FILM NUMBER: 02574826 MAIL ADDRESS: STREET 1: 721 N MCKINLEY ROAD CITY: LANE FOREST STATE: IL ZIP: 60045 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TAYLOR PRODUCTION SERVICES CO LP CENTRAL INDEX KEY: 0001168467 IRS NUMBER: 311576205 STATE OF INCORPORATION: DE FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: S-4 SEC ACT: 1933 Act SEC FILE NUMBER: 333-84294-02 FILM NUMBER: 02574827 MAIL ADDRESS: STREET 1: 1550 W MOCKING BIRD LANE CITY: DALLAS STATE: TX ZIP: 75235 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TAYLOR PUBLISHING CO CENTRAL INDEX KEY: 0001168473 IRS NUMBER: 751251430 STATE OF INCORPORATION: DE FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: S-4 SEC ACT: 1933 Act SEC FILE NUMBER: 333-84294-03 FILM NUMBER: 02574828 MAIL ADDRESS: STREET 1: 1550 W MOCKING BIRD LANE CITY: DALLAS STATE: TX ZIP: 75235 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TAYLOR SENIOR HOLDING CORP CENTRAL INDEX KEY: 0001168471 IRS NUMBER: 134099532 STATE OF INCORPORATION: DE FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: S-4 SEC ACT: 1933 Act SEC FILE NUMBER: 333-84294-04 FILM NUMBER: 02574829 MAIL ADDRESS: STREET 1: 1550 W MOCKING BIRD LANE` CITY: DALLAS STATE: TX ZIP: 75235 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TP HOLDING CORP CENTRAL INDEX KEY: 0001168470 IRS NUMBER: 134099531 STATE OF INCORPORATION: DE FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: S-4 SEC ACT: 1933 Act SEC FILE NUMBER: 333-84294-05 FILM NUMBER: 02574830 MAIL ADDRESS: STREET 1: 1550 W MOCKING BIRD LANE` CITY: DALLAS STATE: TX ZIP: 75235 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CBI NORTH AMERICA INC CENTRAL INDEX KEY: 0001168469 IRS NUMBER: 742802215 STATE OF INCORPORATION: DE FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: S-4 SEC ACT: 1933 Act SEC FILE NUMBER: 333-84294-06 FILM NUMBER: 02574831 MAIL ADDRESS: STREET 1: 7211 CIRCLES S ROAD CITY: AUSTIN STATE: TX ZIP: 78745 FILER: COMPANY DATA: COMPANY CONFORMED NAME: COMMEMORATIVE BRANDS INC CENTRAL INDEX KEY: 0001031595 STANDARD INDUSTRIAL CLASSIFICATION: JEWELRY, PRECIOUS METAL [3911] IRS NUMBER: 133915801 STATE OF INCORPORATION: DE FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: S-4 SEC ACT: 1933 Act SEC FILE NUMBER: 333-84294-07 FILM NUMBER: 02574832 BUSINESS ADDRESS: STREET 1: 7211 CIRCLE S RD CITY: AUSTIN STATE: TX ZIP: 78745 BUSINESS PHONE: 5124440571 MAIL ADDRESS: STREET 1: 7211 CIRCLE S ROAD CITY: AUSTIN STATE: TX ZIP: 78745 S-4 1 a2071988zs-4.txt S-4 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 14, 2002 REGISTRATION NO. 333- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM S-4 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 AMERICAN ACHIEVEMENT CORPORATION (Exact name of registrant as specified in Its Charter) DELAWARE 3911 13-4126506 (State or Other Jurisdiction Primary Standard Industrial (I.R.S. Employer of Classification Code Number Identification Number) Incorporation or Organization)
SHERICH P. BENCH CHIEF FINANCIAL OFFICER 7211 CIRCLE S ROAD, P.O. BOX 149107, AUSTIN, TEXAS 78745 PH: (512) 444-0571 FAX: (512) 443-5213 (Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant's Principal Executive Offices) CO-REGISTRANTS NATIONAL CORPORATE RESEARCH LTD. SEE NEXT PAGE 615 SOUTH DUPONT HIGHWAY, COUNTY OF KENT C/O AMERICAN ACHIEVEMENT CORPORATION DOVER, DE 19901 ATTN: SHERICE P. BENCH PH: (302) 734-1450 7211 CIRCLE 5 ROAD, P.O. BOX 149107, FAX: (302) 734-1476 AUSTIN, TEXAS 78745 (Name, Address, Including Zip Code, and PH: (512) 440-2123 Telephone Number, Including Area Code, of FAX: (512) 443-5213 Agent For Service) (Name, Address, Including Zip Code, and Telephone Number, Including Area Code, of Co-Registrants)
COPIES TO: MICHAEL R. LITTENBERG, ESQ. SCHULTE ROTH & ZABEL LLP 919 THIRD AVENUE NEW YORK, NEW YORK 10022 PH: (212) 756-2000 FAX: (212) 593-5955 -------------------------- Approximate Date of Commencement of Proposed Offer to the Public. As soon as practicable after this registration statement becomes effective. If the securities being registered are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box. [ ] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] CALCULATION OF REGISTRATION FEE
PROPOSED MAXIMUM PROPOSED MAXIMUM TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE AGGREGATE AMOUNT OF SECURITIES TO BE REGISTERED BE REGISTERED PER UNIT OFFERING PRICE(1) REGISTRATION FEE(2) 11 5/8% Series B Senior Notes due 2007 and Note Guarantees.................. $177,000,000 100% $177,000,000 $16,284
(1) Estimated solely for the purpose of computing the amount of the registration fee pursuant to Rule 457(f) under the Securities Act of 1933. (2) Calculated pursuant to Rule 457(f) under the Securities Act. The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission acting pursuant to said Section 8(a), may determine. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- CO-REGISTRANTS
STATE OR OTHER PRIMARY STANDARD JURISDICTION OF INDUSTRIAL INCORPORATION OR CLASSIFICATION CODE I.R.S. EMPLOYER EXACT NAME OF CO-REGISTRANT AS SPECIFIED IN ITS CHARTER ORGANIZATION NUMBER IDENTIFICATION NUMBER - ------------------------------------------------------- ---------------- ------------------- --------------------- Commemorative Brands, Inc. Delaware 3911 13-3915801 CBI North America, Inc. Delaware 3911 74-2802215 Taylor Senior Holding Corp. Delaware 2741 13-4099532 TP Holding Corp. Delaware 2741 13-4099531 Taylor Publishing Company Delaware 2741 75-1251430 Taylor Production Services Company, L.P. Delaware 2741 31-1576205 Educational Communications, Inc. Illinois 2741 23-7032032
- -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SUBJECT TO COMPLETION, DATED MARCH 14, 2002 PRELIMINARY PROSPECTUS AMERICAN ACHIEVEMENT CORPORATION $177,000,000 OFFER TO EXCHANGE 11 5/8% SENIOR NOTES DUE 2007, SERIES B FOR ANY AND ALL OUTSTANDING 11 5/8% SENIOR NOTES DUE 2007, SERIES A OF AMERICAN ACHIEVEMENT CORPORATION - -------------------------------------------------------------------------------- The Exchange Offer will expire at 5:00 p.m., New York City time, on , unless extended. - -------------------------------------------------------------------------------- THE COMPANY: - - We are one of the leading manufacturers and suppliers of class rings, yearbooks, graduation products, achievement publications and recognition and affinity jewelry in the United States. THE OFFERING: - - Offered securities: the securities offered by this prospectus are senior notes, which are being issued in exchange for senior notes sold by us in our private placement that we consummated on February 20, 2002. The new notes are substantially identical to the original notes and are governed by the same indenture governing the original notes. - - Expiration of offering: the exchange offer expires at 5:00 p.m., New York City time, on , 2002, unless extended. THE NEW NOTES: - - Maturity: January 1, 2007. - - Interest payment dates: semiannually on each January 1 and July 1, beginning on July 1, 2002. - - Subsidiary guarantees: all of our existing domestic subsidiaries will fully and unconditionally and jointly and severally guarantee the new notes. Our foreign subsidiaries and any subsidiaries we later designate as "unrestricted" under the indenture will not guarantee the new notes. - - Redemption: we can redeem the new notes on or after January 1, 2005, except we may redeem up to 35% of the new notes prior to January 1, 2005 with the proceeds of one or more public equity offerings. We are required to redeem the new notes under some circumstances involving changes of control and asset sales. - - Ranking: the new notes and subsidiary guarantees will be senior unsecured obligations, and will rank equally with all of our other existing and future obligations that are not by their terms subordinated in right of payment to the new notes. The new notes will rank senior in right of payment to all of our obligations that are expressly subordinated in right of payment to the new notes. SEE "RISK FACTORS," BEGINNING ON PAGE 11, FOR A DISCUSSION OF SOME FACTORS THAT SHOULD BE CONSIDERED BY HOLDERS IN CONNECTION WITH A DECISION TO TENDER ORIGINAL NOTES IN THE EXCHANGE OFFER. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED ON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. The date of this prospectus is , 2002 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- TABLE OF CONTENTS
PAGE -------- Notice to New Hampshire Residents........................... i Special Note Regarding Forward-Looking Statements........... i Market Share, Ranking and Other Data........................ ii Company Trademarks and Trade Names.......................... ii Prospectus Summary.......................................... 1 Risk Factors................................................ 10 Use of Proceeds............................................. 18 Capitalization.............................................. 19 Unaudited Pro Forma Financial Statements.................... 20 Selected Consolidated Historical Financial Data............. 27 Management's Discussion and Analysis of Financial Condition and Results of Operations................................. 29 The Exchange Offer.......................................... 39 Business.................................................... 49 Management.................................................. 63 Security Ownership of Certain Beneficial Owners and Management................................................ 69 Certain Relationships and Related Transactions.............. 72 Description of Certain Indebtedness......................... 73 Description of New Notes.................................... 76 Certain United States Federal Income Tax Considerations..... 113 Plan of Distribution........................................ 117 Legal Matters............................................... 118 Independent Auditors........................................ 118 Where You Can Find More Information......................... 119 Index to Consolidated Financial Statements.................. F-1
NOTICE TO NEW HAMPSHIRE RESIDENTS Neither the fact that a registration statement or an application for a license has been filed with the State of New Hampshire nor the fact that a security is effectively registered or a person is licensed in the State of New Hampshire constitutes a finding by the Secretary of State that any document filed under RSA 421-B is true, complete and not misleading. Neither those facts nor the fact that an exemption or exception is available for a security or a transaction means that the Secretary of State has passed in any way upon the merits or qualifications of, or recommended or given approval to, any person, security, or transaction. It is unlawful to make, or cause to be made, to any prospective purchaser, customer or client any representation inconsistent with the provisions of this paragraph. ------------------------ SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS This prospectus contains forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act. The safe harbors contained in these sections are not applicable to "forward-looking statements" made in connection with "tender offers" or "initial public offerings." The words "believe," "estimate," "anticipate," "project," "intend," "expect" and similar expressions are intended to identify forward-looking statements. All forward-looking statements involve some risks and uncertainties. In light of these risks and uncertainties, the forward- i looking events discussed in this prospectus might not occur. Factors that may cause actual results or events to differ materially from those contemplated by the foward-looking statements include, among other things, the following possibilities: - future revenues are lower than expected; - costs or difficulties relating to the integration of businesses that we acquire are greater than expected; - expected cost savings from our acquisitions are not fully realized or realized within the expected time frame; - competitive pressures in the industry increase; - general economic conditions or conditions affecting the airline industry, whether internationally, nationally or in the states in which we do business, are less favorable than expected; - changes in the interest rate environment generally; and - conditions in the securities markets are less favorable than expected. You are cautioned not to place undue reliance on forward-looking statements contained in this prospectus as these speak only as of its date. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. For a further discussion of these and other risks related to our business, see the section entitled "Risk Factors." MARKET SHARE, RANKING AND OTHER DATA The market share, ranking and other data contained in this prospectus are based either on management's own estimates, independent industry publications, reports by market research firms or other published independent sources and, in each case, are believed by management to be reasonable estimates. However, market share, ranking and other data is subject to change and cannot always be verified with complete certainty due to limits on the availability and reliability of raw data, the voluntary nature of the data gathering process and other limitations and uncertainties inherent in any statistical survey. In addition, consumption patterns and customer preferences can and do change. As a result, you should be aware that market share, ranking and other similar data set forth herein, and estimates and beliefs based on such data, may not be reliable. COMPANY TRADEMARKS AND TRADE NAMES We own or have the rights to various trademarks and tradenames used in our businesses, including: ARTCARVED-REGISTERED TRADEMARK-, BALFOUR-REGISTERED TRADEMARK-, CELEBRATIONS OF LIFE-TM-, CLASS RINGS, LTD.-REGISTERED TRADEMARK-, GENERATIONS OF LOVE-TM-, KEEPSAKE-REGISTERED TRADEMARK-, KEYSTONE-REGISTERED TRADEMARK-, MASTER CLASS RINGS-REGISTERED TRADEMARK-, NAMESAKE-TM-, R. JOHNS-REGISTERED TRADEMARK-, TAYLOR PUBLISHING-REGISTERED TRADEMARK-, THE NATIONAL DEAN'S LIST-TM-, WHO'S WHO AMONG AMERICAN HIGH SCHOOL STUDENTS-TM- and WHO'S WHO AMONG AMERICA'S TEACHERS-TM-, as well as other trade names and product names. ii PROSPECTUS SUMMARY IN THIS PROSPECTUS, "AMERICAN ACHIEVEMENT," "WE," "OUR," "THE COMPANY" OR "US" REFER TO AMERICAN ACHIEVEMENT CORPORATION AND ITS SUBSIDIARIES. OUR FISCAL YEAR ENDS ON THE LAST SATURDAY IN AUGUST. UNLESS OTHERWISE SPECIFIED, REFERENCES TO 1999, 2000 AND 2001 RELATE TO THE FISCAL YEARS ENDED ON AUGUST 28, 1999, AUGUST 26, 2000 AND AUGUST 25, 2001, RESPECTIVELY. UNLESS STATED OTHERWISE, ALL PRO FORMA FINANCIAL INFORMATION IN THIS PROSPECTUS GIVES EFFECT TO THE ACQUISITION OF EDUCATIONAL COMMUNICATIONS, INC., OR ECI, THE ISSUANCE OF THE ORIGINAL NOTES, THE BORROWINGS UNDER OUR NEW CREDIT FACILITY AND THE APPLICATION OF THE PROCEEDS THEREFROM AS IF THEY HAD OCCURRED AT THE BEGINNING OF THE PERIOD PRESENTED. THE FOLLOWING SUMMARY CONTAINS BASIC INFORMATION ABOUT US AND THIS EXCHANGE OFFER. IT LIKELY DOES NOT CONTAIN ALL THE INFORMATION THAT IS IMPORTANT TO YOU. FOR A MORE COMPLETE UNDERSTANDING OF THIS EXCHANGE OFFER, YOU ARE ENCOURAGED TO READ THIS ENTIRE DOCUMENT. OUR COMPANY We are one of the leading manufacturers and suppliers of class rings, yearbooks, graduation products, achievement publications and recognition and affinity jewelry in the United States. Our two principal business segments are: scholastic products and recognition and affinity products. Our scholastic products segment consists of three principal categories: class rings, yearbooks and graduation products, the last of which includes fine paper products and graduation accessories. Recognition and affinity products include achievement publications and recognition and affinity jewelry. Many of our products have leading market share positions that have been developed over many years and are marketed under well-known names such as ARTCARVED, BALFOUR, KEEPSAKE, TAYLOR PUBLISHING and WHO'S WHO AMONG AMERICAN HIGH SCHOOL STUDENTS. Our BALFOUR and ARTCARVED brand names, for example, have been identified with class rings for over 85 years and 45 years, respectively, and the TAYLOR PUBLISHING brand name has been identified with yearbooks for over 60 years. Based on the number of units sold, we believe that we were the second largest provider of class rings and yearbooks in the United States during the 2000-2001 school year, accounting for approximately 35% and 20% of these markets, respectively. We manufacture class rings and publish yearbooks primarily for the high school and college markets. During the 2000-2001 school year, we sold class rings to students at over 8,100 schools and sold yearbooks to over 7,800 schools. We offer over 100 styles of highly personalized class rings with more than 400 designs that can be placed on or under the stone. Emblems of over 100 activities, sports or achievements can appear on the sides of the rings in addition to school crests, mascots and student names. In addition, we also maintain an inventory of over 650,000 unique proprietary ring dies. We utilize state-of-the-art technology for our yearbook publishing and recently have enhanced our color printing press equipment and digital imaging technology. This printing technology has enabled us to improve on-time delivery, performance and print quality of our yearbook products. We publish three achievement publications: WHO'S WHO AMONG AMERICAN HIGH SCHOOL STUDENTS, THE NATIONAL DEAN'S LIST and WHO'S WHO AMONG AMERICA'S TEACHERS. These publications recognize the academic achievement of top students at the high school and college levels, as well as the nation's most inspiring high school teachers. We believe that these publications are the leading achievement publications in their respective market niches. Recognition and affinity jewelry includes affinity group jewelry that commemorates accomplishments within large groups and associations, jewelry commemorating family events such as the birth of a child, fan affinity jewelry and professional sports championship rings such as World Series rings. 1 We distribute our products through various distribution channels, including directly to students and through college bookstores, mass merchandisers, approximately 5,100 independent jewelry stores, many of the nation's largest jewelry chains and direct marketing. During the 2000-2001 school year, we believe that we had the leading market share in high school class ring sales through retail stores. We sell high school class rings to some of the leading mass merchandisers and national jewelry chains, including Wal-Mart, Zales, Gordons and Sterling. COMPETITIVE STRENGTHS - Leading market positions and well-known brand names; - Positive industry fundamentals; - Well-established infrastructure; - Leading retail store presence; and - Experienced management team with a proven track record. BUSINESS STRATEGY We seek to increase revenues and operating efficiencies in both our scholastic and recognition and affinity products segments. We intend to achieve these objectives through the following strategies: - Leverage well-known brands; - Capitalize on cross-selling opportunities; - Expand market penetration; - Enhance core products; - Increase operating efficiencies; and - Capitalize on on-line opportunities. EQUITY SPONSORSHIP In December 1996, Castle Harlan, Inc., a leading New York private equity firm, through its affiliate Castle Harlan Partners II, L.P., or CHPII acquired substantially all of the ArtCarved operations of CJC Holdings, Inc. and the Balfour operations of the L.G. Balfour Company, Inc. Castle Harlan's investment strategy has focused on building a scale competitor in the commemorative products industry that can provide an extensive range of products and services. Taylor Publishing Company, or Taylor was acquired by Castle Harlan Partners III, L.P., or CHPIII, one of our stockholders, on February 11, 2000 and we acquired Taylor on July 27, 2000. We acquired ECI, a publisher of achievement publications, on March 30, 2001, in part, with additional equity from CHPIII. Our principal executive offices are located at 7211 Circle S Road, P.O. Box 149107, Austin, Texas 78745, and our telephone number is (512) 444-0571. 2 THE EXCHANGE OFFER Expiration Date........................ 5:00 p.m., New York City time, on , unless we extend the exchange offer. Exchange and Registration Rights....... In an A/B exchange registration rights agreement dated February 20, 2002, the holders of American Achievement's 11 5/8 senior notes due 2007, series A, which are referred to in this prospectus as the "Original Notes", were granted exchange and registration rights. This exchange offer is intended to satisfy these rights. You have the right to exchange the Original Notes that you hold for American Achievement's 11 5/8 senior notes due 2007, series B, which are referred to in this prospectus as the "New Notes", with substantially identical terms. Once the exchange offer is complete, you will no longer be entitled to any exchange or registration rights with respect to your Original Notes. Accrued Interest on the New Notes and Original Notes....................... The New Notes will bear interest from February 20, 2002. Holders of Original Notes which are accepted for exchange will be deemed to have waived the right to receive any payment in respect of interest on those Original Notes accrued to the date of issuance of the New Notes. Conditions to the Exchange Offer....... The exchange offer is conditioned upon some customary conditions which we may waive and upon compliance with securities laws. Procedures for Tendering Original Notes................................ Each holder of Original Notes wishing to accept the exchange offer must: - complete, sign and date the letter of transmittal, or a facsimile of the letter of transmittal; or - arrange for DTC to transmit required information in accordance with DTC's procedures for transfer to the exchange agent in connection with a book-entry transfer. You must mail or otherwise deliver this documentation together with the Original Notes to the exchange agent. Special Procedures for Beneficial Holders.............................. If you beneficially own Original Notes registered in the name of a broker, dealer, commercial bank, trust company or other nominee and you wish to tender your Original Notes in the exchange offer, you should contact the registered holder promptly and instruct them to tender on your behalf. If you wish to tender on your own behalf, you must, before completing and executing the letter of transmittal for the exchange offer and delivering your Original Notes, either arrange to have your Original Notes registered in your name or obtain a properly
3 completed bond power from the registered holder. The transfer of registered ownership may take considerable time. Guaranteed Delivery Procedures......... You must comply with the applicable procedures for tendering if you wish to tender your Original Notes and: - time will not permit your required documents to reach the exchange agent by the expiration date of the exchange offer; or - you cannot complete the procedure for book-entry transfer on time; or - your Original Notes are not immediately available. Withdrawal Rights...................... You may withdraw your tender of Original Notes at any time up to 5:00 p.m., New York City time, on the business day prior to the date the exchange offer expires. Failure to Exchange Will Affect You Adversely............................ If you are eligible to participate in the exchange offer and you do not tender your Original Notes, you will not have further exchange or registration rights and you will continue to be restricted from transferring your Original Notes. Accordingly, the liquidity of the Original Notes will be adversely affected. Federal Tax Considerations............. We believe that the exchange of the Original Notes for the New Notes pursuant to the exchange offer will not be a taxable event for United States federal income tax purposes. A holder's holding period for New Notes will include the holding period for original notes, and the adjusted tax basis of the New Notes will be the same as the adjusted tax basis of the Original Notes exchanged. See "Certain United States Federal Income Tax Consequences." Exchange Agent......................... The Bank of New York, trustee under the indenture under which the New Notes will be issued, is serving as exchange agent. Use of Proceeds........................ We will not receive any proceeds from the exchange offer.
4 SUMMARY TERMS OF NEW NOTES Issuer................................. American Achievement Corporation Securities Offered..................... The form and terms of the New Notes will be the same as the form and terms of the original notes except that: - the New Notes will bear a different CUSIP number from the Original Notes; - the New Notes will have been registered under the Securities Act and, therefore, will not bear legends restricting their transfer; and - you will not be entitled to any exchange or registrations rights with respect to the New Notes. The New Notes will evidence the same debt as the Original Notes. They will be entitled to the benefits of the indenture governing the Original Notes and will be treated under the indenture as a single class with the Original Notes. Maturity............................... January 1, 2007. Interest............................... The New Notes will bear cash interest at the rate of 11 5/8% per annum (calculated using a 360-day year), payable semi-annually in arrears. Payment frequency--every six months on January 1 and July 1. First payment--July 1, 2002. Ranking................................ The New Notes and subsidiary guarantees will be senior unsecured obligations and will rank equally with all of our other existing and future obligations that are not subordinated in right of payment to the New Notes, including borrowings under our senior secured credit facility. There are no obligations that rank senior to the New Notes. The borrowings under our senior secured credit facility are the only obligations that rank equally to the New Notes and the New Notes will rank senior in right of payment to all of our obligations that are expressly subordinated in right of payment to the New Notes. However, the New Notes will be effectively subordinated to borrowings under the senior secured credit facility because those borrowings are secured by our assets and borrowings under the New Notes are not. Guarantees............................. The New Notes will be fully and unconditionally and jointly and severally guaranteed by our existing domestic subsidiaries, and with some exceptions our future subsidiaries; these subsidiaries are referred to in this prospectus as the "guarantors." Our existing and future foreign subsidiaries and any subsidiaries we later designate as "unrestricted", based on conditions contained in the indenture, will not be guarantors. The guarantees, which are referred to in this prospectus as the "subsidiary guarantees," will be senior unsecured obligations of each guarantor. These subsidiary guarantees will rank equal to other existing and future
5 senior subordinated indebtedness of the guarantors and senior in right of payment to all of the existing and future obligations of the guarantors that are expressly subordinated in right of payment to the subsidiary guarantees. Optional Redemption.................... Except as described below, we cannot redeem the New Notes until January 1, 2005. Thereafter, we may redeem some or all of the New Notes at the redemption prices listed in the "Description of the New Notes" section under the heading "Optional Redemption" (plus accrued interest). At any time (which may be more than once) before January 1, 2005, we can choose to redeem up to 35% of the outstanding New Notes with money that we raise in one or more public equity offerings, as long as: - we pay 111.625% of the principal amount of the New Notes, plus accrued interest; - we redeem the New Notes within 90 days of completing the public equity offering; and - at least 65% of the aggregate principal amount of the New Notes issued remains outstanding afterwards. Change of Control Offer................ If a change in control (as defined in the indenture governing the notes) occurs, we must give holders of the New Notes the opportunity to sell us their New Notes at 101% of their principal amount, plus accrued interest. We might not be able to pay you the required price for the New Notes you present to us at the time of a change of control, because: - we might not have enough funds at that time; or - the terms of our other senior debt may prevent us from paying. Asset Sale Proceeds.................... Under the indenture, if we or our subsidiaries engage in asset sales, we generally must either invest the net cash proceeds from such sales in our business within a period of time, permanently repay the debt under our senior secured credit facility or make an offer to purchase a principal amount of the New Notes equal to the excess net cash proceeds. The purchase price of the New Notes will be 100% of their principal amount, plus accrued interest. Certain Indenture Provisions........... We will issue the New Notes under an indenture with The Bank of New York. The indenture will contain covenants, among other things, limiting our (and most or all of our subsidiaries') ability to: - incur additional debt or guarantee obligations; - grant liens on assets;
6 - make restricted payments (including paying dividends on, redeeming, repurchasing or retiring our capital stock); - make investments or acquisitions; - sell assets; - engage in transactions with affiliates; and - merge, consolidate or transfer substantially all of our assets. These covenants are subject to a number of important limitations and exceptions. For more details, see the section "Description of New Notes" under the heading "Covenants." Exchange Offer; Registration Rights.... You have the right to exchange the Original Notes for New Notes with substantially identical terms. This exchange offer is intended to satisfy that right. The New Notes will not provide you with any further exchange or registration rights. Resales Without Further Registration... We believe that the New Notes issued in the exchange offer in exchange for Original Notes may be offered for resale, resold and otherwise transferred by you without compliance with the registration and prospectus delivery provisions of the Securities Act, if: - you are acquiring the New Notes issued in the exchange offer in the ordinary course of your business; - you have not engaged in, do not intend to engage in, and have no arrangement or understanding with any person to participate in the distribution of the New Notes issued to you in the exchange offer; and - you are not our "affiliate," as defined under Rule 405 of the Securities Act. Each of the participating broker-dealers that receives New Notes for its own account in exchange for Original Notes that were acquired by it as a result of market-making or other activities must acknowledge that it will deliver a prospectus in connection with the resale of the New Notes. We do not intend to list the New Notes on any securities exchange.
7 SUMMARY CONSOLIDATED HISTORICAL AND UNAUDITED PRO FORMA FINANCIAL DATA The following table presents our summary consolidated historical financial and unaudited pro forma financial data and should be read in conjunction with our financial statements, the notes thereto, "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the "Unaudited Pro Forma Financial Statements" and notes thereto included elsewhere in this prospectus. We have derived the summary historical financial data for the three months ended November 24, 2001 and November 25, 2000 from our unaudited consolidated financial statements, which include all adjustments, consisting only of normal recurring adjustments, which are, in our opinion, necessary for a fair presentation of our results for such periods. The results of operations for the three months ended November 24, 2001 are not necessarily indicative of the results for the full year. The following historical information with respect to American Achievement as of August 25, 2001 and August 26, 2000 and for the fiscal years ended August 25, 2001, August 26, 2000 and August 28, 1999 has been derived from our audited financial statements, which have been audited by Arthur Andersen LLP, independent public accountants, as indicated in their report dated October 19, 2001 included herein. Our results of operations for the fiscal year ended August 25, 2001 are not comparable to the results of operations for the fiscal years ended August 26, 2000 and August 28, 1999 because the information presented for the fiscal year ended August 25, 2001 includes the business operations of Taylor for a full 12 months of operations in contrast to the fiscal year ended August 26, 2000, which includes the business operations of Taylor for only one month, from the date of its acquisition on July 27, 2000 to year end. The summary unaudited pro forma financial data presented below is derived from the unaudited pro forma financial statements set forth herein. The statement of income and other data gives effect to the issuance of the Original Notes, the borrowings under our senior secured credit facility and the application of the proceeds therefrom as if they had occurred at the beginning of the applicable period presented. In addition, the statement of income and other data for the fiscal year ended August 25, 2001 and for the twelve months ended November 24, 2001 gives effect to our acquisition of ECI and related transactions as if they occurred on September 1, 2000 and December 1, 2000, respectively. The summary unaudited pro forma balance sheet data gives effect to the issuance of the Original Notes, the borrowings under our senior secured credit facility and the application of the proceeds as if they had occurred on November 24, 2001. The pro forma data is not necessarily indicative of our results of operations or financial position had these transactions taken place on the dates indicated and is not intended to project our results of operations or financial position for any future period or date. 8
HISTORICAL PRO FORMA ------------------------------------------------------------------ -------------------------- FISCAL FISCAL YEAR ENDED THREE MONTHS ENDED YEAR TWELVE ------------------------------------ --------------------------- ENDED MONTHS ENDED AUGUST 28, AUGUST 26, AUGUST 25, NOVEMBER 25, NOVEMBER 24, AUGUST 25, NOVEMBER 24, 1999 2000 2001(1) 2000 2001(1) 2001(1) 2001(1) ---------- ---------- ---------- ------------ ------------ ---------- ------------- (DOLLARS IN THOUSANDS) STATEMENT OF INCOME DATA: Net sales..................... $168,865 $182,285 $281,515 $ 64,338 $ 77,572 $297,403 $295,104 Cost of sales................. 73,268 80,929 141,946 35,539 35,947 145,045 142,625 -------- -------- -------- -------- -------- -------- -------- Gross profit................ 95,597 101,356 139,569 28,799 41,625 152,358 152,479 Selling, general and administrative expenses..... 85,075 85,559 119,930 29,543 32,402 126,389 124,394 -------- -------- -------- -------- -------- -------- -------- Operating income............ 10,522 15,797 19,639 (744) 9,223 25,969 28,085 Income (loss) before provision for income taxes............ (4,072) 106 (3,207) (6,612) 3,293 (1,639) 35 Gain on extinguishments of debt, net of taxes.......... -- 6,695 -- -- -- -- -- Net income (loss)............. (4,192) 6,468 (3,340) (6,981) 3,173 (1,931) 134 OTHER DATA: EBITDA(2)..................... $ 17,698 $ 24,897 $ 37,225 $ 3,126 $ 13,985 $ 45,528 $ 47,623 Interest expense.............. 14,594 15,691 22,846 5,868 5,930 28,071 28,276 Depreciation and amortization................ 7,176 9,100 17,586 3,870 4,762 18,684 19,105 Capital expenditures.......... 9,785 5,087 7,499 1,932 2,088 7,499 7,655 Ratio of earnings to fixed charges(3).................. -- 1.01x -- -- 1.53x -- 1.00x BALANCE SHEET DATA (AT END OF PERIOD): Total assets.................. $209,845 $326,553 $379,953 $331,553 $379,419 $383,344 Total debt(4)................. 134,410 191,253 223,609 193,200 222,295 233,875 Total stockholders' equity.... 37,830 63,098 71,809 56,024 74,267 68,192
- ------------ (1) Includes the results of operations from ECI, which was acquired on March 30, 2001. ECI sales are highly seasonal with most shipments generally occurring in the first four months of our fiscal year. (2) EBITDA represents earnings before interest expense, taxes, depreciation and amortization and excludes extraordinary gains and losses. EBITDA does not represent net income or cash flows from operations, as these terms are defined under generally accepted accounting principles, and should not be considered as an alternative to net income as an indicator of our operating performance or to cash flows as a measure of liquidity. We have included information concerning EBITDA because we use such information as a method of assessing our cash flow and ability to service debt. The EBITDA measure presented herein is not necessarily comparable to similarly titled measures reported by other companies. (3) For purposes of computing this ratio, earnings consist of income (loss) before taxes on income and fixed charges. Fixed charges consist of interest expense, amortization of deferred debt issuance costs and the portion of rental expense that includes an interest factor. For fiscal years ended August 28, 1999, August 25, 2001, for the three months ended November 25, 2000 and for the pro forma fiscal year ended August 25, 2001, earnings before fixed charges were insufficient to cover fixed charges by approximately $4.1 million, $3.2 million, $6.6 million and $1.6 million, respectively. (4) Excludes bank overdraft. 9 RISK FACTORS IN ADDITION TO THE OTHER INFORMATION SET FORTH IN THIS PROSPECTUS, YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING FACTORS BEFORE TENDERING ORIGINAL NOTES IN EXCHANGE FOR THE NEW NOTES. THE FOLLOWING RISKS COULD MATERIALLY HARM OUR BUSINESS, FINANCIAL CONDITION OR FUTURE RESULTS. IF THAT OCCURS, THE VALUE OF THE NEW NOTES COULD DECLINE, AND YOU COULD LOSE ALL OR PART OF YOUR INVESTMENT. RISKS RELATING TO OUR INDEBTEDNESS OUR SUBSTANTIAL DEBT COULD ADVERSELY AFFECT OUR FINANCIAL HEALTH AND PREVENT US FROM MAKING PAYMENTS ON THE NEW NOTES. We have a substantial amount of debt. As of November 24, 2001, after giving effect to the issuance of the Original Notes, we would have had approximately $233.9 million of debt. Our substantial debt could have important consequences to you. For example, it could: - make it more difficult for us to satisfy our obligations with respect to the New Notes; - make us vulnerable to general adverse economic and industry conditions; - limit our ability to obtain additional financing for future working capital, capital expenditures, raw materials, product development efforts, strategic acquisitions and other general corporate requirements; - expose us to interest rate fluctuations because the interest on the debt under our senior secured credit facility will be at variable rates; - require us to dedicate a substantial portion of our cash flow from operations to payments on our debt, thereby reducing the availability of our cash flow for operations and other purposes; - limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate; and - place us at a competitive disadvantage compared to any competitors that have less debt. OUR ABILITY TO SERVICE OUR DEBT WILL REQUIRE A SIGNIFICANT AMOUNT OF CASH. To service our debt, we will require a significant amount of cash. Our ability to generate cash, make scheduled payments or to refinance our obligations depends on our successful financial and operating performance. We cannot assure you that our operating performance, cash flow and capital resources will be sufficient for payment of our debt in the future. Our financial and operating performance, cash flow and capital resources depend upon prevailing economic conditions and certain financial, business and other factors, many of which are beyond our control. These factors include, among others: - economic and competitive conditions affecting the scholastic products and recognition products markets; - operating difficulties, increased operating costs or pricing pressures we may experience; - increased raw material costs; and - delays in implementing any strategic projects. 10 If our cash flow and capital resources are insufficient to fund our debt service obligations, we may be forced to reduce or delay scheduled expansion and capital expenditures, sell material assets or operations, obtain additional capital or restructure our debt. In the event that we are required to dispose of material assets or operations or restructure our debt to meet our debt service and other obligations, we cannot assure you as to the terms of any such transaction or how soon any such transaction could be completed. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources." WE MAY INCUR ADDITIONAL DEBT. We and our subsidiaries may be able to incur substantial additional indebtedness in the future. The terms of the indenture permit us to incur a substantial amount of additional debt and our new credit facility permits additional borrowings. In particular, on a pro forma basis, as of November 24, 2001, we would have had approximately $22.0 million of additional borrowing capacity under our senior secured credit facility. Accordingly, this additional indebtedness could further exacerbate all the risks described above. THE INDENTURE AND OUR SENIOR SECURED CREDIT FACILITY CONTAIN VARIOUS COVENANTS WHICH LIMIT THE DISCRETION OF OUR MANAGEMENT IN OPERATING OUR BUSINESS AND COULD PREVENT US FROM ENGAGING IN SOME BENEFICIAL ACTIVITIES. The indenture and our senior secured credit facility contain various restrictive covenants that limit our management's discretion in operating our business. In particular, these agreements will limit our ability to, among other things: - incur additional debt or guarantee obligations; - grant liens on assets; - make restricted payments (including paying dividends on, redeeming, repurchasing or retiring our capital stock); - make investments or acquisitions; - sell assets; - engage in transactions with affiliates; and - merge, consolidate or transfer substantially all of our assets. In addition, our senior secured credit facility also requires us to maintain certain financial ratios and limits our ability to make capital expenditures. If we fail to comply with the restrictions of the indenture, our senior secured credit facility or any other subsequent financing agreements, a default may allow the creditors, if the agreements so provide, to accelerate the related debt as well as any other debt to which a cross-acceleration or cross-default provision applies. In addition, the lenders may be able to terminate any commitments they had made to supply us with further funds. 11 RISKS RELATING TO THIS OFFERING THE NEW NOTES ARE UNSECURED AND EFFECTIVELY SUBORDINATED TO OUR SECURED INDEBTEDNESS. The New Notes will not be secured. Our senior secured credit facility is secured by substantially all of our assets and the assets of our subsidiaries. If we become insolvent or are liquidated, or if payment under the senior secured credit facility or any of our other secured debt obligations is accelerated, our lenders would be entitled to exercise the remedies available to a secured lender under applicable law and will have a claim on those assets before the holders of the notes. As a result, the notes are effectively subordinated to our secured indebtedness to the extent of the value of the assets securing that indebtedness and the holders of the notes may recover ratably less than the lenders of our secured debt in the event of our bankruptcy or liquidation. At November 24, 2001, on a pro forma basis, we had $17.0 million of senior secured indebtedness outstanding under our senior secured credit facility, and approximately $22.0 million of additional unborrowed funds available to be borrowed under our senior secured credit facility, subject to compliance with our financial and other covenants and terms of our loan agreements. Accordingly, there can be no assurance that there will be sufficient assets remaining after satisfying our obligations under our senior secured debt to pay amounts due on the New Notes. THE GUARANTEES MAY NOT BE ENFORCEABLE BECAUSE OF FRAUDULENT CONVEYANCE LAWS. The incurrence of the guarantees by the guarantors (including any future guarantees) may be subject to review under U.S. federal bankruptcy law or relevant state fraudulent conveyance laws if a bankruptcy case or lawsuit is commenced by or on behalf of the guarantors' unpaid creditors. Under these laws, if in such a case or lawsuit a court were to find that, at the time such guarantor incurred a guarantee of the notes, such guarantor: - incurred the guarantee of the New Notes with the intent of hindering, delaying or defrauding current or future creditors; - received less than reasonably equivalent value or fair consideration for incurring the guarantee of the New Notes and such guarantor: - was insolvent or was rendered insolvent; - was engaged, or about to engage, in a business or transaction for which its remaining assets constituted unreasonably small capital to carry on its business; or - intended to incur, or believed that it would incur, debts beyond its ability to pay as such debts matured (as all of the foregoing terms are defined in or interpreted under the relevant fraudulent transfer or conveyance statutes); then such court could avoid the guarantee of such guarantor or subordinate the amounts owing under such guarantee to such guarantor's presently existing or future debt or take other actions detrimental to you. It may be asserted that the guarantors incurred their guarantees for our benefit and they incurred the obligations under the guarantees for less than reasonably equivalent value or fair consideration. The measure of insolvency for purposes of the foregoing considerations will vary depending upon the law of jurisdiction that is being applied in any such proceeding. Generally, a company would be considered insolvent if, at the time it incurred the debt or issued the guarantee, either: - the sum of its debts (including contingent liabilities) is greater than its assets, at fair valuation; 12 - the present fair saleable value of its assets is less than the amount required to pay the probable liability on its total existing debts and liabilities (including contingent liabilities) as they become absolute and matured; or - it could not pay its debts as they became due. If a guarantee is avoided as a fraudulent conveyance or found to be unenforceable for any reason, you will not have a claim against that obligor and will only be a creditor of our company or any guarantor whose obligation was not set aside or found to be unenforceable. We believe that each guarantor will receive, directly and indirectly, reasonably equivalent value for the incurrence of its respective guarantee. In addition, on the basis of historical financial information, recent operating history and other factors, we believe that each guarantor, after giving effect to its respective guarantee will not be insolvent, will not have unreasonably small capital for the business in which it is engaged and will not have incurred debts beyond its ability to pay such debts as they mature. We cannot assure you, however, as to what standard a court would apply in making such determinations or that a court would agree with our conclusions in this regard. WE ARE A HOLDING COMPANY WITH VIRTUALLY NO INDEPENDENT OPERATIONS. OUR ABILITY TO REPAY THE NEW NOTES DEPENDS UPON THE PERFORMANCE OF OUR SUBSIDIARIES AND THEIR ABILITY TO MAKE DISTRIBUTIONS TO US. Substantially all of our consolidated operations will be conducted by our subsidiaries and, therefore, our ability to pay our debt, including our obligations under the New Notes, will be dependent upon cash dividends and distributions or other transfers from our subsidiaries. Our subsidiaries' ability to make any payments to us will depend on their indebtedness, business and tax considerations, legal and regulatory restrictions and economic conditions. OUR CONTROLLING STOCKHOLDERS MAY TAKE ACTIONS THAT CONFLICT WITH YOUR INTERESTS. Substantially all of the voting power of our common stock is held by affiliates of Castle Harlan, Inc. Accordingly, they control the power to elect our directors, to appoint new management and to approve all actions requiring the approval of the holders of our common stock including, adopting amendments to our articles of incorporation and approving mergers, acquisitions or sales of all or substantially all of our assets. The directors have the authority, subject to the terms of our debt, to issue additional stock, implement stock repurchase programs, declare dividends and make other such decisions about our capital stock. In addition, the interests of our controlling stockholders could conflict with your interests. For example, if we encounter financial difficulties or are unable to pay our debts as they mature, the interests of our controlling stockholders, as equity holders, might conflict with your interests as a note holder. Our controlling stockholders also may have an interest in pursuing acquisitions, divestitures, financings or other transactions that, in their judgment, could enhance their equity investments, even though such transactions might involve risks to you, as holders of the New Notes. WE MAY BE UNABLE TO PURCHASE THE NEW NOTES UPON A CHANGE OF CONTROL. Upon the occurrence of specified "change of control" events, we will be required to offer to purchase each holder's New Notes at a price of 101% of their principal amount plus accrued and unpaid interest, unless all New Notes have been previously called for redemption. We may not have 13 sufficient financial resources to purchase all of the New Notes that holders tender to us upon a change of control offer. The occurrence of a change of control also could constitute an event of default under our senior secured credit facility and/or any of our future credit agreements. Our bank lenders may also have the right to prohibit any such purchase or redemption, in which event we would be in default on the New Notes. AN ACTIVE TRADING MARKET MAY NOT DEVELOP FOR THE NEW NOTES. The New Notes are new securities for which there currently is no established market, and we cannot be sure if an active trading market will develop for these notes. We do not intend to apply for listing of the New Notes, on any securities exchange or on any automated dealer quotation system. Although we have been informed by the initial purchasers of the Original Notes that they currently intend to make a market in the New Notes, they are not obligated to do so and any market making may be discontinued at any time without notice. The liquidity of, and trading market for the New Notes may also be adversely affected by, among other things: - changes in the overall market for high yield securities; - changes in our financial performance or prospects; - the prospects for companies in our industry generally; - the number of holders of the New Notes; - the interest of securities dealers in making a market for the New Notes; and - prevailing interest rates. If a trading market does not develop or is not maintained, you may experience difficulty in reselling the New Notes, or you may be unable to sell them at all. IF YOU FAIL TO EXCHANGE YOUR ORIGINAL NOTES, YOUR ORIGINAL NOTES WILL REMAIN SUBJECT TO RESTRICTIONS ON TRANSFER. Holders of the Original Notes who do not exchange their Original Notes for New Notes in the exchange offer will continue to be subject to the restrictions on transfer of the Original Notes described in the legend on those notes. The restrictions result from the issuance of the Original Notes in reliance on exemptions from registration under the Securities Act and applicable state securities laws. In general, the Original Notes may not be transferred or resold except in a transaction registered in accordance with, or exempt from, these registration requirements. If we complete this exchange offer, we will not be required to register the Original Notes, and we do not anticipate that we will register the Original Notes, under the Securities Act. Additionally, to the extent that Original Notes are tendered and accepted in the exchange offer, the aggregate principal amount of the Original Notes outstanding will decrease, with a resulting decrease in the liquidity of the market for the Original Notes. MARKET TRADING PRICES FOR THE SECURITIES MAY BE VOLATILE. Historically, the market for non-investment grade debt has been subject to disruptions that have caused substantial volatility in the prices of securities similar to the notes offered hereby. The market 14 for the New Notes, if any, may be subject to similar disruptions. Any such disruptions may adversely affect the value of the New Notes. RISKS RELATED TO OUR BUSINESS IF WE ARE UNABLE TO MAINTAIN OUR BUSINESS AND FURTHER IMPLEMENT OUR BUSINESS STRATEGY, OUR BUSINESS AND FINANCIAL CONDITION COULD BE ADVERSELY AFFECTED. Our ability to meet our debt service and other obligations will depend in significant part on how successfully we are able to maintain our business and further implement our business strategy. There can be no assurance that we will be able to do either of the foregoing or that the anticipated results of our strategy will be realized. The components of our strategy are subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond our control. If we are unable to continue to successfully maintain our business and further implement our business strategy, our long-term growth and profitability may be adversely affected. OUR BUSINESS COULD BE ADVERSELY AFFECTED DUE TO UNFORESEEN ECONOMIC AND POLITICAL CONDITIONS. We believe that growth in the scholastic products market is determined primarily by demographics. In addition, we believe that purchases are driven primarily by the pride and sentiment associated with these products, rather than by the overall state of the economy, which we believe lessens the impact of economic cycles on the scholastic products industry. However, we are not fully insulated against economic downturns and unforeseen economic conditions. A weakening of the U.S. economy, an increase in the unemployment rate, decreased consumer disposable income, decreased consumer confidence in the economy and other economic factors may impact us, which could adversely effect our results of operations and financial condition. In addition, at the present time we are unable to predict what long-term effect, if any, recent political events, including those relating to, or arising out of the World Trade Center tragedy, and their attendant consequences will have on our business. Any of these events or any similar future events could have a material adverse effect on our results of operations and financial condition. WE FACE SIGNIFICANT COMPETITION FROM OTHER NATIONAL COMPETITORS. We face strong competition for most of our principal products. The class ring and yearbook markets are highly concentrated and consist primarily of a few national manufacturers (of which we are one) and, to a significantly lesser extent, small regional competitors. Our recognition and affinity products compete with one national manufacturer, and to a lesser extent with various other companies. There can be no assurances that we will be able to compete successfully with our competitors, some of whom may have greater resources, including financial resources, than we have. See "Business--Competition" for additional information concerning our competitors. THE RAW MATERIALS WE USE TO MANUFACTURE OUR PRODUCTS ARE SUBJECT TO FLUCTUATING PRICES. Numerous raw materials are used in the manufacture of our products. Gold, precious, semi-precious and synthetic stones, paper products and ink comprise the bulk of the raw materials we utilize in our business. Prices of these materials, especially gold, continually fluctuate. Although we engage in hedging operations to moderate the impact of gold price fluctuations, there can be no assurance that we will be able to hedge in the future on similar economic terms. Any material 15 long-term increase in the price of one or more of our raw materials could have an adverse impact on our cost of sales and cannot be hedged. In addition, we may be unable to pass on the increased costs of raw materials to our customers. Our inability to pass on these increased costs could adversely affect our results of operations and financial condition. COMPONENTS OF OUR CLASS RINGS AND SOME OF OUR RECOGNITION AND AFFINITY PRODUCTS ARE PURCHASED FROM A SINGLE SUPPLIER. Virtually all of the synthetic and semi-precious stones used in our rings are purchased from a single supplier. We believe that most of the class ring manufacturers in the United States purchase substantially all of these types of stones from this supplier. If this supplier is unable to supply us with stones, or if this supplier's inventory of stones significantly decreases, this would have an adverse affect on our ability to manufacture rings featuring these stones unless we are able to secure an alternative supply of stones in a timely fashion, which could adversely affect our results of operations and financial condition. If we are required to secure an additional source of these stones, we may not be able to do so on terms as favorable as our current terms, which could adversely affect our results of operations and financial condition. OUR BUSINESS MAY BE IMPACTED IF CERTAIN SOURCES OF NOMINATIONS TO OUR ACHIEVEMENT PUBLICATIONS BECOME UNAVAILABLE. We obtain nominations for our achievement publications from a wide variety of commercial and non-commercial sources, which we continuously update. One company that supplies a significant number of nominees to ECI for inclusion in its WHO'S WHO AMONG AMERICAN HIGH SCHOOL STUDENTS publication has received an inquiry from the U.S. Federal Trade Commission relating to its supplying names and other personal information of high school students to commercial marketers. We have received a request from the FTC for information relating to this matter and are complying with this request. At present, we are unable to ascertain the scope of the FTC's inquiry and what impact, if any, it will have on our ability to obtain names from this supplier in the future or what, if any, other effects it may have on us. We believe that, if we were not able to obtain nominees from this source for any reason, we would be able to obtain the same quantity of nominees from a number of alternate sources, although we cannot assure you that this will be the case. Since nominations have already been compiled for fiscal 2003, the failure to maintain and/or replace such nominations, if necessary, would not be expected to have any impact on our results of operations or financial condition until 2004 at the earliest. OUR BUSINESS MAY SUFFER IF WE DO NOT RETAIN OUR MANAGEMENT. We depend on our senior management and key sales managers. Although we do not anticipate that we will have to replace any of our management team in the near future, the loss of services of any of the members of our senior management or any key sales managers could adversely affect our business until suitable replacements with industry experience can be found. OUR FUTURE OPERATING RESULTS ARE DEPENDENT ON MAINTAINING OUR RELATIONSHIPS WITH OUR INDEPENDENT SALES REPRESENTATIVES. We rely on the efforts and abilities of our network of independent sales representatives to sell our class ring, yearbook and graduation products. Many of our relationships with customers and schools 16 are cultivated and maintained by our sales representatives. If we were to experience a significant loss of our independent sales representatives, it could adversely affect our results of operations and financial condition. OUR BUSINESS MAY FLUCTUATE WITH THE FINANCIAL CONDITION OF OUR RETAIL CUSTOMERS. A significant portion of our jewelry products are sold through major retail chains, primarily mass merchandisers, jewelry store chains, independent jewelry stores and other direct distribution channels. As a result, our business and financial results may be adversely impacted by the financial condition of these retailers, the retail industry generally and the economy overall. In addition, bankruptcy filings by these retailers could adversely affect our results of operations and financial condition. THE SEASONALITY OF OUR SALES MAY HAVE AN ADVERSE EFFECT ON OUR OPERATIONS AND OUR ABILITY TO SERVICE OUR DEBT. Our scholastic products business experiences strong seasonal business swings which correspond to the U.S. school year. Class ring and achievement publication sales are highest during October through December, yearbook sales are highest during May and June and graduation product sales are highest during February through April. This seasonality requires us to manage our cash flows over the course of the year. If our sales were to fall substantially below what we would normally expect during these periods, our annual financial results would be adversely impacted and our ability to service our debt, including our ability to make interest payments on the notes, may also be adversely affected. WE ARE SUBJECT TO ENVIRONMENTAL REGULATIONS THAT COULD IMPOSE SUBSTANTIAL COSTS UPON US AND MAY ADVERSELY AFFECT OUR FINANCIAL RESULTS AND OUR ABILITY TO SERVICE OUR DEBT. We are subject to applicable federal, state and local laws, ordinances and regulations that establish various health and environmental quality standards and provide penalties for violations of those standards. Past and present manufacturing operations subject us to environmental laws that regulate the use, handling and contracting for disposal or recycling of hazardous or toxic substances, the discharge of particles into the air and the discharge of process wastewaters into sewers. We believe that we have adequate environmental insurance and indemnities to sufficiently cover any liabilities that may exist. However, environmental liabilities in excess of our environmental insurance and indemnities could adversely affect our results of operations and financial condition. 17 USE OF PROCEEDS This exchange offer is intended to satisfy our obligations under the registration rights agreement entered into in connection with the offering of the original notes. We will not receive any proceeds from the exchange offer. In consideration for issuing the New Notes, we will receive Original Notes with like original principal amount. The form and terms of the Original Notes are the same as the form and terms of the New Notes, except as otherwise described in this prospectus. The Original Notes surrendered in exchange for New Notes will be retired and canceled and cannot be reissued. Accordingly, the issuance of the New Notes will not result in any increase in our outstanding debt. We received net proceeds totaling approximately $175.5 million from the private placement of the Original Notes. The net proceeds and $1.3 million of proceeds under our $40.0 million senior secured credit facility, were used to: - repay approximately $167.0 million of outstanding indebtedness of American Achievement Corporation and some of its subsidiaries; - make payment of approximately $1.7 million on settlement of certain interest rate swaps; and - pay approximately $8.0 million of related fees and expenses. 18 CAPITALIZATION The following table sets forth our capitalization as of November 24, 2001, on an actual and adjusted basis. Adjusted capitalization reflects the issuance of the Original Notes, borrowings under our senior secured credit facility and the application of the net proceeds therefrom. This table should be read in conjunction with "Use of Proceeds," "Unaudited Pro Forma Financial Statements," "Selected Consolidated Financial Data," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our consolidated financial statements and the notes thereto included elsewhere in this prospectus.
AS OF NOVEMBER 24, 2001 --------------------- ACTUAL ADJUSTED --------- --------- (DOLLARS IN MILLIONS) Existing senior credit facility: Revolving credit facility............................... $ 35.0 $ -- Term loan A............................................. 54.0 -- Term loan B............................................. 64.2 -- Senior secured credit facility.............................. -- 17.0 Original Notes, net of discount............................. -- 175.5 11% senior subordinated notes of subsidiary................. 41.4 41.4 Bridge notes to affiliates.................................. 27.7 -- ------ ------ Total debt.......................................... 222.3 233.9 Redeemable preferred stock of subsidiary.................... 16.0 16.0 Total stockholders' equity.................................. 74.3 68.2 ------ ------ Total capitalization................................ $312.6 $318.1 ====== ======
19 UNAUDITED PRO FORMA FINANCIAL STATEMENTS Each of the unaudited pro forma statements of operations presented below gives effect to the issuance of the Original Notes, the borrowings under our new credit facility and the application of the proceeds therefrom as if they had occurred at the beginning of the applicable period presented. In addition, the unaudited pro forma statements of operations for the fiscal year ended August 25, 2001 and for the twelve months ended November 24, 2001 give effect to our acquisition of ECI and related transactions as if they occurred on September 1, 2000 and December 1, 2000, respectively. The acquisition of ECI has been accounted for using the purchase method of accounting and is therefore reflected in the historical operations of American Achievement from the period of acquisition. The unaudited pro forma balance sheet gives effect to the issuance of the Original Notes, the borrowings under our senior secured credit facility and the application of the proceeds therefrom as if they had occurred on November 24, 2001. The pro forma data is not necessarily indicative of our results of operations or financial position had these transactions taken place on the dates indicated and is not intended to project our results of operations or financial position for any future period or date. The pro forma adjustments are based on preliminary estimates, available information and certain assumptions that we deem appropriate and may be revised as additional information becomes available. The unaudited pro forma financial statements should be read in conjunction with the historical financial statements and notes thereto included elsewhere in this prospectus. 20 UNAUDITED PRO FORMA STATEMENT OF OPERATIONS AND OTHER DATA FOR THE FISCAL YEAR ENDED AUGUST 25, 2001 (DOLLARS IN THOUSANDS)
HISTORICAL STATEMENTS ---------------------------------------- AMERICAN ACHIEVEMENT EDUCATIONAL CORPORATION COMMUNICATIONS INC. PRO FORMA ADJUSTMENTS FISCAL YEAR PERIOD FROM ------------------------- ENDED SEPTEMBER 1, 2000 TO FINANCING AUGUST 25, 2001 MARCH 30, 2001(1) ACQUISITION TRANSACTION PRO FORMA ---------------- --------------------- ----------- ----------- --------- Net sales........................... $281,515 $15,888 $ -- $ -- $297,403 Cost of sales....................... 141,946 3,099 145,045 -------- ------- ------- ------- -------- Gross profit.................... 139,569 12,789 -- -- 152,358 Selling, general and administrative expenses.......................... 119,930 2,924 1,098 (2) -- 126,389 2,145 (3) 292 (4) -------- ------- ------- ------- -------- Operating income................ 19,639 9,865 (3,535) -- 25,969 Interest expense, net............... 22,846 (412) 595 (5) 5,042 (6) 28,071 Other (income) expense.............. -- (463) -- -- (463) -------- ------- ------- ------- -------- Income (loss) before provision for income taxes...................... (3,207) 10,740 (4,130) (5,042) (1,639) Provision (benefit) for income taxes(7).......................... 133 159 -- -- 292 -------- ------- ------- ------- -------- Net income (loss)(8).............. (3,340) 10,581 (4,130) (5,042) (1,931) Preferred dividends(9).............. 1,200 -- -- -- 1,200 -------- ------- ------- ------- -------- Net income (loss) to common stockholders.................... $ (4,540) $10,581 $(4,130) $(5,042) $ (3,131) ======== ======= ======= ======= ======== Other Data: Ratio of earnings to fixed charges(10)....................... -- -- --
See accompanying notes to unaudited pro forma financial statements. 21 UNAUDITED PRO FORMA STATEMENT OF OPERATIONS AND OTHER DATA FOR THE THREE MONTHS ENDED NOVEMBER 24, 2001 (DOLLARS IN THOUSANDS)
HISTORICAL STATEMENT -------------------- AMERICAN ACHIEVEMENT CORPORATION THREE MONTHS ADJUSTMENTS FOR ENDED FINANCING NOVEMBER 24, 2001 TRANSACTION PRO FORMA -------------------- --------------- --------- Net sales......................................... $77,572 $ -- $77,572 Cost of sales..................................... 35,947 -- 35,947 ------- ---------- ------- Gross profit.................................. 41,625 -- 41,625 Selling, general and administrative expenses...... 32,402 -- 32,402 ------- ---------- ------- Operating income.............................. 9,223 -- 9,223 Interest expense, net............................. 5,930 1,205 (6) 7,135 Other (income) expense............................ -- -- -- ------- ---------- ------- Income (loss) before provision for income taxes....................................... 3,293 (1,205) 2,088 Provision (benefit) for income taxes(7)........... 120 -- 120 ------- ---------- ------- Net income (loss)(8).......................... 3,173 (1,205) 1,968 Preferred dividends(9)............................ 300 -- 300 ------- ---------- ------- Net income (loss) to common stockholders...... $ 2,873 $ (1,205) $ 1,668 ======= ========== ======= Other Data: Ratio of earnings to fixed charges(10)............ 1.5x 1.3x
See accompanying notes to unaudited pro forma financial statements 22 UNAUDITED PRO FORMA STATEMENT OF OPERATIONS AND OTHER DATA FOR THE TWELVE MONTHS ENDED NOVEMBER 24, 2001 (DOLLARS IN THOUSANDS)
HISTORICAL STATEMENTS ------------------------------------ AMERICAN ACHIEVEMENT CORPORATION EDUCATIONAL TWELVE MONTHS COMMUNICATIONS INC. PRO FORMA ADJUSTMENTS ENDED PERIOD FROM ------------------------- NOVEMBER 24, DECEMBER 1, 2000 TO FINANCING 2001 MARCH 30, 2001(1) ACQUISITION TRANSACTION PRO FORMA ------------- -------------------- ----------- ----------- --------- Net sales............................ $294,749 $ 355 $ -- $ -- $295,104 Cost of sales........................ 142,354 271 -- -- 142,625 -------- ------- ----- ------- -------- Gross profit..................... 152,395 84 -- -- 152,479 Selling, general and administrative expenses........................... 122,789 1,470 627 (2) -- 124,394 (658)(3) 166 (4) -------- ------- ----- ------- -------- Operating income................. 29,606 (1,386) (135) -- 28,085 Interest expense, net................ 22,908 (207) 340 (5) 5,235 (6) 28,276 Other (income) expense............... -- (226) -- -- (226) -------- ------- ----- ------- -------- Income (loss) before provision for income taxes............... 6,698 (953) (475) (5,235) 35 Provision (benefit) for income taxes(7)........................... (116) 17 -- -- (99) -------- ------- ----- ------- -------- Net income (loss)(8)............. 6,814 (970) (475) (5,235) 134 Preferred dividends(9)............... 1,200 -- -- -- 1,200 -------- ------- ----- ------- -------- Net income (loss) to common stockholders................... $ 5,614 $ (970) $(475) $(5,235) $ (1,066) ======== ======= ===== ======= ======== Other Data: Ratio of earnings to fixed charges(10)........................ 1.3x -- 1.0x
See accompanying notes to unaudited pro forma financial statements. 23 NOTES TO THE UNAUDITED PRO FORMA STATEMENTS OF OPERATIONS (1) We acquired ECI on March 30, 2001. The results of operations for ECI since its acquisition on March 30, 2001 have been included in our historical statements. The historical statement of operations of ECI was conformed to our fiscal year end by accumulating the results of operations from September 1, 2000 to March 30, 2001 with respect to the fiscal year ended August 25, 2001 and from December 1, 2000 to March 30, 2001 with respect to the twelve months ended November 24, 2001. (2) Adjustments to reflect the estimated pro forma depreciation for tangible assets and amortization of intangible assets and goodwill, for the fiscal year ended August 25, 2001 and for the twelve months ended November 24, 2001, based on their estimated fair market values and their respective useful lives.
PERIOD FROM PERIOD FROM SEPTEMBER 1, DECEMBER 1, 2000 TO 2000 TO MARCH 30, 2001 MARCH 30, 2001 --------------- --------------- (DOLLARS IN THOUSANDS) Depreciation................................................ $ 78 $ 44 Amortization of intangible assets and goodwill.............. 1,020 583 ------ ---- Total adjustments..................................... $1,098 $627
For purposes of calculating pro forma amounts, for the fiscal year ended August 25, 2001 and for the last twelve months ended November 24, 2001, (i) the fair value of the property, plant and equipment acquired was $0.4 million, which is being depreciated over three years for equipment, and (ii) the fair value of trademarks and goodwill was $17.2 million and $35.5 million, respectively, which is being amortized over 20 years and 40 years, respectively. The adjustment is for the period from September 1, 2000 to March 30, 2001 or December 1, 2000 to March 30, 2001, as applicable, and represents a pro rata amount of the annual computed depreciation and amortization expense. We anticipate adopting Statement of Financial Accounting Standards No. 142 (SFAS 142) beginning on August 31, 2002, the first day of fiscal 2003. Upon adoption of SFAS 142, trademarks and goodwill will be subject to the revised useful lives which may result in the elimination of a majority of the period amortization expense reflected in these historical statements and these pro forma results. (3) Adjustment to reflect the difference between ECI's accounting policy to expense all direct advertising as incurred versus our accounting policy to defer direct advertising until related revenue is recognized. (4) Represents the incremental increase in annual management fees payable to Castle Harlan resulting from our acquisition of ECI. (5) Represents additional interest expense for bridge financing resulting from our acquisition of ECI based upon borrowings of $8.5 million at an annual interest rate of 12%. (6) To reflect the incremental interest expense associated with the refinancing of our existing credit facilities and the bridge notes with the net proceeds from this offering and our new credit facility, which would have had an assumed outstanding balance of $192.5 million and an assumed weighted average effective interest rate of 11.7% for all historical periods presented. In addition, an incremental $3.9 million of deferred financing costs is assumed to be amortized and included in interest expense over the term of the related debt. (7) For tax reporting purposes, we have U.S. net operating loss carryforwards for all periods presented. Therefore, for purposes of these pro forma statements, no additional federal tax expense has been computed as a result of converting ECI from an S Corporation taxpayer to a C Corporation taxpayer assuming that the net operating loss carryforward held by us eliminates any federal tax provision associated with ECI. (8) Net income (loss) excludes the effect of the non-recurring extraordinary extinguishment charge associated with the repayment of the existing credit facility, the related party bridge loans and the write-off of deferred financing charges. If the extinguishment had taken place on November 24, 2001, the estimated extraordinary loss would have been approximately $6.1 million. Also excluded from net income (loss) is the anticipated effect of terminating the interest rates swaps associated with the existing debt which will be refinanced. If such a termination had taken place on November 24, 2001, approximately $2.6 million would be reclassified out of accumulated comprehensive income and result in a charge to other expense. (9) Dividends have accrued but have not been paid. (10) For purposes of computing this ratio, earnings consist of income (loss) before taxes on income and fixed charges. Fixed charges consist of interest expense, amortization of deferred debt issuance costs and the portion of rental expense that includes an interest factor. For our fiscal year 2001, earnings before fixed charges were insufficient to cover fixed charges by approximately $3.2 million. For ECI for the periods from September 1, 2000 through March 30, 2001 and from December 1, 2000 through March 30, 2001, ECI had no fixed charges as defined above. For the pro forma fiscal year ended August 25, 2001, earnings before fixed charges were insufficient to cover fixed charges by approximately $1.6 million. 24 UNAUDITED PRO FORMA BALANCE SHEET NOVEMBER 24, 2001 (DOLLARS IN THOUSANDS)
AMERICAN ACHIEVEMENT CORPORATION PRO FORMA NOVEMBER 24, 2001 ADJUSTMENTS PRO FORMA -------------------- ----------- --------- ASSETS Current assets: Cash.............................. $ 4,876 $ -- $ 4,876 Receivables....................... 52,598 -- 52,598 Inventories....................... 24,810 -- 24,810 Prepaid expenses and other........ 14,890 -- 14,890 -------- ------- -------- Total current assets.......... 97,174 -- 97,174 Property, plant and equipment......... 64,140 -- 64,140 Trademarks............................ 41,879 -- 41,879 Goodwill.............................. 146,913 -- 146,913 Other assets.......................... 29,313 3,925 (1) 33,238 -------- ------- -------- Total assets.................. $379,419 $ 3,925 $383,344 ======== ======= ======== LIABILITIES & STOCKHOLDERS' EQUITY Current liabilities: Bank overdraft.................... $ 4,587 $ -- $ 4,587 Accounts payable and accrued liabilities..................... 57,468 (1,580)(2) 55,888 Current portion of long-term debt............................ 13,212 (13,212)(3) -- -------- ------- -------- Total current liabilities..... 75,267 (14,792) 60,475 Long-term debt........................ 181,357 52,518 (1)(2)(3) 233,875 Bridge notes to affiliates............ 27,726 (27,726)(3) -- Other long-term liabilities........... 4,852 -- 4,852 -------- ------- -------- Total liabilities............. 289,202 10,000 299,202 Redeemable minority interest in subsidiary.......................... 15,950 -- 15,950 Stockholders' equity: Preferred stock................... 10 -- 10 Common stock...................... 8 -- 8 Additional paid-in capital........ 94,760 -- 94,760 Accumulated other comprehensive loss............................ (3,166) 2,647 (2) (519) Accumulated deficit............... (17,345) (6,075)(1) (26,067) (2,647)(2) -------- ------- -------- Total stockholders' equity.... 74,267 (6,075) 68,192 -------- ------- -------- $379,419 $ 3,925 $383,344 ======== ======= ========
See accompanying notes to unaudited pro forma financial statements. 25 NOTES TO THE UNAUDITED PRO FORMA BALANCE SHEET NOVEMBER 24, 2001 (1) Reflects the following adjustment to deferred financing costs (dollars in thousands): Elimination of deferred financing costs associated with existing credit facility.................................. $(6,075) Addition of estimated deferred financing costs associated with the issuance of the Original Notes and the senior secured credit facility................................... 10,000 ------- Adjustment to deferred financing costs...................... $ 3,925
(2) Reflects adjustment to record the anticipated termination of certain interest rate swaps, representing a notional amount of approximately $37.5 million, associated with existing debt which will be refinanced. If such a termination had taken place on November 24, 2001, approximately $2.6 million would have been reclassified out of accumulated comprehensive income and result in a charge to other expense. The estimated settlement payment on the portion of swaps being terminated would have been approximately $1.6 million based upon management's estimate of fair value. (3) Reflects the issuance of the Original Notes, net of discount, the borrowings under our senior secured credit facility and the application of the net proceeds therefrom. 26 SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA The following table presents selected consolidated historical financial and other data for American Achievement and its predecessors and should be read in conjunction with our financial statements and the notes thereto and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere in this prospectus. We have derived the selected historical financial data for the three months ended November 24, 2001 and November 25, 2000 from our unaudited consolidated financial statements, which include all adjustments, consisting only of normal recurring adjustments, which are, in our opinion, necessary for a fair presentation of our results for such periods. The results of operations for the three months ended November 24, 2001 are not necessarily indicative of the results for the full year. The following information with respect to American Achievement as of August 25, 2001 and August 26, 2000, and for the fiscal years ended August 25, 2001, August 26, 2000 and August 28, 1999 has been derived from our audited financial statements, which have been audited by Arthur Andersen LLP, independent public accountants, as indicated in their report dated October 19, 2001 included herein. The following information as of August 28, 1999, August 29, 1998 and August 30, 1997 and for the fiscal years ended August 29, 1998 and August 30, 1997 has been derived from our audited financial statements, which are not included herein. Our results of operations for the fiscal year ended August 25, 2001 are not comparable to our results of operations for the fiscal years ended August 26, 2000, August 28, 1999, August 29, 1998 and August 30, 1997 because the information presented for the fiscal year ended August 25, 2001 includes the business operations of Taylor for a full 12 months of operations in contrast to the fiscal year ended August 26, 2000, which includes the business operations of Taylor for only one month, from the date of its acquisition on July 27, 2000 to year end. Our results of operations for the fiscal years ended August 25, 2001, August 26, 2000, August 28, 1999 and August 29, 1998 are not comparable to our results of operations for the fiscal year ended August 30, 1997 because we had not been engaged in significant business operations prior to completion of certain acquisitions on December 16, 1996. The results of operations of our predecessors, ArtCarved and Balfour, for the period from September 1, 1996 to December 16, 1996 and for the period from February 26, 1996 to December 16, 1996, respectively, are not comparable to our results of operations for the fiscal years ended August 25, 2001, August 26, 2000, August 28, 1999, August 29, 1998 and August 30, 1997 because the information presented for the predecessor entities does not represent a full 12 months of operations. 27
PREDECESSORS --------------------------- ARTCARVED BALFOUR ------------ ------------ AMERICAN ACHIEVEMENT CORPORATION THE PERIOD THE PERIOD ---------------------------------------------------- FROM FROM SEPTEMBER 1, FEBRUARY 26, HISTORICAL FOR FISCAL YEAR ENDED 1996 TO 1996 TO ---------------------------------------------------- DECEMBER 16, DECEMBER 16, AUG. 30, AUG. 29, AUG. 28, AUG. 26, AUG. 25, 1996(1) 1996(1) 1997(1) 1998 1999 2000 2001(2) ------------ ------------ -------- -------- -------- -------- -------- (DOLLARS IN THOUSANDS) STATEMENT OF INCOME DATA: Net sales............................ $27,897 $60,233 $ 87,600 $151,101 $168,865 $182,285 $281,515 Cost of sales........................ 11,988 29,350 45,189 72,615 73,268 80,929 141,946 ------- ------- -------- -------- -------- -------- -------- Gross profit....................... 15,909 30,883 42,411 78,486 95,597 101,356 139,569 Selling, general and administrative expenses........................... 9,862 31,020 41,481 68,294 85,075 85,559 119,930 ------- ------- -------- -------- -------- -------- -------- Operating income................... 6,047 (137) 930 10,192 10,522 15,797 19,639 Income (loss) before provision for income taxes....................... 3,171 (2,090) (8,867) (4,637) (4,072) 106 (3,207) Gain on extinguishments of debt, net of taxes........................... -- -- -- -- -- 6,695 -- Net income (loss).................... 3,171 (2,153) (8,867) (4,637) (4,192) 6,468 (3,340) Net income (loss) to common stockholders....................... 3,171 (2,153) (9,717) (5,837) (5,392) 5,268 (4,540) OTHER DATA: EBITDA(3)............................ $ 8,039 $ 1,396 $ 5,025 $ 17,093 $ 17,698 $ 24,897 $ 37,225 Interest expense, net................ 2,970 1,953 9,797 14,829 14,594 15,691 22,846 Depreciation and amortization........ 1,992 1,533 4,095 6,901 7,176 9,100 17,586 Capital expenditures................. 195 345 3,493 6,610 9,785 5,087 7,499 Cash flows provided by (used in): Operating activities............... $ 1,498 $(7,264) $ (677) $ (3,749) $ 1,097 $ (9,368) $ 10,256 Investing activities............... $ (195) $ 226 $(173,693) $ (6,552) $ (9,785) $ (4,182) $(57,865) Financing activities............... $ 4,261 $ 6,977 $175,450 $ 9,102 $ 8,464 $ 14,686 $ 48,358 Ratio of earnings to fixed charges(4)......................... -- -- -- 1.0x -- BALANCE SHEET DATA (AT END OF PERIOD): Total assets......................... $86,065 $45,127 $200,869 $203,805 $209,845 $326,553 $379,953 Total debt(5)........................ 80,144 20,201 125,450 134,322 134,410 191,253 223,609 Total stockholders' equity........... (6,464) 11,735 40,453 34,846 37,830 63,098 71,809 AMERICAN ACHIEVEMENT CORPORATION ------------------- HISTORICAL FOR THE THREE MONTHS ENDED ------------------- NOV. 25, NOV. 24, 2000 2001(2) -------- -------- (UNAUDITED) STATEMENT OF INCOME DATA: Net sales............................ $ 64,338 $ 77,572 Cost of sales........................ 35,539 35,947 -------- -------- Gross profit....................... 28,799 41,625 Selling, general and administrative expenses........................... 29,543 32,402 -------- -------- Operating income................... (744) 9,223 Income (loss) before provision for income taxes....................... (6,612) 3,293 Gain on extinguishments of debt, net of taxes........................... -- -- Net income (loss).................... (6,981) 3,173 Net income (loss) to common stockholders....................... (7,281) 2,873 OTHER DATA: EBITDA(3)............................ $ 3,126 $ 13,985 Interest expense, net................ 5,868 5,930 Depreciation and amortization........ 3,870 4,762 Capital expenditures................. 1,932 2,088 Cash flows provided by (used in): Operating activities............... $ 357 $ 5,642 Investing activities............... $ (1,932) $ (2,088) Financing activities............... $ 2,995 $ (1,314) Ratio of earnings to fixed charges(4)......................... -- 1.5x BALANCE SHEET DATA (AT END OF PERIOD): Total assets......................... $331,553 $379,419 Total debt(5)........................ 193,200 222,295 Total stockholders' equity........... 56,024 74,267
- ------------ (1) We completed the acquisitions of ArtCarved and Balfour on December 16, 1996, and prior to such date, engaged in no business activities other than those in connection with the acquisitions and financing thereof. Due to the highly seasonal nature of the class ring business, a significant amount of revenues and income were earned by our predecessors in the three and one-half month period ended December 16, 1996, due to the back to school and pre-holiday season. The financial results of the predecessor entities are not comparable to our results of operations because the periods presented for the predecessor entities are less than a full twelve months of operations. In addition, the results of operations for our predecessors shown above together with our 1997 financial results constitute results for a period greater than 12 months because we only had audited results for Balfour from February 26, 1996 to December 16, 1996. (2) Includes the results of operations from ECI, which was acquired on March 30, 2001. ECI sales are highly seasonal with most shipments generally occurring in the first four months of our fiscal year. (3) EBITDA represents earnings before interest expense, taxes, depreciation and amortization and excludes extraordinary gains and losses. EBITDA does not represent net income or cash flows from operations, as these terms are defined under generally accepted accounting principles, and should not be considered as an alternative to net income as an indicator of our operating performance or to cash flows as a measure of liquidity. We have included information concerning EBITDA because we use such information as a method of assessing our cash flow and ability to service debt. The EBITDA measure presented herein is not necessarily comparable to similarly titled measures reported by other companies. (4) For purposes of computing this ratio, earnings consist of income (loss) before taxes on income and fixed charges. Fixed charges consist of interest expense, amortization of deferred debt issuance costs and the portion of rental expense that includes an interest factor. For fiscal years ended August 30, 1997, August 29, 1998, August 28, 1999, August 25, 2001 and for the three months ended November 25, 2000, earnings before fixed charges were insufficient to cover fixed charges by approximately $8.9 million, $4.6 million, $4.1 million, $3.2 million and $6.6 million, respectively. (5) Excludes bank overdraft. 28 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion of our consolidated financial condition and results of operations should be read in conjunction with the information contained in our consolidated financial statements and the notes thereto. The following discussion includes forward-looking statements that involve certain risks and uncertainties. See "Disclosure Regarding Forward-Looking Statements." OVERVIEW We are one of the leading manufacturers and suppliers of class rings, yearbooks, academic achievement publications and recognition and affinity jewelry in the United States. Our two principal business segments are: scholastic products and recognition and affinity products. The scholastic products segment serves the high school, college and, to a lesser extent, the elementary and junior high school markets and accounted for approximately 88% of our net sales for the twelve months ended November 24, 2001. Our scholastic products segment consists of three principal categories: class rings, yearbooks and graduation products, the last of which includes fine paper products and graduation accessories. The recognition and affinity products segment accounted for approximately 12% of our net sales for the twelve months ended November 24, 2001. This segment provides, among other things, publications that recognize the academic achievement of top students at the high school and college levels, as well as the nation's most inspiring teachers, jewelry commemorating family events such as the birth of a child, fan affinity jewelry and related products and professional sports championship rings such as World Series rings. COMPANY BACKGROUND Commemorative Brands, Inc., or CBI was initially formed by CHPII in March 1996 for the purpose of acquiring substantially all of the ArtCarved operations of CJC Holdings, Inc. and the Balfour operations of L.G. Balfour Company, Inc. These acquisitions were consummated on December 16, 1996. Until such date, CBI engaged in no business activities other than in connection with the completion of the acquisitions and the financing thereof. Our company was formed on June 27, 2000 to serve as a holding company for the CBI operations and future acquisitions. Upon formation, each share of CBI's issued and outstanding common stock was converted into one share of our common stock, and each share of CBI's issued and outstanding series B preferred stock was converted into one share of our series A preferred stock. The original holders of CBI's series A preferred stock continued to hold such shares. We changed our name from Commemorative Brands Holding Corporation to American Achievement Corporation on January 23, 2002. TAYLOR ACQUISITION. On February 11, 2000, CHPIII acquired Taylor, whose primary business is the designing and printing of student yearbooks. On July 27, 2000, we acquired all issued and outstanding shares of Taylor Senior Holding Corp., or TSHC, Taylor's parent, through the issuance of 320,929 shares of our common stock and 393,482 shares of our series A preferred stock. This transaction is sometimes referred to as the Taylor Acquisition. 29 The Taylor Acquisition was accounted for under the purchase method of accounting. Accordingly, our consolidated financial statements for 2000 include the results of operations for consolidated TSHC for the period from July 27, 2000 to August 26, 2000. ECI ACQUISITION. On March 30, 2001, we acquired all of the capital stock of ECI for a purchase price of approximately $58.7 million. This transaction is sometimes referred to as the ECI Acquisition. ECI has been in the academic achievement publication business since 1967 and publishes such well-known titles as, WHO'S WHO AMONG AMERICAN HIGH SCHOOL STUDENTS, THE NATIONAL DEAN'S LIST and WHO'S WHO AMONG AMERICA'S TEACHERS. The ECI Acquisition was accounted for under the purchase method of accounting. As a result of this transaction, our consolidated financial statements for 2001 include the results of operations for ECI for the period from March 30, 2001 to August 25, 2001. RESULTS OF OPERATIONS The following table sets forth selected information from our consolidated statements of operations expressed on an actual basis and as a percentage of net sales.
FISCAL YEAR ENDED --------------------------------------------------------------------------------- AUGUST 28, AUGUST 26, AUGUST 25, 1999 2000 2001 ------------------------- ------------------------- ------------------------- ACTUAL % OF NET SALES ACTUAL % OF NET SALES ACTUAL % OF NET SALES -------- -------------- -------- -------------- -------- -------------- (DOLLARS IN THOUSANDS) Net sales............ $168,865 100.0% $182,285 100.0% $281,515 100.0% Cost of sales........ 73,268 43.4 80,929 44.4 141,946 50.4 -------- ----- -------- ----- -------- ----- Gross profit....... 95,597 56.6 101,356 55.6 139,569 49.6 Selling, general and administrative expenses........... 85,075 50.4 85,559 46.9 119,930 42.6 -------- ----- -------- ----- -------- ----- Operating income (loss)........... 10,522 6.2 15,797 8.7 19,639 7.0 Interest expense, net................ 14,594 8.6 15,691 8.6 22,846 8.1 -------- ----- -------- ----- -------- ----- Income (loss) before provision for income taxes............ (4,072) (2.4) 106 0.1 (3,207) (1.1) Provision for income taxes.............. 120 0.1 333 0.2 133 0.0 Gain on extinguishments of debt, net of income taxes.............. 0 0 6,695 3.7 0 0 -------- ----- -------- ----- -------- ----- Net income (loss).. $ (4,192) (2.5)% $ 6,468 3.5% $ (3,340) (1.2)% ======== ===== ======== ===== ======== ===== THREE MONTHS ENDED ----------------------------------------------------- NOVEMBER 25, NOVEMBER 24, 2000 2001 ------------------------- ------------------------- ACTUAL % OF NET SALES ACTUAL % OF NET SALES -------- -------------- -------- -------------- (DOLLARS IN THOUSANDS) Net sales............ $64,338 100.0% $77,572 100.0% Cost of sales........ 35,539 55.2 35,947 46.3 ------- ----- ------- ----- Gross profit....... 28,799 44.8 41,625 53.7 Selling, general and administrative expenses........... 29,543 45.9 32,402 41.8 ------- ----- ------- ----- Operating income (loss)........... (744) (1.2) 9,223 11.9 Interest expense, net................ 5,868 9.1 5,930 7.6 ------- ----- ------- ----- Income (loss) before provision for income taxes............ (6,612) (10.3) 3,293 4.2 Provision for income taxes.............. 369 0.6 120 0.2 Gain on extinguishments of debt, net of income taxes.............. ------- ----- ------- ----- Net income (loss).. $(6,981) (10.9)% $ 3,173 4.1% ======= ===== ======= =====
30 The following table sets forth sales by business segment expressed on an actual basis and as a percentage of net sales.
FISCAL YEAR ENDED --------------------------------------------------------------------------------- AUGUST 28, AUGUST 26, AUGUST 25, 1999 2000 2001 ------------------------- ------------------------- ------------------------- ACTUAL % OF NET SALES ACTUAL % OF NET SALES ACTUAL % OF NET SALES -------- -------------- -------- -------------- -------- -------------- Scholastic Products.. $150,737 89.3% $163,347 89.6% $258,897 92.0% Recognition and Affinity Products.. 18,128 10.7 18,938 10.4 22,618 8.0 -------- ----- -------- ----- -------- ----- Net sales............ $168,865 100.0% $182,285 100.0% $281,515 100.0% ======== ===== ======== ===== ======== ===== THREE MONTHS ENDED ----------------------------------------------------- NOVEMBER 25, NOVEMBER 24, 2000 2001 ------------------------- ------------------------- ACTUAL % OF NET SALES ACTUAL % OF NET SALES -------- -------------- -------- -------------- Scholastic Products.. $58,389 90.8% $58,386 75.3% Recognition and Affinity Products.. 5,949 9.2 19,186 24.7 ------- ----- ------- ----- Net sales............ $64,338 100.0% $77,572 100.0% ======= ===== ======= =====
THREE MONTHS ENDED NOVEMBER 24, 2001 COMPARED WITH THREE MONTHS ENDED NOVEMBER 25, 2000 NET SALES. Net sales consist of product sales and are net of product returns and promotional discounts. Net sales increased $13.3 million, or 20.7%, to $77.6 million for the three months ended November 24, 2001 from $64.3 million for the three months ended November 25, 2000. This improvement was due primarily to the inclusion of $13.6 million of net sales from ECI, which we acquired on March 30, 2001. The following details the changes in net sales during such periods by business segment. SCHOLASTIC PRODUCTS. Net sales for the three months ended November 24, 2001 and November 25, 2000 were $58.4 million for both periods. The in-school high school segment for both class rings and graduation products increased $3.3 million as a result of increased unit volume and earlier shipments of fall deliveries. The increase was offset by a decline in net sales of college rings of $1.1 million and in net sales of yearbooks of $2.2 million as a result of timing of shipments. RECOGNITION AND AFFINITY PRODUCTS. Net sales increased $13.3 million to $19.2 million for the three months ended November 24, 2001 from $5.9 million for the three months ended November 25, 2000. The increase was primarily the result of $13.6 million of net sales attributable to ECI. The increase was partially offset by a decline in personalized family jewelry and lower sales of affinity and sports jewelry. GROSS PROFIT. Gross margin represents gross profit as a percentage of net sales. Gross margin was 53.7% for the three months ended November 24, 2001, an 8.9 percentage point increase from 44.8% for the three months ended November 25, 2000. The gross margin increase for the three months ended November 24, 2001 was primarily the result of the inclusion of the ECI operations for this period. Excluding ECI, gross margin for the three months ended November 24, 2001 would have been 46.8%, a 2.0 percentage point increase from the three months ended November 25, 2000. The increase, excluding ECI, was primarily the result of a decrease in class ring labor costs, as a result of increased manufacturing efficiencies, and a decrease in class ring material costs, each of which favorably impacted our class rings margin. The higher gross margin in class rings was partially offset by a decrease in gross margin in graduation products as a result of timing of returns. Also, gross margins of personalized family jewelry, affinity and sports jewelry and yearbooks declined as a result of a decrease in the net sales for the three months ended November 24, 2001 as compared to the three months ended November 25, 2000. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and administrative expenses increased $2.9 million, or 9.8%, to $32.4 million for the three months ended November 24, 2001 from $29.5 million for the three months ended November 25, 2000. As a percentage of net sales, however, 31 selling, general and administrative expenses decreased 4.1 percentage points for the three months ended November 24, 2001 compared with the three months ended November 25, 2000. Included in selling, general and administrative expenses are two sub-categories: selling and marketing expenses and general and administrative expenses. Selling and marketing expenses increased $2.6 million to $22.6 million, or 29.1% of net sales, for the three months ended November 24, 2001 from $20.0 million, or 31.1% of net sales, for the three months ended November 25, 2000. Excluding ECI, selling and marketing expenses would have increased to 31.8% of net sales from 31.0% of net sales for the three months ended November 25, 2000. General and administrative expenses for the three months ended November 24, 2001 were $9.8 million, or 12.7% of net sales, as compared to $9.5 million, or 14.8% of net sales, for the three months ended November 25, 2000. Excluding ECI, general and administrative expenses for the three months ended November 24, 2001 would have been 13.6% of net sales, a 1.3 percentage point decrease from the three months ended November 25, 2000. This decrease in general and administrative expenses as a percentage of net sales was a result of synergy savings realized from the Taylor Acquisition. OPERATING INCOME (LOSS). As a result of the foregoing, operating income was $9.2 million, or 11.9% of net sales, for the three months ended November 24, 2001 as compared with an operating loss of $0.7 million, or 1.2% of net sales, for the three months ended November 25, 2000. The scholastic products segment reported operating income of $1.1 million for the three months ended November 24, 2001 as compared with $0.4 million for the three months ended November 25, 2000. The recognition and affinity products segment reported operating income of $8.1 million for the three months ended November 24, 2001 as compared with an operating loss of $1.2 million for the three months ended November 25, 2000. INTEREST EXPENSE, NET. Net interest expense was $5.9 million for the three months ended November 24, 2001 and November 25, 2000. The average debt outstanding for the three months ended November 24, 2001 and the three months ended November 25, 2000 was $225.9 million and $197.0 million, respectively. The weighted average interest rate of debt outstanding for the three months ended November 24, 2001 and the three months ended November 25, 2000 was 10.4% and 11.8%, respectively. PROVISION FOR INCOME TAXES. For the three months ended November 24, 2001 and the three months ended November 25, 2000, we expensed $120,000 and $369,000, respectively, for state income taxes. There is no federal income tax provision or benefit as a valuation reserve exists due to our historical net operating losses. NET INCOME (LOSS). As a result of the foregoing, we reported net income of $3.2 million for the three months ended November 24, 2001 as compared to a net loss of $7.0 million for the three months ended November 25, 2000. YEAR ENDED AUGUST 25, 2001 COMPARED WITH YEAR ENDED AUGUST 26, 2000 NET SALES. Net sales increased $99.2 million, or 54.4%, to $281.5 million in 2001 from $182.3 million in 2000. This improvement was primarily the result of the inclusion of Taylor for a full 12 months of operations in 2001 compared to only one month in 2000. The following details the changes in net sales during such periods by business segment. SCHOLASTIC PRODUCTS. Net sales increased $95.6 million, or 58.5%, to $258.9 million in 2001 from $163.3 million in 2000, primarily as a result of the Taylor Acquisition with yearbook net sales increasing 32 $94.7 million in 2001 as compared to 2000. The net sales for the in-school high school segment in both class rings and graduation products increased $4.9 million as a result of increased prices and unit volume. This increase was offset by a decline in net sales of retail high school class rings of $1.9 million and net sales of college rings of $2.1 million. RECOGNITION AND AFFINITY PRODUCTS. Net sales increased $3.7 million, or 19.4%, to $22.6 million in 2001 from $18.9 million in 2000. The increase was the result of $6.9 million of net sales related to the Taylor Acquisition and $0.7 million of net sales attributable to the ECI Acquisition. This increase was partially offset by lower sales of personalized family jewelry and fan affinity and sports jewelry. GROSS PROFIT. Gross margin was 49.6% in 2001, a 6.0 percentage point decline from 55.6% in 2000. The gross margin decline in 2001 was primarily the result of the inclusion of a full 12 months of Taylor operations compared to only one month in 2000. Excluding Taylor and ECI, the 2001 gross margin would have been 57.4%, or 0.6 percentage points better than 2000. This increase in margin in 2001 (excluding Taylor and ECI) was primarily the result of favorable material costs, a net price increase and favorable operating costs, each of which favorably impacted our class rings margins and increased manufacturing efficiencies for our graduation products. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and administrative expenses increased $34.3 million, or 40.1%, to $119.9 million in 2001 from $85.6 million in 2000. As a percentage of net sales, however, selling, general and administrative expenses decreased 4.3 percentage points in 2001 as compared to 2000. Selling and marketing expenses increased $24.4 million to $82.7 million, or 29.4% of net sales, in 2001 from $58.3 million, or 32.0% of net sales, in 2000. Excluding Taylor and ECI, the selling and marketing expenses would have increased to 33.8% of net sales from 29.4% of net sales as a result of management plans to grow the business. General and administrative expenses increased $9.9 million to $37.2 million, or 13.2% of net sales, in 2001 from $27.3 million, or 14.9% of net sales in 2000. This decrease in general and administrative expenses as a percentage of net sales was a result of synergy savings realized from the Taylor Acquisition and additional efficiency savings as a result of a computer system conversion in July 1999. OPERATING INCOME (LOSS). As a result of the foregoing, operating income was $19.6 million, or 7.0% of net sales, in 2001 as compared with $15.8 million, or 8.7% of net sales, in 2000. The scholastic products segment reported operating income of $21.6 million in 2001 compared with $12.5 million in 2000. The recognition and affinity products segment reported operating loss of $2.0 million in 2001 compared with operating income of $3.3 million in 2000. INTEREST EXPENSE, NET. Net interest expense was $22.8 million in 2001 compared with $15.7 million in 2000. The $7.1 million increase in interest expense was a result of the increase in debt outstanding as a result of the Taylor Acquisition and the ECI Acquisition. The average debt outstanding during 2001 and 2000 was $201.2 million and $138.6 million, respectively. The weighted average interest rate of debt outstanding as of August 25, 2001 and August 26, 2000 was 11.4% and 11.3%, respectively. PROVISION (BENEFIT) FOR INCOME TAXES. For 2001, we expensed $133,000 related to state income taxes. There is no federal income tax benefit as a valuation allowance exists due to our historical net operating losses. For 2000, we recorded a tax provision of $330,000 related to state taxes, net of tax related to the utilization of net operating losses related to the gain on extinguishment of debt, discussed below. GAIN ON EXTINGUISHMENT OF DEBT, NET OF INCOME TAXES. In 1996, our subsidiary CBI issued $90 million in aggregate principal amount of 11% senior subordinated notes, which are sometimes referred to as the 1996 Notes. On July 27, 2000, TP Holding Corp., the direct parent of Taylor, 33 purchased $48.6 million in principal amount of the 1996 Notes at a purchase price equal to 82% of the principal amount of the notes. As a result of the Taylor Acquisition, the transaction was considered an extinguishment of debt and resulted in an extraordinary gain on the sale of the notes of approximately $6.7 million, net of tax. NET INCOME (LOSS). As a result of the foregoing, we reported net loss of $3.3 million in 2001 as compared to net income of $6.5 million in 2000. YEAR ENDED AUGUST 26, 2000 COMPARED WITH YEAR ENDED AUGUST 28, 1999 NET SALES. Net sales increased $13.4 million, or 7.9%, to $182.3 million in 2000 from $168.9 million in 1999. The following details the changes in net sales during such periods by business segment. SCHOLASTIC PRODUCTS. Net sales increased $12.6 million, or 8.4%, to $163.3 million in 2000 from $150.7 million in 1999, primarily as a result of the inclusion of one month of Taylor operations. In addition, net sales increased as a result of price increases in in-school high school class rings and graduation products offset by a slight decrease in retail high school ring net sales and college class ring net sales. RECOGNITION AND AFFINITY PRODUCTS. Net sales increased $0.8 million, or 4.4%, to $18.9 million in 2000 from $18.1 million in 1999, primarily as a result of an increase in volume of personalized family jewelry. GROSS PROFIT. Gross margin was 55.6% in 2000, a 1.0 percentage point decline from 56.6% in 1999. Excluding the result of one month of Taylor operations as a result of the acquisition, gross margin for 2000 would have been 56.6%, the same as 1999. The gross margin in scholastic products in 2000 increased a net 0.4 percentage points as a result of a decrease in raw material costs and an overall net selling price increase, but was partially offset by an increase in labor costs in the Austin area. The higher gross margin in scholastic products was offset by a decrease in gross margins of recognition and affinity product jewelry and graduation products. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and administrative expenses increased $0.5 million, or 0.6%, to $85.6 million in 2000 from $85.1 million in 1999. As a percentage of net sales, selling, general and administrative expenses decreased 3.4 percentage points in fiscal 2000 from 1999. Selling and marketing expenses increased $1.7 million to $58.3 million, or 32.0% of net sales, in 2000 from $56.6 million, or 33.5% of net sales, in 1999. The 1.5 percentage points decline as a percentage of net sales was primarily due to cost reduction initiatives during March 1999 that reduced advertising costs, and other expenses. General and administrative costs in 2000 were $27.3 million, or 14.9% of net sales, as compared to $28.5 million, or 16.8% of net sales, in 1999. The 1.9 percentage points decline in general and administrative expenses as a percentage of net sales was the result of a reduction in information technology expenses as a result of a computer conversion project in July 1999 and a related reduction in consultant fees and the cost reduction initiative during March 1999 that reduced general and administrative costs. OPERATING INCOME (LOSS). As a result of the foregoing, operating income was $15.8 million, or 8.7% of net sales, in 2000 as compared with $10.5 million, or 6.2% of net sales, in 1999. The scholastic products segment reported operating income of $12.5 million in 2000 compared with $7.8 million in 1999. The recognition and affinity products segment reported operating income of $3.3 million in 2000 compared with $2.7 million in 1999. 34 INTEREST EXPENSE, NET. Net interest expense was $15.7 million in 2000 compared with $14.6 million in 1999. The average debt outstanding during 2000 and 1999 was $138.6 million and $142.6 million, respectively. The weighted average interest rate of debt outstanding as of August 26, 2000 and August 28, 1999 was 11.3% and 10.2%, respectively. PROVISION (BENEFIT) FOR INCOME TAXES. For 1999, we expensed $120,000, related to state income taxes. There is no federal income tax benefit as a valuation allowance exists due to our historical net operating losses. For 2000, we recorded a tax provision of $330,000 related to state taxes, net of tax related to the utilization of net operating losses related to the gain on extinguishment of debt discussed below. GAIN ON EXTINGUISHMENTS OF DEBT, NET OF INCOME TAXES. On July 27, 2000, TP Holding Corp. purchased $48.6 million in principal amount of the 1996 Notes, at a purchase price equal to 82% of the principal amount of the notes. As a result of the Taylor Acquisition, the transaction was considered an extinguishment of debt and resulted in an extraordinary gain on the sale of the notes of approximately $6.7 million, net of tax. NET INCOME (LOSS). As a result of the foregoing, net income was $6.5 million in 2000 as compared to net loss of $4.2 million in 1999. LIQUIDITY AND CAPITAL RESOURCES OPERATING ACTIVITIES. Operating activities provided cash of $5.6 million for the three months ended November 24, 2001 as compared with $0.4 million for the three months ended November 25, 2000. The $5.2 million increase in cash provided by operating activities was primarily attributable to an increase in operating cash from net income before depreciation, amortization and other non-cash charges of $11.7 million and a decrease in cash used due to a change in accounts receivable of $6.4 million. These increases were partially offset by a decrease in bank overdraft, accounts payable, accrued expenses and other long-term liabilities of $11.4 million and an increase in inventories, prepaids and other assets of $1.5 million. Operating activities provided cash flows of $10.3 million for fiscal 2001 as compared to $9.4 million of cash used in operations for fiscal 2000. The $19.6 million increase in cash flows from operating activities between the two periods was primarily the result of an increase in operating cash from net income before depreciation, amortization and other non-cash charges of $6.7 million, an increase in bank overdraft, accounts payable, accrued expenses and other long-term liabilities of $22.8 million and an increase in inventories, prepaids and other assets of $3.8 million, partially offset by a decrease in cash due to the change in accounts receivable of $13.7 million. For fiscal 2000, operating activities used cash of $9.4 million as opposed to providing cash of $1.1 million for fiscal 1999. The $10.5 million decrease in cash provided by operating activities between the two periods was due to an increase in cash used due to an increase in inventories, prepaids and other current and long-term assets of $5.3 million and a decrease in bank overdraft, accounts payable, accrued expenses and other long-term liabilities of $19.3 million, partially offset by an increase in net income before depreciation, amortization and other non-cash charges of $5.1 million and a decrease in receivables of $9.0 million. INVESTING ACTIVITIES. Capital expenditures for the three months ended November 24, 2001 and November 25, 2000 were $2.1 million and $1.9 million, respectively. Capital expenditures in 2001, 2000 and 1999 were $7.5 million, $5.1 million and $9.8 million, respectively. The increase in capital expenditures in 2001 of $2.4 million as compared to 2000 was primarily attributable to capital expenditures related to the Taylor Acquisition and the increased tooling cost due to the new BALFOUR IDENTITY high school ring series. Also affecting investing activities in 2001 and 2000 was the Taylor Acquisition, and also affecting investing activities in 2001 was the ECI Acquisition. The majority of the 35 $4.7 million decrease in 2000 from 1999 was attributable to capital expenditures in 1999 related to a computer systems conversion that was completed in July 1999. Our projected capital expenditures for 2002 are expected to be $12.0 million. FINANCING ACTIVITIES. Net cash used in financing activities was $1.3 million for the three months ended November 24, 2001 and net cash provided by financing activities was $3.0 million for the three months ended November 25, 2000. Net cash provided from financing activities in 2001, 2000 and 1999 was $48.4 million, $14.7 million and $8.5 million, respectively. In 2001, in connection with the acquisition of ECI, we entered into the second amended and restated credit agreement whereby we borrowed approximately $27.3 million to fund a portion of the acquisition. In addition, CHPIII provided us with approximately $24.5 million in cash in return for the issuance of a bridge note representing an obligation of $8.5 million and the issuance of series A preferred stock and common stock for $16.0 million. In 2000, as a result of the acquisition of Taylor, Taylor Holding Corp.'s credit agreement was amended and restated to include CBI as a borrower. In addition, incremental borrowings of approximately $62.6 million were made to repay existing debt of CBI and to repurchase a portion of the outstanding 1996 Notes. In June 1999, CHPII contributed cash of $8.4 million in exchange for the issuance of series A preferred shares of CBI. CAPITAL RESOURCES. In connection with the Taylor Acquisition, we amended and restated our original credit agreement as of July 27, 2000 and increased the amounts available under the term loan A, term loan B and the revolving credit facility. On March 31, 2001, in connection with the ECI Acquisition, we entered into a second amendment to the credit agreement to increase the amounts available under the term loan A and term loan B. As of November 24, 2001, we had approximately $54.0 million, $64.2 million and $35.0 million outstanding under our term loan A, term loan B and revolving credit facility, respectively. This facility was repaid with the proceeds that we received from the issuance of the Original Notes and, upon consummation of the issuance of the Original Notes, we simultaneously entered into our new senior secured credit facility. See "Description of Certain Indebtedness--New Facility." In connection with the Taylor Acquisition, CBI signed a gold consignment financing agreement with a bank. Under its gold consignment financing agreement, CBI has the ability to have on consignment the lowest of (i) the dollar value of 27,000 troy ounces of gold, (ii) $10.1 million and (iii) a borrowing base, determined based upon a percentage of gold located at CBI's facilities and other approved locations, as specified by the agreement. Under the terms of the consignment arrangement, CBI does not own the consigned gold nor have risk of loss related to such inventory until the money is received by the bank from CBI in payment for the gold purchased. Accordingly, CBI does not include the values of consigned gold in its inventory or the corresponding liability for financial statement purposes. As a result, as of November 25, 2000 and November 24, 2001, CBI held approximately 18,000 ounces and 23,000 ounces, respectively, of gold valued at $4.9 million and $6.2 million, respectively, on consignment from the bank. As of November 24, 2001, TP Holding Corp. had convertible subordinated bridge promissory notes owing to CHPIII, one of our stockholders, of approximately $18.5 million in the aggregate, including accrued interest, which are due on February 28, 2003. The bridge promissory notes bear interest at 12% per annum, which is added to the outstanding balance of the notes on the last day of each month. We repaid these notes with the proceeds that we received from the issuance of the Original Notes. In addition, as of November 24, 2001, we had a convertible subordinated bridge promissory note due to CHPIII of approximately $9.2 million, including accrued interest, which was due on February 28, 2003. The bridge promissory note bears interest at 12% per annum, which is added to the outstanding balance of the notes on the last day of each month. We repaid this note with the proceeds that we received from the issuance of the Original Notes. 36 On October 19, 2001, CHPIII provided a letter of forbearance to us for the two TP Holding Corp. and the one American Achievement convertible subordinated bridge promissory notes, which are referred to as the Bridge Notes, whereby CHPIII had agreed to: (a) extend the maturity on all outstanding principal and accrued interest on the Bridge Notes to February 28, 2003, (b) extend the maturity date on all additional interest earned on the Bridge Notes from August 26, 2001 through the maturity date to February 28, 2003, (c) maintain the stated interest rate of 12% per annum through maturity, (d) waive any and all prior Events of Defaults, as defined in the Bridge Notes, through October 19, 2001 and (e) remove as an Event of Default, as defined in the Bridge Notes, our nonpayment of principal or interest prior to February 28, 2003. Cash generated from operating activities and availability under our credit facilities have been our principal sources of liquidity. Our liquidity needs arise primarily from debt service, working capital, capital expenditure and general corporate requirements. As of November 24, 2001, on a pro forma basis, we had approximately $22.0 million available under our new senior secured credit facility. We believe that cash flow from our operating activities combined with the availability of funds under our credit facility will be sufficient to support our operations and liquidity requirements for the foreseeable future. NEW ACCOUNTING PRONOUNCEMENTS On July 23, 2001, the Financial Accounting Standards Board released for issuance SFAS No. 141, "Business Combinations," and SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 141 requires that all business combinations subsequent to June 30, 2001, be accounted for under the purchase method of accounting. The pooling-of-interests method is no longer allowed. Under SFAS No. 142, goodwill and intangible assets with indefinite lives are no longer amortized but are reviewed annually (or more frequently if impairment indicators arise) for impairment. Separable intangible assets that are not deemed to have indefinite lives will continue to be amortized over their useful lives (but with no maximum life). SFAS No. 142 is effective for fiscal years beginning after December 15, 2001. We anticipate adopting SFAS No. 142 beginning on September 1, 2002, the first day of fiscal year 2003. We are evaluating the impact of the adoption of these standards and have not yet determined the effect of adoption on our financial position and results of operations. The impact of adoption may be material. Upon adoption of these standards, goodwill amortization will cease and certain intangibles such as workforce in place will be reclassified into goodwill. In August 2001, the Financial Accounting Standards Board released SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." SFAS No. 144 establishes a single accounting model, based upon the framework established in SFAS No. 121, for long-lived assets to be disposed of by sale. SFAS No. 144 broadens the presentation of discontinued operations to include more disposal transactions, and also provides additional implementation guidance for SFAS No. 121. SFAS No. 144 is effective for fiscal years beginning after December 15, 2001. We anticipate adopting SFAS No. 144 effective September 1, 2002, and we do not expect the adoption to have a material impact on our financial position and results of operations. 37 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK INTEREST RATE RISK. We have market risk exposure from changes in interest rates on our variable rate debt. Our policy is to manage interest rate exposure through the use of a combination of fixed and floating rate debt instruments and through the use of interest rate swaps. Our credit agreement and our gold consignment agreement are variable rate facilities. The interest rates under these facilities are based on a floating benchmark rate (such as LIBOR or the Federal Funds rate) plus a fixed spread. We do not use derivatives or other financial instruments for trading purposes. Upon consummation of the issuance of the Original Notes we terminated approximately $1.7 million of our existing swap agreements and interest rate swaps representing a notional amount of approximately $25.0 million remained in place. Our derivatives and other financial instruments subject to interest rate risk consist of long-term debt (including current portion), interest rate swaps and notional amount under the gold consignment agreement. The net market value of these financial instruments at November 24, 2001 represented a net liability of $2.6 million. If the interest rate on our variable debt increased or decreased by 1% in 2001, our interest expense would have changed by approximately $0.9 million for 2001. As of August 25, 2001, August 26, 2000 and August 28, 1999, the fair value of our debt approximated its carrying value and is estimated based on quoted market prices for comparable instruments. SEMI-PRECIOUS STONES. We purchase the majority of our semi-precious stones from a single source supplier in Germany. We believe that all of our major competitors purchase their semi-precious stones from this same supplier. The purchases are payable in Euros. In order to hedge our market risk, we have purchased forward Euro contracts. During 2001, we purchased a total of $2.0 million in forward Deutsche Mark contracts with various maturity dates resulting in a net gain of $0.1 million. For 1999 and 2000, we did not purchase any forward Deutsche Mark contracts. GOLD. We purchase all of our gold requirements from The Bank of Nova Scotia through our revolving credit and gold consignment agreement. We consign the majority of our gold from The Bank of Nova Scotia and pay for gold as the product is shipped to customers and as required by the terms of the gold consignment agreement. As of November 24, 2001, we had hedged our gold requirements for the fiscal year ending August 31, 2002 by covering the majority of our estimated gold requirements through the purchase of gold options. At November 24, 2001, we held options to purchase 43,500 ounces of gold at an average price of $300 per ounce which expire on a monthly basis from December 2001 through July 2002. 38 THE EXCHANGE OFFER GENERAL We sold the Original Notes on February 20, 2002 in a transaction exempt from the registration requirements of the Securities Act. The initial purchasers of the Original Notes subsequently resold them to qualified institutional buyers in reliance on Rule 144A under the Securities Act. In connection with the sale of Original Notes to the initial purchasers, the holders of the Original Notes became entitled to the benefits of an A/B exchange registration rights agreement dated February 20, 2002 among us, some of our subsidiaries and the initial purchasers. Under the registration rights agreement, we became obligated to file a registration statement in connection with an exchange offer within 90 days after the issue date and use our reasonable best efforts to cause the exchange offer registration statement to become effective within 150 days after the issue date. The exchange offer being made by this prospectus, if consummated within the required time periods, will satisfy our obligations under the registration rights agreement. This prospectus, together with the letter of transmittal, is being sent to all beneficial holders known to us. TERMS OF THE EXCHANGE OFFER Upon the terms and subject to the conditions set forth in this prospectus and in the accompanying letter of transmittal, we will accept all Original Notes properly tendered and not withdrawn on or prior to the expiration date. We will issue $1,000 principal amount of new notes in exchange for each $1,000 principal amount of outstanding Original Notes accepted in the exchange offer. Holders may tender some or all of their Original Notes pursuant to the exchange offer. Based on no-action letters issued by the staff of the SEC to third parties, we believe that holders of the New Notes issued in exchange for Original Notes may offer for resale, resell and otherwise transfer the New Notes, other than any holder that is an affiliate of ours within the meaning of Rule 405 under the Securities Act, without compliance with the registration and prospectus delivery provisions of the Securities Act. This is true as long as the New Notes are acquired in the ordinary course of the holder's business, the holder has no arrangement or understanding with any person to participate in the distribution of the New Notes and neither the holder nor any other person is engaging in or intends to engage in a distribution of the New Notes. A broker-dealer that acquired Original Notes directly from us cannot exchange the Original Notes in the exchange offer. Any holder who tenders in the exchange offer for the purpose of participating in a distribution of the New Notes cannot rely on the no-action letters of the staff of the SEC and must comply with the registration and prospectus delivery requirements of the Securities Act in connection with any resale transaction. Each broker-dealer that receives New Notes for its own account in exchange for Original Notes, where Original Notes were acquired by such broker-dealer as a result of market-making or other trading activities, must acknowledge that it will deliver a prospectus in connection with any resale of such New Notes. See "Plan of Distribution" for additional information. We will be deemed to have accepted validly tendered Original Notes when, as and if we have given oral or written notice of the acceptance of those notes to the exchange agent. The exchange agent will act as agent for the tendering holders of Original Notes for the purposes of receiving the New Notes from the issuer and delivering New Notes to those holders. 39 If any tendered Original Notes are not accepted for exchange because of an invalid tender or the occurrence of the conditions set forth under "--Conditions" without waiver by us, certificates for any of those unaccepted Original Notes will be returned, without expense, to the tendering holder of any of those Original Notes as promptly as practicable after the expiration date. Holders of Original Notes who tender in the exchange offer will not be required to pay brokerage commissions or fees or, in accordance with the instructions in the letter of transmittal, transfer taxes with respect to the exchange of original notes, pursuant to the exchange offer. We will pay all charges and expenses, other than taxes applicable to holders in connection with the exchange offer. See "--Fees and Expenses." SHELF REGISTRATION STATEMENT If (1) because of any change in law or in currently prevailing interpretations of the staff of the SEC, we are not permitted to effect the exchange offer; or (2) the exchange offer is not consummated within 180 days of the original issue date of the Original Notes (the "Issue Date"); or (3) in certain circumstances, certain holders of unregistered New Notes so request; or (4) in the case of any holder that participates in the exchange offer, such holder does not receive New Notes on the date of the exchange that may be sold without restriction under state and federal securities laws (other than due solely to the status of such holder as an affiliate of ours or within the meaning of the Securities Act), then in each case, we will (x) promptly deliver to the holders and the Trustee written notice thereof, and (y) at our sole expense, (a) as promptly as practicable, file a shelf registration statement covering resales of the notes (the "Shelf Registration Statement") and (b) use our reasonable best efforts to keep effective the Shelf Registration Statement until the earlier of two years after the Issue Date or such time as all of the applicable notes have been sold thereunder. We will, in the event that a Shelf Registration Statement is filed, provide to each holder copies of the prospectus that is a part of the Shelf Registration Statement, notify each such holder when the Shelf Registration Statement for the notes has become effective and take certain other actions as are required to permit unrestricted resales of the notes. A holder that sells notes pursuant to the Shelf Registration Statement will be required to be named as a selling security holder in the related prospectus and to deliver a prospectus to purchasers, will be subject to certain of the civil liability provisions under the Securities Act in connection with such sales and will be bound by the provisions of the Registration Rights Agreement that are applicable to such a holder (including certain indemnification rights and obligations). We will, if and when we file the shelf registration statement, provide to each holder of the Original Notes copies of the prospectus which is a part of the shelf registration statement, notify each holder when the shelf registration statement has become effective and take other actions as are required to permit unrestricted resales of the Original Notes. A holder that sells Original Notes pursuant to the shelf registration statement generally must be named as a selling security-holder in the related prospectus and must deliver a prospectus to purchasers. A seller will be subject to civil liability provisions under the Securities Act in connection with these sales. A seller of the Original Notes also will be bound by applicable provisions of the registration rights agreement, including indemnification obligations. In addition, each holder of Original Notes must deliver information to be used in connection with the shelf registration statement and provide comments on the shelf registration statement in order to have its Original Notes included in the shelf registration statement and benefit from the provisions regarding any liquidated damages in the registration rights agreement. 40 ADDITIONAL INTEREST If we fail to meet the targets listed in the two paragraphs immediately preceding this paragraph, then additional interest ("Additional Interest") shall become payable in respect of the notes as follows: 1. if (A) a registration statement on an appropriate registration form with respect to the Exchange Offer (the "Exchange Offer Registration Statement") is not filed with the SEC on or prior to 90 days after the Issue Date or (B) notwithstanding that we have consummated or will consummate an exchange offer, we are required to file a Shelf Registration Statement and such Shelf Registration Statement is not filed on or prior to the date required by the Registration Rights Agreement, then commencing on the day after either such required filing date, Additional Interest shall accrue on the principal amount of the notes at a rate of 0.50% per annum for the first 90 days immediately following each such filing date, such Additional Interest rate increasing by an additional 0.50% per annum at the beginning of each subsequent 90-day period; or 2. if (A) the Exchange Offer Registration Statement is not declared effective by the SEC on or prior to 150 days after the Issue Date or (B) notwithstanding that we have consummated or will consummate an Exchange Offer, we are required to file a Shelf Registration Statement and such Shelf Registration Statement is not declared effective by the SEC on or prior to the date required by the Registration Rights Agreement, then, commencing on the day after either such required effective date, Additional Interest shall accrue on the principal amount of the notes at a rate of 0.50% per annum for the first 90 days immediately following such date, such Additional Interest rate increasing by an additional 0.50% per annum at the beginning of each subsequent 90-day period; or 3. if (A) we have not exchanged New Notes for all notes validly tendered in accordance with the terms of the exchange offer on or prior to the 180th day after the Issue Date or (B) if applicable, the Shelf Registration Statement has been declared effective and such Shelf Registration Statement ceases to be effective at any time prior to the second anniversary of the Issue Date (other than after such time as all notes have been disposed of thereunder), then Additional Interest shall accrue on the principal amount of the notes at a rate of 0.50% per annum for the first 90 days commencing on (x) the 181st day after the Issue Date, in the case of (A) above, or (y) the day such Shelf Registration Statement ceases to be effective, in the case of (B) above, such Additional Interest rate increasing by an additional 0.50% per annum at the beginning of each subsequent 90-day period; PROVIDED, HOWEVER, that the Additional Interest rate on the notes may not accrue under more than one of the foregoing clauses (1) - (3) at any one time and at no time shall the aggregate amount of Additional Interest accruing exceed in the aggregate 1.5% per annum; PROVIDED, FURTHER, HOWEVER, that (a) upon the filing of the Exchange Offer Registration Statement or a Shelf Registration Statement (in the case of clause (1) above), (b) upon the effectiveness of the Exchange Offer Registration Statement or a Shelf Registration Statement (in the case of clause (2) above), or (c) upon the exchange of New Notes for all notes tendered (in the case of clause (3) (A) above), or upon the effectiveness of the Shelf Registration Statement which had ceased to remain effective (in the case of clause (3) (B) above), Additional Interest on the notes as a result of such clause (or the relevant subclause thereof), as the case may be, shall cease to accrue. No Additional Interest shall accrue with respect to notes that are not Registrable Notes, as defined in the Registration Rights Agreement. Any amounts of Additional Interest due pursuant to clause (1), (2) or (3) above will be payable in cash on the same original interest payment dates as the notes. The sole remedy available to the holders of the notes will be that described above. 41 EXPIRATION DATE; EXTENSIONS; AMENDMENT The term "expiration date" means 5:00 p.m., New York City time, on, , 2002 unless we extend the exchange offer, in which case the term "expiration date" means the latest date to which the exchange offer is extended. In order to extend the expiration date, we will notify the exchange agent of any extension by oral or written notice and will issue a public announcement of the extension, each prior to 9:00 a.m., New York City time, on the next business day after the previously scheduled expiration date. We reserve the right: (a) to delay accepting of any Original Notes, to extend the exchange offer or to terminate the exchange offer and not accept Original Notes not previously accepted if any of the conditions set forth under "--Conditions" shall have occurred and shall not have been waived by us, if permitted to be waived by us, by giving oral or written notice of the delay, extension or termination to the exchange agent, or (b) to amend the terms of the exchange offer in any manner deemed by us to be advantageous to the holders of the Original Notes. We will notify you as promptly as practicable of any delay in acceptance, extension, termination or amendment. If the exchange offer is amended in a manner determined by us to constitute a material change, we will promptly disclose the amendment in a manner intended to inform the holders of the Original Notes of the amendment. Depending upon the significance of the amendment, we may extend the exchange offer if it otherwise would expire during the extension period. Without limiting the manner in which we may choose to publicly announce any extension, amendment or termination of the exchange offer, we will not be obligated to publish, advertise, or otherwise communicate that announcement, other than by making a timely release to an appropriate news agency. PROCEDURES FOR TENDERING To tender in the exchange offer, a holder must: - complete, sign and date the letter of transmittal, or a facsimile of the letter of transmittal; - have the signatures on the letter of transmittal guaranteed if required by instruction 3 of the letter of transmittal; and - mail or otherwise deliver the letter of transmittal or the facsimile in connection with a book-entry transfer, together with the Original Notes and any other required documents. To be validly tendered, the documents must reach the exchange agent by or before 5:00 p.m. New York City time, on the expiration date. Delivery of the Original Notes may be made by book-entry transfer in accordance with the procedures described below. Confirmation of the book-entry transfer must be received by the exchange agent on or prior to the expiration date. The tender by a holder of Original Notes will constitute an agreement between that holder and us in accordance with the terms and subject to the conditions set forth in this prospectus and in the letter of transmittal. 42 Delivery of all documents must be made to the exchange agent at its address set forth below. Holders may also request their brokers, dealers, commercial banks, trust companies or nominees to effect the tender for those holders. The method of delivery of Original Notes and the letter of transmittal and all other required documents to the exchange agent is at the election and risk of the holders. Instead of delivery by mail, it is recommended that holders use an overnight or hand delivery service. In all cases, sufficient time should be allowed to assure timely delivery to the exchange agent by or before 5:00 p.m. New York City time, on the expiration date. No letter of transmittal or original notes should be sent to us. Only a holder of Original Notes may tender Original Notes in the exchange offer. The term "holder" with respect to the exchange offer means any person in whose name Original Notes are registered on our books or any other person who has obtained a properly completed bond power from the registered holder. Any beneficial holder whose Original Notes are registered in the name of its broker, dealer, commercial bank, trust company or other nominee and who wishes to tender should contact the registered holder promptly and instruct the registered holder to tender on its behalf. If the beneficial holder wishes to tender on its own behalf, it must, prior to completing and executing the letter of transmittal and delivering its Original Notes, either make appropriate arrangements to register ownership of the Original Notes in the holder's name or obtain a properly completed bond power from the registered holder. The transfer of record ownership may take considerable time. Signatures on a letter of transmittal or a notice of withdrawal must be guaranteed by a member firm of a registered national securities exchange or of the National Association of Securities Dealers, Inc. or a commercial bank or trust company having an office or correspondent in the United States referred to as an "eligible institution," unless the Original Notes are tendered: (a) by a registered holder who has not completed the box entitled "Special Issuance Instructions" or "Special Delivery Instructions" on the letter of transmittal; or (b) for the account of an eligible institution. In the event that signatures on a letter of transmittal or a notice of withdrawal, are required to be guaranteed, the guarantee must be by an eligible institution. If the letter of transmittal is signed by a person other than the registered holder of any Original Notes listed therein, those Original Notes must be endorsed or accompanied by appropriate bond powers and a proxy which authorizes that person to tender the Original Notes on behalf of the registered holder, in each case signed as the name of the registered holder or holders appears on the Original Notes. If the letter of transmittal or any original notes or bond powers are signed by trustees, executors, administrators, guardians, attorneys-in-fact, officers of corporations or others acting in a fiduciary or representative capacity, they should indicate that when signing, and unless waived by us, submit evidence satisfactory to us of their authority to act with the letter of transmittal. All questions as to the validity, form, eligibility, including time of receipt, and withdrawal of the tendered Original Notes will be determined by us in our sole discretion. This determination will be final and binding. We reserve the absolute right to reject any Original Notes not properly tendered or any Original Notes our acceptance of which, in the opinion of counsel for us, would be unlawful. We also reserve the right to waive any irregularities or conditions of tender as to particular Original Notes. Our interpretation of the terms and conditions of the exchange offer, including the instructions in the letter of transmittal, will be final and binding on all parties. Unless waived, any defects or irregularities in connection with tenders of Original Notes must be cured within such time as we shall determine. 43 None of us, the exchange agent or any other person shall be under any duty to give notification of defects or irregularities with respect to tenders of Original Notes, nor shall any of them incur any liability for failure to give notification. Tenders of Original Notes will not be deemed to have been made until irregularities have been cured or waived. Any Original Notes received by the exchange agent that are not properly tendered and as to which the defects or irregularities have not been cured or waived will be returned without cost by the exchange agent to the tendering holders of Original Notes, unless otherwise provided in the letter of transmittal, as soon as practicable following the expiration date. In addition, we reserve the right in our sole discretion to: (a) purchase or make offers for any Original Notes that remain outstanding subsequent to the expiration date or, as set forth under "--Conditions," to terminate the exchange offer in accordance with the terms of the registration rights agreements; and (b) to the extent permitted by applicable law, purchase Original Notes in the open market, in privately negotiated transactions or otherwise. The terms of any such purchases or offers may differ from the terms of the exchange offer. By tendering Original Notes pursuant to the exchange offer, each holder will represent to us that, among other things, (a) the New Notes acquired pursuant to the exchange offer are being obtained in the ordinary course of business of such holder; (b) the holder is not engaged in and does not intend to engage in a distribution of the New Notes; (c) the holder has no arrangement or understanding with any person to participate in the distribution of such New Notes; and (d) the holder is not our "affiliate," as defined under Rule 405 of the Securities Act, or, if the holder is an affiliate, will comply with the registration and prospectus delivery requirements of the Securities Act to the extent applicable. BOOK-ENTRY TRANSFER We understand that the exchange agent will make a request promptly after the date of this prospectus to establish accounts with respect to the Original Notes at DTC for the purpose of facilitating the exchange offer, and upon the establishment of those accounts, any financial institution that is a participant in DTC's system may make book-entry delivery of Original Notes by causing DTC to transfer the Original Notes into the exchange agent's account with respect to the Original Notes in accordance with DTC's procedures for transfers. Although delivery of the Original Notes may be effected through book-entry transfer into the exchange agent's account at the depository trust company, an appropriate letter of transmittal properly completed and duly executed with any required signature guarantee, and all other required documents must in each case be transmitted to and received or confirmed by the exchange agent at its address set forth below on or prior to the expiration date, or, if the guaranteed delivery procedures described below are complied with, within the time period provided under the procedures. Delivery of documents to the depository trust company does not constitute delivery to the exchange agent. 44 GUARANTEED DELIVERY PROCEDURES Holders who wish to tender their Original Notes and (a) whose Original Notes are not immediately available or (b) who cannot deliver their Original Notes, the letter of transmittal or any other required documents to the exchange agent on or prior to the expiration date, may effect a tender if: (1) the tender is made through an eligible institution; (2) on or prior to the expiration date, the exchange agent receives from the eligible institution a properly completed and duly executed Notice of Guaranteed Delivery, by facsimile transmission, mail or hand delivery, setting forth the name and address of the holder of the Original Notes, the certificate number or numbers of the Original Notes and the principal amount of Original Notes tendered stating that the tender is being made thereby, and guaranteeing that, within three business days after the expiration date, the letter of transmittal, or facsimile thereof, together with the certificate(s) representing the Original Notes to be tendered in proper form for transfer and any other documents required by the letter of transmittal will be deposited by the eligible institution with the exchange agent; and (3) the properly completed and executed letter of transmittal, or facsimile thereof, together with the certificate(s) representing all tendered Original Notes in proper form for transfer and all other documents required by the letter of transmittal are received by the exchange agent within three business days after the expiration date. WITHDRAWAL OF TENDERS Except as otherwise provided in this prospectus, tenders of Original Notes may be withdrawn at any time by or prior to 5:00 p.m., New York City time, on the expiration date, unless previously accepted for exchange. To withdraw a tender of Original Notes in the exchange offer, a written or facsimile transmission notice of withdrawal must be received by the exchange agent at its address set forth in this prospectus by 5:00 p.m., New York City time, on the expiration date. Any such notice of withdrawal must: (a) specify the name of the depositor, who is the person having deposited the Original Notes to be withdrawn; (b) identify the Original Notes to be withdrawn, including the certificate number or numbers and principal amount of the Original Notes or, in the case of Original Notes transferred by book-entry transfer, the name and number of the account at DTC to be credited; (c) be signed by the holder in the same manner as the original signature on the letter of transmittal by which such Original Notes were tendered, including any required signature guarantees, or be accompanied by documents of transfer sufficient to have the trustee with respect to the Original Notes register the transfer of such Original Notes into the name of the depositor withdrawing the tender; and (d) specify the name in which any such Original Notes are being registered if different from that of the depositor. All questions as to the validity, form and eligibility, including time of receipt, of withdrawal notices will be determined by us, and our determination will be final and binding on all parties. Any Original 45 Notes so withdrawn will be deemed not to have been validly tendered for purposes of the exchange offer and no New Notes will be issued with respect to the Original Notes withdrawn unless the Original Notes so withdrawn are validly retendered. Any Original Notes which have been tendered but which are not accepted for exchange will be returned to their holder without cost to the holder as soon as practicable after withdrawal, rejection of tender or termination of the exchange offer. Properly withdrawn Original Notes may be retendered by following one of the procedures described above under "Procedures for Tendering" at any time on or prior to the expiration date. CONDITIONS Notwithstanding any other term of the exchange offer, we will not be required to accept for exchange, or exchange, any New Notes for any Original Notes, and may terminate or amend the exchange offer on or before the expiration date, if the exchange offer violates any applicable law or interpretation by the staff of the SEC. If we determine in our reasonable discretion that the foregoing condition exists, we may: - refuse to accept any Original Notes and return all tendered Original Notes to the tendering holders; - extend the exchange offer and retain all Original Notes tendered prior to the expiration of the exchange offer, subject, however, to the rights of holders who tendered the Original Notes to withdraw their tendered Original Notes; or - waive such condition, if permissible, with respect to the exchange offer and accept all properly tendered Original Notes which have not been withdrawn. If a waiver constitutes a material change to the exchange offer, we will promptly disclose the waiver by means of a prospectus supplement that will be distributed to the holders, and we will extend the exchange offer as required by applicable law. Pursuant to the registration rights agreement, we are required to use our reasonable best efforts to file with the SEC a shelf registration statement with respect to the Original Notes on or prior to the 90th day after the delivery of a Shelf Notice as required pursuant to Section 2(c) of the Registration Rights Agreement, and thereafter use our reasonable best efforts to cause the shelf registration statement declared effective on or prior to the 150th day after the filing date, if: (a) the exchange offer is not permitted by law or applicable interpretations of the staff of the SEC; or (b) the exchange offer is not consummated within 180 days of the Issue Date; or (c) certain holders of unregistered New Notes so request; or (d) in the case of any holder that participates in the exchange offer, such holder does not receive New Notes on the date of the exchange that may be sold without restriction under state and federal securities Laws (other than due solely to the status of such holder as an affiliate of our) or within the meaning of the Securities Act. EXCHANGE AGENT The Bank of New York has been appointed as exchange agent for the exchange offer, and is also the trustee under the indenture under which the New Notes will be issued. Questions and requests for 46 assistance and requests for additional copies of this prospectus or of the letter of transmittal should be directed to Enrique Lopez, addressed as follows: For information by Telephone: (212) 235-2360 By Mail: By Hand or Overnight Delivery The Bank of New York Service: 15 Broad Street The Bank of New York 16th Floor 15 Broad Street New York, New York 10007 16th Floor Attn: Enrique Lopez, Reorganization New York, New York 10007 Attn: Enrique Lopez, Reorganization
By Facsimile Transmission: (212) 235-2261 (Telephone Confirmation) (212) 235-2360 FEES AND EXPENSES We have agreed to bear the expenses of the exchange offer pursuant to the registration rights agreement. We have not retained any dealer-manager in connection with the exchange offer and will not make any payments to brokers, dealers or others soliciting acceptances of the exchange offer. We, however, will pay the exchange agent reasonable and customary fees for its services and will reimburse it for its reasonable out-of-pocket expenses in connection with providing the services. The cash expenses to be incurred in connection with the exchange offer will be paid by us. These expenses include fees and expenses of The Bank of New York as exchange agent, accounting and legal fees and printing costs, among others. ACCOUNTING TREATMENT The New Notes will be recorded at the same carrying value as the Original Notes as reflected in our accounting records on the date of exchange. Accordingly, no gain or loss for accounting purposes will be recognized by us. The expenses of the exchange offer and the unamortized expenses related to the issuance of the Original Notes will be amortized over the term of the New Notes. CONSEQUENCES OF FAILURE TO EXCHANGE Holders of Original Notes who are eligible to participate in the exchange offer but who do not tender their Original Notes will not have any further registration rights, and their Original Notes will continue to be restricted for transfer. Accordingly, such Original Notes may be resold only: (a) to us, upon redemption of the Original Notes or otherwise; (b) so long as the Original Notes are eligible for resale pursuant to Rule 144A under the Securities Act to a person inside the United States whom the seller reasonably believes is a 47 qualified institutional buyer within the meaning of Rule 144A, in a transaction meeting the requirements of Rule 144A; (c) in accordance with Rule 144 under the Securities Act, or under another exemption from the registration requirements of the Securities Act, and based upon an opinion of counsel reasonably acceptable to us; (d) outside the United States to a foreign person in a transaction meeting the requirements of Rule 904 under the Securities Act; or (e) under an effective registration statement under the Securities Act; in each case in accordance with any applicable securities laws of any state of the United States. REGULATORY APPROVALS We do not believe that the receipt of any material federal or state regulatory approval will be necessary in connection with the exchange offer, other than the effectiveness of the exchange offer registration statement under the Securities Act. OTHER Participation in the exchange offer is voluntary and holders of Original Notes should carefully consider whether to accept the terms and condition of this exchange offer. Holders of the Original Notes are urged to consult their financial and tax advisors in making their own decisions on what action to take with respect to the exchange offer. 48 BUSINESS We are one of the leading manufacturers and suppliers of class rings, yearbooks, graduation products, achievement publications and recognition and affinity jewelry in the United States. Many of our products have leading market share positions that have been developed over many years and are marketed under well-known names such as ARTCARVED, BALFOUR, KEEPSAKE, TAYLOR PUBLISHING and WHO'S WHO AMONG AMERICAN HIGH SCHOOL STUDENTS. Our BALFOUR and ARTCARVED brand names, for example, have been identified with class rings for over 85 years and 45 years, respectively, and the TAYLOR PUBLISHING brand name has been identified with yearbooks for over 60 years. We distribute our products through various distribution channels, including directly to students and through college bookstores, mass merchandisers, approximately 5,100 independent jewelry stores, many of the nation's largest jewelry chains and direct marketing. Based on the number of units sold, we believe that we were the second largest provider of class rings and yearbooks in the United States during the 2000-2001 school year, accounting for approximately 35% and 20% of these markets, respectively. Our two principal business segments are: scholastic products and recognition and affinity products. Our scholastic products segment consists of three principal categories: class rings, yearbooks and graduation products, the last of which includes fine paper products and graduation accessories. The scholastic products segment serves the high school, college and, to a lesser extent, the elementary and junior high school markets and accounted for approximately 88% of our net sales for the twelve months ended November 24, 2001. Recognition and affinity products include publications that recognize the academic achievement of top students at the high school and college levels, as well as the nation's most inspiring teachers, jewelry commemorating family events such as the birth of a child, fan affinity jewelry and related products and professional sports championship rings such as World Series, Super Bowl and Stanley Cup rings. This segment accounted for approximately 12% of our net sales for the twelve months ended November 24, 2001. In December 1996, Castle Harlan, Inc., a leading New York private equity firm, through its affiliate CHPII, acquired substantially all of the ArtCarved operations of CJC Holdings, Inc. and the Balfour operations of the L.G. Balfour Company, Inc. Castle Harlan's investment strategy has focused on building a scale competitor in the commemorative products industry that can provide an extensive range of products and services. On June 27, 2000, American Achievement Corporation was formed as a holding company for the CBI operations and future acquisitions. Since then, we have made several strategic acquisitions and have introduced new, complementary products across our brands and product lines to enhance our market position. The following table summarizes our history and acquisition rationale.
COMPANY ACQUIRED ESTABLISHED ACQUISITION RATIONALE - -------------------- -------------- ----------- ---------------------------------------- Balfour December 1996 1913 Established a leading position in the high school and college class ring markets and in the graduation products market, with a network of independent sales representatives who market products directly in-school. Also combined with ArtCarved to provide more efficient ring manufacturing.
49
COMPANY ACQUIRED ESTABLISHED ACQUISITION RATIONALE - -------------------- -------------- ----------- ---------------------------------------- ArtCarved December 1996 1954 Combined with Balfour to further strengthen our position in both the high school and college class rings markets and to expand distribution to retail stores and college bookstores. Taylor Publishing July 2000 1939 Established a leadership position as a publisher of scholastic yearbooks. The addition of Taylor created a scale competitor to better capitalize on opportunities in the scholastic products market and provided us with significant cross-selling opportunities. ECI March 2001 1967 Established a leadership position in the achievement directory publishing niche. The acquisition also expanded our product offerings and further solidified our position in the high school and college commemorative products markets.
BUSINESS SEGMENTS The following table presents an overview of our business segments, including the pro forma net sales of each segment for the twelve months ended November 24, 2001.
PRIMARY PRODUCT LINES AND PRINCIPAL BUSINESS SEGMENT BRAND NAMES - ---------------------------------- ------------------------------------------------------------ SCHOLASTIC PRODUCTS ($258.9 MILLION) Class rings ARTCARVED, BALFOUR, CLASS RINGS, LTD., KEYSTONE, MASTER CLASS RINGS and R. JOHNS high school class rings; ARTCARVED and BALFOUR college class rings. Yearbooks Taylor Publishing yearbooks primarily for high schools and colleges. Graduation products ARTCARVED (college) and BALFOUR (high school) graduation products, including customized graduation announcements, name cards, thank-you stationery, diplomas, mini-diplomas, certificates, appreciation gifts, diploma covers and other fine paper accessory items. RECOGNITION AND AFFINITY PRODUCTS ($36.2 MILLION) Achievement publications WHO'S WHO AMONG AMERICAN HIGH SCHOOL STUDENTS, THE NATIONAL DEAN'S LIST and WHO'S WHO AMONG AMERICA'S TEACHERS. Jewelry CELEBRATIONS OF LIFE, GENERATIONS OF LOVE and NAMESAKE personalized family jewelry; BALFOUR SPORTS licensed consumer sports jewelry; and BALFOUR and KEEPSAKE professional sports championship jewelry.
50 INDUSTRY OVERVIEW SCHOLASTIC PRODUCTS We estimate that the size of the U.S. scholastic products market, excluding photography, was approximately $1.3 billion during the 2000-2001 school year. The principal products in this category are class rings and yearbooks, which we estimate each accounted for approximately $500 million of the total. The remainder consisted of graduation products. Due to the pride and sentiment associated with products such as class rings, yearbooks, graduation products and achievement publications, we believe that revenues are driven more by demographics than by the overall state of the economy, thus lessening the impact of economic cycles. Over the next several years, the U.S. Department of Education projects that the number of U.S. high school graduates and college graduates earning bachelor degrees will increase at a 1.32% and 1.43% compounded annual growth, respectively, between 2000 and 2008. We believe that these projections reflect a stable and strong foundation for continued growth in the scholastic products industry.
BACHELOR DEGREES HIGH SCHOOL GRADUATES GRANTED YEAR (IN THOUSANDS) (IN THOUSANDS) ---- ---------------------------- ---------------------------- 1997* 2,612 1,173 1998* 2,704 1,184 1999* 2,762 1,186 2000 2,820 1,193 2001 2,820 1,209 2002 2,849 1,227 2003 2,916 1,241 2004 2,921 1,251 2005 2,929 1,275 2006 2,986 1,294 2007 3,054 1,318 2008 3,132 1,337
Source: U.S. Department of Education. * Actual Scholastic products are differentiated primarily on the basis of quality, marketing, customer service and, to a lesser extent, price. We estimate that approximately 75% of high school class rings are sold directly to students through independent sales representatives and 25% are sold through retail channels. College class rings are sold primarily through college bookstores. Yearbooks are sold directly to schools under exclusive annual contracts through independent sales representatives. Graduation products are sold primarily through independent sales representatives directly to the student at the high school level and through bookstores at the college level. RECOGNITION AND AFFINITY PRODUCTS The market for recognition and affinity products is highly fragmented and consists of several niche markets. Each niche tends to be served by a small number of companies. However, we have limited 51 competition for our student achievement publications, with only a small percentage of the high school and college students included in our publications also included in the publications of our competitors. We have no direct competition in the teacher recognition market. We believe that the market for recognition and affinity products is large and capable of significant growth since most of the niches have a large target audience that is underserved. The manner in which recognition and affinity products are differentiated varies by product category, although quality and selection generally are the two most important factors. The channels through which recognition products are sold also vary. Achievement publications are sold directly to consumers. Other recognition and affinity products are sold through numerous channels, including retail stores, direct marketing and catalogs. COMPETITIVE STRENGTHS LEADING MARKET POSITIONS AND WELL-KNOWN BRAND NAMES. We have a leading market position in each of our principal business lines. These market positions have been built over many years of delivering quality products and service to our customers. Based on the number of units sold, we believe that we were the second largest provider of class rings and yearbooks in the United States during the 2000-2001 school year, accounting for approximately 35% and 20% of these markets, respectively. In addition, we believe that we had the leading market share in college class ring sales and in high school class ring sales through retail stores during the 2000-2001 school year. We also have the leading market positions in achievement publications for the high school, college and teacher markets. We market our products under well-established brand and trade names including ARTCARVED, BALFOUR, KEEPSAKE, TAYLOR PUBLISHING and WHO'S WHO AMONG AMERICAN HIGH SCHOOL STUDENTS. Our BALFOUR and ARTCARVED brand names, for example, have been identified with class rings for over 85 years and 45 years, respectively, and the TAYLOR PUBLISHING brand name has been identified with yearbooks for over 60 years. POSITIVE INDUSTRY FUNDAMENTALS. The market for scholastic products historically has been characterized by stable revenues and cash flows. Due to the pride and sentiment associated with products such as class rings, yearbooks, graduation products and achievement publications, we believe that revenues are driven more by demographics than by the overall state of the economy, thus lessening the impact of economic cycles. The U.S. Department of Education has projected that the number of high school graduates and college graduates earning bachelor degrees will increase at a 1.32% and a 1.43% compound annual growth rate, respectively, between 2000 and 2008. We believe that these projections reflect a strong foundation for continued growth in the scholastic products industry and in the market for our achievement publications. WELL-ESTABLISHED INFRASTRUCTURE. Our business consists of an extensive network of sale representatives and a large base of fixed assets that would be very costly and time consuming for potential new competitors to replicate. We currently have over 210 independent high school class ring sales representatives and over 200 independent yearbook sales representatives with average tenures at our company of approximately 14 and 11 years, respectively. The longevity of our sales force has resulted in strong relationships with many of our customers and has contributed to average school retention rates in excess of 94% for high school class rings and 92% for yearbooks over the past five years. The manufacturing of class and specialty rings and publishing of yearbooks require a significant initial capital investment. We also maintain an inventory of more than 650,000 unique proprietary ring dies. In addition, both products involve a high degree of specialized skills, such as the creation of new ring dies and yearbook layout. LEADING RETAIL STORE PRESENCE. We believe that our strong retail distribution network for class rings distinguishes us from our competitors. We believe that we are the leading supplier of high school class rings to retail stores, where we estimate that 25% of all high school rings are sold. This distribution 52 channel enables us to sell high school rings to students at schools where our representatives do not have relationships and to students who did not purchase a class ring at school. We distribute our class rings through many types of retail stores, including mass merchandisers, approximately 5,100 independent jewelry stores and many of the nation's largest jewelry chains. For example, we sell our high school class rings in Wal-Mart, Zales, Gordons and Sterling. EXPERIENCED MANAGEMENT TEAM WITH A PROVEN TRACK RECORD. We are led by an experienced management team and our seven senior officers have an average of 20 years of industry experience. Our management team has a proven track record of achieving growth, developing and maintaining strong relationships with our customers, enhancing the appeal of our products, successfully integrating business lines and introducing new products to the market. BUSINESS STRATEGY We seek to increase revenues and operating efficiencies in both our scholastic and recognition and affinity products segments. We intend to achieve these objectives through the following strategies: LEVERAGE WELL-KNOWN BRANDS. Leveraging our well-established brands, such as ARTCARVED, BALFOUR and TAYLOR PUBLISHING, allows us to grow revenues and introduce complementary products. For example, we introduced a private label cap and gown product line under the BALFOUR name and now provide a full array of graduation products for the high school and college markets. In addition, we intend to further grow our CELEBRATIONS OF LIFE family jewelry brands by increasing the number of retail outlets that we sell through and through product extensions, including baby rings for scrapbooks, grandmother's products such as pins and pendants, daughter's rings and sweet 16 remembrances. CAPITALIZE ON CROSS-SELLING OPPORTUNITIES. The recent successful integration of our ring and yearbook operations provides us with significant cross-selling opportunities. During the 2000-2001 school year, the first full school year since our purchase of Taylor, out of our approximately 6,500 school class ring accounts and 7,400 school yearbook accounts, in each instance excluding colleges, only 24% of these schools purchased both class rings and yearbooks from us. We intend to leverage the strong, long-standing relationships that many of our independent sales representatives have cultivated with their accounts to sell additional products that we offer. To implement the foregoing, we offer our sales representatives incentives to promote the cross-selling of our products in certain markets. We also have begun to train our independent sales representatives to sell multiple product lines. EXPAND MARKET PENETRATION. The recent successful integration of our ring and yearbook operations has also positioned us to expand into new geographic markets and increase in-school penetration. We intend to increase marketing of our products in the western and midwestern United States and recently added two new field sales managers in these targeted regions. We also intend to take steps to increase unit sales of both rings and yearbooks at schools that we service. During the 2000-2001 school year, we estimate that only slightly more than half of high school students purchased class rings and only slightly more than a half of high school students purchased yearbooks. Additionally, we are providing greater marketing support to our sales representatives, as well as to students and faculty involved in yearbook sales. ENHANCE CORE PRODUCTS. We frequently enhance our product lines to increase sales. For example, during the 2000-2001 school year, we successfully launched our BALFOUR IDENTITY high school class ring line, which is based on contemporary teen tastes and preferences. We believe that the new designs will enhance buy rates due to their more appealing styles. We also have invested in new technologies that we believe will enable us to increase ring customization and personalization. In addition, we have enhanced our state-of-the-art color printing press equipment and related technology for yearbook 53 publishing. We believe that as a result of our on-going efforts to enhance the quality of our color yearbooks, schools will add more color pages, which will increase both the average contract amount and student buy rates. INCREASE OPERATING EFFICIENCIES. We have implemented several initiatives designed to increase our operating efficiencies. For example, as a result of the recent integration of our ring and yearbook operations, we have eliminated overlapping jobs. In addition, the state-of-the-art tooling we use in our new BALFOUR IDENTITY high school class ring line has significantly reduced unit production costs. Our installation of new color printing press equipment and related technology has significantly shortened the production run cycles for our yearbooks, which reduces printing costs. We intend to implement additional initiatives to further enhance our profitability and operating efficiencies. For example, we intend to increase the utilization of our new El Paso, Texas ring manufacturing facility, allowing us to benefit from lower labor costs, and to further utilize automation and digital imaging in yearbook production. CAPITALIZE ON ON-LINE OPPORTUNITIES. We believe that the Internet provides a strong complement to our existing distribution channels. For example, we are developing a website that will enable a student to design a class ring, view it virtually and print his or her order form, which can then be taken to an on-campus sales representative or retailer to complete the purchase. We also are using the Internet to facilitate yearbook preparation and intend to introduce on-line page layout submission and proofing during 2002 for full implementation during 2003. We recently launched an enhanced website that enables students to purchase copies of our achievement publications and related products electronically. During 2002, this website will enable students and teacher nominees for these publications to also submit biographies on-line. OUR SCHOLASTIC PRODUCTS Our scholastic products business segment consists of three principal categories: class rings, yearbooks and graduation products, the last of which includes fine paper products and graduation accessories. Sales in this segment were approximately $258.9 million and comprised approximately 88% of our total net sales for the twelve months ended November 24, 2001. 54 The table below sets forth our principal product lines, brand names and the distribution channels through which we sell our scholastic products.
PRODUCT LINES TRADE OR BRAND NAMES DISTRIBUTION CHANNEL - ------------------------------------- ---------------------------- --------------------------------------- High school class rings BALFOUR In-school ARTCARVED Independent jewelry stores and jewelry chains R. JOHNS Independent jewelry stores KEYSTONE Mass merchandisers CLASS RINGS, LTD. MASTER CLASS RINGS College class rings ARTCARVED College bookstores and direct marketing BALFOUR College bookstores Yearbooks TAYLOR PUBLISHING In-school High school graduation products BALFOUR In-school College graduation products ARTCARVED College bookstores
CLASS RINGS We manufacture class rings for high school and college students and, to a lesser extent, junior high school students. Our rings are marketed under some of the most recognized and respected brand names in the industry, including ARTCARVED and BALFOUR. Our BALFOUR and ARTCARVED brand names have been identified with class rings for over 85 years and 45 years, respectively. During the 2000-2001 school year, we sold rings to students at over 8,100 schools. Based on the number of units sold, we believe that we accounted for approximately 35% of the U.S. class ring market during the 2000-2001 school year. In addition, we believe that we had the leading market share in class ring sales through retail stores during that same period. Our school retention rates have averaged in excess of 94% for high school class rings over the past five years. We offer over 100 styles of class rings ranging from traditional to highly stylish and fashion-oriented designs. Our rings are available in precious or nonprecious metal, and most are available with a choice of more than 50 different types of stones in each of several different cuts. More than 400 designs can be placed on or under the stone and emblems of over 100 activities, sports or achievements can appear on the side of the rings in addition to school crests and mascots. As a result, students can design highly personal rings to commemorate their school experience. We manufacture all of our rings at our own facilities. Each ring is custom manufactured. We maintain an inventory of more than 650,000 unique proprietary ring dies that would be expensive and time consuming to replicate. The production process takes approximately two to eight weeks from receipt of the customer's order to product shipment, depending on style, option selections and new or custom tooling requirements. We use computer aided design software to quickly and cost-effectively convert new custom designs such as school seals, mascots and activities into physical tools capable of producing rings in large quantities. Rings are produced only upon the receipt of a customer order and deposit, which reduces credit risk. 55 During the 2000-2001 school year, we launched our BALFOUR IDENTITY high school class ring line, which is based on contemporary teen tastes and preferences. We believe that the new designs will enhance buy rates due to their more appealing styles. This product line also incorporates state-of-the-art tooling into its production platform, which has significantly reduced unit production costs. The same design strategy and production process will be extended to the remainder of the BALFOUR product line, with the new designs and tooling available during the 2002-2003 school year. YEARBOOKS We sell yearbooks primarily to high school and college students. We also publish specialty military yearbooks, which, for example, commemorate naval tours of duty at sea, and yearbooks for elementary and junior high schools. Our TAYLOR PUBLISHING brand name was established in 1939. During the 2000-2001 school year, we sold yearbooks to over 7,800 schools and believe that we were the second largest yearbook publisher in the United States, with a 20% market share based on unit volume. Our school retention rates have averaged in excess of 92% for yearbooks over the past five years. We publish yearbooks in our own facilities and believe that we are a technology leader. Since 1994, we have made significant expenditures on proprietary software and hardware to support electronic platforms for creating, transmitting and managing yearbook production and printing technology. We also offer full production support for off-the-shelf desktop publishing tools such as PageMaker and Quark Xpress. In addition, by upgrading our printing presses and further integrating digital technology to, among other things, increase the speed of output and automatically monitor ink flow and control color composition, we have been able to enhance print quality and reduce manufacturing costs. The foregoing technology upgrades and enhancements have enabled us to reduce manufacturing costs and improve on-time delivery, performance and print quality. GRADUATION PRODUCTS Graduation products include graduation announcements, name cards, thank-you stationery, memory books, diplomas, certificates, appreciation gifts, diploma covers and other graduation accessory items. All of our graduation products are customized in varying degrees and therefore have short production runs and cycles. Graduation products are manufactured in our own facilities. These products are offered through our independent high school class ring sales representatives and college bookstores. We have enhanced our college website to enable students to order graduation products on-line. We believe that, over time, this will increase sales of our graduation products and, in particular, personalized college announcements that include a student's name, degree and other personal information in the text of the announcement. We also intend to leverage our existing channels of distribution and, in particular, our presence in college bookstores to further increase sales of these products. OUR RECOGNITION AND AFFINITY PRODUCTS Our recognition and affinity products segment consists of two categories: achievement publications and recognition and affinity jewelry. The latter category includes affinity group, personalized family, fan affinity sports and professional sports championship jewelry. Sales in this segment were approximately $36.2 million and comprised approximately 12% of our total net sales for the twelve months ended 56 November 24, 2001. The table below sets forth the principal product lines and brand names of our recognition and affinity products and the distribution channels through which we sell these products.
PRODUCT LINES TRADE OR BRAND NAMES DISTRIBUTION CHANNEL - ----------------------------- ----------------------------- ----------------------------- Achievement Publications WHO'S WHO AMONG AMERICAN HIGH Direct marketing SCHOOL STUDENTS THE NATIONAL DEAN'S LIST WHO'S WHO AMONG AMERICA'S TEACHERS Recognition and Affinity Jewelry: Affinity Group Jewelry KEEPSAKE Direct to consumer R. JOHNS Personalized Family CELEBRATIONS OF LIFE Independent jewelry stores Jewelry GENERATIONS OF LOVE Jewelry chains and mass merchandisers NAMESAKE Mass merchandisers Fan Affinity Sports BALFOUR SPORTS Mass merchandisers and Jewelry catalog Professional Sports BALFOUR Direct to consumer Championship Jewelry
ACHIEVEMENT PUBLICATIONS We produce the following three publications: WHO'S WHO AMONG AMERICAN HIGH SCHOOL STUDENTS. First published in 1967, this annual publication is the largest academic achievement publication in the nation honoring high-achieving high school students. The 1st edition recognized approximately 13,000 students from approximately 4,000 high schools. The current 35th edition honors approximately 800,000 students, from freshmen through seniors. Nominees represent over 22,000 of the nation's approximately 24,000 private, public and parochial high schools on the basis of academic achievement, class rank and extracurricular activities. We believe that more than 4,500,000 students are eligible for inclusion in this publication; thus we believe that we can substantially increase sales of this publication by further increasing the number of students nominated. THE NATIONAL DEAN'S LIST. First published in 1978, this publication is the largest annual recognition publication in the nation honoring exceptional college students. The 1st edition recognized over 25,000 students from approximately 700 universities. The most recent 24th edition honors over 142,000 high-achieving students, representing in excess of 2,500 colleges and universities throughout the country. WHO'S WHO AMONG AMERICA'S TEACHERS. First published in 1990, this publication pays tribute to the country's most inspiring teachers, who are nominated for inclusion by current and/or former WHO'S WHO high school students. Published every two years, the 6th edition was published in 2000 and honored approximately 130,000 outstanding teachers. 57 We also sell related products consisting of plaques, certificates, gold and silver pins and charms, mugs, key chains, paper weights and other items commemorating a student's or teacher's inclusion in one of our achievement publications. The primary customer base for our achievement publications and related products are the students and teachers featured in the publications and their families. We have an established network of nomination sources built up over 30 years, which we utilize to recognize students and teachers from the majority of the private, public and parochial schools in the country. Students and teachers are not required to purchase publications in order to be included in them. Printing for our achievement publications is outsourced. RECOGNITION AND AFFINITY JEWELRY Recognition and affinity jewelry consist of the following product categories: AFFINITY GROUP JEWELRY. Affinity group jewelry is sold to members of large groups and associations. The jewelry features emblems of, and otherwise commemorates accomplishments within, the group. For example, through our KEEPSAKE brand, we provide affinity ring awards to the American Bowling Congress, including championship rings for bowlers who score a perfect "300" game. Through our R. JOHNS brand, we provide affinity rings to military personnel that recognize affiliation and completion of specialized training ranging from basic training to special forces. PERSONALIZED FAMILY JEWELRY. Our family jewelry products include rings commemorating children's birth dates, which feature a level of personalization, such as birthstones and names, that distinguishes us from our competitors. We also sell other personalized jewelry, such as necklaces and bracelets, designed to commemorate family events. We began our family jewelry business in 1997 and, by 2001, we had grown this business to $8.5 million in net sales by leveraging these products through our existing channels of distribution. We intend to further grow our family jewelry business through product extensions, including baby rings for scrapbooks, grandmother's products such as pins and pendants, daughter's rings and sweet 16 memorabilia. We provide personalized family jewelry under our CELEBRATIONS OF LIFE, GENERATIONS OF LOVE and NAMESAKE brand names. FAN AFFINITY SPORTS JEWELRY. We produce a variety of team affiliation products. For example, we manufacture BALFOUR SPORTS brand National Football League rings, pendants, paperweights and coasters containing team logos, mascots and colors. PROFESSIONAL SPORTS CHAMPIONSHIP JEWELRY. We provide sports championship jewelry for professional teams and their members and have, for example, produced several Super Bowl, Stanley Cup and World Series rings, including the rings for the New York Yankees in 1996, 1998, 1999 and 2000 and the 1999 Japanese World Series ring. We provide sports championship jewelry under the BALFOUR brand. SALES AND MARKETING We have over 210 independent high school class ring and over 200 independent yearbook sales representatives, with an average tenure with our company of approximately 14 and 11 years, respectively. We also have approximately 30 employee college class ring sales representatives. We compensate our independent sales representatives on a commission basis. Most independent sales representatives also receive a monthly draw against commissions earned, although all expenses, including promotional materials made available by us, are the responsibility of the representative. Our independent sales representatives operate under exclusive contracts that contain non-compete arrangements. Employee sales representatives receive a combination of salary and sales incentives. 58 We support our sales efforts through a variety of marketing programs that include a combination of national, regional and local advertising, local co-op advertising and direct marketing. In-school representatives are provided with a variety of promotional materials and posters, customizable CD-ROMs, as well as product literature and samples. In addition, we assist schools in their internal yearbook selling process by promoting entrepreneurial behavior among students. For example, we provide students and faculty with marketing tools and tips such as posters, banners, cafeteria tray liners, parent mailers and postcard reminders, all of which are focused on promoting the sale of yearbooks to the student body. In our retail channels, we feature in-store displays, counter cards and other marketing materials. At the high school level, class rings are sold through two channels of distribution: independent sales representatives selling directly to students and retail stores, which include independent jewelry stores, jewelry chains and mass merchandisers. We believe that we are the leading supplier of high school class rings to retail stores. Our high school class rings are sold by approximately 5,100 independent jewelry retailers, many of the nation's largest jewelry chains, including Zales, Gordons and Sterling, and by mass merchants, including Wal-Mart. We sell different brands and product lines in retail stores in order to enable them to differentiate their products from those sold by us directly to students at schools. College rings are sold primarily through college bookstores by our employee sales representatives. Historically, college bookstores have been owned and operated by academic institutions. Over the last several years, an increasing number of college bookstores have been leased to contract operators, primarily Barnes and Noble Bookstores and Follett Corporation, with which we have longstanding relationships. Decisions to include our products are made on a national basis by the bookstore operator. Yearbooks are produced under an exclusive contract with the school for the academic year and are sold directly to students by the school. Under the terms of the contract, the school agrees to pay us a base price for producing the yearbook, which often increases before production as a result of enhancements to the contract specifications, such as additional color pages. Our independent yearbook sales representatives call on schools at the contract stage. Thereafter, they coordinate between the school's yearbook committee and our customer service and plant employees to ensure satisfactory quality and service. We have introduced the SmartPay-Registered Trademark- program, which is aimed at increasing in-school penetration by drawing parents directly into the yearbook purchase process. In partnership with the school, we provide yearbook "expression of interest" cards that include home contact information. The SmartPay service then invoices the parents for the yearbook, as well as making them aware of upgrade options. In schools utilizing the SmartPay program for the first time, unit sales have averaged 23% higher than in the prior year. Graduation products are sold directly to students through our network of independent high school class ring sales representatives and in college bookstores through our network of employee sales representatives. Achievement publications are sold through direct marketing. Other affinity products are sold through a variety of distribution channels, including team stores, catalogs and retail stores. These products are sold to wholesale accounts through employee sales representatives. INTELLECTUAL PROPERTY We have trademarks, patents and licenses that in the aggregate are an important part of our business. However, we do not regard our business as being materially dependent upon any single trademark, patent or license. We have trademark registration applications pending and intend to pursue other registrations as appropriate to establish and preserve our intellectual property rights. 59 We market our products under many trademarked brand names, some of which rank among the most recognized and respected names in the jewelry industry, including ARTCARVED, BALFOUR, CELEBRATIONS OF LIFE, CLASS RINGS, LTD., GENERATIONS OF LOVE, KEEPSAKE, KEYSTONE, MASTER CLASS RINGS, NAMESAKE, R. JOHNS, TAYLOR PUBLISHING, THE NATIONAL DEAN'S LIST, WHO'S WHO AMONG AMERICAN HIGH SCHOOL STUDENTS and WHO'S WHO AMONG AMERICA'S TEACHERS. Generally, a trademark registration will remain in effect so long as the trademark remains in use by the registered holder and any required renewals are obtained. We also own several patented ring designs and business process patents. We also have non-exclusive licensing arrangements with the National Football League and numerous colleges and universities under which we have the right to use the name and other trademarks and logos of the NFL and those schools, respectively, on our products. COMPETITION SCHOLASTIC PRODUCTS The class ring, yearbook and graduation products markets are highly concentrated and consist primarily of a few large national participants. We believe that we are the second largest competitor nationally within the scholastic products market (excluding photography). Our principal competitors in the class ring market are Jostens, Inc. and Herff Jones, Inc., which compete with us nationally across all product lines. Our principal competitors in the yearbook and graduation products markets are Jostens, Herff Jones and Walsworth Publishing Company. All competitors in the scholastic products industry compete primarily on the basis of quality, marketing, customer service and, to a lesser extent, price. RECOGNITION AND AFFINITY PRODUCTS We have limited competition for our student achievement publications, with only a small percentage of the high school and college students included in our publications also included in the publications of our competitors. We have no direct competition in the teacher recognition market. Our affinity group jewelry products, fan affinity sports jewelry and products and our professional sports championship jewelry businesses compete with Jostens and, to a lesser extent, with various other companies. Our personalized family jewelry products compete mainly with A&A Jewelry and Bogarz. We compete with our affinity product competitors primarily on the basis of quality, marketing, customer service and price. RAW MATERIALS AND SUPPLIERS The principal raw materials that we purchase are gold and precious, semi-precious and synthetic stones that we use in our class rings and jewelry and paper and ink that we use in our yearbook and graduation products. Our raw materials are purchased from multiple suppliers at market prices, except that we purchase substantially all synthetic and semi-precious stones from a single supplier with multiple plants, which we believe supplies substantially all of these types of stones to almost all of the class ring manufacturers in the United States. Synthetic and semi-precious stones are available from other suppliers, although switching to these suppliers may result in additional costs to us. We periodically reset our prices to reflect the then current prices of raw materials. In addition, we engage in various hedging transactions to reduce the effects of fluctuations in the price of gold. We also purchase paper on an annual commitment basis so that we are able to estimate yearbook costs with greater certainty. 60 ENVIRONMENTAL We are subject to federal, state and local laws, ordinances and regulations that establish various health and environmental quality standards and provide penalties for violations of those standards. Past and present manufacturing operations subject us to environmental laws that regulate the use, handling and contracting for disposal or recycling of hazardous or toxic substances, the discharge of particles into the air and the discharge of process wastewaters into sewers. We believe that we are in substantial compliance with all material environmental laws. We believe that we have adequate environmental insurance and indemnities to sufficiently cover any liabilities that may exist and that we do not currently face environmental liabilities that could have a material adverse affect on our financial position or results of operations. BACKLOG Because of the nature of our business, generally all orders (except yearbooks) are filled between two and eight weeks after the time of placement. We enter into yearbook contracts several months prior to delivery. While the base prices of the yearbooks are established at the time of order, the final prices of the yearbooks are often not calculated at that time since the content of the books generally change prior to publication. We estimate (calculated on the basis of the base price of yearbooks ordered) that the backlog of orders related to continuing operations was approximately $94.5 million as of both November 24, 2001 and November 25, 2000, almost exclusively related to student yearbooks. We expect substantially all of the backlog at November 24, 2001 to be filled in fiscal 2002. EMPLOYEES Given the seasonality of our business, the number of our employees fluctuates throughout the year, with the number typically being highest during September through May and lowest from June to August. As of November 24, 2001, we employed approximately 2,525 employees. Most of our hourly employees are members of two separate unions, although we believe that a significant number of these employees are non-dues paying members. Most of our hourly production and maintenance employees located at our Austin, Texas manufacturing facility are represented by the United Brotherhood of Carpenters and Joiners Union, and most of our hourly employees located at our Dallas, Texas manufacturing facility are represented by the Graphics Communication International Union. In June 2000, our subsidiary CBI and the United Brotherhood of Carpenters and Joiners Union signed a collective bargaining agreement that will expire in June 2003, and, in July 2000 and February 2001, Taylor and the Graphics Communication International Union signed two collective bargaining agreements that will expire in July 2003 and February 2004, respectively. We have not experienced any significant work stoppages or employee-related problems that had a material impact on our operations. We consider our relationship with our employees to be good. 61 PROPERTIES Our principal headquarters and executive offices are located at 7211 Circle S Road, Austin, Texas. We believe that our facilities are suitable for their purpose and adequate to support our business. The extent of utilization of individual facilities varies due to the seasonal nature of our business. A summary of the physical properties that we use are as follows:
APPROXIMATE LOCATION TYPE OF PROPERTY LEASED OR OWNED SQUARE FOOTAGE - --------------------- ---------------------------------- ----------------- ----------------- Austin, TX Corporate Headquarters Owned 20,000 Austin, TX Jewelry Manufacturing Owned 99,830 Austin, TX Warehouse Facility Leased 30,600 Dallas, TX Administration (Yearbooks), Owned 320,000 Pre-Press, Press, Bindery El Paso, TX Pre-Press Leased 52,000 El Paso, TX Jewelry Manufacturing Leased 20,000 San Angelo, TX Pre-Press, Press, Bindery Leased 78,000 Malverne, PA Press, Bindery Leased 128,000 Louisville, KY Fine Paper Manufacturing Leased 100,000 Lake Forest, IL Administration (Achievement Leased 9,000 Publications) Juarez, Mexico Jewelry Manufacturing Leased 20,000
LEGAL PROCEEDINGS There are no material pending legal proceedings to which we are a party or to which any of our properties are subject. We monitor all claims, and we accrue for those, if any, which management believes are probable of payment. 62 MANAGEMENT The following table sets forth certain information regarding our directors, executive officers and other senior officers. Our directors are elected by the shareholders at our annual meeting and serve until the next annual meeting and the election and qualification of their successors.
NAME AGE POSITION - ---- -------- ------------------------------------------ David G. Fiore............................ 54 President, Chief Executive Officer and Director Sherice P. Bench.......................... 42 Chief Financial Officer, Secretary and Treasurer Charlyn A. Cook........................... 53 Senior Vice President--Jewelry Operations Parke H. Davis............................ 59 Senior Vice President--Retail Sales Donald A. Percenti........................ 45 Senior Vice President--Scholastic Products Timothy Wright............................ 42 Vice President--Print Operations John K. Castle............................ 61 Director David B. Pittaway......................... 50 Director William M. Pruellage...................... 28 Director Edward O. Vetter.......................... 81 Director Zane Tankel............................... 59 Director
DAVID G. FIORE became our President and Chief Executive Officer and a director in July 2000, and since August 1999 had been President and CEO and a director of CBI, one of our subsidiaries. Prior to joining CBI, Mr. Fiore was the President and CEO of Reliant Building Products, Inc. from 1992 to 1998. From 1988 to 1992, Mr. Fiore was the President and CEO of CalTex Industries, Inc. and held the positions of Division General Manager, VP of Manufacturing and Director of Marketing with the Atlas Powder Company from 1977 to 1988. SHERICE P. BENCH has been our Secretary and Treasurer since July 2000 and became our Chief Financial Officer in August 2001. From July 2000 to August 2001, Ms. Bench was CFO of CBI. From 1996 to July 2000, Ms. Bench was Vice President and Controller of CBI. From 1989 to 1996, Ms. Bench was Vice President Finance and Controller for CJC Holdings, the prior owner of ArtCarved. Prior to that time, Ms. Bench was employed as an audit manager with Arthur Andersen LLP. CHARLYN A. COOK has been Senior Vice President--Jewelry Operations since 1999. From 1996 to 1999, she was Vice President--Manufacturing of CBI and from 1989 to 1996, Ms. Cook was President--Manufacturing Division of CJC Holdings. From 1989 to 1990, Ms. Cook was Vice President--Operations of CJC Holdings. PARKE H. DAVIS has been Senior Vice President--Retail Sales since 1996. From 1991 to 1996, Mr. Davis was President--Class Ring Division of CJC Holdings and before that served as its President--Keepsake Division and its President--College Class Ring Sales. DONALD A. PERCENTI has been Senior Vice President--Scholastic Products since 1996. From 1991 to 1996, he was Vice President--Sales and Marketing of L.G. Balfour Company. From 1977 to 1991, Mr. Percenti was employed by Balfour in various capacities. TIMOTHY WRIGHT has been Vice President--Print Operations since January 2000. From 1996 to 1999, Mr. Wright was President of Graphic Solutions Network, a graphics and printing industry consulting company. From 1997 to 1999, he was President of Sterling Impressions and from 1987 to 1996 he was Director Operations/Technology for Pinnacle Brands. 63 JOHN K. CASTLE has been director of our company since its formation in July 2000 and was a director of CBI from 1996 to 2000. Mr. Castle is Chairman of Castle Harlan, Inc. Mr. Castle is also Chairman and CEO of Branford Castle, Inc., an investment holding company. Immediately prior to forming Branford Castle in 1986, Mr. Castle was President and Chief Executive Officer and a Director of Donaldson, Lufkin, & Jenrette, Inc., one of the nation's leading investment banking firms. Mr. Castle is a Director of Sealed Air Corporation, Morton's Restaurant Group, Inc., Statia Terminals Group, N.V. and various private equity companies, and is a member of the corporation of the Massachusetts Institute of Technology. Mr. Castle is also a Trustee of New York Presbyterian Hospital and the Whitehead Institute of Biomedical Research. Previously, he was a Trustee of New York Medical College serving as Chairman of its Board for 11 years. Formerly, Mr. Castle was a Director of the Equitable Life Assurance Society of the United States. He was educated at the Massachusetts Institute of Technology (S.B.) and the Harvard Business School (M.B.A. with High Distinction and Baker Scholar). DAVID B. PITTAWAY has been a director of our company since its formation in July 2000. Mr. Pittaway was President and Treasurer of CBI from its formation in April 1996 through December 1996, and was a director of CBI from April 1996 to July 2000. Mr. Pittaway is a Senior Managing Director of Castle Harlan, Inc. and has been with the firm since its inception in 1987. Prior to joining Castle Harlan, Mr. Pittaway was Vice President, Strategic Planning, and Assistant to the President of Donaldson, Lufkin, & Jenrette, Inc. Before joining DLJ, he was a management consultant in strategic planning with Bain & Company in Boston, Mass., and previously was an attorney with Morgan, Lewis & Bockius, specializing in labor relations. He is also a Board Member of McCormick & Schmick's Holding Corp., Morton's Restaurant Group, Inc., Statia Terminals Group N.V., Charlie Brown's, Inc., Luther's Bar-B-Q, Inc., Wilshire Restaurant Group, Inc., Equipment Support Services, Inc., and Branford Chain, Inc. He is a graduate of the University of Kansas (B.A. with Highest Distinction), and has both an M.B.A. with High Distinction (Baker Scholar) and a J.D. from Harvard University. WILLIAM M. PRUELLAGE has been a director since our formation in July 2000. Mr. Pruellage is a Vice President of Castle Harlan, Inc. Mr. Pruellage is also a board member of Universal Compression, Inc., Verdugt Holdings, LLC. and Wilshire Restaurant Group, Inc. Prior to joining Castle Harlan in 1997, Mr. Pruellage worked in the Mergers and Acquisition group of Merrill Lynch & Co., where he assisted clients in strategic planning and corporate mergers. Mr. Pruellage graduated Summa Cum Laude from Georgetown University with a double major in Finance and International Business. He is a member of the Beta Gamma Sigma Honor Society. EDWARD O. VETTER has been a director since our formation in July 2000 and was a director of CBI from 1998 to that time. Mr. Vetter has served as President of Edward O. Vetter & Associates, a private management consulting firm, since 1978 and has also served as a Trustee for the Massachusetts Institute of Technology since 1979 and is currently a Trustee Emeritus. Mr. Vetter also served from 1987 to 1991 as Chairman of the Texas Department of Commerce, from 1979 to 1983 as Energy Advisor to the Governor of Texas and from 1976 to 1977 as U.S. Undersecretary of Commerce, serving as Director of Overseas Private Investment Corporation and as Director of Pension Benefit Guaranty Corporation. From 1952 through 1975, Mr. Vetter was employed by Texas Instruments, Inc. in various capacities and was the Executive Vice President and Chief Financial Officer at the time of his retirement in 1975. Formerly, Mr. Vetter has served as a director of AMR Corporation, Champion International, Cabot Corporation, Dual Drilling Company, Bell Packaging Company, and Pioneer Natural Resources. 64 ZANE TANKEL has been a director since our formation in July 2000 and has been Chairman and CEO of Zane Tankel Consultants, Inc., a sales company, since 1990. In 1994, Mr. Tankel formed Apple Metro, Inc., a restaurant franchisee for the New York metropolitan area, for the franchisor Applebee's Neighborhood Grill & Bar. He is presently Chairman and CEO of Apple Metro, Inc. In 1995-1996, Mr. Tankel was elected Chairman of the Federal Law Enforcement Foundation, which aids the federal law enforcement community in times of crisis and is currently on the board. He was the past chapter chairman of the Young Presidents' Organization and is presently a member of the Board of Directors of the Metropolitan Presidents Organization, the New York chapter of the World Presidents Organization, with which Mr. Tankel has been associated since 1977. Mr. Tankel served on the Board of Directors of Beverly Hills Securities Corporation, a wholesale mortgage brokerage company, until its sale in January 1994. EXECUTIVE COMPENSATION The following table sets forth the cash and non-cash compensation for 2001, 2000 and 1999 awarded to or earned by the chief executive officer and the four other most highly compensated executive officers. SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION LONG-TERM COMPENSATION ------------------------------------- ---------------------------------- RESTRICTED SECURITIES OTHER ANNUAL STOCK UNDERLYING LTIP NAME AND PRINCIPAL POSITION YEAR(1) SALARY BONUS COMPENSATION(2) AWARDS OPTIONS(#) PAYOUTS - --------------------------- -------- -------- -------- --------------- ---------- ---------- -------- David G. Fiore................... 2001 $311,695 $160,000 -- 0 12,524 $ 0 President and Chief Executive 2000 $312,753 $300,000 -- 0 0 $ 0 Officer 1999 $126,923 $ 0 -- 0 0 $ 0 Sherice P. Bench................. 2001 $164,076 $ 39,600 -- 0 0 $ 0 Chief Financial Officer 2000 $155,769 $ 99,000 -- 0 1,034 $ 0 1999 $139,616 $ 37,500 -- 0 0 $ 0 Charlyn A. Cook.................. 2001 $175,538 $ 43,750 -- 0 0 $ 0 Senior Vice President--Jewelry 2000 $174,615 $113,225 -- 0 2,757 $ 0 Operations 1999 $165,000 $ 41,250 -- 0 0 $ 0 Parke H. Davis................... 2001 $184,000 $ 33,300 -- 0 0 $ 0 Senior Vice President--Retail 2000 $180,981 $109,210 -- 0 2,757 $ 0 Sales 1999 $163,000 $ 61,750 -- 0 0 $ 0 Donald A. Percenti............... 2001 $197,808 $ 54,000 -- 0 0 $ 0 Senior Vice President--Scholastic 2000 $195,192 $121,600 -- 0 2,757 $ 0 Products 1999 $190,000 $ 47,500 -- 0 0 $ 0 ALL OTHER NAME AND PRINCIPAL POSITION COMPENSATION(3) - --------------------------- --------------- David G. Fiore................... -- President and Chief Executive -- Officer -- Sherice P. Bench................. -- Chief Financial Officer -- -- Charlyn A. Cook.................. -- Senior Vice President--Jewelry -- Operations -- Parke H. Davis................... -- Senior Vice President--Retail -- Sales -- Donald A. Percenti............... -- Senior Vice President--Scholastic -- Products --
- ------------ (1) Our 2001 fiscal year ended on August 25, 2001. Fiscal year 2000 ended on August 26, 2000 and fiscal year 1999 ended on August 28, 1999. Executive compensation for 1999, 2000 and 2001 is for the twelve months ended December 31 of each year. (2) The perquisites and other personal benefits, securities or property received by the named executive officers did not exceed $50,000 or 10% of the total annual salary and bonus reported for the named executive officers in each of 1999, 2000 and 2001. In 2002, we have paid $386,088.10 in taxes associated with the receipt by Mr. Fiore in 2002 of 5,500 shares of our series A preferred stock. (3) Each of the named executive officers have term life insurance policies equal to one-times their base salary with a benefit payable to a beneficiary selected by the named executive officer upon his or her death. We have paid the annual premiums on such policies in each of 1999, 2000 and 2001. The annual premium does not exceed $700 for any named executive officer. No named executive officer is entitled to any cash surrender value in such policies. 65 EMPLOYMENT AGREEMENTS DAVID G. FIORE. Mr. Fiore has an employment agreement with us, pursuant to which he serves as our Chief Executive Officer and President and as a member of our Board of Directors. The initial term of his employment agreement was for two years from August 2, 1999. Unless otherwise terminated, Mr. Fiore's employment agreement adds one day to the term for each day that passes, and accordingly, there are always two years remaining on the term. The employment agreement provides Mr. Fiore with an annual base salary of no less than $300,000. Under his employment agreement, Mr. Fiore's salary is subject to such increases as our Board of Directors may determine from time to time. Mr. Fiore's employment agreement provides for various bonuses to be paid to him. Mr. Fiore is paid an annual bonus, determined by our Board of Directors, based upon the achievement of certain EBITDA targets. Mr. Fiore also is entitled to various stock grants if we achieve certain EBITDA targets as provided for in his employment agreement. These stock grants are fully vested when granted. At the discretion of the compensation committee of our Board of Directors, we also may pay Mr. Fiore a discretionary bonus each year in an amount of up to $100,000. Mr. Fiore's employment agreement provides that in the event he is terminated without "substantial cause" or he terminates his employment for "good reason" (each as defined in his employment agreement), he will be entitled to receive his salary for the remainder of the term under the employment agreement, plus the portion of the annual bonus actually earned through the date of termination, plus the long-term incentive bonus. Mr. Fiore's employment agreement further provides that he may terminate his employment six months after a "change in control" (as defined in his employment agreement). Upon such termination, Mr. Fiore will be paid $450,000. SHERICE P. BENCH. Ms. Bench has an employment agreement with CBI, effective as of December 16, 1996, and serves as our chief financial officer at an annual salary of $180,000. The initial term of her employment agreement was for two years, which can be automatically extended for additional one year terms on December 15th of each succeeding year thereafter unless earlier terminated by us upon not less than 60 days' prior notice. The current term of her employment agreement expires on December 15, 2002. Ms. Bench is entitled to participate in such employee benefit programs, plans and policies (including incentive bonus plans and incentive stock option plans) as we maintain and as may be established for our employees from time-to-time on the same basis as other executive employees are entitled to participate. Ms. Bench's employment agreement provides that in the event of her termination without "substantial cause" (as defined in her employment agreement), she will be entitled to receive 39 bi-weekly severance payments equal to the average of her bi-weekly compensation in effect within the two years preceding her termination, accrued but unused vacation, and any accrued bonus. She will also be entitled to elect the continuation of health benefits at our cost. Ms. Bench's employment agreement does not provide her with any payments that are contingent upon a "change in control." OTHER EMPLOYMENT AGREEMENTS. Charlyn A. Cook, Parke H. Davis and Donald A. Percenti each have an employment agreement with CBI. The initial term of each respective employment agreement was for three years, which can be automatically extended for additional one year terms on December 15th of each succeeding year thereafter unless earlier terminated by us upon not less than 60 days' prior notice. The current term of each of their employment agreements expires on December 15, 2002. Ms. Cook and Messrs. Davis and Percenti are entitled to participate in such 66 employee benefit programs, plans and policies (including incentive bonus plans and incentive stock option plans) as we maintain and as may be established for our employees from time-to-time on the same basis as other executive employees are entitled to participate. Each of the above-described employment agreements provide that in the event of their termination without "cause" (as defined in each of their respective employment agreements), the terminated employee will be entitled to receive 18 months of severance payments equal to the average of such employee's bi-weekly compensation in effect within the two years preceding their termination, accrued but unused vacation, and any accrued bonus. Such employee will also be entitled to elect the continuation of health benefits at our cost. None of the above-described employment agreements provide any payments that are contingent upon a "change in control." 2000 STOCK OPTION PLAN We have adopted a 2000 Stock Option Plan, which provides for the granting of incentive stock options and nonqualified stock options to our employees and directors and the employees and directors of our subsidiaries. The number of shares of common stock available to be awarded under the option plan is 122,985. As of February 21, 2002, options to purchase 72,087 shares of common stock had been granted. The option plan is administered by the compensation committee of our board of directors, which has the discretion to select which employees and directors will receive awards of options under the plan as well as the amount of such grant. Each option will expire on the date determined by the compensation committee of our board of directors, which will not be later than ten years from the date of grant. Options granted under the option plan generally vest 25% per year over a four year period. The exercise price for incentive stock options is the fair market value of the stock on the date that the option is granted. If the option holder's employment is terminated for any reason, all options that are not exercisable as of the date of termination will expire, and those options that are exercisable may be exercised until the option grant period has expired. Under the option plan, we have certain rights to repurchase from an option holder the common stock issued upon exercise of the option upon termination of the option holder's employment. We did not grant any options to either our chief executive officer or to any of our four other most highly compensated executive officers in 2001 nor did any of the foregoing individuals exercise any stock options in 2001. COMPENSATION OF DIRECTORS; BOARD COMMITTEES Directors who are neither members of our management nor affiliates of Castle Harlan each receive a fee of $25,000 per year, paid quarterly, for their services as a director. The Board of Directors has established two committees, a compensation committee and an audit committee. The compensation committee reviews general policy matters relating to compensation and benefits. The audit committee recommends the firm to be appointed as independent accountants to audit our financial statements, discusses the scope and results of the audit with the independent accountants, reviews with management and the independent accountants our interim and year-end operating results, considers the adequacy of our internal control and audit procedures and reviews the non-audit services to be performed by the independent accountants. The compensation committee consists of Messrs. Castle, Pittaway and Tankel and the audit committee consists of Messrs. Pittaway, Pruellage and Vetter. 67 Our certificate of incorporation and by-laws provides that we indemnify our officers and directors to the fullest extent permitted by the Delaware General Corporation Law, which is referred to in this prospectus as the DGCL. Under Section 145 of the DGCL, a corporation may indemnify its directors, officers, employees and agents and its former directors, officers, employees and agents and those who serve, at the corporation's request, in such capacities with another enterprise, against expenses, including attorneys' fees, as well as judgments, fines and settlements in nonderivative lawsuits, actually and reasonably incurred in connection with the defense of any action, suit or proceeding in which they or any of them were or are made parties or are threatened to be made parties by reason of their serving or having served in that capacity. The DGCL provides, however, that the person must have acted in good faith and in a manner that he or she reasonably believed to be in, or not opposed to, the best interests of the corporation and, in the case of a criminal action, he or she must have had no reasonable cause to believe his or her conduct was unlawful. In addition, the DGCL does not permit indemnification in an action or suit by or in the right of the corporation where he or she has been adjudged liable to the corporation, unless, and only to the extent that, a court determines that he or she fairly and reasonably is entitled to indemnity for costs the court deems proper in light of liability adjudication. Indemnification is mandatory to the extent a claim, issue or matter has been successfully defended. The certificate of incorporation and the DGCL also prohibit limitations on officer or director liability for acts or omissions which resulted in a violation of a statute prohibiting dividend declarations, payments to stockholders after dissolution and particular types of loans. The effect of these provisions is to eliminate the rights of our company and our stockholders, through stockholders' derivative suits on behalf of our company, to recover monetary damages against an officer or director for breach of a fiduciary duty as an officer or director, except in the situations described above. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors or officers of our company pursuant to the foregoing provisions, we have been informed that, in the opinion of the SEC, this indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION No member of the compensation committee is our employee. There are no compensation committee interlocks (i.e., no executive officer of ours serves as a member of the board of directors or the compensation committee of another entity which has an executive officer serving on our board of directors or the compensation committee). 68 SECURITY OWNERSHIP OF CERTAIN OWNERS AND MANAGEMENT The following table sets forth certain information regarding the beneficial ownership of our voting securities as of March 1, 2002, with respect to (i) each person or entity who is the beneficial owner of more than 5% of any class of our voting securities, (ii) each of our directors, (iii) each of the named executive officers, and (iv) all directors and executive officers as a group.
PERCENTAGE OF NUMBER OF TOTAL NUMBER OF SHARES PERCENTAGE OF SHARES OF COMMON OF SERIES A TOTAL SERIES A NAME AND ADDRESS OF BENEFICIAL OWNER (1) COMMON STOCK STOCK (%) PREFERRED PREFERRED (%) - ---------------------------------------- ------------ --------------------- ---------------- -------------- Castle Harlan Partners III, L.P.(2)(3)........................... 431,055 53.3 537,867 53.4 Castle Harlan Partners II, L.P.(2)(4)... 372,015 46.0 456,799 45.4 John K. Castle(2)(5)................... 803,070 99.2 994,666 98.8 David B. Pittaway(2)................... 1,005 * 1,126 * Zane Tankel(2)......................... 938 * 938 * Edward O. Vetter(2).................... 400 * 400 * William M. Pruellage(2)................ 0 0.0 0 0.0 David G. Fiore(6)(7)................... 25,024 3.0 5,500 * Sherice P. Bench(6)(8)................. 1,034 * 0 * Charlyn A. Cook(6)(9).................. 3,085 * 328 * Parke H. Davis(6)(9)................... 2,945 * 188 * Donald A. Percenti(6)(9)............... 3,226 * 469 * Directors and executive officers as a group (10 persons, including those listed above)........................ 840,727 99.6 1,003,615 99.7
- ------------ * Denotes beneficial ownership of less than one percent of the class of capital stock. (1) Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission. Beneficial ownership includes shares of common stock and series A preferred stock that any person has the right to acquire within 60 days after March 1, 2002. Shares of common stock and series A preferred stock not outstanding but deemed beneficially owned because a person or group has the right to acquire them within 60 days are treated as outstanding only for purposes of determining the percentage owned by that person or group. For purposes of this table, all fractional shares have been rounded to the nearest whole share. Except as indicated in the footnotes to this table, each stockholder named in the table has sole voting and investment power with respect to the shares set forth opposite such stockholder's name. (2) The address for each indicated stockholder or director identified in the table is c/o Castle Harlan, Inc., 150 East 58th Street, New York, New York 10155. (3) Includes 17,983 shares of common stock and 22,438 shares of series A preferred stock held by related entities, all of which may be deemed to be beneficially owned by Castle Harlan Partners III, L.P. Castle Harlan Partners III, L.P. disclaims beneficial ownership of these shares. (4) Includes 41,175 shares of common stock and 50,559 shares of series A preferred stock held by related entities, all of which may be deemed to be beneficially owned by Castle Harlan Partners II, L.P. Castle Harlan Partners II, L.P. disclaims beneficial ownership of these shares. (5) John K. Castle, one of our directors, is the controlling stockholder of Castle Harlan Partners III, G.P., Inc., the general partner of the general partner of Castle Harlan Partners III, L.P., and as such may be deemed to be a beneficial owner of the shares owned by Castle Harlan Partners III, L.P. and its affiliates. Mr. Castle disclaims beneficial ownership of such shares in excess of his proportionate partnership share of Castle Harlan Partners III, L.P. and its affiliates. In addition, Mr. Castle is the controlling stockholder of Castle Harlan Partners II G.P., Inc., the general partner of the general partner of Castle Harlan Partners II, L.P., and as such may be deemed to be a beneficial owner of the shares owned by Castle Harlan Partners II, L.P. and its affiliates. Mr. Castle disclaims beneficial ownership of such shares in excess of his proportionate partnership share of Castle Harlan Partners II, L.P. and its affiliates. (6) The address for each indicated director or executive officer identified in the table is c/o American Achievement Corporation, 7211 Circle S Road, Austin, Texas 78745. 69 (7) Mr. Fiore was granted options to purchase 25,024 shares of our common stock, which have vested pursuant to our 2000 Stock Option Plan. (8) Ms. Bench was granted options to purchase 1,034 shares of our common stock, which have vested pursuant to our 2000 Stock Option Plan. (9) Ms. Cook and Messrs. Davis and Percenti were each granted options to purchase 2,757 shares of our common stock, which have vested pursuant to our 2000 Stock Option Plan. DESCRIPTION OF CAPITAL STOCK Our authorized capital stock consists of 1,250,000 shares of common stock, par value $0.01 per share, of which 809,351 shares are issued and outstanding, and 1,250,000 shares of preferred stock, par value $0.01 per share. Of the amount of authorized preferred stock, 1,200,000 shares of our preferred stock are designated series A preferred stock and 1,006,847 shares are issued and outstanding. COMMON STOCK The holders of our common stock are entitled to one vote per share on all matters submitted to a vote of stockholders, including the election of directors, and vote together as a class with the holders of the series A preferred stock. Dividends may be paid on the common stock, when declared by our board of directors. We do not expect to pay dividends on the common stock in the foreseeable future. PREFERRED STOCK Our Board of Directors has the authority, by adopting resolutions, to issue shares of preferred stock in one or more series, with the designations and preferences for each series set forth in the adopting resolutions. Our certificate of incorporation authorizes our Board of Directors to determine, among other things, the rights, preferences and limitations pertaining to each series of preferred stock. SERIES A PREFERRED STOCK RANKING. The series A preferred stock is senior to all of our capital stock as to dividend payments and distributions upon liquidation, dissolution or winding up. DIVIDENDS. Dividends on the series A preferred stock are payable in cash, when, as and if declared by our board of directors. All such declared dividends are paid pro rata to the holders of series A preferred stock. Accrued and unpaid dividends on the series A preferred stock do not bear interest or dividends. REDEMPTION. We do not have the right to redeem the series A preferred stock. LIQUIDATION. Upon the liquidation, dissolution or winding up of our company, the holders of the series A preferred stock are entitled to receive payment at a liquidation value of $100 per share plus all accrued and unpaid dividends on the series A preferred stock, prior to the payment of any distributions to the holders of our common stock. RESTRICTIONS ON PAYMENT OF OTHER DIVIDENDS. So long as any share of the series A preferred stock remains outstanding, we may not declare, pay or set aside for payment dividends or other distributions with respect to any other shares of our capital stock ranking, as to dividend rights and rights upon liquidation, dissolution or winding up, junior to the series A preferred stock, other than dividends 70 payable in common stock or in another stock ranking junior to the series A preferred stock as to dividend rights and rights on liquidation, dissolution and winding up. VOTING. The holders of our series A preferred stock are entitled to one vote per share of series A preferred stock on all matters submitted to a vote of stockholders, including the election of directors, and vote together as a class with the holders of the common stock. We are not permitted to amend, alter or repeal any of the provisions of our certificate of incorporation or bylaws, or merge with or into or consolidate with any other entity, as to affect adversely any of the preferences, rights, powers or privileges of the series A preferred stock or its holders, without first obtaining the approval of at least a majority of the outstanding shares of series A preferred stock voting separately as one class. WARRANTS We have outstanding warrants to purchase 21,405 shares of our common stock at an exercise price of $6.67 per share. The warrants expire on January 31, 2008 and if exercised in full represent less than 1.2% of our common stock on a fully diluted basis. Of this amount, warrants to purchase 19,820 shares of common stock are held by CHPIII and warrants to purchase 1,585 shares of common stock are held by Deutsche Banc Alex. Brown Inc., formerly Deutsche Bank Securities, Inc. CBI SERIES A PREFERRED STOCK Of CBI's authorized preferred stock, 100,000 shares of preferred stock are designated series A preferred stock, which is referred to as the "CBI A Preferred", all of which are issued and outstanding and held by CHPIII. RANKING. The CBI A Preferred is senior to all other capital stock of CBI as to dividend payments and distribution upon liquidation, dissolution or winding up. DIVIDENDS. Dividends on the CBI A Preferred are payable in cash, when and if declared by the board of directors of CBI on a quarterly basis. Dividends accrue from the date of issuance, which was December 16, 1996 or the last date to which dividends have been paid at a rate of 12% per annum, whether or not such dividends have been declared and whether or not there shall be funds legally available for the payment of such dividends. Any dividends which are declared are payable pro rata to the holders. No dividends or interest accrue on any accrued and unpaid dividends. The notes and our credit facility each restrict CBI's ability to pay dividends on the CBI A Preferred. REDEMPTION. The CBI A Preferred is not subject to mandatory redemption but is redeemable at any time at the option of CBI; however, the notes offered hereby and our new credit facility will each restrict CBI's ability to redeem the CBI A Preferred. LIQUIDATION. Upon the liquidation, dissolution or winding up of CBI, the holders of the CBI A Preferred are entitled to receive payment at a liquidation value of $100 per share plus all accrued and unpaid dividends on the CBI A Preferred, prior to the payment of any distributions to the holders of CBI's other capital stock. RESTRICTIONS ON PAYMENT OF OTHER DIVIDENDS. So long as any share of the CBI A Preferred remains outstanding, CBI may not declare, pay or set aside for payment dividends or other distributions with respect to any other shares of its capital stock ranking, as to dividend rights and rights upon liquidation, dissolution or winding up, junior to the CBI A Preferred, other than dividends payable in 71 common stock or in another stock ranking junior to the CBI A Preferred as to dividend rights and rights on liquidation, dissolution and winding up. VOTING. Generally, the holders of the CBI A Preferred are not entitled to any voting rights. However, CBI is not permitted to amend, alter or repeal any of the provisions of its certificate of incorporation or bylaws, or merge with or into or consolidate with any other entity, as to affect adversely any of the preferences, rights, powers or privileges of the CBI A Preferred or its holders, without first obtaining the approval of at least a majority of the outstanding shares of CBI A Preferred voting separately as one class. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS We entered into a management agreement dated March 30, 2001 with Castle Harlan, pursuant to which Castle Harlan agreed to provide business and organizational strategy, financial and investment management and merchant and investment banking services to us upon the terms and conditions set forth in the management agreement. As compensation for such services, we agreed to pay Castle Harlan $3.0 million per year, which amount is payable quarterly in arrears. The agreement is for a term of ten years, renewable automatically from year to year thereafter unless Castle Harlan and its affiliates then own less than 5% of our then outstanding capital stock. We have agreed to indemnify Castle Harlan against liabilities, costs, charges and expenses relating to its performance of its duties, other than such of the foregoing resulting from Castle Harlan's gross negligence or willful misconduct. On February 11, 2000, CHPIII acquired Taylor, whose primary business is the designing and printing of student yearbooks. On July 27, 2000, we acquired from CHPIII all of the issued and outstanding shares of TSHC, Taylor's parent, through the issuance of 320,929 shares of our common stock and 393,482 shares of our series A preferred stock. 72 DESCRIPTION OF CERTAIN INDEBTEDNESS SENIOR SECURED CREDIT FACILITY On February 20, 2002, we entered into a new $40 million senior revolving credit facility which is sometimes referred to as the Senior Secured Credit Facility, with various financial institutions, as lenders, and The Bank of Nova Scotia, as administrative agent and lead arranger, and with all of our current domestic subsidiaries as guarantors. The following is a brief description of the principal terms of the facility, and is qualified in its entirety by reference to the definitive documents, which are available as indicated below under "Where You Can Find More Information." AVAILABILITY. Availability under the Senior Secured Credit Facility is restricted to the lesser of (1) $40 million and (2) the Borrowing Base Amount. The Borrowing Base Amount is defined as the difference of (1) the sum of (a) with respect to eligible accounts receivable, 85% of an amount equal to (i) the book value of eligible accounts receivable, net of (ii) all credits, discounts and allowances in respect of all such eligible accounts receivable, and (b) with respect to eligible inventory, an amount equal to (i) 50% with respect to nonprecious inventory and (ii) 70% with respect to precious metals/ stones inventory, in each case, of the net book value of all eligible inventory, less (2) the then applicable account receivable reported amount. MATURITY AND SECURITY. The Senior Secured Credit Facility matures on the fourth anniversary of the closing date. Loans made pursuant to the Senior Secured Credit Facility are secured by a first priority security interest in substantially all of our and our domestic subsidiaries' assets and in all of our domestic subsidiaries' capital stock. INTEREST RATES. Advances under the Senior Secured Credit Facility may be made as base rate loans or LIBOR (London inter-bank offered rate) loans at our election (except for the initial loans). Interest rates payable upon advances are based upon the base rate or LIBOR depending on the type of loan we choose, plus an applicable margin based upon a consolidated leverage ratio of certain outstanding indebtedness to EBITDA (to be calculated in accordance with the terms specified in the Senior Secured Credit Facility). The base rate is defined as the higher of (1) the Federal Funds Rate plus 0.5%, and (2) the rate of interest then most recently established by The Bank of Nova Scotia in New York as its base rate for dollars loaned in the United States. LIBOR is defined as, relative to any interest period for LIBOR loans, the rate of interest equal to the average of the rates per annum at which dollar deposits in immediately available funds are offered to The Bank of Nova Scotia's LIBOR Office in the London interbank market at or about 11:00 a.m. London, England time, two business days prior to the beginning of such interest period for delivery on the first day of such interest period, in an amount approximately equal to the amount of The Bank of Nova Scotia's LIBOR loan and for a period approximately equal to such interest period. The applicable margin for all loans from the effective date of the Senior Secured Credit Facility through the delivery date of the quarterly financial information for the second full fiscal quarter following the effective date will be at least 2.5% for base 73 rate loans and at least 3.5% for LIBOR loans. Thereafter, the applicable margin will be the applicable percentage set forth below corresponding to the relevant leverage ratio:
APPLICABLE APPLICABLE MARGIN FOR MARGIN FOR LEVERAGE RATIO BASE RATE LOANS LIBOR LOANS - -------------- --------------- ----------- > 5.00:1.................................................... 3.25% 4.25% > 4.50:1 but < / = 5.00:1.................................. 2.75% 3.75% > 4.00:1 but < / = 4.50:1.................................. 2.50% 3.50% > 3.50:1 but < / = 4.00:1.................................. 2.25% 3.25% > 3.00:1 but < / = 3.50:1.................................. 2.00% 3.00% < / = 3.00:1................................................ 1.50% 2.50%
FEES. The Senior Secured Credit Facility contains certain fees, including unused commitment fees, letter of credit fees and agency fees. COVENANTS. The Senior Secured Credit Facility contains standard negative covenants and restrictions on actions by us and our subsidiaries including, without limitation, restrictions on indebtedness, liens, investments, fundamental changes, asset dispositions outside of the ordinary course of business, subsidiary stock dispositions, restricted junior payments, transactions with affiliates, changes relating to indebtedness and the gold consignment agreement. In addition, the Senior Secured Credit Facility requires that we meet certain financial covenants, ratios and tests, including capital expenditure limits, a maximum secured leverage ratio, a minimum interest coverage ratio, and a minimum fixed charge coverage ratio. EVENTS OF DEFAULT. The Senior Secured Credit Facility contains customary events of default including, without limitation, non-payment of principal, interest or fees, violation of certain covenants, inaccuracy of representations and warranties in any material respect, cross defaults under certain other indebtedness and agreements (including the gold consignment agreement), bankruptcy and insolvency events, material judgments and liabilities, change of control, dissolution of us or our domestic subsidiaries, failure to maintain valid and perfected security interests, change in conduct of our holding companies and unenforceability of certain documents under the Senior Secured Credit Facility. GOLD CONSIGNMENT AGREEMENT On July 27, 2000, CBI entered into a gold consignment agreement with The Bank of Nova Scotia. The gold consignment agreement permits CBI to hold gold on consignment up to the lowest of (i) $10.1 million, (ii) the dollar value of 27,000 troy ounces of gold and (iii) a borrowing base, determined based upon a percentage of gold located at CBI's facilities and other approved locations, as specified by the agreement. As security for CBI's obligations under the agreement, CBI has granted The Bank of Nova Scotia a lien on the gold held by CBI at its jewelry manufacturing plants and other lender approved inventory locations, as well as a lien on the proceeds from the sale of the gold. In addition, American Achievement has provided The Bank of Nova Scotia with its unsecured guaranty of CBI's obligations under the gold consignment agreement. CBI is required to pay certain fees under the gold consignment agreement, including: - a consignment fee based upon the current gold rate; and - a commitment fee, equal to 0.375% of the dollar value of gold not consigned to CBI but available to CBI under the gold consignment agreement. 74 The term of the gold consignment agreement is for 364 days and the agreement may be renewed at the end of each term at the sole discretion of the lender. The current term of the agreement expires on July 25, 2002. There are no material restrictive covenants in the agreement that restrict our ability to conduct our business. 11% SENIOR SUBORDINATED NOTES In 1996, our subsidiary, CBI completed the offering of $90 million of its 11% senior subordinated notes, which are also referred to as the 1996 Notes. The 1996 Notes are senior subordinated obligations of CBI and mature on January 15, 2007. The 1996 Notes were issued pursuant to an indenture dated December 16, 1996. The 1996 Indenture was amended by the first supplemental indenture dated as of July 21, 2000. The 1996 Indenture, as amended, contains restrictive covenants limiting CBI's ability to sell all or substantially all of its assets or engage in a change in control transaction. TP Holding Corp., the direct parent of Taylor and an indirect wholly owned subsidiary of ours, is a guarantor of CBI's obligations with respect to the 1996 Notes. On July 27, 2000, TP Holding Corp. purchased $48.6 million in principal amount of the 1996 Notes at a purchase price equal to 82% of the principal amount of the 1996 Notes. 75 DESCRIPTION OF THE NEW NOTES The Company issued $177,000,000 aggregate principal amount of Senior Notes due 2007 on February 20, 2002 (the "Original Notes"), and will issue the New Notes under an indenture (the "Indenture"), among the Company, the Guarantors and The Bank of New York, as Trustee (the "Trustee"). The terms of the New Notes are identical in all material respects to the terms of the Original Notes, except for transfer restrictions and registration rights relating to the Original Notes. The following description is a summary of the material provisions of the Indenture. It does not include all of the provisions of the Indenture nor does it restate the Indenture in its entirety. We urge you to read the Indenture because it defines your rights. The terms of the New Notes will include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939, as amended (the "TIA"). A copy of the Indenture is available as indicated below under "Where You Can Find More Information." You can find definitions of certain capitalized terms used in this Description of Notes under the subheading "--Certain Definitions." For purposes of this section, references to the "Company" include only American Achievement Corporation and not its subsidiaries or affiliates. References to "Notes" in this section of the prospectus refers to both the "Original Notes" and the "New Notes." The New Notes will be senior unsecured obligations of the Company, ranking PARI PASSU in right of payment with all other senior unsecured obligations of the Company. The New Notes will be effectively subordinated to all existing and future secured debt of the Company and the Guarantors to the extent of the assets securing such debt. After giving effect to the offering of the Original Notes, at November 24, 2001, the aggregate amount of secured debt outstanding would have been approximately $17.0 million. The Company will issue the New Notes in fully registered form only, without coupons, in denominations of $1,000 and integral multiples thereof. The Trustee will initially act as Paying Agent and Registrar for the New Notes. The New Notes may be presented for registration or transfer and exchange at the offices of the Registrar, which initially will be the Trustee's corporate trust office. No service charge will be made for any registration of transfer or exchange or redemption of New Notes, but the Company may require payment in certain circumstances of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection therewith. The Company may change any Paying Agent and Registrar without notice to holders of the New Notes (the "Holders"). The Company will pay principal of (and premium, if any, on) the New Notes at the Trustee's corporate office in New York, New York. At the Company's option, interest may be paid at the Trustee's corporate trust office or by check mailed to the registered address of Holders. Any Original Notes that remain outstanding after the completion of this Exchange Offer, together with the New Notes issued in connection with this Exchange Offer, will be treated as a single class of securities under the Indenture. PRINCIPAL, MATURITY AND INTEREST The New Notes will mature on January 1, 2007. $177.0 million in aggregate principal amount of Original Notes were issued on the Issue Date. Interest on the New Notes will accrue at the rate of 11 5/8% per annum and will be payable semiannually in cash on each January 1 and July 1 commencing on July 1, 2002, to the persons who are registered Holders at the close of business on the December 15 and June 15, respectively, immediately preceding the applicable interest payment date. Interest on the New Notes will accrue from the most recent date to which interest has been paid or, if no interest has been paid, from the Issue Date. Interest will be computed on the basis of a 360-day year comprised of twelve 30-day months. 76 The New Notes will not be entitled to the benefit of any mandatory sinking fund. REDEMPTION OPTIONAL REDEMPTION. Except as described below, the Notes are not redeemable before January 1, 2005. Thereafter, the Company may on any one or more occasions redeem the Notes at its option, in whole or in part, upon not less than 30 nor more than 60 days' notice, at the following redemption prices (expressed as percentages of the principal amount thereof) if redeemed during the twelve-month period commencing on January 1 of the year set forth below:
YEAR PERCENTAGE - ---- ---------- 2005........................................................ 105.813% 2006........................................................ 102.906%
In addition, the Company must pay accrued and unpaid interest, if any, on the Notes redeemed to the applicable redemption date. OPTIONAL REDEMPTION UPON PUBLIC EQUITY OFFERINGS. At any time, or from time to time, on or prior to January 1, 2005, the Company may, at its option, use the net cash proceeds of one or more Public Equity Offerings (as defined below) to redeem up to 35% of the principal amount of the Notes issued under the Indenture at a redemption price of 111.625% of the principal amount thereof plus accrued and unpaid interest thereon, if any, to the date of redemption; PROVIDED that: (1) at least 65% of the principal amount of Notes issued under the Indenture remains outstanding immediately after each such redemption; and (2) the Company makes each such redemption not more than 120 days after the consummation of the related Public Equity Offering. "Public Equity Offering" means an underwritten public offering of Qualified Capital Stock of the Company pursuant to a registration statement filed with the Commission in accordance with the Securities Act in which the gross proceeds to the Company are at least $20.0 million. SELECTION AND NOTICE OF REDEMPTION In the event that the Company chooses to redeem at any time less than all of the Notes, selection of the Notes for redemption will be made by the Trustee either: (1) in compliance with the requirements of the principal national securities exchange, if any, on which the Notes are listed; or, (2) if such notes are not then listed on a national securities exchange, on a PRO RATA basis, by lot or by such method as the Trustee shall deem fair and appropriate. No Notes of a principal amount of $1,000 or less shall be redeemed in part. If a partial redemption is made with the proceeds of a Public Equity Offering, the Trustee will select the Notes only on a PRO RATA basis or on as nearly a PRO RATA basis as is practicable (subject to DTC procedures), unless such method is otherwise prohibited. Notice of redemption will be mailed by first-class mail at least 30 but not more than 60 days before the redemption date to each Holder of Notes to be redeemed at its registered address. If any Note is to be redeemed in part only, the notice of redemption that relates to such Note shall state the portion of the principal amount thereof to be 77 redeemed. A Note in a principal amount equal to the unredeemed portion thereof will be issued in the name of the Holder thereof upon cancellation of the original Note. On and after the redemption date, interest will cease to accrue on Notes or portions thereof called for redemption as long as the Company has deposited with the Paying Agent funds in satisfaction of the applicable redemption price pursuant to the Indenture. GUARANTEES The Notes will be unconditionally guaranteed by all Domestic Restricted Subsidiaries of the Company existing on the Issue Date and thereafter all acquired or created Restricted Subsidiaries other than Foreign Restricted Subsidiaries and Restricted Subsidiaries that are not Material Domestic Restricted Subsidiaries. The Guarantors will jointly and severally guarantee the Company's Obligations under the Indenture and the Notes on a senior unsecured basis (the "Guarantees"). Each Guarantee will rank PARI PASSU in right of payment with all other senior unsecured obligations of the respective Guarantor. The obligations of each Guarantor under its Guarantee will be limited as necessary to prevent the Guarantee from constituting a fraudulent conveyance or fraudulent transfer under applicable law. The Guarantee of a Guarantor will be automatically and unconditionally released without any action on the part of the Trustee or the Holders of the Notes: (1) in connection with any sale or other disposition of all or substantially all of the assets of that Guarantor (including, without limitation, by way of merger or consolidation), if the Company applies the Net Cash Proceeds of that sale or other disposition in accordance with the applicable provisions of the Indenture; or (2) in connection with any sale of all of the Capital Stock of that Guarantor, if the Company applies the Net Cash Proceeds of that sale in accordance with the applicable provisions of the Indenture; (3) if the Company designates that Guarantor as an Unrestricted Subsidiary in accordance with the applicable provisions of the Indenture; or (4) upon the payment in full of the Notes. In addition, concurrently with any Legal Defeasance or Covenant Defeasance, the Guarantors shall be released from all of their Obligations under their respective applicable Guarantees. Separate financial statements of the Guarantors are not included herein because such Guarantors are jointly and severally liable with respect to the Company's obligations pursuant to the Notes, and the aggregate net assets, earnings and equity of the Guarantors and the Company are substantially equivalent to the net assets, earnings and equity of the Company on a consolidated basis. CHANGE OF CONTROL Upon the occurrence of a Change of Control, each Holder will have the right to require that the Company purchase all or a portion of such Holder's Notes pursuant to the offer described below (the "Change of Control Offer"), at a purchase price equal to 101% of the principal amount thereof plus accrued interest, if any, to the date of purchase. Within 30 days following the date upon which a Change of Control occurs, the Company must send, by first class mail, a notice to each Holder, with a copy to the Trustee, which notice shall govern the terms of the Change of Control Offer. Such notice shall state, among other things, the purchase date, which must be no earlier than 30 days nor later than 45 days from the date such notice is mailed, other than as may be required by law (the "Change of Control Payment Date"). Holders electing to have a Note purchased pursuant to a Change of Control Offer will be required to surrender the Note, with the form entitled "Option of Holder to Elect Purchase" on the reverse of the Note completed, to 78 the Paying Agent at the address specified in the notice prior to the close of business on the third business day prior to the Change of Control Payment Date. The Company will not be required to make a Change of Control Offer upon a Change of Control if a third party makes the Change of Control Offer in the manner, at the times and otherwise in compliance with the requirements set forth in the Indenture applicable to a Change of Control Offer made by the Company and purchases all Notes validly tendered and not withdrawn under such Change of Control Offer. If a Change of Control Offer is made, there can be no assurance that the Company will have available funds sufficient to pay the Change of Control purchase price for all the Notes that might be delivered by Holders seeking to accept the Change of Control Offer. In the event the Company is required to purchase outstanding Notes pursuant to a Change of Control Offer, the Company expects that it would seek third party financing to the extent it does not have available funds to meet its purchase obligations. However, there can be no assurance that the Company would be able to obtain such financing. The Credit Agreement restricts the purchase of the Notes by the Company prior to their maturity and, upon a Change of Control, all amounts outstanding under the Credit Agreement may, at the option of the lenders thereunder, become due and payable. There can be no assurance that in the event of a Change in Control the Company will be able to obtain the necessary consents from the lenders under the Credit Agreement to consummate a Change in Control Offer. The failure of the Company to make or consummate the Change in Control Offer or pay the applicable Change of Control purchase price when due would result in an Event of Default and would give the Trustee and the Holders of the Notes the rights described under "Events of Default". Neither the Board of Directors of the Company nor the Trustee may waive the covenant relating to a Holder's right to redemption upon a Change of Control. Restrictions in the Indenture described herein on the ability of the Company and its Restricted Subsidiaries to incur additional Indebtedness, to grant Liens on its property, to make Restricted Payments and to make Asset Sales may also make more difficult or discourage a takeover of the Company, whether favored or opposed by the management of the Company. Consummation of any such transaction in certain circumstances may require redemption or repurchase of the Notes, and there can be no assurance that the Company or the acquiring party will have sufficient financial resources to effect such redemption or repurchase. Such restrictions and the restrictions on transactions with Affiliates may, in certain circumstances, make more difficult or discourage any leveraged buyout of the Company or any of its Subsidiaries by the management of the Company. While such restrictions cover a wide variety of arrangements which have traditionally been used to effect highly leveraged transactions, the Indenture may not afford the Holders protection in all circumstances from the adverse aspects of a highly leveraged transaction, reorganization, restructuring, merger or similar transaction. The definition of "Change of Control" in the Indenture is limited in scope. The provisions of the Indenture may not afford Holders the right to require the Company to repurchase such Notes in the event of a highly leveraged transaction or certain transactions with the Company's management or its Affiliates, including a reorganization, restructuring, merger or similar transaction involving the Company (including, in certain circumstances, an acquisition of the Company by management or its Affiliates) that may adversely affect Holders, if such transaction is not a transaction defined as a Change of Control. See "Certain Definitions" below for the definition of "Change of Control". A transaction involving a recapitalization of the Company would result in a Change of Control if it is the type of transaction specified in such definition. 79 One of the events that constitutes a Change of Control under the Indenture is the disposition of "all or substantially all" of the Company's assets under certain circumstances. This term has not been interpreted under New York law (which is the governing law of the Indenture) to represent a specific quantitative test. As a consequence, in the event Holders elect to require the Company to purchase the Notes and the Company elects to contest such election, there can be no assurance as to how a court interpreting New York law would interpret the phrase in many circumstances. The Company will comply with the requirements of Rule 14e-1 under the Exchange Act and any other securities laws and regulations to the extent such laws and regulations are applicable in connection with the repurchase of Notes pursuant to a Change of Control Offer. To the extent that the provisions of any securities laws or regulations conflict with the "Change of Control" provisions of the Indenture, the Company shall comply with the applicable securities laws and regulations and shall not be deemed to have breached its obligations under the "Change of Control" provisions of the Indenture by virtue thereof. CERTAIN COVENANTS The Indenture will contain, among others, the following covenants: LIMITATION ON INCURRENCE OF ADDITIONAL INDEBTEDNESS. (a) The Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, create, incur, assume, guarantee, acquire, become liable, contingently or otherwise, with respect to, or otherwise become responsible for payment of (collectively, "incur") any Indebtedness (other than Permitted Indebtedness); PROVIDED, HOWEVER, that if no Default or Event of Default shall have occurred and be continuing at the time of or as a consequence of the incurrence of any such Indebtedness, the Company or any of its Restricted Subsidiaries that is or, upon such incurrence, becomes a Guarantor may incur Indebtedness (including, without limitation, Acquired Indebtedness) and any Restricted Subsidiary of the Company that is not or will not, upon such incurrence, become a Guarantor may incur Acquired Indebtedness, in each case if on the date of the incurrence of such Indebtedness, after giving effect to the incurrence thereof, the Consolidated Fixed Charge Coverage Ratio of the Company is (i) greater than 2.00 to 1.0 if such Indebtedness is incurred on or before July 1, 2004 or (ii) greater than 2.25 to 1.0 if such Indebtedness is incurred after July 1, 2004. For purposes of determining compliance with this covenant, (i) Acquired Indebtedness shall be deemed to have been incurred by the Company or one of its Restricted Subsidiaries, as the case may be, at the time an acquired Person becomes such a Restricted Subsidiary (or is merged into the Company or such a Restricted Subsidiary) or at the time of the acquisition of assets, as the case may be and (ii) the maximum amount of Indebtedness that the Company and its Restricted Subsidiaries may incur pursuant to this covenant shall not be deemed to be exceeded, with respect to any outstanding Indebtedness, due solely to the result of fluctuations in the exchange rates of currencies. (b) The Company will not, and will not permit any Guarantor to, directly or indirectly, incur any Indebtedness which by its terms (or by the terms of any agreement governing such Indebtedness) is subordinated in right of payment to any other Indebtedness of the Company or such Guarantor, as the case may be, unless such Indebtedness is also by its terms (or by the terms of any agreement governing such Indebtedness) made expressly subordinate to the Notes or the applicable Guarantee, as the case may be, to the same extent and in the same manner as such Indebtedness is subordinated to other Indebtedness of the Company or such Guarantor, as the case may be. 80 LIMITATION ON RESTRICTED PAYMENTS. The Company will not, and will not cause or permit any of its Restricted Subsidiaries to, directly or indirectly: (1) declare or pay any dividend or make any distribution on or in respect of shares of Capital Stock of the Company or any Restricted Subsidiary to holders of such Capital Stock, other than (a) dividends or distributions payable in Qualified Capital Stock of the Company and (b) in the case of a Restricted Subsidiary, dividends or distributions payable (i) in Qualified Capital Stock of such Restricted Subsidiary and (ii) to the Company and to any other Restricted Subsidiary and pro rata dividends or distributions payable to minority stockholders of such Restricted Subsidiary; (2) purchase, redeem or otherwise acquire or retire for value any Capital Stock of the Company or any Restricted Subsidiary, other than such Capital Stock held by the Company or any Restricted Subsidiary; (3) make any principal payment on, purchase, defease, redeem, prepay, decrease or otherwise acquire or retire for value, prior to any scheduled final maturity, scheduled repayment or scheduled sinking fund payment, any Subordinated Indebtedness; or (4) make any Investment (other than Permitted Investments) (each of the foregoing actions set forth in clauses (1), (2), (3) and (4) being referred to as a "Restricted Payment"); if at the time of such Restricted Payment or immediately after giving effect thereto, (i) a Default or an Event of Default shall have occurred and be continuing; (ii) the Company is not able to incur at least $1.00 of additional Indebtedness (other than Permitted Indebtedness) in compliance with the "Limitation on Incurrence of Additional Indebtedness" covenant; or (iii) the aggregate amount of Restricted Payments (including such proposed Restricted Payment) made subsequent to the Issue Date (the amount expended for such purposes, if other than in cash, being the fair market value of such property as determined in good faith by the Board of Directors of the Company) shall exceed the sum (the "Restricted Payments Basket") of: (v) 50% of the cumulative Consolidated Net Income (or if cumulative Consolidated Net Income shall be a loss, minus 100% of such loss) of the Company earned from the beginning of the first full fiscal quarter commencing subsequent to the Issue Date and ending on the Company's most recently ended fiscal quarter for which internal financial statements are available at the time of such proposed Restricted Payment (the "Reference Date") (treating such period as a single accounting period); plus (w) 100% of the aggregate net cash proceeds received by the Company from any Person (other than a Restricted Subsidiary of the Company) from the issuance and sale subsequent to the Issue Date and on or prior to the Reference Date of Qualified Capital Stock of the Company (but excluding any debt security that is convertible into, or exchangeable for, Qualified Capital Stock) (excluding any net cash proceeds from a Public Equity Offering to the extent used to redeem the Notes in compliance with the provisions set forth under the subheading "Redemption--Optional Redemption Upon Public Equity Offerings"); plus (x) without duplication of any amounts included in clause (iii)(w) above, 100% of the aggregate net cash proceeds of any equity contribution received by the Company from a holder of the Company's Capital Stock (excluding any net cash proceeds from a Public Equity Offering to the extent used to redeem the Notes in compliance with the provisions 81 set forth under the subheading "Redemption--Optional Redemption Upon Public Equity Offerings"); plus (y) the amount by which the aggregate principal amount (or accreted value, if less) of Indebtedness or the amount by which Disqualified Capital Stock of the Company and its Restricted Subsidiaries is reduced on the Company's consolidated balance sheet upon the conversion or exchange subsequent to the Issue Date of any Indebtedness (including Disqualified Capital Stock) which is convertible into or exchangeable for Qualified Capital Stock of the Company, together with the net cash proceeds received by the Company at the time of such conversion; plus (z) without duplication, the sum of: (1) the aggregate amount returned in cash to the Company or any Restricted Subsidiary of the Company on or with respect to Investments (other than Permitted Investments) made subsequent to the Issue Date whether through interest payments, principal payments, dividends or other distributions or payments; (2) the net cash proceeds received by the Company or any of its Restricted Subsidiaries from the disposition of all or any portion of such Investments (other than to a Restricted Subsidiary of the Company); and (3) upon redesignation of an Unrestricted Subsidiary as a Restricted Subsidiary, the fair market value of such Subsidiary; PROVIDED, HOWEVER, that the sum of clauses (1), (2) and (3) above shall not exceed the aggregate amount of all such Investments made subsequent to the Issue Date. Notwithstanding the foregoing, the provisions set forth in the immediately preceding paragraph do not prohibit: (1) the payment of any dividend within 60 days after the date of declaration of such dividend if the dividend would have been permitted on the date of declaration; (2) the repurchase, redemption or other acquisition or retirement of any shares of Capital Stock of the Company or any Restricted Subsidiary of the Company, either (i) solely in exchange for shares of Qualified Capital Stock of the Company or (ii) through the application of net proceeds of a substantially concurrent sale for cash (other than to a Restricted Subsidiary of the Company) of shares of Qualified Capital Stock of the Company; (3) the payment of principal, the repurchase, retirement, redemption or other repayment of any Subordinated Indebtedness either (i) solely in exchange for shares of Qualified Capital Stock of the Company, or (ii) through the application of net proceeds of a substantially concurrent sale for cash (other than to a Restricted Subsidiary of the Company) of (a) shares of Qualified Capital Stock of the Company or (b) if no Default or Event of Default shall have occurred and be continuing, Refinancing Indebtedness; (4) if no Default or Event of Default shall have occurred and be continuing, repurchases by the Company of Capital Stock from directors or employees or former directors or employees of the Company or any of its Subsidiaries or their authorized representatives, estates or beneficiaries upon the death, disability or termination of employment of such employees, in an aggregate amount not to exceed $500,000 in any twelve-month period; (5) the repurchase of any Subordinated Indebtedness at a purchase price not greater than 101% of the principal amount of such Indebtedness in the event of a change of control in accordance with provisions similar to the "Change of Control" covenant described herein; PROVIDED that, prior to such repurchase, the Company has made the Change of Control Offer as provided in 82 such covenant with respect to the Notes and has repurchased all Notes validly tendered for payment in connection with such Change of Control Offer; (6) the payment or distribution, to dissenting holders of Capital Stock pursuant to applicable law, pursuant to or in connection with a consolidation, merger or transfer of assets that complies with the provisions of the Indenture applicable to mergers, consolidations and transfers of all or substantially all of the property and assets of the Company or any of its Restricted Subsidiaries; and (7) the cancellation or retirement of CBI Subordinated Notes held by a Restricted Subsidiary of the Company. In determining the aggregate amount of Restricted Payments made subsequent to the Issue Date in accordance with clause (iii) of the second preceding paragraph, amounts expended pursuant to clauses (1), (4), (5) and (6) of the immediately preceding paragraph shall be included in such calculation. No issuance and sale of Qualified Capital Stock pursuant to clause (2) or (3) of the immediately preceding paragraph shall increase the Restricted Payments Basket, except to the extent the proceeds thereof exceed the amounts used to effect the transactions described therein. LIMITATION ON ASSET SALES. (A) The Company will not, and will not permit any of its Restricted Subsidiaries to, consummate an Asset Sale unless: (1) the Company or the applicable Restricted Subsidiary, as the case may be, receives consideration at the time of such Asset Sale at least equal to the fair market value of the assets sold or otherwise disposed of (as determined in good faith by the Company's Board of Directors); (2) at least 75% of the consideration received by the Company or the Restricted Subsidiary, as the case may be, from such Asset Sale shall be in the form of cash or Cash Equivalents and is received at the time of such disposition; PROVIDED that (a) the amount of any Indebtedness or other liabilities of the Company or any such Restricted Subsidiary (other than liabilities that are by their terms subordinated to the Notes) that are assumed by the transferee of any such assets and (b) the fair market value of any marketable securities, currencies, notes or other obligations received by the Company or any such Restricted Subsidiary in exchange for any such assets that are promptly converted into cash or Cash Equivalents within 30 days after receipt thereof shall be deemed to be cash for purposes of this provision; and (3) upon the consummation of an Asset Sale, the Company shall, subject to paragraph (B) below, apply, or cause such Restricted Subsidiary to apply, the Net Cash Proceeds relating to such Asset Sale within 365 days of receipt thereof either: (a) to repay or prepay any Indebtedness under the Credit Agreement and, in the case of any such Indebtedness under any revolving credit facility, effect a permanent reduction in the availability under such revolving credit facility; PROVIDED that the Net Cash Proceeds received by the Company or any of its Restricted Subsidiaries from one or more Sale and Leaseback Transactions (the "Excluded Sale and Leaseback Transactions") may be used to repay or prepay Indebtedness under any such revolving credit facility without effecting a permanent reduction in the availability under such revolving credit facility to the extent that the aggregate proceeds received from all such Excluded Sale and Leaseback Transactions does not exceed $16.0 million; (b) to make an Investment in properties and assets that replace the properties and assets that were the subject of such Asset Sale or in properties and assets that will be used, or Capital Stock of a Person engaged, in a Permitted Business ("Replacement Assets"); and/or (c) a combination of prepayment and investment permitted by the foregoing clauses (3)(a) and (3)(b). 83 (B) On the 366th day after an Asset Sale or such earlier date, if any, as the Board of Directors of the Company or of such Restricted Subsidiary determines not to apply the Net Cash Proceeds relating to such Asset Sale as set forth in clauses (3)(a), (3)(b) and (3)(c) of paragraph (A) above (each, a "Net Proceeds Offer Trigger Date"), such aggregate amount of Net Cash Proceeds which have not been applied on or before such Net Proceeds Offer Trigger Date as permitted in clauses (3)(a), (3)(b) and (3)(c) of paragraph (A) above (each a "Net Proceeds Offer Amount") shall be applied by the Company or such Restricted Subsidiary to make an offer to purchase (the "Net Proceeds Offer") to all Holders and, to the extent required by the terms of any Pari Passu Indebtedness, an offer to purchase to all holders of such Pari Passu Indebtedness, on a date (the "Net Proceeds Offer Payment Date") not less than 30 nor more than 45 days following the applicable Net Proceeds Offer Trigger Date, from all Holders (and holders of any such Pari Passu Indebtedness) on a PRO RATA basis, that amount of New Notes (and Pari Passu Indebtedness) equal to the Net Proceeds Offer Amount at a price equal to 100% of the principal amount of the Notes (and Pari Passu Indebtedness) to be purchased, plus accrued and unpaid interest thereon, if any, to the date of purchase. (C) If at any time any non-cash consideration received by the Company or any Restricted Subsidiary of the Company, as the case may be, in connection with any Asset Sale is converted into or sold or otherwise disposed of for cash (other than interest received with respect to any such non-cash consideration), then such conversion or disposition shall be deemed to constitute an Asset Sale hereunder and the Net Cash Proceeds thereof shall be applied in accordance with this covenant. (D) The Company may defer the Net Proceeds Offer until there is an aggregate unutilized Net Proceeds Offer Amount equal to or in excess of $5.0 million resulting from one or more Asset Sales (at which time, the entire unutilized Net Proceeds Offer Amount, and not just the amount in excess of $5.0 million, shall be applied as required pursuant to this covenant). (E) In the event of the transfer of substantially all (but not all) of the property and assets of the Company and its Restricted Subsidiaries as an entirety to a Person in a transaction permitted under "--Merger, Consolidation and Sale of Assets", which transaction does not constitute a Change of Control, the successor corporation shall be deemed to have sold the properties and assets of the Company and its Restricted Subsidiaries not so transferred for purposes of this covenant, and shall comply with the provisions of this covenant with respect to such deemed sale as if it were an Asset Sale. In addition, the fair market value of such properties and assets of the Company or its Restricted Subsidiaries deemed to be sold shall be deemed to be Net Cash Proceeds for purposes of this covenant. (F) To the extent that the aggregate value of Notes tendered pursuant to such Net Proceeds Offer is less than the Net Proceeds Offer Amount, the Company may use the remaining amounts for general corporate purposes. Upon completion of such Net Proceeds Offer, the Net Proceeds Offer Amount will be reset to zero. (G) Notwithstanding paragraphs (A) and (B) of this covenant, the Company and its Restricted Subsidiaries will be permitted to consummate an Asset Sale without complying with such paragraphs to the extent that: (1) at least 75% of the consideration for such Asset Sale constitutes Replacement Assets; and (2) such Asset Sale is for fair market value; PROVIDED that any cash or Cash Equivalents received by the Company or any of its Restricted Subsidiaries in connection with any Asset Sale permitted to be consummated under this paragraph shall constitute Net Cash Proceeds subject to the provisions of paragraphs (A) and (B) of this covenant. (H) Each Net Proceeds Offer will be mailed to the record Holders as shown on the register of Holders within 25 days following the Net Proceeds Offer Trigger Date, with a copy to the Trustee, and shall comply with the procedures set forth in the Indenture. Upon receiving notice of the Net Proceeds Offer, Holders may elect to tender their Notes in whole or in part in integral multiples of $1,000 in exchange for cash. To the extent Holders properly tender Notes and holders of Pari Passu 84 Indebtedness properly tender such Indebtedness in an amount exceeding the Net Proceeds Offer Amount, the tendered Notes and Pari Passu Indebtedness will be purchased on a PRO RATA basis based on the aggregate amounts of Notes and Pari Passu Indebtedness tendered (and the Trustee shall select the tendered Notes of tendering Holders on a PRO RATA basis based on the amount of Notes tendered). A Net Proceeds Offer shall remain open for a period of 20 business days or such longer period as may be required by law. (I) The Company will comply with the requirements of Rule 14e-1 under the Exchange Act and any other securities laws and regulations to the extent such laws and regulations are applicable in connection with the repurchase of Notes pursuant to a Net Proceeds Offer. To the extent that the provisions of any securities laws or regulations conflict with the "Asset Sale" provisions of the Indenture, the Company shall comply with the applicable securities laws and regulations and shall not be deemed to have breached its obligations under the "Asset Sale" provisions of the Indenture by virtue thereof. LIMITATION ON DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING RESTRICTED SUBSIDIARIES. The Company will not, and will not cause or permit any of its Restricted Subsidiaries to, directly or indirectly, create or otherwise cause or permit to exist or become effective any consensual encumbrance or restriction on the ability of any such Restricted Subsidiary of the Company to: (1) pay dividends or make any other distributions on or in respect of its Capital Stock; (2) make loans or advances or to pay any Indebtedness or other obligation owed to the Company or any other Restricted Subsidiary of the Company; or (3) transfer any of its property or assets to the Company or any other Restricted Subsidiary of the Company, except for such encumbrances or restrictions existing under or by reason of: (a) applicable law; (b) the Indenture, the Notes and the Guarantees; (c) in the case of clause (3) above, (A) agreements or instruments that restrict in a customary manner the subletting, assignment or transfer of any property or asset that is a lease, license, conveyance or contract or similar property or asset, (B) any transfer of, agreement to transfer, option or right with respect to, or Lien on, any property or assets of the Company, or any Restricted Subsidiary not otherwise prohibited by the Indenture or (C) provisions arising or agreed to in the ordinary course of business, not relating to any Indebtedness, that do not, individually or in the aggregate, detract from the value of property or assets of the Company or any of its Restricted Subsidiaries in any manner material to the Company or any of its Restricted Subsidiaries; (d) any agreement or instrument governing Acquired Indebtedness, which encumbrance or restriction is not applicable to any Person, or the properties or assets of any Person, other than the Person or the properties or assets of the Person so acquired; (e) agreements or instruments existing on the Issue Date to the extent and in the manner such encumbrances and restrictions are in effect on the Issue Date, including the Credit Agreement; (f) an agreement that has been entered into for the sale or disposition of all or substantially all of the Capital Stock of, or property and assets of, any Restricted Subsidiary of the Company or provisions with respect to the disposition or distribution of assets or property in joint venture agreements or other similar agreements or arrangements entered into in the ordinary course of business; 85 (g) provisions in agreements or instruments which prohibit the payment of dividends or the making of other distributions with respect to any class of Capital Stock of a Person other than on a pro rata basis; (h) Purchase Money Indebtedness incurred in compliance with the "Limitation on Incurrence of Additional Indebtedness" covenant that impose restrictions of the nature described in clause (3) above on the property acquired; (i) restrictions on cash or other deposits imposed by customers under contracts or other arrangements entered into or agreed to in the ordinary course of business; (j) restrictions on the ability of any Foreign Restricted Subsidiary to make dividends or other distributions resulting from the operation of reasonable financial covenants contained in documentation governing Indebtedness of such Subsidiary permitted under the Indenture; or (k) an agreement governing Indebtedness incurred to Refinance the Indebtedness issued, assumed or incurred pursuant to an agreement referred to in clause (b), (d), (e), (h) or (j) above; PROVIDED, HOWEVER, that the provisions relating to such encumbrance or restriction contained in any such Indebtedness are no less favorable to the Company in any material respect as determined by the Board of Directors of the Company in their reasonable and good faith judgment than the provisions relating to such encumbrance or restriction contained in agreements referred to in such clause (b), (d), (e), (h) or (j). LIMITATION ON PREFERRED STOCK OF RESTRICTED SUBSIDIARIES. The Company will not permit any of its Restricted Subsidiaries that are not Guarantors to issue any Preferred Stock (other than to the Company or to a Wholly Owned Restricted Subsidiary of the Company) or permit any Person (other than the Company or a Wholly Owned Restricted Subsidiary of the Company) to own any Preferred Stock of any Restricted Subsidiary of the Company that is not a Guarantor. LIMITATION ON LIENS. The Company will not, and will not cause or permit any of its Restricted Subsidiaries to, directly or indirectly, create, incur, assume or permit or suffer to exist any Liens (other than Permitted Liens) of any kind against or upon any property or assets of the Company or any of its Restricted Subsidiaries whether owned on the Issue Date or acquired after the Issue Date, or any proceeds therefrom, or assign or otherwise convey any right to receive income or profits therefrom unless: (1) in the case of Liens securing Subordinated Indebtedness, the Notes are secured by a Lien on such property, assets or proceeds that is senior in priority to such Liens; and (2) in all other cases, the Notes are equally and ratably secured by a Lien on such property, assets, proceeds, income or profit. In the event that all Liens, the existence of any of which gives rise to a Lien securing the Notes pursuant to the provisions of this covenant, cease to exist, the Lien securing the New Notes required by this covenant shall automatically be released and the Trustee shall execute appropriate documentation. MERGER, CONSOLIDATION AND SALE OF ASSETS. The Company will not, in a single transaction or series of related transactions, consolidate or merge with or into any Person, or sell, assign, transfer, lease, convey or otherwise dispose of (or cause or permit any Restricted Subsidiary of the Company to sell, assign, transfer, lease, convey or otherwise dispose of) all or substantially all of the Company's assets (determined on a consolidated basis for the Company and the Company's Restricted Subsidiaries) whether as an entirety or substantially as an entirety to any Person unless: (1) either: (a) the Company shall be the surviving or continuing corporation; or 86 (b) the Person (if other than the Company) formed by such consolidation or into which the Company is merged or the Person which acquires by sale, assignment, transfer, lease, conveyance or other disposition the properties and assets of the Company and of the Company's Restricted Subsidiaries substantially as an entirety (the "Surviving Entity"): (x) shall be a corporation organized and validly existing under the laws of the United States or any State thereof or the District of Columbia; and (y) shall expressly assume, by supplemental indenture (in form and substance reasonably satisfactory to the Trustee in all respects), executed and delivered to the Trustee, the due and punctual payment of the principal of, and premium, if any, and interest on all of the Notes and the performance of every covenant of the Notes, the Indenture and the Registration Rights Agreement on the part of the Company to be performed or observed; (2) except in the case of a consolidation or merger of the Company with or into a Wholly Owned Restricted Subsidiary, or a sale, assignment, transfer, lease, conveyance or other disposition of all or substantially all of the Company's assets to a Wholly Owned Restricted Subsidiary, immediately after giving effect to such transaction and the assumption contemplated by clause (1)(b)(y) above (including giving effect to any Indebtedness (including Acquired Indebtedness) incurred or anticipated to be incurred in connection with or in respect of such transaction), the Company or such Surviving Entity, as the case may be, (a) shall have a Consolidated Net Worth equal to or greater than the Consolidated Net Worth of the Company immediately prior to such transaction and (b) shall be able to incur at least $1.00 of additional Indebtedness (other than Permitted Indebtedness) pursuant to the "--Limitation on Incurrence of Additional Indebtedness" covenant; (3) immediately before and immediately after giving effect to such transaction and the assumption contemplated by clause (1)(b)(y) above (including, without limitation, giving effect to any Indebtedness (including Acquired Indebtedness) incurred or anticipated to be incurred and any Lien granted in connection with or in respect of the transaction), no Default or Event of Default shall have occurred or be continuing; and (4) the Company or the Surviving Entity shall have delivered to the Trustee an officers' certificate and an opinion of counsel, each stating that such consolidation, merger, sale, assignment, transfer, lease, conveyance or other disposition and, if a supplemental indenture is required in connection with such transaction, such supplemental indenture comply with the applicable provisions of the Indenture and that all conditions precedent in the Indenture relating to such transaction have been satisfied. For purposes of the foregoing, the transfer (by lease, assignment, sale or otherwise, in a single transaction or series of transactions) of all or substantially all of the properties or assets of one or more Restricted Subsidiaries of the Company, the Capital Stock of which constitutes all or substantially all of the properties and assets of the Company, shall be deemed to be the transfer of all or substantially all of the properties and assets of the Company and the Company, if surviving, will be automatically discharged from all of its Obligations under the Indenture and the Notes so long as the requirements set forth above are satisfied. The Indenture will provide that upon any consolidation, combination or merger or any transfer of all or substantially all of the assets of the Company in accordance with the foregoing, in which the Company is not the continuing corporation, the Surviving Entity formed by such consolidation or into which the Company is merged or to which such conveyance, lease or transfer is made shall succeed to, and be substituted for, and may exercise every right and power of, the Company under the Indenture and the Notes with the same effect as if such Surviving Entity had been named as such. 87 Each Guarantor (other than any Guarantor whose Guarantee is to be released in accordance with the terms of the Guarantee and the Indenture in connection with any transaction complying with the provisions of "--Limitation on Asset Sales") will not, and the Company will not cause or permit any Guarantor to, consolidate with or merge with or into any Person other than the Company or any other Guarantor unless: (1) the entity formed by or surviving any such consolidation or merger (if other than the Guarantor) or to which such sale, lease, conveyance or other disposition shall have been made is a corporation organized and existing under the laws of the United States or any State thereof or the District of Columbia; (2) such entity assumes by supplemental indenture all of the obligations of the Guarantor under the Guarantee, the Indenture and the Registration Rights Agreement; (3) immediately after giving effect to such transaction, no Default or Event of Default shall have occurred and be continuing; and (4) immediately after giving effect to such transaction and the use of any net proceeds therefrom on a PRO FORMA basis, the Company could satisfy the provisions of clause (2) of the first paragraph of this covenant. Any merger or consolidation, or sale, assignment, transfer, lease, conveyance or other disposition of all or substantially all of the property or assets, (a) of a Guarantor with and into the Company (with the Company being the surviving entity) or another Guarantor that is a Wholly Owned Restricted Subsidiary of the Company or (b) of the Company with an Affiliate incorporated solely for the purpose of reincorporating the Company in another jurisdiction in the United States or any state thereof or the District of Columbia, need only comply with clause (4) of the first paragraph of this covenant. LIMITATIONS ON TRANSACTIONS WITH AFFILIATES. The Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, enter into or permit to exist any transaction or series of related transactions (including, without limitation, the purchase, sale, lease or exchange of any property or the rendering of any service) with, or for the benefit of, any of its Affiliates (each an "Affiliate Transaction"), other than (x) Affiliate Transactions permitted under the third paragraph of this covenant and (y) Affiliate Transactions on terms that are no less favorable than those that might reasonably have been obtained in a comparable transaction at such time on an arm's-length basis from a Person that is not an Affiliate of the Company or such Restricted Subsidiary. All Affiliate Transactions (and each series of related Affiliate Transactions which are similar or part of a common plan) involving aggregate payments or other property with a fair market value in excess of $2.0 million shall be approved by the Board of Directors of the Company or such Restricted Subsidiary, as the case may be, such approval to be evidenced by a Board Resolution stating that such Board of Directors has determined that such transaction complies with the foregoing provisions. If the Company or any Restricted Subsidiary of the Company enters into an Affiliate Transaction (or a series of related Affiliate Transactions related to a common plan) that involves an aggregate fair market value of more than $5.0 million, the Company or such Restricted Subsidiary, as the case may be, shall, prior to the consummation thereof, obtain a favorable opinion as to the fairness of such transaction or series of related transactions to the Company or the relevant Restricted Subsidiary, as the case may be, from a financial point of view, issued by an Independent Financial Advisor and file the same with the Trustee. The restrictions set forth in the first paragraph of this covenant shall not apply to: (1) reasonable fees and compensation paid to and indemnity and reimbursement provided on behalf of, officers, directors, employees or consultants of the Company or any Restricted 88 Subsidiary of the Company as determined in good faith by the Company's Board of Directors or senior management; (2) transactions exclusively between or among the Company and any of its Wholly Owned Restricted Subsidiaries or exclusively between or among such Wholly Owned Restricted Subsidiaries, provided such transactions are not otherwise prohibited by the Indenture; (3) any agreement (other than the Management Agreement) as in effect as of the Issue Date or any amendment thereto or any transaction contemplated thereby (including pursuant to any amendment thereto) in any replacement agreement thereto so long as any such amendment or replacement agreement is not more disadvantageous to the Holders, taken as a whole, in any material respect than the original agreement as in effect on the Issue Date; (4) the payment to Castle Harlan, Inc. of management fees pursuant to and in accordance with the Management Agreement not to exceed the amount per year specified in the Management Agreement; PROVIDED that, in the event the full amount thereof is not paid in any year, the deficiency may cumulate and, provided that no Default or Event of Default shall have occurred and be continuing at the time of payment, may be paid together with the then current management fee for such subsequent year; (5) Restricted Payments permitted by the Indenture; (6) any employment, stock option, stock repurchase, employee benefit, compensation, business expense reimbursement or other employment-related agreements, arrangements or plans entered into by the Company or any of its Restricted Subsidiaries in the ordinary course of business; (7) loans or advances to employees or directors in the ordinary course of business of the Company or any of its Restricted Subsidiaries to the extent permitted under the Indenture; (8) any payments or other transactions pursuant to any tax-sharing agreement between the Company and any other Person with which it files a consolidated tax return or with which the Company is part of a consolidated group for tax purposes; (9) any Affiliate Transaction which constitutes a Permitted Investment; (10) any transaction on arm's length terms with non-Affiliates that become Affiliates as a result of such transaction; and (11) the issuance of Qualified Capital Stock of the Company or any of its Restricted Subsidiaries. ADDITIONAL SUBSIDIARY GUARANTEES. If the Company or any of its Restricted Subsidiaries transfers or causes to be transferred, in one transaction or a series of related transactions, any property to any Material Domestic Restricted Subsidiary that is not a Guarantor, or if the Company or any of its Restricted Subsidiaries shall organize, acquire or otherwise invest in another Material Domestic Restricted Subsidiary, then such transferee or acquired or other Restricted Subsidiary shall: (1) execute and deliver to the Trustee a supplemental indenture in form reasonably satisfactory to the Trustee pursuant to which such Restricted Subsidiary shall unconditionally guarantee all of the Company's obligations under the Notes and the Indenture on the terms set forth in the Indenture; and (2) deliver to the Trustee an opinion of counsel that such supplemental indenture has been duly authorized, executed and delivered by such Restricted Subsidiary and constitutes a legal, valid, binding and enforceable obligation of such Restricted Subsidiary. Thereafter, such Restricted Subsidiary shall be a Guarantor for all purposes of the Indenture. 89 CONDUCT OF BUSINESS. The Company and its Restricted Subsidiaries will not engage in any businesses which is not a Permitted Business. REPORTS TO HOLDERS. The Indenture will provide that, whether or not required by the rules and regulations of the Commission, so long as any Notes are outstanding and prior to the Company being subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act, the Company will deliver to the Trustee, within the time periods specified in the Commission's rule and regulations: (1) all quarterly and annual financial information that would be required to be contained in a filing with the Commission on Forms 10-Q and 10-K if the Company were required to file such Forms, including a "Management's Discussion and Analysis of Financial Condition and Results of Operations" that describes the financial condition and results of operations of the Company and its consolidated Subsidiaries and, with respect to the annual financial statements only, a report thereon by the Company's certified independent accountants; and (2) all current reports that would be required to be filed with the Commission on Form 8-K if the Company were required to file such reports, in each case within the time periods specified in the Commission's rules and regulations. In addition, following the consummation of the exchange offer contemplated by the Registration Rights Agreement, whether or not required by the rules and regulations of the Commission, the Company will file a copy of all such information and reports with the Commission for public availability within the time periods specified in the Commission's rules and regulations (unless the Commission will not accept such a filing) and make such information available to securities analysts and prospective investors upon request. In addition, the Company has agreed that, for so long as any Notes remain outstanding, it will furnish to the Holders and to securities analysts and prospective investors, upon their request, the information required to be delivered pursuant to Rule 144A(d)(4) under the Securities Act. PAYMENTS FOR CONSENT. Neither the Company nor any of its Subsidiaries shall, directly or indirectly, pay or cause to be paid any consideration, whether by way of interest, fee or otherwise, to any Holder of any Notes for or as an inducement to any consent, waiver or amendment of any of the terms or provisions of the Indenture or the Notes unless such consideration is offered to be paid or is paid to all Holders of the Notes that consent, waive or agree to amend in the time frame set forth in the solicitation documents relating to such consent, waiver or agreement. EVENTS OF DEFAULT The following events are defined in the Indenture as "Events of Default": (1) the failure to pay interest on any Note when the same becomes due and payable and the default continues for a period of 30 days; (2) the failure to pay the principal of any Note, when such principal becomes due and payable, at maturity, upon redemption or otherwise (including the failure to make a payment to purchase Notes tendered pursuant to a Change of Control Offer or a Net Proceeds Offer); (3) a default in the observance or performance of any other covenant or agreement contained in the Indenture which default continues for a period of 45 days after the Company receives written notice specifying the default (and demanding that such default be remedied and stating that such notice is a "Notice of Default") from the Trustee or the Holders of at least 25% of the outstanding principal amount of the Notes (except in the case of a default with respect to the "Merger, Consolidation and Sale of Assets" covenant, which will constitute an Event of Default with such notice requirement but without such passage of time requirement); 90 (4) the failure to pay at final maturity (giving effect to any applicable grace periods and any extensions thereof) the principal amount of any Indebtedness of the Company or any Restricted Subsidiary of the Company, or the acceleration of the final stated maturity of any such Indebtedness, if the aggregate principal amount of such Indebtedness, together with the principal amount of any other such Indebtedness in default for failure to pay principal at final maturity or which has been accelerated, aggregates $5.0 million or more at any time and such failure shall not have been cured or waived within 20 days thereof; (5) one or more judgments in an aggregate amount in excess of $5.0 million (net of any insurance or indemnity payments actually received in respect thereof prior to or within 60 days from the entry thereof, or to be received in respect thereof in the event any appeal thereof shall be unsuccessful) shall have been rendered against the Company or any of its Restricted Subsidiaries and such judgments shall remain undischarged, unpaid or unstayed for a period of 60 consecutive days after such judgment or judgments become final and non-appealable; (6) certain events of bankruptcy affecting the Company or any of its Significant Subsidiaries; or (7) any Guarantee of a Significant Subsidiary ceases to be in full force and effect or any Guarantee of a Significant Subsidiary is declared to be null and void and unenforceable or any Guarantee of a Significant Subsidiary is found to be invalid or any Guarantor that is a Significant Subsidiary denies its liability in writing under its Guarantee (other than by reason of release of a Guarantor in accordance with the terms of the Indenture). If an Event of Default (other than an Event of Default specified in clause (6) above with respect to the Company) shall occur and be continuing, the Trustee or the Holders of at least 25% in principal amount of outstanding Notes may declare the principal of and accrued and unpaid interest on all the Notes to be due and payable by notice in writing to the Company and the Trustee specifying the respective Event of Default and that it is a "notice of acceleration", and the same shall become immediately due and payable. If an Event of Default specified in clause (6) above with respect to the Company occurs and is continuing, then all unpaid principal of, and premium, if any, and accrued and unpaid interest on all of the outstanding Notes shall IPSO FACTO become and be immediately due and payable without any declaration or other act on the part of the Trustee or any Holder. The Indenture will provide that, at any time after a declaration of acceleration with respect to the Notes as described in the preceding paragraph, the Holders of a majority in principal amount of the Notes may rescind and cancel such declaration and its consequences: (1) if the rescission would not conflict with any judgment or decree; (2) if all existing Events of Default have been cured or waived except nonpayment of principal or interest that has become due solely because of the acceleration; (3) to the extent the payment of such interest is lawful, if interest on overdue installments of interest and overdue principal, which has become due otherwise than by such declaration of acceleration, has been paid; and (4) if the Company has paid the Trustee its reasonable compensation and reimbursed the Trustee for its expenses, disbursements and advances. No such rescission shall affect any subsequent Default or impair any right consequent thereto. The Holders of a majority in principal amount of the Notes may waive any existing or past Default or Event of Default under the Indenture, and its consequences, except a default in the payment of the principal of or interest on any Notes. 91 Holders of the Notes may not enforce the Indenture or the Notes except as provided in the Indenture and under the TIA. Subject to the provisions of the Indenture relating to the duties of the Trustee, the Trustee is under no obligation to exercise any of its rights or powers under the Indenture at the request, order or direction of any of the Holders, unless such Holders have offered to the Trustee reasonable indemnity. Subject to all provisions of the Indenture and applicable law, the Holders of a majority in aggregate principal amount of the then outstanding Notes have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or exercising any trust or power conferred on the Trustee. Under the Indenture, the Company is required to provide an officers' certificate to the Trustee promptly, and in any event within 5 Business Days, upon any such officer obtaining knowledge of any Default or Event of Default (provided that the Company shall provide such certification at least annually whether or not any officer knows of any Default or Event of Default) that has occurred and, if applicable, describe such Default or Event of Default and the status thereof. NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS No past, present or future director, officer, employee, incorporator, agent or stockholder or Affiliate of the Company, as such, shall have any liability for any obligations of the Company under the Notes, the Indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation. No past, present or future director, officer, employee, incorporator, agent or stockholder or Affiliate of any of the Guarantors, as such, shall have any liability for any obligations of the Guarantors under the Guarantees, the Indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder of Notes and Guarantees by accepting a Note and a Guarantee waives and releases all such liabilities. The waiver and release are part of the consideration for issuance of the Notes and the Guarantees. Such waiver may not be effective to waive liabilities under the federal securities law and it is the view of the Commission that such a waiver is against public policy. LEGAL DEFEASANCE AND COVENANT DEFEASANCE The Company may, at its option and at any time, elect to have its obligations and the obligations of the Guarantors discharged with respect to the outstanding Notes ("Legal Defeasance"). Such Legal Defeasance means that the Company shall be deemed to have paid and discharged the entire indebtedness represented by the outstanding Notes, except for: (1) the rights of Holders to receive payments in respect of the principal of, premium, if any, and interest on the Notes when such payments are due; (2) the Company's obligations with respect to the Notes concerning issuing temporary New Notes, registration of Notes, mutilated, destroyed, lost or stolen Notes and the maintenance of an office or agency for payments; (3) the rights, powers, trust, duties and immunities of the Trustee and the Company's obligations in connection therewith; and (4) the Legal Defeasance provisions of the Indenture. In addition, the Company may, at its option and at any time, elect to have the obligations of the Company released with respect to certain covenants that are described in the Indenture ("Covenant Defeasance") and thereafter any omission to comply with such obligations shall not constitute a Default or Event of Default with respect to the Notes. In the event Covenant Defeasance occurs, certain events (not including non-payment, bankruptcy, receivership, reorganization and insolvency events) 92 described under "Events of Default" will no longer constitute Events of Default with respect to the Notes. In order to exercise either Legal Defeasance or Covenant Defeasance: (1) the Company must irrevocably deposit with the Trustee, in trust, for the benefit of the Holders cash in U.S. dollars, non-callable U.S. government obligations, or a combination thereof, in such amounts as will be sufficient, in the opinion of a nationally recognized firm of independent public accountants selected by the Company, to pay the principal of, premium, if any, and interest on the Notes on the stated date for payment thereof or on the applicable redemption date, as the case may be; (2) in the case of Legal Defeasance, the Company shall have delivered to the Trustee an opinion of counsel in the United States reasonably acceptable to the Trustee confirming that: (a) the Company has received from, or there has been published by, the Internal Revenue Service a ruling; or (b) since the date of the Indenture, there has been a change in the applicable federal income tax law, in either case to the effect that, and based thereon such opinion of counsel shall confirm that, the Holders will not recognize income, gain or loss for federal income tax purposes as a result of such Legal Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Legal Defeasance had not occurred; (3) in the case of Covenant Defeasance, the Company shall have delivered to the Trustee an opinion of counsel in the United States reasonably acceptable to the Trustee confirming that the Holders will not recognize income, gain or loss for federal income tax purposes as a result of such Covenant Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Covenant Defeasance had not occurred; (4) no Default or Event of Default shall have occurred and be continuing on the date of such deposit or insofar as Events of Default from bankruptcy or insolvency events are concerned, at any time in the period ending on the 91st day after the date of deposit (other than a Default or Event of Default arising in connection with the borrowing of funds to fund the deposit referred to in clause (1) above); (5) such Legal Defeasance or Covenant Defeasance shall not result in a breach or violation of, or constitute a default under the Indenture or any other material agreement or instrument to which the Company or any of its Subsidiaries is a party or by which the Company or any of its Subsidiaries is bound; (6) the Company shall have delivered to the Trustee an officers' certificate stating that the deposit was not made by the Company with the intent of preferring the Holders over any other creditors of the Company or with the intent of defeating, hindering, delaying or defrauding any other creditors of the Company or others; 93 (7) the Company shall have delivered to the Trustee an officers' certificate and an opinion of counsel, each stating that all conditions precedent provided for or relating to the Legal Defeasance or the Covenant Defeasance have been complied with; (8) the Company shall have delivered to the Trustee an opinion of counsel to the effect that, assuming no intervening bankruptcy of the Company between the date of deposit and the 91st day following the date of deposit and that no Holder is an insider of the Company, after the 91st day following the date of deposit, the trust funds will not be subject to the effect of any applicable bankruptcy, insolvency, reorganization or similar laws affecting creditors' rights generally; and (9) certain other customary conditions precedent are satisfied. Notwithstanding the foregoing, the opinion of counsel required by clause (2) above with respect to a Legal Defeasance need not be delivered if all Notes not theretofore delivered to the Trustee for cancellation (1) have become due and payable or (2) will become due and payable on the maturity date within one year under arrangements satisfactory to the Trustee for the giving of notice of redemption by the Trustee in the name, and at the expense, of the Company. SATISFACTION AND DISCHARGE The Indenture will be discharged and will cease to be of further effect as to all outstanding New Notes when: (1) either: (a) all the Notes theretofore authenticated and delivered (except lost, stolen or destroyed Notes which have been replaced or paid and Notes for whose payment money has theretofore been deposited in trust or segregated and held in trust by the Company and thereafter repaid to the Company or discharged from such trust) have been delivered to the Trustee for cancellation; or (b) all Notes not theretofore delivered to the Trustee for cancellation have become due and payable and the Company has irrevocably deposited or caused to be deposited with the Trustee funds in an amount sufficient to pay and discharge the entire Indebtedness on the Notes not theretofore delivered to the Trustee for cancellation, for principal of, premium, if any, and interest on the Notes to the date of deposit together with irrevocable instructions from the Company directing the Trustee to apply such funds to the payment thereof at maturity or redemption, as the case may be; (2) the Company has paid all other sums payable under the Indenture by the Company; and (3) the Company has delivered to the Trustee an officers' certificate and an opinion of counsel stating that all conditions precedent under the Indenture relating to the satisfaction and discharge of the Indenture have been complied with. MODIFICATION OF THE INDENTURE From time to time, the Company, the Guarantors and the Trustee, without the consent of the Holders, may amend, waive or otherwise modify provisions of the Indenture for certain specified purposes, including (a) curing ambiguities, defects or inconsistencies so long as such changes do not, in the opinion of the Trustee, adversely affect the rights of any of the Holders in any material respect, (b) providing for uncertificated Notes in addition to or in place of certificated Notes, (c) providing for the assumption of the Company's obligations to Holders of the Notes in case of a merger or 94 consolidation or sale of all or substantially all of the Company's assets; or (d) complying with the requirements of the Commission in order to effect or maintain the qualification of the Indenture under the TIA. Other amendments, waivers and other modifications of provisions of the Indenture may be made with the consent of the Holders of a majority in principal amount of the then outstanding Notes issued under the Indenture, except that, without the consent of each Holder affected thereby, no such amendment, waiver or other modification may: (1) reduce the principal amount of Notes at maturity whose Holders must consent to an amendment; (2) reduce the rate of or change or have the effect of changing the time for payment of interest, including defaulted interest, on any Notes; (3) reduce the principal of or change or have the effect of changing the fixed maturity of any New Notes, or change the date on which any Notes may be subject to redemption or reduce the redemption price therefor; (4) make any Notes payable in money other than that stated in the Notes; (5) make any change in provisions of the Indenture protecting the right of each Holder to receive payment of principal of and interest on such Holder's Note or Notes on or after the due date thereof or to bring suit to enforce such payment, or permitting Holders of a majority in principal amount of Notes to waive Defaults or Events of Default; (6) after the Company's obligation to purchase Notes arises thereunder, amend, change or modify in any material respect the obligation of the Company to make and consummate a Change of Control Offer in the event of a Change of Control or make and consummate a Net Proceeds Offer with respect to any Asset Sale that has been consummated or, after such Change of Control has occurred or such Asset Sale has been consummated, modify any of the provisions or definitions with respect thereto; (7) modify or change any provision of the Indenture or the related definitions affecting the ranking of the Notes or any Guarantee in a manner which adversely affects the Holders; or (8) release any Guarantor that is a Significant Subsidiary from any of its obligations under its Guarantee or the Indenture otherwise than in accordance with the terms of the Indenture. Notwithstanding the foregoing, the consent of at least 66 2/3% in principal amount of the then outstanding Notes issued under the Indenture shall be required (a) to eliminate any covenant in the Indenture described under "--Certain Covenants" or "--Change of Control" above or any of the related definitions or (b) to amend, modify or waive one or more provisions in any such covenant or definition that would (individually or if aggregated with other amendments, modifications or waivers previously or concurrently made or given) effectively eliminate the protections afforded to the Holders by such covenant, in each case (a) or (b), where such elimination, amendment, modification or waiver would otherwise require the consent of a majority in principal amount of the then outstanding Notes issued under the Indenture. GOVERNING LAW The Indenture will provide that it, the Notes and the Guarantees will be governed by, and construed in accordance with, the laws of the State of New York but without giving effect to applicable principles of conflicts of law to the extent that the application of the law of another jurisdiction would be required thereby. 95 THE TRUSTEE The Indenture will provide that, except during the continuance of an Event of Default, the Trustee will perform only such duties as are specifically set forth in the Indenture. During the existence of an Event of Default, the Trustee will exercise such rights and powers vested in it by the Indenture, and use the same degree of care and skill in its exercise as a prudent person would exercise or use under the circumstances in the conduct of his or her own affairs. The Indenture and the provisions of the TIA contain certain limitations on the rights of the Trustee, should it become a creditor of the Company, to obtain payments of claims in certain cases or to realize on certain property received in respect of any such claim as security or otherwise. Subject to the TIA, the Trustee will be permitted to engage in other transactions; PROVIDED that if the Trustee acquires any conflicting interest as described in the TIA, it must eliminate such conflict or resign. CERTAIN DEFINITIONS Set forth below is a summary of certain of the defined terms used in the Indenture. Reference is made to the Indenture for the full definition of all such terms, as well as any other terms used herein for which no definition is provided. "ACQUIRED INDEBTEDNESS" means Indebtedness of a Person or any of its Subsidiaries existing at the time such Person becomes a Restricted Subsidiary of the Company or at the time it merges or consolidates with or into the Company or any of its Restricted Subsidiaries or assumed in connection with the acquisition of assets from such Person and in each case not incurred by such Person in connection with, or in anticipation or contemplation of, such Person becoming a Restricted Subsidiary of the Company or such acquisition, merger or consolidation. "AFFILIATE" means, with respect to any specified Person, any other Person who directly or indirectly through one or more intermediaries controls, or is controlled by, or is under common control with, such specified Person. The term "control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative of the foregoing. "ASSET ACQUISITION" means (1) an Investment by the Company or any Restricted Subsidiary of the Company in any other Person pursuant to which such Person shall become a Restricted Subsidiary of the Company or any Restricted Subsidiary of the Company, or shall be merged with or into the Company or any Restricted Subsidiary of the Company, or (2) the acquisition by the Company or any Restricted Subsidiary of the Company of the assets of any Person (other than a Restricted Subsidiary of the Company) which constitute all or substantially all of the assets of such Person or comprises any division or line of business of such Person or any other properties or assets of such Person other than in the ordinary course of business. "ASSET SALE" means any direct or indirect sale, issuance, conveyance, transfer, lease (other than operating leases entered into in the ordinary course of business), assignment or other transfer for value by the Company or any of its Restricted Subsidiaries (including any Sale and Leaseback Transaction) to any Person other than the Company or a Wholly Owned Restricted Subsidiary of the Company of: (1) any Capital Stock of any Restricted Subsidiary of the Company; or (2) any other property or assets of the Company or any Restricted Subsidiary of the Company other than in the ordinary course of business; PROVIDED, HOWEVER, that asset sales or other dispositions shall not include: (a) a transaction or 96 series of related transactions for which the Company or its Restricted Subsidiaries receive aggregate consideration of less than $2,000,000; (b) the sale, lease, conveyance, disposition or other transfer of all or substantially all of the assets (determined on a consolidated basis for the Company and its Restricted Subsidiaries) of the Company as permitted under the "Merger, Consolidation and Sale of Assets" covenant; (c) any Restricted Payment permitted by the "Limitation on Restricted Payments" covenants or that constitutes a Permitted Investment; (d) sales or other dispositions of inventory, receivables or other current assets in the ordinary course of business; (e) a Permitted Lien; and (f) a sale or other disposition or abandonment of damaged, worn-out or obsolete property. "BOARD OF DIRECTORS" means, as to any Person, the board of directors or similar governing body of such Person or any duly authorized committee thereof. "BOARD RESOLUTION" means, with respect to any Person, a copy of a resolution certified by the Secretary or an Assistant Secretary of such Person to have been duly adopted by the Board of Directors of such Person and to be in full force and effect on the date of such certification, and delivered to the Trustee. "BORROWING BASE" means, as of any date, an amount equal to the sum of: (1) 85% of the aggregate book value of all accounts receivable of the Company and its Restricted Subsidiaries; and (2) 60% of the aggregate book value of all inventory owned by the Company and its Restricted Subsidiaries, all calculated on a consolidated basis and in accordance with GAAP. To the extent that information is not available as to the amount of accounts receivable or inventory as of a specific date, the Company shall use the most recent available information for purposes of calculating the Borrowing Base. "CAPITAL STOCK" means: (1) with respect to any Person that is a corporation, any and all shares, interests, participations or other equivalents (however designated and whether or not voting) of corporate stock, including each class of Common Stock and Preferred Stock of such Person, and all options, warrants or other rights to purchase or acquire any of the foregoing; and (2) with respect to any Person that is not a corporation, any and all partnership, membership or other equity interests of such Person, and all options, warrants or other rights to purchase or acquire any of the foregoing. "CAPITALIZED LEASE OBLIGATION" means, as to any Person, the obligations of such Person under a lease that are required to be classified and accounted for as capital lease obligations under GAAP and, for purposes of this definition, the amount of such obligations at any date shall be the capitalized amount of such obligations at such date, determined in accordance with GAAP. "CASH EQUIVALENTS" means: (1) marketable direct obligations issued by, or unconditionally guaranteed by, the United States Government or issued by any agency thereof and backed by the full faith and credit of the United States, in each case maturing within one year from the date of acquisition thereof; 97 (2) marketable direct obligations issued by any state of the United States of America or any political subdivision of any such state or any public instrumentality thereof maturing within one year from the date of acquisition thereof and, at the time of acquisition, having one of the two highest ratings obtainable from either Standard & Poor's, a division of the McGraw-Hill Companies ("S&P"), or Moody's Investors Service, Inc. ("Moody's"); (3) commercial paper maturing no more than one year from the date of creation thereof and, at the time of acquisition, having a rating of at least A-1 from S&P or at least P-1 from Moody's; (4) certificates of deposit or bankers' acceptances maturing within one year from the date of acquisition thereof issued by any bank organized under the laws of the United States of America or any state thereof or the District of Columbia or any U.S. branch of a foreign bank having at the date of acquisition thereof combined capital and surplus of not less than $250.0 million; (5) repurchase obligations with a term of not more than seven days for underlying securities of the types described in clause (1) above entered into with any bank meeting the qualifications specified in clause (4) above; and (6) investments in money market funds which invest substantially all their assets in securities of the types described in clauses (1) through (5) above. "CBI PREFERRED STOCK" means the Series A Preferred Stock, par value $0.01 per share, of Commemorative Brands, Inc. "CBI SUBORDINATED NOTES" means the 11% senior subordinated notes due January 15, 2007 of Commemorative Brands, Inc. "CHANGE OF CONTROL" means the occurrence of one or more of the following events: (1) any sale, lease, exchange or other transfer other than a Lien permitted by the Indenture or by way of consolidation or merger (in one transaction or a series of related transactions) of all or substantially all of the assets of the Company and its Subsidiaries, taken as a whole, to any Person or group of related Persons for purposes of Section 13(d) of the Exchange Act (a "Group"), together with any Affiliates thereof (whether or not otherwise in compliance with the provisions of the Indenture) other than to the Permitted Holders; (2) the approval by the holders of Capital Stock of the Company of any plan or proposal for the liquidation or dissolution of the Company (whether or not otherwise in compliance with the provisions of the Indenture); (3) (a) prior to a Public Equity Offering after the Issue Date, any Person or Group (other than the Permitted Holders and any entity formed for the purpose of owning Capital Stock of the Company) shall become the owner, directly or indirectly, beneficially or of record, of shares representing more than 50% of the aggregate ordinary voting power represented by the issued and outstanding Capital Stock of the Company or (b) following a Public Equity Offering after the Issue Date, any Person or Group (other than the Permitted Holders and any entity formed for the purpose of owning Capital Stock of the Company) shall become the owner, directly or indirectly, beneficially or of record, of shares representing more than 35% of the aggregate ordinary voting power represented by the issued and outstanding Capital Stock of the Company; PROVIDED, HOWEVER, that such event described in this clause (b) shall not be deemed to be a Change of Control so long as the Permitted Holders own shares representing in the aggregate a greater percentage of the total voting power of the issued and outstanding Capital Stock of the Company than such other Person or Group; or 98 (4) the replacement of a majority of the Board of Directors of the Company over a two-year period from the directors who constituted the Board of Directors of the Company at the beginning of such period, and such replacement, or nomination for election by the Company's shareholders, shall not have been approved by a vote of at least a majority of the Board of Directors of the Company then still in office who either were members of such Board of Directors at the beginning of such period or whose election or nomination as a member of such Board of Directors was previously so approved. "COMMISSION" means the Securities and Exchange Commission. "COMMON STOCK" of any Person means any and all shares, interests or other participations in, and other equivalents (however designated and whether voting or non-voting) of such Person's common stock, whether outstanding on the Issue Date or issued after the Issue Date, and includes, without limitation, all series and classes of such common stock. "COMPANY WARRANTS" means warrants to purchase shares of Common Stock of the Company that expire on January 31, 2008 and were initially issued by Commemorative Brands, Inc. in connection with the issuance of the CBI Preferred Stock. "CONSOLIDATED EBITDA" means, with respect to any Person, for any period, the sum (without duplication) of: (1) Consolidated Net Income; and (2) to the extent Consolidated Net Income has been reduced thereby: (a) all income taxes of such Person and its Restricted Subsidiaries paid or accrued in accordance with GAAP for such period (other than income taxes attributable to extraordinary, unusual or nonrecurring gains or losses or taxes attributable to sales or dispositions outside the ordinary course of business); (b) Consolidated Interest Expense; and (c) Consolidated Non-cash Charges LESS any non-cash items increasing Consolidated Net Income for such period, all as determined on a consolidated basis for such Person and its Restricted Subsidiaries in accordance with GAAP. With respect to periods prior to the Issue Date, Consolidated EBITDA shall include (without duplication) all adjustments relating to the elimination of salary expense, non-recurring inventory charges and the reunion service business, in each case of the type reflected in the calculation of Adjusted EBITDA set forth in footnote 3 to "Summary Consolidated Historical and Unaudited Pro Forma Financial Data." "CONSOLIDATED FIXED CHARGE COVERAGE RATIO" means, with respect to any Person, the ratio of Consolidated EBITDA of such Person during the four full fiscal quarters (the "Four Quarter Period") ending prior to the date of the transaction giving rise to the need to calculate the Consolidated Fixed Charge Coverage Ratio for which financial statements are available (the "Transaction Date") to Consolidated Fixed Charges of such Person for the Four Quarter Period. In addition to and without limitation of the foregoing, for purposes of this definition, "Consolidated EBITDA" and "Consolidated Fixed Charges" shall be calculated after giving effect on a PRO FORMA basis for the period of such calculation to: (1) the incurrence or repayment of any Indebtedness of such Person or any of its Restricted Subsidiaries (and the application of the proceeds thereof) giving rise to the need to make such 99 calculation and any incurrence or repayment of other Indebtedness (and the application of the proceeds thereof), other than the incurrence or repayment of Indebtedness in the ordinary course of business for working capital purposes pursuant to working capital facilities, occurring during the Four Quarter Period or at any time subsequent to the last day of the Four Quarter Period and on or prior to the Transaction Date, as if such incurrence or repayment, as the case may be (and the application of the proceeds thereof), occurred on the first day of the Four Quarter Period; and (2) any asset sales or other dispositions or Asset Acquisitions (including, without limitation, any Asset Acquisition giving rise to the need to make such calculation as a result of such Person or one of its Restricted Subsidiaries (including any Person who becomes a Restricted Subsidiary as a result of the Asset Acquisition) incurring, assuming or otherwise being liable for Acquired Indebtedness and also including any Consolidated EBITDA (including any pro forma expense and cost reductions calculated on a basis consistent with Regulation S-X under the Exchange Act) attributable to the assets which are the subject of the Asset Acquisition or asset sale or other disposition during the Four Quarter Period) occurring during the Four Quarter Period or at any time subsequent to the last day of the Four Quarter Period and on or prior to the Transaction Date, as if such asset sale or other disposition or Asset Acquisition (including the incurrence, assumption or liability for any such Acquired Indebtedness) occurred on the first day of the Four Quarter Period. If such Person or any of its Restricted Subsidiaries directly or indirectly guarantees Indebtedness of a third Person, the preceding sentence shall give effect to the incurrence of such guaranteed Indebtedness as if such Person or any Restricted Subsidiary of such Person had directly incurred or otherwise assumed such guaranteed Indebtedness. Furthermore, in calculating "Consolidated Fixed Charges" for purposes of determining the denominator (but not the numerator) of this "Consolidated Fixed Charge Coverage Ratio": (1) interest on outstanding Indebtedness determined on a fluctuating basis as of the Transaction Date and which will continue to be so determined thereafter shall be deemed to have accrued at a fixed rate per annum equal to the rate of interest on such Indebtedness in effect on the Transaction Date; and (2) notwithstanding clause (1) above, interest on Indebtedness determined on a fluctuating basis, to the extent such interest is covered by agreements relating to Interest Swap Obligations, shall be deemed to accrue at the rate per annum resulting after giving effect to the operation of such agreements. "CONSOLIDATED FIXED CHARGES" means, with respect to any Person for any period, the sum, without duplication, of: (1) Consolidated Interest Expense; plus (2) the product of (x) the amount of all cash dividend payments on any series of Preferred Stock of such Person and, to the extent permitted under the Indenture, its Restricted Subsidiaries 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 INTEREST EXPENSE" means, with respect to any Person for any period, the sum of, without duplication: (1) the aggregate of the interest expense of such Person and its Restricted Subsidiaries for such period determined on a consolidated basis in accordance with GAAP, including without 100 limitation: (a) any amortization of debt discount and amortization or write-off of deferred financing costs; (b) the net costs under Interest Swap Obligations; (c) all capitalized interest; and (d) the interest portion of any deferred payment obligation; and (2) the interest component of Capitalized Lease Obligations paid, accrued and/or scheduled to be paid or accrued by such Person and its Restricted Subsidiaries during such period as determined on a consolidated basis in accordance with GAAP. "CONSOLIDATED NET INCOME" means, with respect to any Person, for any period, the aggregate net income (or loss) of such Person and its Restricted Subsidiaries for such period on a consolidated basis, determined in accordance with GAAP; PROVIDED that there shall be excluded therefrom (without duplication): (1) after-tax gains or losses from Asset Sales (without regard to the $2,000,000 limitation set forth in the definition thereof) or abandonments or reserves relating thereto; (2) extraordinary gains and extraordinary losses; (3) the net income or loss of any Person acquired prior to the date it becomes a Restricted Subsidiary of the referent Person or is merged or consolidated with the referent Person or any Restricted Subsidiary of the referent Person; (4) the net income (but not loss) of any Restricted Subsidiary of the referent Person to the extent that the declaration of dividends or similar distributions by that Restricted Subsidiary of that income is restricted by a contract, operation of law or otherwise (other than by reason of the CBI Preferred Stock), except to the extent of cash dividends or distributions paid to the referent Person or to a Wholly Owned Restricted Subsidiary of the referent Person by such Restricted Subsidiary; (5) the net income (but not loss) of any Person, other than a Restricted Subsidiary of the referent Person, except to the extent of cash dividends or distributions paid to the referent Person or to a Wholly Owned Restricted Subsidiary of the referent Person by such Person; (6) any restoration to income of any contingency reserve, except to the extent that provision for such reserve was made out of Consolidated Net Income accrued at any time following the Issue Date; (7) income or loss attributable to discontinued operations (including, without limitation, operations disposed of during such period whether or not such operations were classified as discontinued); and (8) in the case of a successor to the referent Person by consolidation or merger or as a transferee of the referent Person's assets, any earnings of the successor corporation prior to such consolidation, merger or transfer of assets. "CONSOLIDATED NET WORTH" of any Person means the consolidated stockholders' equity of such Person, determined on a consolidated basis in accordance with GAAP, less (without duplication) amounts attributable to Disqualified Capital Stock of such Person. "CONSOLIDATED NON-CASH CHARGES" means, with respect to any Person, for any period, the aggregate depreciation, amortization 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 any such charge which requires an accrual of or a reserve for cash charges for any future period). 101 "CREDIT AGREEMENT" means the Credit Agreement dated as of February 20, 2002, among the Company, the lenders party thereto in their capacities as lenders thereunder and The Bank of Nova Scotia, as administrative agent, together with the documents related thereto (including, without limitation, any instruments, guarantee agreements and pledge and/or security documents), in each case as such agreements may be amended (including, without limitation, any amendment and restatement thereof), supplemented or otherwise modified from time to time, including any agreement extending the maturity of, refinancing, replacing or otherwise restructuring (including, without limitation, increasing the amount of available borrowings thereunder (PROVIDED that such increase in borrowings is permitted by the "Limitation on Incurrence of Additional Indebtedness" covenant above) or adding Restricted Subsidiaries of the Company as additional borrowers or guarantors thereunder) all or any portion of the Indebtedness under such agreement or any successor or replacement agreement and whether by the same or any other agent, lender or group of lenders. "CURRENCY AGREEMENT" means any foreign exchange contract, currency swap agreement or other similar agreement or arrangement designed to protect the Company or any Restricted Subsidiary of the Company against fluctuations in currency values. "DEFAULT" means an event or condition the occurrence of which is, or with the lapse of time or the giving of notice or both would be, an Event of Default. "DISQUALIFIED CAPITAL STOCK" means that portion of any Capital Stock which, by its terms (or by the terms of any security into which it is convertible or for which it is exchangeable at the option of the holder thereof), or upon the happening of any event (other than an event which would constitute a Change of Control), matures or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or is redeemable at the sole option of the holder thereof (except, in each case, upon the occurrence of a Change of Control) on or prior to the final maturity date of the Notes, PROVIDED that any Capital Stock that would not constitute Disqualified Capital Stock but for provisions thereof giving holders thereof the right to require such Person to repurchase or redeem such Capital Stock upon the occurrence of an "asset sale" or "change of control" occurring prior to the stated maturity of the Notes shall not constitute Disqualified Capital Stock if the "asset sale" or "change of control" provisions applicable to such Capital Stock are no more favorable to the holders of such Capital Stock than the provisions contained in "Limitation on Asset Sales" and "Change of Control" covenants and such Capital Stock specifically provides that such Person will not repurchase or redeem any such stock pursuant to such provision prior to the Company's repurchase of such Notes as are required to be repurchased pursuant to such covenants. "DOMESTIC RESTRICTED SUBSIDIARY" means a Restricted Subsidiary incorporated or otherwise organized or existing under the laws of the United States, any state thereof or any territory or possession of the United States. "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended, or any successor statute or statutes thereto. "FAIR MARKET VALUE" means, with respect to any asset or property, the price 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 whom is under undue pressure or compulsion to complete the transaction. Fair market value shall be determined by the Board of Directors of the Company acting reasonably and in good faith and, if such value exceeds $2.0 million, shall be evidenced by a Board Resolution of the Board of Directors of the Company delivered to the Trustee. 102 "FOREIGN RESTRICTED SUBSIDIARY" means any Restricted Subsidiary of the Company other than a Domestic Restricted Subsidiary. "GAAP" means generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as may be approved by a significant segment of the accounting profession of the United States, which are in effect from time to time. "GUARANTOR" means: (1) each of the Company's Domestic Restricted Subsidiaries as of the Issue Date; and (2) each of the Company's Restricted Subsidiaries that in the future executes a supplemental indenture in which such Restricted Subsidiary agrees to be bound by the terms of the Indenture as a Guarantor; PROVIDED that any Person constituting a Guarantor as described above shall cease to constitute a Guarantor when its respective Guarantee is released in accordance with the terms of the Indenture. "INDEBTEDNESS" means with respect to any Person, without duplication: (1) all Obligations of such Person for borrowed money; (2) all Obligations of such Person evidenced by bonds, debentures, notes or other similar instruments; (3) all Capitalized Lease Obligations of such Person; (4) all Obligations of such Person issued or assumed as the deferred purchase price of property, all conditional sale obligations and all Obligations under any title retention agreement (but excluding any such Obligations that constitute trade accounts payable and other accrued liabilities arising in the ordinary course of business that are not overdue by 90 days or more or are being contested in good faith by appropriate proceedings promptly instituted and diligently conducted); (5) all Obligations of such Person for the reimbursement of any obligor on any letter of credit, banker's acceptance or similar credit transaction; (6) guarantees and other contingent obligations in respect of Indebtedness of other Persons of the type referred to in clauses (1) through (5) above and clause (8) below; (7) all Obligations of any other Person of the type referred to in clauses (1) through (6) which are secured by any Lien on any property or asset of such Person, the amount of such Obligation being deemed to be the lesser of the fair market value of such property or asset and the amount of the Obligation so secured; (8) all Obligations under currency agreements and interest swap agreements of such Person; and (9) all Disqualified Capital Stock issued by such Person with the amount of Indebtedness represented by such Disqualified Capital Stock being equal to its maximum fixed repurchase price, but excluding accrued dividends, if any. For purposes hereof, the "maximum fixed repurchase price" of any Disqualified Capital Stock which does not have a fixed repurchase price shall be calculated in accordance with the terms of such Disqualified Capital Stock as if such Disqualified Capital Stock were purchased on any date on which Indebtedness shall be required to be determined pursuant to the Indenture, and if such price is based upon, or measured by, the fair market value of such Disqualified Capital Stock, such fair market value 103 shall be determined reasonably and in good faith by the Board of Directors of the issuer of such Disqualified Capital Stock. Any Indebtedness which is incurred at a discount to the principal amount at maturity thereof shall be deemed to have been incurred at the full principal amount at maturity thereof. "INDEPENDENT FINANCIAL ADVISOR" means a firm: (1) which does not, and whose directors, officers and employees or Affiliates do not, have a direct or indirect financial interest in the Company; and (2) which, in the judgment of the Board of Directors of the Company, is otherwise independent and qualified to perform the task for which it is to be engaged. "INITIAL PURCHASERS" means Deutsche Banc Alex. Brown Inc., Goldman, Sachs & Co. and Scotia Capital (USA) Inc. "INTEREST SWAP OBLIGATIONS" means the obligations of any Person pursuant to any arrangement with any other Person, whereby, directly or indirectly, such Person is entitled to receive from time to time periodic payments calculated by applying either a floating or a fixed rate of interest on a stated notional amount in exchange for periodic payments made by such other Person calculated by applying a fixed or a floating rate of interest on the same notional amount and shall include, without limitation, interest rate swaps, caps, floors, collars and similar agreements. "INVESTMENT" means, with respect to any Person, any direct or indirect loan or other extension of credit (including, without limitation, a guarantee) or capital contribution to (by means of any transfer of cash or other property to others or any payment for property or services for the account or use of others), or any purchase or acquisition by such Person of any Capital Stock, bonds, notes, debentures or other securities or evidences of Indebtedness issued by, any other Person. "Investment" shall exclude extensions of trade credit by the Company and its Restricted Subsidiaries on commercially reasonable terms in accordance with normal trade practices of the Company or such Restricted Subsidiary, as the case may be. If the Company or any Restricted Subsidiary of the Company sells or otherwise disposes of any Capital Stock of any direct or indirect Restricted Subsidiary of the Company such that, after giving effect to any such sale or disposition, such Restricted Subsidiary is no longer a Restricted Subsidiary of the Company, the Company shall be deemed to have made an Investment on the date of any such sale or disposition equal to the fair market value of the Common Stock of such Restricted Subsidiary not sold or disposed of. If the Company designates any of its Restricted Subsidiaries to be an Unrestricted Subsidiary, the Company shall be deemed to have made an Investment on the date of such designation equal to the Designation Amount determined in accordance with the definition of "Unrestricted Subsidiary." "ISSUE DATE" means the date of original issuance of the Notes. "LIEN" means any lien, mortgage, deed of trust, pledge, security interest, charge or encumbrance of any kind (including any conditional sale or other title retention agreement, any lease in the nature thereof and any agreement to give any security interest). "MANAGEMENT AGREEMENT" means the management agreement dated as of March 30, 2001 among the Company, the Subsidiaries of the Company listed therein and Castle Harlan, Inc., as in effect on the Issue Date. "MATERIAL DOMESTIC RESTRICTED SUBSIDIARY" means a Domestic Restricted Subsidiary of the Company or any Restricted Subsidiary of the Company having total assets with a book value in excess of $500,000. 104 "NET CASH PROCEEDS" means, with respect to any Asset Sale, the proceeds in the form of cash or Cash Equivalents including payments in respect of deferred payment obligations when received in the form of cash or Cash Equivalents (other than the portion of any such deferred payment constituting interest) received by the Company or any of its Restricted Subsidiaries from such Asset Sale net of: (1) reasonable out-of-pocket commissions, expenses and fees relating to such Asset Sale (including, without limitation, legal, accounting and investment banking fees and sales commissions); (2) net taxes paid or payable as a result of such Asset Sale; (3) repayment of Indebtedness that is secured by the property or assets that are the subject of such Asset Sale; (4) amounts required to be paid to any Person (other than the Company or any of its Restricted Subsidiaries) owning a beneficial interest in the assets which are subject to the Asset Sale; and (5) appropriate amounts to be provided by the Company or any Restricted Subsidiary, as the case may be, as a reserve, in accordance with GAAP, against any liabilities associated with such Asset Sale and retained by the Company or any Restricted Subsidiary, as the case may be, after such Asset Sale, including, without limitation, pension and other post-employment benefit liabilities, liabilities related to environmental matters and liabilities under any indemnification obligations associated with such Asset Sale. "OBLIGATIONS" means all obligations for principal, premium, interest, penalties, fees, indemnifications, reimbursements, damages and other liabilities payable under the documentation governing any Indebtedness. "PARI PASSU INDEBTEDNESS" means any Indebtedness of the Company or any Guarantor that ranks PARI PASSU in right of payment with the Notes or such Guarantee, as applicable. "PERMITTED BUSINESS" means any business that is the same, similar, reasonably related, complementary or incidental to the business in which the Company or any of its Restricted Subsidiaries are engaged on the Issue Date. "PERMITTED HOLDERS" means Castle Harlan, Inc., Castle Harlan Partners II, L.P., Castle Harlan Partners III, L.P. and their respective Affiliates. "PERMITTED INDEBTEDNESS" means, without duplication, each of the following: (1) Indebtedness under the Notes and the Guarantees issued on the Issue Date; (2) Indebtedness incurred pursuant to the Credit Agreement in an aggregate principal amount at any time outstanding not to exceed $50.0 million less the amount of all required permanent repayments (which are accompanied by a corresponding permanent commitment reduction) thereunder, plus an amount not exceeding the aggregate amount of Indebtedness that is permitted to be incurred, but has not been incurred, under clauses (10) and (14) of this definition; (3) other Indebtedness of the Company and its Restricted Subsidiaries outstanding on the Issue Date reduced by the amount of any scheduled amortization payments or mandatory prepayments when actually paid or permanent reductions thereon; PROVIDED that the CBI Subordinated Notes held by a Restricted Subsidiary of the Company on the Issue Date shall not be included in this clause (3), but shall be included in clause (6) below; 105 (4) Interest Swap Obligations of the Company or any Restricted Subsidiary of the Company covering Indebtedness of the Company or any of its Restricted Subsidiaries; PROVIDED, HOWEVER, that such Interest Swap Obligations are entered into to protect the Company and its Restricted Subsidiaries from fluctuations in interest rates; (5) Indebtedness under Currency Agreements; PROVIDED that in the case of Currency Agreements which relate to Indebtedness, such Currency Agreements do not increase the Indebtedness of the Company and its Restricted Subsidiaries outstanding other than as a result of fluctuations in foreign currency exchange rates or by reason of fees, indemnities and compensation payable thereunder; (6) Indebtedness of a Restricted Subsidiary of the Company to the Company or to a Wholly Owned Restricted Subsidiary of the Company for so long as such Indebtedness is held by the Company or a Wholly Owned Restricted Subsidiary of the Company, in each case subject to no Lien (other than pursuant to the Credit Agreement) held by a Person other than the Company or a Wholly Owned Restricted Subsidiary of the Company; PROVIDED that if as of any date any Person other than the Company or a Wholly Owned Restricted Subsidiary of the Company owns or holds any such Indebtedness or holds a Lien (other than pursuant to the Credit Agreement) in respect of such Indebtedness, such date shall be deemed the incurrence of Indebtedness not constituting Permitted Indebtedness by the issuer of such Indebtedness; (7) Indebtedness of the Company to a Wholly Owned Restricted Subsidiary of the Company for so long as such Indebtedness is held by a Wholly Owned Restricted Subsidiary of the Company and subject to no Lien, other than pursuant to the Credit Agreement; PROVIDED that (a) any Indebtedness of the Company to any Wholly Owned Restricted Subsidiary of the Company is unsecured and subordinated, pursuant to a written agreement, to the Company's obligations under the Indenture and the Notes and (b) if as of any date any Person other than a Wholly Owned Restricted Subsidiary of the Company owns or holds any such Indebtedness or any Person holds a Lien in respect of such Indebtedness, such date shall be deemed the incurrence of Indebtedness not constituting Permitted Indebtedness under this clause (7) by the Company; (8) Indebtedness arising from the honoring by a bank or other financial institution of a check, draft or similar instrument inadvertently (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; (9) Indebtedness of the Company or any of its Restricted Subsidiaries in respect of performance bonds, bankers' acceptances, workers' compensation claims, surety or appeal bonds, payment obligations in connection with self-insurance or similar obligations incurred in the ordinary course of business; (10) Indebtedness represented by Capitalized Lease Obligations and Purchase Money Indebtedness of the Company and its Restricted Subsidiaries incurred in the ordinary course of business not to exceed $10.0 million at any one time outstanding (reduced by the aggregate amount of additional Indebtedness incurred under clause (1) hereof in reliance of this clause (10)); (11) guarantees of Indebtedness of the Company by any Restricted Subsidiary, PROVIDED that such Indebtedness is permitted to be incurred by another covenant under the Indenture; (12) Indebtedness of the Company's Foreign Restricted Subsidiaries in an aggregate principal amount not to exceed $5.0 million at any time outstanding; (13) Refinancing Indebtedness; and 106 (14) additional Indebtedness of the Company and its Restricted Subsidiaries in an aggregate principal amount not to exceed $5.0 million at any one time outstanding (reduced by the aggregate amount of additional Indebtedness incurred under clause (1) hereof in reliance of this clause (14)). For purposes of determining compliance with the "Limitation on Incurrence of Additional Indebtedness" covenant, in the event that an item of Indebtedness meets the criteria of more than one of the categories of Permitted Indebtedness described in clauses (1) through (14) above or is entitled to be incurred pursuant to the Consolidated Fixed Charge Coverage Ratio provisions of such covenant, the Company shall, in its sole discretion, classify (or later reclassify) such item of Indebtedness in any manner that complies with this covenant. Accrual of interest, accretion or amortization of original issue discount, the payment of interest on any Indebtedness in the form of additional Indebtedness with the same terms, and the payment of dividends on Disqualified Capital Stock in the form of additional shares of the same class of Disqualified Capital Stock will not be deemed to be an incurrence of Indebtedness or an issuance of Disqualified Capital Stock for purposes of the "Limitations on Incurrence of Additional Indebtedness" covenant. "PERMITTED INVESTMENTS" means: (1) Investments by the Company or any Restricted Subsidiary of the Company in any Person that is or will become immediately after such Investment a Guarantor or a Wholly Owned Restricted Subsidiary of the Company that is not a Guarantor or that will merge or consolidate into the Company, a Guarantor or a Wholly Owned Restricted Subsidiary of the Company that is not a Guarantor; (2) Investments in the Company by any Restricted Subsidiary of the Company; PROVIDED that any Indebtedness evidencing such Investment is unsecured and subordinated, pursuant to a written agreement, to the Company's obligations under the Notes and the Indenture; (3) Investments in cash and Cash Equivalents; (4) loans and advances to directors, employees and officers of the Company and its Restricted Subsidiaries (a) to finance the purchase by such Persons of Capital Stock of the Company or any of its Restricted Subsidiaries not in excess of $1.0 million in any twelve month period and (b) in the ordinary course of business for bona fide business purposes not in excess of $500,000 at any one time outstanding; (5) Currency Agreements and Interest Swap Obligations entered into in the ordinary course of the Company's or its Restricted Subsidiaries' businesses and not for speculative purposes and otherwise in compliance with the Indenture; (6) additional Investments having an aggregate fair market value, taken together with all other Investments made pursuant to this clause (6) that are at that time outstanding, not to exceed $5.0 million at the time of such Investment (with the fair market value of each Investment being measured at the time made and without giving effect to subsequent changes in value); (7) Investments in securities of trade creditors or customers received pursuant to any plan of reorganization or similar arrangement upon the bankruptcy or insolvency of such trade creditors or customers; (8) Investments made by the Company or its Restricted Subsidiaries as a result of consideration received in connection with an Asset Sale made in compliance with the "Limitation on Asset Sales" covenant; (9) Investments existing on the Issue Date; 107 (10) any acquisition of assets solely in exchange for the issuance of Qualified Capital Stock of the Company or any of its Restricted Subsidiaries; and (11) Investments made by the Company or any of its Restricted Subsidiaries with the proceeds of a substantially concurrent offering of Qualified Capital Stock of the Company (which proceeds of any such offering of Qualified Capital Stock shall not have been, and shall not be, included in the calculation of the Restricted Payments Basket, except to the extent the proceeds thereof exceed the amounts used to effect such Investments). "PERMITTED LIENS" means the following types of Liens: (1) Liens existing as of the Issue Date to the extent and in the manner such Liens are in effect on the Issue Date; (2) Liens securing the Notes and the Guarantees; (3) Liens securing Indebtedness under the Credit Agreement; PROVIDED that such Indebtedness does not exceed the greater of (a) the amount of Indebtedness permitted to be incurred pursuant to clause (2) of the definition of "Permitted Indebtedness" and (b) the Borrowing Base; (4) Liens in favor of the Company or any Restricted Subsidiary of the Company; (5) Liens securing Refinancing Indebtedness which is incurred to Refinance any Indebtedness which has been secured by a Lien permitted under the Indenture and which has been incurred in accordance with the provisions of the Indenture; PROVIDED, HOWEVER, that such Liens: (i) taken as a whole are no less favorable to the Holders and are not more favorable to the lienholders with respect to such Liens than the Liens in respect of the Indebtedness being Refinanced; and (ii) do not extend to or cover any property or assets of the Company or any of its Restricted Subsidiaries not securing the Indebtedness so Refinanced; (6) Liens for taxes, assessments or governmental charges or claims either (a) not delinquent or (b) being contested in good faith by appropriate proceedings and as to which the Company or its Restricted Subsidiaries shall have set aside on its books such reserves as may be required pursuant to GAAP; (7) statutory Liens of landlords and Liens of carriers, warehousemen, mechanics, suppliers, materialmen, repairmen and other Liens imposed by law incurred in the ordinary course of business for sums not yet delinquent or being contested in good faith, if such reserve or other appropriate provision, if any, as shall be required by GAAP shall have been made in respect thereof; (8) Liens incurred or deposits made in the ordinary course of business in connection with workers' compensation, unemployment insurance and other types of social security, including any Lien securing letters of credit issued in the ordinary course of business in connection therewith, or to secure the performance of tenders, statutory obligations, surety and appeal bonds, bids, leases, government contracts, performance and return-of-money bonds and other similar obligations (exclusive of obligations for the payment of borrowed money); (9) Liens arising by reward of any judgment, decree or order of any court but not giving rise to an Event of Default so long as such Liens are adequately bonded and any appropriate legal proceedings which may have been duly initiated for the review of such judgment, decree or order shall not have been finally terminated or the period within which such proceedings may be initiated shall not have expired; 108 (10) survey exceptions, easements, rights-of-way, zoning restrictions and other similar charges or encumbrances in respect of real property not interfering in any material respect with the ordinary conduct of the business of the Company or any of its Restricted Subsidiaries; (11) Liens upon specific items of inventory or other goods and proceeds of the Company or any of its Restricted Subsidiaries securing such Person's obligations in respect of bankers' acceptances issued or created for the account of such Person to facilitate the purchase, shipment or storage of such inventory or other goods; (12) Liens securing reimbursement obligations with respect to commercial letters of credit which encumber documents and other property relating to such letters of credit and products and proceeds thereof; (13) Liens encumbering deposits made to secure obligations arising from statutory, regulatory, contractual, or warranty requirements of the Company or any of its Restricted Subsidiaries, including rights of offset and set-off; (14) Liens securing Interest Swap Obligations which Interest Swap Obligations relate to Indebtedness that is otherwise permitted pursuant to clause (4) of the definition of "Permitted Indebtedness"; (15) Liens securing Capitalized Lease Obligations and Purchase Money Indebtedness; PROVIDED, HOWEVER, that in the case of Capitalized Lease Obligations, such Liens do not extend to any property or assets which are not leased property subject to such Capitalized Lease Obligations; (16) Liens securing Indebtedness under Currency Agreements permitted to be incurred pursuant to clause (5) of the definition of "Permitted Indebtedness"; (17) Liens securing Acquired Indebtedness incurred in accordance with the "Limitation on Incurrence of Additional Indebtedness" covenant; PROVIDED that: (a) such Liens secured such Acquired Indebtedness at the time of and prior to the incurrence of such Acquired Indebtedness by the Company or a Restricted Subsidiary of the Company and were not granted in connection with, or in anticipation of, the incurrence of such Acquired Indebtedness by the Company or a Restricted Subsidiary of the Company; and (b) such Liens do not extend to or cover any property or assets of the Company or of any of its Restricted Subsidiaries other than the property or assets that secured the Acquired Indebtedness prior to the time such Indebtedness became Acquired Indebtedness of the Company or a Restricted Subsidiary of the Company and are no more favorable to the lienholders than those securing the Acquired Indebtedness prior to the incurrence of such Acquired Indebtedness by the Company or a Restricted Subsidiary of the Company; (18) Liens securing Indebtedness incurred pursuant to clause (14) of the definition of "Permitted Indebtedness"; (19) any provision for the retention of title to an asset by the vendor or transferor of such asset which asset is acquired by the Company or any Restricted Subsidiary of the Company in a transaction entered into in the ordinary course of business of the Company or such Restricted Subsidiary; (20) Liens incurred in the ordinary course of business of the Company or any Restricted Subsidiary of the Company with respect to Obligations that do not exceed $2.5 million at any one time outstanding and that (a) are not incurred in connection with the borrowing of money or the obtaining of advances or credit (other than trade credit in the ordinary course of business) and (b) do not in the aggregate materially detract from the value of the property or materially impair the use thereof in the operation of business by the Company or such Restricted Subsidiary; 109 (21) Liens incurred in the ordinary course of business of the Company or any Restricted Subsidiary of the Company securing obligations under precious metals consignment agreements; (22) any extension, renewal or replacement, in whole or in part, of any Lien described in clauses (1), (15) or (17) of the definition of "Permitted Liens"; PROVIDED that any such extension, renewal or replacement is no more restrictive in any material respect that the Lien so extended, renewed or replaced and does not extend to any additional property or assets. "PERSON" means an individual, partnership, corporation, limited liability company, unincorporated organization, trust or joint venture, or a governmental agency or political subdivision thereof. "PREFERRED STOCK" of any Person means any Capital Stock of such Person that has preferential rights to any other Capital Stock of such Person with respect to dividends or redemptions or upon liquidation. "PURCHASE MONEY INDEBTEDNESS" means Indebtedness of the Company and its Restricted Subsidiaries incurred in the normal course of business for the purpose of financing all or any part of the purchase price, or the cost of installation, construction or improvement, of property or equipment; PROVIDED, HOWEVER, that (1) the amount of such Indebtedness shall not exceed such purchase price or cost, (2) such Indebtedness shall not be secured by any asset other than the specified asset being financed or, in the case of real property or fixtures, including additions and improvements, the real property to which such asset is attached and (3) such Indebtedness shall be incurred within 90 days after such acquisition of such asset by the Company or such Restricted Subsidiary or such installation, construction or improvement. "QUALIFIED CAPITAL STOCK" means any Capital Stock that is not Disqualified Capital Stock. "REFINANCE" means, in respect of any security or Indebtedness, to refinance, extend, renew, refund, repay, prepay, redeem, defease or retire, or to issue a security or Indebtedness in exchange or replacement for, such security or Indebtedness in whole or in part. "Refinanced" and "Refinancing" shall have correlative meanings. "REFINANCING INDEBTEDNESS" means any Refinancing by the Company or any Restricted Subsidiary of the Company of Indebtedness incurred in accordance with the "Limitation on Incurrence of Additional Indebtedness" covenant (other than pursuant to clauses (2), (4), (5), (6), (7), (8), (9), (10), (11), (12) or (14) of the definition of Permitted Indebtedness), in each case, other than Refinancing Indebtedness incurred to Refinance all of the Notes, that does not: (1) result in an increase in the aggregate principal amount of Indebtedness of such Person as of the date of such proposed Refinancing (plus accrued interest plus the amount of any premium required to be paid under the terms of the instrument governing such Indebtedness and plus the amount of reasonable fees and expenses incurred by the Company in connection with such Refinancing); or (2) create Indebtedness with: (a) a Weighted Average Life to Maturity that is less than the Weighted Average Life to Maturity of the Indebtedness being Refinanced; or (b) a final maturity earlier than the final maturity of the Indebtedness being Refinanced; PROVIDED that (x) if such Indebtedness being Refinanced is Indebtedness solely of the Company, then such Refinancing Indebtedness shall be Indebtedness solely of the Company and (y) if such Indebtedness being Refinanced is subordinate or junior to the Notes, then such Refinancing Indebtedness shall be subordinate to the Notes at least to the same extent and in the same manner as the Indebtedness being Refinanced. 110 "REGISTRATION RIGHTS AGREEMENT" means the registration rights agreement dated as of the Issue Date among the Company, the Guarantors and the Initial Purchasers. "RESTRICTED SUBSIDIARY" of any Person means any Subsidiary of such Person which at the time of determination is not an Unrestricted Subsidiary. "SALE AND LEASEBACK TRANSACTION" means any direct or indirect arrangement with any Person or to which any such Person is a party, providing for the leasing to the Company or a Restricted Subsidiary of the Company of any property, whether owned by the Company or any Restricted Subsidiary of the Company at the Issue Date or later acquired, which has been or is to be sold or transferred by the Company or such Restricted Subsidiary to such Person or to any other Person from whom funds have been or are to be advanced by such Person on the security of such Property. "SECURITIES ACT" means the Securities Act of 1933, as amended, or any successor statute or statutes thereto. "SIGNIFICANT SUBSIDIARY", with respect to any Person, means (1) any Restricted Subsidiary of such Person that satisfies the criteria for a "significant subsidiary" set forth in Rule 1.02(w) of Regulation S-X under the Exchange Act as such Regulation is in effect on the Issue Date and (2) any Restricted Subsidiary of such Person that, when aggregated with all other Restricted Subsidiaries of such Person that are not otherwise Significant Subsidiaries and as to which any event described in clause (6) under "--Events of Default" has occurred and is continuing, would constitute a Significant Subsidiary under clause (1) of this definition. "SUBORDINATED INDEBTEDNESS" means Indebtedness of the Company or any Guarantor that is subordinated or junior in right of payment to the Notes or such Guarantee, as the case may be. "SUBSIDIARY", with respect to any Person, means: (1) any corporation of which the outstanding Capital Stock having at least a majority of the votes entitled to be cast in the election of directors under ordinary circumstances shall at the time be owned, directly or indirectly, by such Person; or (2) any other Person of which at least a majority of the voting interest under ordinary circumstances is at the time, directly or indirectly, owned by such Person. "UNRESTRICTED SUBSIDIARY" of any Person means: (1) any Subsidiary of such Person that at the time of determination shall be or continue to be designated an Unrestricted Subsidiary by the Board of Directors of such Person in the manner provided below; and (2) any Subsidiary of an Unrestricted Subsidiary. The Board of Directors may designate any Subsidiary (including any newly acquired or newly formed Subsidiary) to be an Unrestricted Subsidiary unless such Subsidiary owns any Capital Stock of, or owns or holds any Lien on any property of, the Company or any other Subsidiary of the Company that is not a Subsidiary of the Subsidiary to be so designated; PROVIDED that: (1) the Company certifies to the Trustee that such designation complies with the "Limitation on Restricted Payments" covenant, including that the Company would be permitted to make, at the time of such designation, (a) a Permitted Investment or (b) an Investment pursuant to the first paragraph of the "Limitation on Restricted Payments" covenant, in either case, in an amount (the 111 "Designation Amount") equal to the fair market value of the Company's proportionate interest in such Subsidiary on such date; and (2) each Subsidiary to be so designated and each of its Subsidiaries has not at the time of designation, and does not thereafter, create, incur, issue, assume, guarantee or otherwise become directly or indirectly liable with respect to any Indebtedness pursuant to which the lender has recourse to any of the assets of the Company or any of its Restricted Subsidiaries. The Board of Directors may designate any Unrestricted Subsidiary to be a Restricted Subsidiary only if: (1) immediately after giving effect to such designation, the Company is able to incur at least $1.00 of additional Indebtedness (other than Permitted Indebtedness) in compliance with the "Limitation on Incurrence of Additional Indebtedness" covenant; and (2) immediately before and immediately after giving effect to such designation, no Default or Event of Default shall have occurred and be continuing. Any such designation by the Board of Directors shall be evidenced to the Trustee by promptly filing with the Trustee a copy of the Board Resolution giving effect to such designation and an officers' certificate certifying that such designation complied with the foregoing provisions. "WEIGHTED AVERAGE LIFE TO MATURITY" means, when applied to any Indebtedness at any date, the number of years obtained by dividing (a) the then outstanding aggregate principal amount of such Indebtedness into (b) the sum of the total of the products obtained by multiplying (i) the amount of each then remaining installment, sinking fund, serial maturity or other required payment of principal, including payment at final maturity, in respect thereof, by (ii) the number of years (calculated to the nearest one-twelfth) which will elapse between such date and the making of such payment. "WHOLLY OWNED RESTRICTED SUBSIDIARY" of any Person means any Wholly Owned Subsidiary of such Person which at the time of determination is a Restricted Subsidiary of such Person. "WHOLLY OWNED SUBSIDIARY" of any Person means any Subsidiary of such Person of which all the outstanding securities which confer on the holders thereof the right to elect directors or their functional equivalents (other than in the case of a foreign Subsidiary, directors' qualifying shares or an immaterial amount of shares required to be owned by other Persons pursuant to applicable law) are owned by such Person or any Wholly Owned Subsidiary of such Person. 112 CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS GENERAL The following is a general discussion of certain United States federal income tax considerations relating to the exchange of Original Notes for New Notes and the ownership and disposition of the New Notes by an initial beneficial owner of the Original Notes. This discussion is based upon the Internal Revenue Code of 1986, as amended (the "Code"), existing and proposed Treasury Regulations, and judicial decisions and administrative interpretations thereunder, as of the date hereof, all of which are subject to change, possibly with retroactive effect, or are subject to different interpretations. We cannot assure you that the Internal Revenue Service (the "IRS") will not challenge one or more of the tax considerations described below. We have not obtained and do not intend to obtain a ruling from the IRS or an opinion of counsel with respect to the United States federal tax considerations resulting from the exchange of Original Notes for New Notes or from holding or disposing of the New Notes. In this discussion, we do not purport to address all tax considerations that may be important to a particular holder in light of the holder's circumstances, or to certain categories of investors (such as financial institutions, insurance companies, tax-exempt organizations, dealers in securities, persons who hold notes through partnerships or other pass-through entities, U.S. expatriates, or persons who hold the notes as part of a hedge, conversion transaction, straddle or other risk reduction transaction) that may be subject to special rules. This discussion is limited to initial holders who purchased the Original Notes for cash at the initial offering at the original offering price and who hold the Original Notes, and will hold the New Notes, as capital assets. This discussion also does not address the tax considerations arising under the laws of any foreign, state or local jurisdiction. YOU SHOULD CONSULT YOUR OWN TAX ADVISORS AS TO THE PARTICULAR TAX CONSIDERATIONS TO YOU OF THE EXCHANGE OF ORIGINAL NOTES FOR NEW NOTES AND THE, OWNERSHIP AND DISPOSITION OF THE NEW NOTES, INCLUDING THE EFFECT AND APPLICABILITY OF STATE, LOCAL OR FOREIGN TAX LAWS. U.S. HOLDERS As used herein, the term "U.S. holder" means a beneficial owner of a note that is for United States federal income tax purposes: (1) a citizen or resident of the United States; (2) a corporation created or organized in or under the laws of the United States or of any political subdivision thereof; (3) an estate, the income of which is subject to United States federal income taxation regardless of its source; or (4) a trust that either is subject to the primary supervision of a court within the United States and which has one or more United States persons with authority to control all substantial decisions, or has a valid election in effect under applicable Treasury Regulations to be treated as a United States person. As used herein, the term "non-U.S. holder" means a beneficial owner of a note that is not a U.S. holder. 113 PAYMENTS OF INTEREST Interest on an Original Note or a New Note will generally be includible in your gross income as ordinary interest income in accordance with your usual method of accounting for tax purposes. EXCHANGE PURSUANT TO EXERCISE OF REGISTRATION RIGHTS Neither an exchange of an Original Note for a New Note nor the filing of a registration statement with respect to the resale of the New Notes should be a taxable event to you, and you should not recognize any taxable gain or loss or any interest income as a result of such exchange or such filing. We are obligated to pay Additional Interest on the notes to you under certain circumstances described under "Exchange Offer; Registration Rights." We intend to take the position that such payments should be treated for tax purposes as additional interest, although we cannot assure you that the IRS will not propose a different method of taxing the Additional Interest payments. PAYMENTS UPON REGISTRATION DEFAULT Because the notes provide for the payment of Additional Interest, they could be subject to certain rules relating to debt instruments that provide for one or more contingent payments, referred to as the "Contingent Payment Regulations." Under the Contingent Payment Regulations, however, a payment is not a contingent payment merely because of a contingency that, as of the issue date, is "remote." We intend to take the position that, for purposes of the Contingent Payment Regulations, the payment of Additional Interest is a "remote" contingency as of the issue date. Accordingly, the Contingent Payment Regulations should not apply to the notes unless payments are actually made. If payments of Additional Interest are actually made, then they likely would be includible in your gross income in the taxable year in which such payments were actually made, regardless of the tax accounting method you use. If such payments were actually made the notes would probably be treated as reissued for purposes of applying the original issue discount rules under the Code and the Treasury Regulations. Our position for purposes of the Contingent Payment Regulations that the payment of such Additional Interest is a remote contingency as of the issue date is binding on you for U.S. federal income tax purposes, unless you disclose in the proper manner to the IRS that you are taking a different position. OPTIONAL REDEMPTION The notes may be redeemed prior to their stated maturity at our option or at the option of the holders under certain circumstances. We do not believe that either our or the holders' ability to redeem or cause the redemption of the notes prior to the stated maturity thereof would affect the yield of the notes for U.S. federal income tax purposes. SALE, EXCHANGE OR REDEMPTION OF THE NOTES Upon the disposition of a note by sale, exchange or redemption (other than an exchange pursuant to this exchange offer), you will generally recognize gain or loss equal to the difference between (i) the amount realized on the disposition (other than amounts attributable to accrued but unpaid interest) 114 and (ii) your adjusted federal income tax basis in the note. Your adjusted federal income tax basis in a note generally will equal the cost of the note. Any gain or loss you recognize on a disposition of a note will generally constitute capital gain or loss and will be long-term capital gain or loss if you have held the note for longer than one year. Non-corporate taxpayers are generally subject to a maximum regular federal income tax rate of 20% on net long-term capital gains. The deductibility of capital losses is subject to certain limitations. BACKUP WITHHOLDING AND INFORMATION REPORTING Under the Code, you may be subject, under certain circumstances, to information reporting and/or backup withholding with respect to cash payments in respect of the notes. This withholding applies only if you (i) fail to furnish your social security number or other taxpayer identification number ("TIN") within a reasonable time after a request therefor, (ii) furnish an incorrect TIN, (iii) fail to report interest or dividends properly, or (iv) fail, under certain circumstances, to provide a certified statement, signed under penalty of perjury, that the TIN provided is your correct number and that you are not subject to backup withholding. The backup withholding tax rate for amounts paid on or before December 31, 2001 is 30.5%. Thereafter, the backup withholding tax rate will be equal to the fourth lowest rate of tax applicable under section 1(c) of the Code (for amounts paid after December 31, 2001, the rate will initially be reduced to 30% and is scheduled to continue to be adjusted accordingly). Any amount withheld from a payment under the backup withholding rules is allowable as credit against your United States federal income tax liability (and may entitle you to a refund), provided that the required information is furnished to the IRS. Certain persons are exempt from backup withholding, including corporations and certain financial institutions. You should consult your tax advisor as to your qualification for exemption from backup withholding and the procedure for obtaining such exemption. NON-U.S. HOLDERS U.S. FEDERAL WITHHOLDING TAX The 30% U.S. federal withholding tax will not apply to any payment of principal or interest on the notes provided that: - you do not actually (or constructively) own 10% or more of the total combined voting power of all classes of our voting stock within the meaning of the Code and the Treasury Regulations; - you are not a controlled foreign corporation that is related, directly or indirectly, to us through stock ownership; - you are not a bank whose receipt of interest on the notes is pursuant to a loan agreement entered into in the ordinary course of business; and - you have fulfilled the statement requirements set forth in section 871(h) or section 881(c) of the Code, as discussed below. The statement requirements referred to above will be fulfilled if you certify on IRS Form W-8BEN or other successor form, under penalties of perjury, that you are not a United States person and provide your name and address, and (i) you file IRS Form W-8BEN or other successor form with the withholding agent or (ii) in the case of a note held on your behalf by a securities clearing organization, bank or other financial institution holding customers' securities in the ordinary course of its trade or business, the financial institution files with the withholding agent a statement that it has received the IRS Form W-8BEN or other successor form from the holder and furnishes the withholding agent with 115 a copy thereof; provided that a foreign financial institution will fulfill the certification requirement by filing IRS Form W-8IMY if it has entered into an agreement with the IRS to be treated as a qualified intermediary. You should consult your tax advisor regarding possible additional reporting requirements. If you cannot satisfy the requirements described above, payments of principal and interest made to you will be subject to the 30% U.S. federal withholding tax, unless you provide us with a properly executed (1) IRS Form W-8BEN (or successor form) claiming an exemption from (or a reduction of) withholding under the benefit of a tax treaty or (2) IRS Form W-8ECI (or successor form) stating that payments on the note are not subject to withholding tax because such payments are effectively connected with your conduct of a trade or business in the United States, as discussed below. The 30% U.S. federal withholding tax will generally not apply to any gain or income that you realize on the sale, exchange, or other disposition of the notes. U.S. FEDERAL ESTATE TAX Your estate will not be subject to U.S. federal estate tax on notes beneficially owned by you at the time of your death, provided that (1) you do not own, actually or constructively, 10% or more of the total combined voting power of all classes of our voting stock (within the meaning of the Code and the Treasury Regulations) and (2) interest on those notes would not have been, if received at the time of your death, effectively connected with the conduct by you of a trade or business in the United States. U.S. FEDERAL INCOME TAX If you are engaged in a trade or business in the United States and interest on the notes is effectively connected with the conduct of that trade or business, you will be subject to U.S. federal income tax on the interest on a net income basis in the same manner as if you were a U.S. person as defined under the Code. In that case, you would not be subject to the 30% U.S. federal withholding tax. See "U.S. Holders" above. In addition, if you are a foreign corporation, you may be subject to a branch profits tax equal to 30% (or lower applicable treaty rate) of your earnings and profits for the taxable year that are effectively connected with the conduct by you of a trade or business in the United States. For this purpose, interest on notes will be included in earnings and profits if so effectively connected. Any gain or income realized on the sale, exchange, or redemption of notes generally will not be subject to U.S. federal income tax unless: - that gain or income is effectively connected with the conduct of a trade or business in the United States by you; - you are an individual who is present in the United States for 183 days or more in the taxable year of that disposition, and certain other conditions are met; or - you are subject to tax under tax laws applicable to certain U.S. expatriates. INFORMATION REPORTING AND BACKUP WITHHOLDING In general, you will not be subject to information reporting and backup withholding with respect to payments that we make to you provided that we do not have actual knowledge that you are a U.S. 116 person and we have received from you the statement described above under "U.S. Federal Withholding Tax." Under current Treasury Regulations, payments on the sale, exchange or other disposition of a note made to or through a foreign office of a broker generally will not be subject to information reporting or backup withholding. However, if the broker is (i) a United States person, (ii) a controlled foreign corporation for United States federal income tax purposes, (iii) a foreign person 50% or more of whose gross income is effectively connected with a United States trade or business for a specified three-year period, or (iv) a foreign partnership with certain connections to the United States, then information reporting will be required unless the broker has in its records documentary evidence that the beneficial owner is not a United States person and certain other conditions are met or the beneficial owner otherwise establishes an exemption. Backup withholding may apply to any payment that the broker is required to report if the broker has actual knowledge that the payee is a United States person. Payments to or through the United States office of a broker will be subject to backup withholding and information reporting unless the beneficial owner certifies, under penalties of perjury, that it is not a United States person or otherwise establishes an exemption. Any amounts withheld under the backup withholding rules will be allowed as a refund or a credit against your U.S. federal income tax liability provided the required information is furnished to the IRS. PLAN OF DISTRIBUTION A broker-dealer that is the holder of Original Notes that were acquired for the account of that broker-dealer as a result of market-making or other trading activities, other than Original Notes acquired directly from us or any of our affiliates, may exchange those Original Notes for New Notes pursuant to the exchange offer. This is true so long as each broker-dealer that receives New Notes for its own account in exchange for Original Notes, where the Original Notes were acquired by the broker-dealer as a result of market-marking or other trading activities, acknowledges that it will deliver a prospectus in connection with any resale of such New Notes. This prospectus, as it may be amended or supplemented form time to time, may be used by a broker-dealer in connection with resales of New Notes received in exchange for Original Notes where the Original Notes were acquired as result of market-making activities or other trading activities. We have agreed that we will make this prospectus, as it may be amended or supplemented from time to time, available to any broker-dealer for use in connection with any resale, except that the period may be suspended for a period if we and our guarantors determine, upon the advise of counsel, that the amended or supplemented prospectus would require disclosure of confidential information or interfere with any of our financing, acquisition, reorganization or other material transactions. All broker-dealers effecting transactions in the New Notes may be required to deliver a prospectus. We will not receive any proceeds from any sale of New Notes by broker-dealers or any other holder of New Notes. New Notes received by broker-dealers for their own account in the exchange offer may be sold from time to time in one or more transactions in the over-the-counter market, in negotiated transactions, through the writing of options on the New Notes or a combination of such methods of resale, at market prices prevailing at the time of resale, at prices related to such prevailing market prices or negotiated prices. Any resale may be made directly to purchasers or to or through brokers or dealers who may receive compensation in the form of commissions or concessions from any such broker-dealer and/or the purchasers of any such New Notes. Any broker-dealer that resells New Notes that were received by it for its own account pursuant to the exchange offer and any broker or dealer that participates in a distribution of such New Notes may be deemed to be an "underwriter" within the meaning of the Securities Act and any profit on any resale of New Notes and any 117 commissions or concessions received by those persons may be deemed to be underwriting compensation under the Securities Act. The letter of transmittal states that by acknowledging that it will deliver and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. We have agreed to pay all expenses incident to the exchange offer and to our performance of, or compliance with, the registration rights agreements (other than commissions or concessions of any brokers or dealers) and will indemnify the holders of the New Notes (including any broker-dealers) against some liabilities, including liabilities under the Securities Act. LEGAL MATTERS The validity of the New Notes offered hereby and the subsidiary guarantees will be passed upon by Schulte Roth & Zabel LLP, New York, New York. In giving its opinion, Schulte Roth & Zabel will rely as to some matters of Illinois law with respect to ECI on the opinion of Schwartz Cooper Greenberger Krauss, Chartered. INDEPENDENT AUDITORS The consolidated financial statements and schedules of American Achievement Corporation, as of August 26, 2000 and August 25, 2001 and for the fiscal years ended August 28, 1999, August 26, 2000 and August 25, 2001, included in this prospectus and elsewhere in the registration statement have been audited by Arthur Andersen LLP, independent public accountants, as indicated in their report with respect thereto, and are included herein in reliance upon the authority of said firm as experts (or, as experts in accounting and auditing) in giving said reports. The consolidated financial statements of TP Holding Corp., for the six months ended July 27, 2000, included in this prospectus and elsewhere in the registration statement have been audited by Arthur Andersen LLP, independent public accountants, as indicated in their report with respect thereto, and are included herein in reliance upon the authority of said firm as experts (or, as experts in accounting and auditing) in giving said reports. The consolidated financial statements of Taylor Publishing Company and subsidiary for the five-month period ended February 11, 2000, included in this prospectus and elsewhere in the registration statement have been audited by Arthur Andersen LLP, independent public accountants, as indicated in their report with respect thereto, and are included herein in reliance upon the authority of said firm as experts (or, as experts in accounting and auditing) in giving said reports. The consolidated financial statements of Taylor Publishing Company and subsidiary as of September 3, 1999 and for the fiscal year then ended have been included herein and in the registration statement in reliance upon the report of KPMG LLP, independent accountants, appearing elsewhere herein, and upon the authority of said firm as experts in accounting and auditing. The financial statements of Educational Communications, Inc. as of December 31, 2000 and December 31, 1999 and for the three fiscal years ended December 31, 2000, included in this prospectus and elsewhere in the registration statement have been audited by Altschuler, Melvoin and Glasser LLP, independent auditors, as indicated in their report with respect thereto, and are included herein in reliance upon the authority of said firm as experts (or, as experts in accounting and auditing) in giving said reports. 118 We have agreed to indemnify and hold KPMG LLP (KPMG) harmless against and from any and all legal costs and expenses incurred by KPMG in successful defense of any legal action or proceeding that arises as a result of KPMG's consent to the inclusion of its audit report on the past financial statements of Taylor Publishing Company and subsidiary included in this prospectus. We have agreed to indemnify and hold Altschuler, Melvoin and Glasser LLP (Altschuler) harmless against and from any and all legal costs and expenses incurred by Altschuler in successful defense of any legal action or proceeding that arises as a result of Altschuler's consent to the inclusion of its audit report on the past financial statements of Educational Communications, Inc. included in this prospectus. WHERE YOU CAN FIND MORE INFORMATION We have filed with the SEC a registration statement on Form S-4 under the Securities Act with respect to our offering of the New Notes. This prospectus does not contain all the information included in the registration statement and the exhibits and schedules thereto. You will find additional information about us and the New Notes in the registration statement. The registration statement and the exhibits and schedules thereto may be inspected and copied at the public reference facilities maintained by the SEC at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the public reference facilities of the SEC's Regional Offices: New York Regional Office, Seven World Trade Center, Suite 1300, New York, New York 10048; and Chicago Regional Office, Citicorp Center, 500 West Madison Street, Chicago, Illinois 60661. Copies of this material may also be obtained from the Public Reference Section of the Securities and Exchange Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 as prescribed rates. The SEC also maintains a site on the World Wide Web (http://www.sec.gov) that contains reports, proxy and information statements and other information regarding registrants, including American Achievement, that file electronically with the SEC. Statements made in this prospectus about legal documents may not necessarily by complete and you should read the documents which are filed as exhibits to the registration statement or otherwise filed with the SEC. 119 AMERICAN ACHIEVEMENT CORPORATION INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE ---- AMERICAN ACHIEVEMENT CORPORATION Report of Independent Public Accountants................ F-2 Consolidated Balance Sheets as of August 26, 2000, August 25, 2001 and November 24, 2001 (unaudited)...... F-3 Consolidated Statements of Operations for the Fiscal Years Ended August 28, 1999, August 26, 2000 and August 25, 2001 and for the three months ended November 25, 2000 (unaudited) and November 24, 2001 (unaudited)............................................ F-4 Consolidated Statements of Stockholders' Equity for the Fiscal Years Ended August 28, 1999, August 26, 2000 and August 25, 2001 and for the three months ended November 24, 2001 (unaudited).......................... F-5 Consolidated Statements of Cash Flows for the Fiscal Years Ended August 28, 1999, August 26, 2000 and August 25, 2001 and for the three months ended November 25, 2000 (unaudited) and November 24, 2001 (unaudited)............................................ F-6 Notes to Consolidated Financial Statements.............. F-7 TP HOLDING CORP. Report of Independent Public Accountants................ F-39 Consolidated Statement of Income for the six months ended July 27, 2000.................................... F-40 Consolidated Statement of Stockholders' Equity for the six months ended July 27, 2000......................................... F-41 Consolidated Statement of Cash Flows for the six months ended July 27, 2000.................................... F-42 Notes to Consolidated Financial Statements.............. F-43 TAYLOR PUBLISHING COMPANY AND SUBSIDIARY Report of Independent Public Accountants................ F-48 Consolidated Statement of Operations for the five-month period ended February 11, 2000......................... F-49 Consolidated Statement of Stockholder's Equity for the five-month period ended February 11, 2000.............. F-50 Consolidated Statement of Cash Flows for the five-month period ended February 11, 2000......................... F-51 Notes to Consolidated Financial Statements.............. F-52 TAYLOR PUBLISHING COMPANY AND SUBSIDIARY Independent Auditors' Report............................ F-58 Consolidated Balance Sheet as of September 3, 1999...... F-59 Consolidated Statement of Operations for the Fiscal Year Ended September 3, 1999................................ F-60 Consolidated Statement of Stockholder's Equity for the Fiscal Year Ended September 3, 1999.................... F-61 Consolidated Statement of Cash Flows for the Fiscal Year Ended September 3, 1999................................ F-62 Notes to Consolidated Financial Statements.............. F-63 EDUCATIONAL COMMUNICATIONS, INC. Independent Auditor's Report............................ F-69 Balance Sheets as of December 31, 2000 and 1999......... F-70 Statements of Income for the Years Ended December 31, 2000, 1999 and 1998.................................... F-71 Statements of Changes in Stockholders' Equity for the Years Ended December 31, 2000, 1999 and 1998...................... F-72 Statements of Cash Flows for the Years Ended December 31, 2000, 1999 and 1998....................... F-73 Notes to Financial Statements........................... F-74
F-1 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Stockholders of American Achievement Corporation (f/k/a/ Commemorative Brands Holding Corporation): We have audited the accompanying consolidated balance sheets of American Achievement Corporation (a Delaware corporation, successor to Commemorative Brands Holding Corporation), and subsidiaries as of August 26, 2000, and August 25, 2001, and the related consolidated statements of operations, stockholders' equity and cash flows for the fiscal years ended August 28, 1999, August 26, 2000 and August 25, 2001. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of American Achievement Corporation and subsidiaries as of August 26, 2000, and August 25, 2001, and the results of their operations and their cash flows for the fiscal years ended August 28, 1999, August 26, 2000 and August 25, 2001, in conformity with accounting principles generally accepted in the United States. Our audit was made for the purpose of forming an opinion on the basic financial statements taken as a whole. The schedule listed in the index of financial statements on valuation and qualifying accounts is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. /s/ Arthur Andersen LLP Austin, Texas October 19, 2001 F-2 AMERICAN ACHIEVEMENT CORPORATION CONSOLIDATED BALANCE SHEETS (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
AUGUST 26, AUGUST 25, NOVEMBER 24, 2000 2001 2001 ---------- ---------- ------------ (UNAUDITED) ASSETS CURRENT ASSETS: Cash and cash equivalents............................... $ 1,887 $ 2,636 $ 4,876 Accounts receivable, net of allowance for doubtful accounts of $2,996, $3,379 and $3,787 (unaudited), respectively.......................................... 39,339 49,931 52,598 Inventories, net........................................ 27,987 26,672 24,810 Prepaid expenses and other current assets, net.......... 17,463 15,916 14,890 -------- -------- ----------- Total current assets.................................. 86,676 95,155 97,174 Property, plant and equipment, net...................... 67,743 64,842 64,140 Trademarks, net of accumulated amortization of $2,850, $3,942 and $4,361 (unaudited), respectively........... 27,890 42,299 41,879 Goodwill, net of accumulated amortization of $8,217, $11,655 and $12,670 (unaudited), respectively......... 114,672 147,497 146,913 Other assets, net....................................... 29,572 30,160 29,313 -------- -------- ----------- Total assets........................................ $326,553 $379,953 $ 379,419 ======== ======== =========== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Bank overdraft.......................................... $ 5,152 $ 4,243 $ 4,587 Accounts payable and accrued expenses................... 50,653 60,115 57,468 Bridge Notes due to Affiliates.......................... 16,160 -- Current portion of long-term debt....................... 8,050 12,900 13,212 -------- -------- ----------- Total current liabilities........................... 80,015 77,258 75,267 Long-term debt, net of current portion.................. 167,043 183,714 181,357 Bridge Notes due to Affiliates.......................... -- 26,995 27,726 Other long-term liabilities............................. 1,947 4,527 4,852 -------- -------- ----------- Total liabilities................................... 249,005 292,494 289,202 REDEEMABLE MINORITY INTEREST IN SUBSIDIARY.................. 14,450 15,650 15,950 COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY: American Achievement Series A preferred, $.01 par value, 1,000,000 shares and 1,200,000 shares authorized, respectively, 854,467 shares 1,001,347 shares and 1,001,347 (unaudited) issued and outstanding, respectively, liquidation preference of $85,447, $100,135, and $100,135 (unaudited) respectively....... 9 10 10 American Achievement Series B preferred, $.01 par value, 25,000 shares and none authorized, respectively, none issued and outstanding................................ -- -- -- American Achievement common stock, $.01 par value, 1,250,000 shares authorized, 696,914 shares, 809,351 shares and 809,351 shares (unaudited) issued and outstanding, respectively............................. 7 8 8 Additional paid-in capital.............................. 78,760 94,760 94,760 Accumulated other comprehensive loss.................... -- (2,751) (3,166) Accumulated deficit..................................... (15,678) (20,218) (17,345) -------- -------- ----------- Total stockholders' equity.......................... 63,098 71,809 74,267 -------- -------- ----------- Total liabilities and stockholders' equity.......... $326,553 $379,953 $ 379,419 ======== ======== ===========
The accompanying notes are an integral part of these consolidated financial statements. F-3 AMERICAN ACHIEVEMENT CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (DOLLARS IN THOUSANDS)
FOR THE THREE FOR THE FISCAL YEARS ENDED MONTHS ENDED ------------------------------------ ----------------------------- AUGUST 28, AUGUST 26, AUGUST 25, NOVEMBER 25, NOVEMBER 24, 1999 2000 2001 2000 2001 ---------- ---------- ---------- ------------- ------------- (UNAUDITED) Net sales............................. $168,865 $182,285 $281,515 $64,338 $77,572 Cost of sales......................... 73,268 80,929 141,946 35,539 35,947 -------- -------- -------- ------- ------- Gross profit...................... 95,597 101,356 139,569 28,799 41,625 Selling, general and administrative expenses............................ 85,075 85,559 119,930 29,543 32,402 -------- -------- -------- ------- ------- Operating income.................. 10,522 15,797 19,639 (744) 9,223 Interest expense, net................. 14,594 15,691 22,846 5,868 5,930 -------- -------- -------- ------- ------- Income (loss) before provision for income taxes.................... (4,072) 106 (3,207) (6,612) 3,293 Provision for income taxes............ 120 333 133 369 120 -------- -------- -------- ------- ------- Income (loss) before extraordinary item............................ (4,192) (227) (3,340) (6,981) 3,173 Gain on extinguishment of debt, net of income taxes of $46................. -- 6,695 -- -- -- -------- -------- -------- ------- ------- Net income (loss)................. (4,192) 6,468 (3,340) (6,981) 3,173 Preferred dividends................... (1,200) (1,200) (1,200) (300) (300) -------- -------- -------- ------- ------- Net income (loss) to common stockholders.................... $ (5,392) $ 5,268 $ (4,540) $(7,281) $ 2,873 ======== ======== ======== ======= =======
The accompanying notes are an integral part of these consolidated financial statements. F-4 AMERICAN ACHIEVEMENT CORPORATION CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
PREFERRED STOCK ------------------------------------------------------------------ SERIES A SERIES B ------------------------------------------- -------------------- AMERICAN CBI INC. "OLD" ACHIEVEMENT "NEW" CBI INC. "OLD" ------------------- --------------------- -------------------- SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT -------- -------- --------- --------- -------- --------- BALANCE, August 29, 1998............................ 100,000 $ 1 -- $ -- 377,156 $ 4 Repurchase of CBI Inc. "Old" common stock........... -- -- -- -- -- -- Issuance of CBI Inc. "Old" preferred stock.......... -- -- -- -- 83,829 1 Accrued CBI Inc. "Old" preferred stock dividends.... -- -- -- -- -- -- Net loss............................................ -- -- -- -- -- -- -------- ----- --------- --------- -------- --------- BALANCE, August 28, 1999............................ 100,000 1 -- -- 460,985 5 Reclassification of CBI Inc. "Old" Series A preferred stock to redeemable minority interest in subsidiary in connection with the July 27, 2000, Merger of CBI Inc. and American Achievement (Note 3)................................................ (100,000) (1) -- -- -- -- Issuance of American Achievement "New" Series A Preferred and "New" Common in exchange for CBI Inc. "Old" Series B Preferred and "Old" Common.... -- -- 460,985 5 (460,985) (5) Issuance of American Achievement "New" Common and "New" Series A Preferred in acquisition of Taylor............................................ -- -- 393,482 4 -- -- Accrued dividends on CBI Inc. "Old" Series A Preferred......................................... -- -- -- -- -- -- Net income.......................................... -- -- -- -- -- -- -------- ----- --------- --------- -------- --------- BALANCE, August 26, 2000............................ -- -- 854,467 9 -- -- Comprehensive loss- Net loss............................................ -- -- -- -- -- -- Adjustment in minimum pension liability............. -- -- -- -- -- -- Change in effective portion of derivative loss...... -- -- -- -- -- -- Total comprehensive loss............................ Issuance of American Achievement Series B Preferred Stock............................................. -- -- -- -- -- -- Exchange of Series B Preferred Stock for Series A and common stock.................................. -- -- 146,880 1 -- -- Accrued interest on CBI Inc. "Old" Series A Preferred Stock................................... -- -- -- -- -- -- Exercise of stock options........................... -- -- -- -- -- -- -------- ----- --------- --------- -------- --------- BALANCE, August 25, 2001............................ -- -- 1,001,347 10 -- -- -------- ----- --------- --------- -------- --------- Comprehensive loss- Net loss income (unaudited)......................... -- -- -- -- -- -- Adjustment in minimum pension liability (unaudited)....................................... -- -- -- -- -- -- Change in effective portion of derivative loss (unaudited)....................................... -- -- -- -- -- -- Total comprehensive income (loss) (unaudited)....... Accrued interest on CBI Inc. "Old" Series A Preferred Stock (unaudited)....................... -- -- -- -- -- -- -------- ----- --------- --------- -------- --------- BALANCE, November 24, 2001 (unaudited).............. -- $ -- 1,001,347 $ 10 -- $ -- ======== ===== ========= ========= ======== ========= PREFERRED STOCK --------------------- SERIES B COMMON STOCK --------------------- ------------------------------------------ AMERICAN AMERICAN ACHIEVEMENT "NEW" CBI INC. "OLD" ACHIEVEMENT "NEW" --------------------- ------------------- -------------------- SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT --------- --------- -------- -------- -------- --------- BALANCE, August 29, 1998............................ -- $ -- 377,156 $ 4 -- $ -- Repurchase of CBI Inc. "Old" common stock........... -- -- (1,171) -- -- -- Issuance of CBI Inc. "Old" preferred stock.......... -- -- -- -- -- -- Accrued CBI Inc. "Old" preferred stock dividends.... -- -- -- -- -- -- Net loss............................................ -- -- -- -- -- -- ------- ----- -------- ---- ------- --------- BALANCE, August 28, 1999............................ -- -- 375,985 4 -- -- Reclassification of CBI Inc. "Old" Series A preferred stock to redeemable minority interest in subsidiary in connection with the July 27, 2000, Merger of CBI Inc. and American Achievement (Note 3)................................................ -- -- -- -- -- -- Issuance of American Achievement "New" Series A Preferred and "New" Common in exchange for CBI Inc. "Old" Series B Preferred and "Old" Common.... -- -- (375,985) (4) 375,985 4 Issuance of American Achievement "New" Common and "New" Series A Preferred in acquisition of Taylor............................................ -- -- -- -- 320,929 3 Accrued dividends on CBI Inc. "Old" Series A Preferred......................................... -- -- -- -- -- -- Net income.......................................... -- -- -- -- -- -- ------- ----- -------- ---- ------- --------- BALANCE, August 26, 2000............................ -- -- -- -- 696,914 7 Comprehensive loss- Net loss............................................ -- -- -- -- -- -- Adjustment in minimum pension liability............. -- -- -- -- -- -- Change in effective portion of derivative loss...... -- -- -- -- -- -- Total comprehensive loss............................ Issuance of American Achievement Series B Preferred Stock............................................. 16,000 160 -- -- -- -- Exchange of Series B Preferred Stock for Series A and common stock.................................. (16,000) (160) -- -- 112,137 1 Accrued interest on CBI Inc. "Old" Series A Preferred Stock................................... -- -- -- -- -- -- Exercise of stock options........................... -- -- -- -- 300 -- ------- ----- -------- ---- ------- --------- BALANCE, August 25, 2001............................ -- -- -- -- 809,351 8 ------- ----- -------- ---- ------- --------- Comprehensive loss- Net loss income (unaudited)......................... -- -- -- -- -- -- Adjustment in minimum pension liability (unaudited)....................................... -- -- -- -- -- -- Change in effective portion of derivative loss (unaudited)....................................... -- -- -- -- -- -- Total comprehensive income (loss) (unaudited)....... Accrued interest on CBI Inc. "Old" Series A Preferred Stock (unaudited)....................... -- -- -- -- -- -- ------- ----- -------- ---- ------- --------- BALANCE, November 24, 2001 (unaudited).............. -- $ -- -- $ -- 809,351 $ 8 ======= ===== ======== ==== ======= ========= ACCUMULATED ADDITIONAL OTHER PAID-IN COMPREHENSIVE ACCUMULATED CAPITAL LOSS DEFICIT TOTAL ---------- ------------- ----------- -------- BALANCE, August 29, 1998............................ $50,391 $ -- $(15,554) $34,846 Repurchase of CBI Inc. "Old" common stock........... (7) -- -- (7) Issuance of CBI Inc. "Old" preferred stock.......... 8,382 -- -- 8,383 Accrued CBI Inc. "Old" preferred stock dividends.... -- -- (1,200) (1,200) Net loss............................................ -- -- (4,192) (4,192) ------- ------- -------- ------- BALANCE, August 28, 1999............................ 58,766 -- (20,946) 37,830 Reclassification of CBI Inc. "Old" Series A preferred stock to redeemable minority interest in subsidiary in connection with the July 27, 2000, Merger of CBI Inc. and American Achievement (Note 3)................................................ (9,999) -- -- (10,000) Issuance of American Achievement "New" Series A Preferred and "New" Common in exchange for CBI Inc. "Old" Series B Preferred and "Old" Common.... -- -- -- -- Issuance of American Achievement "New" Common and "New" Series A Preferred in acquisition of Taylor............................................ 29,993 -- -- 30,000 Accrued dividends on CBI Inc. "Old" Series A Preferred......................................... -- -- (1,200) (1,200) Net income.......................................... -- -- 6,468 6,468 ------- ------- -------- ------- BALANCE, August 26, 2000............................ 78,760 -- (15,678) 63,098 Comprehensive loss- Net loss............................................ -- -- (3,340) $(3,340) Adjustment in minimum pension liability............. -- (519) -- (519) Change in effective portion of derivative loss...... -- (2,232) -- (2,232) ------- -------- ------- Total comprehensive loss............................ (2,751) (3,340) $(6,091) Issuance of American Achievement Series B Preferred Stock............................................. 15,840 -- -- 16,000 Exchange of Series B Preferred Stock for Series A and common stock.................................. 158 -- -- -- Accrued interest on CBI Inc. "Old" Series A Preferred Stock................................... -- -- (1,200) (1,200) Exercise of stock options........................... 2 -- -- 2 ------- ------- -------- ------- BALANCE, August 25, 2001............................ 94,760 (2,751) (20,218) 71,809 ------- ------- -------- ------- Comprehensive loss- Net loss income (unaudited)......................... -- -- 3,173 3,173 Adjustment in minimum pension liability (unaudited)....................................... -- -- -- -- Change in effective portion of derivative loss (unaudited)....................................... -- (415) -- (415) ------- -------- ------- Total comprehensive income (loss) (unaudited)....... (415) 3,173 2,758 Accrued interest on CBI Inc. "Old" Series A Preferred Stock (unaudited)....................... -- -- (300) (300) ------- ------- -------- ------- BALANCE, November 24, 2001 (unaudited).............. $94,760 $(3,166) $(17,345) $74,267 ======= ======= ======== =======
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS. F-5 AMERICAN ACHIEVEMENT CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (DOLLARS IN THOUSANDS)
FOR THE THREE FOR THE FISCAL YEAR ENDED MONTHS ENDED ------------------------------------ --------------------------- AUGUST 28, AUGUST 26, AUGUST 25, NOVEMBER 25, NOVEMBER 24, 1999 2000 2001 2000 2001 ---------- ---------- ---------- ------------ ------------ (UNAUDITED) CASH FLOWS FROM OPERATING ACTIVITIES: Net (loss) income.................................... $(4,192) $ 6,468 $ (3,340) $(6,981) $ 3,173 Adjustments to reconcile net (loss) income to net cash provided by (used in) operating activities-- Depreciation and amortization.................... 7,176 9,100 17,586 3,870 4,762 Gain on retirement of debt....................... -- (6,741) -- -- -- Provision for doubtful accounts.................. 1,389 630 383 35 408 Other............................................ 1,534 340 649 (Increase) decrease in receivables............... (5,391) 3,622 (10,093) (9,449) (3,075) Decrease in inventories, net..................... 495 151 881 3,406 1,862 (Increase) decrease in prepaid expenses and other current assets, net............................ 617 (276) 640 (59) 1,026 Increase in other assets, net.................... (765) (4,778) (2,620) 209 (770) Increase (decrease) in bank overdraft, accounts payable and accrued expenses and other long-term liabilities.......................... 1,768 (17,544) 5,285 8,986 (2,393) ------- -------- -------- ------- ------- Net cash provided by (used in) operating activities................................. 1,097 (9,368) 10,256 357 5,642 ------- -------- -------- ------- ------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property, plant and equipment........... (9,785) (5,087) (7,499) (1,932) (2,088) Sale of Publishing Segment........................... -- -- 47 -- -- Acquisition of Taylor Senior Holding, net of cash acquired........................................... -- 905 -- -- -- Acquisition of Educational Communications Inc., net of cash and cash equivalents acquired.............. -- -- (50,413) -- -- ------- -------- -------- ------- ------- Net cash used in investing activities........ (9,785) (4,182) (57,865) (1,932) (2,088) ------- -------- -------- ------- ------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from debt issuance.......................... -- 98,984 35,835 478 732 Payments for repurchase of common stock.............. (7) -- -- -- -- Proceeds from issuance of common and preferred stock.............................................. 8,383 -- 16,000 -- -- Exercise of stock option............................. -- -- 2 -- -- Payments on term loan facility, net.................. (1,250) (62,638) (8,600) (888) (3,225) Bank revolver borrowings, net........................ 1,338 (21,660) 5,121 3,405 1,179 ------- -------- -------- ------- ------- Net cash provided by (used in) financing activities................................. 8,464 14,686 48,358 2,995 (1,314) ------- -------- -------- ------- ------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS..... (224) 1,136 749 1,420 2,240 CASH AND CASH EQUIVALENTS, beginning of fiscal year...... 975 751 1,887 1,887 2,636 ------- -------- -------- ------- ------- CASH AND CASH EQUIVALENTS, end of fiscal year............ $ 751 $ 1,887 $ 2,636 3,307 4,876 ======= ======== ======== ======= ======= SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the fiscal year for-- Interest......................................... $14,358 $ 17,730 $ 20,461 $ -- $ 399 ======= ======== ======== ======= ======= Taxes............................................ $ 94 $ 226 $ 443 $ 443 $ 25 ======= ======== ======== ======= ======= SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING ACTIVITIES: Accrued dividends on CBI Inc. "Old" Series A Preferred.......................................... $ 1,200 $ 1,200 $ 1,200 300 300 ======= ======== ======== ======= ======= Issuance of common and preferred stock in acquisition of Taylor Senior Holding........................... $ -- $ 30,000 $ -- -- -- ======= ======== ======== ======= =======
The accompanying notes are an integral part of these consolidated financial statements. F-6 AMERICAN ACHIEVEMENT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. BACKGROUND AND ORGANIZATION: AMERICAN ACHIEVEMENT CORPORATION (American Achievement), a Delaware corporation, was formed on June 27, 2000. Commemorative Brands Inc. (CBI Inc.) became a subsidiary of American Achivement pursuant to an agreement and plan of merger among CBI Inc., American Achievement and Commemorative Brands Acquisition Corp. (CB Acquisition) (see Note 3). On July 27, 2000, American Achievement acquired all issued and outstanding shares of Taylor Senior Holding Corp. (Taylor Senior Holding) through the issuance of common and preferred stock of American Achievement in a transaction accounted for as a purchase. Consequently, the operating results of Taylor Senior Holding have been included from the July 27, 2000, acquisition date. On March 30, 2001, American Achievement acquired all of the outstanding stock of Educational Communications, Inc. (ECI). The transaction was accounted for as a purchase. Consequently, the results of operations of ECI are included from the acquisition date, March 30, 2001 (see Note 3). Taylor Senior Holding and ECI are wholly owned subsidiaries of American Achievement, and CBI Inc. is a majority-owned subsidiary of American Achievement. American Achievement, together with its subsidiaries, is referred to herein as the "Company." The Company is a manufacturer and supplier of class rings, yearbooks and other graduation-related scholastic products for the high school and college markets and manufactures and markets recognition and affinity jewelry designed to commemorate significant events, achievements and affiliations. The Company also operates a reunion services division which provides full-service reunion planning for high schools and sells achievement publications in the specialty directory publishing industry nationwide. The Company markets its products and services primarily in the United States and has identified two distinct reporting segments, scholastic products and affinity products (see Note 15). The Company's corporate offices and primary manufacturing facilities are located in Austin and Dallas, Texas. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: FISCAL YEAR-END The Company uses a 52/53-week fiscal year ending on the last Saturday of August. INTERIM FINANCIAL STATEMENTS The accompanying consolidated balance sheet as of November 24, 2001, the consolidated statements of operations and cash flows for the three months ended November 25, 2000 and November 24, 2001 and the consolidated statement of stockholders' equity for the three months ended November 24, 2001 are unaudited, but in the opinion of management, include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of results for the interim periods. Results for the three months ended November 24, 2001 are not necessarily indicative of the results that may be expected for the year ending August 31, 2002. CONSOLIDATION The consolidated financial statements for the fiscal year ended August 25, 2001, include the accounts of American Achievement and its subsidiaries, ECI, CBI Inc. and Taylor Senior Holding, together with their wholly owned subsidiaries. The consolidated financial statements for the year ended F-7 AMERICAN ACHIEVEMENT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED) August 26, 2000, include the accounts of CBI Inc. and Taylor Senior Holding, together with their wholly owned subsidiaries. All material intercompany accounts and transactions have been eliminated in consolidation. CASH AND CASH EQUIVALENTS Cash and cash equivalents include highly liquid investments with original maturities of three months or less. INVENTORIES Inventories, which include raw materials, labor and manufacturing overhead, are stated at the lower of cost or market using the first-in, first-out (FIFO) method. SALES REPRESENTATIVE ADVANCES AND RELATED RESERVE The Company advances funds to sales representatives and makes payments to predecessor sales representatives on behalf of successor sales representatives as prepaid commissions against anticipated earnings. Such amounts are repaid by the sales representatives through earned commissions on product sales. The Company provides reserves to cover those amounts which it estimates to be uncollectible. These amounts are included in prepaid expenses and other current assets in the accompanying consolidated balance sheets. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment are stated at cost, net of accumulated depreciation. Depreciation is provided principally using the straight-line method based on estimated useful lives of the assets as follows:
DESCRIPTION USEFUL LIFE - ----------- -------------- Buildings and improvements.................................. 10 to 25 years Tools and dies.............................................. 10 to 14 years Machinery and equipment..................................... 2 to 10 years
Maintenance, repairs and minor replacements are charged against income as incurred; major replacements and betterments are capitalized. The cost of assets sold or retired and the related accumulated depreciation are removed from the accounts at the time of disposition, and any resulting gain or loss is reflected as other income or expense for the period. Depreciation expense recorded in the accompanying consolidated statements of operations is approximately $4,299,000, $5,890,000 and $10,819,000 for the fiscal years ended August 28, 1999, August 26, 2000, and August 25, 2001, respectively. F-8 AMERICAN ACHIEVEMENT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED) TRADEMARKS The value of trademarks was determined based on a third-party appraisal. ECI's trademarks of $15.5 million at August 25, 2001 are being amortized over 20 years. CBI Inc.'s trademarks of $30.7 million are being amortized over 40 years. Amortization expense recorded in the accompanying consolidated statements of operations amounted to approximately $768,000 for each of the fiscal years ended August 28, 1999 and August 26, 2000, and approximately $1,092,000 for the fiscal year ended August 25, 2001. GOODWILL Costs in excess of fair value of net tangible and identifiable intangible assets acquired are included in goodwill in the accompanying consolidated balance sheets. Goodwill is being amortized on a straight-line basis over 40 years. The Company continually evaluates whether events and circumstances have occurred that indicate that the remaining estimated useful life of goodwill may warrant revision or that the remaining balance of goodwill may not be recoverable. When factors indicate that goodwill should be evaluated for possible impairment, the Company would use an estimate of the related product lines' undiscounted cash flows over the remaining life of the goodwill in measuring whether the goodwill is recoverable. Amortization expense on goodwill recorded in the accompanying consolidated statements of operations is approximately $2,109,000, $2,189,000 and $3,438,000 for the fiscal years ended August 28, 1999, August 26, 2000, and August 25, 2001, respectively. OTHER ASSETS Other assets include deferred financing costs, customer lists, work force in place and ring samples supplied to national chain stores and sales representatives of the Company. All values are amortized on a straight-line basis as follows:
DESCRIPTION USEFUL LIFE - ----------- ----------- Deferred financing costs.................................... 1-7 years Customer lists.............................................. 12 years Work force in place......................................... 7 years Ring samples................................................ 6 years
F-9 AMERICAN ACHIEVEMENT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED) Other assets, net consists of the following (in thousands):
AUGUST 26, 2000 AUGUST 25, 2001 --------------- --------------- Deferred financing costs................................. $ 7,341 $ 9,800 Ring samples............................................. 6,237 5,709 Work force in place...................................... 3,377 3,377 Customer lists........................................... 12,932 14,672 Other................................................ 401 1,089 ------- ------- 30,288 34,647 Less-accumulated amortization............................ (716) (4,487) ------- ------- Other assets, net.................................... $29,572 $30,160 ======= =======
Amortization expense on other assets recorded in the accompanying consolidated statements of operations is approximately $--, $177,000 and $2,237,000 for the fiscal years ended August 28, 1999, August 26, 2000, and August 25, 2001, respectively. IMPAIRMENT OF LONG-LIVED ASSETS Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," deals with accounting for the impairment of long-lived assets, certain identifiable intangibles and goodwill related to assets to be held and used and for long-lived assets and certain identifiable intangibles to be disposed of. This statement requires that long-lived assets (e.g., property, plant and equipment and intangibles) be reviewed for impairment whenever events or changes in circumstances, such as changes in market value, indicate that the assets' carrying amounts may not be recoverable. In performing the review for recoverability, if future undiscounted cash flows (excluding interest charges) from the use and ultimate disposition of the assets are less than their carrying values, an impairment loss is recognized. Impairment losses are to be measured based on the fair value of the asset. When factors indicate that long-lived assets should be evaluated for possible impairment, the Company uses an estimate of the related product lines' undiscounted cash flows over the remaining lives of the assets in measuring whether the assets are recoverable. INCOME TAXES Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Deferred tax assets are recognized net of any valuation allowance. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. F-10 AMERICAN ACHIEVEMENT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED) FAIR VALUE OF FINANCIAL INSTRUMENTS The Company's financial instruments consist primarily of cash and cash equivalents, accounts receivable, bank overdraft, accounts payable and long-term debt (including current maturities). The carrying amounts of the Company's cash and cash equivalents, accounts receivable, bank overdraft and accounts payable approximate fair value due to their short-term nature. The fair value of the Company's long-term debt approximates the recorded amount based on current rates available to the Company for debt with the same or similar terms. DERIVATIVE FINANCIAL INSTRUMENTS The Company adopted SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," beginning on August 27, 2000. SFAS No. 133 establishes accounting and reporting standards for derivative instruments and hedging activities. SFAS No. 133 requires that an entity recognize derivatives as either assets or liabilities on the balance sheet and measure those instruments at fair value. The accounting for changes in the fair value of a derivative depends on the intended use of the derivative and the resulting designation. The adoption of SFAS No. 133 did not have a material effect on the Company's financial statements. The Company designates its derivatives based upon criteria established by SFAS No. 133. For a derivative designated as a fair value hedge, the gain or loss is recognized in earnings in the period of change together with the offsetting loss or gain on the hedged item attributed to the risk being hedged. For a derivative designated as a cash flow hedge, the effective portion of the derivative's gain or loss is initially reported as a component of accumulated other comprehensive income (loss) and subsequently reclassified into earnings when the hedged exposure affects earnings. The ineffective portion of the gain or loss is reported in earnings immediately. The Company uses derivatives to manage exposures to interest rate risk. The Company's objectives for holding derivatives are to decrease the volatility of earnings and cash flows associated with changes in interest rates. REVENUE RECOGNITION Revenues from product sales are recognized at the time the product is shipped and the risks and rewards of ownership have passed to the customer. Provisions for sales returns, warranty costs and rebates expenses are recorded at the time of sale based on historical information and current trends. SEASONALITY The Company's scholastic product sales tend to be seasonal. Class ring and achievement publication sales are highest from October through December, when students have returned to school after the summer recess and orders are taken for delivery of class rings to students before the winter holiday season. Sales of the Company's fine paper products are predominantly made from February F-11 AMERICAN ACHIEVEMENT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED) through April for graduation in May and June. The Company has historically experienced operating losses on class ring and graduation product sales during its fourth fiscal quarter, which includes the summer months when school is not in session. Yearbook sales are highest during the months of May through June, as yearbooks are shipped to schools prior to the school's summer break. The Company has historically experienced operating losses related to yearbook sales during the first and second fiscal quarters, when very few books are shipped for delivery. Management does not expect the Company's recognition and affinity product segment to be seasonal in any material respect, although it does anticipate that sales will be highest during the winter holiday season and in the period prior to Mother's Day. As a result, the effects of seasonality on the Company are tempered by the Company's relatively broad product mix. CONCENTRATION OF CREDIT RISK Credit is extended to certain industries, such as educational and retail, which may be affected by changes in economic or other external conditions. The Company's policy is to manage its exposure to credit risk through credit approvals and limits. SHIPPING AND HANDLING FEES In accordance with Emerging Issues Task Force (EITF) No. 00-10, "Accounting for Shipping and Handling Fees and Costs," the Company recognizes as revenue amounts billed to customers related to shipping and handling, with the related expense recorded as a component of cost of sales. SUPPLIER CONCENTRATION The Company purchases substantially all synthetic and semi-precious stones from a single supplier located in Germany who is also the supplier to substantially all of the class ring manufacturers in the United States. ADVERTISING The Company incurs advertising and promotion costs that are directly related to a product in advance of the sale occurring. These amounts are included in prepaid expenses and other current assets and are amortized over the period in which the sale of products occurs. Selling, general and administrative expenses for the Company include advertising expenses of approximately $3,694,000, $2,942,000 and $3,568,000 for the fiscal years ended August 28, 1999, August 26, 2000, and August 25, 2001, respectively. F-12 AMERICAN ACHIEVEMENT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED) USE OF ESTIMATES The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. RECLASSIFICATIONS Certain reclassifications of prior-year balances have been made to conform to current-year presentation. COMPREHENSIVE LOSS For fiscal years 2000 and 1999, the Company did not have any transactions other than net income or loss which comprised comprehensive income. Beginning in fiscal year 2001, the effective portion of the loss on derivatives and unrecognized losses on accrued minimum pension liabilities were included in other comprehensive loss. The following amounts were included in accumulated other comprehensive loss as of the end of fiscal year 2001 (in thousands): Effective portion of derivative loss........................ $2,232 Unrecognized loss on minimum pension liability.............. 519 ------ Accumulated other comprehensive loss........................ $2,751 ======
NEW ACCOUNTING PRONOUNCEMENTS On July 23, 2001, the Financial Accounting Standards Board released for issuance SFAS No. 141, "Business Combinations," and SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 141 requires that all business combinations subsequent to June 30, 2001, be accounted for under the purchase method of accounting. The pooling-of-interests method is no longer allowed. Under SFAS No. 142, goodwill and intangible assets with indefinite lives are no longer amortized but are reviewed annually (or more frequently if impairment indicators arise) for impairment. Separable intangible assets that are not deemed to have indefinite lives will continue to be amortized over their useful lives (but with no maximum life). SFAS No. 142 is effective for fiscal years beginning after December 15, 2001. The Company anticipates adopting SFAS No. 142 beginning on September 1, 2002, the first day of fiscal year 2003. The Company is evaluating the impact of the adoption of these standards and has not yet determined the effect of adoption on its financial position and results of operations. The impact of adoption may be material. Upon adoption of these standards, goodwill amortization will cease and certain intangibles such as workforce in place will be reclassified into goodwill. F-13 AMERICAN ACHIEVEMENT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED) In August 2001, the Financial Accounting Standards Board released SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." SFAS No. 144 establishes a single accounting model, based upon the framework established in SFAS No. 121, for long-lived assets to be disposed of by sale. SFAS No. 144 broadens the presentation of discontinued operations to include more disposal transactions, and also provides additional implementation guidance for SFAS No. 121. SFAS No. 144 is effective for fiscal years beginning after December 15, 2001. The Company anticipates adopting SFAS No. 144 effective September 1, 2002, and management does not expect the adoption to have a material impact on the Company's financial position and results of operations. 3. SIGNIFICANT ACQUISITIONS: Effective July 27, 2000, American Achievement, CBI Inc. and CB Acquisition entered into an agreement and plan of merger (the Merger Agreement). Under the terms of the Merger Agreement, upon the effective date of the merger, CBI Inc. merged with CB Acquisition, a wholly owned subsidiary of American Achievement. Following the merger, CB Acquisition ceased to exist and CBI Inc. remained the surviving majority-owned subsidiary of American Achievement. Upon consummation of the merger, each share of CBI Inc.'s issued and outstanding common stock was converted into one share of American Achievement common stock, and each share of CBI Inc.'s issued and outstanding Series B Preferred stock was converted into one share of American Achievement's Series A Preferred Stock. Immediately following the above transaction, American Achievement acquired all issued and outstanding shares of Taylor Senior Holding through the issuance of 320,929 shares of American Achievement common stock and 393,482 shares of American Achievement Series A Preferred Stock for a purchase price of $30 million. Taylor Senior Holding holds a 100 percent ownership interest in TP Holding Corp., which holds a 100 percent ownership interest in Taylor Publishing Company (TPC), its operating subsidiary. For accounting purposes, American Achievement has been deemed the acquiror. The acquisition of Taylor Senior Holding was accounted for using the purchase method and, accordingly, the purchase price has been allocated to assets acquired and liabilities assumed based upon estimated fair values. TPC's primary business is design and printing of student yearbooks. The estimated fair value of assets acquired and liabilities assumed relating to the Taylor Senior Holding acquisition is summarized below (in thousands): Working capital............................................. $ (5,590) Property, plant and equipment............................... 27,481 Other intangibles........................................... 18,616 Goodwill.................................................... 40,265 Other assets................................................ 608 Long-term liabilities....................................... (51,380) -------- $ 30,000 ========
Goodwill and other intangibles related to Taylor Senior Holding are amortized on a straight-line basis over their useful lives, which range from seven to 40 years. F-14 AMERICAN ACHIEVEMENT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 3. SIGNIFICANT ACQUISITIONS: (CONTINUED) The Company incurred approximately $5 million in financing costs associated with the merger and the amended and restated credit agreement. These costs have been capitalized and are included in the accompanying consolidated balance sheet as of August 26, 2000. Finance costs are being amortized over the term of the amended and restated credit agreement (see Note 8). Effective March 30, 2001, Honors Acquisition Corporation, a wholly owned subsidiary of American Achievement, purchased all the outstanding stock of ECI, for a total purchase price of $58.7 million. The acquisition of ECI was accounted for using the purchase method of accounting and, accordingly, the purchase price has been allocated to assets acquired and liabilities assumed based upon estimated fair values. Subsequent to the transaction, Honors Acquisition Corporation was dissolved into the Company, and ECI remained the surviving wholly owned subsidiary of the Company. ECI's primary business is the sales and marketing of achievement publications of the specialty directory publishing industry. The estimated fair value of assets acquired and liabilities assumed relating to the ECI acquisition, which is preliminary and subject to further refinements in accordance with accounting principles generally accepted in the United States, is summarized below (in thousands): Working capital............................................. $ 5,534 Property, plant and equipment............................... 400 Other intangibles........................................... 17,240 Goodwill.................................................... 35,492 Other long-term assets...................................... 44 ------- $58,710 =======
Goodwill and other intangibles related to ECI are amortized on a straight-line basis over their useful lives which range from three to 40 years. The Company incurred approximately $2.4 million in financing costs associated with the purchase agreement. These costs have been capitalized and are included in the accompanying consolidated balance sheet as of August 25, 2001. Finance costs are being amortized over the terms of the second amended and restated credit agreement and American Achievement Bridge Loan (see Note 8). As a result of these transactions, the consolidated financial statements of the Company as of August 25, 2001, include the results of operations of ECI for the period from March 30, 2001, to August 25, 2001, and the results of operations for consolidated Taylor Senior Holding and for consolidated CBI Inc. for the year ended August 25, 2001. The consolidated financial statements of the Company as of August 26, 2000, include the results of operations for consolidated Taylor Senior Holding for the period from July 27, 2000, to August 26, 2000, and the results of operations for consolidated CBI Inc. for the year ended August 26, 2000. F-15 AMERICAN ACHIEVEMENT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 3. SIGNIFICANT ACQUISITIONS: (CONTINUED) The following unaudited pro forma data summarizes the results of operations for the years indicated as if both the ECI and Taylor Senior Holding acquisitions had been completed as of the beginning of the fiscal years presented (in thousands):
AUGUST 26, AUGUST 25, 2000 2001 ----------- ----------- (UNAUDITED) (UNAUDITED) Net sales................................................... $290,219 $297,403 Net income (loss) before extraordinary item................. (4,633) 3,111 Net income to common stockholders........................... 862 1,911
4. INVENTORIES: Inventories consist of the following (in thousands):
AUGUST 26, AUGUST 25, NOVEMBER 24, 2000 2001 2001 ----------- ----------- ------------- (UNAUDITED) Raw materials....................................... $10,261 $ 8,545 $ 7,604 Work in process..................................... 11,046 10,293 8,465 Finished goods...................................... 7,069 8,092 9,006 Less-Reserves....................................... (389) (258) (265) ------- ------- ------- $27,987 $26,672 $24,810 ======= ======= =======
Cost of sales includes depreciation and amortization of approximately $2,425,000, $3,094,000 and $7,535,000 for the fiscal years ended August 28, 1999, August 26, 2000, and August 25, 2001, respectively. 5. PREPAID EXPENSES AND OTHER CURRENT ASSETS: Prepaid expenses and other current assets consist of the following (in thousands):
AUGUST 26, AUGUST 25, 2000 2001 ----------- ----------- Sales representative advances............................... $12,887 $10,433 Less-reserve on sales representative advances........... (4,278) (3,004) Deferred expenses........................................... -- 2,563 Prepaid advertising and promotion materials................. 2,453 1,983 Assets held for sale........................................ 2,558 -- Other....................................................... 3,843 3,941 ------- ------- $17,463 $15,916 ======= =======
Included in other current assets as of August 26, 2000, and August 25, 2001, is approximately $535,000 and $215,000, respectively, paid for options to purchase 58,600 ounces and 23,300 ounces, respectively, of gold. The outstanding options at August 25, 2001, expire in various amounts through F-16 AMERICAN ACHIEVEMENT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 5. PREPAID EXPENSES AND OTHER CURRENT ASSETS: (CONTINUED) December 2001 and have strike prices ranging from $280 to $290 per ounce of gold. The Company carries these gold options at the lower of cost or market. In connection with the acquisition of Taylor Senior Holding, management established a formal plan to divest from its trade publishing product line. The value assigned to the assets held for sale represent the expected net realizable value of these assets and the expected net cash flow between the period from acquisition to the expected date of sale. The Company continued to accrue losses on the publishing segment through the date of sale, which occurred on May 3, 2001. The sale resulted in a loss of approximately $1.6 million, which was treated as an adjustment to the original purchase allocation. 6. PROPERTY, PLANT AND EQUIPMENT: Property, plant and equipment, net consist of the following (in thousands):
AUGUST 26, AUGUST 25, 2000 2001 ---------- ---------- Land........................................................ $ 6,315 $ 6,315 Buildings and improvements.................................. 11,113 11,430 Tools and dies.............................................. 24,843 26,795 Machinery and equipment..................................... 38,331 44,062 Construction in progress.................................... 3,162 2,909 -------- -------- Total................................................... 83,764 91,511 Less-accumulated depreciation............................... (16,021) (26,669) -------- -------- Property, plant and equipment, net.......................... $ 67,743 $ 64,842 ======== ========
7. ACCOUNTS PAYABLE AND ACCRUED EXPENSES: Accounts payable and accrued expenses consists of the following (in thousands):
AUGUST 26, AUGUST 25, 2000 2001 ----------- ----------- Customer deposits........................................... $12,444 $24,180 Accounts payable............................................ 10,060 11,018 Commissions and royalties................................... 7,191 7,864 Compensation and related costs.............................. 7,429 6,158 Other....................................................... 3,840 3,942 Accrued interest payable.................................... 1,683 2,240 Reserve for acquisition-related liabilities................. 4,793 1,494 Accrued sales and property taxes............................ 1,536 1,393 Accumulated postretirement medical benefit cost............. 642 1,000 Accrued management fees..................................... 108 688 Severance costs............................................. 927 138 ------- ------- $50,653 $60,115 ======= =======
F-17 AMERICAN ACHIEVEMENT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 8. LONG-TERM DEBT: Long-term debt consists of the following (in thousands):
AUGUST 26, AUGUST 25, 2000 2001 ----------- ----------- CBI Inc. 11% senior subordinated notes due 2007............. $ 41,355 $ 41,355 TP Holding Corp. bridge notes............................... 16,160 18,073 American Achievement bridge notes........................... -- 8,922 Term A loan................................................. 50,000 57,000 Term B loan................................................. 55,000 64,400 Revolving loan.............................................. 28,738 33,859 -------- -------- Total long-term debt.................................... 191,253 223,609 -------- -------- Less-current portion........................................ (24,210) (12,900) -------- -------- Total long-term debt, excluding current portion......... $167,043 $210,709 ======== ========
CBI INC. 11 PERCENT SENIOR SUBORDINATED NOTES CBI Inc.'s 11 percent senior subordinated notes (the Notes) mature on January 15, 2007. The Notes are redeemable at the option of CBI Inc., in whole or in part, at any time on or after January 15, 2002, at specified redemption prices ranging from 105.5 percent of the principal amount thereof if redeemed during 2002 and declining to 100 percent of the principal amount thereof if redeemed during the year 2005 or thereafter, plus accrued and unpaid interest and Liquidated Damages (as defined in the Indenture, as amended), if any, thereon to the date of redemption. In the event of a Change of Control (as defined in the Indenture, as amended), each holder of the Notes will have the right to require CBI Inc. to purchase all or any part of such holder's Notes at a purchase price in cash equal to 101 percent of the aggregate principal amount thereof, plus accrued and unpaid interest and Liquidated Damages (as defined in the Indenture, as amended), if any, thereon to the date of purchase. In the event of an Asset Sale (as defined in the Indenture, as amended), CBI Inc. is required to apply any Net Proceeds (as defined in the Indenture, as amended) to permanently reduce senior indebtedness, to acquire another business or long-term assets or to make capital expenditures. To the extent such amounts are not so applied within 365 days and the amount not applied exceeds $5.0 million, CBI Inc. is required to make an offer to all holders of the Notes to purchase an aggregate principal amount of Notes equal to such excess amount at a purchase price in cash equal to 100 percent of the principal amount thereof, plus accrued and unpaid interest and Liquidated Damages, if any, thereon to the date of purchase. The Notes contain certain covenants that, among other things, limit the ability of CBI Inc. to engage in certain business transactions such as mergers, consolidations or sales of assets that would decrease the value of CBI Inc. or cause an event of default. CBI Inc. was in compliance with the Indenture covenants as of August 25, 2001. F-18 AMERICAN ACHIEVEMENT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 8. LONG-TERM DEBT: (CONTINUED) REPURCHASE OF 11 PERCENT SENIOR SUBORDINATED NOTES On July 27, 2000, TP Holding Corp. purchased $48.6 million face amount of the Notes for a total purchase price of approximately $45 million, comprised of $39.9 million, representing 82 percent of the face amount of the Notes, plus accrued interest on the Notes of approximately $5.1 million. When the Company acquired TP Holdings, for accounting purposes, the transaction was considered an extinguishment of debt and resulted in an extraordinary pretax gain on the sale of the Notes of approximately $6.7 million for the year ended August 26, 2000. CBI INC. REVOLVING CREDIT, TERM LOAN AND GOLD CONSIGNMENT AGREEMENT On December 16, 1996, CBI Inc. entered into a revolving credit, term loan and gold consignment agreement (as amended, the Bank Agreement), with a group of banks. This Agreement was terminated in July 2000. In connection with the Taylor Senior Holding acquisition and refinancing during fiscal year 2000, CBI Inc. signed a gold consignment financing agreement with a bank. Under CBI Inc.'s gold consignment financing arrangement, CBI Inc. has the ability to have on consignment the lowest of the dollar value of 27,000 troy ounces of gold, $10.1 million or a borrowing base, determined based upon a percentage of gold located at CBI Inc.'s facilities and other approved locations, as specified by the agreement. For the fiscal years ended August 28, 1999, August 26, 2000, and August 25, 2001, CBI Inc. expensed approximately $265,000, $282,000 and $241,000, respectively, in connection with consignment fees. Under the terms of the consignment arrangement, CBI Inc. does not own the consigned gold nor have risk of loss related to such inventory until the money is received by the bank from CBI Inc. in payment for the gold purchased. Accordingly, CBI Inc. does not include the value of consigned gold in its inventory or the corresponding liability for financial statement purposes. As of August 26, 2000, and August 25, 2001, CBI Inc. held approximately 15,022 ounces and 14,620 ounces, respectively, of gold valued at $4.1 million and $4.0 million, respectively, on consignment from the bank. CREDIT AGREEMENT In connection with the acquisition discussed in Note 3, TP Holding Corp. amended its original credit agreement as of July 27, 2000, with a syndication of banks. Under the original terms of the credit agreement, the borrowers (thereunder, the "Borrowers") had borrowings outstanding under the Term A, Term B and revolving loan agreements. Under the amended and restated credit agreement (the Credit Agreement), existing borrowings under the Term A, Term B and revolving loan agreements were increased. On March 30, 2001, in connection with the acquisition of ECI, as discussed in Note 3, the Borrowers entered into the second amended and restated credit agreement (the Amended Credit Agreement) to extend the amounts available under the Term A and Term B loans and to name ECI as a Borrower. F-19 AMERICAN ACHIEVEMENT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 8. LONG-TERM DEBT: (CONTINUED) The Amended Credit Agreement is collateralized by substantially all of the assets of the Company's subsidiaries. American Achievement has also pledged 100 percent of its equity ownership in CBI Inc., Taylor Senior Holding and ECI as collateral. Under the terms of the Amended Credit Agreement, the Borrowers have the option to voluntarily prepay the loans at any time without penalty, subject to certain fees and expenses associated with LIBOR loans, if applicable. Commencing with the fiscal year ending August 25, 2001, the Borrowers must prepay loans outstanding under the Amended Credit Agreement in an amount equal to 75 percent of Excess Cash Flow, as defined in the Amended Credit Agreement (reducible to 50 percent in the event certain financial ratios are below certain levels). Loans shall be prepaid by the Borrowers in an amount equal to cash proceeds received, net of underwriting fees and certain costs, for the issuance of equity securities (excluding equity securities issued pursuant to the Merger Agreement, equity securities sold in connection with the ECI acquisition, equity securities issued to employees or agents of the Company and equity securities issued between subsidiaries of the Company). The Borrowers have the option to designate the interest rates that the Term A, Term B and revolving loans will bear at either (a) a Base Rate plus a Base Rate Margin, as defined by the Amended Credit Agreement, or (b) LIBOR plus a LIBOR Margin, as defined by the Amended Credit Agreement. As of August 26, 2000 the Borrowers have designated the Term A, Term B and the revolving loans as Base Rate loans. Interest is computed daily and is payable in arrears on the first day of each month. As of August 25, 2001, the Term A and Term B loans were designated as LIBOR loans with a weighted average interest rate of 7.3% and $17,000,000 and $16,859,000 of the revolver balances were designated as LIBOR and Base Rate loans, respectively with an average interest rate of 8.5% and 7.3%, respectively. On October 13, 2000, in accordance with the Amended Credit Agreement, the Borrowers entered into a interest rate swap agreement whereby it will receive a floating rate of interest and pay a fixed rate of interest over the term of the swap agreement on an amount representing $52.5 million, or 50 percent of the outstanding Term A and Term B loans. All ineffectiveness associated with this derivative will be included in future earnings (see Note 9). The Amended Credit Agreement contains certain financial covenants that require the Company to maintain certain minimum or maximum, as applicable, levels of (a) earnings before interest, taxes, depreciation and amortization (EBITDA), (b) total indebtedness to EBITDA, (c) fixed charge coverage and (d) interest coverage, all as defined by the Amended Credit Agreement. The Amended Credit Agreement also contains covenants which limit the Company's ability to (a) make capital expenditures in excess of stated levels, (b) incur additional indebtedness, (c) create liens, (d) make certain investments, (e) enter into contingent obligations, (f) dispose of certain assets or subsidiary stock and (g) pay dividends on or redeem shares of the Company's capital stock. The Company was in compliance with these covenants as of August 25, 2001. TERM A AND B LOANS--As of August 25, 2001, the Borrowers have borrowings of approximately $57 million and $64 million outstanding under its Term A and B loans, respectively. Under the provisions of the term loans, the Borrowers are to make scheduled quarterly principal installments through the maturity date of each loan. The Term A loan matures on July 31, 2005, and the Term B loan matures on July 31, 2006. F-20 AMERICAN ACHIEVEMENT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 8. LONG-TERM DEBT: (CONTINUED) REVOLVING LOANS--As of August 25, 2001, the Borrowers have approximately $33.9 million outstanding under its revolving credit agreement. The Borrowers may borrow a maximum of $50 million under its revolving credit agreement. The maximum revolving loan balance at any point in time, as defined by the Amended Credit Agreement, will be the lesser of (a) the Borrowing Base less outstanding Risk Participation Liability, as defined by the Amended Credit Agreement, or (b) $50 million less outstanding Risk Participation Liability, as defined by the Amended Credit Agreement. If at any time the outstanding revolving loans exceed the maximum allowable revolving loan balance, the excess must be repaid immediately. Revolving loans may be repaid and reborrowed from time to time through the earlier of either an event of default under the Amended Credit Agreement or July 31, 2005. As of August 25, 2001, the Borrowers had approximately $15.9 million available under their revolving credit agreement. In the event of an asset disposition which results in the Borrowers receiving net proceeds from the transaction in excess of $1 million during any fiscal year, or $3 million in the aggregate at any time after July 27, 2000, the Borrowers must repay the outstanding principal balance of the revolving loans by the amount of any reduction in the Borrowing Base, as defined by the Amended Credit Agreement, attributable to the asset disposition. Any remaining proceeds from the asset disposition must be reinvested into the Borrowers within 180 days, in productive replacement fixed assets used in the normal course of business. The Borrowers may also request under its revolving loan commitment, in addition to advances under the revolving loan, the issuance of standby Letters of Credit or Risk Participation Agreements to confirm payment to banks which issue Letters of Credit, all as defined in the Amended Credit Agreement. The maximum aggregate amount of Letters of Credit or Risk Participation Agreements allowable under terms of the Amended Credit Agreement at any time shall not exceed $10 million. TP HOLDING CORP. BRIDGE LOAN DUE TO AN AFFILIATE TP Holding Corp. has convertible subordinated bridge promissory notes (the TP Holding Corp. Bridge Notes) due to Castle Harlan Partners III, L.P. (CHPIII), a stockholder of the Company, as of August 26, 2000, and August 25, 2001, of approximately $16.2 million and $18.0 million, respectively. Of the TP Holding Corp. Bridge Notes, approximately $12,978,000 was due February 11, 2001 and approximately $3,182,000 was due July 27, 2001. The TP Holding Corp. Bridge Notes bear interest at 12 percent per annum, which is added to the outstanding balance of the TP Holding Corp. Bridge Notes on the last day of each month. TP Holding Corp. may prepay the TP Holding Corp. Bridge Notes, in whole or in part, at any time without penalty. Such amounts have not been paid; however, as discussed below, the Company has obtained a forbearance related to the bridge loans. The noteholders have the right, at their discretion, to (a) convert the original principal and accrued interest at July 27, 2000, of $12,850,803 of TP Holding Corp. Bridge Notes, in whole, into 91,165 shares of American Achievement common stock and 111,774 shares of American Achievement Series A Preferred Stock and (b) convert the original principal of $3,149,197 of Bridge Notes, in whole, into 22,341 shares of American Achievement common stock and 27,391 shares of American Achievement Series A Preferred Stock. The stockholders are also entitled to convert accrued interest F-21 AMERICAN ACHIEVEMENT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 8. LONG-TERM DEBT: (CONTINUED) through the date of conversion into shares of American Achievement's stock in the same proportion above, provided however that no more than one year's worth of accrued interest will be converted into shares of stock. AMERICAN ACHIEVEMENT CORP. BRIDGE LOAN DUE TO AN AFFILIATE American Achievement has a convertible subordinated bridge promissory note (the American Achievement Bridge Note) due to CHPIII as of August 25, 2001, of approximately $8.9 million. The principal balance, along with all accrued interest is due March 30, 2002. The American Achievement Bridge Note bears interest at 12 percent per annum, which is added to the outstanding balance of the American Achievement Bridge Note on the last day of each month. The Company may prepay the American Achievement Bridge Note, in whole or in part, at any time without penalty. The noteholder has the right to convert the original principal into 59,585 shares of American Achievement common stock and 78,030 shares of American Achievement Series A preferred stock. The noteholder also has the right to convert accrued interest through the date of conversion into shares of American Achievement's stock in the same proportion as the principal balance. On October 19, 2001, CHP III provided a letter of forebearance to the Company for both the TP Holding Corp. Bridge Notes and the American Achievement Bridge Note (the Bridge Notes), whereby CHP III has agreed to: (a) extend the maturity date on all outstanding principal and accrued interest on the Bridge Notes to February 28, 2003, (b) extend the maturity date on all additional interest earned on the Bridge Notes from August 26, 2001 through the maturity date to February 28, 2003, (c) maintain the stated interest rate of 12 percent per annum through maturity, (d) waive any and all prior Events of Default, as defined in the Bridge Notes, through October 19, 2001, and (e) remove as an Event of Default, as defined in the Bridge Notes, the Company's nonpayment of principal or interest prior to February 28, 2003. The long-term debt outstanding as of August 25, 2001, including amounts owed to affiliates, matures as follows (in thousands): Fiscal year ending- 2002........................................................ $ 12,900 2003........................................................ 41,145 2004........................................................ 15,400 2005........................................................ 55,459 2006 and thereafter......................................... 98,705 -------- $223,609 ========
The weighted average interest rate of debt outstanding as of August 26, 2000, and August 25, 2001, was 11.3 percent and 11.4 percent, respectively. F-22 AMERICAN ACHIEVEMENT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 9. DERIVATIVE FINANCIAL INFORMATION: The Company has interest rate swap agreements in place with the intent of managing its exposure to interest rate risk on its existing debt obligation. Accordingly, the Company currently has four outstanding agreements to effectively convert LIBOR-based variable rate debt to fixed rate debt based on a total notional amount of $62.5 million. The Company considers these agreements to be cash flow hedging instruments. Under SFAS No. 133, in order to consider these agreements as hedges, (a) the Company must designate the instrument as a hedge of future transactions and (b) the contract must reduce the Company's exposure to the risk of changes in interest rates. If the above criteria are not met, the Company will record the market value of the contract at the end of each month on the balance sheet and will recognize a related gain or loss in the consolidated statement of operations. Net receipts or payments under these agreements are recognized as an adjustment to interest expense, while changes in the fair market value of these hedges are not recognized in income. The Company will recognize the fair market value of the hedges in income at the time of maturity, sale or termination. In the event that the Company's term debt were to be repaid, the interest rate swap agreements would be terminated. The fair value of interest rate swaps is the estimated amount that the Company would pay or receive to terminate the swap agreements at the reporting date, taking into account current market conditions and interest rates. At August 25, 2001, the notional amount of the contracts in place was $62.5 million, of which $52.5 million was effective as of October 13, 2000, and matures in March 2003. The remaining $10.0 million became effective as of July 29, 2001, and matures in March 2003. The Company will receive variable rate payments based on a three-month LIBOR (3.71 percent at August 25, 2001) from the third parties and is obligated to pay fixed interest rate payments (weighted average fixed rate equal to 6.25 percent) to the third parties during the term of the contracts. The net unrealized loss, which equals the fair value, net of tax, on the interest rate swaps at August 25, 2001, was approximately $2.2 million and was included in accrued expenses in the Company's consolidated balance sheet and recorded as other comprehensive loss in the consolidated statement of stockholders' equity. The net gain or loss during the year related to the ineffective portion of the interest rate swap agreements was not material. The Company did not discontinue any hedges because it was probable that the original forecasted transaction would not occur. F-23 AMERICAN ACHIEVEMENT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 10. COMMITMENTS AND CONTINGENCIES: LEASES Certain Company facilities and equipment are leased under agreements expiring at various dates through 2008. The Company's commitments under the noncancelable portion of all operating leases for the next five years and thereafter as of August 25, 2001 are as follows (in thousands): Fiscal year ending- 2002........................................................ $2,378 2003........................................................ 2,174 2004........................................................ 1,548 2005........................................................ 891 2006........................................................ 393 Thereafter.................................................. 501 ------ $7,885 ======
Lease and rental expense included in the accompanying consolidated statements of operations amounts to approximately $825,000, $937,000 and $2,226,000 for the fiscal years ended August 28, 1999, August 26, 2000, and August 25, 2001, respectively. CONTRACTS WITH SALES REPRESENTATIVES The Company is a party to certain contracts with some of its sales representatives whereby the representatives have purchased from their predecessors the right to sell the Company's products in a territory. The contracts generally provide that the value of those rights is primarily determined by the amount of business achieved by a successor sales representative and is therefore not determinable in advance of performance by the successor sales representative. PENDING LITIGATION The Company is not a party to any pending legal proceedings other than ordinary routine litigation incidental to the business. In management's opinion, adverse decisions on legal proceedings, in the aggregate, would not have a materially adverse impact on the Company's results of operations or financial position. F-24 AMERICAN ACHIEVEMENT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 11. EMPLOYEE COMPENSATION AND BENEFITS: POSTRETIREMENT PENSION AND MEDICAL BENEFITS In December 1990, the Financial Accounting Standards Board issued SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions," which requires that the accrual method of accounting for certain postretirement benefits be adopted. CBI Inc. provides certain healthcare and life insurance benefits for former employees of the L.G. Balfour Company who retired prior to December 31, 1990. L. G. Balfour Company, Inc., adopted this statement in fiscal 1994 and recognized the actuarial present value of the accumulated postretirement benefit obligation (APBO) of approximately $6.2 million at February 28, 1993, using the delayed recognition method over a period of 20 years. Prior to adopting SFAS No. 106, the cost of providing these benefits was expensed as incurred. Certain hourly employees of TPC are covered by a defined benefit pension plan (TPC Plan) established by TPC. The benefits under these plans are based primarily on the employees' years of service and compensation near retirement. The funding policies for these plans are consistent with the funding requirements of federal laws and regulations. Such plan is accounted for in accordance with SFAS No. 132 (see Note 2). The TPC Plan assets are primarily invested in a money market account. The following table sets forth the status of each plan (in thousands):
AUGUST 26, 2000 AUGUST 25, 2001 ------------------------- ------------------------- TPC CBI INC. TPC CBI INC. PENSION POSTRETIREMENT PENSION POSTRETIREMENT -------- -------------- -------- -------------- Change in benefit obligation (in thousands): Obligation beginning of the year................... $ -- $ 1,017 $ 8,866 $ 798 Transfer of obligation to the Company, July 27, 2000............................................. 8,826 -- -- -- Service cost....................................... 27 -- 323 -- Amendments......................................... -- -- -- 2,888 Interest cost...................................... 56 64 656 186 Actuarial loss (gain).............................. (19) 55 144 53 Benefit payments................................... (24) (338) (518) (418) ------- ------- ------- ------- Obligation, end of year............................ $ 8,866 $ 798 $ 9,471 $ 3,507 ------- ------- ------- ------- Change in fair value of plan assets (in thousands): Fair value of plan assets, beginning of year....... $ -- $ -- $ 8,492 $ -- Transfer in of assets to the Company, July 27, 2000............................................. 8,483 -- -- -- Actual return of plan assets....................... 33 -- 437 -- Employer Contributions............................. -- 338 60 418 Benefit payments................................... (24) (338) (518) (418) ------- ------- ------- ------- Fair value of plan assets, end of year............. $ 8,492 $ -- $ 8,471 $ -- ------- ------- ------- ------- Plan assets at fair value-- Unfunded accumulated benefit obligation in excess of plan assets........................ $ (374) $ (798) $(1,000) $(3,507) Unrecognized net loss (gain)................... 70 (231) -- (174) Unrecognized prior service costs............... -- (580) -- 2,559 ------- ------- ------- ------- Accumulated postretirement benefit cost, current and long-term.................................... $ (304) $(1,609) $(1,000) $(1,122) ======= ======= ======= =======
F-25 AMERICAN ACHIEVEMENT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 11. EMPLOYEE COMPENSATION AND BENEFITS: (CONTINUED) The net periodic postretirement benefit cost for the fiscal years ended August 28, 1999, August 26, 2000, and August 25, 2001, for CBI Inc. and for the period from July 27, 2000, to August 26, 2000, and for the year ended August 25, 2001, for TPC include the following components (in thousands):
AUGUST 28, 1999 AUGUST 26, 2000 AUGUST 25, 2001 ---------------- ------------------------- ------------------------- CBI INC. TPC CBI INC. TPC CBI INC. POSTRETIREMENT PENSION POSTRETIREMENT PENSION POSTRETIREMENT ---------------- -------- -------------- -------- -------------- Service costs, benefits attributed to service during the period.......... $ -- $27 $ -- $323 $ -- Interest cost........................ 96 57 63 656 251 Expected return on assets............ -- (63) -- (743) -- Amortization of unrecognized net loss (gain)............................. -- -- (22) -- 260 Amortization of unrecognized net prior service costs................ (580) -- (580) -- (580) ----- --- ----- ---- ----- Net periodic postretirement benefit cost (income)...................... $(484) $21 $(539) $236 $ (69)
Net amounts recognized in the consolidated balance sheet are as follows:
AUGUST 26, 2000 AUGUST 25, 2001 ------------------------- ------------------------- TPC CBI INC. TPC CBI INC. PENSION POSTRETIREMENT PENSION POSTRETIREMENT -------- -------------- -------- -------------- Accrued benefit liability.......................... $304 $1,609 $1,000 $1,122 Accumulated other comprehensive loss............... -- -- (519) -- ---- ------ ------ ------ Net amount recognized.............................. $304 $1,609 $ 481 $1,122 ==== ====== ====== ======
The weighted average discount rate used in determining the accumulated postretirement benefit obligation for CBI Inc. was 7.25 percent compounded annually for fiscal years 2000 and 2001. As the plan is unfunded, no assumption was needed as to the long-term rate of return on assets. For measurement purposes for the CBI Inc. plan, a 5.0 percent annual rate of increase in the per capita cost of covered healthcare benefits was assumed for fiscal years 2000 and 2001. The healthcare cost trend rate assumption has a significant effect on the amounts reported. Increasing (or decreasing) the assumed healthcare cost trend rate one percentage point in each year would increase (or decrease) the accumulated postretirement benefit obligation by $22,000, or 2 percent, and by $225,000, or 6 percent, as of August 26, 2000, and August 25, 2001, respectively, and the aggregate of the service and interest cost components of the net periodic postretirement benefit cost by $1,500, or 2 percent, and by $16,000, or 6 percent, for fiscal years 2000 and 2001, respectively. For the TPC Plan, the effect of one percentage point increase or decrease in the healthcare cost trend rate would not have had a material effect on either the obligation or the service or interest components of the net periodic benefit cost reported above. F-26 AMERICAN ACHIEVEMENT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 11. EMPLOYEE COMPENSATION AND BENEFITS: (CONTINUED) For measurement purposes for the TPC Plan, the weighted average discount rate used in determining the accumulated postretirement benefit obligation was 8.0 percent and 7.5 percent as of August 26, 2000, and August 25, 2001, respectively, the long-term rate of return on plan assets was 9.0 percent the annual salary increases were assumed to be 4.5 percent as of August 26, 2000, and August 25, 2001. EXECUTIVE STOCK AWARD Pursuant to an employment agreement entered into between the Company and its chief executive officer in July 1999, the board of directors authorized the issuance of 5,500 shares of Series A preferred stock to the Company's chief executive officer as discretionary compensation in August 2001. Accordingly, the Company recorded a compensation charge of approximately $550,000 related to this award. CBI INC. DEFERRED COMPENSATION CBI Inc. has deferred compensation agreements with certain sales representatives and executives, which provide for payments upon retirement or death based on the value of life insurance policies or mutual fund shares at the retirement date. As of August 26, 2000, and August 25, 2001, CBI Inc. had accrued a total of approximately $325,000 and $212,000, respectively, related to these agreements. Such amounts, net of the current portion of approximately $212,000 and $149,000 as of August 26, 2000, and August 25, 2001, respectively, are included in other long-term liabilities in the accompanying consolidated balance sheets. TPC 401(K) PLAN TPC sponsors a qualified defined contribution 401(k) plan which covers substantially all nonunion employees of TPC. TPC matches 50 percent of nonunion participants' voluntary contributions up to a maximum of 4 percent of the participants' compensation. TPC's expense was approximately $82,000 for the period from July 27, 2000, to August 26, 2000 and approximately $459,000 for the fiscal year ended August 25, 2001. CBI INC. 401(K) PLAN CBI Inc. sponsors a qualified defined contribution 401(k) plan which covers all eligible employees of CBI Inc. Employer contributions to the plan are discretionary. CBI Inc. made contributions of approximately $167,000, $182,000 and $172,000 for the fiscal years ended August 28, 1999, August 26, 2000, and August 25, 2001, respectively. F-27 AMERICAN ACHIEVEMENT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 11. EMPLOYEE COMPENSATION AND BENEFITS: (CONTINUED) ECI PROFIT-SHARING PLAN ECI sponsors a qualified profit-sharing and savings plan and trust covering substantially all employees of ECI which covers all eligible employees of ECI. Employer contributions to the plan are discretionary. ECI accrued contributions of approximately $99,000 for the fiscal year ended August 25, 2001. 12. INCOME TAXES: The Company and its wholly owned domestic subsidiaries file a consolidated federal income tax return. The provision (benefit) for income taxes reflected in the consolidated statements of operations consists of the following (in thousands):
FISCAL YEAR ENDED ------------------------- AUGUST 26, AUGUST 25, 2000 2001 ----------- ----------- Federal-- Current................................................. $ 45 $ -- Deferred................................................ (46) -- State-- Current................................................. 334 133 Deferred................................................ -- -- Extraordinary item--........................................ $333 $133 ==== ==== Current................................................. $ -- $ -- Deferred................................................ 46 -- ---- ---- $ 46 $ -- ==== ====
The provision for income taxes differs from the amount that would be computed if the income (loss) before income taxes were multiplied by the federal income tax rate (statutory rate) as follows (in thousands):
AUGUST 28, AUGUST 26, AUGUST 25, 1999 2000 2001 ----------- ----------- ----------- Computed tax expense (benefit) at statutory rate (34%)............................................... $(1,384) $ 2,245 $(918) State taxes, net of federal benefit................... (204) 221 87 Other................................................. 753 99 133 Reserve for (benefit from) net operating losses....... 835 (2,186) 831 ------- ------- ----- Total income tax provision............................ $ -- $ 379 $ 133 ======= ======= =====
F-28 AMERICAN ACHIEVEMENT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 12. INCOME TAXES: (CONTINUED) Deferred tax assets and liabilities consist of the following (in thousands):
AUGUST 26, AUGUST 25, 2000 2001 ----------- ----------- Deferred tax assets-- Allowances and reserves................................. $ 1,034 $ 1,486 Net operating loss carryforwards........................ 15,479 19,976 Accrued liabilities and other........................... 4,223 1,619 ------- ------- Total deferred tax assets............................... 20,736 23,081 Less--Valuation allowance................................... (6,112) (5,077) ------- ------- Net deferred tax assets................................. 14,624 18,004 ------- ------- Deferred tax liabilities-- Property, plant and equipment, principally due to differences in depreciation........................... 6,113 6,522 Goodwill basis difference................................... 8,511 11,482 ------- ------- Total deferred tax liabilities.......................... 14,624 18,004 ------- ------- Net deferred tax assets (liabilities)................... $ -- $ -- ======= =======
The valuation allowance has been established due to uncertainty surrounding the realizability of the deferred tax assets, principally the net operating loss carryforwards. For tax reporting purposes, the Company has U.S. net operating loss carryforwards of approximately $43.6 million and $53.6 million as of August 26, 2000, and August 25, 2001, respectively. Utilization of the net operating loss carryforwards is contingent on the Company's ability to generate income in the future. The net operating loss carryforwards will expire beginning in the year 2017 if not utilized. 13. STOCKHOLDERS' EQUITY: In connection with the Merger Agreement discussed in Note 3, the Company issued 460,985 shares of American Achievement "new" Series A preferred stock (American Achievement "New" Series A Preferred) in exchange for all issued and outstanding CBI Inc. "old" Series B preferred stock (CBI Inc. "Old" Series B Preferred). In addition, the Company issued 375,985 shares of American Achievement "new" common stock (American Achievement "New" Common) for all issued and outstanding CBI Inc. "old" common stock (CBI Inc. "Old" Common). The Company also issued 393,482 shares of American Achievement "New" Series A Preferred and 320,929 shares of American Achievement "New" Common to the stockholders of Taylor Senior Holding for all the outstanding shares of Taylor Senior Holding preferred and common stock contributed to the Company by the Taylor Senior Holding stockholders in connection with the acquisition. The original CBI Inc. "Old" Series A preferred stock (CBI Inc. "Old" Series A Preferred) of 100,000 shares remains issued and outstanding from the Company's subsidiary CBI Inc. and was unaffected by the Merger Agreement. As of July 27, 2000, and in connection with the merger, F-29 AMERICAN ACHIEVEMENT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 13. STOCKHOLDERS' EQUITY: (CONTINUED) CBI Inc. "Old" Series A Preferred ownership now represents a minority interest including all accumulated accrued dividends. The minority interest is stated at liquidation value. In connection with the Merger, the Company's board of directors authorized the issuance of up to 1,250,000 shares of American Achievement "new" preferred stock, par value $.01 per share (including 1,000,000 shares of "New" Series A Preferred) and 1,250,000 shares of American Achievement "New" Common, par value $.01 per share. As of August 26, 2000, the Company had issued and outstanding 854,467 shares of American Achievement "New" Series A Preferred, and 696,914 shares of American Achievement "New" Common. AMERICAN ACHIEVEMENT "NEW" SERIES A PREFERRED STOCK (AMERICAN ACHIEVEMENT "NEW" SERIES A PREFERRED) The holders of American Achievement "New" Series A Preferred are entitled to one vote per share, voting together with the holders of the American Achievement "new" common stock as one class on all matters presented to the stockholders. No dividends accrue on the American Achievement "New" Series A Preferred. Dividends may be paid on the American Achievement "New" Series A Preferred if and when declared by the board of directors out of funds legally available therefor. The American Achievement "New" Series A Preferred is nonredeemable. In the event of any liquidation, dissolution or winding up of the Company, the holders of the American Achievement "New" Series A Preferred shall receive payment of the liquidation value of $100 per share plus any accrued and unpaid dividends prior to the payment of any distributions to the holders of the American Achievement "New" Common of the Company, which totals approximately $85,447,000 and $100,135,000 at August 26, 2000, and August 25, 2001, respectively. So long as shares of the American Achievement "New" Series A Preferred remain outstanding, the Company may not declare, pay or set aside for payment any dividends on the American Achievement "New" Common. CBI INC. "OLD" SERIES A PREFERRED STOCK (CBI INC. "OLD" SERIES A PREFERRED) The holders of shares of CBI Inc. "Old" Series A Preferred are not entitled to voting rights. Dividends on the CBI Inc. "Old" Series A Preferred are payable in cash, when and if declared by the board of directors of the Company, out of funds legally available therefor, on a quarterly basis. Dividends on the CBI Inc. "Old" Series A Preferred accrue from the date of issuance (December 16, 1996) or the last date to which dividends have been paid at a rate of 12 percent per annum, whether or not such dividends have been declared and whether or not there shall be funds legally available for the payment thereof. Any dividends which are declared shall be paid pro rata to the holders. No dividends or interest shall accrue on any accrued and unpaid dividends. CBI Inc.'s bank debt restricted the Company's ability to pay dividends on the CBI Inc. "Old" Series A Preferred. F-30 AMERICAN ACHIEVEMENT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 13. STOCKHOLDERS' EQUITY: (CONTINUED) The CBI Inc. "Old" Series A Preferred is not subject to mandatory redemption. The CBI Inc. "Old" Series A Preferred is redeemable at any time at the option of CBI Inc.; however, CBI Inc.'s bank debt restricted the Company's ability to redeem the CBI Inc. "Old" Series A Preferred. In the event of any liquidation, dissolution or winding up of CBI Inc., the holders of the CBI Inc. "Old" Series A Preferred shall receive payment of the liquidation value of $100 per share plus all accrued and unpaid dividends prior to the payment of any distributions to the holders of the CBI Inc. "Old" Series B Preferred or the holders of the CBI Inc. "Old" Common of the Company. So long as shares of the CBI Inc. "Old" Series A Preferred remain outstanding, the Company may not declare, pay or set aside for payment dividends on, or redeem or otherwise repurchase any shares of, the CBI Inc. "Old" Series B Preferred or CBI Inc. "Old" Common. CBI INC. "OLD" SERIES B PREFERRED STOCK (CBI INC. "OLD" SERIES B PREFERRED) The holders of shares of CBI Inc. "Old" Series B Preferred were entitled to one vote per share, voting together with the holders of the CBI Inc. "Old" Common as one class on all matters presented to the stockholders. No dividends accrue on the CBI Inc. "Old" Series B Preferred. Dividends would have been paid on the CBI Inc. "Old" Series B Preferred if and when declared by the board of directors of the Company out of funds legally available therefor. The CBI Inc. "Old" Series B Preferred was nonredeemable. In the event of any liquidation, dissolution or winding up of the Company, the holders of the CBI Inc. "Old" Series B Preferred would receive payment of the liquidation value of $100 per share plus any accrued and unpaid dividends prior to the payment of any distributions to the holders of the CBI Inc. "Old" Common of the Company. So long as shares of the CBI Inc. "Old" Series B Preferred remained outstanding, the Company could not declare, pay or set aside for payment any dividends on the CBI Inc. "Old" Common. On June 28, 1999, the Company issued 83,829 shares of CBI Inc. "Old" Series B Preferred to Castle Harlan Partners II, L.P. for $8.5 million in cash, representing funds previously held in a cash collateral account that had been pledged to secure the guaranty of the Company's obligations under the short-term revolving credit agreement. AMERICAN ACHIEVEMENT SERIES B PREFERRED STOCK During the fiscal year ended August 25, 2001, the board of directors of the Company designated 25,000 shares of authorized American Achievement "New" preferred stock as Series B (American Achievement Series B Preferred) with the following preferences, rights and limitations. No American Achievement Series B Preferred was outstanding as of August 25, 2001. The holders of American Achievement Series B Preferred are entitled to one vote per share, voting together with the holders of American Achievement "new" common stock as one class on all matters presented to stockholders. No dividends accrue on the American Achievement Series B Preferred. F-31 AMERICAN ACHIEVEMENT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 13. STOCKHOLDERS' EQUITY: (CONTINUED) Dividends may be paid on the American Achievement Series B Preferred if and when declared by the board of directors out of funds legally available therefor. The American Achievement Series B Preferred is redeemable only at the option of the Company. In the event of any liquidation, dissolution or winding up of the Company, the holders of American Achievement Series B Preferred shall receive payment of the liquidation value of $1,000 per share plus any accrued and unpaid dividends subsequent to the payment of American Achievement "New" Series A Preferred liquidation preferences, but prior to the payment of any distributions to the holders of the American Achievement "New" Common of the Company. So long as shares of the American Achievement Series B Preferred remain outstanding, the Company may not declare, pay or set aside for payment any dividends on the American Achievement "New" Common. COMMON STOCK The features of both the American Achievement "New" and CBI Inc. "Old" Common are the same. The holders of both the American Achievement "New" and CBI Inc. "Old" Common are entitled to one vote for each share held of record on all matters submitted to a vote of stockholders, including the election of directors, and vote together as one class with the holders of the preferred stock. Dividends may be paid on both the American Achievement "New" and the CBI Inc. "Old" Common if and when declared by the board of directors of the Company out of funds legally available therefor. The Company does not expect to pay dividends on the American Achievement "New" Common in the foreseeable future. So long as shares of the American Achievement "New" Series A Preferred remain outstanding, the Company may not declare, pay or set aside for payment any dividends on the American Achievement "New" Common. COMMON STOCK PURCHASE WARRANTS CBI Inc. had issued warrants, and the Company has assumed these obligations pursuant to the Merger Agreement. The warrants are exercisable to purchase an aggregate of 21,405 shares of American Achievement "New" Common. The warrants expire on January 31, 2008. SUBSCRIPTION AGREEMENT In accordance with a subscription agreement entered into by the Company and Castle Harlan Partners II, L.P. (CHPII), a stockholder of the Company, and certain of its affiliates (the Castle Harlan Group), the Company granted the Castle Harlan Group certain registration rights with respect to the shares of capital stock owned by it pursuant to which the Company agreed, among other things, to effect the registration of such shares under the Securities Act of 1933 at any time at the request of the Castle Harlan Group. The Company also granted to the Castle Harlan Group unlimited piggyback registration rights on certain registrations of shares of capital stock by the Company. F-32 AMERICAN ACHIEVEMENT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 13. STOCKHOLDERS' EQUITY: (CONTINUED) STOCK-BASED COMPENSATION PLAN On July 27, 2000, the effective date of the Merger Agreement, all outstanding options under CBI Inc.'s 1997 Stock Option Plan, whether vested or unvested, converted into an option to acquire on the same terms and conditions as were applicable under the 1997 Stock Option Plan, shares of the Company's "new" common stock at ratio of 1 to 1 at a purchase price based on fair value at the merger date, determined to be $7.02 per share. The 2000 Stock Option Plan became effective on July 27, 2000. Under the 2000 Stock Option Plan, a total of 122,985 shares of common stock has been reserved for issuance, and 91,093 of those shares were available for grant to directors and employees of the Company as of both August 25, 2001, and August 26, 2000. The 2000 Stock Option Plan provides for the granting of both incentive and nonqualified stock options. Options granted under the 2000 Stock Option Plan have a maximum term of 10 years and are exercisable under the terms of the respective option agreements at 110 percent of fair market value for all incentive stock options issued to employees and at fair market value of the common stock at the date of grant for all other options issued. Payment of the exercise price must be made in cash, a combination of cash and a note or in whole or in part by delivery of shares of the Company's common stock. All common stock issued upon exercise of options granted pursuant to the 2000 Stock Option Plan will be subject to a voting trust agreement. During fiscal year 2000, the Company has issued an option for 12,524 shares of American Achievement "new" common stock to a key executive whereby the terms of the option are the same as provided for in the 2000 Stock Option Plan with the exception that the option vests over a two-year period and expires in five years. The Company applies Accounting Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations in accounting for the 2000 Stock Option Plan and the previously outstanding 1997 Stock Option Plan. Accordingly, no compensation cost has been recognized for its 2000 Stock Option Plan. Had compensation cost for the Company's stock-based compensation plan been determined based on the fair value at the grant date for awards consistent with the method of SFAS No. 123, "Accounting for Stock-Based Compensation," the Company's net income (loss) to holders of common stock fiscal years ended August 28, 1999, August 26, 2000, and August 25, 2001, would not have been materially impacted. Incentive stock options for 17,494 shares and 17,194 shares and nonqualified stock options for 14,398 shares of the Company's common stock were outstanding as of August 26, 2000, and August 25, 2001, respectively. The weighted average remaining contractual life of all outstanding options was 6.80 years at August 25, 2001. A summary of the status of the Company's 1997 Stock Option Plan as F-33 AMERICAN ACHIEVEMENT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 13. STOCKHOLDERS' EQUITY: (CONTINUED) of August 26, 2000, and the 2000 Stock Option Plan as of August 25, 2001, and changes during the fiscal years then ended are presented below:
AUGUST 28, 1999 AUGUST 26, 2000 AUGUST 25, 2001 --------------------- -------------------------------------------- -------------------- SHARES WEIGHTED SHARES OF WEIGHTED SHARES WEIGHTED SHARES OF WEIGHTED OF "OLD" AVERAGE "NEW" AVERAGE OF "OLD" AVERAGE "NEW" AVERAGE COMMON EXERCISE COMMON EXERCISE COMMON EXERCISE COMMON EXERCISE STOCK PRICE STOCK PRICE STOCK PRICE STOCK PRICE ---------- -------- --------- -------- ---------- -------- --------- -------- Outstanding at beginning of fiscal year.............................. 33,845 $ 6.67 -- $ -- 34,478 $6.67 31,892 $7.02 Granted............................. 12,524 6.67 -- -- -- -- -- -- Exercised........................... -- -- -- -- -- -- (300) 7.02 Canceled............................ (11,891) 6.67 -- -- (2,586) 6.67 -- -- Conversion of options for change in underlying stock.................. -- -- 31,892 7.02 (31,892) 6.67 -- -- ------- ------ ------ ---- ------- ----- ------ ----- Outstanding at end of fiscal year... 34,478 6.67 31,892 7.02 -- -- 31,592 7.02 ======= ====== ====== ==== ======= ===== ====== ===== Options exercisable at year-end..... 5,020 15,478 -- -- 26,282 Weighted average fair value of options granted during the fiscal year ended........................ $ 3.72 $ -- $ -- $ --
The fair value of each grant was estimated on the date of the grant using the Black-Scholes option pricing model with the following weighted average assumptions used for grants in fiscal year 1999: dividend yield of nil; expected volatility of 27.99 percent; risk-free interest rate of 6.42 percent; and expected life of 10 years. The Black-Scholes option pricing model was developed for use in estimating the fair value of traded options, which have no vesting restrictions and are fully transferable. In addition, option pricing models require the input of highly subjective assumptions, including expected stock price volatility. Because the Company's stock options have characteristics significantly different from those of traded options and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its stock options. Pursuant to an employment agreement entered into between the Company and its chief executive officer in July 1999, if the Company achieves a certain consolidated EBITDA target, as defined by the agreement, for each fiscal year commencing with fiscal 2000 and ending in fiscal 2003, the chief executive officer is entitled to receive for each fiscal year options equal to 0.5 percent of the total issued and outstanding shares of common stock of the Company on a fully diluted basis. As of August 25, 2001, no options have been issued related to the Company achieving the consolidated EBITDA target. 14. RELATED-PARTY TRANSACTIONS: CBI Inc. agreed to indemnify CHPII pursuant to an indemnification agreement, dated August 26, 1998, for any amount that may be incurred by CHPII under CHPII's guaranty of CBI Inc.'s obligations under the Short-Term Revolving Credit (see Note 8). The indemnification agreement was terminated as of June 28, 1999 (see Note 8). The Company entered into a management agreement on March 30, 2001, with Castle Harlan, Inc. (the Manager), pursuant to which the Manager agreed to provide business and organization strategy, financial and investment management and merchant and investment banking services to the Company F-34 AMERICAN ACHIEVEMENT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 14. RELATED-PARTY TRANSACTIONS: (CONTINUED) and its subsidiaries. The Company has agreed to indemnify the Manager against liabilities, costs, charges and expenses relating to the Manager's performance of its duties, other than such of the foregoing resulting from the Manager's gross negligence or willful misconduct. The agreement is for a term of 10 years, renewable automatically from year to year unless CHPIII or CHPII shall own less than 5 percent of the then-outstanding capital stock of the Company. Beginning fiscal year 2002, the Company is to pay a management fee equal to $3,000,000, unless otherwise prohibited by the Company's Amended Credit Agreement (see Note 8). The Company was subject to a similar management agreement with the Manager which was signed on July 27, 2000, and an agreement signed on December 16, 1996. Amounts paid under all management agreements totaled $3,125,000 for the fiscal year ended August 28, 1999, and the period from August 29, 1999, to July 27, 2000, and approximately $2,562,000 for the fiscal year ended August 25, 2001. The Company expensed approximately $108,000 for the period from July 28, 2000, to August 26, 2000. As of August 26, 2000, and August 25, 2001, the Company had accrued management fees of approximately $108,000 and $688,000, respectively. Included in deferred financing costs for the ECI Acquisition is approximately $557,000 of management fees. In connection with the Merger and the ECI Acquisition, the Company has a receivable from the Castle Harlan Group relating to the acquisition and merger expenses which were to be reimbursed to the Company. The amount of such receivables were approximately $103,000 and $130,000 as of August 26, 2000, and August 25, 2001, respectively. 15. BUSINESS SEGMENTS: The Company operates in two reportable business segments: scholastic products, and recognition and affinity products. The principal products sold in the scholastic segment are class rings, yearbooks and graduation products, which include fine paper products and graduation accessories. The scholastic segment primarily serves the high school and college markets. The recognition and affinity segment includes publications that recognize the academic achievement of top students at the high school and college levels, jewelry commemorating family events, fan affinity jewelry and related products, and professional sports championship rings. The accounting policies of the segments are the same as those described in the summary of significant accounting policies in Note 2. F-35 AMERICAN ACHIEVEMENT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 15. BUSINESS SEGMENTS: (CONTINUED) The following is a summary of certain financial information relating to the two segments (in thousands):
RECOGNITION AND SCHOLASTIC AFFINITY TOTAL ---------- --------------- -------- Year ended August 28, 1999-- Net sales............................................. $150,737 $18,128 $168,865 Interest expense...................................... 13,135 1,459 14,594 Depreciation and amortization......................... 6,460 716 7,176 Segment operating income.............................. 7,762 2,760 10,522 Capital expenditures.................................. 8,735 1,050 9,785 Segment assets........................................ 187,318 22,527 209,845 Year ended August 26, 2000-- Net sales............................................. $163,347 $18,938 $182,285 Interest expense...................................... 14,122 1,569 15,691 Depreciation and amortization......................... 8,191 909 9,100 Segment operating income.............................. 12,484 3,313 15,797 Extraordinary gain, net............................... 6,025 670 6,695 Capital expenditures.................................. 4,558 529 5,087 Segment assets........................................ 292,627 33,926 326,553 Year ended August 25, 2001-- Net sales............................................. $258,897 $22,618 $281,515 Interest expense...................................... 20,561 2,285 22,846 Depreciation and amortization......................... 16,856 730 17,586 Segment operating income (loss)....................... 21,554 (1,915) 19,639 Capital expenditures.................................. 6,744 755 7,499 Segment assets........................................ 349,426 30,527 379,953 Three months ended November 25, 2000--(Unaudited) Net sales............................................. $ 58,389 $ 5,949 $ 64,338 Interest expense...................................... 5,281 587 5,868 Depreciation and amortization......................... 3,514 356 3,870 Segment operating income (loss)....................... 409 (1,153) (744) Capital expenditures.................................. 1,754 178 1,932 Segment assets........................................ 301,050 30,503 331,553 Three months ended November 24, 2001--(Unaudited) Net sales............................................. $ 58,386 $19,186 $ 77,572 Interest expense...................................... 5,337 593 5,930 Depreciation and amortization......................... 3,766 996 4,762 Segment operating income.............................. 1,080 8,143 9,223 Capital expenditures.................................. 1,902 186 2,088 Segment assets........................................ 294,530 84,889 379,419
The Company's reportable segments are strategic business units that offer products to different consumer segments. Each segment is managed separately because each business requires different F-36 AMERICAN ACHIEVEMENT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 15. BUSINESS SEGMENTS: (CONTINUED) marketing strategies. The Company evaluates the performance of each segment based on the profit or loss from operations before income taxes, not including nonrecurring gains or losses. 16. SUBSEQUENT EVENT--DEBT OFFERING AND NEW CREDIT AGREEMENT (UNAUDITED): As of February 20, 2002, the Company issued $177 million of senior unsecured notes (the Unsecured Notes) due in 2007. The Unsecured Notes bear interest at a stated rate of 11 5/8%. The Unsecured Notes were issued at a discount of 0.872% resulting in net proceeds of approximately $175.5 million before considering financing costs. The effective rate of the Unsecured Notes after discount is approximately 11.86%. The Unsecured Notes rank pari passu with the Company's existing and future senior indebtedness, including obligations under the New Credit Agreement. The Unsecured Notes are guaranteed by the Company's subsidiaries, and the guarantees rank pari passu with existing and future senior debt of the Company and its subsidiaries. The Unsecured Notes and the guarantees on the Unsecured Notes will be effectively subordinated to any of the Company's secured debt. The Company may not redeem the Unsecured Notes until 2005, except that the Company may redeem up to 35 percent of the Unsecured Notes before the third anniversary of the issue date of the Unsecured Notes as long as (a) the Company pays a certain percentage of the principal amount of the Unsecured Notes, plus interest, (b) the Company redeems the Unsecured Notes within 90 days of completing a public equity offering and (c) at least 65 percent of the aggregate principal amount of the Unsecured Notes issued remains outstanding afterward. If a change in control, as defined in the indenture agreement, occurs, the Company must give the holders of the Unsecured Notes the opportunity to sell their Unsecured Notes to the Company at 101 percent of the principal amount of the Unsecured Notes, plus accrued interest. The indenture agreement to the Unsecured Notes contains standard negative covenants and restrictions on actions by the Company and its subsidiaries including, without limitation, restrictions on additional indebtedness, liens, and mergers with other entities, among other restrictions as defined in the indenture agreement. In addition, the indenture agreement requires that the Company meet certain financial covenants including a minimum fixed charge coverage ratio. In conjunction with the issuance of the Unsecured Notes, on February 20, 2002, the Company entered into a new $40 million senior revolving credit facility (the New Credit Agreement) with various financial institutions, with all of the Company's current domestic subsidiaries as guarantors. Loans made pursuant to the New Credit Agreement are secured by a first priority security interest in substantially all of the Company's and the Company's domestic subsidiaries' assets and in all of the Company's domestic subsidiaries' capital stock. Availability under the the New Credit Agreement is restricted to the lesser of (1) $40 million and (2) the Borrowing Base Amount as defined in the New Credit Agreement. Advances under the New Credit Agreement may be made as base rate loans or LIBOR loans at the Company's election (except for the initial loans which shall be base rate loans) in accordance with the terms specified in the New Credit Agreement. The New Credit Agreement matures on February 20, 2006. F-37 AMERICAN ACHIEVEMENT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 16. SUBSEQUENT EVENT--DEBT OFFERING AND NEW CREDIT AGREEMENT (UNAUDITED): (CONTINUED) The New Credit Agreement contains standard negative covenants and restrictions on actions by the Company and its subsidiaries including, without limitation, restrictions on indebtedness, liens, and the gold consignment agreement, among other restrictions. In addition, the New Credit Agreement requires that the Company meet certain financial covenants, ratios and tests, including capital expenditure limits, a maximum secured leverage ratio, a minimum interest coverage ratio, and a minimum fixed charge coverage ratio. In conjunction with the issuance of the Unsecured Notes and entrance into the New Credit Agreement, the Company paid off the then outstanding former credit facility, the TP Holding Corp. bridge notes, the American Achievement bridge notes, and settled a majority of the interest rate swap agreements. The Company recognized an extraordinary charge in February 2002 of approximately $6.2 million, net of income tax benefit, relating to the write-off of unamortized deferred financing costs and, due to the termination or reclassification of interest rate swaps, the Company recorded a charge to other expense for approximately $2.8 million. F-38 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Stockholders of TP Holding Corp.: We have audited the accompanying consolidated statement of income of TP Holding Corp., a Delaware Corporation, for the six months ended July 27, 2000, and the related consolidated statements of stockholders' equity and cash flows for the six months ended July 27, 2000. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the results of operations and cash flows of TP Holding Corp. for the six months ended July 27, 2000, in conformity with accounting principles generally accepted in the United States. /s/ Arthur Andersen LLP Austin, Texas August 24, 2001 F-39 TP HOLDING CORP. CONSOLIDATED STATEMENT OF INCOME FOR THE SIX MONTHS ENDED JULY 27, 2000 (DOLLARS IN THOUSANDS) Net sales................................................... $72,148 Cost of sales............................................... 39,673 ------- Gross profit............................................ 32,475 Selling, general and administrative expense................. 20,586 ------- Operating income........................................ 11,889 Interest and other expense.................................. 3,983 ------- Income before income taxes.............................. 7,906 Provision for income taxes.................................. (2,947) ------- Net income.................................................. $ 4,959 -------
The accompanying notes are an integral part of these consolidated financial statements. F-40 TP HOLDING CORP. CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY FOR THE SIX MONTHS ENDED JULY 27, 2000 (DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
ADDITIONAL PREFERRED STOCK COMMON STOCK PAID-IN ACCUMULATED SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT TOTAL --------- --------- -------- --------- ---------- ----------- -------- Balance, February 11, 2000........... -- $ -- -- $ -- $ -- $ -- $ -- Change in ownership from Insilco to TP Holding Corp. (Note 3)... 30,000 -- 30,000 -- 30,000 -- 30,000 Net income........................... -- -- -- -- -- 4,959 4,959 ------ --------- ------ --------- ------- ------ ------- Balance, July 27, 2000............... 30,000 $ -- 30,000 $ -- $30,000 $4,959 $34,959 ====== ========= ====== ========= ======= ====== =======
The accompanying notes are an integral part of these consolidated financial statements. F-41 TP HOLDING CORP. CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE SIX MONTHS ENDED JULY 27, 2000 (DOLLARS IN THOUSANDS) CASH FLOWS FROM OPERATING ACTIVITIES: Net income.............................................. $ 4,959 Adjustments to reconcile net income to net cash used in operating activities Depreciation and amortization....................... 3,520 Change in operating assets and liabilities Increase in trade receivables................... (8,412) Decrease in other receivables................... 685 Decrease in inventories, net.................... 6,790 Decrease in prepaids and other current assets, net.......................................... 1,061 Increase in other assets, net................... (192) Increase in accounts payable.................... 1,377 Increase in accrued expenses.................... 6,633 Decrease in customer deposits................... (18,610) Decrease in other long-term liabilities......... (182) -------- Net cash used in operating activities....... (2,371) -------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property, plant and equipment.............. (1,222) -------- Net cash used in investing activities....... (1,222) -------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from debt issuance............................. 1,368 -------- Net cash provided by financing activities... 1,368 -------- NET DECREASE IN CASH AND CASH EQUIVALENTS................... (2,225) CASH, beginning of period................................... 3,130 -------- CASH, end of period......................................... $ 905 ======== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Interest paid........................................... $ 886 ======== Taxes paid.............................................. $ 722 ========
The accompanying notes are an integral part of these consolidated financial statements. F-42 TP HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. BACKGROUND AND ORGANIZATION TP Holding Corp. (TP Holding or the Company) was established on February 11, 2000, by Castle Harlan Partners III L.P. for the purpose of acquiring Taylor Publishing Company (TPC) and subsidiary from Insilco Holding Co. (Insilco). TPC and subsidiary were indirect wholly owned subsidiaries of Insilco, and effective February 11, 2000, TP Holding acquired all of the outstanding stock of TPC and subsidiary from Insilco for approximately $93.4 million (see Note 3). The Company's primary business is the design, publication and printing of student yearbooks and other specialty books primarily in the United States. The Company also operates a reunion services division that provides full-service reunion planning for high schools. The Company's primary manufacturing facility is located in Dallas, Texas. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CONSOLIDATION AND PRESENTATION The consolidated statement of income for the six months from February 12, 2000, through July 27, 2000, includes the accounts of TP Holding and its subsidiary, TPC, together with its subsidiary, Taylor Production Company, L.P., a partnership in which TPC is the general partner and holds a 99 percent ownership interest. TP Holding owns the remaining 1 percent interest in the general partnership. All significant intercompany transactions have been eliminated in consolidation. IMPAIRMENT OF LONG-LIVED ASSETS Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," deals with accounting for the impairment of long-lived assets, certain identifiable intangibles and goodwill related to assets to be held and used and for long-lived assets and certain identifiable intangibles to be disposed of. This statement requires that long-lived assets (e.g., property, plant and equipment, as well as intangibles) be reviewed for impairment whenever events or changes in circumstances, such as changes in market value, indicate that the assets' carrying amounts may not be recoverable. In performing the review for recoverability, if future undiscounted cash flows (excluding interest changes) from the use and ultimate disposition of the assets are less than their carrying values, an impairment loss is recognized. Impairment losses are to be measured based on the fair value of the asset. When factors indicate that long-lived assets be evaluated for possible impairment, the Company uses an estimate of the related product lines' undiscounted cash flows over the remaining lives of the assets in measuring whether the assets are recoverable. On the accompanying consolidated statement of income for the six months ended July 27, 2000, no impairment charges were incurred. REVENUE RECOGNITION Revenues from product sales are recognized after customer acceptance of the final product is obtained and once the product has been shipped and the risks and rewards of ownership have passed to the customer. F-43 TP HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) SHIPPING AND HANDLING FEES In accordance with Emerging Issues Task Force (EITF) Issue No. 00-10, "Accounting for Shipping and Handling Fees and Costs," the Company recognizes as revenue amounts billed to customers related to shipping and handling, with the related expense recorded as a component of cost of goods sold. SEASONALITY The Company's core business of student yearbook sales is subject to seasonality, corresponding with the academic school year. Sales are typically highest during the months of May and June, as yearbooks are shipped to schools prior to the school's summer break. The Company historically experiences operating losses during the first and second fiscal quarters, when very few books are shipped for delivery. CUSTOMER DEPOSITS The Company requires that its customers remit a deposit for a portion of the ultimate sales price of the order. These deposits are recorded as a liability on the consolidated balance sheet and are recognized as revenue upon shipment of the product to the customer. Taylor also pays interest between 6 percent and 7 percent on customer deposit balances that are in excess of the minimum required deposit. Interest expense on these excess deposits was approximately $327,000 for the six-month period ended July 27, 2000. CONCENTRATION OF CREDIT RISK Credit is extended primarily to educational institutions that may be affected by changes in economic or other external conditions. The Company's policy is to manage its exposure to credit risk through credit approvals and limits. INCOME TAXES During the six months ended July 27, 2000, deferred tax assets and liabilities were recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Deferred tax assets are recognized net of any valuation allowance. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. USE OF ESTIMATES The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported F-44 TP HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) amounts of revenues and expenses during the reporting periods. Actual results could differ from these estimates. NEW ACCOUNTING PRONOUNCEMENTS SFAS No. 130, "Reporting Comprehensive Income," was adopted by the Company during the period presented and requires the presentation of comprehensive income in an entity's financial statements. Comprehensive income represents all changes in equity of an entity during the reporting period, including net income and charges directly to equity which are excluded from net income. This statement did not have any impact on the Company's disclosures as the Company currently does not enter into any transactions which result in charges (or credits) directly to equity (such as additional minimum pension liability charges, currency translation adjustments, unrealized gains and losses on available-for-sales securities, etc.). SFAS No. 132, "Employers' Disclosure About Pensions and Other Postretirement Benefits," was adopted by the Company during the period presented. SFAS No. 132 revised employers' disclosures about pension and other postretirement benefit plans, but it did not change the measurement or recognition of those plans. 3. TP HOLDING PURCHASE Effective February 11, 2000, Insilco entered into a purchase agreement with TP Holding for the sale of TPC and its subsidiary. Under the terms of the purchase agreement, Insilco sold its 100 percent ownership interest in TPC and its 1 percent partnership interest in Taylor Production Services Company, L.P., to TP Holding for approximately $92.5 million and $935,000, respectively. The acquisition was accounted for using the purchase method and, accordingly, the purchase price has been allocated to assets acquired and liabilities assumed based upon estimated fair values. 4. DEBT In connection with the purchase discussed in Note 3, the Company entered into a credit facility with a syndication of banks on February 11, 2000. Under the terms of the credit agreement, the Company had borrowings outstanding under the Term A, Term B and revolving loan agreements. The Company has the option to designate the interest rates that the Term A, Term B and revolving loans will bear at either (a) a base rate plus a base rate margin, as defined by the credit agreement, or (b) LIBOR plus a LIBOR margin, as defined by the credit agreement. Interest is computed daily and is payable in arrears on the first day of each month. For the six months ended July 27, 2000, interest expense incurred under the credit agreement was approximately $1,876,000. The Company also entered into a convertible subordinated bridge loan (the Bridge Loan) with Castle Harlan Partners III, L.P., on February 11, 2000. The Bridge Loan bears interest at 12 percent per annum, which is added to the outstanding balance of the Bridge Loan on the last day of each month. Interest expense incurred on the Bridge Loan for the six months ended July 27, 2000, was approximately $665,000. The Bridge Loan is due February 11, 2001. Under the Bridge Loan, the lender has the right, at its discretion, to convert the original principal and accrued interest into shares of the Company's common and preferred stock. F-45 TP HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 5. PENSION PLAN Certain hourly employees of the Company are covered by a defined pension plan (the Plan) established and administered by the Company. The benefits under the Plan are based primarily on the employees' years of service and compensation near retirement. The funding policies for the Plan are consistent with the funding requirements of federal laws and regulations. Such Plan is accounted for in accordance with SFAS No. 132 (see Note 2). The Plan assets are primarily invested in a money market account. The following table sets forth the status of the Plan as of June 30, 2000 (in thousands): Accumulated postretirement benefit obligation............... $(8,866) ======= Fair value of Plan assets................................... $ 8,492 ======= PLAN ASSETS AT FAIR VALUE Unfunded accumulated benefit obligation in excess of Plan assets.................................................... $ (374) Unrecognized net gain....................................... 70 ------- Accumulated postretirement benefit cost, current and long-term................................................. $ (304) =======
The net periodic postretirement benefit cost for the period from February 11, 2000, to June 30, 2000, include the following components (in thousands): Service costs, benefits attributed to service during the period.................................................... $ 177 Interest cost............................................... 367 Expected return on assets................................... (405) ----- Net periodic postretirement benefit cost.................... $ 139 =====
For measurement purposes, the weighted average discount rate used in determining the accumulated postretirement benefit obligation was 8.0 percent, the long-term rate of return on Plan assets was 9.0 percent and the annual salary increases were assumed to be 4.5 percent. 401(K) PLAN The Company began sponsoring a qualified defined contribution 401(k) plan which also covers substantially all nonunion employees of the Company. The Company matches 50 percent on nonunion participants' voluntary contributions up to a maximum of 4 percent of the participants' compensation. The Company's expense was approximately $554,000 for the six months ended July 27, 2000. F-46 TP HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 6. INCOME TAXES The provision for income taxes differs from the amount that would be computed if the income before income taxes were multiplied by the federal income tax rate (statutory rate) as follows for the six months ended July 27, 2000 (in thousands): Computed tax expense at statutory rate...................... $2,676 State taxes, net of federal benefit......................... 261 Other....................................................... 10 ------ Total income tax provision.................................. $2,947 ======
7. COMMITMENTS AND CONTINGENCIES LEASES Certain Company facilities and equipment are leased under agreements expiring at various dates through September 2006. The Company's commitments under the noncancelable portion of all operating leases for the next five years and thereafter as of July 27, 2000, are approximately as follows:
FISCAL YEAR - ----------- 2001........................................................ $1,162,000 2002........................................................ 854,000 2003........................................................ 711,000 2004........................................................ 417,000 2005 and thereafter......................................... 1,067,000 ---------- $4,211,000 ==========
Lease and rental expense included in the accompanying consolidated statement of operations for the six months ended July 27, 2000, was approximately $760,000. PENDING LITIGATION The Company is subject to certain litigation arising from the ordinary course of business. In management's opinion, adverse decisions on legal proceedings, in the aggregate, would not have a materially adverse impact on the Company's results of operations or financial position. 8. RELATED-PARTY TRANSACTIONS Effective February 11, 2000, the Company entered into a management agreement with Castle Harlan, Inc. (the Manager), pursuant to which the Manager agreed to provide business and organizational services to the Company, along with financial investment management and merchant and investment banking services. As compensation for such services, the Company expensed $1.2 million during the six-month period ended June 27, 2000. The agreement was for a term of five years, requiring payments totaling $1.2 million annually. 9. SUBSEQUENT EVENTS Effective July 27, 2000, American Achievement acquired all issued and outstanding shares of the Company through the issuance of 320,929 shares of American Achievement common stock and 393,482 shares of American Achievement Series A preferred stock for a total purchase price of $30 million. F-47 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors of Taylor Publishing Company: We have audited the accompanying consolidated statement of operations of Taylor Publishing Company and subsidiary for the five-month period ended February 11, 2000, and the related consolidated statements of stockholder's equity and cash flows for the five months ended February 11, 2000. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the results of operations and cash flows of Taylor Publishing Company and subsidiary for the five-month period ended February 11, 2000, in conformity with accounting principles generally accepted in the United States. /s/ Arthur Andersen LLP Austin, Texas August 24, 2001 F-48 TAYLOR PUBLISHING COMPANY AND SUBSIDIARY CONSOLIDATED STATEMENT OF OPERATIONS FOR THE FIVE-MONTH PERIOD ENDED FEBRUARY 11, 2000 (DOLLARS IN THOUSANDS) Net sales................................................... $22,297 Cost of sales............................................... 17,267 ------- Gross profit............................................ 5,030 Selling, general and administrative expense................. 11,316 Corporate charges from parent............................... 1,503 ------- Operating loss.......................................... (7,789) Interest and other expense.................................. 709 ------- Loss before income taxes................................ (8,498) Benefit for income taxes.................................... -- ------- Net loss.................................................... $(8,498) =======
The accompanying notes are an integral part of these consolidated financial statements. F-49 TAYLOR PUBLISHING COMPANY AND SUBSIDIARY CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY FOR THE FIVE-MONTH PERIOD ENDED FEBRUARY 11, 2000 (DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
ADDITIONAL SHARES COMMON PAID-IN ACCUMULATED OUTSTANDING STOCK CAPITAL DEFICIT TOTAL ----------- -------- ---------- ----------- -------- BALANCE, September 4, 1999................ 10 $1 $10,398 $ (7,845) $ 2,554 Difference between amount recorded under income tax sharing allocation and actual income tax benefit....... -- -- -- 1,187 1,187 Net loss.............................. -- -- -- (8,498) (8,498) -- -- ------- -------- ------- BALANCE, February 11, 2000................ 10 $1 $10,398 $(15,156) $(4,757) == == ======= ======== =======
The accompanying notes are an integral part of these consolidated financial statements. F-50 TAYLOR PUBLISHING COMPANY AND SUBSIDIARY CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE FIVE-MONTH PERIOD ENDED FEBRUARY 11, 2000 (DOLLARS IN THOUSANDS) CASH FLOWS FROM OPERATING ACTIVITIES Net loss................................................ $(8,498) Adjustments to reconcile net loss to net cash provided by operating activities Depreciation and amortization....................... 1,536 Change in operating assets and liabilities Decrease in trade receivables, net.............. 11,947 Increase in other receivables................... (2,176) Increase in inventories, net.................... (9,807) Increase in prepaids and other current assets... (852) Decrease in other assets........................ 725 Increase in accounts payable.................... 1,979 Decrease in accrued expenses.................... (705) Increase in customer deposits................... 28,160 Decrease in other long-term liabilities......... (8) ------- Net cash provided by operating activities... 22,301 ------- CASH FLOWS FROM INVESTING ACTIVITIES Purchases of property, plant and equipment.............. (1,400) ------- Net cash used in investing activities....... (1,400) ------- CASH FLOWS FROM FINANCING ACTIVITIES Change in amount due to parent.......................... (20,904) ------- Net cash used in financing activities....... (20,904) ------- NET DECREASE IN CASH........................................ (3) CASH, beginning of period................................... 18 ------- CASH, end of period......................................... $ 15 ======= SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Interest paid........................................... $ 103 ======= Supplemental Disclosure Of Noncash Financing Activities..... Difference between amount recorded under income tax sharing allocation and actual income tax expense....... $ 1,187 =======
The accompanying notes are an integral part of these consolidated financial statements. F-51 TAYLOR PUBLISHING COMPANY AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. BACKGROUND AND ORGANIZATION: Taylor Publishing Company and subsidiary (collectively, the Company or Taylor) are indirect wholly owned subsidiaries of Insilco Holding Co. (Insilco), for the five months from September 4, 1999, through February 11, 2000. On February 11, 2000, TP Holding Corp. (TP Holding), a subsidiary of Castle Harlan, Inc., acquired all of the outstanding stock of the Company for approximately $93.4 million. The Company's primary business is the design, publication and printing of student yearbooks and other specialty books primarily in the United States. The Company also operates a reunion services division that provides full-service reunion planning for high schools. The Company's primary manufacturing facility is located in Dallas, Texas. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: CONSOLIDATION AND PRESENTATION The consolidated statement of operations for the five months from September 4, 1999, to February 11, 2000, represents the period that the Company was under ownership of Insilco and includes the accounts of Taylor Publishing Company and its subsidiary, Taylor Production Company, L.P., a partnership in which Taylor Publishing Company is the general partner and holds a 99 percent ownership interest. Insilco owned the remaining 1 percent interest in the general partnership. The financial statements represent the stand-alone operations of Taylor apart from the consolidated financial statements and operations of Insilco. In order to present Taylor on a stand-alone basis, certain adjustments were identified and recorded. Some of these adjustments required the allocation of common expenses of the parent company to Taylor. Management believes that all significant adjustments have been identified and recorded to represent Taylor on a stand-alone basis and that the method of allocation of common costs to Taylor is reasonable. IMPAIRMENT OF LONG-LIVED ASSETS Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," deals with accounting for the impairment of long-lived assets, certain identifiable intangibles and goodwill related to assets to be held and used and for long-lived assets and certain identifiable intangibles to be disposed of. This statement requires that long-lived assets (e.g., property, plant and equipment, as well as intangibles) be reviewed for impairment whenever events or changes in circumstances, such as changes in market value, indicate that the assets' carrying amounts may not be recoverable. In performing the review for recoverability, if future undiscounted cash flows (excluding interest changes) from the use and ultimate disposition of the assets are less than their carrying values, an impairment loss is recognized. Impairment losses are to be measured based on the fair value of the asset. When factors indicate that long-lived assets be evaluated for possible impairment, the Company uses an estimate of the related product lines' undiscounted cash flows over the remaining lives of the assets in measuring whether the assets are recoverable. On the accompanying consolidated statement of operations for the five-month period ended February 11, 2000, no impairment charges have been incurred. F-52 TAYLOR PUBLISHING COMPANY AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED) REVENUE RECOGNITION Revenues from product sales are recognized after customer acceptance of the final product is obtained and the product has been shipped and the risks and rewards of ownership have passed to the customer. SHIPPING AND HANDLING FEES In accordance with Emerging Issues Task Force (EITF) Issue No. 00-10, "Accounting for Shipping and Handling Fees and Costs," the Company recognizes as revenue amounts billed to customers related to shipping and handling, with the related expense recorded as a component of costs of goods sold. SEASONALITY The Company's core business of student yearbook sales is subject to seasonality, corresponding with the academic school year. Sales are typically highest during the months of May and June, as yearbooks are shipped to schools prior to the school's summer break. The Company historically experiences operating losses during the first and second fiscal quarters, when very few books are shipped for delivery. CUSTOMER DEPOSITS Taylor requires that its customers remit a deposit for a portion of the ultimate sales price of the order. These deposits are recorded as a liability on the consolidated balance sheet and are recognized as revenue upon shipment of the product to the customer. Taylor also pays interest between 6 percent and 7 percent on customer deposit balances that are in excess of the minimum required deposit. Interest expense on these excess deposits was approximately $569,000 for the five-month period ended February 11, 2001. CONCENTRATION OF CREDIT RISK Credit is extended primarily to educational institutions that may be affected by changes in economic or other external conditions. The Company's policy is to manage its exposure to credit risk through credit approvals and limits. INCOME TAXES During the five-month period ended February 11, 2000, the Company was included in the consolidated federal income tax return of Insilco. Income tax expense was computed on a separate return basis in accordance with SFAS No. 109, "Accounting for Income Taxes." Under the Company's tax-sharing arrangement with Insilco, the Company was allocated income tax expense or benefit based F-53 TAYLOR PUBLISHING COMPANY AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED) on the amount determined by multiplying earnings or loss before allocated capital changes from Insilco by 40 percent. This amount was added to or deducted from the balance due to Insilco. The difference between the amount determined under the Company's tax-sharing arrangement with Insilco and the amount of computed income tax expense or benefit as described above was recorded as a direct charge to accumulated deficit or a retained credit to additional paid-in capital. USE OF ESTIMATES The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from these estimates. NEW ACCOUNTING PRONOUNCEMENTS SFAS No. 130, "Reporting Comprehensive Income," was adopted by the Company during the period presented and requires the presentation of comprehensive income in an entity's financial statements. Comprehensive income represents all changes in equity of an entity during the reporting period, including net income and charges directly to equity which are excluded from net income. This statement did not have any impact on the Company's disclosures as the Company currently does not enter into any transactions which would result in a material charge (or credit) directly to equity (such as additional minimum pension liability charges, currency translation adjustments, unrealized gains and losses on available-for-sales securities, etc.). SFAS No. 132, "Employers' Disclosure About Pensions and Other Postretirement Benefits," was adopted by the Company during the period presented. SFAS No. 132 revised employers' disclosures about pension and other postretirement benefit plans, but it did not change the measurement or recognition of those plans. 3. DEBT: The Company does not have a formal debt arrangement with its parent, Insilco. Funding received by the Company from Insilco is recorded as due to parent on the consolidated balance sheet. This amount is payable on demand or, if no demand is made, in November 2004 subject to approval by Insilco's bank lenders. Interest expense during this period consists of a capital charge from Insilco calculated as 10 percent of the difference between total assets and current liabilities, as defined. For the five-month period ended February 11, 2000, interest expense charged to the Company by Insilco was approximately $607,000. 4. PENSION PLAN: Certain hourly employees of the Company are covered by a defined pension plan (the Plan) established by the Company and administered by Insilco. Certain salaried employees of the Company were also covered by the Plan. The benefits under the Plan are based primarily on the employees' years of service and compensation near retirement. The funding policies for the Plan are consistent F-54 TAYLOR PUBLISHING COMPANY AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 4. PENSION PLAN: (CONTINUED) with the funding requirements of federal laws and regulations. Such Plan is accounted for in accordance with SFAS No. 132 (see Note 2). The Plan assets are primarily invested in a money market account. The following tables set forth the status of the Plan as of December 31, 1999 (in thousands): Accumulated postretirement benefit obligation............... $(7,825) ======= Fair value of Plan assets................................... $ 8,435 ======= PLAN ASSETS AT FAIR VALUE Unfunded accumulated benefit obligation in excess of Plan assets........................................... $ (610) Unrecognized net gain................................... 1,005 ------- Accumulated postretirement benefit costs, current and long-term $ 395 =======
The net periodic postretirement benefit cost for the 12-month period ended December 31, 1999, includes the following components (in thousands): Service costs, benefits attributed to service during the period.................................................... $ 378 Interest cost............................................... 623 Expected return on assets................................... (760) ----- Net periodic postretirement benefit cost.................... $ 241 =====
For measurement purposes, the weighted average discount rate used in determining the accumulated postretirement benefit obligation was 8.0 percent, the long-term rate of return on Plan assets was 9.0 percent and the annual salary increases were assumed to be 4.5 percent. 401(K) PLAN Insilco sponsors a qualified defined contribution 401(k) plan which also covers substantially all nonunion employees of the Company. The Company matches 50 percent on nonunion participants' voluntary contributions up to a maximum of 3 percent of the participants' compensation. The Company's expense was approximately $149,000 for the five-month period ended February 11, 2000. F-55 TAYLOR PUBLISHING COMPANY AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 5. INCOME TAXES: Actual benefit for income taxes of $-- differs from the amount that would be computed if the loss before income taxes were multiplied by the federal income tax rate (statutory rate) as follows for the five-month period ended February 11, 2000 (in thousands): Computed tax expense (benefit) at statutory rate............ $(3,350) State taxes, net of federal benefit......................... (325) Other....................................................... 9 Change in valuation allowance............................... 3,666 ------- Total income tax benefit.................................... $ -- =======
6. COMMITMENTS AND CONTINGENCIES: LEASES Certain Company facilities and equipment are leased under agreements expiring at various dates through September 2006. The Company's commitments under the noncancelable portion of all operating leases for the next five years and thereafter as of February 11, 2000, are approximately as follows: Fiscal Year 2001........................................................ $1,165,000 2002........................................................ 854,000 2003........................................................ 711,000 2004........................................................ 417,000 2005 and thereafter......................................... 1,067,000 ---------- $4,214,000 ==========
Lease and rental expense included in the accompanying consolidated statement of operations for the five-month period ended February 11, 2000, was approximately $616,000. GUARANTOR RELATIONSHIPS During the five-month period ended February 11, 2000, the Company was the guarantor of and pledged assets for certain borrowings of Insilco. The Company, along with the other wholly owned domestic subsidiaries of Insilco, were guarantors of Insilco's borrowings under a $300 million bank credit agreement, which was also secured by all of the Company's and the other wholly owned domestic subsidiaries' assets. The Company, along with the other wholly owned domestic subsidiaries of Insilco, were also the guarantors of $120 million of 12 percent notes sold by Insilco in 1998. F-56 TAYLOR PUBLISHING COMPANY AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 6. COMMITMENTS AND CONTINGENCIES: (CONTINUED) PENDING LITIGATION The Company is subject to certain litigation arising from the ordinary course of business. In management's opinion, adverse decisions on legal proceedings, in the aggregate, would not have a materially adverse impact on the Company's results of operations or financial position. 7. RELATED-PARTY TRANSACTIONS: During the five-month period ended February 11, 2000, Insilco provided certain corporate services to the Company, including management, human resources, accounting and financial reporting, and legal services. These expenses either were actual expenses incurred by Insilco on behalf of the Company or were charges to the Company based upon certain financial measures. Also during this period, Insilco managed a centralized cash management system, which resulted in the Company carrying minimal cash. Cash distributions were funded by Insilco, and all cash receipts were remitted to Insilco on a daily basis. Any net amount due to Insilco was payable upon demand. See Notes 2 and 6 regarding the Company's tax-sharing arrangement and guarantor relationships with Insilco. 8. SUBSEQUENT EVENTS: Effective February 11, 2000, Insilco entered into a purchase agreement with TP Holding for the sale of the Company. Under the terms of the purchase agreement, Insilco sold its 100 percent ownership interest in the Company and its 1 percent partnership interest in Taylor Production Services Company, L.P., to TP Holding for approximately $92.5 million and $935,000, respectively. F-57 INDEPENDENT AUDITORS' REPORT The Board of Directors Insilco Corporation: We have audited the accompanying consolidated balance sheet of Taylor Publishing Company and subsidiary as of September 3, 1999, and the related consolidated statements of operations, stockholder's equity, and cash flows for the year then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Taylor Publishing Company and subsidiary as of September 3, 1999, and the results of their operations and their cash flows for the year then ended in conformity with generally accepted accounting principles. /s/ KPMG LLP Dallas, Texas September 24, 1999 F-58 TAYLOR PUBLISHING COMPANY AND SUBSIDIARY CONSOLIDATED BALANCE SHEET SEPTEMBER 3, 1999 (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) ASSETS Current assets: Cash.................................................... $ 18 Trade receivables, net.................................. 19,452 Other receivables....................................... 972 Inventories............................................. 11,415 Prepaid expenses and other current assets............... 2,421 ------- Total current assets................................ 34,278 Property, plant and equipment, net.......................... 11,647 Other assets................................................ 1,053 ------- Total assets................................................ $46,978 ======= LIABILITIES AND STOCKHOLDER'S EQUITY Current liabilities: Accounts payable........................................ $ 4,289 Accrued expenses........................................ 8,436 Customer deposits....................................... 8,610 ------- Total current liabilities........................... 21,335 Due to parent............................................... 22,367 Other long-term liabilities................................. 722 ------- Total liabilities................................... 44,424 ------- Stockholder's equity: Common stock, $1 par value. Authorized 1,000 shares, issued and outstanding 10 shares................................. 1 Additional paid-in capital.............................. 10,398 Accumulated deficit..................................... (7,845) ------- Total stockholder's equity.......................... 2,554 Commitments and contingencies ------- Total liabilities and stockholder's equity.......... $46,978 =======
See accompanying notes to consolidated financial statements. F-59 TAYLOR PUBLISHING COMPANY AND SUBSIDIARY CONSOLIDATED STATEMENT OF OPERATIONS YEAR ENDED SEPTEMBER 3, 1999 (DOLLARS IN THOUSANDS) Net sales................................................... $102,861 Cost of products sold....................................... 61,066 Selling, general and administrative expenses................ 34,118 Corporate charges from parent............................... 2,130 -------- Operating income........................................ 5,547 Interest expense............................................ 3,159 -------- Income before income taxes.............................. 2,388 Income tax expense.......................................... -- -------- Net income.............................................. $ 2,388 ========
See accompanying notes to consolidated financial statements. F-60 TAYLOR PUBLISHING COMPANY AND SUBSIDIARY CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY YEAR ENDED SEPTEMBER 3, 1999
TOTAL COMMON ADDITIONAL PAID-IN ACCUMULATED STOCKHOLDER'S STOCK CAPITAL DEFICIT EQUITY -------- ------------------ ------------- -------------- Balance at September 4, 1998... $ 1 9,766 (8,845) 922 Capital contribution........... -- 632 -- 632 Net income..................... -- -- 2,388 2,388 Difference between amount recorded under income tax sharing allocation and actual income tax expense........... -- -- (1,388) (1,388) ------ ------ ------ ------ Balance at September 3, 1999... $ 1 10,398 (7,845) 2,554 ====== ====== ====== ======
See accompanying notes to consolidated financial statements. F-61 TAYLOR PUBLISHING COMPANY AND SUBSIDIARY CONSOLIDATED STATEMENT OF CASH FLOWS YEAR ENDED SEPTEMBER 3, 1999 (DOLLARS IN THOUSANDS) Cash Flows From Operating Activities-- Net income.............................................. $ 2,388 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization....................... 3,336 Changes in operating assets and liabilities: Trade receivables............................... 3,329 Other receivables............................... 329 Inventories..................................... (517) Prepaid expenses and other current assets....... (2,208) Other assets.................................... 1,765 Accounts payable................................ 812 Accrued expenses................................ (1,523) Customer deposits............................... 48 Other long-term liabilities..................... (177) ------- Net cash provided by operating activities... 7,582 ------- Cash Flows Used In Investing Activities-- Acquisition of property, plant and equipment............ (1,177) ------- Net cash used in investing activities....... (1,177) ------- Cash Flows From Financing Activities-- Change in amount due to Parent.......................... (6,405) ------- Net cash used in financing activities....... (6,405) ------- Net decrease in cash.................................... -- Cash at beginning of year............................... 18 ------- Cash at end of year......................................... $ 18 ======= Non-Cash Financing And Investing Activities: Capital contribution through reduction in amount due to Parent of $632 Difference between amount recorded under income tax sharing allocation and actual income tax expense charged directly to accumulated deficit of $1,388
See accompanying notes to consolidated financial statements. F-62 TAYLOR PUBLISHING COMPANY AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 3, 1999 1. DESCRIPTION OF BUSINESS Taylor Publishing Company and subsidiary (the Company) is an indirect wholly-owned subsidiary of Insilco Holding Co. (Insilco or Parent). The Company provides a variety of commercial printing and related services to a diverse, nationwide customer base. The Company's primary business is the contract design and printing of student yearbooks. The Company also publishes a variety of specialty books on a contract basis and a limited number of its own publishing titles and provides reunion planning and other services for alumni of schools, colleges and academics. (A) PRINCIPALS OF CONSOLIDATION The consolidated financial statements include the accounts of Taylor Publishing Company and Taylor Production Company, L.P., a partnership in which Taylor Publishing Company is the general partner holding a 99% ownership interest. Insilco is the 1% limited partner. All significant intercompany transactions have been eliminated in consolidation. (B) TRADE RECEIVABLES Trade receivables are presented net of allowances for doubtful accounts of $717 at September 3, 1999. (C) INVENTORIES Inventories are stated at the lower of cost or market. Cost includes materials, labor and production overhead and is primarily determined using standard costs which approximate costs utilizing the first-in, first-out (FIFO) method. Inventory reserve represents the estimated amount necessary to properly state inventory at lower of cost or market. (D) PROPERTY, PLANT AND EQUIPMENT Property, plant, and equipment are stated at cost. Depreciation of plant and equipment is calculated on the straight-line method over the assets' estimated useful lives, which is 10-25 years for buildings and building improvements, 9 years for machinery and equipment, 9 years for furniture and fixtures and 3-5 years for computer equipment. (E) IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. (F) SALES Sales are recognized when product is shipped and the risk and rewards of ownership have passed to the customer. F-63 TAYLOR PUBLISHING COMPANY AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) SEPTEMBER 3, 1999 1. DESCRIPTION OF BUSINESS (CONTINUED) (G) INCOME TAXES The Company is included in the consolidated Federal income tax return of Insilco. Income tax expense has been computed on a separate return basis in accordance with Statement of Financial Accounting Standards No. 109. Under the Company's tax sharing arrangement with Insilco, the Company is allocated income tax expense or benefit based on the amount determined by multiplying earnings or loss before allocated capital changes from Insilco by 40%. This amount is added to or deducted from the balance of due to Parent. The difference between the amount determined under the Company's tax sharing arrangement with Insilco and the amount of computed income tax expense or benefit as described above is recorded as a direct charge to accumulated deficit or a direct credit to additional paid-in capital. (H) ESTIMATES In conformity with generally accepted accounting principles, the preparation of our consolidated financial statements requires management to make estimates and assumptions that affect the amounts reported in the financial statements and therefore actual results may ultimately differ from those estimates. 2. INVENTORIES A summary of inventories at September 3, 1999 follows (in thousands): Raw materials and supplies.................................. $ 3,563 Work in process............................................. 7,385 Finished goods.............................................. 1,256 Reserve..................................................... (789) ------- $11,415 =======
3. PROPERTY, PLANT AND EQUIPMENT A summary of property, plant and equipment at September 3, 1999 follows (in thousands): Land........................................................ $ 1,648 Building and building improvements.......................... 5,488 Machinery and equipment..................................... 6,965 Furniture and fixtures...................................... 127 Computer equipment.......................................... 15,151 Construction in progress.................................... 144 ------- 29,523 Less accumulated depreciation and amortization.............. 17,876 ------- Net property, plant and equipment........................... $11,647 =======
F-64 TAYLOR PUBLISHING COMPANY AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) SEPTEMBER 3, 1999 4. ACCRUED EXPENSES A summary of accrued expenses at September 3, 1999 follows (in thousands): Salaries, wages and incentive compensation payable.......... $1,090 Accrued pension cost........................................ 1,029 Accrued taxes other than income............................. 510 Accrued salesmens' commissions.............................. 2,389 Accrued compensated absences................................ 1,463 Accrued severance........................................... 243 Current portion of long-term liabilities.................... 188 Accrued legal settlement.................................... 497 Other accrued expenses...................................... 1,027 ------ $8,436 ======
5. PENSION PLANS Certain salaried employees of the Company are covered by defined benefit pension plans established and administered by Insilco. Certain hourly employees of the Company are covered by a defined benefit pension plan (the Plan) established by the Company and administered by Insilco. The benefits under these plans are based primarily on employees' years of service and compensation near retirement. The funding policies for these plans are consistent with the funding requirements of Federal laws and regulations. The Plan assets are primarily invested in a money market account. A summary of the Plan's funded status and the amount recognized in the balance sheet at June 30, 1999, a summary of pension activity for the year ended June 30, 1999, and key assumptions used in determining the accounting for the Plan follows (in thousands): Projected benefit obligation................................ $9,126 Fair value of plan assets................................... 8,646 ------ Funded status........................................... (480) Unrecognized net actuarial loss............................. 166 ------ Accrued benefit cost........................................ $ (314) ======
Weighted average assumptions as of June 30, 1999: Discount rate........................................... 7.25% Expected return on plan assets.......................... 10.00% Rate of compensation increase........................... 4.50% ======
F-65 TAYLOR PUBLISHING COMPANY AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) SEPTEMBER 3, 1999 5. PENSION PLANS (CONTINUED) The net periodic benefit cost for the 12-month period ended June 30, 1999 includes the following components: Service cost................................................ $ 378 Interest cost............................................... 622 Expected return on plan assets.............................. (828) Recognized net actuarial loss............................... 68 ------ Net periodic benefit cost................................. $ 240 ======
In addition, the Company recognized pension costs of approximately $180,000 for the year ended September 3, 1999 related to contributions to the multi-employer plans covering collectively bargained employees. Insilco sponsors a qualified defined contribution 401(k) plan, which covers substantially all non-union employees of the Company. The Company matches 50% of non-union participants' voluntary contributions up to a maximum of 3% of the participants' compensation. The Company's expense was approximately $324,000 for the year ended September 3, 1999. 6. INTEREST EXPENSE Interest expense primarily consists of a capital charge from Insilco calculated as 10% of the difference between total assets and current liabilities, as defined, and amounts to approximately $2,512,000 for the year ended September 3, 1999. In addition, the Company pays yearbook customers interest at 6% to 7% on amounts received by the Company above the required minimum deposit. The interest on these excess deposits amounted to approximately $647,000 for the year ending September 3, 1999. 7. INCOME TAXES There was no income tax expense for the year ended September 3, 1999. Actual income tax expense of zero differs from the amount computed by applying the Federal statutory rate to pretax income due to the following (in thousands): Computed statutory tax expense.............................. $ 812 State taxes, net of Federal effect.......................... 16 Other, net.................................................. 36 Change in valuation allowance............................... (864) ----- Income tax expense...................................... $ -- =====
F-66 TAYLOR PUBLISHING COMPANY AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) SEPTEMBER 3, 1999 7. INCOME TAXES (CONTINUED) The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities at September 3, 1999 follow (in thousands): Deferred tax assets Accrued liabilities..................................... $ 1,776 Inventories............................................. 274 Receivables............................................. 260 Intangible assets....................................... 153 Net operating loss carry-forwards....................... 1,772 ------- Total gross deferred tax assets..................... 4,235 Less valuation allowance.................................... (3,082) ------- Net deferred tax assets............................. 1,153 ------- Deferred tax liabilities Property, plant and equipment........................... 1,153 ------- Net deferred tax asset.............................. $ -- =======
The net reduction in the valuation allowance for deferred tax assets for the year ended September 3, 1999 was $864,000. The IRS is presently examining the consolidated Federal income tax returns of Insilco for tax years 1991 through 1996. Management believes that the ultimate outcome of this examination will not have a material adverse effect on the financial condition, results of operations or liquidity of the Company. 8. RELATED PARTY TRANSACTIONS Insilco provides services to the Company including management, human resources, accounting and reporting, legal and other corporate services. These expenses are either actual expenses incurred by Insilco on behalf of the Company or are charged to the Company based on certain financial measures such as number of employees and forecasted sales. Insilco utilizes a centralized cash management system. As a result, the Company carries minimal cash. Distributions are funded by Insilco upon demand and cash receipts are transferred to Insilco daily. The amount due to Parent is subject to an intercompany note agreement. Under the terms of the note agreement, the amount due to Parent is payable on demand, or if no demand, is made, in November 2004, except that until such time as the outstanding obligations of Insilco under a bank credit agreement (see note 9) have been paid in full. Insilco has agreed not to demand payment without the prior consent of the requisite lenders, as defined in the bank credit agreement. Accordingly, the amount due to Parent is reported as a noncurrent liability in the accompanying consolidated financial statements. See note 1(g) for information regarding the Company's income tax sharing arrangement with Insilco and note 9 regarding arrangements between the Company and Insilco relating to certain litigation. F-67 TAYLOR PUBLISHING COMPANY AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) SEPTEMBER 3, 1999 9. COMMITMENTS AND CONTINGENCIES Rental expense for all operating leases totaled $1,502,000 for the year ended September 3, 1999. These leases primarily relate to production facilities, storage facilities and equipment. Future minimum lease payments under contractually noncancellable operating leases (with initial lease terms in excess of one year) for years subsequent to September 3, 1999 are as follows (in thousands): 2000, $919; 2001, $766; 2002, $763; 2003, $625; 2004, $300; and thereafter, $1,058. The Company, along with the other wholly-owned domestic subsidiaries of Insilco, are guarantors of borrowings under a $300,000,000 bank credit agreement of Insilco, which terminates in 2005. The borrowings under the bank credit agreement are secured by all of the Company's and other wholly-owned domestic subsidiaries' assets. The Company, along with the other wholly-owned domestic subsidiaries of Insilco, are also the unconditional joint and several guarantors of $120 million of 12% notes sold by Insilco in November 1998. The Company's guarantee of the 12% notes is a general unsecured obligation, is subordinated in right of payment to all existing and future senior indebtedness of the Company (including indebtedness of the bank credit facility) and will rank senior in right of payment to any future subordinated indebtedness of the Company. In 1998, a $497,000 judgment relating to an Equal Employee Opportunity Commission claim was rendered against the Company. The case is currently under appeal. A charge for this amount was recorded during the year ending September 4, 1998, and the related liability remains in accrued expenses in the accompanying consolidated balance sheet. In June 1999, the Company was awarded $25,225,000 in an antitrust lawsuit against Josten's. However, the court vacated the judgment and awarded Josten's $50,000 in legal fees to be paid by the Company. The Company has appealed the Court's second judgment, seeking reinstatement of the first judgment. No amounts related to these events have been recorded in the accompanying consolidated financial statements. Effective January 1, 1999, Insilco assumed the rights, responsibilities and obligations associated with this litigation such that the ongoing litigation and ultimate outcome of this matter will have no further impact on the Company's financial position, results of operations or cash flows. The Company is involved in various other claims and legal actions arising in the ordinary course of business. In the opinion of management, the ultimate disposition of these matters discussed above will not have a material adverse effect on the Company's financial position, results of operations or liquidity. F-68 INDEPENDENT AUDITOR'S REPORT Board of Directors of Educational Communications, Inc. We have audited the accompanying balance sheets of Educational Communications, Inc. (an Illinois S Corporation) as of December 31, 2000 and 1999, and the related statements of income, changes in stockholders' equity and cash flows for each of the three years in the period ended December 31, 2000. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Educational Communications, Inc. as of December 31, 2000 and 1999, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2000 in conformity with accounting principles generally accepted in the United States. /s/ Altschuler, Melvoin and Glasser LLP Chicago, Illinois February 2, 2001, except for Note 7, as to which the date is March 30, 2001 F-69 EDUCATIONAL COMMUNICATIONS, INC. BALANCE SHEETS DECEMBER 31, 2000 AND 1999
2000 1999 ----------- ----------- ASSETS Current assets Cash and cash equivalents............................... $ 1,921,965 $ 1,185,470 Inventories............................................. 99,095 142,755 U.S. government securities.............................. 6,977,350 7,474,944 Prepaid expenses and other current assets............... 392,128 950,901 Deferred publication expenses........................... 190,052 294,151 ----------- ----------- 9,580,590 10,048,221 ----------- ----------- Property and equipment, net................................. 899,658 950,872 ----------- ----------- Other assets Split-dollar life insurance............................. 833,596 833,596 Deposits and other assets............................... 645,964 597,182 ----------- ----------- 1,479,560 1,430,778 ----------- ----------- $11,959,808 $12,429,871 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Accounts payable........................................ $ 961,934 259,898 Accrued expenses........................................ 389,037 264,257 Deferred publication revenue............................ -- 110,302 ----------- ----------- 1,350,971 634,457 ----------- ----------- Stockholders' equity Common stock, no par value, 1,000 shares issued and outstanding........................................... 1,000 1,000 Additional paid-in capital.............................. 450,000 450,000 Retained earnings....................................... 10,157,837 11,344,414 ----------- ----------- 10,608,837 11,795,414 ----------- ----------- $11,959,808 $12,429,871 =========== ===========
See accompanying notes F-70 EDUCATIONAL COMMUNICATIONS, INC. STATEMENTS OF INCOME YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
2000 1999 1998 ----------- ----------- ----------- Net sales............................................. $16,941,507 $12,925,751 $14,373,121 Cost of goods sold.................................... 3,629,734 2,566,020 3,151,292 ----------- ----------- ----------- Gross margin.......................................... 13,311,773 10,359,731 11,221,829 Operating expenses.................................... 6,534,793 5,887,524 5,428,553 ----------- ----------- ----------- Income from operations................................ 6,776,980 4,472,207 5,793,276 ----------- ----------- ----------- Other income Interest.......................................... 604,115 556,024 612,081 Other income, net................................. 883,742 525,609 296,778 ----------- ----------- ----------- 1,487,857 1,081,633 908,859 ----------- ----------- ----------- Income before state income taxes...................... 8,264,837 5,553,840 6,702,135 State income taxes.................................... 145,036 74,486 104,994 ----------- ----------- ----------- Net income............................................ $ 8,119,801 $ 5,479,354 $ 6,597,141 =========== =========== ===========
See accompanying notes F-71 EDUCATIONAL COMMUNICATIONS, INC. STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
COMMON ADDITIONAL RETAINED STOCK PAID-IN CAPITAL EARNINGS TOTAL -------- --------------- ----------- ----------- Balance, January 1, 1998..................... $1,000 $450,000 $11,267,919 $11,718,919 Net income................................... 6,597,141 6,597,141 Distributions................................ (6,000,000) (6,000,000) ------ -------- ----------- ----------- Balance, December 31, 1998................... 1,000 450,000 11,865,060 12,316,060 Net income................................... 5,479,354 5,479,354 Distributions................................ (6,000,000) (6,000,000) ------ -------- ----------- ----------- Balance, December 31, 1999................... 1,000 450,000 11,344,414 11,795,414 Net income................................... 8,119,801 8,119,801 Distributions................................ (9,306,378) (9,306,378) ------ -------- ----------- ----------- BALANCE, DECEMBER 31, 2000................... $1,000 $450,000 $10,157,837 $10,608,837 ====== ======== =========== ===========
See accompanying notes F-72 EDUCATIONAL COMMUNICATIONS, INC. STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
2000 1999 1998 ------------ ----------- ----------- OPERATING ACTIVITIES Net income........................................ $ 8,119,801 $ 5,479,354 $ 6,597,141 Depreciation and amortization..................... 82,486 121,962 113,281 Gain on sale of assets............................ (11,913) Changes in Inventories................................... 43,660 9,496 (48,658) Prepaid expenses and other current assets..... 558,773 (646,813) 52,404 Deferred publication expenses................. 104,098 (134,130) 45,090 Deposits and other assets..................... (48,782) 77,116 (69,587) Accounts payable.............................. 702,036 149,357 (595,908) Accrued expenses.............................. 124,780 (11,618) 37,094 Deferred publication revenue.................. (110,302) 110,302 ------------ ----------- ----------- NET CASH PROVIDED BY OPERATING ACTIVITIES......... 9,576,550 5,155,026 6,118,944 ------------ ----------- ----------- INVESTING ACTIVITIES Purchases of property and equipment............... (31,272) (30,599) (26,895) Proceeds from sale of property.................... 6,000 Purchases of U.S. government securities........... (16,002,405) (7,456,094) (8,940,237) Proceeds from maturities of U.S. government securities...................................... 16,500,000 8,850,000 8,000,000 ------------ ----------- ----------- NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES...................................... 466,323 1,363,307 (961,132) ------------ ----------- ----------- FINANCING ACTIVITIES Distributions..................................... (9,306,378) (6,000,000) (6,000,000) ------------ ----------- ----------- NET CASH USED IN FINANCING ACTIVITIES............. (9,306,378) (6,000,000) (6,000,000) ------------ ----------- ----------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS...... 736,495 518,333 (842,188) CASH AND CASH EQUIVALENTS Beginning of year................................. 1,185,470 667,137 1,509,325 ------------ ----------- ----------- END OF YEAR....................................... $ 1,921,965 $ 1,185,470 $ 667,137 ============ =========== =========== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION State income taxes paid........................... $ 56,036 $ 86,486 $ 89,994 ============ =========== ===========
See accompanying notes F-73 EDUCATIONAL COMMUNICATIONS, INC. NOTES TO THE FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 1. NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES NATURE OF OPERATIONS--Educational Communications, Inc. (the "Company") is a publisher serving the achievement publications niche of the specialty directory publishing industry nationwide. The Company produces three publications, entitled "WHO'S WHO AMONG AMERICAN HIGH SCHOOL STUDENTS," "THE NATIONAL DEAN'S LIST," and "WHO'S WHO AMONG AMERICA'S TEACHERS." USE OF ESTIMATES--The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. CASH AND CASH EQUIVALENTS--The Company considers short-term, highly liquid investments purchased with original maturities of three months or less to be cash equivalents. At December 31, 2000 and 1999, the Company had cash accounts at a commercial bank that are insured by the Federal Deposit Insurance Corporation (FDIC) up to $100,000. Account balances exceed the $100,000 FDIC limit. INVENTORIES--Inventories are valued at the lower of cost or market under the first-in, first-out (FIFO) method. PROPERTY AND EQUIPMENT--Property and equipment are valued at cost and depreciated using the straight line method over the estimated useful lives of the assets. Maintenance and repairs are charged to income as incurred. Expenditures that significantly extend the useful lives of assets are capitalized. U.S. GOVERNMENT SECURITIES--U.S. government securities consist of U.S. Treasury bills and notes that are carried at amortized cost, which approximates market value. The Company intends to hold these securities to maturity, which is typically 24 months or less. All such securities will mature during 2001. OTHER INCOME--Other income primarily consists of fees received from a bank credit card company for licensing of the Company's publication names. INCOME TAXES--The Company has elected to be treated as an S corporation under the provisions of the Internal Revenue Code. Under those provisions, the Company does not pay federal corporate income taxes on its taxable income. The stockholders are liable for individual income taxes on their respective shares of the Company's taxable income. State income taxes are provided for because they remain an obligation of the Company. REVENUE AND EXPENSE RECOGNITION OF PUBLICATIONS--Revenue is recognized on publications (and other merchandise) upon shipment to the customer. The direct costs incurred for publications are deferred until shipment occurs, as well. All indirect costs, including solicitation costs, are expensed as incurred. F-74 EDUCATIONAL COMMUNICATIONS, INC. NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 2. INVENTORIES Inventories at December 31, 2000 and 1999 consist of:
2000 1999 -------- -------- Books....................................................... $32,642 $ 37,642 Collateral.................................................. 56,859 93,906 Postage..................................................... 5,035 3,710 Stationery.................................................. 4,559 7,497 ------- -------- $99,095 $142,755 ======= ========
3. PROPERTY AND EQUIPMENT, NET Property and equipment at December 31, 2000 and 1999 consist of:
2000 1999 ESTIMATED LIFE ----------- ----------- -------------- Land........................................... $ 129,556 $ 129,556 Buildings and improvements..................... 1,526,301 1,526,301 15-39 years Office equipment............................... 738,672 724,976 3-5 years Furniture and fixtures......................... 374,064 374,064 5-7 years Autos.......................................... 41,811 39,910 5 years ----------- ----------- 2,810,404 2,794,807 Accumulated depreciation and amortization...... (1,910,746) (1,843,935) ----------- ----------- $ 899,658 $ 950,872 =========== ===========
4. SPLIT-DOLLAR LIFE INSURANCE The Company has split-dollar life insurance agreements with two of its officers/stockholders. The Company's interest in the agreements is the total premiums paid by the Company upon termination of the policy or upon death of the insured. 5. EMPLOYEE BENEFIT PLAN The Company sponsors a qualified employee profit-sharing plan for the benefit of eligible employees of the Company. The Company may make annual discretionary contributions to the plan. The Company recorded profit-sharing plan contribution expense of $119,398, $91,818 and $80,002, respectively, for 2000, 1999 and 1998. 6. ADVERTISING The Company incurs advertising and promotion costs in conjunction with the solicitation of sales. These costs, consisting primarily of printing and postage, are expensed as incurred. These advertising and promotion costs are included in operating expenses and amounted to $3,666,054, $3,030,104 and $2,886,095, respectively, for 2000, 1999 and 1998. 7. SUBSEQUENT EVENT On March 30, 2001, Honors Acquisition Corp., a subsidiary of American Achievement Corp., purchased all of the Company's common stock. As a result, the S corporation income tax status (Note 1) of the Company was terminated as of that date. F-75 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- PROSPECTUS DATED , $177,000,000 AMERICAN ACHIEVEMENT CORPORATION OFFER TO EXCHANGE 11 5/8 SENIOR NOTES DUE 2007, SERIES B FOR ANY AND ALL OUTSTANDING 11 5/8 SENIOR NOTES DUE 2007, SERIES A ----------- PROSPECTUS -------------- - -------------------------------------------------------------------------------- We have not authorized any dealer, salesperson or other person to give you written information other than this prospectus or to make representations as to matters not stated in this prospectus. You must not rely on unauthorized information. This prospectus is not an offer to sell these securities or our solicitation of your offer to buy the securities in any jurisdiction where that would not be permitted or legal. Neither the delivery of this prospectus nor any sales made hereunder after the date of this prospectus shall create an implication that the information contained herein or the affairs of American Achievement have not changed since the date hereof. - -------------------------------------------------------------------------------- Until (90 days from the date of this prospectus), all dealers effecting transactions in the securities, whether or not participating in this exchange offer, may be required to deliver a prospectus. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- PART II INFORMATION NOT REQUIRED IN THE PROSPECTUS ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS INDEMNIFICATION UNDER THE DELAWARE GENERAL CORPORATION LAW Section 145 of the Delaware General Corporation Law ("DGCL"), authorizes a corporation to indemnify any person who was or is a party, or is threatened to be made a party, to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that the person is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses, including attorneys' fees, judgments, fines and amounts paid in settlement actually and reasonably incurred by the person in connection with such action, suit or proceeding, if the person acted in good faith and in a manner the person reasonably believed to be in, or not opposed to, the best interests of the corporation and, with respect to any criminal action or proceeding, had no reasonable cause to believe the person's conduct was unlawful. In addition, the Delaware General Corporation Law does not permit indemnification in any threatened, pending or completed action or suit by or in the right of the corporation in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the corporation, unless and only to the extent that the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability, but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses, which such court shall deem proper. To the extent that a present or former director or officer of a corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to above, or in defense of any claim, issue or matter, such person shall be indemnified against expenses, including attorneys' fees, actually and reasonably incurred by such person. Indemnity is mandatory to the extent a claim, issue or matter has been successfully defended. The Delaware General Corporation Law also allows a corporation to provide for the elimination or limit of the personal liability of a director to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, provided that such provision shall not eliminate or limit the liability of a director (1) for any breach of the director's duty of loyalty to the corporation or its stockholders, (2) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (3) for unlawful payments of dividends or unlawful stock purchases or redemptions, or (4) for any transaction from which the director derived an improper personal benefit. These provisions will not limit the liability of directors or officers under the federal securities laws of the United States. INDEMNIFICATION UNDER THE BY-LAWS OF AMERICAN ACHIEVEMENT CORPORATION, COMMEMORATIVE BRANDS, INC., CBI NORTH AMERICA, INC., TAYLOR SENIOR HOLDING CORP. AND TP HOLDING CORP. The by-law provisions of American Achievement Corporation, Commemorative Brands, Inc., CBI North America, Inc., Taylor Senior Holding Corp. and TP Holding Corp. relating to indemnification of Officers and Directors are substantially identical. Accordingly, the description below of "American Achievement Corporation" or "American" applies to each of American Achievement Corporation, II-1 Commemorative Brands, Inc., CBI North America, Inc., Taylor Senior Holding Corp. and TP Holding Corp. Section 1 of Article VI of the Company's By-Laws provides that, unless otherwise determined by the Board of Directors, the Company shall, to the fullest extent permitted by the DGCL (including, without limitation, Section 145 thereof) or other provisions of the laws of Delaware relating to indemnification of directors, officers, employees and agents, as the same may be amended and supplemented from time to time, indemnify any and all such persons whom it shall have power to indemnify under the DGCL or such other provisions of law. Section 2 of Article VI of the Company's By-Laws provides that, without limiting the generality of Section 1 of Article VI, to the fullest extent permitted, and subject to the conditions imposed, by law, and pursuant to Section 145 of the DGCL, unless otherwise determined by the Board of Directors, the Company shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding whether civil, criminal, administrative or investigative (other than an action by or in the right of the Company) by reason of the fact that such person is or was a director, officer, employee or agent of the Company, or is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against reasonable expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if such person acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Company, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful; and that the Company shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the Company to procure a judgment in its favor by reason of the fact that such person is or was a director, officer, employee or agent of the Company, or is or was serving at the request of the Company as a director, officer, employee or agent of another Company, partnership, joint venture, trust or other enterprise against reasonable expenses (including attorneys' fees) actually and reasonably incurred by him in connection with the defense or settlement of such action or suit if such person acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Company, except as otherwise provided by law. Section 3 of Article VI of the Company's By-Laws provides that, to the fullest extent permitted by law, indemnification may be granted, and expenses may be advanced, to the persons described in Section 145 of the DGCL or other provisions of the laws of Delaware relating to indemnification and advancement of expenses, as from time to time may be in effect, by (i) a resolution of stockholders, (ii) a resolution of the Board of Directors, or (iii) an agreement providing for such indemnification and advancement of expenses. Section 4 of Article VI of the Company's By-Laws provides that, it is the intent of Article VI to require the Company, unless otherwise determined by the Board of Directors, to indemnify the persons referred to therein for judgments, fines, penalties, amounts paid in settlement and reasonable expenses (including attorneys' fees), and to advance expenses to such persons, in each and every circumstance in which such indemnification and such advancement of expenses could lawfully be permitted by express provision of By-Laws, and the indemnification and expense advancement provided by this Article VI shall not be limited by the absence of an express recital of such circumstances. The indemnification and advancement of expenses provided by, or granted pursuant to, the Company's By-Laws shall not be deemed exclusive of any other rights to which a person seeking indemnification or advancement of expenses may be entitled, whether as a matter of law, under any provision of the Certificate of Incorporation of the Company, the By-Laws, by agreement, by vote of stockholders or disinterested II-2 directors of the Company or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office. Section 5 of Article VI of the Company's By-Laws provides that indemnification pursuant to the By-Laws shall inure to the benefit of the heirs, executors, administrators and personal representatives of those entitled to indemnification. The indemnification and advancement of expenses provided by or granted pursuant to Article VI of the Company's By-Laws are not exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under any By-Law, agreement, contract, vote of stockholders or disinterested directors or pursuant to the direction (howsoever embodied) of any court of competent jurisdiction or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office, it being the policy of the Company that indemnification of the persons specified in Article VI shall be made to the fullest extent permitted by law. The Company has purchased and maintains insurance on behalf of any person who is or was a director, officer, employee or agent of the Company, or is or was a director or officer of the Company serving at the request of the Company as a director, officer, employee or agent of another Company, partnership, joint venture, trust, employee benefit plan or other enterprise against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the Company would have the power or the obligation to indemnify him against such liability under the provisions of Article VI of the Company's By-Laws. INDEMNIFICATION UNDER THE BY-LAWS OF TAYLOR PUBLISHING COMPANY Section 1 of Article VII of Taylor Publishing Company's By-Laws provides that the corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative by reason of the fact that he or she is or was a director, officer, employee, agent or fiduciary of the corporation, or is or was serving at the request of the corporation as a director, officer, employee, agent or fiduciary of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding (and advance expenses to such person in connection with such action) to the fullest extent permitted under the laws of the state of Delaware now or hereafter in existence, including Section 145 of the Delaware General Corporation Law as currently in existence or as subsequently amended, modified, supplemented or replaced (but, in case of any such amendment, modification, supplementation or replacement, only to the extent that such amendment, modification, supplementation or replacement broadens such person's rights to indemnification thereunder). Section 2 of Article VII provides that the rights to receive indemnification and advancement of expenses provided in Article VII of these By-laws shall not be deemed exclusive of any other rights to which any person may at any time be entitled under applicable law, the certificate of incorporation of the corporation, the By-laws, any agreement, a vote of stockholders, a resolution of the board of directors or otherwise. No amendment, alteration or repeal of Article VII or any provision under the By-laws shall be effective as to any person in respect of any act, event or circumstance that occurred or existed, in whole or in part, before such amendment, alteration or repeal. INDEMNIFICATION UNDER THE DELAWARE REVISED UNIFORM LIMITED PARTNERSHIP ACT AND THE PARTNERSHIP AGREEMENT OF TAYLOR PRODUCTION SERVICES COMPANY, L.P. Subject to any terms, conditions or restrictions set forth in the partnership agreements, Section 17-108 of the Delaware Revised Uniform Limited Partnership Act empowers a Delaware II-3 limited partnership to indemnify and hold harmless a partner or other persons from and against all claims and demands whatsoever. The partnership agreement of Taylor Production Services Company, L.P. does not contain any indemnification provisions or limitations thereon. INDEMNIFICATION UNDER THE BY-LAWS OF EDUCATIONAL COMMUNICATIONS, INC. Section 1(a) of Article XI of Educational Communications, Inc. ("ECI")'s By-Laws provides that, subject to the provisions of Section 3 of Article XI, ECI shall indemnify any person who was or is a party, or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the corporation), by reason of the fact that he is or was a director, officer, employee or agent of the corporation, or who was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in, or not opposed to the best interests of the corporation, and with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe that his conduct was unlawful. Section 1(b) of Article XI provides that, subject to the provisions of Section 3 of Article XI, ECI shall indemnify any person who was or is a party, or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact that he is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against expenses (including attorneys' fees) actually and reasonably incurred by him in connection with the defense or settlement of such action or suit if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation and except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable for negligence or misconduct in the performance of his duty to the corporation, unless, and only to the extent that the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability, but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses as the court shall deem proper. Section 2 of Article XI provides that, to the extent that a director, officer, employee or agent of the corporation has been successful, on the merits or otherwise, in defense of any action, suit or proceeding referred to in subsections (a) and (b) of Section 1 of Article XI, or in defense of any claim, issue or matter therein, he shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by him in connection therewith. Section 3 of Article XI provides that any indemnification under subsections (a) and (b) of Section 1 (unless ordered by a court) shall be made by the corporation only as authorized in the specific case, upon a determination that indemnification of the director, officer, employee or agent is proper in the circumstances because he has met the applicable standard of conduct set forth in subsections (a) and (b). Such determination shall be made (1) by the board of directors by a majority vote of a quorum consisting of directors who were not parties to such action, or (2) if such a quorum is II-4 not obtainable, or, even if obtainable, a quorum of disinterested directors so directs, by independent legal counsel in a written opinion, or (3) by the shareholders. Section 4 of Article XI provides that expenses incurred in defending a civil or criminal action may be paid by the corporation in advance of the final disposition of such action, as authorized by the board of directors in the specific case, upon receipt of any undertaking by or on behalf of the director, officer, employee or agent to repay such amount, unless it shall ultimately be determined that he is entitled to be indemnified. Section 5 of Article XI provides that the indemnification provided by Article XI shall not be deemed exclusive of any other rights to which those seeking indemnification may be entitled under any by-law, agreement, vote of shareholders or disinterested directors or, otherwise, both as to action in his official capacity and as to action in another capacity while holding such office, and shall continue as to a person who has ceased to be a director, officer, employee or agent, and shall inure to the benefit of the heirs, executors and administrators of such a person. INDEMNIFICATION UNDER THE ILLINOIS BUSINESS CORPORATION ACT WITH RESPECT TO ECI In general, Section 8.75 of the Illinois Business Corporation Act empowers Illinois corporations to indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative by reason of the fact that the person is or was a director, officer, employee or agent of the registrant, or is or was serving at the request of the registrant as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding, so long as such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the registrant and, with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful. For actions or suits by or in the right of the registrant, no indemnification is permitted in respect of any claim, issue or matter as to which such person is adjudged to be liable to the registrant, unless, and only to the extent that, the court in which such action or suit was brought determines upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the court deems proper. Any indemnification (unless ordered by a court) will be made by the registrant only as authorized in the specific case upon a determination that indemnification of the director, officer, employee or agent is proper in the circumstances because the person has met the applicable standard of conduct set forth above. Such determination shall be made (a) by the board of directors by a majority vote of a quorum consisting of the directors who are not parties to such action, suit or proceeding, or (b) if such a quorum is not obtainable or if such directors so direct, by independent legal counsel in a written opinion, or (c) by the stockholders. Such indemnification is not exclusive of any other rights to which those indemnified may be entitled under any by-laws, agreement, vote of stockholders or otherwise. Section 8.75 also authorizes the registrant to buy directors' and officers' liability insurance and gives a director, officer, employee or agent of the registrant, or a person who is or was serving at the request of the registrant as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against any liability asserted against such person and incurred by such person in any capacity, or arising out of the person's status as such, whether or not the registrant has the power to indemnify the person against such liability. II-5 ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
EXHIBIT NUMBER DESCRIPTION - --------------------- ------------------------------------------------------------ 1.1 Purchase Agreement, dated as of February 14, 2002, among American Achievement Corporation, the Guarantors and the Initial Purchasers 3.1 Certificate of Incorporation of American Achievement Corporation with all amendments (f/k/a Commemorative Brands Holding Corp.) 3.2 By-Laws of American Achievement Corporation (f/k/a Commemorative Brands Holding Corp.) 3.3 Certificate of Incorporation of Commemorative Brands, Inc. with all amendments (f/k/a Scholastic Brands, Inc., Class Rings, Inc. and Keepsake Jewelry, Inc.) 3.4 By-Laws of Commemorative Brands, Inc. (f/k/a Scholastic Brands, Inc., Class Rings, Inc. and Keepsake Jewelry, Inc.) 3.5 Certificate of Incorporation of CBI North America, Inc. with all amendments (f/k/a SBI North America, Inc.) 3.6 By-Laws of CBI North America, Inc. with all amendments (f/k/a SBI North America, Inc.) 3.7 Certificate of Incorporation of Taylor Senior Holding Corp. 3.8 By-Laws of Taylor Senior Holding Corp. 3.9 Amended and Restated Certificate of Incorporation of TP Holding Corp. (f/k/a TP Acquisition Corp.) 3.10 By-Laws of TP Holding Corp. (f/k/a TP Acquisition Corp.) 3.11 Certificate of Incorporation of Taylor Publishing Company with all amendments (f/k/a Taylor Publishing Company of Delaware) 3.12 By-Laws of Taylor Publishing Company (f/k/a Taylor Publishing Company of Delaware) 3.13 Certificate of Limited Partnership of Taylor Production Services Company, L.P. 3.14 Taylor Production Services Company, L.P. Limited Partnership Agreement 3.15 Articles of Incorporation of Educational Communications, Inc. with all amendments (f/k/a Merit Publishing Company) 3.16 By-Laws of Educational Communications, Inc. 4.1 Indenture, dated as of February 20, 2002, among American Achievement Corporation, The Bank of New York, as Trustee, and the Guarantors 4.2 Form of 11 5/8 Senior Notes due 2007 (included in Exhibit 4.1) 4.3 Registration Rights Agreement, dated as of February 20, 2002, among American Achievement Corporation, the Guarantors and the Initial Purchasers 4.4 Form of Guarantee (included in Exhibit 4.1) 4.5 Form of Indenture dated as of December 16, 1996 between Commemorative Brands, Inc. and HSBC Bank USA (f/k/a Marine Midland Bank) 4.6 Form of First Supplemental Indenture, dated as of July 21, 2000, between Commemorative Brands, Inc. and HSBC Bank USA (f/k/a Marine Midland Bank) 5.1* Opinion of Schulte Roth & Zabel LLP 5.2* Opinion of Schwartz Cooper Greenberger Krauss, Chartered
II-6
EXHIBIT NUMBER DESCRIPTION - --------------------- ------------------------------------------------------------ 10.1 Credit Agreement, dated as of February 20, 2002, among American Achievement Corporation, as the Borrower, the Lenders party thereto and The Bank of Nova Scotia, as the Administrative Agent for the Lenders 10.2 Gold Consignment Agreement dated July 27, 2000 between Commemorative Brands, Inc. and The Bank of Nova Scotia 10.3 Subsidiary Pledge and Security Agreement, dated as of February 20, 2002, made by American Achievement Corporation in favor of The Bank of Nova Scotia, as administrative agent for each of the Secured Parties (as defined therein) 10.4 Borrower Pledge and Security Agreement, dated as of February 20, 2002, made by each domestic subsidiary of American Achievement Corporation from time to time party hereto in favor of The Bank of Nova Scotia, as administrative agent for each of the Secured Parties (as defined therein) 10.5 Subsidiary Guaranty, dated as of February 20, 2002, made by each subsidiary of American Achievement Corporation from time to time party hereto in favor of The Bank of Nova Scotia, as administrative agent for each of the Secured Parties (as defined therein) 10.6 Form of The Management Agreement dated as of March 30, 2001 among American Achievement Corporation, its Subsidiaries listed therein and Castle Harlan, Inc. 10.7 Letter Agreement, dated as of October 11, 2000, amended as of November 3, 2000, between Scotiabank and TP Holdings Corp., regarding (i) USD 27,500,000.00MM Interest Rate Swap Transaction (Ref: S24041) and (ii) USD 25,000,000.00MM Interest Rate Swap Transaction (Ref: S24042) 10.8 Employment Agreement, dated as of July 13, 1999 by and between Commemorative Brands, Inc. and David G. Fiore 10.9 First Amendment to the Employment Agreement by and between Commemorative Brands, Inc. and David G. Fiore dated February 1, 2002 10.10 Employment Agreement, dated as of December 16, 1996 by and between Commemorative Brands, Inc. and Sherice P. Bench, as amended 10.11 Employment Agreement, dated as of December 16, 1996 by and between Commemorative Brands, Inc. and Donald J. Percenti 10.12 Employment Agreement, dated as of December 16, 1996 by and between Commemorative Brands, Inc. and Charlyn A. Cook 10.13 American Achievement Corporation 2000 Stock Option Plan (f/k/a Commemorative Brands Holding Corp. 2000 Stock Option Plan) 12.1 Statement regarding Computation of Ratios of Earnings to Fixed Charges of American Achievement Corporation 21 Subsidiaries of American Achievement Corporation 23.1 Consent of Arthur Andersen LLP 23.2 Consent of KPMG LLP 23.3 Consent of Altschuler, Melvoin and Glasser 23.4* Consent of Schulte Roth & Zabel LLP (incorporated by reference in Exhibit 5.1) 23.5* Consent of Schwartz Cooper Greenberger Krauss, Chartered (incorporated by reference in Exhibit 5.2)
II-7
EXHIBIT NUMBER DESCRIPTION - --------------------- ------------------------------------------------------------ 24 Power of Attorney (included on Signature Page of initial filing) 25 Statement of Eligibility and Qualification on Form T-1 of The Bank of New York, as Trustee 99.1* Form of Letter of Transmittal 99.2* Form of Notice of Guaranteed Delivery for Outstanding 11 5/8% Senior Notes due 2007, Series A, in exchange for 11 5/8% Senior Notes due 2007, Series B
- --------- * To be filed by amendment ITEM 22. UNDERTAKINGS. The undersigned Registrants hereby undertake: (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this Registration Statement: (i) To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933; (ii) To reflect in the prospectus any facts or events arising after the effective date of the Registration Statement, or the most recent post-effective amendment thereof, which, individually or in the aggregate, represent a fundamental change in the information set forth in the Registration Statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered, if the total dollar value of securities offered would not exceed that which was registered, and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the SEC pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than 20 percent change in the maximum aggregate offering price set forth in the "Calculation of Registration Fee" table in the effective registration statement; (iii) To include any material information with respect to the plan of distribution not previously disclosed in the Registration Statement or any material change to such information in the Registration Statement; (2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial BONA FIDE offering thereof; and (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. The undersigned Registrants hereby undertake that: (1) Prior to any public reoffering of the securities registered hereunder through use of a prospectus which is a part of this Registration Statement, by any person or party who is deemed to be an underwriter within the meaning of Rule 145(c), the issuer undertakes that such reoffering prospectus will contain the information called for by the applicable registration form with respect to the reofferings by persons who may be deemed underwriters, in addition to the information called for by the other items of the applicable form. (2) Every prospectus: (i) that is filed pursuant to the immediately preceding paragraph or (ii) that purports to meet the requirements of Section 10(a)(3) of the Securities Act and is used in II-8 connection with an offering of securities subject to Rule 415, will be filed as a part of an amendment to the Registration Statement and will not be used until such amendment is effective, and that, for purposes of determining any liability under the Securities Act, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. The undersigned Registrants hereby undertake to respond to requests for information that is incorporated by reference into the prospectus pursuant to Items 4, 10(b), 11, or 13 of this Form, within one business day of receipt of such request, and to send the incorporated documents by first class mail or other equally prompt means. This includes information contained in documents filed subsequent to the effective date of the Registration Statement through the date of responding to the request. The undersigned Registrants hereby undertake to supply by means of a post-effective amendment all information concerning a transaction, and the company being acquired involved therein, that was not the subject of and included in the Registration Statement when it became effective. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Registrants pursuant to the foregoing provisions, or otherwise, the Registrants have been advised that in the opinion of the Commission, such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrants will, unless in the opinion of their counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by then is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. II-9 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, American Achievement Corporation has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Austin, State of Texas on the 14th day of March, 2002. AMERICAN ACHIEVEMENT CORPORATION By: /s/ DAVID G. FIORE ----------------------------------------- Name: David G. Fiore Title: PRESIDENT, CHIEF EXECUTIVE OFFICER AND DIRECTOR
KNOW ALL MEN BY THESE PRESENTS, that each individual whose signature appears below constitutes and appoints David G. Fiore, David B. Pittaway and William Pruellage, and each of them, severally (with full power to act alone) as the true and lawful attorney-in-fact and agent for the undersigned, with full power of substitution and resubstitution, for and in the name, place and stead of the undersigned, in any all capacities, to sign any and all amendments to this registration statement, and to file the same with all exhibits thereto, and all documents in connection therewith, with the Securities and Exchange Commission, granting unto each said attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite and necessary to be done in, and abut the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent or his substitute and substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the date indicated.
SIGNATURE TITLE DATE --------- ----- ---- /s/ DAVID G. FIORE ------------------------------------------- President, Chief Executive March 14, 2002 David G. Fiore Officer and Director /s/ SHERICE P. BENCH ------------------------------------------- Chief Financial Officer March 14, 2002 Sherice P. Bench /s/ JOHN K. CASTLE ------------------------------------------- Director March 14, 2002 John K. Castle /s/ DAVID B. PITTAWAY ------------------------------------------- Director March 14, 2002 David B. Pittaway /s/ EDWARD O. VETTER ------------------------------------------- Director March 14, 2002 Edward O. Vetter /s/ WILLIAM PRUELLAGE ------------------------------------------- Director March 14, 2002 William Pruellage /s/ ZANE TANKEL ------------------------------------------- Director March 14, 2002 Zane Tankel
II-10 Pursuant to the requirements of the Securities Act of 1933, Commemorative Brands, Inc. has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Austin, State of Texas on the 14th day of March, 2002. COMMEMORATIVE BRANDS, INC. By: /s/ DAVID G. FIORE ----------------------------------------- Name: David G. Fiore Title: CHAIRMAN OF THE BOARD OF DIRECTORS, PRESIDENT AND CHIEF EXECUTIVE OFFICER
KNOW ALL MEN BY THESE PRESENTS, that each individual whose signature appears below constitutes and appoints David G. Fiore, David B. Pittaway and William Pruellage, and each of them, severally (with full power to act alone) as the true and lawful attorney-in-fact and agent for the undersigned, with full power of substitution and resubstitution, for and in the name, place and stead of the undersigned, in any all capacities, to sign any and all amendments to this registration statement, and to file the same with all exhibits thereto, and all documents in connection therewith, with the Securities and Exchange Commission, granting unto each said attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite and necessary to be done in, and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent or his substitute and substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the date indicated.
SIGNATURE TITLE DATE --------- ----- ---- /s/ DAVID G. FIORE Chairman of the Board of ------------------------------------------- Directors, President and March 14, 2002 David G. Fiore Chief Executive Officer /s/ LEAH BUSH ------------------------------------------- Controller and Director March 14, 2002 Leah Bush /s/ SHERICE P. BENCH Chief Financial Officer, ------------------------------------------- Secretary, Treasurer and March 14, 2002 Sherice P. Bench Director
II-11 Pursuant to the requirements of the Securities Act of 1933, CBI North America, Inc. has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Austin, State of Texas on the 14th day of March, 2002. CBI NORTH AMERICA, INC. By: /s/ DAVID G. FIORE ----------------------------------------- Name: David G. Fiore Title: CHAIRMAN OF THE BOARD OF DIRECTORS, PRESIDENT AND CHIEF EXECUTIVE OFFICER
KNOW ALL MEN BY THESE PRESENTS, that each individual whose signature appears below constitutes and appoints David G. Fiore, David B. Pittaway and William Pruellage, and each of them, severally (with full power to act alone) as the true and lawful attorney-in-fact and agent for the undersigned, with full power of substitution and resubstitution, for and in the name, place and stead of the undersigned, in any all capacities, to sign any and all amendments to this registration statement, and to file the same with all exhibits thereto, and all documents in connection therewith, with the Securities and Exchange Commission, granting unto each said attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite and necessary to be done in, and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent or his substitute and substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the date indicated.
SIGNATURE TITLE DATE --------- ----- ---- /s/ DAVID G. FIORE Chairman of the Board of ------------------------------------------- Directors, President and March 14, 2002 David G. Fiore Chief Executive Officer /s/ LEAH BUSH ------------------------------------------- Controller and Director March 14, 2002 Leah Bush /s/ SHERICE P. BENCH Chief Financial Officer, ------------------------------------------- Secretary, Treasurer and March 14, 2002 Sherice P. Bench Director
II-12 Pursuant to the requirements of the Securities Act of 1933, Taylor Senior Holding Corp. has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Dallas, State of Texas on the 14th day of March, 2002. TAYLOR SENIOR HOLDING CORP. By: /s/ DAVID G. FIORE ----------------------------------------- Name: David G. Fiore Title: CHAIRMAN OF THE BOARD OF DIRECTORS, PRESIDENT AND CHIEF EXECUTIVE OFFICER
KNOW ALL MEN BY THESE PRESENTS, that each individual whose signature appears below constitutes and appoints David G. Fiore, David B. Pittaway and William Pruellage, and each of them, severally (with full power to act alone) as the true and lawful attorney-in-fact and agent for the undersigned, with full power of substitution and resubstitution, for and in the name, place and stead of the undersigned, in any all capacities, to sign any and all amendments to this registration statement, and to file the same with all exhibits thereto, and all documents in connection therewith, with the Securities and Exchange Commission, granting unto each said attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite and necessary to be done in, and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent or his substitute and substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the date indicated.
SIGNATURE TITLE DATE --------- ----- ---- /s/ DAVID G. FIORE Chairman of the Board of ------------------------------------------- Directors, President and March 14, 2002 David G. Fiore Chief Executive Officer /s/ STEVE BAUER ------------------------------------------- Controller and Director March 14, 2002 Steve Bauer /s/ SHERICE P. BENCH Chief Financial Officer, ------------------------------------------- Secretary, Treasurer and March 14, 2002 Sherice P. Bench Director
II-13 Pursuant to the requirements of the Securities Act of 1933, TP Holding Corp. has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Dallas, State of Texas on the 14th day of March, 2002. TP HOLDING CORP. By: /s/ DAVID G. FIORE ----------------------------------------- Name: David G. Fiore Title: CHAIRMAN OF THE BOARD OF DIRECTORS, PRESIDENT AND CHIEF EXECUTIVE OFFICER
KNOW ALL MEN BY THESE PRESENTS, that each individual whose signature appears below constitutes and appoints David G. Fiore, David B. Pittaway and William Pruellage, and each of them, severally (with full power to act alone) as the true and lawful attorney-in-fact and agent for the undersigned, with full power of substitution and resubstitution, for and in the name, place and stead of the undersigned, in any all capacities, to sign any and all amendments to this registration statement, and to file the same with all exhibits thereto, and all documents in connection therewith, with the Securities and Exchange Commission, granting unto each said attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite and necessary to be done in, and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent or his substitute and substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the date indicated.
SIGNATURE TITLE DATE --------- ----- ---- /s/ DAVID G. FIORE Chairman of the Board of ------------------------------------------- Directors, President and March 14, 2002 David G. Fiore Chief Executive Officer /s/ STEVE BAUER ------------------------------------------- Controller and Director March 14, 2002 Steve Bauer /s/ SHERICE P. BENCH Chief Financial Officer, ------------------------------------------- Secretary, Treasurer and March 14, 2002 Sherice P. Bench Director
II-14 Pursuant to the requirements of the Securities Act of 1933, Taylor Publishing Company has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Dallas, State of Texas on the 14th day of March, 2002. TAYLOR PUBLISHING COMPANY By: /s/ DAVID G. FIORE ----------------------------------------- Name: David G. Fiore Title: CHAIRMAN OF THE BOARD OF DIRECTORS, PRESIDENT AND CHIEF EXECUTIVE OFFICER
KNOW ALL MEN BY THESE PRESENTS, that each individual whose signature appears below constitutes and appoints David G. Fiore, David B. Pittaway and William Pruellage, and each of them, severally (with full power to act alone) as the true and lawful attorney-in-fact and agent for the undersigned, with full power of substitution and resubstitution, for and in the name, place and stead of the undersigned, in any all capacities, to sign any and all amendments to this registration statement, and to file the same with all exhibits thereto, and all documents in connection therewith, with the Securities and Exchange Commission, granting unto each said attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite and necessary to be done in, and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent or his substitute and substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the date indicated.
SIGNATURE TITLE DATE --------- ----- ---- /s/ DAVID G. FIORE Chairman of the Board of ------------------------------------------- Directors, President and March 14, 2002 David G. Fiore Chief Executive Officer /s/ STEVE BAUER ------------------------------------------- Controller and Director March 14, 2002 Steve Bauer /s/ SHERICE P. BENCH Chief Financial Officer, ------------------------------------------- Secretary, Treasurer and March 14, 2002 Sherice P. Bench Director
II-15 Pursuant to the requirements of the Securities Act of 1933, Taylor Production Services Company, L.P. has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Dallas, State of Texas on the 14th day of March, 2002. TAYLOR PRODUCTION SERVICES COMPANY, L.P. By: Taylor Publishing Company Its general partner /s/ DAVID G. FIORE ----------------------------------------- Name: David G. Fiore Title: CHAIRMAN OF THE BOARD OF DIRECTORS, PRESIDENT AND CHIEF EXECUTIVE OFFICER
KNOW ALL MEN BY THESE PRESENTS, that each individual whose signature appears below constitutes and appoints David G. Fiore, David B. Pittaway and William Pruellage, and each of them, severally (with full power to act alone) as the true and lawful attorney-in-fact and agent for the undersigned, with full power of substitution and resubstitution, for and in the name, place and stead of the undersigned, in any all capacities, to sign any and all amendments to this registration statement, and to file the same with all exhibits thereto, and all documents in connection therewith, with the Securities and Exchange Commission, granting unto each said attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite and necessary to be done in, and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent or his substitute and substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the date indicated.
SIGNATURE TITLE DATE --------- ----- ---- /s/ DAVID G. FIORE Chairman of the Board of ------------------------------------------- Directors, President and March 14, 2002 David G. Fiore Chief Executive Officer /s/ STEVE BAUER ------------------------------------------- Controller and Director March 14, 2002 Steve Bauer /s/ SHERICE P. BENCH Chief Financial Officer, ------------------------------------------- Secretary, Treasurer and March 14, 2002 Sherice P. Bench Director
II-16 Pursuant to the requirements of the Securities Act of 1933, Educational Communications, Inc. has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Lake Forest, State of Illinois on the 14th day of March, 2002. EDUCATIONAL COMMUNICATIONS, INC. By: /s/ DAVID G. FIORE ----------------------------------------- Name: David G. Fiore Title: CHAIRMAN OF THE BOARD OF DIRECTORS
KNOW ALL MEN BY THESE PRESENTS, that each individual whose signature appears below constitutes and appoints David G. Fiore, David B. Pittaway and William Pruellage, and each of them, severally (with full power to act alone) as the true and lawful attorney-in-fact and agent for the undersigned, with full power of substitution and resubstitution, for and in the name, place and stead of the undersigned, in any all capacities, to sign any and all amendments to this registration statement, and to file the same with all exhibits thereto, and all documents in connection therewith, with the Securities and Exchange Commission, granting unto each said attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite and necessary to be done in, and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent or his substitute and substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the date indicated.
SIGNATURE TITLE DATE --------- ----- ---- /s/ DAVID G. FIORE ------------------------------------------- Chairman of the Board of March 14, 2002 David G. Fiore Directors /s/ SHERICE P. BENCH ------------------------------------------- Chief Financial Officer, March 14, 2002 Sherice P. Bench Treasurer and Director /s/ PARKE H. DAVIS ------------------------------------------- President March 14, 2002 Parke H. Davis
II-17 EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION - --------------------- ------------------------------------------------------------ 1.1 Purchase Agreement, dated as of February 14, 2002, among American Achievement Corporation, the Guarantors and the Initial Purchasers 3.1 Certificate of Incorporation of American Achievement Corporation with all amendments (f/k/a Commemorative Brands Holding Corp.) 3.2 By-Laws of American Achievement Corporation (f/k/a Commemorative Brands Holding Corp.) 3.3 Certificate of Incorporation of Commemorative Brands, Inc. with all amendments (f/k/a Scholastic Brands, Inc., Class Rings, Inc. and Keepsake Jewelry, Inc.) 3.4 By-Laws of Commemorative Brands, Inc. (f/k/a Scholastic Brands, Inc., Class Rings, Inc. and Keepsake Jewelry, Inc.) 3.5 Certificate of Incorporation of CBI North America, Inc. with all amendments (f/k/a SBI North America, Inc.) 3.6 By-Laws of CBI North America, Inc. with all amendments (f/k/a SBI North America, Inc.) 3.7 Certificate of Incorporation of Taylor Senior Holding Corp. 3.8 By-Laws of Taylor Senior Holding Corp. 3.9 Amended and Restated Certificate of Incorporation of TP Holding Corp. (f/k/a TP Acquisition Corp.) 3.10 By-Laws of TP Holding Corp. (f/k/a TP Acquisition Corp.) 3.11 Certificate of Incorporation of Taylor Publishing Company with all amendments (f/k/a Taylor Publishing Company of Delaware) 3.12 By-Laws of Taylor Publishing Company (f/k/a Taylor Publishing Company of Delaware) 3.13 Certificate of Limited Partnership of Taylor Production Services Company, L.P. 3.14 Taylor Production Services Company, L.P. Limited Partnership Agreement 3.15 Articles of Incorporation of Educational Communications, Inc. with all amendments (f/k/a Merit Publishing Company) 3.16 By-Laws of Educational Communications, Inc. 4.1 Indenture, dated as of February 20, 2002, among American Achievement Corporation, The Bank of New York, as Trustee, and the Guarantors 4.2 Form of 11 5/8 Senior Notes due 2007 (included in Exhibit 4.1) 4.3 Registration Rights Agreement, dated as of February 20, 2002, among American Achievement Corporation, the Guarantors and the Initial Purchasers 4.4 Form of Guarantee (included in Exhibit 4.1) 4.5 Form of Indenture dated as of December 16, 1996 between Commemorative Brands, Inc. and HSBC Bank USA (f/k/a Marine Midland Bank) 4.6 Form of First Supplemental Indenture, dated as of July 21, 2000, between Commemorative Brands, Inc. and HSBC Bank USA (f/k/a Marine Midland Bank) 5.1* Opinion of Schulte Roth & Zabel LLP 5.2* Opinion of Schwartz Cooper Greenberger Krauss, Chartered 10.1 Credit Agreement, dated as of February 20, 2002, among American Achievement Corporation, as the Borrower, the Lenders party thereto and The Bank of Nova Scotia, as the Administrative Agent for the Lenders 10.2 Gold Consignment Agreement dated July 27, 2000 between Commemorative Brands, Inc. and The Bank of Nova Scotia
EXHIBIT NUMBER DESCRIPTION - --------------------- ------------------------------------------------------------ 10.3 Subsidiary Pledge and Security Agreement, dated as of February 20, 2002, made by American Achievement Corporation in favor of The Bank of Nova Scotia, as administrative agent for each of the Secured Parties (as defined therein) 10.4 Borrower Pledge and Security Agreement, dated as of February 20, 2002, made by each domestic subsidiary of American Achievement Corporation from time to time party hereto in favor of The Bank of Nova Scotia, as administrative agent for each of the Secured Parties (as defined therein) 10.5 Subsidiary Guaranty, dated as of February 20, 2002, made by each subsidiary of American Achievement Corporation from time to time party hereto in favor of The Bank of Nova Scotia, as administrative agent for each of the Secured Parties (as defined therein) 10.6 Form of The Management Agreement dated as of March 30, 2001 among American Achievement Corporation, its Subsidiaries listed therein and Castle Harlan, Inc. 10.7 Letter Agreement, dated as of October 11, 2000, amended as of November 3, 2000, between Scotiabank and TP Holdings Corp., regarding (i) USD 27,500,000.00MM Interest Rate Swap Transaction (Ref: S24041) and (ii) USD 25,000,000.00MM Interest Rate Swap Transaction (Ref: S24042) 10.8 Employment Agreement, dated as of July 13, 1999 by and between Commemorative Brands, Inc. and David G. Fiore 10.9 First Amendment to the Employment Agreement by and between Commemorative Brands, Inc. and David G. Fiore dated February 1, 2002 10.10 Employment Agreement, dated as of December 16, 1996 by and between Commemorative Brands, Inc. and Sherice P. Bench, as amended 10.11 Employment Agreement, dated as of December 16, 1996 by and between Commemorative Brands, Inc. and Donald J. Percenti 10.12 Employment Agreement, dated as of December 16, 1996 by and between Commemorative Brands, Inc. and Charlyn A. Cook 10.13 American Achievement Corporation 2000 Stock Option Plan (f/k/a Commemorative Brands Holding Corp. 2000 Stock Option Plan) 12.1 Statement regarding Computation of Ratios of Earnings to Fixed Charges of American Achievement Corporation 21 Subsidiaries of American Achievement Corporation 23.1 Consent of Arthur Andersen LLP 23.2 Consent of KPMG LLP 23.3 Consent of Altschuler, Melvoin and Glasser 23.4* Consent of Schulte Roth & Zabel LLP (incorporated by reference in Exhibit 5.1) 23.5* Consent of Schwartz Cooper Greenberger Krauss, Chartered (incorporated by reference in Exhibit 5.2) 24 Power of Attorney (included on Signature Page of initial filing) 25 Statement of Eligibility and Qualification on Form T-1 of The Bank of New York, as Trustee 99.1* Form of Letter of Transmittal 99.2* Form of Notice of Guaranteed Delivery for Outstanding 11 5/8% Senior Notes due 2007, Series A, in exchange for 11 5/8% Senior Notes due 2007, Series B
- --------- * To be filed by amendment EX-1.1 3 a2071988zex-1_1.txt EXHIBIT 1.1 EXHIBIT 1.1 PURCHASE AGREEMENT, DATED AS OF FEBRUARY 14, 2002, AMONG AMERICAN ACHIEVEMENT CORPORATION, THE GUARANTORS AND THE INITIAL PURCHASERS -2- AMERICAN ACHIEVEMENT CORPORATION $ 177,000,000 11-5/8% SENIOR NOTES DUE 2007 PURCHASE AGREEMENT February 14, 2002 DEUTSCHE BANC ALEX. BROWN INC. GOLDMAN, SACHS & CO. SCOTIA CAPITAL (USA) INC. c/o Deutsche Banc Alex. Brown Inc. 31 West 52nd Street New York, New York 10019 Ladies and Gentlemen: American Achievement Corporation, a Delaware corporation (the "COMPANY"), and the Company's subsidiaries listed on the signature pages hereof (collectively, and together with any subsidiary that in the future executes a supplemental indenture pursuant to which such subsidiary agrees to guarantee the Notes (as defined below), the "SUBSIDIARY GUARANTORS") hereby confirm their agreement with you (the "INITIAL PURCHASERS"), as set forth below. I.1. THE SECURITIES. Subject to the terms and conditions herein contained, the Company proposes to issue and sell to the Initial Purchasers $177,000,000 aggregate principal amount of its 11-5/8% Senior Notes due 2007, Series A (the "NOTES"). The Notes will be unconditionally guaranteed (collectively the "GUARANTEES") on a senior basis by each of the Subsidiary Guarantors. The Notes and the Guarantees are collectively referred to herein as the "SECURITIES." The Securities are to be issued under an indenture (the "INDENTURE") to be dated as of February 20, 2002 by and among the Company, the Subsidiary Guarantors and The Bank of New York, as Trustee (the "TRUSTEE"). The Securities will be offered and sold to the Initial Purchasers without being registered under the Securities Act of 1933, as amended (the "ACT"), in reliance on exemptions therefrom. In connection with the sale of the Securities, the Company has prepared a preliminary offering memorandum dated January 31, 2002 (the "PRELIMINARY MEMORANDUM") -3- and a final offering memorandum dated February 14, 2002 (the "FINAL MEMORANDUM"; the Preliminary Memorandum and the Final Memorandum each herein being referred to as a "MEMORANDUM") setting forth or including a description of the terms of the Notes, the terms of the offering of the Securities, a description of the Company and its subsidiaries and any material developments relating to the Company and its subsidiaries occurring after the date of the most recent historical financial statements included therein. The Initial Purchasers and their direct and indirect transferees of the Securities will be entitled to the benefits of the Registration Rights Agreement, substantially in the form attached hereto as EXHIBIT A (the "REGISTRATION RIGHTS AGREEMENT"), pursuant to which the Company and the Subsidiary Guarantors have agreed, among other things, to file a registration statement (the "REGISTRATION STATEMENT") with the Securities and Exchange Commission (the "COMMISSION") registering the Notes or the Exchange Notes (as defined in the Registration Rights Agreement) under the Act. Concurrently with the offering of the Notes, the Company and the Subsidiary Guarantors will enter into a credit agreement (the "CREDIT AGREEMENT") with The Bank of Nova Scotia, as administrative agent, and certain lenders thereto whereby the Company will have available a $40 million revolving credit facility. II.2. REPRESENTATIONS AND WARRANTIES. The Company and each of the Subsidiary Guarantors, jointly and severally, represent to and warrant to and agree with each of the Initial Purchasers that: (a) Neither the Preliminary Memorandum as of the date thereof nor the Final Memorandum nor any amendment or supplement thereto as of the date thereof and at all times subsequent thereto up to the Closing Date (as defined in Section 3 below) contained or contains any untrue statement of a material fact or omitted or omits to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, except that the representations and warranties set forth in this Section 2(a) do not apply to statements or omissions made in reliance upon and in conformity with information relating to any of the Initial Purchasers furnished to the Company in writing by the Initial Purchasers expressly for use in the Preliminary Memorandum, the Final Memorandum or any amendment or supplement thereto. (b) As of the Closing Date the Company will have the authorized, issued and outstanding capitalization set forth in the Final Memorandum; all of the subsidiaries of the Company are listed in SCHEDULE 2 attached hereto (each, a "SUBSIDIARY" and collectively, the "SUBSIDIARIES"); all of the outstanding shares of capital stock of the Company and the Subsidiaries have been, and as of the Closing Date will be, duly authorized and validly issued, are fully paid and nonassessable and were not issued in -4- violation of any preemptive or similar rights; as of the Closing Date, all of the outstanding shares of capital stock of the Company and of each of the Subsidiaries will be free and clear of all liens, encumbrances, equities and claims or restrictions on transferability (other than those imposed by the Act and the securities or "Blue Sky" laws of certain jurisdictions and those imposed by the Credit Agreement) or voting; except as set forth in the Final Memorandum, there are no (i) options, warrants or other rights to purchase, (ii) agreements or other obligations to issue or (iii) other rights to convert any obligation into, or exchange any securities for, shares of capital stock of or ownership interests in the Company or any of the Subsidiaries outstanding. Except for the Subsidiaries or as disclosed in the Final Memorandum, the Company does not own, directly or indirectly, any shares of capital stock or any other equity or long-term debt securities or have any equity interest in any firm, partnership, joint venture or other entity. (c) Each of the Company and the Subsidiary Guarantors is duly incorporated or formed, as the case may be, validly existing and in good standing under the laws of its respective jurisdiction of incorporation or formation and has all requisite corporate and/or other requisite power and authority to own its properties and conduct its business as now conducted and as described in the Final Memorandum; each of the Company and the Subsidiaries is duly qualified to do business as a foreign corporation or partnership in good standing in all other jurisdictions where the ownership or leasing of its properties or the conduct of its business requires such qualification, except where the failure to be so qualified would not, individually or in the aggregate, have a material adverse effect on the business, condition (financial or otherwise), prospects or results of operations of the Company and the Subsidiaries, taken as a whole (any such event, a "MATERIAL ADVERSE EFFECT"). (d) The Company has all requisite corporate power and authority to execute, deliver and perform each of its obligations under the Notes, the Exchange Notes and the Private Exchange Notes (as defined in the Registration Rights Agreement). The Notes, when issued, will be in the form contemplated by the Indenture. The Notes, the Exchange Notes and the Private Exchange Notes have each been duly and validly authorized by the Company and the Subsidiary Guarantors and, when executed by the Company and authenticated by the Trustee in accordance with the provisions of the Indenture and, in the case of the Notes, when delivered to and paid for by the Initial Purchasers in accordance with the terms of this Agreement, will constitute valid and legally binding obligations of the Company, entitled to the benefits of the Indenture, and enforceable against the Company in accordance with their terms, except that the enforcement thereof may be subject to (i) bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or other similar laws now or hereafter in effect -5- relating to creditors' rights generally, and (ii) general principles of equity and the discretion of the court before which any proceeding therefor may be brought. (e) Each of the Subsidiary Guarantors has all requisite corporate and/or other requisite power and authority to execute, deliver and perform each of its obligations under the Guarantees and the guarantees of the Exchange Notes and the Private Exchange Notes. The Guarantees, when issued, will be in the form contemplated by the Indenture. The Guarantees and the guarantees of the Exchange Notes and the Private Exchange Notes have been duly and validly authorized by each of the Subsidiary Guarantors and, when executed by each of the Subsidiary Guarantors (and when the Note, the Exchange Notes or the Private Exchange Notes, as the case may be, are authenticated by the Trustee in accordance with the provisions of the Indenture), will have been duly executed, issued and delivered and will constitute valid and legally binding obligations of the Subsidiary Guarantors, entitled to the benefits of the Indenture and enforceable against the Subsidiary Guarantors in accordance with their terms, except that the enforcement thereof may be subject to (i) bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or other similar laws now or hereafter in effect relating to creditors' rights generally, and (ii) general principles of equity and the discretion of the court before which any proceeding therefor may be brought. (f) Each of the Company and the Subsidiary Guarantors has all requisite corporate and/or other requisite power and authority to execute, deliver and perform its obligations under the Indenture. The Indenture meets the requirements for qualification under the Trust Indenture Act of 1939, as amended (the "TIA"). The Indenture has been duly and validly authorized by the Company and each of the Subsidiary Guarantors and, when executed and delivered by the Company and the Subsidiary Guarantors (assuming the due authorization, execution and delivery by the Trustee), will constitute a valid and legally binding agreement of the Company and each of the Subsidiary Guarantors, enforceable against the Company and the Subsidiary Guarantors in accordance with its terms, except that the enforcement thereof may be subject to (i) bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or other similar laws now or hereafter in effect relating to creditors' rights generally and (ii) general principles of equity and the discretion of the court before which any proceeding therefor may be brought. (g) Each of the Company and the Subsidiary Guarantors has all requisite corporate power and authority to execute, deliver and perform its obligations under the Registration Rights Agreement. The Registration Rights Agreement has been duly and validly authorized by the Company and each of the Subsidiary Guarantors and, when executed and delivered by the Company and each of the Subsidiary Guarantors -6- (assuming the due authorization, execution and delivery by the Initial Purchasers), will constitute a valid and legally binding agreement of the Company enforceable against the Company and each of the Subsidiary Guarantors in accordance with its terms, except that (A) the enforcement thereof may be subject to (i) bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or other similar laws now or hereafter in effect relating to creditors' rights generally, and (ii) general principles of equity and the discretion of the court before which any proceeding therefor may be brought and (B) any rights to indemnity or contribution thereunder may be limited by federal and state securities laws and public policy considerations. (h) The Credit Agreement has been duly authorized by the Company and each of the Subsidiary Guarantors and, on the Closing Date, will have been duly executed and delivered by the Company and each of the Subsidiary Guarantors. When the Credit Agreement has been duly executed and delivered, the Credit Agreement will be a valid and binding agreement of the Company and each of the Subsidiary Guarantors, enforceable against the Company and each Subsidiary Guarantor in accordance with its terms except that (A) the enforcement thereof may be subject to (i) bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or other similar laws now or hereafter in effect relating to creditors' rights generally, and (ii) general principles of equity and the discretion of the court before which any proceeding therefor may be brought and (B) any rights to indemnity or contribution thereunder may be limited by federal and state securities laws and public policy considerations. (i) Each of the Company and the Subsidiary Guarantors has all requisite corporate and/or other requisite power and authority to execute, deliver and perform its obligations under this Agreement and to consummate the transactions contemplated hereby. This Agreement and the consummation by the Company and each of the Subsidiary Guarantors of the transactions contemplated hereby have been duly and validly authorized by the Company and each of the Subsidiary Guarantors. This Agreement has been duly executed and delivered by the Company and each of the Subsidiary Guarantors. (j) Assuming the accuracy of the representations and warranties of the Initial Purchasers and compliance by the Initial Purchasers with the covenants set forth in Section 8 hereof, no consent, approval, authorization or order of any court or governmental agency or body, or third party is required for the issuance and sale by the Company of the Securities to the Initial Purchasers or the consummation by the Company and the Subsidiary Guarantors of the other transactions contemplated hereby, except such as have been obtained and such as may be required under state securities or "Blue Sky" laws in connection with the purchase and resale of the Securities by the Initial Purchasers. None of the Company or the Subsidiaries is (i) in -7- violation of its certificate of incorporation or bylaws (or similar organizational documents), (ii) in breach or violation of any statute, judgment, decree, order, rule or regulation applicable to any of them or any of their respective properties or assets, except for any such breach or violation that would not, individually or in the aggregate, have a Material Adverse Effect, or (iii) in breach of or default under (nor has any event occurred that, with notice or passage of time or both, would constitute a default under) or in violation of any of the terms or provisions of any indenture, mortgage, deed of trust, loan agreement, note, lease, license, franchise agreement, permit, certificate, contract or other agreement or instrument to which any of them is a party or to which any of them or their respective properties or assets is subject (collectively, "CONTRACTS"), except for any such breach, default, violation or event that would not, individually or in the aggregate, have a Material Adverse Effect. (k) The execution, delivery and performance by the Company and the Subsidiary Guarantors of this Agreement, the Indenture and the Registration Rights Agreement and the consummation by the Company and the Subsidiary Guarantors of the transactions contemplated hereby and thereby (including, without limitation, the issuance and sale of the Securities to the Initial Purchasers) will not conflict with or constitute or result in a breach of or a default under (or an event that with notice or passage of time or both would constitute a default under) or violation of any of (i) the terms or provisions of any Contract, except for any such conflict, breach, violation, default or event that would not, individually or in the aggregate, have a Material Adverse Effect, (ii) the certificate of incorporation or bylaws (or similar organizational document) of the Company or any of the Subsidiaries or (iii) (assuming compliance with all applicable state securities or "Blue Sky" laws and assuming the accuracy of the representations and warranties of the Initial Purchasers in Section 8 hereof) any statute, judgment, decree, order, rule or regulation applicable to the Company or any of the Subsidiaries or any of their respective properties or assets, except for any such conflict, breach or violation that would not, individually or in the aggregate, have a Material Adverse Effect. (l) The audited consolidated financial statements of the Company and the Subsidiaries included in the Final Memorandum present fairly in all material respects the financial position, results of operations and cash flows of the Company and the Subsidiaries at the dates and for the periods to which they relate and have been prepared in accordance with generally accepted accounting principles applied on a consistent basis, except as otherwise stated therein. The summary and selected financial and statistical data in the Final Memorandum present fairly in all material respects the information shown therein and have been prepared and compiled on a basis consistent with the audited financial statements included therein, except as otherwise stated therein. Arthur Andersen LLP, KPMG LLP and Altschuler, Melvoin -8- and Glasser LLP (the "INDEPENDENT ACCOUNTANTS") are independent public accounting firms within the meaning of the Act and the rules and regulations promulgated thereunder. (m) The pro forma financial statements (including the notes thereto) and the other pro forma financial information included in the Final Memorandum (i) comply as to form in all material respects with the applicable requirements of Regulation S-X promulgated under the Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT"), (ii) have been prepared in accordance with the Commission's rules and guidelines with respect to pro forma financial statements and (iii) have been properly computed on the bases described therein; the assumptions used in the preparation of the pro forma financial data and other pro forma financial information included in the Final Memorandum are reasonable and the adjustments used therein are appropriate to give effect to the transactions or circumstances referred to therein. (n) There is not pending or, to the knowledge of the Company or any of the Subsidiaries, threatened any action, suit, proceeding, inquiry or investigation to which the Company or any of the Subsidiaries is a party, or to which the property or assets of the Company or any of the Subsidiaries are subject, before or brought by any court, arbitrator or governmental agency or body that, if determined adversely to the Company or any of the Subsidiaries, would reasonably be expected, individually or in the aggregate, to have a Material Adverse Effect or that seeks to restrain, enjoin, prevent the consummation of or otherwise challenge the issuance or sale of the Securities to be sold hereunder or the consummation of the other transactions described in the Final Memorandum. (o) Each of the Company and the Subsidiaries possesses all licenses, permits, certificates, consents, orders, approvals and other authorizations from, and has made all declarations and filings with, all federal, state, local and other governmental authorities, all self-regulatory organizations and all courts and other tribunals, presently required or necessary to own or lease, as the case may be, and to operate its respective properties and to carry on its respective businesses as now or proposed to be conducted as set forth in the Final Memorandum ("PERMITS"), except where the failure to obtain such Permits would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect; each of the Company and the Subsidiaries has fulfilled and performed all of its obligations with respect to such Permits and no event has occurred that allows, or after notice or lapse of time would allow, revocation or termination thereof or results in any other impairment of the rights of the holder of any such Permit, except where any nonfulfillment or nonperformance would not have a Material Adverse Effect; and none of the Company or the Subsidiaries has received any notice of any proceeding relating to revocation or -9- modification of any such Permit, except (i) as described in the Final Memorandum and (ii) where such revocation or modification would not, individually or in the aggregate, have a Material Adverse Effect. (p) Since the date of the most recent financial statements appearing in the Final Memorandum, except as described therein, (i) none of the Company or the Subsidiaries has incurred any liabilities or obligations, direct or contingent, or entered into or agreed to enter into any transactions or contracts (written or oral) not in the ordinary course of business, which liabilities, obligations, transactions or contracts would, individually or in the aggregate, be material to the business, condition (financial or otherwise), prospects or results of operations of the Companies and its Subsidiaries, taken as a whole, (ii) none of the Company or the Subsidiaries has purchased any of its outstanding capital stock, nor declared, paid or otherwise made any dividend or distribution of any kind on its capital stock (other than with respect to any of such Subsidiaries, the purchase of, or dividend or distribution on, capital stock owned by the Company), (iii) there has been no material change in the capital stock or long-term indebtedness of the Company or the Subsidiaries taken as a whole and (iv) there has been no event, development or occurrence that, individually or in the aggregate, has or would be reasonably likely to have a Material Adverse Effect. (q) Each of the Company and the Subsidiaries has filed all necessary federal, state and foreign income and franchise tax returns, except where the failure to so file such returns would not, individually or in the aggregate, have a Material Adverse Effect, and has paid all taxes shown as due thereon; and other than tax deficiencies that the Company or any Subsidiary is contesting in good faith and for which the Company or such Subsidiary has provided adequate reserves, there is no tax deficiency that has been asserted against the Company or any of the Subsidiaries that would have, individually or in the aggregate, a Material Adverse Effect. (r) The statistical and market-related data included in the Final Memorandum are based on or derived from sources that the Company and the Subsidiaries believe to be reliable and accurate. (s) None of the Company, the Subsidiaries or any agent acting on their behalf has taken or will take any action that might cause this Agreement or the sale of the Securities to violate Regulation T, U or X of the Board of Governors of the Federal Reserve System, in each case as in effect, or as the same may hereafter be in effect, on the Closing Date. (t) Each of the Company and the Subsidiaries has good and marketable title to all real property and good title to all personal property described in the Final Memorandum as being owned by it and good and marketable title to a leasehold estate -10- in the real and personal property described in the Final Memorandum as being leased by it free and clear of all liens, charges, encumbrances or restrictions, except as described in the Final Memorandum or to the extent the failure to have such title or the existence of such liens, charges, encumbrances or restrictions would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. All leases, contracts and agreements to which the Company or any of the Subsidiaries is a party or by which any of them is bound are valid and enforceable against the Company or such Subsidiary, and are valid and enforceable against the other party or parties thereto and are in full force and effect with only such exceptions as would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. The Company and the Subsidiaries own or possess adequate licenses or other rights to use all patents, trademarks, service marks, trade names, copyrights and know-how necessary to conduct the businesses now or proposed to be operated by them as described in the Final Memorandum, and none of the Company or the Subsidiaries has received any notice of infringement of or conflict with (or knows of any such infringement except where the failure to so own or possess any of the foregoing would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect of or conflict with) asserted rights of others with respect to any patents, trademarks, service marks, trade names, copyrights or know-how that, if such assertion of infringement or conflict were sustained, would reasonably be expected to have a Material Adverse Effect. (u) There are no legal or governmental proceedings involving or affecting the Company or any Subsidiary or any of their respective properties or assets that would be required to be described in a prospectus pursuant to the Act that are not described in the Final Memorandum, nor are there any material contracts or other documents that would be required to be described in a prospectus pursuant to the Act that are not described in the Final Memorandum. (v) Except as set forth in the Final Memorandum or except as would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect (A) each of the Company and the Subsidiaries is in compliance with and not subject to liability under applicable Environmental Laws (as defined below), (B) each of the Company and the Subsidiaries has made all filings and provided all notices required under any applicable Environmental Law, and has and is in compliance with all Permits required under any applicable Environmental Laws and each of them is in full force and effect, (C) there is no civil, criminal or administrative action, suit, demand, claim, hearing, notice of violation, investigation, proceeding, notice or demand letter or request for information pending or, to the knowledge of the Company or any of the Subsidiaries, threatened against the Company or any of the Subsidiaries under any Environmental Law, (D) no lien, charge, encumbrance or restriction has -11- been recorded under any Environmental Law with respect to any assets, facility or property owned, operated, leased or controlled by the Company or any of the Subsidiaries, (E) none of the Company or the Subsidiaries has received notice that it has been identified as a potentially responsible party under the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended ("CERCLA"), or any comparable state law and (F) no property or facility of the Company or any of the Subsidiaries is (i) listed or proposed for listing on the National Priorities List under CERCLA or is (ii) listed in the Comprehensive Environmental Response, Compensation, Liability Information System List promulgated pursuant to CERCLA, or on any comparable list maintained by any state or local governmental authority. For purposes of this Agreement, "ENVIRONMENTAL LAWS" means the common law and all applicable federal, state and local laws or regulations, codes, orders, decrees, judgments or injunctions issued, promulgated, approved or entered thereunder, relating to pollution or protection of public or employee health and safety or the environment, including, without limitation, laws relating to (i) emissions, discharges, releases or threatened releases of hazardous materials into the environment (including, without limitation, ambient air, surface water, ground water, land surface or subsurface strata), (ii) the manufacture, processing, distribution, use, generation, treatment, storage, disposal, transport or handling of hazardous materials, and (iii) underground and above ground storage tanks and related piping, and emissions, discharges, releases or threatened releases therefrom. (w) There is no strike, labor dispute, slowdown or work stoppage with the employees of the Company or any of the Subsidiaries that is pending or, to the knowledge of the Company or any of the Subsidiaries, threatened. (x) Each of the Company and the Subsidiaries carries insurance in such amounts and covering such risks as is consistent with industry practice to protect the Company and its Subsidiaries and their respective businesses. (y) None of the Company or the Subsidiaries has any liability for any prohibited transaction or funding deficiency or any complete or partial withdrawal liability with respect to any pension, profit sharing or other plan that is subject to the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), to which the Company or any of the Subsidiaries makes (or within the preceding six years has made) a contribution and in which any employee of the Company or of any Subsidiary is or has ever been a participant. With respect to such plans, the Company and each Subsidiary is in compliance in all material respects with all applicable provisions of ERISA. -12- (z) Each of the Company and the Subsidiaries (i) makes and keeps accurate books and records and (ii) maintains internal accounting controls that provide reasonable assurance that (A) transactions are executed in accordance with management's authorization, (B) transactions are recorded as necessary to permit preparation of its financial statements and to maintain accountability for its assets, (C) access to its assets is permitted only in accordance with management's authorization and (D) the reported accountability for its assets is compared with existing assets at reasonable intervals. (aa) None of the Company or the Subsidiaries is, or immediately after the sale of the Notes to be sold hereunder and the application of the proceeds from such sale (as described in the Final Memorandum under the caption "Use of Proceeds") will be, an "investment company" or "promoter" or "principal underwriter" for an "investment company," as such terms are defined in the Investment Company Act of 1940, as amended, and the rules and regulations thereunder. (bb) The Notes, the Guarantees, the Indenture, the Credit Agreement and the Registration Rights Agreement will conform in all material respects to the descriptions thereof in the Final Memorandum. (cc) No holder of securities of the Company or any Subsidiary will be entitled to have such securities registered under the registration statements required to be filed by the Company and the Subsidiary Guarantors pursuant to the Registration Rights Agreement other than as expressly permitted thereby. (dd) Immediately after the consummation of the transactions contemplated by this Agreement, the fair value and present fair saleable value of the assets of each of the Company and the Subsidiaries (on a consolidated basis) will exceed the sum of its stated liabilities and identified contingent liabilities; none of the Company or the Subsidiaries (each on a consolidated basis) is, nor will any of the Company or the Subsidiaries (each on a consolidated basis) be, after giving effect to the execution, delivery and performance of this Agreement, and the consummation of the transactions contemplated hereby, (a) left with unreasonably small capital with which to carry on its business as it is proposed to be conducted, (b) unable to pay its debts (contingent or otherwise) as they mature or (c) otherwise insolvent. (ee) None of the Company, the Subsidiaries or any of their respective Affiliates (as defined in Rule 501(b) of Regulation D under the Act) has directly, or through any agent, (i) sold, offered for sale, solicited offers to buy or otherwise negotiated in respect of, any "security" (as defined in the Act) that is or could be integrated with the sale of the Securities in a manner that would require the registration under the Act of the Securities or (ii) engaged in any form of general -13- solicitation or general advertising (as those terms are used in Regulation D under the Act) in connection with the offering of the Securities or in any manner involving a public offering within the meaning of Section 4(2) of the Act. Assuming the accuracy of the representations and warranties of the Initial Purchasers and compliance by the Initial Purchasers with the covenants set forth in Section 8 hereof, it is not necessary in connection with the offer, sale and delivery of the Securities to the Initial Purchasers in the manner contemplated by this Agreement to register any of the Securities under the Act or to qualify the Indenture under the TIA. (ff) No securities of the Company or any Subsidiary are of the same class (within the meaning of Rule 144A under the Act) as the Securities and listed on a national securities exchange registered under Section 6 of the Exchange Act, or quoted in a U.S. automated inter-dealer quotation system. (gg) None of the Company or the Subsidiaries has taken, nor will any of them take, directly or indirectly, any action designed to, or that might be reasonably expected to, cause or result in stabilization or manipulation of the price of the Securities. (hh) None of the Company, the Subsidiaries, any of their respective Affiliates or any person acting on its or their behalf (other than the Initial Purchasers) has engaged in any directed selling efforts (as that term is defined in Regulation S under the Act ("REGULATION S")) with respect to the Securities; the Company, the Subsidiaries and their respective Affiliates and any person acting on its or their behalf (other than the Initial Purchasers) have complied with the offering restrictions requirement of Regulation S. Any certificate signed by any officer of the Company or any Subsidiary and delivered to any Initial Purchaser or to counsel for the Initial Purchasers shall be deemed a joint and several representation and warranty by the Company and each of the Subsidiaries to each Initial Purchaser as to the matters covered thereby. III.3. PURCHASE, SALE AND DELIVERY OF THE SECURITIES. On the basis of the representations, warranties, agreements and covenants herein contained and subject to the terms and conditions herein set forth, the Company agrees to issue and sell to the Initial Purchasers, and the Initial Purchasers, acting severally and not jointly, agree to purchase the Securities in the respective amounts set forth on SCHEDULE 1 hereto from the Company at 96.128% of their principal amount. One or more certificates in definitive form for the Securities that the Initial Purchasers have agreed to purchase hereunder, and in such denomination or denominations and registered in such name or names as the Initial Purchasers request upon notice to the Company at least 36 hours prior to the Closing Date, shall be delivered by or on behalf of the Company to the Initial Purchasers, against payment by or on behalf of the Initial Purchasers -14- of the purchase price therefor by wire transfer (same day funds), to such account or accounts as the Company shall specify prior to the Closing Date, or by such means as the parties hereto shall agree prior to the Closing Date. Such delivery of and payment for the Securities shall be made at the offices of Cahill Gordon & Reindel, 80 Pine Street, New York, New York at 10:00 A.M., New York time, on February 20, 2002, or at such other place, time or date as the Initial Purchasers, on the one hand, and the Company, on the other hand, may agree upon, such time and date of delivery against payment being herein referred to as the "CLOSING DATE." The Company will make such certificate or certificates for the Securities available for checking and packaging by the Initial Purchasers at the offices of Deutsche Banc Alex. Brown Inc. in New York, New York, or at such other place as Deutsche Banc Alex. Brown Inc. may designate, at least 24 hours prior to the Closing Date. IV.4. OFFERING BY THE INITIAL PURCHASERS. The Initial Purchasers propose to make an offering of the Securities at the price and upon the terms set forth in the Final Memorandum as soon as practicable after this Agreement is entered into and as in the judgment of the Initial Purchasers is advisable. V.5. COVENANTS OF THE COMPANY AND THE SUBSIDIARY GUARANTORS. The Company and each of the Subsidiary Guarantors covenants and agrees with each of the Initial Purchasers that: (a) The Company will not amend or supplement the Final Memorandum or any amendment or supplement thereto of which the Initial Purchasers shall not previously have been advised and furnished a copy for a reasonable period of time prior to the proposed amendment or supplement and as to which the Initial Purchasers shall not have given their consent. The Company will promptly, upon the reasonable request of the Initial Purchasers or counsel for the Initial Purchasers, make any amendments or supplements to the Preliminary Memorandum or the Final Memorandum that may be necessary or advisable in connection with the resale of the Securities by the Initial Purchasers. (b) The Company and the Subsidiary Guarantors will cooperate with the Initial Purchasers in arranging for the qualification of the Securities for offering and sale under the securities or "Blue Sky" laws of such jurisdictions as the Initial Purchasers may designate and will continue such qualifications in effect for as long as may be necessary to complete the resale of the Securities; PROVIDED, HOWEVER, that in connection therewith, neither the Company nor the Subsidiary Guarantors shall be required to qualify as a foreign corporation or to execute a general consent to service of process in any jurisdiction or subject itself to taxation in excess of $1,000 in any such jurisdiction where it is not then so subject. (c) If, at any time prior to the completion of the distribution by the Initial Purchasers of all of the Securities or the Private Exchange Notes, any event occurs or -15- information becomes known as a result of which the Final Memorandum as then amended or supplemented would include any untrue statement of a material fact, or omit to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, or if for any other reason it is necessary at any time to amend or supplement the Final Memorandum to comply with applicable law, the Company will promptly notify the Initial Purchasers thereof and will prepare, at the expense of the Company, an amendment or supplement to the Final Memorandum that corrects such statement or omission or effects such compliance. (d) The Company will, without charge, promptly provide to the Initial Purchasers and to counsel for the Initial Purchasers as many copies of the Preliminary Memorandum and the Final Memorandum or any amendment or supplement thereto as the Initial Purchasers may reasonably request. (e) The Company will apply the net proceeds from the sale of the Securities as set forth under "Use of Proceeds" in the Final Memorandum. (f) Until the second anniversary of the Closing Date, the Company will furnish to the Initial Purchasers copies of all reports and other communications (financial or otherwise) furnished by the Company to the Trustee or to the holders of the Securities and, as soon as available, copies of any reports or financial statements furnished to or filed by the Company with the Commission or any national securities exchange on which any class of securities of the Company may be listed. (g) Prior to the Closing Date, the Company will furnish to the Initial Purchasers, as soon as they have been prepared, a copy of any unaudited interim financial statements of the Company and the Subsidiaries for any period subsequent to the period covered by the most recent financial statements appearing in the Final Memorandum. (h) None of the Company, the Subsidiaries or any of their Affiliates will sell, offer for sale or solicit offers to buy or otherwise negotiate in respect of any "security" (as defined in the Act) that could be integrated with the sale of the Securities in a manner which would require the registration under the Act of the Securities. (i) The Company will not, and will not permit any of the Subsidiaries to, engage in any form of general solicitation or general advertising (as those terms are used in Regulation D under the Act) in connection with the offering of the Securities or in any manner involving a public offering within the meaning of Section 4(2) of the Act. -16- (j) For so long as any of the Securities remain outstanding, the Company will make available at its expense, upon request, to any holder of such Securities and any prospective purchasers thereof the information specified in Rule 144A(d)(4) under the Act, unless the Company is then subject to Section 13 or 15(d) of the Exchange Act. (k) The Company will use its best efforts to (i) permit the Securities to be designated as PORTAL-eligible securities in accordance with the rules and regulations adopted by the National Association of Securities Dealers, Inc. ("NASD") relating to trading in the NASD's Portal Market (the "PORTAL MARKET") and (ii) permit the Securities to be eligible for clearance and settlement through The Depository Trust Company. (l) In connection with Securities offered and sold in an offshore transaction (as defined in Regulation S) the Company will not register any transfer of such Securities not made in accordance with the provisions of Regulation S and will not, except in accordance with the provisions of Regulation S, if applicable, issue any such Securities in the form of definitive securities. VI.6. EXPENSES. The Company and each of the Subsidiary Guarantors, jointly and severally, agree to pay all costs and expenses incident to the performance of its obligations under this Agreement, whether or not the transactions contemplated herein are consummated or this Agreement is terminated pursuant to Section 11 or 12 hereof, including all costs and expenses incident to (i) the printing, word processing or other production of documents with respect to the transactions contemplated hereby, including any costs of printing the Preliminary Memorandum and the Final Memorandum and any amendment or supplement thereto, and any "Blue Sky" memoranda, (ii) all arrangements relating to the delivery to the Initial Purchasers of copies of the foregoing documents, (iii) the fees and disbursements of the counsel, the accountants and any other experts or advisors retained by the Company, (iv) preparation (including printing), issuance and delivery to the Initial Purchasers of the Securities, (v) the qualification of the Securities under state securities and "Blue Sky" laws, including filing fees and reasonable fees and disbursements of counsel for the Initial Purchasers relating thereto, (vi) expenses in connection with the "roadshow" and any other meetings with prospective investors in the Securities, (vii) fees and expenses of the Trustee including fees and expenses of counsel, (viii) all expenses and listing fees incurred in connection with the application for quotation of the Securities on the PORTAL Market and (ix) any fees charged by investment rating agencies for the rating of the Securities; provided, however, that except as expressly provided in this Section 6, the Initial Purchasers shall pay their own costs and expenses, including the costs and expenses of their counsel. If the sale of the Securities provided for herein is not consummated because any condition to the obligations of the Initial Purchasers set forth in Section 7 hereof is not satisfied, because this Agreement is terminated or because of any failure, refusal or inability on the part of the -17- Company to perform all obligations and satisfy all conditions on their part to be performed or satisfied hereunder (other than solely by reason of a default by the Initial Purchasers of their obligations hereunder after all conditions to be satisfied by the Company and the Guarantors hereunder have been satisfied in accordance herewith), the Company and the Subsidiary Guarantors, jointly and severally, agree to promptly reimburse the Initial Purchasers upon demand for all out-of-pocket expenses (including reasonable fees, disbursements and charges of Cahill Gordon & Reindel, counsel for the Initial Purchasers) that shall have been incurred by the Initial Purchasers in connection with the proposed purchase and sale of the Securities. VII.7. CONDITIONS OF THE INITIAL PURCHASERS' OBLIGATIONS. The obligation of the Initial Purchasers to purchase and pay for the Securities, shall, in their sole discretion, be subject to the satisfaction or waiver of the following conditions on or prior to the Closing Date: (a) On the Closing Date, the Initial Purchasers shall have received the opinion, dated as of the Closing Date and addressed to the Initial Purchasers, of Schulte Roth & Zabel LLP, counsel for the Company, in form and substance reasonably satisfactory to counsel for the Initial Purchasers, substantially to the effect that: (i) Each of the Company and the Subsidiary Guarantors, (other than Educational Communications Inc. ("ECI")), is validly existing and in good standing under the laws of the State of Delaware and has the corporate and/or other requisite power and authority to own its properties and to conduct its business as described in the Final Memorandum. Each of the Company and the Subsidiary Guarantors is duly qualified to do business as a foreign corporation or partnership, as the case may be, in good standing in all jurisdictions set forth opposite their respective names on a schedule reasonably acceptable to the Initial Purchasers. (ii) The Company has the authorized, issued and outstanding capitalization set forth in the Final Memorandum; all of the outstanding shares of capital stock of the Company and the Subsidiary Guarantors (other than ECI, Taylor Publishing Company and Taylor Production Services, L.P.) have been duly authorized and validly issued, are fully paid and nonassessable and, to the knowledge of such counsel, were not issued in violation of any preemptive or similar rights; except as disclosed in the Final Memorandum, all of the outstanding shares of capital stock of the Subsidiary Guarantors are owned of record, directly or indirectly, by the Company, free and clear of all perfected security interests. (iii) Except as set forth in the Final Memorandum, to the knowledge of such counsel (A) no options, warrants or other rights to purchase from the Company or any Subsidiary Guarantor shares of capital stock or ownership -18- interests in the Company or any Subsidiary Guarantor are outstanding, (B) no agreements or other obligations to issue, or other rights to convert, any obligation into, or exchange any securities for, shares of capital stock or ownership interests in the Company or any Subsidiary Guarantor are outstanding and (C) no holder of securities of the Company or any Subsidiary Guarantor is entitled to have such securities registered under a registration statement filed by the Company pursuant to the Registration Rights Agreement. (iv) Each of the Company and the Subsidiary Guarantors (other than ECI) has all requisite corporate and/or other requisite power and authority to execute, deliver and perform each of its obligations under the Indenture, the Notes, the Exchange Notes and the Private Exchange Notes; the Indenture complies as to form in all material respects with the requirements of the TIA; the Indenture has been duly and validly authorized, executed and delivered by the Company and the Subsidiary Guarantors (other than ECI) and (assuming the due authorization, execution and delivery thereof by the Trustee) constitutes the valid and legally binding agreement of each of the Company and the Subsidiary Guarantors, enforceable against each of the Company and the Subsidiary Guarantors in accordance with its terms, except that the enforcement thereof may be subject to (i) bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or other similar laws now or hereafter in effect relating to creditors' rights generally and (ii) general principles of equity and the discretion of the court before which any proceeding therefor may be brought. (v) The Notes are in the form contemplated by the Indenture. The Notes have each been duly and validly authorized, executed and delivered by the Company, and when paid for by the Initial Purchasers in accordance with the terms of this Agreement (assuming the due authorization, execution and delivery of the Indenture by the Trustee and due authentication and delivery of the Notes by the Trustee in accordance with the Indenture), will constitute the valid and legally binding obligations of the Company, entitled to the benefits of the Indenture, and enforceable against the Company in accordance with their terms, except that the enforcement thereof may be subject to (i) bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or other similar laws now or hereafter in effect relating to creditors' rights generally and (ii) general principles of equity and the discretion of the court before which any proceeding therefor may be brought. -19- (vi) The Exchange Notes and the Private Exchange Notes have been duly and validly authorized by the Company, and when the Exchange Notes and the Private Exchange Notes are duly executed and delivered by the Company in accordance with the terms of the Registration Rights Agreement and the Indenture (assuming the due authorization, execution and delivery of the Indenture by the Trustee and due authentication and delivery of the Exchange Notes and the Private Exchange Notes by the Trustee in accordance with the Indenture), will constitute the valid and legally binding obligations of the Company, entitled to the benefits of the Indenture, and enforceable against the Company in accordance with their terms, except that the enforcement thereof may be subject to (i) bankruptcy, insolvency, reorganization, moratorium or other similar laws now or hereafter in effect relating to creditors' rights generally and (ii) general principles of equity and the discretion of the court before which any proceeding therefor may be brought. (vii) The Guarantees are in the form contemplated by the Indenture. (a) The Guarantees have been duly and validly authorized and executed by each of the Subsidiary Guarantors (other than ECI) and, when the Notes are authenticated by the Trustee in accordance with the provisions of the Indenture, the Guarantees and (b) the guarantees of the Exchange Notes and the Private Exchange Notes have been duly and validly authorized by each of the Subsidiary Guarantors (other than ECI) and when duly executed by each of the Subsidiary Guarantors (and when the Exchange Notes or the Private Exchange Notes, as the case may be, are authenticated by the Trustee in accordance with the provisions of the Indenture), in each case (a) and (b), will have been duly executed, issued and delivered and will constitute valid and legally binding obligations of the Subsidiary Guarantors, entitled to the benefits of the Indenture and enforceable against the Subsidiary Guarantors in accordance with their terms, except that the enforcement thereof may be subject to (i) bankruptcy, insolvency, fraudulent conveyance, reorganization, fraudulent conveyance, moratorium or other similar laws now or hereafter in effect relating to creditors' rights generally, and (ii) general principles of equity and the discretion of the court before which any proceeding therefor may be brought. (viii) Each of the Company and the Subsidiary Guarantors (other than ECI) has all requisite corporate and/or other requisite power and authority to execute, deliver and perform its obligations under the Registration Rights Agreement; the Registration Rights Agreement has been duly and validly authorized, executed and delivered by the Company and the Subsidiary Guarantors (other than ECI) and (assuming due authorization, execution and -20- delivery thereof by the other parties thereto) constitutes the valid and legally binding agreement of the Company and the Subsidiary Guarantors, enforceable against the Company and the Subsidiary Guarantors in accordance with its terms, except that (A) the enforcement thereof may be subject to (i) bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium or other similar laws now or hereafter in effect relating to creditors' rights generally and (ii) general principles of equity and the discretion of the court before which any proceeding therefor may be brought and (B) any rights to indemnity or contribution thereunder may be limited by federal and state securities laws and public policy considerations. (ix) Each of the Company and the Subsidiary Guarantors (other than ECI) has all requisite corporate and/or other requisite power and authority to execute, deliver and perform its obligations under the Credit Agreement; the Credit Agreement has been duly and validly authorized, executed and delivered by the Company and the Subsidiary Guarantors (other than ECI) and (assuming due authorization, execution and delivery thereof by the other parties thereto) constitutes the valid and legally binding agreement of the Company and the Subsidiary Guarantors, enforceable against the Company and the Subsidiary Guarantors in accordance with its terms, except that (A) the enforcement thereof may be subject to (i) bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or other similar laws now or hereafter in effect relating to creditors' rights generally and (ii) general principles of equity and the discretion of the court before which any proceeding therefor may be brought and (B) any rights to indemnity or contribution thereunder may be limited by federal and state securities laws and public policy considerations. (x) Each of the Company and the Subsidiary Guarantors (other than ECI) has all requisite corporate and/or other requisite power and authority to execute, deliver and perform their obligations under this Agreement and to consummate the transactions contemplated hereby; this Agreement and the consummation by the Company and the Subsidiary Guarantors (other than ECI) of the transactions contemplated hereby have been duly and validly authorized by the Company and the Subsidiary Guarantors (other than ECI). This Agreement has been duly executed and delivered by the Company and the Subsidiary Guarantors (other than ECI). (xi) The statements under the captions "Description of Certain Indebtedness," "Description of the Notes," and "Exchange Offer; Registration Rights" in the Final Memorandum insofar as such statements constitute an -21- accurate summary of the legal matters, documents or proceedings referred to therein, fairly present in all material respects such legal matters, documents and proceedings, and the statements made in the Final Memorandum under the heading "Certain United States Federal Income Tax Considerations," insofar as they summarize certain federal income tax laws of the United States, constitute an accurate summary of the principal U.S. federal income tax consequences of an investment in the Notes; (xii) To the knowledge of such counsel, no legal or governmental proceedings are pending or threatened that seek to restrain, enjoin, prevent the consummation of or otherwise challenge the issuance or sale of the Notes to be sold hereunder or the consummation of the other transactions described in the Final Memorandum under the caption "Use of Proceeds." (xiii) The execution, delivery and performance of this Agreement, the Indenture, the Credit Agreement, the Registration Rights Agreement and the consummation of the transactions contemplated hereby and thereby (including, without limitation, the issuance and sale of the Notes to the Initial Purchasers) will not conflict with or constitute or result in a breach or a default under (or an event that with notice or passage of time or both would constitute a default under) or violation of any of (i) the terms or provisions of any Contract listed on a schedule reasonably acceptable to the Initial Purchasers, except for any such conflict, breach, violation, default or event that would not, individually or in the aggregate, have a Material Adverse Effect, (ii) the certificate of incorporation or bylaws (or similar organizational documents) of the Company or any of the Subsidiary Guarantors, or (iii) (assuming compliance with all applicable state securities or "Blue Sky" laws and assuming the accuracy of the representations and warranties of the Initial Purchasers in Section 8 hereof) any statute, judgment, decree, order, rule or regulation known to such counsel to be applicable to the Company or any of the Subsidiaries or any of their respective properties or assets, except for any such conflict, breach or violation that would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. (xiv) No consent, approval, authorization or order of any governmental authority is required for the issuance and sale by the Company of the Notes to the Initial Purchasers or the consummation by the Company of the other transactions contemplated hereby, except such as may be required under Blue Sky laws, as to which such counsel need express no opinion, and those which have previously been obtained. -22- (xv) None of the Company or the Subsidiaries is, or immediately after the sale of the Notes to be sold hereunder and the application of the proceeds from such sale (as described in the Final Memorandum under the caption "Use of Proceeds") will be, an "investment company" as such term is defined in the Investment Company Act of 1940, as amended. (xvi) No registration under the Act of the Securities is required in connection with the sale of the Notes to the Initial Purchasers as contemplated by this Agreement and the Final Memorandum or in connection with the initial resale of the Notes by the Initial Purchasers in accordance with Section 8 of this Agreement, and prior to the commencement of the Exchange Offer (as defined in the Registration Rights Agreement) or the effectiveness of the Shelf Registration Statement (as defined in the Registration Rights Agreement), the Indenture is not required to be qualified under the TIA, in each case assuming (i)(A) that the purchasers who buy such Notes in the initial resale thereof are qualified institutional buyers as defined in Rule 144A promulgated under the Act ("QIBS") or (B) that the offer or sale of the Notes is made in an offshore transaction as defined in Regulation S, (ii) the accuracy of the Initial Purchasers' representations in Section 8 and those of the Company contained in this Agreement regarding the absence of a general solicitation in connection with the sale of such Notes to the Initial Purchasers and the initial resale thereof and (iii) the due performance by the Initial Purchasers of the agreements set forth in Section 8 hereof. (xvii) Neither the consummation of the transactions contemplated by this Agreement nor the sale, issuance, execution or delivery of the Securities will violate Regulation T, U or X of the Board of Governors of the Federal Reserve System. The opinion of Schulte Roth & Zabel LLP may be subject to customary exceptions, assumptions and qualifications reasonably acceptable to the Initial Purchasers. At the time the foregoing opinion is delivered, Schulte Roth & Zabel LLP shall additionally state that it has participated in conferences with officers and other representatives of the Company, representatives of the independent public accountants for the Company, representatives of the Initial Purchasers and counsel for the Initial Purchasers, at which conferences the contents of the Final Memorandum and related matters were discussed, and, although it has not independently verified and is not passing upon and assumes no responsibility for the accuracy, completeness or fairness of the statements contained in the Final Memorandum (except to the extent specified in subsection 7(a)(xi)), no facts have come to its attention which lead it to believe that the Final Memorandum, on the date thereof or at the Closing Date, -23- contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements contained therein, in light of the circumstances under which they were made, not misleading (it being understood that such firm need express no opinion with respect to the financial statements and related notes thereto and the other financial and accounting data derived from the Company's books and records included in the Final Memorandum). The opinion of Schulte Roth & Zabel LLP described in this Section shall be rendered to the Initial Purchasers at the request of the Company and shall so state therein. References to the Final Memorandum in this subsection (a) shall include any amendment or supplement thereto prepared in accordance with the provisions of this Agreement at the Closing Date. (b) On the Closing Date, the Initial Purchasers shall have received the opinion, dated as of the Closing Date and addressed to the Initial Purchasers, of Schwartz, Cooper, Greenberger & Krauss, Chartered, special counsel Illinois for ECI, in form and substance reasonably satisfactory to counsel for the Initial Purchasers, substantially to the effect that: (i) ECI is validly existing and in good standing under the laws of the State of Illinois and has all requisite corporate power and authority to own its properties and to conduct its business as described in the Final Memorandum. (ii) All of the outstanding shares of capital stock of ECI have been duly authorized and validly issued, are fully paid and nonassessable and, to the knowledge of such counsel were not issued in violation of any preemptive or similar rights. (iii) ECI has all requisite corporate power and authority to execute, deliver and perform each of its obligations under the Indenture and the Indenture has been duly and validly authorized executed and delivered by ECI. (iv) The Guarantees have been duly and validly authorized and executed by ECI and, when authenticated by the Trustee in accordance with the provisions of the Indenture, will have been duly executed, issued and delivered. The guarantees of the Exchange Notes and the Private Exchange Notes have been duly and validly authorized by ECI. (v) ECI has all requisite corporate power and authority to execute, deliver and perform its obligations under the Registration Rights Agreement; -24- the Registration Rights Agreement has been duly and validly authorized, executed and delivered by ECI. (vi) ECI has all requisite corporate power and authority to execute, deliver and perform its obligations under the Credit Agreement; the Credit Agreement has been duly and validly authorized, executed and delivered by ECI. (vii) ECI has all requisite corporate power and authority to execute, deliver and perform its obligations under this Agreement and to consummate the transactions contemplated hereby; this Agreement and the consummation by ECI of the transactions contemplated hereby have been duly and validly authorized by ECI. This Agreement has been duly executed and delivered by ECI. (c) On the Closing Date, the Initial Purchasers shall have received the opinion, in form and substance satisfactory to the Initial Purchasers, dated as of the Closing Date and addressed to the Initial Purchasers, of Cahill Gordon & Reindel, counsel for the Initial Purchasers, with respect to certain legal matters relating to this Agreement and such other related matters as the Initial Purchasers may reasonably require. In rendering such opinion, Cahill Gordon & Reindel shall have received and may rely upon such certificates and other documents and information as it may reasonably request to pass upon such matters. (d) The Initial Purchasers shall have received from the Independent Accountants a comfort letter or letters dated the date hereof and the Closing Date, in form and substance reasonably satisfactory to counsel for the Initial Purchasers. (e) The representations and warranties of the Company and the Subsidiary Guarantors contained in this Agreement shall be true and correct on and as of the date hereof and on and as of the Closing Date as if made on and as of the Closing Date; the statements of the Company's and the Subsidiary Guarantors' officers made pursuant to any certificate delivered in accordance with the provisions hereof shall be true and correct on and as of the date made and on and as of the Closing Date; the Company and the Subsidiary Guarantors shall have performed all covenants and agreements and satisfied all conditions on their part to be performed or satisfied hereunder at or prior to the Closing Date; and, except as described in the Final Memorandum (exclusive of any amendment or supplement thereto after the date hereof), subsequent to the date of the most recent financial statements in such Final Memorandum, there shall have been no event or development, and no information shall have become known, that, individually or in the aggregate, has or would be reasonably likely to have a Material Adverse Effect. -25- (f) The sale of the Securities hereunder shall not be enjoined (temporarily or permanently) on the Closing Date. (g) Subsequent to the date of the most recent financial statements in the Final Memorandum (exclusive of any amendment or supplement thereto after the date hereof), none of the Company or any of the Subsidiaries shall have sustained any loss or interference with respect to its business or properties from fire, flood, hurricane, accident or other calamity, whether or not covered by insurance, or from any strike, labor dispute, slow down or work stoppage or from any legal or governmental proceeding, order or decree, which loss or interference, individually or in the aggregate, has or would be reasonably likely to have a Material Adverse Effect. (h) The Initial Purchasers shall have received a certificate of the Company and the Subsidiary Guarantors, dated the Closing Date, signed on behalf of each of the Company and the Subsidiary Guarantors by its Chairman of the Board, Chief Executive Officer, President or any Senior Vice President and the Chief Financial Officer, to the effect that: (i) The representations and warranties of the Company and the Subsidiary Guarantors contained in this Agreement are true and correct on and as of the date hereof and on and as of the Closing Date, and the Company and the Subsidiary Guarantors have performed all covenants and agreements and satisfied all conditions on their part to be performed or satisfied hereunder at or prior to the Closing Date; (ii) At the Closing Date, since the date hereof or since the date of the most recent financial statements in the Final Memorandum (exclusive of any amendment or supplement thereto after the date hereof), no event or development has occurred, and no information has become known, that, individually or in the aggregate, has or would be reasonably likely to have a Material Adverse Effect; and (iii) The sale of the Securities hereunder has not been enjoined (temporarily or permanently). (i) On the Closing Date, the Initial Purchasers shall have received the Registration Rights Agreement executed by the Company and the Subsidiary Guarantors and such agreement shall be in full force and effect at all times from and after the Closing Date subject to the terms and conditions contained therein. (j) On the Closing Date, the Initial Purchasers shall have received a copy of the Credit Agreement executed by the Company, the Subsidiary Guarantors and the -26- other parties thereto and such agreement shall be in full force and effect at all times from and after the Closing Date subject to the terms and conditions contained therein. On or before the Closing Date, the Initial Purchasers and counsel for the Initial Purchasers shall have received such further documents, opinions, certificates, letters and schedules or instruments relating to the business, corporate, legal and financial affairs of the Company and the Subsidiaries as they shall have heretofore reasonably requested from the Company. All such documents, opinions, certificates, letters, schedules or instruments delivered pursuant to this Agreement will comply with the provisions hereof only if they are reasonably satisfactory in all material respects to the Initial Purchasers and counsel for the Initial Purchasers. The Company shall furnish to the Initial Purchasers such conformed copies of such documents, opinions, certificates, letters, schedules and instruments in such quantities as the Initial Purchasers shall reasonably request. VIII.8. OFFERING OF SECURITIES; RESTRICTIONS ON TRANSFER. (a) Each of the Initial Purchasers agrees with the Company and the Subsidiary Guarantors (as to itself only) that (i) it has not and will not solicit offers for, or offer or sell, the Notes by any form of general solicitation or general advertising (as those terms are used in Regulation D under the Act) or in any manner involving a public offering within the meaning of Section 4(2) of the Act; and (ii) it has and will solicit offers for the Securities only from, and will offer the Securities only to (A) in the case of offers inside the United States, persons whom the Initial Purchasers reasonably believe to be QIBs or, if any such person is buying for one or more institutional accounts for which such person is acting as fiduciary or agent, only when such person has represented to the Initial Purchasers that each such account is a QIB, to whom notice has been given that such sale or delivery is being made in reliance on Rule 144A, and, in each case, in transactions under Rule 144A and (B) in the case of offers outside the United States, to persons other than U.S. persons ("non-U.S. purchasers," which term shall include dealers or other professional fiduciaries in the United States acting on a discretionary basis for non-U.S. beneficial owners (other than an estate or trust)); PROVIDED, HOWEVER, that, in the case of this clause (B), in purchasing such Securities such persons are deemed to have represented and agreed as provided under the caption "Notice to Investors" contained in the Final Memorandum (or, if the Final Memorandum is not in existence, in the most recent Memorandum). 1.(b) Each of the Initial Purchasers represents and warrants (as to itself only) with respect to offers and sales outside the United States that (i) it has and will comply with all applicable laws and regulations in each jurisdiction in which it acquires, offers, sells or delivers Securities or has in its possession or distributes any Memorandum or any such other material, in all cases at its own expense; (ii) the Securities have not been and will not be -27- offered or sold within the United States or to, or for the account or benefit of, U.S. persons except in accordance with Regulation S under the Act or pursuant to an exemption from the registration requirements of the Act; and (iii) it has offered the Securities and will offer and sell the Securities (A) as part of its distribution at any time and (B) otherwise until 40 days after the later of the commencement of the offering and the Closing Date, only in accordance with Rule 903 of Regulation S and, accordingly, neither it nor any persons acting on its behalf have engaged or will engage in any directed selling efforts (within the meaning of Regulation S) with respect to the Notes, and any such persons have complied and will comply with the offering restrictions requirement of Regulation S. Terms used in this Section 8 and not defined in this Agreement have the meanings given to them in Regulation S. IX.9. INDEMNIFICATION AND CONTRIBUTION. (a) The Company and each of the Subsidiary Guarantors agree, jointly and severally, to indemnify and hold harmless each Initial Purchaser and each person, if any, who controls any Initial Purchaser within the meaning of Section 15 of the Act or Section 20 of the Exchange Act against any losses, claims, damages or liabilities to which any Initial Purchaser or such controlling person may become subject under the Act, the Exchange Act or otherwise, insofar as any such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon: (a) (i) any untrue statement or alleged untrue statement made by the Company or the Subsidiary Guarantors in Section 2 hereof; (b) (ii) any untrue statement or alleged untrue statement of any material fact contained in any Memorandum or any amendment or supplementthereto; or (c) (iii) the omission or alleged omission to state, in any Memorandum or any amendment or supplement thereto, a material fact required to be stated therein or necessary to make the statements therein not misleading, and will reimburse, as incurred, the Initial Purchasers and each such controlling person for any reasonable legal or other expenses incurred by the Initial Purchasers or such controlling person in connection with investigating, defending against or appearing as a third-party witness in connection with any such loss, claim, damage, liability or action; PROVIDED, HOWEVER, that the Company and the Subsidiary Guarantors will not be liable in any such case to the extent that any such loss, claim, damage, or liability arises out of or is based upon any untrue statement or alleged untrue statement or omission or alleged omission made in any Memorandum or any amendment or supplement thereto in reliance upon and in conformity with written information concerning the Initial Purchasers furnished to the Company by the Initial Purchasers specifically for use therein. The indemnity provided for in this Section 9 will be in addition to any liability that the Issuers may otherwise have to the indemnified -28- parties. The Issuers shall not be liable under this Section 9 for any settlement of any claim or action effected without its prior written consent, which shall not be unreasonably withheld. In addition, Issuers will not be liable to any Initial Purchaser or any person controlling such Initial Purchaser with respect to any such untrue statement or alleged untrue statement or omission or alleged omission made in any Preliminary Memorandum that is corrected in the Final Memorandum (or any amendment or supplement thereto) if the person asserting any such loss, claim, damage or liability purchased Notes from such Initial Purchaser but was not sent or given a copy of the Final Memorandum (as amended or supplemented) in any case where such delivery of the Final Memorandum (as amended or supplemented) was required by the Act, unless such failure to deliver the Final Memorandum (as amended or supplemented) was a result of noncompliance by the Issuers with Section 5 hereof. 2.(b) Each Initial Purchaser, severally and not jointly, agrees to indemnify and hold harmless the Company and the Subsidiary Guarantors, their directors, their officers and each person, if any, who controls the Company or any Subsidiary Guarantor within the meaning of Section 15 of the Act or Section 20 of the Exchange Act against any losses, claims, damages or liabilities to which the Company, the Subsidiary Guarantors or any such director, officer or controlling person may become subject under the Act, the Exchange Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon (i) any untrue statement or alleged untrue statement of any material fact contained in any Memorandum or any amendment or supplement thereto, or (ii) the omission or the alleged omission to state therein a material fact required to be stated in any Memorandum or any amendment or supplement thereto, or necessary to make the statements therein not misleading, in each case to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission was made in reliance upon and in conformity with written information concerning such Initial Purchaser, furnished to the Company by such Initial Purchaser specifically for use therein; and subject to the limitation set forth immediately preceding this clause, will reimburse, as incurred, any legal or other expenses incurred by the Company, the Subsidiary Guarantors or any such director, officer or controlling person in connection with investigating or defending against or appearing as a third party witness in connection with any such loss, claim, damage, liability or action in respect thereof. The indemnity provided for in this Section 9 will be in addition to any liability that the Initial Purchasers may otherwise have to the indemnified parties. The Initial Purchasers shall not be liable under this Section 9 for any settlement of any claim or action effected without their consent, which shall not be unreasonably withheld. The Company and the Subsidiary Guarantors shall not, without the prior written consent of the Initial Purchasers, effect any settlement or compromise of any pending or threatened proceeding in respect of which any Initial Purchaser is or could have been a party, or indemnity could have been sought hereunder by any Initial Purchaser, unless such settlement (A) includes an unconditional written release of the Initial Purchasers, in form and substance reasonably satisfactory to the Initial Purchasers, from all liability on claims that are the -29- subject matter of such proceeding and (B) does not include any statement as to an admission of fault, culpability or failure to act by or on behalf of any Initial Purchaser. 3.(c) Promptly after receipt by an indemnified party under this Section 9 of notice of the commencement of any action for which such indemnified party is entitled to indemnification under this Section 9, such indemnified party will, if a claim in respect thereof is to be made against the indemnifying party under this Section 9, notify the indemnifying party of the commencement thereof in writing; but the omission to so notify the indemnifying party (i) will not relieve it from any liability under paragraph (a) or (b) above unless and to the extent such failure results in the forfeiture by the indemnifying party of substantial rights and defenses and (ii) will not, in any event, relieve the indemnifying party from any obligations to any indemnified party other than the indemnification obligation provided in paragraphs (a) and (b) above. In case any such action is brought against any indemnified party, and it notifies the indemnifying party of the commencement thereof, the indemnifying party will be entitled to participate therein and, to the extent that it may wish, jointly with any other indemnifying party similarly notified, to assume the defense thereof, with counsel reasonably satisfactory to such indemnified party; PROVIDED, HOWEVER, that if (i) the use of counsel chosen by the indemnifying party to represent the indemnified party would present such counsel with a conflict of interest, (ii) the defendants in any such action include both the indemnified party and the indemnifying party and the indemnified party shall have been advised by counsel that there may be one or more legal defenses available to it and/or other indemnified parties that are different from or additional to those available to the indemnifying party, or (iii) the indemnifying party shall not have employed counsel reasonably satisfactory to the indemnified party to represent the indemnified party within a reasonable time after receipt by the indemnifying party of notice of the institution of such action, then, in each such case, the indemnifying party shall not have the right to direct the defense of such action on behalf of such indemnified party or parties and such indemnified party or parties shall have the right to select separate counsel to defend such action on behalf of such indemnified party or parties. After notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof and approval by such indemnified party of counsel appointed to defend such action, the indemnifying party will not be liable to such indemnified party under this Section 9 for any legal or other expenses, other than reasonable costs of investigation, subsequently incurred by such indemnified party in connection with the defense thereof, unless (i) the indemnified party shall have employed separate counsel in accordance with the proviso to the immediately preceding sentence (it being understood, however, that in connection with such action the indemnifying party shall not be liable for the expenses of more than one separate counsel (in addition to local counsel) in any one action or separate but substantially similar actions in the same jurisdiction arising out of the same general allegations or circumstances, designated by the Initial Purchasers in the case of paragraph (a) of this Section 9 or the Company or the Subsidiary Guarantors in the case of paragraph (b) of this Section 9, representing the indemnified parties under such paragraph (a) or paragraph (b), -30- as the case may be, who are parties to such action or actions) or (ii) the indemnifying party has authorized in writing the employment of counsel for the indemnified party at the expense of the indemnifying party. All fees and expenses reimbursed pursuant to this paragraph (c) shall be reimbursed as they are incurred. After such notice from the indemnifying party to such indemnified party, the indemnifying party will not be liable for the costs and expenses of any settlement of such action effected by such indemnified party without the prior written consent of the indemnifying party (which consent shall not be unreasonably withheld), unless such indemnified party waived in writing its rights under this Section 9, in which case the indemnified party may effect such a settlement without such consent. 4.(d) In circumstances in which the indemnity agreement provided for in the preceding paragraphs of this Section 9 is unavailable to, or insufficient to hold harmless, an indemnified party in respect of any losses, claims, damages or liabilities (or actions in respect thereof), each indemnifying party, in order to provide for just and equitable contribution, shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages or liabilities (or actions in respect thereof) in such proportion as is appropriate to reflect (i) the relative benefits received by the indemnifying party or parties on the one hand and the indemnified party on the other from the offering of the Securities or (ii) if the allocation provided by the foregoing clause (i) is not permitted by applicable law, not only such relative benefits but also the relative fault of the indemnifying party or parties on the one hand and the indemnified party on the other in connection with the statements or omissions or alleged statements or omissions that resulted in such losses, claims, damages or liabilities (or actions in respect thereof). The relative benefits received by the Company and the Subsidiary Guarantors on the one hand and any Initial Purchaser on the other shall be deemed to be in the same proportion as the total proceeds from the offering (before deducting expenses) received by the Company bear to the total discounts and commissions received by such Initial Purchaser. The relative fault of the parties shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company and the Subsidiary Guarantors on the one hand, or such Initial Purchaser on the other, the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission or alleged statement or omission, and any other equitable considerations appropriate in the circumstances. The Company and the Subsidiary Guarantors and the Initial Purchasers agree that it would not be equitable if the amount of such contribution were determined by pro rata or per capita allocation or by any other method of allocation that does not take into account the equitable considerations referred to in the first sentence of this paragraph (d). Notwithstanding any other provision of this paragraph (d), no Initial Purchaser shall be obligated to make contributions hereunder that in the aggregate exceed the total discounts, commissions and other compensation received by such Initial Purchaser under this Agreement, less the aggregate amount of any damages that such Initial Purchaser has otherwise been required to pay by reason of the untrue or alleged untrue -31- statements or the omissions or alleged omissions to state a material fact, and no person guilty of fraudulent misrepresentation (within the meaning of Section 11(f)(?) of the Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. For purposes of this paragraph (d), each person, if any, who controls an Initial Purchaser within the meaning of Section 15 of the Act or Section 20 of the Exchange Act shall have the same rights to contribution as the Initial Purchasers, and each director of the Company or any Subsidiary Guarantor, each officer of the Company or any Subsidiary Guarantor and each person, if any, who controls the Company within the meaning of Section 15 of the Act or Section 20 of the Exchange Act, shall have the same rights to contribution as the Company and the Subsidiary Guarantors. X.10. SURVIVAL CLAUSE. The respective representations, warranties, agreements, covenants, indemnities and other statements of the Company, the Subsidiary Guarantors, their respective officers and the Initial Purchasers set forth in this Agreement or made by or on behalf of them pursuant to this Agreement shall remain in full force and effect, regardless of (i) any investigation made by or on behalf of the Company, the Subsidiary Guarantors, any of their respective officers or directors, the Initial Purchasers or any controlling person referred to in Section 9 hereof and (ii) delivery of and payment for the Securities. The respective agreements, covenants, indemnities and other statements set forth in Sections 6, 9, 10, 15 and 16 hereof shall remain in full force and effect, regardless of any termination or cancellation of this Agreement. XI.11. DEFAULT BY AN INITIAL PURCHASER. If any one or more Initial Purchasers shall fail to purchase and pay for any of the Securities agreed to be purchased by such Initial Purchaser hereunder and such failure to purchase shall constitute a default in the performance of its or their obligations under this Agreement, the remaining Initial Purchasers shall be obligated severally to take up and pay for (in the respective proportions which the amount of Securities set forth opposite their names in SCHEDULE 1 hereto bears to the aggregate amount of Securities set forth opposite the names of all the remaining Initial Purchasers) the Securities which the defaulting Initial Purchaser or Initial Purchasers agreed but failed to purchase; PROVIDED, HOWEVER, that in the event that the amount of Securities which the defaulting Initial Purchaser or Initial Purchasers agreed but failed to purchase shall exceed 10% of the total aggregate amount of Securities set forth in SCHEDULE 1 hereto, the remaining Initial Purchasers shall have the right to purchase all, but shall not be under any obligation to purchase any, of the Securities, and if such nondefaulting Initial Purchasers do not purchase all the Securities, this Agreement will terminate without liability to any nondefaulting Initial Purchaser or the Company except as provided in Section 10 hereof. In the event of a default by any Initial Purchaser as set forth in this Section 11, the Closing Date shall be postponed for such period, not exceeding five business days, as the nondefaulting Initial Purchasers shall determine in order that the required changes in the Final Memorandum or in any other documents or arrangements may be effected. Nothing contained in this Agreement shall relieve any -32- defaulting Initial Purchaser of its liability, if any, to the Company or any nondefaulting Initial Purchaser for damages occasioned by its default hereunder. XII.12. TERMINATION. (a) This Agreement may be terminated in the sole discretion of the Initial Purchasers by notice to the Company given prior to the Closing Date in the event that the Company shall have failed, refused or been unable to perform all obligations and satisfy all conditions on its part to be performed or satisfied hereunder at or prior thereto (other than solely as a result of any failure of any Initial Purchaser to perform its obligations hereunder) or, if at or prior to the Closing Date: (a) (i) any of the Company or the Subsidiaries shall have sustained any loss or interference with respect to its businesses or properties from fire, flood, hurricane, accident or other calamity, whether or not covered by insurance, or from any strike, labor dispute, slow down or work stoppage or any legal or governmental proceeding, which loss or interference, in the sole judgment of the Initial Purchasers, has had or has a Material Adverse Effect, or there shall have been, in the sole judgment of the Initial Purchasers, any event or development that, individually or in the aggregate, has or could be reasonably likely to have a Material Adverse Effect (including without limitation a change in control of the Company or the Subsidiaries), except in each case as described in the Final Memorandum (exclusive of any amendment or supplement thereto); (b) (ii) trading in securities of the Company or in securities generally on the New York Stock Exchange, American Stock Exchange or the Nasdaq National Market shall have been suspended or materially limited or minimum or maximum prices shall have been established on any such exchange or market; (c) (iii)a banking moratorium shall have been declared by New York or United States authorities or a material disruption in commercial banking or securities settlement or clearance services in the United States; (d) (iv) there shall have been (A) an outbreak or escalation of hostilities between the United States and any foreign power, or (B) an outbreak or escalation of any other insurrection or armed conflict involving the United States or any other national or international calamity or emergency, or (C) any material change in the financial markets of the United States which, in the case of (A), (B) or (C) above and in the sole judgment of the Initial Purchasers, makes it impracticable or inadvisable to proceed with the offering or the delivery of the Notes as contemplated by the Final Memorandum; or (e) (v) any securities of the Company shall have been downgraded or placed on any "watch list" for possible downgrading by any nationally recognized statistical rating organization. -33- 2.(b) Termination of this Agreement pursuant to Section 11 or this Section 12 shall be without liability of any party to any other party except as provided in Section 10 hereof. XIII.13. INFORMATION SUPPLIED BY THE INITIAL PURCHASERS. The statements set forth in the last paragraph on the front cover page and in the third sentence of the third paragraph and the third sentence of the fifth paragraph under the heading "Private Placement" in the Final Memorandum (to the extent such statements relate to the Initial Purchasers) constitute the only information furnished by the Initial Purchasers to the Company for the purposes of Sections 2(a) and 9 hereof. XIV.14. NOTICES. All communications hereunder shall be in writing and, if sent to the Initial Purchasers, shall be mailed or delivered to Deutsche Banc Alex. Brown Inc., 31 West 52nd Street, New York, New York 10019, Attention: Corporate Finance Department, with a copy to Cahill Gordon & Reindel, 80 Pine Street, New York, New York 10005, Attention: John A. Tripodoro; if sent to the Company, shall be mailed or delivered to the Company at 7211 Circle S Road, Austin, Texas 78745, Attention: Chief Financial Officer, with a copy to Schulte Roth & Zabel LLP, 919 Third Avenue, New York, New York 10022, Attention: Michael R. Littenberg, Esq. All such notices and communications shall be deemed to have been duly given: when delivered by hand, if personally delivered; five business days after being deposited in the mail, postage prepaid, if mailed; and one business day after being timely delivered to a next-day air courier. -34- XV.15. SUCCESSORS. This Agreement shall inure to the benefit of and be binding upon the Initial Purchasers, the Company, the Subsidiary Guarantors and their respective successors and legal representatives, and nothing expressed or mentioned in this Agreement is intended or shall be construed to give any other person any legal or equitable right, remedy or claim under or in respect of this Agreement, or any provisions herein contained; this Agreement and all conditions and provisions hereof being intended to be and being for the sole and exclusive benefit of such persons and for the benefit of no other person except that (i) the indemnities of the Company and the Subsidiary Guarantors contained in Section 9 of this Agreement shall also be for the benefit of any person or persons who control the Initial Purchasers within the meaning of Section 15 of the Act or Section 20 of the Exchange Act and (ii) the indemnities of the Initial Purchasers contained in Section 9 of this Agreement shall also be for the benefit of the directors of the Company and Subsidiary Guarantors, their respective officers and any person or persons who control the Company or any of the Subsidiary Guarantors within the meaning of Section 15 of the Act or Section 20 of the Exchange Act. No purchaser of Securities from the Initial Purchasers will be deemed a successor because of such purchase. XVI.16. APPLICABLE LAW. THE VALIDITY AND INTERPRETATION OF THIS AGREEMENT, AND THE TERMS AND CONDITIONS SET FORTH HEREIN SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE AND TO BE PERFORMED WHOLLY THEREIN, WITHOUT GIVING EFFECT TO ANY PROVISIONS THEREOF RELATING TO CONFLICTS OF LAW. XVII.17. COUNTERPARTS. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. S-1 If the foregoing correctly sets forth our understanding, please indicate your acceptance thereof in the space provided below for that purpose, whereupon this letter shall constitute a binding agreement among the Company, the Subsidiary Guarantors and the Initial Purchasers. Very truly yours, AMERICAN ACHIEVEMENT CORPORATION By: /s/ David Fiore ------------------------------------ Name: David Fiore Title: President and Chief Executive Officer COMMEMORATIVE BRANDS, INC. By: /s/ David Fiore ------------------------------------ Name: David Fiore Title: President and Chief Executive Officer CBI NORTH AMERICA, INC. By: /s/ David Fiore ------------------------------------ Name: David Fiore Title: President and Chief Executive Officer TAYLOR SENIOR HOLDINGS CORP. By: /s/ David Fiore ------------------------------------ Name: David Fiore Title: President and Chief Executive Officer S-2 TAYLOR PUBLISHING COMPANY By: /s/ David Fiore ------------------------------------ Name: David Fiore Title: President and Chief Executive Officer TP HOLDING CORP. By: /s/ David Fiore ------------------------------------ Name: David Fiore Title: President and Chief Executive Officer TAYLOR PRODUCTION SERVICES, L.P. By: Taylor Publishing Company, its General Partner By: /s/ David Fiore ------------------------------------ Name: David Fiore Title: President and Chief Executive Officer EDUCATIONAL COMMUNICATIONS, INC. By: /s/ Sherice P. Bench ------------------------------------ Name: Sherice P. Bench Title: Chief Financial Officer S-3 The foregoing Agreement is hereby confirmed and accepted as of the date first above written. DEUTSCHE BANC ALEX. BROWN INC. SCOTIA CAPITAL (USA) INC. BY: Deutsche Banc Alex. Brown Inc. By: /s/ Tom Prior --------------------------------------- Name: Tom Prior Title: Managing Director By: /s/ Amelia Silver --------------------------------------- Name: Amelia Silver Title: Managing Director GOLDMAN, SACHS & CO. By: /s/ Goldman, Sachs & Co. --------------------------------------- (Goldman, Sachs & Co.) SCHEDULE 1
PRINCIPAL AMOUNT OF INITIAL PURCHASER NOTES Deutsche Banc Alex. Brown Inc........................... $117,705,000 Goldman, Sachs & Co..................................... $ 50,445,000 Scotia Capital (USA) Inc................................ $ 8,850,000 Total $177,000,000 ===========
SCHEDULE 2 SUBSIDIARIES OF THE COMPANY
Jurisdiction of Name Incorporation/Formation Commemorative Brands, Inc. Delaware CBI North America, Inc. Delaware Taylor Senior Holdings Corp. Delaware Taylor Publishing Company Delaware TP Holding Corp. Delaware Taylor Production Services, L.P. Delaware Educational Communications, Inc. Illinois
EXHIBIT A EX-3.1 4 a2071988zex-3_1.txt EXHIBIT 3.1 STATE OF DELAWARE SECRETARY OF STATE DIVISION OF CORPORATIONS FILED 04:00 PM 01/23/2002 020046012 -3251589 EXHIBIT 3.1 CERTIFICATE OF INCORPORATION OF AMERICAN ACHIEVEMENT CORPORATION WITH ALL AMENDMENTS (f/k/a COMMEMORATIVE BRANDS HOLDING CORP.) CERTIFICATE OF AMENDMENT OF THE CERTIFICATE OF INCORPORATION OF COMMEMORATIVE BRANDS HOLDING CORP. COMMEMORATIVE BRANDS HOLDING CORP. (the "Corporation"), a corporation organized and existing under the General Corporation Law of the State of Delaware, DOES HEREBY CERTIFY THAT: 1. The board of directors of the Corporation, by the unanimous written consent of its members filed with the minutes of the board, duly adopted a resolution proposing and declaring advisable, in accordance with Section 2.42 of the General Corporation Law of the State of Delaware, the following amendment to the Certificate of Incorporation of the Corporation: Article 1 of the Certificate of Incorporation of the Corporation is hereby amended to read in its entirety as follows: "1. The name of the corporation in AMERICAN ACHIEVEMENT CORPORATION." 2. The aforesaid amendment was duly adopted by the majority of the stockholders of the Corporation in accordance with Section 242 of the General Corporation Law of the State of Delaware. (THE REMAINDER OF THIS PAGE IS LEFT INTENTIONALLY BLANK) IN WITNESS WHEREOF, the Corporation has caused this Certificate of Amendment to be signed this 17th day of January, 2002. By: /s/ David G. Fiore ------------------------- Name: David G. Fiore Title: President STATE OF DELAWARE SECRETARY OF STATE DIVISION OF CORPORATIONS FILED 04:00 PM 06/27/2000 001327948 - 3251589 CERTIFICATE OF INCORPORATION OF COMMEMORATIVE BRANDS HOLDING CORP. Commemorative Brands Holding Corp. (the "Corporation"), a corporation organized and existing under the General Corporation Law of the State of Delaware, does hereby certify that: 1. The name of the corporation is Commemorative Brands Holding Corp. (the "Corporation"). 2. The address of the Corporation's registered office in the State of Delaware is 6515 South DuPont Highway, County of Kent, Dover, Delaware 19901. National Corporate Research, Ltd. is the Corporation's registered agent at that address. 3. The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware (the "General Corporation Law"). 4A. The Corporation shall have authority to issue One Million Two Hundred and Fifty Thousand (1,250,000) shares of Common Stock, par value $0.01 per share and One Million Two Hundred and Fifty Thousand (1,250,000) shares of Preferred Stock, par value $0.01 per share. 4B. Shares of Preferred Stock may be issued by the Corporation from time to time in one or more c1asses or series, with such designations, powers, privileges, preferences and relative, participating, optional or other rights, if any, and such qualifications, limitations or restrictions thereon, as are permitted by law and as the Board of Directors shall from time to time provide for by resolution or resolutions duly adopted, including, without limitation, voting powers, if any (including multiple or fractional votes per share), dividend rights, if any (including dividend preferences or limited or unlimited dividend participation), conversion rights, mandatory or optional redemption rights or restrictions and preferences, on limited or unlimited participation or in the amount to be paid on liquidation, and the Board of Directors is hereby authorized to fix and determine the powers, privileges, preferences and rights of any series of Preferred Stock (including, but not limited to, applicable conversion or redemption rates or prices or dividend rates), and to fix the number of shares constituting any such series and to increase or decrease the number of shares of any such series (but not below the number of shares thereof then outstanding). In case the number of shares of any series shall be so decreased, the shares constituting such decrease shall resume the status which they bad prior to the adoption of the resolution originally fixing the number of shares of such series. 5. The name and mailing address of the sole incorporator is: NAME MAILING ADDRESS Jeannie Shea, Esq. Schulte Roth & Zabel LLP 900 Third Avenue New York, NY 10022 6. The powers of the incorporator shall terminate upon the filing of this Certificate of Incorporation. The name and address of the person who is to initially serve as director until the first annual meeting of stockholders or until his successors are elected and qualified is: 2 NAME MAILING ADDRESS David B. Pittaway Castle Harlan, Inc. 150 East 58th Street New York, NY 10155 7. The personal liability of the directors of the Corporation is hereby eliminated to the fullest extent permitted by the General Corporation Law (including, without limitation, paragraph (7) of subsection (b) of Section 102 thereof), as the same may be amended and supplemented from time to time. 8. The Board of Directors shall have the power to adopt, amend or repeal By-laws of the Corporation, subject to the right of the stockholders of the Corporation to adopt, amend or repeal any By-law. 9. The Corporation shall, to the fullest extent permitted by the General Corporation Law (including, without limitation, Section 145 thereof), as the same may be amended and supplemented from time to time, indemnify any and all persons whom it shall have power to indemnify under the General Corporation Law. The indemnification provided for herein shall not be deemed exclusive of any other rights to which those seeking indemnification may be entitled whether as a matter of law, under any By-law of the Corporation, by agreement, by vote of stockholders or disinterested directors of the Corporation or otherwise. 10. The election of directors of the Corporation need not be by written ballot, unless the By-Jaws of the Corporation otherwise provide. 3 IN WITNESS WHEREOF, the Corporation has caused this Certificate to be signed this 27th day of June, 2000. By: /s/ Jeannie Sha ------------------- Jeannie Sha, Esq. Sole Incorporator STATE OF DELAWARE SECRETARY OF STATE DIVISION OF CORPORATIONS FILED 01:00 PM 07/27/2000 001380209-- 3251589 COMMEMORATIVE BRANDS HOLDING CORP. CERTIFICATE OF DESIGNATIONS OF SERIES A PREFERRED STOCK SETTING FORTH THE POWERS, PREFERENCES, RIGHTS, QUALIFICATIONS, LIMITATIONS AND RESTRICTIONS OP SUCH PREFERRED STOCK Pursuant to Section 151 of the Delaware General Corporation Law, the undersigned DOES HEREBY CERTIFY that the Board of Directors of Commemorative Brands Holding Corp., a Delaware corporation (the "Company"), duly adopted the following resolutions on July 26, 2000, with the preferences and rights set forth therein having been fixed by the Board of Directors pursuant to Article 4 of the Company's Certificate of Incorporation and that such resolutions have not been modified and are in full force and effect: RESOLVED that, pursuant to Section 151 of the Delaware General Corporation Law and Article 4B of the Certificate of Incorporation of the Company (the "Certificate of Incorporation"), a series of preferred stock of the Company is hereby created and that shall be designated as "Series A Preferred Stock." The number of shares constituting the Series A Preferred Stock shall be 1,000,000. RESOLVED that, the designation and number of shares thereof and the voting powers, preferences and relative, participating, optional and other special rights of the shares of such series, and the qualifications, limitations and restrictions thereof, are as follows: Section 1. DESIGNATION, NUMBER AND RANKING. (a) The shares of such series shall be designated as "Series A Preferred Stock" (the "Series A Preferred Stock"). The number of shares constituting the Series A Preferred Stock shall be 1,000,000. (b) The Series A Preferred Stock shall, with respect to dividend rights rank PARI PASSU, and, with respect to rights on liquidation, dissolution or winding up, rank senior to the Common Stock, par value $.0l per share, of the Company ("Common Stock"). Section 2. DIVIDENDS. (a) Dividends on the Series A Preferred Stock shall be payable only when, as and if declared by the Board of Directors out of funds of the Company legally available therefore. Notwithstanding the foregoing, no dividends shall be payable on the Common Stock of the Company or on any other shares of capital stock of the Company unless equal dividends shall be payable on the Series A Preferred Stock. Section 3. VOTING RIGHTS. In addition to any voting rights required by law, the holders of shares of Series A Preferred Stock shall have the following voting rights: (a) Except as otherwise required by applicable law or by the provisions of paragraph (b) of this Section 3, each share of Series A Preferred Stock shall entitle the holder thereof to one vote, in person or by proxy, at any annual or special meeting of stockholders, on all matters presented to holders of Common Stock generally, voting together as a single class with the holders of the Common Stock. (b) Unless the consent or approval of a greater number of shares shall then be required bylaw, the affirmative vote of the holders of at least a majority of the outstanding shares of Series A Preferred Stock, voting separately as a single class, in person or by proxy, at an annual or special meeting of stockholders called for that purpose (or by written consent), shall be necessary to (i) amend, alter or repeal any provision of the Certificate of Incorporation or Bylaws of the Company so as to affect adversely any of the preferences, rights, powers or privileges of the Series A Preferred Stock or the holders thereof, and (ii) effect the consolidation or merger of the Company with or into any other person or the sale or other distribution to another person of all or substantially all of the assets of the Company, in either case so as to affect adversely any of the preferences, rights, powers or privileges of the Series A Preferred Stock or the holders thereof. Section 4. CERTAIN RESTRICTIONS. Except as permitted in accordance with Section 2 above, so long as any share of Series A Preferred Stock shall be issued and outstanding, the Company shall not declare, pay or set aside for payment, any dividends on, or make any other distributions with respect to, any shares of Common Stock or other shares of capital stock of the Company ranking junior to the Series A Preferred Stock with respect to the payment of dividends or upon liquidation, dissolution or winding up, other than dividends payable in Common Stock or in another stock ranking junior to the Series A Preferred Stock as to dividend rights and rights on liquidation, dissolution and winding up. Section 5. REDEMPTION. The Company shall not have the right to redeem any shares of Series A Preferred Stock. Section 6. LIQUIDATION, DISSOLUTION OR WINDING UP. (a) In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company, the holders of shares of Series A Preferred Stock then outstanding shall be entitled to be paid out of the assets of the Company available for distribution to its stockholders, after and subject to the payment in full of all amounts required to be distributed to the holders of any class of stock of the Company ranking senior to the Series A Preferred Stock upon liquidation, dissolution or winding up (such stock being referred to herein as "Senior Stock") in respect of such stock, but before 2 any payment shall be made to the holders of Common Stock or other capital stock of the Company ranking junior to the Series A Preferred Stock upon liquidation, dissolution or winding up (such stock being referred to herein as "Junior Stock"), an amount equal to $100 per share, plus all accrued and unpaid dividends thereon, if any. If upon any such liquidation, dissolution or winding up of the Company the remaining assets of the Company available for the distribution to its stockholders after payment in full of amounts required to be paid or distributed to holders of Senior Stock shall be insufficient to pay the holders of shares of Series A Preferred Stock and the holders of shares of capital stock of the Company ranking on a parity with the Series A Preferred Stock upon liquidation, dissolution or winding up (such stock being referred to herein as 'Parity Stock") the full amount to which they shall share ratably in any distribution of the remaining assets and funds of the Company in proportion to the respective amounts which would otherwise be payable in respect of the shares held by them upon such distribution if all amounts payable on or with respect to said shares were paid in full. (b) Neither the consolidation or merger of the Company with or into any other person nor the sale or other distribution to another person of all or substantially all the assets of the Company, in each case when permitted by Section 3, shall be deemed to be a liquidation, dissolution or winding up of the Company for purposes of this Section 6. 3 IN WITNESS WHEREOF, COMMEMORATIVE BRANDS HOLDING CORP. has caused this Certificate of Designations to be duly executed by its President on this 27th day of July, 2000. COMMEMORATIVE BRANDS HOLDING CORP. By: /s/ David G. Fiore ------------------------- Name: David G. Fiore Title: President STATE OF DELAWARE SECRETARY OF STATE DIVISION OF CORPORATIONS FILED 09:00 AM 03/29/2001 010155286-- 3251589 COMMEMORATIVE BRANDS HOLDING CORP. CERTIFICATE OF DESIGNATIONS OF SERIES B PREFERRED STOCK SETTING FORTH THE POWERS, PREFERENCES, RIGHTS, QUALIFICATIONS, LIMITATIONS AND RESTRICTIONS OF SUCH PREFERRED STOCK Pursuant to Section 151 of the General Corporation Law of the Stale of Delaware, the undersigned DOES HEREBY CERTIFY that the Board of Directors of Commemorative Brands Holding Corp., a Delaware corporation (the "Company"), duly adopted the following resolutions on March 28, 2001 to designate a new series of the Company's authorized preferred stock, par value $0.01 per share, with the designations, preferences, rights, qualifications, limitations and restrictions in respect of such series of preferred stock having been fixed by the Board of Directors pursuant to Article 4 of the Company's Certificate of Incorporation and that such resolutions have not been modified and are in full force and effect: RESOLVED, that pursuant to Section 151 of the General Corporation Law of the State of Delaware and Article 4B of the Certificate of Incorporation of the Company (the "Certificate of Incorporation"), a series of preferred stock of the Company is hereby created and shall be designated as "Series B Preferred Stock". The number of shares constituting the Series B Preferred Stock shall be twenty-five thousand (25,000). RESOLVED, that the designation and number of shares thereof; and the voting powers, designations, preferences and relative participating, optional and other special rights of such series, and the qualifications, limitations and restrictions thereof; are as follows: Section 1. DESIGNATION, NUMBER AND RANKING. (a) The shares of such series shall be designated as "Series B Preferred Stock" (the 'Series B Preferred Stock"). The number of shares constituting the Series B Preferred Stock shall be 25,000. (b) The Series B Preferred Stock shall rank senior to the common stock of the Company (the "Common Stock") with respect to dividend rights and rights upon liquidation, dissolution and winding up of the Company. The Series B Preferred Stock shall rank junior to the Series A Preferred Stock of the Company ("Series A Stock") with respect to dividend rights and rights upon liquidation, dissolution and winding up of the Company. Section 2. DIVIDENDS AND DISTRIBUTIONS. (a) Dividends on the Series B Preferred Stock shall be payable only when, as and if declared by the Board of Directors out of funds of the Company legally available therefore to the holder of record of the Series B Preferred Stock appearing on the records of the Company at the close of business on the record date set for such dividend or distribution by the Board of Directors of the Company. Section 3. VOTING RIGHTS. In addition to any voting tights required by law, the holders of shares of Series A Preferred Stock shall have the following voting rights: (a) Except as otherwise required by applicable law or by the provisions of paragraph (b) of this Section 3, each share of Series B Preferred Stock shall entitle the holder thereof to one vote, in person or by proxy, at any annual or special meeting of stockholders, on all matters presented to holders of Common Stock generally, voting together as a single class with the holders of the Common Stock. (b) Unless the consent or approval of a greater number of shares shall then be required by law, the affirmative vote of the holders of at least a majority of the outstanding shares of Series B Preferred Stock, voting separately as a single class, in person or by proxy, at an annual or special meeting of stockholders called for that purpose (or by written consent), shall be necessary to (i) amend, alter or repeal any provision of the Certificate of Incorporation or Bylaws of the Company so as to affect adversely any of the preferences, rights, powers or privileges of the Series B Preferred Stock or the holder thereof, and (ii) effect the consolidation or merger of the Company with or into any other person or the sale or other distribution to another person of all or substantially all of the assets of the Company, in either case so as to affect adversely any of the preferences, rights, powers or privileges of the Series B Preferred Stock or the holders thereof. Section 4. CERTAIN RESTRICTIONS. Except as permitted in accordance with Section 2 above, so long as any share of Series B Preferred Stock shall be issued and outstanding, the Company shall not declare, pay or set aside for payment, any dividends on, or make any other distributions with respect to, any shares of Common Stock or other shares of capital stock of the Company ranking junior to the Series B Preferred Stock with respect to the payment of dividends or upon liquidation, dissolution or winding up, other than dividends payable in Common Stock or in another stock ranking junior to the Series B Preferred Stock as to dividend rights and rights on liquidation, dissolution and winding up. Section 5. REDEMPTION. The Company shall not have the right to redeem any shares of Series B Preferred Stock. 2 Section 6. LIQUIDATION, DISSOLUTION OR WINDING UP. (a) In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company, the holders of shares of Series B Preferred Stock then outstanding shall be entitled to be paid out of the assets of the Company available for distribution to its stockholders, after and subject to the payment in full of all amounts required to be distributed to the holders of any class of stock of the Company ranking senior to the Series B Preferred Stock upon liquidation, dissolution or winding up (such stock being referred to herein as "Senior Stock") in respect of such stock, but before any payment shall be made to the holders of Common Stock or other capital stock of the Company ranking junior to the Series B Preferred Stock upon liquidation, dissolution or winding up (such stock being referred to herein as "Junior Stock"), an amount equal to $1000 per share, plus all accrued and unpaid dividends thereon, if any. If upon any such liquidation, dissolution or winding up of the Company the remaining assets of the Company available for the distribution to its stockholders after payment in full of amounts required to be paid or distributed to holders of Senior Stock shall be insufficient to pay the holders of shares of Series B Preferred Stock and the holders of shares of capital stock of the Company ranking on a parity with the Series B Preferred Stock upon liquidation, dissolution or winding up (such stock being referred to herein as "Parity Stock") the full amount to which they shall share ratably in any distribution of the remaining assets and funds of the Company in proportion to the respective amounts which would otherwise be payable in respect of the shares held by them upon such distribution if all amounts payable on or with respect to said shares were paid in full. (b) Neither the consolidation or merger of the Company with or into any other person nor the sale or other distribution to another person of all or substantially all the assets of the Company, in each case when permitted by Section 3, shall be deemed to be a liquidation, dissolution or winding up of the Company for the purposes of this Section 6. 3 IN WITNESS WHEREOF, the Company has caused this Certificate to be signed on this 29th day of March, 2001. COMMEMORATIVE BRANDS HOLDING CORP. By: /s/ David Fiore ------------------------------ David Fiore President and Chief Executive Officer STATE OF DELAWARE SECRETARY OF STATE DIVISION OF CORPORATIONS FILED 09:00 AM 03/30/2001 010158176-- 3251589 CERTIFICATE OF OWNERSHIP AND MERGER MERGING CBI/HONORS ACQUISITION CORP INTO COMMEMORATIVE BRANDS HOLDING CORP. (PURSUANT TO SECTION 253 OF THE GENERAL CORPORATION LAW OF DELAWARE) Commemorative Brands Holding Corp., a corporation incorporated on the 27th day of June, 2000, pursuant to the provisions of the General Corporation Law of the State of Delaware (the "Corporation"); DOES HEREBY CERTIFY that the Corporation owns 90% of the capital stock of CBI/Honors Acquisition Corp., a corporation incorporated on the 14th day of March, 2001, pursuant to the provisions of the General Corporation Law of the State of Delaware (the "CBI/Honors"), and that the Corporation, by a resolution of its Board of Directors duly adopted in a Unanimous Written Consent executed on the 28th day of March, 2001, determined to merge into itself CBI/Honors, which resolution is in the following words: WHEREAS, the Corporation owns 100% of the outstanding stock of CBI/Honors Acquisition Corp., a corporation organized and existing under the laws of the State of Delaware; WHEREAS, the Corporation desires to merge CBI/Honors Acquisition Corp. into itself, and to be possessed of all the estate, property, rights, privileges and franchises of CBI/Honors Acquisition Corp.; NOW, THEREFORE, BE IT RESOLVED, that the Corporation merge into itself CBI/Honors Acquisition Corp. and assumes all of CBI/Honors Acquisition Corp.'s liabilities and obligations; RESOLVED, that an officer of the Corporation be and is directed to make and execute a certificate of ownership and merger setting forth a copy of the resolution to merge CBI/Honors Acquisition Corp. and assume its liabilities and obligations, and the date of adoption of such resolution, and to file the same in the office of the Secretary of State of Delaware and within any other appropriate jurisdiction; RESOLVED, that the officers of the Corporation be, and they hereby are, authorized and directed to do all acts and things whatsoever, whether within or without the State of Delaware, which may be in any way necessary or proper to effect; RESOLVED that the effective time of the Certificate of Ownership and Merger setting forth a copy of these resolutions, and the time when the merger therein provided for shall become effective, shall be 4:30 p.m. (eastern standard time) on the date such certificate is filed. Dated: March 30, 2001 COMMEMORATIVE BRANDS HOLDING CORP. By: /s/ DAVID G. FIORE --------------------------- Name: David G. Fiore Title: President STATE OF DELAWARE SECRETARY OF STATE DIVISION OF CORPORATIONS FILED 05:00 PM 08/24/2001 010420870-- 3251589 COMMEMORATIVE BRANDS HOLDING CORP. AMENDED CERTIFICATE OF DESIGNATIONS OF SERIES A PREFERRED STOCK SETTING FORTH TIE POWERS, PREFERENCES, RIGHTS, QUALIFICATIONS, LIMITATIONS AND RESTRICTIONS OF SUCH PREFERRED STOCK Commemorative Brands Holding Corp. (the "Company"), a corporation organized and existing under and by virtue of the Delaware General Corporation Law (the "DGCL"), DOES HEREBY CERTIFY as follows: 1. The name of the Company is Commemorative Brands Holding Corp. 2. The date of filing of the original Certificate of Designations of Series A Preferred stock setting forth the powers, preferences, rights, qualifications, limitations and restrictions of such Preferred Stock (the "Series A Certificate of Designations") of the Company is July 27, 2000. 3. Resolutions were duly adopted, pursuant to Section 151 of the DGCL, setting forth a proposed amendment of the Series A Certificate of Designations of the Company and declaring said amendment advisable by unanimous written consent of the Board of Directors of the Company. 4. The Series A Certificate of Designations is hereby amended to read in its entirety as follows: Pursuant to Section 151 of the Delaware General Corporation Law, the undersigned DOES HEREBY CERTIFY that the Board of Directors of Commemorative Brands Holding Corp., a Delaware corporation (the "Company"), duly adopted the following resolutions on August 23rd, 2001, with the preferences and rights set forth therein having been fixed by the Board of Directors pursuant to Article 4B of the Company's Certificate of Incorporation and that such resolutions have not been modified and are in full force and effect: RESOLVED that, pursuant to Section 151 of the Delaware General Corporation Law and the authority vested in the Board of Directors of the Company by Article 4B of the Certificate of Incorporation of the Company, the Series A Certificate of Designations is hereby amended to increase the number of shares of the Company designated as Series A Preferred Stock by 200,000 shares (the "Additional Series A Shares") to a total number of 1,200,000 shares; and such Additional Series A Shares shall have the same powers, preferences, rights, qualifications, limitations and restrictions as the Series A Preferred Stock so designated prior to the date hereof as set forth in the Series A Certificate of Designations; RESOLVED that, the designation and number of shares thereof and the voting powers, preferences and relative, participating, optional and other special rights of the shares of such series, and the qualifications, limitations and restrictions thereof, are as follows: Section 1. DESIGNATION, NUMBER AND RANKING. (a) The shares of such series shall be designated as "Series A Preferred Stock" (the "Series A Preferred Stock"). The number of shares constituting the Series A Preferred Stock shall be 1,200,000. (b) The Series A Preferred Stock shall, with respect to dividend rights rank PARI PASSU, and, with respect to rights on liquidation, dissolution or winding up, rank senior to the Common Stock, par value $.01 per share, of the Company ("Common Stock"). Section 2. DIVIDENDS. Dividends on the Series A Preferred Stock shall be payable only when, as and if declared by the Board of Directors out of funds of the Company legally available therefor. Notwithstanding the foregoing, no dividends shall be payable on the Common Stock of the Company or on any other shares of capital stock of the Company unless equal dividends shall be payable on the Series A Preferred Stock. Section 3. VOTING RIGHTS. In addition to any voting rights required by law, the holders of shares of Series A Preferred Stock shall have the following voting tights: (a) Except as otherwise required by applicable law or by the provisions of paragraph (b) of this Section 3, each share of Series A Preferred Stock shall entitle the holder thereof to one vote, in person or by proxy, at any annual or special meeting of stockholders, on all matters presented to holders of Common Stock generally, voting together as a single class with the holders of the Common Stock. (b) Unless the consent or approval of a greater number of shares shall then be required by law, the affirmative vote of the holders of at least a majority of the outstanding shares of Series A Preferred Stock, voting separately as a single class, in person or by proxy, at an annual or special meeting of stockholders called for that purpose (or by written consent), shall be necessary to (i) amend, alter or repeal any provision of the Certificate of Incorporation or Bylaws of the Company so as to affect adversely any of the preferences, rights, powers or privileges of the Series A Preferred Stock or the holders thereof, and (ii) effect the consolidation or merger of the Company with or into any other person or the sale or other distribution to another person of all or substantially all of the assets of the Company, in either case so as to affect adversely any of the preferences, tights, powers or privileges of the Series A Preferred Stock or the holders thereof. 2 Section 4. CERTAIN RESTRICTIONS. Except as permitted in accordance with Section 2 above, so long as any share of Series A Preferred Stock shall be issued and outstanding, the Company shall not declare, pay or set aside for payment, any dividends on, or make any other distributions with respect to, any shares of Common Stock or other shares of capital stock of the Company ranking junior to the Series A Preferred Stock with respect to the payment of dividends or upon liquidation, dissolution or winding up, other than dividends payable in Common Stock or in another stock ranking junior to the Series A Preferred Stock as to dividend rights and rights on liquidation, dissolution and winding up. Section 5. REDEMPTION. The Company shall not have the right to redeem any shares of Series A Preferred Stock. Section 6. LIQUIDATION, DISSOLUTION OR WINDING UP. (a) In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company, the holders of shares of Series A Preferred Stock then outstanding shall be entitled to be paid out of the assets of the Company available for distribution to its stockholders, after and subject to the payment in full of all amounts required to be distributed to the holders of any class of stock of the Company ranking senior to the Series A Preferred Stock upon liquidation, dissolution or winding up (such stock being referred to herein as "Senior Stock") in respect of such stock, but before any payment shall be made to the holders of Common Stock or other capital stock of the Company ranking junior to the Series A Preferred Stock upon liquidation, dissolution or winding up (such stock being referred to herein as "Junior Stock"), an amount equal to $100 per share, plus all accrued and unpaid dividends thereon, if any. If upon any such liquidation, dissolution or winding up of the Company the remaining assets of the Company available for the distribution to its stockholders after payment in full of amounts required to be paid or distributed to holders of Senior Stock shall be insufficient to pay the holders of shares of Series A Preferred Stock and the holders of shares of capital stock of the Company ranking on a parity with the Series A Preferred Stock upon liquidation, dissolution or winding up (such stock being referred to herein as "Parity Stock") the full amount to which they shall share ratably in any distribution of the remaining assets and funds of the Company in proportion to the respective amounts which would otherwise be payable in respect of the shares held by them upon such distribution if all amounts payable on or with respect to said shares were paid in full. (b) Neither the consolidation or merger of the Company with or into any other person nor the sale or other distribution to another person of all or substantially all the assets of the Company, in each case when permitted by Section 3, shall be deemed to be a liquidation, dissolution or winding up of the Company for purposes of this Section 6. 3 IN WITNESS WHEREOF, COMMEMORATIVE BRANDS HOLDING CORP. has caused this Amended Certificate of Designations to be duly executed by its President on this 24th day of August, 2001. COMMEMORATIVE BRANDS HOLDING CORP. By: /s/ DAVID G. FIORE --------------------------------- Name: David G. Fiore Title: President STATE OF DELAWARE SECRETARY OF STATE DIVISION OF CORPORATIONS FILED 05:00 PM 09/06/2001 010442893-- 3251589 CERTIFICATE OF CORRECTION FILED TO CORRECT A CERTAIN ERROR IN THE CERTIFICATE OF AMENDED CERTIFICATE OF DESIGNATIONS OF SERIES A PREFERRED STOCK SETTING FORTH THE POWERS, PREFERENCES, RIGHTS, QUALIFICATIONS, LIMITATIONS AND RESTRICTIONS OF SUCH PREFERRED STOCK OF COMMEMORATIVE BRANDS HOLDING CORP. FILED IN THE OFFICE OF THE SECRETARY OF STATE OF DELAWARE ON AUGUST 24, 2001 Commemorative Brands Holding Corp., a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware, DOES HEREBY CERTIFY as follows: 1. The name of the corporation is Commemorative Brands Holding Corp. 2. Certificate of Designations of Series A Preferred Stock Setting Forth the Powers, Preferences, Rights, Qualifications, Limitations and Restrictions of such Preferred Stock was filed by the Secretary of State of Delaware on August 24, 2001 (the "Certificate") and the Certificate requires correction as permitted by subsection (F) of Section 103 of The General Corporation Law of the State of Delaware. 3. The inaccuracy or defect of said certificate to be corrected is as follows: Section 6(a) of the Certificate incorrectly omitted the words "to which they are entitled, the holders of shares of Series A Preferred Stock" from the last sentence. 4. Section 6(a) of the Certificate is corrected to read as follows: "In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company, the holders of shares of Series A Preferred Stock then outstanding shall be entitled to be paid out of the assets of the Company available for distribution to its stockholders, after and subject to the payment in full of all amounts required to be distributed to the holders of any class of stock of the Company ranking senior to the Series A Preferred Stock upon liquidation, dissolution or winding up (such stock being referred to herein as "Senior Stock") in respect of such stock, but before any payment shall be made to the holders of Common Stock or other capital stock of the Company ranking junior to the Series A Preferred Stock upon liquidation, dissolution or winding up (such stock being referred to herein as "Junior Stock"), an amount equal to $100 per share, plus all accrued and unpaid dividends thereon, if any. If upon any such liquidation, dissolution or winding up of the Company the remaining assets of the Company available for the distribution to its stockholders after payment in full of amounts required to be paid or distributed to holders of Senior Stock shall be insufficient to pay the holders of shares of Series A Preferred Stock and the holders of shares of capital stock of the Company ranking on a parity with the Series A Preferred Stock upon liquidation, dissolution or winding up (such stock being referred to herein as "Parity Stock") the full amount to which they are entitled, the holders of shares of Series A Preferred Stock shall share ratably in any distribution of the remaining assets and funds of the Company in proportion to the respective amounts which would otherwise be payable in respect of the shares held by them upon such distribution if all amounts payable on or with respect to said shares were paid in full." [REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK] 2 IN WITNESS WHEREOF, Commemorative Brands Holding Corp. has caused this Certificate of Correction to be signed by David G. Fiore, its President, this 5th day of September, 2001. By: /s/ David G. Fiore ----------------------------- Name: David G. Fiore Title: President CERTIFICATE OF ELIMINATION OF THE SERIES B PREFERRED STOCK OF COMMEMORATIVE BRANDS HOLDING CORP. COMMEMORATIVE BRANDS HOLDING CORP. (the "Corporation"), a corporation organized and existing under the General Corporation Law of the State of Delaware, DOES HEREBY CERTIFY THAT: 1. The board of directors of the Corporation, by the unanimous written consent of its members filed with the minutes of the board, duly adopted resolutions setting forth the proposed elimination of the Corporation's Series B Preferred Stock (the "Series B Preferred Stock") as set forth herein: RESOLVED, that no share of the Corporation's Series B Preferred Stock are outstanding and none will be issued; and FURTHER RESOLVED, that a Certificate of Elimination of the Series B Preferred Stock be filed with the Delaware Secretary of State which shall have the effect when filed and recorded in Delaware of eliminating from the Corporation's certificate of incorporation all reference to the Corporation's Series B Preferred Stock. 2. None of the authorized shares of the Corporation's Series B Preferred Stock are outstanding and no shares of the Corporation's Series B Preferred Stock will be issued. 3. In accordance with the provisions of Section 151 of the General Corporation Law of the State of Delaware, the Corporation's certificate of incorporation is hereby amended to eliminate all reference to the Series B Preferred Stock. IN WITNESS WHEREOF, the Corporation has caused this Certificate of Elimination to be signed this 19th day of December, 2001. By: /s/ David G. Fiore ----------------------------- Name: David G. Fiore Title: President EX-3.2 5 a2071988zex-3_2.txt EXHIBIT 3.2 EXHIBIT 3.2 BY-LAWS OF AMERICAN ACHIEVEMENT CORPORATION (F/K/A COMMEMORATIVE BRANDS HOLDING CORP.) BY-LAWS OF COMMEMORATIVE BRANDS HOLDING CORP. ARTICLE I Offices Section 1. The registered office of the Corporation shall be in the City of Dover, County of Kent, State of Delaware. The Corporation also may have offices at such other places, within or without the State of Delaware, as the Board of Directors determines from time to time or the business of the Corporation requires. Until such time as the Board of Directors otherwise determines, the Corporation shall also have an office in the City of New York, State of New York. ARTICLE II Meetings of Stockholders Section 1. PLACE OF MEETINGS. Except as otherwise provided in these By-laws, all meetings of the stockholders shall be held on such dates and at such times and places, within or without the State of Delaware, as shall be determined by the Board of Directors and as shall be stated in the notice of the meeting or in waivers of notice thereof. If the place of any meeting is not so fixed, it shall be held at the registered office of the Corporation in the State of Delaware. Section 2. ANNUAL MEETING. The annual meeting of stockholders for the election of directors and the transaction of such other proper business as may be brought before the meeting shall be held on such date after the close of the Corporation's fiscal year, and at such time, as the Board of Directors may from time to time determine. Section 3. SPECIAL MEETINGS. Special meetings of the stockholders, for any purpose or purposes, may be called by the Board of Directors or the President and shall be called by the President or the Secretary upon the written request of a majority of the directors. The request shall state the date, time, place and purpose or purposes of the proposed meeting. Section 4. NOTICE OF MEETINGS. Except as otherwise required or permitted by law, whenever the stockholders are required or permitted to take any action at a meeting, written notice thereof shall be given, stating the place, date and hour of the meeting and, unless it is the annual meeting, by or at whose direction it is being issued. The notice also shall designate the place where the stockholders list is available for examination, unless the list is kept at the place where the meeting is to be held. Notice of a special meeting also shall state the purpose or purposes for which the meeting is called. A copy of the notice of any meeting shall be delivered personally or shall be mailed, not less than 10 and not more than 60 days before the date of the meeting, to each stockholder entitled to vote at the meeting. If mailed, the notice shall be deemed -2- given when deposited in the United States mail, postage prepaid, directed to each stockholder at such stockholder's address as it appears on the records of the Corporation, unless such stockholder shall have filed with the Secretary of the Corporation a written request that such notices be mailed to some other address, in which case it shall be directed to such other address. Notice of any meeting of stockholders need not be given to any stockholder who shall attend the meeting, other than for the express purpose of objecting at the beginning thereof to the transaction of any business because the meeting is not lawfully called or convened, or who shall submit, either before or after the time stated therein, a signed waiver of notice. Unless the Board of Directors, after an adjournment is taken, shall fix a new record date for an adjourned meeting or unless the adjournment is for more than 30 days, notice of an adjourned meeting need not be given if the place, date and time to which the meeting shall be adjourned are announced at the meeting at which the adjournment is taken. Section 5. QUORUM. Except as otherwise provided by law or by the Certificate of Incorporation of the Corporation, at all meetings of stockholders the holders of a majority of the shares of the Corporation entitled to vote, present in person or represented by proxy, shall constitute a quorum for the transaction of business. Section 6. VOTING. Except as otherwise provided by law or by the Certificate of Incorporation of the Corporation, at any meeting of the stockholders every stockholder of record having the right to vote thereat shall be entitled to one vote for every share of stock standing in his name as of the record date and entitling him to so vote. A stockholder may vote in person or by proxy. Except as otherwise provided by law or by the Certificate of Incorporation, any corporate action to be taken by a vote of the stockholders, other than the election of directors, shall be authorized by the affirmative vote of a majority of the shares present or represented by proxy at the meeting and entitled to vote on the subject matter. Directors shall be elected as provided in Section 2 of Article III of these By-laws. Written ballots shall not be required for voting on any matter unless ordered by the chairman of the meeting, except that, unless otherwise provided in the Certificate of Incorporation of the Corporation, all elections of directors shall be by written ballot. Section 7. PROXIES. Every proxy shall be executed in writing by the stockholder or by his authorized representative, or otherwise as provided in the General Corporation Law of the State of Delaware (the "General Corporation Law"). Section 8. LIST OF STOCKHOLDERS. At least 10 days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing their addresses and the number of shares registered in their names as of the record date shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least 10 days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. Section 9. CONDUCT OF MEETINGS. At each meeting of the stockholders, the President or, in his absence, any one of the Vice Presidents (if any), in order of their seniority, -3- shall act as chairman of the meeting. The Secretary or, in his absence, any person appointed by the chairman of the meeting shall act as secretary of the meeting and shall keep the minutes thereof. The order of business at all meetings of the stockholders shall be as determined by the chairman of the meeting. Section 10. CONSENT OF STOCKHOLDERS IN LIEU OF MEETING. Unless otherwise provided in the Certificate of Incorporation of the Corporation, any action required to be taken or which may be taken at any annual or special meeting of stockholders may be taken without a meeting, without prior notice and without a vote, if a consent or consents in writing, setting forth the action so taken, shall be signed, in person or by proxy, by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted in person or by proxy and shall be delivered to the Corporation as required by law. Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing. ARTICLE III Board of Directors Section 1. NUMBER OF DIRECTORS. Except as otherwise provided in the Certificate of Incorporation of the Corporation, until such time as the Board of Directors determines otherwise, the number of directors shall initially be one (1). The number of directors may be reduced (but not to less than one) or increased from time to time by action of a majority of the whole Board, but no decrease may shorten the term of an incumbent director. When used in these By-laws, the term "whole Board" means the total number of directors which the Corporation would have if there were no vacancies. Section 2. ELECTION AND TERM. Except as otherwise provided by law, by the Certificate of Incorporation of the Corporation or by these By-laws, the directors shall be elected at the annual meeting of the stockholders and the persons receiving a plurality of the votes cast shall be so elected. Subject to his earlier death, resignation or removal as provided in Section 3 of this Article III, each director shall hold office until his successor shall have been elected and shall have qualified. Section 3. REMOVAL. A director may be removed at any time, with or without cause, by the holders of a majority of the shares then entitled to vote at an election of directors. Section 4. RESIGNATIONS. Any director may resign at any time by giving written notice of his resignation to the Corporation. A resignation shall take effect at the time specified therein or, if the time when it shall become effective shall not be specified therein, immediately upon its receipt, and, unless otherwise specified therein, the acceptance of a resignation shall not be necessary to make it effective. Section 5. VACANCIES. Except as otherwise provided in the Certificate of Incorporation of the Corporation, any vacancy in the Board of Directors arising from an increase -4- in the number of directors or otherwise may be filled by the vote of a majority of the directors then in office, although less than a quorum, or by a sole remaining director. Section 6. PLACE OF MEETINGS. Except as otherwise provided in these By-laws, all meetings of the Board of Directors shall be held at such places, within or without the State of Delaware, as the Board determines from time to time. Section 7. ANNUAL MEETING. The annual meeting of the Board of Directors shall be held either without notice immediately after the annual meeting of stockholders and in the same place, or as soon as practicable after the annual meeting of stockholders on such date and at such time and place as the Board determines from time to time. Section 8. REGULAR MEETINGS. Regular meetings of the Board of Directors shall be held on such dates and at such times and places as the Board determines from time to time. Notice of regular meetings need not be given, except as otherwise required by law. Section 9. SPECIAL MEETINGS. Special meetings of the Board of Directors, for any purpose or purposes, may be called by the President and shall be called by the President or the Secretary upon the written request of a majority of the directors. The request shall state the date, time, place and purpose or purposes of the proposed meeting. Section 10. NOTICE OF MEETINGS. Notice of each special meeting of the Board (and of each annual meeting which is not held immediately after, and in the same place as, the annual meeting of stockholders) shall be given, not later than 24 hours before the meeting is scheduled to commence, by the President or the Secretary and shall state the place, date and time of the meeting. Notice of each meeting may be delivered to a director by hand or given to a director orally (either by telephone or in person) or mailed, or sent by facsimile transmission to a director at his residence or usual place of business, provided, however, that if notice of less than 72 hours is given it may not be mailed. If mailed, the notice shall be deemed given when deposited in the United States mail, postage prepaid; and if sent by facsimile transmission, the notice shall be deemed given when transmitted with transmission confirmed. Notice of any meeting need not be given to any director who shall submit, either before or after the time stated therein, a signed waiver of notice or who shall attend the meeting, other than for the express purpose of objecting at the beginning thereof to the transaction of any business because the meeting is not lawfully called or convened. Notice of an adjourned meeting, including the place, date and time of the new meeting, shall be given to all directors not present at the time of the adjournment, and also to the other directors unless the place, date and time of the new meeting are announced at the meeting at the time at which the adjournment is taken. Section 11. QUORUM. Except as otherwise provided by law or in these By-laws, at all meetings of the Board of Directors a majority of the whole Board shall constitute a quorum for the transaction of business, and the vote of a majority of the directors present at a meeting at which a quorum is present shall be the act of the Board. A majority of the directors present, whether or not a quorum is present, may adjourn any meeting to another place, date and time. Section 12. CONDUCT OF MEETINGS. At each meeting of the Board of Directors, the President or, in his absence, a director chosen by a majority of the directors present shall act as -5- chairman of the meeting. The Secretary or, in his absence, any person appointed by the chairman of the meeting shall act as secretary of the meeting and keep the minutes thereof. The order of business at all meetings of the Board shall be as determined by the chairman of the meeting. Section 13. COMMITTEES OF THE BOARD. The Board of Directors, by resolution adopted by a majority of the whole Board, may designate an executive committee and other committees, each consisting of one or more directors. Each committee (including the members thereof) shall serve at the pleasure of the Board of Directors and shall keep minutes of its meetings and report the same to the Board. The Board of Directors may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member or members at any meeting of the committee. In addition, in the absence or disqualification of a member of a committee, if no alternate member has been designated by the Board of Directors, the member or members present at any meeting and not disqualified from voting, whether or not they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of the absent or disqualified member. Except as limited by law, each committee, to the extent provided in the resolution of the Board of Directors establishing it, shall have and may exercise all the powers and authority of the Board in the management of the business and affairs of the Corporation. Section 14. OPERATION OF COMMITTEES. A majority of all the members of a committee shall constitute a quorum for the transaction of business, and the vote of a majority of all the members of a committee present at a meeting at which a quorum is present shall be the act of the committee. Each committee shall adopt whatever other rules of procedure it determines for the conduct of its activities. Section 15. CONSENT TO ACTION. Any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting if all members of the Board or committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the Board or committee. Section 16. ATTENDANCE OTHER THAN IN PERSON. Members of the Board of Directors or any committee thereof may participate in a meeting of the Board or committee, as the case may be, by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and such participation shall constitute presence in person at the meeting. ARTICLE IV Officers Section 1. EXECUTIVE AND OTHER OFFICERS. The executive officers of the Corporation shall be a President, a Treasurer and a Secretary. The positions of President and Treasurer may be filled by the same individual. The Board of Directors also may elect or appoint one or more Vice Presidents (any of whom may be designated as Executive Vice Presidents or otherwise), and any other officers it deems necessary or desirable for the conduct of the business of the Corporation, each of whom shall have such powers and duties as the Board determines. -6- Any officer may devote less than all of his working time to his activities as such if the Board so approves. Section 2. DUTIES. (a) The President. The President shall be the chief executive officer and chief operating officer of the Corporation, and shall preside at all meetings of the stockholders and of the Board of Directors, and he shall be ex officio a member of all committees established by the Board. The President shall have general management of the business and affairs of the Corporation, subject to the control of the Board of Directors, and he shall have such other powers and duties as the Board assigns to him. (b) The Vice President. The Vice President or, if there shall be more than one, the Vice Presidents, if any, in the order of their seniority or in any other order determined by the Board of Directors, shall perform, in the absence or disability of the President, the duties and exercise the powers of the President, and shall have such other powers and duties as the Board or the President assigns to him or them. (c) The Secretary. Except as otherwise provided in these By-laws or as directed by the Board of Directors, the Secretary shall attend all meetings of the stockholders and the Board; he shall record the minutes of all proceedings in books to be kept for that purpose; he shall give notice of all meetings of the stockholders and special meetings of the Board; and he shall keep in safe custody the seal of the Corporation and, when authorized by the Board, he shall affix the same to any corporate instrument. The Secretary shall have such other powers and duties as the Board or the President assigns to him. (d) The Treasurer. Subject to the control of the Board, the Treasurer shall have the care and custody of the corporate funds and the books relating thereto; and he shall perform all other duties incident to the office of Treasurer. The Treasurer shall have such other powers and duties as the Board or the President assigns to him. Section 3. TERM; REMOVAL. Subject to his earlier death, resignation or removal, each officer shall hold his office until his successor shall have been elected or appointed and shall have qualified, or until his earlier death, resignation or removal. Any officer may be removed at any time, with or without cause, by the Board of Directors. Section 4. RESIGNATIONS. Any officer may resign at any time by giving written notice of his resignation to the Corporation. A resignation shall take effect at the time specified therein or, if the time when it shall become effective shall not be specified therein, immediately upon its receipt, and, unless otherwise specified therein, the acceptance of a resignation shall not be necessary to make it effective. Section 5. VACANCIES. If an office becomes vacant for any reason, the Board of Directors or the stockholders may fill the vacancy, and each officer so elected or appointed shall serve for the remainder of his predecessor's term and until his successor shall have been elected or appointed and shall have qualified. -7- ARTICLE V Provisions Relating to Stock Certificates and Stockholders Section 1. CERTIFICATES. Certificates for the Corporation's capital stock shall be in such form as required by law and as approved by the Board of Directors. Each certificate shall be signed in the name of the Corporation by the President or any Vice President and by the Secretary-Treasurer, any Assistant Secretary or any Assistant Treasurer. Any or all of the signatures on a certificate may be a facsimile. In case any officer, transfer agent or registrar who shall have signed or whose facsimile signature shall have been placed on any certificate shall have ceased to be such officer, transfer agent or registrar before the certificate shall be issued, the certificate may be issued by the Corporation with the same effect as if he were such officer, transfer agent or registrar at the date of issue. Section 2. REPLACEMENT CERTIFICATES. The Corporation may issue a new certificate of stock in place of any certificate theretofore issued by it, alleged to have been lost, stolen or destroyed, and the Board of Directors may require the owner of the lost, stolen or destroyed certificate, or such person's legal representative, to make an affidavit of that fact and to give the Corporation a bond sufficient to indemnify the Corporation against any claim that may be made against it on account of the alleged loss, theft or destruction of the certificate or the issuance of such new certificate. Section 3. TRANSFERS OF SHARES. Transfers of shares shall be registered on the books of the Corporation maintained for that purpose after due presentation of the stock certificates therefor, appropriately endorsed or accompanied by proper evidence of succession, assignment or authority to transfer. Section 4. RECORD DATE. For the purpose of determining the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or to express consent to corporate action in writing without a meeting, or for the purpose of determining stockholders entitled to receive payment of any dividend or other distribution or the allotment of any rights, or for the purpose of any other action, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board, and which record date shall not be more than 60 or less than 10 days before the date of any such meeting, shall not be more than 10 days after the date on which the Board fixes a record date for any such consent in writing, and shall not be more than 60 days prior to any other action. ARTICLE VI Indemnification Section 1. INDEMNIFICATION. Unless otherwise determined by the Board of Directors, the Corporation shall, to the fullest extent permitted by the General Corporation Law (including, without limitation, Section 145 thereof) or other provisions of the laws of Delaware relating to indemnification of directors, officers, employees and agents, as the same may be -8- amended and supplemented from time to time, indemnify any and all such persons whom it shall have power to indemnify under the General Corporation Law or such other provisions of law. Section 2. STATUTORY INDEMNIFICATION. Without limiting the generality of Section 1 of this Article VI, to the fullest extent permitted, and subject to the conditions imposed, by law, and pursuant to Section 145 of the General Corporation Law, unless otherwise determined by the Board of Directors: (i) the Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding whether civil, criminal, administrative or investigative (other than an action by or in the right of the Corporation) by reason of the fact that such person is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against reasonable expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if such person acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful; and (ii) the Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the Corporation to procure a judgment in its favor by reason of the fact that such person is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against reasonable expenses (including attorneys' fees) actually and reasonably incurred by him in connection with the defense or settlement of such action or suit if such person acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation, except as otherwise provided by law. Section 3. INDEMNIFICATION BY RESOLUTION OF STOCKHOLDERS OR DIRECTORS OR AGREEMENT. To the fullest extent permitted by law, indemnification may be granted, and expenses may be advanced, to the persons described in Section 145 of the General Corporation Law or other provisions of the laws of Delaware relating to indemnification and advancement of expenses, as from time to time may be in effect, by (i) a resolution of stockholders, (ii) a resolution of the Board of Directors, or (iii) an agreement providing for such indemnification and advancement of expenses. Section 4. GENERAL. It is the intent of this Article VI to require the Corporation, unless otherwise determined by the Board of Directors, to indemnify the persons referred to herein for judgments, fines, penalties, amounts paid in settlement and reasonable expenses (including attorneys' fees), and to advance expenses to such persons, in each and every circumstance in which such indemnification and such advancement of expenses could lawfully be permitted by express provision of by-laws, and the indemnification and expense advancement provided by this Article VI shall not be limited by the absence of an express recital of such circumstances. The indemnification and advancement of expenses provided by, or granted -9- pursuant to, these By-laws shall not be deemed exclusive of any other rights to which a person seeking indemnification or advancement of expenses may be entitled, whether as a matter of law, under any provision of the Certificate of Incorporation of the Corporation, these By-laws, by agreement, by vote of stockholders or disinterested directors of the Corporation or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office. Section 5. INDEMNIFICATION BENEFITS. Indemnification pursuant to these By-laws shall inure to the benefit of the heirs, executors, administrators and personal representatives of those entitled to indemnification. ARTICLE VII General Provisions Section 1. DIVIDENDS. To the extent permitted by law, the Board of Directors shall have full power and discretion, subject to the provisions of the Certificate of Incorporation of the Corporation and the terms of any other corporate document or instrument binding upon the Corporation, to determine what, if any, dividends or distributions shall be declared and paid or made. Section 2. SEAL. The Corporation's seal shall be in such form as is required by law and as shall be approved by the Board of Directors. Section 3. FISCAL YEAR. The fiscal year of the Corporation shall end on the last Saturday of August of each year. Section 4. VOTING SHARES IN OTHER CORPORATIONS. Unless otherwise directed by the Board of Directors, shares in other corporations that are held by the Corporation shall be represented and voted only by the President or by a proxy or proxies appointed by him. ARTICLE VIII Amendments Section 1. By-Laws may be adopted, amended or repealed by the Board of Directors, provided the conferral of such power on the Board shall not divest the stockholders of the power, or limit their power, to adopt, amend or repeal By-laws. -10- s EX-3.3 6 a2071988zex-3_3.txt EXHIBIT 3.3 EXHIBIT 3.3 CERTIFICATE OF INCORPORATION OF COMMEMORATIVE BRANDS, INC. WITH ALL AMENDMENTS (F/K/A SCHOLASTIC BRANDS, INC., CLASS RINGS, INC. AND KEEPSAKE JEWELRY, INC.) CERTIFICATE OF INCORPORATION OF KEEPSAKE JEWELRY, INC. 1. The name of the corporation is Keepsake Jewelry, Inc. (the "Corporation"). 2. The address of the Corporation's registered office in the State of Delaware is 9 East Loockerman Street, County of Kent, Dover, Delaware 19901. National Corporate Research, Ltd. is the Corporation's registered agent at that address. 3. The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware (the "General Corporation Law"). 4. The Corporation shall have authority to issue one thousand (1,000) shares of Common Stock, par value one cent ($.01) per share. 5. The personal liability of the directors of the Corporation is hereby eliminated to the fullest extent permitted by the General Corporation Law (including, without limitation, paragraph (7) of subsection (b) of Section 102 thereof), as the same may be amended and supplemented from time to time. 6. The Board of Directors shall have the power to adopt, amend or repeal By-laws of the Corporation, subject to the right of the stockholders of the Corporation to adopt, amend or repeal any By-law. 7. The Corporation shall, to the fullest extent permitted by the General Corporation Law (including, without limitation, Section l45 thereof), as the same may be amended and supplemented from time to time, indemnify any and all persons whom it shall have -2- power to indemnify under the General Corporation Law. The indemnification provided for herein shall not be deemed exclusive of any other rights to which those seeking indemnification may be entitled whether as a matter of law, under any By-law of the Corporation, by agreement, by vote of stockholders or disinterested directors of the Corporation or otherwise. 8. The election of directors of the Corporation need not be by written ballot, unless the By-laws of the Corporation otherwise provide. 9. Janet C. Walden is the sole incorporator and her mailing address is c/o Schulte Roth & Zabel LLP, 900 Third Avenue, New York, New York 10022. Date: March 28, 1996. /s/ Janet C. Walden ------------------------------------ Janet C. Walden, Sole Incorporator -3- CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION OF KEEPSAKE JEWELRY, INC. KEEPSAKE JEWELRY, INC. (the "Corporation"), a corporation organized and existing under the General Corporation Law of the State of Delaware, DOES HEREBY CERTIFY THAT: 1. The board or directors of the Corporation, by the unanimous written consent of its members filed with the minutes of the board, duly adopted a resolution proposing and declaring advisable, in accordance with Section 242 of the General Corporation Law of the State of Delaware, the following amendment to the Certificate of Incorporation of the Corporation: Article First of the Certificate of Incorporation of the Corporation is hereby amended to read in its entirety as follows: "FIRST, The name of the corporation is CLASS RINGS, INC." 2. The aforesaid amendment was duly adopted by the written consent of the sole stockholder of the Corporation in accordance with Section 242 of the General Corporation Law of the State of Delaware. IN WITNESS WHEREOF, the Corporation has caused this Certificate to be signed this 14th day of May, 1996. By: /s/ David B. Pittaway --------------------------------- Name: David B. Pittaway Title: President -2- CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION OF CLASS RINGS, INC. CLASS RINGS, INC. (the "Corporation"), a corporation organized and existing under the General Corporation Law of the Stare of Delaware, DOES HEREBY CERTIFY THAT: 1. The board of directors of the Corporation, by the unanimous written consent of its members filed with the minute of the board, duly adopted a resolution proposing and declaring advisable, in accordance with Section 242 of the General Corporation Law of the State of Delaware, the following amendment to the Certificate of Incorporation of the Corporation: Article First of the Certificate of Incorporation of the Corporation is hereby amended to read in its entirety as follows: "FIRST, The name of the corporation is SCHOLASTIC BRANDS, INC." 2. The aforesaid amendment was duly adopted by the written consent of the sole stockholder of the Corporation in accordance with Section 242 of the General Corporation Law of the State of Delaware. IN WITNESS WHEREOF, the Corporation has caused this Certificate to be signed this 18th day of November 1996. By: /s/ David B. Pittaway --------------------------------------- Name: David B. Pittaway Title: President -2- CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION OF SCHOLASTIC BRANDS, INC. SCHOLASTIC BRANDS, INC. (the "Corporation"), a corporation organized and existing under the General Corporation Law of the State of Delaware, does hereby certify that: 1. The board of directors of the Corporation, by the unanimous written consent of its members filed with the minutes of the board, duly adopted a resolution proposing and declaring advisable, in accordance with Section 242 of the General Corporation Law of the State of Delaware, the following amendment to the Certificate of Incorporation of the Corporation: Article 4 of the Certificate of Incorporation of the Corporation is hereby amended to read in its entirety as follows: "4A. The Corporation shall have authority to issue Seven Hundred Fifty Thousand (750,000) shares of Common Stock, par value $.01 per share, and Seven Hundred Fifty Thousand (750,000) shares of Preferred Stock, par value $.01 per share. 4B. Shares of Preferred Stock may be issued by the Corporation from time to time in one or more classes or series, with such designations, powers, privileges, preferences and relative, participating, optional or other rights, if any, and such qualifications, limitations or restrictions thereon, as are permitted by law and as the Board of Directors shall from time to time provide for by resolution or resolutions duly adopted, including, without limitation, voting powers, if any (including multiple or fractional votes per share), dividend rights, if any (including dividend preferences or limited or unlimited dividend participation), conversion rights, mandatory or optional redemption rights or restrictions and preferences, on limited or unlimited participation or in the amount to be paid on liquidation, and the Board of Directors is hereby authorized to fix and determine the powers, privileges, preferences and rights of any series of Preferred Stock (including, but not limited to, applicable conversion or redemption rates or prices or dividend rate), and to fix the number of shares constituting any such series and to increase or decrease the number of shares of any such series (but not below the number of shares thereof then outstanding). In case the number of shares of any series shall be so decreased, the shares constituting such decrease shall resume the status which they had prior to the adoption of the resolution originally fixing the number of shares of such series." 2. The aforesaid amendment was duly adopted by the written consent of the sole stockholder of the Corporation in accordance with Section 242 and 228 of the General Corporation Law of the State of Delaware. IN WITNESS WHEREOF, the Corporation has caused this Certificate to be signed this 10th day of December 1996. By: /s/ David B. Pittaway -------------------------------------- Name: David B. Pittaway Title: President -2- SCHOLASTIC BRANDS, INC. CERTIFICATE OF DESIGNATIONS OF SERIES A PREFERRED STOCK SETTING FORTH THE POWERS, PREFERENCES, RIGHTS, QUALIFICATIONS, LIMITATIONS AND RESTRICTIONS OF SUCH PREFERRED STOCK Pursuant to Section 151 of the Delaware General Corporation Law, the undersigned DOES HEREBY CERTIFY that the Board of Directors of Scholastic Brands, Inc., a Delaware corporation (the "Corporation"), duly adopted the following resolution on December 10, l996, with the preferences and rights set forth therein having been fixed by the Board of Directors pursuant to Article 4 of the Corporation's Certificate of Incorporation, as amended, and that such resolution has not been modified and is in full force and effect: RESOLVED that, pursuant to the authority vested in the Board of Directors of the Corporation in accordance with the provisions of the Certificate of Incorporation of the Corporation, as amended (the "Certificate of Incorporation"), a series of preferred stock of the Corporation is hereby created and that the designation and number of shares thereof and the voting powers, preferences and relative, participating, optional and other special rights of the shares of such series, and the qualifications, limitations and restrictions thereof, are as follows: Section 1. DESIGNATION, NUMBER AND RANKING. (a) The shares of such series shall be designated us "Series A Preferred Stock" (the "Series A Preferred Stock"). The number of shares constituting the Series A Preferred Stock shall be 100,000. (b) The Series A Preferred Stock shall, with respect to dividend rights and rights on liquidation, dissolution or winding up, rank senior to the Series B Preferred Stock, par value $.01 per share, of the Corporation ("Series B Preferred Stock") and the Common Stock, par value $.01 per share, of the Corporation ("Common Stock") and shall, at all times and wit respect to dividend rights and rights on liquidation, dissolution and winding-up, rank senior to all other classes and series of capital stock of the Corporation, other than capital stock authorized as provided in Section 3(b), now or hereafter authorized. Section 2. DIVIDENDS. (a) The holders of shares of Series A Preferred Stock shall be entitled to receive, when, as and if declared by the Board of Directors, out of funds of the Corporation legally available therefor, cumulative dividends at an annual rate on the Liquidation Preference (as defined in Section 6 below) thereof equal to 12%, calculated on the basis of a 360-day year consisting of twelve 30-day months, accruing and payable in equal quarterly payments, in cash in immediately available funds on the last Business Day (as defined in paragraph (e) below) of January, April, July and October in each year (each such date being referred to herein as a "Quarterly Dividend Payment Date"), commencing January 31, 1997. (b) Dividends payable pursuant to Section 2(a) shall begin to accrue and be cumulative from the date on which the shares of Series A Preferred Stock are issued, and shall accrue on a daily basis, in each case whether or not declared and whether or not in any fiscal year there shall be surplus, net profits or the assets of the Company legally available for the payment of dividends. All dividends declared upon Series A Preferred Stock shall be paid pro rata to the holders entitled thereto. The Board of Directors may fix a record date for the determination of holders of shares of Series A Preferred Stock entitled to receive payment of the dividends payable pursuant to Section 2(a), which record date shall be no more than 60 days or less than 10 days prior to the date fixed for the payment thereof. Accumulated but unpaid dividends for any past quarterly dividend periods may be declared and paid at any time, without reference to any regular Quarterly Dividend Payment Date, to holders of record on such date, not more than 60 days nor less than 10 days preceding the payment date thereof, as may be fixed by the Board of Directors. (c) No dividends shall be paid upon, or declared and set apart for payment on, any shares of Series A Preferred Stock, unless and until all the cumulative dividends required to be paid to the holders of the shares of Series A Preferred Stock for all prior dividend periods shall have been declared and paid in full. (d) The holders of shares of Series A Preferred Stock shall not be entitled to receive any dividends except as provided herein. (e) For the purpose of this Certificate of Designations, "Business Day" shall mean any day other than a Saturday, Sunday or other day on which commercial banks in the City of New York are authorized or required by law or executive order to close. Section 3. VOTING RIGHTS. In addition to any voting rights required by law, unless the consent or approval of a greater number of shares shall then be required by law, the affirmative vote of the holders of at least a majority of the outstanding shares of Series A Preferred Stock, voting separately as a single class, in person or by proxy, at a special or annual meeting of stockholders called for that purpose (or by written consent), shall be necessary to (i) amend, alter or repeal any provision of the Certificate of Incorporation or Bylaws of the Corporation so us to affect adversely any of the preferences, rights, powers or privileges of the Series A Preferred Stock or the holders thereof, and (ii) effect the consolidation or merger of the Corporation with or into any other person or the sale or other distribution to another person of all or substantially all of the assets of the Corporation, in either case so as to affect adversely any of the preferences, rights, powers or privileges of the Series A Preferred Stock or the holders thereof. Section 4. CERTAIN RESTRICTIONS. So long as any share of Series A Preferred Stock shall be issued and outstanding, the Corporation shall not declare, pay or set aside for payment, any dividends on, or make any other distributions with respect to, or redeem or otherwise repurchase, any shares of Common Stock or other shares of capital stock of the Corporation ranking, as to -2- dividend rights or rights on liquidation, dissolution or winding up, junior to the Series A Preferred Stock, other than dividends payable in Common Stock or in another stock ranking junior to the Series A Preferred Stock as to dividend rights and rights on liquidation, dissolution and winding up. Section 5. REDEMPTION. (a) The Corporation, at its option, may redeem all or any portion of the outstanding shares of Series A Preferred Stock at the liquidation preference of $100 per share plus an amount equal to any dividends thereon cumulated or accrued but unpaid, whether or not declared, if any, to the date fixed for redemption (such amount being referred to herein as the "Redemption Price"), at any time or from time to time (any such date of redemption being referred to herein as a "Redemption Date"). (b) In the event of any redemption of only a part of the then outstanding Series A Preferred Stock, the Corporation should effect such redemption PRO RATA among the holders thereof (based on the number of shares of Series A Preferred Stock held on the date of notice of redemption). (c) At least thirty (30) days prior to any proposed Redemption Date, written notice shall be mailed, postage prepaid, to each holder of record of Series A Preferred Stock to be redeemed, at his or its post office address last shown on the records of the Corporation, notifying such holder of the number of shares so to be redeemed, specifying the Redemption Date and calling upon such holder to surrender to the Corporation, in the manner and at the place designated, his or its certificate or certificate(s) representing the shares to be redeemed (such notice being referred to herein as the "Redemption Notice"). On or prior to each Redemption Date, each holder of record of Series A Preferred Stock to be redeemed shall surrender his or its certificate or certificates representing such shares to the Corporation, in the manner and at the place designated in the Redemption Notice, and thereupon the Redemption Price of such shares shall be payable to the order of the person whose name appears on such certificate or certificates as the owner thereof and each surrendered certificate shall be canceled. In the event less than all the shares represented by any such certificate are redeemed, a new certificate shall be issued representing the unredeemed shares. From and after the Redemption Date, unless there shall have been a default in payment of the Redemption Price, all rights of the holders of the Series A Preferred Stock designated for redemption in the Redemption Notice as holders of Series A Preferred Stock of the Corporation (except for the right to receive the Redemption Price upon surrender of their certificate or certificates) shall cease with respect to such shares, and such shares shall not thereafter be transferred on the books of the Corporation or be deemed outstanding for any purpose whatsoever. (d) Except as provided in paragraph (a) above, the Corporation shall have no right to redeem the shares of Series A Preferred Stock. Any shares of Series A Preferred Stock so redeemed shall be permanently retired, shall no longer be deemed outstanding and shall not under any circumstances be reissued, and the Corporation may from time to time take such appropriate corporate action as may be necessary to reduce the amount of authorized Series A Preferred Stock accordingly. Nothing herein contained shall prevent or restrict the purchase by the Corporation, from time to time either at public or private sale, of the whole or -3- any part of the Series A Preferred Stock at such price or prices as the Corporation and the selling holders of the Series A Preferred Stock may mutually determine, subject to the provisions of applicable law. Section 6. LIQUIDATION, DISSOLUTION OR WINDING UP. (a) In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Corporation, the holders of shares of Series A Preferred Stock then outstanding shall be entitled to be paid out of the assets of the Corporation available for distribution to its stockholders before any payment shall be made to the holders of the Series B Preferred Stock, the Common Stock or any other capital stock of the Corporation ranking Junior to the Series A Preferred Stock upon liquidation, dissolution or winding up (such stock being referred to herein as "Junior Stock"), an amount equal to $100 per share (the "Liquidation Preference"), plus any dividends thereon cumulated or accrued but unpaid, whether or not declared, if any. If upon any such liquidation, dissolution or winding up of lb. Corporation the remaining assets of the Corporation available for the distribution to its stockholders shall be insufficient to pay the holders of shares of Series A Preferred Stock and the holders of shares of capital stock of the Corporation ranking on a parity with the Series A Preferred Stock upon liquidation, dissolution or winding up (such stock being referred to herein as "Parity Stock") the full amount to which they shall be entitled, the holders of shares of Series A Preferred Stock and shares of Parity Stock shall share ratably in any distribution of the remaining assets and funds of the Corporation in proportion to the respective amounts which would otherwise be payable in respect of the shares held by thorn upon such distribution if all amounts payable on or with respect to said shares were paid in full. (b) Neither the consolidation or merger of the Corporation with or into any other person nor the sale or other distribution to another person of all or substantially all the assets of the Corporation, in each case when permitted by Section 3(b), shall be deemed to be a liquidation, dissolution or winding up of the Corporation for purposes of this Section 6. IN WITNESS WHEREOF, Scholastic Brands, Inc. has caused this Certificate of Designations to be duly executed by its President on this 12th day of December, 1996. SCHOLASTIC BRANDS, INC. By: /s/ David B. Pittaway ------------------------------------ Name: David B. Pittaway Title: President -4- SCHOLASTIC BRANDS, INC. CERTIFICATE OF DESIGNATIONS OF SERIES B PREFERRED STOCK SETTING FORTH THE POWERS, PREFERENCES, RIGHTS, QUALIFICATIONS, LIMITATIONS AND RESTRICTIONS OF SUCH PREFERRED STOCK Pursuant to Section 151 of the Delaware General Corporation Law, the undersigned DOES HEREBY CERTIFY that the Board of Directors of Scholastic Brenda, Inc., a Delaware corporation (the "Corporation"), duly adopted the following resolution on December 10, 1996, with the preferences and rights set forth therein having been filed by the Board of Directors pursuant to Article 4 of the Corporation's Certificate of Incorporation, as amended, and that such resolution has not been modified and is in full force and effect: RESOLVED that, pursuant to the authority vested in the Board of Directors of the Corporation in accordance with the provisions of the Certificate of Incorporation of the Corporation, as amended (the "Certificate of Incorporation"), a series of preferred stock of the Corporation is hereby created and that the designation and number of shares thereof and the voting powers, preferences and relative, participating, optional and other special rights of the shares of such series, and the qualifications, limitations and restrictions thereof, are as follows: Section 1. DESIGNATION, NUMBER AND RANKING. (a) The shares of such series shall be designated as "Series B Preferred Stock" (the "Series B Preferred Stock"). The number of shares constituting the Series B Preferred Stock shall be 375,000. (b) The Series B Preferred Stock shall, with respect to dividend rights and rights on liquidation, dissolution or winding up, rank junior to the Series A Preferred Stock, par value $.01 per share, of the Corporation ("Series A Preferred Stock") and shall rank senior to the Common Stock par value $.01 per share, of the Corporation ("Common Stock"). Section 2. DIVIDENDS. No dividends shall accrue on the Series B Preferred Stock. Dividends on the Series B Preferred Stock shall be payable only when, as and if declared by the Board of Directors out of funds of the Corporation legally available therefor. Section 3. VOTING RIGHTS. In addition to any voting rights required by law, the holders of shares of Series B Preferred Stock shall have the following voting rights: (a) Except as otherwise required by applicable law or by the provisions of paragraph (b) of this Section 3, each share of Series B Preferred Stock shall entitle the holder thereof to one vote, in person or by proxy, at any annual or special meeting of stockholders, on all matters presented to holders of Common Stock generally, voting together as a single class with the holders of the Common Stock. (b) Unless the consent or approval of a greater number of shares shall then be required by law, the affirmative vote of the holders of at least a majority of the outstanding shares of Series B Preferred Stock, voting separately as a single class, in person or by proxy, at an annual or special meeting of stockholders, called for that purpose (or by written consent), shall be necessary to (i) amend, alter or repeal any provision of the Certificate of Incorporation or Bylaws of the Corporation so as to affect adversely any of the preferences, rights, powers or privileges of the Series B Preferred Stock or the holders thereof, and (ii) effect the consolidation or merger of the Corporation with or into any other person or the sale or other distribution to another person of all or substantially all of the assets of the Corporation, in either case so as to affect adversely any of the preferences, rights, powers or privileges of the Series B Preferred Stock or the holders thereof. Section 4. CERTAIN RESTRICTIONS. So long as any share of Series B Preferred Stock shall be issued and outstanding, the Corporation shall not declare, pay or set aside for payment, any dividends on, or make any other distributions with respect to any shares of Common Stock or other shares of capital stock of the Corporation ranking junior to the Series B Preferred Stock with respect to the payment of dividend or upon liquidation, dissolution or winding up, other than dividends payable in Common Stock or in another stock ranking junior to the Series B Preferred Stock as to dividend rights and rights on liquidation, dissolution and winding up. Section 5. REDEMPTION. The Corporation shall not have the right to redeem any shares of Series B Preferred Stock Section 6. LIQUIDATION, DISSOLUTION OR WINDING UP. (a) In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Corporation, the holder of shares of Series B Preferred Stock then outstanding shall be entitled to be paid out of the assets of the Corporation available for distribution to its Stockholders, after and subject to the payment in full of all amounts required to be distributed to the holders of the Series A Preferred Stock and any other class of stock of the Corporation ranking senior to the Series B Preferred Stock upon liquidation, dissolution or winding-up (such stock being referred to herein as "Senior Stock") in respect of such stock, but before any payment shall be made to the holders of Common Stock or other capital stock of the -2- Corporation ranking junior to the Series B Preferred Stock upon liquidation, dissolution or winding up (such stock being referred to herein as "Junior Stock"), an amount equal to $100 per share, plus all accrued and unpaid dividends thereon, if any. If upon any such liquidation, dissolution or winding up of the Corporation the remaining assets of the Corporation available for the distribution to its stockholders after payment in full of amounts required to be paid or distributed to holders of Senior Stock shall be insufficient to pay the holders of shares of Series B Preferred Stock and the holder of shares of capital stock of the Corporation ranking on a parity with the Series B Preferred Stock upon liquidation, dissolution or winding up (such stock being referred to herein as "Parity Stock") the full amount to which they shall be entitled, the holders of shares of Series B Preferred Stock and shares of Parity Stock shall share ratably in any distribution of the remaining assets and funds of the Corporation in proportion to the respective amounts which would otherwise be payable in respect of the shares held by them upon such distribution if all amounts payable on or with respect to said shares were paid in full. (b) Neither the consolidation or merger of the Corporation with or into any other person nor the sale or other distribution to another person of all or substantially all the assets of the Corporation, in each case when permitted by Section 3(b), shall be deemed to be a liquidation, dissolution or winding up of the Corporation for purposes of this Section 6. IN WITNESS WHEREOF, Scholastic Brands, Inc. has caused this Certificate of Designations to be duly executed by its President on this 12th day of December, 1996. SCHOLASTIC BRANDS, INC. By: /s/ David B. Pittaway ----------------------------------- Name: David B. Pittaway Title: President -3- CERTIFICATE OF AMENDMENT OF CERTIFICATE OP INCORPORATION OF SCHOLASTIC BRANDS, INC. SCHOLASTIC BRANDS, INC. (the "Corporation"), a corporation organized and existing under the General Corporation Law of the State of Delaware, DOES HEREBY CERTIFY THAT: 1. The board of directors of the Corporation, by the unanimous written consent of its members filed with the minutes of the board, duly adopted a resolution proposing and declaring advisable, in accordance with Section 242 of the General Corporation Law of the State of Delaware, the following amendment to the Certificate of Incorporation of the Corporation: Article First of the Certificate of Incorporation 0f the Corporation is hereby amended to read in its entirety as follows: "FIRST. The name of the corporation is COMMEMORATIVE BRANDS, INC. 2. The aforesaid amendment was duly adopted by the written consent of the sole stockholder of the Corporation in accordance with Section 242 of the General Corporation Law of the State of Delaware. IN WITNESS WHEREOF, the Corporation has caused this Certificate to be signed this 16th day of December, 1996. By: /s/ David B. Pittaway ------------------------------------ Name: David B. Pittaway Title: President -2- COMMEMORATIVE BRANDS, INC. CERTIFICATE OF CORRECTION FILED TO CORRECT CERTAIN ERRORS IN THE CERTIFICATE OF DESIGNATIONS OF SERIES A PREFERRED STOCK SETTING FORTH THE POWERS, PREFERENCES, RIGHTS, QUALIFICATIONS, LIMITATIONS AND RESTRICTIONS OF SUCH PREFERRED STOCK FILED IN THE OFFICE OF THE SECRETARY OF STATE OF DELAWARE ON DECEMBER 13, 1996. Commemorative Brands, Inc. (the "Corporation"), a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware (the "DGCL"), DOES HEREBY CERTIFY: 1. The name of the corporation is Commemorative Brands, Inc. 2. That a Certificate of Designations of Series A Preferred Stock setting forth the Powers, Preferences, Rights, Qualifications, Limitations and Restrictions of such Preferred Stock was filed by the Secretary of State of Delaware on December 13, 1996 and that said Certificate requires correction as permitted by Section 103 of the DGCL. 3. The inaccuracies or deficits of said Certificate to be corrected are as follows: (i) the following language was inadvertently omitted from the end of Section 4 of said Certificate; "and other than redemptions or repurchases of shares of Common Stock or other capital stock of the Corporation issued to or held by any officer, director, employee, independent sales representative, or agent of the Corporation or its subsidiaries (including, without limitation, any former officer, director, employee, independent sales representative or agent of the Corporation or its subsidiaries) or any employee stock ownership plan or similar trust for the account of any such person;" (ii) Sections 1(b) and 6(b) of said Certificate inaccurately reference Section 3(b) instead of Section 3; and (iii) the last sentence of Section 3 of said Certificate was inadvertently omitted. -3- 4. Section 1(b) of said Certificate is hereby corrected to read in its entirety as follows: "(b) The Series A Preferred Stock shall, with respect to dividend rights and rights on liquidation, dissolution or winding up, rank senior to the Series B Preferred Stock, par value $.01 per share, of the Corporation ("Series B Preferred Stock") and the Common Stock, par value $.01 per share, of the Corporation ("Common Stock") and shall, at all times and with respect to dividend rights and rights on liquidation, dissolution and winding-up, rank senior to all other classes and series of capital stock of the Corporation, other than capital stock authorized as provided in Section 3, now or hereafter authorized." 5. Section 3 of said Certificate is hereby corrected to read in its entirety as follows: "Section 3. VOTING RIGHTS. "In addition to any voting rights required by law, unless the consent or approval of a greater number of shares shall then be required by law, the affirmative vote of the holders of at least a majority of the outstanding shares of Series A Preferred Stock, voting separately as a single class, in person or by proxy, at a special or annual meeting of stockholders called for that purpose (or by written consent), shall be necessary to (i) amend, alter or repeal any provision of the Certificate of Incorporation or Bylaws of the Corporation so as to affect adversely any of the preferences, rights, powers or privileges of the Series A Preferred Stock or the holders thereof, and (ii) effect the consolidation or merger of the Corporation with or into any other person or the sale or other distribution to another person of all or substantially all of the assets of the Corporation, in either case so as to affect adversely any of the preferences, rights, power or privileges of the Series A Preferred Stock or the holders thereof. The outstanding shares of Series A Preferred Stock shall have no voting rights other than as set forth in this Section 3." 6. Section 4 of said Certificate is hereby corrected to read in its entirety as follows: "Section 4. CERTAIN RESTRICTIONS. So long as any share of Series A Preferred Stock shall be issued and outstanding, the Corporation shall not declare, pay or set aside for payment, any dividends on, or make any other distributions with respect to, or redeem or otherwise repurchase, any shares of Common Stock or other shares of capital stock of the Corporation tanking, as to dividend rights or rights on liquidation, dissolution or winding up, junior to the Series A Preferred Stock, other than dividends payable in Common Stock or in another stock ranking junior to the Series A Preferred Stock as to dividend rights and rights on liquidation, dissolution and winding up and other than -4- redemptions or repurchases of shares of Common Stock or other capital stock of the Corporation issued to or held by any officer, director, employee, independent sales representative or agent of the Corporation or its subsidiaries (including, without limitation, any former officer, director, employee, independent sales representative or agent of the Corporation or its subsidiaries) or any employee stock ownership plan or similar trust for the account of any such person." 7. Section 6(b) of said Certificate is hereby corrected to read In its entirety as follows: "(b) Neither the consolidation or merger of the Corporation with or into any other person nor the sale or other distribution to another person of all or substantially all of the assets of the Corporation, in each case when permitted by Section 3, shall be deemed to be a liquidation, dissolution or winding up of the Corporation for purposes of this Section 6." -5- IN WITNESS WHEREOF, the Corporation has caused this Certificate of Correction to be duly executed by its Chief Executive Officer on this 28 day of January, 1997. COMMEMORATIVE BRANDS, INC. By: /s/ Jeffrey Brennan ------------------------------------------ Name: Jeffrey Brennan Title: Chief Executive Officer & President -6- COMMEMORATIVE BRANDS, INC. CERTIFICATE OF INCREASE OF SERIES B PREFERRED STOCK The undersigned, being the duly elected and acting vice-president, secretary and treasurer of COMMEMORATIVE BRANDS, INC., a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware (the "Corporation"), DOES HEREBY CERTIFY THAT: 1. A Certificate of Designations of Series B Preferred Stock setting forth the Powers, Preferences, Rights, Qualifications, Limitations and Restrictions of Such Preferred Stock was filed by the Corporation with the Secretary of State of Delaware on December 13, 1996; and 2. Pursuant to Section 151 of the Delaware General Corporation Law, the Board of Directors of the Corporation duly adopted the following resolution by unanimous written consent dated June 2, 1998: RESOLVED that, pursuant to the authority vested in the Board of Directors of the Corporation by the provisions of the Certificate of Incorporation of the Corporation, as amended, the number of shares of the Corporation to be designated as Series B Preferred Stock is hereby increased by 50,000 shares (the "Additional Series B Shares"); and such Additional Series B Shares shall have the same Powers, Preferences, Rights, Qualifications, Limitations and Restrictions as the Series B Preferred Stock so designated prior to the date hereof as set forth in that certain Certificate of Designations of Series B Preferred Stock filed by the Corporation with the Secretary of State of the State of Delaware on December 13, 1996. IN WITNESS WHEREOF, the undersigned has duly executed this Certificate of Increase on behalf of the Corporation this 5th day of June, 1998. COMMEMORATIVE BRANDS, INC. By: /s/ Clyde W. Walls ------------------------------------- Name: Clyde W. Walls Title: Vice President, Secretary and Treasurer -7- COMMEMORATIVE BRANDS. INC. -------------------------- CERTIFICATE OF CORRECTION FILED TO CORRECT CERTAIN ERRORS IN THE CERTIFICATE OF INCREASE OF SERIES B PREFERRED STOCK FILED IN THE OFFICE OF THE SECRETARY OF STATE OF DELAWARE ON JUNE 28, 1999 Commemorative Brands, Inc. (the "Corporation"), a corporation organized and existing under and by virtue of the General Corporation law of the State of Delaware (the "DGCL"), DOES HEREBY CERTIFY: 1. The name of the corporation is Commemorative Brands, Inc. 2. That a Certificate of Increase of Series B Preferred Stock increasing the number of shares designated as Series B Preferred Stock was filed with the Secretary of State of Delaware on June 28, 1999 and that said Certificate requires correction as permitted by Section 103 of the DGCL. 3. The inaccuracies or defects of said Certificate to be corrected are as follows: (i) The prefatory language of Paragraph 3 of said Certificate incorrectly states that, "the Board of Directors of the Corporation duly adopted the following resolution by unanimous consent dated June 2, 1998." (ii) Said Certificate is incorrectly dated as the "25th day of June, 1998." 4. The prefatory language of Paragraph 3 of said Certificate is hereby corrected to read in its entirety as follows: "3. Pursuant to Section 151 of the Delaware General Corporation Law, the Board of Directors of the Corporation duly adopted the following resolution by unanimous written consent dated June 25, 1999;" 5. The date of said Certificate is hereby corrected to read the "25th day of June, 1999." IN WITNESS WHEREOF, the undersigned has duly executed this Certificate of Correction on behalf of the Corporation this 13th day of July, 1999. COMMEMORATIVE BRANDS, INC. By: /s/ Clyde W. Walls ------------------------------------ Name: C. W. Walls Title: Vice President, Secretary and Treasurer -8- CERTIFICATE OF MERGER OF COMMEMORATIVE BRANDS ACQUISITION CORP. (A DELAWARE CORPORATION) WITH AND INTO COMMEMORATIVE BRANDS, INC. (A DELAWARE CORPORATION) Commemorative Brands, Inc. (the "Company"), which desires to effect the merger (the "Merger") of Commemorative Brands Acquisition Corp. with and into the Company pursuant to the provisions of Section 251 of the General Corporation law of the State of Delaware (the "GCL"), does hereby certify: 1. The constituent business corporations participating in the Merger are: (i) Commemorative Brands Acquisition Corp., which is incorporated under the laws of the State of Delaware. (ii) Commemorative Brands, Inc., which is incorporated under the laws of the State of Delaware. 2. An Agreement and Plan of Merger has been approved, adopted, certified, executed and acknowledged by each of the constituent corporations in accordance with the provisions of Section 251 of the GCL. 3. The name of the surviving corporation shall be Commemorative Brands, Inc. 4. The Certificate of Incorporation of the Company as now in force and effect, shall continue to be the Certificate of Incorporation of the surviving corporation. 5. The executed Agreement and Plan of Merger between the constituent corporations is on file at Commemorative Brands, Inc., 7211 Circle S Road, Austin, Texas 78745. 6. A copy of the aforesaid Agreement and Plan of Merger will be furnished by the surviving corporation upon request and without cost to any stockholder of either of the constituent corporations. -9- Dated: July 27, 2000 COMMEMORATIVE BRANDS, INC. By: /s/ David G. Fiore ---------------------------------- Name: David G. Fiore Title: President and CEO -10- COMMEMORATIVE BRANDS, INC. -------------------------- CERTIFICATE OF INCREASE OF SERIES B PREFERRED STOCK The undersigned, being the duly elected and acting vice-president, secretary and treasurer of COMMEMORATIVE BRANDS, INC., a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware (the "Corporation"), DOES HEREBY CERTIFY THAT: 1. A Certificate of Designations of Series B Preferred Stock setting forth the Powers, Preferences, Rights, Qualifications, Limitations and Restrictions of Such Preferred Stock was filed by the Corporation with the Secretary of State of Delaware on December 13, 1996; and 2. A Certificate of Increase of Series B Preferred Stock increasing by 50,000 the number of shares of the Corporation designated as Series B Preferred Stock was filed by the Corporation with the Secretary of State of Delaware on June 10, 1998; and 3. Pursuant to Section 151 of the Delaware General Corporation Law, the Board of Directors of the Corporation duly adopted the following resolution by unanimous written consent dated June 2, 1998: RESOLVED that, pursuant to the authority vested in the Board of Directors of the Corporation by the provisions of the Certificate of Incorporation of the Corporation, as amended, the number of shares of the Corporation to be designated as Series B Preferred Stock is hereby increased by 75,000 shares (the "Additional Series B Shares"); and such Additional Series B Shares shall have the same Powers, Preferences, Rights, Qualifications, Limitations and Restrictions as the Series B Preferred Stock so designated prior to the date hereof as set forth in that certain Certificate of Designations of Series B Preferred Stock filed by the Corporation with the Secretary of State of the State of Delaware on December 13, 1996. -11- IN WITNESS WHEREOF, the undersigned has duly executed this Certificate of Increase on behalf of the Corporation this 25th day of June, 1998. COMMEMORATIVE BRANDS, INC. By: /s/ Clyde W. Walls ------------------------------------- Name: Clyde W. Walls Title: Vice President, Secretary and Treasurer -12- EX-3.4 7 a2071988zex-3_4.txt EXHIBIT 3.4 EXHIBIT 3.4 BY-LAWS OF COMMEMORATIVE BRANDS, INC. (f/k/a SCHOLASTIC BRANDS, INC., CLASS RINGS, INC. AND KEEPSAKE JEWELRY, INC.) RESTATED BY-LAWS OF COMMEMORATIVE BRANDS, INC. (F/K/A SCHOLASTIC BRANDS, INC.) ARTICLE I OFFICES Section 1. The registered office of the Corporation shall be in the City of Dover, County of Kent, State of Delaware. The Corporation also may have offices at such other places, within or without the State of Delaware, as the Board of Directors determines from time to time or the business of the Corporation requires. Until such time as the Board of Directors otherwise determines, the Corporation shall also have an office in the City of New York, State of New York. ARTICLE II MEETINGS OF STOCKHOLDERS Section 1. PLACE OF MEETINGS. Except as otherwise provided in these By-laws, all meetings of the stockholders shall be held on such dates and at such times and places, within or without the State of Delaware, as shall be determined by the Board of Directors and as shall be stated in the notice of the meeting or in waivers of notice thereof. If the place of any meeting is not so fixed, it shall be held at the registered office of the Corporation in the State of Delaware. Section 2. ANNUAL MEETING. The annual meeting of stockholders for the election of directors and the transaction of such other proper business as may be brought before the -2- meeting shall be held on such date after the close of the Corporation's fiscal year, and at such time, as the Board of Directors may from time to time determine. Section 3. SPECIAL MEETINGS. Special meetings of the stockholders, for any purpose or purposes, may be called by the Board of Directors or the President and shall be called by the President or the Secretary upon the written request of a majority of the directors. The request shall state the date, time, place and purpose or purposes of the proposed meeting. Section 4. NOTICE OF MEETINGS. Except as otherwise required or permitted by law, whenever the stockholders are required or permitted to take any action at a meeting, written notice thereof shall be given, stating the place, date and hour of the meeting and, unless it is the annual meeting, by or at whose direction it is being issued. The notice also shall designate the place where the stockholders list is available for examination, unless the list is kept at the place where the meeting is to be held. Notice of a special meeting also shall state the purpose or purposes for which the meeting is called. A copy of the notice of any meeting shall be delivered personally or shall be mailed, not less than 10 and not more than 60 days before the date of the meeting, to each stockholder entitled to vote at the meeting. If mailed, the notice shall be deemed given when deposited in the United States mail, postage prepaid, directed to each stockholder at such stockholder's address as it appears on the records of the Corporation, unless such stockholder shall have filed with the Secretary of the Corporation a written request that such notices be mailed to some other address, in which case it shall be directed to such other address. Notice of any meeting of stockholders need not be given to any stockholder who shall attend the meeting, other than for the express purpose of objecting at the beginning thereof to the transaction of any business because the meeting is not lawfully called or convened, or who shall submit, either before or after the time stated therein, a signed waiver of notice. Unless the Board -3- of Directors, after an adjournment is taken, shall fix a new record date for an adjourned meeting or unless the adjournment is for more than 30 days, notice of an adjourned meeting need not be given if the place, date and time to which the meeting shall be adjourned are announced at the meeting at which the adjournment is taken. Section 5. QUORUM. Except as otherwise provided by law or by the Certificate of Incorporation of the Corporation, at all meetings of stockholders the holders of a majority of the shares of the Corporation entitled to vote, present in person or represented by proxy, shall constitute a quorum for the transaction of business. Section 6. VOTING. Except as otherwise provided by law or by the Certificate of Incorporation of the Corporation, at any meeting of the stockholders every stockholder of record having the right to vote thereat shall be entitled to one vote for every share of stock standing in his name as of the record date and entitling him to so vote. A stockholder may vote in person or by proxy. Except as otherwise provided by law or by the Certificate of Incorporation, any corporate action to be taken by a vote of the stockholders, other than the election of directors, shall be authorized by the affirmative vote of a majority of the shares present or represented by proxy at the meeting and entitled to vote on the subject matter. Directors shall be elected as provided in Section 2 of Article III of these By-laws. Written ballots shall not be required for voting on any matter unless ordered by the chairman of the meeting, except that, unless otherwise provided in the Certificate of Incorporation of the Corporation, all elections of directors shall be by written ballot. Section 7. PROXIES. Every proxy shall be executed in writing by the stockholder or by his authorized representative, or otherwise as provided in the General Corporation Law of the State of Delaware (the "General Corporation Law"). -4- Section 8. LIST OF STOCKHOLDERS. At least 10 days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing their addresses and the number of shares registered in their names as of the record date shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least 10 days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. Section 9. CONDUCT OF MEETINGS. At each meeting of the stockholders, the President or, in his absence, any one of the Vice Presidents (if any), in order of their seniority, shall act as chairman of the meeting. The Secretary or, in his absence, any person appointed by the chairman of the meeting shall act as secretary of the meeting and shall keep the minutes thereof. The order of business at all meetings of the stockholders shall be as determined by the chairman of the meeting. Section 10. CONSENT OF STOCKHOLDERS IN LIEU OF MEETING. Unless otherwise provided in the Certificate of Incorporation of the Corporation, any action required to be taken or which may be taken at any annual or special meeting of stockholders may be taken without a meeting, without prior notice and without a vote, if a consent or consents in writing, setting forth the action so taken, shall be signed, in person or by proxy, by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted in person or by proxy and shall be delivered to the Corporation as required by law. Prompt notice -5- of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing. ARTICLE III BOARD OF DIRECTORS Section 1. NUMBER OF DIRECTORS. Except as otherwise provided in the Certificate of Incorporation of the Corporation, until such time as the Board of Directors determines otherwise, the number of directors shall be six (6). The number of directors may be reduced or increased from time to time by action of a majority of the whole Board, but no decrease may shorten the term of an incumbent director. When used in these By-laws, the term "whole Board" means the total number of directors which the Corporation would have if there were no vacancies. Section 2. ELECTION AND TERM. Except as otherwise provided by law, by the Certificate of Incorporation of the Corporation or by these By-laws, the directors shall be elected at the annual meeting of the stockholders and the persons receiving a plurality of the votes cast shall be so elected. Subject to his earlier death, resignation or removal as provided in Section 3 of this Article III, each director shall hold office until his successor shall have been elected and shall have qualified. Section 3. REMOVAL. A director may be removed at any time, with or without cause, by the holders of a majority of the shares then entitled to vote at an election of directors. Section 4. RESIGNATIONS. Any director may resign at any time by giving written notice of his resignation to the Corporation. A resignation shall take effect at the time specified therein or, if the time when it shall become effective shall not be specified therein, immediately -6- upon its receipt, and, unless otherwise specified therein, the acceptance of a resignation shall not be necessary to make it effective. Section 5. VACANCIES. Except as otherwise provided in the Certificate of Incorporation of the Corporation, any vacancy in the Board of Directors arising from an increase in the number of directors or otherwise may be filled by the vote of a majority of the directors then in office, although less than a quorum, or by a sole remaining director. Section 6. PLACE OF MEETINGS. Except as otherwise provided in these By-laws, all meetings of the Board of Directors shall be held at such places, within or without the State of Delaware, as the Board determines from time to time. Section 7. ANNUAL MEETING. The annual meeting of the Board of Directors shall be held either without notice immediately after the annual meeting of stockholders and in the same place, or as soon as practicable after the annual meeting of stockholders on such date and at such time and place as the Board determines from time to time. Section 8. REGULAR MEETINGS. Regular meetings of the Board of Directors shall be held on such dates and at such times and places as the Board determines from time to time. Notice of regular meetings need not be given, except as otherwise required by law. Section 9. SPECIAL MEETINGS. Special meetings of the Board of Directors, for any purpose or purposes, may be called by the President and shall be called by the President or the Secretary upon the written request of a majority of the directors. The request shall state the date, time, place and purpose or purposes of the proposed meeting. Section 10. NOTICE OF MEETINGS. Notice of each special meeting of the Board (and of each annual meeting which is not held immediately after, and in the same place as, the annual meeting of stockholders) shall be given, not later than 24 hours before the meeting is -7- scheduled to commence, by the President or the Secretary and shall state the place, date and time of the meeting. Notice of each meeting may be delivered to a director by hand or given to a director orally (either by telephone or in person) or mailed, telegraphed or sent by facsimile transmission to a director at his residence or usual place of business, provided, however, that if notice of less than 72 hours is given it may not be mailed. If mailed, the notice shall be deemed given when deposited in the United States mail, postage prepaid; if telegraphed, the notice shall be deemed given when the contents of the telegram are transmitted to the telegraph service with instructions that the telegram immediately be dispatched; and if sent by facsimile transmission, the notice shall be deemed given when transmitted with transmission confirmed. Notice of any meeting need not be given to any director who shall submit, either before or after the time stated therein, a signed waiver of notice or who shall attend the meeting, other than for the express purpose of objecting at the beginning thereof to the transaction of any business because the meeting is not lawfully called or convened. Notice of an adjourned meeting, including the place, date and time of the new meeting, shall be given to all directors not present at the time of the adjournment, and also to the other directors unless the place, date and time of the new meeting are announced at the meeting at the time at which the adjournment is taken. Section 11. QUORUM. Except as otherwise provided by law or in these By-laws, at all meetings of the Board of Directors a majority of the whole Board shall constitute a quorum for the transaction of business, and the vote of a majority of the directors present at a meeting at which a quorum is present shall be the act of the Board. A majority of the directors present, whether or not a quorum is present, may adjourn any meeting to another place, date and time. Section 12. CONDUCT OF MEETINGS. At each meeting of the Board of Directors, the President or, in his absence, a director chosen by a majority of the directors present shall act as -8- chairman of the meeting. The Secretary or, in his absence, any person appointed by the chairman of the meeting shall act as secretary of the meeting and keep the minutes thereof. The order of business at all meetings of the Board shall be as determined by the chairman of the meeting. Section 13. COMMITTEES OF THE BOARD. The Board of Directors, by resolution adopted by a majority of the whole Board, may designate an executive committee and other committees, each consisting of one or more directors. Each committee (including the members thereof) shall serve at the pleasure of the Board of Directors and shall keep minutes of its meetings and report the same to the Board. The Board of Directors may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member or members at any meeting of the committee. In addition, in the absence or disqualification of a member of a committee, if no alternate member has been designated by the Board of Directors, the member or members present at any meeting and not disqualified from voting, whether or not they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of the absent or disqualified member. Except as limited by law, each committee, to the extent provided in the resolution of the Board of Directors establishing it, shall have and may exercise all the powers and authority of the Board in the management of the business and affairs of the Corporation. Section 14. OPERATION OF COMMITTEES. A majority of all the members of a committee shall constitute a quorum for the transaction of business, and the vote of a majority of all the members of a committee present at a meeting at which a quorum is present shall be the act of the committee. Each committee shall adopt whatever other rules of procedure it determines for the conduct of its activities. -9- Section 15. CONSENT TO ACTION. Any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting if all members of the Board or committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the Board or committee. Section 16. ATTENDANCE OTHER THAN IN PERSON. Members of the Board of Directors or any committee thereof may participate in a meeting of the Board or committee, as the case may be, by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and such participation shall constitute presence in person at the meeting. -10- ARTICLE IV OFFICERS Section 1. EXECUTIVE AND OTHER OFFICERS. The executive officers of the Corporation shall be a President, a Treasurer and a Secretary. The positions of President and Treasurer may be filled by the same individual. The Board of Directors also may elect or appoint one or more Vice Presidents (any of whom may be designated as Executive Vice Presidents or otherwise), and any other officers it deems necessary or desirable for the conduct of the business of the Corporation, each of whom shall have such powers and duties as the Board determines. Any officer may devote less than all of his working time to his activities as such if the Board so approves. Section 2. DUTIES. (a) THE PRESIDENT. The President shall be the chief executive officer and chief operating officer of the Corporation, and shall preside at all meetings of the stockholders and of the Board of Directors, and he shall be EX OFFICIO a member of all committees established by the Board. The President shall have general management of the business and affairs of the Corporation, subject to the control of the Board of Directors, and he shall have such other powers and duties as the Board assigns to him. (b) THE VICE PRESIDENT. The Vice President or, if there shall be more than one, the Vice Presidents, if any, in the order of their seniority or in any other order determined by the Board of Directors, shall perform, in the absence or disability of the President, the duties and exercise the powers of the President, and shall have such other powers and duties as the Board or the President assigns to him or them. -11- (c) THE SECRETARY. Except as otherwise provided in these By-laws or as directed by the Board of Directors, the Secretary shall attend all meetings of the stockholders and the Board; he shall record the minutes of all proceedings in books to be kept for that purpose; he shall give notice of all meetings of the stockholders and special meetings of the Board; and he shall keep in safe custody the seal of the Corporation and, when authorized by the Board, he shall affix the same to any corporate instrument. The Secretary shall have such other powers and duties as the Board or the President assigns to him. (d) THE TREASURER. Subject to the control of the Board, the Treasurer shall have the care and custody of the corporate funds and the books relating thereto; and he shall perform all other duties incident to the office of Treasurer. The Treasurer shall have such other powers and duties as the Board or the President assigns to him. Section 3. TERM; REMOVAL. Subject to his earlier death, resignation or removal, each officer shall hold his office until his successor shall have been elected or appointed and shall have qualified, or until his earlier death, resignation or removal. Any officer may be removed at any time, with or without cause, by the Board of Directors. Section 4. RESIGNATIONS. Any officer may resign at any time by giving written notice of his resignation to the Corporation. A resignation shall take effect at the time specified therein or, if the time when it shall become effective shall not be specified therein, immediately upon its receipt, and, unless otherwise specified therein, the acceptance of a resignation shall not be necessary to make it effective. Section 5. VACANCIES. If an office becomes vacant for any reason, the Board of Directors or the stockholders may fill the vacancy, and each officer so elected or appointed shall -12- serve for the remainder of his predecessor's term and until his successor shall have been elected or appointed and shall have qualified. ARTICLE V Provisions Relating to Stock CERTIFICATES AND STOCKHOLDERS Section 1. CERTIFICATES. Certificates for the Corporation's capital stock shall be in such form as required by law and as approved by the Board of Directors. Each certificate shall be signed in the name of the Corporation by the President or any Vice President and by the Secretary-Treasurer, any Assistant Secretary or any Assistant Treasurer. Any or all of the signatures on a certificate may be a facsimile. In case any officer, transfer agent or registrar who shall have signed or whose facsimile signature shall have been placed on any certificate shall have ceased to be such officer, transfer agent or registrar before the certificate shall be issued, the certificate may be issued by the Corporation with the same effect as if he were such officer, transfer agent or registrar at the date of issue. Section 2. REPLACEMENT CERTIFICATES. The Corporation may issue a new certificate of stock in place of any certificate theretofore issued by it, alleged to have been lost, stolen or destroyed, and the Board of Directors may require the owner of the lost, stolen or destroyed certificate, or such person's legal representative, to make an affidavit of that fact and to give the Corporation a bond sufficient to indemnify the Corporation against any claim that may be made against it on account of the alleged loss, theft or destruction of the certificate or the issuance of such new certificate. Section 3. TRANSFERS OF SHARES. Transfers of shares shall be registered on the books of the Corporation maintained for that purpose after due presentation of the stock -13- certificates therefor, appropriately endorsed or accompanied by proper evidence of succession, assignment or authority to transfer. Section 4. RECORD DATE. For the purpose of determining the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or to express consent to corporate action in writing without a meeting, or for the purpose of determining stockholders entitled to receive payment of any dividend or other distribution or the allotment of any rights, or for the purpose of any other action, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board, and which record date shall not be more than 60 or less than 10 days before the date of any such meeting, shall not be more than 10 days after the date on which the Board fixes a record date for any such consent in writing, and shall not be more than 60 days prior to any other action. ARTICLE VI INDEMNIFICATION Section 1. INDEMNIFICATION. Unless otherwise determined by the Board of Directors, the Corporation shall, to the fullest extent permitted by the General Corporation Law (including, without limitation, Section 145 thereof) or other provisions of the laws of Delaware relating to indemnification of directors, officers, employees and agents, as the same may be amended and supplemented from time to time, indemnify any and all such persons whom it shall have power to indemnify under the General Corporation Law or such other provisions of law. Section 2. STATUTORY INDEMNIFICATION. Without limiting the generality of Section 1 of this Article VI, to the fullest extent permitted, and subject to the conditions imposed, by law, -14- and pursuant to Section 145 of the General Corporation Law, unless otherwise determined by the Board of Directors: (i) the Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding whether civil, criminal, administrative or investigative (other than an action by or in the right of the Corporation) by reason of the fact that such person is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against reasonable expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if such person acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful; and (ii) the Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the Corporation to procure a judgment in its favor by reason of the fact that such person is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against reasonable expenses (including attorneys' fees) actually and reasonably incurred by him in connection with the defense or settlement of such action or suit if such person acted in -15- good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation, except as otherwise provided by law. Section 3. INDEMNIFICATION BY RESOLUTION OF STOCKHOLDERS OR DIRECTORS OR AGREEMENT. To the fullest extent permitted by law, indemnification may be granted, and expenses may be advanced, to the persons described in Section 145 of the General Corporation Law or other provisions of the laws of Delaware relating to indemnification and advancement of expenses, as from time to time may be in effect, by (i) a resolution of stockholders, (ii) a resolution of the Board of Directors, or (iii) an agreement providing for such indemnification and advancement of expenses. Section 4. GENERAL. It is the intent of this Article VI to require the Corporation, unless otherwise determined by the Board of Directors, to indemnify the persons referred to herein for judgments, fines, penalties, amounts paid in settlement and reasonable expenses (including attorneys' fees), and to advance expenses to such persons, in each and every circumstance in which such indemnification and such advancement of expenses could lawfully be permitted by express provision of by-laws, and the indemnification and expense advancement provided by this Article VI shall not be limited by the absence of an express recital of such circumstances. The indemnification and advancement of expenses provided by, or granted pursuant to, these By-laws shall not be deemed exclusive of any other rights to which a person seeking indemnification or advancement of expenses may be entitled, whether as a matter of law, under any provision of the Certificate of Incorporation of the Corporation, these By-laws, by agreement, by vote of stockholders or disinterested directors of the Corporation or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office. -16- Section 5. INDEMNIFICATION BENEFITS. Indemnification pursuant to these By-laws shall inure to the benefit of the heirs, executors, administrators and personal representatives of those entitled to indemnification. ARTICLE VII GENERAL PROVISIONS Section 1. DIVIDENDS. To the extent permitted by law, the Board of Directors shall have full power and discretion, subject to the provisions of the Certificate of Incorporation of the Corporation and the terms of any other corporate document or instrument binding upon the Corporation, to determine what, if any, dividends or distributions shall be declared and paid or made. Section 2. SEAL. The Corporation's seal shall be in such form as is required by law and as shall be approved by the Board of Directors. Section 3. FISCAL YEAR. The fiscal year of the Corporation shall end on the last Saturday of August of each year. Section 4. VOTING SHARES IN OTHER CORPORATIONS. Unless otherwise directed by the Board of Directors, shares in other corporations that are held by the Corporation shall be represented and voted only by the President or by a proxy or proxies appointed by him. ARTICLE VIII AMENDMENTS Section 1. By-Laws may be adopted, amended or repealed by the Board of Directors, provided the conferral of such power on the Board shall not divest the stockholders of the power, or limit their power, to adopt, amend or repeal By-laws. -17- EX-3.5 8 a2071988zex-3_5.txt EXHIBIT 3.5 EXHIBIT 3.5 CERTIFICATE OF INCORPORATION OF CBI NORTH AMERICA, INC. WITH ALL AMENDMENTS (F/K/A SBI NORTH AMERICA, INC.) CERTIFICATE OF INCORPORATION OF SBI NORTH AMERICA, INC. 1. The name of the corporation is SBI North America, Inc. (the "Corporation"). 2. The address of the Corporation's registered office in the State of Delaware is 9 East Loockerman Street, County of Kent, Dover, Delaware 19901. National Corporate Research, Ltd is the Corporation's registered agent at that address. 3. The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware (the "General Corporation Law"). 4. The Corporation shall have authority to issue three thousand (3,000) shares of Common Stock, par value one cent ($.01) per share. 5. The personal liability of the directors of the Corporation is hereby eliminated to the fullest extent permitted by the General Corporation Law (including, without limitation, paragraph (7) of subsection (b) of Section 102 thereof), as the same may be amended and supplemented from time to time. 6. The Board of Directors shall have the power to adopt, amend or repeal By-laws of the Corporation, subject to the right of the stockholders of the Corporation to adopt, amend or repeal any By-law. 7. The Corporation shall, to the fullest extent permitted by the General Corporation Law (including, without limitation, Section 145 thereof), as the same may be amended and supplemented from time to time, indemnify any and all persons whom it shall have power to indemnify under the General Corporation Law. The indemnification provided for herein shall not be deemed exclusive of any other rights to which those seeking indemnification may be entitled whether as a matter of law, under any By-law of the Corporation, by agreement, by vote of stockholders or disinterested directors of the Corporation or otherwise. 8. The election of directors of the Corporation need not be by written ballot, unless the By-laws of the Corporation otherwise provide. 9. Todd D. Monckton is the sole incorporator and his/her mailing address is c/o Schulte, Roth & Zabel LLP, 900 Third Avenue, New York, New York 10022. Date: November 22, 1996 /s/ Todd D. Monckton -------------------------------- Sole Incorporator CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION OF SBI NORTH AMERICA, INC. SBI NORTH AMERICA, INC. (the "Corporation"), a corporation organized and existing under the General Corporation Law of the State of Delaware, DOES HEREBY CERTIFY THAT: 1. The board of directors of the Corporation, by the unanimous written consent of its members filed with the minutes of the board, duly adopted a resolution proposing and declaring advisable, in accordance with Section 242 of the General Corporation Law of the State of Delaware, the following amendment to the Certificate of Incorporation of the Corporation: Article First of the Certificate of Incorporation of the Corporation is hereby amended to read in its entirety as follows: "FIRST. The name of the corporation is CBI NORTH AMERICA, INC." 2. The aforesaid amendment was duly adopted by the written consent of the sole stockholder of the Corporation in accordance with Section 242 of the General Corporation Law of the State of Delaware. IN WITNESS WHEREOF, the Corporation has caused this Certificate to be signed this 16th day of December, 1996. By: /s/ David B. Pittaway -------------------------------- Name: David B. Pittaway Title: President EX-3.6 9 a2071988zex-3_6.txt EXHIBIT 3.6 EXHIBIT 3.6 BY-LAWS OF CBI NORTH AMERICA, INC. (F/K/A SBI NORTH AMERICA, INC) BY-LAWS OF SBI NORTH AMERICA, INC. ARTICLE I OFFICES Section 1. The registered office of the Corporation shall be in the City of Dover, County of Kent, State of Delaware. The Corporation also may have offices at such other places, within or without the State of Delaware, as the Board of Directors determines from time to time or the business of the Corporation requires. Until such time as the Board of Directors otherwise determines, the Corporation shall also have an office in the City of New York, State of New York. ARTICLE II MEETINGS OF STOCKHOLDERS Section 1. PLACE OF MEETINGS. Except as otherwise provided in these By-Laws, all meetings of the stockholders shall be held on such dates and at such times and places, within or without the State of Delaware, as shall be determined by the Board of and as shall be stated in the notice of the meeting or in waivers of notice thereof. If the place of any meeting is not so fixed, it shall be held at the registered office of the Corporation in the State of Delaware. Section 2. ANNUAL MEETING. The annual meeting of stockholders for the election of directors and the transaction of such other proper business as may be brought before the meeting shall be held on such date after the close of the Corporation's fiscal year, and at such time, as the Board of Directors may from time to time determine. -2- Section 3. SPECIAL MEETINGS. Special meetings of the stockholders, for any purpose or purposes, may be called by the Board of Directors or the President and shall be called by the President or the Secretary upon the written request of a majority of the directors. The request shall state the date, time, place and purpose or purposes of the proposed meeting. Section 4. NOTICE OF MEETINGS. Except as otherwise required or permitted by law, whenever the stockholders are required or permitted to take any action at a meeting, written notice thereof shall be given, stating the place, date and hour of the meeting and, unless it is the annual meeting, by or at whose direction it is being issued. The notice also shall designate the place where the stockholders list is available for examination, unless the list is kept at the place where the meeting is to be held. Notice of a special meeting also shall state the purpose or purposes for which the meeting is called. A copy of the notice of any meeting shall be delivered personally or shall be mailed, not less than 10 and not more than 60 days before the date of the meeting, to each stockholder entitled to vote at the meeting. If mailed, the notice shall be deemed given when deposited in the United States mail, postage prepaid, directed to each stockholder at such stockholder's address as it appears on the records of the Corporation, unless such stockholder shall have filed with the Secretary of the Corporation a written request that such notices be mailed to some other address, in which case it shall be directed to such other address. Notice of any meeting of stockholders need not be given to any stockholder who shall attend the meeting, other than for the express purpose of objecting at the beginning thereof to the transaction of any business because the meeting is not lawfully called or convened, or who shall submit, either before or after the time stated therein, a signed waiver of notice. Unless the Board of Directors, after an adjournment is taken, shall fix a new record date for an adjourned meeting or unless the adjournment is for more than 30 days, notice of an adjourned meeting need not be -3- given if the place, date and time to which the meeting shall be adjourned are announced at the meeting at which the adjournment is taken. Section 5. QUORUM. Except as otherwise provided by law or by the Certificate of Incorporation of the Corporation, at all meetings of stockholders the holders of a majority of the shares of the Corporation entitled to vote, present in person or represented by proxy, shall constitute a quorum for the transaction of business. Section 6. VOTING. Except as otherwise provided by law or by the Certificate of Incorporation of the Corporation, at any meeting of the stockholders every stockholder of record having the right to vote thereat shall be entitled to one vote for every share of stock standing in his name as of the record date and entitling him to so vote. A stockholder may vote in person or by proxy. Except as otherwise provided by law or by the Certificate of Incorporation, any corporate action to be taken by a vote of the stockholders, other than the election of directors, shall be authorized by the affirmative vote of a majority of the shares present or represented by proxy at the meeting and entitled to vote on the subject matter. Directors shall be elected as provided in Section 2 of Article III of these By-Laws. Written ballots shall not be required for voting on any matter unless ordered by the chairman of the meeting, except that, unless otherwise provided in the Certificate of Incorporation of the Corporation, all elections of directors shall be by written ballot. Section 7. PROXIES. Every proxy shall be executed in writing by the stockholder or by his authorized representative, or otherwise as provided in the General Corporation Law of the State of Delaware (the "General Corporation Law"). Section 8. LIST OF STOCKHOLDERS. At least 10 days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in -4- alphabetical order, and showing their addresses and the number of shares registered in their names as of the record date shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least 10 days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. Section 9. CONDUCT OF MEETINGS. At each meeting of the stockholders, the President or, in his absence, any one of the Vice Presidents (if any), in order of seniority, shall act as chairman of the meeting. The Secretary or, in his absence, any person appointed by the chairman of the meeting shall act as secretary of the meeting and shall keep the minutes thereof. The order of business at all meetings of the stockholders shall be as determined by the chairman of the meeting. Section 10. CONSENT OF STOCKHOLDERS IN LIEU OF MEETING. Unless otherwise provided in the Certificate of Incorporation of the Corporation, any action required to be taken or which may be taken at any annual or special meeting of stockholders may be taken without a meeting, without prior notice and without a vote, if a consent or consents in writing, setting forth the action so taken, shall be signed, in person or by proxy, by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted in person or by proxy and shall be delivered to the Corporation as required by law. Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing. -5- ARTICLE III BOARD OF DIRECTORS Section 1. NUMBER OF DIRECTORS. Except as otherwise provided by the Certificate of Incorporation of the Corporation, until such time as the Board of Directors determines otherwise, the number of directors shall be two (2). The number of directors may be reduced or increased from time to time by action of a majority of the whole Board, but no decrease may shorten the term of an incumbent director. When used in these By-Laws, the term "whole Board" means the total number of directors which the Corporation would have if there were no vacancies. Section 2. ELECTION AND TERM. Except as otherwise provided by law, by the Certificate of Incorporation of the Corporation or by these By-Laws, the directors shall be elected at the annual meeting of the stockholders and the persons receiving a plurality of the votes cast shall be so elected. Subject to his earlier death, resignation or removal as provided in Section 3 of this Article III, each director shall hold office until his successor shall have been elected and shall have qualified. Section 3. REMOVAL. A director may be removed at any time, with or without cause, by the holders of a majority of the shares then entitled to vote at an election of directors. Section 4. RESIGNATIONS. Any director may resign at any time by giving written notice of his resignation to the Corporation. A resignation shall take effect at the time specified therein or, if the time when it shall become effective shall not be specified therein, immediately upon its receipt, and, unless otherwise specified therein, the acceptance of a resignation shall not be necessary to make it effective. -6- Section 5. VACANCIES. Except as otherwise provided by the Certificate of Incorporation of the Corporation, any vacancy in the Board of Directors arising from an increase in the number of directors or otherwise may be filled by the vote of a majority of the directors then in office, although less than a quorum, or by a sole remaining director. Section 6. PLACE OF MEETINGS. Except as otherwise provided in these By-Laws, all meetings of the Board of Directors shall be held at such places, within or without the State of Delaware, as the Board determines from time to time. Section 7. ANNUAL MEETING. The annual meeting of the Board of Directors shall be held either without notice immediately after the annual meeting of stockholders and in the same place, or as soon as practicable after the annual meeting of stockholders on such date and at such time and place as the Board determines from time to time. Section 8. REGULAR MEETINGS. Regular meetings of the Board of Directors shall be held on such dates and at such times and places as the Board determines from time to time. Notice of regular meetings need not be given, except as otherwise required by law. Section 9. SPECIAL MEETINGS. Special meetings of the Board of Directors, for any purpose or purposes, may be called by the President and shall be called by the President or the Secretary upon the written request of a majority of the directors. The request shall state the date, time, place and purpose or purposes of the proposed meeting. Section 10. NOTICE OF MEETINGS. Notice of each special meeting of the Board (and of each annual meeting which is not held immediately after, and in the same place as, the annual meeting of stockholders) shall be given, not later than 24 hours before the meeting is scheduled to commence, by the President or the Secretary and shall state the place, date and time of the meeting. Notice of each meeting may be delivered to a director by hand or given to a director -7- orally (either by telephone or in person) or mailed, telegraphed or sent by facsimile transmission to a director at his residence or usual place of business, provided, however, that if notice of less than 72 hours is given it may not be mailed. If mailed, the notice shall be deemed given when deposited in the United States mail, postage prepaid; if telegraphed, the notice shall be deemed given when the contents of the telegram are transmitted to the telegraph service with instructions that the telegram immediately be dispatched; and if sent by facsimile transmission, the notice shall be deemed given when transmitted with transmission confirmed. Notice of any meeting need not be given to any director who shall submit, either before or after the time stated therein, a signed waiver of notice or who shall attend the meeting, other than for the express purpose of objecting at the beginning thereof to the transaction of any business because the meeting is not lawfully called or convened. Notice of an adjourned meeting, including the place, date and time of the new meeting, shall be given to all directors not present at the time of the adjournment, and also to the other directors unless the place, date and time of the new meeting are announced at the meeting at the time at which the adjournment is taken. Section 11. QUORUM. Except as otherwise provided by law or in these By-Laws, at all meetings of the Board of Directors a majority of the whole Board shall constitute a quorum for the transaction of business, and the vote of a majority of the directors present at a meeting at which a quorum is present shall be the act of the Board. A majority of the directors present, whether or not a quorum is present, may adjourn any meeting to another place, date and time. Section 12. CONDUCT OF MEETINGS. At each meeting of the Board of Directors, the President or, in his absence, a director chosen by a majority of the directors present shall act as chairman of the meeting. The Secretary or, in his absence, any person appointed by the chairman -8- of the meeting shall act as secretary of the meeting and keep the minutes thereof. The order of business at all meetings of the Board shall be as determined by the chairman of the meeting. Section 13. COMMITTEES OF THE BOARD. The Board of Directors, by resolution adopted by a majority of the whole Board, may designate an executive committee and other committees, each consisting of one or more directors. Each committee (including the members thereof) shall serve at the pleasure of the Board of Directors and shall keep minutes of its meetings and report the same to the Board. The Board of Directors may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member or members at any meeting of the committee. In addition, in the absence or disqualification of a member of a committee, if no alternate member has been designated by the Board of Directors, the member or members present at any meeting and not disqualified from voting, whether or not they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of the absent or disqualified member. Except as limited by law, each committee, to the extent provided in the resolution of the Board of Directors establishing it, shall have and may exercise all the powers and authority of the Board in the management of the business and affairs of the Corporation. Section 14. OPERATION OF COMMITTEES. A majority of all the members of a committee shall constitute a quorum for the transaction of business, and the vote of a majority of all the members of a committee present at a meeting at which a quorum is present shall be the act of the committee. Each committee shall adopt whatever other rules of procedure it determines for the conduct of its activities. Section 15. CONSENT TO ACTION. Any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a -9- meeting if all members of the Board or committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the Board or committee. Section 16. ATTENDANCE OTHER THAN IN PERSON. Members of the Board of Directors or any committee thereof may participate in a meeting of the Board or committee, as the case may be, by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and such participation shall constitute presence in person at the meeting. ARTICLE IV OFFICERS Section 1. EXECUTIVE AND OTHER OFFICERS. The executive officers of the Corporation shall be a President, a Treasurer and a Secretary. The positions of President and Treasurer may be filled by the same individual. The Board of Directors also may elect or appoint one or more Vice Presidents (any of whom may be designated as Executive Vice Presidents or otherwise), and any other officers it deems necessary or desirable for the conduct of the business of the Corporation, each of whom shall have such powers and duties as the Board determines. Any officer may devote less than all of his working time to his activities as such if the Board so approves. Section 2. DUTIES. (a) THE PRESIDENT. The President, shall be the chief executive officer and chief operating officer of the Corporation, and shall preside at all meetings of the stockholders and of the Board of Directors, and he shall be EX OFFICIO a member of all committees established by the Board. The President shall have general management of the business and -10- affairs of the Corporation, subject to the control the Board of Directors, and he shall have such other powers and duties as the Board assigns to him. (b) THE VICE PRESIDENT. The Vice President or, if there shall be more than one, the Vice Presidents, if any, in the order of their seniority or in any other order determined by the Board of Directors, shall perform, in the absence or disability of the President, the duties and exercise the powers of the President, and shall have such other powers and duties as the Board or the President assigns to him or them. (c) THE SECRETARY. Except as otherwise provided in these By-Laws or as directed by the Board of Directors, the Secretary shall attend all meetings of the stockholders and the Board; he shall record the minutes of all proceedings in books to be kept for that purpose; he shall give notice of all meetings of the stockholders and special meetings of the Board; and he shall keep in safe custody the seal of the Corporation and, when authorized by the Board, he shall affix the same to any corporate instrument. The Secretary shall have such other powers and duties as the Board or the President assigns to him. (d) THE TREASURER. Subject to the control of the Board, the Treasurer shall have the care and custody of the corporate funds and the books relating thereto; and he shall perform all other duties incident to the office of Treasurer. The Treasurer shall have such other powers and duties as the Board or the President assigns to him. Section 3. TERM; REMOVAL. Subject to his earlier death, resignation or removal, each officer shall hold his office until his successor shall have been elected or appointed and shall have qualified, or until his earlier death, resignation or removal. Any officer may be removed at any time, with or without cause, by the Board of Directors. -11- Section 4. RESIGNATIONS. Any officer may resign at any time by giving written notice of his resignation to the Corporation. A resignation shall take effect at the time specified therein or, if the time when it shall become effective shall not be specified therein, immediately upon its receipt, and, unless otherwise specified therein, the acceptance of a resignation shall not be necessary to make it effective. Section 5. VACANCIES. If an office becomes vacant for any reason, the Board of Directors or the stockholders may fill the vacancy, and each officer so elected or appointed shall serve for the remainder of his predecessor's term and until his successor shall have been elected or appointed and shall have qualified. ARTICLE V PROVISIONS RELATING TO STOCK CERTIFICATES AND STOCKHOLDERS Section 1. CERTIFICATES. Certificates for the Corporation's capital stock shall be in such form as required by law and as approved by the Board of Directors. Each certificate shall be signed in the name of the Corporation by the President or any Vice President and by the Secretary-Treasurer, any Assistant Secretary or any Assistant. Any or all of the signatures on a certificate may be a facsimile. In case any officer, transfer agent or registrar who shall have signed or whose facsimile signature shall have been placed on any certificate shall have ceased to be such officer, transfer agent or registrar before the certificate shall be issued, the certificate may be issued by the Corporation with the same effect as if he were such officer, transfer agent or registrar at the date of issue. Section 2. REPLACEMENT CERTIFICATES. The Corporation may issue a new certificate of stock in place of any certificate theretofore issued by it, alleged to have been lost, stolen or -12- destroyed, and the Board of Directors may require the owner of the lost, stolen or destroyed certificate, or such person's legal representative, to make an affidavit of that fact and to give the Corporation a bond sufficient to indemnify the Corporation against any claim that may be made against it on account of the alleged loss, theft or destruction of the certificate or the issuance of such new certificate. Section 3. TRANSFERS OF SHARES. Transfers of shares shall be registered on the books of the Corporation maintained for that purpose after due presentation of the stock certificates therefor, appropriately endorsed or accompanied by proper evidence of succession, assignment or authority to transfer. Section 4. RECORD DATE. For the purpose of determining the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or to express consent to corporate action in writing without a meeting, or for the purpose of determining stockholders entitled to receive payment of any dividend or other distribution or the allotment of any rights, or for the purpose of any other action, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board, and which record date shall not be more than 60 or less than 10 days before the date of any such meeting, shall not be more than 10 days after the date on which the Board fixes a record date for any such consent in writing, and shall not be more than 60 days prior to any other action. ARTICLE VI INDEMNIFICATION Section 1. INDEMNIFICATION. Unless otherwise determined by the Board of Directors, the Corporation shall, to the fullest extent permitted by the General Corporation Law -13- (including, without limitation, Section 145 thereof) or other provisions of the laws of Delaware relating to indemnification of directors, officers and employees and agents, as the same may be amended and supplemented from time to time, indemnify any and all such persons whom it shall have power to indemnify under the General Corporation Law or such other provisions of law. Section 2. STATUTORY INDEMNIFICATION. Without limiting the generality of Section 1 of this Article VI, to the fullest extent permitted, and subject to the conditions imposed, by law, and pursuant to Section 145 of the General Corporation Law unless otherwise determined by the Board of Directors: (i) the Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding whether civil, criminal, administrative or investigative (other than an action by or in the right of the Corporation) by reason of the fact that such person is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against reasonable expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if such person acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful; and (ii) the Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the Corporation to procure a judgment in its favor by reason of the fact that -14- such person is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against reasonable expenses (including attorneys' fees) actually and reasonably incurred by him in connection with the defense or settlement of such action or suit if such person acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation, except as otherwise provided by law. Section 3. INDEMNIFICATION BY RESOLUTION OF STOCKHOLDERS OR DIRECTORS OR AGREEMENT. To the fullest extent permitted by law, indemnification may be granted, and expenses may be advanced, to the persons described in Section 145 of the General Corporation Law or other provisions of the laws of Delaware relating to indemnification and advancement of expenses, as from time to time may be in effect, by (i) a resolution of stockholders, (ii) a resolution of the Board of Directors, or (iii) an agreement providing for such indemnification and advancement of expenses. Section 4. GENERAL. It is the intent of this Article VI to require the Corporation, unless otherwise determined by the Board of Directors, to indemnify the persons referred to herein for judgments, fines, penalties, amounts paid in settlement and reasonable expenses (including attorneys' fees), and to advance expenses to such persons, in each and every circumstance in which such indemnification and such advancement of expenses could lawfully be permitted by express provision of By-Laws, and the indemnification and expense advancement provided by this Article VI shall not be limited by the absence of an express recital of such circumstances. The indemnification and advancement of expenses provided by, or granted pursuant to, these By-Laws shall not be deemed exclusive of any other rights to which a -15- person seeking indemnification or advancement of expenses may be entitled, whether as a matter of law, under any provision of the Certification of Incorporation of the Corporation or these By-Laws, by agreement, by vote of stockholders or disinterested directors of the Corporation or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office. Section 5. INDEMNIFICATION BENEFITS. Indemnification pursuant to these By-Laws shall inure to the benefit of the heirs, executors, administrators and personal representatives of those entitled to indemnification. ARTICLE VII GENERAL PROVISIONS Section 1. DIVIDENDS. To the extent permitted by law, the Board of Directors shall have full power and discretion, subject to the provisions of the Certificate of Incorporation of the Corporation and the terms of any other corporate document or instrument binding upon the Corporation, to determine what, if any, dividends or distributions shall be declared and paid or made. Section 2. SEAL. The Corporation's seal shall be in such form as is required by law and as shall be approved by the Board of Directors. Section 3. FISCAL YEAR. The fiscal year of the Corporation shall be determined by the Board of Directors. Section 4. VOTING SHARES IN OTHER CORPORATIONS. Unless otherwise directed by the Board of Directors, shares in other corporations which are held by the Corporation shall be represented and voted only by the President or a proxy or proxies appointed by him. -16- ARTICLE VIII AMENDMENTS Section 1. By-Laws may be adopted, amended or repealed by the Board of Directors, provided the conferral of such power on the Board shall not divest the stockholders of the power, or limit their power, to adopt, amend or repeal By-Laws. -17- EX-3.7 10 a2071988zex-3_7.txt EXHIBIT 3.7 EXHIBIT 3.7 CERTIFICATE OF INCORPORATION OF TAYLOR SENIOR HOLDING CORP. CERTIFICATE OF INCORPORATION OF TAYLOR SENIOR HOLDING CORP. 1. The name of the corporation is Taylor Senior Holding Corp. (the "Corporation"). 2. The address of the Corporation's registered office in the State of Delaware is Corporation Trust Center, 1209 Orange Street, Wilmington, County of New Castle, Delaware 19801. The Corporation Trust Company is the Corporation's registered agent at that address. 3. The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware (the "General Corporation Law"). 4. The Corporation shall have authority to issue one thousand (1,000) shares of Common Stock, par value $0.01 per share and one thousand (1,000) shares of Preferred Stock, par value $0.01 per share. 5. The name and mailing address of the sole incorporator is: NAME MAILING ADDRESS D. Lenore Mason, Esq. c/o Schulte Roth & Zabel LLP 900 Third Avenue New York, NY 10022 6. The powers of the incorporator shall terminate upon the filing of this Certificate of Incorporation. The name and address of the person who is to serve as director until 2 the first annual meeting of stockholders or until his successors are elected and qualified is: NAME MAILING ADDRESS David B. Pittaway Castle Harlan, Inc. 150 East 58th Street New York, NY 10155 7. The personal liability of the directors of the Corporation is hereby eliminated to the fullest extent permitted by the General Corporation Law (including, without limitation, paragraph (7) of subsection (b) of Section 102 thereof), as the same may be amended and supplemented from time to time. 8. The Board of Directors shall have the power to adopt, amend or repeal By-laws of the Corporation, subject to the right of the stockholders of the Corporation to adopt, amend or repeal any By-law. 9. The Corporation shall, to the fullest extent permitted by the General Corporation Law (including, without limitation, Section 145 thereof), as the same may be amended and supplemented from time to time, indemnify any and all persons whom it shall have power to indemnify under the General Corporation Law. The indemnification provided for herein shall not be deemed exclusive of any other rights to which those seeking indemnification may be entitled whether as a matter of law, under any By-law of the Corporation, by agreement, by vote of stockholders or disinterested directors of the Corporation or otherwise. 10. The election of directors of the Corporation need not be by written ballot, unless the By-laws of the Corporation otherwise provide. 3 IN WITNESS WHEREOF, I have signed this Certificate of Incorporation and affirm the statements contained herein are true this 4th day of February, 2000. /s/ D. Lenore Mason ---------------------------- D. Lenore Mason, Esq. Sole Incorporator 4 CERTIFICATE OF DESIGNATIONS, PREFERENCES AND RIGHTS OF PREFERRED STOCK OF TAYLOR SENIOR HOLDING CORP. TAYLOR SENIOR HOLDING CORP. (the "COMPANY"), a corporation organized and existing under the General Corporation Law of the State of Delaware, does hereby certify that, pursuant to authority conferred upon the Board of Directors of the Company (the "BOARD") by the Certificate of Incorporation of the Company, and pursuant to Section 151 of the General Corporation Law of the State of Delaware, the Board at a meeting duly held, adopted resolutions (i) designating a new series of the Company's authorized preferred stock, par value $0.01 per share, and (ii) providing for the designations, preferences and relative, participating, optional or other rights, and the qualifications, limitations and restrictions in respect of such series of preferred stock of the Company, as follows: RESOLVED, that the Company is authorized to issue 1,000 shares of Preferred Stock, par value $0.01 per share, with an initial stated value of $95.00 per share and the following powers, designations, preferences and other special rights: Section 1. DESIGNATION, NUMBER AND RANKING. (a) The shares of such series shall be designated as " Preferred Stock" (the "PREFERRED STOCK"). The number of shares constituting the Preferred Stock shall be 1,000, with an initial stated value of $95.00 per share, which shall be adjusted accordingly for any conversion, exchange, stock split, reverse stock split, combination, dividend or other reclassification, consolidation, reorganization, recapitalization or similar transaction (the "STATED VALUE"). (b) The Preferred Stock shall rank senior to any common stock of the Company (the "Common Stock"). Section 2. DIVIDENDS AND DISTRIBUTIONS. (a) The holders of shares of Preferred Stock shall not be entitled to receive dividends and distributions, other than (i) as provided in clause (b) 5 of this Section 2, and (ii) Liquidation Distributions as set forth in Section 5 below. (b) If the Company at any time proposes to pay a dividend (or make any other distribution) on the Common Stock, other than a distribution of additional shares of Common Stock, the Company shall pay a concurrent dividend (or make a concurrent distribution) to holders of Preferred Stock such that, with respect to each share of Preferred Stock, the holders of shares of Preferred Stock shall receive a dividend or distribution equal to 19 times the per share dividend paid (or distribution made) with respect to each share of Common Stock. In any such case, the Company shall declare a dividend or distribution on the Preferred Stock at the same time that it declares a dividend or distribution on the Common Stock and shall establish the same record date for the dividend or distribution on the Preferred Stock as is established for such dividend or distribution on the Common Stock. (c) Each dividend or distribution declared on the Preferred Stock shall be payable to holders of record of the Preferred Stock as they appeared on the records of the Company at the close of business on the record date set for such dividend or distribution by the Board of Directors of the Company (the "BOARD"). Any reference to "dividend" or "distribution" contained in this Section 2 shall be deemed to exclude Liquidating Distributions (as defined in Section 5 below). Section 3. VOTING RIGHTS. The holders of shares of Preferred Stock shall not have any voting rights. Section 4. REDEMPTION. (a) The Preferred Stock shall be redeemable at the option of the Board at any time from time to time for cash at a redemption price per share equal to the stated value, plus all accrued but unpaid dividends, if any. The amount to be paid to the holders of the Preferred Stock pursuant to any such redemption shall be paid by the Company to such holders promptly in cash not less than 10 days following delivery to the Company of the certificates representing such shares. Section 5. LIQUIDATION, DISSOLUTION OR WINDING UP. In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company, the holders of shares of Preferred Stock then outstanding shall be entitled to be paid out of the assets of the Company available for distribution to its stockholders, after and subject to the payment in full of all amounts required to be distributed to the holders of 6 any other class of stock of the Company ranking senior to the Preferred Stock upon liquidation, dissolution or winding-up (such stock being referred to herein as "SENIOR STOCK") in respect of such stock, but before any payment shall be made to the holders of Common Stock or other capital stock of the Company ranking junior to the Preferred Stock upon liquidation, dissolution or winding up (such stock being referred to herein as "JUNIOR STOCK"), an amount per share equal to the Stated Value, plus all accrued but unpaid dividends, if any (any such payment, together with all other payments made to holders of any capital stock of the Company in accordance with this Section 5, are collectively referred to as "LIQUIDATING DISTRIBUTIONS"). Upon such liquidation, dissolution or winding up of the Company, if the remaining assets of the Company available for distribution to stockholders after payment in full of amounts required to be paid or distributed to holders of Senior Stock shall be insufficient to pay the holders of shares of Preferred Stock and the holders of shares of capital stock of the Company ranking on a parity with the Preferred Stock upon liquidation, dissolution or winding up (such stock being referred to herein as "PARITY STOCK") the full amount to which they shall be entitled, the holders of shares of Preferred Stock and shares of Parity Stock shall share ratably in any distribution of the remaining assets and funds of the Company in proportion to the respective amounts which would otherwise be payable in respect of the shares held by them upon such distribution if all amounts payable on or with respect to said shares were paid in full. IN WITNESS WHEREOF, the Company has caused this Certificate to be signed on this 11th day of February, 2000. TAYLOR SENIOR HOLDING CORP. By: /s/ David Pittaway ----------------------- David Pittaway President 7 CORRECTED CERTIFICATE OF DESIGNATIONS, PREFERENCES AND RIGHTS OF SERIES A PREFERRED STOCK OF TAYLOR SENIOR HOLDING CORP. The document to be corrected is the Certificate of Designations, Preferences and Rights of Preferred Stock (the "Certificate of Designations") of Taylor Senior Holding Corp. (the "Corporation") which was filed in the Office of the Secretary of State of the State of Delaware on February 11, 2000. The Certificate of Designations incorrectly stated the amount of initial stated value of Preferred shares. As corrected, the Certificate of Designations reads in full as follows: CERTIFICATE OF DESIGNATIONS, PREFERENCES AND RIGHTS OF PREFERRED STOCK OF TAYLOR SENIOR HOLDING CORP. TAYLOR SENIOR HOLDING CORP., ("the "COMPANY") a corporation organized and existing under the General Corporation Law of the State of Delaware, does hereby certify that, pursuant to authority conferred upon the Board of Directors of the Company (the "BOARD") by the Certificate of Incorporation of the Company and pursuant to Section 151 of the General Corporation Law of the State of Delaware, the Board at a meeting duly held, adopted resolutions (i) designating a new series of the Company's authorized preferred stock, par value $0.01 per share, and (ii) providing for the designations, preferences and relative, participating, optional or other rights, and the qualifications, limitations and restrictions in respect of such series of preferred stock of the Company, as follows: 8 RESOLVED, that the Company is authorized to issue 1,000 shares of Preferred Stock, par value $0.01 per share, with an initial stated value of $28,500.00 per share and the following powers, designations, preferences and other special rights: Section 1. DESIGNATION, NUMBER AND RANKING. (a) The shares of such series shall be designated as "Preferred Stock" (the "PREFERRED STOCK"). The number of shares constituting the Preferred Stock shall be 1,000, with an initial stated value of $28,500.00 per share, which shall be adjusted accordingly for any conversion, exchange, stock split, reverse stock split, combination, dividend or other reclassification, consolidation, reorganization, recapitalization or similar transaction (the "STATED VALUE"). (b) The Preferred Stock shall rank senior to any common stock of the Company (the "COMMON Stock"). Section 2. DIVIDENDS AND DISTRIBUTIONS. (a) The holders of shares of Preferred Stock shall not be entitled to receive dividends and distributions, other than (i) as provided in clause (b) of this Section 2, and (ii) Liquidation Distributions as set forth in Section 5 below. (b) If the Company at any time proposes to pay a dividend (or make any other distribution) on the Common Stock, other than a distribution of additional shares of Common Stock, the Company shall pay a concurrent dividend (or make a concurrent distribution) to holders of Preferred Stock such that, with respect to each share of Preferred Stock, the holders of shares of Preferred Stock shall receive a dividend or distribution equal to 19 times the per share dividend paid (or distribution made) with respect to each share of Common Stock. In any such case, the Company shall declare a dividend or distribution on the Preferred Stock at the same time that it declares a dividend or distribution on the Common Stock and shall establish the same record date for the dividend or distribution on the Preferred Stock as is established for such dividend or distribution on the Common Stock. (c) Each dividend or distribution declared on the Preferred Stock shall be payable to holders of record of the Preferred Stock as they appeared on the records of the Company at the close of business on the record date set for such dividend or distribution by the Board of Directors of the Company (the "BOARD"). Any reference to "dividend" or "distribution" contained in this Section 2 shall be deemed to exclude Liquidating Distributions (as defined in Section 5 below). Section 3. VOTING RIGHTS. The holders of shares of Preferred Stock shall not have any voting rights. Section 4. REDEMPTION. 9 (a) The Preferred Stock shall be redeemable at the option of the Board at any time from time to time for cash at a redemption price per share equal to the stated value, plus all accrued but unpaid dividends, if any. The amount to be paid to the holders of the Preferred Stock pursuant to any such redemption shall be paid by the Company to such holders promptly in cash not less than 10 days following delivery to the Company of the certificates representing such shares. Section 5. LIQUIDATION, DISSOLUTION OR WINDING UP. In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company, the holders of shares of Preferred Stock then outstanding shall be entitled to be paid out of the assets of the Company available for distribution to its stockholders, after and subject to the payment in full of all amounts required to be distributed to the holders of any other class of stock of the Company ranking senior to the Preferred Stock upon liquidation, dissolution or winding-up (such stock being referred to herein as "SENIOR STOCK") in respect of such stock, but before any payment shall be made to the holders of Common Stock or other capital stock of the Company ranking junior to the Preferred Stock upon liquidation, dissolution or winding up (such stock being referred to herein as "JUNIOR STOCK"), an amount per share equal to the Stated Value, plus all accrued but unpaid dividends, if any (any such payment, together with all other payments made to holders of any capital stock of the Company in accordance with this Section 5, are collectively referred to as "LIQUIDATING DISTRIBUTIONS"). Upon such liquidation, dissolution or winding up of the Company, if the remaining assets of the Company available for distribution to stockholders after payment in full of amounts required to be paid or distributed to holders of Senior Stock shall be insufficient to pay the holders of shares of Preferred Stock and the holders of shares of capital stock of the Company ranking on a parity with the Preferred Stock upon liquidation, dissolution or winding up (such stock being referred to herein as "PARITY STOCK") the full amount to which they shall be entitled, the holders of shares of Preferred Stock and shares of Parity Stock shall share ratably in any distribution of the remaining assets and funds of the Company in proportion to the respective amounts which would otherwise be payable in respect of the shares held by them upon such distribution if all amounts payable on or with respect to said shares were paid in full. IN WITNESS WHEREOF, the Company has caused this Certificate to be signed this 13th day of April, 2000. TAYLOR SENIOR HOLDING CORP. By: /s/ David B. Pittaway ----------------------- President 10 EX-3.8 11 a2071988zex-3_8.txt EXHIBIT 3.8 EXHIBIT 3.8 BY-LAWS OF TAYLOR SENIOR HOLDING CORP. BY-LAWS OF TAYLOR SENIOR HOLDING CORP. ARTICLE I OFFICES Section 1. The registered office of the Corporation shall be in the City of Wilmington, County of New Castle, State of Delaware. The Corporation also may have offices at such other places, within or without the State of Delaware, as the Board of Directors determines from time to time or the business of the Corporation requires. ARTICLE II MEETINGS OF STOCKHOLDERS Section 1. PLACE OF MEETINGS. Except as otherwise provided in these By-laws, all meetings of the stockholders shall be held on such dates and at such times and places, within or without the State of Delaware, as shall be determined by the Board of Directors and as shall be stated in the notice of the meeting or in waivers of notice thereof. If the place of any meeting is not so fixed, it shall be held at the registered office of the Corporation in the State of Delaware. Section 2. ANNUAL MEETING. The annual meeting of stockholders for the election of directors and the transaction of such other proper business as may be brought before the meeting shall be held on such date after the close of the Corporation's fiscal year, and at such time, as the Board of Directors may from time to time determine. Section 3. SPECIAL MEETINGS. Special meetings of the stockholders, for any purpose or purposes, may be called by the Board of Directors and shall be called by the President or the Secretary upon the written request of a majority of the directors. The request shall state the date, time, place and purpose or purposes of the proposed meeting. Section 4. NOTICE OF MEETINGS. Except as otherwise required or permitted by law, whenever the stockholders are required or permitted to take any action at a meeting, written notice thereof shall be given, stating the place, date and hour of the meeting and, unless it is the annual meeting, by or at whose direction it is being issued. The notice also shall designate the place where the stockholders list is available for examination, unless the list is kept at the place where the meeting is to be held. Notice of a special meeting also shall state the purpose or purposes for which the meeting is called. A copy of the notice of any meeting shall be delivered personally or shall be mailed, not less than 10 and not more than 60 days before the date of the meeting, to each stockholder entitled to vote at the meeting. If mailed, the notice shall be deemed given when deposited in the United States mail, postage prepaid, directed to each stockholder at such stockholder's address as it appears on the records of the Corporation, unless such stockholder shall have filed with the Secretary of the Corporation a written request that such notices be mailed to some other address, in which case it shall be directed to such other address. Notice of any meeting of stockholders need not be given to any stockholder who shall submit, either before or after the time stated therein, a signed waiver of notice or who shall attend the meeting, other than for the express purpose of objecting at the beginning thereof to the transaction of any business because the meeting is not lawfully called or convened. Unless the Board of Directors, after an adjournment is taken, shall fix a new record date for an adjourned meeting or unless the adjournment is for more than 30 days, notice of an adjourned meeting need not be given if the place, date and time to which the meeting shall be adjourned are announced at the meeting at which the adjournment is taken. Section 5. QUORUM. Except as otherwise provided by law or by the Certificate of Incorporation of the Corporation, at all meetings of stockholders the holders of a majority of the shares of the Corporation entitled to vote, present in person or represented by proxy, shall constitute a quorum for the transaction of business. Section 6. VOTING. Except as otherwise provided by law or by the Certificate of Incorporation of the Corporation, at any meeting of the stockholders every stockholder of record having the right to vote thereat shall be entitled to one vote for every share of stock standing in his name as of the record date and entitling him to so vote. A stockholder may vote in person or by proxy. Except as otherwise provided by law or by the Certificate of Incorporation, any corporate action to be taken by a vote of the stockholders, other than the election of directors, shall be authorized by the affirmative vote of a majority of the shares present or represented by proxy at the meeting and entitled to vote on the subject matter. Directors shall be elected as provided in Section 2 of Article III of these By-laws. Section 7. PROXIES. Every proxy shall be executed in writing by the stockholder or by his authorized representative, or otherwise as provided in the General Corporation Law of the State of Delaware (the "General Corporation Law"). Section 8. LIST OF STOCKHOLDERS. At least 10 days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing their addresses and the number of shares registered in their names as of the record date shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least 10 days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. Section 9. CONDUCT OF MEETINGS. At each meeting of the stockholders, the President or, in his absence, any one of the Vice Presidents, in order of their seniority, shall act as chairman of the meeting. The Secretary or, in his absence, any person appointed by the chairman of the meeting shall act as secretary of the meeting and shall keep the minutes thereof. The order of business at all meetings of the stockholders shall be as determined by the chairman of the meeting. Section 10. CONSENT OF STOCKHOLDERS IN LIEU OF MEETING. Unless otherwise provided in the Certificate of Incorporation of the Corporation, any action required to be taken or which may be taken at any annual or special meeting of stockholders may be taken without a meeting, without prior notice and without a vote, if a consent or consents in writing, setting forth the action so taken, shall be signed, in person or by proxy, by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted in person or by proxy and shall be delivered to the Corporation as required by law. Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing. ARTICLE III BOARD OF DIRECTORS Section 1. NUMBER OF DIRECTORS. Except as otherwise provided in the Certificate of Incorporation of the Corporation, until such time as the Board of Directors determines otherwise, the number of directors shall be one. The number of directors may be reduced or increased from time to time by action of a majority of the whole Board, but no decrease may shorten the term of an incumbent director. When used in these By-laws, the term "whole Board" means the total number of directors which the Corporation would have if there were no vacancies. Section 2. ELECTION AND TERM. Except as otherwise provided by law, by the Certificate of Incorporation of the Corporation or by these By-laws, the director shall be elected at the annual meeting of the stockholders and the persons receiving a plurality of the votes cast shall be so elected. Subject to his earlier death, resignation or removal as provided in Section 3 of this Article III, each director shall hold office until his successor shall have been elected and shall have qualified. Section 3. REMOVAL. A director may be removed at any time, with or without cause, by the holders of a majority of the shares then entitled to vote at an election of directors. Section 4. RESIGNATIONS. Any director may resign at any time by giving written notice of his resignation to the Corporation. A resignation shall take effect at the time specified therein or, if the time when it shall become effective shall not be specified therein, immediately upon its receipt, and, unless otherwise specified therein, the acceptance of a resignation shall not be necessary to make it effective. Section 5. VACANCIES. Except as otherwise provided in the Certificate of Incorporation of the Corporation, any vacancy in the Board of Directors arising from an increase in the number of directors or otherwise may be filled by the vote of a majority of the directors then in office, although less than a quorum, or by a sole remaining director. Section 6. PLACE OF MEETINGS. Except as otherwise provided in these By-laws, all meetings of the Board of Directors shall be held at such places, within or without the State of Delaware, as the Board determines from time to time. Section 7. ANNUAL MEETING. The annual meeting of the Board of Directors shall be held either without notice immediately after the annual meeting of stockholders and in the same place, or as soon as practicable after the annual meeting of stockholders on such date and at such time and place as the Board determines from time to time. Section 8. REGULAR MEETINGS. Regular meetings of the Board of Directors shall be held on such dates and at such times and places as the Board determines from time to time. Notice of regular meetings need not be given, except as otherwise required by law. Section 9. SPECIAL MEETINGS. Special meetings of the Board of Directors, for any purpose or purposes, may be called by the President and shall be called by the President or the Secretary upon the written request of a majority of the directors. The request shall state the date, time, place and purpose or purposes of the proposed meeting. Section 10. NOTICE OF MEETINGS. Notice of each special meeting of the Board (and of each annual meeting which is not held immediately after, and in the same place as, the annual meeting of stockholders) shall be given, not later than 24 hours before the meeting is scheduled to commence, by the President or the Secretary and shall state the place, date and time of the meeting. Notice of each meeting may be delivered to a director by hand or given to a director orally (either by telephone or in person) or mailed, or sent by facsimile transmission to a director at his residence or usual place of business, provided, however, that if notice of less than 72 hours is given it may not be mailed. If mailed, the notice shall be deemed given when deposited in the United States mail, postage prepaid; and if sent by facsimile transmission, the notice shall be deemed given when transmitted with transmission confirmed. Notice of any meeting need not be given to any director who shall submit, either before or after the time stated therein, a signed waiver of notice or who shall attend the meeting, other than for the express purpose of objecting at the beginning thereof to the transaction of any business because the meeting is not lawfully called or convened. Notice of an adjourned meeting, including the place, date and time of the new meeting, shall be given to all directors not present at the time of the adjournment, and also to the other directors unless the place, date and time of the new meeting are announced at the meeting at the time at which the adjournment is taken. Section 11. QUORUM. Except as otherwise provided by law or in these By-laws, at all meetings of the Board of Directors a majority of the whole Board shall constitute a quorum for the transaction of business, and the vote of a majority of the directors present at a meeting at which a quorum is present shall be the act of the Board. A majority of the directors present, whether or not a quorum is present, may adjourn any meeting to another place, date and time. Section 12. CONDUCT OF MEETINGS. At each meeting of the Board of Directors, the President or, in his absence, a director chosen by a majority of the directors present shall act as chairman of the meeting. The Secretary or, in his absence, any person appointed by the chairman of the meeting shall act as secretary of the meeting and keep the minutes thereof. The order of business at all meetings of the Board shall be as determined by the chairman of the meeting. Section 13. COMMITTEES OF THE BOARD. The Board of Directors may designate an executive committee and other committees, each consisting of one or more directors. Each committee (including the members thereof) shall serve at the pleasure of the Board of Directors and shall keep minutes of its meetings and report the same to the Board. The Board of Directors may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member or members at any meeting of the committee. In addition, in the absence or disqualification of a member of a committee, if no alternate member has been designated by the Board of Directors, the member or members present at any meeting and not disqualified from voting, whether or not they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of the absent or disqualified member. Except as limited by law, each committee, to the extent provided in the resolution of the Board of Directors establishing it, shall have and may exercise all the powers and authority of the Board in the management of the business and affairs of the Corporation. Section 14. OPERATION OF COMMITTEES. A majority of all the members of a committee shall constitute a quorum for the transaction of business, and the vote of a majority of all the members of a committee present at a meeting at which a quorum is present shall be the act of the committee. Each committee shall adopt whatever other rules of procedure it determines for the conduct of its activities. Section 15. CONSENT TO ACTION. Any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting if all members of the Board or committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the Board or committee. Section 16. ATTENDANCE OTHER THAN IN PERSON. Members of the Board of Directors or any committee thereof may participate in a meeting of the Board or committee, as the case may be, by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and such participation shall constitute presence in person at the meeting. ARTICLE IV OFFICERS Section 1. EXECUTIVE AND OTHER OFFICERS. The executive officers of the Corporation shall be a President, a Secretary and a Treasurer. The Board of Directors also may elect or appoint one or more Vice Presidents (any of whom may be designated as Executive Vice Presidents or otherwise), and any other officers it deems necessary or desirable for the conduct of the business of the Corporation, each of whom shall have such powers and duties as the Board determines. Section 2. DUTIES. (a) THE PRESIDENT. The President shall be the chief executive officer and chief operating officer of the Corporation, and shall preside at all meetings of the stockholders and of the Board of Directors. The President shall have general management of the business and affairs of the Corporation, subject to the control of the Board of Directors, and he shall have such other powers and duties as the Board assigns to him. (b) THE VICE PRESIDENT. The Vice President or, if there shall be more than one, the Vice Presidents, if any, in the order of their seniority or in any other order determined by the Board of Directors, shall perform, in the absence or disability of the President, the duties and exercise the powers of the President, and shall have such other powers and duties as the Board or the President assigns to him or them. (c) THE SECRETARY. Except as otherwise provided in these By-laws or as directed by the Board of Directors, the Secretary shall attend all meetings of the stockholders and the Board; he shall record the minutes of all proceedings in books to be kept for that purpose; he shall give notice of all meetings of the stockholders and special meetings of the Board; and he shall keep in safe custody the seal of the Corporation and, when authorized by the Board, he shall affix the same to any corporate instrument. The Secretary shall have such other powers and duties as the Board or the President assigns to him. (d) THE TREASURER. Subject to the control of the Board, the Treasurer shall have the care and custody of the corporate funds and the books relating thereto; and he shall perform all other duties incident to the office of Treasurer. The Treasurer shall have such other powers and duties as the Board or the President assigns to him. Section 3. TERM; REMOVAL. Subject to his earlier death, resignation or removal, each officer shall hold his office until his successor shall have been elected or appointed and shall have qualified, or until his earlier death, resignation or removal. Any officer may be removed at any time, with or without cause, by the Board of Directors. Section 4. RESIGNATIONS. Any officer may resign at any time by giving written notice of his resignation to the Corporation. A resignation shall take effect at the time specified therein or, if the time when it shall become effective shall not be specified therein, immediately upon its receipt, and, unless otherwise specified therein, the acceptance of a resignation shall not be necessary to make it effective. Section 5. VACANCIES. If an office becomes vacant for any reason, the Board of Directors may fill the vacancy, and each officer so elected or appointed shall serve for the remainder of his predecessor's term and until his successor shall have been elected or appointed and shall have qualified. ARTICLE V Provisions Relating to Stock CERTIFICATES AND STOCKHOLDERS Section 1. CERTIFICATES. Certificates for the Corporation's capital stock shall be in such form as required by law and as approved by the Board of Directors. Each certificate shall be signed in the name of the Corporation by the President or any Vice President and by the Secretary, the Treasurer, any Assistant Secretary or any Assistant Treasurer. Any or all of the signatures on a certificate may be a facsimile. In case any officer, transfer agent or registrar who shall have signed or whose facsimile signature shall have been placed on any certificate shall have ceased to be such officer, transfer agent or registrar before the certificate shall be issued, the certificate may be issued by the Corporation with the same effect as if he were such officer, transfer agent or registrar at the date of issue. Section 2. REPLACEMENT CERTIFICATES. The Corporation may issue a new certificate of stock in place of any certificate theretofore issued by it, alleged to have been lost, stolen or destroyed, and the Board of Directors may require the owner of the lost, stolen or destroyed certificate, or such person's legal representative, to make an affidavit of that fact and to give the Corporation a bond sufficient to indemnify the Corporation against any claim that may be made against it on account of the alleged loss, theft or destruction of the certificate or the issuance of such new certificate. Section 3. TRANSFERS OF SHARES. Transfers of shares shall be registered on the books of the Corporation maintained for that purpose after due presentation of the stock certificates therefor, appropriately endorsed or accompanied by proper evidence of succession, assignment or authority to transfer. Section 4. RECORD DATE. For the purpose of determining the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or to express consent to corporate action in writing without a meeting, or for the purpose of determining stockholders entitled to receive payment of any dividend or other distribution or the allotment of any rights, or for the purpose of any other action, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board, and which record date shall not be more than 60 or less than 10 days before the date of any such meeting, shall not be more than 10 days after the date on which the Board fixes a record date for any such consent in writing, and shall not be more than 60 days prior to any other action. ARTICLE VI INDEMNIFICATION Section 1. INDEMNIFICATION. The Corporation shall, to the fullest extent permitted by the General Corporation Law (including, without limitation, Section 145 thereof) or other provisions of the laws of Delaware relating to indemnification of directors and officers, as the same may be amended and supplemented from time to time, indemnify any and all such persons whom it shall have power to indemnify under the General Corporation Law or such other provisions of law. Section 2. STATUTORY INDEMNIFICATION. Without limiting the generality of Section 1 of this Article VI, to the fullest extent permitted, and subject to the conditions imposed, by law, and pursuant to Section 145 of the General Corporation Law: (i) the Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding whether civil, criminal, administrative or investigative (other than an action by or in the right of the Corporation) by reason of the fact that such person is or was a director or officer of the Corporation, or is or was serving at the request of the Corporation as a director or officer of another corporation, partnership, joint venture, trust or other enterprise against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if such person acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful; and (ii) the Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the Corporation to procure a judgment in its favor by reason of the fact that such person is or was a director or officer of the Corporation, or is or was serving at the request of the Corporation as a director or officer of another corporation, partnership, joint venture, trust or other enterprise against expenses (including attorneys' fees) actually and reasonably incurred by him in connection with the defense or settlement of such action or suit if such person acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation, except as otherwise provided by law. Section 3. INDEMNIFICATION BY RESOLUTION OF STOCKHOLDERS OR DIRECTORS OR AGREEMENT. Without limiting the generality of Section 1 or Section 2 of this Article VI, to the fullest extent permitted by law, indemnification may be granted, and expenses may be advanced, to the persons described in Section 145 of the General Corporation Law or other provisions of the laws of Delaware relating to indemnification and advancement of expenses, as from time to time may be in effect, by (i) a resolution of stockholders, (ii) a resolution of the Board of Directors, or (iii) an agreement providing for such indemnification and advancement of expenses, provided that no indemnification may be made to or on behalf of any person if a judgment or other final adjudication adverse to the person establishes that such person's acts were committed in bad faith or were the result of active and deliberate dishonesty and were material to the cause of action so adjudicated, or that such person personally gained in fact a financial profit or other advantage to which such person was not legally entitled. Section 4. GENERAL. It is the intent of this Article VI to require the Corporation to indemnify the persons referred to herein for judgments, fines, penalties, amounts paid in settlement and expenses (including attorneys' fees), and to advance expenses to such persons, in each and every circumstance in which such indemnification and such advancement of expenses could lawfully be permitted by express provision of by-laws, and the indemnification and expense advancement provided by this Article VI shall not be limited by the absence of an express recital of such circumstances. The indemnification and advancement of expenses provided by, or granted pursuant to, these By-laws shall not be deemed exclusive of any other rights to which a person seeking indemnification or advancement of expenses may be entitled, whether as a matter of law, under any provision of the Certificate of Incorporation of the Corporation, these By-laws, by agreement, by vote of stockholders or disinterested directors of the Corporation or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office. Section 5. INDEMNIFICATION BENEFITS. Indemnification pursuant to these By-laws shall inure to the benefit of the heirs, executors, administrators and personal representatives of those entitled to indemnification. ARTICLE VII GENERAL PROVISIONS Section 1. DIVIDENDS. To the extent permitted by law, the Board of Directors shall have full power and discretion, subject to the provisions of the Certificate of Incorporation of the Corporation, to determine what, if any, dividends or distributions shall be declared and paid or made. Section 2. SEAL. The Corporation's seal shall be in such form as is required by law and as shall be approved by the Board of Directors. Section 3. FISCAL YEAR. The fiscal year of the Corporation shall be determined by the Board of Directors. Section 4. VOTING SHARES IN OTHER CORPORATIONS. Unless otherwise directed by the Board of Directors, shares in other corporations which are held by the Corporation shall be represented and voted only by the President or by a proxy or proxies appointed by him. ARTICLE VIII AMENDMENTS Section 1. By-Laws may be adopted, amended or repealed by the Board of Directors, provided the conferral of such power on the Board shall not divest the stockholders of the power, or limit their power, to adopt, amend or repeal By-laws. EX-3.9 12 a2071988zex-3_9.txt EXHIBIT 3.9 EXHIBIT 3.9 AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF TP HOLDING CORP. (f/k/a SBI NORTH AMERICA, INC.) CERTIFICATE OF INCORPORATION OF TP ACQUISITION CORP. 1. The name of the corporation is TP Acquisition Corp. (the "Corporation"). 2. The address of the Corporation's registered office in the State of Delaware is Corporation Trust Center, 1209 Orange Street, Wilmington, County of New Castle, Delaware 1980. The Corporation Trust Company is the Corporation's registered agent at that address. 3. The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware (the "General Corporation Law"). 4. The Corporation shall have authority to issue one hundred (100) shares of Common Stock, par value $0.01 per share. 5. The name and mailing address of the sole incorporator is: NAME MAILING ADDRESS D. Lenore Mason, Esq. c/o Schulte Roth & Zabel LLP 900 Third Avenue New York, NY 10022 6. The powers of the incorporator shall terminate upon the filing of this Certificate of Incorporation. The name and address of the person who is to serve as director until the first annual meeting of stockholders or until his successors are elected and qualified is: NAME MAILING ADDRESS David B. Pittaway Castle Harlan, Inc. 150 East 58th Street New York, NY 10155 -2- 7. The personal liability of the directors of the Corporation is hereby eliminated to the fullest extent permitted by the General Corporation Law (including, without limitation, paragraph (7) of subsection (b) of Section 102 thereof), as the same may be amended and supplemented from time to time. 8. The Board of Directors shall have the power to adopt, amend or repeal Bylaws of the Corporation, subject to the right of the stockholders of the Corporation to adopt, amend or repeal any By-law. 9. The Corporation shall, to the fullest extent permitted by the General Corporation Law (including, without limitation, Section 145 thereof), as the same may be amended and supplemented from time to time, indemnify any and all persons whom it shall have power to indemnify under the General Corporation Law. The indemnification provided for herein shall not be deemed exclusive of any other rights to which those seeking indemnification may be entitled whether as a matter of law, under any By-law of the Corporation, by agreement, by vote of stockholders or disinterested directors of the Corporation or otherwise. 10. The election of directors of the Corporation need not be by written ballot, unless the By-laws of the Corporation otherwise provide. -3- IN WITNESS WHEREOF, I have signed this Certificate of Incorporation and affirm the statements contained herein are true this 15th day of December, 1999. /s/ D. Lenore Mason ----------------------------------- D. Lenore Mason, Esq. Sole Incorporator -4- AMENDED AND RESTATED CERTIFICATE OP INCORPORATION OF TP ACQUISITION CORP. TP ACQUISITION CORP. (the "Corporation"), a corporation organized and existing under the General Corporation Law of the State of Delaware, does hereby certify that: 1. The Certificate of Incorporation was filed with the Secretary of State, of the State of Delaware on December 12, 1999 under the name TP Acquisition Corp. 2. This Amended and Restated Certificate of Incorporation was duly adopted in accordance with Section 242 of the General Corporation Law of the State of Delaware. 3. The text of the Certificate of Incorporation is hereby amended, and is hereby restated, to read in its entirety as herein act forth; AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF TP ACQUISITION CORP. 1. The name of the Corporation is TP Holding Corp. (the "Corporation"). 2. The address of the Corporation's registered office in the State of Delaware is: Corporation Trust Center, 1209 Orange Street Wilmington, County of New Castle, Delaware 19801. The Corporation Trust Company is the Corporation's registered agent at that address. 3. The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware (the "General Corporation Law"). 4. The Corporation shall have authority to issue one million (1,000,000) shares of Common Stock, par value $0.01 per share, of the Corporation ("Common Stock") and one million (1,000,000) shares of Preferred Stock, par value $0.01 per share, of the Corporation. 4. This Amended and Restated Certificate of Incorporation was duly adopted by the director of the Corporation in accordance with Section 245 of the General Corporation Law of the State of Delaware. 5. The personal liability of the directors of the Corporation is hereby eliminated to the fullest extent permitted by the General Corporation Law (including, without limitation, paragraph (7) of subsection (b) of Section 102 thereof), as the same may be amended and supplemented from time to time. 6. The Board of Directors shall have the power to adopt, amend or repeal By-laws of the Corporation, subject to the right of the stockholders of the Corporation to adopt, amend or repeal any By-law. 7. The Corporation shall, to the fullest extent permitted by the General Corporation Law (including, without limitation, Section 145 thereof), as the same may be amended and supplemented from time to time, indemnify any and all persons whom it shall have power to indemnify under the General Corporation Law. The indemnification provided for herein shall not be deemed exclusive of any other rights to which those seeking indemnification may be entitled whether as a matter of law, under any By-law of the Corporation, by agreement, by vote of stockholders or disinterested directors of the Corporation or otherwise. 8. The election of directors of the Corporation need not be by written ballot, unless the By-laws of the Corporation otherwise provide. IN WITNESS WHEREOF, the Corporation has caused this Certificate to be signed by David B. Pittaway, its sole director this 11th day of February, 2000. TP ACQUISITION CORP. By: /s/ David B. Pittaway -------------------------------- David B. Pittaway Sole Director -2- CERTIFICATE OF DESIGNATIONS, PREFERENCES AND RIGHTS OF PREFERRED STOCK OF TP HOLDING CORP. TP HOLDING CORP. (the "Company"), a corporation organized and existing under the General Corporation Law of the State of Delaware, does hereby certify that, pursuant to authority conferred upon the Board of Directors of the Company (the "Board") by the Certificate of Incorporation, as amended, of the Company, and pursuant to Section 151 of the General Corporation Law of the State of Delaware, the Board at a meeting duly held, adopted resolutions (i) designating a new series of the Company's previously authorized preferred stock, par value $0.01 per share, and (ii) providing for the designations, preferences and relative, participating, optional or other rights, and the qualifications, limitations and restrictions in respect of such series of preferred stock of the Company, as follows: RESOLVED, that the Company is authorized to issue 300,000 shares of Preferred Stock, par value $0.01 par share, with an initial stated value of $95.00 per share and the following powers, designations, preferences and other special rights: Section 1. DESIGNATION, NUMBER AND RANKING. (a) The shares of such series shall be designated as "Preferred Stock" (the "Preferred Stock"). The number of shares constituting the Preferred Stock shall be 300,000, with an initial stated value of $95.00 per share, which shall be adjusted accordingly for any conversion, exchange, stock split, reverse stock split, combination, dividend or other reclassification, consolidation, reorganization, recapitalization or similar transaction (the "Stated Value"). (b) The Preferred Stock shall rank senior to any common stock of the Company (the "Common Stock"). Section 2. DIVIDENDS AND DISTRIBUTIONS. (a) The holders of shares of Preferred Stock shall not be entitled to receive dividends and distributions, other than (i) as provided in clause (b) of this Section 2, and (ii) Liquidation Distributions as set forth in Section 5 below. (b) If the Company at any time proposes to pay a dividend (or make any other distribution) on the Common Stock, other than a distribution of additional shares of Common Stock, the Company shall pay a concurrent dividend (or make a concurrent distribution) to holders of Preferred Stock such that, with respect to each share of Preferred Stock, the holders of shares of Preferred Stock shall receive a dividend or distribution equal to 19 times the per share dividend paid (or distribution made) with respect to each share of Common Stock. In any such case, the Company shall declare a dividend or distribution on the Preferred Stock at the same time that it declares a dividend or distribution on the Common Stock and shall establish the same record date for the dividend or distribution on the Preferred Stock as is established for such dividend or distribution on the Common Stock. (c) each dividend or distribution declared on the Preferred Stock shall be payable to holders of record of the Preferred Stock as they appeared on the records of the Company at the close of business on the record date set for such dividend or distribution by the Board of Directors of the Company (the "Board"). Any reference to "dividend" or "distribution" contained in this Section 2 shall be deemed to exclude Liquidating Distributions (as defined in Section 5 below). Section 3. VOTING RIGHTS. The holders of shares of Preferred Stock shall not have any voting rights. Section 4. REDEMPTION. (a) The Preferred Stock shall be redeemable at the option of the Board at any time from time to time for cash at a redemption price per share equal to the stated value, plus all accrued but unpaid dividends, if any. (b) The amount to be paid to the holders of the Preferred Stock pursuant to any such redemption shall be paid by the Company to such holders promptly in cash not less than 10 days following delivery to the Company of the certificates representing such shares. Section 5. LIQUIDATION, DISSOLUTION OR WINDING UP. In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company, the holders of shares of Preferred Stock then outstanding shall be entitled to be paid out of the assets of the Company available for distribution to its stockholders, after and subject to the payment in full of all amounts required to be distributed to the holders of any other class of stock of the Company ranking senior to the Preferred stock upon liquidation, dissolution or winding-up (such stock being referred to herein as "Senior Stock") in respect of such stock, but before any payment shall be made to the holders of Common Stock or other capital stock of the Company ranking junior to the Preferred Stock upon liquidation, dissolution or winding up (such stock being referred to herein as "Junior Stock"), an amount per share equal to the Stated Value, plus all accrued but unpaid dividends, if any (any such payment, together with all other payments made to holders of any capital stock of the Company in accordance with this Section 5, are collectively referred to as "Liquidating Distributions"). Upon such liquidation, dissolution or winding up of the Company, if the remaining assets of the Company available for distribution to stockholders after payment in full of amounts required to be paid or distributed to holders of Senior Stock shall be insufficient to pay the holders of shares of Preferred Stock and the holders -2- of shares of capital stock of the Company ranking on a parity with the Preferred Stock upon liquidation, dissolution or winding up (such stock being referred to herein as "Parity Stock") the full amount to which they shall be entitled, the holders of shares of Preferred Stock and shares of Parity Stock shall share ratably in any distribution of the remaining assets and funds of the Company in proportion to the respective amounts which would otherwise be payable in respect of the shares held by them upon such distribution if all amounts payable on or with respect to said shares were paid in full. IN WITNESS WHEREOF, the Company has caused this Certificate to be signed on this 11th day of February, 2000. TP HOLDING CORP. By: /s/ David B. Pittaway ------------------------------- Name: David B. Pittaway Title: President -3- AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF TP HOLDING CORP. TP HOLDING CORP. (the "Corporation"), a corporation organized and existing under the General Corporation Law of the State of Delaware, does hereby certify that: 1. The Certificate of Incorporation was filed with the Secretary of State of the State of Delaware on December 15, 1999 under the name TP Acquisition Corp. and amended and restated on February 11, 2000. 2. This Amended and Restated Certificate of Incorporation was duly adopted in accordance with Section 242 and 245 of the General Corporation Law of the State of Delaware. 3. The text of the Certificate of Incorporation is hereby amended, and is hereby restated, to read in its entirety as herein set forth; AMENDED AND RESTATED CERTIFICATE OP INCORPORATION OF TP HOLDING CORP. 1. The name of the Corporation is TP Holding Corp. (the "Corporation"). 2. The address of the Corporation's registered office in the State of Delaware is: Corporation Trust Center, 1209 Orange Street Wilmington, County of New Castle, Delaware 19801. The Corporation Trust Company is the Corporation's registered agent at that address. 3. The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware (the "General Corporation Law"). 4. The Corporation shall have authority to issue fifty thousand (50,000) shares of Common Stock, par value $0.01 per share, of the Corporation and fifty thousand (50,000) shares of Preferred Stock, par value $0.01 per share, of the Corporation. 4. This Amended and Restated Certificate of Incorporation was duly adopted by the director of the Corporation in accordance with Section 245 of the General Corporation Law of the State of Delaware. 5. The personal liability of the directors of the Corporation is hereby eliminated to the fullest extent permitted by the General Corporation Law (including, without limitation, paragraph (7) of subsection (b) of Section 102 thereof), as the same may be amended and supplemented from time to time. 6. The Board of Directors shall have the power to adopt, amend or repeal By-laws of the Corporation, subject to the right of the stockholders of the Corporation to adopt, amend or repeal any By-law. 7. The Corporation shall, to the fullest extent permitted by the General Corporation Law (including, without limitation, Section 145 thereof), as the same may be amended and supplemented from time to time, indemnify any and all persons whom it shall have power to indemnify under the General Corporation Law. The indemnification provided for herein shall not be deemed exclusive of any other rights to which those seeking indemnification may be entitled whether as a matter of law, under any By-law of the Corporation, by agreement, by vote of stockholders or disinterested directors of the Corporation or otherwise. 8. The election of directors of the Corporation need not be by written ballot, unless the By-laws of the Corporation otherwise provide. -2- IN WITNESS WHEREOF, the Corporation has caused this Certificate to be signed by David B. Pittaway, its President this 11th day of February, 2000. TP ACQUISITION CORP. By: /s/ David B. Pittaway ---------------------------------- David B. Pittaway President -3- AMENDED CERTIFICATE OF DESIGNATIONS, PREFERENCES AND RIGHTS OF PREFERRED STOCK OF TP HOLDING CORP. TP HOLDING CORP. (the "Company"), a corporation organized and existing under the General Corporation Law of the State of Delaware, does hereby certify that, pursuant to authority conferred upon the Board of Directors of the Company (the "Board") by the Certificate of Incorporation, as amended, of the Company, and pursuant to Section 151 of the General Corporation Law of the State of Delaware, the Board at a meeting duly held, adopted resolutions (i) decreasing the authorized number of preferred stock of the Company from 1,000,000 to 50,000, (ii) amending the stated value of the preferred stock to nine hundred fifty dollars ($950.00), and (iii) providing for the designations, preferences and relative, participating, optional or other rights, and the qualifications, limitations and restrictions in respect of such series of preferred stock of the Company, as follows: RESOLVED, that the Company is authorized to issue 50,000 shares of Preferred Stock, par value $0.01 per share, with an initial stated value of $950.00 per share and the following powers, designations, preferences and other special rights: Section 1. DESIGNATION, NUMBER AND RANKING. (a) The shares of such series shall be designated as "Preferred Stock" (the "Preferred Stock"). The number of shares constituting the Preferred Stock shall be 300,000, with an initial stated value of $950.00 per share, which shall be adjusted accordingly for any conversion, exchange, stock split, reverse stock split, combination, dividend or other reclassification, consolidation, reorganization, recapitalization or similar transaction (the "Stated Value"). (b) The Preferred Stock shall rank senior to any common stock of the Company (the "Common Stock"). Section 2. DIVIDENDS AND DISTRIBUTIONS. (a) The holders of shares of Preferred Stock shall not be entitled to receive dividends and distributions, other than (i) as provided in clause (b) of this Section 2, and (ii) Liquidation Distributions as set forth in Section 5 below. (b) If the Company at any time proposes to pay a dividend (or make any other distribution) on the Common Stock, other than a distribution of additional shares of Common Stock, the Company shall pay a concurrent dividend (or make a concurrent distribution) to holders of Preferred Stock such that, with respect to each share of Preferred Stock, the holders of shares of Preferred Stock shall receive a dividend or distribution equal to 19 times the per share dividend paid (or distribution mad) with respect to each share of Common Stock. In any such case, the Company shall declare a dividend or distribution on the Preferred Stock at the same time that it declares a dividend or distribution on the Common Stock and shall establish the same record date for the dividend or distribution on the Preferred Stock as is established for such dividend or distribution on the Common Stock. (c) Each dividend or distribution declared on the Preferred Stock shall be payable to holders of record of the Preferred Stock as they appeared on the records of the Company at the close of business on the record date set for such dividend or distribution by the Board of Directors of the Company (the "Board"). Any reference to "dividend" or "distribution" contained in this Section 2 shall be deemed to exclude Liquidating Distributions (as defined in Section 5 below). Section 3. VOTING RIGHTS. The holders of shares of Preferred Stock shall not have any voting rights. Section 4. REDEMPTION. (a) The Preferred Stock shall be redeemable at the option of the Board at any time from time to time for cash at a redemption price per share equal to the stated value, plus all accrued but unpaid dividends, if any. The amount to be paid to the holders of the Preferred Stock pursuant to any such redemption shall be paid by the Company to such holders promptly in cash not less than 10 days following delivery to the Company of the certificates representing such shares. Section 5. LIQUIDATION, DISSOLUTION OR WINDING UP. In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company, the holders of shares of Preferred Stock then outstanding shall be entitled to be paid out of the assets of the Company available for distribution to its stockholders, after and subject to the payment in full of all amounts required to be distributed to the holders of any other class of stock of the Company ranking senior to the Preferred stock upon liquidation, dissolution or winding-up (such stock being referred to herein as "Senior Stock") in respect of such stock, but before any payment shall be made to the holders of Common Stock or other capital stock of the Company ranking junior to the Preferred Stock upon liquidation, dissolution or winding up (such stock being referred to herein as "Junior Stock"), an amount per share equal to the Stated Value, plus all accrued but unpaid dividends, if any (any such payment, together with all other payments made to holders of any capital stock of the Company in accordance with this Section 5, are collectively referred to as "Liquidating Distributions"). Upon such liquidation, dissolution or winding up of the Company, if the remaining assets of the Company available for distribution to stockholders after payment in full of amounts required to be paid or distributed to holders of -2- Senior Stock shall be insufficient to pay the holders of shares of Preferred Stock and the holders of shares of capital stock of the Company ranking on a parity with the Preferred Stock upon liquidation, dissolution or winding up (such stock being referred to herein as "Parity Stock") the full amount to which they shall be entitled, the holders of shares of Preferred Stock and shares of Parity Stock shall share ratably in any distribution of the remaining assets and funds of the Company in proportion to the respective amounts which would otherwise be payable in respect of the shares held by them upon such distribution if all amounts payable on or with respect to said shares were paid in full. -3- IN WITNESS WHEREOF, the Company has caused this Certificate to be signed on this 24th day of February, 2000. TP HOLDING CORP. By: /s/ David B. Pittaway ------------------------ Name: David B. Pittaway Title: President -4- CORRECTED CERTIFICATE OF DESIGNATIONS, PREFERENCES AND RIGHTS OF PREFERRED STOCK OF TP HOLDING CORP. The document to be corrected is the Certificate of Designations, Preferences and Rights of Preferred Stock (the "Certificate of Designations") of TP Holding Corp. (the "Corporation") which was filed in the Office of the Secretary of State of the State of Delaware on February 11, 2000 and corrected on February 24, 2000. The Certificate of Designations incorrectly stated the amount of issued shares. As corrected, the Certificate of Designations reads in full as follows: CERTIFICATE OF DESIGNATIONS, PREFERENCES AND RIGHTS OF PREFERRED STOCK OF TP HOLDING CORP. TP HOLDING CORP., (the "Company"), a corporation organized and existing under the General Corporation Law of the State of Delaware, does hereby certify that, pursuant to authority conferred upon the Board of Directors of the Company (the "Board") by the Certificate of Incorporation, as amended, of the Company and pursuant to Section 151 of the General Corporation Law of the State of Delaware, the Board at a meeting duly held, adopted resolutions (i) decreasing the authorized number of preferred stock of the Company from 1,000,000 to 50,000, (ii) amending the stated value of the preferred stock to nine hundred fifty dollars ($950.00), and (iii) providing for the designations, preferences and relative, participating, optional or other rights, and the qualifications, limitations and restrictions in respect of such series of preferred stock of the Company, as follows: RESOLVED, that the Company is authorized to issue 30,000 shares of Preferred Stock, par value $0.01 per share, with an initial stated value of $950.00 per share and the following powers, designations, preferences and other special rights: Section 1. DESIGNATION, NUMBER AND RANKING. (a) The shares of such series shall be designated as "Preferred Stock" (the "Preferred Stock"). The number of shares constituting the Preferred Stock shall be 30,000 with an initial stated value of $950.00 per share, which shall be adjusted accordingly for any conversion, exchange, stock split, reverse stock split, combination, dividend or other reclassification, consolidation, reorganization, recapitalization or similar transaction (the "Stated Value"). (b) The Preferred Stock shall rank senior to any common stock of the Company (the "Common Stock"). Section 2. DIVIDENDS AND DISTRIBUTIONS. (a) The holders of shares of Preferred Stock shall not be entitled to receive dividends and distributions, other than (i) as provided in clause (b) of this Section 2, and (ii) Liquidation Distributions as set forth in Section 5 below. (b) If the Company at any time proposes to pay a dividend (or make any other distribution) on the Common Stock, other than a distribution of additional shares of Common Stock, the Company shall pay a concurrent dividend (or make a concurrent distribution) to holders of Preferred Stock such that, with respect to each share of Preferred Stock, the holders of shares of Preferred Stock shall receive a dividend or distribution equal to 19 times the per share dividend paid (or distribution made) with respect to each share of Common Stock. In any such case, the Company shall declare a dividend or distribution on the Preferred Stock at the same time that it declares a dividend or distribution on the Common Stock and shall establish the same record date for the dividend or distribution on the Preferred Stock as is established for such dividend or distribution on the Common Stock. (c) Each dividend or distribution declared on the Preferred Stock shall be payable to holders of record of the Preferred Stock as they appeared on the records of the Company at the close of business on the record date set for such dividend or distribution by the Board of Directors of the Company (the "Board"). Any reference to "dividend" or "distribution" contained in this Section 2 shall be deemed to exclude Liquidating Distributions (as defined in Section 5 below). Section 3. VOTING RIGHTS. The holders of shares of Preferred Stock shall not have any voting rights. -2- Section 4. REDEMPTION. (a) The Preferred Stock shall be redeemable at the option of the Board at any time from time to time for cash at a redemption price per share equal to the stated value, plus all accrued but unpaid dividends, if any. The amount to be paid to the holders of the Preferred Stock pursuant to any such redemption shall be paid by the Company to such holders promptly in cash not less than 10 days following delivery to the Company of the certificates representing such shares. Section 5. LIQUIDATION, DISSOLUTION OR WINDING UP. In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company, the holders of shares of Preferred Stock then outstanding shall be entitled to be paid out of the assets of the Company available for distribution to its stockholders, after and subject to the payment in full of all amounts required to be distributed to the holders of any other class of stock of the Company ranking senior to the Preferred Stock upon liquidation, dissolution or winding-up (such stock being referred to herein as "Senior Stock") in respect of such stock, but before any payment shall be made to the holders of Common Stock or other capital stock of the Company ranking junior to the Preferred Stock upon liquidation, dissolution or winding up (such stock being referred to herein as "Junior Stock"), an amount per share equal to the Stated Value, plus all accrued but unpaid dividends, if any (any such payment, together with all other payments made to holders of any capital stock of the Company in accordance with this Section 5, are collectively referred to as "Liquidating Distributions"). Upon such liquidation, dissolution or winding up of the Company, if the remaining assets of the Company available for distribution to stockholders after payment in full of amounts required to be paid or distributed to holders of Senior Stock shall be insufficient to pay the holders of shares of Preferred Stock and the holders of shares of capital stock of the Company ranking on a parity with the Preferred Stock upon liquidation, dissolution or winding up (such stock being referred to herein as "Parity Stock") the full amount to which they shall be entitled, the holders of shares of Preferred Stock and shares of Parity Stock shall share ratably in any distribution of the remaining assets and funds of the Company in proportion to the respective amounts which would otherwise be payable in respect of the shares held by them upon such distribution if all amounts payable on or with respect to said shares were paid in full. -3- IN WITNESS WHEREOF, the Company has caused this Certificate to be signed this 13th day of April, 2000. TP HOLDING CORP. By: /s/ David B. Pittaway ------------------------------- President -4- EX-3.10 13 a2071988zex-3_10.txt EXHIBIT 3.10 EXHIBIT 3.10 BYLAWS OF TP HOLDING CORP. (f/k/a TP ACQUISITION CORP.) BY-LAWS OF TP ACQUISITION CORP. ARTICLE I OFFICES Section 1. The registered office of the Corporation shall be in the City of Wilmington, County of New Castle, State of Delaware. The Corporation also may have offices at such other places, within or without the State of Delaware, as the Board of Directors determines from time to time or the business of the Corporation requires. ARTICLE II MEETINGS OF STOCKHOLDERS Section 1. PLACE OF MEETINGS. Except as otherwise provided in these By-laws, all meetings of the stockholders shall be held on such dates and at such times and places, within or without the State of Delaware, as shall be determined by the Board of Directors and as shall be stated in the notice of the meeting or in waivers of notice thereof. If the place of any meeting is not so fixed, it shall be held at the registered office of the Corporation in the State of Delaware. Section 2. ANNUAL MEETING. The annual meeting of stockholders for the election of directors and the transaction of such other proper business as may be brought before -2- the meeting shall be held on such date after the close of the Corporation's fiscal year, and at such time, as the Board of Directors may from time to time determine. Section 3. SPECIAL MEETINGS. Special meetings of the stockholders, for any purpose or purposes, may be called by the Board of Directors and shall be called by the President or the Secretary upon the written request of a majority of the directors. The request shall state the date, time, place and purpose or purposes of the proposed meeting. Section 4. NOTICE OF MEETINGS. Except as otherwise required or permitted by law, whenever the stockholders are required or permitted to take any action at a meeting, written notice thereof shall be given, stating the place, date and hour of the meeting and, unless it is the annual meeting, by or at whose direction it is being issued. The notice also shall designate the place where the stockholders list is available for examination, unless the list is kept at the place where the meeting is to be held. Notice of a special meeting also shall state the purpose or purposes for which the meeting is called. A copy of the notice of any meeting shall be delivered personally or shall be mailed, not less than 10 and not more than 60 days before the date of the meeting, to each stockholder entitled to vote at the meeting. If mailed, the notice shall be deemed given when deposited in the United States mail, postage prepaid, directed to each stockholder at such stockholder's address as it appears on the records of the Corporation, unless such stockholder shall have filed with the Secretary of the Corporation a written request that such notices be mailed to some other address, in which case it shall be directed to such other address. Notice of any meeting of stockholders need not be given to any stockholder who shall submit, either before or after the time stated therein, a signed waiver of notice or who shall attend the meeting, other than for the express purpose of objecting at the beginning thereof to the -3- transaction of any business because the meeting is not lawfully called or convened. Unless the Board of Directors, after an adjournment is taken, shall fix a new record date for an adjourned meeting or unless the adjournment is for more than 30 days, notice of an adjourned meeting need not be given if the place, date and time to which the meeting shall be adjourned are announced at the meeting at which the adjournment is taken. Section 5. QUORUM. Except as otherwise provided by law or by the Certificate of Incorporation of the Corporation, at all meetings of stockholders the holders of a majority of the shares of the Corporation entitled to vote, present in person or represented by proxy, shall constitute a quorum for the transaction of business. Section 6. VOTING. Except as otherwise provided by law or by the Certificate of Incorporation of the Corporation, at any meeting of the stockholders every stockholder of record having the right to vote thereat shall be entitled to one vote for every share of stock standing in his name as of the record date and entitling him to so vote. A stockholder may vote in person or by proxy. Except as otherwise provided by law or by the Certificate of Incorporation, any corporate action to be taken by a vote of the stockholders, other than the election of directors, shall be authorized by the affirmative vote of a majority of the shares present or represented by proxy at the meeting and entitled to vote on the subject matter. Directors shall be elected as provided in Section 2 of Article III of these By-laws. Section 7. PROXIES. Every proxy shall be executed in writing by the stockholder or by his authorized representative, or otherwise as provided in the General Corporation Law of the State of Delaware (the "General Corporation Law"). -4- Section 8. LIST OF STOCKHOLDERS. At least 10 days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing their addresses and the number of shares registered in their names as of the record date shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least 10 days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. Section 9. CONDUCT OF MEETINGS. At each meeting of the stockholders, the President or, in his absence, any one of the Vice Presidents, in order of their seniority, shall act as chairman of the meeting. The Secretary or, in his absence, any person appointed by the chairman of the meeting shall act as secretary of the meeting and shall keep the minutes thereof. The order of business at all meetings of the stockholders shall be as determined by the chairman of the meeting. Section 10. CONSENT OF STOCKHOLDERS IN LIEU OF MEETING. Unless otherwise provided in the Certificate of Incorporation of the Corporation, any action required to be taken or which may be taken at any annual or special meeting of stockholders may be taken without a meeting, without prior notice and without a vote, if a consent or consents in writing, setting forth the action so taken, shall be signed, in person or by proxy, by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted in -5- person or by proxy and shall be delivered to the Corporation as required by law. Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing. -6- ARTICLE III BOARD OF DIRECTORS Section 1. NUMBER OF DIRECTORS. Except as otherwise provided in the Certificate of Incorporation of the Corporation, until such time as the Board of Directors determines otherwise, the number of directors shall be one. The number of directors may be reduced or increased from time to time by action of a majority of the whole Board, but no decrease may shorten the term of an incumbent director. When used in these By-laws, the term "whole Board" means the total number of directors which the Corporation would have if there were no vacancies. Section 2. ELECTION AND TERM. Except as otherwise provided by law, by the Certificate of Incorporation of the Corporation or by these By-laws, the director shall be elected at the annual meeting of the stockholders and the persons receiving a plurality of the votes cast shall be so elected. Subject to his earlier death, resignation or removal as provided in Section 3 of this Article III, each director shall hold office until his successor shall have been elected and shall have qualified. Section 3. REMOVAL. A director may be removed at any time, with or without cause, by the holders of a majority of the shares then entitled to vote at an election of directors. Section 4. RESIGNATIONS. Any director may resign at any time by giving written notice of his resignation to the Corporation. A resignation shall take effect at the time specified therein or, if the time when it shall become effective shall not be specified therein, immediately upon its receipt, and, unless otherwise specified therein, the acceptance of a resignation shall not be necessary to make it effective. -7- Section 5. VACANCIES. Except as otherwise provided in the Certificate of Incorporation of the Corporation, any vacancy in the Board of Directors arising from an increase in the number of directors or otherwise may be filled by the vote of a majority of the directors then in office, although less than a quorum, or by a sole remaining director. Section 6. PLACE OF MEETINGS. Except as otherwise provided in these By-laws, all meetings of the Board of Directors shall be held at such places, within or without the State of Delaware, as the Board determines from time to time. Section 7. ANNUAL MEETING. The annual meeting of the Board of Directors shall be held either without notice immediately after the annual meeting of stockholders and in the same place, or as soon as practicable after the annual meeting of stockholders on such date and at such time and place as the Board determines from time to time. Section 8. REGULAR MEETINGS. Regular meetings of the Board of Directors shall be held on such dates and at such times and places as the Board determines from time to time. Notice of regular meetings need not be given, except as otherwise required by law. Section 9. SPECIAL MEETINGS. Special meetings of the Board of Directors, for any purpose or purposes, may be called by the President and shall be called by the President or the Secretary upon the written request of a majority of the directors. The request shall state the date, time, place and purpose or purposes of the proposed meeting. Section 10. NOTICE OF MEETINGS. Notice of each special meeting of the Board (and of each annual meeting which is not held immediately after, and in the same place as, the annual meeting of stockholders) shall be given, not later than 24 hours before the meeting is scheduled to commence, by the President or the Secretary and shall state the place, date and time -8- of the meeting. Notice of each meeting may be delivered to a director by hand or given to a director orally (either by telephone or in person) or mailed, or sent by facsimile transmission to a director at his residence or usual place of business, provided, however, that if notice of less than 72 hours is given it may not be mailed. If mailed, the notice shall be deemed given when deposited in the United States mail, postage prepaid; and if sent by facsimile transmission, the notice shall be deemed given when transmitted with transmission confirmed. Notice of any meeting need not be given to any director who shall submit, either before or after the time stated therein, a signed waiver of notice or who shall attend the meeting, other than for the express purpose of objecting at the beginning thereof to the transaction of any business because the meeting is not lawfully called or convened. Notice of an adjourned meeting, including the place, date and time of the new meeting, shall be given to all directors not present at the time of the adjournment, and also to the other directors unless the place, date and time of the new meeting are announced at the meeting at the time at which the adjournment is taken. Section 11. QUORUM. Except as otherwise provided by law or in these By-laws, at all meetings of the Board of Directors a majority of the whole Board shall constitute a quorum for the transaction of business, and the vote of a majority of the directors present at a meeting at which a quorum is present shall be the act of the Board. A majority of the directors present, whether or not a quorum is present, may adjourn any meeting to another place, date and time. Section 12. CONDUCT OF MEETINGS. At each meeting of the Board of Directors, the President or, in his absence, a director chosen by a majority of the directors present shall act as chairman of the meeting. The Secretary or, in his absence, any person appointed by the -9- chairman of the meeting shall act as secretary of the meeting and keep the minutes thereof. The order of business at all meetings of the Board shall be as determined by the chairman of the meeting. Section 13. COMMITTEES OF THE BOARD. The Board of Directors may designate an executive committee and other committees, each consisting of one or more directors. Each committee (including the members thereof) shall serve at the pleasure of the Board of Directors and shall keep minutes of its meetings and report the same to the Board. The Board of Directors may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member or members at any meeting of the committee. In addition, in the absence or disqualification of a member of a committee, if no alternate member has been designated by the Board of Directors, the member or members present at any meeting and not disqualified from voting, whether or not they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of the absent or disqualified member. Except as limited by law, each committee, to the extent provided in the resolution of the Board of Directors establishing it, shall have and may exercise all the powers and authority of the Board in the management of the business and affairs of the Corporation. Section 14. OPERATION OF COMMITTEES. A majority of all the members of a committee shall constitute a quorum for the transaction of business, and the vote of a majority of all the members of a committee present at a meeting at which a quorum is present shall be the act of the committee. Each committee shall adopt whatever other rules of procedure it determines for the conduct of its activities. -10- Section 15. CONSENT TO ACTION. Any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting if all members of the Board or committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the Board or committee. Section 16. ATTENDANCE OTHER THAN IN PERSON. Members of the Board of Directors or any committee thereof may participate in a meeting of the Board or committee, as the case may be, by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and such participation shall constitute presence in person at the meeting. ARTICLE IV OFFICERS Section 1. EXECUTIVE AND OTHER OFFICERS. The executive officers of the Corporation shall be a President, a Secretary and a Treasurer. The Board of Directors also may elect or appoint one or more Vice Presidents (any of whom may be designated as Executive Vice Presidents or otherwise), and any other officers it deems necessary or desirable for the conduct of the business of the Corporation, each of whom shall have such powers and duties as the Board determines. Section 2. DUTIES. (a) THE PRESIDENT. The President shall be the chief executive officer and chief operating officer of the Corporation, and shall preside at all meetings of the stockholders and of the Board of Directors. The President shall have general management of the -11- business and affairs of the Corporation, subject to the control of the Board of Directors, and he shall have such other powers and duties as the Board assigns to him. (b) THE VICE PRESIDENT. The Vice President or, if there shall be more than one, the Vice Presidents, if any, in the order of their seniority or in any other order determined by the Board of Directors, shall perform, in the absence or disability of the President, the duties and exercise the powers of the President, and shall have such other powers and duties as the Board or the President assigns to him or them. (c) THE SECRETARY. Except as otherwise provided in these By-laws or as directed by the Board of Directors, the Secretary shall attend all meetings of the stockholders and the Board; he shall record the minutes of all proceedings in books to be kept for that purpose; he shall give notice of all meetings of the stockholders and special meetings of the Board; and he shall keep in safe custody the seal of the Corporation and, when authorized by the Board, he shall affix the same to any corporate instrument. The Secretary shall have such other powers and duties as the Board or the President assigns to him. (d) THE TREASURER. Subject to the control of the Board, the Treasurer shall have the care and custody of the corporate funds and the books relating thereto; and he shall perform all other duties incident to the office of Treasurer. The Treasurer shall have such other powers and duties as the Board or the President assigns to him. Section 3. TERM; REMOVAL. Subject to his earlier death, resignation or removal, each officer shall hold his office until his successor shall have been elected or appointed and shall have qualified, or until his earlier death, resignation or removal. Any officer may be removed at any time, with or without cause, by the Board of Directors. -12- Section 4. RESIGNATIONS. Any officer may resign at any time by giving written notice of his resignation to the Corporation. A resignation shall take effect at the time specified therein or, if the time when it shall become effective shall not be specified therein, immediately upon its receipt, and, unless otherwise specified therein, the acceptance of a resignation shall not be necessary to make it effective. Section 5. VACANCIES. If an office becomes vacant for any reason, the Board of Directors may fill the vacancy, and each officer so elected or appointed shall serve for the remainder of his predecessor's term and until his successor shall have been elected or appointed and shall have qualified. ARTICLE V PROVISIONS RELATING TO STOCK CERTIFICATES AND STOCKHOLDERS Section 1. CERTIFICATES. Certificates for the Corporation's capital stock shall be in such form as required by law and as approved by the Board of Directors. Each certificate shall be signed in the name of the Corporation by the President or any Vice President and by the Secretary, the Treasurer, any Assistant Secretary or any Assistant Treasurer. Any or all of the signatures on a certificate may be a facsimile. In case any officer, transfer agent or registrar who shall have signed or whose facsimile signature shall have been placed on any certificate shall have ceased to be such officer, transfer agent or registrar before the certificate shall be issued, the certificate may be issued by the Corporation with the same effect as if he were such officer, transfer agent or registrar at the date of issue. -13- Section 2. REPLACEMENT CERTIFICATES. The Corporation may issue a new certificate of stock in place of any certificate theretofore issued by it, alleged to have been lost, stolen or destroyed, and the Board of Directors may require the owner of the lost, stolen or destroyed certificate, or such person's legal representative, to make an affidavit of that fact and to give the Corporation a bond sufficient to indemnify the Corporation against any claim that may be made against it on account of the alleged loss, theft or destruction of the certificate or the issuance of such new certificate. Section 3. TRANSFERS OF SHARES. Transfers of shares shall be registered on the books of the Corporation maintained for that purpose after due presentation of the stock certificates therefor, appropriately endorsed or accompanied by proper evidence of succession, assignment or authority to transfer. Section 4. RECORD DATE. For the purpose of determining the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or to express consent to corporate action in writing without a meeting, or for the purpose of determining stockholders entitled to receive payment of any dividend or other distribution or the allotment of any rights, or for the purpose of any other action, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board, and which record date shall not be more than 60 or less than 10 days before the date of any such meeting, shall not be more than 10 days after the date on which the Board fixes a record date for any such consent in writing, and shall not be more than 60 days prior to any other action. ARTICLE VI -14- INDEMNIFICATION Section 1. INDEMNIFICATION. The Corporation shall, to the fullest extent permitted by the General Corporation Law (including, without limitation, Section 145 thereof) or other provisions of the laws of Delaware relating to indemnification of directors and officers, as the same may be amended and supplemented from time to time, indemnify any and all such persons whom it shall have power to indemnify under the General Corporation Law or such other provisions of law. Section 2. STATUTORY INDEMNIFICATION. Without limiting the generality of Section 1 of this Article VI, to the fullest extent permitted, and subject to the conditions imposed, by law, and pursuant to Section 145 of the General Corporation Law: (i) the Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding whether civil, criminal, administrative or investigative (other than an action by or in the right of the Corporation) by reason of the fact that such person is or was a director or officer of the Corporation, or is or was serving at the request of the Corporation as a director or officer of another corporation, partnership, joint venture, trust or other enterprise against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if such person acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful; and -15- (ii) the Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the Corporation to procure a judgment in its favor by reason of the fact that such person is or was a director or officer of the Corporation, or is or was serving at the request of the Corporation as a director or officer of another corporation, partnership, joint venture, trust or other enterprise against expenses (including attorneys' fees) actually and reasonably incurred by him in connection with the defense or settlement of such action or suit if such person acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation, except as otherwise provided by law. Section 3. INDEMNIFICATION BY RESOLUTION OF STOCKHOLDERS OR DIRECTORS OR AGREEMENT. Without limiting the generality of Section 1 or Section 2 of this Article VI, to the fullest extent permitted by law, indemnification may be granted, and expenses may be advanced, to the persons described in Section 145 of the General Corporation Law or other provisions of the laws of Delaware relating to indemnification and advancement of expenses, as from time to time may be in effect, by (i) a resolution of stockholders, (ii) a resolution of the Board of Directors, or (iii) an agreement providing for such indemnification and advancement of expenses, provided that no indemnification may be made to or on behalf of any person if a judgment or other final adjudication adverse to the person establishes that such person's acts were committed in bad faith or were the result of active and deliberate dishonesty and were material to the cause of action so adjudicated, or that such person personally gained in fact a financial profit or other advantage to which such person was not legally entitled. -16- Section 4. GENERAL. It is the intent of this Article VI to require the Corporation to indemnify the persons referred to herein for judgments, fines, penalties, amounts paid in settlement and expenses (including attorneys' fees), and to advance expenses to such persons, in each and every circumstance in which such indemnification and such advancement of expenses could lawfully be permitted by express provision of by-laws, and the indemnification and expense advancement provided by this Article VI shall not be limited by the absence of an express recital of such circumstances. The indemnification and advancement of expenses provided by, or granted pursuant to, these By-laws shall not be deemed exclusive of any other rights to which a person seeking indemnification or advancement of expenses may be entitled, whether as a matter of law, under any provision of the Certificate of Incorporation of the Corporation, these By-laws, by agreement, by vote of stockholders or disinterested directors of the Corporation or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office. Section 5. INDEMNIFICATION BENEFITS. Indemnification pursuant to these By-laws shall inure to the benefit of the heirs, executors, administrators and personal representatives of those entitled to indemnification. ARTICLE VII GENERAL PROVISIONS Section 1. DIVIDENDS. To the extent permitted by law, the Board of Directors shall have full power and discretion, subject to the provisions of the Certificate of Incorporation of the Corporation, to determine what, if any, dividends or distributions shall be declared and paid or made. -17- Section 2. SEAL. The Corporation's seal shall be in such form as is required by law and as shall be approved by the Board of Directors. Section 3. FISCAL YEAR. The fiscal year of the Corporation shall be determined by the Board of Directors. Section 4. VOTING SHARES IN OTHER CORPORATIONS. Unless otherwise directed by the Board of Directors, shares in other corporations which are held by the Corporation shall be represented and voted only by the President or by a proxy or proxies appointed by him. ARTICLE VIII AMENDMENTS Section 1. By-Laws may be adopted, amended or repealed by the Board of Directors, provided the conferral of such power on the Board shall not divest the stockholders of the power, or limit their power, to adopt, amend or repeal By-laws. -18- EX-3.11 14 a2071988zex-3_11.txt EXHIBIT 3.11 EXHIBIT 3.11 CERTIFICATE OF INCORPORATION OF TAYLOR PUBLISHING COMPANY WITH ALL AMENDMENTS (f/k/a TAYLOR PUBLISHING COMPANY OF DELAWARE) CERTIFICATE OF INCORPORATION OF TAYLOR PUBLISHING COMPANY OF DELAWARE We, the undersigned, for the purpose of associating to establish a corporation for the transaction of the business and the promotion and conduct of the objects and purpose hereinafter stated, under the provisions and subject to the requirements of the laws of the State of Delaware (particularly Chapter 1, Title 8 of the Delaware Code and the acts amendatory thereof and supplemental thereto, and known as the "General Corporation Law of the State of Delaware"), do make and file this Certificate of Incorporation in writing and do hereby certify as follows, to wit: FIRST: The name of the Corporation (herein-after called the Corporation) is TAYLOR PUBLISHING COMPANY OF DELAWARE SECOND: The respective names of the County and of the City within the County in which the principal office of the corporation is to be located in the State of Delaware are the County of Kent and the City of Dover. The name of the resident agent of the corporation is The Prentice-Hall Corporation System, Inc. The street and number of said principal office and the address by street and number of said resident agent is 229 South State Street, Dover, Delaware. THIRD: The nature of the business of the Corporation and the objects or purposes to be transacted, promoted or carried on by it are as follows: (a) To carry on a general printing, engraving, lithographing, electrotyping, binding and publishing business in all the branches thereof; (b) To carry on and transact business as general merchants, traders, merchandisers, shippers, carriers by air, land, or sea, investors, managers, consultants, -2- advisers, agents, brokers, factors, licensors, licensees, lessors, lessees, buyers, sellers, importers, exporters, dealers, manufacturers, processors, or in any other lawful capacity, of tangible and intangible, real, personal and mixed property and of enterprises of every class and description; to obtain, receive, grant, assign, enter into and negotiate contracts in respect of, and generally deal in and with, in any capacity, any and all options, franchises, privileges, interests, royalties and rights in respect thereof; and to do everything necessary, useful, proper, and convenient, to the extent permitted by law, in furtherance of the purposes, business and activities of the Corporation; (c) To manufacture, purchase, or otherwise acquire, hold, own, sell, assign, transfer, lease, exchange, invest in, mortgage, pledge or otherwise encumber or dispose of and generally deal and trade in and with, in any part of the world, goods, wares, merchandise and property of every kind, nature and description. (d) To apply for, register, acquire, hold, use, sell, exchange, assign, grant, lease or otherwise dispose of letters patent, patent rights, copyrights, licenses and privileges, inventions, improvements, processes, formulae, trademarks and trade names relating to or useful in connection with any business of the Corporation. (e) To borrow money and to make and issue promissory notes, bills of exchange, bonds, debentures and other obligations and evidences of indebtedness of all kinds, whether secured by mortgage, pledge or otherwise or unsecured, for money borrowed, or in payment for property purchased or acquired, or for any other lawful object, without limit as to amount, but only as permitted by law; to confer upon the holders of any bonds, debentures, notes or other obligations of the Corporation, secured or unsecured, the right to convert the same into classes of stock of any series of the Corporation, now or hereafter to be issued, upon such terms as shall be fixed by the Board of Directors subject to the provisions hereof. (f) To have one or more offices, stations, studios, factories, plants, warehouses, shops and other like facilities in the State of Delaware, other states, the District of Columbia, the territories and possessions of the United States and in foreign countries at which to carry on all or any of its operations and business. (g) To purchase, hold, own, lease, mortgage, pledge, sell, convey or otherwise acquire or dispose of real and personal property, rights, interests and franchises of every class, kind and description, including any or all forms of securities, including shares of stock, bonds, debentures, notes, scrip or other obligations or evidences of indebtedness, created by corporations, domestic or foreign, associations, firms, trustees, syndicates, individuals, governments, provinces, colonies, states, districts, territories, municipalities or other political divisions, of any government or governments, and to loan money and to take notes, open accounts and other similar evidences of debt or security therefor. (h) To acquire in whole or in part the good will, rights, property and assets of all kinds of, and any interest in, any person, firm, association or corporation, and to pay for the same in cash, stock, securities, bonds, debentures or other evidences of indebtedness of the Corporation or otherwise. -3- (i) To purchase, hold, sell and transfer shares of (and options to purchase shares of) its own capital stock and its bonds, debentures, notes, scrip or other securities or evidences of indebtedness, and to cancel or to hold, transfer or reissue the same to such persons, firms, corporations or associations and upon such terms and conditions as the Board of Directors may in its discretion determine, without offering any thereof on the same terms or on any terms to the stockholders then of record or to any class of stockholders. (j) To become surety for and to guarantee the carrying out or performance of contracts of every kind and character and to aid in any manner permitted by law any corporation, association or trust estate, domestic or foreign, or any firm or individual, in which or in the welfare of which the Corporation shall have any direct or indirect interest, and to do any acts designed to protect, preserve, improve or enhance the value of any property at any time held or controlled by the Corporation, or in which it may be at any time directly or indirectly interested, and to promote or facilitate the organization and financing of subsidiary companies. (k) To enter into all proper arrangements and agreements with any government or authority, supreme, municipal, local or otherwise, both foreign and domestic, that may be necessary or suitable for the business of the Corporation; to obtain from any government or authority, rights, privileges, franchises or concessions suitable for the nature of the business and the objects or purposes hereinabove stated which the Corporation may think desirable to obtain, and to carry out, exercise and comply with any such arrangements, agreements, rights, privileges, franchises or concessions. (l) To execute and deliver general or special powers of attorney to individuals, corporations, companies, associations, trusts, partnerships or other organizations, as the Board of Directors shall determine. (m) To carry out and do all or any of the above objects or purposes in any part of the world as principal, agent, contractor, commission merchant, consignee, factor or otherwise, and by or through agents, trustees, contractors, factors or otherwise, and to do all such other things and to carry on any such lawful business as are incidental to or convenient for the nature of the business and the objects or purposes for which the Corporation is formed, whether such business is similar in nature to the objects and powers hereinabove set forth, or otherwise. (n) To do any and all things of the kind stated herein and to exercise any and all powers which may now or hereafter be lawful for the Corporation to exercise under the laws of the State of Delaware or any other laws that may now or hereafter be applicable to the Corporation. The foregoing provisions of this Article THIRD shall be construed as objects, purposes and powers, and each as an independent object, purpose and power. The foregoing enumeration of specific objects, purposes and powers shall not be held to limit or restrict in any -4- manner the objects, purposes and powers of the Corporation, provided, however, that the Corporation shall not carry on any business or exercise any power in any state, territory or country which under the laws thereof the Corporation may not lawfully carry on or exercise. FOURTH: The total number of shares of capital stock which the corporation shall have authority to issue is One Thousand (1,000) shares of Common Stock of the par value of One Dollar ($1.00) per share. Each share of Common Stock shall entitle the holder thereof to have one (1) vote for the election of directors and upon any other matter presented to the stockholders at any meeting. Each share of stock, issued by the corporation for which the full consideration has been paid or delivered, shall be deemed fully-paid stock and non-assessable. No holder of any stock of the corporation shall be entitled as of right to purchase or subscribe for or otherwise acquire any shares of stock of any class, whether now or hereafter authorized, or any securities or obligations convertible into, or exchangeable for, or any right, warrant or option to purchase, any shares of stock of any class which the corporation may at any time hereafter issue or sell, whether now or hereafter authorized, but any and all such stock, securities, obligations, rights, warrants and options may, without any action by the stockholders, be issued and disposed of by the Board of Directors to such persons, firma, corporations or associations upon such terms and for such consideration as the Board of Directors in its discretion may from time to time determine, without first offering any thereof to any class of stockholders. The corporation shall be entitled to treat the person in whose name any share, right or option is registered as the owner thereof, for all purposes, and shall not be bound to -5- recognize any equitable or other claim to or interest in such shares, rights or options on the part of any other person, whether or not the corporation shall have notice thereof, save as may be expressly provided by the laws of the State of Delaware. FIFTH: The minimum amount of capital with which the corporation will commence business is One Thousand Dollars. SIXTH: The names and places of residence of each of the incorporators are as follows: NAME PLACE OF RESIDENCE Lawrence D. Lavers 171 East 83rd Street, Apt. 3-F New York, N.Y. Sam S. Miller 37 East 83rd Street, New York, N.Y. Donald P. Wefer 72 Shadyside Avenue, Port Washington, N.Y. SEVENTH: The corporation is to have perpetual existence. EIGHTH: The private property of the stockholders of the corporation shall not be subject to the payment of corporate debts to any extent whatever. NINTH: For the management of the business and for the conduct of the affairs of the corporation, and in further definition, limitation and regulation of the powers of the corporation and of its directors and stockholders, it is further provided: 1. The number of directors of the corporation shall be as specified in the By-Laws of the corporation but such number may from time to time be increased or decreased in such manner as may be prescribed by the By-Laws. In no event shall the number of directors be less than the minimum number prescribed by law. The election of directors need not be by ballot. Directors need not be stockholders. 2. In furtherance and not in limitation of the powers conferred by the laws of the State of Delaware, the Board of Directors is expressly authorized and empowered: -6- (a) To make, alter, amend and repeal By-Laws, subject to the power of the stockholders to alter or repeal the By-Laws made by the Board of Directors. (b) Subject to the applicable provisions of the By-Laws then in effect, to determine, from time to time, whether and to what extent and at what times and places and under what conditions and regulations the accounts and books of the corporation, or any of them, shall be open to the inspection of the stockholders; and no stockholder shall have any right to inspect any account or book or document of the corporation, except as conferred by the laws of the State of Delaware, unless and until authorized so to do by resolution of the Board of Directors or of the stockholders of the corporation. (c) Without the assent or vote of the stockholders, to authorize and issue obligations of the corporation, secured or unsecured, to include therein such provisions as to redeemability, convertibility or otherwise, as the Board of Directors, in its sole discretion, may determine, and to authorize the mortgaging or pledging, as security therefor, of any property of the corporation, real or personal, including after-acquired property. (d) To establish bonus, profit-sharing or other types of incentive or compensation plans for the employees (including officers and directors) of the corporation and to fix the amount of profits to be distributed or shared and to determine the persons to participate in any such plans and the amounts of their respective participations. In addition to the powers and authorities hereinbefore or by statute expressly conferred upon it, the Board of Directors may exercise all such powers and do all such acts and things as may be exercised or done by the corporation, subject, nevertheless, to the provisions of the laws of the State of Delaware, of the Certificate of Incorporation and of the By-Laws of the corporation. 3. Any director or any officer elected or appointed by the stockholders or by the Board of Directors may be removed at any time in such manner as shall be provided in the By-Laws of the corporation. 4. In the absence of fraud, no contract or other transaction between the corporation and any other corporation, and no act of the corporation, shall in any way be affected or invalidated by the fact that any of the directors of the corporation are pecuniarily or otherwise interested in, or are directors or officers of, such other corporation; and, in the absence of fraud, any director, individually, or any firm of which any director may be a member, may be a party to, or may be pecuniarily or otherwise interested in, any contract or transaction of the corporation; provided, in any case, that the fact that he or such firm is so interested shall be disclosed or shall have been known to the Board of Directors or a majority thereof; and any director of the corporation who is also a director or officer of any such other corporation, or who is also interested, may be counted in determining the existence of a quorum at any meeting of the Board of Directors of the corporation which shall authorize any such contract, act or transaction and may vote thereat to authorize any such contract, act or transaction, with like force and effect as if he were not such director or officer of such other corporation, or not so interested. -7- 5. Any contract, act or transaction of the corporation or of the directors may be ratified by a vote of a majority of the shares having voting powers at any meeting of stock-holders, or at any special meeting called for such purpose, and such ratification shall, so far as permitted by law and by this Certificate of Incorporation, be as valid and as binding as though ratified by every stockholder of the corporation. TENTH: From time to time any of the provisions of this Certificate of Incorporation may be amended, altered or repealed, and other provisions authorized by the laws the laws of the State of Delaware at the time in force may be added or inserted in the manner and at the time prescribed by said laws, and all rights at any time conferred upon the stockholders of the corporation by this Certificate of Incorporation are granted subject to the provisions of this Article TENTH. -8- IN WITNESS WHEREOF, we, the undersigned, being all of the incorporators, do hereby further certify that the facts hereinabove stated are truly set forth and accordingly have hereunto set our respective hands and seals. Dated: New York, N.Y. July 10, 1967 /s/ Lawrence D. Lavers (L.S.) -------------------------------------- /s/ Sam S. Miller (L.S.) -------------------------------------- /s/ Donald P. Wefer (L.S.) -------------------------------------- STATE OF NEW YORK ) : ss.: COUNTY OF NEW YORK ) BE IT REMEMBERED that personally appeared before me, John V. Monckton, a Notary Public in and for the County and State aforesaid, Lawrence D. Lavers, Sam S. Miller and Donald P. Wefer, all the incorporators who signed the foregoing Certificate of Incorporation, known to me personally to be such, and I having made known to them and each of them the contents of said Certificate of Incorporation, they did severally acknowledge the same to be the act and deed of the signers, respectively, and that the facts therein stated are truly set forth. GIVEN under my hand and seal of office this 10th day of July, 1967. /s/ John V. Monckton ------------------------------------- Notary Public -2- CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION OF TAYLOR PUBLISHING COMPANY OF DELAWARE (Pursuant to Section 242 of Title 8, Chapter 1 of the Delaware Code) TAYLOR PUBLISHING COMPANY OF DELAWARE, (hereinafter called the "Corporation") a corporation organized and existing under and by virtue of Title 8, Chapter 1 of the Delaware Code, does hereby certify as follows: FIRST: That, upon the unanimous written consent of the holders of all of the outstanding shares of stock entitled to vote of the above Corporation, which consent was given pursuant to the provisions of Section 228 of Title 8, Chapter 1, of the Delaware Code, the following amendment of the Certificate of Incorporation of the Corporation has been duly adopted in accordance with the provisions of Section 242 of Title 8, Chapter 1 of the Delaware Code: By striking out Article FIRST thereof in its entirety, and by substituting in lieu thereof a new Article FIRST to read as follows: "FIRST: The name of the Corporation (hereinafter called the 'Corporation') is TAYLOR PUBLISHING COMPANY." IN WITNESS WHEREOF, the said TAYLOR PUBLISHING COMPANY OF DELAWARE has caused this Certificate to be executed by Durand B. Blatz, its President and Herbert F. Kahler, its Secretary and caused the corporate seal of the Corporation to be affixed this 14th day of September, 1967. /s/ Durand B. Blatz ---------------------------------- President /s/ Herbert F. Kahler ---------------------------------- Secretary STATE OF CONNECTICUT ) : ss.: COUNTY OF NEW YORK ) BE IT REMEMBERED that on the 14th day of September, 1967, personally came before me, the undersigned, a Notary Public, duly authorized to take acknowledgment of deeds by the laws of the place where the foregoing certificate was executed, DURAND B. BLATZ and HERBERT F. KAHLER, President and Secretary respectively of Taylor Publishing Company of Delaware, a corporation of the State of Delaware, the corporation described in the foregoing certificate, known to me personally to be such, and they duly executed said certificate before me and acknowledged the said certificate to be their act and deed and made on behalf of said corporation, and that the facts stated therein are true. GIVEN under my hand and seal of office the day and year aforesaid. /s/ Kathleen A. Custy ------------------------------------- Notary Public EX-3.12 15 a2071988zex-3_12.txt EXHIBIT 3.12 EXHIBIT 3.12 BY-LAWS OF TAYLOR PUBLISHING COMPANY (F/K/A TAYLOR PUBLISHING COMPANY OF DELAWARE) BYLAWS OF TAYLOR PUBLISHING COMPANY Adopted and Effective September 15, 1990 -2- TABLE OF CONTENTS ARTICLE I OFFICES...............................................................1 Section 1. Registered Office.................................................1 Section 2. Other Offices.....................................................1 ARTICLE II MEETINGS OF STOCKHOLDERS.............................................1 Section 1. Place of Meetings.................................................1 Section 2. Annual Meetings...................................................1 Section 3. Special Meetings..................................................1 Section 4. Quorum............................................................2 Section 5. Voting............................................................2 Section 6. List of Stockholders Entitled to Vote.............................2 ARTICLE III DIRECTORS...........................................................2 Section 1. Number and Election of Directors..................................2 Section 2. Vacancies.........................................................3 Section 3. Duties and Powers.................................................3 Section 4. Meetings..........................................................3 Section 5. Quorum............................................................3 Section 6. Actions by Written Consent........................................3 Section 7. Meetings by Conference Telephone..................................4 Section 8. Committees........................................................4 Section 9. Compensation......................................................4 Section 10. Interested Directors..............................................4 ARTICLE IV OFFICERS.............................................................5 Section 1. General...........................................................5 Section 2. Election..........................................................5 Section 3. President.........................................................5 Section 4. Executive Vice Presidents and Vice Presidents.....................5 Section 5. Secretary.........................................................6 Section 6. Treasurer.........................................................6 Section 7. Assistant Secretaries.............................................6 Section 8. Assistant Treasurers..............................................7 Section 9. Other Officers....................................................7 ARTICLE V STOCK.................................................................7 Section 1. Form of Certificates..............................................7 Section 2. Signatures........................................................7 Section 3. Lost Certificates.................................................7 Section 4. Transfers.........................................................8
-i- ARTICLE VI NOTICES..............................................................8 Section 1. Notices...........................................................8 Section 2. Waivers of Notice.................................................8 ARTICLE VII INDEMNIFICATION.....................................................8 Section 1. General...........................................................8 Section 2. Non-Exclusivity...................................................9 ARTICLE VIII GENERAL PROVISIONS.................................................9 Section 1. Dividends.........................................................9 Section 2. Disbursements.....................................................9 Section 3. Fiscal Year.......................................................9 Section 4. Corporate Seal....................................................9 Section 5. Amendments........................................................9
-ii- BYLAWS OF TAYLOR PUBLISHING COMPANY (hereinafter the "Corporation") ARTICLE I OFFICES Section 1. REGISTERED OFFICE. The registered office of the Corporation shall be located at 32 Loockerman Square, Suite L-100, City of Dover, County of Kent, State of Delaware. Section 2. OTHER OFFICES. The Corporation may also have offices at such other places both within and without the State of Delaware as the Board of Directors may from time to time determine. ARTICLE II MEETINGS OF STOCKHOLDERS Section 1. PLACE OF MEETINGS. Meetings of the stockholders for the election of directors or for any other purpose shall be held at such time and place, either within or without the State of Delaware, as may be designated from time to time by the Board of Directors and stated in the notice of the meeting or in a duly executed waiver of notice thereof. Section 2. ANNUAL MEETINGS. The annual meeting of stockholders shall be held on such date and at such time as may be designated from time to time by the Board of Directors and stated in the notice of the meeting, at which meeting the stockholders shall elect by a plurality vote a Board of Directors, and transact such other business as may properly be brought before the meeting. Written notice of the annual meeting stating the place, date and hour of the meeting shall be given to each stockholder entitled to vote at such meeting not less than ten nor more than sixty days before the date of the meeting. Section 3. SPECIAL MEETINGS. Unless otherwise prescribed by law or by the Corporation's Certificate of Incorporation as may be amended and restated from time to time (the "Certificate of Incorporation"), special meetings of stockholders, for any purpose or purposes, may be called by either (a) the Chairman of the Board of Directors, if there be one or (b) the President, and stall be called by any officer of the Corporation at the instruction of a majority of the Board of Directors. Written notice of a special meeting stating the place, date and hour of the meeting and the purpose or purposes for which the meeting is called shall be given not less than ten nor more than sixty days before the date of the meeting to each stockholder entitled to vote at such meeting. 1 Section 4. QUORUM. Except as otherwise provided by law or by the Certificate of Incorporation, the holders of a majority of the capital stock issued and outstanding and entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum at all meetings of the stockholders for the transaction of business. If, however, such quorum shall not be present or represented at any meeting of the stockholders, the stockholders entitled to vote thereat, present in person or represented by proxy, shall have power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present or represented. At such adjourned meeting at which a quorum shall be present or represented, any business may be transacted that might have been transacted at the as meeting as originally noticed. If the adjournment is for more than thirty days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder entitled to vote at the meeting. Section 5. VOTING. Unless otherwise required by law, the Certificate of Incorporation or these bylaws, any question brought before any meeting of stockholders shall be decided by the vote of the holders of a majority of the voting power of the stock represented and entitled to vote thereat. Such votes may be cast in person or by proxy but no proxy shall be voted or acted upon after three years from its date, unless such proxy provides for a longer period. The Board of Directors, in its discretion, or the officer of the Corporation presiding at a meeting of stockholders, in his or her discretion, may require that any votes cast at such meeting shall be cast by written ballot. Section 6. LIST OF STOCKHOLDERS ENTITLED TO VOTE. The officer of the Corporation who has charge of the stock ledger of the Corporation shall prepare and make, at least ten days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten days prior to the meeting, either at a place within the city where the meeting is to be held, which pace stall be specified in the notice of the meeting, or if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof and may be inspected by any stockholder of the Corporation who is present. The stock ledger of the Corporation shall be the only evidence as to who are the stockholders entitled to examine the stock ledger, the list required by this Section 6 of this Article II or the books of the Corporation, or to vote in person or by proxy at any meeting of stockholders. ARTICLE III DIRECTORS Section 1. NUMBER AND ELECTION OF DIRECTORS. The business and affairs of the Corporation shall be managed by a Board of Directors initially consisting of one director. The number of directors of the Corporation may be increased or decreased from time to time by resolution adopted by the Board of Directors, but no decrease by the Board of Directors shall have the effect of shortening the term of any incumbent director. Except as provided in Section 2 of this Article III, directors shall be elected by a plurality of the votes cast at annual meetings -2- of stockholders and each director so elected shall hold office until the next annual meeting and until his or her successor is duly elected and qualified or until his or her earlier resignation or removal. Any director may resign at any time upon notice to the Corporation. A director need not be a stockholder, a citizen of the United States or a resident of the State of Delaware. Section 2. VACANCIES. Vacancies and newly created directorships resulting from any increase in the authorized number of directors may be filled by a majority of the directors then in office, though less than a quorum, or by a sole remaining director, and the directors so chosen shall hold office until the next annual election and until their successors are duly elected and qualified or until their earlier resignation or removal, if there are no directors in office, then an election of directors may be held in the manner provided by statute. Section 3. DUTIES AND POWERS. The business of the Corporation shall be managed by or under the direction of the Board of Directors, which may exercise all such powers of the Corporation and do all such lawful acts and things as are not by statute or by the certificate of Incorporation or by these bylaws directed or required to be exercised or done by the stockholders. Section 4. MEETINGS. Meetings shall be held at such time as the Board of Directors shall fix, except that the first meeting of a newly elected Board of Directors stall be held as soon after its election as the directors may conveniently assemble. Meetings shall be held at such place within or without the State of Delaware as may be fixed by the Board of Directors. No call shall be required for regular meetings for which the time and place have been fixed. Special meetings may be called by or at the direction of the Chairman of the Beard, if any, the President or a majority of the directors then in office. No notice shall be required for regular meetings for which the time and place have been fixed. Written, oral or any other mode of notice of the time and place shall be given for special meetings in sufficient time for the convenient assembly of the directors thereat. Notice need not be given to any director or to any member of a committee of directors who submits a written waiver of notice signed by him or her before or after the time stated therein. Attendance of any such person at a meeting shall constitute a waiver of notice of such meeting, except when he or she attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the directors need be specified in any written waiver of notice. Section 5. QUORUM. Except as may be otherwise specifically provided by law, the Certificate of Incorporation or these bylaws, at all meetings of the Board of Directors, a majority of the entire Board of Directors shall constitute a quorum for the transaction of business and the act of a majority of the directors present at any meeting at which a quorum is present shall be the act of the Board of Directors. If a quorum shall not be present at any meeting of the Board of Directors, the directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present. Section 6. ACTIONS BY WRITTEN CONSENT. Unless otherwise provided by the Certificate of Incorporation or these bylaws, any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting if -3- all the members of the Board of Directors or committee, as the case may be, consent thereto in writing, in one document or in counterparts, and the writing or writings are filed with the minutes of proceedings of the Board of Directors or committee. Section 7. MEETINGS BY CONFERENCE TELEPHONE. Unless otherwise provided by the Certificate of Incorporation or these bylaws, members of the Board of Directors or any committee designated by the Board of Directors may participate in a meeting of the Board of Directors or such committee by means of a conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting pursuant to this Section 7 stall constitute presence in person at such meeting. Section 8. COMMITTEES. The Board of Directors may, by resolution passed by a majority of the entire Board of Directors, designate one or more committees, each committee to consist of one or more of the directors of the Corporation. The Board of Directors may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of any such committee. In the absence or disqualification of a member of a committee, and in the absence of a designation by the Board of Directors of an alternate member to replace the absent or disqualified member, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in place of any absent or disqualified member. Any committee, to the extent allowed by law and provided in the resolution establishing such committee, shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the Corporation. Without limitation to the foregoing, any committee shall have the power and authority to declare a dividend, to authorize the issuance of stock or to adopt a certificate of ownership and merger pursuant to Section 253 of the Delaware General Corporation Law. Each committee shall keep regular minutes and report to the Board of Directors when required. Section 9. COMPENSATION. Directors as such shall not receive any stated salary for their services, but by resolution of the Board of Directors a fixed sum and expenses of attendance, if any, may be allowed for attendance at each regular or special meeting of the Board of Directors or any committee thereof; provided that nothing contained herein shall be construed to preclude any director from serving the Corporation in any other capacity and receiving compensation therefor. Section 10. INTERESTED DIRECTORS. No contract or transaction between the Corporation and one or more of its directors or officers, or between the Corporation and any other corporation, partnership, association, or other organization in which one or more of its directors or officers are directors or officers, or have a financial interest, shall be void or voidable solely for this reason, or solely because the director or officer is present at or participates in the meeting of the Beard of Directors or committee thereof that authorizes the contract or transaction, or solely because his, her or their votes are counted for such purpose if (a) the material facts as to his, her or their relationship or interest and as to the contract or transaction are disclosed or are known to the Board of Directors or committee, and the Board of Directors or committee in good faith authorizes the contract or transaction by the affirmative vote of a majority of the disinterested directors, even though the disinterested directors be less than a -4- quorum, (b) the material facts as to his, her or their relationship or interest and as to contract or transaction are disclosed or are known to the stockholders entitled to vote thereon and the contract or transaction is specifically approved in good faith by vote of the stockholders or (c) the contract or transaction is fair as to the Corporation as of the time it is authorized, approved or ratified by the Board of Directors, a committee thereof or the stockholders. Common or interested directors may be counted in determining the presence of a quorum at a meeting of the Board of Directors or a committee that authorizes the contract or transaction. ARTICLE IV OFFICERS Section 1. GENERAL. The officers of the Corporation shall be chosen by the Board of Directors and shall be a President and a Secretary. The Board of Directors, in its discretion, may also choose a Treasurer and one or more Executive Vice Presidents, Vice Presidents, Assistant Secretaries, Assistant Treasurers and other officers. Any number of offices may be held by the same person, unless otherwise prohibited by law, the Certificate of incorporation or these bylaws. The officers of the Corporation need not be stockholders of the Corporation or directors of the Corporation. Section 2. ELECTION. The Board of Directors at its first meeting held after each annual meeting of stockholders shall elect the officers of the Corporation, who stall hold their offices for such terms and stall exercise such powers and perform such duties as shall be determined from time to time by the Board of Directors; and all officers of the Corporation shall hold office until their successors are chosen and qualified or until their earlier resignation or removal. Any officer elected by the Board of Directors may be removed at any time by the affirmative vote of a majority of the Board of Directors. Any vacancy occurring in any office of the Corporation shall be filled by the Board of Directors. The salaries of all officers of the Corporation shall be fixed by the Board of Directors and may be altered from time to time except as otherwise provided by contract. Section 3. PRESIDENT. The President shall, subject to the control of the Board of Directors, have general supervision of the business of the Corporation and shall see that all orders and resolutions of the Board of Directors are carried into effect. He or she shall be the Chief Executive Officer of the Corporation and shall execute all bonds, mortgages, contracts and other instruments of the Corporation requiring a seal, under the seal of the Corporation, except where required or permitted by law to be otherwise signed and executed and except that the other officers of the Corporation may sign and execute documents when so authorized by the bylaws, the Board of Directors or the President. In the absence or disability of the Chairman of the Board of Directors, or if there be none, the President shall preside at all meetings of the stockholders and the Board of Directors. The President shall also perform such other duties and may exercise such other powers as from time to time may be assigned to him or her by these bylaws or by the Board of Directors. Section 4. EXECUTIVE VICE PRESIDENTS AND VICE PRESIDENTS. At the request of the President or in his or her absence or in the event of his or her inability or refusal to act the Executive Vice President or the Executive Vice Presidents if there be more than one, and the -5- Vice President or the Vice Presidents, if there be more than one (in the order designated by the Board of Directors), shall perform the duties of the President, and when so acting, shall have all the powers of and be subject to all the restrictions upon the President. Each Executive Vice President and each Vice President shall perform such other duties and have such ether powers as the Board of Directors from time to time may prescribe. If there be no Executive Vice President or Vice President, the Board of Directors shall designate the officer of the Corporation who, in the absence of the President or in the event of the inability or refusal of the President to act, shall perform the duties of the President, and when so acting, shall have all the powers of and be subject to all the restrictions upon the President. Section 5. SECRETARY. The Secretary shall attend all meetings of the Board of Directors and all meetings of stockholders and record all the proceedings thereat in a book or books to be kept for that purpose; the Secretary shall also perform like duties for the standing committees when required. The Secretary shall give, or cause to be given, notice of all meetings of the stockholders and special meetings of the Board of Directors, and shall perform such other duties as may be prescribed by the Board of Directors or President, under whose supervision he or she shall be. If the Secretary shall be unable or shall refuse to cause to be given notice of all meetings of the stockholders and special meetings of the Board of Directors, and if there be no Assistant Secretary, then either the Board of Directors or the President may choose another officer to cause such notice to be given. The Secretary shall have custody of the seal of the Corporation and the Secretary or an Assistant Secretary, if there be one, shall have authority to affix the same to any instrument requiring it and when so affixed, it may be attested by the signature of the Secretary or by the signature of any such Assistant Secretary. The Board of Directors may give general authority to any other officer to affix the seal of the Corporation and to attest the affixing by his or her signature. The Secretary shall see that all books, reports, statements, certificates and other documents and records required by law to be kept or filed are properly kept or filed, as the case may be. Section 6. TREASURER. The Treasurer shall have the custody of the corporate funds and securities and shall keep full and accurate accounts of receipts and disbursements in books belonging to the Corporation and shall deposit all moneys and other valuable effects in the name and to the credit of the Corporation in such depositories as may be designated by the Board of Directors. The Treasurer shall disburse the funds of the Corporation as may be ordered by the Board of Directors, taking proper vouchers for such disbursements, and shall render to the President and the Board of Directors, at its regular meeting, or when the Board of Directors so requires, an account of all his or her transactions as Treasurer and of the financial condition of the Corporation. If required by the Board of Directors, the Treasurer shall give the Corporation a bond in such sum and with such surety or sureties as shall be satisfactory to the Board of Directors for the faithful performance of the duties of his or her office and for the restoration to the Corporation, in case of his or her death, resignation, retirement or removal from office, of all books, papers, vouchers, money and other property of whatever kind in his or her possession or under his or her control belonging to the Corporation. Section 7. ASSISTANT SECRETARIES. Except as may be otherwise provided in these bylaws, Assistant Secretaries, if there be any, shall perform such duties and have such powers as from time to time may be assigned to them by the Board of Directors, the President, any Executive Vice President, if there be one, any Vice President, if there be one, or the -6- Secretary, and in the absence of the Secretary or in the event of his or her disability or refusal to act, shall perform the duties of the Secretary, and when so acting, shall have all the powers of and be subject to all the restrictions upon the Secretary. Section 8. ASSISTANT TREASURERS. Assistant Treasurers, if there be any, shall perform such duties and have such powers as from time to time may be assigned to them by the Board of Directors, the President, any Executive Vice President, if there be one, any Vice President, if there be one, or the Treasurer, and in the absence of the Treasurer or in the event of his or her disability or refusal to act, shall perform the duties of the Treasurer, and when so acting, shall have all the powers of and be subject to all the restrictions upon the Treasurer, if required by the Board of Directors, an Assistant Treasurer shall give the Corporation a bond in such sum and with such surety or sureties as shall he satisfactory to the Board of Directors for the faithful performance of the duties of his or her office and for the restoration to the Corporation, in case of his or her death, resignation, retirement or removal from office, of all books, papers, vouchers, money and other property of whatever kind in his or her possession or under his or her control belonging to the Corporation. Section 9. OTHER OFFICERS. Such other officers as the Board of Directors may choose shall perform such duties and have such powers as from time to time may be assigned to them by the Board of Directors. The Board of Directors may delegate to any other officer of the Corporation the power to choose such other officers and to prescribe their respective duties and powers. ARTICLE V STOCK Section 1. FORM OF CERTIFICATES. Every holder of stock in the Corporation shall be entitled to have a certificate signed in the name of the Corporation (a) by the President, an Executive Vice President or a Vice President and (b) by the Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary of the Corporation, certifying the number of shares owned by such bolder. Section 2. SIGNATURES. Where a certificate is countersigned by (a) a transfer agent other than the Corporation or its designated employees or (b) a registrar other than the Corporation or its designated employees, any other signature on the certificate may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if he or she were such officer, transfer agent or registrar at the date of issue. Section 3. LOST CERTIFICATES. The Board of Directors may direct a new certificate to be issued in pace of any certificate theretofore issued by the Corporation alleged to have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost, stolen or destroyed. When authorizing such issue of a new certificate, the heard of Directors may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed certificate, or his or her legal -7- representative, to advertise the same in such manner as the Board of Directors shall require and/or to give the Corporation a bond in such sum as it may direct as indemnity against any claim that may be made against the Corporation with respect to the certificate alleged to have been lost, stolen or destroyed. Section 4. TRANSFERS. Stock of the Corporation shall be transferable in the manner prescribed by law and in these bylaws. Transfers of stock shall be made on the books of the Corporation only by the person named in the certificate or by his or her attorney lawfully constituted in writing and upon the surrender of the certificate therefor, which shall be cancelled before a new certificate shall be issued. ARTICLE VI NOTICES Section 1. NOTICES. Whenever written notice is required by law, the Certificate of Incorporation or these bylaws to be given to any director, member of a committee or stockholder, such notice may be given by mail, addressed to such director, member of a committee or stockholder, at his or her address as it appears on the records of the Corporation, with postage thereon prepaid, and such notice shall be deemed to be given at the time when the same shall be deposited in the United States mail. Written notice may also be given personally or by facsimile transmission, telegram, telex or cable. Section 2. WAIVERS OF NOTICE. Whenever any notice is required by law, the Certificate of Incorporation or these bylaws to be given to any director, member of a committee or stockholder, a waiver thereof in writing, signed by the person or persons entitled to said notice, whether before or after the time stated therein, shall be deemed equivalent to notice. ARTICLE VII INDEMNIFICATION Section 1. GENERAL. The Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding; whether civil, criminal, administrative or investigative by reason of the fact that he or she is or was a director, officer, employee, agent or fiduciary of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee, agent or fiduciary of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding (and advance expenses to such person in connection with such action, suit or proceeding) to the fullest extent permitted under the laws of the state of Delaware now or hereafter in existence, including Section 145 of the Delaware General Corporation Law as currently in existence or as subsequently amended, modified, supplemented or replaced (but, in case of any such amendment, modification, supplementation or replacement, only to the extent that such amendment, modification, supplementation or replacement broadens such person's rights to indemnification thereunder). -8- Section 2. NON-EXCLUSIVITY. The rights to receive indemnification and advancement of expenses provided in Article VII of these Bylaws shall not be deemed exclusive of any other rights to which any person may at any time be entitled under applicable law, the Certificate of Incorporation, these Bylaws, any agreement, a vote of stockholders, a resolution of the Board of Directors or otherwise. No amendment, alteration or repeal of this Article VII or any provision hereof shall be effective as to any person in respect of any act, event or circumstance that occurred or existed, in whole or in part, before such amendment, alteration or repeal. ARTICLE VIII GENERAL PROVISIONS Section 1. DIVIDENDS. Dividends upon the capital stock of the Corporation, subject to the provisions of the Certificate of Incorporation, if any, may be declared by the Board of Directors at any regular or special meeting, and may be paid in cash, in property or in shares of the capital stock. Before payment of any dividend, there may be set aside out of any funds of the Corporation available for dividends such sum or sums as the Board of Directors from time to time, in its absolute discretion, deems proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the Corporation, or for any proper purpose, and the Board of Directors may modify or abolish any such reserve. Section 2. DISBURSEMENTS. All checks or demands for money and notes of the Corporation shall be signed by such officer or officers or such other person or persons as the Board of Directors may from time to time designate. Section 3. FISCAL YEAR. The fiscal year of the Corporation shall end on December 21 of each year, unless otherwise fixed by resolution of the Board of Directors. Section 4. CORPORATE SEAL. The corporate seal shall have inscribed thereon the name of the Corporation, the year of its organization and the words "Corporate Seal, Delaware". The seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced. Section 5. AMENDMENTS. These bylaws may be altered, amended or repealed, in whole or in part, or new bylaws may be adopted by the stockholders or by the Board of Directors of the Corporation. -9- EX-3.13 16 a2071988zex-3_13.txt EXHIBIT 3.13 EXHIBIT 3.13 CERTIFICATE OF LIMITED PARTNERSHIP OF TAYLOR PRODUCTION SERVICES COMPANY, L.P. CERTIFICATE OF LIMITED PARTNERSHIP OF TAYLOR PRODUCTION SERVICES COMPANY, L.P. The undersigned, desiring to form a limited partnership pursuant to the Delaware Revised Uniform Limited Partnership Act, 6 Delaware Code, Chapter 17, do hereby certify as follows: FIRST: The name of the limited partnership is TAYLOR PRODUCTION SERVICES COMPANY, L.P. SECOND: The name and address of the Registered Agent is: Corporation Service Company 1013 Centre Road Wilmington, DE 19805 THIRD: The name and address of the sole general partner is as follows: Taylor Publishing Company 1550 West Mockingbird Lane Dallas, Texas 75235 IN WITNESS WHEREOF, the undersigned has executed this Certificate of Limited Partnership of Taylor Production Services Company, L.P. to be effective as of 12:01a.m., January 1, 1998. Taylor Publishing Company, general partner By: /s/ Kenneth H. Koch -------------------------------- Kenneth H. Koch, Vice President SOLE GENERAL PARTNER EX-3.14 17 a2071988zex-3_14.txt EXHIBIT 3.14 EXHIBIT 3.14 TAYLOR PRODUCTION SERVICES COMPANY, L.P. LIMITED PARTNERSHIP AGREEMENT TAYLOR PRODUCTION SERVICES COMPANY, L.P. LIMITED PARTNERSHIP AGREEMENT THIS LIMITED PARTNERSHIP AGREEMENT (this "Agreement") is entered into by and between Taylor Publishing Company, a Delaware corporation, as general partner (the "General Partner"), and Insilco Corporation, a Delaware corporation, as limited partner (the "Initial Limited Partner"). The General Partner and the Initial Limited Partner hereby form a limited partnership (the "Partnership") pursuant to and in accordance with the Delaware Revised Uniform Limited Partnership Act (Title 6, Chapter 17, of the Delaware Code), as amended from time to time (the "Act"), and hereby agree as follows: 1. NAME. The name of the Partnership is Taylor Production Services Company, L.P. 2. PURPOSE. The Partnership is formed for the object and purpose of, and the nature of the business to be conducted and promoted by the Partnership is, engaging in any lawful act or activity for which limited partnerships may be formed under the Act and engaging in any and all activities necessary or incidental to the foregoing. 3. TERM. The term of the Partnership shall begin upon the effective date of the Certificate of Limited Partnership filed with the Delaware Secretary of State and shall continue in existence until December 31, 2048, unless its existence is sooner terminated pursuant to Section 8 of this Agreement. 4. REGISTERED OFFICE. The address of the registered office of the Partnership in the State of Delaware is: Corporation Service Company, 1013 Centre Road, Wilmington, Delaware 19805. 5. REGISTERED AGENT. The name and address of the registered agent of the Partnership for service of process on the Partnership in the State of Delaware is: Corporation Service Company, 1013 Centre Road, Wilmington, Delaware 19805. 6. PARTNERS. The names and the business, residence or mailing addresses of the General Partner and the Initial Limited Partner are as follows: General Partner: Taylor Publishing Company 1550 West Mockingbird Lane Dallas, Texas 75235 -2- Initial Limited Partner: Insilco Corporation 425 Metro Place North Fifth Floor Dublin, Ohio 43017 7. POWERS. The powers of the General Partner include all powers, statutory and otherwise, possessed by general partners under the laws of the State of Delaware. 8. DISSOLUTION. The Partnership shall dissolve and its affairs shall be wound up upon the first to occur of the following: (a) the expiration of the period fixed for its duration in Section 3 hereof (b) all of the partners of the partnership shall have approved such dissolution in writing; (c) an event of withdrawal of the General Partner shall have occurred under the Act; or (d) an entry of a decree of judicial dissolution shall have occurred under Section 17-802 of the Act; PROVIDED, HOWEVER, that the Partnership shall not be dissolved or required to be wound up upon an event of withdrawal of the General Partner if (i) at the time of such event of withdrawal, there is at least one other general partner of the Partnership who carries on the business of the Partnership (any remaining general partner being hereby authorized to carry on the business of the Partnership), or (ii) within ninety (90) days after the occurrence of such event of withdrawal, all remaining partners agree in writing to continue the business of the Partnership and to the appointment, effective as of the date of the event of withdrawal, of one or more additional general partners of the Partnership. 9. CAPITAL CONTRIBUTIONS AND PARTNERSHIP INTERESTS. As of the date hereof, the General Partner has contributed certain assets as set forth on Exhibit A attached hereto and incorporated by reference herein to the Partnership and shall receive a partnership interest of 99% therefor. The parties agree that the book value of such assets as of the date hereof shall be determined by the internal accountants of the Initial Limited Partner as soon as practicable after the date hereof and that, upon such determination, the Initial Limited Partner shall contribute cash to the Partnership in an amount equal to the value of the assets contributed by the General Partner, as so determined, divided by 99, and that Initial Limited Partner shall receive a partnership interest of 1% therefor. 10. ADDITIONAL CONTRIBUTIONS. No partner of the Partnership is required to make any additional capital contribution to the Partnership. 11. ALLOCATION OF PROFITS AND LOSSES. The Partnership's profits and losses shall be allocated to the partners in proportion to their partnership interests in the Partnership and shall include all items of income, gain, loss, deduction, credit or other items affecting the capital accounts under the Regulations promulgated under Section 704 of the Internal Revenue Code of 1986, as amended, and otherwise in accordance with generally accepted accounting principles and procedures applied in a consistent manner. 12. DISTRIBUTIONS. Distributions shall be made to the partners of the Partnership at such times and in such amounts as determined by the General Partner. Such -3- distributions when made shall be allocated among the partners of the Partnership in the same proportion as their then capital account balances. 13. ASSIGNMENTS OF PARTNERSHIP INTERESTS; WITHDRAWALS FROM THE PARTNERSHIP. Any partner may assign all or any part of its partnership interests in the Partnership and may withdraw from the Partnership at any time without the consent of the General Partner or any other general or limited partner of the Partnership. 14. ADMISSION OF ADDITIONAL OR SUBSTITUTE PARTNERS. (a) One or more additional or substitute limited partners of the Partnership may be admitted to the Partnership with only the consent of the General Partner. (b) One or more additional or substitute general partners of the Partnership may be admitted to the Partnership with only the consent of the General Partner. 15. LIABILITY OF INITIAL LIMITED PARTNER. The Initial Limited Partner shall not have any liability for the obligations or liabilities of the Partnership except to the extent provided in the Act. 16. GOVERNING LAW. This Agreement shall be governed by, and construed under, the laws of the State of Delaware, all rights and remedies being governed by said laws. IN WITNESS WHEREOF, the undersigned, intending to be legally bound hereby, have duly executed this Limited Partnership Agreement effective as of the______ day of January, 1998. GENERAL PARTNER TAYLOR PUBLISHING COMPANY By: /s/ Kenneth H. Koch ------------------------------------- Kenneth H. Koch, Vice President INITIAL LIMITED PARTNER: INSILCO CORPORATION By: /s/ Kenneth H. Koch ------------------------------------- Kenneth H. Koch, Vice President -4- EXHIBIT A TO LIMITED PARTNERSHIP AGREEMENT ASSETS CONTRIBUTED BY THE GENERAL PARTNER All of the "Assets," as such term is defined in a certain General Conveyance and Assumption Agreement dated as of January 2, 1998, between Taylor Publishing Company and Taylor Production Services Company, L.P. -5- EX-3.15 18 a2071988zex-3_15.txt EXHIBIT 3.15 EXHIBIT 3.15 ARTICLES OF INCORPORATION OF EDUCATIONAL COMMUNICATIONS, INC. WITH ALL AMENDMENTS (f/k/a MERIT PUBLISHING COMPANY) - -------------------------------------------------------------------------------- STATEMENT FOR CORPORATION No. 952 GEO E Cole & Co. Chicago FOR PECUNIARY PROFIT-Illinois (Revised July 1949) Legal Blanks ================================================================================ BEFORE ATTEMPTING TO EXECUTE THESE BLANKS BE SURE TO READ CAREFULLY THE INSTRUCTIONS ON THE BACK THEREOF. (THESE ARTICLES MUST BE FILED IN DUPLICATE.) STATE OF ILLINOIS, ) ) ss. COOK COUNTY. ) - --------------------- We, the undersigned,
- -------------------------------------------------------------------------------------------------------------- Address Name Number Street City State - -------------------------------------------------------------------------------------------------------------- Paul C. Krouse 6417 N. Damen Chicago, Illinois - -------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------
being natural persons of the age of twenty-one years or more and subscribers to the shares of the corporation to be organized pursuant hereto, for the purpose of forming a corporation under "The Business Corporation Act" of the State of Illinois, do hereby adopt the following Articles of Incorporation: ARTICLE ONE The name of the corporation is: MERIT PUBLISHING COMPANY ------------------------------------------ ARTICLE TWO The ADDRESS of its initial registered office in the State of Illinois is: 69 W. WASHINGTON ST., Street, in the CITY of CHICAGO (60602) County of COOK and - --------------------- ---- ------- ---- the NAME of its initial Registered Agent at SAID ADDRESS is: PAUL C. KROUSE -------------------- 2 ARTICLE THREE The duration of the corporation is: PERPETUAL --------------------------------- Secretary of State ARTICLE FOUR The purpose or purposes for which the corporation is organized are: To publish and cause to be produced written literature of all types for the purpose of resale; but not to act, in any way, as a printing company. And to hold, buy or sell real estate or other property in furtherance of the corporate business. ARTICLE FIVE Paragraph 1: The aggregate number of shares which the corporation is authorized to issue is 500, divided into ONE classes. The designation of each class, the number of shares of each class, and the par value, if any, of the shares of each class, or a statement that the shares of any class are without par value, are as follows:
Series Number of Par value per share or statement that Class (if any) Shares shares are without par value Common None 500 no par value
Paragraph 2. The preferences, qualifications, limitations, restrictions and the special or relative rights in respect of the shares of each class are: NONE ARTICLE SIX The class and number of shares which the corporation proposes to issue without further report to the Secretary of State, and the consideration (expressed in dollars) to be received by the corporation therefor, are:
Total consideration to be Class of shares Number of shares received therefor: Common 500 $1000.00 $ $
3 ARTICLE SEVEN The corporation will not commence business until at least one thousand dollars has been received as consideration for the issuance of shares. ARTICLE EIGHT The number of directors to be elected at the first meeting of the shareholders is: TWO. ARTICLE NINE Paragraph 1: It is estimated that the value of all property to be owned by the corporation for the following year wherever located will be $ NONE Paragraph 2: It is estimated that the value of the property to be located within the State of Illinois during the following year will be $ NONE Paragraph 3: It is estimated that the gross amount of business which will be transacted by the corporation during the following year will be $ 5000.00 Paragraph 4: It is estimated that the gross amount of business which will be transacted at or from places of business in the State of Illinois during the following year will be $ 5000.00 X /s/ Paul C. Krouse ------------------------------- ------------------------------- ------------------------------- ------------------------------- Incorporators. ------------------------------- ------------------------------- ------------------------------- OATH AND ACKNOWLEDGMENT STATE OF ILLINOIS, ) ) ss. COOK COUNTY. ) - ------------- I, LAWRENCE ROCHELL, a Notary Public do hereby certify that on the ------------------- 4 day of MAY ,1967, - ---------- --------- --------------------------------------- (Names of Incorporators) PAUL C. KROUSE - -------------------------------------------------------------------------------- personally appeared before me and being first duly sworn by me severally acknowledged that they signed signed the foregoing document in the respective capacities therein set forth and declared that the statements therein contained are true. IN WITNESS WHEREOF, I have hereunto set my hand and seal the day and year above written. 4 Place /s/ Lawrence Rochell -------------------------------------- NOTARIAL SEAL Notary Public. Here FORM BCA-55 (File in Duplicate) ARTICLES OF AMENDMENT TO THE ARTICLES OF INCORPORATION OF MERIT PUBLISHING COMPANY (Exact Corporate Name) To JOHN W. LEWIS Secretary of State Springfield, Illinois The undersigned corporation, for the purpose of amending its Articles of Incorporation and pursuant to the provisions of Section 55 of "The Business Corporation Act" of the State of Illinois, hereby executes the following Articles of Amendment: ARTICLE FIRST: The name of the corporation is: MERIT PUBLISHING COMPANY ARTICLE SECOND: The following amendment or amendments were adopted in the manner prescribed by "The Business Corporation Act" of the State of Illinois: THAT THE NAME OF THE CORPORATION BE AMENDED TO "EDUCATIONAL COMMUNICATIONS, INC." (Disregard separation into ARTICLE THIRD: the number of shares of the classes if class voting does not apply to the amendment corporation outstanding at the time of the adoption of said voted on.) amendment or amendments was FIVE HUNDRED; and the number of shares of each class entitled to vote as a class on the adoption of said amendments or amendments, and the designation
5 of each such class were as follows: Class Number of Shares (Disregard separation into ARTICLE FOURTH: The number of shares voted for classes if class voting does not apply to the amendment said amendment or amendments was FIVE HUNDRED; and the voted on.) ------------- number of shares voted against said amendment amendments was NONE. The number of shares of each class entitled to vote ---- or as a class voted for and against said amendment or amendments, respectively, was: Class Number of Shares Voted For Against (Disregard these items Item 1. On the date of the adoption of this amendment, restating unless the amendment restates the articles of the articles of incorporation, the corporation had ______ shares incorporation.) issued, itemized as follows: Class Series Number of Par value per share or (If Any) Shares statement that shares are without par value Item 2. On the date of the adoption of this amendment restating the articles of incorporation, the corporation had a stated capital of $_______ and a paid-in surplus of $________ or a total of $____________. (Disregard this Article ARTICLE FIFTH: The manner in which the exchange, where this amendment contains no such reclassification, or cancellation of issued shares, or a reduction of provisions.) the number of authorized shares of any class below the number of issued shares of that class, provided for in, or effected by, this amendment, is as follows:
6 (Disregard this Paragraph ARTICLE SIXTH: Paragraph 1: The manner in which where amendment does not affect stated capital or paid- said amendment or amendments effect a change in the amount of in surplus.) stated capital or the amount of paid-in surplus, or both, is as follows: (Disregard this Paragraph Paragraph 2: The amounts of stated capital and of paid-in where amendment does not affect stated capital or paid- surplus as changed by this amendment are as follows: in surplus.)
Before Amendment After Amendment Stated capital........... $1000.00 $ 1,000.00 Paid-in surplus.......... $ NONE $ NONE
IN WITNESS WHEREOF, the undersigned corporation has caused these Articles of Amendment to be executed in its name by its _______________ President, and its corporate seal to be hereto affixed, attested by its __________________ Secretary, this 14th day of AUGUST, 1972. ---- ------- -- Place MERIT PUBLISHING COMPANY CORPORATE SEAL (Exact Corporate Name) Here By: /s/ Paul C. Krouse - ----------------------------- -------------------------------- Its Secretary Its President STATE OF ILLINOIS ) --------------------- ) ss. COUNTY OF COOK ) -------------------- I VERONICA MAKOWSKI, a Notary Public, do hereby certify that on the 14 day -------------------- --- of AUGUST 1972, PAUL C. KROUSE personally appeared before me and, being first -------- -- --------------- duly sworn by me, acknowledged that he signed the foregoing document in the capacity therein set forth and declared that the statements therein contained are true. IN WITNESS WHEREOF, I have hereunto set my hand and seal the day and year before written. /s/ Veronica Makowski Place ---------------------------------- NOTARIAL SEAL Notary Public. Here 7 FORM BCA-55 (File in Duplicate) ARTICLES OF AMENDMENT TO THE ARTICLES OF INCORPORATION OF EDUCATIONAL COMMUNICATIONS, INC. (Exact Corporate Name) To MICHAEL J. HOWLETT Secretary of State Springfield, Illinois The undersigned corporation, for the purpose of amending its Articles of Incorporation and pursuant to the provisions of Section 55 of "The Business Corporation Act" of the State of Illinois, hereby executes the following Articles of Amendment: ARTICLE FIRST: The name of the corporation is: EDUCATIONAL COMMUNICATIONS, INC. ARTICLE SECOND: The following amendment or amendments were adopted in the manner prescribed by "The Business Corporation Act" of the State of Illinois: Article Five of the Articles of Incorporation shall be amended to read as follows: "Paragraph 1: The aggregate number of shares which the corporation is authorized to issue is 700 divided into two classes. The designation of each class, the number of shares of each class, and the par value, if any, of the shares of each class, or a statement that the shares of any class are without par value, are as follows:
Class Series Number of Par value per share or (If Any) Shares statement that shares are without par value Common stock None No par value Preferred stock None $1,000 per share
8 "Paragraph 2: The preference and the stations, limitations, restrictions and the special of relative rights in respect of on or set apart for the common shares. Subject to the foregoing provisions, the preferred stock shall not be entitled to payment from any other surplus or net profits of the corporation. "In the event of any dissolution, liquidation or winding up of the corporation or a sale of all its assets, or in the event of its insolvency, or upon any distribution of its capital, there shall be paid to the holders of the preferred stock its par value of One Thousand Dollars ($1,000.00) per share plus the amount of all unpaid dividends accrued thereon without interest before any sum shall be paid to or any assets distributed among the holders of the common shares. After such payment to the holders of the preferred stock, the remaining assets and funds of the corporation shall be divided among and paid to the holders of the common shares in proportion to their holdings of such shares. For purposes hereof the voluntary sale, lease, exchange or transfer (for cash shares of stock, securities or other consideration) of all or substantially all its property or assets to, or a consolidation or merger of the corporation with one or more corporations shall not be deemed to be a liquidation, dissolution or winding up of the corporation. "The corporation may redeem the whole or any part of the preferred shares at the option of the board of directors on any dividend date by paying therefor in cash the sum of One Thousand Dollars ($1,000.00) per share in addition to an amount equal to all dividends thereon declared but unpaid on the date fixed for such redemption. At least forty days' previous notice in writing shall be given by registered mail to the holders of such preferred stock at their addresses as set forth in the records of the said corporation. On or before the date set in such notice for such redemption, the holders of such preferred stock shall deliver the certificates thereof to the treasurer of the said corporation at the place designated in the notice and shall receive the price hereinbefore set forth for such redemption. In the event that all of such stock is not so redeemed, new certificates shall thereupon be issued to the holders thereof for the remaining shares of such stock still held by them. In the event that any holder of such preferred stock shall fail on or before the date fixed for redemption to deliver arid surrender such certificate to the treasurer of such corporation for redemption and to accept the amount to be paid therefor, funds necessary for such redemption shall be set apart by the said corporation and held in a special fund for the payment of such redemption price. The holder of such stock shall thereafter be entitled at any time to deliver and surrender the shares of stock held by him and to receive the amount so set aside for his benefit without any interest thereon. After the making of such deposit, the said corporation shall not be liable to pay to the holder of such stock any dividends as called for therein for the period after the date of such deposit, and all rights of the holder of such preferred stock as stated in this certificate of incorporation, the bylaws or otherwise, shall at once cease and determine, and the holder of such stock shall thereafter have only the right to receive the amount so deposited, upon surrender of such stock. Any moneys so set aside by the corporation and unclaimed at the end of six years from the date designated for such redemption shall revert to the general funds of the corporation after which reversion the holders of such stock so called for redemption shall look only to the corporation for payment of the redemption price and such stock shall still not be deemed to be outstanding. "As long as any of the preferred stock is outstanding the corporation shall not, without the affirmative vote or consent of the holders of at least 66-2/3% of the preferred stock at the time outstanding (i) increase the authorized amount of the preferred stock, (ii) create any other class 9 of stock ranking prior to or on a parity with the preferred stock either as to dividends or upon liquidation or increase the authorized number of shares of any such other class of stock or (iii) amend, alter or repeal any of the provisions hereof so as adversely to affect the preferences, rights or powers of the preferred stock. At no time shall the corporation declare and pay dividends on or otherwise make any distributions with respect to the common stock if at such time the corporation shall be in default with respect to any dividend payable on or any obligation to retire shares of the preferred stock." the shares of each class are: "The owners of the preferred stock shall be entitled to receive dividends thereon at the rate of seven per cent (7%) per annum and no more payable out of the surplus or net profits of the corporation quarterly, half-yearly or yearly, as and when declared by the board of directors before any dividend shall be declared, set apart for or paid upon the common stock of the corporation. The dividends on the preferred stock shall be cumulative so that if the corporation fails in any fiscal year to pay such dividends on all the issued and outstanding preferred stock, such deficiencies and dividends shall be fully paid but without interest before any dividends shall be paid (Disregard separation into ARTICLE THIRD: The number of shares of the classes if class voting does not apply to the amendment corporation outstanding at the time of the adoption of said voted on.) amendment or amendments was 500; and the number of shares of each class entitled to vote as a class on the adoption of said amendment or amendments, and the designation of each such class were as follows: CLASS NUMBER OF SHARES (Disregard separation into ARTICLE FOURTH: The number of shares voted for said classes if class voting does not apply to the amendment amendment or amendments was 500; and the number voted on.) of shares voted against said amendment or amendments was ______________. The number of shares of each class entitled to vote as a class voted for and against said amendment or amendments, respectively, was:
10 CLASS NUMBER OF SHARES VOTED FOR AGAINST (Disregard these items Item 1. On the date of the adoption of this amendment, restating unless the amendment restates the articles of the articles of incorporation, the corporation had ______ shares incorporation.) issued, itemized as follows: CLASS SERIES NUMBER OF PAR VALUE PER SHARE OR (IF ANY) SHARES STATEMENT THAT SHARES ARE WITHOUT PAR VALUE Item 2. On the date of the adoption of this amendment restating the articles of incorporation, the corporation had a stated capital of $_______ and a paid in surplus of $________ or a total of $____________. (Disregard this Article ARTICLE FIFTH: The manner in which the exchange, where this amendment contains no such reclassification, or cancellation of issued shares, or a reduction of provisions.) the number of authorized shares of any class below the number of issued shares of that class, provided for in, or effected by, this amendment, is as follows: (Disregard this Paragraph ARTICLE SIXTH: Paragraph 1: The manner in which where amendment does not affect stated capital or paid- said amendment or amendments effect a change in the amount of in surplus.) stated capital or the amount of paid-in surplus, or both, is as follows: (Disregard this Paragraph Paragraph 2: The amounts of stated capital and of paid-in where amendment does not affect stated capital or paid- surplus as changed by this amendment are as follows: in surplus.)
11
BEFORE AMENDMENT AFTER AMENDMENT Stated capital........... $ \ $ \ Paid-in surplus.......... $ $
IN WITNESS WHEREOF, the undersigned corporation has caused these Articles of Amendment to be executed in its name by its _______________ President, and its corporate seal to be hereto affixed, attested by its __________________ Secretary, this 16TH day of DECEMBER, 1974. -------- -- EDUCATIONAL COMMUNICATIONS, INC. Place (Exact Corporate Name) CORPORATE SEAL Here By: /s/ Paul C. Krouse - --------------------------------- ------------------------------- Its Secretary Its President (Jerald A. Lavin) (Paul C. Krouse) STATE OF ILLINOIS, ) ------------- ) ss. COUNTY OF COOK ) ------------ I CHRISTINE A. BAKER, a Notary Public, do hereby certify that on the 16TH ------------------ ----- day of DECEMBER 1974, PAUL C. KROUSE personally appeared before me and, being -------- -- --------------- first duly sworn by me, acknowledged that he signed the foregoing document in the capacity therein set forth and declared that the statements therein contained are true. IN WITNESS WHEREOF, I have hereunto set my hand and seal the day and year before written. /s/ Christine A. Baker Place ----------------------------------- NOTARIAL SEAL Notary Public. Here 12 FORM BCA-55 (File in Duplicate) ARTICLES OF AMENDMENT TO THE ARTICLES OF INCORPORATION OF EDUCATIONAL COMMUNICATIONS, INC. (Exact Corporate Name) To MICHAEL J. HOWLETT Secretary of State Springfield, Illinois The undersigned corporation, for the purpose of amending its Articles of Incorporation and pursuant to the provisions of Section 55 of "The Business Corporation Act" of the State of Illinois, hereby executes the following Articles of Amendment: ARTICLE FIRST: The name of the corporation is: EDUCATIONAL COMMUNICATIONS, INC. ARTICLE SECOND: The following amendment or amendments were adopted in the manner prescribed by "The Business Corporation Act" of the State of Illinois: Article Five of the Articles of Incorporation shall be amended to read as follows: "Paragraph 1: The aggregate number of shares which the corporation is authorized to issue is 950 divided into two classes. The designation of each class, the number of shares of each class, and the par value, if any, of the shares of each class, or a statement that the shares of any class are without par value, are as follows:
Class Series Number of Par value per share or (If Any) Shares statement that shares are without par value Common Sock None 500 No par value Preferred Sock None 450 $1,000 per share
13 "Paragraph 2: The preferences, qualifications, limitations, restrictions and the special or relative rights in respect apart for the common shares. Subject to the foregoing provisions, the preferred stock shall not be entitled to payment from any other surplus or net profits of the corporation. "In the event of any dissolution, liquidation or winding up of the corporation or a sale of all its assets, or in the event of its insolvency, or upon any distribution of its capital, there shall be paid to the holders of the preferred stock its par value of ONE THOUSAND DOLLARS ($1,000.00) per share plus the amount of all unpaid dividends accrued thereon without interest before any sum shall be paid to or any assets distributed among the holders of the common shares. After such payment to the holders of the preferred stock, the remaining assets and funds of the corporation shall be divided among and paid to the holders of the common shares in proportion to their holdings of such shares. For purposes hereof the voluntary sale, lease, exchange or transfer (for cash, shares of stock, securities or other consideration) of all or substantially all its property or assets to, or a consolidation or merger of the corporation with one or more corporations shall not be deemed to be a liquidation, dissolution or winding up of the corporation. "The corporation may redeem the whole or any part of the preferred shares at the option of the board of directors on any dividend date by paying therefor in cash the sum of ONE THOUSAND DOLLARS ($1,000.00) per share in addition to an amount equal to all dividends thereon declared but unpaid on the date fixed for such redemption. At least forty days' previous notice in writing shall be given by registered mail to the holders of such preferred stock at their addresses as set forth in the records of the said corporation; or before the date set in such notice for such redemption, the holders of such preferred stock shall deliver the certificates thereof to the treasurer of the said corporation at the place designated in the notice and shall receive the price hereinbefore set forth for such redemption. In the event that all of such stock is not so redeemed, new certificates shall thereupon be issued to the holders thereof for the remaining shares of such stock still held by them. In the event that any holder of such preferred stock shall fail on or before the date fixed for redemption to deliver and surrender such certificate to the treasurer of such corporation for redemption and to accept the amount to be paid therefor, funds necessary for such redemption shall be set apart by the said corporation and held in a special fund for the payment of such redemption price. The holder of such stock shall thereafter be entitled at any time to deliver and surrender the shares of stock held by him and to receive the amount so set aside for his benefit without any interest thereon. After the making of such deposit, the said corporation shall not be liable to pay to the holder of such stock any dividends as called for therein for the period after the date of such deposit, and all rights of the holder of such preferred stock as stated in this certificate of incorporation, the bylaws of otherwise, shall at once cease and determine, and the holder of such stock shall thereafter have only the right to receive the amount so deposited, upon surrender of such stock. Any moneys so set aside by the corporation and unclaimed at the end of six years from the date designated for such redemption shall revert to the general funds of the corporation after which reversion the holders of such stock so called for redemption shall look only to the corporation for payment of the redemption price and such stock shall still not be deemed to be outstanding. "As long as any of the preferred stock is outstanding the corporation shall not, without the affirmative vote or consent of the holders of at least 66-2/3% of the preferred stock at the time outstanding (i) increase the authorized amount of the preferred stock, (ii) create any other class 14 of stock ranking prior to or on a parity with the preferred stock either as to dividends or upon liquidation or increase the authorized number of shares of any such other class of stock or (iii) amend, alter or repeal any of the provisions hereof so as adversely to affect the preferences, rights or powers of the preferred stock. At no time shall the corporation declare and pay dividends on or otherwise make any distributions with respect to the common stock, if at such time the corporation shall be in default with respect to any dividend payable on or any obligation to retire shares of the preferred stock. of the shares of each class are: "The owners of the preferred stock shall be entitled to receive dividends thereon at the rate of seven per cent (7%) per annum and no more payable out of the surplus or net profits of the corporation quarterly, half-yearly of yearly, as and when declared by the board of directors before any dividend shall be declared, set apart for or paid upon the common stock of the corporation. The dividends on the preferred stock shall be cumulative so that if the corporation fails in any fiscal year to pay such dividends on all the issued and outstanding preferred stock, such deficiencies and dividends shall be fully paid but without interest before any dividends shall be paid on or set (Disregard separation into ARTICLE THIRD: The number of shares of the classes if class voting does not apply to the amendment corporation outstanding at the time of the adoption of said voted on.) amendment or amendments was 700; and the number ------ of shares of each class entitled to vote as a class on the adoption of said amendment or amendments, and the designation of each such class were as follows: Class Number of Shares Common 500 Preferred 200 (Disregard separation into ARTICLE FOURTH: The number of shares voted for said classes if class voting does not apply to the amendment amendment or amendments was 700; and the number of voted on.) ------ shares voted against said amendment or amendments was NONE. The number of shares of each class entitled to vote as
15 a class voted for and against said amendment or amendments, respectively, was: CLASS NUMBER OF SHARES VOTED FOR AGAINST (Disregard these items Item 1. On the date of the adoption of this amendment, restating unless the amendment restates the articles of the articles of incorporation, the corporation had ______ shares incorporation.) issued, itemized as follows: CLASS SERIES NUMBER OF PAR VALUE PER SHARE OR (IF ANY) SHARES STATEMENT THAT SHARES ARE WITHOUT PAR VALUE Item 2. On the date of the adoption of this amendment restating the articles of incorporation, the corporation had a stated capital of $_______ and a paid-in surplus of $________ or a total of $____________. (Disregard this article ARTICLE FIFTH: The manner in which the exchange, where the amendment contains no such reclassification, or cancellation of issued shares, or a reduction of provisions.) the number of authorized shares of any class below the number of issued shares of that class, provided for in, or effected by, this amendment, is as follows: (Disregard this paragraph ARTICLE SIXTH: Paragraph 1: The manner in which where amendment does not affect stated capital or paid- said amendment or amendments effect a change in the amount of in surplus.) stated capital or the amount of paid-in surplus, or both, is as follows:
16 (Disregard this Paragraph Paragraph 2: The amounts of stated capital and of paid-in where amendment does not affect stated capital or paid- surplus as changed by this amendment are as follows: in surplus.)
Before Amendment After Amendment Stated capital.......... $ $ Paid-in surplus......... $ $
IN WITNESS WHEREOF, the undersigned corporation has caused these Articles of Amendment to be executed in its name by its VICE President, and its corporate ------ seal to be hereto affixed, attested by its __________________ Secretary, this 27TH day of MARCH, 1978. - ----- ------ -- Educational Communications, Inc. Place -------------------------------- CORPORATE SEAL (Exact Corporate Name) Here ATTEST: By: /s/ Jerald A Lavin ------------------ - ----------------------- Its Secretary Its Vice President (Jerald A. Lavin) STATE OF ILLINOIS, ) ---------- ) ss. COUNTY OF COOK ) --------- I _________________, a Notary Public, do hereby certify that on the 27th ---- day of MARCH 1978, JERALD A. LAVIN personally appeared before me and, being ----- -- --------------- first duly sworn by me, acknowledged that he signed the foregoing document in the capacity therein set forth and declared that the statements therein contained are true. IN WITNESS WHEREOF, I have hereunto set my hand and seal the day and year before written. Place --------------------------------------- NOTARIAL SEAL Notary Public. Here 17 FORM BCA-69a ARTICLES OF MERGER OF DOMESTIC AND FOREIGN CORPORATION (Strike Inapplicable Words) ----------------- To Secretary of State, The undersigned corporations, pursuant to Section 69a of "The Business Corporation Act" of the State of Illinois, hereby execute the following articles of merger: ARTICLE ONE The names of the corporations proposing to merge and the names of the States under the laws of which such corporation are organized, are as follows:
Name of Corporation State of Incorporation Educational Communications Companies, Inc. Delaware - ----------------------------------------------------------------- ----------------------------- Educational Communications, Inc. Illinois - ----------------------------------------------------------------- ----------------------------- Educational Communications Real Estate and Investment Corporation Illinois - ----------------------------------------------------------------- ----------------------------- Who's Who Among Black Americans, Inc. Delaware - ----------------------------------------------------------------- ----------------------------- - ----------------------------------------------------------------- -----------------------------
ARTICLE TWO The laws of ILLINOIS AND DELAWARE the States under which such foreign ----------------------- corporations are organized, permit such merger. ARTICLE THREE The name of the surviving corporation shall be EDUCATIONAL COMMUNICATIONS, ---------------------------- INC. and is shall be governed by the laws of the State of ILLINOIS - ---- --------- 18 ARTICLE FOUR The plan of merger is as follows: See attached Agreement and Plan of Merger attached hereto and by this reference incorporated herein. ARTICLE FIVE As to each corporation, the number of shares outstanding, the number of shares entitled to vote, and the number and designation of the shares of any class entitled to vote as a class, are:
Name of Corporation Total Total Designation Number Number of Number of Class of Shares Shares of Shares Entitled of Such Outstanding Entitled to to Vote Class Vote as a Class (if any) (if any) Educational Communications Companies, Inc. 450 450 -- -- - -------------------------------------------- ----------- --------- ----------- --------- Preferred Educational Communications, Inc. 855 855 Stock 405 - -------------------------------------------- ----------- --------- ----------- --------- Educational Communications Real Estate and Investment Corporation 1,000 1,000 -- -- - -------------------------------------------- ----------- --------- ----------- --------- Who's Who Among Black Americans, Inc. 198 198 -- -- - -------------------------------------------- ----------- --------- ----------- ---------
NOTE: On the date of adoption of the plan of merger an additional 117 shares were held in treasury and not entitled to vote:
Name of Corporation Class Number of Shares Educational Communications, Inc. Preferred 45 Educational Communications, Inc. Common 50 Who's Who Among Black Americans, Inc. Common 22
19 ARTICLE SIX As to each corporation, the number of shares voted for and against the plan, respectively, and the number of shares of any class entitled to vote as a class voted for and against the plan, are:
Name of Corporation Total Total Class Shares Shares Shares Shares Voted for Voted Voted for Voted Against Against Educational Communications, Companies, Inc. 450 -0- -- -- -- - ------------------------------------------- --------- ------- ------- --------- ------- Educational Communications, Inc. 855 -0- Pref. 405 -0- - ------------------------------------------- --------- ------- ------- --------- ------- Educational Communications Real Estate and Investment Corporation 1,000 -0- -- -- -- - ------------------------------------------- --------- ------- ------- --------- ------- Who's Who Among Black Americans, Inc. 198 -0- -- - ------------------------------------------- --------- ------- ------- --------- ------- - ------------------------------------------- --------- ------- ------- --------- -------
20 ARTICLE SEVEN All Provisions of the laws of the State of Illinois and the State of DELAWARE applicable to the proposed merger have been complied with. IN WITNESS WHEREOF each of the undersigned corporations has caused these articles of merger to be executed in its name by its president or vice president and its corporate seal to be hereunto affixed, attested by its secretary or assistance secretary, this 28TH day of MARCH, 1984. Place Corporate -Educational Communications Companies, Inc. Seal Here By: /s/ Paul C. Krouse ------------------------------------ Its President ATTEST: /s/ Ann W. Krouse - --------------------- Its Secretary Place Corporate Educational Communications, Inc. Seal Here By: /s/ Paul C. Krouse ------------------------------------ Its President ATTEST: /s/ Ann W. Krouse - --------------------- Its Secretary See attached for signatures for the two additional merging corporations. As authorized officers, we declare that this document has been examined by us and is, to the best of our knowledge and belief, true, correct and complete. 21 EDUCATION COMMUNICATION REAL ESTATE AND INVESTMENT CORPORATION An Illinois corporation (CORPORATE SEAL) ATTEST: /s/ Paul C. Krouse By: /s/ Ann W. Krouse - --------------------- ------------------------------------- Secretary President WHO'S WHO AMONG BLACK AMERICANS, INC. A Delaware corporation (CORPORATE SEAL) ATTEST: /s/ Ann W. Krouse By: /s/ Paul C. Krouse - --------------------- ------------------------------------- Secretary President 22 AGREEMENT AND PLAN OF MERGER AGREEMENT AND PLAN OF MERGER, dated the 28th day of March, 1984 pursuant to Section 252 of the General Corporation Law of the State of Delaware and Section 69a of The Business Corporation Act of the State of Illinois among EDUCATIONAL COMMUNICATIONS COMPANIES, INC., a Delaware corporation ("COMMUNICATIONS"), EDUCATIONAL COMMUNICATIONS REAL ESTATE AND INVESTMENT CORPORATION, an Illinois corporation ("REAL ESTATE"), WHO'S WHO AMONG BLACK AMERICANS, INC., a Delaware corporation ("WHO'S WHO"), said corporations hereinafter sometimes referred to jointly as the "Merged Corporations", and EDUCATIONAL COMMUNICATIONS, INC., an Illinois corporation ("ECI" or the "Surviving Corporation"), all of said corporations hereinafter sometimes referred to jointly as the "Constituent Corporations". PRELIMINARY RECITALS 1. The respective Boards of Directors of the Constituent Corporations deem it advisable to merge the Merged Corporations into ECI as the surviving corporation. 2. COMMUNICATIONS is authorized to issue 405 shares of Preferred Stock, par value $1,000 per share, none of which is issued or outstanding, and 450 shares of Common Stock without par value, all of which are issued and outstanding. 3. ECI is authorized to issue 450 Preferred Shares, par value $1,000 per share, 405 of which are issued and outstanding, and 45 of which are held in treasury, and 500 Common Shares without par value, 450 of which are issued and outstanding and 50 of which are held in treasury. COMMUNICATIONS owns all of the issued and outstanding Preferred and Common Shares of ECI. 4. REAL ESTATE is authorized to issue 10,000 Common Shares without par value, 1,000 of which are issued and outstanding and owned by ECI. 5. WHO'S WHO is authorized to issue 220 shares of Common Stock without par value, 198 of which are issued and outstanding and owned by ECI, and 22 of which are held in treasury. 6. The registered office of both COMMUNICATIONS and WHO'S WHO in the State of Delaware is located at number 100 West Tenth Street in the City of Wilmington, County of New Castle, and the name of the registered agent of both corporations at said address is The Corporation Trust Company. The registered office of both ECI and REAL ESTATE in the State of Illinois is located at 208 South LaSalle Street, Suite 550, in the City of Chicago, County of Cook, and the name of the registered agent of both corporations at said address is Michael E. Fox. NOW, THEREFORE, the Constituent Corporations, in consideration of the mutual covenants, agreements and provisions hereinafter contained, do hereby prescribe and AGREE to the terms and conditions of said merger and mode of carrying the same into effect as follows: 23 ARTICLE FIRST: The Constituent Corporations shall be merged into a single corporation in accordance with the applicable provisions of the laws of the State of Illinois and the State of Delaware by the Merged Corporations merging into ECI, which shall be the surviving corporation and shall be governed by the laws of the State of Illinois. ARTICLE SECOND: The Articles of Incorporation of ECI shall be the Articles of Incorporation of the Surviving Corporation, except that the same is hereby amended upon effectiveness of the merger by changing Article Five thereof so as to read in its entirety as follows: "ARTICLE FIVE Paragraph 1. The aggregate number of shares which the corporation is authorized to issue is 1,000, divided into one class. The designation of each class, the number of shares of each class, and the par value, if any, of the shares of each class, or a statement that the shares of any class are without par value, are as follows:
Par value per share or Series Number of statement that shares Class (if any) Shares are without par value Common None 1,000 without par value
Paragraph 2. The preferences, qualifications, limitations, restrictions and the special or relative rights in respect of the shares of each class are: NONE" ARTICLE THIRD: The manner and basis of converting the shares of the Constituent Corporations shall be as follows: (a) Each of the 450 shares of Common Stock of COMMUNICATIONS which shall be issued and outstanding immediately prior to effectiveness of the merger, and all rights in respect thereof, shall, upon effectiveness of the merger, forthwith be changed and converted, without any action on the part of the holder thereof, into two and two-ninths (2-2/9) fully paid and non-assessable Common Shares, without par value, of the Surviving Corporation, for a total of 1,000 Common Shares, without par value. (b) Upon effectiveness of the merger, the owner of the outstanding certificate or certificates theretofore representing shares of Common Stock of COMMUNICATIONS shall be entitled, upon surrender of such certificate or certificates to the Surviving Corporation, to receive in exchange therefor a certificate or certificates representing the number of Common Shares of the Surviving Corporation into which the shares of Common Stock of COMMUNICATIONS theretofore represented by the surrendered certificate or certificates shall have been changed and converted as herein provided. Until so surrendered, the outstanding certificates which had represented shares of Common Stock of COMMUNICATIONS shall be 24 deemed and treated for all corporate purposes to represent the ownership of Common Shares of the Surviving Corporation as though said surrender and exchange had taken place. (c) Upon effectiveness of the merger: (i) the 405 Preferred Shares and 450 Common Shares theretofore issued and outstanding and the 45 Preferred Shares and 50 Common Shares theretofore held in the treasury, of ECI; (ii) the 1,000 Common Shares theretofore issued and outstanding of REAL ESTATE; and (iii) the 198 shares of Common Stock theretofore issued and outstanding and the 22 shares of Common Stock theretofore held in the treasury, of WHO'S WHO, shall be retired and cancelled, and no shares of stock or other securities or property shall be issued in respect thereto. ARTICLE FOURTH: Further terms and conditions of the merger are as follows: a) Upon effectiveness of the merger, the by-laws of ECI as they shall exist immediately prior to effectiveness of the merger shall be and remain the by-laws of the Surviving Corporation until the same shall be altered, amended or repealed as therein provided. b) Upon effectiveness of the merger, the directors and officers of ECI immediately prior thereto shall be the directors and officers of the Surviving Corporation and shall hold office until their successors shall have been elected and qualified. If, immediately prior to effectiveness of the merger, a vacancy shall exist in the Board of Directors or in any of the offices of ECI, such vacancy may thereafter be filled in the manner provided in the by-laws of the Surviving Corporation. c) The merger shall become effective upon the filing of this Agreement and Plan of Merger with the Secretary of State of Delaware and the issuance of a certificate of merger by the Secretary of State of the State of Illinois. d) Upon effectiveness of the merger: (i) The separate existence of the Merged Corporations shall cease, and the Surviving Corporation shall have all the rights, privileges, immunities and powers and be subject to all the duties and liabilities of a corporation organized under the Illinois Business Corporation Act; (ii) The Surviving Corporation shall thereupon and thereafter possess all the rights, privileges, immunities, powers and franchises as well of a public as of a private nature, of each of the Constituent Corporations; and all property, real, personal, and mixed, and all debts due on whatever account, including subscriptions to shares, and all other choses in action, and all and every other interest, of or belonging to or due to each of the Constituent 25 Corporations, shall be taken and deemed to be transferred to and vested in or shall continue to be vested in the Surviving Corporation without further act or deed; and the title to all real estate, or any interest therein, vested in any of the Constituent Corporations shall not revert or be in any way impaired by reason of the merger; and (iii) The Surviving Corporation shall thenceforth be responsible and liable for all the liabilities and obligations of each of the Constituent Corporations; and any claim existing ~or action or proceeding pending by or against any of the Constituent Corporations may be prosecuted to judgment as if the merger had not taken place, or the Surviving Corporation may be substituted in its place, and neither the rights of creditors nor any liens upon the property of any of the Constituent Corporations shall be impaired by the merger. e) If at any time the Surviving Corporation shall consider or be advised that any further assignments or assurances in law or any other things are necessary or desirable to vest, perfect or confirm in the Surviving Corporation the title or possession to any property or rights of the Merged Corporations, the Merged Corporations and their respective proper officers and directors are hereby authorized, directed and empowered, if and when requested by the Surviving Corporation or by its successors or assigns, to execute and deliver or cause to be executed and delivered all deeds, assignments, assurances and other instruments, and to take or cause to be taken such further or other action, as the Surviving Corporation may deem necessary or desirable to thus vest, perfect or confirm such property or rights in the Surviving Corporation, and otherwise to carry out the purposes of this Agreement and Plan of Merger, and the proper officers of the Surviving Corporation are fully authorized in the name of the Merged Corporations or otherwise to take any and all such action. f) Upon effectiveness of the merger, the stated capital of the Surviving Corporation shall be $451,000 and the paid-in surplus of the Surviving Corporation shall be equal to the sum of the paid-in surplus of ECI and the stated capital and paid-in surplus of COMMUNICATIONS immediately prior to effectiveness of the merger. g) The Surviving Corporation may be served with process in the State of Delaware in any proceeding for enforcement of any obligation of COMMUNICATIONS or WHO'S WHO as well as for enforcement of any obligation of the Surviving Corporation arising from the merger, including any suit or other proceeding to enforce the right of any stockholders as determined in appraisal proceedings pursuant to the provisions of Section 262 of Title 8 of the Delaware Code of 1953; and the Surviving Corporation does hereby irrevocably appoint the Secretary of State of Delaware as its agent to accept service of process in any such suit or other proceedings. The address to which a copy of such process shall be mailed by the Secretary of State of Delaware is Educational Communications, Inc. 721 North McKinley Road Lake Forest, Illinois 60045 Attention: President until the Surviving Corporation shall have hereafter designated in writing to the said Secretary of State a different address for such purpose. In the event of such service upon the Secretary of 26 State in accordance with Subsection (d) of Section 252 of Title 8 of the Delaware Code of 1953, the Secretary of State shall forthwith notify the Surviving Corporation by letter, certified mail, return receipt requested, directed to the Surviving Corporation at the above address, unless the Surviving Corporation shall have designated in writing to the Secretary of State a different address for such purpose, in which case it shall be mailed to the last address so designated. Such letter shall enclose a copy of the process and any other papers served on the Secretary of State pursuant to the foregoing Subsection (d). ARTICLE FIFTH: Anything herein or elsewhere to the contrary notwithstanding, this Agreement and Plan of Merger may be terminated and abandoned by appropriate resolution of the board of directors of any of the Constituent Corporations at any time prior to the filing of this Agreement and Plan of Merger with the Secretary of State of Delaware and the issuance of a certificate of merger by the Secretary of State of Illinois, notwithstanding approval of the agreement by the stockholders of all or any of the Constituent Corporations. ARTICLE SIXTH: This Agreement and Plan of Merger may be executed in multiple counterparts, each of which shall be deemed to be and shall constitute an original hereof. 27 IN WITNESS WHEREOF, the parties to this agreement, pursuant to the approval and authority duly given by resolutions adopted by their respective boards of directors, have caused these presents to be executed by their respective Presidents, and their corporate seals to be hereunto affixed and attested by their respective Secretaries, on the day and year first above written. (CORPORATE SEAL) EDUCATION COMMUNICATIONS COMPANIES, INC. ATTEST: A Delaware corporation /s/ Ann W. Krouse By:/s/ Paul C. Krouse - ------------------- ------------------------------------- Secretary President EDUCATION COMMUNICATION, INC. (CORPORATE SEAL) An Illinois corporation ATTEST: /s/ Ann W. Krouse By:/s/ Paul C. Krouse - ------------------- ------------------------------------- Secretary President EDUCATION COMMUNICATION REAL ESTATE AND INVESTMENT CORPORATION (CORPORATE SEAL) An Illinois corporation ATTEST: /s/ Paul C. Krouse By:/s/ Ann W. Krouse - ------------------- ------------------------------------- Secretary President WHO'S WHO AMONG BLACK AMERICANS, INC. (CORPORATE SEAL) A Delaware corporation ATTEST: /s/ Ann W. Krouse By: /s/ Paul C. Krouse - ------------------- ------------------------------------- Secretary President 28 SECRETARY'S CERTIFICATES The undersigned, ANN W. KROUSE, Secretary of EDUCATIONAL COMMUNICATIONS COMPANIES, INC., one of the Constituent Corporations mentioned in the foregoing Agreement and Plan of Merger, on behalf of said corporation certifies as follows: The foregoing Agreement and Plan of Merger has been consented to in writing by all of the stockholders of the corporation entitled to vote on a merger and consolidation. IN WITNESS WHEREOF, I have signed this certificate this 28th day of March, 1984. /s/ Ann W. Krouse ---------------------------------------- Secretary of Educational Communications Companies, Inc. The undersigned, ANN W. KROUSE, Secretary of EDUCATIONAL COMMUNICATIONS, INC., one of the Constituent Corporations mentioned in the foregoing Agreement and Plan of Merger, on behalf of said corporation certifies as follows: The foregoing Agreement and Plan of Merger has been consented to in writing by all of the stockholders of the corporation entitled to vote on a merger and consolidation. IN WITNESS WHEREOF, I have signed this certificate day of March, 1984. /s/ Ann W. Krouse ---------------------------------------- Secretary of Educational Communications, Inc. 29 SECRETARY'S CERTIFICATES The undersigned, PAUL C. KROUSE, Secretary of EDUCATIONAL COMMUNICATIONS REAL ESTATE AND INVESTMENT CORPORATION, one of the Constituent Corporations mentioned in the foregoing Agreement and Plan of Merger, on behalf of said corporation certifies as follows: The foregoing Agreement and Plan of Merger has been consented to in writing by all of the stockholders of the corporation entitled to vote on a merger and consolidation. IN WITNESS WHEREOF, I have signed this certificate this 28th day of March, 1984. /s/ Paul C. Krouse ---------------------------------------- Secretary of Educational Communications Real Estate and Investment Corporation The undersigned, ANN W. KROUSE, Secretary of WHO'S WHO AMONG BLACK AMERICANS, INC., one of the Constituent Corporations mentioned in the foregoing Agreement and Plan of Merger, on behalf of said corporation certifies as follows: The foregoing Agreement and- Plan of Merger has been consented to in writing by all of the stockholders of the corporation entitled to vote on a merger and consolidation. IN WITNESS WHEREOF, I have signed this certificate this 28th day of March, 1984. /s/ Ann W. Krouse ---------------------------------------- Secretary of Who's Who Among Black Americans, Inc. 30 EX-3.16 19 a2071988zex-3_16.txt EXHIBIT 3.16 Exhibit 3.16 BY-LAWS OF EDUCATIONAL COMMUNICATIONS, INC. Adopted 3-30-84 BY-LAWS OF EDUCATIONAL COMMUNICATIONS, INC. ARTICLE I OFFICES The corporation shall continuously maintain in the State of Illinois a registered office and a registered agent whose office is identical with such registered office, and may have other offices within or without the state. ARTICLE II SHAREHOLDERS Section 1. ANNUAL MEETING. An annual meeting of the shareholders shall be held on the 2nd Tuesday in July of each year for the purpose of electing directors and for the transaction of such other business as may come before the meeting. If the day fixed for the annual meeting shall be a legal holiday, such meeting shall be held on the next succeeding business day. Section 2. SPECIAL MEETINGS. Special meetings of the shareholders may be called either by the president, by the board of directors or by the holders of not less than one-fifth of all the outstanding shares of the corporation, for the purpose or purposes stated in the call of the meeting. Section 3. PLACE OF MEETING. The board of directors may designate any place as the place of meeting for any annual meeting or for any special meeting called by the board of directors. A waiver of notice signed by all shareholders may designate any place as the place for the holding of such meeting. If no designation is made, or if, a special meeting be otherwise called, the place of meeting shall be at the registered office of the corporation in this state. Section 4. NOTICE OF MEETINGS. Written notice stating the place, date, and hour of the meeting, and in the case of a special meeting, the purpose or purposes for which the meeting is called, shall be delivered not less than ten nor more than forty days before the date of the meeting, or in the case of a merger or consolidation not less than twenty nor more than forty days before the meeting, either personally or by mail, by or at the direction of the president, or the secretary, or the officer or persons calling the meeting, to each shareholder of record entitled to vote at such meeting. If mailed, such notice shall be deemed to be delivered when deposited in the United States mail, addressed to the shareholder at his address as it appears on the records of the corporation, with postage thereon prepaid. When a meeting is adjourned to another time 2 or place, notice need not be given of the adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken. Section 5. MEETING OF ALL SHAREHOLDERS. If all of the shareholders shall meet at any time and place, either within or without the State of Illinois, and consent to the holding of a meeting at such time and place, such meeting shall be valid without call or notice, and at such meeting any corporate action may be taken. Section 6. CLOSING OF TRANSFER BOOKS AND FIXING OF RECORD DATE. For the purpose of determining the shareholders entitled to notice of or to vote at any meeting of shareholders or any adjournment thereof, or to express consent to corporate action in writing without a meeting, or to receive payment of any dividend, or other distribution or allotment of any rights, or to exercise any rights in respect of any change, conversion or exchange of shares or for the purpose of any other lawful action, the board of directors of the corporation may provide that the share transfer books be closed for a stated period, or in lieu of closing the transfer books may fix in advance a record date, which, in either case, shall not be more than sixty days and, for a meeting of shareholders, not less than ten days, or in the case of a merger or consolidation not less than twenty days, before the date of such meeting. If the transfer books are not closed and no record date is fixed, the record date for the determination of shareholders entitled to notice of or to vote at a meeting of shareholders shall be the date on which notice of the meeting is mailed, and the record date for the determination of shareholders for any other purpose shall be the date on which the board of directors adopts the resolution relating thereto. A determination of shareholders of record entitled to notice of or to vote at a meeting of shareholders shall apply to any adjournment of the meeting. Section 7. VOTING LISTS. The officer or agent having charge of the transfer books for shares of the corporation shall make, at least ten days before each meeting of shareholders, a complete list of the shareholders entitled to vote at such meeting, arranged in alphabetical order, showing the address of and the number of shares registered in the name of the shareholder, which list, for a period of ten days prior to such meeting, shall be kept on file at the registered office of the corporation and shall be open to inspection by any shareholder at any time during usual business hours. Such list shall also be produced and kept open at the time and place of the meeting and may be inspected by any shareholder during the whole time of the meeting. The original share ledger or transfer book, or a duplicate thereof kept in this State, shall be prima facie evidence as to who are the shareholders entitled to examine such list or share ledger or transfer book or to vote at any meeting of shareholders. Section 8. QUORUM. The holders of a majority of the outstanding shares of the corporation, present in person or represented by proxy, shall constitute a quorum at any meeting of shareholders; provided that if less than a majority of the outstanding shares are represented at said meeting, a majority of the shares so represented may adjourn the meeting at any time without further notice. If a quorum is present, the affirmative vote of the majority of the shares represented at the meeting shall be the act of the shareholders, unless the vote of a greater number or voting by classes is required by The Business Corporation Act, the articles of incorporation or these by-laws. At any adjourned meeting at which a quorum shall be present, any business may be transacted which might have been transacted at the original meeting. 3 Withdrawal of shareholders from any meeting shall not cause failure of a duly constituted quorum at that meeting. Section 9. PROXIES. Each shareholder entitled to vote at a meeting of shareholders or to express consent or dissent to corporate action in writing without a meeting may authorize another person or persons to act for him by proxy, but no such proxy shall be valid after eleven months from the date of its execution, unless otherwise provided in the proxy. Section 10. VOTING OF SHARES. Each outstanding share, regardless of class, shall be entitled to one vote upon each matter submitted to vote at a meeting of shareholders. Section 11. VOTING OF SHARES BY CERTAIN HOLDERS. Shares standing in the name of another corporation, domestic or foreign, may be voted by such officer, agent, or proxy as prescribed in these by-laws, or, in the absence of such provision, as the board of directors of such corporation may determine. Shares standing in the name of a deceased person, a minor ward or an incompetent person, may be voted by his administrator, executor, court appointed guardian or conservator, either in person or by proxy without a transfer of such shares into the name of such administrator, executor, court appointed guardian or conservator. Shares standing in the name of a trustee may be voted by him, either in person or by proxy. Shares standing in the name of a receiver may be voted by such receiver, and shares held by or under the control of a receiver may be voted by such receiver without the transfer thereof into his name if authority so to do be contained in an appropriate order of the court by which such receiver was appointed. A shareholder whose shares are pledged shall be entitled to vote such shares until the shares have been transferred into the name of the pledgee, and thereafter the pledgee shall be entitled to vote the shares so transferred. Any number of shareholders may create a voting trust for the purpose of conferring upon a trustee or trustees the right to vote or otherwise represent their shares, for a period not to exceed ten years, by entering into a written voting trust agreement specifying the terms and conditions of the voting trust, and by transferring their shares to such trustee or trustees for the purpose of the agreement. Any such trust agreement shall not become effective until a counterpart of the agreement is deposited with the corporation at its registered office. The counterpart of the voting trust agreement so deposited with the corporation shall be subject to the same right of examination by a shareholder of the corporation, in person or by agent or attorney, as are the books and records of the corporation, and shall be subject to examination by any holder of a beneficial interest in the voting trust, either in person or by agent or attorney, at any reasonable time for any proper purpose. Shares of its own stock belonging to this corporation shall not be voted, directly or indirectly, at any meeting and shall not be counted in determining the total number of outstanding shares entitled to vote at any given time, but shares of its own stock held by it in a fiduciary capacity may be voted and shall be counted in determining the total number of outstanding shares entitled to vote at any given time. 4 Section 12. INSPECTORS. At any meeting of shareholders, the presiding officer may, or upon the request of any shareholder shall appoint one or more persons as inspectors for such meeting. Such inspectors shall ascertain and report the number of shares represented at the meeting, based upon their determination of the validity and effect of proxies; count all votes and report the results; and do such other acts as are proper to conduct the election and voting with impartiality and fairness to all the shareholders. Each report of an inspector shall be in writing and signed by him or by a majority of them if there be more than one inspector acting at such meeting. If there is more than one inspector, the report of a majority shall be the report of the inspectors. The report of the inspector or inspectors on the number of shares represented at the meeting and the results of the voting shall be prima facie evidence thereof. Section 13. INFORMAL ACTION BY SHAREHOLDERS. Any action required to be taken at a meeting of the shareholders, or any other action which may be taken at a meeting of the shareholders, may be taken without a meeting if a consent in writing, setting forth the action so taken, shall be signed by all of the shareholders entitled to vote with respect to the subject matter thereof. Any such consent shall have the same force and effect as a unanimous vote of shareholders and may be stated as such in any articles of incorporation or other documents filed with the Secretary of State. Section 14. VOTING BY BALLOT. Voting on any question or in any election may be by voice unless the presiding officer shall order or any shareholder shall demand that voting be by ballot. Section 15. CUMULATIVE VOTING. In all elections for directors, every shareholder shall have the right to vote, in person or by proxy, the number of shares owned by him, for as many persons as there are directors to be elected, or to cumulate said shares, and give one candidate as many votes as the number of directors multiplied by the number of his shares shall equal, or to distribute them on the same principle among as many candidates as he shall see fit. ARTICLE III DIRECTORS Section 1. GENERAL POWERS. The business and affairs of the corporation shall be managed by its board of directors. Section 2. NUMBER, TENURE AND QUALIFICATIONS. The number of directors of the corporation shall be two (2). Each director shall hold office until the next annual meeting of shareholders or until his successor shall have been elected and qualified. Directors need not be residents of Illinois or shareholders of the corporation. The number, of directors may be increased or decreased from time to time by the amendment of this section; but no decrease shall have the effect of shortening the term of any incumbent director. 5 Section 3. REGULAR MEETINGS. A regular meeting of the board of directors shall be held without other notice than this by-law, immediately after the annual meeting of shareholders. The board of directors may provide, by resolution, the time and place for the holding of additional regular meetings without other notice than such resolution. Section 4. SPECIAL MEETINGS. Special meetings of the board of directors may be called by or at the request of the president or any two directors. The person or persons authorized to call special meetings of the board of directors may fix any place as the place for holding any special meeting of the board of directors called by them. Section 5. NOTICE. Notice of any special meeting shall be given at least three (3) days previous thereto by written notice to each director at his business address. If mailed, such notice shall be deemed to be delivered when deposited in the United States mail so addressed, with postage thereon prepaid. If notice be given by telegram, such notice shall be deemed to be delivered when the telegram is delivered to the telegram company. The attendance of a director at any meeting shall constitute a waiver of notice of such meeting, except where a director attends a meeting for the express purpose of objecting to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the board of directors need be specified in the notice or waiver of notice of such meeting. Section 6. QUORUM. A majority of the number of directors fixed by these by-laws shall constitute a quorum for transaction of business at any meeting of the board of directors, provided that if less than a majority of such number of directors are present at said meeting, a majority of the directors present may adjourn the meeting at any time without further notice. Section 7. MANNER OF ACTING. The act of the majority of the directors present at a meeting at which a quorum is present shall be the act of the board of directors, unless the act of a greater number is required by these by-laws or the articles of incorporation. Section 8. VACANCIES. Any vacancy occurring in the board of directors and any directorship to be filled by reason of an increase in the number of directors may be filled by election at an annual meeting or at a special meeting of shareholders called for that purpose; however, if authorized by the articles of incorporation or an amendment thereto a majority of directors then in office may properly fill one or more vacancies arising between meetings of shareholders by reason of an increase in the number of directors or otherwise, any director so selected shall serve until the next annual meeting of shareholders, but at no time may the number of directors selected to fill vacancies in this matter during any interim period between meetings of shareholders exceed 33-l/3% of the total membership of the board of directors. A director elected to fill a vacancy shall serve until the next annual meeting of shareholders. Section 9. INFORMAL ACTION BY DIRECTORS OR EXECUTIVE COMMITTEE. Unless specifically prohibited by the articles of incorporation or these by-laws, any action required to be taken at a meeting of the board of directors, or any other action which may be taken at a meeting of the board of directors or the executive committee thereof, may be taken without a meeting if a consent in writing, setting forth the action so taken shall be signed by all the directors entitled to 6 vote with respect to the subject matter thereof, or by all the members of such committee, as the case may be. Any such consent signed by all the directors or all the members of the executive committee shall have the same effect as a unanimous vote, and may be stated as such in any document filed with the Secretary of State. Section 10. COMPENSATION. The board of directors, by the affirmative vote of a majority of directors then in office, and irrespective of any personal interest of any of its members, shall have authority to establish reasonable compensation of all directors for services to the corporation as directors, officers, or otherwise. By resolution of the board of directors the directors may be paid their expenses, if any, of attendance at each meeting of the board. No such payment previously mentioned in this section shall preclude any director from serving the corporation in any other capacity and receiving compensation therefor. Section 11. PRESUMPTION OF ASSENT. A director of the corporation who is present at a meeting of the board of directors at which action on any corporate matter is taken shall be conclusively presumed to have assented to the action taken unless his dissent shall be entered in the minutes of the meeting or unless he shall file his written dissent to such action with the person acting as the secretary of the meeting before the adjournment thereof or shall forward such dissent by registered mail to the secretary of the corporation immediately after the adjournment of the meeting. Such right to dissent shall not apply to a director who voted in favor of such action. Section 12. EXECUTIVE COMMITTEE. The board of directors, by resolution adopted by a majority of the number of directors fixed by the by-laws or otherwise, may designate two or more directors to constitute an executive committee, which committee, to the extent provided in such resolution, shall have and exercise all of the authority of the board of directors in the management of the corporation, except as otherwise required by law. Vacancies in the membership of the committee shall be filled by the board of directors at a regular or special meeting of the board of directors. The executive committee shall keep regular minutes of its proceedings and report the same to the board when required. ARTICLE IV OFFICERS Section 1. NUMBER. The officers of the corporation shall be a president, one or more vice-presidents (the number thereof to be determined by the board of directors), a treasurer, a secretary, and such assistant treasurers, assistant secretaries or other officers as may be elected by the board of directors. Any two or more offices may be held by the same person, except the offices of president and secretary; provided, however, that in the event that all of the shares of the corporation are owned of record by one shareholder and the articles of incorporation or these by-laws provide the number of directors shall be one, the offices of president and secretary may be held by the same person. Section 2. ELECTION AND TERM OF OFFICE. The officers of the corporation shall be elected annually by the board of directors at the first meeting of the board of directors held after each annual meeting of shareholders. If the election of officers shall not be held at such 7 meeting, such election shall be held as soon thereafter as conveniently may be. Vacancies may be filled or new offices created and filled at any meeting of the board of directors. Each officer shall hold office until his successor shall have been duly elected and shall have qualified or until his death or until he shall resign or shall have been removed in the manner hereinafter provided. Section 3. REMOVAL. Any officer elected or appointed by the board of directors may be removed by the board of directors whenever in its judgment the best interests of the corporation would be served thereby, but such removal shall be without prejudice to the contract rights, if any, of the person so removed. Election or appointment of an officer or agent shall not of itself create contract rights. Section 4. PRESIDENT. The president shall be the principal chief executive and chief operating officer of the corporation. Subject to the direction and control of the board of directors, he shall be in charge of the business of the corporation; he shall see that the resolutions and directions of the board of directors are carried into effect except in those instances in which that responsibility is specifically assigned to some other person by the board of directors; and, in general, he shall discharge all duties incident to the office of president and such other duties as may be prescribed by the board of directors from time to time. He shall preside at all meetings of the shareholders and of the board of directors. Except in those instances in which the authority to execute is expressly delegated to another officer or agent of the corporation or a different mode of execution is expressly prescribed by the board of directors or these by-laws, he may execute for the corporation certificates for its shares, and any contracts, deeds, mortgages, bonds, or other instruments which the board of directors has authorized to be executed, and he may accomplish such execution either under or without the seal of the corporation and either individually or with the secretary, any assistant secretary, or any other officer thereunto authorized by the board of directors, according to the requirements of the form of the instrument. He may vote all and to the extent such authority shall be vested in a different officer or agent of the corporation by the board of directors. Section 5. THE VICE PRESIDENTS. The vice-president (or in the event there be more than one vice-president, each of the vice-presidents) shall assist the president in the discharge of his duties as the president may direct and shall perform such other duties as from time to time may be assigned to him by the president or by the board of directors. In the absence of the president or in the event of his inability or refusal to act, the vice-president (or in the event there be more than one vice-president, or by the president if the board of directors has not made such a designation, or in the absence of any designation, then in the order of seniority of tenure as vice-president) shall perform the duties of the president, and when so acting, shall have all the powers of and be subject to all the restrictions upon the president. Except in those instances in which the authority to execute is expressly delegated to another officer or agent of the corporation or a different mode of execution is expressly prescribed by the board of directors or these by-laws, the vice-president (or each of them if there are more than one) may execute for the corporation certificates for its shares and any contracts, deeds, mortgages, bonds or other instruments which the board of directors has authorized to be executed, and he may accomplish such execution either under or without the seal of the corporation and either individually or with the secretary, any assistant secretary, or any other officer thereunto authorized by the board of directors, according to the requirements of the form of the instrument. 8 Section 6. THE TREASURER. The treasurer shall be the principal accounting and financial officer of the corporation. He shall: (a) have charge of and be responsible for the maintenance of adequate books of account for the corporation; (b) have charge and custody of all funds and securities of the corporation, and be responsible therefor and for the receipt and disbursement thereof; and (c) perform all the duties incident to the office of treasurer and such other duties as from time to time may be assigned to him by the president or by the board of directors. If required by the board of directors, the treasurer shall give a bond for the faithful discharge of his duties in such sum and with such surety or sureties as the board of directors may determine. Section 7. THE SECRETARY. The secretary shall: (a) record the minutes of the shareholders' and of the board of directors' meetings in one or more books provided for that purpose; (b) see that all notices are duly given in accordance with the provisions of these by-laws or as required by law; (c) be custodian of the corporate records and of the seal of the corporation; (d) keep a register of the post office address of each shareholder which shall be furnished to the secretary by such shareholder; (e) sign with the president, or a vice-president, or any other officer thereunto authorized by the board of directors, certificates for shares of the corporation, the issue of which shall have been authorized by the board of directors, and any contracts, deeds, mortgages, bonds, or other instruments which the board of directors has authorized to be executed, according to the requirements of the form of the instrument, except when a different mode of execution is expressly prescribed by the board of directors or these by-laws; (f) have general charge of the stock transfer books of the corporation; (g) perform all duties incident to the office of secretary and such other duties as from time to time may be assigned to him by the president or by the board of directors. Section 8. ASSISTANT TREASURERS AND ASSISTANT SECRETARIES. The assistant treasurers and assistant secretaries shall perform such duties as shall be assigned to them by the treasurer or the secretary, respectively, or by the president or the board of directors. The assistant secretaries may sign with the president, or a vice-president, or any other officer thereunto authorized by the board of directors, certificates for shares of the corporation, the issue of which shall have been authorized by the board of directors, and any contracts, deeds, mortgages, bonds, or other instruments which the board of directors has authorized to be executed, according to the requirements of the form of the instrument, except when a different mode of execution is expressly prescribed by the board of directors of these by-laws. The assistant treasurers shall respectively, if required by the board of directors, give bonds for the faithful discharge of their duties in such sums and with such sureties as the board of directors shall determine. Section 9. SALARIES. The salaries of the officers shall be fixed from time to time by the board of directors and no officer shall be prevented from receiving such salary by reason of the fact that he is also a director of the corporation. 9 ARTICLE V CONTRACTS, LOANS, CHECKS AND DEPOSITS Section 1. CONTRACTS. The board of directors may authorize any officer or officers, agent or agents, to enter into any contract or execute and deliver any instrument in the name of and on behalf of the corporation, and such authority may be general or confined to specific instances. Section 2. LOANS. No loans shall be contracted on behalf of the corporation and no evidences of indebtedness shall be issued in its name unless authorized by a resolution of the board of directors. Such authority may be general or confined to specific instances. Section 3. CHECKS, DRAFTS, ETC. All checks, drafts or other orders for the payment of money, notes or other evidences of indebtedness issued in the name of the corporation, shall be signed by such officer or officers, agent or agents of the corporation and in such manner as shall from time to time be determined by resolution of the board of directors. Section 4. DEPOSITS. All funds of the corporation not otherwise employed shall be deposited from time to time to the credit of the corporation in such banks, trust companies or other depositaries as the board of directors may select. ARTICLE VI CERTIFICATES FOR SHARES AND THEIR TRANSFER Section 1. CERTIFICATES REPRESENTING SHARES. Certificates representing shares of the corporation shall be signed by the chairman or a vice chairman of the board of directors or the president or a vice-president and by the treasurer or an assistant treasurer or the secretary or an assistant secretary and may be sealed with the seal or a facsimile of the seal of the corporation. In case the seal of the corporation is changed after the certificate is sealed with the seal or a facsimile of the seal, of the corporation, but before it is issued, the certificate may be issued by the corporation with the same effect as if the seal had not been changed. If a certificate is countersigned by a transfer agent or registrar, other than the corporation itself or its employee, any other signatures or countersignature on the certificate may be facsimiles. In case any officer or the corporation, or any officer or employee of the transfer agent or registrar who has signed or whose facsimile signature has been placed upon such certificate ceases to be an officer of the corporation, or an officer or employee of the transfer agent or registrar before such certificate is issued, the certificate may be issued by the corporation with the same effect as if the officer of the corporation, or the officer or employee of the transfer agent or registrar had not ceased to be such at the date of its issue. Every certificate representing shares issued by a corporation which is authorized to issue shares of more than one class shall be set forth upon the face or back of the certificate a full summary or statement of all the designations, preferences, qualifications, limitations, restrictions, and special or relative rights of the shares of each class authorized to be issued, and, if the corporation is authorized to issue any preferred to special class in series, the variations in 10 the relative rights and preferences between the shares of each such series so far as the same have been fixed and determined and the authority of the board of directors to fix and determine the relative rights and preferences of subsequent series. Such statement may be omitted from the certificate if it shall be set forth upon the face or back of the certificate that such statement, in full, will be furnished by the corporation to any shareholder upon request and without charge. Each certificate representing shares shall also state: (a) That the corporation is organized under the laws of this State. (b) The name of the person to whom issued. (c) The number and the class of shares, and the designation of the series, if any, which such certificate represents. (d) The par value of each share represented by such certificate, or a statement that such shares are without par value. No certificate shall be issued for any share until such share is fully paid. Section 2. LOST CERTIFICATES. If a certificate representing shares has allegedly been lost or destroyed the board of directors may in its discretion, except as may be required by law, direct that a new certificate be issued upon such indemnification and other reasonable requirements as it may impose. Section 3. TRANSFERS OF SHARES. Transfers of shares of the corporation shall be recorded on the books of the corporation and, except in the case of a lost or destroyed certificate, on surrender for cancellation of the certificate for such shares. A certificate presented for transfer must be duly endorsed and accompanied by proper guaranty of signature and other appropriate assurances that the endorsement is effective. ARTICLE VII FISCAL YEAR The fiscal year of the corporation shall begin on April 1 and end on March 31. ARTICLE VIII DIVIDENDS The board of directors may from time to time declare, and the corporation may pay, dividends on its outstanding shares in the manner and upon the terms and conditions provided by law. 11 ARTICLE IX SEAL The corporate seal shall have inscribed thereon the name of the corporation and the words "Corporate Seal, Illinois." The seal may be used by causing it or a facsimile thereof to be impressed or affixed or in any manner reproduced. The use of the seal is not mandatory and its absence on any document shall not effect the construction or validity thereof. ARTICLE X WAIVER OF NOTICE Whenever any notice is required to be given under the provisions of these by-laws or under the provisions of the articles of incorporation or under the provisions of The Business Corporation Act of the State of Illinois, a waiver thereof in writing, signed by the person or persons entitled to such notice, whether before or after the time stated therein, shall be deemed equivalent to the giving of such notice. ARTICLE XI INDEMNIFICATION Section 1. (a) Subject to the provisions of Section 3 of this Article, the corporation shall indemnify any person who was or is a party, or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the corporation), by reason of the fact that he is or was a director, officer, employee or agent of the corporation, or who is or was a director, officer, employee or agent of the Corporation, or who was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in, or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe that his conduct was unlawful. b) Subject to the provisions of Section 3 of this Article, the corporation shall indemnify any person who was or is a party, or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact that he is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee, or agent of another corporation, partnership, joint venture, trust or 12 other enterprise, against expenses (including attorneys' fees) actually and reasonably incurred by him in connection with the defense or settlement at such action or suit if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation and except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable for negligence or misconduct in the performance of his duty to the corporation unless, and, only to the extent that the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability, but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses as the court shall deem proper. Section 2. To the extent that a director, officer, employee or agent of the corporation has been successful, on the merits, or otherwise, in defense of any action, suit or proceeding referred to in subsections (a) and (b) of Section 1 of this Article, or in defense of any claim, issue or matter therein, he shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by him in connection therewith. Section 3. Any indemnification under subsections (a) and (b) of Section 1 of this Article (unless ordered by a court) shall be made by the Corporation only as authorized in the specific case, upon a determination that indemnification of the director, officer, employee or agent is proper in the circumstances because he has met the applicable standard of conduct set forth in said subsections (a) and (b). Such determination shall be made (1) by the board of directors by a majority vote of a quorum consisting of directors who were not parties to such action, suit or proceeding, or (2) if such a quorum is not obtainable, or, even if obtainable a quorum of disinterested directors so directs, by independent legal counsel in a written opinion, or (3) by the shareholders. Section 4. Expenses incurred in defending a civil or criminal action, suit or proceeding may be paid by the corporation in advance of the final disposition of such action, suit or proceeding, as authorized by the board of directors in the specific case, upon receipt of an undertaking by or on behalf of the director, officer, employee or agent to repay such amount, unless it shall ultimately be determined that he is entitled to be indemnified by the Corporation as authorized in this Article. Section 5. The indemnification provided by this Article shall not be deemed exclusive of any other rights to which those seeking indemnification may be entitled under any by-law, agreement, vote of shareholders or disinterested directors or, otherwise, both as to action in his official capacity and as to action in another capacity while holding such office, and shall continue as to a person who has ceased to be a director, officer, employee or agent, and shall inure to the benefit of the heirs, executors and administrators of such a person. Section 6. The corporation shall have power to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the corporation, or who is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the corporation would have the power to indemnify him against such liability under the provisions of this Article. 13 Section 7. For purposes of this Article, references to "the corporation" shall include, in addition to the resulting or surviving corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers, and employees or agents, so that any person who is or was a director, officer, employee or agent of such constituent corporation, or is or was serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, shall stand in the same position under the provisions of this Article with respect to the resulting or surviving corporation as he would have with respect to such constituent corporation if its separate existence had continued. Section 8. For purposes of this Article, references to "other enterprises" shall include employee benefit plans; references to "fines" shall include any excise taxes assessed on a person with respect to an employee benefit plan; and references to "serving at the request of the corporation" shall include any service as a director, officer, employee or agent of the corporation which imposes duties on, or involves services by, such director, officer, employee, or agent with respect to an employee benefit plan, its participants, or beneficiaries; and a person who acted in good faith and in a manner he reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner "not opposed to the best interests of the corporation" as referred to in this Article. ARTICLE XII AMENDMENTS The power to make, alter, amend, or repeal the by-laws of the corporation shall be vested in the board of directors, unless reserved to the shareholders by the articles of incorporation. The by-laws may contain any provisions for the regulation and management of the affairs of the corporation not inconsistent with law or the articles of incorporation. 14 TABLE OF CONTENTS
PAGE ARTICLE I OFFICES...........................................................................2 ARTICLE II SHAREHOLDERS.....................................................................2 Section 1. Annual Meeting...............................................................2 Section 2. Special Meetings.............................................................2 Section 3. Place of Meeting.............................................................2 Section 4. Notice Of Meetings...........................................................2 Section 5. Meeting of all Shareholders..................................................3 Section 6. Closing of Transfer Books and Fixing of Record Date..........................3 Section 7. Voting Lists.................................................................3 Section 8. Quorum.......................................................................3 Section 9. Proxies......................................................................4 Section 10. Voting of Shares.............................................................4 Section 11. Voting of Shares by Certain Holders..........................................4 Section 12. Inspectors...................................................................5 Section 13. Informal Action by Shareholders..............................................5 Section 14. Voting by Ballot.............................................................5 Section 15. Cumulative Voting............................................................5 ARTICLE III DIRECTORS...................................................................... 5 Section 1. General Powers...............................................................5 Section 2. Number, Tenure and Qualifications............................................5 Section 3. Regular Meetings.............................................................6 Section 4. Special Meetings.............................................................6 Section 5. Notice.......................................................................6 Section 6. Quorum.......................................................................6 Section 7. Manner of Acting.............................................................6 Section 8. Vacancies....................................................................6 Section 9. Informal Action by Directors or Executive Committee..........................6 Section 10. Compensation.................................................................7 Section 11. Presumption of Assent........................................................7 Section 12. Executive Committee..........................................................7 ARTICLE IV OFFICERS.........................................................................7 Section 1. Number.......................................................................7 Section 2. Election and Term of Office..................................................7 Section 3. Removal......................................................................8 Section 4. President....................................................................8 Section 5. The Vice Presidents..........................................................8 Section 6. The Treasurer................................................................9 Section 7. The Secretary................................................................9
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PAGE Section 8. Assistant Treasurers and Assistant Secretaries...............................9 Section 9. Salaries.....................................................................9 ARTICLE V CONTRACTS, LOANS, CHECKS AND DEPOSITS............................................10 Section 1. Contracts...................................................................10 Section 2. Loans.......................................................................10 Section 3. Checks, Drafts, Etc.........................................................10 Section 4. Deposits....................................................................10 Article VI CERTIFICATES FOR SHARES AND THEIR TRANSFER................................ .....10 Section 1. Certificates Representing Shares............................................10 Section 2. Lost Certificates...........................................................11 Section 3. Transfers of Shares.........................................................11 ARTICLE VII FISCAL YEAR....................................................................11 ARTICLE VIII DIVIDENDS.....................................................................11 ARTICLE IX SEAL............................................................................12 ARTICLE X WAIVER OF NOTICE.................................................................12 ARTICLE XI INDEMNIFICATION.................................................................12 ARTICLE XII AMENDMENTS.....................................................................14
-ii- EX-4.1 20 a2071988zex-4_1.txt EXHIBIT 4.1 EXHIBIT 4.1 INDENTURE, DATED AS OF FEBRUARY 20, 2002, AMONG AMERICAN ACHIEVEMENT CORPORTION, THE BANK OF NEW YORK, AS TRUSTEE, AND THE GUARANTORS AMERICAN ACHIEVEMENT CORPORATION, AS ISSUER THE GUARANTORS PARTY HERETO, AS GUARANTORS 11 5/8% SENIOR NOTES DUE 2007 ---------- INDENTURE DATED AS OF FEBRUARY 20, 2002 ---------- THE BANK OF NEW YORK, AS TRUSTEE CROSS-REFERENCE TABLE*
TRUST INDENTURE ACT SECTION INDENTURE SECTION 310(a)(1)...................................................................... 7.10 (a)(2)...................................................................... 7.10 (a)(3)...................................................................... N.A. (a)(4)...................................................................... N.A. (a)(5)...................................................................... 7.10 (b)......................................................................... 7.3, 7.8, 7.10 (c)......................................................................... N.A. 311(a)......................................................................... 7.11 (b)......................................................................... 7.11 (c)......................................................................... N.A. 312(a)......................................................................... 2.5 (b)......................................................................... 13.3 (c)......................................................................... 13.3 313(a)......................................................................... 7.6 (b)(1)...................................................................... N.A. (b)(2)...................................................................... 7.6 (c)......................................................................... 7.6, 13.2 314(a)......................................................................... 4.3, 4.4 (b)......................................................................... N.A. (c)(1)...................................................................... 13.4 (c)(2)...................................................................... 13.4 (c)(3)...................................................................... 13.4 (d)......................................................................... N.A. (e)......................................................................... 13.5 (f)......................................................................... N.A. 315(a)......................................................................... 7.2 (b)......................................................................... 7.5, 13.2 (c)......................................................................... 7.1 (d)......................................................................... 7.1 (e)......................................................................... 6.12 316(a)(last sentence).......................................................... 2.9 (a)(1)(A)................................................................... 6.5 (a)(1)(B)................................................................... 6.4 (a)(2)...................................................................... N.A. (b)......................................................................... 6.7 (c)......................................................................... N.A. 317(a)(1)...................................................................... 6.8 (a)(2)...................................................................... 6.10 (b)......................................................................... 2.4 318(a)......................................................................... 13.1 (b)......................................................................... N.A. (c)......................................................................... 13.1
N.A. MEANS NOT APPLICABLE. - ---------- * This Cross-Reference Table shall not, for any purpose, be deemed a part of the Indenture TABLE OF CONTENTS
PAGE ARTICLE I. DEFINITIONS AND INCORPORATION BY REFERENCE Section 1.1. Definitions.........................................................................1 Section 1.2. Other Definitions..................................................................24 Section 1.3. Incorporation by Reference of Trust Indenture Act..................................25 Section 1.4. Rules of Construction..............................................................25 Section 1.5. Acts of Holders....................................................................26 ARTICLE II. THE NOTES Section 2.1. Form and Dating....................................................................27 Section 2.2. Execution and Authentication.......................................................28 Section 2.3. Registrar and Paying Agent.........................................................29 Section 2.4. Paying Agents to Hold Money in Trust...............................................29 Section 2.5. Holder Lists.......................................................................30 Section 2.6. Transfer and Exchange..............................................................30 Section 2.7. Replacement Notes..................................................................39 Section 2.8. Outstanding Notes..................................................................39 Section 2.9. Treasury Notes.....................................................................39 Section 2.10. Temporary Notes....................................................................40 Section 2.11. Cancellation.......................................................................40 Section 2.12. Defaulted Interest.................................................................40 Section 2.13. Persons Deemed Owners..............................................................40 Section 2.14. CUSIP Numbers......................................................................41 Section 2.15. Designation........................................................................41 ARTICLE III. REDEMPTION AND REPURCHASE Section 3.1. Notices to Trustee.................................................................41 Section 3.2. Selection of Notes.................................................................42 Section 3.3. Notice of Optional or Special Redemption...........................................42 Section 3.4. Effect of Notice of Redemption.....................................................43 Section 3.5. Deposit of Redemption Price or Purchase Price......................................44 Section 3.6. Notes Redeemed or Repurchased in Part..............................................44 Section 3.7. Optional Redemption................................................................44 Section 3.8. Special Redemption.................................................................44 Section 3.9. Repurchase upon Change of Control Offer............................................44
PAGE Section 3.10. Repurchase upon Application of Excess Proceeds.....................................46 ARTICLE IV. COVENANTS Section 4.1. Payment of Principal and Interest..................................................48 Section 4.2. Maintenance of Office or Agency....................................................48 Section 4.3. Reports............................................................................49 Section 4.4. Compliance Certificate.............................................................50 Section 4.5. Taxes..............................................................................50 Section 4.6. Stay, Extension and Usury Laws.....................................................50 Section 4.7. Limitation on Restricted Payments..................................................51 Section 4.8. Limitation on Dividend and Other Payment Restrictions Affecting Subsidiaries.......54 Section 4.9. Limitation on Incurrence of Additional Indebtedness................................55 Section 4.10. Limitation on Asset Sales..........................................................56 Section 4.11. Limitations on Transactions with Affiliates........................................58 Section 4.12. Limitation on Liens................................................................60 Section 4.13. Continued Existence................................................................61 Section 4.14. Insurance Matters..................................................................61 Section 4.15. Offer to Repurchase upon Change of Control.........................................61 Section 4.16. Additional Subsidiary Guarantees...................................................62 Section 4.17. Conduct of Business................................................................62 Section 4.18. Payments for Consent...............................................................62 Section 4.19. Limitation on Preferred Stock of Restricted Subsidiaries...........................62 ARTICLE V. SUCCESSORS Section 5.1. Merger, Consolidation and or Sale of Assets........................................63 Section 5.2. Successor Corporation Substituted..................................................65 ARTICLE VI. DEFAULTS AND REMEDIES Section 6.1. Events of Default..................................................................65 Section 6.2. Acceleration.......................................................................67 Section 6.3. Other Remedies.....................................................................68 Section 6.4. Waiver of Past Defaults............................................................68 Section 6.5. Control by Majority................................................................68
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PAGE Section 6.6. Limitation on Suits................................................................68 Section 6.7. Rights of Holders of Notes to Receive Payment......................................69 Section 6.8. Collection Suit by Trustee.........................................................69 Section 6.9. [Intentionally Omitted]............................................................69 Section 6.10. Trustee May File Proofs of Claim...................................................69 Section 6.11. Priorities.........................................................................70 Section 6.12. Undertaking for Costs..............................................................70 ARTICLE VII. TRUSTEE Section 7.1. Duties of Trustee..................................................................71 Section 7.2. Rights of Trustee..................................................................72 Section 7.3. Individual Rights of Trustee.......................................................73 Section 7.4. Trustee's Disclaimer...............................................................73 Section 7.5. Notice of Defaults.................................................................73 Section 7.6. Reports by Trustee to Holder of the Notes..........................................73 Section 7.7. Compensation, Reimbursement and Indemnity..........................................74 Section 7.8. Replacement of Trustee.............................................................75 Section 7.9. Successor Trustee by Merger, Etc...................................................76 Section 7.10. Eligibility; Disqualification......................................................76 Section 7.11. Preferential Collection of Claims Against Company..................................76 ARTICLE VIII. LEGAL DEFEASANCE AND COVENANT DEFEASANCE Section 8.1. Option to Effect Legal Defeasance or Covenant Defeasance...........................76 Section 8.2. Legal Defeasance and Discharge.....................................................77 Section 8.3. Covenant Defeasance................................................................77 Section 8.4. Conditions to Legal or Covenant Defeasance.........................................78 Section 8.5. Deposited Money and U.S. Government Securities to Be Held in Trust; Other Miscellaneous Provisions........................................................79 Section 8.6. Repayment to the Company...........................................................80 Section 8.7. Reinstatement......................................................................80 ARTICLE IX. AMENDMENT, SUPPLEMENT AND WAIVER Section 9.1. Without Consent of Holders of Notes................................................81 Section 9.2. With Consent of Holders of Notes...................................................81
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PAGE Section 9.3. Compliance with Trust Indenture Act................................................83 Section 9.4. Revocation and Effect of Consents..................................................83 Section 9.5. Notation on or Exchange of Notes...................................................83 Section 9.6. Trustee to Sign Amendment, Etc.....................................................84 ARTICLE X. [INTENTIONALLY OMITTED] ARTICLE XI. GUARANTEE Section 11.1. Unconditional Guarantee............................................................84 Section 11.2. Severability.......................................................................85 Section 11.3. Limitation of Guarantor's Liability................................................85 Section 11.4. Release of Guarantor...............................................................85 Section 11.5. Contribution.......................................................................86 Section 11.6. Waiver of Subrogation..............................................................86 Section 11.7. Execution of Guarantee.............................................................87 Section 11.8. Waiver of Stay, Extension or Usury Laws............................................87 ARTICLE XII. SATISFACTION AND DISCHARGE Section 12.1. Satisfaction and Discharge.........................................................87 Section 12.2. Application of Trust...............................................................88 ARTICLE XIII. MISCELLANEOUS Section 13.1. Trust Indenture Act Controls.......................................................88 Section 13.2. Notices............................................................................89 Section 13.3. Communication by Holders of Notes with Other Holders of Notes......................90 Section 13.4. Certificate and Opinion as to Conditions Precedent.................................90 Section 13.5. Statements Required in Certificate or Opinion......................................90 Section 13.6. Rules by Trustee and Agents........................................................91 Section 13.7. No Personal Liability of Directors, Officers, Employees and Stockholders...........91 Section 13.8. Governing Law; Submission to Jurisdiction; Waiver of Jury Trial....................91 Section 13.9. No Adverse Interpretation of Other Agreements......................................92 Section 13.10. Successors.........................................................................92
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PAGE Section 13.11. Severability.......................................................................92 Section 13.12. Counterpart Originals..............................................................92 Section 13.13. Table of Contents, Headings, Etc...................................................92 Section 13.14. Qualification of Indenture.........................................................93
EXHIBITS Exhibit A Form of Series A Note Exhibit B Form of Series B Note Exhibit C Form of Guarantee Exhibit D(1) Form of Regulation S Certification Exhibit D(2) Form of Certificate to be Delivered upon Exchange or Registration of Transfer of Notes Exhibit E Form of Certificate to be Delivered in Connection with Transfers to Non-QIB Accredited Investors Exhibit F Form of Certificate to be Delivered in Connection with Transfers Pursuant to Regulation S -v- INDENTURE INDENTURE dated as of February 20, 2002 among American Achievement Corporation, a Delaware corporation (the "COMPANY"), the Guarantors (as defined herein) listed on Schedule A hereto, and The Bank of New York, a New York banking corporation, as trustee (the "TRUSTEE"). Each party agrees as follows for the benefit of the other parties and for the equal and ratable benefit of the Holders (as defined below) of the Company's 11 5/8% Senior Notes due 2007: I.ARTICLE I. DEFINITIONS AND INCORPORATION BY REFERENCE A.Section 1.1. DEFINITIONS. "ACQUIRED INDEBTEDNESS" means Indebtedness of a Person or any of its Subsidiaries existing at the time such Person becomes a Restricted Subsidiary of the Company or at the time it merges or consolidates with or into the Company or any of its Restricted Subsidiaries or assumed in connection with the acquisition of assets from such Person and in each case not incurred by such Person in connection with, or in anticipation or contemplation of, such Person becoming a Restricted Subsidiary of the Company or such acquisition, merger or consolidation. "ADDITIONAL INTEREST" means all additional interest then owing pursuant to Section 4 of the Registration Rights Agreement. "ADDITIONAL NOTES" means Notes, in addition to, and having identical terms as, the $177,000,000 aggregate principal amount of Series A Notes issued on the Issue Date (or the Series B Notes issued in exchange for the Series A Notes issued on the Issue Date), issued pursuant to Article II and in compliance with Section 4.9 "AFFILIATE" means, with respect to any specified Person, any other Person who directly or indirectly through one or more intermediaries controls, or is controlled by, or is under common control with, such specified Person. The term "control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative of the foregoing. "AGENT" means any Registrar, Paying Agent or co-registrar. "ASSET ACQUISITION" means (1) an Investment by the Company or any Restricted Subsidiary of the Company in any other Person pursuant to which such Person shall become a Restricted Subsidiary of the Company or any Restricted Subsidiary of the Company, or shall be merged with or into the Company or any Restricted Subsidiary of the Company, or (2) the acquisition by the Company or any Restricted Subsidiary of the Company of the assets of any Person (other than a -2- Restricted Subsidiary of the Company) which constitute all or substantially all of the assets of such Person or comprises any division or line of business of such Person or any other properties or assets of such Person other than in the ordinary course of business. "ASSET SALE" means any direct or indirect sale, issuance, conveyance, transfer, lease (other than operating leases entered into in the ordinary course of business), assignment or other transfer for value by the Company or any of its Restricted Subsidiaries (including any Sale and Leaseback Transaction) to any Person other than the Company or a Wholly Owned Restricted Subsidiary of the Company of: (1) any Capital Stock of any Restricted Subsidiary of the Company; or (2) any other property or assets of the Company or any Restricted Subsidiary of the Company other than in the ordinary course of business; PROVIDED, HOWEVER, that asset sales or other dispositions shall not include: (a) a transaction or series of related transactions for which the Company or its Restricted Subsidiaries receive aggregate consideration of less than $2,000,000; (b) the sale, lease, conveyance, disposition or other transfer of all or substantially all of the assets (determined on a consolidated basis for the Company and its Restricted Subsidiaries) of the Company as permitted under Article V; (c) any Restricted Payment permitted by Section 4.7 or that constitutes a Permitted Investment; (d) sales or other dispositions of inventory, receivables or other current assets in the ordinary course of business; (e) a Permitted Lien; and (f) a sale or other disposition or abandonment of damaged, worn-out or obsolete property. "BANKRUPTCY LAW" means Title 11, U.S. Code or any similar Federal or state law for the relief of debtors. "BOARD OF DIRECTORS" means, as to any Person, the board of directors or similar governing body of such Person or any duly authorized committee thereof. "BOARD RESOLUTION" means, with respect to any Person, a copy of a resolution certified by the Secretary or an Assistant Secretary of such Person to have been duly adopted by the Board of Directors of such Person and to be in full force and effect on the date of such certification, and delivered to the Trustee. "BORROWING BASE" means, as of any date, an amount equal to the sum of: (1) 85% of the aggregate book value of all accounts receivable of the Company and its Restricted Subsidiaries; and (2) 60% of the aggregate book value of all inventory owned by the Company and its Restricted Subsidiaries, all calculated on a consolidated basis and in accordance with GAAP. To the extent that information is not available as to the amount of accounts receivable or inventory as of a specific date, the Company shall use the most recent available information for purposes of calculating the Borrowing Base. -3- "BUSINESS DAY" means any day other than a Saturday, a Sunday or a day on which banking institutions in the City of New York or at a place of payment are authorized by law, regulation or executive order to remain closed. If a payment date is not a Business Day at a place of payment, payment may be made at that place on the next succeeding day that is a Business Day, and no interest shall accrue for the intervening period. "CAPITAL STOCK" means: (1) with respect to any Person that is a corporation, any and all shares, interests, participations or other equivalents (however designated and whether or not voting) of corporate stock, including each class of Common Stock and Preferred Stock of such Person, and all options, warrants or other rights to purchase or acquire any of the foregoing; and (2) with respect to any Person that is not a corporation, any and all partnership, membership or other equity interests of such Person, and all options, warrants or other rights to purchase or acquire any of the foregoing. "CAPITALIZED LEASE OBLIGATION" means, as to any Person, the obligations of such Person under a lease that are required to be classified and accounted for as capital lease obligations under GAAP and, for purposes of this definition, the amount of such obligations at any date shall be the capitalized amount of such obligations at such date, determined in accordance with GAAP. "CASH EQUIVALENTS" means: (1) marketable direct obligations issued by, or unconditionally guaranteed by, the United States Government or issued by any agency thereof and backed by the full faith and credit of the United States, in each case maturing within one year from the date of acquisition thereof; (2) marketable direct obligations issued by any state of the United States of America or any political subdivision of any such state or any public instrumentality thereof maturing within one year from the date of acquisition thereof and, at the time of acquisition, having one of the two highest ratings obtainable from either Standard & Poor's, a division of The McGraw-Hill Companies ("S&P"), or Moody's Investors Service, Inc. ("MOODY'S"); (3) commercial paper maturing no more than one year from the date of creation thereof and, at the time of acquisition, having a rating of at least A-1 from S&P or at least P-1 from Moody's; (4) certificates of deposit or bankers' acceptances maturing within one year from the date of acquisition thereof issued by any bank organized under the laws of the United States of America or any state thereof or the District of Columbia or any U.S. branch of a foreign bank having at the date of acquisition thereof combined capital and surplus of not less than $250.0 million; -4- (5) repurchase obligations with a term of not more than seven days for underlying securities of the types described in clause (1) above entered into with any bank meeting the qualifications specified in clause (4) above; and (6) investments in money market funds which invest substantially all their assets in securities of the types described in clauses (1) through (5) above. "CBI PREFERRED STOCK" means the Series A Preferred Stock, par value $0.01 per share, of Commemorative Brands, Inc. "CBI SUBORDINATED NOTES" means the 11% senior subordinated notes due January 15, 2007 of Commemorative Brands, Inc. "CHANGE OF CONTROL" means the occurrence of one or more of the following events: (1) any sale, lease, exchange or other transfer other than a Lien permitted by this Indenture or by way of consolidation or merger (in one transaction or a series of related transactions) of all or substantially all of the assets of the Company and its Subsidiaries, taken as a whole, to any Person or group of related Persons for purposes of Section 13(d) of the Exchange Act (a "GROUP"), together with any Affiliates thereof (whether or not otherwise in compliance with the provisions of this Indenture) other than to the Permitted Holders; (2) the approval by the holders of Capital Stock of the Company of any plan or proposal for the liquidation or dissolution of the Company (whether or not otherwise in compliance with the provisions of this Indenture); (3) (a) prior to a Public Equity Offering after the Issue Date, any Person or Group (other than the Permitted Holders and any entity formed for the purpose of owning Capital Stock of the Company) shall become the owner, directly or indirectly, beneficially or of record, of shares representing more than 50% of the aggregate ordinary voting power represented by the issued and outstanding Capital Stock of the Company or (b) following a Public Equity Offering after the Issue Date, any Person or Group (other than the Permitted Holders and any entity formed for the purpose of owning Capital Stock of the Company) shall become the owner, directly or indirectly, beneficially or of record, of shares representing more than 35% of the aggregate ordinary voting power represented by the issued and outstanding Capital Stock of the Company; PROVIDED, HOWEVER, that such event described in this clause (b) shall not be deemed to be a Change of Control so long as the Permitted Holders own shares representing in the aggregate a greater percentage of the total voting power of the issued and outstanding Capital Stock of the Company than such other Person or Group; or (4) the replacement of a majority of the Board of Directors of the Company over a two-year period from the directors who constituted the Board of Directors of the Company at the beginning of such period, and such replacement, or nomination for election by the Company's shareholders, shall not have been approved by a vote of at least a majority of the Board of Directors of the Company then still in office who either were members of such -5- Board of Directors at the beginning of such period or whose election or nomination as a member of such Board of Directors was previously so approved. "CLEARSTREAM" shall mean Clearstream Banking, Societe Anonyme, Luxembourg. "COMMISSION" means the Securities and Exchange Commission. "COMMON STOCK" of any Person means any and all shares, interests or other participations in, and other equivalents (however designated and whether voting or non-voting) of such Person's common stock, whether outstanding on the Issue Date or issued after the Issue Date, and includes, without limitation, all series and classes of such common stock. "COMPANY" means American Achievement Corporation, a Delaware corporation, until a successor Person shall have become such pursuant to the applicable provisions of this Indenture, and thereafter means such successor Person. "CONSOLIDATED EBITDA" means, with respect to any Person, for any period, the sum (without duplication) of: (1) Consolidated Net Income; and (2) to the extent Consolidated Net Income has been reduced thereby: (a) all income taxes of such Person and its Restricted Subsidiaries paid or accrued in accordance with GAAP for such period (other than income taxes attributable to extraordinary, unusual or nonrecurring gains or losses or taxes attributable to sales or dispositions outside the ordinary course of business); (b) Consolidated Interest Expense; and (c) Consolidated Non-cash Charges LESS any non-cash items increasing Consolidated Net Income for such period, all as determined on a consolidated basis for such Person and its Restricted Subsidiaries in accordance with GAAP. With respect to periods prior to the Issue Date, Consolidated EBITDA shall include (without duplication) all adjustments relating to the elimination of salary expense, non-recurring inventory charges and the reunion service business, in each case of the type reflected in the calculation of Adjusted EBITDA set forth in footnote 3 to "Summary Consolidated Historical and Unaudited Pro Forma Financial Data" contained in the Final Memorandum. "CONSOLIDATED FIXED CHARGE COVERAGE RATIO" means, with respect to any Person, the ratio of Consolidated EBITDA of such Person during the four full fiscal quarters (the "FOUR QUARTER PERIOD") ending prior to the date of the transaction giving rise to the need to calculate the Consolidated Fixed Charge Coverage Ratio for which financial statements are available (the "TRANSACTION DATE") to Consolidated Fixed Charges of such Person for the Four Quarter Period. In addition to and without -6- limitation of the foregoing, for purposes of this definition, "CONSOLIDATED EBITDA" and "CONSOLIDATED FIXED CHARGES" shall be calculated after giving effect on a pro forma basis for the period of such calculation to: (1) the incurrence or repayment of any Indebtedness of such Person or any of its Restricted Subsidiaries (and the application of the proceeds thereof) giving rise to the need to make such calculation and any incurrence or repayment of other Indebtedness (and the application of the proceeds thereof), other than the incurrence or repayment of Indebtedness in the ordinary course of business for working capital purposes pursuant to working capital facilities, occurring during the Four Quarter Period or at any time subsequent to the last day of the Four Quarter Period and on or prior to the Transaction Date, as if such incurrence or repayment, as the case may be (and the application of the proceeds thereof), occurred on the first day of the Four Quarter Period; and (2) any asset sales or other dispositions or Asset Acquisitions (including, without limitation, any Asset Acquisition giving rise to the need to make such calculation as a result of such Person or one of its Restricted Subsidiaries (including any Person who becomes a Restricted Subsidiary as a result of the Asset Acquisition) incurring, assuming or otherwise being liable for Acquired Indebtedness and also including any Consolidated EBITDA (including any pro forma expense and cost reductions calculated on a basis consistent with Regulation S-X under the Exchange Act) attributable to the assets which are the subject of the Asset Acquisition or asset sale or other disposition during the Four Quarter Period) occurring during the Four Quarter Period or at any time subsequent to the last day of the Four Quarter Period and on or prior to the Transaction Date, as if such asset sale or other disposition or Asset Acquisition (including the incurrence, assumption or liability for any such Acquired Indebtedness) occurred on the first day of the Four Quarter Period. If such Person or any of its Restricted Subsidiaries directly or indirectly guarantees Indebtedness of a third Person, the preceding sentence shall give effect to the incurrence of such guaranteed Indebtedness as if such Person or any Restricted Subsidiary of such Person had directly incurred or otherwise assumed such guaranteed Indebtedness. Furthermore, in calculating "Consolidated Fixed Charges" for purposes of determining the denominator (but not the numerator) of this "Consolidated Fixed Charge Coverage Ratio": (1) interest on outstanding Indebtedness determined on a fluctuating basis as of the Transaction Date and which will continue to be so determined thereafter shall be deemed to have accrued at a fixed rate per annum equal to the rate of interest on such Indebtedness in effect on the Transaction Date; and (2) notwithstanding clause (1) above, interest on Indebtedness determined on a fluctuating basis, to the extent such interest is covered by agreements relating to Interest Swap Obligations, shall be deemed to accrue at the rate per annum resulting after giving effect to the operation of such agreements. -7- "CONSOLIDATED FIXED CHARGES" means, with respect to any Person for any period, the sum, without duplication, of: (1) Consolidated Interest Expense; plus (2) the product of (x) the amount of all cash dividend payments on any series of Preferred Stock of such Person and, to the extent permitted under this Indenture, its Restricted Subsidiaries 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 INTEREST EXPENSE" means, with respect to any Person for any period, the sum of, without duplication: (1) the aggregate of the interest expense of such Person and its Restricted Subsidiaries for such period determined on a consolidated basis in accordance with GAAP, including without limitation: (a) any amortization of debt discount and amortization or write-off of deferred financing costs; (b) the net costs under Interest Swap Obligations; (c) all capitalized interest; and (d) the interest portion of any deferred payment obligation; and (2) the interest component of Capitalized Lease Obligations paid, accrued and/or scheduled to be paid or accrued by such Person and its Restricted Subsidiaries during such period as determined on a consolidated basis in accordance with GAAP. "CONSOLIDATED NET INCOME" means, with respect to any Person, for any period, the aggregate net income (or loss) of such Person and its Restricted Subsidiaries for such period on a consolidated basis, determined in accordance with GAAP; PROVIDED that there shall be excluded therefrom (without duplication): (1) after-tax gains or losses from Asset Sales (without regard to the $2,000,000 limitation set forth in the definition thereof) or abandonments or reserves relating thereto; (2) extraordinary gains and extraordinary losses; (3) the net income or loss of any Person acquired prior to the date it becomes a Restricted Subsidiary of the referent Person or is merged or consolidated with the referent Person or any Restricted Subsidiary of the referent Person; (4) the net income (but not loss) of any Restricted Subsidiary of the referent Person to the extent that the declaration of dividends or similar distributions by that Restricted Subsidiary of that income is restricted by a contract, operation of law or otherwise (other than by reason of the CBI Preferred Stock), except to the extent of cash dividends or distributions paid to the referent Person or to a Wholly Owned Restricted Subsidiary of the referent Person by such Restricted Subsidiary; -8- (5) the net income (but not loss) of any Person, other than a Restricted Subsidiary of the referent Person, except to the extent of cash dividends or distributions paid to the referent Person or to a Wholly Owned Restricted Subsidiary of the referent Person by such Person; (6) any restoration to income of any contingency reserve, except to the extent that provision for such reserve was made out of Consolidated Net Income accrued at any time following the Issue Date; (7) income or loss attributable to discontinued operations (including, without limitation, operations disposed of during such period whether or not such operations were classified as discontinued); and (8) in the case of a successor to the referent Person by consolidation or merger or as a transferee of the referent Person's assets, any earnings of the successor corporation prior to such consolidation, merger or transfer of assets. "CONSOLIDATED NET WORTH" of any Person means the consolidated stockholders' equity of such Person, determined on a consolidated basis in accordance with GAAP, less (without duplication) amounts attributable to Disqualified Capital Stock of such Person. "CONSOLIDATED NON-CASH CHARGES" means, with respect to any Person, for any period, the aggregate depreciation, amortization 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 any such charge which requires an accrual of or a reserve for cash charges for any future period). "CORPORATE TRUST OFFICE OF THE TRUSTEE" means the principal office of the Trustee at which at any time its corporate trust business shall be administered, which office at the date hereto is located at 101 Barclay Street, Floor 21 West, New York, New York 10286, Attention: Corporate Trust Trustee Department, or such other address as the Trustee may designate from time to time by notice to the Holders and the Company, or the principal corporate trust office of any successor Trustee (or such other address as such successor Trustee may designate from time to time by notice to the Holders and the Company). "CREDIT AGREEMENT" means the Credit Agreement dated as of February 20, 2002, among the Company, the lenders party thereto in their capacities as lenders thereunder and The Bank of Nova Scotia, as administrative agent, together with the documents related thereto (including, without limitation, any instruments, guarantee agreements and pledge and/or security documents), in each case as such agreements may be amended (including, without limitation, any amendment and restatement thereof), supplemented or otherwise modified from time to time, including any agreement extending the maturity of, refinancing, replacing or otherwise restructuring (including, without limitation, increasing the amount of available borrowings thereunder (PROVIDED that such increase in borrowings is permitted by Section 4.9) or adding Restricted Subsidiaries of the Company as additional borrowers or guarantors thereunder) all or any portion of the Indebtedness under such -9- agreement or any successor or replacement agreement and whether by the same or any other agent, lender or group of lenders. "CURRENCY AGREEMENT" means any foreign exchange contract, currency swap agreement or other similar agreement or arrangement designed to protect the Company or any Restricted Subsidiary of the Company against fluctuations in currency values. "DEFAULT" means an event or condition the occurrence of which is, or with the lapse of time or the giving of notice or both would be, an Event of Default. "DEPOSITARY" means, with respect to the Notes issuable in whole or in part in global form, the Person specified in Section 2.6 hereof as the Depositary with respect to the Notes, until a successor shall have been appointed and become such pursuant to the applicable provisions or this Indenture, and, thereafter, "Depositary" shall mean or include such successor. "DISQUALIFIED CAPITAL STOCK" means that portion of any Capital Stock which, by its terms (or by the terms of any security into which it is convertible or for which it is exchangeable at the option of the holder thereof), or upon the happening of any event (other than an event which would constitute a Change of Control), matures or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or is redeemable at the sole option of the holder thereof (except, in each case, upon the occurrence of a Change of Control) on or prior to the final maturity date of the Notes, PROVIDED that any Capital Stock that would not constitute Disqualified Capital Stock but for provisions thereof giving holders thereof the right to require such Person to repurchase or redeem such Capital Stock upon the occurrence of an "asset sale" or "change of control" occurring prior to the stated maturity of the Notes shall not constitute Disqualified Capital Stock if the "asset sale" or "change of control" provisions applicable to such Capital Stock are no more favorable to the holders of such Capital Stock than the provisions contained in Sections 4.10 and 4.15 and such Capital Stock specifically provides that such Person will not repurchase or redeem any such stock pursuant to such provision prior to the Company's repurchase of such Notes as are required to be repurchased pursuant to such covenants. "DOMESTIC RESTRICTED SUBSIDIARY" means a Restricted Subsidiary incorporated or otherwise organized or existing under the laws of the United States, any state thereof or any territory or possession of the United States. "EUROCLEAR" means Morgan Guaranty Trust Company of New York, Brussels office, as operator of the Euroclear System. "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended, or any successor statute or statutes thereto. "EXCHANGE OFFER" means the offer that shall be made by the Company pursuant to the Registration Rights Agreement to exchange Series A Notes for Series B Notes. -10- "FAIR MARKET VALUE" means, with respect to any asset or property, the price 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 whom is under undue pressure or compulsion to complete the transaction. Fair market value shall be determined by the Board of Directors of the Company acting reasonably and in good faith and, if such value exceeds $2.0 million, shall be evidenced by a Board Resolution of the Board of Directors of the Company delivered to the Trustee. "FINAL MEMORANDUM" shall mean the Company's final offering memorandum dated February 14, 2002, whereby the Company offered $177,000,000 Series A Notes. "FOREIGN RESTRICTED SUBSIDIARY" means any Restricted Subsidiary of the Company other than a Domestic Restricted Subsidiary. "GAAP" means generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as may be approved by a significant segment of the accounting profession of the United States, which are in effect from time to time. "GUARANTEE" has the meaning set forth in Section 11.1. "GUARANTOR" means: (i) each of the Company's Domestic Restricted Subsidiaries as of the Issue Date; and (ii) each of the Company's Restricted Subsidiaries that in the future executes a supplemental indenture in which such Restricted Subsidiary agrees to be bound by the terms of this Indenture as a Guarantor; PROVIDED that any Person constituting a Guarantor as described above shall cease to constitute a Guarantor when its respective Guarantee is released in accordance with the terms of this Indenture. "HOLDER" means a Person in whose name a Note is registered. "INDEBTEDNESS" means with respect to any Person, without duplication: (1) all Obligations of such Person for borrowed money; (2) all Obligations of such Person evidenced by bonds, debentures, notes or other similar instruments; (3) all Capitalized Lease Obligations of such Person; (4) all Obligations of such Person issued or assumed as the deferred purchase price of property, all conditional sale obligations and all Obligations under any title retention agreement (but excluding any such Obligations that constitute trade accounts payable and other accrued liabilities arising in the ordinary course of business that are not overdue by 90 days or more or are being contested in good faith by appropriate proceedings promptly instituted and diligently conducted); -11- (5) all Obligations of such Person for the reimbursement of any obligor on any letter of credit, banker's acceptance or similar credit transaction; (6) guarantees and other contingent obligations in respect of Indebtedness of other Persons of the type referred to in clauses (1) through (5) above and clause (8) below; (7) all Obligations of any other Person of the type referred to in clauses (1) through (6) which are secured by any Lien on any property or asset of such Person, the amount of such Obligation being deemed to be the lesser of the fair market value of such property or asset and the amount of the Obligation so secured; (8) all Obligations under currency agreements and interest swap agreements of such Person; and (9) all Disqualified Capital Stock issued by such Person with the amount of Indebtedness represented by such Disqualified Capital Stock being equal to its maximum fixed repurchase price, but excluding accrued dividends, if any. For purposes hereof, the "MAXIMUM FIXED REPURCHASE PRICE" of any Disqualified Capital Stock which does not have a fixed repurchase price shall be calculated in accordance with the terms of such Disqualified Capital Stock as if such Disqualified Capital Stock were purchased on any date on which Indebtedness shall be required to be determined pursuant to this Indenture, and if such price is based upon, or measured by, the fair market value of such Disqualified Capital Stock, such fair market value shall be determined reasonably and in good faith by the Board of Directors of the issuer of such Disqualified Capital Stock. Any Indebtedness which is incurred at a discount to the principal amount at maturity thereof shall be deemed to have been incurred at the full principal amount at maturity thereof. "INDENTURE" means this Indenture, as amended or supplemented from time to time. "INDEPENDENT FINANCIAL ADVISOR" means a firm: (1) which does not, and whose directors, officers and employees or Affiliates do not, have a direct or indirect financial interest in the Company; and (2) which, in the judgment of the Board of Directors of the Company, is otherwise independent and qualified to perform the task for which it is to be engaged. "INITIAL PURCHASERS" means Deutsche Banc Alex. Brown Inc., Goldman, Sachs & Co. and Scotia Capital (USA) Inc. "INTEREST SWAP OBLIGATIONS" means the obligations of any Person pursuant to any arrangement with any other Person, whereby, directly or indirectly, such Person is entitled to receive from time to time periodic payments calculated by applying either a floating or a fixed rate of interest on a stated notional amount in exchange for periodic payments made by such other Person calculated by applying a fixed or a floating rate of interest on the same notional amount and shall include, without limitation, interest rate swaps, caps, floors, collars and similar agreements. -12- "INVESTMENT" means, with respect to any Person, any direct or indirect loan or other extension of credit (including, without limitation, a guarantee) or capital contribution to (by means of any transfer of cash or other property to others or any payment for property or services for the account or use of others), or any purchase or acquisition by such Person of any Capital Stock, bonds, notes, debentures or other securities or evidences of Indebtedness issued by, any other Person. "Investment" shall exclude extensions of trade credit by the Company and its Restricted Subsidiaries on commercially reasonable terms in accordance with normal trade practices of the Company or such Restricted Subsidiary, as the case may be. If the Company or any Restricted Subsidiary of the Company sells or otherwise disposes of any Capital Stock of any direct or indirect Restricted Subsidiary of the Company such that, after giving effect to any such sale or disposition, such Restricted Subsidiary is no longer a Restricted Subsidiary of the Company, the Company shall be deemed to have made an Investment on the date of any such sale or disposition equal to the fair market value of the Common Stock of such Restricted Subsidiary not sold or disposed of. If the Company designates any of its Restricted Subsidiaries to be an Unrestricted Subsidiary, the Company shall be deemed to have made an Investment on the date of such designation equal to the Designation Amount determined in accordance with the definition of "Unrestricted Subsidiary." "ISSUE DATE" means February 20, 2002, the date of original issuance of the Notes. "LIEN" means any lien, mortgage, deed of trust, pledge, security interest, charge or encumbrance of any kind (including any conditional sale or other title retention agreement, any lease in the nature thereof and any agreement to give any security interest). "MANAGEMENT AGREEMENT" means the management agreement dated as of March 30, 2001 among the Company, the Subsidiaries of the Company listed therein and Castle Harlan, Inc., as in effect on the Issue Date. "MATERIAL DOMESTIC RESTRICTED SUBSIDIARY" means a Domestic Restricted Subsidiary of the Company or any Restricted Subsidiary of the Company having total assets with a book value in excess of $500,000. "NET CASH PROCEEDS" means, with respect to any Asset Sale, the proceeds in the form of cash or Cash Equivalents including payments in respect of deferred payment obligations when received in the form of cash or Cash Equivalents (other than the portion of any such deferred payment constituting interest) received by the Company or any of its Restricted Subsidiaries from such Asset Sale net of: (1) reasonable out-of-pocket commissions, expenses and fees relating to such Asset Sale (including, without limitation, legal, accounting and investment banking fees and sales commissions); (2) net taxes paid or payable as a result of such Asset Sale; (3) repayment of Indebtedness that is secured by the property or assets that are the subject of such Asset Sale; -13- (4) amounts required to be paid to any Person (other than the Company or any of its Restricted Subsidiaries) owning a beneficial interest in the assets which are subject to the Asset Sale; and (5) appropriate amounts to be provided by the Company or any Restricted Subsidiary, as the case may be, as a reserve, in accordance with GAAP, against any liabilities associated with such Asset Sale and retained by the Company or any Restricted Subsidiary, as the case may be, after such Asset Sale, including, without limitation, pension and other post-employment benefit liabilities, liabilities related to environmental matters and liabilities under any indemnification obligations associated with such Asset Sale. "NOTE CUSTODIAN" means the Trustee, as custodian with respect to the Notes in global form, or any successor entity thereto. "NOTES" means the Series A Notes and the Series B Notes, if any, that are issued under this Indenture, as amended or supplemented from time to time. "OBLIGATIONS" means all obligations for principal, premium, interest, penalties, fees, indemnifications, reimbursements, damages and other liabilities payable under the documentation governing any Indebtedness. "OFFICER" means (a) with respect to any Person that is a corporation, the Chairman of the Board, the Chief Executive Officer, the President, the Chief Operating Officer, the Chief Financial Officer, the Treasurer, the Controller, the Secretary or any Vice-President of such Person and (b) with respect to any other Person, the individuals selected by such Person to perform functions similar to those of the officers listed in clause (a). "OFFICERS' CERTIFICATE" means a certificate signed on behalf of the Company by two Officers of the Company, one of whom must be the Chief Executive Officer, the Chief Financial Officer, the Treasurer or the principal accounting officer of the Company, that meets the requirements of Sections 13.4 and 13.5 hereof. "OPINION OF COUNSEL" means an opinion from legal counsel who is reasonably acceptable to the Trustee that meets the requirements of Sections 13.4 and 13.5 hereof. The counsel may be an employee of or counsel to the Company, any Subsidiary of the Company or the Trustee. "PARI PASSU INDEBTEDNESS" means any Indebtedness of the Company or any Guarantor that ranks PARI PASSU in right of payment with the Notes or such Guarantee, as applicable. "PERMITTED BUSINESS" means any business that is the same, similar, reasonably related, complementary or incidental to the business in which the Company or any of its Restricted Subsidiaries are engaged on the Issue Date. "PERMITTED HOLDERS" means Castle Harlan, Inc., Castle Harlan Partners II, L.P., Castle Harlan Partners III, L.P. and their respective Affiliates. -14- "PERMITTED INDEBTEDNESS" means, without duplication, each of the following: (1) Indebtedness under the Notes and the Guarantees issued on the Issue Date; (2) Indebtedness incurred pursuant to the Credit Agreement in an aggregate principal amount at any time outstanding not to exceed $50.0 million less the amount of all required permanent repayments (which are accompanied by a corresponding permanent commitment reduction) thereunder, plus an amount not exceeding the aggregate amount of Indebtedness that is permitted to be incurred, but has not been incurred, under clauses (10) and (14) of this definition; (3) other Indebtedness of the Company and its Restricted Subsidiaries outstanding on the Issue Date reduced by the amount of any scheduled amortization payments or mandatory prepayments when actually paid or permanent reductions thereon; PROVIDED that the CBI Subordinated Notes held by a Restricted Subsidiary of the Company on the Issue Date shall not be included in this clause (3), but shall be included in clause (6) below; (4) Interest Swap Obligations of the Company or any Restricted Subsidiary of the Company covering Indebtedness of the Company or any of its Restricted Subsidiaries; PROVIDED, HOWEVER, that such Interest Swap Obligations are entered into to protect the Company and its Restricted Subsidiaries from fluctuations in interest rates; (5) Indebtedness under Currency Agreements; PROVIDED that in the case of Currency Agreements which relate to Indebtedness, such Currency Agreements do not increase the Indebtedness of the Company and its Restricted Subsidiaries outstanding other than as a result of fluctuations in foreign currency exchange rates or by reason of fees, indemnities and compensation payable thereunder; (6) Indebtedness of a Restricted Subsidiary of the Company to the Company or to a Wholly Owned Restricted Subsidiary of the Company for so long as such Indebtedness is held by the Company or a Wholly Owned Restricted Subsidiary of the Company, in each case subject to no Lien (other than pursuant to the Credit Agreement) held by a Person other than the Company or a Wholly Owned Restricted Subsidiary of the Company; PROVIDED that if as of any date any Person other than the Company or a Wholly Owned Restricted Subsidiary of the Company owns or holds any such Indebtedness or holds a Lien (other than pursuant to the Credit Agreement) in respect of such Indebtedness, such date shall be deemed the incurrence of Indebtedness not constituting Permitted Indebtedness by the issuer of such Indebtedness; (7) Indebtedness of the Company to a Wholly Owned Restricted Subsidiary of the Company for so long as such Indebtedness is held by a Wholly Owned Restricted Subsidiary of the Company and subject to no Lien, other than pursuant to the Credit Agreement; PROVIDED that (a) any Indebtedness of the Company to any Wholly Owned Restricted Subsidiary of the Company is unsecured and subordinated, pursuant to a written agreement, to the Company's obligations under this Indenture and the Notes and (b) if as of any date any Person other than a Wholly Owned Restricted Subsidiary of the Company owns or holds any such Indebtedness or -15- any Person holds a Lien in respect of such Indebtedness, such date shall be deemed the incurrence of Indebtedness not constituting Permitted Indebtedness under this clause (7) by the Company; (8) Indebtedness arising from the honoring by a bank or other financial institution of a check, draft or similar instrument inadvertently (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; (9) Indebtedness of the Company or any of its Restricted Subsidiaries in respect of performance bonds, bankers' acceptances, workers' compensation claims, surety or appeal bonds, payment obligations in connection with self-insurance or similar obligations incurred in the ordinary course of business; (10) Indebtedness represented by Capitalized Lease Obligations and Purchase Money Indebtedness of the Company and its Restricted Subsidiaries incurred in the ordinary course of business not to exceed $10.0 million at any one time outstanding (reduced by the aggregate amount of additional Indebtedness incurred under clause (1) hereof in reliance of this clause (10)); (11) guarantees of Indebtedness of the Company by any Restricted Subsidiary, PROVIDED that such Indebtedness is permitted to be incurred by another covenant under this Indenture; (12) Indebtedness of the Company's Foreign Restricted Subsidiaries in an aggregate principal amount not to exceed $5.0 million at any time outstanding; (13) Refinancing Indebtedness; and (14) additional Indebtedness of the Company and its Restricted Subsidiaries in an aggregate principal amount not to exceed $5.0 million at any one time outstanding (reduced by the aggregate amount of additional Indebtedness incurred under clause (1) hereof in reliance of this clause (14)). For purposes of determining compliance with Section 4.9 in the event that an item of Indebtedness meets the criteria of more than one of the categories of Permitted Indebtedness described in clauses (1) through (14) above or is entitled to be incurred pursuant to the Consolidated Fixed Charge Coverage Ratio provisions of such covenant, the Company shall, in its sole discretion, classify (or later reclassify) such item of Indebtedness in any manner that complies with this covenant. Accrual of interest, accretion or amortization of original issue discount, the payment of interest on any Indebtedness in the form of additional Indebtedness with the same terms, and the payment of dividends on Disqualified Capital Stock in the form of additional shares of the same class of Disqualified Capital Stock will not be deemed to be an incurrence of Indebtedness or an issuance of Disqualified Capital Stock for purposes of Section 4.9. -16- "PERMITTED INVESTMENTS" means: (1) Investments by the Company or any Restricted Subsidiary of the Company in any Person that is or will become immediately after such Investment a Guarantor or a Wholly Owned Restricted Subsidiary of the Company that is not a Guarantor or that will merge or consolidate into the Company, a Guarantor or a Wholly Owned Restricted Subsidiary of the Company that is not a Guarantor; (2) Investments in the Company by any Restricted Subsidiary of the Company; PROVIDED that any Indebtedness evidencing such Investment is unsecured and subordinated, pursuant to a written agreement, to the Company's obligations under the Notes and this Indenture; (3) Investments in cash and Cash Equivalents; (4) loans and advances to directors, employees and officers of the Company and its Restricted Subsidiaries (a) to finance the purchase by such Persons of Capital Stock of the Company or any of its Restricted Subsidiaries not in excess of $1.0 million in any twelve month period and (b) in the ordinary course of business for bona fide business purposes not in excess of $500,000 at any one time outstanding; (5) Currency Agreements and Interest Swap Obligations entered into in the ordinary course of the Company's or its Restricted Subsidiaries' businesses and not for speculative purposes and otherwise in compliance with this Indenture; (6) additional Investments having an aggregate fair market value, taken together with all other Investments made pursuant to this clause (6) that are at that time outstanding, not to exceed $5.0 million at the time of such Investment (with the fair market value of each Investment being measured at the time made and without giving effect to subsequent changes in value); (7) Investments in securities of trade creditors or customers received pursuant to any plan of reorganization or similar arrangement upon the bankruptcy or insolvency of such trade creditors or customers; (8) Investments made by the Company or its Restricted Subsidiaries as a result of consideration received in connection with an Asset Sale made in compliance with Section 4.10; (9) Investments existing on the Issue Date; (10) any acquisition of assets solely in exchange for the issuance of Qualified Capital Stock of the Company or any of its Restricted Subsidiaries; and -17- (11) Investments made by the Company or any of its Restricted Subsidiaries with the proceeds of a substantially concurrent offering of Qualified Capital Stock of the Company (which proceeds of any such offering of Qualified Capital Stock shall not have been, and shall not be, included in the calculation of the Restricted Payments Basket, except to the extent the proceeds thereof exceed the amounts used to effect such Investments). "PERMITTED LIENS" means the following types of Liens: (1) Liens existing as of the Issue Date to the extent and in the manner such Liens are in effect on the Issue Date; (2) Liens securing the Notes and the Guarantees; (3) Liens securing Indebtedness under the Credit Agreement; PROVIDED that such Indebtedness does not exceed the greater of (a) the amount of Indebtedness permitted to be incurred pursuant to clause (2) of the definition of "Permitted Indebtedness" and (b) the Borrowing Base; (4) Liens in favor of the Company or any Restricted Subsidiary of the Company; (5) Liens securing Refinancing Indebtedness which is incurred to Refinance any Indebtedness which has been secured by a Lien permitted under this Indenture and which has been incurred in accordance with the provisions of this Indenture; PROVIDED, HOWEVER, that such Liens: (i) taken as a whole are no less favorable to the Holders and are not more favorable to the lienholders with respect to such Liens than the Liens in respect of the Indebtedness being Refinanced; and (ii) do not extend to or cover any property or assets of the Company or any of its Restricted Subsidiaries not securing the Indebtedness so Refinanced; (6) Liens for taxes, assessments or governmental charges or claims either (a) not delinquent or (b) being contested in good faith by appropriate proceedings and as to which the Company or its Restricted Subsidiaries shall have set aside on its books such reserves as may be required pursuant to GAAP; (7) statutory Liens of landlords and Liens of carriers, warehousemen, mechanics, suppliers, materialmen, repairmen and other Liens imposed by law incurred in the ordinary course of business for sums not yet delinquent or being contested in good faith, if such reserve or other appropriate provision, if any, as shall be required by GAAP shall have been made in respect thereof; (8) Liens incurred or deposits made in the ordinary course of business in connection with workers' compensation, unemployment insurance and other types of social security, including any Lien securing letters of credit issued in the ordinary course of business in connection therewith, or to secure the performance of tenders, statutory obligations, surety and appeal bonds, bids, leases, government contracts, performance and return-of-money bonds and other similar obligations (exclusive of obligations for the payment of borrowed money); -18- (9) Liens arising by reward of any judgment, decree or order of any court but not giving rise to an Event of Default so long as such Liens are adequately bonded and any appropriate legal proceedings which may have been duly initiated for the review of such judgment, decree or order shall not have been finally terminated or the period within which such proceedings may be initiated shall not have expired; (10) survey exceptions, easements, rights-of-way, zoning restrictions and other similar charges or encumbrances in respect of real property not interfering in any material respect with the ordinary conduct of the business of the Company or any of its Restricted Subsidiaries; (11) Liens upon specific items of inventory or other goods and proceeds of the Company or any of its Restricted Subsidiaries securing such Person's obligations in respect of bankers' acceptances issued or created for the account of such Person to facilitate the purchase, shipment or storage of such inventory or other goods; (12) Liens securing reimbursement obligations with respect to commercial letters of credit which encumber documents and other property relating to such letters of credit and products and proceeds thereof; (13) Liens encumbering deposits made to secure obligations arising from statutory, regulatory, contractual, or warranty requirements of the Company or any of its Restricted Subsidiaries, including rights of offset and set-off; (14) Liens securing Interest Swap Obligations which Interest Swap Obligations relate to Indebtedness that is otherwise permitted pursuant to clause (4) of the definition of "Permitted Indebtedness"; (15) Liens securing Capitalized Lease Obligations and Purchase Money Indebtedness; PROVIDED, HOWEVER, that in the case of Capitalized Lease Obligations, such Liens do not extend to any property or assets which are not leased property subject to such Capitalized Lease Obligations; (16) Liens securing Indebtedness under Currency Agreements permitted to be incurred pursuant to clause (5) of the definition of "Permitted Indebtedness"; (17) Liens securing Acquired Indebtedness incurred in accordance with Section 4.9; PROVIDED that: (a) such Liens secured such Acquired Indebtedness at the time of and prior to the incurrence of such Acquired Indebtedness by the Company or a Restricted Subsidiary of the Company and were not granted in connection with, or in anticipation of, the incurrence of such Acquired Indebtedness by the Company or a Restricted Subsidiary of the Company; and -19- (b) such Liens do not extend to or cover any property or assets of the Company or of any of its Restricted Subsidiaries other than the property or assets that secured the Acquired Indebtedness prior to the time such Indebtedness became Acquired Indebtedness of the Company or a Restricted Subsidiary of the Company and are no more favorable to the lienholders than those securing the Acquired Indebtedness prior to the incurrence of such Acquired Indebtedness by the Company or a Restricted Subsidiary of the Company; (18) Liens securing Indebtedness incurred pursuant to clause (14) of the definition of "Permitted Indebtedness"; (19) any provision for the retention of title to an asset by the vendor or transferor of such asset which asset is acquired by the Company or any Restricted Subsidiary of the Company in a transaction entered into in the ordinary course of business of the Company or such Restricted Subsidiary; (20) Liens incurred in the ordinary course of business of the Company or any Restricted Subsidiary of the Company with respect to Obligations that do not exceed $2.5 million at any one time outstanding and that (a) are not incurred in connection with the borrowing of money or the obtaining of advances or credit (other than trade credit in the ordinary course of business) and (b) do not in the aggregate materially detract from the value of the property or materially impair the use thereof in the operation of business by the Company or such Restricted Subsidiary; (21) Liens incurred in the ordinary course of business of the Company or any Restricted Subsidiary of the Company securing obligations under precious metals consignment agreements; (22) any extension, renewal or replacement, in whole or in part, of any Lien described in clauses (1), (15) or (17) of the definition of "Permitted Liens"; PROVIDED that any such extension, renewal or replacement is no more restrictive in any material respect that the Lien so extended, renewed or replaced and does not extend to any additional property or assets. "PERSON" means an individual, partnership, corporation, limited liability company, unincorporated organization, trust or joint venture, or a governmental agency or political subdivision thereof. "PORTAL MARKET" means the Portal Market operated by the National Association of Securities Dealers, Inc. or any successor thereto. "PREFERRED STOCK" of any Person means any Capital Stock of such Person that has preferential rights to any other Capital Stock of such Person with respect to dividends or redemptions or upon liquidation. -20- "PUBLIC EQUITY OFFERING" means an underwritten public offering of Qualified Capital Stock of the Company pursuant to a registration statement filed with the Commission in accordance with the Securities Act in which the gross proceeds to the Company are at least $20.0 million. "PURCHASE DATE" means, with respect to any Note to be repurchased, the date fixed for such repurchase by or pursuant to this Indenture. "PURCHASE MONEY INDEBTEDNESS" means Indebtedness of the Company and its Restricted Subsidiaries incurred in the normal course of business for the purpose of financing all or any part of the purchase price, or the cost of installation, construction or improvement, of property or equipment; PROVIDED, HOWEVER, that (i) the amount of such Indebtedness shall not exceed such purchase price or cost, (ii) such Indebtedness shall not be secured by any asset other than the specified asset being financed or, in the case of real property or fixtures, including additions and improvements, the real property to which such asset is attached and (iii) such Indebtedness shall be incurred within 90 days after such acquisition of such asset by the Company or such Restricted Subsidiary or such installation, construction or improvement. "PURCHASE PRICE" means the amount payable for the repurchase of any Note on a Purchase Date, exclusive of accrued and unpaid interest and Additional Interest (if any) thereon to the Purchase Date, unless otherwise specifically provided. "QIB" means a qualified institutional buyer as defined in Rule 144A under the Securities Act. "QUALIFIED CAPITAL STOCK" means any Capital Stock that is not Disqualified Capital Stock. "REDEMPTION DATE" means, with respect to any Note to be redeemed, the date fixed for such redemption by or pursuant to this Indenture. "REDEMPTION PRICE" means the amount payable for the redemption of any Note on a Redemption Date, exclusive of' accrued and unpaid interest and Additional Interest (if any) thereon to the Redemption Date, unless otherwise specifically provided. "REFINANCE" means, in respect of any security or Indebtedness, to refinance, extend, renew, refund, repay, prepay, redeem, defease or retire, or to issue a security or Indebtedness in exchange or replacement for, such security or Indebtedness in whole or in part. "REFINANCED" and "REFINANCING" shall have correlative meanings. "REFINANCING INDEBTEDNESS" means any Refinancing by the Company or any Restricted Subsidiary of the Company of Indebtedness incurred in accordance with Section 4.9 (other than pursuant to clause (2), (4), (5), (6), (7), (8), (9), (10), (11), (12) or (14) of the definition of "Permitted Indebtedness"), in each case, other than Refinancing Indebtedness incurred to Refinance all of the Notes, that does not: -21- (1) result in an increase in the aggregate principal amount of Indebtedness of such Person as of the date of such proposed Refinancing (plus accrued interest plus the amount of any premium required to be paid under the terms of the instrument governing such Indebtedness and plus the amount of reasonable fees and expenses incurred by the Company in connection with such Refinancing); or (2) create Indebtedness with: (a) a Weighted Average Life to Maturity that is less than the Weighted Average Life to Maturity of the Indebtedness being Refinanced; or (b) a final maturity earlier than the final maturity of the Indebtedness being Refinanced; PROVIDED that (x) if such Indebtedness being Refinanced is Indebtedness solely of the Company, then such Refinancing Indebtedness shall be Indebtedness solely of the Company and (y) if such Indebtedness being Refinanced is subordinate or junior to the Notes, then such Refinancing Indebtedness shall be subordinate to the Notes at least to the same extent and in the same manner as the Indebtedness being Refinanced. "REGISTRATION RIGHTS AGREEMENT" means the registration rights agreement dated as of the Issue Date among the Company, the Guarantors and the Initial Purchasers. "REGULATION S" means Regulation S as promulgated under the Securities Act. "RESPONSIBLE OFFICER" shall mean, when used with respect to the Trustee, any officer within the corporate trust department of the Trustee, including any vice president, assistant vice president, assistant secretary, assistant treasurer, trust officer or any other officer of the Trustee who customarily performs functions similar to those performed by the Persons who at the time shall be such officers, respectively, or to whom any corporate trust matter is referred because of such person's knowledge of and familiarity with the particular subject and who shall have direct responsibility for the administration of this Indenture. "RESTRICTED SUBSIDIARY" of any Person means any Subsidiary of such Person which at the time of determination is not an Unrestricted Subsidiary. "RULE 144A" means Rule 144A promulgated under the Securities Act. "SALE AND LEASEBACK TRANSACTION" means any direct or indirect arrangement with any Person or to which any such Person is a party, providing for the leasing to the Company or a Restricted Subsidiary of the Company of any property, whether owned by the Company or any Restricted Subsidiary of the Company at the Issue Date or later acquired, which has been or is to be sold or transferred by the Company or such Restricted Subsidiary to such Person or to any other Person from whom funds have been or are to be advanced by such Person on the security of such Property. "SECURITIES ACT" means the Securities Act of 1933, as amended, or any successor statute or statutes thereto. "SERIES A NOTES" means the Company's 11 5/8% Senior Notes due 2007. -22- "SERIES B NOTES" means notes issued by the Company hereunder containing terms identical to the Series A Notes (except that (i) interest thereon shall accrue from the last date on which interest was paid on the Series A Notes or, if no such interest has been paid, from the date of original issuance, (ii) the legend or legends relating to transferability and other related matters set forth on the Series A Notes, including the text referred to in footnote 2 of Exhibit A hereto, shall be removed or appropriately altered, and (iii) as otherwise set forth herein), to be offered to Holders of Series A Notes in exchange for Series B Notes pursuant to the Exchange Offer or any exchange offer specified in any registration rights agreement relating to the Additional Notes. "SIGNIFICANT SUBSIDIARY", with respect to any Person, means (1) any Restricted Subsidiary of such Person that satisfies the criteria for a "significant subsidiary" set forth in Rule 1.02(w) of Regulation S-X under the Exchange Act as such Regulation is in effect on the Issue Date and (2) any Restricted Subsidiary of such Person that, when aggregated with all other Restricted Subsidiaries of such Person that are not otherwise Significant Subsidiaries and as to which any event described in clause (f), (g) or (h) of Section 6.1 hereof has occurred and is continuing, would constitute a Significant Subsidiary under clause (1) of this definition. "SUBORDINATED INDEBTEDNESS" means Indebtedness of the Company or any Guarantor that is subordinated or junior in right of payment to the Notes or such Guarantee, as the case may be. "SUBSIDIARY", with respect to any Person, means: (1) any corporation of which the outstanding Capital Stock having at least a majority of the votes entitled to be cast in the election of directors under ordinary circumstances shall at the time be owned, directly or indirectly, by such Person; or (2) any other Person of which at least a majority of the voting interest under ordinary circumstances is at the time, directly or indirectly, owned by such Person. "TIA" means the Trust Indenture Act of 1939 (15 U.S.C. Sections 77aaa-77bbbb) as in effect on the date on which this Indenture is qualified under the TIA; PROVIDED that in the event the Trust Indenture Act of 1939 is amended after such date, "TIA" means, to the extent required by any such amendment, the Trust Indenture Act of 1939 as so amended. "TRANSFER RESTRICTED SECURITY" means a Note that is a restricted security as defined in Rule 144(a)(3) under the Securities Act. "TRUSTEE" means the party named as such above until a successor replaces it in accordance with the applicable provisions of this Indenture, and thereafter means the successor serving hereunder. "UNRESTRICTED SUBSIDIARY" of any Person means: -23- (1) any Subsidiary of such Person that at the time of determination shall be or continue to be designated an Unrestricted Subsidiary by the Board of Directors of such Person in the manner provided below; and (2) any Subsidiary of an Unrestricted Subsidiary. The Board of Directors may designate any Subsidiary (including any newly acquired or newly formed Subsidiary) to be an Unrestricted Subsidiary unless such Subsidiary owns any Capital Stock of, or owns or holds any Lien on any property of, the Company or any other Subsidiary of the Company that is not a Subsidiary of the Subsidiary to be so designated; PROVIDED that: (1) the Company certifies to the Trustee that such designation complies with Section 4.7, including that the Company would be permitted to make, at the time of such designation, (a) a Permitted Investment or (b) an Investment pursuant to the first paragraph of Section 4.7, in either case, in an amount (the "DESIGNATION AMOUNT") equal to the fair market value of the Company's proportionate interest in such Subsidiary on such date; and (2) each Subsidiary to be so designated and each of its Subsidiaries has not at the time of designation, and does not thereafter, create, incur, issue, assume, guarantee or otherwise become directly or indirectly liable with respect to any Indebtedness pursuant to which the lender has recourse to any of the assets of the Company or any of its Restricted Subsidiaries. The Board of Directors may designate any Unrestricted Subsidiary to be a Restricted Subsidiary only if: (1) immediately after giving effect to such designation, the Company is able to incur at least $1.00 of additional Indebtedness (other than Permitted Indebtedness) in compliance with Section 4.9; and (2) immediately before and immediately after giving effect to such designation, no Default or Event of Default shall have occurred and be continuing. Any such designation by the Board of Directors shall be evidenced to the Trustee by promptly filing with the Trustee a copy of the Board Resolution giving effect to such designation and an Officers' Certificate certifying that such designation complied with the foregoing provisions. "U.S. GOVERNMENT SECURITIES" shall mean securities which are (i) direct obligations of the United States of America for the payment of which its full faith and credit is pledged or (ii) obligations of a person controlled or supervised by and acting as an agency or instrumentality of the United States of America, the payment of which is unconditionally guaranteed as a full faith and credit obligation by the United States of America, which, in either case, are not callable or redeemable at the option of the issuer thereof, and shall also include a depository receipt issued by a bank or trust company as custodian with respect to any such U.S. Government Securities or a specific payment of interest on or principal of any such U.S. Government Securities held by such custodian for the account -24- of the holder of a depository receipt; PROVIDED that (except as required by law) such custodian is not authorized to make any deduction from the amount payable to the holder of such depository receipt from any amount received by the custodian in respect of the U.S. Government Securities or the specific payment of interest on or principal of the U.S. Government Securities evidenced by such depository receipt. "U.S. PERSON" means any U.S. Person as defined in Regulation S. "WEIGHTED AVERAGE LIFE TO MATURITY" means, when applied to any Indebtedness at any date, the number of years obtained by dividing (a) the then outstanding aggregate principal amount of such Indebtedness into (b) the sum of the total of the products obtained by multiplying (i) the amount of each then remaining installment, sinking fund, serial maturity or other required payment of principal, including payment at final maturity, in respect thereof, by (ii) the number of years (calculated to the nearest one-twelfth) which will elapse between such date and the making of such payment. "WHOLLY OWNED RESTRICTED SUBSIDIARY" of any Person means any Wholly Owned Subsidiary of such Person which at the time of determination is a Restricted Subsidiary of such Person. "WHOLLY OWNED SUBSIDIARY" of any Person means any Subsidiary of such Person of which all the outstanding securities which confer on the holders thereof the right to elect directors or their functional equivalents (other than in the case of a foreign Subsidiary, directors' qualifying shares or an immaterial amount of shares required to be owned by other Persons pursuant to applicable law) are owned by such Person or any Wholly Owned Subsidiary of such Person. B.Section 1.2. OTHER DEFINITIONS.
TERM DEFINED IN SECTION "Affiliate Transaction"............................ 4.11 "Agent Members".................................... 2.6 "Certificated Notes"............................... 2.1 "Change of Control Offer".......................... 4.15 "Change of Control Offer Period"................... 3.9 "Covenant Defeasance".............................. 8.3 "Event of Default"................................. 6.1 "Excluded Sale and Leaseback Transactions"......... 4.10 "Foreign Person"................................... 2.6 "Global Notes"..................................... 2.1 "incur"............................................ 4.9 "Institutional Accredited Investors"............... 2.1 "Legal Defeasance"................................. 8.2
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TERM DEFINED IN SECTION "Net Proceeds Offer"............................... 4.10 "Net Proceeds Offers Amount"....................... 4.10 "Net Proceeds Offers Trigger Date"................. 4.10 "Offshore Certificated Notes"...................... 2.1 "Paying Agent"..................................... 2.3 "Permanent Regulation S Global Note"............... 2.1 "Private Placement Legend"......................... 2.6 "Registrar"........................................ 2.3 "Regulation S Global Note"......................... 2.1 "Restricted Payment"............................... 4.7 "Restricted Payment Basket"........................ 4.7 "Rule 144A Global Note"............................ 2.1 "Special Redemption"............................... 3.8 "Surviving Entity"................................. 5.1 "Temporary Regulation S Global Note"............... 2.1 "U.S. Certificated Notes".......................... 2.1
C Section 1.3. INCORPORATION BY REFERENCE OF TRUST INDENTURE ACT. Whenever this Indenture refers to a provision of the TIA, the provision is incorporated by reference in and made a part of this Indenture. The following TIA terms used in this Indenture have the following meanings: "INDENTURE SECURITIES" means the Notes; "INDENTURE SECURITY HOLDER" means a Holder; "INDENTURE TO BE QUALIFIED" means this Indenture; "INDENTURE TRUSTEE" or "INSTITUTIONAL TRUSTEE" means the Trustee; "OBLIGOR" on the Notes means the Company and any successor obligor upon the Notes. All other terms used in this Indenture that are defined by the TIA, defined by TIA reference to another statute or defined by Commission rule under the TIA have the meanings so assigned to them. D.Section 1.4. RULES OF CONSTRUCTION. Unless the context otherwise requires: -26- (a) a term has the meaning assigned to it; (b) an accounting term not otherwise defined has the meaning assigned to it in accordance with GAAP; (c) "OR" is not exclusive; (d) words in the singular include the plural, and in the plural include the singular; (e) provisions apply to successive events and transactions; and (f) references to sections of or rules under the Securities Act, the Exchange Act and the TIA shall be deemed to include substitute, replacement and successor sections or rules adopted by the Commission from time to time. E.Section 1.5. ACTS OF HOLDERS. 1. (a) Any request, demand, authorization, direction, notice, consent, waiver or other action provided by this Indenture to be given or taken by Holders may be embodied in and evidenced by one or more instruments of substantially similar tenor signed by such Holders in person or by an agent duly appointed in writing; and, except as herein otherwise expressly provided, such action shall become effective when such instrument or instruments are delivered to the Trustee and, where it is hereby expressly required, to the Company. Such instrument or instruments (and the action embodied therein and evidenced thereby) are herein sometimes referred to as the "ACT" of Holders signing such instrument or instruments. Proof of execution of any such instrument or of a writing appointing any such agent shall be sufficient for any purpose of this Indenture and (subject to Section 7.1) conclusive in favor of the Trustee and the Company, if made in the manner provided in this Section. 2. (b) The fact and date of the execution by any Person of any such instrument or writing may be proved by the affidavit of a witness of such execution or by the certificate of any notary public or other officer authorized by law to take acknowledgments of deeds, certifying that the individual signing such instrument or writing acknowledged to him or her the execution thereof. Where such execution is by an officer of a corporation or a member of a partnership, on behalf of such corporation or partnership, such certificate or affidavit shall also constitute sufficient proof of his or her authority. 3. (c) The ownership of Notes shall be proved by the register maintained by the Registrar. 4. (d) Any request, demand, authorization, direction, notice, consent, waiver or other Act of the Holder of any Note shall bind every future Holder of the same Note and the Holder of every Note issued upon the registration of transfer thereof or in exchange -27- therefor or in lieu thereof in respect of anything done or suffered to be done by the Trustee or the Company in reliance thereon, whether or not notation of such action is made upon such Note. II. ARTICLE II. THE NOTES A.Section 2.1. FORM AND DATING. The Series A Notes and the Trustee's certificate of authentication relating thereto shall be substantially in the form of Exhibit A hereto. The Notes may have notations, legends or endorsements required by law, stock exchange rule or usage in addition to those set forth in Exhibit A hereto. The Series B Notes shall be substantially in the form of Exhibit B hereto. The notation on each Note relating to the Guarantees shall be substantially in the form set forth on Exhibit C hereto. Each Note shall be dated the date of its authentication. The Notes shall be in denominations of $1,000 and integral multiples thereof. The terms and provisions contained in the Notes and Guarantees shall constitute, and are hereby expressly made, a part of this Indenture and the Company, the Guarantors and the Trustee, by their execution and delivery of this Indenture, expressly agree to such terms and provisions and to be bound thereby. Notes offered and sold in reliance on Rule 144A shall be issued initially in the form of a single permanent global Note in registered form, substantially in the form set forth in Exhibit A (the "RULE 144A GLOBAL NOTE"), deposited with the Trustee, as custodian for the Depositary, duly executed by the Company and authenticated by the Trustee as hereinafter provided and shall bear the legend set forth in Section 2.6(h). The aggregate principal amount of the Rule 144A Global Note may from time to time be increased or decreased by adjustments made on the records of the Trustee, as custodian for the Depositary or its nominee, as hereinafter provided. Notes offered and sold in offshore transactions in reliance on Regulation S shall be issued initially in the form of a single temporary global Note in registered form, substantially in the form set forth in Exhibit A (the "TEMPORARY REGULATION S GLOBAL NOTE"), deposited with the Trustee, as custodian for the Depositary, duly executed by the Company and authenticated by the Trustee as hereinafter provided and shall bear the legend set forth in Section 2.6(h). At any time following 40 days after the later of the commencement of the offering of the Notes and the Issue Date, upon receipt by the Trustee and the Company of a duly executed certificate substantially in the form of Exhibit D(1) hereto, a single permanent Global Note in registered form substantially in the form set forth in Exhibit A (the "PERMANENT REGULATION S GLOBAL NOTE," and together with the Temporary Regulation S Global Note, the "REGULATION S GLOBAL NOTE") duly executed by the Company and authenticated by the Trustee as hereinafter provided shall be deposited with the Trustee, as custodian for the Depositary, and the Registrar shall reflect on its books and records the date and a decrease in the principal amount -28- of the Regulation S Global Note in an amount equal to the principal amount of the beneficial interest in the Regulation S Global Note transferred. Notes offered and sold to institutional accredited investors (as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act) ("INSTITUTIONAL ACCREDITED INVESTORS") shall be issued in the form of permanent U.S. Certificated Notes in registered form in substantially the form set forth in Exhibit A (the "US. CERTIFICATED NOTES"). Securities issued pursuant to Section 2.6 in exchange for interests in the Rule 144A Global Note or the Regulation S Global Note shall be in the form of permanent Certificated Notes in registered form substantially in the form set forth in Exhibit A (the "OFFSHORE CERTIFICATED NOTES"). The Offshore Certificated Notes and U.S. Certificated Notes are sometimes collectively herein referred to as the "CERTIFICATED NOTES." The Rule 144A Global Note and the Regulation S Global Note are sometimes referred to herein as the "GLOBAL NOTES." B.Section 2.2. EXECUTION AND AUTHENTICATION. Two Officers of the Company shall sign the Notes for the Company by manual or facsimile signature. If an Officer whose signature is on a Note was an Officer at the time of such execution but no longer holds that office or position at the time a Note is authenticated, the Note shall nevertheless be valid. Each Guarantor shall execute a Guarantee in the manner set forth in Section 11.7. A Note shall not be valid until authenticated by the manual signature of the Trustee. The signature shall be conclusive evidence that the Note has been authenticated under this Indenture. The Trustee, upon a written order of the Company signed by two Officers of the Company, together with the other documents required by Sections 13.4 and 13.5 hereof, shall authenticate (i) Series A Notes for original issue on the Issue Date in the aggregate principal amount not to exceed $177,000,000 and (ii) subject to Section 4.9, Additional Notes. The Trustee, upon written order of the Company signed by two Officers of the Company, together with the other documents required by Sections 13.4 and 13.5 hereof, shall authenticate Series B Notes; PROVIDED that such Series B Notes shall be issuable only upon the valid surrender for cancellation of Series A Notes of a like aggregate principal amount in accordance with the Exchange Offer or an exchange offer specified in any registration rights agreement relating to the Additional Notes. Such written order of the Company shall specify the amount of Notes to be authenticated and the date on which the original issue of Notes is to be authenticated. Any Additional Notes shall be part of the same issue as the Notes being issued on the Issue Date and will vote on all matters as one class with the Notes being issued on the Issue Date, including, without limitation, waivers, amendments, redemptions, Change of Control Offers and Net Proceeds Offers. For the purposes of this Indenture, except for Section 4.9, references to the Notes include Additional Notes, if any. -29- The Trustee may appoint an authenticating agent acceptable to the Company to authenticate Notes. Unless otherwise provided in the appointment, an authenticating agent may authenticate Notes whenever the Trustee may do so. Each reference in this Indenture to authentication by the Trustee includes authentication by such agent. An authenticating agent has the same rights as an Agent to deal with the Company or with any Affiliate of the Company. C.Section 2.3. REGISTRAR AND PAYING AGENT. The Company shall maintain an office or agency where Notes may be presented or surrendered for registration of transfer or for exchange ("REGISTRAR") and an office or agency where Notes may be presented for payment ("PAYING AGENT"). The Registrar shall keep a register of the Notes and of their transfer and exchange. At the option of the Company, payment of interest and Additional Interest may be made by check mailed to the Holders at their addresses set forth in the register of Holders, PROVIDED that payment by wire transfer of immediately available funds will be required with respect to principal, Redemption Price and Purchase Price of, and interest and Additional Interest (if any) on, all Global Notes and all other Notes the Holders of which shall have provided wire transfer instructions to the Trustee or the Paying Agent. The Company may appoint one or more co-registrars and one or more additional paying agents. The term "Registrar" includes any co-registrar and the term "Paying Agent" includes any additional paying agent. The Company may change any Paying Agent or Registrar without notice to any Holder. The Company shall notify the Trustee in writing of the name and address of any Paying Agent not a party to this Indenture. If the Company fails to appoint or maintain another entity as Registrar or Paying Agent, the Trustee shall act as such. The Company may act as Paying Agent or Registrar. The Depositary shall, by acceptance of a Global Note, agree that transfers of beneficial interests in such Global Note may be effected only through a book-entry system maintained by the Depositary (or its agent), and that ownership of a beneficial interest in the Note shall be required to be reflected in a book entry. The Company initially appoints the Trustee to act as the Registrar and Paying Agent and to act as Note Custodian with respect to the Global Notes, until such time as the Trustee has resigned or a successor has been appointed. D.Section 2.4. PAYING AGENTS TO HOLD MONEY IN TRUST. The Company shall require each Paying Agent other than the Trustee to agree in writing that such the Paying Agent shall hold in trust for the benefit of Holders or the Trustee all money held by the Paying Agent for the payment of principal and of any premium, if any, interest and Additional Interest, if any, on the Notes, and shall notify the Trustee of any default by the Company in making any such payment. While any such default continues, the Trustee may require a Paying Agent to pay all money held by it to the Trustee. The Company at any time may require a Paying Agent to pay all money held by it to the Trustee and account for any money disbursed. Upon payment over to the Trustee, the Paying Agent (if other than the Company) shall have no further liability for the money. If the Company acts as Paying Agent, it shall segregate and hold in a separate trust fund for the benefit of the Holders all money held by it as Paying Agent. Upon any bankruptcy or reorganization proceedings relating to the Company, the Trustee shall serve as Paying Agent for the Notes. -30- E.Section 2.5. HOLDER LISTS. The Trustee shall preserve in as current a form as is reasonably practicable the most recent list available to it of the names and addresses of all Holders and shall otherwise comply with TIA Section 312(a). If the Trustee is not the Registrar, the Company shall furnish or cause the Registrar to furnish to the Trustee at least five Business Days before each interest payment date and at such other times as the Trustee may request in writing, a list in such form and as of such date as the Trustee may reasonably require of the names and addresses of the Holders of Notes, and the Company shall otherwise comply with TIA Section 312(a). F.Section 2.6. TRANSFER AND EXCHANGE. 1.(a) TRANSFER AND EXCHANGE GENERALLY: BOOK ENTRY PROVISIONS. Upon surrender for registration of transfer of any Note to the Registrar, and satisfaction of the requirements for such transfer set forth in this Section 2.6, the Company shall execute, and the Trustee shall authenticate and deliver, in the name of the designated transferee or transferees, one or more new Notes of any authorized denominations and of a like aggregate principal amount and bearing such restrictive legends as may be required by this Indenture. Notes may be exchanged for other Notes of any authorized denominations and of a like aggregate principal amount, upon surrender of the Notes to be exchanged at any such office or agency maintained by the Company pursuant to Section 4.2. Whenever any Notes are so surrendered for exchange, the Company shall execute, and the Trustee shall authenticate and deliver, the Notes which the Holder making the exchange is entitled to receive bearing registration numbers not contemporaneously outstanding. All Notes presented or surrendered for registration of transfer or exchange shall be duly endorsed, or be accompanied by a written instrument or instruments of transfer in form satisfactory to the Company and the Registrar, and the Notes shall be duly executed by the Holder thereof or his attorney duly authorized in writing. Except as otherwise provided in this Indenture, and in addition to the requirements set forth in the legend referred to in Section 2.6(h)(i) below, in connection with any transfer of Transfer Restricted Securities any request for transfer shall be accompanied by a certification to the Trustee relating to the manner of such transfer substantially in the form of Exhibit D(2) hereto. 2.(b) BOOK-ENTRY PROVISIONS FOR THE GLOBAL NOTES. The Rule 144A Global Note and Regulation S Global Note initially shall (i) be registered in the name of the Depositary or the nominee of such Depositary, (ii) be delivered to the Trustee as custodian for the Depositary and (iii) bear legends as set forth in Section 2.6(h). Members of, or participants in, the Depositary ("AGENT MEMBERS") shall have no rights under this Indenture with respect to any Rule 144A Global Note or Regulation S Global Note, as the case may be, held on their behalf by the Depositary, or the Trustee as its custodian, or under the Rule 144A Global Note or Regulation S Global Note, as the case may be, and the Depositary may be -31- treated by the Company, the Trustee and any agent of the Company or the Trustee as the absolute owner of Rule 144A Global Note or Regulation S Global Note, as the case may be, for all purposes whatsoever. Notwithstanding the foregoing, nothing herein shall prevent the Company, the Trustee or any agent of the Company or the Trustee, from giving effect to any written certification, proxy or other authorization furnished by the Depositary or impair, as between the Depositary and its Agent Members, the operation of customary practices governing the exercise of the rights of a holder of any Note. Transfers of the Rule 144A Global Note and the Regulation S Global Note shall be limited to transfers of such Rule 144A Global Note or Regulation S Global Note in whole, but not in part, to the Depositary, its successors or their respective nominees. Beneficial interests in the Rule 144A Global Note and the Regulation S Global Note may be transferred in accordance with the applicable rules and procedures of the Depositary and the provisions of this Section 2.6. The registration of transfer and exchange of beneficial interests in the Global Note, which does not involve the issuance of a Certificated Note, shall be effected through the Depositary, in accordance with this Indenture (including the restrictions on transfer set forth herein) and the procedures of the Depositary therefor. The Trustee shall have no responsibility or liability for any act or omission of the Depositary. At any time at the request of the beneficial holder of an interest in the Rule 144A Global Note or Permanent Regulation S Global Note to obtain a Certificated Note, such beneficial holder shall be entitled to obtain a Certificated Note upon written request to the Trustee and the Note Custodian in accordance with the standing instructions and procedures existing between the Note Custodian and Depositary for the issuance thereof. Upon receipt of any such request, the Trustee, or the Note Custodian at the direction of the Trustee, will cause, in accordance with the standing instructions and procedures existing between the Depositary and the Note Custodian, the aggregate principal amount of the Rule 144A Global Note or Permanent Regulation S Global Note, as appropriate, to be reduced by the principal amount of the Certificated Note issued upon such request to such beneficial holder and, following such reduction, the Company will execute and the Trustee will authenticate and deliver to such beneficial holder (or its nominee) a Certificated Note or Certificated Notes in the appropriate aggregate principal amount in the name of such beneficial holder (or its nominee) and bearing such restrictive legends as may be required by this Indenture. 3.(c) TRANSFERS TO NON-QIB INSTITUTIONAL ACCREDITED INVESTORS. The following provisions shall apply with respect to the registration of any proposed transfer of a Transfer Restricted Security to any Institutional Accredited Investor that is not a QIB (other than any Person that is not a U.S. Person as defined under Regulation S, a "FOREIGN PERSON"): (i) the Registrar shall register the transfer of any Note, whether or not such Note bears the Private Placement Legend, if (x) (A) the requested transfer is at least two years after the later of the Issue Date of the Notes and (B) the proposed transferee has certified to the Registrar that the requested transfer is at least two years after last date on which such Note was held by an Affiliate of the Company, or (y) the proposed transferee has delivered to the Registrar (A) a certificate substantially in the form of Exhibit E hereto and (B) such certifications, legal opinions and other information as the Trustee and the Company may -32- reasonably request to confirm that such transaction is in compliance with the Securities Act; and (ii) if the proposed transferor is an Agent Member holding a beneficial interest in the Global Note, upon receipt by the Registrar of (x) the documents, if any, required by clause (i) and (y) instructions given in accordance with the Depositary's and the Registrar's procedures, the Registrar shall reflect on its books and records the date and a decrease in the principal amount of the Global Note in an amount equal to the principal amount of the beneficial interest in the Global Note to be transferred, and the Company shall execute, and the Trustee shall authenticate and deliver, one or more Certificated Notes of like tenor and amount. 4.(d) TRANSFERS TO QIBs. The following provisions shall apply with respect to the registration of any proposed transfer of a Transfer Restricted Security to a QIB (other than Foreign Persons): (i) if the Note to be transferred consists of Certificated Notes or an interest in the Regulation S Global Note, the Registrar shall register the transfer if such transfer is being made by a proposed transferor who has checked the box provided for on a certificate substantially in the form of Exhibit D(2) stating, or has otherwise advised the Company and the Registrar in writing, that the sale has been made in compliance with the provisions of Rule 144A to a transferee who is a QIB within the meaning of Rule 144A and is aware that the sale to it is being made in reliance on Rule 144A; and (ii) if the proposed transferee is an Agent Member, and the Note to be transferred consists of Certificated Notes or an interest in the Regulation S Global Note, upon receipt by the Registrar of the documents referred to in clause (i) and instructions given in accordance with the Depositary's and the Registrar's procedures, the Registrar shall reflect on its books and records the date and an increase in the principal amount of the Rule 144A Global Note in an amount equal to the principal amount of the Certificated Notes or the interest in the Regulation S Global Note, as the case may be, to be transferred, and the Trustee shall cancel the Certificated Notes or decrease the amount of the Regulation S Global Note so transferred. 5.(e) TRANSFERS OF INTERESTS IN THE TEMPORARY REGULATION S GLOBAL NOTE. The following provisions shall apply with respect to the registration of any proposed transfer of interests in the Temporary Regulation S Global Note: (i) the Registrar shall register the transfer of an interest in the Temporary Regulation S Global Note if (x) the proposed transferor has delivered to the Registrar a certificate substantially in the form of Exhibit F hereto stating, among other things, that the proposed transferee is a Foreign Person or (y) the proposed transferee is a QIB and the proposed transferor has checked the box provided for on a certificate substantially in the form of Exhibit D(2) stating, or has otherwise advised the Company and the Registrar in writing, that the sale has been made in compliance with the provisions of Rule 144A to a transferee -33- who is a QIB within the meaning of Rule 144A, and is aware that the sale to it is being made in reliance on Rule 144A; and (ii) if the proposed transferee is an Agent Member, upon receipt by the Registrar of the documents referred to in clause (i)(y) above and instructions given in accordance with the Depositary's and the Registrar's procedures, the Registrar shall reflect on its books and records the date and an increase in the principal amount of the Rule 144A Global Note in an amount equal to the principal amount of the Temporary Regulation S Global Note to be transferred, and the Trustee, as Note Custodian, shall decrease the amount of the Temporary Regulation S Global Note. 6.(f) TRANSFERS TO FOREIGN PERSONS. The following provisions shall apply with respect to any transfer of a Transfer Restricted Security to a Foreign Person: (i) the Registrar shall register any proposed transfer of a Note to a Foreign Person upon receipt of a certificate substantially in the form of Exhibit F hereto from the proposed transferor and such certifications, legal opinions and other information as the Trustee or the Company may reasonably request; and (ii) (a) if the proposed transferor is an Agent Member holding a beneficial interest in the Rule 144A Global Note or the Note to be transferred consists of Certificated Notes, upon receipt by the Registrar of (x) the documents, if any, required by paragraph (i) and (y) instructions in accordance with the Depositary's and the Registrar's procedures, the Registrar shall reflect on its books and records the date and a decrease in the principal amount of the Rule 144A Global Note in an amount equal to the principal amount of the beneficial interest in the Rule 144A Global Note or cancel the Certificated Notes, as the case may be, to be transferred, and (b) if the proposed transferee is an Agent Member, upon receipt by the Registrar of instructions given in accordance with the Depositary's and the Registrar's procedures, the Registrar shall reflect on its books and records the date and an increase in the principal amount of the Regulation S Global Note in an amount equal to the principal amount of the Certificated Notes to be transferred, and the Trustee shall decrease the amount of the Rule 144A Global Note. 7.(g) THE DEPOSITARY. The Depositary shall be a clearing agency registered under the Exchange Act. The Company initially appoints The Depository Trust Company to act as Depositary with respect to the Global Note. Initially, the Rule 144A Global Note and the Regulation S Global Note shall be issued to the Depositary, registered in the name of Cede & Co., as the nominee of the Depositary, and deposited with the Note Custodian for Cede & Co. Notes in Certificated form issued in exchange for all or a part of a Global Note pursuant to this Section 2.6 shall be registered in such names and in such authorized denominations as the Depositary, pursuant to instructions from its direct or indirect participants or otherwise, shall instruct the Trustee. Upon execution and authentication, the Trustee shall deliver such Certificated -34- Notes in Certificated form to the persons in whose names such Notes in Certificated form are so registered. Certificated Notes shall be transferred to all beneficial owners in exchange for their beneficial interests in the Rule 144A Global Note or the Permanent Regulation S Global Note, as the case may be, if at any time: (i) the Depositary for the Notes notifies the Company that the Depositary is unwilling or unable to continue as Depositary for the Rule 144A Global Note or the Permanent Regulation S Global Note, as the case may be, and a successor Depositary is not appointed by the Company within 90 days after delivery of such notice; or (ii) the Company, at its sole discretion, notifies the Trustee in writing that it elects to cause the issuance of Certificated Notes under this Indenture, and the Company shall execute, and the Trustee shall, upon receipt of an authentication order in accordance with Section 2.2 hereof, authenticate and deliver Certificated Notes in an aggregate principal amount equal to the principal amount of the Rule 144A Global Note or the Permanent Regulation S Global Note, as the case may be, in exchange for such Global Notes. 8.(h) LEGENDS. (a) (i) Except as permitted by the following paragraphs (ii) and (iii), each Note certificate evidencing Global Notes and Certificated Notes (and all Notes issued in exchange therefor or substitution thereof) shall (x) be subject to the restrictions on transfer set forth in this Section 2.6 (including those set forth in the legend below) unless such restrictions on transfer shall be waived by written consent of the Company, and the Holder of each Transfer Restricted Security, by such Holder's acceptance thereof, agrees to be bound by all such restrictions on transfer and (y) bear the legend set forth below (the "PRIVATE PLACEMENT LEGEND"): THIS NOTE HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS EXCEPT AS SET FORTH BELOW. BY ITS ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT), (B) IT IS NOT A U.S. PERSON AND IS ACQUIRING THIS SECURITY IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH REGULATION S UNDER THE SECURITIES ACT OR (C) IT IS AN ACCREDITED INVESTOR (AS DEFINED IN RULE 501(a)(1), (2), (3), OR (7) UNDER THE SECURITIES ACT (AN "ACCREDITED INVESTOR"), (2) AGREES THAT IT WILL -35- NOT WITHIN TWO YEARS AFTER THE ORIGINAL ISSUANCE OF THIS NOTE RESELL OR OTHERWISE TRANSFER THIS NOTE EXCEPT (A) TO AMERICAN ACHIEVEMENT CORPORATION OR ANY SUBSIDIARY THEREOF, (B) INSIDE THE UNITED STATES TO A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT, (C) INSIDE THE UNITED STATES TO AN ACCREDITED INVESTOR THAT, PRIOR TO SUCH TRANSFER, FURNISHES (OR HAS FURNISHED ON ITS BEHALF BY A U.S. BROKER-DEALER) TO THE TRUSTEE A SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE RESTRICTIONS ON TRANSFER OF THIS SECURITY (THE FORM OF WHICH LETTER CAN BE OBTAINED FROM THE TRUSTEE FOR THIS NOTE), (D) OUTSIDE THE UNITED STATES IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH RULE 904 UNDER THE SECURITIES ACT (IF AVAILABLE), (E) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE), (F) IN ACCORDANCE WITH ANOTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT (AND BASED UPON AN OPINION OF COUNSEL IF AMERICAN ACHIEVEMENT CORPORATION SO REQUESTS), OR (G) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND (3) AGREES THAT IT WILL GIVE TO EACH PERSON TO WHOM THIS NOTE IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IN CONNECTION WITH ANY TRANSFER OF THIS NOTE WITHIN TWO YEARS AFTER THE ORIGINAL ISSUANCE OF THIS NOTE, IF THE PROPOSED TRANSFEREE IS AN ACCREDITED INVESTOR, THE HOLDER MUST, PRIOR TO SUCH TRANSFER, FURNISH TO THE TRUSTEE AND AMERICAN ACHIEVEMENT CORPORATION SUCH CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS EITHER OF THEM MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION," "UNITED STATES" AND "U.S. PERSON" HAVE THE MEANING GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES ACT. (b) (ii) Upon any sale or transfer of a Transfer Restricted Security (including any Transfer Restricted Security represented by a Global Note) pursuant to Rule 144 under the Securities Act or pursuant to an effective registration statement under the Securities Act: -36- (a) in the case of any Transfer Restricted Security that is a Certificated Note, the Registrar shall permit the Holder thereof to exchange such Transfer Restricted Security for a Certificated Note that does not bear the legend set forth in (i) above and rescind any restriction on the transfer of such Transfer Restricted Security; and (b) in the case of any Transfer Restricted Security represented by a Global Note, such Transfer Restricted Security shall not be required to bear the legend set forth in (i) above, but shall continue to be subject to the provisions of Section 2.6(b) hereof; PROVIDED, HOWEVER, that with respect to any request for an exchange of a Transfer Restricted Security that is represented by a Global Note for a Certificated Note that does not bear the legend set forth in (i) above, which request is made in reliance upon Rule 144, the Holder thereof shall certify in writing to the Registrar that such request is being made pursuant to Rule 144 (such certifications to be substantially in the form of Exhibit D(2) hereto). (c) (iii) Notwithstanding the foregoing, upon consummation of the Exchange Offer, the Company shall issue and, upon receipt of an authentication order in accordance with Section 2.2 hereof, the Trustee shall authenticate Series B Notes in exchange for Series A Notes accepted for exchange in the Exchange Offer, which Series B Notes shall not bear the legend set forth in (i) above, and the Registrar shall rescind any restriction on the transfer of such Series A Notes, in each case unless the Company has notified the Registrar in writing that the Holder of such Series A Notes is either (A) a broker-dealer, (B) a Person participating in the distribution of the Series A Notes or (C) a Person who is an affiliate (as defined in Rule 144A) of the Company. (d) (iv) Each Global Note, whether or not a Transfer Restricted Security, shall also bear the following legend on the fact thereof: THIS NOTE IS A GLOBAL NOTE WITHIN THE MEANING OF THE INDENTURE HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITARY OR A NOMINEE OF A DEPOSITARY OR A SUCCESSOR DEPOSITARY. THIS NOTE IS NOT EXCHANGEABLE FOR NOTES REGISTERED IN THE NAME OF A PERSON OTHER THAN THE DEPOSITARY OR ITS NOMINEE EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE, AND NO TRANSFER OF THIS SECURITY (OTHER THAN A TRANSFER OF THIS SECURITY 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) MAY BE REGISTERED EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE. UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW -37- YORK CORPORATION ("DTC"), TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS 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. (e) (v) Any Global Note may be endorsed with or have incorporated in the text thereof such legends or recitals or changes not inconsistent with the provisions of this Indenture as may be required by the Note Custodian, the Depositary or by the National Association of Securities Dealers, Inc. in order for the Notes to be tradable on the PORTAL Market or tradable on Euroclear or Clearstream or as may be required for the Notes to be tradable on any other market developed for trading of securities pursuant to Rule 144A or Regulation S under the Securities Act or required to comply with any applicable law or any regulation thereunder or with the rules and regulations of any securities exchange or automated quotation system upon which the Notes may be listed or traded or to conform with any usage with respect thereto, or to indicate any special limitations or restrictions to which any particular Notes are subject. 9.(i) CANCELLATION AND/OR ADJUSTMENT OF GLOBAL NOTES. At such time as all beneficial interests in Global Notes have been exchanged for Certificated Notes, redeemed, repurchased or canceled, all Global Notes shall be returned to or retained and canceled by the Trustee in accordance with Section 2.11 hereof. At any time prior to such cancellation, if any beneficial interest in a Global Note is exchanged for Certificated Notes, redeemed, repurchased or canceled, the principal amount of Notes represented by such Global Notes shall be reduced accordingly and an endorsement shall be made on such Global Note by the Trustee or the Note Custodian, at the direction of the Trustee, to reflect such reduction. In the event of any transfer of any beneficial interest between the Rule 144A Global Note and the Regulation S Global Note in accordance with the standing procedures and instructions between the Depositary and the Note Custodian and the transfer restrictions set forth herein, the aggregate principal amount of each of the Rule 144A Global Note and the Regulation S Global Note shall be appropriately increased or decreased, as the case may be, and an endorsement shall be made on each of the Rule 144A Global Note and the Regulation S Global Note by the Trustee or the Note Custodian, at the direction of the Trustee, to reflect such reduction or increase. -38- 10.(j) GENERAL PROVISIONS RELATING TO TRANSFERS AND EXCHANGES. (a) (i) To permit registrations of transfers and exchanges, the Company shall execute and the Trustee shall authenticate Certificated Notes and Global Notes at the Registrar's request. (b) (ii) No service charge shall be made to a Holder for any registration of transfer, fee or exchange, but the Company may require payment of a sum sufficient to cover any transfer tax or similar governmental charge payable in connection therewith (other than any such transfer taxes or similar governmental charge payable upon exchange or transfer pursuant to Sections 3.6 and 9.5 hereof). (c) (iii) The Registrar shall not be required to register the transfer of or exchange any Note selected for redemption in whole or in part, except the unredeemed portion of any Note being redeemed in part. (d) (iv) All Certificated Notes and Global Notes issued upon any registration of transfer or exchange of Certificated Notes or Global Notes shall be the valid obligations of the Company, evidencing the same debt, and entitled to the same benefits under this Indenture, as the Certificated Notes or Global Notes surrendered upon such registration of transfer or exchange. (e) (v) The Company shall not be required: (1)(a) to issue, to register the transfer of or to exchange Notes during a period beginning at the opening of business 15 days before the day of any selection of Notes for redemption under Section 3.2 hereof and ending at the close of business on the day of selection; or (2)(b) to register the transfer of or to exchange any Note so selected for redemption in whole or in part, except the unredeemed portion of any Note being redeemed in part; or (3)(c) to register the transfer of or to exchange a Note between a record date and the next succeeding interest payment date. (f) (vi) Prior to due presentment of the registration of a transfer of any Note, the Trustee, any Agent and the Company may deem and treat the Person in whose name any Note is registered as the absolute owner of such Note for the purpose of all payments with respect to such Notes, and neither the Trustee, any Agent nor the Company shall be affected by notice to the contrary. -39- (g) (vii) The Trustee shall authenticate Certificated Notes and Global Notes in accordance with the provisions of Section 2.2 hereof. G.Section 2.7. REPLACEMENT NOTES. If any mutilated Note is surrendered to the Trustee or either the Company or the Trustee receives evidence to its satisfaction of the destruction, loss or theft of any Note, the Company shall issue and the Trustee, upon receipt of an authentication order in accordance with Section 2.2 hereof, shall authenticate a replacement Note if the Trustee's requirements for replacement of Notes are met. If required by the Trustee or the Company, an indemnity bond must be supplied by the Holder that is sufficient in the judgment of the Trustee and the Company to protect the Company, the Trustee, any Agent and any authenticating agent from any loss that any of them may suffer if a Note is replaced. The Trustee and the Company each may charge such Holder for their expenses in replacing such Note. Every replacement Note is an additional obligation of the Company and shall be entitled to all of the benefits of this Indenture equally and proportionately with all other Notes duly issued hereunder. H.Section 2.8. OUTSTANDING NOTES. The Notes outstanding at any time are all the Notes that have been authenticated by the Trustee except for those canceled by it, those delivered to it for cancellation, those reductions in the interest in a Global Note effected by the Trustee or the Note Custodian in accordance with the provisions hereof, and those described in this Section as not outstanding. Except as set forth in Section 2.9 hereof, a Note does not cease to be outstanding because the Company or any of its Affiliates holds the Note. If a Note is replaced pursuant to Section 2.7 hereof, it shall cease to be outstanding unless the Trustee receives proof satisfactory to it that the replaced Note is held by a bona fide purchaser for value. If the principal amount of any Note is considered paid under Section 4.1 hereof, it ceases to be outstanding and interest on it ceases to accrue. If the Paying Agent (other than the Company, a Subsidiary or an Affiliate of any thereof) holds, on a redemption date or maturity date, money sufficient to pay Notes payable on that date, then on and after that date such Notes shall be deemed to be no longer outstanding and shall cease to accrue interest. I.Section 2.9. TREASURY NOTES. In determining whether the Holders of the required principal amount of Notes have concurred in any direction, waiver or consent, Notes owned by the Company, the Guarantors or by any Affiliate thereof shall be considered as though not outstanding, except that for the purposes of -40- determining whether the Trustee shall be protected in relying on any such direction, waiver of consent, only Notes that a Responsible Officer of the Trustee knows are so owned shall be so disregarded. The Company agrees to notify the Trustee of the existence of any such treasury Notes or Notes owned by the Company, any Guarantor or an Affiliate thereof. J.Section 2.10. TEMPORARY NOTES. Until Certificated Notes are ready for delivery, the Company may prepare and the Trustee, upon receipt of an authentication order in accordance with Section 2.2 hereof, shall authenticate temporary Notes. Temporary Notes shall be substantially in the form of Certificated Notes, but may have such variations as the Company considers appropriate for temporary Notes and as shall be reasonably acceptable to the Trustee. Without unreasonable delay, the Company shall prepare and the Trustee shall authenticate Certificated Notes in exchange for temporary Notes. Holders of temporary Notes shall be entitled to all of the benefits of this Indenture. K.Section 2.11. CANCELLATION. The Company at any time may deliver Notes to the Trustee for cancellation. The Registrar and Paying Agent shall forward to the Trustee any Notes surrendered to them for registration of transfer, exchange or payment. The Trustee, or at the direction of the Trustee, the Registrar or Paying Agent, and no one else shall cancel all Notes surrendered for registration of transfer, exchange, payment, replacement or cancellation and shall dispose of all canceled Notes in accordance with the Trustee's usual procedures. The Trustee shall maintain a record of all canceled Notes. All cancelled Notes shall be delivered to the Company. Subject to Section 2.7 the Company may not issue new Notes to replace Notes that have been paid or that have been delivered to the Trustee for cancellation. L.Section 2.12. DEFAULTED INTEREST. If the Company defaults in a payment of interest on the Notes, the Company shall pay the defaulted interest in any lawful manner PLUS, to the extent lawful, interest payable on the defaulted interest, to the Persons who are Holders on a subsequent special record date, in each case at the rate provided in the Notes and in Section 4.1 hereof. The Company shall notify the Trustee in writing of the amount of defaulted interest proposed to be paid on each Note and the date of the proposed payment. The Company shall fix or cause to be fixed each such special record date and payment date, PROVIDED that no such special record date shall be less than 10 days prior to the related payment date for such defaulted interest. At least 15 days before the special record date, the Company (or, upon the written request of the Company, the Trustee in the name and at the expense of the Company) shall mail or cause to be mailed to Holders a notice that states the special record date, the related payment date and the amount of such interest to be paid. M.Section 2.13. PERSONS DEEMED OWNERS. Prior to due presentment of a Note for registration of transfer and subject to Section 2.12 hereof, the Company, the Trustee, any Paying Agent, any co-registrar and any Registrar -41- may deem and treat the person in whose name any Note shall be registered upon the register of Notes kept by the Registrar as the absolute owner of such Note (whether or not such Note shall be overdue and notwithstanding any notation of the ownership or other writing thereon made by anyone other than the Company, any co-registrar or any Registrar) for the purpose of receiving all payments with respect to such Note and for all other purposes, and none of the Company, the Trustee, any Paying Agent, any co-registrar or any Registrar shall be affected by any notice to the contrary. N.Section 2.14. CUSIP NUMBERS. The Company in issuing the Notes may use a "CUSIP" number, and if so, the Trustee shall use the CUSIP number in notices of redemption or exchange as a convenience to Holders; PROVIDED that any such notice may state that no representation is made as to the correctness or accuracy of the CUSIP number printed in the notice or on the Notes, and that reliance may be placed only on the other identification numbers printed on the Notes. The Company shall notify the Trustee of any change to the CUSIP numbers. O.Section 2.15. DESIGNATION. The Indebtedness evidenced by the Notes and the Guarantees is hereby irrevocably designated as "Senior Indebtedness" as defined and for purposes of the indenture governing the CBI Subordinated Notes and as "senior indebtedness" or such other term denoting seniority for the purposes of any other existing or future Indebtedness of the Company or a Guarantor, as the case may be, which the Company or such Guarantor, as the case may be, makes subordinate to any senior (or such other term denoting seniority) indebtedness of such Person. III.ARTICLE III. REDEMPTION AND REPURCHASE A.Section 3.1. NOTICES TO TRUSTEE. If the Company elects to redeem Notes pursuant to the provisions of Section 3.7 or 3.8 hereof, it shall furnish to the Trustee, at least 45 days but not more than 60 days before the Redemption Date (unless a shorter notice period shall be satisfactory to the Trustee), an Officers' Certificate setting forth the Section of this Indenture pursuant to which the redemption shall occur, the Redemption Date, the principal amount of Notes to be redeemed and the Redemption Price. If the Company is required to offer to repurchase Notes pursuant to the provisions of Section 4.10 or 4.15 hereof, it shall notify the Trustee in writing, at least 45 days but not more than 60 days before the Purchase Date, of the Section of this Indenture pursuant to which the repurchase shall occur, the Purchase Date, the principal amount of Notes required to be repurchased and the Purchase Price and shall furnish to the Trustee an Officers' Certificate to the effect that (a) the Company is required to make or has made a Net Proceeds Offer or a Change of Control Offer, as the case may be, and (b) the conditions set forth in Section 4.10 or 4.15 hereof, as the case may be, have been satisfied. -42- If the Registrar is not the Trustee, the Company shall, concurrently with each notice of redemption or repurchase, cause the Registrar to deliver to the Trustee a certificate (upon which the Trustee may rely) setting forth the principal amounts of Notes held by each Holder. B.Section 3.2. SELECTION OF NOTES. Except as set forth below, if less than all of the Notes are to be redeemed, the Trustee shall select the Notes or portions thereof to be redeemed in compliance with the requirements of the principal national securities exchange, if any, on which the Notes are listed or, if the Notes are not then listed on a national securities exchange on a PRO RATA basis, by lot or by such method as the Trustee shall deem fair and appropriate. In the event of partial redemption by lot, the particular Notes or portions thereof 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 Trustee from the outstanding Notes not previously called for redemption. If less than all of the Notes tendered are to be repurchased pursuant to the provisions of Section 4.10 hereof, the Trustee shall select the Notes or portions thereof to be repurchased in compliance with Section 4.10. In the event of partial repurchase by lot, the particular Notes or portions thereof to be repurchased shall be selected at the close of business of the last Business Day prior to the Purchase Date. If less than all of the Notes tendered are to be repurchased pursuant to the provisions of Section 3.8 hereof, the Trustee shall select the Notes only on a PRO RATA basis or on as nearly a PRO RATA basis as is practicable (subject to DT C procedures), unless such method is otherwise prohibited. The Trustee shall promptly notify the Company in writing of the Notes or portions thereof selected for redemption or repurchase and, in the case of any Note selected for partial redemption or repurchase, the principal amount thereof to be redeemed or repurchased. Notes and portions thereof selected shall be in amounts of $1,000 or integral multiples of $1,000; except that if all of the Notes of a Holder are to be redeemed, the entire outstanding amount of Notes held by such Holder, even if not a multiple of $1,000, shall be redeemed. No Notes of a principal amount of $1,000 or less shall be redeemed in part. C.Section 3.3. NOTICE OF OPTIONAL OR SPECIAL REDEMPTION. In the event Notes are to be redeemed pursuant to Section 3.7 or 3.8 hereof, at least 30 days but not more than 60 days before the Redemption Date, the Company shall mail a notice of redemption to each Holder whose Notes are to be redeemed in whole or in part, with a copy to the Trustee. The notice shall identify the Notes or portions thereof to be redeemed (including the CUSIP number, if any) and shall state: (a) the Redemption Date; (b) the Redemption Price; -43- (c) if any Note is being redeemed in part, the portion of the principal amount of such Note to be redeemed and that, after the Redemption Date, upon surrender of such Note, a new Note or Notes in principal amount equal to the unredeemed portion will be issued; (d) the name and address of the Paying Agent; (e) that Notes called for redemption must be surrendered to the Paying Agent to collect the Redemption Price, Additional Interest, if any, and, unless the Redemption Date is after a record date and or before the succeeding interest payment date, accrued interest thereon to the Redemption Date; (f) that, unless the Company defaults in making the redemption payment, interest and any Additional Interest on Notes called for redemption will cease to accrue on and after the Redemption Date, and the only remaining right of the Holders of such Notes is to receive payment of the Redemption Price, any Additional Interest and, unless the Redemption Date is after a record date and on or before the succeeding interest payment date, accrued interest thereon to the Redemption Date upon surrender to the Paying Agent of the Notes redeemed; (g) if fewer than all the Notes are to be redeemed, the identification of the particular Notes (or portions thereof) to be redeemed, as well as the aggregate principal amount of the Notes to be redeemed and the aggregate principal amount of Notes to be outstanding after such partial redemption; (h) the paragraph of the Notes pursuant to which the Notes called for redemption are being redeemed; and (i) 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 Notes and that reliance may be placed only on the other identification numbers printed on the Notes. At the Company's request, the Trustee shall give the notice of redemption in the Company's name and at its expense; PROVIDED that the Company shall deliver to the Trustee, at least 40 days prior to the Redemption Date, an Officers' Certificate requesting that the Trustee give such notice and setting forth the information to be stated in such notice as provided in the preceding paragraph. D.Section 3.4. EFFECT OF NOTICE OF REDEMPTION. Once notice of redemption is mailed, Notes or portions thereof called for redemption become due and payable on the Redemption Date at the Redemption Price. Upon surrender to any Paying Agent, such Notes or portions thereof shall be paid at the Redemption Price, PLUS Additional Interest, if any, and accrued interest to the Redemption Date; PROVIDED, HOWEVER, that installments of interest which are due and payable on or prior to the Redemption Date shall be payable to the Holders of such Notes, registered as such, at the close of business on the relevant record date for the payment of such installment of interest. -44- E.Section 3.5. DEPOSIT OF REDEMPTION PRICE OR PURCHASE PRICE. On or before 10:00 a.m. Eastern Time on each Redemption Date or Purchase Date, the Company shall irrevocably deposit with the Trustee or with the Paying Agent money sufficient to pay the aggregate amount due on all Notes to be redeemed or repurchased on that date, including without limitation any accrued and unpaid interest and Additional Interest, if any, to the Redemption Date or Repurchase Date. Upon written request by the Company, the Trustee or the Paying Agent shall promptly return to the Company any money not required for that purpose. Unless the Company defaults in making such payment, interest and any Additional Interest on the Notes to be redeemed or repurchased will cease to accrue on the applicable Redemption Date or Purchase Date, whether or not such Notes are presented for payment. If any Note called for redemption shall not be so paid upon surrender because of the failure of the Company to comply with the preceding paragraph, interest will be paid on the unpaid principal, from the applicable Redemption Date or Purchase Date until such principal is paid, and on any interest not paid on such unpaid principal, in each case at the rate provided in the Notes and in Section 4.1 hereof. F.Section 3.6. NOTES REDEEMED OR REPURCHASED IN PART. Upon surrender of a Note that is redeemed or repurchased in part, the Company shall issue and the Trustee shall authenticate for the Holder at the expense of the Company a new Note equal in principal amount to portion of the Note surrendered that is not to be redeemed or repurchased. G.Section 3.7. OPTIONAL REDEMPTION. The Company may redeem any or all of the Notes at any time on or after January 1, 2005 at the Redemption Prices set forth in the Notes (an "OPTIONAL REDEMPTION"). Any redemption pursuant to this Section 3.7 shall be made pursuant to the provisions of Sections 3.1 through 3.6 hereof. H.Section 3.8. SPECIAL REDEMPTION. In the event the Company completes one or more Public Equity Offerings on or before January 1, 2005, the Company, at its option, may use the net cash proceeds from any such Public Equity Offering to redeem up to 35% of the original principal amount of the Notes (a "SPECIAL REDEMPTION") at a Redemption Price of 111.625% of the principal amount thereof, together with accrued and unpaid interest and Additional Interest, if any, to the date of redemption, PROVIDED, HOWEVER, that at least 65% of the original principal amount of the Notes will remain outstanding immediately after each such Special Redemption; and PROVIDED, FURTHER, that such Special Redemption shall occur within 120 days after the date of the closing of the applicable Public Equity Offering. Any redemption pursuant to this Section 3.8 shall be made pursuant to the provisions of Sections 3.1 through 3.6 hereof. I.Section 3.9. REPURCHASE UPON CHANGE OF CONTROL OFFER. -45- In the event that, pursuant to Section 4.15 hereof, the Company shall be required to commence a Change of Control Offer, it shall follow the procedures specified below. The Change of Control Offer shall remain open for a period from the date of the mailing of the notice of the Change of Control Offer described in the next paragraph until a date determined by the Company which is at least 30 but no more than 45 days from the date of mailing of such notice and no longer, except to the extent that a longer period is required by applicable law (the "CHANGE OF CONTROL OFFER PERIOD"). On the Purchase Date, which shall be no later than the last day of the Change of Control Offer Period, the Company shall purchase the principal amount of Notes properly tendered in response to the Change of Control Offer. Payment for any Notes so purchased shall be made in the same manner as interest payments are made. Within 30 days following any Change of Control, the Company shall send, by first class mail, a notice to the Trustee and each of the Holders. The notice shall contain all instructions and materials necessary to enable such Holders to tender Notes pursuant to the Change of Control Offer. The Change of Control shall be made to all Holders. The notice, which shall govern the terms of the Change of Control Offer, shall state: (a) the transaction or transactions that constitute the Change of Control, providing information, to the extent publicly available, regarding the Person or Persons acquiring control, and stating that the Change of Control Offer is being made pursuant to this Section 3.9 and Section 4.15 hereof and that, to the extent lawful, all Notes tendered will be accepted for payment; (b) the Purchase Price, the last day of the Change of Control Offer Period, and the Purchase Date; (c) that any Note not properly tendered or otherwise not accepted for repurchase will continue to accrue interest and Additional Interest, if any; (d) that, unless the Company defaults in the payment of the amount due on the Purchase Date, all Notes or portions thereof accepted for repurchase pursuant to the Change of Control Offer shall cease to accrue interest and Additional Interest, if any, after the Purchase Date; (e) that Holders electing to have any Notes purchased pursuant to the Change of Control Offer will be required to tender the Notes, with the form entitled Option of Holder To Elect Purchase on the reverse of the Notes completed, or transfer by book-entry transfer, to the Company, a Depositary, if appointed by the Company, or a Paying Agent at the address specified in the notice not later than the third Business Day preceding the Purchase Date; (f) that Holders will be entitled to withdraw their election if the Company, the Depositary or the Paying Agent, as the case may be, receives, not later than the expiration of the Change of Control Offer Period, a telegram, facsimile transmission or letter setting forth the name of the Holder, the principal amount of Notes delivered for repurchase, and a -46- statement that such Holder is withdrawing his election to have the Notes redeemed in whole or in part; and (g) that Holders whose Notes are being repurchased only in part will be issued new Notes equal in principal amount to the portion of the Notes tendered (or transferred by book-entry transfer) that is not to be repurchased, which portion must be equal to $1,000 in principal amount or an integral multiple thereof. On or before the Purchase Date, the Company shall to the extent lawful, (i) accept for payment all Notes or portions thereof properly tendered pursuant to the Change of Control Offer, (ii) deposit with the Paying Agent an amount equal to the Purchase Price, together with accrued and unpaid interest and Additional Interest, if any, thereon to the Purchase Date in respect of all Notes or portions thereof so tendered and accepted for repurchase and (iii) deliver or cause to be delivered to the Trustee the Notes so accepted together with an Officers' Certificate stating the aggregate principal amount of Notes or portions thereof being repurchased by the Company. The Paying Agent shall promptly (but in any case not later than five days after the Purchase Date) mail to each Holder of Notes so repurchased the amount due in connection with such Notes, and the Company shall promptly issue a new Note, and the Trustee, upon written request from the Company in the form of an Officers' Certificate shall authenticate and mail or deliver (or cause to transfer by book entry) to each relevant Holder a new Note, in a principal amount equal to any unpurchased portion of the Notes surrendered to the Holder thereof; PROVIDED, that each such new Note shall be in a principal amount of $l,000 or and integral multiple thereof. The Company shall publicly announce the results of the Change of Control Offer on or as soon as practicable after the Purchase Date. If the Purchase Date is on or after an interest record date and on or before the related interest payment date, any accrued and unpaid interest and Additional Interest, if any, in each case to the Purchase Date, shall be paid to the Person in whose name a Note is registered at the close of business on such record date, and no additional interest shall be payable to Holders pursuant to the Change of Control Offer. J.Section 3.10. REPURCHASE UPON APPLICATION OF EXCESS PROCEEDS. In the event that, pursuant to Section 4.10 hereof, the Company shall be required to commence a Net Proceeds Offer, it shall follow the procedures specified below. The notice shall contain all instructions and materials necessary to enable such Holders to tender Notes pursuant to the Net Proceeds Offer. The Net Proceeds Offer shall be made to all Holders. Each Net Proceeds Offer will be mailed to the record Holders as shown on the register of Holders within 25 days following the Net Proceeds Offer Trigger Date, with a copy to the Trustee, and shall comply with the procedures set forth in this Indenture. Upon receiving notice of the Net Proceeds Offer, Holders may elect to tender their Notes in whole or in part in integral multiples of $1,000 in exchange for cash. A Net Proceeds Offer shall remain open for a period of 20 business days or such longer period as may be required by law. The notice, which shall govern the terms of the Net Proceeds Offer, shall state: -47- (a) that the Net Proceeds Offer is being made pursuant to this Section 3.10 and Section 4.10 hereof; (b) the Net Proceeds Offer Amount, the Purchase Price and the Purchase Date; (c) that any Note not properly tendered or otherwise not accepted for repurchase shall continue to accrue interest and Additional Interest, if any; (d) that, unless the Company defaults in the payment of the amount due on the Purchase Date, all Notes or portions thereof accepted for repurchase pursuant to the Net Proceeds Offer shall cease to accrue interest and Additional Interest, if any, after the Purchase Date; (e) that Holders electing to have any Notes repurchased pursuant to any Net Proceeds Offer shall be required to tender the Notes, with the form entitled Option of Holder To Elect Purchase on the reverse of the Notes completed, or transfer by book-entry transfer, to the Company, a Depositary, if appointed by the Company, or a Paying Agent at the address specified in the notice prior to the close of business on the third Business Day preceding the Purchase Date; (f) that Holders will be entitled to withdraw their election if the Company, the Depositary or the Paying Agent, as the case may be, receives, not later than the Purchase Date, a telegram, facsimile transmission or letter setting forth the name of the Holder, the principal amount of the Notes delivered for repurchase and a statement that such Holder is withdrawing his election to have such Notes repurchased in whole or in part; (g) that, to the extent Holders properly tender Notes and holders of Pari Passu Indebtedness properly tender such Indebtedness in an amount exceeding the Net Proceeds Offer Amount, the tendered Notes and Pari Passu Indebtedness will be purchased on a PRO RATA basis based on the aggregate amounts of Notes and Pari Passu Indebtedness tendered (and the Trustee shall select the tendered Notes of tendering Holders on a PRO RATA basis based on the amount of Notes tendered); and (h) that Holders whose Notes are being repurchased only in part will be issued new Notes equal in principal amount to the portion of the Notes tendered (or transferred by book-entry transfer) that is not to be repurchased, which portion must be equal to $1,000 in principal amount or an integral multiple thereof. On or before the Purchase Date, the Company shall to the extent lawful, (i) accept for payment, on a PRO RATA basis in accordance with this Indenture to the extent necessary, the Net Proceeds Offer Amount of (A) Notes or portions thereof properly tendered pursuant to the Net Proceeds Offer and (B) properly tendered Pari Passu Indebtedness, or if less than the Net Proceeds Offer Amount has been tendered, all Notes and Pari Passu Indebtedness properly tendered, (ii) deposit with the Paying Agent an amount equal to the Purchase Price, PLUS accrued and unpaid interest and Additional Interest, if any, thereon to the Purchase Date in respect of all Notes or portions thereof so -48- tendered and accepted for repurchase and (iii) deliver or cause to be delivered to the Trustee the Notes so accepted together with an Officers' Certificate stating the aggregate principal amount of Notes or portions thereof being repurchased by the Company. The Paying Agent shall promptly (but in any case not later than five days after the Purchase Date) mail to each Holder of Notes so repurchased the amount due in connection with such Notes, and the Company shall promptly issue a new Note, and the Trustee, upon written request from the Company in the form of an Officers' Certificate shall authenticate and mail or deliver such new Note to such Holder, in a principal amount equal to any unpurchased portion to the Holder thereof; PROVIDED, that each such new Note shall be in a principal amount of $1,000 or an integral multiple thereof. The Company shall publicly announce the results of the Net Proceeds Offer on or as soon as practicable after the Purchase Date. If the Purchase Date is on or after an interest record date and on or before the related interest payment date, any accrued and unpaid interest and Additional Interest, if any, in each case to the Purchase Date, shall be paid to the Person in whose name a Note is registered at the close of business on such record date, and no additional interest shall be payable to Holders to the Net Proceeds Offer. IV.ARTICLE IV. COVENANTS A.Section 4.1. PAYMENT OF PRINCIPAL AND INTEREST. The Company shall pay or cause to be paid the principal, Redemption Price and Purchase Price of, and interest on the Notes on the dates, in the amounts and in the manner provided herein and in the Notes. Principal, Redemption Price, Purchase Price and interest shall be considered paid on the date due if the Paying Agent, if other than the Company, holds as of 10:00 a.m. Eastern Time on the due date money deposited by the Company in immediately available funds and designated for and sufficient to pay the aggregate amount then due. The Company shall pay all Additional Interest, if any, on the dates, in the amounts and in the manner set forth in the Registration Rights Agreement. The Company shall pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue principal, Redemption Price and Purchase Price at the rate equal to 1% per annum in excess of the then applicable interest rate on the Notes to the extent lawful; it shall pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue installments of interest and Additional Interest (without regard to any applicable grace period) at the same rate to the extent lawful. B.Section 4.2. MAINTENANCE OF OFFICE OR AGENCY. The Company shall maintain in the Borough of Manhattan, the City of New York, an office or agency (which may be an office of the Trustee or an affiliate of the Trustee, Registrar or co-registrar) where Notes may be surrendered for registration of transfer or for exchange and where notices and demands to or upon the Company in respect of the Notes and this Indenture may be -49- served. The Company shall give prompt written notice to the Trustee of the location, and any change in the location, of such office or agency. If at any time the Company shall fail to maintain any such required office or agency or shall fail to furnish the Trustee with the address thereof, such presentations, surrenders, notices and demands may be made or served at the Corporate Office of the Trustee. The Company may also from time to time designate one or more other offices or agencies where the Notes may be presented or surrendered for any or all such purposes and may from time to time rescind such designations PROVIDED, HOWEVER, that no such designation or rescission shall in any manner relieve the Company of its obligations to maintain an office or agency in the Borough of Manhattan, the City of New York, for such purposes. The Company shall give prompt written notice to the Trustee of any such designation or rescission and of any change in the location of any such other office or agency. The Company hereby designates the Corporate Trust Office of the Trustee as one such office or agency of the Company in accordance with Section 2.3. The Trustee may resign such agency at any time by giving written notice to the Company no later than 30 days prior to the effective date of such resignation. C.Section 4.3. REPORTS. Whether or not required by the rules and regulations of the Commission, so long as any Notes are outstanding and prior to the Company being subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act, the Company will deliver to the Trustee, within the time periods specified in the Commission's rule and regulations: (i) all quarterly and annual financial information that would be required to be contained in a filing with the Commission on Forms 10-Q and 10-K if the Company were required to file such Forms, including a "Management's Discussion and Analysis of Financial Condition and Results of Operations" that describes the financial condition and results of operations of the Company and its consolidated Subsidiaries and, with respect to the annual financial statements only, a report thereon by the Company's certified independent accountants; and (ii) all current reports that would be required to be filed with the Commission on Form 8-K if the Company were required to file such reports, in each case within the time periods specified in the Commission's rules and regulations. In addition, following the consummation of the Exchange Offer, whether or not required by the rules and regulations of the Commission, the Company will file a copy of all such information and reports with the Commission for public availability within the time periods specified in the Commission's rules and regulations (unless the Commission will not accept such a filing) and make such information available to securities analysts and prospective investors upon request. In addition, the Company has agreed that, for so long as any Notes remain outstanding, it will furnish to the Holders and to securities analysts and prospective investors, upon their request, the information -50- required to be delivered pursuant to Rule 144A(d)(4) under the Securities Act. Delivery of such reports, information and documents to the Trustee is for informational purposes only and the Trustee's receipt of such shall not constitute constructive notice of any information contained therein or determinable from information contained therein, including the Company's compliance with any of its covenants hereunder (as to which the Trustee is entitled to rely exclusively on Officers' Certificates). D.Section 4.4. COMPLIANCE CERTIFICATE. The Company and each Guarantor shall deliver to the Trustee, within 120 days after the end of each fiscal year, an Officers' Certificate further stating that a review of the activities of the Company and its Subsidiaries during the preceding fiscal year has been made under the supervision of the signing Officers with a view to determining whether the Company has kept, observed, performed and fulfilled its obligations under this Indenture in all material respects, and further stating, as to each such Officer signing such certificate, that to the best of his or her knowledge the Company has kept, observed, performed and fulfilled each and every covenant contained in this Indenture in all material respects and is not in Default in the performance or observance of any of the terms, provisions and conditions of this Indenture (and, if a Default or Event of Default shall have occurred, describing all such Defaults or Events of Default) of which he or she may have knowledge, and that to the best of his or her knowledge no event has occurred and remains in existence by reason of which, payments on account of the principal of or interest, if any, on the Notes is prohibited or if such event has occurred, a description of the event. So long as not contrary to the then current recommendations of the American Institute of Certified Public Accountants, the year-end financial statements delivered pursuant to Section 4.3 above shall be accompanied by a written statement of the Company's independent public accountants (who shall be a firm of established national reputation) that in making the examination necessary for certification of such financial statements, nothing has come to their attention that would lead them to believe that the Company has violated any provisions of Article IV or Article V hereof or, if any such violation has occurred, specifying the nature and period of existence thereof, it being understood that such accountants shall not be liable directly or indirectly to any Person for any failure to obtain knowledge of any such violation. The Company shall, so long as any of the Notes are outstanding, deliver to the Trustee, forthwith (and in any event within five Business Days) upon any Officer of the Company becoming aware of any Default or Event of Default an Officers' Certificate specifying such Default or Event of Default. E.Section 4.5. TAXES. The Company shall pay or discharge, and shall cause each of its Subsidiaries to pay or discharge, prior to delinquency, all material taxes, assessments, and governmental levies except such as are contested in good faith and by appropriate proceedings or where the failure to effect such payment is not adverse in any material respect to the Holders of the Notes. F.Section 4.6. STAY, EXTENSION AND USURY LAWS. -51- The Company covenants (to the extent that it may lawfully do so) that it shall not at any time insist upon, plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay, extension or usury law wherever enacted, now or at any time hereafter in force, that may affect the covenants or the performance of this Indenture; and the Company (to the extent that it may lawfully do so) hereby expressly waives all benefit or advantage of any such law, and covenants it shall not, by resort to any such law, hinder, delay or impede the execution of any power herein granted to the Trustee, but shall suffer and permit the execution of every such power as though such law has not been enacted. G.Section 4.7. LIMITATION ON RESTRICTED PAYMENTS. The Company will not, and will not cause or permit any of its Restricted Subsidiaries to, directly or indirectly: (1) declare or pay any dividend or make any distribution on or in respect of shares of Capital Stock of the Company or any Restricted Subsidiary to holders of such Capital Stock, other than (a) dividends or distributions payable in Qualified Capital Stock of the Company and (b) in the case of a Restricted Subsidiary, dividends or distributions payable (i) in Qualified Capital Stock of such Restricted Subsidiary and (ii) to the Company and to any other Restricted Subsidiary and pro rata dividends or distributions payable to minority stockholders of such Restricted Subsidiary; (2) purchase, redeem or otherwise acquire or retire for value any Capital Stock of the Company or any Restricted Subsidiary, other than such Capital Stock held by the Company or any Restricted Subsidiary; (3) make any principal payment on, purchase, defease, redeem, prepay, decrease or otherwise acquire or retire for value, prior to any scheduled final maturity, scheduled repayment or scheduled sinking fund payment, any Subordinated Indebtedness; or (4) make any Investment (other than Permitted Investments) (each of the foregoing actions set forth in clauses (1), (2), (3) and (4) being referred to as a "RESTRICTED PAYMENT"); if at the time of such Restricted Payment or immediately after giving effect thereto, (i) a Default or an Event of Default shall have occurred and be continuing; (ii) the Company is not able to incur at least $1.00 of additional Indebtedness (other than Permitted Indebtedness) in compliance with Section 4.9 hereof; or (iii) the aggregate amount of Restricted Payments (including such proposed Restricted Payment) made subsequent to the Issue Date (the amount expended for such purposes, if other than in cash, being the fair market value of such property as determined in -52- good faith by the Board of Directors of the Company) shall exceed the sum (the "RESTRICTED PAYMENTS BASKET") of: (v) 50% of the cumulative Consolidated Net Income (or if cumulative Consolidated Net Income shall be a loss, minus 100% of such loss) of the Company earned from the beginning of the first full fiscal quarter commencing subsequent to the Issue Date and ending on the Company's most recently ended fiscal quarter for which internal financial statements are available at the time of such proposed Restricted Payment (the "REFERENCE DATE") (treating such period as a single accounting period); plus (w) 100% of the aggregate net cash proceeds received by the Company from any Person (other than a Restricted Subsidiary of the Company) from the issuance and sale subsequent to the Issue Date and on or prior to the Reference Date of Qualified Capital Stock of the Company (but excluding any debt security that is convertible into, or exchangeable for, Qualified Capital Stock) (excluding any net cash proceeds from a Public Equity Offering to the extent used to redeem the Notes in compliance with the provisions set forth under Section 3.8 hereof); plus (x) without duplication of any amounts included in clause (iii)(w) above, 100% of the aggregate net cash proceeds of any equity contribution received by the Company from a holder of the Company's Capital Stock (excluding any net cash proceeds from a Public Equity Offering to the extent used to redeem the Notes in compliance with the provisions set forth under Section 3.8 hereof); plus (y) the amount by which the aggregate principal amount (or accreted value, if less) of Indebtedness or the amount by which Disqualified Capital Stock of the Company and its Restricted Subsidiaries is reduced on the Company's consolidated balance sheet upon the conversion or exchange subsequent to the Issue Date of any Indebtedness (including Disqualified Capital Stock) which is convertible into or exchangeable for Qualified Capital Stock of the Company, together with the net cash proceeds received by the Company at the time of such conversion; plus (z) without duplication, the sum of: (1) the aggregate amount returned in cash to the Company or any Restricted Subsidiary of the Company on or with respect to Investments (other than Permitted Investments) made subsequent to the Issue Date whether through interest payments, principal payments, dividends or other distributions or payments; (2) the net cash proceeds received by the Company or any of its Restricted Subsidiaries from the disposition of all or any portion of such Investments (other than to a Restricted Subsidiary of the Company); and -53- (3) upon redesignation of an Unrestricted Subsidiary as a Restricted Subsidiary, the fair market value of such Subsidiary; PROVIDED, HOWEVER, that the sum of clauses (1), (2) and (3) above shall not exceed the aggregate amount of all such Investments made subsequent to the Issue Date. Notwithstanding the foregoing, the provisions set forth in the immediately preceding paragraph do not prohibit: (1) the payment of any dividend within 60 days after the date of declaration of such dividend if the dividend would have been permitted on the date of declaration; (2) the repurchase, redemption or other acquisition or retirement of any shares of Capital Stock of the Company or any Restricted Subsidiary of the Company, either (i) solely in exchange for shares of Qualified Capital Stock of the Company or (ii) through the application of net proceeds of a substantially concurrent sale for cash (other than to a Restricted Subsidiary of the Company) of shares of Qualified Capital Stock of the Company; (3) the payment of principal, the repurchase, retirement, redemption or other repayment of any Subordinated Indebtedness either (i) solely in exchange for shares of Qualified Capital Stock of the Company, or (ii) through the application of net proceeds of a substantially concurrent sale for cash (other than to a Restricted Subsidiary of the Company) of (a) shares of Qualified Capital Stock of the Company or (b) if no Default or Event of Default shall have occurred and be continuing, Refinancing Indebtedness; (4) if no Default or Event of Default shall have occurred and be continuing, repurchases by the Company of Capital Stock from directors or employees or former directors or employees of the Company or any of its Subsidiaries or their authorized representatives, estates or beneficiaries upon the death, disability or termination of employment of such employees, in an aggregate amount not to exceed $500,000 in any twelve-month period; (5) the repurchase of any Subordinated Indebtedness at a purchase price not greater than 101% of the principal amount of such Indebtedness in the event of a change of control in accordance with provisions similar to Section 4.15 hereof; PROVIDED that, prior to such repurchase, the Company has made the Change of Control Offer as provided in such covenant with respect to the Notes and has repurchased all Notes validly tendered for payment in connection with such Change of Control Offer; (6) the payment or distribution, to dissenting holders of Capital Stock pursuant to applicable law, pursuant to or in connection with a consolidation, merger or transfer of assets that complies with the provisions of this Indenture applicable to mergers, consolidations and transfers of all or substantially all of the property and assets of the Company or any of its Restricted Subsidiaries; and -54- (7) the cancellation or retirement of CBI Subordinated Notes held by a Restricted Subsidiary of the Company. In determining the aggregate amount of Restricted Payments made subsequent to the Issue Date in accordance with clause (iii) of the second preceding paragraph, amounts expended pursuant to clauses (1), (4), (5) and (6) of the immediately preceding paragraph shall be included in such calculation. No issuance and sale of Qualified Capital Stock pursuant to clause (2) or (3) of the immediately preceding paragraph shall increase the Restricted Payments Basket, except to the extent the proceeds thereof exceed the amounts used to effect the transactions described therein. H.Section 4.8. Limitation on Dividend and Other Payment Restrictions Affecting SUBSIDIARIES. The Company will not, and will not cause or permit any of its Restricted Subsidiaries to, directly or indirectly, create or otherwise cause or permit to exist or become effective any consensual encumbrance or restriction on the ability of any such Restricted Subsidiary of the Company to: (1) pay dividends or make any other distributions on or in respect of its Capital Stock; (2) make loans or advances or to pay any Indebtedness or other obligation owed to the Company or any other Restricted Subsidiary of the Company; or (3) transfer any of its property or assets to the Company or any other Restricted Subsidiary of the Company, except for such encumbrances or restrictions existing under or by reason of: (a) applicable law; (b) this Indenture, the Notes and the Guarantees; (c) in the case of clause (3) above, (A) agreements or instruments that restrict in a customary manner the subletting, assignment or transfer of any property or asset that is a lease, license, conveyance or contract or similar property or asset, (B) any transfer of, agreement to transfer, option or right with respect to, or Lien on, any property or assets of the Company, or any Restricted Subsidiary not otherwise prohibited by this Indenture or (C) provisions arising or agreed to in the ordinary course of business, not relating to any Indebtedness, that do not, individually or in the aggregate, detract from the value of property or assets of the Company or any of its Restricted Subsidiaries in any manner material to the Company or any of its Restricted Subsidiaries; -55- (d) any agreement or instrument governing Acquired Indebtedness, which encumbrance or restriction is not applicable to any Person, or the properties or assets of any Person, other than the Person or the properties or assets of the Person so acquired; (e) agreements or instruments existing on the Issue Date to the extent and in the manner such encumbrances and restrictions are in effect on the Issue Date, including the Credit Agreement; (f) an agreement that has been entered into for the sale or disposition of all or substantially all of the Capital Stock of, or property and assets of, any Restricted Subsidiary of the Company or provisions with respect to the disposition or distribution of assets or property in joint venture agreements or other similar agreements or arrangements entered into in the ordinary course of business; (g) provisions in agreements or instruments which prohibit the payment of dividends or the making of other distributions with respect to any class of Capital Stock of a Person other than on a PRO RATA basis; (h) Purchase Money Indebtedness incurred in compliance with Section 4.9 hereof that impose restrictions of the nature described in clause (3) above on the property acquired; (i) restrictions on cash or other deposits imposed by customers under contracts or other arrangements entered into or agreed to in the ordinary course of business; (j) restrictions on the ability of any Foreign Restricted Subsidiary to make dividends or other distributions resulting from the operation of reasonable financial covenants contained in documentation governing Indebtedness of such Subsidiary permitted under this Indenture; or (k) an agreement governing Indebtedness incurred to Refinance the Indebtedness issued, assumed or incurred pursuant to an agreement referred to in clause (b), (d), (e), (h) or (j) above; PROVIDED, HOWEVER, that the provisions relating to such encumbrance or restriction contained in any such Indebtedness are no less favorable to the Company in any material respect as determined by the Board of Directors of the Company in their reasonable and good faith judgment than the provisions relating to such encumbrance or restriction contained in agreements referred to in such clause (b), (d), (e), (h) or (j). I.Section 4.9. LIMITATION ON INCURRENCE OF ADDITIONAL INDEBTEDNESS. 1.(a) The Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, create, incur, assume, guarantee, acquire, become liable, contingently or otherwise, with respect to, or otherwise become responsible for payment of (collectively, "INCUR") any Indebtedness (other than Permitted Indebtedness); PROVIDED, HOWEVER, that if no Default or Event of Default shall have occurred and be continuing at the time of or as a consequence of the incurrence of any such Indebtedness, the Company or any -56- of its Restricted Subsidiaries that is or, upon such incurrence, becomes a Guarantor may incur Indebtedness (including, without limitation, Acquired Indebtedness) and any Restricted Subsidiary of the Company that is not or will not, upon such incurrence, become a Guarantor may incur Acquired Indebtedness, in each case if on the date of the incurrence of such Indebtedness, after giving effect to the incurrence thereof, the Consolidated Fixed Charge Coverage Ratio of the Company is (i) greater than 2.00 to 1.0 if such Indebtedness is incurred on or before July 1, 2004 or (ii) greater than 2.25 to 1.0 if such Indebtedness is incurred after July 1, 2004. For purposes of determining compliance with this covenant, (i) Acquired Indebtedness shall be deemed to have been incurred by the Company or one of its Restricted Subsidiaries, as the case may be, at the time an acquired Person becomes such a Restricted Subsidiary (or is merged into the Company or such a Restricted Subsidiary) or at the time of the acquisition of assets, as the case may be and (ii) the maximum amount of Indebtedness that the Company and its Restricted Subsidiaries may incur pursuant to this covenant shall not be deemed to be exceeded, with respect to any outstanding Indebtedness, due solely to the result of fluctuations in the exchange rates of currencies. 2.(b) The Company will not, and will not permit any Guarantor to, directly or indirectly, incur any Indebtedness which by its terms (or by the terms of any agreement governing such Indebtedness) is subordinated in right of payment to any other Indebtedness of the Company or such Guarantor, as the case may be, unless such Indebtedness is also by its terms (or by the terms of any agreement governing such Indebtedness) made expressly subordinate to the Notes or the applicable Guarantee, as the case may be, to the same extent and in the same manner as such Indebtedness is subordinated to other Indebtedness of the Company or such Guarantor, as the case may be. J.Section 4.10. LIMITATION ON ASSET SALES. (A) The Company will not, and will not permit any of its Restricted Subsidiaries to, consummate an Asset Sale unless: (1) the Company or the applicable Restricted Subsidiary, as the case may be, receives consideration at the time of such Asset Sale at least equal to the fair market value of the assets sold or otherwise disposed of (as determined in good faith by the Company's Board of Directors); (2) at least 75% of the consideration received by the Company or the Restricted Subsidiary, as the case may be, from such Asset Sale shall be in the form of cash or Cash Equivalents and is received at the time of such disposition; PROVIDED that (a) the amount of any Indebtedness or other liabilities of the Company or any such Restricted Subsidiary (other than liabilities that are by their terms subordinated to the Notes) that are assumed by the transferee of any such assets and (b) the fair market value of any marketable securities, currencies, notes -57- or other obligations received by the Company or any such Restricted Subsidiary in exchange for any such assets that are promptly converted into cash or Cash Equivalents within 30 days after receipt thereof shall be deemed to be cash for purposes of this provision; and (3) upon the consummation of an Asset Sale, the Company shall, subject to paragraph (B) below, apply, or cause such Restricted Subsidiary to apply, the Net Cash Proceeds relating to such Asset Sale within 365 days of receipt thereof either: (a) to repay or prepay any Indebtedness under the Credit Agreement and, in the case of any such Indebtedness under any revolving credit facility, effect a permanent reduction in the availability under such revolving credit facility; PROVIDED that the Net Cash Proceeds received by the Company or any of its Restricted Subsidiaries from one or more Sale and Leaseback Transactions (the "Excluded Sale and Leaseback Transactions") may be used to repay or prepay Indebtedness under any such revolving credit facility without effecting a permanent reduction in the availability under such revolving credit facility to the extent that the aggregate proceeds received from all such Excluded Sale and Leaseback Transactions does not exceed $16.0 million; (b) to make an Investment in properties and assets that replace the properties and assets that were the subject of such Asset Sale or in properties and assets that will be used, or Capital Stock of a Person engaged, in a Permitted Business ("REPLACEMENT ASSETS"); and/or (c) a combination of prepayment and investment permitted by the foregoing clauses (3)(a) and (3)(b). (B) On the 366th day after an Asset Sale or such earlier date, if any, as the Board of Directors of the Company or of such Restricted Subsidiary determines not to apply the Net Cash Proceeds relating to such Asset Sale as set forth in clauses (3)(a), (3)(b) and (3)(c) of paragraph (A) above (each, a "NET PROCEEDS OFFER TRIGGER DATE"), such aggregate amount of Net Cash Proceeds which have not been applied on or before such Net Proceeds Offer Trigger Date as permitted in clauses (3)(a), (3)(b) and (3)(c) of paragraph (A) above (each a "NET PROCEEDS OFFER AMOUNT") shall be applied by the Company or such Restricted Subsidiary to make an offer to purchase (the "NET PROCEEDS OFFER") to all Holders and, to the extent required by the terms of any Pari Passu Indebtedness, an offer to purchase to all holders of such Pari Passu Indebtedness, on a Purchase Date not less than 30 nor more than 45 days following the applicable Net Proceeds Offer Trigger Date, from all Holders (and holders of any such Pari Passu Indebtedness) on a PRO RATA basis, that amount of Notes (and Pari Passu Indebtedness) equal to the Net Proceeds Offer Amount at a price equal to 100% of the principal amount of the Notes (and Pari Passu Indebtedness) to be purchased, plus accrued and unpaid interest thereon, if any, to the date of purchase. (C) If at any time any non-cash consideration received by the Company or any Restricted Subsidiary of the Company, as the case may be, in connection with any Asset Sale is converted into or sold or otherwise disposed of for cash (other than interest received with respect to -58- any such non-cash consideration), then such conversion or disposition shall be deemed to constitute an Asset Sale hereunder and the Net Cash Proceeds thereof shall be applied in accordance with this Section 4.10. (D) The Company may defer the Net Proceeds Offer until there is an aggregate unutilized Net Proceeds Offer Amount equal to or in excess of $5.0 million resulting from one or more Asset Sales (at which time, the entire unutilized Net Proceeds Offer Amount, and not just the amount in excess of $5.0 million, shall be applied as required pursuant to this Section 4.10). (E) In the event of the transfer of substantially all (but not all) of the property and assets of the Company and its Restricted Subsidiaries as an entirety to a Person in a transaction permitted under Section 5.1, which transaction does not constitute a Change of Control, the successor corporation shall be deemed to have sold the properties and assets of the Company and its Restricted Subsidiaries not so transferred for purposes of this covenant, and shall comply with the provisions of this covenant with respect to such deemed sale as if it were an Asset Sale. In addition, the fair market value of such properties and assets of the Company or its Restricted Subsidiaries deemed to be sold shall be deemed to be Net Cash Proceeds for purposes of this covenant. (F) To the extent that the aggregate value of Notes tendered pursuant to such Net Proceeds Offer is less than the Net Proceeds Offer Amount, the Company may use the remaining amounts for general corporate purposes. Upon completion of such Net Proceeds Offer, the Net Proceeds Offer Amount will be reset to zero. (G) Notwithstanding paragraphs (A) and (B) of this Section 4.10, the Company and its Restricted Subsidiaries will be permitted to consummate an Asset Sale without complying with such paragraphs to the extent that: (i) at least 75% of the consideration for such Asset Sale constitutes Replacement Assets; and (ii) such Asset Sale is for fair market value; PROVIDED that any cash or Cash Equivalents received by the Company or any of its Restricted Subsidiaries in connection with any Asset Sale permitted to be consummated under this paragraph shall constitute Net Cash Proceeds subject to the provisions of paragraphs (A) and (B) of this Section 4.10. (H) The Company will comply with the requirements of Rule 14e-1 under the Exchange Act and any other securities laws and regulations to the extent such laws and regulations are applicable in connection with the repurchase of Notes pursuant to a Net Proceeds Offer. To the extent that the provisions of any securities laws or regulations conflict with this Section 4.10, the Company shall comply with the applicable securities laws and regulations and shall not be deemed to have breached its obligations under this Section 4.10 by virtue thereof. K.Section 4.11. LIMITATIONS ON TRANSACTIONS WITH AFFILIATES. -59- The Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, enter into or permit to exist any transaction or series of related transactions (including, without limitation, the purchase, sale, lease or exchange of any property or the rendering of any service) with, or for the benefit of, any of its Affiliates (each an "AFFILIATE TRANSACTION"), other than (x) Affiliate Transactions permitted under the third paragraph of this covenant and (y) Affiliate Transactions on terms that are no less favorable than those that might reasonably have been obtained in a comparable transaction at such time on an arm's-length basis from a Person that is not an Affiliate of the Company or such Restricted Subsidiary. All Affiliate Transactions (and each series of related Affiliate Transactions which are similar or part of a common plan) involving aggregate payments or other property with a fair market value in excess of $2.0 million shall be approved by the Board of Directors of the Company or such Restricted Subsidiary, as the case may be, such approval to be evidenced by a Board Resolution stating that such Board of Directors has determined that such transaction complies with the foregoing provisions. If the Company or any Restricted Subsidiary of the Company enters into an Affiliate Transaction (or a series of related Affiliate Transactions related to a common plan) that involves an aggregate fair market value of more than $5.0 million, the Company or such Restricted Subsidiary, as the case may be, shall, prior to the consummation thereof, obtain a favorable opinion as to the fairness of such transaction or series of related transactions to the Company or the relevant Restricted Subsidiary, as the case may be, from a financial point of view, issued by an Independent Financial Advisor and file the same with the Trustee. The restrictions set forth in the first paragraph of this Section 4.11 shall not apply to: (1) reasonable fees and compensation paid to and indemnity and reimbursement provided on behalf of, officers, directors, employees or consultants of the Company or any Restricted Subsidiary of the Company as determined in good faith by the Company's Board of Directors or senior management; (2) transactions exclusively between or among the Company and any of its Wholly Owned Restricted Subsidiaries or exclusively between or among such Wholly Owned Restricted Subsidiaries, provided such transactions are not otherwise prohibited by this Indenture; (3) any agreement (other than the Management Agreement) as in effect as of the Issue Date or any amendment thereto or any transaction contemplated thereby (including pursuant to any amendment thereto) in any replacement agreement thereto so long as any such amendment or replacement agreement is not more disadvantageous to the Holders, taken as a whole, in any material respect than the original agreement as in effect on the Issue Date; (4) the payment to Castle Harlan, Inc. of management fees pursuant to and in accordance with the Management Agreement not to exceed the amount per year specified in the Management Agreement; PROVIDED that, in the event the full amount thereof is not paid in any year, the deficiency may cumulate and, provided that no Default or Event of Default shall -60- have occurred and be continuing at the time of payment, may be paid together with the then current management fee for such subsequent year; (5) Restricted Payments permitted by this Indenture; (6) any employment, stock option, stock repurchase, employee benefit, compensation, business expense reimbursement or other employment-related agreements, arrangements or plans entered into by the Company or any of its Restricted Subsidiaries in the ordinary course of business; (7) loans or advances to employees or directors in the ordinary course of business of the Company or any of its Restricted Subsidiaries to the extent permitted under this Indenture; (8) any payments or other transactions pursuant to any tax-sharing agreement between the Company and any other Person with which it files a consolidated tax return or with which the Company is part of a consolidated group for tax purposes; (9) any Affiliate Transaction which constitutes a Permitted Investment; (10) any transaction on arm's length terms with non-Affiliates that become Affiliates as a result of such transaction; and (11) the issuance of Qualified Capital Stock of the Company or any of its Restricted Subsidiaries. L.Section 4.12. LIMITATION ON LIENS. The Company will not, and will not cause or permit any of its Restricted Subsidiaries to, directly or indirectly, create, incur, assume or permit or suffer to exist any Liens (other than Permitted Liens) of any kind against or upon any property or assets of the Company or any of its Restricted Subsidiaries whether owned on the Issue Date or acquired after the Issue Date, or any proceeds therefrom, or assign or otherwise convey any right to receive income or profits therefrom unless: (1) in the case of Liens securing Subordinated Indebtedness, the Notes are secured by a Lien on such property, assets or proceeds that is senior in priority to such Liens; and (2) in all other cases, the Notes are equally and ratably secured by a Lien on such property, assets, proceeds, income or profit. In the event that all Liens, the existence of any of which gives rise to a Lien securing the Notes pursuant to the provisions of this covenant, cease to exist, the Lien securing the Notes -61- required by this covenant shall automatically be released and the Trustee shall execute appropriate documentation. M.Section 4.13. CONTINUED EXISTENCE. Subject to Article V hereof, each of the Company and the Guarantors shall do or cause to be done all things necessary to preserve and keep in full force and effect (i) its corporate or other existence in accordance with the organizational documents (as the same may be amended from time to time) of the Company or such Guarantor and (ii) the material rights (charter and statutory), licenses and franchises of the Company or such Guarantor, except to the extent that the applicable Board of Directors determines in good faith that the preservation of such right, license or franchise is no longer necessary or desirable in the conduct of the business of the Company or such Guarantor and that the loss thereof is not disadvantageous in any material respect to the Holders. N.Section 4.14. INSURANCE MATTERS. The Company shall provide or cause to be provided, for itself and each of its Subsidiaries, insurance (including appropriate self-insurance) against loss or damage of the kinds that, in the reasonable, good faith opinion of the Company, are adequate and appropriate for the conduct of the business of the Company and its Subsidiaries in a prudent manner, with reputable insurers or with the government of the United States of America or an agency or instrumentality thereof, in such amounts, with such deductibles, and by such methods as shall be either (i) consistent with past practices of the Company or the applicable Subsidiary or (ii) customary, in the reasonable, good faith opinion of the Company, for corporations similarly situated in the industry, unless the failure to provide such insurance (together with all other such failures) would not have a material adverse effect on the financial condition or results of operations of the Company and its Subsidiaries, taken as a whole. O.Section 4.15. OFFER TO REPURCHASE UPON CHANGE OF CONTROL. Upon the occurrence of a Change of Control, each Holder of Notes shall have the right to require the Company to repurchase all or any part (equal to $1,000 or an integral multiple thereof) of such Holder's Notes (a "CHANGE OF CONTROL OFFER") at a Purchase Price in cash equal to 101% of the aggregate principal amount thereof, together with accrued and unpaid interest and Additional Interest, if any, thereon to the Purchase Date. The Change of Control Offer shall be made in compliance with the applicable procedures set forth in Article III hereof and shall include all instructions and materials necessary to enable Holders to tender their Notes. The Company will not be required to make a Change of Control Offer upon a Change of Control if a third party makes the Change of Control Offer in the manner, at the times and otherwise in compliance with the requirements set forth in this Indenture applicable to a Change of Control Offer made by the Company and purchases all Notes validly tendered and not withdrawn under such Change of Control Offer. -62- The Company will comply with the requirements of Rule 14e-1 under the Exchange Act and any other securities laws and regulations to the extent such laws and regulations are applicable in connection with the repurchase of Notes pursuant to a Change of Control Offer. To the extent that the provisions of any securities laws or regulations conflict with this Section 4.15, the Company shall comply with the applicable securities laws and regulations and shall not be deemed to have breached its obligations under this Section 4.15 by virtue hereof. P.Section 4.16. ADDITIONAL SUBSIDIARY GUARANTEES. 1.If the Company or any of its Restricted Subsidiaries transfers or causes to be transferred, in one transaction or a series of related transactions, any property to any Material Domestic Restricted Subsidiary that is not a Guarantor, or if the Company or any of its Restricted Subsidiaries shall organize, acquire or otherwise invest in another Material Domestic Restricted Subsidiary, then such transferee or acquired or other Restricted Subsidiary shall: (1) execute and deliver to the Trustee a supplemental indenture in form reasonably satisfactory to the Trustee pursuant to which such Restricted Subsidiary shall unconditionally guarantee all of the Company's obligations under the Notes and this Indenture on the terms set forth in this Indenture; and (2) deliver to the Trustee an opinion of counsel that such supplemental indenture has been duly authorized, executed and delivered by such Restricted Subsidiary and constitutes a legal, valid, binding and enforceable obligation of such Restricted Subsidiary. Thereafter, such Restricted Subsidiary shall be a Guarantor for all purposes of this Indenture. Q.Section 4.17. CONDUCT OF BUSINESS. The Company and its Restricted Subsidiaries will not engage in any businesses which is not a Permitted Business. R.Section 4.18. PAYMENTS FOR CONSENT. Neither the Company nor any of its Subsidiaries shall, directly or indirectly, pay or cause to be paid any consideration, whether by way of interest, fee or otherwise, to any Holder of any Notes for or as an inducement to any consent, waiver or amendment of any of the terms or provisions of this Indenture or the Notes unless such consideration is offered to be paid or is paid to all Holders of the Notes that consent, waive or agree to amend in the time frame set forth in the solicitation documents relating to such consent, waiver or agreement. S.Section 4.19. LIMITATION ON PREFERRED STOCK OF RESTRICTED SUBSIDIARIES. -63- The Company will not permit any of its Restricted Subsidiaries that are not Guarantors to issue any Preferred Stock (other than to the Company or to a Wholly Owned Restricted Subsidiary of the Company) or permit any Person (other than the Company or a Wholly Owned Restricted Subsidiary of the Company) to own any Preferred Stock of any Restricted Subsidiary of the Company that is not a Guarantor. V.ARTICLE V. SUCCESSORS A.Section 5.1. MERGER, CONSOLIDATION AND OR SALE OF ASSETS. The Company will not, in a single transaction or series of related transactions, consolidate or merge with or into any Person, or sell, assign, transfer, lease, convey or otherwise dispose of (or cause or permit any Restricted Subsidiary of the Company to sell, assign, transfer, lease, convey or otherwise dispose of) all or substantially all of the Company's assets (determined on a consolidated basis for the Company and the Company's Restricted Subsidiaries) whether as an entirety or substantially as an entirety to any Person unless: (1) either: (a) the Company shall be the surviving or continuing corporation; or (b) the Person (if other than the Company) formed by such consolidation or into which the Company is merged or the Person which acquires by sale, assignment, transfer, lease, conveyance or other disposition the properties and assets of the Company and of the Company's Restricted Subsidiaries substantially as an entirety (the "SURVIVING ENTITY"): (x) shall be a corporation organized and validly existing under the laws of the United States or any State thereof or the District of Columbia; and (y) shall expressly assume, by supplemental indenture (in form and substance reasonably satisfactory to the Trustee in all respects), executed and delivered to the Trustee, the due and punctual payment of the principal of, and premium, if any, and interest on all of the Notes and the performance of every covenant of the Notes, this Indenture and the Registration Rights Agreement on the part of the Company to be performed or observed; (2) except in the case of a consolidation or merger of the Company with or into a Wholly Owned Restricted Subsidiary, or a sale, assignment, transfer, lease, conveyance or other disposition of all or substantially all of the Company's assets to a Wholly Owned Restricted Subsidiary, immediately after giving effect to such transaction and the assumption -64- contemplated by clause(1)(b)(y) above (including giving effect to any Indebtedness (including Acquired Indebtedness) incurred or anticipated to be incurred in connection with or in respect of such transaction), the Company or such Surviving Entity, as the case may be, (a) shall have a Consolidated Net Worth equal to or greater than the Consolidated Net Worth of the Company immediately prior to such transaction and (b) shall be able to incur at least $1.00 of additional Indebtedness (other than Permitted Indebtedness) pursuant to Section 4.9 hereof; (3) immediately before and immediately after giving effect to such transaction and the assumption contemplated by clause (1)(b)(y) above (including, without limitation, giving effect to any Indebtedness(including Acquired Indebtedness) incurred or anticipated to be incurred and any Lien granted in connection with or in respect of the transaction), no Default or Event of Default shall have occurred or be continuing; and (4) the Company or the Surviving Entity shall have delivered to the Trustee an officers' certificate and an opinion of counsel, each stating that such consolidation, merger, sale, assignment, transfer, lease, conveyance or other disposition and, if a supplemental indenture is required in connection with such transaction, such supplemental indenture comply with the applicable provisions of this Indenture and that all conditions precedent in this Indenture relating to such transaction have been satisfied. For purposes of the foregoing, the transfer (by lease, assignment, sale or otherwise, in a single transaction or series of transactions) of all or substantially all of the properties or assets of one or more Restricted Subsidiaries of the Company, the Capital Stock of which constitutes all or substantially all of the properties and assets of the Company, shall be deemed to be the transfer of all or substantially all of the properties and assets of the Company and the Company, if surviving, will be automatically discharged from all of its Obligations under this Indenture and the Notes so long as the requirements set forth above are satisfied. Upon any consolidation, combination or merger or any transfer of all or substantially all of the assets of the Company in accordance with the foregoing, in which the Company is not the continuing corporation, the Surviving Entity formed by such consolidation or into which the Company is merged or to which such conveyance, lease or transfer is made shall succeed to, and be substituted for, and may exercise every right and power of, the Company under this Indenture and the Notes with the same effect as if such Surviving Entity had been named as such. Each Guarantor (other than any Guarantor whose Guarantee is to be released in accordance with the terms of the Guarantee and this Indenture in connection with any transaction complying with the provisions of Section 4.10) will not, and the Company will not cause or permit any Guarantor to, consolidate with or merge with or into any Person other than the Company or any other Guarantor unless: (1) the entity formed by or surviving any such consolidation or merger (if other than the Guarantor) or to which such sale, lease, conveyance or other disposition shall have been made is a corporation organized and existing under the laws of the United States or any State thereof or the District of Columbia; -65- (2) such entity assumes by supplemental indenture all of the obligations of the Guarantor under the Guarantee, this Indenture and the Registration Rights Agreement; (3) immediately after giving effect to such transaction, no Default or Event of Default shall have occurred and be continuing; and (4) immediately after giving effect to such transaction and the use of any net proceeds therefrom on a PRO FORMA basis, the Company could satisfy the provisions of clause (2) of the first paragraph of this Section 5.1. Any merger or consolidation, or sale, assignment, transfer, lease, conveyance or other disposition of all or substantially all of the property or assets, (a) of a Guarantor with and into the Company (with the Company being the surviving entity) or another Guarantor that is a Wholly Owned Restricted Subsidiary of the Company or (b) of the Company with an Affiliate incorporated solely for the purpose of reincorporating the Company in another jurisdiction in the United States or any state thereof or the District of Columbia, need only comply with clause (4) of the first paragraph of this Section 5.1. B.Section 5.2. SUCCESSOR CORPORATION SUBSTITUTED. Upon any consolidation or merger, or any sale, lease, conveyance or other disposition of all or substantially all of the assets of the Company in accordance with Section 5.1 hereof, the Surviving Entity shall succeed to and be substituted for, and may exercise every right and power of, the Company under this Indenture with the same effect as if such Surviving Entity had been named as the Company herein; PROVIDED, HOWEVER, that the predecessor Company shall not be relieved from the obligation to pay the principal, Purchase Price or Redemption Price of or interest or Additional Interest, if any, on the Notes except in the case of a sale of all of the Company's assets that meets the requirements of Section 5.1 hereof. VI.ARTICLE VI. DEFAULTS AND REMEDIES A.Section 6.1. EVENTS OF DEFAULT. Each of the following constitutes an "EVENT OF DEFAULT": (a) the failure to pay interest on any Note when the same becomes due and payable and the default continues for a period of 30 days; (b) the failure to pay the principal of any Note, when such principal becomes due and payable, at maturity, upon redemption or otherwise (including the failure to make a payment to purchase Notes tendered pursuant to a Change of Control Offer or a Net Proceeds Offer); -66- (c) a default in the observance or performance of any other covenant or agreement contained herein which default continues for a period of 45 days after the Company receives written notice specifying the default (and demanding that such default be remedied and stating that such notice is a "Notice of Default") from the Trustee or the Holders of at least 25% of the outstanding principal amount of the Notes (except in the case of a default with respect to Section 5.1 hereof, which will constitute an Event of Default with such notice requirement but without such passage of time requirement); (d) the failure to pay at final maturity (giving effect to any applicable grace periods and any extensions thereof) the principal amount of any Indebtedness of the Company or any Restricted Subsidiary of the Company, or the acceleration of the final stated maturity of any such Indebtedness, if the aggregate principal amount of such Indebtedness, together with the principal amount of any other such Indebtedness in default for failure to pay principal at final maturity or which has been accelerated, aggregates $5.0 million or more at any time and such failure shall not have been cured or waived within 20 days thereof; (e) one or more judgments in an aggregate amount in excess of $5.0 million (net of any insurance or indemnity payments actually received in respect thereof prior to or within 60 days from the entry thereof, or to be received in respect thereof in the event any appeal thereof shall be unsuccessful) shall have been rendered against the Company or any of its Restricted Subsidiaries and such judgments shall remain undischarged, unpaid or unstayed for a period of 60 consecutive days after such judgment or judgments become final and non-appealable; (f) the Company or any Significant Subsidiary of the Company: (i) commences a voluntary case under any Bankruptcy Law, (ii) consents to the entry of an order for relief against it in an involuntary case, (iii) consents to the appointment of a custodian or receiver of it or for all or substantially, all of its property, (iv) makes a general assignment for the benefit of its creditors, or (v) generally is not paying its debts as they become due; or (g) a court of competent jurisdiction enters an order or decree under any Bankruptcy Law that: (i) is for relief in an involuntary case against the Company or any Significant Subsidiary of the Company; -67- (ii) appoints a custodian or receiver of the Company or any Significant Subsidiary or for all or substantially all of the property of any of the foregoing; (iii) orders the liquidation of the Company or any of its Significant Subsidiaries; and the order or decree remains unstayed and in effect for 60 consecutive days; or (h) any Guarantee of a Significant Subsidiary ceases to be in full force and effect or any Guarantee of a Significant Subsidiary is declared to be null and void and unenforceable or any Guarantee of a Significant Subsidiary is found to be invalid or any Guarantor that is a Significant Subsidiary denies its liability in writing under its Guarantee (other than by reason of release of a Guarantor in accordance with the terms of this Indenture). B.Section 6.2. ACCELERATION. If any Event of Default (other than an Event of Default specified in clause (f) or (g) of Section 6.1 hereof with respect to the Company shall occur and be continuing, the Trustee or the Holders of at least 25% in principal amount of the then outstanding Notes by written notice to the Company (and the Trustee, if such notice is given by such Holders) may declare the principal of and accrued and unpaid interest on the Notes to be due and payable immediately, which notice shall specify the respective Events of Default and that it is a "NOTICE OF ACCELERATION". Upon any such declaration, the entire principal amount of, and accrued and unpaid interest and Additional Interest, if any, on the Notes shall become immediately due and payable. Notwithstanding the foregoing, if an Event of Default specified in clause (f) or (g) of Section 6.1 hereof occurs with respect to the Company, all outstanding Notes shall be due and payable immediately without further action or notice. The Holders of not less than a majority in aggregate principal amount of the then outstanding Notes by written notice to the Company and the Trustee may, on behalf of the Holders of all of the Notes, rescind an acceleration and its consequences: (1) if the rescission would not conflict with any judgment or decree; (2) if all existing Events of Default have been cured or waived except nonpayment of principal or interest that has become due solely because of the acceleration; (3) to the extent the payment of such interest is lawful, if interest on overdue installments of interest and overdue principal, which has become due otherwise than by such declaration of acceleration, has been paid; and (4) if the Company has paid the Trustee its reasonable compensation and reimbursed the Trustee for its expenses, disbursements and advances. -68- No such rescission shall affect any subsequent Default or impair any right consequent thereto. C.Section 6.3. OTHER REMEDIES. If an Event of Default occurs and is continuing, the Trustee may pursue any available remedy to collect the payment of principal, premium, if any, interest or Additional Interest, if any, on the Notes or to enforce the performance of any provision of the Notes or this Indenture. The Trustee may maintain a proceeding even if it does not possess any of the Notes or does not produce any of them in the proceeding, and any recovery or judgment shall, after provision for the payment of the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, be for the ratable benefit of the Holders of the Notes. A delay or omission by the Trustee or any Holder in exercising any right or remedy accruing upon an Event of Default shall not impair the right or remedy or constitute a waiver of or acquiescence in the Event of Default. All remedies are cumulative to the extent permitted by law. D.Section 6.4. WAIVER OF PAST DEFAULTS. The Holders of a majority in principal amount of the Notes may waive any existing or past Default or Event of Default under this Indenture, and its consequences, except a default in the payment of the principal of or interest on any Notes. Upon any such waiver, such Default shall cease to exist, and any Event of Default arising therefrom shall be deemed to have been cured for every purpose of this Indenture; but no such waiver shall extend to any subsequent or other Default or impair any right consequent thereon. E.Section 6.5. CONTROL BY MAJORITY. Holders of a majority in principal amount of the then outstanding Notes may direct the time, method and place of conducting any proceeding for exercising any remedy available to the Trustee or exercising any trust or power conferred on it. However, the Trustee may refuse to follow any direction that conflicts with applicable law or this Indenture that the Trustee reasonably determines may be unduly prejudicial to the rights of other Holders of Notes or that may subject the Trustee to personal liability and shall be entitled to the benefit of Sections 7.1(c)(iii) and (e) hereof. F.Section 6.6. LIMITATION ON SUITS. A Holder of a Note may pursue a remedy with respect to this Indenture or the Notes only if: (a) the Holder of a Note gives to the Trustee written notice of a continuing Event of Default; (b) the Holders of at least 25% in principal amount of the then outstanding Notes make a written request to the Trustee to pursue the remedy; -69- (c) such Holder or Holders of Notes offer and, if requested, provide to the Trustee indemnity satisfactory to the Trustee against any loss, liability or expense; (d) the Trustee does not comply with the request within 60 days after receipt of the request and the offer and, if requested, the provision of indemnity; and (e) during such 60-day period the Holders of a majority in principal amount of the then outstanding Notes do not give the Trustee a direction inconsistent with the request. A Holder of a Note may not use this Indenture to prejudice the rights of another Holder of a Note or to obtain a preference or priority over another Holder of a Note. G.Section 6.7. RIGHTS OF HOLDERS OF NOTES TO RECEIVE PAYMENT. Notwithstanding any other provision of this Indenture, the right of any Holder of a Note to receive payment of principal of, or premium, if any, interest or Additional Interest, if any, on the Note, on or after the respective due dates thereon (including in connection with an offer to repurchase), or to bring suit for the enforcement of any such payment on or after such respective dates, shall not be impaired or affected without the written consent of such Holder. H.Section 6.8. COLLECTION SUIT BY TRUSTEE. If an Event of Default specified in Section 6.l(a) or (b) occurs and is continuing, the Trustee is authorized to recover judgment in its own name and as trustee of an express trust against the Company for the whole amount of principal of, premium and Additional Interest, if any, and interest remaining unpaid on the Notes and interest on overdue principal and, to the extent lawful, interest and Additional Interest, if any, and such further amounts as shall be sufficient to cover the costs and expenses of collection, including the reasonable compensation, expense, disbursements and advances of the Trustee, its agents and counsel. I.Section 6.9. [INTENTIONALLY OMITTED]. J.Section 6.10. TRUSTEE MAY FILE PROOFS OF CLAIM. The Trustee is authorized to file such proofs of claim and other papers or documents as may be necessary or advisable in order to have the claims of the Trustee (including any claim for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents (including accountants, experts or such other processionals as the Trustee deems necessary, advisable or appropriate) and counsel and the Holders of the Notes allowed in any judicial proceedings relative to the Company (or any other obligor upon the Notes), its creditors or its property and shall be entitled and empowered to collect, receive and distribute any money or other property payable or deliverable on any such claims, and any custodian in any such judicial proceeding is hereby authorized by each Holder to make such payments to the Trustee, and in the event that the Trustee shall consent to the making of such payments directly to the Holders, to pay to the Trustee any amount due to it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and -70- counsel, and any other amounts due the Trustee under Section 7.7 hereof. To the extent that the payment of any such compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 7.7 hereof out of the estate in any such proceeding, shall be denied for any reason, payment of the same shall be secured by a lien on, and shall be paid out of, any and all distributions, dividends, money, securities and other properties that the Holders may be entitled to receive in such proceeding whether in liquidation or under any plan of reorganization or arrangement or otherwise. Nothing herein contained shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Holder any plan of reorganization, arrangement, adjustment or composition affecting the Notes or the rights of any Holder, or to authorize the Trustee to vote in respect of the claim of any Holder in any such proceeding. K.Section 6.11. PRIORITIES. If the Trustee collects any money pursuant to this Article, it shall pay out the money in the following order: FIRST: to the Trustee, its agents and attorneys for amounts due under Section 7.7 hereof, including payment of all compensation, expense and liabilities incurred, and all advances made, by the Trustee and the costs and expenses of collection; SECOND: to Holders of Notes for amounts due and unpaid on the Notes for principal, Purchase Price, Redemption Price and Additional Interest, if any, and interest, ratably, without preference or priority of any kind, according to the amounts due and payable on the Notes for principal, Purchase Price, Redemption Price and Additional Interest, if any, and interest, respectively; and THIRD: to the Company, the Guarantors or to such party as a court of competent jurisdiction shall direct. The Trustee may fix a special record date and payment date for any payment to Holders of Notes pursuant to this Section 6.11. L.Section 6.12. UNDERTAKING FOR COSTS. In any suit for the enforcement of any right or remedy under this Indenture or in any suit against the Trustee for any action taken or omitted by it as a Trustee, a court in its discretion may require the filing by any party litigant in the suit of an undertaking to pay the costs of the suit, and the court in its discretion may assess reasonable costs, including reasonable attorneys' fees, against any party litigant in the suit, having due regard to the merits and good faith of the claims or defenses made by the party litigant. This Section does not apply to a suit by the Trustee, a suit by a Holder pursuant to Section 6.7 hereof, or a suit by Holders of more than 10% in principal amount of the then outstanding Notes. -71- VII.ARTICLE VII. TRUSTEE A.Section 7.1. DUTIES OF TRUSTEE. 1.(a) If an Event of Default has occurred and is continuing, the Trustee shall exercise such of the rights and powers vested in it by this Indenture, and use the same degree of care and skill in its exercise thereof, as a prudent person would exercise or use under the circumstances in the conduct of such person's own affairs. 2.(b) Except during the continuance of an Event of Default: (i) the duties of the Trustee shall be determined solely by the express provisions of this Indenture and the TIA and the Trustee need perform only those duties that are specifically set forth in this Indenture and no others, and no implied covenants or obligations shall be read into this Indenture or the TIA against the Trustee; and (ii) in the absence of bad faith on its part, the Trustee may conclusively rely, without investigation, as to the truth or the statements and the correctness of the opinions expressed therein, upon and statements, certificates or opinions furnished to the Trustee and conforming to the requirements of this Indenture. However, the Trustee shall examine the certificates and opinions to determine whether or not they conform on their face to the requirements of this Indenture. 3.(c) The Trustee may not be relieved from liabilities for its own negligent action, its own negligent failure to act, or its own willful misconduct, except that: (i) this paragraph does not limit the effect of paragraph (b) of this Section; (ii) the Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer, unless it is proved that the Trustee was negligent in ascertaining the pertinent facts; and (iii) the Trustee shall not be liable with respect to any action it takes or omits to take in good faith in accordance with a direction received by it pursuant to Section 6.5 hereof. 4.(d) Whether or not therein expressly so provided, every provision of this Indenture that in any way relates to the Trustee is subject to this Section 7.1. 5.(e) No provision of this Indenture shall require the Trustee to expend or risk its own funds or incur any liability. The Trustee shall be under no obligation to exercise any of its rights and powers under this Indenture at the request of any Holders, pursuant to the -72- provisions of this Indenture, including, without limitation, Section 6.5 hereof, unless such Holder shall have offered to the Trustee security and indemnity satisfactory to it against any loss, liability or expense which might be incurred by it in compliance with such request or direction. 6.(f) The Trustee shall not be liable for interest on any money received by it except as the Trustee may agree in writing with the Company. Money held in trust by the Trustee need not be segregated from other funds except to the extent required by law. B.Section 7.2. RIGHTS OF TRUSTEE. 1.(a) The Trustee may conclusively rely and shall be protected in acting or refraining from acting upon any document believed by it to be genuine and to have been signed or presented by the proper Person. The Trustee need not investigate any fact or matter stated in the document. 2.(b) Before the Trustee acts or refrain from acting, it shall require an Officer's Certificate or an Opinion of Counsel or both. The Trustee shall not be liable for any action it takes or omits to take in good faith in reliance on such Officers' Certificate or Opinion of Counsel. The Trustee may consult with counsel of its own selection and the written advice of such counsel and Opinions of Counsel shall be full and complete authorization and protection from liability in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon. 3.(c) The Trustee may act through its attorneys, accountants, experts and such other professionals as the Trustee deems necessary, advisable or appropriate and shall not be responsible for the misconduct or negligence of any attorney, accountant, expert or other such professional appointed with due care. 4.(d) The Trustee shall not be liable for any action it takes or omits to take in good faith that it believes to be authorized or within the rights or powers conferred upon it by this Indenture. 5.(e) Unless otherwise specifically provided in this Indenture, any demand, request, direction or notice from the Company shall be sufficiently evidenced by a written order signed by two Officers of the Company. 6.(f) The Trustee shall not be charged with knowledge of any Default or Event of Default under Section 6.1 hereof (other than under Section 6.1(a) (subject to the following sentence) or Section 6.1(b) hereof) unless either (i) a Responsible Officer shall have actual knowledge thereof, or (ii) the Trustee shall have received notice thereof in accordance with Section 13.2 hereof from the Company or any Holder of the Notes. The Trustee shall not -73- be charged with knowledge of the Company's obligation to pay Additional Interest, or the cessation of such obligation, unless the Trustee receives written notice thereof from the Company or any Holder. 7.(g) The rights, privileges, protections, immunities and benefits given to the Trustee, including, without limitation, its right to be indemnified, are extended to, and shall be enforceable by, the Trustee in each of its capacities hereunder, and each agent, custodian and other Person employed to act hereunder. (h) The Trustee may request that the Company deliver an Officers' Certificate setting forth the names of individuals and/or titles of officers authorized at such time to take specified actions pursuant to this Indenture, which Officers' Certificate may be signed by any person specified as so authorized in any such certificate previously delivered and not superseded. C.Section 7.3. INDIVIDUAL RIGHTS OF TRUSTEE. The Trustee in its individual or any other capacity may become the owner or pledgee of Notes and may otherwise deal with the Company or any Affiliate of the Company with the same rights it would have if it were not Trustee. However, in the event that the Trustee acquires any conflicting interest within the meaning of the TIA it must eliminate such conflict within 90 days, apply (subject to the consent of the Company) to the Commission for permission to continue as trustee or resign. Any Agent may do the same with like rights and duties. The Trustee is also subject to Sections 7.10 and 7.11 hereof. D.Section 7.4. TRUSTEE'S DISCLAIMER. The Trustee shall not be responsible for and makes no representation as to the validity or adequacy of this Indenture, or the Notes, it shall not be accountable for the Company's use of the proceeds from the Notes or any money paid to the Company or upon the Company's direction under any provision of this Indenture, it shall not be responsible for the use or application of any money received by any Paying Agent other than the Trustee, and it shall not be responsible for any statement or recital herein or any statement in the Notes or any other document in connection with the sale of the Notes or pursuant to this Indenture other than its certificate of authentication. E.Section 7.5. NOTICE OF DEFAULTS. If a Default or Event of Default occurs and is continuing, the Trustee shall mail to Holders of Notes a notice of the Default or Event of Default within 90 days after it occurs. Except in the case of a Default in payment on any Note (including the failure to make a mandatory repurchase pursuant hereto), the Trustee may withhold the notice if and so long as a committee of its Responsible Officers in good faith determines that withholding the notice is in the interests of the Holders of the Notes. F.Section 7.6. REPORTS BY TRUSTEE TO HOLDER OF THE NOTES. -74- Within 60 days after each February 15 beginning with the February 15 following the date of this Indenture, and for so long as Notes remain outstanding, the Trustee shall mail to the Holders of the Notes a brief report dated as of such reporting date that complies with TIA Section 313(a) (but if no event described in TIA Section 313(a) has occurred within the twelve months preceding the reporting date, no report need be transmitted). The Trustee also shall comply with TIA Section 313(b). The Trustee shall also transmit by mail all reports as required by TIA Section 313(c). A copy of each report at the time of its mailing to the Holders of Notes shall be mailed to the Company and filed with the Commission and each stock exchange on which the Notes are listed in accordance with TIA Section 313(d). The Company shall promptly notify the Trustee when the Notes are listed on any stock exchange. G.Section 7.7. COMPENSATION, REIMBURSEMENT AND INDEMNITY. The Company shall pay to the Trustee from time to time such compensation for its acceptance of this Indenture and the rendering by it of the services required hereunder as shall be agreed upon in writing by the Company and the Trustee. The Trustee's compensation shall not be limited by any law on compensation of a trustee of an express trust. The Company shall reimburse the Trustee promptly upon request for all reasonable disbursements, advances and expenses incurred or made by or on behalf of it in addition to the compensation for its services. Such expenses shall include the reasonable compensation, disbursements and expenses of the Trustee's attorneys, accountants, experts and such other professionals as the Trustee deems necessary, advisable or appropriate. The Company shall indemnify the Trustee and any predecessor Trustee against any and all losses, liabilities, claims, damages or expenses, including taxes (other than taxes based upon, measured by or determined by the income of the Trustee), incurred by it arising out of or in connection with the acceptance or administration of its duties under this Indenture (including its duties under Section 9.6 hereof), including the costs and expenses of enforcing this Indenture or any Guarantee against the Company or a Guarantor (including this Section 7.7) and defending itself against or investigating any claim (whether asserted by the Company, any Guarantor, any Holder or any other Person) or liability in connection with the exercise or performance of any of its powers or duties hereunder, except to the extent any such loss, liability or expense may be attributable to its negligence or willful misconduct. The Trustee shall notify the Company promptly of any claim for which it may seek indemnity. Failure by the Trustee to so notify the Company shall not relieve the Company of its obligations hereunder. The Company shall defend any claim or threatened claim asserted against the Trustee, and the Trustee shall cooperate in the defense. The Trustee may have separate counsel and the Company shall pay the reasonable fees and expenses of such counsel. The Company need not pay for any settlement made without its consent, which consent shall not be unreasonably withheld. The obligations of the Company under this Section 7.7 shall survive the resignation or removal of the Trustee, the satisfaction and discharge of this Indenture and the termination of this Indenture. -75- To secure the Company's payment obligations in this Section 7.7, the Trustee shall have a Lien prior to the Notes on all money or property held or collected by the Trustee, except that held in trust to pay principal, Redemption Price or Purchase Price of or Additional Interest, if any, or interest on, particular Notes. Such Lien shall survive the resignation or removal of the Trustee, the satisfaction and discharge of this Indenture and the termination of this Indenture. When the Trustee incurs expenses or renders services after an Event of Default specified in Section 6.1(f) or (g) hereof occurs, the expenses and the compensation for the services (including the fees and expenses of its agents and counsel) are intended to constitute expenses of administration under any Bankruptcy Law. H.Section 7.8. REPLACEMENT OF TRUSTEE. A resignation or removal of the Trustee and appointment of a successor Trustee shall become effective only upon the successor Trustee's acceptance of appointment as provided in this Section. The Trustee may resign in writing at any time and be discharged from the trust hereby created by so notifying the Company. The Holders of Notes of a majority in principal amount of the then outstanding Notes may remove the Trustee by so notifying the Trustee and the Company in writing. The Company may remove the Trustee if: (a) the Trustee fails to comply with Section 7.10 hereof; (b) the Trustee is adjudged a bankrupt or an insolvent or an order for relief is entered with respect to the Trustee under any Bankruptcy Law; (c) a custodian, receiver or public officer takes charge of the Trustee or its property for the purpose of rehabilitation, conversation or liquidation; or (d) the Trustee becomes incapable of acting. If the Trustee resigns or is removed or if a vacancy exists in the office of Trustee for any reason, the Company shall promptly appoint a successor Trustee. Within one year after the date on which the successor Trustee takes office, the Holders of a majority in principal amount of the then outstanding Notes may appoint a successor Trustee to replace the successor Trustee appointed by the Company. If a successor Trustee does not take office within 30 days after the retiring trustee resigns or is removed, the retiring Trustee, the Company, or the Holders of Notes of at least 10% in principal amount of the then outstanding Notes may petition any court of competent jurisdiction, in the case of the Trustee, at the expense of the Company, for the appointment of a successor Trustee. If the Trustee, after written request by any Holder of a Note who has been a bona fide holder of a Note or Notes for at least six months, fails to comply with Section 7.10, such Holder of a -76- Note may petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee. A successor Trustee shall deliver a written acceptance of its appointment to the retiring Trustee and to the Company. Thereupon, the resignation or removal of the retiring Trustee shall become effective, and the successor Trustee shall have all the rights, powers and duties of the Trustee under this Indenture. The Company shall mail a notice of its succession to Holder of the Notes. The retiring Trustee shall promptly transfer all property held by it as Trustee to the successor Trustee, PROVIDED all sums owing to the Trustee hereunder have been paid and subject to the Lien provided for in Section 7.7 hereof. Notwithstanding replacement of the Trustee pursuant to this Section 7.8, the Company's obligations under Section 7.7 hereof shall continue for the benefit of the retiring Trustee. I.Section 7.9. SUCCESSOR TRUSTEE BY MERGER, ETC. If the Trustee consolidates, merges or converts into, or transfers all or substantially all of its corporate trust business to, another corporation that is eligible under Section 7.10 hereof, the successor corporation without any further act shall be the successor Trustee. J.Section 7.10. ELIGIBILITY; DISQUALIFICATION. There shall at all times be a Trustee hereunder that is a corporation organized and doing business under the laws of the United States of America or of any state thereof (including the District of Columbia) that is authorized under such laws to exercise corporate trust power, that is subject to supervision or examination by federal or state authorities and that has a combined capital and surplus of at least $100 million as set forth in its most recent published annual report of condition. This Indenture shall always have a Trustee who satisfies the requirements of TIA Section 310(a)(1), (2) and (5). The Trustee is subject to TIA Section 310(b). K.Section 7.11. PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY. The Trustee is subject to TIA Section 311(a), excluding any creditor relationship listed in TIA Section 311(b). A Trustee who has resigned or been removed shall be subject to TIA Section 311(a) to the extent indicated therein. VIII.ARTICLE VIII. LEGAL DEFEASANCE AND COVENANT DEFEASANCE A.Section 8.1. OPTION TO EFFECT LEGAL DEFEASANCE OR COVENANT DEFEASANCE. The Company may, at the option of its Board of Directors evidenced by a resolution set forth in an Officers' Certificate, at any time, elect to have either Section 8.2 or 8.3 hereof be -77- applied to all outstanding Notes upon compliance with the conditions set forth below in this Article VIII. B.Section 8.2.LEGAL DEFEASANCE AND DISCHARGE. Upon the Company's exercise under Section 8.1 hereof of the option applicable to this Section 8.2, the Company shall, subject to the satisfaction of the conditions set forth in Section 8.4 hereof, be deemed to have been discharged from its obligations with respect to all outstanding Notes on the date the conditions set forth below are satisfied (hereinafter, "LEGAL DEFEASANCE"). For this purpose, Legal Defeasance means that the Company shall be deemed to have paid and discharged the entire Indebtedness represented by the outstanding Notes, which shall thereafter be deemed to the "outstanding" only for the purposes of Section 8.5 hereof and the other Sections of this Indenture referred to in clauses (a) through (d) below, and to have satisfied all their other obligations under such Notes and this Indenture (and the Trustee, on demand of and at the expense of the Company, shall execute proper instruments acknowledging the same), except for the following provisions which shall survive until otherwise terminated or discharged hereunder: (a) the rights of Holders to receive payments in respect of the principal of, premium, if any, and interest on the Notes when such payments are due; (b) the Company's obligations with respect to the Notes concerning issuing temporary Notes, registration of Notes, mutilated, destroyed, lost or stolen Notes and the maintenance of an office or agency for payments; (c) the rights, powers, trust, duties and immunities of the Trustee and the Company's obligations in connection therewith; and (d) the Legal Defeasance provisions of this Article VIII. Subject to compliance with this Article VIII, the Company may exercise its option under this Section 8.2, notwithstanding the prior exercise of its option under Section 8.3 hereof. C.Section 8.3.COVENANT DEFEASANCE. Upon the Company's exercise under Section 8.1 hereof of the option applicable to this Section 8.3, the Company shall, subject to the satisfaction of the conditions set forth in Section 8.4 hereof, be released from its obligations under the covenants contained in Sections 3.9, 3.10, 4.5, 4.7 through 4.12 and 4.14 through 4.20 hereof, both inclusive, and Section 5.1(2) with respect to the outstanding Notes on and after the date the conditions set forth below are satisfied (hereinafter, "COVENANT DEFEASANCE"), and the Notes shall thereafter be deemed not "outstanding" for the purposes of any direction, waiver, consent or declaration or act of Holders (and the consequences of any thereof) in connection with such covenants, but shall continue to be deemed "outstanding" for all other purposes hereunder (it being understood that such Notes shall not be deemed outstanding for accounting purposes). For this purpose, Covenant Defeasance means that, with respect to the outstanding Notes, the Company may omit to comply with and shall have no liability in respect of any -78- term, condition or limitation set forth in any such covenant, whether directly or indirectly, by reason of any reference elsewhere herein to any such covenant or by reason of any reference in any such covenant to any other provision herein or in any other document, and such omission to comply shall not constitute a Default or an Event of Default under Section 6.1 hereof, but, except as specified above the remainder of this Indenture and such Notes shall be unaffected thereby. In addition, upon the Company's exercise under Section 8.1 hereof of the option applicable to this Section 8.3, subject to the satisfaction of the conditions set forth in Section 8.4 hereof, Sections 6.1(c) through 6.1(h) hereof shall not constitute Events of Default. D.Section 8.4.CONDITIONS TO LEGAL OR COVENANT DEFEASANCE. The following are the conditions precedent to the application of either Section 8.2 or 8.3 hereof to the outstanding Notes: In order to exercise either Legal Defeasance or Covenant Defeasance: (1) the Company must irrevocably deposit with the Trustee, in trust, for the benefit of the Holders cash in U.S. dollars, U.S. Government Securities, or a combination thereof, in such amounts as will be sufficient, in the opinion of a nationally recognized firm of independent public accountants selected by the Company, to pay the principal of, premium, if any, and interest on the Notes on the stated date for payment thereof or on the applicable redemption date, as the case may be; (2) in the case of Legal Defeasance, the Company shall have delivered to the Trustee an opinion of counsel in the United States reasonably acceptable to the Trustee confirming that: (a) the Company has received from, or there has been published by, the Internal Revenue Service a ruling; or (b) since the date of this Indenture, there has been a change in the applicable federal income tax law, in either case to the effect that, and based thereon such opinion of counsel shall confirm that, the Holders will not recognize income, gain or loss for federal income tax purposes as a result of such Legal Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Legal Defeasance had not occurred; (3) in the case of Covenant Defeasance, the Company shall have delivered to the Trustee an opinion of counsel in the United States reasonably acceptable to the Trustee confirming that the Holders will not recognize income, gain or loss for federal income tax purposes as a result of such Covenant Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Covenant Defeasance had not occurred; -79- (4) no Default or Event of Default shall have occurred and be continuing on the date of such deposit or insofar as Events of Default from bankruptcy or insolvency events are concerned, at any time in the period ending on the 91st day after the date of deposit (other than a Default or Event of Default arising in connection with the borrowing of funds to fund the deposit referred to in clause (1) above); (5) such Legal Defeasance or Covenant Defeasance shall not result in a breach or violation of, or constitute a default under this Indenture or any other material agreement or instrument to which the Company or any of its Subsidiaries is a party or by which the Company or any of its Subsidiaries is bound; (6) the Company shall have delivered to the Trustee an officers' certificate stating that the deposit was not made by the Company with the intent of preferring the Holders over any other creditors of the Company or with the intent of defeating, hindering, delaying or defrauding any other creditors of the Company or others; (7) the Company shall have delivered to the Trustee an officers' certificate and an opinion of counsel, each stating that all conditions precedent provided for or relating to the Legal Defeasance or the Covenant Defeasance have been complied with; and (8) the Company shall have delivered to the Trustee an opinion of counsel to the effect that, assuming no intervening bankruptcy of the Company between the date of deposit and the 91st day following the date of deposit and that no Holder is an insider of the Company, after the 91st day following the date of deposit, the trust funds will not be subject to the effect of any applicable bankruptcy, insolvency, reorganization or similar laws affecting creditors' rights generally. Notwithstanding the foregoing, the opinion of counsel required by clause (2) above with respect to a Legal Defeasance need not be delivered if all Notes not theretofore delivered to the Trustee for cancellation (1) have become due and payable or (2) will become due and payable on the maturity date within one year under arrangements satisfactory to the Trustee for the giving of notice of redemption by the Trustee in the name, and at the expense, of the Company. E. Section 8.5. DEPOSITED MONEY AND U.S. GOVERNMENT SECURITIES TO BE HELD IN TRUST; OTHER MISCELLANEOUS PROVISIONS. Subject to Section 8.6 hereof, all money and U.S. Government Securities (including the proceeds thereof) deposited with the Trustee (or other qualifying trustee, collectively for purposes of this Section 8.5 only, the "Trustee") pursuant to Section 8.4 hereof in respect of the outstanding Notes shall be held in trust and applied by the Trustee, in accordance with the provisions of such Notes and this Indenture, to the payment, either directly or through any Paying Agent (other than the Company) as the Trustee may determine, to the Holders of such Notes of all sums due and to become due thereon in respect of principal or Redemption Price of, and Additional Interest, if any, interest on, -80- the Notes, that such money need not be segregated from other funds except to the extent required by law. The Company shall pay and indemnify the Trustee against any tax, fee or other charge imposed on or assessed against the cash or U.S. Government Securities deposited pursuant to Section 8.4 hereof or the principal and interest received in respect thereof other than any such tax, fee or other charge which by law is for the account of the Holders of the outstanding Notes. Anything in this Article VIII to the contrary notwithstanding, the Trustee shall deliver or pay to the Company from time to time upon the request of the Company any money or U.S. Government Securities held by it as provided in Section 8.4 hereof which, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee (which may be the opinion delivered under Section 8.4(a) hereof), are in excess of the amount thereof that would then be required to be deposited to effect an equivalent Legal Defeasance or Covenant Defeasance. F.Section 8.6.REPAYMENT TO THE COMPANY. Any money deposited with the Trustee or any Paying Agent, or then held by the Company, in trust for the payment of the principal, Redemption Price or Purchase Price of, or Additional Interest, if any, or interest on any Note and remaining unclaimed for two years after such amount has become due and payable shall be paid to the Company on its request or (if then held by the Company) shall be discharged from such trust; and the Holder of such Note shall thereafter look only to the Company for payment thereof as a general creditor, and all liability of the Trustee or such Paying Agent with respect to such trust money, and all liability of the Company as trustee thereof, shall thereupon cease; PROVIDED, HOWEVER, that the Trustee or such Paying Agent, before being required to make any such repayment, at the expense of the Company, may cause to be published once, in The New York Times and The Wall Street Journal (national editions), notice that such money remains unclaimed and that, after a date specified therein, which shall not be less than 30 days after the date of such notification or publication, any unclaimed balance of such money then remaining will be repaid to the Company. G.Section 8.7.REINSTATEMENT. If the Trustee or Paying Agent is unable to apply any United States dollars or U.S. Government Securities in accordance with Section 8.2 or 8.3 hereof, as the case may be, by reason of any order of judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, then the obligations of the Company and the Guarantors under this Indenture, and the Notes and the Guarantees shall be revived and reinstated as though no deposit had occurred pursuant to Section 8.2 or 8.3 hereof until such time as the Trustee or Paying Agent is permitted to apply all such money in accordance with Section 8.2 or 8.3 hereof, as the case may be; PROVIDED, HOWEVER, that, if the Company makes any payment with respect to any Note following the reinstatement of its obligations, the Company shall be subrogated to the rights of the Holders of such Notes to receive such payment from the money held by the Trustee or Paying Agent. -81- IX. ARTICLE IX. AMENDMENT, SUPPLEMENT AND WAIVER A.Section 9.1.WITHOUT CONSENT OF HOLDERS OF NOTES. Notwithstanding Section 9.2 of this Indenture, the Company, the Guarantors and the Trustee may amend or supplement this Indenture or the Notes without the consent of any Holder of a Note: (a) to cure any ambiguity, defect or inconsistency so long as such changes do not, in the opinion of the Trustee, adversely affect the rights of any of the Holders in any material respect. (b) to provide for uncertificated notes in addition to or in place of certificated Notes; (c) to provide for the assumption of the Company's obligations to the Holders of the Notes in the case of a merger or consolidation or sale of all or substantially all of the Company's assets pursuant to Article V hereof; (d) to comply with the requirements of the Commission in order to effect or maintain the qualification of this Indenture under the TIA; or (e) to make any change that would provide any additional rights or benefits to the Holders of the Notes or that does not adversely affect the legal rights hereunder of any Holder of the Notes. Upon the request of the Company, accompanied by a resolution of the Board (evidenced by an Officers' Certificate) authorizing the execution of any such amended or supplemental indenture, and upon receipt by the Trustee of the documents described in Section 7.2 hereof, the Trustee shall join with the Company in the execution of any amended or supplemental Indenture authorized or permitted by the terms of this Indenture and to make any further appropriate agreements and stipulations that may be therein contained, but the Trustee shall not be obligated to enter into such amended or supplemental Indenture that affects its own rights, duties or immunities under this Indenture or otherwise. B. Section 9.2. WITH CONSENT OF HOLDERS OF NOTES. Except as provided below in this Section 9.2, the Company and the Trustee may amend or supplement this Indenture and the Notes may be amended or supplemented with the consent of the Holders of at least a majority in principal amount of the Notes then outstanding (including, without limitation, consents obtained in connection with a tender offer or exchange offer for the Notes), and, subject to Sections 6.2, 6.4 and 6.7 hereof, any existing Default or Event of Default or compliance with any provision of this Indenture or the Notes may be waived with the consent of the -82- Holders of a majority in principal amount of the then outstanding Notes (including consents obtained in connection with a tender offer or exchange offer for the Notes). Without the consent of each Holder affected, an amendment or waiver may not (with respect to any Notes held by a non-consenting Holder): (1) reduce the principal amount of Notes at maturity whose Holders must consent to an amendment; (2) reduce the rate of or change or have the effect of changing the time for payment of interest, including defaulted interest, on any Notes; (3) reduce the principal of or change or have the effect of changing the fixed maturity of any Notes, or change the date on which any Notes may be subject to redemption or reduce the redemption price therefor; (4) make any Notes payable in money other than that stated in the Notes; (5) make any change in provisions of this Indenture protecting the right of each Holder to receive payment of principal of and interest on such Holder's Note or Notes on or after the due date thereof or to bring suit to enforce such payment, or permitting Holders of a majority in principal amount of Notes to waive Defaults or Events of Default; (6) after the Company's obligation to purchase Notes arises hereunder, amend, change or modify in any material respect the obligation of the Company to make and consummate a Change of Control Offer in the event of a Change of Control or make and consummate a Net Proceeds Offer with respect to any Asset Sale that has been consummated or, after such Change of Control has occurred or such Asset Sale has been consummated, modify any of the provisions or definitions with respect thereto; (7) modify or change any provision of this Indenture or the related definitions affecting the ranking of the Notes or any Guarantee in a manner which adversely affects the Holders; or (8) release any Guarantor that is a Significant Subsidiary from any of its obligations under its Guarantee or this Indenture otherwise than in accordance with the terms of this Indenture. Notwithstanding the foregoing, the consent of at least 66-2/3% in principal amount of the then outstanding Notes issued under this Indenture shall be required (a) to eliminate any covenant set forth in Article IV or Article V hereof or any of the related definitions or (b) to amend, modify or waive one or more provisions in any such covenant or definition that would (individually or if aggregated with other amendments, modifications or waivers previously or concurrently made or given) effectively eliminate the protections afforded to the Holders by such covenant, in each case (a) -83- or (b), where such elimination, amendment, modification or waiver would otherwise require the consent of a majority in principal amount of the then outstanding Notes issued under this Indenture. Upon the written request of the Company accompanied by a resolution of the Board (evidenced by an Officers' Certificate) authorizing the execution of any such amended or supplemental indenture, and upon the filing with the Trustee of evidence satisfactory to the Trustee of the consent of the Holders of Notes as aforesaid, and upon receipt by the Trustee of an Officers' Certificate and an opinion of counsel, the Trustee shall join with the Company in the execution of such amended or supplemental indenture unless such amended or supplemental Indenture affects the Trustee's own rights, duties or immunities under this Indenture or otherwise, in which case the Trustee may in its discretion, but shall not be obligated to, enter into such amended or supplemental indenture. It shall not be necessary for the consent of the Holders of Notes under this Section 9.2 to approve the particular form of any proposed amendment or waiver, but it shall be sufficient if such consent approves the substance thereof. After an amendment, supplement or waiver under this Section 9.2 becomes effective, the Company shall mail to the Holders of Notes affected thereby a notice briefly describing the amendment, supplement or waiver. Any failure of the Company to mail such notice, or any defect therein, shall not, however, in any way impair or affect the validity of any such amended or supplemental Indenture or waiver. C.Section 9.3. COMPLIANCE WITH TRUST INDENTURE ACT. Every amendment or supplement to this Indenture or the Notes shall be set forth in a amended or supplemental indenture that complies with the TIA as then in effect. D.Section 9.4. REVOCATION AND EFFECT OF CONSENTS. Until an amendment, supplement or waiver becomes effective, a consent to it by a Holder of a Note is a continuing consent by the Holder of a Note and every subsequent Holder of a Note or portion of a Note that evidences the same debt as the consenting Holder's Note, even if notation of the consent is not made on any Note. However, any such Holder of a Note or subsequent Holder of a Note may revoke the consent as to its Note if the Trustee receives written notice of revocation before the date the waiver, supplement or amendment becomes effective. An amendment, supplement or waiver becomes effective in accordance with its terms and therefore binds every Holder. E.Section 9.5. NOTATION ON OR EXCHANGE OF NOTES. The Trustee may place an appropriate notation about an amendment, supplement or waiver on any Note thereafter authenticated. The Company in exchange for all Notes may issue and the Trustee shall authenticate new Notes that reflect the amendment, supplement or waiver. -84- Failure to make the appropriate notation or issue a new Note shall not affect the validity and effect of such amendment, supplement or waiver. F.Section 9.6. TRUSTEE TO SIGN AMENDMENT, ETC. The Trustee shall sign any amended or supplemental indenture authorized pursuant to this Article IX if the amendment or supplement does not adversely affect the rights, duties, liabilities or immunities of the Trustee. The Company may not sign an amendment or supplemental Indenture until the Board approves such amendment or supplemental indenture. In executing any amended or supplemental indenture, the Trustee shall be entitled to receive, in addition to the documents required by Sections 13.4 and 13.5 hereof, and, subject to Section 7.1, shall be fully protected in relying upon, an Officers' Certificate and an Opinion of Counsel stating that (i) the execution of such amended or supplemental indenture is authorized or permitted by this Indenture, (ii) no Event of Default shall occur as a result of the execution of such Officers' Certificate or the delivery of such Opinion of Counsel and (iii) the amended or supplemental indenture complies with the terms of this Indenture. X.ARTICLE X. [intentionally omitted] XI.ARTICLE XI. GUARANTEE A.Section 11.1. UNCONDITIONAL GUARANTEE. Each Guarantor hereby unconditionally guarantees (such guarantee to be referred to herein as a "GUARANTEE"), on a senior basis jointly and severally, to each Holder of a Note authenticated and delivered by the Trustee and to the Trustee and its successors and assigns, the Notes or the obligations of the Company hereunder or thereunder, that: (i) the principal of and interest on the Notes will be promptly paid in full when due, subject to any applicable grace period, whether at maturity, by acceleration or otherwise and interest on the overdue principal, if any, and interest on any interest, to the extent lawful, of the Notes and all other obligations of the Company to the Holders or the Trustee hereunder or thereunder will be promptly paid in full or performed, all in accordance with the terms hereof and thereof; and (ii) in case of any extension of time of payment or renewal of any Notes or of any such other obligations, the same will be promptly paid in full when due or performed in accordance with the terms of the extension or renewal, subject to any applicable grace period, whether at stated maturity, by acceleration or otherwise, subject, however, in the case of clauses (i) and (ii) above, to the limitations set forth in Section 11.3. Each Guarantor hereby agrees that its obligations hereunder shall be unconditional, irrespective of the validity, regularity or enforceability of the Notes or this Indenture, the absence of any action to enforce the same, any waiver or consent by any Holder of the Notes with respect to any provisions hereof or thereof, the recovery of any judgment -85- against the Company, and action to enforce the same or any other circumstance which might otherwise constitute a legal or equitable discharge or defense of a guarantor. Each Guarantor hereby waives diligence, presentment, demand of payment, filing of claims with a court in the event of insolvency or bankruptcy of the Company, any right to require a proceeding first against the Company, protest, notice and all demands whatsoever and covenants that this Guarantee will not be discharged except by complete performance of the obligations contained in the Notes, this Indenture and in this Guarantee. If any Holder or the Trustee is required by any court or otherwise to return to the Company, any Guarantor, or any custodian, trustee, liquidator or other similar official acting in relation to the Company or any Guarantor, any amount paid by the Company or any Guarantor to the Trustee or such Holder, this Guarantee, to the extent theretofore discharged, shall be reinstated in full force and effect. Each Guarantor further agrees that, as between each Guarantor, on the one hand, and the Holders and the Trustee, on the other hand, (x) the maturity of the obligations guaranteed hereby may be accelerated as provided in Article VI for the purposes of this Guarantee, notwithstanding any stay, injunction or other prohibition preventing such acceleration in respect of the obligations guaranteed hereby, and (y) in the event of any acceleration of such obligations as provided in Article VI, such obligations (whether or not due and payable) shall forthwith become due and payable by each Guarantor for the purpose of this Guarantee. B.Section 11.2. SEVERABILITY. In case any provision of this Guarantee shall be invalid, illegal or unenforceable, the validity, legality, and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. C.Section 11.3. LIMITATION OF GUARANTOR'S LIABILITY. Each Guarantor and by its acceptance hereof each Holder hereby confirms that it is the intention of all such parties that the guarantee by such Guarantor pursuant to its Guarantee not constitute a fraudulent transfer or conveyance for purposes of any Bankruptcy Law, the Uniform Fraudulent Conveyance Act, the Uniform Fraudulent Transfer Act or any similar Federal or state law. To effectuate the foregoing intention, the Holders and such Guarantor hereby irrevocably agree that the obligations of such Guarantor under the Guarantee shall be limited to the maximum amount as will, after giving effect to all other contingent and fixed liabilities of such Guarantor and after giving effect to any collections from or payments made by or on behalf of any other Guarantor in respect of the obligations of such other Guarantor under its Guarantee or pursuant to Section 11.5, result in the obligations of such Guarantor under the Guarantee not constituting such fraudulent transfer or conveyance. D.Section 11.4. RELEASE OF GUARANTOR. 1.(a) The Guarantee of a Guarantor will be automatically and unconditionally released without any action on the part of the Trustee or the Holders of the Notes: (1) in connection with any sale or other disposition of all or substantially all of the assets of that Guarantor (including, without limitation, by way of merger or consolidation), if -86- the Company applies the Net Cash Proceeds of that sale or other disposition in accordance with the applicable provisions of this Indenture; (2) in connection with any sale of all of the Capital Stock of that Guarantor, if the Company applies the Net Cash Proceeds of that sale in accordance with the applicable provisions of this Indenture; (3) if the Company designates that Guarantor as an Unrestricted Subsidiary in accordance with the applicable provisions of this Indenture; or (4) upon the payment in full of the Notes. In addition, concurrently with any Legal Defeasance or Covenant Defeasance, the Guarantors shall be released from all of their Obligations under their respective applicable Guarantees. 2.(b) The Trustee shall deliver an appropriate instrument evidencing such release upon receipt of a request by the Company accompanied by an Officers' Certificate and Opinion of Counsel certifying as to the compliance with this Section 11.4. E.Section 11.5. CONTRIBUTION. In order to provide for just and equitable contribution among the Guarantors, the Guarantors agree, INTER SE, that in the event any payment or distribution is made by any Guarantor (a "FUNDING GUARANTOR") under the Guarantee, such Funding Guarantor shall be entitled to a contribution from all other Guarantors in a PRO RATA amount based on the Adjusted Net Assets (as defined below) of each Guarantor (including the Funding Guarantor) for all payments, damages and expenses incurred by that Funding Guarantor in discharging the Company's obligations with respect to the Securities or any other Guarantor's obligations with respect to the Guarantee. "ADJUSTED NET ASSETS" of such Guarantor at any date shall mean the lesser of the amount by which (x) the fair value of the property of such Guarantor exceeds the total amount of liabilities, including, without limitation, contingent liabilities (after giving effect to all other fixed and contingent liabilities incurred or assumed on such date), but excluding liabilities under the Guarantee, of such Guarantor at such date and (y) the present fair salable value of the assets of such Guarantor at such date exceeds the amount that will be required to pay the probable liability of such Guarantor on its debts (after giving effect to all other fixed and contingent liabilities incurred or assumed on such date), excluding debt in respect of the Guarantee of such Guarantor, as they become absolute and matured. F.Section 11.6. WAIVER OF SUBROGATION. Until all Obligations are paid in full, each Guarantor hereby irrevocably waives any claims or other rights which it may now or hereafter acquire against the Company that arise from the existence, payment, performance or enforcement of such Guarantor's obligations under the Guarantee and this Indenture, including, without limitation, any right of subrogation, reimbursement, exoneration, indemnification, and any right to participate in any claim or remedy of any Holder against the Company, whether or not such claim, remedy or right arises in equity, or under contract, statute or common law, including, without limitation, the right to take or receive from the Company, directly or indirectly, in cash or other property or by set-off or in any other manner, payment or security on account of such claim or other rights. If any amount shall be paid to any Guarantor in violation of the preceding sentence and the Notes shall not have been paid in full, such amount shall have been -87- deemed to have been paid to such Guarantor for the benefit of, and held in trust for the benefit of, the Holders, and shall, forthwith be paid to the Trustee for the benefit of such Holders to be credited and applied upon the Notes, whether matured or unmatured, in accordance with the terms of this Indenture. Each Guarantor acknowledges that it will receive direct and indirect benefits from the financing arrangements contemplated by this Indenture and that the waiver set forth in this Section 11.6 is knowingly made in contemplation of such benefits. G.Section 11.7. EXECUTION OF GUARANTEE. To evidence their guarantee to the Holders set forth in this Article XI, the Guarantors hereby agree to execute the Guarantee in substantially the form attached hereto as Exhibit C, which shall be endorsed on each Note ordered to be authenticated and delivered by the Trustee. Each Guarantor hereby agrees that its Guarantee set forth in this Article XI shall remain in full force and effect notwithstanding any failure to endorse on each Note a notation of such Guarantee. Each such Guarantee shall be signed on behalf of each Guarantor by one of its authorized Officers prior to the authentication of the Note on which it is endorsed, and the delivery of such Note by the Trustee, after the authentication thereof hereunder, shall constitute due delivery of such Guarantee on behalf of such Guarantor. Such signatures upon the Guarantee may be by manual or facsimile signature of such officers and may be imprinted or otherwise reproduced on the Guarantee, and in case any such officer who shall have signed the Guarantee shall cease to be such officer before the Note on which such Guarantee is endorsed shall have been authenticated and delivered by the Trustee or disposed of by the Company, such Note nevertheless may be authenticated and delivered or disposed of as though the Person who signed the Guarantee had not ceased to be such officer of the Guarantor. H.Section 11.8. WAIVER OF STAY, EXTENSION OR USURY LAWS. Each Guarantor covenants (to the extent that it may lawfully do so) that it will not at any time insist upon, plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay or extension law or any usury law or other law that would prohibit or forgive each such Guarantor from performing its Guarantee as contemplated herein, wherever enacted, now or at any time hereafter in force, or which may affect the covenants or the performance of this Indenture; and (to the extent that it may lawfully do so) each such Guarantor hereby expressly waives all benefit or advantage of any such law, and covenants that it will not hinder, delay or impede the execution of any power herein granted to the Trustee, but will suffer and permit the execution of every such power as though no such law had been enacted. XII.ARTICLE XII. SATISFACTION AND DISCHARGE A.Section 12.1. SATISFACTION AND DISCHARGE. This Indenture will be discharged and will cease to be of further effect (except as set forth below) and the Trustee, at the expense of the Company, shall execute proper instruments acknowledging satisfaction and discharge of this Indenture when: -88- (1) either: (a) all the Notes theretofore authenticated and delivered (except lost, stolen or destroyed Notes which have been replaced or paid as provided in Section 2.7 and Notes for whose payment money has theretofore been deposited in trust or segregated and held in trust by the Company and thereafter repaid to the Company or discharged from such trust) have been delivered to the Trustee for cancellation; or (b) all Notes not theretofore delivered to the Trustee for cancellation have become due and payable and the Company has irrevocably deposited or caused to be deposited with the Trustee funds in an amount sufficient to pay and discharge the entire Indebtedness on the Notes not theretofore delivered to the Trustee for cancellation, for principal of, premium, if any, and interest on the Notes to the date of deposit together with irrevocable instructions from the Company directing the Trustee to apply such funds to the payment thereof at maturity or redemption, as the case may be; (2) the Company has paid all other sums payable under this Indenture by the Company; and (3) the Company has delivered to the Trustee an officers' certificate and an opinion of counsel stating that all conditions precedent under this Indenture relating to the satisfaction and discharge of this Indenture have been complied with. Notwithstanding the satisfaction and discharge of this Indenture, the Company's obligations in Sections 2.3, 2.4, 2.6, 2.7, 2.11, 7.7, 7.8, 13.2, 13.3 and 13.4, and the Trustee's and Paying Agent's obligations in Section 12.2 shall survive until the Notes are no longer outstanding. Thereafter, only the Company's obligations in Section 7.7 shall survive. B.Section 12.2. APPLICATION OF TRUST. All money deposited with the Trustee pursuant to Section 12.1 shall be held in trust and, at the written direction of the Company, be invested prior to maturity in U.S. Government Securities, and applied by the Trustee in accordance with the provisions of the Notes and this Indenture, to the payment, either directly or through any Paying Agent as the Trustee may determine, to the Persons entitled thereto, of the principal (and premium, if any) and interest for the payment of which money has been deposited with the Trustee; but such money need not be segregated from other funds except to the extent required by law. XIII.ARTICLE XIII. MISCELLANEOUS A.Section 13.1. TRUST INDENTURE ACT CONTROLS. -89- If any provision hereof limits, qualifies or conflicts with a provision of the TIA or another provision that would be required or deemed under such Act to be part of and govern this Indenture if this Indenture were subject thereto, the latter provision shall control. If any provision of this Indenture modifies or excludes any provision of the TIA that may be so modified or excluded, the latter provision shall be deemed to apply to this Indenture as so modified or to be excluded, as the case may be. B.Section 13.2. NOTICES. Any notice or communication by the Company or the Trustee to others is duly given if in writing and delivered in Person or mailed by first class mail (registered or certified, return receipt requested), telex, telecopier or overnight air courier guaranteeing next day delivery, to the others' address: If to the Company: American Achievement Corporation 7211 Circle S Road Austin, Texas 78745-6603 Attention: Chief Financial Officer Fax: (512) 443-5213 With a copy to: Schulte Roth & Zabel LLP 919 Third Avenue New York, New York 10022 Attention: Michael Littenberg, Esq. Fax: (212) 593-5955 If to the Trustee: The Bank of New York Attention: Corporate Trust Trustee Administration 101 Barclay Street, Floor 21W New York, New York 10286 Fax: (212) 896-7299 The Company or the Trustee, by notice to the others may designate additional or different addresses for subsequent notices or communications. All notices and communications (other than those sent to Holders) shall be deemed to have been duly given: at the time delivered by hand, if personally delivered; five Business Days after being deposited in the mail, postage prepaid, if mailed; when answered back, if telexed; when receipt -90- acknowledged, if telecopied; and the next Business Day after timely delivery to the courier, if sent by overnight air courier guaranteeing next day delivery. Any notice or communication to a Holder shall be mailed by first class mail, certified or registered, return receipt requested, or by overnight air courier guaranteeing next day delivery to its address shown on the register kept by the Registrar. Any notice or communication shall also be so mailed to any Person described in TIA Section 313(c), to the extent required by the TIA. Failure to mail a notice or communication to a Holder or any defect in it shall not affect its sufficiency with respect to other Holders. If a notice or communication is mailed in the manner provided above within the time prescribed, it is duly given, whether or not the address receives it. If the Company mails a notice or communication to Holders, it shall mail a copy to the Trustee and each Agent at the same time. C.Section 13.3. COMMUNICATION BY HOLDERS OF NOTES WITH OTHER HOLDERS OF NOTES. Holders may communicate pursuant to TIA Section 312(b) with other Holders with respect to their rights under this Indenture or the Notes. The Company, the Trustee, the Registrar and anyone else shall have the protection of TIA Section 312(c). D.Section 13.4. CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT. Upon any request or application by the Company and/or any Guarantor to the Trustee to take any action under this Indenture, the Company and/or any Guarantor shall furnish to the Trustee: (a) an Officers' Certificate in form and substance reasonably satisfactory to the Trustee (which shall include the statements set forth in Section 11.5 hereof) stating that, in the opinion of the signers, all conditions precedent and covenants, if any, provided for in this Indenture relating to the proposed action have been satisfied; and (b) an Opinion of Counsel in form and substance reasonably satisfactory to the Trustee (which shall include the statements set forth in Section 11.5 hereof) stating that, in the opinion of such counsel, all such conditions precedent and covenants have been satisfied. E.Section 13.5. STATEMENTS REQUIRED IN CERTIFICATE OR OPINION. Each certificate or opinion with respect to compliance with a condition or covenant provided for in this Indenture (other than a certificate provided pursuant to TIA Section 314(a)(4)) shall comply with the provisions of TIA Section 314(e) and shall include: -91- (a) a statement that the Person making such certificate or opinion has read such covenant or condition; (b) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based; (c) a statement that, in the opinion of such Person, he or she has made such examination or investigation as is necessary to enable him to express an informed opinion as to whether or not such covenant or condition has been satisfied; and (d) a statement as to whether or not, in the opinion of such Person, such condition or covenant has been satisfied. F.Section 13.6. RULES BY TRUSTEE AND AGENTS. The Trustee may make reasonable rules for action by or at a meeting of Holders. The Registrar or Paying Agent may make reasonable rules and set reasonable requirements for its functions. G.Section 13.7. NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS. No past, present or future director, officer, employee, incorporator, agent or stockholder or Affiliate of the Company, as such, shall have any liability for any obligations of the Company under the Notes, this Indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation. No past, present or future director, officer, employee, incorporator, agent or stockholder or Affiliate of any of the Guarantors, as such, shall have any liability for any obligations of the Guarantors under the Guarantees, this Indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder of Notes and Guarantees by accepting a Note and a Guarantee waives and releases all such liabilities. The waiver and release are part of the consideration for issuance of the Notes and the Guarantees. Such waiver may not be effective to waive liabilities under the federal securities law and it is the view of the Commission that such a waiver is against public policy. H.Section 13.8. GOVERNING LAW; SUBMISSION TO JURISDICTION; WAIVER OF JURY TRIAL. THIS INDENTURE, THE GUARANTEES AND THE NOTES SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, BUT WITHOUT GIVING EFFECT TO APPLICABLE PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT THE APPLICATION OF THE LAW OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY. THE COMPANY AND EACH GUARANTOR HEREBY IRREVOCABLY SUBMITS TO THE JURISDICTION OF ANY NEW YORK STATE COURT SITTING IN THE BOROUGH OF MANHATTAN IN THE CITY OF NEW -92- YORK OR ANY FEDERAL COURT SITTING IN THE BOROUGH OF MANHATTAN IN THE CITY OF NEW YORK IN RESPECT OF ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS INDENTURE, THE GUARANTEES AND THE NOTES, AND IRREVOCABLY ACCEPTS FOR ITSELF AND IN RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, JURISDICTION OF THE AFORESAID COURTS. THE COMPANY AND EACH GUARANTOR IRREVOCABLY WAIVES, TO THE FULLEST EXTENT THAT IT MAY EFFECTIVELY DO SO UNDER APPLICABLE LAW, TRIAL BY JURY AND ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT AND ANY CLAIM THAT ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. NOTHING HEREIN SHALL AFFECT THE RIGHT OF THE TRUSTEE OR ANY HOLDER OF THE NOTES TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST THE COMPANY OR ANY GUARANTOR IN ANY OTHER JURISDICTION. I.Section 13.9.NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS. This Indenture may not be used to interpret any other indenture, loan or debt agreement of the Company or its Subsidiaries or of any other Person. Any such indenture, loan or debt agreement may not be used to interpret this Indenture. J.Section 13.10. SUCCESSORS. All agreements of the Company in this Indenture and the Notes shall bind their successors. All agreements of the Trustee in this Indenture shall bind its successors. K.Section 13.11. SEVERABILITY. In case any provision in this Indenture or in the Notes shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. L.Section 13.12. COUNTERPART ORIGINALS. The parties may sign any number of copies of this Indenture. Each signed copy shall be an original, but all of them together represent the same agreement. M.Section 13.13. TABLE OF CONTENTS, HEADINGS, ETC. The Table of Contents, Cross-Reference Table and Headings of the Articles and Sections of this Indenture, which have been inserted for convenience of reference only, are not to be considered a part of this Indenture and shall in no way modify or restrict any of the terms or provisions hereof. -93- N.Section 13.14. QUALIFICATION OF INDENTURE. The Company shall qualify this Indenture under the TIA in accordance with the terms and conditions of the Registration Rights Agreement and shall pay all reasonable costs and expenses (including attorneys' fees for the Company, the Trustee and the Holders of the Notes) incurred in connection therewith, including, but not limited to, costs and expenses of qualification of this Indenture and the Notes and printing this Indenture and the Notes. The Trustee shall be entitled to receive from the Company any such Officers' Certificates, Opinions of Counsel or other documentation as it may reasonably request in connection with any such qualification of this Indenture under the TIA. [Signatures on following page] -94- SIGNATURES AMERICAN ACHIEVEMENT CORPORATION By: /s/ David Fiore --------------------------------------------- Name: David Fiore Title: President and Chief Executive Officer THE BANK OF NEW YORK, as Trustee By: /s/ Van K. Brown --------------------------------------------- Name: Van K. Brown Title: Vice President -95- THE GUARANTORS COMMEMORATIVE BRANDS, INC. By: /s/ David Fiore --------------------------------------------- Name: David Fiore Title: President and Chief Executive Officer CBI NORTH AMERICA, INC. By: /s/ David Fiore --------------------------------------------- Name: David Fiore Title: President and Chief Executive Officer TAYLOR SENIOR HOLDINGS CORP. By: /s/ David Fiore --------------------------------------------- Name: David Fiore Title: President and Chief Executive Officer TAYLOR PUBLISHING COMPANY By: /s/ David Fiore --------------------------------------------- Name: David Fiore Title: President and Chief Executive Officer TP HOLDING CORP. By: /s/ David Fiore --------------------------------------------- Name: David Fiore Title: President and Chief Executive Officer -96- TAYLOR PRODUCTION SERVICES, L.P. By: Taylor Publishing Company, its General Partner By: /s/ David Fiore --------------------------------------------- Name: David Fiore Title: President and Chief Executive Officer EDUCATIONAL COMMUNICATIONS, INC. By: /s/ Sherice P. Bench --------------------------------------------- Name: Sherice P. Bench Title: Chief Financial Officer SCHEDULE A Commemorative Brands, Inc. CBI North America, Inc. Taylor Senior Holdings Corp. Taylor Publishing Company TP Holding Corp. Taylor Production Services, L.P. Educational Communications, Inc. EXHIBIT A FORM OF SERIES A NOTE (Face of Note) AMERICAN ACHIEVEMENT CORPORATION 11 5/8% SENIOR NOTE DUE 2007 [THIS NOTE IS A GLOBAL NOTE WITHIN THE MEANING OF THE INDENTURE HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITARY OR A NOMINEE OF A DEPOSITARY OR A SUCCESSOR DEPOSITARY. THIS NOTE IS NOT EXCHANGEABLE FOR NOTES REGISTERED IN THE NAME OF A PERSON OTHER THAN THE DEPOSITARY OR ITS NOMINEE EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE, AND NO TRANSFER OF THIS SECURITY (OTHER THAN A TRANSFER OF THIS SECURITY AS A WHOLE BY THE DEPOSITARY TO ANYONE OF THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR ANOTHER NOMINEE OF THE DEPOSITARY) MAY BE REGISTERED EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE. UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS 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.](1) THIS NOTE HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS EXCEPT AS SET FORTH BELOW. BY ITS ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT), (B) IT IS NOT A U.S. PERSON AND IS ACQUIRING THIS SECURITY IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH REGULATION S UNDER THE SECURITIES ACT OR (C) IT IS AN ACCREDITED INVESTOR (AS DEFINED IN RULE 501(a)(1), (2), (3), OR (7) UNDER THE SECURITIES ACT (AN "ACCREDITED INVESTOR"), (2) AGREES THAT IT WILL NOT WITHIN TWO YEARS AFTER THE ORIGINAL ISSUANCE OF THIS NOTE RESELL OR OTHERWISE TRANSFER THIS NOTE EXCEPT (A) TO AMERICAN ACHIEVEMENT CORPORATION OR ANY SUBSIDIARY THEREOF, (B) INSIDE THE UNITED STATES TO A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT, (C) INSIDE THE UNITED STATES TO AN ACCREDITED INVESTOR THAT, PRIOR TO SUCH TRANSFER, FURNISHES (OR HAS FURNISHED ON ITS BEHALF BY A U.S. BROKER-DEALER) TO THE TRUSTEE A SIGNED LETTER CONTAINING CERTAIN - ---------- (1) To be included only if the Note is issued in global form. REPRESENTATIONS AND AGREEMENTS RELATING TO THE RESTRICTIONS ON TRANSFER OF THIS SECURITY (THE FORM OF WHICH LETTER CAN BE OBTAINED FROM THE TRUSTEE FOR THIS NOTE), (D) OUTSIDE THE UNITED STATES IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH RULE 904 UNDER THE SECURITIES ACT (IF AVAILABLE), (E) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE), (F) IN ACCORDANCE WITH ANOTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT (AND BASED UPON AN OPINION OF COUNSEL IF AMERICAN ACHIEVEMENT CORPORATION SO REQUESTS), OR (G) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND (3) AGREES THAT IT WILL GIVE TO EACH PERSON TO WHOM THIS NOTE IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IN CONNECTION WITH ANY TRANSFER OF THIS NOTE WITHIN TWO YEARS AFTER THE ORIGINAL ISSUANCE OF THIS NOTE, IF THE PROPOSED TRANSFEREE IS AN ACCREDITED INVESTOR, THE HOLDER MUST, PRIOR TO SUCH TRANSFER, FURNISH TO THE TRUSTEE AND AMERICAN ACHIEVEMENT CORPORATION SUCH CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS EITHER OF THEM MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION," "UNITED STATES" AND "U.S. PERSON" HAVE THE MEANING GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES ACT. A-2 AMERICAN ACHIEVEMENT CORPORATION 11 5/8% SENIOR NOTE DUE 2007 CUSIP No. ----------------- No. $ ------------- ------------------------- Interest Payment Dates: January 1 and July 1 Record Dates: December 15 and June 15 AMERICAN ACHIEVEMENT CORPORATION, a Delaware corporation (the "COMPANY," which term includes any successor corporation under the indenture hereinafter referred to ), for value received promises to pay to ____________________________________________________ or registered assigns, the principal sum of _____________________ Dollars on January 1, 2007. Reference is hereby made to the further provisions of this Note set forth on the reverse hereof, which further provisions shall for all purposes have the same effect as set forth at this place. Unless the certificate of authentication hereon has been executed by the Trustee referred to on the reverse hereof by manual signature, this Note shall not be entitled to any benefits under the Indenture referred to on the reverse hereof or be valid or obligatory for any purpose. IN WITNESS WHEREOF, the Company has caused this Note to be duly executed under its corporate seal. [SEAL] Dated: AMERICAN ACHIEVEMENT CORPORATION By: --------------------------------------------- Name: Title: By: --------------------------------------------- Name: Title: This is one of the Notes referred to in the within-mentioned Indenture: THE BANK OF NEW YORK, as Trustee By: ------------------------------------ Name: Title: A-3 (Back of Note) 11 5/8% Senior Notes due 2007 Capitalized terms used herein shall have the meanings assigned to them in the Indenture referred to below unless otherwise indicated. 1. INTEREST. The Company promises to pay interest on the principal amount of this Note at the rate of 11 5/8% per annum from the date of original issuance until maturity and shall pay the Additional Interest pursuant to Section 4 of the Registration Rights Agreement referred below. The Company will pay interest and Additional Notes semi-annually on January 1 and July 1 of each year, or if any such day is not a Business Day, on the next succeeding Business Day (each an "INTEREST PAYMENT DATE"). Interest on the Note will accrue from the most recent date to which interest has been paid or, if no interest has been paid, from the date of issuance; PROVIDED that if there is no existing Default in the payment of interest, and if this Note is authenticated between a record date referred to on the face hereof and the next succeeding Interest Payment Date, interest shall accrue from such next succeeding Interest Payment Date; PROVIDED, FURTHER, that the first Interest Payment Date shall be July 1, 2002. The Company shall pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue payments of the principal, Purchase Price and Redemption Price of this Note from time to time on demand at a rate that is 1% per annum in excess of the rate then in effect; it shall pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue installments of interest and Additional Interest, if any, (without regard to any applicable grace periods) hereon from time to time on demand at the same rate to the extent lawful. Interest will be computed on the basis of a 360-day year of twelve 30-day months. 2. METHOD OF PAYMENT. The Company will pay interest on the Notes (except defaulted interest) and Additional Interest, if any, to the Persons who are registered Holders of Notes at the close of business on the December 15 and June 15 next preceding the Interest Payment Date, even if such Notes are canceled after such record date and on or before such Interest Payment Date, except as provided in Section 2.12 of the Indenture with respect to defaulted interest. Any such installment of interest or Additional Interest, if any, not punctually paid or duly provided for shall forthwith cease to be payable to the registered Holders on such Interest Payment Date, and may be paid to the registered Holders at the close of business on a special interest payment date to be fixed by the Trustee for the payment of such defaulted interest, notice whereof shall be given to the registered Holders not less than 10 days prior to such special interest payment date, or may be paid at any time in any other lawful manner not inconsistent with the requirements of any securities exchange on which the Notes may be listed, and upon such notice as may be required by such exchange, all as more fully provided in the Indenture. The Notes will be payable as to principal, Redemption Price, Purchase Price, interest and Additional Interest, if any, at the office or agency of the Company maintained for such purpose within or without the City and State of New York, or, at the option of the Company, payment of interest and Additional Interest may be made by check mailed to the Holders at their addresses set forth in the register of Holders, PROVIDED that payment by wire transfer of immediately available funds will be required with respect to principal, Redemption Price and Purchase Price of, and interest and Additional Interest (if any) on, all Global Notes and all other Notes the Holders of which shall have provided wire transfer instructions to the Trustee or the Paying Agent. Such payment shall be in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts. 3. PAYING AGENT AND REGISTRAR. Initially, The Bank of New York, the Trustee under the Indenture, will act as Paying Agent and Registrar. The Company may change any Paying Agent or Registrar without notice to any Holder. The Company may act in any such capacity. 4. INDENTURE AND GUARANTEES. The Company issued $177 million in aggregate principal amount of the Notes under an Indenture dated as of February 20, 2002 (the "INDENTURE") between the Company, the Guarantors and the Trustee. The terms of the Notes include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939, as amended (15 U.S.C. Code Sections 77aaa-77bbbb). The Notes are subject to all such terms, and Holders are referred to the Indenture and such Act for a statement of such terms. The Notes are general obligations of the Company. Payment on each Note is guaranteed on a senior basis, jointly and severally, by the Guarantors pursuant to Article Eleven of the Indenture. 5. OPTIONAL REDEMPTION. The Company may redeem any or all of the Notes at any time on or after January 1, 2005, upon not less than 30 nor more than 60 days' prior notice in amounts of $1,000 or an integral multiple thereof at the Redemption Prices (expressed as a percentage of the principal amount) set forth below, if redeemed during the 12-month period beginning January 1 of the years indicated below:
YEAR REDEMPTION PRICE 2005............................. 105.813% 2006............................. 102.906%
in each case together with accrued and unpaid interest and Additional Interest, if any, to the Redemption Date. If less than all the Notes are to be redeemed, the Trustee will select the particular Notes or portions thereof to be redeemed by lot, PRO RATA or by any other method the Trustee shall deem fair and reasonable. 6. SPECIAL REDEMPTION. In the event the Company completes one or more Public Equity Offerings on or before January 1, 2005, the Company, at its option, may use the net cash proceeds from any such Public Equity Offering to redeem up to 35% of the original principal amount of the Notes (a "SPECIAL REDEMPTION") at a Redemption Price of 111.625% of the principal amount, together with accrued and unpaid interest and Additional Interest (if any), to the date of redemption, PROVIDED, HOWEVER, that at least 65% of the original principal amount of the Notes will remain outstanding immediately after each such redemption; and PROVIDED, FURTHER, that each such redemption shall occur within 120 days after the date of the closing of the applicable Public Equity Offering. If less than all the Notes are to be redeemed, the Trustee will select the particular Notes or portions A-5 thereof to be redeemed by lot, only on a PRO RATA basis or on as nearly a PRO RATA basis as is practicable (subject to DTC procedures). 7. MANDATORY REDEMPTION. Except as set forth in Paragraph 9 below with respect to repurchases of Notes in certain events, the Company shall not be required to make mandatory redemption payments with respect to the Notes. 8. NOTICE OF REDEMPTION. Subject to the provisions of the Indenture, a notice of redemption will be mailed at least 30 days but not more than 60 days (or 45 days in the case of mandatory redemption) before the Redemption Date to each Holder whose Notes are to be redeemed at its registered address. Notes in denominations larger than $1,000 may be redeemed in part but only in whole multiples of $1,000, unless all of the Notes held by a Holder are to be redeemed. On and after the redemption date interest ceases to accrue on Notes or portions thereof called for redemption. 9. REPURCHASE AT OPTION OF HOLDER. (a) If there is a Change of Control, the Company shall be required to make an offer (a "CHANGE OF CONTROL OFFER") to repurchase all or any part (equal to $1,000 or an integral multiple thereof) of each Holder's Notes at a Purchase Price equal to 101% of the principal amount thereof PLUS accrued and unpaid interest and Additional Interest, if any, to the date of repurchase, in accordance with the procedures set forth in the Indenture. Within 30 days following any Change of Control, the Company shall mail a notice to each Holder setting forth the procedures governing the Change of Control Offer as required by the Indenture. (b) On the 366th day after an Asset Sale or such earlier date, if any, as the Board of Directors of the Company or of such Restricted Subsidiary determines not to apply the Net Cash Proceeds relating to such Asset Sale as set forth in clauses (3)(a), (3)(b) and (3)(c) of paragraph (A) of Section 4.10 of the Indenture (each, a "NET PROCEEDS OFFER TRIGGER DATE"), such aggregate amount of Net Cash Proceeds which have not been applied on or before such Net Proceeds Offer Trigger Date as permitted in clauses (3)(a), (3)(b) and (3)(c) of paragraph (A) of Section 4.10 of the Indenture (each, a "NET PROCEEDS OFFER AMOUNT") shall be applied by the Company or such Restricted Subsidiary to make an offer to purchase (the "NET PROCEEDS OFFER") to all Holders and, to the extent required by the terms of such Pari Passu Indebtedness, an offer to purchase to all holders of such Pari Passu Indebtedness, on a Purchase Date not less than 30 nor more than 45 days following the applicable Net Proceeds Offer Trigger Date, from all Holders (and holders of any such Pari Passu Indebtedness) on a PRO RATA basis, that amount of Notes (and Pari Passu Indebtedness) to be purchased, plus accrued and unpaid interest thereon, if any, to the date of purchase. Each Net Proceeds Offer will be mailed to the record Holders as shown on the register of Holders within 25 days following the Net Proceeds Offer Trigger Date, with a copy to the Trustee, and shall comply with the procedures set forth in the Indenture. Upon receiving notice of the Net Proceeds Offer, Holders may elect to tender their Notes in whole or in part in integral multiples of $1,000 in exchange for cash. To the extent Holders properly tender Notes and holders of Pari Passu Indebtedness properly tender such Indebtedness in an amount exceeding the Net Proceeds Offer Amount, the tendered Notes and Pari Passu Indebtedness will be purchased on a PRO RATA basis based on the aggregate amounts of Notes and Pari Passu Indebtedness tendered (and the Trustee shall select the tendered Notes of tendering Holders on a PRO RATA basis A-6 based on the amount of Notes tendered). A Net Proceeds Offer shall remain open for a period of 20 business days or such longer period as may be required by law. 10. DENOMINATIONS, TRANSFER, EXCHANGE. The Notes are in registered form without coupons in denominations of $1,000 and integral multiples of $1,000. The transfer of Notes may be registered and Notes may be exchanged as provided in the Indenture. The Registrar and the Trustee may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and the Company may require a Holder to pay any taxes and fees required by law or permitted by the Indenture. The Company need not exchange or register the transfer of any Note or portion of a Note selected for redemption, except for the unredeemed portion of any Note being redeemed in part. Also, it need not exchange or register the transfer of any Notes for a period of 15 days before a selection of Notes to be redeemed or during the period between a record date and the corresponding Interest Payment Date. 11. PERSONS DEEMED OWNERS. The registered Holder of a Note may be treated as its owner for all purposes. 12. AMENDMENT, SUPPLEMENT AND WAIVER. Subject to certain exceptions, the Indenture and the Notes may be amended or supplemented with the consent of the Holders of at least a majority in principal amount of the then outstanding Notes, and any existing default or compliance with any provision of the Indenture or the Notes may be waived with the consent of the Holders of a majority in principal amount of the then outstanding Notes. Without the consent of any Holder of a Note, the Indenture and the Notes may be amended or supplemented to cure any ambiguity, defect or inconsistency, to provide for uncertificated Notes in addition to or in place of certificated Notes, to provide for the assumption of the Company's obligations to Holders of the Notes in case of a merger or consolidation, to make any change that would provide any additional rights or benefits to the Holders of the Notes or that does not adversely affect the legal rights under the Indenture of any such Holder, or to comply with the requirements of the Commission in order to effect or maintain the qualification of the Indenture under the Trust Indenture Act. 13. DEFAULTS AND REMEDIES. Events of Default include: (i) default for 30 days in the payment when due of interest or Additional Interest, if any, on the Notes; (ii) default in payment when due of principal, Redemption Price or Purchase Price of the Notes when the same becomes due and payable at maturity, upon redemption, repurchase or otherwise (including the failure to make a payment to purchase Notes tendered pursuant to a Change of Control Offer or a Net Proceeds Offer); (iii) failure by the Company to comply with any covenant contained in the Indenture for 45 days after notice to the Company by the Trustee or the Holders of at least 25% of the aggregate principal amount of the Notes outstanding; (iv) default under certain other agreements relating to Indebtedness of the Company which default (a) is caused by a failure to pay any amount due at the stated maturity thereof or (b) results in the acceleration of such Indebtedness prior to its express maturity and, in each case, the principal amount of such Indebtedness, together with the principal amount of any other such Indebtedness under which there has been a default for failure to pay principal at final maturity or the maturity of which has been so accelerated, aggregates $5.0 million or more and such failure shall not have been cured or waived within 20 days thereof; (v) certain final judgments for the payment of money that remain undischarged for a period of 60 days, PROVIDED that the aggregate of all such A-7 undischarged judgments exceeds $5.0 million; and (vi) certain events of bankruptcy or insolvency with respect to the Company or any Significant Subsidiary of the Company. If any Event of Default occurs and is continuing, the Trustee or the Holders of at least 25% in principal amount of the then outstanding Notes may declare all the Notes to be due and payable immediately. Upon any such declaration, the entire principal amount of, and accrued and unpaid interest and Additional Interest, if any, on the Notes shall become immediately due and payable. Notwithstanding the foregoing, in the case of an Event of Default arising from certain events of bankruptcy or insolvency, all outstanding Notes will become due and payable without further action or notice. Holders may not enforce the Indenture or the Notes except as provided in the Indenture. Subject to certain limitations, Holders of a majority in principal amount of the then outstanding Notes may direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Holders of the Notes notice of any continuing Default or Event of Default (except a Default or Event of Default relating to payment on any Note) if it determines that withholding notice is in their interest. The Holders of a majority in principal amount of the Notes may waive any existing or past Default or Event of Default under the Indenture, and its consequences, except a default in the payment of the principal of, or interest on any Notes. The Company is required to deliver to the Trustee annually a statement regarding compliance with the Indenture, and the Company is required upon becoming aware of any Default or Event of Default, to deliver to the Trustee a statement specifying such Default or Event of Default. 14. TRUSTEE DEALINGS WITH COMPANY. Subject to certain limitations, the Trustee under the Indenture, in its individual or any other capacity, may become owner or pledge of Notes and may otherwise deal with the Company or its Affiliates as if it were not Trustee. 15. NO RECOURSE AGAINST OTHERS. No past, present or future director, officer, employee, incorporator or stockholder of the Company, as such, shall have any liability for any obligations of the Company under the Notes or the Indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder by accepting a Note waives and releases all such liability. The waiver and release are part of the consideration for the issuance of the Notes. 16. AUTHENTICATION. This Note shall not be valid until authenticated by the manual signature of the Trustee or an authenticating agent. 17. ABBREVIATIONS. Customary abbreviations may be used in the name of a Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (=tenants by the entireties), JT TEN (=joint tenants with right of survivorship and not as tenants in common), CUST (=Custodian), and U/G/M/A (=Uniform Gifts to Minors Act). 18. DISCHARGE PRIOR TO MATURITY. If the Company deposits with the Trustee or Paying Agent cash or U.S. Government Securities sufficient to pay the principal or Redemption Price of, and interest and Additional Interest, if any, on, the Notes to maturity or a specified Redemption Date and satisfies certain conditions specified in the Indenture, the Company will be discharged from the Indenture, except for certain Sections thereof. A-8 19. GOVERNING LAW. The Indenture and Guarantees and this Note shall be governed by and construed in accordance with the laws of the State of New York but without giving effect to applicable principles of conflicts of law to the extent that the application of the law of another jurisdiction would be required thereby. Each of the Company and each Guarantor hereby irrevocably submits to the jurisdiction of any New York state court sitting in the Borough of Manhattan in the City of New York or any Federal court sitting in the Borough of Manhattan in the City of New York in respect of any suit, action or proceeding arising out of or relating to the Indenture and the Notes, and irrevocably accept for itself and in respect of its property, generally and unconditionally, jurisdiction of the aforesaid courts. Each of the Company and each Guarantor irrevocably waives, to the fullest extent that it may effectively do so under applicable law, trial by jury and any objection which it may now or hereafter have to the laying of the venue of any such suit, action or proceeding brought in any such court and any claim that any such suit, action or proceeding brought in any such court has been brought in an inconvenient forum. Nothing herein shall affect the right of the Trustee or any Holder of the Notes to serve process in any other manner permitted by law or to commence legal proceedings or otherwise proceed against the Company or any Guarantor in any other jurisdiction. 20. CUSIP NUMBERS. Pursuant to a recommendation promulgated by the Committee on Uniform Security Identification Procedures, the Company has caused CUSIP numbers to be printed on the Notes and the Trustee may use CUSIP numbers in notices of redemption as a convenience to Holders. No representation is made as to the correctness or accuracy of such numbers either as printed on the Notes or as contained in any notice of redemption or repurchase and reliance may be placed only on the other identification numbers placed thereon. 21. REGISTRATION RIGHTS. Pursuant to the Registration Rights Agreement, the Company will be obligated upon the occurrence of certain events to consummate an exchange offer pursuant to which the Holder of this Note shall have the right to exchange this Series A Note for the Company's 11 5/8% Senior Notes due 2007, Series B, which have been registered under the Securities Act, in like principal amount and having terms identical in all material respects as the Series A Notes. The Holders shall be entitled to receive certain additional interest payments in the event such exchange offer is not consummated and upon certain other conditions, all pursuant to and in accordance with the terms of the Registration Rights Agreement. The Company will furnish to any Holder upon written request and without charge a copy of the Indenture. Request may be made to: American Achievement Corporation 7211 Circle S Road Austin, Texas 78745-6603 Attention: Secretary A-9 ASSIGNMENT FORM To assign this Note, fill in the form below: (I) or (we) assign and transfer this Note to - -------------------------------------------------------------------------------- (Insert assignee's soc. sec. or tax I.D. no.) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (Print or type assignee's name address and zip code) and irrevocably appoint ________________________________________________________ agent to transfer this Note on the books of the Company. The agent may substitute another to act for him. Date: ------------------ Your Signature: ----------------------------------- (Sign exactly as your name appears on the face of this Note) Signature Guarantee: --------------------------------------------------- (Participant in recognized signature guarantee medallion program) A-10 OPTION OF HOLDER TO ELECT PURCHASE If you wish to elect to have all or any portion of this Note purchased by the Company pursuant to Section 4.10 ("NET PROCEEDS OFFER") or Section 4.15 ("CHANGE OF CONTROL OFFER") of the Indenture, check the applicable boxes / / Net Proceeds Offer: / / Change of Control Offer: in whole / / in whole / / in part / / in part / / Amount to be Amount to be purchased: $___________ purchased: $_____________ Dated: Signature: --------------- ----------------------------------- (Sign exactly as your name appears on the other side of this Note) Signature Guarantee: -------------------------------------------------- (Participant in recognized signature guarantee medallion program) Social Security Number or Taxpayer Identification Number: -------------------------------------- A-11 EXHIBIT B FORM OF SERIES B NOTE (Face of Note) AMERICAN ACHIEVEMENT CORPORATION 11 5/8% SENIOR NOTE DUE 2007 [THIS NOTE IS A GLOBAL NOTE WITHIN THE MEANING OF THE INDENTURE HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITARY OR A NOMINEE OF A DEPOSITARY OR A SUCCESSOR DEPOSITARY. THIS NOTE IS NOT EXCHANGEABLE FOR NOTES REGISTERED IN THE NAME OF A PERSON OTHER THAN THE DEPOSITARY OR ITS NOMINEE EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE, AND NO TRANSFER OF THIS SECURITY (OTHER THAN A TRANSFER OF THIS SECURITY AS A WHOLE BY THE DEPOSITARY TO ANYONE OF THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR ANOTHER NOMINEE OF THE DEPOSITARY) MAY BE REGISTERED EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE. UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS 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.](2) - ---------- (2) To be included only if the Note is issued in global form. AMERICAN ACHIEVEMENT CORPORATION 11 5/8% SENIOR NOTE DUE 2007 CUSIP No. _______________ No. ______________ $ _______________________ Interest Payment Dates: January 1 and July 1 Record Dates: December 15 and June 15 AMERICAN ACHIEVEMENT CORPORATION, a Delaware corporation (the "COMPANY," which term includes any successor corporation under the indenture hereinafter referred to ), for value received promises to pay to ____________________________________________________ or registered assigns, the principal sum of _____________________ Dollars on January 1, 2007. Reference is hereby made to the further provisions of this Note set forth on the reverse hereof, which further provisions shall for all purposes have the same effect as set forth at this place. Unless the certificate of authentication hereon has been executed by the Trustee referred to on the reverse hereof by manual signature, this Note shall not be entitled to any benefits under the Indenture referred to on the reverse hereof or be valid or obligatory for any purpose. IN WITNESS WHEREOF, the Company has caused this Note to be duly executed under its corporate seal. [SEAL] Dated: AMERICAN ACHIEVEMENT CORPORATION By: --------------------------------------------- Name: Title: By: --------------------------------------------- Name: Title: This is one of the Notes referred to in the within-mentioned Indenture: THE BANK OF NEW YORK, as Trustee B-2 By: ------------------------------------- Name: Title: B-3 (Back of Note) 11 5/8% Senior Notes due 2007 Capitalized terms used herein shall have the meanings assigned to them in the Indenture referred to below unless otherwise indicated. 1. Interest. The Company promises to pay interest on the principal amount of this Note at the rate of 11 5/8% per annum from the date of original issuance until maturity. The Company will pay interest and Additional Interest semi-annually on January 1 and July 1 of each year, or if any such day is not a Business Day, on the next succeeding Business Day (each an "INTEREST PAYMENT DATE"). Interest on the Note will accrue from the most recent date to which interest has been paid or, if no interest has been paid, from the date of issuance; PROVIDED that if there is no existing Default in the payment of interest, and if this Note is authenticated between a record date referred to on the face hereof and the next succeeding Interest Payment Date, interest shall accrue from such next succeeding Interest Payment Date; PROVIDED, FURTHER, that the first Interest Payment Date shall be July 1, 2002. The Company shall pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue payments of the principal, Purchase Price and Redemption Price of this Note from time to time on demand at a rate that is 1% per annum in excess of the rate then in effect; it shall pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue installments of interest and Additional Interest, if any, (without regard to any applicable grace periods) hereon from time to time on demand at the same rate to the extent lawful. Interest will be computed on the basis of a 360-day year of twelve 30-day months. 2. METHOD OF PAYMENT. The Company will pay interest on the Notes (except defaulted interest) and Additional Interest, if any, to the Persons who are registered Holders of Notes at the close of business on the December 15 and June 15 next preceding the Interest Payment Date, even if such Notes are canceled after such record date and on or before such Interest Payment Date, except as provided in Section 2.12 of the Indenture with respect to defaulted interest. Any such installment of interest or Additional Interest, if any, not punctually paid or duly provided for shall forthwith cease to be payable to the registered Holders on such Interest Payment Date, and may be paid to the registered Holders at the close of business on a special interest payment date to be fixed by the Trustee for the payment of such defaulted interest, notice whereof shall be given to the registered Holders not less than 10 days prior to such special interest payment date, or may be paid at any time in any other lawful manner not inconsistent with the requirements of any securities exchange on which the Notes may be listed, and upon such notice as may be required by such exchange, all as more fully provided in the Indenture. The Notes will be payable as to principal, Redemption Price, Purchase Price, interest and Additional Interest, if any, at the office or agency of the Company maintained for such purpose within or without the City and State of New York, or, at the option of the Company, payment of interest and Additional Interest may be made by check mailed to the Holders at their addresses set forth in the register of Holders, PROVIDED that payment by wire transfer of immediately available funds will be required with respect to principal, Redemption Price and Purchase Price of, and B-4 interest and Additional Interest (if any) on, all Global Notes and all other Notes the Holders of which shall have provided wire transfer instructions to the Trustee or the Paying Agent. Such payment shall be in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts. 3. PAYING AGENT AND REGISTRAR. Initially, The Bank of New York, the Trustee under the Indenture, will act as Paying Agent and Registrar. The Company may change any Paying Agent or Registrar without notice to any Holder. The Company may act in any such capacity. 4. INDENTURE AND GUARANTEES. The Company issued $177 million in aggregate principal amount of the Notes under an Indenture dated as of February 20, 2002 (the "INDENTURE") between the Company, the Guarantors and the Trustee. The terms of the Notes include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939, as amended (15 U.S.C. Code Sections 77aaa-77bbbb). The Notes are subject to all such terms, and Holders are referred to the Indenture and such Act for a statement of such terms. The Notes are general obligations of the Company. Payment on each Note is guaranteed on a senior basis, jointly and severally, by the Guarantors pursuant to Article Eleven of the Indenture. 5. OPTIONAL REDEMPTION. The Company may redeem any or all of the Notes at any time on or after January 1, 2005, upon not less than 30 nor more than 60 days' prior notice in amounts of $1,000 or an integral multiple thereof at the Redemption Prices (expressed as a percentage of the principal amount) set forth below, if redeemed during the 12-month period beginning January 1 of the years indicated below:
YEAR REDEMPTION PRICE 2005.................................... 105.813% 2006.................................... 102.906%
in each case together with accrued and unpaid interest and Additional Interest, if any, to the Redemption Date. If less than all the Notes are to be redeemed, the Trustee will select the particular Notes or portions thereof to be redeemed by lot, PRO RATA or by any other method the Trustee shall deem fair and reasonable. 6. SPECIAL REDEMPTION. In the event the Company completes one or more Public Equity Offerings on or before January 1, 2005, the Company, at its option, may use the net cash proceeds from any such Public Equity Offering to redeem up to 35% of the original principal amount of the Notes (a "SPECIAL REDEMPTION") at a Redemption Price of 111.625% of the principal amount, together with accrued and unpaid interest and Additional Interest (if any), to the date of redemption, PROVIDED, HOWEVER, that at least 65% of the original principal amount of the Notes will remain outstanding immediately after each such redemption; and PROVIDED, FURTHER, that each such redemption B-5 shall occur within 120 days after the date of the closing of the applicable Public Equity Offering. If less than all the Notes are to be redeemed, the Trustee will select the particular Notes or portions thereof to be redeemed by lot, only on a PRO RATA basis or on as nearly a PRO RATA basis as is practicable (subject to DTC procedures). 7. MANDATORY REDEMPTION. Except as set forth in Paragraph 9 below with respect to repurchases of Notes in certain events, the Company shall not be required to make mandatory redemption payments with respect to the Notes. 8. NOTICE OF REDEMPTION. Subject to the provisions of the Indenture, a notice of redemption will be mailed at least 30 days but not more than 60 days (or 45 days in the case of Mandatory redemption) before the Redemption Date to each Holder whose Notes are to be redeemed at its registered address. Notes in denominations larger than $1,000 may be redeemed in part but only in whole multiples of $1,000, unless all of the Notes held by a Holder are to be redeemed. On and after the redemption date interest ceases to accrue on Notes or portions thereof called for redemption. 9. REPURCHASE AT OPTION OF HOLDER. (a) If there is a Change of Control, the Company shall be required to make an offer (a "CHANGE OF CONTROL OFFER") to repurchase all or any part (equal to $1,000 or an integral multiple thereof) of each Holder's Notes at a Purchase Price equal to 101% of the principal amount thereof PLUS accrued and unpaid interest and Additional Interest, if any, to the date of repurchase, in accordance with the procedures set forth in the Indenture. Within 30 days following any Change of Control, the Company shall mail a notice to each Holder setting forth the procedures governing the Change of Control Offer as required by the Indenture. (b) On the 366th day after an Asset Sale or such earlier date, if any, as the Board of Directors of the Company or of such Restricted Subsidiary determines not to apply the Net Cash Proceeds relating to such Asset Sale as set forth in clauses (3)(a), (3)(b) and (3)(c) of paragraph (A) of Section 4.10 of the Indenture (each, a "NET PROCEEDS OFFER TRIGGER DATE"), such aggregate amount of Net Cash Proceeds which have not been applied on or before such Net Proceeds Offer Trigger Date as permitted in clauses (3)(a), (3)(b) and (3)(c) of paragraph (A) of Section 4.10 of the Indenture (each, a "NET PROCEEDS OFFER AMOUNT") shall be applied by the Company or such Restricted Subsidiary to make an offer to purchase (the "NET PROCEEDS OFFER") to all Holders and, to the extent required by the terms of such Pari Passu Indebtedness, an offer to purchase to all holders of such Pari Passu Indebtedness, on a Purchase Date not less than 30 nor more than 45 days following the applicable Net Proceeds Offer Trigger Date, from all Holders (and holders of any such Pari Passu Indebtedness) on a PRO RATA basis, that amount of Notes (and Pari Passu Indebtedness) to be purchased, plus accrued and unpaid interest thereon, if any, to the date of purchase. Each Net Proceeds Offer will be mailed to the record Holders as shown on the register of Holders within 25 days following the Net Proceeds Offer Trigger Date, with a copy to the Trustee, and shall comply with the procedures set forth in the Indenture. Upon receiving notice of the Net Proceeds Offer, Holders may elect to tender their Notes in whole or in part in integral multiples of $1,000 in exchange for cash. To the extent Holders properly tender Notes and holders of Pari Passu Indebtedness properly tender such Indebtedness in an amount B-6 exceeding the Net Proceeds Offer Amount, the tendered Notes and Pari Passu Indebtedness will be purchased on a PRO RATA basis based on the aggregate amounts of Notes and Pari Passu Indebtedness tendered (and the Trustee shall select the tendered Notes of tendering Holders on a PRO RATA basis based on the amount of Notes tendered). A Net Proceeds Offer shall remain open for a period of 20 business days or such longer period as may be required by law. 10. DENOMINATIONS, TRANSFER, EXCHANGE. The Notes are in registered form without coupons in denominations of $1,000 and integral multiples of $1,000. The transfer of Notes may be registered and Notes may be exchanged as provided in the Indenture. The Registrar and the Trustee may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and the Company may require a Holder to pay any taxes and fees required by law or permitted by the Indenture. The Company need not exchange or register the transfer of any Note or portion of a Note selected for redemption, except for the unredeemed portion of any Note being redeemed in part. Also, it need not exchange or register the transfer of any Notes for a period of 15 days before a selection of Notes to be redeemed or during the period between a record date and the corresponding Interest Payment Date. 11. PERSONS DEEMED OWNERS. The registered Holder of a Note may be treated as its owner for all purposes. 12. AMENDMENT, SUPPLEMENT AND WAIVER. Subject to certain exceptions, the Indenture and the Notes may be amended or supplemented with the consent of the Holders of at least a majority in principal amount of the then outstanding Notes, and any existing default or compliance with any provision of the Indenture or the Notes may be waived with the consent of the Holders of a majority in principal amount of the then outstanding Notes. Without the consent of any Holder of a Note, the Indenture and the Notes may be amended or supplemented to cure any ambiguity, defect or inconsistency, to provide for uncertificated Notes in addition to or in place of certificated Notes, to provide for the assumption of the Company's obligations to Holders of the Notes in case of a merger or consolidation, to make any change that would provide any additional rights or benefits to the Holders of the Notes or that does not adversely affect the legal rights under the Indenture of any such Holder, or to comply with the requirements of the Commission in order to effect or maintain the qualification of the Indenture under the Trust Indenture Act. 13. DEFAULTS AND REMEDIES. Events of Default include: (i) default for 30 days in the payment when due of interest or Additional Interest, if any, on the Notes; (ii) default in payment when due of principal, Redemption Price or Purchase Price of the Notes when the same becomes due and payable at maturity, upon redemption, repurchase or otherwise (including the failure to make a payment to purchase Notes tendered pursuant to a Change of Control Offer or a Net Proceeds Offer); (iii) failure by the Company to comply with any covenant contained in the Indenture for 45 days after notice to the Company by the Trustee or the Holders of at least 25% of the aggregate principal amount of the Notes outstanding; (iv) default under certain other agreements relating to Indebtedness of the Company which default (a) is caused by a failure to pay any amount due at the stated maturity thereof or (b) results in the acceleration of such Indebtedness prior to its express maturity and, in each case, the principal amount of such Indebtedness, together with the principal amount of any other such B-7 Indebtedness under which there has been a default for failure to pay principal at final maturity or the maturity of which has been so accelerated, aggregates $5.0 million or more and such failure shall not have been cured or waived within 20 days thereof; (v) certain final judgments for the payment of money that remain undischarged for a period of 60 days, PROVIDED that the aggregate of all such undischarged judgments exceeds $5.0 million; and (vi) certain events of bankruptcy or insolvency with respect to the Company or any Significant Subsidiary of the Company. If any Event of Default occurs and is continuing, the Trustee or the Holders of at least 25% in principal amount of the then outstanding Notes may declare all the Notes to be due and payable immediately. Upon any such declaration, the entire principal amount of, and accrued and unpaid interest and Additional Interest, if any, on the Notes shall become immediately due and payable. Notwithstanding the foregoing, in the case of an Event of Default arising from certain events of bankruptcy or insolvency, all outstanding Notes will become due and payable without further action or notice. Holders may not enforce the Indenture or the Notes except as provided in the Indenture. Subject to certain limitations, Holders of a majority in principal amount of the then outstanding Notes may direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Holders of the Notes notice of any continuing Default or Event of Default (except a Default or Event of Default relating to payment on any Note) if it determines that withholding notice is in their interest. The Holders of a majority in principal amount of the Notes may waive any existing or past Default or Event of Default under the Indenture, and its consequences, except a default in the payment of the principal of, or interest on any Notes. The Company is required to deliver to the Trustee annually a statement regarding compliance with the Indenture, and the Company is required upon becoming aware of any Default or Event of Default, to deliver to the Trustee a statement specifying such Default or Event of Default. 14. TRUSTEE DEALINGS WITH COMPANY. Subject to certain limitations, the Trustee under the Indenture, in its individual or any other capacity, may become owner or pledge of Notes and may otherwise deal with the Company or its Affiliates as if it were not Trustee. 15. NO RECOURSE AGAINST OTHERS. No past, present or future director, officer, employee, incorporator or stockholder of the Company, as such, shall have any liability for any obligations of the Company under the Notes or the Indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder by accepting a Note waives and releases all such liability. The waiver and release are part of the consideration for the issuance of the Notes. 16. AUTHENTICATION. This Note shall not be valid until authenticated by the manual signature of the Trustee or an authenticating agent. 17. ABBREVIATIONS. Customary abbreviations may be used in the name of a Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (=tenants by the entireties), JT TEN (=joint tenants with right of survivorship and not as tenants in common), CUST (=Custodian), and U/G/M/A (=Uniform Gifts to Minors Act). 18. DISCHARGE PRIOR TO MATURITY. If the Company deposits with the Trustee or Paying Agent cash or U.S. Government Securities sufficient to pay the principal or Redemption Price B-8 of, and interest and Additional Interest, if any, on, the Notes to maturity or a specified Redemption Date and satisfies certain conditions specified in the Indenture, the Company will be discharged from the Indenture, except for certain Sections thereof. 19. GOVERNING LAW. The Indenture and Guarantees and this Note shall be governed by and construed in accordance with the laws of the State of New York but without giving effect to applicable principles of conflicts of law to the extent that the application of the law of another jurisdiction would be required thereby. Each of the Company and each Guarantor hereby irrevocably submits to the jurisdiction of any New York state court sitting in the Borough of Manhattan in the City of New York or any Federal court sitting in the Borough of Manhattan in the City of New York in respect of any suit, action or proceeding arising out of or relating to the Indenture and the Notes, and irrevocably accept for itself and in respect of its property, generally and unconditionally, jurisdiction of the aforesaid courts. Each of the Company and each Guarantor irrevocably waives, to the fullest extent that it may effectively do so under applicable law, trial by jury and any objection which it may now or hereafter have to the laying of the venue of any such suit, action or proceeding brought in any such court and any claim that any such suit, action or proceeding brought in any such court has been brought in an inconvenient forum. Nothing herein shall affect the right of the Trustee or any Holder of the Notes to serve process in any other manner permitted by law or to commence legal proceedings or otherwise proceed against the Company or any Guarantor in any other jurisdiction. 20. CUSIP NUMBERS. Pursuant to a recommendation promulgated by the Committee on Uniform Security Identification Procedures, the Company has caused CUSIP numbers to be printed on the Notes and the Trustee may use CUSIP numbers in notices of redemption as a convenience to Holders. No representation is made as to the correctness or accuracy of such numbers either as printed on the Notes or as contained in any notice of redemption or repurchase and reliance may be placed only on the other identification numbers placed thereon. The Company will furnish to any Holder upon written request and without charge a copy of the Indenture. Request may be made to: American Achievement Corporation 7211 Circle S Road Austin, Texas 78745-6603 Attention: Secretary B-9 ASSIGNMENT FORM To assign this Note, fill in the form below: (I) or (we) assign and transfer this Note to - -------------------------------------------------------------------------------- (Insert assignee's soc. sec. or tax I.D. no.) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (Print or type assignee's name address and zip code) and irrevocably appoint _______________________________________________________ agent to transfer this Note on the books of the Company. The agent may substitute another to act for him. Date: -------------- Your Signature: -------------------------------- (Sign exactly as your name appears on the face of this Note) Signature Guarantee: ------------------------------------------ (Participant in recognized signature guarantee medallion program) B-10 OPTION OF HOLDER TO ELECT PURCHASE If you wish to elect to have all or any portion of this Note purchased by the Company pursuant to Section 4.10 ("NET PROCEEDS OFFER") or Section 4.15 ("CHANGE OF CONTROL OFFER") of the Indenture, check the applicable boxes / / Net Proceeds Offer: / / Change of Control Offer: in whole / / in whole / / in part / / in part / / Amount to be Amount to be purchased: $___________ purchased: $___________ Dated: Signature: ----------- ----------------------------------- (Sign exactly as your name appears on the other side of this Note) Signature Guarantee: -------------------------------------------------- (Participant in recognized signature guarantee medallion program) Social Security Number or Taxpayer Identification Number: ---------------------------------------- B-11 EXHIBIT C GUARANTEE For value received, the undersigned hereby unconditionally guarantees, as principal obligor and not only as a surety, to the Holder of this Note the cash payments in United States dollars of principal of, premium, if any, and interest on this Note (and including Additional Interest payable thereon) in the amounts and at the times when due and interest on the overdue principal, premium, if any, and interest, if any, of this Note, if lawful, and the payment or performance of all other Obligations of the Company under the Indenture (as defined below) or the Note, to the Holder of this Note and the Trustee, all in accordance with and subject to the terms and limitations of this Note, Article Eleven of the Indenture and this Guarantee. This Guarantee will become effective in accordance with Article Eleven of the Indenture and its terms shall be evidenced therein. The validity and enforceability of this Guarantee shall not be affected by the fact that it is not affixed to any particular Note. Capitalized terms used but not defined herein shall have the meanings ascribed to them in the Indenture dated as of February 20, 2002, among American Achievement Corporation, a Delaware corporation, as issuer (the "Company"), each of the Guarantors named therein and The Bank of New York, as trustee (the "Trustee") (as amended or supplemented, the "Indenture"). THIS GUARANTEE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK BUT WITHOUT GIVING EFFECT TO APPLICABLE PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT THE APPLICATION OF THE LAW OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY. Each Guarantor hereby agrees to submit to the jurisdiction of the courts of the State of New York in any action or proceeding arising out of or relating to this Guarantee. This Guarantee is subject to release upon the terms set forth in the Indenture. [GUARANTOR] By: ------------------------------------------ Name: Title: EXHIBIT D(1) FORM OF REGULATION S CERTIFICATE ___________________,_______ The Bank of New York 101 Barclay Street, Floor 21W New York, New York 10286 Attention: Corporate Trust Trustee Administration Re: AMERICAN ACHIEVEMENT CORPORATION (THE "COMPANY") 11 5/8% SENIOR NOTES DUE 2007 (THE "NOTES") Dear Sirs: This letter relates to U.S. $ ______________ principal amount at maturity of Notes represented by a certificate (the "LEGENDED CERTIFICATE") which bears a legend outlining restrictions upon transfer of such Legended Certificate. Pursuant to Section 2.1 of the Indenture (the "INDENTURE") dated as of February 20, 2002 relating to the Notes, we hereby certify that we are (or we will hold such securities on behalf of) a person outside the United States to whom the Notes could be transferred in accordance with Rule 904 of Regulation S promulgated under the U.S. Securities Act of 1933, as amended. You and the Company are entitled to rely upon this letter and are irrevocably authorized to produce this letter or a copy hereof to any interested party in any administrative or legal proceedings or official inquiry with respect to the matters covered hereby. Terms used in this letter have the meanings set forth in Regulation S). Very truly yours, [Name of Holder] By: ------------------------------------------- Authorized Signature EXHIBIT D(2) CERTIFICATE TO BE DELIVERED UPON EXCHANGE OR REGISTRATION OF TRANSFER OF NOTES _________________, ______ The Bank of New York 101 Barclay Street, Floor 21W New York, New York 10286 Attention: Corporate Trust Trustee Administration Re: AMERICAN ACHIEVEMENT CORPORATION (THE "COMPANY") 11 5/8% SENIOR NOTES DUE 2007 (THE "NOTES") Dear Sirs: This Certificate relates to $_____________ principal amount of Notes held in *____ book-entry or *_____ certificated form by __________________(the "TRANSFEROR"). The Transferor:* / / has requested the Trustee by written order to deliver in exchange for its beneficial interest in the Global Note held by the Depositary a Note or Notes in certificated, registered form of authorized denominations in an aggregate principal amount equal to its beneficial interest in such Global Note (or the portion thereof indicated above); or / / has requested the Trustee by written order to exchange or register the transfer of a Note or Notes. In connection with such request and in respect of each such Note, the Transferor does hereby certify that Transferor is familiar with the Indenture relating to the above captioned Notes and as provided in Section 2.6 of such Indenture, the transfer of this Note does not require registration under the Securities Act (as defined below) because:* / / Such Note is being acquired for the Transferor's own account, without transfer. - ---------- * Check applicable box / / Such Note is being transferred to a "QUALIFIED INSTITUTIONAL BUYER" (as defined in Rule 144A under the Securities Act of 1933, as amended (the "SECURITIES ACT")) in reliance on Rule 144A. / / Such Note is being transferred to an "ACCREDITED INVESTOR" (as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act) in accordance with Regulation D under the Securities Act. / / Such Note is being transferred pursuant to an exemption from registration in accordance with Regulation S under the Securities Act. / / Such Note is being transferred in accordance with Rule 144 under the Securities Act, or pursuant to an effective registration statement under the Securities Act. / / Such Note is being transferred in reliance on and in compliance with an exemption from the registration requirements of the Securities Act, other than Rule 144A, 144 or Rule 904 under the Securities Act. An Opinion of Counsel to the effect that such transfer does not require registration under the Securities Act accompanies this Certificate. Very truly yours, ---------------------------------------------- [INSERT NAME OF TRANSFEROR] By: ------------------------------------------ Name: Title Date: ------------ D(2)-2 EXHIBIT E FORM OF CERTIFICATE TO BE DELIVERED IN CONNECTION WITH TRANSFERS TO NON QIB ACCREDITED INVESTORS ______________________, _______ The Bank of New York 101 Barclay Street, Floor 21W New York, New York 10286 Attention: Corporate Trust Trustee Administration Re: AMERICAN ACHIEVEMENT CORPORATION (THE "COMPANY") 11 5/8% SENIOR NOTES DUE 2007 (THE "NOTES") Dear Sirs: In connection with our proposed purchase of 11 5/8% Senior Notes due 2007 (the "NOTES") of the Company, we confirm that: 1. We understand that any subsequent transfer of the Notes is subject to certain restrictions and conditions set forth in the Indenture dated as of February 20, 2002 relating to the Notes (the "INDENTURE") and the undersigned agrees to be bound by, and not to resell, pledge or otherwise transfer the Notes except in compliance with such restrictions and conditions and the Securities Act of 1933, as amended (the "SECURITIES ACT"). 2. We understand that the Notes have not been registered under the Securities Act or any other applicable securities law, and that the Notes may not be offered, sold or otherwise transferred except as permitted in the following sentence. We agree, on our own behalf and on behalf of any accounts for which we are acting as hereinafter stated, that if we should offer, sell, transfer, pledge, hypothecate or otherwise dispose of any Notes within two years after the original issuance of the Notes, we will do so only (A) to the Company or any Subsidiary thereof, (B) inside the United States to a "qualified institutional buyer" in compliance with Rule 144A under the Securities Act, (C) inside the United States to an institutional "accredited investor" (as defined below) that, prior to such transfer, furnishes to you a signed letter substantially in the form of this letter, (D) outside the United States to a foreign person in compliance with Rule 904 of Regulation S under the Securities Act, (E) pursuant to the exemption from registration provided by Rule 144 under the Securities Act (if available) (F) in accordance with another exemption from the registration requirements of the Securities, or (G) pursuant to an effective registration statement under the Securities Act, and we further agree to provide to any person purchasing any of the Notes from us a notice advising such purchaser that resales of the Notes are restricted as stated herein and in the Indenture. 3. We understand that, on any proposed transfer of any Notes prior to the later of the original issue date of the Securities and the last date the Notes were held by an affiliate of the Company pursuant to paragraphs 2(C), 2(D) and 2(E) above, we will be required to furnish to you and the Company such certifications, legal opinions and other information as you and the Company may reasonably require to confirm that the proposed transfer complies with the foregoing restrictions. We further understand that the Notes purchased by us will bear a legend to the foregoing effect. 4. We are an institutional "ACCREDITED INVESTOR" (as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act) and have such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of our investment in the Notes, and we and any accounts for which we are acting are acquiring the Notes for investment purposes and not with a view to, or offer of sale in connection with, any distribution in violation of the Securities Act, and we are each able to bear the economic risk of our or its investment. 5. We are acquiring the Notes purchased by us for our own account or for one or more accounts (each of which is an institutional "accredited investor") as to each of which we exercise sole investment discretion. You and the Company are entitled to rely upon this letter and are irrevocably authorized to produce this letter or a copy hereof to any interested party in any administrative or legal proceedings or official inquiry with respect to the matters covered hereby. Very truly yours, (Name of Transferee) By: ------------------------------------------ Authorized Signature E(2)-2 EXHIBIT F FORM OF CERTIFICATE TO BE DELIVERED IN CONNECTION WITH TRANSFERS PURSUANT TO REGULATION S __________________, ______ The Bank of New York Attention: Corporate Trust Trustee Administration 101 Barclay Street, Floor 21W New York, New York 10286 Re: AMERICAN ACHIEVEMENT CORPORATION (THE "COMPANY") 11 5/8% SENIOR NOTES DUE 2007 (THE "NOTES") Dear Sirs: In connection with our proposed sale of $_________ aggregate principal amount at maturity of the Notes, we confirm that such sale has been effected pursuant to and in accordance with Regulation S under the Securities Act of 1933, as amended, and, accordingly, we represent that: (1) the offer of the Securities was not made to a person in the United States; (2) at the time the buy order was originated, the transferee was outside the United States or we and any person acting on our behalf reasonably believed that the transferee was outside the United States; (3) no directed selling efforts have been made by us in the United States in contravention of the requirements of Rule 903(b) or Rule 904(b) of Regulation S, as applicable; and (4) the transaction is not part of a plan or scheme to evade the registration requirements of the U.S. Securities Act of 1913. You and the Company are entitled to rely upon this letter and are irrevocably authorized to produce this letter or a copy hereof to any interested party in any administrative or legal proceedings or official inquiry with respect to the matters covered hereby. Terms used in this letter have the meanings set forth in Regulation S. Very truly yours, [Name of Transferor] By: ------------------------------------------- Authorized Signature E(2)-4 EX-4.3 21 a2071988zex-4_3.txt EXHIBIT 4.3 - -------------------------------------------------------------------------------- EXHIBIT 4.3 REGISTRATION RIGHTS AGREEMENT, DATED AS OF FEBRUARY 20, 2002, AMONG AMERICAN ACHIEVEMENT CORPORATION, THE GUARANTORS AND THE INITIAL PURCHASERS - -------------------------------------------------------------------------------- REGISTRATION RIGHTS AGREEMENT Dated as of February 20, 2002 Among AMERICAN ACHIEVEMENT CORPORATION and THE GUARANTORS NAMED HEREIN as Issuers, and DEUTSCHE BANC ALEX. BROWN INC., GOLDMAN, SACHS & CO. and SCOTIA CAPITAL (USA) INC., as Initial Purchasers 11-5/8% Senior Notes due 2007 - -------------------------------------------------------------------------------- TABLE OF CONTENTS
PAGE 1. Definitions..........................................................................................1 2. Exchange Offer.......................................................................................5 3. Shelf Registration...................................................................................9 4. Additional Interest.................................................................................11 5. Registration Procedures.............................................................................12 6. Registration Expenses...............................................................................22 7. Indemnification and Contribution....................................................................23 8. Rules 144 and 144A..................................................................................27 9. Underwritten Registrations..........................................................................27 10. Miscellaneous.......................................................................................28
-i- REGISTRATION RIGHTS AGREEMENT This Registration Rights Agreement (this "AGREEMENT") is dated as of February 20, 2002, among AMERICAN ACHIEVEMENT CORPORATION, a Delaware corporation (the "COMPANY"), the subsidiaries of the Company that are listed on the signature pages hereto (collectively, and together with any entity that in the future executes a supplemental indenture pursuant to which such entity agrees to guarantee the Notes (as hereinafter defined), the "GUARANTORS" and, together with the Company, the "ISSUERS"), and DEUTSCHE BANC ALEX. BROWN INC., GOLDMAN, SACHS & CO. and SCOTIA CAPITAL (USA) INC., as initial purchasers (the "INITIAL PURCHASERS"). This Agreement is entered into in connection with the Purchase Agreement by and among the Issuers and the Initial Purchasers, dated as of February 14, 2002 (the "PURCHASE AGREEMENT"), which provides for, among other things, the sale by the Company to the Initial Purchasers of $177,000,000 aggregate principal amount of the Company's 11-5/8% Senior Notes due 2007 (the "NOTES"), guaranteed by the Guarantors (the "GUARANTEES"). The Notes and the Guarantees are collectively referenced to herein as the "SECURITIES". In order to induce the Initial Purchasers to enter into the Purchase Agreement, the Issuers have agreed to provide the registration rights set forth in this Agreement for the benefit of the Initial Purchasers and any subsequent holder or holders of the Securities. The execution and delivery of this Agreement is a condition to the Initial Purchasers' obligation to purchase the Securities under the Purchase Agreement. The parties hereby agree as follows: 1. DEFINITIONS As used in this Agreement, the following terms shall have the following meanings: ADDITIONAL INTEREST: See Section 4(a) hereof. ADVICE: See the last paragraph of Section 5 hereof. AGREEMENT: See the introductory paragraphs hereto. APPLICABLE PERIOD: See Section 2(b) hereof. BLACKOUT PERIOD: See Section 3(d) hereof. BUSINESS DAY: Any day that is not a Saturday, Sunday or a day on which banking institutions in New York are authorized or required by law to be closed. -2- COMPANY: See the introductory paragraphs hereto. EFFECTIVENESS DATE: With respect to (i) the Exchange Offer Registration Statement, the 150th day after the Issue Date and (ii) any Shelf Registration Statement, the 150th day after the Filing Date with respect thereto; PROVIDED, HOWEVER, that if the Effectiveness Date would otherwise fall on a day that is not a Business Day, then the Effectiveness Date shall be the next succeeding Business Day. EFFECTIVENESS PERIOD: See Section 3(a) hereof. EVENT DATE: See Section 4 hereof. EXCHANGE ACT: The Securities Exchange Act of 1934, as amended, and the rules and regulations of the SEC promulgated thereunder. EXCHANGE NOTES: See Section 2(a) hereof. EXCHANGE OFFER: See Section 2(a) hereof. EXCHANGE OFFER REGISTRATION STATEMENT: See Section 2(a) hereof. FILING DATE: (A) With respect to the Exchange Offer Registration Statement, the 90th day after the Issue Date; and (B) in any other case (which may be applicable notwithstanding the consummation of the Exchange Offer), the 90th day after the delivery of a Shelf Notice as required pursuant to Section 2(c) hereof; PROVIDED, HOWEVER, that if the Filing Date would otherwise fall on a day that is not a Business Day, then the Filing Date shall be the next succeeding Business Day. GUARANTEES: See the introductory paragraphs hereto. GUARANTORS: See the introductory paragraphs hereto. HOLDER: Any holder of a Registrable Note or Registrable Notes. INDENTURE: The Indenture, dated as of February 20, 2002, by and among the Issuers and The Bank of New York, as Trustee, pursuant to which the Notes are being issued, as amended or supplemented from time to time in accordance with the terms thereof. INFORMATION: See Section 5(n) hereof. INITIAL PURCHASERS: See the introductory paragraphs hereto. INITIAL SHELF REGISTRATION: See Section 3(a) hereof. -3- INSPECTORS: See Section 5(n) hereof. ISSUE DATE: February 20, 2002, the date of original issuance of the Notes. ISSUERS: See the introductory paragraphs hereto. NASD: See Section 5(r) hereof. NOTES: See the introductory paragraphs hereto. PARTICIPANT: See Section 7(a) hereof. PARTICIPATING BROKER-DEALER: See Section 2(b) hereof. PERSON: An individual, trustee, corporation, partnership, limited liability company, joint stock company, trust, unincorporated association, union, business association, firm or other legal entity. PRIVATE EXCHANGE: See Section 2(b) hereof. PRIVATE EXCHANGE NOTES: See Section 2(b) hereof. PROSPECTUS: The prospectus included in any Registration Statement (including, without limitation, any prospectus subject to completion and a prospectus that includes any information previously omitted from a prospectus filed as part of an effective registration statement in reliance upon Rule 430A under the Securities Act and any term sheet filed pursuant to Rule 434 under the Securities Act), as amended or supplemented by any prospectus supplement, and all other amendments and supplements to the Prospectus, including post-effective amendments, and all material incorporated by reference or deemed to be incorporated by reference in such Prospectus. PURCHASE AGREEMENT: See the introductory paragraphs hereof. RECORDS: See Section 5(n) hereof. REGISTRABLE NOTES: Each Note (and the related Guarantees) upon its original issuance and at all times subsequent thereto, each Exchange Note (and the related guarantees) as to which Section 2(c)(iv) hereof is applicable upon original issuance and at all times subsequent thereto and each Private Exchange Note (and the related guarantees) upon original issuance thereof and at all times subsequent thereto, until, in each case, the earliest to occur of (i) a Registration Statement (other than, with respect to any Exchange Note as to which Section 2(c)(iv) hereof is applicable, the Exchange Offer Registration Statement) covering such Note, Exchange Note or Private Exchange Note has been declared effective by the SEC -4- and such Note, Exchange Note or such Private Exchange Note (and the related guarantees), as the case may be, has been disposed of in accordance with such effective Registration Statement, (ii) such Note has been exchanged pursuant to the Exchange Offer for an Exchange Note or Exchange Notes (and the related guarantees) that may be resold without restriction under state and federal securities laws, (iii) such Note, Exchange Note or Private Exchange Note (and the related guarantees), as the case may be, ceases to be outstanding for purposes of the Indenture or (iv) such Note, Exchange Note or Private Exchange Note (and the related guarantees), as the case may be, may be resold without restriction pursuant to Rule 144(k) (as amended or replaced) under the Securities Act. REGISTRATION STATEMENT: Any registration statement of the Issuers that covers any of the Notes, the Exchange Notes or the Private Exchange Notes (and the related Guarantees or guarantees, as the case may be) filed with the SEC under the Securities Act, including the Prospectus, amendments and supplements to such registration statement, including post-effective amendments, all exhibits, and all material incorporated by reference or deemed to be incorporated by reference in such registration statement. RULE 144: Rule 144 under the Securities Act. RULE 144A: Rule 144A under the Securities Act. RULE 405: Rule 405 under the Securities Act. RULE 415: Rule 415 under the Securities Act. RULE 424: Rule 424 under the Securities Act. SEC: The U.S. Securities and Exchange Commission. SECURITIES: See the introductory paragraphs hereto. SECURITIES ACT: The Securities Act of 1933, as amended, and the rules and regulations of the SEC promulgated thereunder. SHELF NOTICE: See Section 2(c) hereof. SHELF REGISTRATION: See Section 3(b) hereof. SHELF REGISTRATION STATEMENT: Any Registration Statement relating to a Shelf Registration. SUBSEQUENT SHELF REGISTRATION: See Section 3(b) hereof. -5- TIA: The Trust Indenture Act of 1939, as amended. TRUSTEE: The trustee under the Indenture and the trustee (if any) under any indenture governing the Exchange Notes and Private Exchange Notes (and the related guarantees). UNDERWRITTEN REGISTRATION OR UNDERWRITTEN OFFERING: A registration in which securities of one or more of the Issuers are sold to an underwriter for reoffering to the public. Except as otherwise specifically provided, all references in this Agreement to acts, laws, statutes, rules, regulations, releases, forms, no-action letters and other regulatory requirements (collectively, "REGULATORY REQUIREMENTS") shall be deemed to refer also to any amendments thereto and all subsequent Regulatory Requirements adopted as a replacement thereto having substantially the same effect therewith; PROVIDED that Rule 144 shall not be deemed to amend or replace Rule 144A. 2.EXCHANGE OFFER (a) Unless the Exchange Offer would violate applicable law or any applicable interpretation of the staff of the SEC, the Issuers shall file with the SEC, no later than the Filing Date, a Registration Statement (the "EXCHANGE OFFER REGISTRATION STATEMENT") on an appropriate registration form with respect to a registered offer (the "EXCHANGE OFFER") to exchange any and all of the Registrable Notes for a like aggregate principal amount of debt securities of the Company (the "EXCHANGE NOTES"), guaranteed by the Guarantors, that are identical in all material respects to the Securities, except that (i) the Exchange Notes shall contain no restrictive legend thereon and (ii) interest thereon shall accrue from the last date on which interest was paid on the Notes or, if no such interest has been paid, from the Issue Date, and which are entitled to the benefits of the Indenture or a trust indenture which is identical in all material respects to the Indenture (other than such changes to the Indenture or any such identical trust indenture as are necessary to comply with the TIA) and which, in either case, has been qualified under the TIA. The Exchange Offer shall comply with all applicable tender offer rules and regulations under the Exchange Act and other applicable laws. The Issuers shall use their reasonable best efforts to (x) cause the Exchange Offer Registration Statement to be declared effective under the Securities Act on or before the Effectiveness Date; (y) keep the Exchange Offer open for at least 30 days (or longer if required by applicable law) after the date that notice of the Exchange Offer is mailed to Holders; and (z) consummate the Exchange Offer on or prior to the 180th day following the Issue Date. Each Holder (including, without limitation, each Participating Broker-Dealer) who participates in the Exchange Offer will be required to represent to the Issuers in writing (which may be contained in the applicable letter of transmittal) that: (i) any Exchange Notes acquired in exchange for Registrable Notes tendered are being acquired in the ordinary course -6- of business of the Person receiving such Exchange Notes, whether or not such recipient is such Holder itself; (ii) at the time of the commencement or consummation of the Exchange Offer neither such Holder nor, to the actual knowledge of such Holder, any other Person receiving Exchange Notes from such Holder has an arrangement or understanding with any Person to participate in the distribution of the Exchange Notes in violation of the provisions of the Securities Act; (iii) neither the Holder nor, to the actual knowledge of such Holder, any other Person receiving Exchange Notes from such Holder is an "affiliate" (as defined in Rule 405) of the Company or, if it is an affiliate of the Company, it will comply with the registration and prospectus delivery requirements of the Securities Act to the extent applicable and will provide information to be included in the Shelf Registration Statement in accordance with Section 5 hereof in order to have their Notes included in the Shelf Registration Statement and benefit from the provisions regarding Additional Interest in Section 4 hereof; (iv) neither such Holder nor, to the actual knowledge of such Holder, any other Person receiving Exchange Notes from such Holder is engaging in or intends to engage in a distribution of the Exchange Notes; and (v) if such Holder is a Participating Broker-Dealer, such Holder has acquired the Registrable Notes as a result of market-making activities or other trading activities and that it will comply with the applicable provisions of the Securities Act (including, but not limited to, the prospectus delivery requirements thereunder). Upon consummation of the Exchange Offer in accordance with this Section 2, the provisions of this Agreement shall continue to apply solely with respect to Registrable Notes that are Private Exchange Notes, Exchange Notes as to which Section 2(c)(iv) is applicable and Exchange Notes held by Participating Broker-Dealers, and the Issuers shall have no further obligation to register Registrable Notes (other than Private Exchange Notes and Exchange Notes as to which clause 2(c)(iv) hereof applies) pursuant to Section 3 hereof. No securities other than the Exchange Notes shall be included in the Exchange Offer Registration Statement. (b) The Issuers shall include within the Prospectus contained in the Exchange Offer Registration Statement a section entitled "Plan of Distribution," reasonably acceptable to the Initial Purchasers, which shall contain a summary statement of the positions taken or policies made by the staff of the SEC with respect to the potential "underwriter" status of any broker-dealer that is the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act) of Exchange Notes received by such broker-dealer in the Exchange Offer (a "PARTICIPATING BROKER-DEALER"), whether such positions or policies have been publicly disseminated by the staff of the SEC or such positions or policies represent the prevailing views of the staff of the SEC. Such "Plan of Distribution" section shall also expressly permit, to the extent permitted by applicable policies and regulations of the SEC, the use of the Prospectus by all Persons subject to the prospectus delivery requirements of the Securities Act, including, to the extent permitted by applicable policies and regulations of the SEC, all -7- Participating Broker-Dealers, and include a statement describing the means by which Participating Broker-Dealers may resell the Exchange Notes in compliance with the Securities Act. The Issuers shall use their reasonable best efforts to keep the Exchange Offer Registration Statement effective and to amend and supplement the Prospectus contained therein in order to permit such Prospectus to be lawfully delivered by all Persons subject to the prospectus delivery requirements of the Securities Act for such period of time as is necessary to comply with applicable law in connection with any resale of the Exchange Notes; PROVIDED, HOWEVER, that such period shall not be required to exceed 90 days or such longer period if extended pursuant to the last paragraph of Section 5 hereof (the "APPLICABLE PERIOD"). If, prior to consummation of the Exchange Offer, the Initial Purchasers hold any Notes acquired by them that have the status of an unsold allotment in the initial distribution, the Issuers upon the request of the Initial Purchasers shall simultaneously with the delivery of the Exchange Notes issue and deliver to the Initial Purchasers, in exchange (the "PRIVATE EXCHANGE") for such Notes held by any such Holder, a like principal amount of notes (the "PRIVATE EXCHANGE NOTES") of the Issuers, guaranteed by the Guarantors, that are identical in all material respects to the Exchange Notes except for the placement of a restrictive legend on such Private Exchange Notes. The Private Exchange Notes shall be issued pursuant to the same indenture as the Exchange Notes and bear the same CUSIP number as the Exchange Notes. In connection with the Exchange Offer, the Issuers shall: (i) mail, or cause to be mailed, to each Holder of record entitled to participate in the Exchange Offer a copy of the Prospectus forming part of the Exchange Offer Registration Statement, together with an appropriate letter of transmittal and related documents; (ii) use their reasonable best efforts to keep the Exchange Offer open for not less than 30 days after the date that notice of the Exchange Offer is mailed to Holders (or longer if required by applicable law); (iii) utilize the services of a depositary for the Exchange Offer with an address in the Borough of Manhattan, The City of New York; (iv) permit Holders to withdraw tendered Securities at any time prior to the close of business, New York time, on the last Business Day on which the Exchange Offer remains open; and -8- (v) otherwise comply in all material respects with all applicable laws, rules and regulations. As soon as practicable after the close of the Exchange Offer and the Private Exchange, if any, the Issuers shall: (1) accept for exchange all Registrable Notes validly tendered and not validly withdrawn pursuant to the Exchange Offer and the Private Exchange, if any; (2) deliver to the Trustee for cancellation all Registrable Notes so accepted for exchange; and (3) cause the Trustee to authenticate and deliver promptly to each Holder of Securities, Exchange Notes or Private Exchange Notes, as the case may be, equal in principal amount to the Securities of such Holder so accepted for exchange; PROVIDED that, in the case of any Securities held in global form by a depositary, authentication and delivery to such depositary of one or more replacement Securities in global form in an equivalent principal amount thereto for the account of such Holders in accordance with the Indenture shall satisfy such authentication and delivery requirement. The Exchange Offer and the Private Exchange shall not be subject to any conditions, other than that (i) the Exchange Offer or Private Exchange, as the case may be, does not violate applicable law or any applicable interpretation of the staff of the SEC; (ii) no action or proceeding shall have been instituted or threatened in any court or by any governmental agency which might materially impair the ability of the Issuers to proceed with the Exchange Offer or the Private Exchange, and no material adverse development shall have occurred in any existing action or proceeding with respect to the Issuers; and (iii) all governmental approvals shall have been obtained, which approvals the Issuers deem necessary for the consummation of the Exchange Offer or Private Exchange. The Exchange Notes and the Private Exchange Notes shall be issued under (i) the Indenture or (ii) an indenture identical in all material respects to the Indenture and which, in either case, has been qualified under the TIA or is exempt from such qualification and shall provide that the Exchange Notes shall not be subject to the transfer restrictions set forth in the Indenture. The Indenture or such indenture shall provide that the Exchange Notes, the Private Exchange Notes and the Securities shall vote and consent together on all matters as one class and that none of the Exchange Notes, the Private Exchange Notes or the Securities will have the right to vote or consent as a separate class on any matter. (c) If, (i) because of any change in law or in currently prevailing interpretations of the staff of the SEC, the Issuers are not permitted to effect the Exchange -9- Offer, (ii) the Exchange Offer is not consummated within 180 days of the Issue Date, (iii) the Initial Purchasers or any holder of Private Exchange Notes so requests in writing to the Company at any time after the consummation of the Exchange Offer, or (iv) in the case of any Holder that participates in the Exchange Offer, such Holder does not receive Exchange Notes on the date of the exchange that may be sold without restriction under state and federal securities laws (other than due solely to the status of such Holder as an affiliate of the Issuers within the meaning of the Securities Act) and so notifies the Company within 30 days after such Holder first becomes aware of such restrictions, in the case of each of clauses (i) to and including (iv) of this sentence, then the Issuers shall promptly deliver to the Holders and the Trustee written notice thereof (the "SHELF NOTICE") and shall file a Shelf Registration pursuant to Section 3 hereof. 3. SHELF REGISTRATION If at any time a Shelf Notice is delivered as contemplated by Section 2(c) hereof, then: (a) SHELF REGISTRATION. The Issuers shall as promptly as practicable file with the SEC a Registration Statement for an offering to be made on a continuous basis pursuant to Rule 415 covering all of the Registrable Notes (the "INITIAL SHELF REGISTRATION"). The Issuers shall use their reasonable best efforts to file with the SEC the Initial Shelf Registration on or prior to the applicable Filing Date. The Initial Shelf Registration shall be on Form S-1 or another appropriate form permitting registration of such Registrable Notes for resale by Holders in the manner or manners designated by them (including, without limitation, one or more underwritten offerings). The Issuers shall not permit any securities other than the Registrable Notes and the Guarantees to be included in the Initial Shelf Registration or any Subsequent Shelf Registration (as defined below). The Issuers shall use their reasonable best efforts to cause the Shelf Registration to be declared effective under the Securities Act on or prior to the Effectiveness Date and, subject to Section 3(d), to keep the Initial Shelf Registration continuously effective under the Securities Act until the date that is two years from the Issue Date or such shorter period ending when all Registrable Notes covered by the Initial Shelf Registration have been sold in the manner set forth and as contemplated in the Initial Shelf Registration or, if applicable, a Subsequent Shelf Registration (as may be extended pursuant to the last paragraph of Section 5 hereof, the "EFFECTIVENESS PERIOD"); PROVIDED, HOWEVER, that the Effectiveness Period in respect of the Initial Shelf Registration shall be extended to the extent required to permit dealers to comply with the applicable prospectus delivery requirements of Rule 174 under the Securities Act and as otherwise provided herein and shall be subject to reduction to the extent -10- that the applicable provisions of Rule 144(k) are amended or revised to reduce the two year holding period set forth therein. (b) WITHDRAWAL OF STOP ORDERS; SUBSEQUENT SHELF REGISTRATIONS. If the Initial Shelf Registration or any Subsequent Shelf Registration ceases to be effective for any reason at any time during the Effectiveness Period (other than because of the sale of all of the Notes registered thereunder), the Issuers shall use their reasonable best efforts to obtain the prompt withdrawal of any order suspending the effectiveness thereof, and in any event shall within 30 days of such cessation of effectiveness amend such Shelf Registration Statement in a manner to obtain the withdrawal of the order suspending the effectiveness thereof, or file an additional Shelf Registration Statement pursuant to Rule 415 covering all of the Registrable Notes covered by and not sold under the Initial Shelf Registration or an earlier Subsequent Shelf Registration (each, a "SUBSEQUENT SHELF REGISTRATION"). If a Subsequent Shelf Registration is filed, the Issuers shall use their reasonable best efforts to cause the Subsequent Shelf Registration to be declared effective under the Securities Act as soon as practicable after such filing and to keep such subsequent Shelf Registration continuously effective for a period equal to the number of days in the Effectiveness Period less the aggregate number of days during which the Initial Shelf Registration or any Subsequent Shelf Registration was previously continuously effective. As used herein the term "SHELF REGISTRATION" means the Initial Shelf Registration and any Subsequent Shelf Registration. (c) SUPPLEMENTS AND AMENDMENTS. The Issuers shall promptly supplement and amend the Shelf Registration if required by the rules, regulations or instructions applicable to the registration form used for such Shelf Registration, if required by the Securities Act, or if reasonably requested by the Holders of a majority in aggregate principal amount of the Registrable Notes (or their counsel) covered by such Registration Statement with respect to the information included therein with respect to one or more of such Holders, or by any underwriter of such Registrable Notes with respect to the information included therein with respect to such underwriter. (d) BLACKOUT PERIOD. Notwithstanding anything to the contrary in this Agreement, the Company, upon notice to the Holders of Registrable Notes, may suspend the use of the Prospectus included in any Shelf Registration Statement in the event that and for a period of time (the "BLACKOUT PERIOD") not to exceed an aggregate of 60 days in any twelve month period if (1) the Board of Directors of the Company determines that the disclosure of an event at such time could reasonably be expected to have a material adverse effect on the business, operations or prospects of the Company or (2) the disclosure otherwise relates to a material business transaction which has not been publicly disclosed and the Board of Directors of the Company determines that -11- any such disclosure would jeopardize the success of such transaction; PROVIDED, that, upon the termination of such Blackout Period, the Company promptly shall notify the Holders of Registrable Notes that such Blackout Period has been terminated. 4. ADDITIONAL INTEREST (a) The Issuers and the Initial Purchasers agree that the Holders will suffer damages if the Issuers fail to fulfill their obligations under Section 2 or Section 3 hereof and that it would not be feasible to ascertain the extent of such damages with precision. Accordingly, the Issuers agree to pay, jointly and severally, as liquidated damages, additional interest on the Notes ("ADDITIONAL INTEREST") under the circumstances and to the extent set forth below (each of which shall be given independent effect): a.if (A) neither the Exchange Offer Registration Statement nor the Initial Shelf Registration has been filed on or prior to the Filing Date applicable thereto or (B) notwithstanding that the Issuers have consummated or will consummate the Exchange Offer, the Issuers are required to file a Shelf Registration and such Shelf Registration is not filed on or prior to the Filing Date applicable thereto, then, commencing on the day after any such Filing Date, Additional Interest shall accrue on the principal amount of the Notes at a rate of 0.50% per annum for the first 90 days immediately following such applicable Filing Date, and such Additional Interest rate shall increase by an additional 0.50% per annum at the beginning of each subsequent 90-day period; or b.if (A) neither the Exchange Offer Registration Statement nor the Initial Shelf Registration is declared effective by the SEC on or prior to the Effectiveness Date applicable thereto or (B) notwithstanding that the Issuers have consummated or will consummate the Exchange Offer, the Issuers are required to file a Shelf Registration and such Shelf Registration is not declared effective by the SEC on or prior to the Effectiveness Date applicable to such Shelf Registration, then, commencing on the day after such Effectiveness Date, Additional Interest shall accrue on the principal amount of the Notes at a rate of 0.50% per annum for the first 90 days immediately following the day after such Effectiveness Date, and such Additional Interest rate shall increase by an additional 0.50% per annum at the beginning of each subsequent 90-day period; or c.if (A) the Issuers have not exchanged Exchange Notes for all Notes validly tendered in accordance with the terms of the Exchange Offer on or prior to the 180th day after the Issue Date or (B) if applicable, a Shelf Registration has been declared effective and such Shelf Registration ceases to be effective at any time during the Effectiveness Period (other than during any Blackout Period relating to such Shelf Registration), then Additional Interest shall accrue on the principal amount of the Notes at a rate of 0.50% per annum for the first 90 days commencing on the (x) 181st day after the Issue Date, in the case of (A) above, or (y) the day such Shelf Registration ceases to be effective in -12- the case of (B) above, and such Additional Interest rate shall increase by an additional 0.50% per annum at the beginning of each such subsequent 90-day period; PROVIDED, HOWEVER, that (1) the Additional Interest rate on the Notes may not accrue under more than one of the foregoing clauses (i) - (iii) at any one time and at no time shall the aggregate amount of additional interest accruing exceed in the aggregate 1.5% per annum and (2) Additional Interest shall not accrue under clause (iii)(B) above during the continuation of a Blackout Period; PROVIDED, FURTHER, HOWEVER, that (1) upon the filing of the applicable Exchange Offer Registration Statement or the applicable Shelf Registration as required hereunder (in the case of clause (i) above of this Section 4), (2) upon the effectiveness of the Exchange Offer Registration Statement or the applicable Shelf Registration Statement as required hereunder (in the case of clause (ii) of this Section 4), or (3) upon the exchange of the Exchange Notes for all Notes tendered (in the case of clause (iii)(A) of this Section 4), or upon the effectiveness of the applicable Shelf Registration Statement which had ceased to remain effective (in the case of (iii)(B) of this Section 4), Additional Interest on the Notes in respect of which such events relate as a result of such clause (or the relevant subclause thereof), as the case may be, shall cease to accrue. (b) The Issuers shall notify the Trustee within two Business Days after each and every date on which an event occurs in respect of which Additional Interest is required to be paid (an "EVENT DATE"). Any amounts of Additional Interest due pursuant to (a)(i), (a)(ii) or (a)(iii) of this Section 4 will be payable in cash semiannually on each January 1 and July 1 (to the holders of record on the December 15 and June 15 immediately preceding such dates), commencing with the first such date occurring after any such Additional Interest commences to accrue. The amount of Additional Interest will be determined by multiplying the applicable Additional Interest rate by the principal amount of the Registrable Notes, multiplied by a fraction, the numerator of which is the number of days such Additional Interest rate was applicable during such period (determined on the basis of a 360 day year comprised of twelve 30 day months and, in the case of a partial month, the actual number of days elapsed), and the denominator of which is 360. No Additional Interest shall accrue with respect to Notes that are not Registrable Notes. (c) The parties hereto agree that the Additional Interest provided for in this Section 4 constitutes the sole damages that will be suffered by Holders of Registrable Notes by reason of the occurrence of any of the events described in Section 4(a)(i)-(iii) hereof. 5. REGISTRATION PROCEDURES In connection with the filing of any Registration Statement pursuant to Section 2 or 3 hereof, the Issuers shall effect such registrations to permit the sale of the securities covered thereby in accordance with the intended method or methods of disposition -13- thereof, and pursuant thereto and in connection with any Registration Statement filed by the Issuers hereunder each of the Issuers shall: (a) Prepare and file with the SEC prior to the applicable Filing Date a Registration Statement or Registration Statements as prescribed by Section 2 or 3 hereof, and use its reasonable best efforts to cause each such Registration Statement to become effective and remain effective as provided herein; PROVIDED, HOWEVER, that if (1) such filing is pursuant to Section 3 hereof or (2) a Prospectus contained in the Exchange Offer Registration Statement filed pursuant to Section 2 hereof is required to be delivered under the Securities Act by any Participating Broker-Dealer who seeks to sell Exchange Notes during the Applicable Period relating thereto from whom any Issuer has received written notice that it will be a Participating Broker-Dealer in the Exchange Offer, before filing any Registration Statement or Prospectus or any amendments or supplements thereto, the Issuers shall furnish to and afford the Holders of the Registrable Notes covered by such Registration Statement (with respect to a Registration Statement filed pursuant to Section 3 hereof) or each such Participating Broker-Dealer (with respect to any such Registration Statement), as the case may be, their counsel and the managing underwriters, if any, a reasonable opportunity to review copies of all such documents (including copies of any documents to be incorporated by reference therein and all exhibits thereto) proposed to be filed (in each case at least five business days prior to such filing). The Issuers shall not file any Registration Statement or Prospectus or any amendments or supplements thereto if the Holders of a majority in aggregate principal amount of the Registrable Notes covered by such Registration Statement, their counsel, or the managing underwriters, if any, shall reasonably object on a timely basis. (b) Prepare and file with the SEC such amendments and post-effective amendments to each Shelf Registration Statement or Exchange Offer Registration Statement, as the case may be, as may be necessary to keep such Registration Statement continuously effective for the Effectiveness Period, the Applicable Period or until consummation of the Exchange Offer, as the case may be; cause the related Prospectus to be supplemented by any Prospectus supplement required by applicable law, and as so supplemented to be filed pursuant to Rule 424; and comply with the provisions of the Securities Act and the Exchange Act applicable to it with respect to the disposition of all securities covered by such Registration Statement as so amended or in such Prospectus as so supplemented and with respect to the subsequent resale of any securities being sold by an Participating Broker-Dealer covered by any such Prospectus; PROVIDED that, to the extent relating to a Shelf Registration Statement, none of the foregoing shall be required during a Blackout Period. Other than during any Blackout Period with respect to a Shelf Registration Statement, the Issuers shall be deemed not to have used their reasonable best efforts to keep a Registration -14- Statement effective if any Issuer voluntarily takes any action that would result in selling Holders of the Registrable Notes covered thereby or Participating Broker-Dealers seeking to sell Exchange Notes not being able to sell such Registrable Notes or such Exchange Notes during that period unless such action is required by applicable law or permitted by this Agreement. (c) If (1) a Shelf Registration is filed pursuant to Section 3 hereof, or (2) a Prospectus contained in the Exchange Offer Registration Statement filed pursuant to Section 2 hereof is required to be delivered under the Securities Act by any Participating Broker-Dealer who seeks to sell Exchange Notes during the Applicable Period relating thereto from whom any Issuer has received written notice that it will be a Participating Broker-Dealer in the Exchange Offer, notify the selling Holders of Registrable Notes (with respect to a Registration Statement filed pursuant to Section 3 hereof), or each such Participating Broker-Dealer (with respect to any such Registration Statement), as the case may be, their counsel and the managing underwriters, if any, promptly (but in any event within one business day), and confirm such notice in writing, (i) when a Prospectus or any Prospectus supplement or post-effective amendment has been filed, and, with respect to a Registration Statement or any post-effective amendment, when the same has become effective under the Securities Act (including in such notice a written statement that any Holder may, upon request, obtain, at the sole expense of the Issuers, one conformed copy of such Registration Statement or post-effective amendment including financial statements and schedules, documents incorporated or deemed to be incorporated by reference and exhibits), (ii) of the issuance by the SEC of any stop order suspending the effectiveness of a Registration Statement or of any order preventing or suspending the use of any preliminary prospectus or the initiation of any proceedings for that purpose, (iii) if at any time when a prospectus is required by the Securities Act to be delivered in connection with sales of the Registrable Notes or resales of Exchange Notes by Participating Broker-Dealers the representations and warranties of the Issuers contained in any agreement (including any underwriting agreement) contemplated by Section 5(m) hereof cease to be true and correct, (iv) of the receipt by any Issuer of any notification with respect to the suspension of the qualification or exemption from qualification of a Registration Statement or any of the Registrable Notes or the Exchange Notes to be sold by any Participating Broker-Dealer for offer or sale in any jurisdiction, or the initiation or threatening of any proceeding for such purpose, (v) of the happening of any event, the existence of any condition or any information becoming known that makes any statement made in such Registration Statement or related Prospectus or any document incorporated or deemed to be incorporated therein by reference untrue in any material respect or that requires the making of any changes in or amendments or supplements to such Registration Statement, Prospectus or documents so that, in the case of the Registration Statement, it will not contain any -15- untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading, and that in the case of the Prospectus, it will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, and (vi) of the Issuers' determination that a post-effective amendment to a Registration Statement would be appropriate. (d) Use its reasonable best efforts to prevent the issuance of any order suspending the effectiveness of a Registration Statement or of any order preventing or suspending the use of a Prospectus or suspending the qualification (or exemption from qualification) of any of the Registrable Notes or the Exchange Notes to be sold by any Participating Broker-Dealer, for sale in any jurisdiction, and, if any such order is issued, to use its reasonable best efforts to obtain the withdrawal of any such order at the earliest practicable moment. (e) Subject to Section 3(d), if a Shelf Registration is filed pursuant to Section 3 and if requested during the Effectiveness Period by the managing underwriter or underwriters (if any), the Holders of a majority in aggregate principal amount of the Registrable Notes being sold in connection with an underwritten offering or any Participating Broker-Dealer, (i) as promptly as practicable incorporate in a prospectus supplement or post-effective amendment such information as the managing underwriter or underwriters (if any), such Holders, any Participating Broker-Dealer or counsel for any of them reasonably request to be included therein, (ii) make all required filings of such prospectus supplement or such post-effective amendment as soon as practicable after the Company has received notification of the matters to be incorporated in such prospectus supplement or post-effective amendment, and (iii) supplement or make amendments to such Registration Statement. (f) If (1) a Shelf Registration is filed pursuant to Section 3 hereof, or (2) a Prospectus contained in the Exchange Offer Registration Statement filed pursuant to Section 2 hereof is required to be delivered under the Securities Act by any Participating Broker-Dealer who seeks to sell Exchange Notes during the Applicable Period, furnish to each selling Holder of Registrable Notes (with respect to a Registration Statement filed pursuant to Section 3 hereof) and to each such Participating Broker-Dealer who so requests (with respect to any such Registration Statement) and to their respective counsel and each managing underwriter, if any, at the sole expense of the Issuers, one conformed copy of the Registration Statement or Registration Statements and each post-effective amendment thereto, including financial statements and schedules, and, if requested, all documents incorporated or deemed to be incorporated therein by reference and all exhibits. -16- (g) If (1) a Shelf Registration is filed pursuant to Section 3 hereof, or (2) a Prospectus contained in the Exchange Offer Registration Statement filed pursuant to Section 2 hereof is required to be delivered under the Securities Act by any Participating Broker-Dealer who seeks to sell Exchange Notes during the Applicable Period, deliver to each selling Holder of Registrable Notes (with respect to a Registration Statement filed pursuant to Section 3 hereof), or each such Participating Broker-Dealer (with respect to any such Registration Statement), as the case may be, their respective counsel, and the underwriters, if any, at the sole expense of the Issuers, as many copies of the Prospectus or Prospectuses (including each form of preliminary prospectus) and each amendment or supplement thereto and any documents incorporated by reference therein as such Persons may reasonably request; and, subject to the last paragraph of this Section 5, the Issuers hereby consent to the use of such Prospectus and each amendment or supplement thereto by each of the selling Holders of Registrable Notes or each such Participating Broker-Dealer, as the case may be, and the underwriters or agents, if any, and dealers, if any, in connection with the offering and sale of the Registrable Notes covered by, or the sale by Participating Broker-Dealers of the Exchange Notes pursuant to, such Prospectus and any amendment or supplement thereto. (h) Prior to any public offering of Registrable Notes or any delivery of a Prospectus contained in the Exchange Offer Registration Statement by any Participating Broker-Dealer who seeks to sell Exchange Notes during the Applicable Period, use its reasonable best efforts to register or qualify, and to cooperate with the selling Holders of Registrable Notes or each such Participating Broker-Dealer, as the case may be, the managing underwriter or underwriters, if any, and their respective counsel in connection with the registration or qualification (or exemption from such registration or qualification) of such Registrable Notes for offer and sale under the securities or Blue Sky laws of such jurisdictions within the United States as any selling Holder, Participating Broker-Dealer, or the managing underwriter or underwriters reasonably request in writing; PROVIDED, HOWEVER, that where Exchange Notes held by Participating Broker-Dealers or Registrable Notes are offered other than through an underwritten offering, the Issuers agree to cause their counsel to perform Blue Sky investigations and file registrations and qualifications required to be filed pursuant to this Section 5(h), keep each such registration or qualification (or exemption therefrom) effective during the period such Registration Statement is required to be kept effective and do any and all other acts or things necessary or advisable to enable the disposition in such jurisdictions of the Exchange Notes held by Participating Broker-Dealers or the Registrable Notes covered by the applicable Registration Statement; PROVIDED, HOWEVER, that no Issuer shall be required to (A) qualify generally to do business in any jurisdiction where it is not then so qualified, (B) take any action that would subject it to general service of process in any -17- such jurisdiction where it is not then so subject or (C) subject itself to taxation in excess of $1,000 in any such jurisdiction where it is not then so subject. (i) If a Shelf Registration is filed pursuant to Section 3 hereof, cooperate with the selling Holders of Registrable Notes and the managing underwriter or underwriters, if any, to facilitate the timely preparation and delivery of certificates representing Registrable Notes to be sold, which certificates shall not bear any restrictive legends and shall be in a form eligible for deposit with The Depository Trust Company; and enable such Registrable Notes to be in such denominations (subject to applicable requirements contained in the Indenture) and registered in such names as the managing underwriter or underwriters, if any, or Holders may request. (j) If (1) a Shelf Registration is filed pursuant to Section 3 hereof, or (2) a Prospectus contained in the Exchange Offer Registration Statement filed pursuant to Section 2 hereof is required to be delivered under the Securities Act by any Participating Broker-Dealer who seeks to sell Exchange Notes during the Applicable Period, upon the occurrence of any event contemplated by paragraph 5(c)(v) or 5(c)(vi) hereof, as promptly as practicable (except, in the case of a Shelf Registration, during a Blackout Period) prepare and (subject to Section 5(a) hereof) file with the SEC, at the sole expense of the Issuers, a supplement or post-effective amendment to the Registration Statement or a supplement to the related Prospectus or any document incorporated or deemed to be incorporated therein by reference, or file any other required document so that, as thereafter delivered to the purchasers of the Registrable Notes being sold thereunder (with respect to a Registration Statement filed pursuant to Section 3 hereof) or to the purchasers of the Exchange Notes to whom such Prospectus will be delivered by a Participating Broker-Dealer (with respect to any such Registration Statement), any such Prospectus will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. (k) Use its reasonable best efforts to cause the Registrable Notes covered by a Registration Statement or the Exchange Notes, as the case may be, to be rated with the appropriate rating agencies (unless such Notes are already so rated), if so requested by the Holders of a majority in aggregate principal amount of Registrable Notes covered by such Registration Statement or the Exchange Notes, as the case may be, or the managing underwriter or underwriters, if any. (l) Prior to the effective date of the first Registration Statement relating to the Registrable Notes, (i) provide the Trustee with certificates for the Registrable Notes in -18- a form eligible for deposit with The Depository Trust Company and (ii) provide a CUSIP number for the Registrable Notes. (m) In connection with any underwritten offering of Registrable Notes pursuant to a Shelf Registration, enter into an underwriting agreement as is customary in underwritten offerings of debt securities similar to the Securities, and take all such other actions as are reasonably requested by the managing underwriter or underwriters in order to expedite or facilitate the registration or the disposition of such Registrable Notes and, in such connection, (i) make such representations and warranties to, and covenants with, the underwriters with respect to the business of the Issuers (including any acquired business, properties or entity, if applicable), and the Registration Statement, Prospectus and documents, if any, incorporated or deemed to be incorporated by reference therein, in each case, as are customarily made by issuers to underwriters in underwritten offerings of debt securities similar to the Securities, and confirm the same in writing if and when requested; (ii) obtain the written opinions of counsel to the Issuers, and written updates thereof in form, scope and substance reasonably satisfactory to the managing underwriter or underwriters, addressed to the underwriters covering the matters customarily covered in opinions reasonably requested in underwritten offerings; (iii) obtain "cold comfort" letters and updates thereof in form, scope and substance reasonably satisfactory to the managing underwriter or underwriters from the independent certified public accountants of the Issuers (and, if necessary, any other independent certified public accountants of the Issuers, or of any business acquired by the Issuers, for which financial statements and financial data are, or are required to be, included or incorporated by reference in the Registration Statement), addressed to each of the underwriters, such letters to be in customary form and covering matters of the type customarily covered in "cold comfort" letters in connection with underwritten offerings of debt securities similar to the Securities; and (iv) if an underwriting agreement is entered into, the same shall contain indemnification provisions and procedures no less favorable to the sellers and underwriters, if any, than those set forth in Section 7 hereof (or such other provisions and procedures reasonably acceptable to Holders of a majority in aggregate principal amount of Registrable Notes covered by such Registration Statement and the managing underwriter or underwriters or agents, if any). The above shall be done at each closing under such underwriting agreement, or as and to the extent required thereunder. (n) If (1) a Shelf Registration is filed pursuant to Section 3 hereof, or (2) a Prospectus contained in the Exchange Offer Registration Statement filed pursuant to Section 2 hereof is required to be delivered under the Securities Act by any Participating Broker-Dealer who seeks to sell Exchange Notes during the Applicable Period, make available for inspection by any Initial Purchaser, any selling Holder of -19- such Registrable Notes being sold (with respect to a Registration Statement filed pursuant to Section 3 hereof), or each such Participating Broker-Dealer, as the case may be, any underwriter participating in any such disposition of Registrable Notes, if any, and any attorney, accountant or other agent retained by any such selling Holder or each such Participating Broker-Dealer (with respect to any such Registration Statement), as the case may be, or underwriter (any such Initial Purchasers, Holders, Participating Broker-Dealers, underwriters, attorneys, accountants or agents, collectively, the "INSPECTORS"), upon written request, at the offices where normally kept, during reasonable business hours, all pertinent financial and other records, pertinent corporate documents and instruments of the Issuers and subsidiaries of the Issuers (collectively, the "RECORDS"), as shall be reasonably necessary to enable them to exercise any applicable due diligence responsibilities, and cause the officers, directors and employees of the Issuers and any of their respective subsidiaries to supply all information ("INFORMATION") reasonably requested by any such Inspector in connection with such due diligence responsibilities. Each Inspector shall agree in writing that it will keep the Records and Information confidential and that it will not disclose any of the Records or Information that any Issuer determines, in good faith, to be confidential and notifies the Inspectors in writing are confidential unless (i) the release of such Records or Information is ordered pursuant to a subpoena or other order from a court of competent jurisdiction, (ii) disclosure of such Records or Information is necessary or advisable, in the opinion of counsel for any Inspector, in connection with any action, claim, suit or proceeding, directly or indirectly, involving or potentially involving such Inspector and arising out of, based upon, relating to, or involving this Agreement or the Purchase Agreement, or any transactions contemplated hereby or thereby or arising hereunder or thereunder, or (iii) the information in such Records or Information has been made generally available to the public other than by an Inspector or an "affiliate" (as defined in Rule 405) thereof; PROVIDED, HOWEVER, that prior notice shall be provided as soon as practicable to any Issuer of the potential disclosure of any information by such Inspector pursuant to clause (i) of this sentence and such Inspector shall allow the Issuers to undertake appropriate action to prevent disclosure of such Records or Information at the Issuers' expense. (o) Provide an indenture trustee for the Registrable Notes or the Exchange Notes, as the case may be, and cause the Indenture or the trust indenture provided for in Section 2(a) hereof, as the case may be, to be qualified under the TIA not later than the effective date of the first Registration Statement relating to the Registrable Notes; and in connection therewith, cooperate with the trustee under any such indenture and the Holders of the Registrable Notes, to effect such changes (if any) to such indenture as may be required for such indenture to be so qualified in accordance with the terms of the TIA; and execute, and use its reasonable best efforts to cause such trustee to -20- execute, all documents as may be required to effect such changes, and all other forms and documents required to be filed with the SEC to enable such indenture to be so qualified in a timely manner. (p) Comply with all applicable rules and regulations of the SEC and make generally available to its securityholders with regard to any applicable Registration Statement, a consolidated earnings statement satisfying the provisions of Section 11(a) of the Securities Act and Rule 158 thereunder (or any similar rule promulgated under the Securities Act) no later than 45 days after the end of any fiscal quarter (or 90 days after the end of any 12-month period if such period is a fiscal year) (i) commencing at the end of any fiscal quarter in which Registrable Notes are sold to underwriters in a firm commitment or best efforts underwritten offering and (ii) if not sold to underwriters in such an offering, commencing on the first day of the first fiscal quarter of the Company, after the effective date of a Registration Statement, which statements shall cover said 12-month periods. (q) Upon consummation of the Exchange Offer or a Private Exchange, if so requested by the Trustee, obtain an opinion of counsel to the Issuers, in a form customary for underwritten transactions, addressed to the Trustee for the benefit of all Holders of Registrable Notes participating in the Exchange Offer or the Private Exchange, as the case may be, that the Exchange Notes or Private Exchange Notes, as the case may be, the related guarantee and the related indenture constitute legal, valid and binding obligations of the Issuers, enforceable against the Issuers in accordance with their respective terms, subject to customary exceptions and qualifications. If the Exchange Offer or a Private Exchange is to be consummated, upon delivery of the Registrable Notes by Holders to the Company (or to such other Person as directed by the Company), in exchange for the Exchange Notes or the Private Exchange Notes, as the case may be, the Issuers shall mark, or cause to be marked, on such Registrable Notes that such Registrable Notes are being cancelled in exchange for the Exchange Notes or the Private Exchange Notes, as the case may be; in no event shall such Registrable Notes be marked as paid or otherwise satisfied. (r) Cooperate with each seller of Registrable Notes covered by any Registration Statement and each underwriter, if any, participating in the disposition of such Registrable Notes and their respective counsel in connection with any filings required to be made with the National Association of Securities Dealers, Inc. (the "NASD"). (s) Use its reasonable best efforts to take all other steps necessary to effect the registration of the Exchange Notes and/or Registrable Notes covered by a Registration Statement contemplated hereby. -21- The Issuers may require each seller of Registrable Notes as to which any registration is being effected to furnish to the Issuers such information regarding such seller and the distribution of such Registrable Notes as the Issuers may, from time to time, reasonably request. The Issuers may exclude from such registration the Registrable Notes of any seller so long as such seller fails to furnish such information within a reasonable time after receiving such request. Each seller as to which any Shelf Registration is being effected agrees to furnish promptly to the Issuers all information required to be disclosed in order to make the information previously furnished to the Issuers by such seller not materially misleading. If any such Registration Statement refers to any Holder by name or otherwise as the holder of any securities of the Company, then such Holder shall have the right to require (i) the insertion therein of language, in form and substance reasonably satisfactory to such Holder, to the effect that the holding by such Holder of such securities is not to be construed as a recommendation by such Holder of the investment quality of the securities covered thereby and that such holding does not imply that such Holder will assist in meeting any future financial requirements of the Company, or (ii) in the event that such reference to such Holder by name or otherwise is not required by the Securities Act or any similar federal statute then in force, the deletion of the reference to such Holder in any amendment or supplement to the Registration Statement filed or prepared subsequent to the time that such reference ceases to be required. Each Holder of Registrable Notes and each Participating Broker-Dealer agrees by its acquisition of such Registrable Notes or Exchange Notes to be sold by such Participating Broker-Dealer, as the case may be, that, upon actual receipt of any notice from the Company (i) of the happening of any event of the kind described in Section 5(c)(ii), 5(c)(iv), 5(c)(v), or 5(c)(vi) hereof or (ii) of the commencement of a Blackout Period, such Holder will forthwith discontinue disposition of such Registrable Notes covered by such Registration Statement (other than any Exchange Offer Registration Statement in the case of a Blackout Period) or Prospectus or Exchange Notes to be sold by such Holder or Participating Broker-Dealer, as the case may be, until (x) in the case of the immediately preceding clause (i), such Holder's or Participating Broker-Dealer's receipt of the copies of the supplemented or amended Prospectus contemplated by Section 5(j) hereof, or until it is advised in writing (the "ADVICE") by the Issuers that the use of the applicable Prospectus may be resumed, and has received copies of any amendments or supplements thereto or (y) in the case of the immediately preceding clause (ii) the earlier of (A) 60 days of after the commencement of such Blackout Period and (B) receipt of notice from the Company that such Blackout Period has ended. In the event that the Issuers shall give any such notice, each of the Applicable Period and the Effectiveness Period shall be extended by the number of days during such periods from and including the date of the giving of such notice to and including the date -22- when the requirements of the immediately preceding clause (x) or (y), as the case may be, shall have been met. 6. REGISTRATION EXPENSES All fees and expenses incident to the performance of or compliance with this Agreement by the Issuers (other than any underwriting discounts or commissions) shall be borne by the Issuers, whether or not the Exchange Offer Registration Statement or any Shelf Registration Statement is filed or becomes effective or the Exchange Offer is consummated, including, without limitation, (i) all registration and filing fees (including, without limitation, (A) fees with respect to filings required to be made with the NASD in connection with an underwritten offering and (B) fees and expenses of compliance with state securities or Blue Sky laws (including, without limitation, fees and disbursements of counsel in connection with Blue Sky qualifications of the Registrable Notes or Exchange Notes and determination of the eligibility of the Registrable Notes or Exchange Notes for investment under the laws of such jurisdictions (x) where the holders of Registrable Notes are located, in the case of the Exchange Notes, or (y) as provided in Section 5(h) hereof, in the case of Registrable Notes or Exchange Notes to be sold by a Participating Broker-Dealer during the Applicable Period)), (ii) printing expenses, including, without limitation, expenses of printing certificates for Registrable Notes or Exchange Notes in a form eligible for deposit with The Depository Trust Company and of printing prospectuses if the printing of prospectuses is requested by the managing underwriter or underwriters, if any, by the Holders of a majority in aggregate principal amount of the Registrable Notes included in any Registration Statement or in respect of Registrable Notes or Exchange Notes to be sold by any Participating Broker-Dealer during the Applicable Period, as the case may be, (iii) messenger, telephone and delivery expenses, (iv) fees and disbursements of counsel for the Issuers and, in the case of a Shelf Registration, reasonable fees and disbursements of one special counsel for all of the sellers of Registrable Notes (exclusive of any counsel retained pursuant to Section 7 hereof), (v) fees and disbursements of all independent certified public accountants referred to in Section 5(m)(iii) hereof (including, without limitation, the expenses of any "cold comfort" letters required by or incident to such performance), (vi) Securities Act liability insurance, if the Issuers desire such insurance, (vii) fees and expenses of all other Persons retained by the Issuers, (viii) internal expenses of the Issuers (including, without limitation, all salaries and expenses of officers and employees of the Issuers performing legal or accounting duties), (ix) the expense of any annual audit, (x) any fees and expenses incurred in connection with the listing of the securities to be registered on any securities exchange, and the obtaining of a rating of the securities, in each case, if applicable, and (xi) the expenses relating to printing, word processing and distributing all Registration Statements, underwriting agreements, indentures and any other documents necessary in order to comply with this Agreement. -23- 7. INDEMNIFICATION AND CONTRIBUTION. (a) Each of the Issuers agree, jointly and severally, to indemnify and hold harmless each Holder of Registrable Notes and each Participating Broker-Dealer selling Exchange Notes during the Applicable Period, and each Person, if any, who controls such Person or its affiliates within the meaning of Section 15 of the Act or Section 20 of the Exchange Act (each, a "PARTICIPANT") against any losses, claims, damages or liabilities to which any Participant may become subject under the Act, the Exchange Act or otherwise, insofar as any such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon: a. any untrue statement or alleged untrue statement made by any Issuer contained in any application or any other document or any amendment or supplement thereto executed by any Issuer based upon written information furnished by or on behalf of any Issuer filed in any jurisdiction in order to qualify the Notes under the securities or "Blue Sky" laws thereof or filed with the SEC or any securities association or securities exchange (each, an "APPLICATION"); b. any untrue statement or alleged untrue statement of any material fact contained in any Registration Statement (or any amendment thereto) or Prospectus (as amended or supplemented if any of the Issuers shall have furnished any amendments or supplements thereto) or any preliminary prospectus; or c. the omission or alleged omission to state, in any Registration Statement (or any amendment thereto) or Prospectus (as amended or supplemented if any of the Issuers shall have furnished any amendments or supplements thereto) or any preliminary prospectus or any Application or any other document or any amendment or supplement thereto, a material fact required to be stated therein or necessary to make the statements therein not misleading; and will reimburse, as incurred, the Participant for any legal or other expenses incurred by the Participant in connection with investigating, defending against or appearing as a third-party witness in connection with any such loss, claim, damage, liability or action; PROVIDED, HOWEVER, (i) the Issuers will not be liable in any such case to the extent that any such loss, claim, damage, or liability arises out of or is based upon any untrue statement or alleged untrue statement or omission or alleged omission made in any Registration Statement (or any amendment thereto) or Prospectus (as amended or supplemented if any of the Issuers shall have furnished any amendments or supplements thereto) or any preliminary prospectus or Application or any amendment or supplement thereto in reliance upon and in conformity with information relating to any Participant furnished to the Issuers by such Participant specifically for use therein, and (ii) the Issuers shall not be liable to any Participant under the indemnity agreement in this subsection (a) with respect to a preliminary prospectus to the extent that any such loss, claim, damage or liability of such Participant results from the fact that such -24- Participant sold Notes to a Person as to whom it shall be established that there was not sent or given, at or prior to the written confirmation of such sale, a copy of the Prospectus (or the Prospectus as then amended or supplemented if the Issuers shall have furnished such Participant with such amendment or supplement thereto on a timely basis), in any case where such delivery is required by applicable law and the loss, claim, damage or liability of such Participant results from an untrue statement or omission of a material fact contained in the preliminary prospectus which was corrected in the Prospectus (or in the Prospectus as then amended or supplemented if the Issuers shall have furnished such Participant with such amendment or supplement thereto on a timely basis). The indemnity provided for in this Section 7 will be in addition to any liability that the Issuers may otherwise have to the indemnified parties. The Issuers shall not be liable under this Section 7 for any settlement of any claim or action effected without its prior written consent, which shall not be unreasonably withheld. (b) Each Participant, severally and not jointly, agrees to indemnify and hold harmless the Issuers, their directors, their officers and each Person, if any, who controls the Issuers within the meaning of Section 15 of the Act or Section 20 of the Exchange Act against any losses, claims, damages or liabilities to which the Issuers or any such director, officer or controlling person may become subject under the Act, the Exchange Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon (i) any untrue statement or alleged untrue statement of any material fact contained in any Application, Registration Statement or Prospectus, any amendment or supplement thereto, or any preliminary prospectus, or (ii) the omission or the alleged omission to state therein a material fact necessary to make the statements therein not misleading, in each case to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission was made in reliance upon and in conformity with written information concerning such Participant, furnished to the Issuers by the Participant, specifically for use therein; and subject to the limitation set forth immediately preceding this clause, will reimburse, as incurred, any legal or other expenses incurred by the Issuers or any such director, officer or controlling person in connection with investigating or defending against or appearing as a third party witness in connection with any such loss, claim, damage, liability or action in respect thereof. The indemnity provided for in this Section 7 will be in addition to any liability that the Participants may otherwise have to the indemnified parties. The Participants shall not be liable under this Section 7 for any settlement of any claim or action effected without their consent, which shall not be unreasonably withheld. The Issuers shall not, without the prior written consent of such Participant, effect any settlement or compromise of any pending or threatened proceeding in respect of which any Participant is or could have been a party, or indemnity could have been sought hereunder by any Participant, unless such settlement (A) includes an unconditional written release of the Participants from all liability on claims that are the subject matter of -25- such proceeding and (B) does not include any statement as to an admission of fault, culpability or failure to act by or on behalf of any Participant. (c) Promptly after receipt by an indemnified party under this Section 7 of notice of the commencement of any action for which such indemnified party is entitled to indemnification under this Section 7, such indemnified party will, if a claim in respect thereof is to be made against the indemnifying party under this Section 7, notify the indemnifying party of the commencement thereof in writing; but the omission to so notify the indemnifying party (i) will not relieve it from any liability under paragraph (a) or (b) above unless and to the extent such failure results in the forfeiture by the indemnifying party of substantial rights and defenses and (ii) will not, in any event, relieve the indemnifying party from any obligations to any indemnified party other than the indemnification obligation provided in paragraphs (a) and (b) above. In case any such action is brought against any indemnified party, and it notifies the indemnifying party of the commencement thereof, the indemnifying party will be entitled to participate therein and, to the extent that it may wish, jointly with any other indemnifying party similarly notified, to assume the defense thereof, with counsel reasonably satisfactory to such indemnified party; PROVIDED, HOWEVER, that if (i) the use of counsel chosen by the indemnifying party to represent the indemnified party would present such counsel with a conflict of interest, (ii) the defendants in any such action include both the indemnified party and the indemnifying party and the indemnified party shall have been advised by counsel that there may be one or more legal defenses available to it and/or other indemnified parties that are different from or additional to those available to the indemnifying party, or (iii) the indemnifying party shall not have employed counsel reasonably satisfactory to the indemnified party to represent the indemnified party within a reasonable time after receipt by the indemnifying party of notice of the institution of such action, then, in each such case, the indemnifying party shall not have the right to direct the defense of such action on behalf of such indemnified party or parties and such indemnified party or parties shall have the right to select separate counsel to defend such action on behalf of such indemnified party or parties. After notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof and approval by such indemnified party of counsel appointed to defend such action, the indemnifying party will not be liable to such indemnified party under this Section 7 for any legal or other expenses, other than reasonable costs of investigation, subsequently incurred by such indemnified party in connection with the defense thereof, unless (i) the indemnified party shall have employed separate counsel in accordance with the proviso to the immediately preceding sentence (it being understood, however, that in connection with such action the indemnifying party shall not be liable for the expenses of more than one separate counsel (in addition to local counsel) in any one action or separate but substantially similar actions in the same jurisdiction arising out of the same general allegations or circumstances, designated by Participants who sold a majority in interest of the Registrable Notes and Exchange Notes sold by all such Participants in the case of paragraph (a) of this Section 7 or the Issuers in the case of paragraph (b) of this Section 7, representing -26- the indemnified parties under such paragraph (a) or paragraph (b), as the case may be, who are parties to such action or actions) or (ii) the indemnifying party has authorized in writing the employment of counsel for the indemnified party at the expense of the indemnifying party. All fees and expenses reimbursed pursuant to this paragraph (c) shall be reimbursed as they are incurred following receipt of supporting documentation. After such notice from the indemnifying party to such indemnified party, the indemnifying party will not be liable for the costs and expenses of any settlement of such action effected by such indemnified party without the prior written consent of the indemnifying party (which consent shall not be unreasonably withheld), unless such indemnified party waived in writing its rights under this Section 7, in which case the indemnified party may effect such a settlement without such consent. (d) In circumstances in which the indemnity agreement provided for in the preceding paragraphs of this Section 7 is unavailable to, or insufficient to hold harmless, an indemnified party in respect of any losses, claims, damages or liabilities (or actions in respect thereof), each indemnifying party, in order to provide for just and equitable contribution, shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages or liabilities (or actions in respect thereof) in such proportion as is appropriate to reflect (i) the relative benefits received by the indemnifying party or parties on the one hand and the indemnified party on the other from the offering of the Notes or (ii) if the allocation provided by the foregoing clause (i) is not permitted by applicable law, not only such relative benefits but also the relative fault of the indemnifying party or parties on the one hand and the indemnified party on the other in connection with the statements or omissions or alleged statements or omissions that resulted in such losses, claims, damages or liabilities (or actions in respect thereof). The relative benefits received by the Issuers on the one hand and such Participant on the other shall be deemed to be in the same proportion as the total proceeds from the offering (before deducting expenses) of the Notes received by the Issuers bear to the total gain (if any) excluding expenses received by such Participant in connection with the sale of the Notes. The relative fault of the parties shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Issuers on the one hand, or the Participants on the other, the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission or alleged statement or omission, and any other equitable considerations appropriate in the circumstances. The parties agree that it would not be equitable if the amount of such contribution were determined by pro rata or per capita allocation or by any other method of allocation that does not take into account the equitable considerations referred to in the first sentence of this paragraph (d). Notwithstanding any other provision of this paragraph (d), no Participant shall be obligated to make contributions hereunder that in the aggregate exceed the total gain (if any) received by such Participant in connection with the sale of the Notes, less the aggregate amount of any damages that such -27- Participant has otherwise been required to pay by reason of the untrue or alleged untrue statements or the omissions or alleged omissions to state a material fact, and no person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. For purposes of this paragraph (d), each person, if any, who controls a Participant within the meaning of Section 15 of the Act or Section 20 of the Exchange Act shall have the same rights to contribution as the Participants, and each director of any Issuer, each officer of any Issuer and each person, if any, who controls any Issuer within the meaning of Section 15 of the Act or Section 20 of the Exchange Act, shall have the same rights to contribution as the Issuers. 8. RULES 144 AND 144A Each of the Issuers covenants and agrees that it will file the reports required to be filed by it under the Securities Act and the Exchange Act and the rules and regulations adopted by the SEC thereunder in a timely manner in accordance with the requirements of the Securities Act and the Exchange Act and, if at any time such Issuer is not required to file such reports, such Issuer will, upon the request of any Holder or beneficial owner of Registrable Notes, make available such information necessary to permit sales pursuant to Rule 144A. Each of the Issuers further covenants and agrees, for so long as any Registrable Notes remain outstanding that it will take such further action as any Holder of Registrable Notes may reasonably request, all to the extent required from time to time to enable such holder to sell Registrable Notes without registration under the Securities Act within the limitation of the exemptions provided by Rule 144(k) under the Securities Act and Rule 144A. 9. UNDERWRITTEN REGISTRATIONS If any of the Registrable Notes covered by any Shelf Registration are to be sold in an underwritten offering, the investment banker or investment bankers and manager or managers that will manage the offering will be selected by the Holders of a majority in aggregate principal amount of such Registrable Notes included in such offering and shall be reasonably acceptable to the Issuers. No Holder of Registrable Notes may participate in any underwritten registration hereunder unless such Holder (a) agrees to sell such Holder's Registrable Notes on the basis provided in any underwriting arrangements approved by the Persons entitled hereunder to approve such arrangements and (b) completes and executes all questionnaires, powers of attorney, indemnities, underwriting agreements and other documents required under the terms of such underwriting arrangements. -28- 10. MISCELLANEOUS (a) NO INCONSISTENT AGREEMENTS. The Issuers have not, as of the date hereof, and the Issuers shall not, after the date of this Agreement, enter into any agreement with respect to any of their securities that is inconsistent with the rights granted to the Holders of Registrable Notes in this Agreement or otherwise conflicts with the provisions hereof. The rights granted to the Holders hereunder do not in any way conflict with and are not inconsistent with the rights granted to the holders of the Issuers' other issued and outstanding securities under any such agreements. The Issuers will not enter into any agreement with respect to any of their securities which will grant to any Person piggy-back registration rights with respect to any Registration Statement. (b) ADJUSTMENTS AFFECTING REGISTRABLE NOTES. Except in compliance with Section 10(c), the Issuers shall not, directly or indirectly, take any action with respect to the Registrable Notes as a class that would adversely affect the ability of the Holders of Registrable Notes to include such Registrable Notes in a registration undertaken pursuant to this Agreement. (c) AMENDMENTS AND WAIVERS. The provisions of this Agreement may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given, otherwise than with the prior written consent of (I) the Company, and (II)(A) the Holders of not less than a majority in aggregate principal amount of the then outstanding Registrable Notes and (B) in circumstances that would adversely affect the Participating Broker-Dealers, the Participating Broker-Dealers holding not less than a majority in aggregate principal amount of the Exchange Notes held by all Participating Broker-Dealers; PROVIDED, HOWEVER, that Section 7 and this Section 10(c) may not be amended, modified or supplemented without the prior written consent of each Holder and each Participating Broker-Dealer (including any person who was a Holder or Participating Broker-Dealer of Registrable Notes or Exchange Notes, as the case may be, disposed of pursuant to any Registration Statement) affected by any such amendment, modification or supplement. Notwithstanding the foregoing, a waiver or consent to depart from the provisions hereof with respect to a matter that relates exclusively to the rights of Holders of Registrable Notes whose securities are being sold pursuant to a Registration Statement may be given by Holders of at least a majority in aggregate principal amount of the Registrable Notes being sold pursuant to such Registration Statement. (d) NOTICES. All notices and other communications (including, without limitation, any notices or other communications to the Trustee) provided for or permitted hereunder shall be made in writing by hand-delivery, registered first-class mail, next-day air courier or facsimile: -29- a. if to a Holder of the Registrable Notes or any Participating Broker-Dealer, at the most current address of such Holder or Participating Broker-Dealer, as the case may be, set forth on the records of the registrar under the Indenture, with a copy in like manner to the Initial Purchasers as follows: Deutsche Banc Alex. Brown Inc. 31 West 52nd Street New York, New York 10019 Facsimile No.: (646) 324-7467 Attention: Corporate Finance with a copy to: Cahill Gordon & Reindel 80 Pine Street New York, New York 10005 Facsimile No.: (212) 269-5420 Attention: John A. Tripodoro, Esq. b. if to the Initial Purchasers, at the address specified in Section 10(d)(i); c. if to the Issuers, at the address as follows: c/o American Achievement Corporation 7211 Circle S Road Austin, Texas 78745-6603 Facsimile No.: (512) 443-5213 Attention: Chief Executive Officer with a copy to: Schulte Roth & Zabel LLP 919 Third Avenue New York, New York 10022 Facsimile No.: (212) 593-5955 Attention: Michael R. Littenberg, Esq. All such notices and communications shall be deemed to have been duly given: when delivered by hand, if personally delivered; five Business Days after being deposited in the mail, postage prepaid, if mailed; one Business Day after being timely delivered to a next-day air courier; and when receipt is acknowledged by the addressee, if sent by facsimile. -30- Copies of all such notices, demands or other communications shall be concurrently delivered by the Person giving the same to the Trustee at the address and in the manner specified in such Indenture. (e) SUCCESSORS AND ASSIGNS. This Agreement shall inure to the benefit of and be binding upon the successors and assigns of each of the parties hereto, the Holders and the Participating Broker-Dealers; PROVIDED, HOWEVER, that nothing herein shall be deemed to permit any assignment, transfer or other disposition of Registrable Notes in violation of the terms of the Purchase Agreement or the Indenture. (f) COUNTERPARTS. This Agreement may be executed in any number of counterparts and by the parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. (g) HEADINGS. The headings in this Agreement are for convenience of reference only and shall not limit ortherwise affect the meaning hereof. (h) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS APPLIED TO CONTRACTS MADE AND PERFORMED ENTIRELY WITHIN THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW THAT WOULD REQUIRE THE APPLICATION OF ANY OTHER LAW. (i) SEVERABILITY. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, illegal, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in full force and effect and shall in no way be affected, impaired or invalidated, and the parties hereto shall use their best efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such term, provision, covenant or restriction. It is hereby stipulated and declared to be the intention of the parties that they would have executed the remaining terms, provisions, covenants and restrictions without including any of such that may be hereafter declared invalid, illegal, void or unenforceable. (j) SECURITIES HELD BY THE ISSUERS OR THEIR AFFILIATES. Whenever the consent or approval of Holders of a specified percentage of Registrable Notes is required hereunder, Registrable Notes held by the Issuers or their affiliates (as such term is defined in Rule 405 under the Securities Act) shall not be counted in determining whether such consent or approval was given by the Holders of such required percentage. -31- (k) THIRD-PARTY BENEFICIARIES. Holders of Registrable Notes and Participating Broker-Dealers are intended third-party beneficiaries of this Agreement, and this Agreement may be enforced by such Persons. (l) ENTIRE AGREEMENT. This Agreement, together with the Purchase Agreement and the Indenture, is intended by the parties as a final and exclusive statement of the agreement and understanding of the parties hereto in respect of the subject matter contained herein and therein and any and all prior oral or written agreements, representations, or warranties, contracts, understandings, correspondence, conversations and memoranda between the Holders on the one hand and the Issuers on the other, or between or among any agents, representatives, parents, subsidiaries, affiliates, predecessors in interest or successors in interest with respect to the subject matter hereof and thereof are merged herein and replaced hereby. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above. AMERICAN ACHIEVEMENT CORPORATION By: /s/ David Fiore -------------------------------------------- Name: David Fiore Title: President and Chief Executive Officer COMMEMORATIVE BRANDS, INC. By: /s/ David Fiore -------------------------------------------- Name: David Fiore Title: President and Chief Executive Officer CBI NORTH AMERICA, INC. By: /s/ David Fiore -------------------------------------------- Name: David Fiore Title: President and Chief Executive Officer TAYLOR SENIOR HOLDINGS CORP. By: /s/ David Fiore -------------------------------------------- Name: David Fiore Title: President and Chief Executive Officer TAYLOR PUBLISHING COMPANY By: /s/ David Fiore -------------------------------------------- Name: David Fiore Title: President and Chief Executive Officer TP HOLDING CORP. By: /s/ David Fiore -------------------------------------------- Name: David Fiore Title: President and Chief Executive Officer -33- TAYLOR PRODUCTION SERVICES, L.P. By: Taylor Publishing Company, its General Partner By: /s/ David Fiore -------------------------------------------- Name: David Fiore Title: President and Chief Executive Officer EDUCATIONAL COMMUNICATIONS, INC. By: /s/ Sherice P. Bench -------------------------------------------- Name: Sherice P. Bench Title: Chief Financial Officer -34- The foregoing Agreement is hereby confirmed and accepted as of the date first above written. DEUTSCHE BANC ALEX. BROWN INC. SCOTIA CAPITAL (USA) INC. By: Deutsche Banc Alex. Brown Inc. By: /s/ Tom Prior ----------------------------- Name: Tom Prior Title: Managing Director By: /s/ Amelia Silver -------------------------------- Name: Amelia Silver Title: Managing Director GOLDMAN, SACHS & CO. By: /s/ Goldman, Sachs & CO. -------------------------------- (Goldman, Sachs & Co.) EX-4.5 22 a2071988zex-4_5.txt EXHIBIT 4.5 EXHIBIT 4.5 INDENTURE DATED AS OF DECEMBER 16, 1996 BETWEEN COMMEMORATIVE BRANDS, INC. AND HSBC BANK USA (f/k/a MARINE MIDLAND BANK) INDENTURE INDENTURE dated as of December 16, 1996 between Scholastic Brands, Inc., a Delaware corporation (the "COMPANY"), and Marine Midland Bank, as trustee (the "TRUSTEE"). Each party agrees as follows for the benefit of the other party and for the equal and ratable benefit of the Holders (as defined below) of the Company's 11% Senior Subordinated Notes due 2007: ARTICLE I. DEFINITIONS AND INCORPORATION BY REFERENCE Section 1.1. DEFINITIONS. "ACQUIRED DEBT" means, with respect to any specified Person, (i) Indebtedness of any other Person existing at the time such other Person is merged with or into or becomes a Subsidiary of such specified Person or assumed in connection with the acquisition of assets from such other Person, including, without limitation, Indebtedness incurred in connection with, or in contemplation of, such other Person merging with or into or becoming a Subsidiary of such specified Person or such acquisition of assets, and (ii) Indebtedness secured by a Lien encumbering any asset acquired by such specified Person. "ACQUISITION SUBSIDIARY" means any Wholly Owned Subsidiary of the Company or any of its Wholly Owned Subsidiaries which is newly formed in anticipation of and in order to effectuate the acquisition by such entity of the capital stock or assets of another Person; PROVIDED that the making of an Investment in such Subsidiary by the Company or any other Subsidiary shall be made in compliance with the Section 4.7 hereof. "AFFILIATE" means, with respect to any specified Person, any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For purposes of this definition, "CONTROL" (including, with correlative meanings, the terms "controlling," "controlled by" and "under common control with"), as used with respect to any Person, shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such Person, whether through the ownership of voting securities, by agreement or otherwise; PROVIDED that beneficial ownership of 10% or more of the voting securities of a Person shall be deemed to be control. "AGENT" means any Registrar, Paying Agent or co-registrar. "ASSET SALE" means (i) the sale (other than sales of inventory), lease, conveyance or other disposition of any assets (including, without limitation, by way of a sale and leaseback) other than in the ordinary course of business (PROVIDED that the sale, lease, conveyance or other 2 disposition of all or substantially all of the assets of the Company and its Subsidiaries taken as a whole will be governed by the provisions of Section 4.15 and/or Section 5.1 hereof, and not by Section 4.10 hereof), and (ii) the issue or sale by the Company or any of its Subsidiaries of Capital Stock of any of the Company's Subsidiaries, in the case of either clause (i) or (ii), whether in a single transaction or a series of related transactions (a) that have a fair market value in excess of $1.0 million or (b) for net proceeds in excess of $1.0 million. Notwithstanding the foregoing: (i) a transfer of assets by the Company to a Wholly Owned Subsidiary of the Company or by a Wholly Owned Subsidiary of the Company to the Company or to another Wholly Owned Subsidiary of the Company, (ii) an issuance or sale of Capital Stock by a Wholly Owned Subsidiary of the Company to the Company or to another Wholly Owned Subsidiary of the Company, (iii) a Permitted Investment or a Restricted Payment that is permitted by Section 4.7 hereof, (iv) a Permitted Lien, PROVIDED that no steps or actions have been taken by the holder of such Permitted Lien to realize upon or dispose of the assets subject thereto, (v) a sale or other disposition or abandonment of damaged, worn out or obsolete property, (vi) the licensing of any intellectual property for a period of not more than five years which is not in connection with the sale of any other assets of the Company (except for any such licensing of intellectual property that causes a reduction of the assets of the Company or any of its Subsidiaries under GAAP), and (vii) the sale of owned gold to consignment banks under the Bank Credit Facility in the ordinary course of business, will not be deemed to be Asset Sales. "ATTRIBUTABLE DEBT" means, in respect of a sale and leaseback transaction, at the time of determination, the present value (discounted at the rate of interest implicit in such transaction, determined in accordance with GAAP) of the obligation of the lessee for net rental payments during the remaining term of the lease included in such sale and leaseback transaction (including any period for which such lease has been extended or may, at the option of the lessee, be extended). "BANK CREDIT FACILITY" means the Revolving Credit, Term Loan and Gold Consignment Agreement among the Company, the Banks from time to time parties thereto, and The First National Bank of Boston and Rhode Island Hospital Trust National Bank, as agents for such Banks, together with the related documents thereto (including, without limitation, any letters of credit issued pursuant thereto, and any related guarantee agreements and security documents), in each case as such agreements may be amended (including any amendment and restatement thereof), supplemented or otherwise modified or replaced (including with other lenders or consignors), from time to time and including any agreement extending the maturity of, refinancing, modifying, increasing assign, substituting for or otherwise restructuring (including, but not limited to, the inclusion of additional or different or substitute lenders, consignors or bank agents thereunder) all or any portion of the Indebtedness, including changing the borrowing limits, under such agreements or any successor or replacement agreements, regardless of whether the Bank Credit Facility or any portion thereof was outstanding or in effect at the time of such replacement, refinancing, increase, substitution, extension, restructuring, supplement or modification. 3 "BANKRUPTCY LAW" means Title 11, U.S. Code or any similar Federal or state law for the relief of debtors. "BOARD" means the Board of Directors of the Company or any duly authorized committee of the Board of Directors. "BUSINESS DAY" means any day other than a Saturday, a Sunday or a day on which banking institutions in the City of New York or at a place of payment are authorized by law, regulation or executive order to remain closed. If a payment date is not a Business Day at a place of payment, payment may be made at that place on the next succeeding day that is a Business Day, and no interest shall accrue for the intervening period. "CAPITAL LEASE OBLIGATION" means, at the time any determination thereof is to be made, the amount of the liability in respect of a capital lease that would at such time be required to be capitalized on a balance sheet in accordance with GAAP. "CAPITAL STOCK" means (i) in the case of a corporation, corporate stock, (ii) in the case of a partnership, partnership interests (whether general or limited), (iii) in the case of an association or any other business entity, any and all shares, interests, participation, rights or other equivalents (however designated) in the equity of such association or entity, and (iv) any other interest or participation that confers on a Person the right to receive a share of the profits and losses of, or distributions of assets of, the issuing Person. "CASH EQUIVALENTS" means (i) United States Dollars, (ii) securities issued or directly and fully guaranteed or insured by the United States government or any agency or instrumentality thereof having maturities of not more than six months from the date of acquisition, (iii) demand and time deposits, 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 and a Keefe Bank Watch Rating of "B" or better, (iv) repurchase obligations with a term of not more than seven days for underlying securities of the types described in clauses (ii) and (iii) above entered into with any financial institution meeting the qualifications specified in clause (iii) above and (v) commercial paper having the highest rating obtainable from Moody's Investors Service, Inc. or Standard & Poor's and in each case maturing within six months after the date of acquisition. "CEDEL" shall mean Cedel, S.A. "CHANGE OF CONTROL" means the occurrence of any of the following: (i) the sale, lease, transfer, conveyance or other disposition (other than by way of merger or consolidation), in one or a series of related transactions, of all or substantially all of the assets of the Company and its Subsidiaries taken as a whole, to any "person" (as such term is used in Section 13(d)(3) of the Exchange Act), 4 (ii) the adoption of a plan relating to the liquidation or dissolution of the Company, (iii) the consummation of any transaction (including, without limitation, any merger or consolidation) the result of which is that (a) prior to a Public Equity Offering, the Principals and their Related Parties cease to be the "beneficial owner" (as such term is defined in Rule 13d-3 and Rule 13d-5 under the Exchange Act) of a majority of the total outstanding Voting Stock of the Company, or (b) after a Public Equity Offering, any "person" (as defined above), other than the Principals and their Related Parties, becomes the "beneficial owner" (as such term is defined in Rule 13d-3 and Rule 13d-5 under the Exchange Act), directly or indirectly, of more than 35% of the total outstanding Voting Stock of the Company and the Principals and their Related Parties beneficially own a lesser percentage of the Voting Stock of the Company than such person, or (iv) the first day on which a majority of the members of the Board are not Continuing Directors. "COMMISSION" means the United States Securities and Exchange Commission. "COMMON STOCK" means, with respect to any Person, Capital Stock of such Person that does not rank prior, as to the payment of dividends or as to the distribution of assets upon any voluntary or involuntary liquidation, dissolution or winding up of such Person, to shares of Capital Stock of any other class of such Person. "COMPANY" means Scholastic Brands, Inc., a Delaware corporation, until a successor Person shall have become such pursuant to the applicable provisions of this Indenture, and thereafter means such successor Person. "CONSOLIDATED CASH FLOW" means, with respect to any Person for any period, the Consolidated Net Income of such Person for such period PLUS, to the extent deducted in computing Consolidated Net Income: (i) an amount equal to any extraordinary loss PLUS any net loss realized in connection with any Asset Sale PLUS any loss realized on an extraordinary or non-recurring actuarial assumption adjustment with regard to post-retirement, medical and other benefits, in each case for such periods, PLUS (ii) provision for taxes based on income or profits of such Person and its Subsidiaries for such period, PLUS (iii) consolidated interest expense of such Person and its Subsidiaries for such period, whether paid or accrued and whether or not capitalized (including, without limitation, amortization of original issue discount, non-cash interest payments, the interest component of any deferred payment obligations, the interest component of all 5 payments associated with Capital Lease Obligations, imputed interest with respect to Attributable Debt, commissions, discounts and other fees and charges incurred in respect of letter of credit or bankers' acceptance financing, and net payments (if any) pursuant to Hedging Obligations), PLUS (iv) depreciation, amortization (including amortization of goodwill, other intangibles, and other assets) and other non-cash charges (excluding any such non-cash charge to the extent that it represents an accrual of or reserve for cash charges in any future period) of such Person and its Subsidiaries for such period, in each case, on a consolidated basis and determined in accordance with GAAP. Notwithstanding the foregoing, the provision for taxes on the income or profits of, and the depreciation and amortization and other non-cash charges of, a Subsidiary of the referent Person shall be added to Consolidated Net Income to compute Consolidated Cash Flow only to the extent (and in same proportion) that the Net Income of such Subsidiary was included in calculating the Consolidated Net Income of such Person and only if a corresponding amount would be permitted at the date of determination to be dividend to the Company by such Subsidiary without prior governmental approval (that has not been obtained), and without direct or indirect restriction pursuant to, the terms of its charter and all agreements, instruments, judgments, decrees, orders, statutes, rules and governmental regulations applicable to that Subsidiary or its stockholders. "CONSOLIDATED NET INCOME" means, with respect to any Person for any period, the aggregate of the net income of such Person and its Subsidiaries for such period, on a consolidated basis, determined in accordance with GAAP; PROVIDED that there shall be excluded therefrom, without duplication: (i) all items classified as extraordinary, unusual or nonrecurring gains (but not losses); (ii) any net loss or net income of any other Person (other than a Subsidiary of such Person), except to the extent of the amount of dividends or other distributions actually paid to such Person or its Subsidiaries by such other Person during such period; (iii) the net income of any Person acquired by such Person or a Subsidiary thereof in a pooling-of-interests transaction for any period prior to the date of such acquisition; (iv) any gain or loss, net of taxes, realized on the termination of any employee pension benefit plan; (v) gains (but not losses) in respect of Asset Sales by such Person or its Subsidiaries; 6 (vi) the net income (but not net loss) of any Subsidiary of such Person to the extent that the declaration or payment of dividends or distributions to such Person is restricted by the terms of its constituent documents or any agreement, instrument, contract, judgment, order, decree, statute, rule, governmental regulation or otherwise, except for any dividends or distributions actually paid by such Subsidiary to such Person or another Subsidiary of such Person; (vii) with regard to a Subsidiary of such Person (other than a Wholly Owned Subsidiary), any aggregate net income (or loss) in excess of such Person's PRO RATA share of such Subsidiary's net income (or loss); and (viii) the cumulative effect of any change in accounting principles. "CONSOLIDATED NET WORTH" means, with respect to any Person as of any date, the consolidated stockholders' equity of such Person and its consolidated Subsidiaries, as determined in accordance with GAAP, less, to the extent included therein, all amounts, if any, attributable to Disqualified Stock. "CONTINUING DIRECTORS" means, as of any date of determination, any member of the Board who (i) was a member of the Board on the date of this Indenture or (ii) was nominated for election or elected to the Board with the approval of a majority of the Continuing Directors who were members of the Board at the time of such nomination or election. "CORPORATE TRUST OFFICE OF THE TRUSTEE" shall be at the address of the Trustee specified in Section 11.2 hereof or such other address as to which the Trustee may give notice to the Company. "DEFAULT" means any event, occurrence or condition that, with the passage of time, the giving of notice or both, would constitute an Event of Default. "DEPOSITARY" means, with respect to the Notes issuable in whole or in part in global form, the Person specified in Section 2.6 hereof as the Depositary with respect to the Notes, until a successor shall have been appointed and become such pursuant to the applicable provisions or this Indenture, and, thereafter, "Depositary" shall mean or include such successor. "DESIGNATED INVESTMENT STOCK" means any Capital Stock of the Company, designated as such by the Board of Directors of the Company upon issuance for use in the capitalization of an Acquisition Subsidiary of the Company, up to a maximum net cash proceeds of $12.0 million. "DESIGNATED SENIOR INDEBTEDNESS" mean (i) Indebtedness of the Company under the Bank Credit Facility, including without limitation all principal, interest (including interest accruing after the filing of a petition initiating any proceeding under any applicable bankruptcy law, whether or not a claim therefor is allowable in such proceeding), reimbursements of amounts drawn under letters of credit, reimbursements of other amounts, Hedging Obligations 7 with any agent or other representative of the lenders under the Bank Credit Facility, guarantees in respect thereof, and all charges, consignment and other fees, indemnifications, damages, penalties, expenses (including expenses accruing after the filing of a petition initiating any proceeding under any applicable bankruptcy law, whether or not a claim therefor is allowable in such proceeding) and all other amounts or liabilities payable in respect thereof; and (ii) any other Senior Indebtedness, and all fees, expenses, indemnities and other monetary obligations in respect thereof, which, at the date of creation thereof or determination has an aggregate principal amount outstanding of, or under which at the date of creation thereof or determination, the holders thereof are committed to lend, at least $7.5 million and is specifically designated by the Company (with the consent of the Senior Representative for the Bank Credit Facility unless the Trustee has received written notice from such Senior Representative waiving such right of consent) in the instrument evidencing or governing such Senior Indebtedness as "Designated Senior Indebtedness" for purposes of this Indenture. "DISPOSITION" or "SALE" or "TRANSFER" of other words of similar meaning do not include the granting or suffering of a Permitted Lien in order to secure Indebtedness permitted by the Indenture, PROVIDED that no steps or actions have been taken by the holder of such Permitted Lien to realize upon or dispose of the assets subject thereto. "DISQUALIFIED STOCK" means any Capital Stock of any Person which, by its terms, or upon the happening of any event or with the passage of time, matures or is mandatory redeemable, pursuant to a sinking fund obligation or otherwise, or is redeemable at the option of the holder thereof, in whole or in part, on or prior to 91 days after the maturity date of the Notes, or which is exchangeable or convertible into debt securities of such Person, except to the extent that such exchange or conversion rights cannot be exercised prior to 91 days after the maturity date of the Notes. Series A Preferred Stock is not Disqualified Stock. "ESCROW AGREEMENT" means the escrow or other similar arrangement referred to in Exhibit D to the Asset Purchase Agreement dated as of May 20, 1996 and amended as of November 21, 1996 among Town & Country Corporation, L.G. Balfour Company, Inc. and the Company. "EUROCLEAR" means the Euroclear System. "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended. "EXCHANGE OFFER" means the offer that shall be made by the Company pursuant to the Registration Rights Agreement to exchange New Senior Subordinated Notes for Senior Subordinated Notes. "EXISTING INDEBTEDNESS" means all Indebtedness of the Company and its Subsidiaries (other than under the Bank Credit Facility) in existence on the Issue Date, until such amounts are repaid. 8 "FIXED CHARGE COVERAGE RATIO" means with respect to any specified Person for any period, the ratio of the Consolidated Cash Flow of such Person for such period to the Fixed Charges of such Person for such period. In the event that such specified Person or any of its Subsidiaries incurs, assumes, Guarantees, repays or redeems any Indebtedness (other than ordinary course repayments of revolving credit borrowings under the Revolving Credit Facility or payments in connection with the consignment of gold under the Gold Consignment Facility) or such specified Person issues or redeems Disqualified Stock subsequent to the commencement of the period for which the Fixed Charge Coverage Ratio is being calculated but prior to the date on which the event for which the calculation of the Fixed Charge Coverage Ratio is made (the "CALCULATION DATE"), then the Fixed Charge Coverage Ratio shall be calculated giving PRO FORMA effect to such incurrence, assumption, Guarantee, repayment or redemption of Indebtedness or such issuance or redemption of Disqualified Stock (including giving PRO FORMA effect to the application of any cash net proceeds therefrom), as if the same had occurred at the beginning of the applicable four-quarter reference period. In addition, for purposes of making the computation referred to above, (i) acquisitions that have been made by the specified Person or any of its Subsidiaries, including through mergers or consolidations and including any related financing transactions, during the four-quarter reference period or subsequent to such reference period and on or prior to the Calculation Date shall be deemed to have occurred on the first day of the four-quarter reference period and Consolidated Cash Flow for such reference period shall be calculated without giving effect to clause (iii) of the proviso set forth in the definition of Consolidated Net Income, and (ii) the Consolidated Cash Flow attributable to discontinued operations, as determined in accordance with GAAP, and operations or businesses disposed of prior to the Calculation Date, shall be excluded, and (iii) the Fixed Charges attributable to discontinued operations, as determined in accordance with GAAP, and operations or businesses disposed of prior to the Calculation Date, shall be excluded, but only to the extent that the obligations giving rise to such Fixed Charges will not be obligations of the specified Person or any of its Subsidiaries following the Calculation Date. "FIXED CHARGES" means, with respect to any Person for any period, the sum of: (i) the consolidated interest expense of such Person and its Subsidiaries (other than any Acquisition Subsidiary or any Subsidiary thereof) for such period, whether paid or accrued and whether expensed or capitalized, determined on a consolidated basis and in accordance with GAAP (including, without limitation, amortization of original issue discount, non-cash interest payments, the interest component of any deferred payment obligations, the interest component of all Capital 9 Lease Obligations, imputed interest with respect to Attributable Debt, commissions, discounts and other fees and charges incurred in respect of letter of credit or bankers' acceptance financing, and net payments (if any) pursuant to Hedging Obligations) excluding, however, in the case of the Company, obligations of the Company resulting from any extraordinary or non-recurring actuarial adjustment assumptions with respect to post-retirement medical and other benefits, PLUS (ii) any interest expense on Indebtedness of another Person that is Guaranteed by such Person or one of its Subsidiaries (other than any Acquisition Subsidiary or any Subsidiary thereof) or secured by a Lien on assets of such Person or one of its Subsidiaries (other than Acquisition Subsidiary or any Subsidiary thereof) (whether or not such Guarantee or Lien is called upon), PLUS (iii) the product of (a) all cash dividend payments (and non-cash dividend payments in the case of a Person that is a Subsidiary) on any series of Preferred Stock of such Person, times (b) a fraction, the numerator of which is one and the denominator of which is one MINUS the then current combined federal, state and local statutory tax rate of such Person, expressed as a decimal, in each case, on a consolidated basis and in accordance with GAAP. "FOREIGN SUBSIDIARY" means any Subsidiary formed under the laws of any jurisdiction other than the United States of America or any state, territory, possession or political subdivision thereof. "FTC ORDER" means any order of the Federal Trade Commission requiring the Company to sell certain Assets or to refrain from certain business activities or lines of business. "GAAP" means generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as may be approved by a significant segment of the accounting profession of the United States, as in effect on the Issue Date; PROVIDED, HOWEVER, that all financial statements of the Company (but not any other financial information or ratios calculated pursuant hereto) provided by the Company to the Holders of the Notes or the Trustee shall be prepared in accordance with GAAP as in effect on the date of such report or other financial information. "GOLD CONSIGNMENT FACILITY" means the gold consignment facility, as set forth in the Bank Credit Facility, together with the related documents thereof (including, without limitation, any related guarantee agreements and security documents), in each case as such agreements may be amended (including any amendment and restatement thereof), supplemented or otherwise modified or replaced (including with other lenders), from time to time and including any agreement extending the maturity of, refinancing, modifying, increasing, substituting for or otherwise restructuring (including, but not limited to, the inclusion of additional or different or substitute lenders or bank agents thereunder) all or any portion of the Indebtedness, including 10 changing the consignment limits, under such agreements or any successor or replacement agreements, regardless of whether the Gold Consignment Facility or any portion thereof was outstanding or in effect at the time of such replacement, refinancing, increase, substitution, extension, restructuring, supplement or modification. "GUARANTEE" means a guarantee (other than by endorsement of negotiable instruments for collection in the ordinary course of business), direct or indirect, in any manner (including, without limitation, letters of credit and reimbursement agreements in respect thereof), of all or any part of any Indebtedness. "HEDGING OBLIGATIONS" means, with respect to any Person, the obligations of such Person under interest rate swap agreements, interest rate cap agreements, interest rate collar agreements, foreign currency exchange contracts, foreign currency swaps, commodities futures and any other agreement designed to protect such Person against fluctuations in interest rates, currency valuations or commodity prices. "HOLDER" means a Person in whose name a Note is registered. "INDEBTEDNESS" means, with respect to any Person, without duplication: (i) any liability of such Person (a) for borrowed money, or under any reimbursement obligation relating to a letter of credit, bankers' acceptance or note purchase facility; (b) evidenced by a bond, note, debenture or similar instrument; (c) for the balance deferred and unpaid of the purchase price for any property or service or any obligation upon which interest charges or consignment fees are customarily paid (except for trade payables (other than consignments) arising in the ordinary course of business); (d) for the payment of money relating to a lease that is required to be classified as a Capitalized Lease Obligation in accordance with GAAP; or (e) for the maximum fixed repurchase price of any Disqualified Stock of such Person PLUS accrued and unpaid dividends thereon; (ii) any obligation of others secured by a Lien on any asset of such Person, whether or not any obligation secured thereby has been assumed, by such Person; (iii) any obligations of such Person under any Hedging Obligation; and (iv) any Guarantee of such Person or any obligation of such Person which in economic effect is a guarantee with respect to any Indebtedness of another Person. For purposes of this definition, "MAXIMUM FIXED REPURCHASE PRICE" of any Disqualified Stock which does not have a fixed repurchase price shall be calculated in accordance with the terms of such Disqualified Stock as if such Disqualified Stock were purchased on any date on which Indebtedness shall be required to be determined pursuant to the Indenture, and if such price is based upon, or measured by, the fair market value of such Disqualified Stock, such fair market 11 value shall be determined in good faith by the board of directors of the Person issuing such Disqualified Stock. "INDENTURE" means this Indenture, as amended or supplemented from time to time. "INVESTMENT" by any Person means any direct or indirect loan, advance (or other extension of credit) or capital contribution (by means of any transfer of cash or other Property) to another Person or any other payments for Property or services for the account for use of another Person, including without limitation the following: (i) the purchase or acquisition of any Capital Stock or other evidence of beneficial ownership in another Person; (ii) the purchase, acquisition or Guarantee of the Indebtedness of another Person or the issuance of a "keep well" with respect thereto; and (iii) the purchase or acquisition of the business or assets of another Person; but shall exclude: (a) accounts receivable and other extensions of trade credit on commercially reasonable terms in accordance with normal trade practices; (b) the acquisition of property and assets from equipment suppliers and other vendors in the ordinary course of business, PROVIDED that such property and assets do not represent all or substantially all of the production capacity of the supplier or other vendor; and (c) the acquisition of assets, Capital Stock or other securities by the Company for consideration consisting solely of the Capital Stock of the Company other than Disqualified Stock. "ISSUE DATE" means the date on which the Notes are first authenticated and delivered under this Indenture. "LIEN" means, with respect to any asset, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect of such asset, whether or not filed, recorded or otherwise perfected under applicable law (including any conditional sale or other title retention agreement, any lease in the nature thereof, any option or other agreement to sell or give a security interest in and any filing of or agreement to give any financing statement under the Uniform Commercial Code (or equivalent statutes) of any jurisdiction). "LIQUIDATED DAMAGES" means all liquidated damages then owing pursuant to Section 5 of the Registration Rights Agreement. 12 "NET PROCEEDS" means the sum of the aggregate cash proceeds received by the Company or any of its Subsidiaries (other than an Acquisition Subsidiary or a Subsidiary of an Acquisition Subsidiary) in respect of any Asset Sale (including, without limitation, any cash received upon the sale or other disposition of any non-cash consideration received in any such Asset Sale), and any funds received by the Company pursuant to the Escrow Agreement, net of (i) the direct costs relating to such Asset Sale (including, without limitation, legal, accounting and investment banking fees, and sales commissions) and any relocation, severance or shut-down costs or expenses incurred as a result thereof, (ii) taxes paid or payable as a result thereof (after taking into account any available tax credits or deductions and any tax sharing arrangements), (iii) amounts requited to be applied to the repayment of Indebtedness that is (a) secured by a Lien on the asset or assets that were the subject of such Asset Sale, (b) Senior Indebtedness, the repayment of which is required either pursuant to the terms thereof; by applicable law, or in order to obtain a necessary consent to such transaction, or (c) Indebtedness PARI PASSU with Notes, the repayment or purchase of which is required pursuant to the terms thereof on a PRO RATA basis with the Notes in the event of an Asset Sale, and (iv) any reserves established in accordance with GAAP for adjustment in respect of the sale price of such asset or assets or for any liabilities associated with such Asset Sale, including, without limitation, pension and other post-employment benefit liabilities, liabilities relating to environmental matters and liabilities under any indemnification obligations associated with such Asset Sale; PROVIDED that any reversal of any such reserve shall be added back in the determination of Net Proceeds. "NEW SENIOR SUBORDINATED NOTES" means notes issued by the Company hereunder containing terms identical to the Senior Subordinated Notes (except that (i) interest thereon shall accrue from the last date on which interest was paid on the Senior Subordinated Notes or, if no such interest has been paid, from the date of original issuance, (ii) the legend or legends relating to transferability and other related matters set forth on the Senior Subordinated Notes, including the text referred to in footnote 2 of Exhibit A hereto), shall be removed or appropriately altered, and (iii) as otherwise set forth herein), to be offered to Holders of Senior Subordinated Notes in exchange for Senior Subordinated Notes pursuant to the Exchange Offer. "NOTE CUSTODIAN" means the Trustee, as custodian with respect to the Notes in global form, or any successor entity thereto. "NOTES" means the Senior Subordinated Notes and the New Senior Subordinated Notes, if any, that are issued under this Indenture, as amended or supplanted from time to time. "OBLIGATIONS" means any principal, interest, penalties, fees, indemnifications, reimbursements, damages and other liabilities payable under the documentation governing any Indebtedness. "OFFICER" means, (a) with respect to any Person that is a corporation, the Chairman of the Board, the Chief Executive Officer, the President, the Chief Operating Officer, the Chief Financial Officer, the Treasurer, the Controller, the Secretary or any Vice-President of such Person and (b) with respect to any other Person, the individuals selected by such Person to perform functions similar to those of the officers listed in clause (a). 13 "OFFICERS' CERTIFICATE" means a certificate signed on behalf of the Company by two Officers of the Company, one of whom must be the Chief Executive Officer, the Chief Financial Officer, the Treasurer or the principal accounting officer of the Company, that meets the requirements of Sections 11.4 and 11.5 hereof. "OPINION OF COUNSEL" means an opinion from legal counsel who is reasonably acceptable to the Trustee, that melts the requirements of Sections 11.4 and 11.5 hereof. The counsel may be an employee of or counsel to the Company, any Subsidiary of the Company or the Trustee. "PERMITTED INVESTMENTS" means: (a) any Investment in the Company or in a Wholly Owned Subsidiary of the Company (other than an Acquisition Subsidiary or a Subsidiary thereof); (b) any Investment in cash or cash Equivalents; (c) any Investment by the Company or any Subsidiary of the Company in a Person, if as a result of such Investment (i) such Person becomes a Wholly Owned Subsidiary of the Company (other than an Acquisition Subsidiary or a Subsidiary thereof) or (ii) such Person is merged, consolidated or amalgamated with or into, or transfers or conveys substantially all of its assets to, or is liquidated into, the Company or a Wholly Owned Subsidiary of the Company (other than an Acquisition Subsidiary or a Subsidiary thereof); (d) any Investment made as a result of the receipt of non-cash consideration from an Asset Sale that was made pursuant to and in compliance with Section 4.10 hereof; (e) any obligations or shares of Capital Stock received in connection with or as a result of a bankruptcy, workout or reorganization of the issuer of such obligations or shares of Capital Stock; (f) any Investment received involuntarily; (g) any Investment existing on the date of the Indenture; (h) Investments by the Company or any Subsidiary of the Company in Permitted Lines of Business that do not exceed $5 million in the aggregate at any one time outstanding; (i) Investments by any Acquisition Subsidiary or any Subsidiary of an Acquisition Subsidiary in Permitted Lines of Business (without regard to the aggregate amount thereof) but excluding any Investment in Capital Stock or Indebtedness of the Company or any of its Subsidiaries (other than an Acquisition Subsidiary or any Subsidiary thereof); 14 (j) Investments representing loans or advances made to employees in the ordinary course of business not exceeding $500,000 at any one time; and (k) Investments representing loans or advances made to independent sales representatives made in the ordinary course of business. "PERMITTED LIENS" means: (i) Liens on assets of the Company or its Subsidiaries securing the Bank Credit Facility; (ii) Liens on assets of the Company or its Subsidiaries securing Senior Indebtedness which is permitted by the terms of the Indenture to be incurred; (iii) Liens securing Existing Indebtedness; (iv) Liens in favor of the Company; (v) Liens on property of a Person existing at the time such Person is merged into or consolidated with the Company or any Subsidiary of the Company; PROVIDED that such Liens were not incurred in contemplation of such merger or consolidation and do not extend to any assets other than those of the Person merged into or consolidated with the Company or any Subsidiary of the Company; (vi) Liens on property existing at the time of acquisition thereof by the Company or any subsidiary of the Company, PROVIDED that such Liens were not incurred in contemplation of such acquisition and do not extend to any assets other than those so acquired by the Company or any Subsidiary of the Company; (vii) Liens to secure the performance of statutory obligations, surety or appeal bonds, performance bonds or other obligations of a like nature incurred in the ordinary course of business (or to secure reimbursement obligations in respect of letters of credit issued in connection with any of the foregoing obligations); (viii) Liens to secure Indebtedness (including Capital Lease Obligations) permitted to be incurred by clause (v) of the second paragraph of Section 4.9 hereof covering only the assets acquired with such Indebtedness; (ix) Liens existing on the Issue Date; (x) Liens for taxes, assessments or governmental charges or claims that are not yet delinquent or that are being contested in good faith by appropriate proceedings promptly instituted and diligently concluded, PROVIDED that any reserve or other appropriate provision as shall be required in conformity with GAAP shall have been made therefor; 15 (xi) Liens incurred in the ordinary course of business of the Company or any Subsidiary of the Company with respect to obligations that do not exceed $5.0 million at any one time outstanding and that (a) are not incurred in connection with the borrowing of money or the obtaining of advances or credit (other than trade credit in the ordinary course of business) and (b) do not in the aggregate materially detract from the value of the property or materially impair the use thereof in the operation of business by the Company or such Subsidiary; (xii) Liens to secure any Indebtedness which is PARI PASSU with or subordinate in right of payment to the Notes, where (a) in the case of any Lien securing Indebtedness that is PARI passu in right of payment with the Notes, all obligations with respect to the Notes are secured on an equal and ratable basis with the Indebtedness so secured and (b) in the case of any Lien securing Indebtedness that is subordinated in right of payment to the Notes, all obligations with respect to the Notes are secured on a senior basis reflecting the subordination of the Indebtedness so secured on terms substantially similar to, or more favorable to senior creditors than, those contained herein, in each case, until such time as such PARI PASSU or subordinated Indebtedness is no longer secured by such Lien, at which time such Lien securing the Notes may be automatically released; and (xiii) Liens granted by an Acquisition Subsidiary or a Subsidiary of an Acquisition Subsidiary to secure Indebtedness incurred by such Acquisition Subsidiary or Subsidiary of an Acquisition Subsidiary in accordance with Section 4.9 hereof. "PERMITTED LINE OF BUSINESS" means (i) the scholastic, graduation-related and commemorative products business, the fine paper and non-textbook graphics products business, the recognition, affinity and insignia products business, and such business activities as are incidental or related thereto, and (ii) such other businesses as the Company or its Subsidiaries are engaged in on the Issue Date. "PERMITTED REFINANCING DEBT" means any Indebtedness of the Company or any of its Subsidiaries issued in exchange for, or the net proceeds of which are used to extend, refinance, renew, replace, defease or refund other Indebtedness of the Company or any of its Subsidiaries (other than an Acquisition Subsidiary or a Subsidiary of an Acquisition Subsidiary); PROVIDED THAT, except with respect to Indebtedness incurred to repay, repurchase, redeem or defease all of the outstanding Notes at one time: (i) the principal amount (or accreted value, if applicable), of such Permitted Refinancing Debt does not exceed the principal amount (or accreted value, if applicable), of the Indebtedness so extended, refinanced, renewed, replaced, defeased or refunded (PLUS the amount of up to six months of accrued and unpaid interest on such Indebtedness and reasonable premiums, fees and expenses incurred in connection therewith); 16 (ii) such Permitted Refinancing Debt has a final maturity date later than the final maturity date of, and has a Weighted Average Life to Maturity equal to or greater than the Weighted Average Life to Maturity of, the Indebtedness being extended, refinanced, renewed, replaced, defeased, or refunded; (iii) if the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded is subordinated in right of payment to the Notes, such Permitted Refinancing Debt has a final maturity date later than the final maturity date of, and is subordinated in right of payment to, the Notes on terms at least as favorable to the Holders of Notes as those contained in the documentation governing the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded; and (iv) such Indebtedness is incurred either by the Company or by the Subsidiary who is the obligor on the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded. "PERSON" means any individual, corporation, limited or general partnership, limited liability company, joint venture, association, joint stock company, trust, unincorporated organization or government or any agency or political subdivision thereof. "PORTAL MARKET" means the Private Offerings, Resales and Trading through Automated Linkages Market operated by the National Association of Securities Dealers, Inc. or any successor thereto. "PREFERRED STOCK" means, with respect to any Person, all Capital Stock of such Person of any class or classes (however designated, whether voting or non-voting) that ranks prior, as to distribution in profit or liquidation, to shares of Common Stock of such Person. "PRINCIPALS" means Castle Harlan Partners II, L.P., Castle Harlan, Inc. and their respective Affiliates and the officers and directors of the Company. "PUBLIC EQUITY OFFERING" means any underwritten primary public offering of the Common Stock or other Voting Stock of the Company, pursuant to an effective registration statement (other than a registration statement on Form S-4, Form S-8, or any successor or similar form) under the Securities Act. "PURCHASE DATE" means, with respect to any Note to be repurchased, the date fixed for such repurchase by or pursuant to this Indenture. "PURCHASE PRICE" means the amount payable for the repurchase of any Note on a Purchase Date, exclusive of accrued and unpaid interest and Liquidated Damages (if any) thereon to the Purchase Date, unless otherwise specifically provided. "QIB" means a qualified institutional buyer as defined in Rule 144A under the Securities Act. 17 "REDEMPTION DATE" means, with respect to any Note to be redeemed, the date fixed for such redemption by or pursuant to this Indenture. "REDEMPTION PRICE" means the amount payable for the redemption of any Note on a Redemption Date, exclusive of' accrued and unpaid interest and Liquidated Damages (if any) thereon to the Redemption Date, unless otherwise specifically provided. "RELATED PARTY" means, with respect to any Principal, (A) any controlling stockholder, director or officer, 80% (or more) owned Subsidiary, or spouse or immediate family member or estate thereof (in the case of an individual) of such Principal or (B) any trust, corporation, partnership or other entity, the beneficiaries, stockholders, partners, owners or Persons beneficially holding an 80% or more controlling interest of which consist of such Principal and/or such other Persons referred to in the immediately proceeding clause (A). "REGISTRATION RIGHTS AGREEMENT" means the Registration Rights Agreement, dated as of December 16, 1996, among the Company, Lehman Brothers Inc. and BT Securities Corporation, as such agreement may be amended, modified or supplemented from time to time. "REGULATION S" means Regulation S as promulgated under the Securities Act. "RESPONSIBLE OFFICER" means, when used with respect to the Trustee, any officer of the Trustee assigned by the Trustee to administer this Indenture and also means, with respect to a particular corporate trust matter, any other officer to whom such matter is referred because of his knowledge of and familiarity with the particular subject. "RESTRICTED INVESTMENT" means an Investment other than a Permitted Investment. "REVOLVING CREDIT FACILITY" means the revolving credit facility, as set forth in the Bank Credit Facility, together with the related documents thereto (including, without limitation, any letters of credit issued pursuant thereto, and any related guarantee agreements and security documents), in each case as such agreements may be amended (including any amendment and restatement thereof), supplemented or otherwise modified or replaced (including with other lenders), from time to time and including any agreement extending the maturity of, refinancing, modifying, increasing, substituting for or otherwise restructuring (including, but not limited to, the inclusion of additional or different or substitute lenders or bank agents thereunder) all or any portion of the Indebtedness, including changing the borrowing limits, under such agreements or any successor or replacement agreements, regardless of whether the Revolving Credit Facility or any portion thereof was outstanding or in effect at the time of such replacement, refinancing, increase, substitution, extension, restructuring, supplement or modification. "RULE 144A" means Rule 144A promulgated under the Securities Act. "SECURITIES ACT" means the Securities Act of 1933, as amended. 18 "SENIOR INDEBTEDNESS" means Designated Senior Indebtedness and the principal of, and premium (if any) and interest (including interest accruing after the filing of a petition initiating any proceeding under any applicable bankruptcy law, whether or not a claim therefor is allowable in such proceeding) on, any other Indebtedness of the Company, whether outstanding on the date of the Indenture or thereafter created, incurred or assumed, unless, in the case of any particular Indebtedness, the instrument creating or evidencing, or the agreement governing, such Indebtedness or pursuant to which such Indebtedness is outstanding expressly provides that such Indebtedness shall not be senior in right of payment to the Notes. Notwithstanding the foregoing, "SENIOR INDEBTEDNESS" shall not include: (i) Indebtedness evidenced by the Notes; (ii) Indebtedness that is by its terms subordinate or junior in right of payment to any other Indebtedness of the Company; (iii) that portion of any Indebtedness which is incurred in violation of this Indenture; (iv) Indebtedness of the Company to a Subsidiary or any other Affiliate of the Company; (v) Indebtedness which is represented by Disqualified Stock; (vi) any liability for federal, state, local or other taxes owed or owing by the Company; (vii) accounts payable or other obligations to trade creditors created, incurred or assumed in the ordinary course of business in connection with obtaining materials, services and other current liabilities (excluding the current portion of long-term Senior Indebtedness); (viii) Indebtedness of or amounts owing by the Company for compensation to employees for services; and (ix) amounts owing under leases (other than Capital Lease Obligations). "SENIOR REPRESENTATIVE" means any trustee, agent or representative (if any) for the holders of any Designated Senior Indebtedness. "SENIOR SUBORDINATED NOTES" means the Company's 11% Senior Subordinated Notes due 2007 issued pursuant to this Indenture, but excludes the New Senior Subordinated Notes. "SERIES A PREFERRED STOCK" means the Series A preferred stock of the Company, par value $.01 per share. 19 "SIGNIFICANT SUBSIDIARY" means any Subsidiary that would be a "significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated pursuant to the Securities Act, as such Regulation is in effect on the date hereof. "SUBSIDIARY" of any Person means any other Person, the majority of the Voting Stock or other ownership interests having ordinary voting power to elect a majority of the board of directors of which is directly or indirectly owned by such Person. "SUBSIDIARY GUARANTEE" means a Guarantee, substantially in the form of Exhibit C hereto, executed and delivered by a Subsidiary Guarantor in accordance with the provisions hereof. "SUBSIDIARY GUARANTOR" means any Subsidiary of the Company that executes a Subsidiary Guarantee in accordance with the provisions of Section 4.18 hereof, and its successors and assigns. "TRANSFER RESTRICTED SECURITY" means a Note that is a restricted security as defined in Rule 144(a)(3) under the Securities Act. "TRUSTEE" means the party named as such above until a successor replaces it in accordance with the applicable provisions of this Indenture, and thereafter means the successor serving hereunder. "TIA" means the Trust Indenture Act of 1939 (15 U.S.C. sections.sections. 77aaa-77bbbb) as in effect on the date on which this Indenture is qualified under the TIA; PROVIDED that in the event the Trust Indenture Act of 1939 is amended after such date, "TIA" means, to the extent required by any such amendment, the Trust Indenture Act of 1939 as so amended. "U.S. GOVERNMENT SECURITIES" shall mean securities which are (i) direct obligations of the United States of America for the payment of which its full faith and credit is pledged or (ii) obligations of a person controlled or supervised by and acting as an agency or instrumentality of the United States of America, the payment of which is unconditionally guaranteed as a full faith and credit obligation by the United States of America, which, in either case, are not callable or redeemable at the option of the issuer thereof, and shall also include a depository receipt issued by a bank or trust company as custodian with respect to any such U.S. Government Securities or a specific payment of interest on or principal of any such U.S. Government Securities held by such custodian for the account of the holder of a depository receipt; PROVIDED that (except as required by law) such custodian is not authorized to make any deduction from the amount payable to the holder of such depository receipt from any amount received by the custodian in respect of the U.S. Government Securities or the specific payment of interest on or principal of the U.S. Government Securities evidenced by such depository receipt. "U.S. PERSONS" means any U.S. Person as defined in Regulation S. 20 "VOTING STOCK" means, with respect to any Person, securities of any class or classes of Capital Stock in such Person entitling the holders thereof (whether at all times or at the times that such class of Capital Stock has voting power by reason of the happening of any contingency) to vote in the election of members of the board of directors or other governing body of such Person. "WEIGHTED AVERAGE LIFE TO MATURITY" means, when applied to any Indebtedness at any date, the number of years obtained by dividing (i) the sum of the products obtained by multiplying (a) the amount of each then remaining installment, sinking fund, serial maturity or other required payments of principal, including payment at final maturity, in respect thereof, by (b) the number of years (calculated to the nearest one-twelfth) that will elapse between such date and the making of such payment, by (ii) the then outstanding principal amount of such Indebtedness. "WHOLLY OWNED SUBSIDIARY" of any Person means a Subsidiary of such Person, all of the outstanding Capital Stock or other ownership interests of which (other than directors' qualifying shares or, in the case of a Foreign Subsidiary of the Company, shares otherwise required by law to be owned by other Persons, up to a maximum of 5% of the outstanding Capital Stock, Voting Stock or other ownership interests of such Subsidiary) is at the time owned by (i) such Person or (ii) one or more Wholly Owned Subsidiaries of such Person or (iii) such Person and one or more Wholly Owned Subsidiaries of such Person. Section 1.2. OTHER DEFINITIONS. TERM DEFINED IN SECTION "Affiliate Transaction"..............4.11 "Asset Sale Offer"...................4.10 "Agent Member"....................... 2.6 "Asset Sale Offer Period"............3.10 "Calculation Date"................... 1.1 "Certificated Notes"................. 2.1 "Change of Control Offer"............4.15 "Change of Control Offer Period"..... 3.9 "Change of Control Payment"..........4.15 "Change of Control Payment Date".....4.15 "Covenant Defeasance"................ 8.3 "Event of Default"................... 6.1 "Excess Proceeds"....................4.10 "Foreign Person"..................... 2.6 "Global Note"........................ 2.1 "incur".............................. 4.9 "Institutional Accredited Investors". 2.1 "Legal Defeasance"................... 8.2 "Management Agreement"............... 4.7 21 TERM DEFINED IN SECTION "Offer Amount".......................3.10 "Offshore Certificated Notes"........ 2.1 "Paying Agent"....................... 2.3 "Payment Default".................... 6.1 "Permanent Regulation S Global Note". 2.1 "Private Placement Legend"........... 2.6 "Public Equity Offering"............. 3.9 "Registrar".......................... 2.3 "Regulation S Global Note"........... 2.1 "Restricted Payments"................ 4.7 "Rule 144A Global Note".............. 2.1 "Senior Covenant Default"............10.2 "Senior Payment Default".............10.2 "Special Redemption"................. 3.9 "Surviving Entity"................... 5.1 "Temporary Regulation S Global Note". 2.1 "U.S. Certificated Notes"............ 2.1 Section 1.3. INCORPORATION BY REFERENCE OF TRUST INDENTURE ACT. Whenever this Indenture refers to a provision of the TIA, the provision is incorporated by reference in and made a part of this Indenture. The following TIA terms used in this Indenture have the following meanings: "INDENTURE SECURITIES" means the Notes; "INDENTURE SECURITY HOLDER" means a Holder; "INDENTURE TO BE QUALIFIED" means this Indenture; "INDENTURE TRUSTEE" or "INSTITUTIONAL TRUSTEE" means the Trustee; "OBLIGOR" on the Notes means the Company and any successor obligor upon the Notes. All other terms used in this Indenture that are defined by the TIA, defined by TIA reference to another statute or defined by Commission rule under the TIA have the meanings so assigned to them. Section 1.4. RULES OF CONSTRUCTION. Unless the context otherwise requires: 22 (a) a term has the meaning assigned to it; (b) an accounting term not otherwise defined has the meaning assigned to it in accordance with GAAP; (c) "OR" is not exclusive; (d) words in the singular include the plural, and in the plural include the singular; (e) provisions apply to successive events and transactions; and (f) references to sections of or rules under the Securities Act, the Exchange Act and the TIA shall be deemed to include substitute, replacement and successor sections or rules adopted by the Commission from time to time. Section 1.5. ACTS OF HOLDERS. (a) Any request, demand, authorization, direction, notice, consent, waiver or other action provided by this Indenture to be given or taken by Holders may be embodied in and evidenced by one or more instruments of substantially similar tenor signed by such Holders in person or by an agent duly appointed in writing; and, except as herein otherwise expressly provided, such action shall become effective when such instrument or instruments are delivered to the Trustee and, where it is hereby expressly required, to the Company. Such instrument or instruments (and the action embodied therein and evidenced thereby) are herein sometimes referred to as the "Act" of Holders signing such instrument or instruments. Proof of execution of any such instrument or of a writing appointing any such agent shall be sufficient for any purpose of this Indenture and (subject to Section 7.1) conclusive in favor of the Trustee and the Company, if made in the manner provided in this Section. (b) The fact and date of the execution by any Person of any such instrument or writing may be proved by the affidavit of a witness of such execution or by the certificate of any notary public or other officer authorized by law to take acknowledgments of deeds, certifying that the individual signing such instrument or writing acknowledged to him or her the execution thereof. Where such execution is by an officer of a corporation or a member of a partnership, on behalf of such corporation or partnership, such certificate or affidavit shall also constitute sufficient proof of his or her authority. (c) The ownership of Notes shall be proved by the register maintained by the Registrar. (d) Any request, demand, authorization, direction, notice, consent, waiver or other Act of the Holder of any Note shall bind every future Holder of the same Note and the holder of every Note issued upon the registration of transfer thereof or in exchange therefor or in 23 lieu thereof in respect of anything done or suffered to be done by the Trustee or the Company in reliance thereon, whether or not notation of such action is made upon such Note. ARTICLE II. THE NOTES Section 2.1. FORM AND DATING. The Notes and the Trustee's certificate of authentication shall be substantially in the form of Exhibit A hereto. The Notes may have notations, legends or endorsements required by law, stock exchange rule or usage in addition to those set forth in Exhibit A hereto. Each Note shall be dated the date of its authentication. The Notes shall be in denominations of $1,000 and integral multiples thereof. The terms and provisions contained in the Notes shall constitute, and are hereby expressly made, a part of this Indenture and the Company and the Trustee, by their execution and delivery of this Indenture, expressly agree to such terms and provisions and to be bound thereby. Notes offered and sold in reliance on Rule 144A shall be issued initially in the form of a single permanent global Note in registered form, substantially in the form set forth in Exhibit A (the "RULE 144A GLOBAL NOTE"), deposited with the Trustee, as custodian for the Depositary, duly executed by the Company and authenticated by the Trustee as hereinafter provided. The aggregate principal amount of the Rule 144A Global Note may from time to time be increased or decreased by adjustments made on the records of the Trustee, as custodian for the Depositary or its nominee, as hereinafter provided. Notes offered and sold in offshore transactions in reliance on Regulation S shall be issued initially in the form of a single temporary global Note in registered form substantially in the form set forth in Exhibit A (the "TEMPORARY REGULATION S GLOBAL NOTE"), deposited with the Trustee, as custodian for the Depositary, duly executed by the Company and authenticated by the Trustee as hereinafter provided. At any time following 40 days after the later of the commencement of the offering of the Notes and the Issue Date, upon receipt by the Trustee and the Company of a duly executed certificate substantially in the form of Exhibit B(1) hereto, a single permanent Global Note in registered form substantially in the form set forth in Exhibit A (the "PERMANENT REGULATION S GLOBAL NOTE," and together with the Temporary Regulation S Global Note, the "REGULATION S GLOBAL NOTE") duly executed by the Company and authenticated by the Trustee as hereinafter provided shall be deposited with the Trustee, as custodian for the Depositary, and the Registrar shall reflect on its books and records the date and a decrease in the principal amount of the Temporary Regulation S Global Note in an amount equal to the principal amount of the beneficial interest in the Temporary Regulation S Global Note transferred. Notes offered and sold to institutional accredited investors (as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act) ("INSTITUTIONAL ACCREDITED INVESTORS") 24 shall be issued in the form of permanent U.S. Certificated Notes in registered form in substantially the form set forth in Exhibit A (the "US. CERTIFICATED NOTES"). Securities issued pursuant to Section 2.1 in exchange for interests in the Rule 144A Global Note or the Regulation S Global Note shall be in the form of permanent Certificated Notes in registered form substantially in the form set forth in Exhibit A (the "OFFSHORE CERTIFICATED NOTES"). The Offshore Certificated Notes and U.S. Certificated Notes are sometimes collectively herein referred to as the "CERTIFICATED NOTES." The Rule 144A Global Note and the Regulation S Global Note are sometimes referred to herein as the "GLOBAL NOTE." Section 2.2. EXECUTION AND AUTHENTICATION. Two Officers of the Company shall sign the Notes for the Company by manual or facsimile signature. The seal of the Company shall be reproduced on the Notes and may be in facsimile form. If an Officer whose signature is on a Note no longer holds that office at the time a Note is authenticated, the Note shall nevertheless be valid. A Note shall not be valid until authenticated by the manual signature of the Trustee. The signature shall be conclusive evidence that the Note has been authenticated under this Indenture. The Trustee, upon a written order of the Company signed by two Officers of the Company, together with the other documents required by Sections 11.4 and 11.5 hereof, shall authenticate Senior Subordinated Notes for original issue up to the aggregate principal amount stated in paragraph 4 of the Notes. The Trustee, upon written order of the Company signed by two Officers of the Company, together with the other documents required by Sections 11.4 and 11.5 hereof, shall authenticate New Senior Subordinated Notes for original issue up to the aggregate principal amount stated in paragraph 4 of the Notes; PROVIDED that such New Senior Subordinated Notes shall be issuable only upon the valid surrender for cancellation of Senior Subordinated Notes of a like aggregate principal amount in accordance with the Exchange Offer. Such written order of the Company shall specify the amount of Notes to be authenticated and the date on which the original issue of Notes is to be authenticated. The aggregate principal amount of Notes outstanding at any time may not exceed such amount except as provided in Section 2.7 hereof. The Trustee may appoint an authenticating agent acceptable to the Company to authenticate Notes. An authenticating agent may authenticate Notes whenever the Trustee may do so. Each reference in this Indenture to authentication by the Trustee includes authentication by such agent. An authenticating agent has the same rights as an Agent to deal with the Company or an Affiliate of the Company. Section 2.3. REGISTRAR AND PAYING AGENT. 25 The Company shall maintain an office or agency where Notes may be presented for registration of transfer or for exchange ("REGISTRAR") and an office or agency where Notes may be presented for payment ("PAYING AGENT"). The Registrar shall keep a register of the Notes and of their transfer and exchange. At the option of the Company, payment of interest and Liquidated Damages may be made by check mailed to the Holders at their addresses set forth in the register of Holders, PROVIDED that payment by wire transfer of immediately available funds will be required with respect to principal, Redemption Price and Purchase Price of, and interest and Liquidated Damages (if any) on, all Global Notes and all other Notes the Holders of which shall have provided wire transfer instructions to the Trustee or the Paying Agent. The Company may appoint one or more co-registrars and one or more additional paying agents. The term "REGISTRAR" includes any co-registrar and the term "PAYING AGENT" includes any additional paying agent. The Company may change any Paying Agent or Registrar without notice to any Holder. The Company shall notify the Trustee in writing of the name and address of any Paying Agent not a party to this Indenture. If the Company fails to appoint or maintain another entity as Registrar or Paying Agent, the Trustee shall act as such. The Company may act as Paying Agent or Registrar. The Depositary shall, by acceptance of a Global Note, agree that transfers of beneficial interests in such Global Note may be effected only through a book-entry system maintained by the Depositary (or its agent), and that ownership of a beneficial interest in the Note shall be required to be reflected in a book entry. The Company initially appoints the Trustee to act as the Registrar and Paying Agent and to act as Note Custodian with respect to the Global Notes. Section 2.4. PAYING AGENTS TO HOLD MONEY IN TRUST. The Company shall require each Paying Agent other than the Trustee to agree in writing that the Paying Agent will hold in trust for the benefit of Holders or the Trustee all money held by the Paying Agent for the payment of principal and of any premium, if any, interest and Liquidated Damages, if any, on the Notes, and will notify the Trustee of any default by the Company in making any such payment. While any such default continues, the Trustee may require a Paying Agent to pay all money held by it to the Trustee. The Company at any time may require a Paying Agent to pay all money held by it to the Trustee. Upon payment over to the Trustee, the Paying Agent (if other than the Company) shall have no further liability for the money. If the Company acts as Paying Agent, it shall segregate and hold in a separate trust fund for the benefit of the Holders all money held by it as Paying Agent. Upon any bankruptcy or reorganization proceedings relating to the Company, the Trustee shall serve as Paying Agent for the Notes. Section 2.5. HOLDER LISTS. The Trustee shall preserve in as current a form as is reasonably practicable the most recent list available to it of the names and addresses of all Holders and shall otherwise comply with TIA sections 312(a). If the Trustee is not the Registrar, the Company shall furnish to the Trustee at least seven Business Days before each interest payment date and at such other times as the Trustee may request in writing, a list in such form and as of such date as the Trustee may 26 reasonably require of the names and addresses of the Holders of Notes, and the Company shall otherwise comply with TIA ss. 312(a). Section 2.6. TRANSFER AND EXCHANGE. (a) TRANSFER AND EXCHANGE GENERALLY: BOOK ENTRY PROVISIONS. Upon surrender for registration of transfer of any Note to the Registrar, and satisfaction of the requirements for such transfer set forth in this Section 2.6, the Company shall execute, and the Trustee shall authenticate and deliver, in the name of the designated transferee or transferees, one or more new Notes of any authorized denominations and of a like aggregate principal amount and bearing such restrictive legends as may be required by this Indenture. Notes may be exchanged for other Notes of any authorized denominations and of a like aggregate principal amount, upon surrender of the Notes to be exchanged at any such office or agency maintained by the Company pursuant to Section 4.2. Whenever any Notes are so surrendered for exchange, the Company shall execute, and the Trustee shall authenticate and deliver, the Notes which the Holder making the exchange is entitled to receive bearing registration numbers not contemporaneously outstanding. All Notes presented or surrendered for registration of transfer or exchange shall be duly endorsed, or be accompanied by a written instrument or instruments of transfer in form satisfactory to the Company and the Registrar, and the Notes shall be duly executed by the Holder thereof or his attorney duly authorized in writing. Except as otherwise provided in this Indenture, and in addition to the requirements set forth in the legend referred to in Section 2.6(g)(i) below, in connection with any transfer of Transfer Restricted Securities any request for transfer shall be accompanied by a certification to the Trustee relating to the manner of such transfer substantially in the form of Exhibit B(2) hereto. (b) BOOK-ENTRY PROVISIONS FOR THE GLOBAL NOTES. The Rule 144A Global Note and Regulation S Global Note initially shall (i) be registered in the name of the Depositary or the nominee of such Depositary, (ii) be delivered to the Trustee as custodian for the Depositary and (iii) bear legends as set forth in Section 2.6(g). Members of, or participants in, the Depositary ("AGENT MEMBERS") shall have no rights under this Indenture with respect to any Rule 144A Global Note or Regulation S Global Note, as the case may be, held on their behalf by the Depositary, or the Trustee as its custodian, or under the Rule 144A Global Note or Regulation S Global Note, as the case may be, and the Depositary may be treated by the Company, the Trustee and any agent of the Company or the Trustee as the absolute owner of Rule 144A Global Note or Regulation S Global Note, as the case may be, for all purposes whatsoever. Notwithstanding the foregoing, nothing herein shall prevent the Company, the Trustee or any agent of the Company or the Trustee, from giving effect to any written certification, proxy or other authorization furnished by the Depositary or impair, as between the Depositary and its Agent Members, the operation of customary practices governing the exercise of the rights of a holder of any Note. 27 Transfers of the Rule 144A Global Note and the Regulation S Global Note shall be limited to transfers of such Rule 144A Global Note or Regulation S Global Note in whole, but not in part, to the Depositary, its successors or their respective nominees. Beneficial interests in Rule 144A Global Note and the Regulation S Global Note may be transferred in accordance with the applicable rules and procedures of the Depositary and the provisions of this Section 2.6. The registration of transfer and exchange of beneficial interests in the Global Note, which does not involve the issuance of a Certificated Note, shall be effected through the Depositary, in accordance with this Indenture (including the restrictions on transfer set forth herein) and the procedures of the Depositary therefor. The Trustee shall have no responsibility or liability for any act or omission of the Depositary. At any time at the request of the beneficial holder of an interest in the Rule 144A Global Note or Permanent Regulation S Global Note to obtain a Certificated Note, such beneficial holder shall be entitled to obtain a Certificated Note upon written request to the Trustee and the Note Custodian in accordance with the standing instructions and procedures existing between the Note Custodian and Depositary for the issuance thereof Upon receipt of any such request, the Trustee, or the Note Custodian at the direction of the Trustee, will cause, in accordance with the standing instructions and procedures existing between the Depositary and the Note Custodian, the aggregate principal amount of the Rule 144A Global Note or Permanent Regulation S Global Note, as appropriate, to be reduced by the principal amount of the Certificated Note issued upon such request to such beneficial holder and, following such reduction, the Company will execute and the Trustee will authenticate and deliver to such beneficial holder (or its nominee) a Certificated Note or Certificated Notes in the appropriate aggregate principal amount in the name of such beneficial holder (or its nominee) and bearing such restrictive legends as may be required by this Indenture. (c) TRANSFERS TO NON-QIB INSTITUTIONAL ACCREDITED INVESTORS. The following provisions shall apply with respect to the registration of any proposed transfer of a Transfer Restricted Security to any Institutional Accredited Investor that is not a QIB (other than any Person that is not a U.S. Person as defined under Regulation S, a "FOREIGN PERSON"): (i) The Registrar shall register the transfer of any Note, whether or not such Note bears the Private Placement Legend, if (x) (A) the requested transfer is at least three years after the later of the Issue Date of the Notes and (B) the proposed transferee has certified to the Registrar that the requested transfer is at least three years after last date on which such Note was held by an Affiliate of the Company, or (y) the proposed transferee has delivered to the Registrar (A) a certificate substantially in the form of Exhibit D hereto and (B) such certifications, legal opinions and other information as the Trustee and the Company may reasonably request to confirm that such transaction is in compliance with the Securities Act; and (ii) If the proposed transferor is an Agent Member holding a beneficial interest in the Global Note, upon receipt by the Registrar of (x) the documents, if any, required by clause (i) and (y) instructions given in accordance with the Depositary's and the Registrar's procedures, the Registrar shall reflect on its books and records the date and 28 a decrease in the principal amount of the Global Note in an amount equal to the principal amount of the beneficial interest in the Global Note to be transferred, and the Company shall execute, and the Trustee shall authenticate and deliver, one or more Certificated Notes of like tenor and amount. (d) TRANSFERS TO QIBS. The following provisions shall apply with respect to the registration of any proposed transfer of a Transfer Restricted Security to a QIB (other than Foreign Persons): (i) if the Note to be transferred consists of Certificated Notes or an interest in the Regulation S Global Note, the Registrar shall register the transfer if such transfer is being made by a proposed transferor who has checked the box provided for on a certificate substantially in the form of Exhibit B(2) stating, or has otherwise advised the Company and the Registrar in writing, that the sale has been made in compliance with the provisions of Rule 144A to a transferee who is a QIB within the meaning of Rule 144A and is aware that the sale to it is being made in reliance on Rule 144A; and (ii) if the proposed transferee is an Agent Member, and the Note to be transferred consists of Certificated Notes or an interest in the Regulation S Global Note, upon receipt by the Registrar of the documents referred to in clause (i) and instructions given in accordance with the Depositary's and the Registrar's procedures, the Registrar shall reflect on its books and records the date and an increase in the principal amount of the Rule 144A Global Note in an amount equal to the principal amount of the Certificated Notes or the interest in the Regulation S Global Note, as the case may be, to be transferred, and the Trustee shall cancel the Certificated Notes or decrease the amount of the Regulation S Global Note so transferred. (e) TRANSFERS OF INTERESTS IN THE TEMPORARY REGULATION S GLOBAL NOTE. The following provisions shall apply with respect to the registration of any proposed transfer of interests in the Temporary Regulation S Global Note: (i) The Registrar shall register the transfer of an interest in the Temporary Regulation S Global Certificate if (x) the proposed transferor has delivered to the Registrar a certificate substantially in the form of Exhibit E hereto stating, among other things, that the proposed transferee is a Foreign Person or (y) the proposed transferee is a QIB and the proposed transferor has checked the box provided for on a certificate substantially in the form of Exhibit B(2) stating, or has otherwise advised the Company and the Registrar in writing, that the sale has been made in compliance with the provisions of Rule 144A to a transferee who is a QIB within the meaning of Rule 144A, and is aware that the sale to it is being made in reliance on Rule 144A; and (ii) if the proposed transferee is an Agent Member, upon receipt by the Registrar of the documents referred to in clause (i)(y) above and instructions given in accordance with the Depositary's and the Registrar's procedures, the Registrar shall reflect on its books and records the date and an increase in the principal amount of the 29 Rule 144A Global Note in an amount equal to the principal amount of the Temporary Regulation S Global Note to be transferred, and the Trustee, as Note Custodian, shall decrease the amount of the Temporary Regulation S Global Note. (f) TRANSFERS TO FOREIGN PERSONS. The following provisions shall apply with respect to any transfer of a Transfer Restricted Security to a Foreign Person: (i) the Registrar shall register any proposed transfer of a Note to a Foreign Person upon receipt of a certificate substantially in the form of Exhibit E hereto from the proposed transferor and such certifications, legal opinions and other information as the Trustee or the Company may reasonably request; and (ii) (a) If the proposed transferor is an Agent Member holding a beneficial interest in the Rule 144A Global Note or the Note to be transferred consists of Certificated Notes, upon receipt by the Registrar of (x) the documents, if any, required by paragraph (i) and (y) instructions in accordance with the Depositary's and the Registrar's procedures, the Registrar shall reflect on its books and records the date and a decrease in the principal amount of the Rule 144A Global Note in an amount equal to the principal amount of the beneficial interest in the Rule 144A Global Note or cancel the Certificated Notes, as the case may be, to be transferred, and (b) if the proposed transferee is an Agent Member, upon receipt by the Registrar of instructions given in accordance with the Depositary's and the Registrar's procedures, the Registrar shall reflect on its books and records the date and an increase in the principal amount of the Regulation S Global Note in an amount equal to the principal amount of the Certificated Notes to be transferred, and the Trustee shall decrease the amount of the Rule 144A Global Note. (g) THE DEPOSITARY. The Depositary shall be a clearing agency registered under the Exchange Act. The Company initially appoints The Depository Trust Company to act as Depositary with respect to the Global Note. Initially, the Rule 144A Global Note and the Regulation S Global Note shall be issued to the Depositary, registered in the name of Cede & Co., as the nominee of the Depositary, and deposited with the Note Custodian for Cede & Co. Notes in Certificated form issued in exchange for all or a part of a Global Note pursuant to this Section 2.6 shall be registered in such names and in such authorized denominations as the Depositary, pursuant to instructions from its direct or indirect participants or otherwise, shall instruct the Trustee. Upon execution and authentication, the Trustee shall deliver such Certificated Notes in Certificated form to the persons in whose names such Notes in Certificated form are so registered. Certificated Notes shall be transferred to all beneficial owners in exchange for their beneficial interests in the Rule 144A Global Note or the Permanent Regulation S Global Note, as the case may be, if at any time: (i) the Depositary for the Notes notifies the Company that the Depositary is unwilling or unable to continue as Depositary for the Rule 144A Global 30 Note or the Permanent Regulation S Global Note, as the case may be, and a successor Depositary is not appointed by the Company within 90 days after delivery of such notice; or (ii) the Company, at its sole discretion, notifies the Trustee in writing that it elects to cause the issuance of Certificates Notes under this Indenture, and the Company shall execute, and the Trustee shall, upon receipt of an authentication order in accordance with Section 2.2 hereof, authenticate and deliver Certificated Notes in an aggregate principal amount equal to the principal amount of the Rule 144A Global Note or the Permanent Regulation S Global Note, as the case may be, in exchange for such Global Notes. (h) LEGENDS. (i) Except as permitted by the following paragraphs (ii) and (iii), each Note certificate evidencing Global Notes and Certificated Notes (and all Notes issued in exchange therefor or substitution thereof) shall (x) be subject to the restrictions on transfer set forth in this Section 2.6 (including those set forth in the legend below) unless such restrictions on transfer shall be waived by written consent of the Company, and the holder of each Transfer Restricted Security, by such Holder's acceptance thereof, agrees to be bound by all such restrictions on transfer and (y) bear the legend set forth below (the "PRIVATE PLACEMENT LEGEND"): THE NOTE (OR ITS PREDECESSOR) EVIDENCED HEREBY HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR ANY STATE SECURITIES LAWS, AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE. BY ITS ACQUISITION HEREOF, THE HOLDER: (1) REPRESENTS THAT (A) IT IS A QUALIFIED INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) OR (B) IT IS AN INSTITUTIONAL ACCREDITED INVESTOR (AS DEFINED IN RULE 501(a)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT ("INSTITUTIONAL ACCREDITED INVESTOR") OR (C) IT IS NOT A U.S. PERSON AND IS ACQUIRING THE NOTE EVIDENCED HEREBY IN AN OFFSHORE TRANSACTION; (2) AGREES THAT IT WILL NOT RESELL OR OTHERWISE TRANSFER THE NOTE EVIDENCED HEREBY EXCEPT (A) TO THE COMPANY OR ANY SUBSIDIARY THEREOF, (B) INSIDE THE UNITED STATES TO A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT, (C) INSIDE THE UNITED STATES TO AN INSTITUTIONAL ACCREDITED INVESTOR OR A PURCHASER WHO IS NOT A U.S. PERSON THAT, PRIOR TO SUCH TRANSFER, FURNISHES TO THE COMPANY AND MARINE MIDLAND BANK, AS TRUSTEE (OR A 31 SUCCESSOR TRUSTEE, AS APPLICABLE), A SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE RESTRICTIONS ON TRANSFER OF THE NOTES EVIDENCED HEREBY (THE FORM OF WHICH LETTER CAN BE OBTAINED FROM SUCH TRUSTEE OR A SUCCESSOR TRUSTEE, AS APPLICABLE), (D) OUTSIDE THE UNITED STATES IN COMPLIANCE WITH RULE 904 UNDER THE SECURITIES ACT, (E) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 14 UNDER THE SECURITIES ACT (IF AVAILABLE) OR IN ACCORDANCE WITH ANOTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, OR (F) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT, AND, IN EACH CASE, IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OR ANY OTHER APPLICABLE JURISDICTION; AND (3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THE NOTE EVIDENCED HEREBY IS TRANSFERRED NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IF THE PROPOSED TRANSFER IS PURSUANT TO CLAUSE (C), (D) OR (E) ABOVE, THE HOLDER MUST, PRIOR TO SUCH TRANSFER, FURNISH TO THE COMPANY AND MARINE MIDLAND BANK, AS TRUSTEE (OR A SUCCESSOR TRUSTEE, AS APPLICABLE), SUCH CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS IT MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION," "UNITED STATES" AND "U.S. PERSON" HAVE THE MEANINGS GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES ACT. (ii) Upon any sale or transfer of a Transfer Restricted Security (including any Transfer Restricted Security represented by a Global Note) pursuant to Rule 144 under the Securities Act or pursuant to an effective registration statement under the Securities Act: (a) in the case of any Transfer Restricted Security that is a Certificated Note, the Registrar shall permit the Holder thereof to exchange such Transfer Restricted Security for a Certificated Note that does not bear the legend set forth in (i) above and rescind any restriction on the transfer of such Transfer Restricted Security; and (b) in the case of any Transfer Restricted Security represented by a Global Note, such Transfer Restricted Security shall not be required to bear the legend set forth in (i) above, but shall continue to be subject to the provisions 32 of Section 2.6(b) hereof; PROVIDED, HOWEVER, that with respect to any request for an exchange of a Transfer Restricted Security that is represented by a Global Note for a Certificated Note that does not bear the legend set forth in (i) above, which request is made in reliance upon Rule 144, the Holder thereof shall certify in writing to the Registrar that such request is being made pursuant to Rule 144 (such certifications to be substantially in the form of Exhibit B hereto). (iii) Notwithstanding the foregoing, upon consummation of the Exchange Offer, the Company shall issue and, upon receipt of an authentication order in accordance with Section 2.2 hereof, the Trustee shall authenticate New Senior Subordinated Notes in exchange for Senior Subordinated Notes accepted for exchange in the Exchange Offer, which New Senior Subordinated Notes shall not bear the legend set forth in (i) above, and the Registrar shall rescind any restriction on the transfer of such Senior Subordinated Notes, in each case unless the Company has notified the Registrar in writing that the Holder of such Senior Subordinated Notes is either (A) a broker-dealer, (B) a Person participating in the distribution of the Senior Subordinated Notes or (C) a Person who is an affiliate (as defined in Rule 144A) of the Company. (iv) Each global Note, whether or not a transfer Restricted security, shall also bear the following legend on the fact thereof: THIS NOTE IS A GLOBAL NOTE WITHIN THE MEANING OF THE INDENTURE HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITARY OR A NOMINEE OF A DEPOSITARY OR A SUCCESSOR DEPOSITARY. THIS NOTE IS NOT EXCHANGEABLE FOR NOTES REGISTERED IN THE NAME OF A PERSON OTHER THAN THE DEPOSITARY OR ITS NOMINEE EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE, AND NO TRANSFER OF THIS SECURITY (OTHER THAN A TRANSFER OF THIS SECURITY 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) MAY BE REGISTERED EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE. UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY. 33 PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN (v) Any Global Note may be endorsed with or have incorporated in the text thereof such legends or recitals or changes not inconsistent with the provisions of this Indenture as may be required by the Note Custodian, the Depositary or by the National Association of Securities Dealers, Inc. in order for the Notes to be tradable on the PORTAL Market or tradable on Euroclear or Cedel or as may be required for the Notes to be tradable on any other market developed for trading of securities pursuant to Rule 144A or Regulation S under the Securities Act or required to comply with any applicable law or any regulation thereunder or with the rules and regulations of any securities exchange or automated quotation system upon which the Notes may be listed or traded or to conform with any usage with respect thereto, or to indicate any special limitations or restrictions to which any particular Notes are subject. (i) CANCELLATION AND/OR ADJUSTMENT OF GLOBAL NOTES. At such time as all beneficial interests in Global Notes have been exchanged for Certificated Notes, redeemed, repurchased or canceled, all Global Notes shall be returned to or retained and canceled by the Trustee in accordance with Section 2.11 hereof. At any time prior to such cancellation, if any beneficial interest in a Global Note is exchanged for Certificated Notes, redeemed, repurchased or canceled, the principal amount of Notes represented by such Global Notes shall be reduced accordingly and an endorsement shall be made on such Global Note by the Trustee or the Note Custodian, at the direction of the Trustee, to reflect such reduction. In the event of any transfer of any beneficial interest between the Rule 144A Global Note and the Regulation S Global Note in accordance with the standing procedures and instructions between the Depositary and the Note Custodian and the transfer restrictions set forth herein, the aggregate principal amount of each of the Rule 144A Global Note and the Regulation S Global Note shall be appropriately increased or decreased, as the case may be, and an endorsement shall be made on each of the Rule 144A Global Note and the Regulation S Global Note by the Trustee or the Note Custodian, at the direction of the Trustee, to reflect such reduction or increase. (j) GENERAL PROVISIONS RELATING TO TRANSFERS AND EXCHANGES. (i) To permit registrations of transfers and exchanges, the Company shall execute and the Trustee shall authenticate Certificated Notes and Global Notes at the Registrar's request. (ii) No service charge shall be made to a Holder for any registration of transfer or exchange, but the Company may require payment of a sum sufficient to cover any transfer tax or similar governmental charge payable in connection therewith (other than any such transfer taxes or similar governmental charge payable upon exchange or transfer pursuant to Sections 3.6 and 9.5 hereof). 34 (iii) The Registrar shall not be required to register the transfer of or exchange any Note selected for redemption in whole or in part, except the unredeemed portion of any Note being redeemed in part. (iv) All Certificated Notes and Global Notes issued upon any registration of transfer or exchange of Certificated Notes or Global Notes shall be the valid obligations of the Company, evidencing the same debt, and entitled to the same benefits under this Indenture, as the Certificated Notes or Global Notes surrendered upon such registration of transfer or exchange. (v) The Company shall not be required: (a) to issue, to register the transfer of or to exchange Notes during a period beginning at the opening of business 15 days before the day of any selection of Notes for redemption under Section 3.2 hereof and ending at the close of business on the day of selection; or (b) to register the transfer of or to exchange any Note so selected for redemption in whole or in part, except the unredeemed portion of any Note being redeemed in part; or (c) to register the transfer of or to exchange a Note between a record date and the next succeeding interest payment date. (vi) Prior to due presentment of the registration of a transfer of any Note, the Trustee, any Agent and the Company may deem and treat the Person in whose name any Note is registered as the absolute owner of such Note for the purpose of all payments with respect to such Notes, and neither the Trustee, any Agent nor the Company shall be affected by notice to the contrary. (vii) The Trustee shall authenticate Certificated Notes and Global Notes in accordance with the provisions of Section 2.2 hereof. Section 2.7. REPLACEMENT NOTES. If any mutilated Note is surrendered to the Trustee or either the Company or the Trustee receives evidence to its satisfaction of the destruction, loss or theft of any Note, the Company shall issue and the Trustee, upon receipt of an authentication order in accordance with Section 2.2 hereof, shall authenticate a replacement Note if the Trustee's requirements for replacement of Notes are met. If required by the Trustee or the Company, an indemnity bond must be supplied by the Holder that is sufficient in the judgment of the Trustee and the Company to protect the Company, the Trustee, any Agent and any authenticating agent from any loss that any of them may suffer if a Note is replaced. The Trustee and the Company may charge the Holder for their expenses in replacing a Note. 35 Every replacement Note is an additional obligation of the Company and shall be entitled to all of the benefits of this Indenture equally and proportionately with all other Notes duly issued hereunder. Section 2.8. OUTSTANDING NOTES. The Notes outstanding at any time are all the Notes authenticated by the Trustee except for those canceled by it, those delivered to it for cancellation, those reductions in the interest in a Global Note effected by the Trustee or the Note Custodian in accordance with the provisions hereof, and those described in this Section as not outstanding. Except as set forth in Section 2.9 hereof, a Note does not cease to be outstanding because the Company or an Affiliate of either of the Company holds the Note. If a Note is replaced pursuant to Section 2.7 hereof, it shall cease to be outstanding unless the Trustee receives proof satisfactory to it that the replaced Note is held by a bona fide purchaser for value. If the principal amount of any Note is considered paid under Section 4.1 hereof, it ceases to be outstanding and interest on it ceases to accrue. If the Paying Agent (other than the Company, a Subsidiary or an Affiliate of any thereof) holds, on a redemption date or maturity date, money sufficient to pay Notes payable on that date, then on and after that date such Notes shall be deemed to be no longer outstanding and shall cease to accrue interest. Section 2.9. TREASURY NOTES. In determining whether the Holders of the required principal amount of Notes have concurred in any direction, waiver or consent, Notes owned by the Company or by any Affiliate thereof shall be considered as though not outstanding, except that for the purposes of determining whether the Trustee shall be protected in relying on any such direction, waiver of consent, only Notes that a Responsible Officer of the Trustee knows are so owned shall be so disregarded. The Company agrees to notify the Trustee of the existence of any such treasury Notes or Notes owned by an Affiliate thereof. Section 2.10. TEMPORARY NOTES. Until Certificated Notes are ready for delivery, the Company may prepare and the Trustee, upon receipt of an authentication order in accordance with Section 2.2 hereof, shall authenticate temporary Notes. Temporary Notes shall be substantially in the form of Certificated Notes, but may have such variations as the Company considers appropriate for temporary Notes and as shall be reasonably acceptable to the Trustee. Without unreasonable delay, the Company shall prepare and the Trustee shall authenticate Certificated Notes in exchange for temporary Notes. 36 Holders of temporary Notes shall be entitled to all of the benefits of this Indenture. Section 2.11. CANCELLATION. The Company at any time may deliver Notes to the Trustee for cancellation. The Registrar and Paying Agent shall forward to the Trustee any Notes surrendered to them for registration of transfer, exchange or payment. The Trustee and no one else shall cancel all Notes surrendered for registration of transfer, exchange, payment, replacement or cancellation and shall destroy all canceled Notes in accordance with the Trustee's usual procedures. The Trustee shall maintain a record of the destruction of all canceled Notes. Certification of the destruction of all canceled Notes shall be delivered to the Company. The Company may not issue new Notes to replace Notes that have been paid or that have been delivered to the Trustee for cancellation. Section 2.12. DEFAULTED INTEREST. If the Company defaults in a payment of interest on the Notes, the Company shall pay the defaulted interest in any lawful manner PLUS, to the extent lawful, interest payable on the defaulted interest, to the Persons who are Holders on a subsequent special record date, in each case at the rate provided in the Notes and in Section 4.1 hereof. The Company shall notify the Trustee in writing of the amount of defaulted interest proposed to be paid on each Note and the date of the proposed payment. The Company shall fix or cause to be fixed each such special record date and payment date, PROVIDED that no such special record date shall be less than 10 days prior to the related payment date for such defaulted interest. At least 15 days before the special record date, the Company (or, upon the written request of the Company, the Trustee in the name and at the expense of the Company) shall mail or cause to be mailed to Holders a notice that states the special record date, the related payment date and the amount of such interest to be paid. Section 2.13. PERSONS DEEMED OWNERS. Prior to due presentment of a Note for registration of transfer and subject to Section 2.12 hereof, the Company, the Trustee, any Paying Agent, any co-registrar and any Registrar may deem and treat the person in whose name any Note shall be registered upon the register of Notes kept by the Registrar as the absolute owner of such Note (whether or not such Note shall be overdue and notwithstanding any notation of the ownership or other writing thereon made by anyone other than the Company, any co-registrar or any Registrar) for the purpose of receiving all payments with respect to such Note and for all other purposes, and none of the Company, the Trustee, any Paying Agent, any co-registrar or any Registrar shall be affected by any notice to the contrary. Section 2.14. CUSIP NUMBERS. The Company in issuing the Notes may use a "CUSIP" number, and if so, the Trustee shall use the CUSIP number in notices of redemption or exchange as a convenience to 37 Holders; PROVIDED that any such notice may state that no representation is made as to the correctness or accuracy of the CUSIP number printed in the notice or on the Notes, and that reliance may be placed only on the other identification numbers printed on the Notes. ARTICLE III. REDEMPTION AND REPURCHASE Section 3.1. NOTICES TO TRUSTEE. If the Company elects to redeem Notes pursuant to the provisions of Sections 3.7 or 3.8 hereof, it shall furnish to the Trustee, at least 30 days but not more than 60 days before the Redemption Date, an Officers' Certificate setting forth the Section of this Indenture pursuant to which the redemption shall occur, the Redemption Date, the principal amount of Notes to be redeemed and the Redemption Price. If the Company is required to offer to repurchase Notes pursuant to the provisions of Section 4.10 or 4.15 hereof, it shall notify the Trustee in writing, at least 30 days but not more than 60 days before the Purchase Date, of the Section of this Indenture pursuant to which the repurchase shall occur, the Purchase Date, the principal amount of Notes required to be repurchased and the Purchase Price and shall furnish to the Trustee an Officers' Certificate to the effect that (a) the Company is required to make or his made an Asset Sale Offer or a Change of Control Offer, as the case may be, and (b) the conditions set forth in Section 4.10 or 4.15 hereof, as the case may be, have been satisfied. If the Registrar is not the Trustee, the Company shall, concurrently with each notice of redemption or repurchase, cause the Registrar to deliver to the Trustee a certificate (upon which the Trustee may rely) setting forth the principal amounts of Notes held by each Holder. Section 3.2. SELECTION OF NOTES. If less than all of the Notes are to be redeemed, the Trustee shall select the Notes or portions thereof to be redeemed in compliance with the requirements of the principal national securities exchange, if any, on which the Notes are listed or, if the Notes are not listed on a national securities exchange, by lot, PRO RATA or by such other method as the Trustee shall deem fair and reasonable. In the event of partial redemption by lot, the particular Notes or portions thereof to be redeemed shall be selected, unless otherwise provided herein, not less than 25 nor more than 60 days prior to the Redemption Date by the Trustee from the outstanding Notes not previously called for redemption. If less than all of the Notes tendered are to the repurchased pursuant to the provisions of Section 4.10 hereof, the Trustee shall select the Notes or portions thereof to be repurchased in compliance with the requirements of the principal national securities exchange, if 38 any, on which the Notes are listed or, if the Notes are not listed on a national securities exchange, on a PRO RATA basis (with such adjustments as may be deemed appropriate by the Trustee so that only Notes in denominations of $1,000, or integral multiples thereof, shall be repurchased). In the event of partial repurchase by lot, the particular Notes or portions thereof to be repurchased shall be selected at the close of business of the last Business Day prior to the Purchase Date. The Trustee shall promptly notify the Company in writing of the Notes or portions thereof selected for redemption or repurchase and, in the case of any Note selected for partial redemption or repurchase, the principal amount thereof to be redeemed or repurchased. Notes and portions thereof selected shall be in amounts of $1,000 or integral multiples of $1,000; except that if all of the Notes of a Holder are to be redeemed, the entire outstanding amount of Notes held by such Holder, even if not a multiple of $1,000, shall be redeemed. Section 3.3. NOTICE OF OPTIONAL OR SPECIAL REDEMPTION. In the event Notes are to be redeemed pursuant to Section 3.7 or 3.8 hereof, at least 30 days but not more than 60 days before the Redemption Date, the Company shall mail a notice of redemption to each Holder whose Notes are to be redeemed in whole or in part, with a copy to the Trustee. The notice shall identify the Notes or portions thereof to be redeemed and shall state: (a) the Redemption Date; (b) the Redemption Price; (c) if any Note is being redeemed in part, the portion of the principal amount of such Note to be redeemed and that, after the Redemption Date, upon surrender of such Note, a new Note or Notes in principal amount equal to the unredeemed portion will be issued; (d) the name and address of the Paying Agent; (e) that Notes called for redemption must be surrendered to the Paying Agent to collect the Redemption Price, Liquidated Damages, if any, and, unless the Redemption Date is after a record date and or before the succeeding interest payment date, accrued interest thereon to the Redemption Date; (f) that, unless the Company defaults in making the redemption payment, interest and any Liquidated Damages on Notes called for redemption will cease to accrue on and after the Redemption Date, and the only remaining right of the Holders of such Notes is to receive payment of the Redemption Price, any Liquidated Damages and, unless the Redemption Date is after a record date and on or before the succeeding 39 interest payment date, accrued interest thereon to the Redemption Date upon surrender to the Paying Agent of the Notes redeemed; (g) if fewer than all the Notes are to be redeemed, the identification of the particular Notes (or portions thereof) to be redeemed, as well as the aggregate principal amount of the Notes to be redeemed and the aggregate principal amount of Notes to be outstanding after such partial redemption; and (h) the paragraph of the Notes pursuant to which the Notes called for redemption are being redeemed. At the Company's request, the Trustee shall give the notice of redemption in the Company's name and at its expense; PROVIDED that the Company shall deliver to the Trustee, at least 40 days prior to the Redemption Date, an Officers' Certificate requesting that the Trustee give such notice and setting forth the information to be stated in such notice as provided in the preceding paragraph. Section 3.4. EFFECT OF NOTICE OF REDEMPTION. Once notice of redemption is mailed, Notes or portions thereof called for redemption become due and payable on the Redemption Date at the Redemption Price. Upon surrender to any Paying Agent, such Notes or portions thereof shall be paid at the Redemption Price, PLUS Liquidated Damages, if any, and accrued interest to the Redemption Date; PROVIDED, HOWEVER, that installments of interest which are due and payable on or prior to the Redemption Date shall be payable to the Holders of such Notes, registered as such, at the close of business on the relevant record date for the payment of such installment of interest. Section 3.5. DEPOSIT OF REDEMPTION PRICE OR PURCHASE PRICE. On or before each Redemption Date or Purchase Date, the Company shall irrevocably deposit with the Trustee or with the Paying Agent money sufficient to pay the aggregate amount due on all Notes to be redeemed or repurchased on that date, including without limitation any accrued and unpaid interest and Liquidated Damages, if any, to the Redemption Date or Repurchase Date. Upon written request by the Company, the Trustee or the Paying Agent shall promptly return to the Company any money not required for that purpose. Unless the Company defaults in making such payment, interest and any Liquidated Damages on the Notes to be redeemed or repurchased will cease to accrue on the applicable Redemption Date or Purchase Date, whether or not such Notes are presented for payment. If any Note called for redemption shall not be so paid upon surrender because of the failure of the Company to comply with the preceding paragraph, interest will be paid on the unpaid principal, from the applicable Redemption Date or Purchase Date until such principal is paid, and on any interest not paid on such unpaid principal, in each case at the rate provided in the Notes and in Section 4.1 hereof. 40 Section 3.6. NOTES REDEEMED OR REPURCHASED IN PART. Upon surrender of a Note that is redeemed or repurchased in part, the Company shall issue and the Trustee shall authenticate for the Holder at the expense of the Company a new Note equal in principal amount to portion of the Note surrendered that is not to be redeemed or repurchased. Section 3.7. OPTIONAL REDEMPTION. The Company may redeem any or all of the Notes at any time on or after January 15, 2002 at the Redemption Prices set forth in the Notes (an "OPTIONAL REDEMPTION"). Any redemption pursuant to this Section 3.7 shall be made pursuant and the provisions of Sections 3.1 through 3.6 hereof. Section 3.8. SPECIAL REDEMPTION. In the event the Company completes one or more Public Equity Offerings on or before January 15, 2000, the Company, in its discretion, may use the net cash proceeds from any such Public Equity Offering to redeem up to 33-1/3% of the original principal amount of the Notes (a "SPECIAL REDEMPTION") at a Redemption Price of 111% of the principal amount thereof, together with accrued and unpaid interest and Liquidated Damages, if any, to the date of redemption, PROVIDED, HOWEVER, that at least 66-2/3% of the original principal amount of the Notes will remain outstanding immediately after each such Special Redemption; and PROVIDED, FURTHER, that such Special Redemption shall occur within 90 days after the date of the closing of the applicable Public Equity Offering. Any redemption pursuant to this Section 3.8 shall be made pursuant to the provisions of Sections 3.1 through 3.6 hereof. Section 3.9. REPURCHASE UPON CHANGE OF CONTROL OFFER. In the event that, pursuant to Section 4.15 hereof, the Company shall be required to commence a Change of Control Offer, it shall follow the procedures specified below. The Change of Control Offer shall remain open for a period from the date of the mailing of the notice of the Change of Control Offer described in the next paragraph until a date determined by the Company which is at least 30 but no more than 60 days from the date of mailing of such notice and no longer, except to the extent that a longer period is required by applicable law (the "CHANGE OF CONTROL OFFER PERIOD"). On the Purchase Date, which shall be no later than the last day of the Change of Control Offer Period, the Company shall purchase the principal amount of Notes properly tendered in response to the Change of Control Offer. Payment for any Notes so purchased shall be made in the same manner as interest payments are made. Within 30 days following any Change of Control, the Company shall send, by first class mail, a notice to the Trustee and each of the Holders. The notice shall contain all instructions and materials necessary to enable such Holders to tender Notes pursuant to the 41 Change of Control Offer. The Change of Control shall be made to all Holders. The notice, which shall govern the terms of the Change of Control Offer, shall state: (a) the transaction or transactions that constitute the Change of Control, providing information, to the extent publicly available, regarding the Person or Persons acquiring control, and stating that the Change of Control Offer is being made pursuant to this Section 3.9 and Section 4.15 hereof and that, to the extent lawful, all Notes tendered will be accepted for payment; (b) the Purchase Price, the last day of the Change of Control Offer Period, and the Purchase Date; (c) that any Note not properly tendered or otherwise not accepted for repurchase will continue to accrue interest and Liquidated Damages, if any; (d) that, unless the Company defaults in the payment of the amount due on the Purchase Date, all Notes or portions thereof accepted for repurchase pursuant to the Change of Control Offer shall cease to accrue interest and Liquidated Damages, if any, after the Purchase Date; (e) that Holders electing to have any Notes purchased pursuant to the Change of Control Offer will be required to tender the Notes, with the form entitled Option of Holder To Elect Purchase on the reverse of the Notes completed, or transfer by book-entry transfer, to the Company, a Depositary, if appointed by the Company, or a Paying Agent at the address specified in the notice not later than the third Business Day preceding the Purchase Date; (f) that Holders will be entitled to withdraw their election if the Company, the Depositary or the Paying Agent, as the case may be, receives, not later than the expiration of the Change of Control Offer Period, a telegram, facsimile transmission or letter setting forth the name of the Holder, the principal amount of Notes delivered for repurchase, and a statement that such Holder is withdrawing his election to have the Notes redeemed in whole or in part; and (g) that Holders whose Notes are being repurchased only in part will be issued new Notes equal in principal amount to the portion of the Notes tendered (or transferred by book-entry transfer) that is not to be repurchased, which portion must be equal to $1,000 in principal amount or an integral multiple thereof. On or before the Purchase Date, the Company shall to the extent lawful, (i) accept for payment all Notes or portions thereof properly tendered pursuant to the Change of Control Offer, (ii) deposit with the Paying Agent an amount equal to the Purchase Price, together with accrued and unpaid interest and Liquidated Damages, if any, thereon to the Purchase Date in respect of all Notes or portions thereof so tendered and accepted for repurchase and (iii) deliver or cause to be delivered to the Trustee the Notes so accepted together with an Officers' 42 Certificate stating the aggregate principal amount of Notes or portions thereof being repurchased by the Company. The Paying Agent shall promptly (but in any case not later than five days after the Purchase Date) mail to each Holder of Notes so repurchased the amount due in connection with such Notes, and the Company shall promptly issue a new Note, and the Trustee, upon written request from the Company in the form of an Officers' Certificate shall authenticate and mail or deliver (or cause to transfer by book entry) to each relevant Holder a new Note, in a principal amount equal to any unpurchased portion of the Notes surrendered to the Holder thereof; PROVIDED, that each such new Note shall be in a principal amount of $l,000 or and integral multiple thereof. The Company shall publicly announce the results of the Change of Control Offer on or as soon as practicable after the Purchase Date. If the Purchase Date is on or after an interest record date and on or before the related interest payment date, any accrued and unpaid interest and Liquidated Damages, if any, in each case to the Purchase Date, shall be paid to the Person in whose name a Note is registered at the close of business on such record date, and no additional interest shall be payable to Holders pursuant to the Change of Control Offer. Section 3.10. REPURCHASE UPON APPLICATION OF EXCESS PROCEEDS. In the event that, pursuant to Section 4.10 hereof, the Company shall be required to commence an Asset Sale Offer, it shall follow the procedures specified below. The Asset Sale Offer shall remain open for a period from the date of the mailing of the notice of the Asset Sale Offer described in the next paragraph until a date determined by the Company which is at least 30 but no more than 60 days from the date of mailing of such notice and no longer, except to the extent that a longer period is required by applicable law (the "ASSET SALE OFFER PERIOD"). On the Purchase Date, which shall be no later than the last day of the Asset Sale Offer Period, the Company shall purchase the principal amount of Notes required to be purchased pursuant to Section 4.10 hereof (the "OFFER AMOUNT") or, if less than the Offer Amount has been tendered, all Notes properly tendered in response to the Asset Sale Offer. Payment for any Notes so purchased shall be made in the same manner as interest payments are made. Within 30 days following the accumulation of sufficient Excess Proceeds to obligate the Company to commence an Asset Sale Offer, the Company shall send, by first class mail, a notice to the Trustee and each of the Holders. The notice shall contain all instructions and materials necessary to enable such Holders to tender Notes pursuant to the Asset Sale Offer. The Asset Sale Offer shall be made to all Holders. The notice, which shall govern the terms of the Asset Sale Offer, shall state: (a) that the Asset Sale Offer is being made pursuant to this Section 3.10 and Section 4.10 hereof; (b) the Offer Amount, the Purchase Price, the last day of the Asset Sale Offer Period, and the Purchase Date; 43 (c) that any Note not properly tendered or otherwise not accepted for repurchase shall continue to accrue interest and Liquidated Damages, if any; (d) that, unless the Company defaults in the payment of the amount due on the Purchase Date, all Notes or portions thereof accepted for repurchase pursuant to the Asset Sale Offer shall cease to accrue interest and Liquidated Damages, if any, after the Purchase Date; (e) that Holders electing to have any Notes repurchased pursuant to any Asset Sale Offer shall be required to tender the Notes, with the form entitled Option of Holder To Elect Purchase on the reverse of the Notes completed, or transfer by book-entry transfer, to the Company, a Depositary, if appointed by the Company, or a Paying Agent at the address specified in the notice prior to the close of business on the third Business Day preceding the Purchase Date; (f) that Holders will be entitled to withdraw their election if the Company, the Depositary or the Paying Agent, as the case may be, receives, not later than the expiration of the Asset Sale Offer Period, a telegram, facsimile transmission or letter setting forth the name of the Holder, the principal amount of the Notes delivered for repurchase and a statement that such Holder is withdrawing his election to have such Notes repurchased in whole or in part; (g) that, if the aggregate principal amount of Notes tendered for repurchase by Holders exceeds the Offer Amount, the Trustee shall select the Notes or portions thereof to be purchased on a PRO RATA basis (with such adjustments as may be deemed appropriately the Trustee so that only Notes in denominations of $1,000, or integral multiples thereof, shall be purchased); and (h) that Holders whose Notes are being repurchased only in part will be issued new Notes equal in principal amount to the portion of the Notes tendered (or transferred by book-entry transfer) that is not to be repurchased, which portion must be equal to $1,000 in principal amount or an integral multiple thereof. On or before the Purchase Date, the Company shall to the extent lawful, (i) accept for payment, on a PRO RATA basis in accordance with this Indenture to the extent necessary, the Offer Amount of Notes or portions thereof properly tendered pursuant to the Asset Sale Offer, or if less than the Offer Amount has been tendered, all Notes properly tendered, (ii) deposit with the Paying Agent an amount equal to the Purchase Price, PLUS accrued and unpaid interest and Liquidated Damages, if any, thereon to the Purchase Date in respect of all Notes or portions thereof so tendered and accepted for repurchase and (iii) deliver or cause to be delivered to the Trustee the Notes so accepted together with an Officers' Certificate stating the aggregate principal amount of Notes or portions thereof being repurchased by the Company. The Paying Agent shall promptly (but in any case not later than five days after the Purchase Date) mail to each Holder of Notes so repurchased the amount due in connection with such Notes, and the Company shall promptly issue a new Note, and the Trustee, upon written request from the 44 Company in the form of an Officers' Certificate shall authenticate and mail or deliver such new Note to such Holder, in a principal amount equal to any unpurchased portion to the Holder thereof; PROVIDED, that each such new Note shall be in a principal amount of $1,000 or an integral multiple thereof. The Company shall publicly announce the results of the Asset Sale Offer on or as soon as practicable after the Purchase Date. If the Purchase Date is on or after an interest record date and on or before the related interest payment date, any accrued and unpaid interest and Liquidated Damages, if any, in each case to the Purchase Date, shall be paid to the Person in whose name a Note is registered at the close of business on such record date, and no additional interest shall be payable to Holders to the Asset Sale Offer. ARTICLE IV. COVENANTS Section 4.1. PAYMENT OF PRINCIPAL AND INTEREST. The Company shall pay or cause to be paid the principal, Redemption Price and Purchase Price of, and interest on the Notes on the dates, in the amounts and in the manner provided herein and in the Notes. Principal, Redemption Price, Purchase Price and interest shall be considered paid on the date due if the Paying Agent, if other than the Company, holds as of 12:00 noon Eastern Time on the due date money deposited by the Company in immediately available funds and designated for and sufficient to pay the aggregate amount then due. The Company shall pay all Liquidated Damages, if any, on the dates, in the amounts and in the manner set forth in the Registration Rights Agreement. The Company shall pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue principal, Redemption Price and Purchase Price at the rate equal to 1% per annum in excess of the then applicable interest rate on the Notes to the extent lawful; it shall pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue installments of interest and Liquidated Damages (without regard to any applicable grace period) at the same rate to the extent lawful. Section 4.2. MAINTENANCE OF OFFICE OR AGENCY. The Company shall maintain in the Borough of Manhattan, the City of New York, an office or agency (which may be an office of the Trustee or an affiliate of the Trustee, Registrar or co-registrar) where Notes may be surrendered for registration of transfer or for exchange and where notices and demands to or upon the Company in respect of the Notes and this Indenture may be served. The Company shall give prompt written notice to the Trustee of the location, and any change in the location, of such office or agency. If at any time the Company shall fail to maintain any such required office or agency or shall fail to furnish the 45 Trustee with the address thereof, such presentations, surrenders, notices and demands may be made or served at the Corporate Office of the Trustee. The Company may also from time to time designate one or more other offices or agencies where the Notes may be presented or surrendered for any or all such purposes and may from time to time rescind such designations PROVIDED, HOWEVER, that no such designation or rescission shall in any manner relieve the Company of its obligations to maintain an office or agency in the Borough of Manhattan, the City of New York, for such purposes. The Company shall give prompt written notice to the Trustee of any such designation or rescission and of any change in the location of any such other office or agency. The Company hereby designates the Corporate Trust Office of the Trustee as one such office or agency of the Company in accordance with Section 2.3. The Trustee may resign such agency at any time by giving written notice to the Company no later than 30 days prior to the effective date of such resignation. Section 4.3. REPORTS. Whether or not required by the rules and regulations of the Commission, so long as any of the Notes are outstanding, the Company, and, if the Company is required to file financial statements for any Subsidiary Guarantor, such Subsidiary Guarantor, shall furnish to the Holders of the Notes, within 15 days after they are or would have been required to file such with the Commission, (i) all quarterly and annual financial information that would be required to be contained in filings with the Commission on Forms 10-Q and 10-K if the Company and/or any Subsidiary Guarantor was required to file such forms, including Management's Discussion and Analysis of Financial Condition and Results of Operations and, with respect to annual consolidated financial statements and schedules only, a report thereon by the independent auditors of the Company and/or any Subsidiary Guarantor, and (ii) all information that would be required to be contained in filings with the Commission on Form 8-K if the Company and/or any Subsidiary Guarantor was required to file such form. In addition, whether or not required by the rules and regulations of the Commission, the Company shall file a copy of all such information and reports with the Commission for public availability (unless the Commission will not accept such a filing) and make such information available to securities analysts and prospective investors upon request. Upon qualification of this Indenture under the TIA, the Company and any Subsidiary Guarantor shall at all times comply with TIA ss. 314(a). In addition, the Company shall, for so long as any Notes remain outstanding, furnish to the Holders, and to securities analysts and prospective investors upon their request, the information required to be delivered pursuant to Rule 144A(d)(4) under the Securities Act. Section 4.4. COMPLIANCE CERTIFICATE. The Company and each Subsidiary Guarantor shall deliver to the Trustee, within 105 days after the end of each fiscal year, an Officers' Certificate further stating that a review of the activities of the Company and its Subsidiaries during the preceding fiscal year has been made under the supervision of the signing Officers with a view to determining whether the Company 46 has kept, observed, performed and fulfilled its obligations under this Indenture in all material respects, and further stating, as to each such Officer signing such certificate, that to the best of his or her knowledge the Company has kept, observed, performed and fulfilled each and every covenant contained in the Indenture in all material respects and is not in Default in the performance or observance of any of the terms, provisions and conditions of this Indenture (and, if a Default or Event of Default shall have occurred, describing all such Defaults or Events of Default) of which he or she may have knowledge, and that to the best of his or her knowledge no event has occurred and remains in existence by reason of which, payments on account of the principal of or interest, if any, on the Notes is prohibited or if such event has occurred, a description of the event. So long as not contrary to the then current recommendations of the American Institute of Certified Public Accountants, the year-end financial statements delivered pursuant to Section 4.3 above shall be accompanied by a written statement of the Company's independent public accountants (who shall be a firm of established national reputation) that in making the examination necessary for certification of such financial statements, nothing has come to their attention that would lead them to believe that the Company has violated any provisions of Article IV or Article V hereof or, if any such violation has occurred, specifying the nature and period of existence thereof, it being understood that such accountants shall not be liable directly or indirectly to any Person for any failure to obtain knowledge of any such violation. The Company shall, so long as any of the Notes are outstanding, deliver to the Trustee, forthwith (and in any event within five days) upon any Officer of the Company becoming aware of any Default or Event of Default an Officers' Certificate specifying such Default or Event of Default. Section 4.5. TAXES. The Company shall pay or discharge, and shall cause each of its Subsidiaries to pay or discharge, prior to delinquency, all material taxes, assessments, and governmental levies except such as are contested in good faith and by appropriate proceedings or where the failure to effect such payment is not adverse in any material respect to the Holders of the Notes. Section 4.6. STAY, EXTENSION AND USURY LAWS. The Company covenants (to the extent that it may lawfully do so) that it shall not at any time insist upon, plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay, extension or usury law wherever enacted, now or at any time hereafter in force, that may affect the covenants or the performance of this Indenture; and the Company (to the extent that it may lawfully do so) hereby expressly waives all benefit or advantage of any such law, and covenants shall it shall not, by resort to any such law, hinder, delay or impede the execution of any power herein granted to the Trustee, but shall suffer and permit the execution of every such power as though such law has not been enacted. 47 Section 4.7. RESTRICTED PAYMENTS. The Company shall not, and shall not permit any of its Subsidiaries to, directly or indirectly: (i) declare or pay any dividend or make any other payment or distribution on account of the Company's Capital Stock (including, without limitation, any payment in connection with any merger or consolidation involving the Company) or to the direct or indirect holders of the Company's Capital Stock in their capacity as such other than dividends or distributions payable in Capital Stock (other than Disqualified Stock) of the Company or dividends or distributions payable to the Company or any Wholly Owned Subsidiary of the Company); (ii) purchase, redeem or otherwise acquire or retire for value any Capital Stock of the Company or any direct or indirect parent or other Affiliate of the Company (other than a Wholly Owned Subsidiary of the Company); (iii) make any principal payment on, or purchase, redeem, defease or otherwise acquire or retire for value prior to any scheduled maturity, scheduled repayment or sinking fund payment date any Indebtedness that is subordinated to the Notes; or (iv) make any Restricted Investment (all such payments and other actions set forth in clauses (i) through (iv) above being collectively referred to as "RESTRICTED PAYMENTS"), unless, at the time of and after giving effect to such Restricted Payment: (a) no Default or Event of Default shall have occurred and be continuing or would occur as a consequence thereof; (b) the Company would, at the time of such Restricted Payment and after giving PRO FORMA effect thereto as if such Restricted Payment had been made at the beginning of the applicable four-quarter period, have been permitted to incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in the first paragraph of Section 4.9 hereof; and (c) such Restricted Payment, together with the aggregate of all other Restricted Payments made by the Company and its Subsidiaries after the date hereof (excluding Restricted Payments permitted by clauses (2), (3), (4), (5), (6) and (8) of the next succeeding paragraph), is less than the sum of: (i) 50% of the Consolidated Net Income of the Company for the period (taken as one accounting period) from the beginning of the first fiscal quarter commencing after the date hereof to the end of the Company's most recently ended fiscal quarter for which internal financial statements are available at the time of such Restricted Payment (or, if such Consolidated Net Income for such period is a deficit, LESS 100% of such deficit), PLUS (ii) 100% of the aggregate Net cash proceeds received by the Company from the issue or sale since the date hereof of Capital Stock of the Company (to the extent not used as described in Section 3.8) or of debt securities of the Company that have been converted into such Capital Stock (other than Capital Stock (or convertible debt securities) sold to a Subsidiary of the Company 48 or Disqualified Stock or debt securities that have been converted into Disqualified Stock), PLUS (iii) to the extent that any Restricted Investment that was made after the date hereof is sold for cash or otherwise liquidated or repaid for cash, the lesser of (A) the cash return of capital with respect to such Restricted Investment (LESS the cost of disposition, if any) and (B) the initial amount of such Restricted Investment. The foregoing provisions shall not prohibit: (1) the payment of any dividend within 60 days after the date of declaration thereof, if at said date of declaration such payment would have complied with the provisions of this Indenture; (2) the payment of dividends on Series A Preferred Stock pursuant to the Certificate of Designation for such Series A Preferred Stock in effect on the date of the Indenture, PROVIDED that the Fixed Charge Coverage Ratio for the Company's most recently ended four full fiscal quarters for which internal financial statements are available immediately preceding the date on which such payment of dividends is made would have been at least 2.25 to 1 determined on a PRO FORMA basis, as if the Restricted Payment had been made at the beginning of such four-quarter period, PROVIDED that the amount of any such dividends paid on Series A Preferred Stock shall, after the date of payment, be subtracted from the computation of Consolidated Net Income solely for purposes of clause (c)(i) of the preceding paragraph; (3) the redemption, repurchase, retirement or other acquisition of Series A Preferred Stock pursuant to the Certificate of Designation for such Series A Preferred Stock in effect on the date of the Indenture, PROVIDED that (a) such redemption, repurchase, retirement or other acquisition is for at least $2 million of Series A Preferred Stock, and (b) the Fixed Charge Coverage Ratio for the Company's most recently ended four full fiscal quarters for which internal financial statements are available immediately preceding the date on which such redemption, repurchase, retirement or other acquisition is made would have been at least 2.5 to 1, determined on a PRO FORMA basis, as if the Restricted Payment had been made at the beginning of such four-quarter period; (4) the redemption, repurchase, retirement or other acquisition of any Capital Stock of the Company in exchange for, or out of the proceeds of, the substantially concurrent sale (other than to a Subsidiary of the Company) of other Capital Stock of the Company other than Disqualified Stock; PROVIDED that the amount of any such net cash proceeds that are utilized for any such redemption, repurchase, retirement or other acquisition shall be excluded from clause (c) (ii) of the preceding paragraph; (5) the defeasance, redemption or repurchase of subordinated Indebtedness with the net cash proceeds from an incurrence of Permitted Refinancing 49 Debt or the substantially concurrent sale (other than to a Subsidiary of the Company) of Capital Stock of the Company (other than Disqualified Stock); PROVIDED that the amount of any such net cash proceeds that are utilized for any such redemption, repurchase, retirement or other acquisition shall be excluded from clause (c)(ii) of the preceding paragraph; (6) any Investment made by the Company or any of its Subsidiaries in an Acquisition Subsidiary with the net cash proceeds of an issuance of Designated Investment Stock within 30 days of such issuance; PROVIDED that the amount of any such net cash proceeds that are utilized for any such Investment shall be excluded from clause (c)(ii) of the preceding paragraph; (7) the purchase or redemption of shares of Capital Stock of the Company held by present or former officers, directors, employees or independent sales representatives of the Company or by any employee stock ownership plan or similar trust for the account of such present or former officers, directors, employees or independent sales representatives upon such person's death, disability, retirement or termination of employment or other association with the Company or under the terms of any such plan or trust or any other agreement under which such Capital Stock was issued in an aggregate amount not to exceed $500,000 per year, PROVIDED that to the extent that less than $500,000 of Capital Stock is purchased or redeemed in a given year, the difference between $500,000 and the amount purchased or redeemed during that year shall be added to the amount available to the Company for purchases and redemptions in the next subsequent year only (for which purpose the amount so added shall be deemed to be the last amount expended in such next subsequent year); (8) the payment to Castle Harlan, Inc. of a management fee of up to $1.5 million per year pursuant to the Management Agreement entered into between the Company and Castle Harlan, Inc., as in force on the Issue Date (the "MANAGEMENT AGREEMENT") (the payment for the first year following the Issue Date to be a single installment payable at any time during such year and payments thereafter to be payable in arrears in four equal quarterly installments per annum), PROVIDED that, in the event the full amount thereof is not paid in any year, the deficiency may cumulate and, PROVIDED that there is no subsisting Default or Event of Default of a type described in clause (a) or (b) in Section 6.1 at the time of payment, may be paid together with the then current management fee for such subsequent year; and (9) a Subsidiary of an Acquisition Subsidiary may purchase, redeem or otherwise acquire or retire for value any of its Capital Stock. The amount of all Restricted Payments (other than cash) shall be the fair market value (evidenced by a resolution of the Board set forth in an Officers' Certificate delivered to the Trustee) on the date of the Restricted Payment of the asset(s) proposed to be transferred by the Company or such Subsidiary, as the case may be, pursuant to the Restricted Payment. Not later than the date of making any Restricted Payment, the Company shall deliver to the Trustee an 50 Officers' Certificate stating that such Restricted Payment is permitted and setting forth the basis upon which the calculations required by this Section 4.7 were computed, which calculations may be based upon the Company's latest available financial statements. Section 4.8. DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING SUBSIDIARIES. The Company shall not, and shall not permit any of its Subsidiaries (other than an Acquisition Subsidiary or a Subsidiary of an Acquisition Subsidiary) to, directly or indirectly, create or otherwise cause or suffer to exist or become effective any encumbrance or restriction on the ability of such Subsidiary to: (i) (a) pay dividends or make any other distributions to the Company or any of its Subsidiaries (I) on its Capital Stock or (2) with respect to any other interest or participation in, or measured by, its profits, or (b) pay any Indebtedness owed to the Company or any of its Subsidiaries, (ii) make loans or advances to the Company or any of its Subsidiaries, or (iii) transfer any of its properties or assets to the Company or any of its Subsidiaries, except for such encumbrances or restrictions existing under or by reason of (a) written agreements evidencing Existing Indebtedness as in effect on the date hereof, (b) the Bank Credit Facility as in effect from time to time, PROVIDED that such provisions are no more restrictive with respect to such dividend and other payment restrictions than those contained in the Bank Credit Facility as in effect on the date hereof, (c) this Indenture and the Notes, (d) applicable law, (e) any instrument or agreement governing Acquired Debt of the Company or any of its Subsidiaries or Indebtedness or Capital Stock of a Person acquired by the Company or any of its Subsidiaries as in effect at the time of such acquisition (except to the extent such Indebtedness was incurred in connection with or in contemplation of such acquisition), which encumbrances or restrictions are not applicable to any Person, or the properties or assets of any Person, other than the Person, or the property or assets of the Person, so acquired, (f) by reason of customary non-assignment provisions in leases entered into in the ordinary course of business, 51 (g) purchase money obligations for property acquired in the ordinary course of business that impose restrictions III the nature described in clause (iii) above on the property so acquired, or (h) Permitted Refinancing Debt, PROVIDED that the restrictions contained in the agreements governing such Permitted Refinancing Debt are no more restrictive than those contained in the agreements governing the Indebtedness being refinanced, or (i) in the case of any Foreign Subsidiary, the laws, rules or regulations of any foreign nation. Section 4.9. INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF PREFERRED STOCK. The Company shall not, and shall not permit any of its Subsidiaries to, directly or indirectly, create, incur, issue, assume, guarantee or otherwise become directly or indirectly liable, continently or otherwise, with respect to (collectively, "INCUR") any Indebtedness (including Acquired Debt) and the Company shall not issue any Disqualified Stock and shall not permit any of its Subsidiaries to issue any shares of Preferred Stock (other than to the Company or a Wholly Owned Subsidiary of the Company other than an Acquisition Subsidiary or a Subsidiary of an Acquisition Subsidiary); PROVIDED, HOWEVER, that the Company may incur Indebtedness (including Acquired Debt) or issue shares of Disqualified Stock, if the Fixed Charge Coverage Ratio for the Company's most recently ended four full fiscal quarters for which internal financial statements are available immediately preceding the date on which such additional Indebtedness is incurred or such Disqualified Stock is issued would have been at least 2.0 to 1.0, determined on a PRO FORMA basis (including a PRO FORMA application of the net proceeds therefrom), as if the additional Indebtedness had been incurred, or the Disqualified Stock had been issued, as the case may be, at the beginning of such four-quarter period; PROVIDED that (x) until the Company has internal financial statements for two full fiscal quarters the Company will not, and will not permit any of its Subsidiaries to, incur any additional Indebtedness, or issue any shares of Preferred Stock, and (y) after the Company has internal financial statements for two full financial quarters, but before the Company has such internal financial statements for four full financial quarters, the Fixed Charge Coverage Ratio will be calculated by annualizing the available internal financial statements of the Company on a PRO RATA basis. Notwithstanding the foregoing, neither the Company nor any Subsidiary of the Company (other than an Acquisition Subsidiary or a Subsidiary of an Acquisition Subsidiary) may incur Indebtedness in respect of a Guarantee of Indebtedness of an Acquisition Subsidiary or a Subsidiary of an Acquisition Subsidiary. The foregoing provisions shall not apply to the incurrence of the following Indebtedness (i) the incurrence by the Company of Indebtedness under the term loan portion of the Bank Credit Facility in an aggregate principal amount at any time 52 outstanding not to exceed $25 million LESS the aggregate amount of all repayments, optional or mandatory, of the principal thereof that have been made since the date hereof; (ii) the incurrence by the Company of Indebtedness under the revolving credit and/or the gold consignment portions of the Bank Credit Facility in an aggregate principal amount at any time outstanding not to exceed the greater of (x) $35 million LESS the aggregate amount of all Net Proceeds of Asset Sales or other dispositions of assets that have been applied since the date of the Indenture to permanently reduce the commitments with respect to such Indebtedness pursuant to Section 4.10 hereof and (y) the "BORROWING BASE" (as determined and calculated under the terms of the Bank Credit Facility); (iii) the incurrence by the Company and its Subsidiaries of Existing Indebtedness; (iv) the incurrence by the Company of Indebtedness represented by the Notes; (v) the incurrence by the Company or any of its Subsidiaries (other than an Acquisition Subsidiary or a Subsidiary of an Acquisition Subsidiary) of additional Indebtedness (including Acquired Debt) represented by Capital Lease Obligations, mortgage financings, or purchase money obligations, in each case incurred for the purpose of financing or refinancing all or any part of the purchase price or cost of construction or improvement of property, plant or equipment used in the business of the Company or such Subsidiary, in an aggregate principal amount not to exceed $5.0 million at any time outstanding; (vi) the incurrence by the Company or any of its Subsidiaries of Permitted Refinancing Debt in exchange for, or the net proceeds of which are used to extend, refinance, renew, replace, defease or refund, Indebtedness that was permitted by this Indenture to be incurred (vii) the incurrence by the Company or any of its Subsidiaries of intercompany Indebtedness between or among the Company and any of its Wholly Owned Subsidiaries; PROVIDED, HOWEVER, that (x) neither the Company nor any of its Subsidiaries may incur any Indebtedness to any Acquisition Subsidiary of the Company; (y) if the Company is the obligor of such Indebtedness, such Indebtedness is evidenced in writing and expressly subordinate to the payment in full of all obligations with respect to the Notes; and (z)(I) any subsequent issuance, transfer or other disposition of Capital Stock that results in any such Indebtedness being held by a Person other than the Company or a Wholly Owned Subsidiary which is not an Acquisition Subsidiary or a Subsidiary of an Acquisition Subsidiary and (II) any sale, transfer or other disposition of any such Indebtedness to a Person that is not either the Company or a Wholly Owned Subsidiary which is not an Acquisition Subsidiary or a Subsidiary of an Acquisition 53 Subsidiary shall be deemed, in each case, to constitute an incurrence of such Indebtedness by the Company or such Subsidiary, as the case may be; (viii) the incurrence by the Company or any of its Subsidiaries of Hedging Obligations that are incurred for the purpose of fixing or hedging interest rate, commodity or currency risk, in connection with the conduct of its business and not for speculative purposes; (ix) the incurrence by the Company of Indebtedness under a Guarantee of any Indebtedness permitted under the Indenture to be incurred by a Subsidiary of the Company which is not an Acquisition Subsidiary or a Subsidiary of an Acquisition Subsidiary; (x) the incurrence by any Subsidiary of the Company of Indebtedness under a Guarantee of any Indebtedness permitted under the Indenture to be incurred by the Company; PROVIDED that (a) in the case such Guarantee is of Indebtedness that is PARI PASSU in right of payment with the Notes, all obligations with respect to the Notes are Guaranteed on an equal and ratable basis with the Indebtedness so Guaranteed, and (b) in the case such Guarantee is of Indebtedness that is subordinated in right of payment to the Notes, all obligations with respect to the Notes are Guaranteed on a senior basis reflecting the subordination of the Indebtedness so Guaranteed on terms substantially similar to, or more favorable to senior creditors than, those contained in the Indenture; (xi) the incurrence by the Company of Indebtedness (in addition to Indebtedness permitted by any other clause of this paragraph) in an aggregate principal amount (or accreted value, as applicable) at any time outstanding not to exceed $8.0 million; (xii) the incurrence by the Company or any of its Subsidiaries of Indebtedness in respect of bid, performance or advance payment bonds, and appeal and surety bonds; (xiii) the incurrence of Indebtedness by an Acquisition Subsidiary or a Subsidiary of an Acquisition Subsidiary, PROVIDED that (a) any such Indebtedness is without recourse to, and is not Guaranteed by, the Company or any other Subsidiary of the Company (other than an Acquisition Subsidiary or a Subsidiary of an Acquisition Subsidiary) without regard to whether such recourse complies or would comply with Section 4.7 hereof, and (b) no Default or Event of Default is in existence and continuing after giving effect to such issuance or incurrence; (xiv) the issuance of Capital Stock, including Disqualified Stock, by a Subsidiary of an Acquisition Subsidiary, PROVIDED that (a) such Disqualified Stock is without recourse to, and is not Guaranteed by, the Company or any other Subsidiary of the Company (other than a Subsidiary of an Acquisition Subsidiary) without regard to whether such recourse complies or would comply with Section 4.7 hereof, and (b) no 54 Default or Event of Default is in existence and continuing after giving effect to such issuance; (xv) the incurrence by the Company of Indebtedness for the purpose of effecting a Restricted Payment described in clause (7) of the second paragraph of Section 4.7 hereof, PROVIDED that (a) the aggregate original issue price of such Indebtedness at any time outstanding does not exceed $1 million, (b) such Indebtedness pays no current interest and matures no earlier than six months after the scheduled maturity date of the Notes, and (c) such Indebtedness is subordinated to the Notes on terms substantially similar to, or more favorable to senior creditors than, those contained in the Indenture; and (xvi) the incurrence by the Company or any of its Subsidiaries of interest, fees or other expenses on Indebtedness otherwise permitted under this covenant, PROVIDED that such interest, fees or other expenses are payable on a current basis no less frequently than semi-annually and are paid when due or within any applicable customary grace period thereafter, not to exceed thirty days. For purposes of determining compliance with this covenant, (i) in the event that an item of Indebtedness meets the criteria of more than one of the types of Indebtedness permitted by this covenant, the Company in its sole discretion will classify such item of Indebtedness and will only be required to include the amount and type of each class of Indebtedness in the test specified in the first paragraph of this covenant or in one of the clauses of the second paragraph of this covenant; (ii) the amount of Indebtedness issued at a price which is less than the principal amount thereof shall be equal to the amount of liability in respect thereof determined in accordance with GAAP; and (iii) the amount of Indebtedness represented by a Guarantee of a primary obligation of another Person shall be deemed to be the lower of (x) an amount equal to the maximum amount of the primary obligation (including without limitation all principal, premiums (if any), interest, fees and all other amounts in respect thereof) in respect of which such Guarantee is made and (y) the maximum amount for which such guaranteeing Person may be liable pursuant to the terms of the applicable Guarantee, which, in any case in which such Guarantee consists solely of the granting of a Lien on any asset of such guaranteeing Person, shall be limited to the fair market value of such asset. Section 4.10. ASSET SALES. The Company shall not, and shall not permit any of its Subsidiaries to, engage in an Asset Sale unless (i) the Company (or the Subsidiary, as the case may be) receives consideration at the time of such Asset Sale at least equal to the fair market value (evidenced by a resolution of the Board set forth in an Officers' Certificate delivered to the Trustee, PROVIDED that such Officer's Certificate shall be delivered only in the event of any Asset Sale involving $5.0 million or more of consideration) of the assets or Capital Stock issued, or sold or otherwise disposed of and (ii) at least 80% of the consideration therefor received by the Company or such Subsidiary is in the form of cash or Cash Equivalents; PROVIDED that the amount of (x) any liabilities (as shown on the Company's or such Subsidiary's most recent balance sheet) of the 55 Company or any of its Subsidiaries (other than contingent liabilities and liabilities that are by their terms subordinated to the Notes or any Guarantee thereof) that are assumed by the transferee of any such assets pursuant to a customary novation agreement that releases the Company or such Subsidiary from further liability, and (y) any notes or other obligations received by the Company or any such Subsidiary from such transferee that are immediately converted by the Company or such Subsidiary into cash (to the extent of the cash received), shall be deemed to be cash for purposes of this provision, and PROVIDED, FURTHER, that (A) the Company and its Subsidiaries will not be required to comply with clauses (i) and (ii) of this paragraph in connection with any Asset Sale effected in order to comply with an FTC Order which is consummated within the lesser of (a) 365 days of the date of such FTC Order, or (b) the time period specified in such FTC Order and (B) any Acquisition Subsidiary and any Subsidiary of an Acquisition Subsidiary will not be required to comply with clause (ii) of this paragraph in connection with any Asset Sale. Within 365 days after the receipt of any Net Proceeds from an Asset Sale, the Company or the applicable Subsidiary may apply such Net Proceeds, at its option, (a) to permanently reduce outstanding Senior Indebtedness (and correspondingly reduce commitments with respect thereto) or (b) to the acquisition of an interest in another business, the making of a capital expenditure or the acquisition of other long-term assets, in each case, in a Permitted Line of Business. Pending the final application of any such Net Proceeds, the Company or the applicable Subsidiary may temporarily reduce Indebtedness under the Revolving Credit Facility or otherwise invest such Net Proceeds in any manner that is not prohibited by the Indenture. Any Net Proceeds from Asset Sales that are not applied or invested as provided in the first sentence of this paragraph will be deemed to constitute "EXCESS PROCEEDS." Within 30 days after the aggregate amount of Excess Proceeds exceeds $5.0 million, the Company shall make an offer to all Holders of Notes (an "ASSET SALE OFFER") to purchase an aggregate principal amount of Notes equal to such Excess Proceeds, at a Purchase Price in cash in an amount equal to 100% of the principal amount thereof, PLUS accrued and unpaid interest and Liquidated Damages, if any, thereon to the Purchase Date. The Asset Sale Offer shall be made in compliance with all applicable laws, including, without limitation, Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent such laws and regulations are applicable in connection with the repurchase of the Notes as a result of an Asset Sale, and the applicable procedures set forth in Article III hereof and shall include all instructions and materials necessary to enable Holders to tender their Notes. To the extent that the aggregate amount of Notes tendered pursuant to an Asset Sale Offer is less than the Excess Proceeds, the Company or the applicable Subsidiary may use any remaining Excess Proceeds for general corporate purposes. If the aggregate principal amount of Notes surrendered by Holders thereof exceeds the Offer Amount, the Trustee shall select the particular Notes or portions thereof to be purchased in accordance with Article III hereof. Upon completion of such Asset Sale Offer, the amount of Excess Proceeds shall be reset at zero. 56 Section 4.11. TRANSACTIONS WITH AFFILIATES. The Company shall not, and shall not permit any of its Subsidiaries to, make any payment to, or sell, lease, transfer or otherwise dispose of any of its properties or assets to, or purchase any property or assets from, or enter into or make or amend any contract, agreement, loan, advance or guarantee with any Affiliate or with any Person (other than an Affiliate) for the benefit of, any Affiliate (each of the foregoing, an "AFFILIATE TRANSACTION"), unless: (i) such Affiliate Transaction is on terms that are no less favorable to the Company or the relevant Subsidiary than those that would have been obtained in a comparable transaction by the Company or such Subsidiary with an unrelated Person and (ii) the Company delivers to the Trustee (a) with respect to any Affiliate Transaction or series of related Affiliate Transactions involving aggregate consideration in excess of $2.0 million, a resolution of the Board set forth in an Officers' Certificate certifying that such Affiliate Transaction complies with clause (i) above and that such Affiliate Transaction has been approved by a majority of the disinterested members of the Board and (b) with respect to any Affiliate Transaction or series of related Affiliate Transactions involving aggregate consideration in excess of $5.0 million, an opinion as to the fairness to the Company of such Affiliate Transaction from financial point of view issued by an accounting, appraisal or investment banking firm of national standing experienced in the appraisal or similar review of similar types of transactions; PROVIDED that (w) any employment or consulting agreement entered into or any employee benefit plan adopted by the Company or any of its Subsidiaries in the ordinary course of business, (x) transactions between or among the Company and/or its Wholly Owned Subsidiaries (other than Acquisition Subsidiaries and Subsidiaries of Acquisition Subsidiaries) and transactions between or among an Acquisition Subsidiary and/or its Subsidiaries, (y) Restricted Payments (including the management fee payable to Castle Harlan, Inc. pursuant to the Management Agreement) that are permitted by Section 4.7 hereof, and (z) reasonable and customary payments and other benefits (including indemnification) provided to directors for service on the Board of the Company or any of its Subsidiaries, including the reimbursement or advancement of out-of-pocket expenses and directors' and officers' liability insurance, in each cash, shall not be deemed Affiliate Transactions. For the purposes of determining if a transaction is an Affiliate Transaction, Castle Harlan Partners II, L.P., Castle Harlan, Inc. and their respective Affiliates shall be deemed to be an Affiliate of the Company and each of its Subsidiaries. Section 4.12. LIENS. The Company shall not, and shall not permit any of its Subsidiaries to, directly or indirectly, create, incur, assume or suffer to exist any Lien on any asset now owned or hereafter acquired, or any income or profits therefrom or assign or convey any right to receive income therefrom, except Permitted Liens. 57 Section 4.13. CONTINUED EXISTENCE. Subject to Article V hereof, the Company shall do or cause to be done all things necessary to preserve and keep in full force and effect (i) its corporate existence in accordance with the organizational documents (as the same may be amended from time to time) of the Company and (ii) the material rights (charter and statutory), licenses and franchises of the Company, except to the extent that the Board determines in good faith that the preservation of such right, license or franchise is no longer necessary or desirable in the conduct of the business of the Company and that the loss thereof is not disadvantageous in any material respect to the Holders. Section 4.14. INSURANCE MATTERS. The Company shall provide or cause to be provided, for itself and each of its Subsidiaries, insurance (including appropriate self-insurance) against loss or damage of the kinds that, in the reasonable, good faith opinion of the Company, are adequate and appropriate for the conduct of the business of the Company and its Subsidiaries in a prudent manner, with reputable insurers or with the government of the United States of America or an agency or instrumentality thereof, in such amounts, with such deductibles, and by such methods as shall be either (i) consistent with past practices of the Company or the applicable Subsidiary or (ii) customary, in the reasonable, good faith opinion of the Company, for corporations similarly situated in the industry, unless the failure to provide such insurance (together with all other such failures) would not have a material adverse effect on the financial condition or results of operations of the Company and its Subsidiaries, taken as a whole. Section 4.15. OFFER TO REPURCHASE UPON CHANGE OF CONTROL. Upon the occurrence of a Change of Control, each Holder of Notes shall have the right to require the Company to repurchase all or any part (equal to $1,000 or an integral multiple thereof) of such Holder's Notes (a "CHANGE OF CONTROL OFFER") at a Purchase Price in cash equal to 101% of the aggregate principal amount thereof, together with accrued and unpaid interest and Liquidated Damages, if any, thereon to the Purchase Date. The Change of Control Offer shall be made in compliance with all applicable laws, including, without limitation, Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent such laws and regulations are applicable in connection with the repurchase of the Notes as a result of a Change of Control, and the applicable procedures set forth in Article III hereof and shall include all instructions and materials necessary to enable Holders to tender their Notes. Section 4.16. LIMITATIONS ON ISSUANCES AND SALES OF CAPITAL STOCK OF SUBSIDIARIES. The Company (i) shall not, and shall not permit any Subsidiary of the Company to, transfer, convey, sell, lease or otherwise dispose of any Capital Stock of any Subsidiary of the Company to any Person (other than the Company or a Wholly Owned Subsidiary of the Company which is not an Acquisition Subsidiary or a Subsidiary of an Acquisition Subsidiary), 58 unless (a) such transfer, conveyance, sale, lease or other disposition (unless made by an Acquisition Subsidiary or a Subsidiary of an Acquisition Subsidiary) is of all the Capital Stock of such Subsidiary and (b) the Net Proceeds from such transfer, conveyance, sale, lease or other disposition are applied in accordance with Section 4.10 hereof and (ii) shall not permit any Subsidiary of the Company (other than a Subsidiary of an Acquisition Subsidiary) to issue any of its Capital Stock (other than, if necessary, shares of its Capital Stock constituting directors' qualifying shares or, in the case of a Foreign Subsidiary, shares issued to foreign nationals pursuant to applicable law, PROVIDED that such Foreign Subsidiary remains a Wholly Owned Subsidiary) to any Person other than to the Company or a Wholly Owned Subsidiary of the Company which is not an Acquisition Subsidiary or a Subsidiary of an Acquisition Subsidiary Section 4.17. LIMITATION ON FUTURE SUBORDINATED INDEBTEDNESS. The Company shall not incur any Indebtedness, other than the Notes, that is subordinated in right of payment to any other Indebtedness of the Company unless such Indebtedness, by its terms is PARI PASSU with the Notes or subordinated to the Notes pursuant to subordination provisions substantially similar to, or more favorable to senior creditors than, those contained herein. Section 4.18. SUBSIDIARY GUARANTEES. (a) The Company shall cause each of its Subsidiaries (other than an Acquisition Subsidiary or a Subsidiary of an Acquisition Subsidiary), not later than fifteen (15) days after such Subsidiary of the Company becomes a Significant Subsidiary (whether as a result of creation acquisition, additional investment, internal growth or otherwise), to cause a Subsidiary Guarantee to be executed by two officers of such Subsidiary and deliver such Subsidiary Guarantee and an Opinion of Counsel acceptable to the Trustee (as set forth in paragraph (b) below) to the Trustee; PROVIDED, HOWEVER, that the Company shall cause any of its Subsidiaries which becomes a Significant Subsidiary as a result of creation, acquisition or additional investment to execute such Subsidiary Guarantee concurrently with such creation, acquisition or additional investment, and PROVIDED, FURTHER, that any Foreign Subsidiary shall only be required to execute a Subsidiary Guarantee to the extent permitted under the laws of its jurisdiction of organization. (b) The Opinion of Counsel required by clause (a) above shall state that the Subsidiary Guarantee has been duly authorized, executed and delivered by such Subsidiary, that the obligations of such Subsidiary under such Subsidiary Guarantee are enforceable against such Subsidiary in accordance with the terms of such Subsidiary Guarantee and that delivery by such Subsidiary of the Subsidiary Guarantee will not (i) result in any violation of the provisions of the charter or bylaws of such Subsidiary, (ii) to the best knowledge of such counsel, conflict with or result in a breach or violation of any of the terms or provisions of, or constitute a default under, any indenture, mortgage, deed of trust, loan or credit agreement, or other agreement or instrument known to such counsel to which such Subsidiary is a party, or (iii) to the best knowledge of such 59 counsel, result in any violation of the provisions of any federal or state statute, or any order, rule or regulation of any federal or state court or governmental agency or body having jurisdiction over such Subsidiary or any of its properties or assets. (c) Except as set forth in Articles IV and V hereof, nothing contained in this Indenture or in any of the Notes shall prevent any consolidation or merger of a Subsidiary Guarantor with or into the Company or another Subsidiary Guarantor or shall prevent any sale or conveyance of the property of a Subsidiary Guarantor as an entirety or substantially as an entirety to the Company or another Subsidiary Guarantor. No Subsidiary Guarantor may consolidate with or merge into (whether or not such Subsidiary Guarantor is the surviving Person), another corporation, Person or entity (other than the Company or another Subsidiary Guarantor) whether or not affiliated with such Subsidiary Guarantor unless, subject to clause (d) below, (i) the Person formed by or surviving any such consolidation or merger (if other that such Subsidiary Guarantor) assumes all the obligations of such Subsidiary Guarantor, in form and substance reasonably satisfactory to the Trustee, under the Subsidiary Guarantee of such Subsidiary Guarantor; (ii) immediately after effect to such transaction, no Default or Event of Default exists; and (iii) the Company would be permitted, by virtue of the Company's PRO FORMA Fixed Charge Coverage Ratio immediately after giving effect to such transaction, to incur at least $1.00 of additional Indebtedness pursuant to the first paragraph of Section 4.9 hereof. (d) In the event of a sale or other disposition of all or substantially all of the assets of any Subsidiary Guarantor, by way of merger, consolidation or otherwise, or a sale or other disposition (including, without limitation, by foreclosure) of all of the Capital Stock of any Subsidiary Guarantor, then such Subsidiary Guarantor shall be automatically released and relieved of any obligations under its Subsidiary Guarantee; PROVIDED that the Net Proceeds of such sale or other disposition are applied in accordance with Section 4.10 hereof upon delivery by the Company to the Trustee of an Officers' Certificate and an Opinion of Counsel to the effect that such sale or other disposition was made by the Company in accordance with the provision of this Indenture, including without limitation Section 4.10 hereof, the Trustee shall execute any documents reasonably required in order to evidence the release of any Subsidiary Guarantor from its obligations under its Subsidiary Guarantee. (e) By its acceptance of Notes, each Holder, hereby confirms that it is the intention of the Holders that a Subsidiary Guarantee of any Subsidiary Guarantor not constitute a fraudulent transfer or conveyance for purposes of Bankruptcy Law, the Uniform Fraudulent Conveyance Act, the Uniform Fraudulent Transfer Act or any similar federal or state law to the extent applicable to any Subsidiary Guarantee. To 60 effectuate the foregoing intention, the Trustee the Holders hereby irrevocably agree that the obligations of such Subsidiary Guarantor under its Subsidiary Guarantee shall be limited to the maximum amount as will, after giving effect to such maximum amount and all other contingent and fixed liabilities of such Subsidiary Guarantor that are relevant under such laws, and after giving effect to any collections from, rights to receive contribution from or payments made by or on behalf of any other Subsidiary Guarantor in respect of the obligations of such other Subsidiary Guarantor under its Subsidiary Guarantee, result in the obligations of such Subsidiary Guarantor under its Subsidiary Guarantee not constituting a fraudulent transfer or conveyance. (f) All Subsidiary Guarantees shall be of no further force and effect upon the occurrence of a Legal Defeasance or a Covenant Defeasance, subject to reinstatement pursuant to Section 8.7 hereof under the circumstances described therein. Section 4.19. BUSINESS ACTIVITIES. The Company shall not, nor shall it permit any of its Subsidiaries to, engage in any business other than a Permitted Line of Business. Section 4.20. PAYMENTS FOR CONSENT. Neither the Company nor any of its Subsidiaries shall, directly or indirectly, pay or cause to be paid any consideration, whether by way of interest, fee or otherwise, to any Holder of any Notes for or as an inducement to any consent, waiver or amendment of any of the terms or provisions of this Indenture or the Notes unless such consideration is offered to be paid or is paid to all Holders of the Notes that consent, waive or agree to amend in the time frame set forth in the solicitation documents relating to such consent, waiver or agreement. Section 4.21. RESTRICTIONS UNDER SENIOR INDEBTEDNESS. Prior to giving notice to Holders of Notes relating to a Change of Control Offer or an Asset Sale Offer, but in any event within 90 days following a Change of Control or the accumulation of Excess Proceeds in excess of $5.0 million, the Company shall (i) repay, or otherwise make arrangements satisfactory to the holders of all Senior Indebtedness (or their respective Senior Representatives) for the repayment of, all Senior Indebtedness in full in cash or Cash Equivalents or offer to repay all such Senior Indebtedness in full in cash or Cash Equivalents and have repaid, or otherwise made arrangements satisfactory to the holders of all Senior Indebtedness (or their respective Senior Representatives) for the repayment of, all Senior Indebtedness in full in cash or Cash Equivalents of any lender who accepts such offer; and/or (ii) obtain the requisite consents under the Bank Credit Facility or under agreements relating to other Senior Indebtedness to purchase Notes as required by this Indenture. The Company shall not effect the purchase of Notes until all Senior Indebtedness has been repaid in full in cash or Cash Equivalents and/or such requisite consents have been obtained. 61 ARTICLE V. SUCCESSORS Section 5.1. MERGER, CONSOLIDATION, OR SALE OF ASSETS. The Company shall not consolidate or merge with or into any other Person (other than a Wholly Owned Subsidiary which is not an Acquisition Subsidiary or a Subsidiary of an Acquisition Subsidiary), or permit any other Person to consolidate or merge with or into the Company, nor will the Company sell, lease, convey or otherwise dispose of all or substantially all of its assets unless: (i) the Company shall be the continuing corporation or the entity formed by or surviving any such consolidation or merger, or to which such sale, lease, conveyance or other disposition shall have been made (the "SURVIVING ENTITY"), is a corporation organized and existing under the laws of the United States, any state thereof, or the District of Columbia; (ii) the Surviving Entity assumes by supplemental indenture all of the obligations of the Company under the Notes and this Indenture; (iii) immediately after giving effect to such transaction, no Default or Event of Default shall have occurred and be continuing; (iv) immediately after giving effect to such transaction, the Consolidated Net Worth of the Company or the Surviving Entity, as the case may be, would be at least equal to the Consolidated Net Worth of the Company immediately prior to such transaction; and (v) immediately after giving effect to such transaction, the Company or the Surviving Entity, as the case may be, could incur at least $1.00 of additional Indebtedness pursuant to the first paragraph of Section 4.9 hereof. The Company shall deliver to the Trustee prior to the consummation of the proposed transaction an Officers' Certificate to the foregoing effect and an Opinion of Counsel stating that the proposed transaction and such supplemental indenture comply with this Indenture. Section 5.2. SUCCESSOR CORPORATION SUBSTITUTED. Upon any consolidation or merger, or any sale, lease, conveyance or other disposition of all or substantially all of the assets of the Company in accordance with Section 5.1 hereof, the Surviving Entity shall succeed to and be substituted for, and may exercise every right and power of, the Company under this Indenture with the same effect as if such Surviving Entity had been named as the Company herein; PROVIDED, HOWEVER, that the predecessor Company shall not be relieved from the obligation to pay the principal, Purchase Price or Redemption Price of 62 or interest or Liquidated Damages, if any, on the Notes except in the case of a sale of all of the Company's assets that meets the requirements of Section 5.1 hereof. ARTICLE VI. DEFAULTS AND REMEDIES Section 6.1. EVENTS OF DEFAULT. An "EVENT OF DEFAULT" occurs if: (a) the Company defaults in the payment when due of interest or Liquidated Damages, if any, on the Notes and such default continues for a period of 30 days (whether or not prohibited by Article X hereof); (b) the Company defaults in the payment when due of principal, Redemption Price or Purchase Price of the Notes, whether at maturity, upon redemption or repurchase or otherwise (whether or not prohibited by Article X hereof); (c) the Company fails to comply with any of the provisions of Section 3.9, 3.10, 4.15 or 5.1 hereof or fails to make an Asset Sale Offer when and as required by the provisions of Section 4.10 hereof, as applicable; (d) the Company fails to comply with any of the provisions of Section 4.7 or 4.9 hereof and such failure to comply continues for a period of 30 days after notice thereof from the Trustee or the Holders of at least 25% in aggregate principal amount of the then outstanding Notes; (e) the Company fails to comply with any other covenant, representation, warranty or other agreement in this Indenture or the Notes and such failure to comply continues for a period of 60 days after notice thereof from the Trustee or the Holders of at least 25% in aggregate principal amount of the then outstanding Notes; (f) a default occurs under any mortgage, indenture or instrument under which there may be issued or by which there may be secured or evidenced any Indebtedness for money borrowed by the Company or any of its Subsidiaries or the payment of which is Guaranteed by the Company or any of such Subsidiaries, whether such Indebtedness or Guarantee now exists, or is created after the date of this Indenture, which default (a) is caused by a failure to pay any amount due with respect to such Indebtedness at the stated maturity thereof (a "PAYMENT DEFAULT") or (b) results in the acceleration of any such Indebtedness prior to its express maturity and, in each case, the principal amount of such Indebtedness, together with the principal amount of any other 63 such Indebtedness under which there has been a Payment Default or the maturity of which has been so accelerated, aggregates $5.0 million or more; (g) a final judgment or final judgements for the payment of money are entered by a court or courts of competent jurisdiction against the Company or any of its Subsidiaries and such judgment or judgments are not paid, stayed or discharged for a period of 60 days, PROVIDED that the aggregate of all such judgments exceeds $5.0 million; (h) the Company, any Significant Subsidiary of the Company or any group of Subsidiaries of the Company that, taken together, would constitute a Significant Subsidiary: (i) commences a voluntary case under any Bankruptcy Law, (ii) consents to the entry of an order for relief against it in an involuntary case, (iii) consents to the appointment of a custodian or receiver of it or for all or substantially, all of its property, (iv) makes a general assignment for the benefit of its creditors, or (v) generally is not paying its debts as they become due; or (i) a court of competent jurisdiction enters an order or decree under any Bankruptcy Law that: (i) is for relief in an involuntary case against the Company, any Significant Subsidiary of the Company or any group of Subsidiaries of the Company that, taken together, would constitute a Significant Subsidiary; (ii) appoints a custodian or receiver of the Company, any Significant Subsidiary of the Company or any group of Subsidiaries of the Company that, taken together, would constitute a Significant Subsidiary or for all or substantially all of the property of any of the foregoing; (iii) orders the liquidation of the Company, any of its Significant Subsidiaries or any group of Subsidiaries of the Company that taken together, would constitute a Significant Subsidiary; and the order or decree remains unstayed and in effect for 60 consecutive days. 64 Section 6.2. ACCELERATION. If any Event of Default (other than an Event of Default specified in clause (h) or (i) of Section 6.1 hereof with respect to the Company, any Significant Subsidiary or any group of Subsidiaries that, taken together, would constitute a Significant Subsidiary) occurs and is continuing, the Trustee or the Holders of at least 25% in principal amount of the then outstanding Notes by written notice to the Company (and the Trustee, if such notice is given by such Holders) may declare all the Notes to be due and payable immediately. Upon any such declaration, the entire principal amount of, and accrued and unpaid interest and Liquidated Damages, if any, on the Notes (i) shall become immediately due and payable; or (ii) if there is any Designated Senior Indebtedness outstanding, shall become due and payable upon the first to occur of (a) an acceleration under such Designated Senior Indebtedness or (b) five days after receipt by the Company and the Senior Representative for such Designated Senior Indebtedness of such acceleration notice, unless all Events of Default specified in such acceleration notice (other than any Event of Default in respect of non-payment of principal, premium, or interest, if any, which has become due solely by reason of such declaration of acceleration) shall have been cured. Notwithstanding the foregoing, if an Event of Default specified in clause (h) or (i) of Section 6.1 hereof occurs with respect to the Company or any Significant Subsidiary or group of Subsidiaries that, taken together, would constitute a Significant Subsidiary, all outstanding Notes shall be due and payable immediately without further action or notice. The Holders of not less than a majority in aggregate principal amount of the then outstanding Notes by written notice to the Company and the Trustee may, on behalf of the Holders of all of the Notes, rescind an acceleration and its consequences if the rescission would not conflict with any judgment or decree and if (i) the Company has paid or deposited with the Trustee a sum sufficient to pay (a) all sums paid or advanced by the Trustee under the Indenture and the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, (b) all overdue interest on all Notes, and (c) to the extent that payment of such interest is lawful, interest upon overdue interest and Liquidated Damages, if any, at the rate borne by the Notes; and (ii) all Events of Default, other than the non-payment of principal of the Notes which has become due solely by such declaration of acceleration, have been cured or waived. Section 6.3. OTHER REMEDIES. If an Event of Default occurs and is continuing, the Trustee may pursue any available remedy to collect the payment of principal, premium, if any, interest or Liquidated Damages, if any, on the Notes or to enforce the performance of any provision of the Notes or this Indenture. The Trustee may maintain a proceeding even if it does not possess any of the Notes or does not produce any of them in the proceeding, and any recovery or judgment shall, after provision for the payment of the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, be for the ratable benefit of the Holders of the Notes. A delay or omission by the Trustee or any Holder in exercising any right or remedy 65 accruing upon an Event of Default shall not impair the right or remedy or constitute a waiver of or acquiescence in the Event of Default. All remedies are cumulative to the extent permitted by law. Section 6.4. WAIVER OF PAST DEFAULTS. Holders of all of the aggregate principal amount of the then outstanding Notes by notice to the Trustee may, on behalf of the Holders of all of the Notes, waive an existing Default or Event of Default and its consequences hereunder with regard to a continuing Default or Event of Default in the payment of the principal, Redemption Price or Purchase Price of, or interest or Liquidated Damages, if any, on the Notes. Holders of not less than 75% in aggregate principal amount of the then outstanding Notes by notice to the Trustee may, on behalf of the Holders of all of the Notes, waive an existing Default or Event of Default and its consequences hereunder for all Defaults or Events of Default arising from provisions of this Indenture which may only be amended by Holders of not less than 75% in aggregate principal amount of the then outstanding Notes. Holders of not less than a majority in aggregate principal amount of the then outstanding Notes by notice to the Trustee may, on behalf of the Holders of all of the Notes, waive an existing Default or Event of Default and its consequences hereunder for all Defaults or Events of Default arising from provisions of this Indenture which may only be amended by Holders of not less than a majority in aggregate principal amount of the then outstanding Notes. After a declaration of acceleration has been made, but before a judgment or decree for payment of the money due has been obtained by the Trustee, the Holders of the applicable percentage of aggregate principal amount of Notes outstanding, by written notice to the Company and the Trustee, may annul such declaration if (i) the Company has paid or deposited with the Trustee a sum sufficient to pay (a) all sums paid or advanced by the Trustee under the Indenture and the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, (b) all overdue interest on all Notes, and (c) to the extent that payment of such interest is lawful, interest upon overdue interest and Liquidated Damages, if any, at the rate borne by the Notes; and (ii) all Events of Default, other than the non-payment of principal of the Notes which has become due solely by such declaration of acceleration, have been cured or waived. Upon any such waiver, such Default shall cease to exist, and any Event of Default arising therefrom shall be deemed to have been cured for every purpose of this Indenture; but no such waiver shall extend to any subsequent or other Default or impair any right consequent thereon. Section 6.5. CONTROL BY MAJORITY. Holders of a majority in principal amount of the then outstanding Notes may direct the time, method and place of conducting any proceeding for exercising any remedy available to the Trustee or exercising any trust or power conferred on it. However, the Trustee may refuse to follow any direction that conflicts with applicable law or this Indenture that the Trustee reasonably determines may be unduly prejudicial to the rights of other Holders of Notes or that may subject the Trustee to personal liability and shall be entitled to the benefit of Section 7.1 (c)(iii) and (e) hereof. Notwithstanding any provision in this Indenture to the contrary, the Trustee shall not be obligated to take any action with respect to the provisions of 66 Section 6.9 hereof unless directed to do so pursuant to this Section 6.5 by the Holders of at least 10% in principal amount of the then outstanding Notes. Section 6.6. LIMITATION ON SUITS. A Holder of a Note may pursue a remedy with respect to this Indenture or the Notes only if: (a) the Holder of a Note gives to the Trustee written notice of a continuing Event of Default; (b) the Holders of at least 25% in principal amount of the then outstanding Notes make a written request to the Trustee to pursue the remedy; (c) such Holder or Holders of Notes offer and, if requested, provide to the Trustee indemnity satisfactory to the Trustee against any loss, liability or expense; (d) the Trustee does not comply with the request within 60 days after receipt of the request and the offer and, if requested, the provision of indemnity; and (e) during such 60-day period the Holders of a majority in principal amount of the then outstanding Notes do not give the Trustee a direction inconsistent with the request. A Holder of a Note may not use this Indenture to prejudice the rights of another Holder of a Note or to obtain a preference or priority over another Holder of a Note. Section 6.7. RIGHTS OF HOLDERS OF NOTES TO RECEIVE PAYMENT. Notwithstanding any other provision of this Indenture, the right of any Holder of a Note to receive payment of principal of, or premium, if any, interest or Liquidated Damages, if any, on the Note, on or after the respective due dates thereon (including in connection with an offer to repurchase), or to bring suit for the enforcement of any such payment on or after such respective dates, shall not be impaired or affected without the written consent of such Holder. Section 6.8. COLLECTION SUIT BY TRUSTEE. If an Event of Default specified in Section 6.l(a) or (b) occurs and is continuing, the Trustee is authorized to recover judgment in its own name and as trustee of an express trust against the Company for the whole amount of principal of, premium and Liquidated Damages, if any, and interest remaining unpaid on the Notes and interest on overdue principal and, to the extent lawful, interest and Liquidated Damages, if any, and such further amounts as shall be sufficient to cover the costs and expenses of collection, including the reasonable compensation, expense, disbursements and advances of the Trustee, its agents and counsel. 67 Section 6.9. EVENT OF DEFAULT TO AVOID PREMIUM. In the case of any Event of Default occurring by reason of any willful action (or inaction) taken (or not taken) by or on behalf of the Company, with the intention of avoiding payment of the premium that the Company would have had to pay if the Company then had elected to redeem the Notes pursuant to the optional redemption provisions hereof, an equivalent premium shall also become and be immediately due and payable to the extent permitted by law upon the acceleration of the Notes. If an Event of Default occurs prior to the first date on which the Notes are subject to redemption at the option of the Company as provided in Section 3.7 hereof by reason of any willful action (or inaction) taken (or not taken) by or on behalf of the Company with the intention of avoiding the prohibition on the optional redemption of the Notes prior to such first date, then the premium specified herein for an optional redemption of the Notes on such first date shall also become immediately due and payable to the extent permitted by law upon the acceleration of the Notes. Section 6.10. TRUSTEE MAY FILE PROOFS OF CLAIM. The Trustee is authorized to file such proofs of claim and other papers or documents as may be necessary or advisable in order to have the claims of the Trustee (including any claim for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents (including accountants, experts or such other processionals as the Trustee deems necessary, advisable or appropriate) and counsel and the Holders of the Notes allowed in any judicial proceedings relative to the Company (or any other obligor upon the Notes), its creditors or its property and shall be entitled and empowered to collect, receive and distribute any money or other property payable or deliverable on any such claims, and any custodian in any such judicial proceeding is hereby authorized by each Holder to make such payments to the Trustee, and in the event that the Trustee shall consent to the making of such payments directly to the Holders, to pay to the Trustee any amount due to it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 7.7 hereof. To the extent that the payment of any such compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 7.7 hereof out of the estate in any such proceeding, shall be denied for any reason, payment of the same shall be secured by a lien on, and shall be paid out of, any and all distributions, dividends, money, securities and other properties that the Holders may be entitled to receive in such proceeding whether in liquidation or under any plan of reorganization or arrangement or otherwise. Nothing herein contained shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Holder any plan of reorganization, arrangement, adjustment or composition affecting the Notes or the rights of any Holder, or to authorize the Trustee to vote in respect of the claim of any Holder in any such proceeding. Section 6.11. PRIORITIES. If the Trustee collects any money pursuant to this Article, it shall pay out the money in the following order: 68 FIRST: to the Trustee, its agents and attorneys for amounts due under Section 7.7 hereof, including payment of all compensation, expense and liabilities incurred, and all advances made, by the Trustee and the costs and expenses of collection; SECOND: to Holders of Notes for amounts due and unpaid on the Notes for principal, Purchase Price, Redemption Price and Liquidated Damages, if any, and interest, ratably, without preference or priority of any kind, according to the amounts due and payable on the Notes for principal, Purchase Price, Redemption Price and Liquidated Damages, if any, and interest, respectively; and THIRD: to the Company or to such party as a court of competent jurisdiction shall direct. The Trustee may fix a special record date and payment date for any payment to Holders of Notes pursuant to this Section 6.11. Section 6.12. UNDERTAKING FOR COSTS. In any suit for the enforcement of any right or remedy under this Indenture or in any suit against the Trustee for any action taken or omitted by it as a Trustee, a court in its discretion may require the filing by any party litigant in the suit of an undertaking to pay the costs of the suit, and the court in its discretion may assess reasonable costs, including reasonable attorneys' fees, against any party litigant in the suit, having due regard to the merits and good faith of the claims or defenses made by the party litigant. This Section does not apply to a suit by the Trustee, a suit by a Holder pursuant to Section 6.7 hereof, or a suit by Holders of more than 10% in principal amount of the then outstanding Notes. ARTICLE VII. TRUSTEE Section 7.1. DUTIES OF TRUSTEE. (a) If an Event of Default has occurred and is continuing, the Trustee shall exercise such of the rights and powers vested in it by this Indenture, and use the same degree of care and skill in its exercise thereof, as a prudent man would exercise or use under the circumstances in the conduct of his own affairs. (b) Except during the continuance of an Event of Default: (i) the duties of the Trustee shall be determined solely by the express provisions of this Indenture and the TIA and the Trustee need perform only those duties that are specifically set forth in this Indenture and no others, and no implied covenants or obligations shall be read into this Indenture or the TIA against the Trustee; and 69 (ii) in the absence of bad faith on its part, the Trustee may conclusively rely, without investigation, as to the truth or the statements and the correctness of the opinions expressed therein, upon and statements, certificates or opinions furnished to the Trustee and conforming to the requirements of this Indenture. However, the Trustee shall examine the certificates and opinions to determine whether or not they conform on their face to the requirements of this Indenture. (c) The Trustee may not be relieved from liabilities for its own negligent action, its own negligent failure to act, or its own willful misconduct, except that: (i) this paragraph does not limit the effect of paragraph (b) of this Section; (ii) the Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer, unless it is proved that the Trustee was negligent in ascertaining the pertinent facts; and (iii) the Trustee shall not be liable with respect to any action it takes or omits to take in good faith in accordance with a direction received by it pursuant to Section 6.5 hereof. (d) Whether or not therein expressly so provided, every provision of this Indenture that in any way relates to the Trustee is subject to this Section 7.1. (e) No provision of this Indenture shall require the Trustee to expend or risk its own funds or incur any liability. The Trustee shall be under no obligation to exercise any of its rights and powers under this Indenture at the request of any Holders, pursuant to the provisions of this Indenture, including, without limitation, Section 6.5 thereof, unless such Holder shall have offered to the Trustee security and indemnity satisfactory to it against any loss, liability or expense which might be incurred by it in compliance with such request or direction. (f) The Trustee shall not be liable for interest on any money received by it except as the Trustee may agree in writing with the Company. Money held in trust by the Trustee need not be segregated from other funds except to the extent required by law. Section 7.2. RIGHTS OF TRUSTEE. (a) The Trustee may conclusively rely and shall be protected in acting or refraining from acting upon any document believed by it to be genuine and to have been signed or presented by the proper Person. The Trustee need not investigate any fact or matter stated in the document. 70 (b) Before the Trustee acts or refrain from acting, it may require an Officer's Certificate or an Opinion of Counsel or both. The Trustee shall not be liable for any action it takes or omits to take in good faith in reliance on such Officers' Certificate or Opinion of Counsel. The Trustee may consult with counsel and the written advice of such counsel and Opinions of Counsel shall be full and complete authorization and protection from liability in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon. (c) The Trustee may act through its attorneys, accountants, experts and such other professionals as the Trustee deems necessary, advisable or appropriate and shall not be responsible for the misconduct or negligence of any attorney, accountant, expert or other such professional appointed with due care. (d) The Trustee shall not be liable for any action it takes or omits to take in good faith that it believes to be authorized or within the rights or powers conferred upon it by this Indenture. (e) Unless otherwise specifically provided in this Indenture, any demand, request, direction or notice from the Company shall be sufficiently evidenced by a written order signed by two Officers of the Company. (f) The Trustee shall not be charged with knowledge of any Default or Event of Default under Section 6.1 hereof (other than under Section 6.1(a) (subject to the following sentence) or Section 6.1(b) hereof) unless either (i) a Responsible Officer shall have actual knowledge thereof, or (ii) the Trustee shall have received notice thereof in accordance with Section 11.2 hereof from the Company or any Holder of the Notes. The Trustee shall not be charged with knowledge of the Company's obligation to pay Liquidated Damages, or the cessation of such obligation, unless the Trustee receives written notice thereof from the Company or any Holder. Section 7.3. INDIVIDUAL RIGHTS OF TRUSTEE. The Trustee in its individual or any other capacity may become the owner or pledgee of Notes and may otherwise deal with the Company or any Affiliate of the Company with the same rights it would have if it were not Trustee. However, in the event that the Trustee acquires any conflicting interest within the meaning of the TIA it must eliminate such conflict within 90 days, apply (subject to the consent of the Company) to the Commission for permission to continue as trustee or resign. Any Agent may do the same with like rights and duties. The Trustee is also subject to Sections 7.10 and 7.11 hereof. Section 7.4. TRUSTEE'S DISCLAIMER. The Trustee shall not be responsible for and makes no representation as to the validity or adequacy of this Indenture, or the Notes, it shall not be accountable for the Company's use of the proceeds from the Notes or any money paid to the Company or upon the Company's 71 direction under any provision of this Indenture, it shall not be responsible for the use or application of any money received by any Paying Agent other than the Trustee, and it shall not be responsible for any statement or recital herein or any statement in the Notes or any other document in connection with the sale of the Notes or pursuant to this Indenture other than its certificate of authentication. Section 7.5. NOTICE OF DEFAULTS. If a Default or Event of Default occurs and is continuing, the Trustee shall mail to Holders of Notes a notice of the Default or Event of Default within 90 days after it occurs. Except in the case of a Default in payment on any Note (including the failure to make a mandatory repurchase pursuant hereto), the Trustee may withhold the notice if and so long as a committee of its Responsible Officers in good faith determines that withholding the notice is in the interests of the Holders of the Notes. Section 7.6. REPORTS BY TRUSTEE TO HOLDER OF THE NOTES. Within 60 days after each May 15 beginning with the May 15 following the date of this Indenture, and for so long as Notes remain outstanding, the Trustee shall mail to the Holders of the Notes a brief report dated as of such reporting date that complies with TIA $ 313(a) (but if no event described in TIA $ 313(a) has occurred within the twelve months preceding the reporting date, no report need be transmitted). The Trustee also shall comply with TIA $ 313(b). The Trustee shall also transmit by mail all reports as required by TIA $ 313(c). A copy of each report at the time of its mailing to the Holders of Notes shall be mailed to the Company and filed with the Commission and each stock exchange on which the Notes are listed in accordance with TIA $ 313(d). The Company shall promptly notify the Trustee when the Notes are listed on any stock exchange. Section 7.7. COMPENSATION, REIMBURSEMENT AND INDEMNITY. The Company shall pay to the Trustee from time to time reasonable compensation for its acceptance of this Indenture and the rendering by it of the services required hereunder. The Trustee's compensation shall not be limited by any law on compensation of a trustee of an express trust. The Company shall reimburse the Trustee promptly upon request for all reasonable disbursements, advances and expenses incurred or made by or on behalf of it in addition to the compensation for its services. Such expenses shall include the reasonable compensation, disbursements and expenses of the Trustee's attorneys, accountants, experts and such other professionals as the Trustee deems necessary, advisable or appropriate. The Company shall indemnify the Trustee against any and all losses, liabilities or expenses incurred by it arising out of or in connection with the acceptance or administration of its duties under this Indenture (including its duties under Section 9.6 hereof), including the costs and expenses of enforcing this Indenture or any Subsidiary Guarantee against the Company or a Subsidiary Guarantor (including this Section 7.7) and defending itself against or investigating 72 any claim (whether asserted by the Company, any Subsidiary Guarantor, any Holder or any other Person) or liability in connection with the exercise or performance of any of its powers or duties hereunder, except to the extent any such loss, liability or expense may be attributable to its negligence or willful misconduct. The Trustee shall notify the Company promptly of any claim for which it may seek indemnity. Failure by the Trustee to so notify the Company shall not relieve the Company of its obligations hereunder. The Company shall defend any claim or threatened claim asserted against the Trustee, and the Trustee shall cooperate in the defense. The Trustee may have separate counsel and the Company shall pay the reasonable fees and expenses of such counsel. The Company need not pay for any settlement made without its consent, which consent shall not be unreasonably withheld. The obligations of the Company under this Section 7.7 shall survive the resignation or removal of the Trustee, the satisfaction and discharge of this Indenture and the termination of this Indenture. To secure the Company's payment obligations in this Section 7.7, the Trustee shall have a Lien prior to the Notes on all money or property held or collected by the Trustee, except that held in trust to pay principal, Redemption Price or Purchase Price of or Liquidated Damages, if any, or interest on, particular Notes. Such Lien shall survive the resignation or removal of the Trustee, the satisfaction and discharge of this Indenture and the termination of this Indenture. When the Trustee incurs expenses or renders services after an Event of Default specified in Section 6.1(g) or (h) hereof occurs, the expenses and the compensation for the services (including the fees and expenses of its agents and counsel) are intended to constitute expenses of administration under any Bankruptcy Law. Section 7.8. REPLACEMENT OF TRUSTEE. A resignation or removal of the Trustee and appointment of a successor Trustee shall become effective only upon the successor Trustee's acceptance of appointment as provided in this Section. The Trustee may resign in writing at any time and be discharged from the trust hereby created by so notifying the Company. The Holders of Notes of a majority in principal amount of the then outstanding Notes may remove the Trustee by so notifying the Trustee and the Company in writing. The Company may remove the Trustee if: (a) the Trustee fails to comply with Section 7.10 hereof; (b) the Trustee is adjudged a bankrupt or an insolvent or an order for relief is entered with respect to the Trustee under any Bankruptcy Law; (c) a custodian, receiver or public officer takes charge of the Trustee or its property for the purpose of rehabilitation, conversation or liquidation; or 73 (d) the Trustee becomes incapable of acting. If the Trustee resigns or is removed or if a vacancy exists in the office of Trustee for any reason, the Company shall promptly appoint a successor Trustee. Within one year after the date on which the successor Trustee takes office, the Holders of a majority in principal amount of the then outstanding Notes may appoint a successor Trustee to replace the successor Trustee appointed by the Company. If a successor Trustee does not take office within 30 days after the retiring trustee resigns or is removed, the retiring Trustee, the Company, or the Holders of Notes of at least 10% in principal amount of the then outstanding Notes may petition any court of competent jurisdiction for the appointment of a successor Trustee. If the Trustee, after written request by any Holder of a Note who has been a bona fide holder of a Note or Notes for at least six months, fails to comply with Section 7.10, such Holder of a Note may petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee. A successor Trustee shall deliver a written acceptance of its appointment to the retiring Trustee and to the Company. Thereupon, the resignation or removal of the retiring Trustee shall become effective, and the successor Trustee shall have all the rights, powers and duties of the Trustee under this Indenture. The Company shall mail a notice of its succession to Holder of the Notes. The retiring Trustee shall promptly transfer all property held by it as Trustee to the successor Trustee, PROVIDED all sums owing to the Trustee hereunder have been paid and subject to the Lien provided for in Section 7.7 hereof. Notwithstanding replacement of the Trustee pursuant to this Section 7.8, the Company's obligations under Section 7.7 hereof shall continue for the benefit of the retiring Trustee. Section 7.9. SUCCESSOR TRUSTEE BY MERGER, ETC. If the Trustee consolidates, merges or converts into, or transfers all or substantially all of its corporate trust business to, another corporation that is eligible under Section 7.10 hereof, the successor corporation without any further act shall be the successor Trustee. Section 7.11. ELIGIBILITY; DISQUALIFICATION. There shall at all times be a Trustee hereunder that is a corporation organized and doing business under the laws of the United States of America or of any state thereof (including the District of Columbia) that is authorized under such laws to exercise corporate trust power, that is subject to supervision or examination by federal or state authorities and that has a combined capital and surplus of at least $100 million as set forth in its most recent published annual report of condition. 74 This Indenture shall always have a Trustee who satisfies the requirements of TIA Section. 310(a)(1), (2) and (5). The Trustee is subject to TIA Section. 310(b). Section 7.11. PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY. The Trustee is subject to TIA Ss. 311(a), excluding any creditor relationship listed in TIA Section. 311(b). A Trustee who has resigned or been removed shall be subject to TIA Section. 311(a) to the extent indicated therein. ARTICLE VIII. LEGAL DEFEASANCE AND COVENANT DEFEASANCE Section 8.1. OPTION TO EFFECT LEGAL DEFEASANCE OR COVENANT DEFEASANCE. The Company may, at the option of its Board evidenced by a resolution set forth in an Officers' Certificate, at any time, elect to have either Section 8.2 or 8.3 hereof be applied to all outstanding Notes upon compliance with the conditions set forth below in this Article VIII. Section 8.2. LEGAL DEFEASANCE AND DISCHARGE. Upon the Company's exercise under Section 8.1 hereof of the option applicable to this Section 8.2, the Company shall, subject to the satisfaction of the conditions set forth in Section 8.4 hereof, be deemed to have been discharged from its obligations with respect to all outstanding Notes on the date the conditions set forth below are satisfied (hereinafter, "LEGAL DEFEASANCE"). For this purpose, Legal Defeasance means that the Company shall be deemed to have paid and discharged the entire Indebtedness represented by the outstanding Notes, which shall thereafter be deemed to the "outstanding" only for the purposes of Section 8.5 hereof and the other Sections of this Indenture referred to in clauses (a) through (d) below, and to have satisfied all their other obligations under such Notes and this Indenture (and the Trustee, on demand of and at the expense of the Company, shall execute proper instruments acknowledging the same), except for the following provisions which shall survive until otherwise terminated or discharged hereunder: (a) the rights of Holders of outstanding Notes to receive solely from the trust fund described in Section 8.4 hereof, and as more fully set forth in such Section, payments in respect of the principal or Redemption Price of, and interest and Liquidated Damages, if any, on such Notes when such payments are due, (b) the Company's obligations with respect to such Notes under Article II and Section 4.2 hereof, (c) the rights, powers, trusts, duties and immunities of the Trustee hereunder and the Company's obligations in connection therewith, and 75 (d) this Article VIII. Subject to compliance with this Article VIII, the Company may exercise its option under this Section 8.2, notwithstanding the prior exercise of its option under Section 8.3 hereof. Section 8.3. COVENANT DEFEASANCE. Upon the Company's exercise under Section 8.1 hereof of the option applicable to this Section 8.3, the Company shall, subject to the satisfaction of the conditions set forth in Section 8.4 hereof, be released from its obligations under the covenants contained in Sections 3.9, 3.10, 4.5, 4.7 through 4.12 and 4.14 through 4.21 hereof, both inclusive, and Section 5.1(iv) and (v) with respect to the outstanding Notes on and after the date the conditions set forth below are satisfied (hereinafter, "COVENANT DEFEASANCE"), and the Notes shall thereafter be deemed not "outstanding" for the purposes of any direction, waiver, consent or declaration or act of Holders (and the consequences of any thereof) in connection with such covenants, but shall continue to be deemed "outstanding" for all other purposes hereunder (it being understood that such Notes shall not be deemed outstanding for accounting purposes). For this purpose, Covenant Defeasance means that, with respect to the outstanding Notes, the Company may omit to comply with and shall have no liability in respect of any term, condition or limitation set forth in any such covenant, whether directly or indirectly, by reason of any reference elsewhere herein to any such covenant or by reason of any reference in any such covenant to any other provision herein or in any other document, and such omission to comply shall not constitute a Default or an Event of Default under Section 6.1 hereof, but, except as specified above the remainder of this Indenture and such Notes shall be unaffected thereby. In addition, upon the Company's exercise under Section 8.1 hereof of the option applicable to this Section 8.3 hereof, subject to the satisfaction of the conditions set forth in Section 8.4 hereof, Sections 6.1(c) through 6.1(g) hereof shall not constitute Events of Default. Section 8.4. CONDITIONS TO LEGAL OR COVENANT DEFEASANCE. The following are the conditions precedent to the application of either Section 8.2 or 8.3 hereof to the outstanding Notes: In order to exercise either Legal Defeasance or Covenant Defeasance: (a) the Company must irrevocably deposit with the Trustee, in trust, for the benefit of the Holders of the Notes, cash in United States dollars, U.S. Government Securities, or a combination thereto in such amounts as will be sufficient (without reinvestment), in the opinion of a nationally recognized firm of independent public accountants, to pay the principal or Redemption Price of, and interest and Liquidated Damages, if any, on the outstanding Notes on the stated date for payment thereof or on the applicable Redemption Date, as the case may be, and the Company must specify whether the Notes are being defeased to maturity or to a particular Redemption Date; 76 (b) in the case of an election under Section 8.2 hereof, the Company shall have delivered to the Trustee an Opinion of Counsel in the United States reasonably acceptable to the Trustee confirming that (A) the Company has received from, or there has been published by, the Internal Revenue Service a ruling or (B) since the date of this Indenture, there has been a change in the applicable federal income tax law, in either case to the effect that and based thereon such Opinion of Counsel shall confirm that, the Holders of the outstanding Notes will not recognize income, gain or loss for federal income tax purposes as a result of such Legal Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Legal Defeasance had not occurred; (c) in the case of an election under Section 8.3 hereof, the Company shall have delivered to the Trustee an Opinion of Counsel in the United States reasonably acceptable to the Trustee confirming that the Holders of the outstanding Notes will not recognize income, gain or loss for federal income tax purposes as a result of such Covenant Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Covenant Defeasance had not occurred; (d) no Default or Event of Default shall have occurred and be continuing on the date of such deposit (other than a Default or Event of Default resulting from the borrowing of funds to be applied to such deposit) or insofar as Section 6.1(g) or (h) hereof is concerned, at any time in the period ending on the ninety-first day after the date of deposit (which condition shall not be deemed satisfied until such ninety-first day); (e) such Legal Defeasance or Covenant Defeasance shall not result in a breach or violation of, or constitute a default under, any material agreement or instrument to which the Company or any of its Subsidiaries is a party or by which the Company or any of its Subsidiaries is bound; (f) the Company shall deliver to the Trustee an Opinion of Counsel to the effect that after the ninety-first day following the deposit, the trust funds will not be subject to the effect of any applicable bankruptcy, insolvency, reorganization or similar laws affecting creditors' rights generally; (g) the Company shall deliver to the Trustee an Officers' Certificate stating that the deposit was not made by the Company with the intent of preferring the Holders of Notes over the other creditors of the Company, or with the intent of defeating, hindering, delaying or defrauding any creditors of the Company or others; and (h) the Company shall deliver to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that the all conditions precedent to the Legal Defeasance or Covenant Defeasance have been complied with. 77 Section 8.5. DEPOSITED MONEY AND U.S. GOVERNMENT SECURITIES TO BE HELD IN TRUST; OTHER MISCELLANEOUS PROVISIONS. Subject to Section 8.6 hereof, all money and U.S. Government Securities (including the proceeds thereof) deposited with the Trustee (or other qualifying trustee, collectively for purposes of this Section 8.5 only, the "TRUSTEE") pursuant to Section 8.4 hereof in respect of the outstanding Notes shall be held in trust and applied by the Trustee, in accordance with the provisions of such Notes and this Indenture, to the payment, either directly or through any Paying Agent (other than the Company) as the Trustee may determine, to the Holders of such Notes of all sums due and to become due thereon in respect of principal or Redemption Price of, and Liquidated Damages, if any, interest on, the Notes, that such money need not be segregated from other funds except to the extent required by law. The Company shall pay and indemnify the Trustee against any tax, fee or other charge imposed on or assessed against the cash or U.S. Government Securities deposited pursuant to Section 8.4 hereof or the principal and interest received in respect thereof other than any such tax, fee or other charge which by law is for the account of the Holders of the outstanding Notes. Anything in this Article VIIIa to the contrary notwithstanding, the Trustee shall deliver or pay to the Company from time to time upon the request of the Company any money or U.S. Government Securities held by it as provided in Section 8.4 hereof which, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee (which may be the opinion delivered under Section 8.4(a) hereof), are in excess of the amount thereof that would then be required to be deposited to effect an equivalent Legal Defeasance or Covenant Defeasance. Section 8.6. REPAYMENT TO THE COMPANY. Any money deposited with the Trustee or any Paying Agent, or then held by the Company, in trust for the payment of the principal, Redemption Price or Purchase Price of, or Liquidated Damages, if any, or interest on any Note and remaining unclaimed for two years after such amount has become due and payable shall be paid to the Company on its request or (if then held by the Company) shall be discharged from such trust; and the Holder of such Note shall thereafter look only to the Company for payment thereof as a general creditor, and all liability of the Trustee or such Paying Agent with respect to such trust money, and all liability of the Company as trustee thereof, shall thereupon cease; PROVIDED, HOWEVER, that the Trustee or such Paying Agent, before being required to make any such repayment, at the expense of the Company, may cause to be published once, in THE NEW YORK TIMES and THE WALL STREET JOURNAL (national editions), notice that such money remains unclaimed and that, after a date specified therein, which shall not be less than 30 days after the date of such notification or publication, any unclaimed balance of such money then remaining will be repaid to the Company. 78 Section 8.7. REINSTATEMENT. If the Trustee or Paying Agent is unable to apply any United States dollars or U.S. Government Securities in accordance with Section 8.2 or 8.3 hereof, as the case may be, by reason of any order of judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, then the obligations of the Company under this Indenture, and the Notes shall be revived and reinstated as though no deposit had occurred pursuant to Section 8.2 or 8.3 hereof until such time as the Trustee or Paying Agent is permitted to apply all such money in accordance with Section 8.2 or 8.3 hereof, as the case may be; PROVIDED, HOWEVER, that, if the Company makes any payment with respect to any Note following the reinstatement of its obligations, the Company shall be subrogated to the rights of the Holders of such Notes to receive such payment from the money held by the Trustee or Paying Agent. ARTICLE IX. AMENDMENT, SUPPLEMENT AND WAIVER Section 9.1 WITHOUT CONSENT OF HOLDERS OF NOTES. Notwithstanding Section 9.2 of this Indenture, the Company and the Trustee may amend or supplement this Indenture or the Notes without the consent of any Holder of a Note: (a) to cure any ambiguity, defect or inconsistency; (b) to provide for uncertificated notes in addition to or in place of certificated Notes; (c) to provide for the assumption of the Company's obligations to the Holders of the Notes in the case of a merger or consolidation pursuant to Article V hereof; (d) to make any change that would provide any additional rights or benefits to the Holders of the Notes or that does not adversely affect the legal rights hereunder of any Holder of the Notes; or (e) to comply with the requirements of the Commission in order to effect or maintain the qualification of this Indenture under the TIA. Upon the request of the Company, accompanied by a resolution of the Board (evidenced by an Officers' Certificate) authorizing the execution of any such amended or supplemental indenture, and upon receipt by the Trustee of the documents described in Section 7.2 hereof, the Trustee shall join with the Company in the execution of any amended or supplemental Indenture authorized or permitted by the terms of this Indenture and to make any further appropriate agreements and stipulations that may be therein contained, but the Trustee 79 shall not be obligated to enter into such amended or supplemental Indenture that affects its own rights, duties or immunities under this Indenture or otherwise. Section 9.2 WITH CONSENT OF HOLDERS OF NOTES. Except as provided below in this Section 9.2, the Company and the Trustee may amend or supplement this Indenture (including Sections 3.9, 3 10, 4.10, and 4.15 and Article X hereof, and including the defined terms used therein) and the Notes may be amended or supplemented with the consent of the Holders of at least a majority in principal amount of the Notes then outstanding (including, without limitation, consents obtained in connection with a tender offer or exchange offer for the Notes), and, subject to Sections 6.2, 6.4 and 6.7 hereof, any existing Default or Event of Default or compliance with any provision of this Indenture or the Notes may be waived with the consent of the Holders of a majority in principal amount of the then outstanding Notes (including consents obtained in connection with a tender offer or exchange offer for the Notes). Without the consent of the Holders of at least 75% in principal amount of the Notes then outstanding (including consents obtained in connection with a purchase of, tender offer or exchange offer for, the Notes), no waiver or amendment to this Indenture may make any change in the provisions of Article X or Sections 3.9, 3.10, 10 or 4.15, including the defined terms used therein, that adversely affects the rights of any Holder of Notes. Without the consent of each Holder affected, an amendment or waiver may not (with respect to any Notes held by a non-consenting Holder): (a) reduce the principal amount if Notes whose Holders must consent to an amendment, supplement or waiver; (b) reduce the principal, Redemption Price or Purchase Price of or change the fixed maturity of any Note or alter or waive any of the provisions with respect to the redemption of the Notes (except as provided above with respect to Sections 3.9, 3.10, 4.10 and 4.15 hereof); (c) reduce the rate of or change the time for payment of interest or Liquidated Damages, if any, on or with respect to any Note; (d) waive a Default or Event of Default in the payment of principal, Redemption Price or Purchase Price of, or interest or Liquidated Damages, if any, on the Notes (except a rescission of acceleration of the Notes by the Holders of at least a majority in aggregate principal amount of the then outstanding Notes and a waiver of the payment default that resulted from such acceleration); (e) make any Note payable in money other than that stated in the Notes; 80 (f) make any change in the provisions of this Indenture relating to waivers of past Defaults or the rights of Holders of Notes to receive payments of principal, Redemption Price or Purchase Price of, or interest or Liquidated Damages, if any, on the Notes (except as provided above with respect to Sections 3.9, 3.10, 4.10 and 4.15 hereof); (g) waive a redemption or repurchase payment with respect to any Note (except as provided above with respect to Sections 3.9, 3.10, 4.10 and 4.15 hereof); or (h) make any change in the foregoing amendment and waiver provisions. Upon the written request of the Company accompanied by a resolution of the Board (evidenced by an Officers' Certificate) authorizing the execution of any such amended or supplemental indenture, and upon the filing with the Trustee of evidence satisfactory to the Trustee of the consent of the Holders of Notes as aforesaid, and upon receipt by the Trustee of the documents described in Section 7.2 hereof, the Trustee shall join with the Company in the execution of such amended or supplemental indenture unless such amended or supplemental Indenture affects the Trustee's own rights, duties or immunities under this Indenture or otherwise, in which case the Trustee may in its discretion, but shall not be obligated to, enter into such amended or supplemental indenture. It shall not be necessary for the consent of the Holders of Notes under this Section 9.2 to approve the particular form of any proposed amendment or waiver, but it shall be sufficient if such consent approves the substance thereof. After an amendment, supplement or waiver under this Section 9.2 becomes effective, the Company shall mail to the Holders of Notes affected thereby a notice briefly describing the amendment, supplement or waiver. Any failure of the Company to mail such notice, or any defect therein, shall not, HOWEVER, in any way impair or affect the validity of any such amended or supplemental Indenture or waiver. Section 9.3 COMPLIANCE WITH TRUST INDENTURE ACT. Every amendment or supplement to this Indenture or the Notes shall be set forth in a amended or supplemental indenture that complies with the TIA as then in effect. Section 9.4 REVOCATION AND EFFECT OF CONSENTS. Until an amendment, supplement or waiver becomes effective, a consent to it by a Holder of a Note is a continuing consent by the Holder of a Note and every subsequent Holder of a Note or portion of a Note that evidences the same debt as the consenting Holder's Note, even if notation of the consent is not made on any Note. However, any such Holder of a Note or subsequent Holder of a Note may revoke the consent as to its Note if the Trustee receives written 81 notice of revocation before the date the waiver, supplement or amendment becomes effective. An amendment, supplement or waiver becomes effective in accordance with its terms and therefore binds every Holder. Section 9.5 NOTATION ON OR EXCHANGE OF NOTES. The Trustee may place an appropriate notation about an amendment, supplement or waiver on any Note thereafter authenticated. The Company in exchange for all Notes may issue and the Trustee shall authenticate new Notes that reflect the amendment, supplement or waiver. Failure to make the appropriate notation or issue a new Note shall not affect the validity and effect of such amendment, supplement or waiver. Section 9.6 TRUSTEE TO SIGN AMENDMENT, ETC. The Trustee shall sign any amended or supplemental indenture authorized pursuant to this Article IX if the amendment or supplement does not adversely affect the rights, duties, liabilities or immunities of the Trustee. The Company may not sign an amendment or supplemental Indenture until the Board approves such amendment or supplemental indenture. In executing any amended or supplemental indenture, the Trustee shall be entitled to receive, in addition to the documents required by Sections 11.4 and 11.5 hereof, and, subject to Section 7.1, shall be fully protected in relying upon, an Officer's Certificate and an Opinion of Counsel stating that (i) the execution of such amended or supplemental indenture is authorized or permitted by this Indenture, (ii) no Event of Default shall occur as a result of the execution of such Officer's Certificate or the delivery of such Opinion of Counsel and (iii) the amended or supplemental indenture complies with the terms of this Indenture. ARTICLE X. SUBORDINATION Section 10.1. NOTES SUBORDINATED TO SENIOR INDEBTEDNESS. Notwithstanding the provisions of this Agreement, but subject to this Article X, the Company covenants and agrees, and the Trustee and each Holder of the Notes by his acceptance thereof likewise covenants and agrees, that all payments on the Notes (including, without limitation, payments of the principal, Redemption Price and Purchase Price of, and interest and Liquidated Damages (if any) on, the Notes by the Company (including, without limitation, by any purchase of Notes pursuant to Section 4.10 or 4.15 hereof) shall be subordinated and subject in right of payment in accordance with the provisions of this Article X to the prior payment in full in cash or Cash Equivalents of all amounts payable under Senior Indebtedness of the Company. 82 Section 10.2. PRIORITY AND PAYMENT OVER OF PROCEEDS IN CERTAIN EVENTS. (a) SUBORDINATION ON DISSOLUTION, LIQUIDATION OR REORGANIZATION OF THE COMPANY. In the event of any insolvency or bankruptcy case proceeding, or any receivership, liquidation, reorganization or other similar case or proceeding in connection therewith, relative to the Company or its assets, or any liquidation, dissolution or other winding up of the Company, whether voluntary or involuntary, or any assignment for the benefit of creditors or other marshaling of assets or liabilities of the Company except in connection with the consolidation or merger of the Company or its liquidation or dissolution following the sale, assignment, transfer, lease or other disposition of all or substantially all of its assets in one or more related transactions, upon the terms and conditions described under Article V hereof to the extent permitted under the terms of outstanding Senior Indebtedness), all Senior Indebtedness due and owing (including, in the case of Designated Senior Indebtedness, interest and consignment fees accruing after the commencement of any such proceeding at the rate specified in the instrument evidencing the applicable Designated Senior Indebtedness, whether or not a claim therefor is allowed in such proceeding, to the date of payment of such Designated Senior Indebtedness) must be paid in full in cash or Cash Equivalents before any payment or distribution of any assets of the Company of any kind or character is made on account of the Notes (including, without limitation, the principal, Redemption Price and Purchase Price of, and interest and Liquidated Damages (if any) on, the Notes). Before any payment may be made by the Company on account of the Notes (including, without limitation, the principal, Redemption Price and Purchase Price of, and interest and Liquidated Damages (if any) on, the Notes), and upon any such dissolution or winding up or liquidation or reorganization, any payment or distribution of assets or securities of the Company of any kind or character, whether in cash, property or securities, to which the Holders or the Trustee on their behalf would be entitled, except for the provisions of this Article X, shall be made by the Company or by any receiver, trustee in bankruptcy, liquidating trustee, agent or other person making such payment or distribution, directly to the holders of the Senior Indebtedness of the Company or any Senior Representatives thereof to the extent necessary to pay all such Senior Indebtedness in full in cash or Cash Equivalents after giving effect to any concurrent payment or distribution to the holders of such Senior Indebtedness. (b) SUBORDINATION ON DEFAULT IN SENIOR INDEBTEDNESS. During the continuance of any default in the payment of any principal of, gold consignment repurchase obligation or reimbursement obligation under, or premium, if any, or interest or consignment fee on, any Senior Indebtedness (a "SENIOR PAYMENT DEFAULT"), no payment or distribution of any assets of the Company of any kind or character may be made on account of the Notes (including, without limitation, on account of the principal, Redemption Price and Purchase Price of, and interest and Liquidated Damages (if any) on the Notes unless and until such Senior Payment Default has been cured, waived or has ceased to exist or such Senior Indebtedness shall have been discharged or paid in full in 83 cash or Cash Equivalents or the right under this Indenture to prevent any such payment has been waived by or on behalf of the holders of such Senior Indebtedness. During the continuance of any event (other than a Senior Payment Default), the occurrence of which entitles one or more Persons to accelerate the maturity of any Designated Senior Indebtedness (a "SENIOR COVENANT DEFAULT"), and the receipt by the Trustee from the Senior Representative for such Designated Senior Indebtedness of a written notice of such Senior Covenant Default, no payment or distribution of any assets of the Company of any kind or character may be made by the Company on account of Notes for the period specified below (a "PAYMENT BLOCKAGE PERIOD"). A Payment Blockage Period shall commence upon the receipt by the Trustee of notice from a Senior Representative for Designated Senior Indebtedness of a Senior Covenant Default and shall end (subject to any blockage of payment that may be in effect in respect of a Senior Payment Default or insolvency) on the earliest of (i) 179 days after the receipt of such notice, PROVIDED such Designated Senior Indebtedness shall not theretofore have been accelerated and no Senior Payment Default shall be in effect; (ii) the date on which such Senior Covenant Default is cured, waived or ceases to exist or such Designated Senior Indebtedness is discharged or paid in full in cash or Cash Equivalents; or (iii) the date on which such Payment Blockage Period shall have been terminated by written notice to the Company and the Trustee from the Senior Representative initiating such Payment Blockage Period or the holders of at least a majority in principal amount of such issue of Designated Senior Indebtedness, after which the Company shall promptly resume making any and all required payments in respect of the Notes, including any missed payments. In no event will a Payment Blockage Period extend beyond 179 days from the date of the receipt by the Trustee of the notice initiating such Payment Blockage Period. Any number of notices of a Senior Covenant Default may be given during a Payment Blockage Period; PROVIDED, that no such notice shall extend such Payment Blockage Period, only one Payment Blockage Period may be commenced within any 360-day period and there shall be at least 181 consecutive days in each period of 360 consecutive clays when no Payment Blockage Period is in effect. No Senior Covenant Default with respect to Designated Senior Indebtedness that existed or was continuing on the date of the commencement of any Payment Blockage Period and that was known to the holders of or the Senior Representative for such Designated Senior Indebtedness will be, or can be, made the basis for the commencement of a second Payment Blockage Period, whether or not within a period of 360 consecutive days, unless such Senior Covenant Default has been cured or waived for a period of not less than 90 consecutive days. The Company shall deliver a notice to the Trustee promptly after the date on which any Senior Covenant Default is cured or waived or ceases to exist or on which the Designated Senior Indebtedness related thereto is discharged or paid in full in cash or Cash Equivalents. (c) RIGHTS AND OBLIGATIONS OF HOLDERS OF NOTES AND TRUSTEE. In the event that, notwithstanding the foregoing provisions prohibiting such payment or 84 distribution, the Trustee or any Holder shall have received any payment on account of the Notes (including, without limitation, the principal, Redemption Price or Purchase Price of, or interest or Liquidated Damages (if any) on, the Notes) (other than as permitted by subsections (a) and (b) of this Section 10.2) at a time when such payment is prohibited by this Section 10.2 and before the Senior Indebtedness is paid in full in cash or Cash Equivalents, then and in such event (subject to the provisions of Section 10.8) such payment or distribution shall be received and held in trust for the holders of Senior Indebtedness and shall be paid over or delivered to the Senior Representative of Designated Senior Indebtedness in the case of Designated Senior Indebtedness and to the holders of the Senior Indebtedness in the case of Senior Indebtedness which is not Designated Senior Indebtedness, in each case remaining unpaid at their written direction to the extent necessary to pay such Senior Indebtedness in full in cash or Cash Equivalents in accordance with its terms after giving effect to any concurrent payment or distribution to the holders of such Senior Indebtedness. Nothing contained in this Article X will limit the right of the Trustee or the Holders of Notes to take any action to accelerate the maturity of the Notes pursuant to Section 6.2 or to pursue any rights or remedies hereunder against the Company; PROVIDED that, to the extent provided in this Article X, all Senior Indebtedness; of the Company then or thereafter due or declared to be due shall first be paid in full in cash before the Holders or the Trustee are entitled to receive any payment from the Company on account of the Notes (including, without limitation, the principal, Redemption Price or Purchase Price of, or interest or Liquidated Damages (if any) on, the Notes). Upon any payment or distribution of assets or Notes referred to in this Article X, the Trustee and the Holders shall be entitled to rely upon any order or decree of a court of competent jurisdiction in which such dissolution, winding up, liquidation or reorganization proceedings are pending, and upon a certificate of the receiver, trustee in bankruptcy, liquidating trustee, agent or other person making any such payment or distribution, delivered to the Trustee for the purpose of ascertaining the persons entitled to participate in such distribution, the holders of Senior Indebtedness and other Indebtedness of the Company, the amount thereof or payable thereon, the amount or amounts paid or distributed thereon and all other facts pertinent thereto or to this Article X. Section 10.3. PAYMENTS MAY BE MADE PRIOR TO DISSOLUTION. Nothing contained in this Article X or elsewhere in this Indenture shall prevent (i) the Company, except under the conditions described in Section 10.2, from making payments at any time for the purpose of making such payments of principal, Redemption Price or Purchase Price of, or interest or Liquidated Damages (if any) on, the Notes, or from depositing with the Trustee any monies for such payments or (ii) the application by the Trustee of any monies deposited with it for the purpose of making such payments of principal, Redemption Price or Purchase Price of, or interest or Liquidated Damages (if any) on, the Notes, to the Holders entitled thereto unless at least three Business Days prior to the date upon which such payment 85 would otherwise (except for the prohibitions contained in Section 10.2) become due and payable, the Trustee shall have received the written notice provided for in Section 10.2(b) (or there shall have been an acceleration of the Notes prior to such application) or in Section 10.8). Section 10.4. RIGHTS OF HOLDERS OF SENIOR INDEBTEDNESS NOT TO BE IMPAIRED. No right of any present or future holder of any Senior Indebtedness to enforce subordination as herein provided shall at any time in any way be prejudiced or impaired by any act or failure to act in good faith by any such holder, or by any noncompliance by the Company, with the terms and provisions and covenants herein regardless of any knowledge thereof any such holder may have or otherwise be charged with. The provisions of this Article X are intended to be for the benefit of, and shall be enforceable directly by, the holders of Senior Indebtedness. Section 10.5. AUTHORIZATION TO TRUSTEE TO TAKE ACTION TO EFFECTUATE SUBORDINATION. Each Holder of Notes by his acceptance thereof authorizes and directs the Trustee on his behalf to take such action as may be necessary or appropriate to effectuate, as between the holders of Senior Indebtedness and the Holders, the subordination as provided in this Article X and appoints the Trustee his attorney-in-fact for any and all such purposes. Whenever a distribution is to be made or a notice given to holders of Senior Indebtedness, the distribution or notice may be made to the representatives and agents of such holders of Senior Indebtedness as such agents or representatives are identified by such holders in writing to the Trustee. Each Holder of Notes by his acceptance thereof authorizes and directs the Trustee on his behalf to take such action as may be necessary or appropriate to effectuate, as between the Holders and the holders of Indebtedness that is subordinate to the Notes, the subordination provisions of all Indebtedness subordinate to the Notes, and appoints the Trustee his attorney-in-fact for any and all such purposes. Whenever a distribution is to be made or a notice given to holders of Indebtedness that is subordinate to the Notes, the distribution or notice may be made to the representatives and agents of such holders of indebtedness that is subordinate to the Notes as such agents and representatives are identified by such holders in writing to the Trustee. Section 10.6. SUBROGATION. Subject to the payment in full of all amounts payable under or in respect of Senior Indebtedness, the Holders shall be subrogated to the rights of the holders of such Senior Indebtedness to receive payments or distributions or assets of the Company made on such Senior Indebtedness until the Notes shall be paid in full in cash; and for the purposes of such subrogation, no payments or distributions to holders of such Senior Indebtedness of any cash, property or securities to which Holders of the Notes would be entitled except for the provisions of this Article X, and no payment pursuant to the provisions of this Article X to holders of such Senior Indebtedness by the Holders, shall, as between the Company, its creditors other than 86 holders of such Senior Indebtedness and the Holders, be deemed to be a payment by the Company to or on account of such Senior Indebtedness, it being understood that the provisions of this Article X are solely for the purpose of defining the relative rights of the holders of such Senior Indebtedness, on the one hand, and the Holders, on the other hand. If any payment or distribution to which the Holders would otherwise have been entitled but for the provisions of this Article X shall have been applied, pursuant to the provisions of this Article X, to the payment of all amounts payable under the Senior Indebtedness, then and in such case, the Holders shall be entitled to receive from the holders of such Senior Indebtedness at the time outstanding any payments or distributions received by such holders of Senior Indebtedness in excess of the amount sufficient to pay all amounts payable under or in respect of such Senior Indebtedness in full. Section 10.7. OBLIGATIONS OF COMPANY UNCONDITIONAL. Nothing contained in this Article X or elsewhere in this Indenture or in any Note is intended to or shall impair, as between the Company and the Holders, the obligations of the Company, which are absolute and unconditional to pay to the Holders the principal, Redemption Price or Purchase Price of, or interest or Liquidated Damages (if any) on, the Notes as and when the same shall become due and payable in accordance with their terms, or is intended to or shall affect the relative rights of the Holders and creditors, of the Company other than the holders of the Senior Indebtedness, nor shall anything herein or therein prevent the Trustee or any Holder from exercising all remedies otherwise permitted by applicable law upon Default under this Indenture, subject to the rights, if any, under this Article X of the holders of such Senior Indebtedness in respect of cash, property or Notes of the Company received upon the exercise of any such remedy. The failure to make a payment on account of principal, Redemption Price or Purchase Price of, or interest or Liquidated Damages (if any) on, the Notes by reason of any provision of this Article X shall not be construed as preventing the occurrence of an Event of Default under Section 6.1. Section 10.8. THE TRUSTEE ENTITLED TO ASSUME PAYMENTS NOT PROHIBITED IN ABSENCE OF NOTICE. The Trustee or Paying Agent shall not at any time be charged with the knowledge of the existence of any facts which would prohibit the making of any payment to or by the Trustee or Paying Agent, unless and until the Trustee or Paying Agent shall have received written notice thereof from the Company or one or more holders of Senior Indebtedness or from any trustee or agent therefor; and, prior to the receipt of any such written notice, the Trustee or Paying Agent shall be entitled to assume conclusively that no such facts exist. Unless at least three Business Days prior to the date on which by the terms of this Indenture any monies are to be deposited by the Company with the Trustee or any Paying Agent (whether or not in trust) for any purpose (including, without limitation, the payment of the principal, Redemption Price or Purchase Price of, or interest or Liquidated Damages (if any) on, any Note), the Trustee or 87 Paying Agent shall have received with respect to such monies the notice provided for in the preceding sentence, the Trustee or Paying Agent shall have full power and authority to receive such monies and to apply the same to the purpose for which they were received, and shall not be affected by any notice to the contrary which may be received by it on or after such date, except for an acceleration of the Notes prior to such application. The foregoing shall not apply to the Paying Agent if the Company is acting as Paying Agent. Nothing contained in this Section 10.8 shall limit the right of the holders of Senior Indebtedness to recover payments as contemplated by Section 10.2. The Trustee shall be entitled to rely on the delivery to it of a written notice by a person representing himself or itself to be a holder of such Senior Indebtedness (or a trustee on behalf of, or other agent of, such holder) to establish that such notice has been given by a holder of such Senior Indebtedness or a trustee or agent on behalf of any such holder. Nothing in this Article X shall apply to amounts due the Trustee pursuant to Section 7.7 herein. Section 10.9. RIGHT OF TRUSTEE TO HOLD SENIOR INDEBTEDNESS. The Trustee and any agent for the holders or Senior Indebtedness shall be entitled to all of the rights set forth in this Article X in respect of any Senior Indebtedness at any time held by it to the same extent as any other holder of such Senior Indebtedness, and nothing in this Indenture shall be construed to deprive the Trustee or any agent for the holders of Senior Indebtedness of any of its rights as such holder. Section 10.10. NO IMPLIED COVENANTS BY OR OBLIGATIONS OF THE TRUSTEE. With respect to the holders of Senior Indebtedness, the Trustee undertakes to perform or to observe only such of its covenants and obligations as are specifically set forth in this Article X, and no implied covenants or obligations with respect to the holders of Senior Indebtedness shall be read into this Article X against the Trustee. The Trustee shall not be deemed to have any fiduciary duty to the holders of the Senior Indebtedness. ARTICLE XI. MISCELLANEOUS Section 11.1. TRUST INDENTURE ACT CONTROLS. If any provision hereof limits, qualifies or conflicts with a provision of the TIA or another provision that would be required or deemed under such Act to be part of and govern this Indenture if this Indenture were subject thereto, the latter provision shall control. If any provision of this Indenture modifies or excludes any provision of the TIA that may be so modified or excluded, the latter provision shall be deemed to apply to this Indenture as so modified or to be excluded, as the case may be. 88 Section 11.2. NOTICES. Any notice or communication by the Company or the Trustee to others is duly given if in writing and delivered in Person or mailed by first class mail (registered or certified, return receipt requested), telex, telecopier or overnight air courier guaranteeing next day delivery, to the others' address: If to the Company: Scholastic Brands, Inc. 7211 Circle S Road Austin, Texas 78745-6603 Attention: Jeffrey H. Brennan Fax: (512) 443-5213 With a copy to: Schulte Roth & Zabel LLP 900 Third Avenue New York, New York 10022 Attention: Janet C. Walden Fax: (212) 593-5955 If to the Trustee: Marine Midland Bank Attention: Corporate Trust Administration 140 Broadway, 12th Floor New York, New York 10005-1180 Fax: (212) 658-6425 The Company or the Trustee, by notice to the others may designate additional or different addresses for subsequent notices or communications. All notices and communications (other than those sent to Holders) shall be deemed to have been duly given: at the time delivered by hand, if personally delivered; five Business Days after being deposited in the mail, postage prepaid, if mailed; when answered back, if telexed; when receipt acknowledged, if telecopied; and the next Business Day after timely delivery to the courier, if sent by overnight air courier guaranteeing next day delivery. Any notice or communication to a Holder shall be mailed by first class mail, certified or registered, return receipt requested, or by overnight air courier guaranteeing next day delivery to its address shown on the register kept by the Registrar. Any notice or communication shall also be so mailed to any Person described in TIA Section 313(c), to the extent required by the 89 TIA. Failure to mail a notice or communication to a Holder or any defect in it shall not affect its sufficiency with respect to other Holders. If a notice or communication is mailed in the manner provided above within the time prescribed, it is duly given, whether or not the address receives it. If the Company mails a notice or communication to Holders, it shall mail a copy to the Trustee and each Agent at the same time. Section 11.3. COMMUNICATION BY HOLDERS OF NOTES WITH OTHER HOLDERS OF NOTES. Holders may communicate pursuant to TIA Section. 312(b) with other Holders with respect to their rights under this Indenture or the Notes. The Company, the Trustee, the Registrar and anyone else shall have the protection of TIA Section. 312(c). Section 11.4. CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT. Upon any request or application by the Company and/or any Subsidiary Guarantor to the Trustee to take any action under this Indenture, the Company and/or any Subsidiary Guarantor shall furnish to the Trustee: (a) an Officers' Certificate in form and substance reasonably satisfactory to the Trustee (which shall include the statements set forth in Section 11.5 hereof) stating that, in the opinion of the signers, all conditions precedent and covenants, if any, provided for in this Indenture relating to the proposed action have been satisfied; and (b) an Opinion of Counsel in form and substance reasonably satisfactory to the Trustee (which shall include the statements set forth in Section 11.5 hereof) stating that, in the opinion of such counsel, all such conditions precedent and covenants have been satisfied. Section 11.5. STATEMENTS REQUIRED IN CERTIFICATE OR OPINION. Each certificate or opinion with respect to compliance with a condition or covenant provided for in this Indenture (other than a certificate provided pursuant to TIA Section. 314(a)(4)) shall comply with the provisions of TIA Section. 314(e) and shall include: (a) a statement that the Person making such certificate or opinion has read such covenant or condition; (b) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based; 90 (c) a statement that, in the opinion of such Person, he or she has made such examination or investigation as is necessary to enable him to express an informed opinion as to whether or not such covenant or condition has been satisfied; and (d) a statement as to whether or not, in the opinion of such Person, such condition or covenant has been satisfied. Section 11.6. RULES BY TRUSTEE AND AGENTS. The Trustee may make reasonable rules for action by or at a meeting of Holders. The Registrar or Paying Agent may make reasonable rules and set reasonable requirements for its functions. Section 11.7. NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS. No past, present or future director, officer, employee, incorporator or stockholder of the Company, as such, shall have any liability for any obligations of the Company under the Notes or this Indenture, or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder of Notes by accepting a Note waives and releases all such liability. The waiver and release are part of the consideration for issuance of the Notes. Section 11.8. GOVERNING LAW; SUBMISSION TO JURISDICTION; WAIVER OF JURY TRIAL. THIS INDENTURE, THE SUBSIDIARY GUARANTEES AND THE NOTES SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, INCLUDING SECTION 5-1401 OF THE GENERAL OBLIGATION LAW, BUT OTHERWISE WITHOUT REGARD TO CONFLICT OF LAW RULES. THE COMPANY AND EACH SUBSIDIARY GUARANTOR HEREBY IRREVOCABLY SUBMITS TO THE JURISDICTION OF ANY NEW YORK STATE COURT SITTING IN THE BOROUGH OF MANHATTAN IN THE CITY OF NEW YORK OR ANY FEDERAL COURT SITTING IN THE BOROUGH OF MANHATTAN IN THE CITY OF NEW YORK IN RESPECT OF ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS INDENTURE, THE SUBSIDIARY GUARANTEES AND THE NOTES, AND IRREVOCABLY ACCEPTS FOR ITSELF AND IN RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, JURISDICTION OF THE AFORESAID COURTS. THE COMPANY AND EACH SUBSIDIARY GUARANTOR IRREVOCABLY WAIVES, TO THE FULLEST EXTENT THAT IT MAY EFFECTIVELY DO SO UNDER APPLICABLE LAW, TRIAL BY JURY AND ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT AND ANY CLAIM THAT ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. NOTHING HEREIN SHALL AFFECT THE RIGHT OF THE TRUSTEE OR ANY HOLDER OF THE NOTES TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO COMMENCE 91 LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST THE COMPANY OR ANY SUBSIDIARY GUARANTOR IN ANY OTHER JURISDICTION. Section 11.9. NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS. This Indenture may not be used to interpret any other indenture, loan or debt agreement of the Company or its Subsidiaries or of any other Person. Any such indenture, loan or debt agreement may not be used to interpret this Indenture. Section 11.10. SUCCESSORS. All agreements of the Company in this Indenture and the Notes shall bind their successors. All agreements of the Trustee in this Indenture shall bind its successors. Section 11.11. SEVERABILITY. In case any provision in this Indenture or in the Notes shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. Section 11.12. COUNTERPART ORIGINALS. The parties may sign any number of copies of this Indenture. Each signed copy shall be an original, but all of them together represent the same agreement. Section 11.13. TABLE OF CONTENTS, HEADINGS, ETC. The Table of Contents, Cross-Reference Table and Headings of the Articles and Sections of this Indenture, which have been inserted for convenience of reference only, are not to be considered a part of this Indenture and shall in no way modify or restrict any of the terms or provisions hereof. Section 11.14. QUALIFICATION OF INDENTURE. The Company shall qualify this Indenture under the TIA in accordance with the terms and conditions of the Registration Rights Agreement and shall pay all reasonable costs and expenses (including attorneys' fees for the Company, the Trustee and the Holders of the Notes) incurred in connection therewith, including, but not limited to, costs and expenses of qualification of the Indenture and the Notes and printing this Indenture and the Notes. The Trustee shall be entitled to receive from the Company any such Officers' Certificates, Opinions of Counsel or other documentation as it may reasonably request in connection with any such qualification of this Indenture under the TIA. [Signatures on following page] 92 SIGNATURES SCHOLASTIC BRANDS, INC. By: ------------------------- Name: Title: By: ------------------------- Name: Title: MARINE MIDLAND BANK, As TRUSTEE By: ------------------------- Name: Title: 93 EXHIBIT A FORM OF NOTE (Face of Note) SCHOLASTIC BRANDS, INC. 11% SENIOR SUBORDINATED NOTE DUE 2007 [THIS NOTE IS A GLOBAL NOTE WITHIN THE MEANING OF THE INDENTURE HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITARY OR A NOMINEE OF A DEPOSITARY OR A SUCCESSOR DEPOSITARY. THIS NOTE IS NOT EXCHANGEABLE FOR NOTES REGISTERED IN THE NAME OF A PERSON OTHER THAN THE DEPOSITARY OR ITS NOMINEE EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE, AND NO TRANSFER OF THIS SECURITY (OTHER THAN A TRANSFER OF THIS SECURITY AS A WHOLE BY THE DEPOSITARY TO ANYONE OF THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR ANOTHER NOMINEE OF THE DEPOSITARY) MAY BE REGISTERED EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE. UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS 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.](1) [THE NOTE (OR ITS PREDECESSOR) EVIDENCED HEREBY HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR ANY STATE SECURITIES LAWS, AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE. BY ITS ACQUISITION HEREOF, THE HOLDER: (1) REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) OR (B) IT IS AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(a)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT) (AN "INSTITUTIONAL ACCREDITED INVESTOR") OR (C) IT IS NOT A U.S. PERSON AND IS ACQUIRING THE NOTE EVIDENCED HEREBY IN AN OFFSHORE TRANSACTION; (2) AGREES THAT IT WILL NOT RESELL OR OTHERWISE - ---------- (1) To be included only if the Note is issued in global form. A-1 TRANSFER THE NOTE EVIDENCED HEREBY EXCEPT (A) TO THE COMPANY OR ANY SUBSIDIARY THEREOF, (B) INSIDE THE UNITED STATES TO A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT, (C) INSIDE THE UNITED STATES TO AN INSTITUTIONAL ACCREDITED INVESTOR OR A PURCHASER WHO IS NOT A U.S. PERSON THAT, PRIOR TO SUCH TRANSFER, FURNISHES TO THE COMPANY AND MARINE MIDLAND BANK, AS TRUSTEE (OR A SUCCESSOR TRUSTEE, AS APPLICABLE), A SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE RESTRICTIONS ON TRANSFER OF THE NOTE EVIDENCED HEREBY (THE FORM OF WHICH LETTER CAN BE OBTAINED FROM SUCH TRUSTEE OR A SUCCESSOR TRUSTEE, AS APPLICABLE), (D) OUTSIDE THE UNITED STATES IN COMPLIANCE WITH RULE 904 UNDER THE SECURITIES ACT, (E) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144A UNDER THE SECURITIES ACT (IF AVAILABLE) OR IN ACCORDANCE WITH ANOTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, OR (F) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT, AND, IN EACH CASE, IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OR ANY OTHER APPLICABLE JURISDICTION; AND (3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THE NOTE EVIDENCED HEREBY IS TRANSFERRED NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IF THE PROPOSED TRANSFER IS PURSUANT TO CLAUSE (C), (D) OR (E) ABOVE, THE HOLDER MUST, PRIOR TO SUCH TRANSFER, FURNISH TO THE COMPANY AND MARINE MIDLAND BANK, AS TRUSTEE (OR A SUCCESSOR TRUSTEE, AS APPLICABLE), SUCH CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS IT MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION," "UNITED STATES" AND "U.S. PERSON" HAVE THE MEANINGS GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES ACT.](2) - ---------- (2) To be included on the Senior Subordinated Notes and omitted from the New Senior Subordinated Notes A-2 SCHOLASTIC BRANDS, INC. 11% SENIOR SUBORDINATED NOTE DUE 2007 CUSIP No. _________________________ No. $ _______________________ _________________________ Interest Payment Dates: January 15 and July 15 Record Dates: January 1 and July 1 SCHOLASTIC BRANDS, INC., a Delaware corporation (the "COMPANY," which term includes any successor corporation under the indenture hereinafter referred to ), for value received promises to pay to ____________________________________________________ or registered assigns, the principal sum of _____________________ Dollars on January 15, 2007. Reference is hereby made to the further provisions of this Note set forth on the reverse hereof, which further provisions shall for all purposes have the same effect as set forth at this place. Unless the certificate of authentication hereon has been executed by the Trustee referred to on the reverse hereof by manual signature, this Note shall not be entitled to any benefits under the Indenture referred to on the reverse hereof or be valid or obligatory for any purpose. IN WITNESS WHEREOF, the Company has caused this Note to be duly executed under its corporate seal. [SEAL] Dated: SCHOLASTIC BRANDS, INC. By: --------------------------- Name: Title: By: --------------------------- Name: Title: This is one of the Notes referred to in the within-mentioned Indenture: MARINE MIDLAND BANK, as Trustee By: ----------------------------------------- Name: Title: A-3 (Back of Note) 11% Senior Subordinated Notes due 2007 Capitalized terms used herein shall have the meanings assigned to them in the Indenture referred to below unless otherwise indicated. 1. INTEREST. The Company promises to pay interest on the principal amount of this Note at the rate of 11% per annum from the date of original issuance until maturity and shall pay the Liquidated Damages payable pursuant to Section 5 of the Registration Rights Agreement referred to below. The Company will pay interest and Liquidated Damages semi-annually on January 15 and July 15 of each year, or if any such day is not a Business Day, on the next succeeding Business Day (each an "INTEREST PAYMENT DATE"). Interest on the Note will accrue from the most recent date to which interest has been paid or, if no interest has been paid, from the date of issuance; PROVIDED that if there is no existing Default in the payment of interest, and if this Note is authenticated between a record date referred to on the face hereof and the next succeeding Interest Payment Date, interest shall accrue from such next succeeding Interest Payment Date; PROVIDED, FURTHER, that the first Interest Payment Date shall be July 15, 1997. The Company shall pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue payments of the principal, Purchase Price and Redemption Price of this Note from time to time on demand at a rate that is 1% per annum in excess of the rate then in effect; it shall pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue installments of interest and Liquidated Damages, if any, (without regard to any applicable grace periods) hereon from time to time on demand at the same rate to the extent lawful. Interest will be computed on the basis of a 360-day year of twelve 30-day months. 2. METHOD OF PAYMENT. The Company will pay interest on the Notes (except defaulted interest) and Liquidated Damages, if any, to the Persons who are registered Holders of Notes at the close of business on the January 1 or July 1 next preceding the Interest Payment Date, even if such Notes are canceled after such record date and on or before such Interest Payment Date, except as provided in Section 2.12 of the Indenture with respect to defaulted interest. Any such installment of interest or Liquidated Damages, if any, not punctually paid or duly provided for shall forthwith cease to be payable to the registered Holders on such Interest Payment Date, and may be paid to the registered Holders at the close of business on a special interest payment date to be fixed by the Trustee for the payment of such defaulted interest, notice whereof shall be given to the registered Holders not less than 10 days prior to such special interest payment date, or may be paid at any time in any other lawful manner not inconsistent with the requirements of any securities exchange on which the Notes may be listed, and upon such notice as may be required by such exchange, all as more fully provided in the Indenture. The Notes will be payable as to principal, Redemption Price, Purchase Price, interest and Liquidated Damages, if any, at the office or agency of the Company maintained for such purpose within or without the City and State of New York, or, at the option of the Company, payment of interest and Liquidated Damages may be made by check mailed to the Holders at their add set A-4 forth in the register of Holders, PROVIDED that payment by wire transfer of immediately available funds will be required with respect to principal, Redemption Price and Purchase Price of, and interest and Liquidated Damages (if any) on, all Global Notes and all other Notes the Holders of which shall have provided wire transfer instructions to the Trustee or the Paying Agent. Such payment shall be in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts. 3. PAYING AGENT AND REGISTRAR. Initially, Marine Midland Bank, the Trustee under the Indenture, will act as Paying Agent and Registrar. The Company may change any Paying Agent or Registrar without notice to any Holder. The Company may act in any such capacity. 4. INDENTURE. The Company issued the Notes under an Indenture dated as of December 16, 1996 (the "INDENTURE") between the Company and the Trustee. The terms of the Notes include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939, as amended (15 U.S.C. Code Sections 77aaa-77bbbb). The Notes are subject to all such terms, and Holders are referred to the IndentUre and such Act for a statement of such terms. The Notes are general obligations of the Company limited to $90 million in aggregate principal amount. 5. OPTIONAL REDEMPTION. The Company may redeem any or all of the Notes at any time on or after January 15, 2002, upon not less than 30 nor more than 60 days' prior notice in amounts of $1,000 or an integral multiple thereof at the Redemption Prices (expressed as a percentage of the principal amount) set forth below, if redeemed during the 12-month period beginning January 15 of the years indicated below:
YEAR REDEMPTION PRICE 2002..................................................105.500% 2003..................................................103.667% 2004..................................................101.833% 2005 and thereafter...................................100.000%
in each case together with accrued and unpaid interest and Liquidated Damages, if any, to the Redemption Date. If less than all the Notes are to be redeemed, the Trustee will select the particular Notes or portions thereof to be redeemed by lot, PRO RATA or by any other method the Trustee shall deem fair and reasonable. 6. SPECIAL REDEMPTION. In the event the Company completes one or more Public Equity Offerings on or before January 15, 2000, the Company, in its discretion, may use the net cash proceeds from any such Public Equity Offering to redeem up to 33-1/3% of the A-5 original principal amount of the Notes (a "SPECIAL REDEMPTION") at a Redemption Price of 111% of the principal amount, together with accrued and unpaid interest and Liquidated Damages (if any), to the date of redemption, PROVIDED, HOWEVER, that at least 66-2/3% of the original principal amount of the Notes will remain outstanding immediately after each such redemption; and PROVIDED, FURTHER, that each such redemption shall occur within 90 days after the date of the closing of the applicable Public Equity Offering. If less than all the Notes are to be redeemed, the Trustee will select the particular Notes or portions thereof to be redeemed by lot, PRO RATA or by any other method the Trustee shall deem fair and reasonable. 7. MANDATORY REDEMPTION. Except as set forth in Paragraph 9 below with respect to repurchases of Notes in certain events, the Company shall not be required to make mandatory redemption payments with respect to the Notes. 8. NOTICE OF REDEMPTION. Subject to the provisions of the Indenture, a notice of redemption will be mailed at least 30 days but not more than 60 days before the Redemption Date to each Holder whose Notes are to be redeemed at its registered address. Notes in denominations larger than $1,000 may be redeemed in part but only in whole multiples of $1,000, unless all of the Notes held by a Holder are to be redeemed. On and after the redemption date interest ceases to accrue on Notes or portions thereof called for redemption. 9. REPURCHASE AT OPTION OF HOLDER. (a) If there is a Change of Control, the Company shall be required to make an offer (a "CHANGE OF CONTROL OFFER") to repurchase all or any part (equal to $1,000 or an integral multiple thereof) of each Holder's Notes at a Purchase Price equal to 101% of the principal amount thereof PLUS accrued and unpaid interest and Liquidated Damages, if any, to the date of repurchase, in accordance with the procedures set forth in the Indenture. Within 30 days following any Change of Control, the Company shall mail a notice to each Holder setting forth the procedures governing the Change of Control Offer as required by the Indenture. (b) If the Company or a Subsidiary consummates any Asset Sale, within 30 days after each date on which the aggregate amount of Excess Proceeds exceeds $5.0 million, the Company shall commence an offer to all Holders of Notes (as "ASSET SALE OFFER") pursuant to Section 3.10 of the Indenture to repurchase the maximum principal amount of Notes that may be purchased out of the Excess Proceeds at a Purchase Price equal to 100% of the principal amount thereof PLUS accrued and unpaid interest and Liquidated Damages, if any, to the date of repurchase, in accordance with the procedures set forth in the Indenture. To the extent that the aggregate principal amount of Notes tendered pursuant to an Asset Sale Offer is less than the Excess Proceeds, the Company (or such Subsidiary) may use such balance for general corporate purposes. If the aggregate principal amount of Notes tendered by Holders thereof exceeds the amount of Excess Proceeds, the Trustee shall select the Notes or portions thereof to be purchased A-6 on a PRO RATA basis (with such adjustments as may be deemed appropriate by the Trustee so that only Notes in denominations of $1,000, or integral multiples thereof, are purchased). Holders of Notes will receive an Asset Sale Offer from the Company prior to any related purchase date and may elect to have such Notes purchased by completing the form entitled "Option of Holder to Elect Purchase" below. 10. SUBORDINATION. The Notes are subordinated to the prior payment in full cash or Cash Equivalents of all Senior Indebtedness which includes, among other things, the principal, Redemption Price and Purchase Price of, and interest and Liquidated Damages (if any) on, any Indebtedness of the Company (including without limitation, the purchase of any Notes pursuant to Section 4.10 or 4.15 of the Indenture), whether outstanding on the date of the Indenture or thereafter created, incurred or assumed, unless, in the case of any particular Indebtedness, the instrument creating or evidencing, or the agreement governing, such Indebtedness or pursuant to which such Indebtedness is outstanding expressly provides that such Indebtedness shall not be senior in right of payment to the Notes. To the extent provided in the Indenture, Senior Indebtedness must be paid before the Notes may be paid. The Company agrees, and each Holder by accepting a Note agrees, to the subordination and authorizes the Trustee to give it effect. 11. DENOMINATIONS, TRANSFER, EXCHANGE. The Notes are in registered form without coupons in denominations of $1,000 and integral multiples of $1,000. The transfer of Notes may be registered and Notes may be exchanged as provided in the Indenture. The Registrar and the Trustee may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and the Company may require a Holder to pay any taxes and fees required by law or permitted by the Indenture. The Company need not exchange or register the transfer of any Note or portion of a Note selected for redemption, except for the unredeemed portion of any Note being redeemed in part. Also, it need not exchange or register the transfer of any Notes for a period of 15 days before a selection of Notes to be redeemed or during the period between a record date and the corresponding Interest Payment Date. 12. PERSONS DEEMED OWNERS. The registered Holder of a Note may be treated as its owner for all purposes. 13. AMENDMENT, SUPPLEMENT AND WAIVER. Subject to certain exceptions, the Indenture and the Notes may be amended or supplemented with the consent of the Holders of at least a majority in principal amount of the then outstanding Notes, and any existing default or compliance with any provision of the Indenture or the Notes may be waived with the consent of the Holders of a majority in principal amount of the then outstanding Notes. Without the consent of any Holder of a Note, the Indenture and the Notes may be amended or supplemented to cure any ambiguity, defect or inconsistency, to provide for uncertificated Notes in addition to or in place of certificated Notes, to provide for the assumption of the Company's obligations to Holders of the Notes in case of a merger or consolidation, to make any change that would provide any additional rights or benefits to the Holders of the Notes or that does not adversely affect the legal rights under the Indenture of any such Holder, or to comply with the A-7 requirements of the Commission in order to effect or maintain the qualification of the Indenture under the Trust Indenture Act. 14. DEFAULTS AND REMEDIES. Events of Default include: (i) default for 30 days in the payment when due of interest or Liquidated Damages, if any, on the Notes; (ii) default in payment when due of principal, Redemption Price or Purchase Price of the Notes when the same becomes due and payable at maturity, upon redemption, repurchase or otherwise; (iii) failure by the Company to comply with Section 3.9, 3.10, 4.15 or 5.1 of the Indenture, or fails to make an Asset Sale Offer when and as required by Section 4.10 of the Indenture; (iv) failure by the Company to comply with Sections 4.7 or 4.9 of the Indenture for 30 days after notice to the Company by the Trustee or the Holders of at least 25% of the aggregate principal amount of the Notes outstanding; (v) failure by the Company for 60 days after notice to the Company to comply with certain other agreements in the Indenture or the Notes by the Trustee or the Holders of at least 25% of the aggregate principal amount of the Notes outstanding; (vi) default under certain other agreements relating to Indebtedness of the Company which default (a) is caused by a failure to pay any amount due at the stated maturity thereof (a "PAYMENT DEFAULT") or (b) results in the acceleration of such Indebtedness prior to its express maturity and, in each case, the principal amount of such Indebtedness, together with the principal amount of any other such Indebtedness under which there has been a Payment Default or the maturity of which has been so accelerated, aggregates $5.0 million or more; (vii) certain final judgments for the payment of money that remain undischarged for a period of 60 days, PROVIDED that the aggregate of all such undischarged judgments exceeds $5.0 million; and (viii) certain events of bankruptcy or insolvency with respect to the Company any Significant Subsidiary of the Company or any group of Subsidiaries of the Company that, taken together, would constitute a Significant Subsidiary. If any Event of Default occurs and is continuing, the Trustee or the Holders of at least 25% in principal amount of the then outstanding Notes may declare all the Notes to be due and payable immediately. Upon any such declaration, the entire principal amount of, and accrued and unpaid interest and Liquidated Damages, if any, on the Notes (i) shall become immediately due and payable; or (ii) if there is any Designated Senior Indebtedness outstanding, shall become due and payable upon the first to occur of (a) an acceleration under such Designated Senior Indebtedness or (b) five days after receipt by the Company and the Senior Representative for such Designated Senior Indebtedness of such acceleration notice, subject to certain exceptions. Notwithstanding the foregoing, in the case of an Event of Default arising from certain events of bankruptcy or insolvency, all outstanding Notes will become due and payable without further action or notice. Holders may not enforce the Indenture or the Notes except as provided in the Indenture. Subject to certain limitations, Holders of a majority in principal amount of the then outstanding Notes may direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Holders of the Notes notice of any continuing Default or Event of Default (except a Default or Event of Default relating to payment on any Note) if it determines that withholding notice is in their interest. The Holders of not less than a majority in aggregate principal amount of the Notes then outstanding by notice to the Trustee may on behalf of the Holders of all of the Notes waive any existing Default or Event of Default and its consequences under the Indenture except a continuing Default or Event of Default in the payment of the principal, Redemption Price or Purchase Price of, or interest, or Liquidated Damages, if any, on, the Notes (which may be A-8 waived only by Holders of all of the Notes then outstanding) or a default in respect of certain other covenants or provisions of the Indenture (which may be waived only by Holders) of not less than 75% of the Notes then outstanding). The Company is required to deliver to the Trustee annually a statement regarding compliance with the Indenture, and the Company is required upon becoming aware of any Default or Event of Default, to deliver to the Trustee a statement specifying such Default or Event of Default. 15. TRUSTEE DEALINGS WITH COMPANY. Subject to certain limitations, the Trustee under the Indenture, in its individual or any other capacity, may become owner or pledge of Notes and may otherwise deal with the Company or its Affiliates as if it were not Trustee. 16. NO RECOURSE AGAINST OTHERS. No past, present or future director, officer, employee, incorporator or stockholder of the Company, as such, shall have any liability for any obligations of the Company under the Notes or the Indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder by accepting a Note waives and releases all such liability. The waiver and release are part of the consideration for the issuance of the Notes. 17. AUTHENTICATION. This Note shall not be valid until authenticated by the manual signature of the Trustee or an authenticating agent. 18. ABBREVIATIONS. Customary abbreviations may be used in the name of a Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the entireties), JT TEN (= joint tenants with right of survivorship and not as tenants in common), CUST (- Custodian), and U/G/M/A (= Uniform Gifts to Minors Act). 19. DISCHARGE PRIOR TO MATURITY. If the Company deposits with the Trustee or Paying Agent cash or U.S. Government Securities sufficient to pay the principal or Redemption Price of, and interest and Liquidated Damages, if any, on, the Notes to maturity or a specified Redemption Date and satisfies certain conditions specified in the Indenture, the Company will be discharged from the Indenture, except for certain Sections thereof. 20. GOVERNING LAW. The Indenture and Subsidiary Guarantees and this Note shall be governed by and construed in accordance with the laws of the State of New York, including Section 5-1401 of the General Obligation Law, but otherwise without regard to conflict of law rules. Each of the Company and each Subsidiary Guarantor hereby irrevocably submits to the jurisdiction of any New York state court sitting in the Borough of Manhattan in the City of New York or any Federal court sitting in the Borough of Manhattan in the City of New York in respect of any suit, action or proceeding arising out of or relating to the Indenture and the Notes, and irrevocably accept for itself and in respect of its property, generally and unconditionally, jurisdiction of the aforesaid courts. Each of the Company and each Subsidiary Guarantor irrevocably waives, to the fullest extent that it may effectively do so under applicable law, trial by jury and any objection which it may now or hereafter have to the laying of the venue of any such suit, action or proceeding brought in any such court and any claim that any such suit, action or proceeding brought in any such court has been brought in an inconvenient forum. Nothing A-9 herein shall affect the right of the Trustee or any Holder of the Notes to serve process in any other manner permitted by law or to commence legal proceedings or otherwise proceed against the Company or any Subsidiary Guarantor in any other jurisdiction. 21. CUSIP NUMBERS. Pursuant to a recommendation promulgated by the Committee on Uniform Security Identification Procedures, the Company has caused CUSIP numbers to be printed on the Notes and the Trustee may use CUSIP numbers in notices of redemption as a convenience to Holders. No representation is made as to the correctness or accuracy of such numbers either as printed on the Notes or as contained in any notice of redemption or repurchase and reliance may be placed only on the other identification numbers placed thereon. The Company will furnish to any Holder upon written request and without charge a copy of the Indenture. Request may be made to: Scholastic Brands, Inc. 7211 Circle S Road Austin, Texas 78745-6603 Attention: Secretary A-10 ASSIGNMENT FORM To assign this Note, fill in the form below: (I) or (we) assign and transfer this Note to - -------------------------------------------------------------------------------- (Insert assignee's soc. sec. or tax I.D. no.) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (Print or type assignee's name address and zip code) and irrevocably appoint_________________________________________________________ agent to transfer this Note on the books of the Company. The agent may substitute another to act for him. Date: -------------- Your Signature: --------------------- (Sign exactly as your name appears on the face of this Note) Signature Guarantee: ---------------------------------------------------------- (Participant in recognized signature guarantee medallion program) A-11 OPTION OF HOLDER TO ELECT PURCHASE If you wish to elect to have all or any portion of this Note purchased by the Company pursuant to Section 4.10 ("ASSET SALE OFFER") or Section 4.15 ("CHANGE OF CONTROL OFFER") of the Indenture, check the applicable boxes / / Asset Sale Offer: / / Change of Control Offer: in whole / / in whole / / in part / / in part / / Amount to be Amount to be purchased: $ purchased: $ --------- ---------------------- Dated: Signature: ----------------------- --------------------------- (Sign exactly as your name appears on the other side of this Note) Signature Guarantee: ------------------------------------------------------------------ (Participant in recognized signature guarantee medallion program) Social Security Number or Taxpayer Identification Number: -------------------------------------------- A-12 EXHIBIT B(1) FORM OF CERTIFICATE -------------------,------- Marine Midland Bank 140 Broadway, 12th Floor New York, New York 10005-1187 Attention: Corporate Trust Administration Re: Scholastic Brands, Inc. (the "COMPANY") 11% Senior SUBORDINATED NOTES DUE 2007 (THE "NOTES") Dear Sirs: This letter relates to U.S. $ _____________ principal amount at maturity of Notes represented by a certificate (the "LEGENDED CERTIFICATE") which bears a legend outlining restrictions upon transfer of such Legended Certificate. Pursuant to Section 2.1 of the Indenture (the "INDENTURE") dated as of December 16, 1996 relating to the Notes, we hereby certify that we are (or we will hold such securities on behalf of) a person outside the United States to whom the Notes could be transferred in accordance with Rule 904 of Regulation S promulgated under the U.S. Securities Act of 1933, as amended. You and the Company are entitled to rely upon this letter and are irrevocably authorized to produce this letter or a copy hereof to any interested party in any administrative or legal proceedings or official inquiry with respect to the matters covered hereby. Terms used in this letter have the meanings set forth in Regulation S). Very truly yours, [Name of Holder] By: ------------------- Authorized Signature B(1)-1 EXHIBIT B(2) CERTIFICATE TO BE DELIVERED UPON EXCHANGE OR REGISTRATION OF TRANSFER OF NOTES -----------------, ------ Marine Midland Bank 140 Broadway, 12th Floor New York, New York 10005-1187 Attention: Corporate Trust Administration Re: Scholastic Brands, Inc. (the "COMPANY") 11% Senior SUBORDINATED NOTES DUE 2007 (THE "NOTES") Dear Sirs: This Certificate relates to $ _____________ principal amount of Notes held in*____ book-entry or* _____ certificated form by _____________________(the "TRANSFEROR"). The Transferor:* / / has requested the Trustee by written order to deliver in exchange for its beneficial interest in the Global Note held by the Depositary a Note or Notes in certificated, registered form of authorized denominations in an aggregate principal amount equal to its beneficial interest in such Global Note (or the portion thereof indicated above); or / / has requested the Trustee by written order to exchange or register the transfer of a Note or Notes. In connection with such request and in respect of each such Note, the Transferor does hereby certify that Transferor is familiar with the Indenture relating to the above captioned Notes and as provided in Section 2.6 of such Indenture, the transfer of this Note does not require registration under the Securities Act (as defined below) because:* / / Such Note is being acquired for the Transferor's own account, without transfer. / / Such Note is being transferred to a "QUALIFIED INSTITUTIONAL BUYER" (as defined in Rule 144A under the Securities Act of 1933, as amended (the "SECURITIES ACT")) in reliance on Rule 144A. - ------------------------ * Check applicable box B(2)-1 / / Such Note is being transferred to an "ACCREDITED INVESTOR" (as defined in Rule 501(a)(1),(2),(3) or (7) under the Securities Act) in accordance with Regulation D under the Securities Act. / / Such Note is being transferred pursuant to an exemption from registration in accordance with Regulation S under the Securities Act. / / Such Note is being transferred in accordance with Rule 144 under the Securities Act, or pursuant to an effective registration statement under the Securities Act. / / Such Note is being transferred in reliance on and in compliance with an exemption from the registration requirements of the Securities Act, other than Rule 144A, 144 or Rule 904 under the Securities Act. An Opinion of Counsel to the effect that such transfer does not require registration under the Securities Act accompanies this Certificate. Very truly yours, --------------------------- [INSERT NAME OF TRANSFEROR] By: ----------------------- Name: Title Date: ---------------- B(2)-2 EXHIBIT C SUBSIDIARY GUARANTEE This Subsidiary Guarantee, dated as of __________, _______, made by __________, a _______________ (the "GUARANTOR"), is made pursuant to the provisions of the Indenture dated as of December 16, 1996, between Scholastic Brands, Inc. and Marine Midland Bank, as trustee, (the "INDENTURE") in favor of the Holders of Notes and the Trustee. Capitalized terms used herein have the same meanings given in the Indenture unless otherwise indicated. Section 1. SUBSIDIARY GUARANTEE. The Guarantor, jointly and severally with any other Subsidiary Guarantor now existing or which may execute a Subsidiary Guarantee in the future, hereby unconditionally guarantees to each Holder of a Note authenticated and delivered by the Trustee and to the Trustee and its successors and assigns, irrespective of the validity and enforceability of the Indenture, the Notes or the obligations of the Company under the Indenture or the Notes, that: (a) the principal, Redemption Price and Purchase Price of, and interest and Liquidated Damages, if any, on the Notes shall be promptly paid in full when due, whether at maturity, by acceleration, redemption, repurchase or otherwise, and (to the extent permitted by law) interest on the overdue principal, Redemption Price and Purchase Price of, and interest and Liquidated Damages, if any, on the Notes, and all other obligations of the Company to the Holders or the Trustee under the Indenture or the Notes shall be promptly paid in full or performed, all in accordance with the terms of the Indenture and the Notes; and (b) in case of any extension of time of payment or renewal of any Notes or any of such other obligations, that same shall be promptly paid in full when due or performed in accordance with the terms of the extension or renewal, whether at stated maturity, by acceleration or otherwise. Failing payment when due of any amount so guaranteed for whatever reason, the Guarantor shall be obligated to pay the same immediately, whether or not such failure to pay has become an Event of Default which could cause acceleration pursuant to Section 6.2 of the Indenture. The Guarantor agrees that this is a guarantee of payment and not a guarantee of collection. The Guarantor hereby agrees that its obligations hereunder shall be unconditional, irrespective of the validity, regularity or enforceability of the Notes or the Indenture, the absence of any action to enforce the same, any waiver or consent by the Trustee or any Holder of the Notes with respect to any provisions thereof, the recovery of any judgment against the Company or any Subsidiary Guarantor, any action to enforce the same or any other circumstance which might otherwise constitute a legal or equitable discharge or defense of a guarantor. The Guarantor hereby waives diligence, presentment, demand of payment, filing of claims with a court in the event of insolvency or bankruptcy of the Company or any Subsidiary Guarantor, any right to require a proceeding first against the Company or any Subsidiary Guarantor, protest, notice and all demands whatsoever and covenants that, except as set forth herein, this Subsidiary Guarantee shall not be discharged except by complete performance of the obligations contained in the Notes and the Indenture. If any Holder of Notes or the Trustee is required by any court or otherwise to return to the Company or any Subsidiary Guarantor, or any Custodian, Trustee, liquidator or other similar official acting in relation to either the Company or any Subsidiary Guarantor, any C-1 amount paid by either to the Trustee or such Holder, this Subsidiary Guarantee, to the extent theretofore discharged, shall be reinstated in full force and effect. The Guarantor agrees that it shall not be entitled to any right of subrogation in relation to the Holders of Notes in respect of any obligations guaranteed hereby until payment in full of all obligations guaranteed hereby. The Guarantor further agrees that, as between the Guarantor, on the one hand, and the Holders and the Trustee, on the other hand, (x) the maturity of the Obligations guaranteed hereby may be accelerated as provided in Article VI of the Indenture for the purposes of this Subsidiary Guarantee, notwithstanding any stay, injunction or other prohibition preventing such acceleration in respect of the Obligations guaranteed hereby and (y) in the event of any declaration of acceleration of such Obligations as provided in Section 6.2 of the Indenture, such Obligations (whether or not due and payable) shall forthwith become due and payable by the Guarantor for the purpose of this Subsidiary Guarantee. The Guarantor shall have the right to seek contribution from any non-paying Subsidiary Guarantor so long as the exercise of such right does not impair the rights of the Holders or the Trustee under this Subsidiary Guarantee. Section 2. SUBORDINATION OF GUARANTEE. This Subsidiary Guarantee shall be unsecured and subordinated to the prior payment in full in cash or Cash Equivalents of all Senior Debt of the Guarantor (including the Guarantor's guarantee of the Bank Credit Facility), and the amounts for which the Guarantor will be liable under the guarantees issued from time to time with respect to other Senior Indebtedness of the Company. The Obligations of the Guarantor under this Subsidiary Guarantee shall be junior and subordinated to the Guarantees of such Guarantor which constitute Senior Debt of the Guarantor and all other Senior Debt of the Guarantor on the same terms and in the same manner as the Notes are junior and subordinated to Senior Indebtedness of the Company as set forth in the Indenture; PROVIDED, HOWEVER, that the Trustee and the Holders shall have the right to receive and/or retain payments by the Guarantor only at such times as they may receive and/or retain payments in respect of the Notes pursuant to this Indenture. For the purposes of the foregoing "SENIOR DEBT" shall mean Indebtedness of the Guarantor that, if incurred by the Company, would constitute Senior Indebtedness. Section 3. LIMITATION ON LIABILITY OF THE SUBSIDIARY GUARANTOR. The Guarantor, the Trustee, and by its acceptance of Notes, each Holder, hereby confirms that it is the intention of all such parties that this Subsidiary Guarantee not constitute a fraudulent transfer or conveyance for purposes of Bankruptcy Law, the Uniform Fraudulent Conveyance Act, the Uniform Fraudulent Transfer Act or any similar federal or state law to the extent applicable to any Subsidiary Guarantee. To effectuate the foregoing intention, the Trustee, the Holders and the Guarantor hereby irrevocably agree that the obligations of the Guarantor hereunder shall be limited to the maximum amount as will, after giving effect to such maximum amount and all other contingent and fixed liabilities of the Guarantor that are relevant under such laws, and after giving effect to any collections from, rights to receive contribution from or payments made by or on behalf of any other Subsidiary Guarantor in respect of the obligations of such other C-2 Subsidiary Guarantor under its Subsidiary Guarantee, result in the obligations of the Guarantor hereunder not constituting a fraudulent transfer or conveyance. This is a continuing Subsidiary Guarantee and shall remain in full force and effect and shall be binding upon the Guarantor and its respective successors and assigns to the extent set forth herein and in the Indenture until full and final payment of all of the Company's Obligations under the Notes and the Indenture and shall inure to the benefit of the successors and assigns of the Trustee and the Holders of Notes and, in the event of any transfer or assignment of rights by any Holder of Notes or the Trustee, the rights and privileges herein conferred upon that party shall automatically extend to and be vested in such transferee or assignee, all subject to the terms and conditions hereof and of the Indenture. Section 4. GOVERNING LAW. This Subsidiary Guarantee shall be governed by and construed in accordance with the laws of the State of New York, including Section 5-1401 of the General Obligation Law, but otherwise without regard to conflict of law rules. The Guarantor hereby irrevocably submits to the jurisdiction of any New York state court sitting in the Borough of Manhattan in the City of New York or any Federal court sitting in the Borough of Manhattan in the City of New York in respect of any suit, action or proceeding arising out of or relating to the Indenture and the Notes, and irrevocably accept for itself and in respect of its property, generally and unconditionally, jurisdiction of the aforesaid courts. The Guarantor irrevocably waives, to the fullest extent that it may effectively do so under applicable law, trial by jury and any objection which it may now or hereafter have to the laying of the venue of any such suit, action or proceeding brought in any such court and any claim that any such suit, action or proceeding brought in any such court has been brought in an inconvenient forum. Nothing herein shall affect the right of the Trustee or any Holder of the Notes to serve process in any other manner permitted by law or to commence legal proceedings or otherwise proceed against the Guarantor in any other jurisdiction. [SUBSIDIARY GUARANTOR] By: ------------------------ Name: Title: By: ------------------------ Name: Title: ACCEPTED BY: MARINE MIDLAND BANK, as Trustee By: ------------------------ Name: Title: C-3 EXHIBIT D FORM OF CERTIFICATE TO BE DELIVERED IN CONNECTION WITH TRANSFERS TO NON QIB ACCREDITED INVESTORS ----------------------,------- Marine Midland Bank 140 Broadway, 12th Floor New York, New York 10005-1187 Attention: Corporate Trust Administration Re: Scholastic Brands, Inc. (the "COMPANY") 11% Senior SUBORDINATED NOTES DUE 2007 (THE "NOTES") Dear Sirs: In connection with our proposed purchase of 11% Senior Subordinated Notes due 2007 (the "Notes") of the Company, we confirm that: 1. We understand that any subsequent transfer of the Notes is subject to certain restrictions and conditions set forth in the Indenture dated as of December 16, 1996 relating to the Notes (the "INDENTURE") and the undersigned agrees to be bound by, and not to resell, pledge or otherwise transfer the Notes except in compliance with such restrictions and conditions and the Securities Act of 1933, as amended (the "SECURITIES ACT"). 2. We understand that the Notes have not been registered under the Securities Act or any other applicable securities law, and that the Notes may not be offered, sold or otherwise transferred except as permitted in the following sentence. We agree, on our own behalf and on behalf of any accounts for which we are acting as hereinafter stated, that if we should offer, sell, transfer, pledge, hypothecate or otherwise dispose of any Notes within three years after the original issuance of the Notes, we will do so only (A) to the Company or any Subsidiary thereof, (B) inside the United States to a "qualified institutional buyer" in compliance with Rule 144A under the Securities Act, (C) inside the United States to an institutional "accredited investor" (as defined below) that, prior to such transfer, furnishes to you a signed letter substantially in the form of this letter, (D) outside the United States to a foreign person in compliance with Rule 904 of Regulation S under the Securities Act, (E) pursuant to an exemption from registration provided by Rule 144 under the Securities Act (if available) or in accordance with another exemption from the registration requirements of the Securities Act, or (F) pursuant to a registration statement which has been declared effective under the Securities D-1 Act, and we further agree to provide to any person purchasing any of the Notes from us a notice advising such purchaser that resales of the NOTES are restricted as stated herein and in the Indenture. 3. We understand that, on any proposed transfer of any Notes prior to the later of the original issue date of the Securities and the last date the Notes were held by an affiliate of the Company pursuant to paragraphs 2(C), 2(D) and 2(E) above, we will be required to furnish to you and the Company such certifications, legal opinions and other information as you and the Company may reasonably require to confirm that the proposed transfer complies with the foregoing restrictions. We further understand that the Notes purchased by us will bear a legend to the foregoing effect. 4. We are an institutional "ACCREDITED INVESTOR" (as defined in Rule 501(a)(1),(2),(3) or (7) under the Securities Act) and have such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of our investment in the Notes, and we and any accounts for which we are acting are acquiring the Notes for investment purposes and not with a view to, or offer of sale in connection with, any distribution in violation of the Securities Act, and we are each able to bear the economic risk of our or its investment. 5. We are acquiring the Notes purchased by us for our own account or for one or more accounts (each of which is an institutional "accredited investor") as to each of which we exercise sole investment discretion. You and the Company are entitled to rely upon this letter and are irrevocably authorized to produce this letter or a copy hereof to any interested party in any administrative or legal proceedings or official inquiry with respect to the matters covered hereby. Very truly yours, (Name of Transferee) By: ------------------------ Authorized Signature D-2 EXHIBIT E FORM OF CERTIFICATE TO BE DELIVERED IN CONNECTION WITH TRANSFERS PURSUANT TO REGULATIONS ------------------, ------ Marine Midland Bank Attention: Corporate Trust Administration 140 Broadway, 12th Floor New York, New York 10005-1180 Re: Scholastic Brands, Inc. (the "COMPANY") 11% Senior SUBORDINATED NOTES DUE 2007 (THE "NOTES") Dear Sirs: In connection with our proposed sale of $_________ aggregate principal amount at maturity of the Notes, we confirm that such sale has been effected pursuant to and in accordance with Regulation S under the Securities Act of 1933, as amended, and, accordingly, we represent that: (1) the offer of the Securities was not made to a person in the United States; (2) at the time the buy order was originated, the transferee was outside the United States or we and any person acting on our behalf reasonably believed that the transferee was outside the United States; (3) no directed selling efforts have been made by us in the United States in contravention of the requirements of Rule 903(b) or Rule 904(b) of Regulation S, as applicable; and (4) the transaction is not part of a plan or scheme to evade the registration requirements of the U.S. Securities Act of 1913. You and the Company are entitled to rely upon this letter and are irrevocably authorized to produce this letter or a copy hereof to any interested party in any administrative or legal proceedings or official inquiry with respect to the matters covered hereby. Terms used in this letter have the meanings set forth in Regulation S. Very truly yours, [Name of Transferor] By: ------------------------ Authorized Signature E-1 - -------------------------------------------------------------------------------- SCHOLASTIC BRANDS, INC. $90,000,000 11% SENIOR SUBORDINATED NOTES DUE 2007 ---------- INDENTURE DATED AS OF DECEMBER 16, 1996 ----------- MARINE MIDLAND BANK, AS TRUSTEE - -------------------------------------------------------------------------------- TABLE OF CONTENTS** ARTICLE I DEFINITIONS AND INCORPORATION BY REFERENCE.............................................2 Section 1.1 Definitions............................................................................2 Section 1.2 Other Definitions.....................................................................21 Section 1.3 Incorporation by Reference of Trust Indenture Act.....................................22 Section 1.4 Rules of Construction.................................................................22 Section 1.5 Acts of Holders.......................................................................23 ARTICLE II THE NOTES.............................................................................24 Section 2.1 Form and Dating.......................................................................24 Section 2.2 Execution and Authentication..........................................................25 Section 2.3 Registrar and Paying Agent............................................................25 Section 2.4 Paying Agents to Hold Money in Trust..................................................26 Section 2.5 Holder Lists..........................................................................26 Section 2.6 Transfer and Exchange.................................................................27 Section 2.7 Replacement Notes.....................................................................35 Section 2.8 Outstanding Notes.....................................................................36 Section 2.9 Treasury Notes........................................................................36 Section 2.10 Temporary Notes.......................................................................36 Section 2.11 Cancellation..........................................................................37 Section 2.12 Defaulted Interest....................................................................37 Section 2.13 Persons Deemed Owners.................................................................37 Section 2.14 CUSIP Numbers.........................................................................37 ARTICLE III REDEMPTION AND REPURCHASE.............................................................38 Section 3.1 Notices to Trustee....................................................................38 Section 3.2 Selection of Notes....................................................................38 Section 3.3 Notice of Optional or Special Redemption..............................................39 Section 3.4 Effect of Notice of Redemption........................................................40 Section 3.5 Deposit of Redemption Price or Purchase Price.........................................40 Section 3.6 Notes Redeemed or Repurchased in Part.................................................41 Section 3.7 Optional Redemption...................................................................41 Section 3.8 Special Redemption....................................................................41 Section 3.9 Repurchase upon Change of Control Offer...............................................41 Section 3.10 Repurchase Upon Application of Excess Proceeds........................................43
- ---------- ** This Table of Contents shall not, for any purpose, be deemed a part of the Indenture. -i- ARTICLE IV COVENANTS.............................................................................45 Section 4.1 Payment of Principal and Interest.....................................................45 Section 4.2 Maintenance of Office or Agency.......................................................45 Section 4.3 Reports...............................................................................46 Section 4.4 Compliance Certificate................................................................46 Section 4.5 Taxes.................................................................................47 Section 4.6 Stay, Extension and Usury Laws........................................................47 Section 4.7 Restricted Payments...................................................................48 Section 4.8 Dividend and Other Payment Restrictions Affecting Subsidiaries........................51 Section 4.9 Incurrence of Indebtedness and Issuance of Preferred Stock............................52 Section 4.10 Asset Sales...........................................................................55 Section 4.11 Transactions with Affiliates..........................................................57 Section 4.12 Liens.................................................................................57 Section 4.13 Continued Existence...................................................................58 Section 4.14 Insurance Matters.....................................................................58 Section 4.15 Offer to Repurchase upon Change of Control............................................58 Section 4.16 Limitations on Issuances and Sales of Capital Stock of Subsidiaries...................58 Section 4.17 Limitation on Future Subordinated Indebtedness........................................59 Section 4.18 Subsidiary Guarantees.................................................................59 Section 4.19 Business Activities...................................................................61 Section 4.20 Payments for Consent..................................................................61 Section 4.21 Restrictions under Senior Indebtedness................................................61 ARTICLE V SUCCESSORS............................................................................62 Section 5.1 Merger, Consolidation, or Sale of Assets..............................................62 Section 5.2 Successor Corporation Substituted.....................................................62 ARTICLE VI DEFAULTS AND REMEDIES.................................................................63 Section 6.1 Events of Default.....................................................................63 Section 6.2 Acceleration..........................................................................65 Section 6.3 Other Remedies........................................................................65 Section 6.4 Waiver of Past Defaults...............................................................66 Section 6.5 Control by Majority...................................................................66 Section 6.6 Limitation on Suits...................................................................67 Section 6.7 Rights of Holders of Notes to Receive Payment.........................................67 Section 6.8 Collection Suit by Trustee............................................................67 Section 6.9 Event of Default to Avoid Premium.....................................................68 Section 6.10 Trustee May File Proofs of Claim......................................................68 Section 6.11 Priorities............................................................................68
-ii- Section 6.12 Undertaking for Costs.................................................................69 ARTICLE VII TRUSTEE...............................................................................69 Section 7.1 Duties of Trustee.....................................................................69 Section 7.2 Rights of Trustee.....................................................................70 Section 7.3 Individual Rights Of Trustee..........................................................71 Section 7.4 Trustee's Disclaimer..................................................................71 Section 7.5 Notice of Defaults....................................................................72 Section 7.6 Reports by Trustee to Holder of the Notes.............................................72 Section 7.7 Compensation, Reimbursement and Indemnity.............................................72 Section 7.8 Replacement Of Trustee................................................................73 Section 7.9 Successor Trustee by Merger, Etc......................................................74 Section 7.10 Eligibility; Disqualification.........................................................74 Section 7.11 Preferential Collection of Claims against Company.....................................75 ARTICLE VII LEGAL DEFEASANCE AND COVENANT DEFEASANCE..............................................75 Section 8.1 Option to Effect Legal Defeasance or Covenant Defeasance..............................75 Section 8.2 Legal Defeasance and Discharge........................................................75 Section 8.3 Covenant Defeasance...................................................................76 Section 8.4 Conditions to Legal or Covenant Defeasance............................................76 Section 8.5 Deposited Money and U.S Government Securities to Be Held in Trust; Other Miscellaneous Provisions........................................................78 Section 8.6 Repayment to the Company..............................................................78 Section 8.7 Reinstatement.........................................................................79 ARTICLE IX AMENDMENT, SUPPLEMENT AND WAIVER......................................................79 Section 9.1 Without Consent of Holders of Notes...................................................79 Section 9.2 With Consent of Holders of Notes......................................................80 Section 9.3 Compliance with Trust Indenture Act...................................................81 Section 9.4 Revocation And Effect Of Consents.....................................................81 Section 9.5 Notation on or Exchange of Notes......................................................82 Section 9.6 Trustee to Sign Amendment, Etc........................................................82 ARTICLE X SUBORDINATION.........................................................................82 Section 10.1 Notes Subordinated to Senior Indebtedness.............................................82 Section 10.2 Priority and Payment Over of Proceeds in Certain Events...............................83 Section 10.3 Payments May Be Made Prior to Dissolution.............................................85 Section 10.4 Rights of Holders of Senior Indebtedness Not to Be Impaired...........................86 Section 10.5 Authorization to Trustee to Take Action to Effectuate Subordination...................86
-iii- Section 10.6 Subrogation...........................................................................86 Section 10.7 Obligations of Company Unconditional..................................................87 Section 10.8 The Trustee Entitled to Assume Payments Not Prohibited in Absence of Notice................................................................................87 Section 10.9 Right of Trustee to Hold Senior Indebtedness..........................................88 Section 10.10 No Implied Covenants by or Obligations of the Trustee.................................88 ARTICLE XI MISCELLANEOUS.........................................................................88 Section 11.1 Trust Indenture Act Controls..........................................................88 Section 11.2 Notices...............................................................................89 Section 11.3 Communication by Holders of Notes with Other Holders of Notes.........................90 Section 11.4 Certificate and Opinion as to Conditions Precedent....................................90 Section 11.5 Statements Required in Certificate or Opinion.........................................90 Section 11.6 Rules by Trustee and Agents...........................................................91 Section 11.7 No Personal Liability of Directors, Officers, Employees and Stockholders..........................................................................91 Section 11.8 Governing Law; Submission to Jurisdiction; Waiver of Jury Trial.......................91 Section 11.9 No Adverse Interpretation of Other Agreements.........................................92 Section 11.10 Successors............................................................................92 Section 11.11 Severability..........................................................................92 Section 11.12 Counterpart Originals.................................................................92 Section 11.13 Table of Contents, Headings, Etc......................................................92 Section 11.14 Qualification of Indenture............................................................92
EXHIBITS Exhibit A Form of Note Exhibit B(1) Form of Regulation S Certification Exhibit B(2) Form of Certificate to be Delivered upon Exchange or Registration of Transfer of Notes Exhibit C Form of Subsidiary Guarantee Exhibit D Form of Certificate to be Delivered in connection with Transfers to Non QIB Accredited Investors Exhibit E Form of Certificate to be Delivered in connection with Transfers Pursuant to Regulation S -iv- CROSS REFERENCE TABLE*
TRUST INDENTURE ACT SECTION INDENTURE SECTION 310 (a)(1)........................................................................ 7.10 (a)(2)........................................................................ 7.10 (a)(3)........................................................................ N.A. (a)(4)........................................................................ N.A. (a)(5)........................................................................ 7.10 (b)........................................................................... 7.3 7.8 7.10 (c)........................................................................... N.A. 311 (a)........................................................................... 7.11 (b)........................................................................... 7.11 (c)........................................................................... N.A. 312 (a)........................................................................... 2.5 (b)........................................................................... 11.3 (c)........................................................................... 11.3 313 (a)........................................................................... 7.6 (b)(1)........................................................................ N.A. (b)(2)........................................................................ 7.6 (c)........................................................................... 7.6 11.2 314 (a)........................................................................... 4.3 4.4 (b)........................................................................... N.A. (c)(1)........................................................................ 11.4 (c)(2)........................................................................ 11.4 (c)(3)........................................................................ 11.4 (d)........................................................................... N.A. (e)........................................................................... 11.5 (f)........................................................................... N.A. 315 (a)........................................................................... 7.2 (b)........................................................................... 7.5 11.2 (c)........................................................................... 7.1 (d)........................................................................... 7.1 (e)........................................................................... 6.12 316 (a)(last sentence)............................................................ 2.9 (a)(1)(A)..................................................................... 6.5 (a)(1)(B)..................................................................... 6.4 (a)(2)........................................................................ N.A. (b)........................................................................... 6.7
- ---------- * This Cross Reference Table shall not, for any purpose, be deemed a part of the Indenture. -v- (c)........................................................................... N.A. 317 (a)(1)........................................................................ 6.8 (a)(2)........................................................................ 6.10 (b)........................................................................... 2.4 318 (a)........................................................................... 11.1 (b)........................................................................... N.A. (c)........................................................................... 11.1
N.A. means not applicable. -vi- EX-4.6 23 a2071988zex-4_6.txt EXHIBIT 4.6 EXHIBIT 4.6 FORM OF FIRST SUPPLEMENTAL INDENTURE, DATED AS OF JULY 21, 2000, BETWEEN COMMEMORATIVE BRANDS, INC. AND HSBC BANK USA (F/K/A MARINE MIDLAND BANK) FIRST SUPPLEMENTAL INDENTURE, dated as of July 21, 2000, between Commemorative Brands, Inc. (formerly known as Scholastic Brands, Inc.), a Delaware corporation, as issuer (the "Company"), and HSBC Bank USA (formerly known as Marine Midland Bank), a New York banking corporation, as trustee (the "Trustee"). WHEREAS, the Company heretofore executed and delivered to the Trustee an Indenture dated as of December 16, 1996 (the "Original Indenture" and, as it may be amended or supplemented from time to time by one or more indentures supplemental thereto entered into pursuant to the applicable provisions thereof, the "Indenture"), providing for the issuance of the Company's 11% Senior Subordinated Notes due 2007 (the "Notes"); WHEREAS, there are now outstanding under the Indenture, Notes in the aggregate principal amount of $90,000,000; WHEREAS, Section 9.2 of the Indenture provides that the Company and the Trustee may amend or supplement the Indenture with the written consent of the holders of at least a majority in the aggregate principal amount of the Notes then outstanding (the "Majority Holders"); WHEREAS, the Company desires to amend certain provisions of the Indenture, as set forth in Article One hereof; WHEREAS, Tri-Links Investment Trust, a Majority Holder who owns $48.645 million face amount of the Notes has consented to the amendments effected by this First Supplemental Indenture; and WHEREAS, all things necessary to make this First Supplemental Indenture a valid agreement, in accordance with its terms, have been done. NOW, THEREFORE, THIS FIRST SUPPLEMENTAL INDENTURE WITNESSETH, that, for and in consideration of the promises, it is mutually covenanted and agreed, for the equal and proportionate benefit of all holders of Notes, as follows: ARTICLE ONE Amendments to Original Indenture Section 1.1 AMENDMENTS TO ARTICLE ONE, ARTICLE FOUR, ARTICLE FIVE AND SIX. (a) Sections 4.3, 4.7, 4.8, 4.9, 4.11, 4.12, 4.16, 4.17, 4.18, 4.19, 4.20, 4.21, and 5.1 (provided, however, that the last sentence of Section 5.1 shall not be deleted and shall remain in effect) of the Original Indenture are hereby amended by deleting all such sections, and all related definitions (to the extent not applicable to other sections of the Indenture) and any references thereto, in their entirety. -2- (b) Section 6.1 is hereby amended to delete clauses (d) and (e) from the definition of "Event of Default." ARTICLE TWO Miscellaneous Section 2.1 INSTRUMENTS TO BE READ TOGETHER. This First Supplemental Indenture is an indenture supplemental to the Original Indenture, and said Original Indenture and this First Supplemental Indenture shall henceforth be read together. Section 2.2 CONFIRMATION. The Original Indenture as amended and supplemented by this First Supplemental Indenture is in all respects confirmed and preserved. Section 2.3 TERMS DEFINED. Capitalized terms used in this First Supplemental Indenture and not otherwise defined herein shall have the respective meanings set forth in the Original Indenture. Section 2.4 HEADINGS. The headings of the Articles and Sections of this First Supplemental Indenture have been inserted for convenience of reference only, and are not to be considered a part hereof and shall in no way modify or restrict any of the terms and provisions hereof. Section 2.5 GOVERNING LAW. The laws of the State of New York shall govern this First Supplemental Indenture. Section 2.6 COUNTERPARTS. This First Supplemental Indenture may be executed in any number of counterparts, each of which so executed shall be deemed to be an original, but all such counterparts shall together constitute but one and the same instrument. Section 2.7 EFFECTIVENESS. The provisions of this First Supplemental Indenture will take effect immediately upon its execution and delivery by the Trustee in accordance with the provisions of Sections 9.2 and 9.6 of the Indenture. Section 2.8 ACCEPTANCE BY TRUSTEE. The Trustee accepts the amendments to the Indenture effected by this First Supplemental Indenture. Section 2.9 CERTAIN DUTIES AND RESPONSIBILITIES OF THE TRUSTEE. In entering into this First Supplemental Indenture, the Trustee shall be entitled to the benefit of every provision of the Indenture and the Notes relating to the conduct or affecting the liability or affording protection to the Trustee, whether or not elsewhere herein so provided. The Trustee shall not be responsible in any manner for or in respect of the validity or sufficiency of this First Supplemental Indenture or for or in respect of the recitals contained herein, all of which are made by the Company. Section 2.10 TRUSTEE DOCUMENTS. On or before the date hereof, the Company shall deliver to the Trustee pursuant to the Indenture, (a) the Board resolutions, (b) an Officer's Certificate, and (c) an Opinion of Counsel. -3- IN WITNESS WHEREOF, the parties hereto have caused this First Supplemental Indenture to be duly executed, all as of the date first written above. COMMEMORATIVE BRANDS, INC. By: /s/ David G. Fiore ---------------------------- David G. Fiore President HSBC BANK USA, as Trustee By: ---------------------------- Name: Title: -4- EX-10.1 24 a2071988zex-10_1.txt EXHIBIT 10.1 EXHIBIT 10.1 CREDIT AGREEMENT, DATED AS OF FEBRUARY 20, 2002, AMONG AMERICAN ACHIEVEMENT CORPORATION, AS THE BORROWER, THE LENDERS PARTY THERETO AND THE BANK OF NOVA SCOTIA, AS THE ADMINISTRATIVE AGENT FOR THE LENDERS CREDIT AGREEMENT, dated as of February 20, 2002, among AMERICAN ACHIEVEMENT CORPORATION, as the Borrower, VARIOUS FINANCIAL INSTITUTIONS AND OTHER PERSONS FROM TIME TO TIME PARTIES HERETO, as the Lenders, GENERAL ELECTRIC CAPITAL CORPORATION, as the Syndication Agent for the Lenders, BANKERS TRUST COMPANY, as the Documentation Agent for the Lenders, and THE BANK OF NOVA SCOTIA, as the Administrative Agent for the Lenders. ---------------------------------- THE BANK OF NOVA SCOTIA, as Sole Lead Arranger and Sole Book Runner ARTICLE I DEFINITIONS AND ACCOUNTING TERMS SECTION 1.1. Defined Terms..........................................................................2 SECTION 1.2. Use of Defined Terms..................................................................31 SECTION 1.3. Cross-References......................................................................31 SECTION 1.4. Accounting Terms; Utilization of GAAP for Purposes of Calculations Under Agreement.............................................................................31 ARTICLE II COMMITMENTS, BORROWING AND ISSUANCE PROCEDURES, NOTES AND LETTERS OF CREDIT SECTION 2.1. Commitments...........................................................................32 SECTION 2.1.1. Revolving Loan Commitment and Swing Line Loan Commitment...................32 SECTION 2.1.2. Letter of Credit Commitment................................................32 SECTION 2.2. Reduction of the Commitment Amounts...................................................33 SECTION 2.2.1. Optional...................................................................33 SECTION 2.3. Borrowing Procedures..................................................................33 SECTION 2.3.1. Borrowing Procedure........................................................33 SECTION 2.3.2. Swing Line Loans...........................................................34 SECTION 2.4. Continuation and Conversion Elections.................................................35 SECTION 2.5. Funding...............................................................................35 SECTION 2.6. Issuance Procedures...................................................................35 SECTION 2.6.1. Other Lenders' Participation...............................................35 SECTION 2.6.2. Disbursements..............................................................36 SECTION 2.6.3. Reimbursement..............................................................36 SECTION 2.6.4. Deemed Disbursements.......................................................37 SECTION 2.6.5. Nature of Reimbursement Obligations........................................37 SECTION 2.7. Notes.................................................................................38 ARTICLE III REPAYMENTS, PREPAYMENTS, INTEREST AND FEES SECTION 3.1. Repayments and Prepayments; Application...............................................38 SECTION 3.1.1. Repayments and Prepayments.................................................38 SECTION 3.1.2. Application................................................................39 SECTION 3.2. Interest Provisions...................................................................40
SECTION 3.2.1. Rates......................................................................40 SECTION 3.2.2. Post-Maturity Rates........................................................40 SECTION 3.2.3. Payment Dates..............................................................40 SECTION 3.3. Fees..................................................................................41 SECTION 3.3.1. Utilization Fee............................................................41 SECTION 3.3.2. Agent's Fee................................................................41 SECTION 3.3.3. Letter of Credit Fee.......................................................41 ARTICLE IV CERTAIN LIBO RATE AND OTHER PROVISIONS SECTION 4.1. LIBO Rate Lending Unlawful............................................................41 SECTION 4.2. Deposits Unavailable..................................................................42 SECTION 4.3. Increased LIBO Rate Loan Costs, etc...................................................42 SECTION 4.4. Funding Losses........................................................................43 SECTION 4.5. Increased Capital Costs...............................................................43 SECTION 4.6. Taxes.................................................................................44 SECTION 4.7. Payments, Computations, etc...........................................................46 SECTION 4.8. Sharing of Payments...................................................................47 SECTION 4.9. Setoff................................................................................47 ARTICLE V CONDITIONS TO CREDIT EXTENSIONS SECTION 5.1. Initial Credit Extension..............................................................48 SECTION 5.1.1. Resolutions, etc...........................................................48 SECTION 5.1.2. Closing Date Certificate...................................................48 SECTION 5.1.3. Issuance of Senior Unsecured Notes.........................................48 SECTION 5.1.4. Payment of Outstanding Indebtedness, etc...................................49 SECTION 5.1.5. Closing Fees, Expenses, etc................................................49 SECTION 5.1.6. Financial Information, etc.................................................49 SECTION 5.1.7. Compliance Certificate.....................................................49 SECTION 5.1.8. Opinions of Counsel........................................................49 SECTION 5.1.9. Filing Agent, etc..........................................................50 SECTION 5.1.10. Subsidiary Guaranty........................................................50 SECTION 5.1.11. Solvency, etc..............................................................50 SECTION 5.1.12. Pledge and Security Agreements.............................................50
SECTION 5.1.13. Patent Security Agreement, Copyright Security Agreement and Trademark Security Agreement.........................................................51 SECTION 5.1.14. Insurance..................................................................51 SECTION 5.1.15. Mortgages..................................................................52 SECTION 5.1.16. Intercreditor Agreement....................................................52 SECTION 5.1.17. Delivery of Notes..........................................................52 SECTION 5.1.18. Revolving Loan Commitment Amount Availability..............................52 SECTION 5.1.19. CBI Indenture Acknowledgment...............................................52 SECTION 5.2. All Credit Extensions.................................................................52 SECTION 5.2.1. Compliance with Warranties, No Default, etc................................52 SECTION 5.2.2. Credit Extension Request, etc..............................................53 SECTION 5.2.3. Satisfactory Legal Form....................................................53 ARTICLE VI REPRESENTATIONS AND WARRANTIES SECTION 6.1. Organization, Powers, Capitalization and Good Standing................................53 SECTION 6.2. Due Authorization, Non-Contravention, etc.............................................54 SECTION 6.3. Government Approval, Regulation, etc..................................................55 SECTION 6.4. Intellectual Property.................................................................55 SECTION 6.5. Financial Statements and Projections..................................................55 SECTION 6.6. No Material Adverse Change............................................................56 SECTION 6.7. Litigation: Adverse Effects..........................................................56 SECTION 6.8. Solvency..............................................................................56 SECTION 6.9. Taxes.................................................................................56 SECTION 6.10. Environmental Warranties..............................................................56 SECTION 6.11. Disclosure............................................................................57 SECTION 6.12. Use of Proceeds: Margin Regulations..................................................58 SECTION 6.13. CBI Senior Subordinated Notes.........................................................58 SECTION 6.14. No Default............................................................................58 SECTION 6.15. Investigations, Audits, etc...........................................................58 SECTION 6.16. Employee Matters......................................................................58 ARTICLE VII COVENANTS SECTION 7.1. Affirmative Covenants.................................................................59
SECTION 7.1.1. Financial Statements and Other Reports.....................................59 SECTION 7.1.2. Compliance With Laws and Contractual Obligations...........................62 SECTION 7.1.3. Maintenance of Properties; Insurance.......................................62 SECTION 7.1.4. Inspection; Lender Meeting.................................................63 SECTION 7.1.5. Corporate/Limited Partnership Existence....................................64 SECTION 7.1.6. Environmental Law Covenant.................................................64 SECTION 7.1.7. Use of Proceeds............................................................64 SECTION 7.1.8. Further Assurances.........................................................65 SECTION 7.1.9. Landlord Estoppel Letters..................................................66 SECTION 7.1.10. Title Insurance............................................................66 SECTION 7.2. Negative Covenants....................................................................66 SECTION 7.2.1. Conduct of Business........................................................66 SECTION 7.2.2. Indebtedness...............................................................66 SECTION 7.2.3. Liens and Related Matters..................................................68 SECTION 7.2.4. Financial Condition and Operations.........................................70 SECTION 7.2.5. Investments; Joint Ventures................................................71 SECTION 7.2.6. Restricted Junior Payments.................................................72 SECTION 7.2.7. Capital Expenditures, etc..................................................73 SECTION 7.2.8. Contingent Liabilities.....................................................74 SECTION 7.2.9. Issuance of Capital Securities.............................................75 SECTION 7.2.10. Restriction on Fundamental Changes.........................................75 SECTION 7.2.11. Disposal of Assets or Subsidiary Stock.....................................75 SECTION 7.2.12. Changes Relating to Indebtedness/Gold Consignment Agreement................77 SECTION 7.2.13. Transactions with Affiliates...............................................78 SECTION 7.2.14. No Restrictions on Subsidiary Distributions to Obligors....................79 SECTION 7.2.15. Sale and Leaseback; Landlord Waiver........................................80 SECTION 7.2.16. Subsidiaries...............................................................80 SECTION 7.2.17. Accounting Changes.........................................................80 ARTICLE VIII EVENTS OF DEFAULT SECTION 8.1. Listing of Events of Default..........................................................80 SECTION 8.1.1. Payment....................................................................80
SECTION 8.1.2. Breach of Warranty.........................................................81 SECTION 8.1.3. Breach of Certain Provisions...............................................81 SECTION 8.1.4. Other Defaults Under Loan Documents........................................81 SECTION 8.1.5. Default in Other Agreements................................................81 SECTION 8.1.6. Judgments and Attachments..................................................81 SECTION 8.1.7. ERISA; Pension Plans.......................................................82 SECTION 8.1.8. Change in Control..........................................................82 SECTION 8.1.9. Involuntary Bankruptcy; Appointment of Receiver, etc.......................82 SECTION 8.1.10. Failure of Security........................................................82 SECTION 8.1.11. Failure of Subordination...................................................83 SECTION 8.1.12. Damages; Casualty..........................................................83 SECTION 8.1.13. Licenses and Permits.......................................................83 SECTION 8.1.14. Change of Control/Asset Sale Under CBI Indenture...........................83 SECTION 8.1.15. Net Operating Losses.......................................................83 SECTION 8.1.16. Injunction.................................................................83 SECTION 8.1.17. Environmental Matters......................................................84 SECTION 8.1.18. Dissolution................................................................84 SECTION 8.1.19. Solvency...................................................................84 SECTION 8.1.20. Invalidity of Loan Documents...............................................84 SECTION 8.1.21. Event of Default under Gold Consignment Agreement..........................84 SECTION 8.1.22. Conduct of Business........................................................84 SECTION 8.2. Action if Bankruptcy..................................................................84 SECTION 8.3. Action if Other Event of Default......................................................84 ARTICLE IX THE ADMINISTRATIVE AGENT SECTION 9.1. Actions...............................................................................85 SECTION 9.2. Funding Reliance, etc.................................................................85 SECTION 9.3. Exculpation...........................................................................86 SECTION 9.4. Successor.............................................................................86 SECTION 9.5. Loans by Scotia Capital...............................................................87 SECTION 9.6. Credit Decisions......................................................................87 SECTION 9.7. Copies, etc...........................................................................87 SECTION 9.8. Reliance by Administrative Agent......................................................87
SECTION 9.9. Defaults..............................................................................88 SECTION 9.10. Other Agents..........................................................................88 ARTICLE X MISCELLANEOUS PROVISIONS SECTION 10.1. Waivers, Amendments, etc..............................................................88 SECTION 10.2. Notices; Time.........................................................................89 SECTION 10.3. Payment of Costs and Expenses.........................................................90 SECTION 10.4. Indemnification.......................................................................90 SECTION 10.5. Survival..............................................................................91 SECTION 10.6. Severability..........................................................................91 SECTION 10.7. Headings..............................................................................92 SECTION 10.8. Execution in Counterparts, Effectiveness, etc.........................................92 SECTION 10.9. Governing Law; Entire Agreement.......................................................92 SECTION 10.10. Successors and Assigns................................................................92 SECTION 10.11. Sale and Transfer of Credit Extensions; Participations in Credit Extensions and Notes.............................................................................92 SECTION 10.11.1. Assignments................................................................92 SECTION 10.11.2. Participations.............................................................94 SECTION 10.12. Other Transactions....................................................................96 SECTION 10.13. Forum Selection and Consent to Jurisdiction...........................................96 SECTION 10.14. Waiver of Jury Trial..................................................................96
SCHEDULE I - Disclosure Schedule SCHEDULE II - Percentages; LIBOR Office; Domestic Office EXHIBIT A-1 - Form of Revolving Note EXHIBIT A-2 - Form of Swing Line Note EXHIBIT B-1 - Form of Borrowing Request EXHIBIT B-2 - Form of Issuance Request EXHIBIT B-3 - Form of Borrowing Base Certificate EXHIBIT C - Form of Continuation/Conversion Notice EXHIBIT D - Form of Borrower Closing Date Certificate EXHIBIT E - Form of Compliance Certificate EXHIBIT F - Form of Subsidiary Guaranty EXHIBIT G-1 - Form of Borrower Pledge and Security Agreement EXHIBIT G-2 - Form of Subsidiary Pledge and Security Agreement EXHIBIT H - Form of Deed of Trust EXHIBIT I - Form of Interco Subordination Agreement EXHIBIT J - Form of Lender Assignment Agreement EXHIBIT K - Form of Intercreditor Agreement CREDIT AGREEMENT THIS CREDIT AGREEMENT, dated as of February 20, 2002, is among AMERICAN ACHIEVEMENT CORPORATION (formerly known as COMMEMORATIVE BRANDS HOLDING CORP.), a Delaware corporation (the "BORROWER"), the various financial institutions and other Persons from time to time parties hereto (the "LENDERS"), General Electric Capital Corporation, as the syndication agent for the Lenders (the "SYNDICATION AGENT"), BANKERS TRUST COMPANY, as the documentation agent for the Lenders (the "DOCUMENTATION AGENT") and THE BANK OF NOVA SCOTIA ("SCOTIA CAPITAL"), as administrative agent (in such capacity, the "ADMINISTRATIVE AGENT") for the Lenders and as the Sole Lead Arranger and Sole Book Runner. W I T N E S S E T H: WHEREAS, the Borrower intends to refinance (the "REFINANCING") existing Indebtedness of the Borrower and certain of its Subsidiaries in an amount equal to $176,791,846.57, consisting of (i) $138,742,516.98 outstanding under that certain Second Amended and Restated Credit Agreement, dated as of March 30, 2001, entered into by and among Commemorative Brands, Inc., a Delaware corporation ("CBI"), TP Holding Corp. (f/k/a TP Acquisition Corp.), a Delaware corporation ("TAYLOR HOLDING CO."), Taylor Publishing Company, a Delaware corporation ("TAYLOR GENERAL PARTNER"), Taylor Production Services Company, L.P., a Delaware limited partnership ("TAYLOR"), Educational Communications, Inc., an Illinois corporation ("ECI", and collectively with CBI, Taylor Holding Co., Taylor General Partner and Taylor, the "EXISTING BORROWERS", and individually, each an "EXISTING BORROWER"), the lenders party thereto, Heller Financial, Inc., as administrative agent to the lenders thereunder, Key Corporate Capital, Inc., as syndication agent to the lenders thereunder, and Scotia Capital, as documentation agent to the lenders thereunder (the "EXISTING CREDIT AGREEMENT"), (ii) $28,382,918.10 of subordinated debt outstanding owed to CHP III under (A) two promissory notes issued by Taylor Holding Co. the aggregate principal amount of approximately $18,500,000 and (B) a promissory note issued by the Borrower in the principal amount of approximately $9,200,000 (collectively, the "EXISTING PROMISSORY NOTES"), (iii) settlement amounts in the aggregate amount of $1,706,766 owed by the Borrower and its Subsidiaries with respect to certain interest rate swap agreements (the "SWAP AMOUNTS"), and (iv) fees and expenses related to the consummation of the Refinancing and the transactions contemplated hereby and thereby, in the aggregate amount of approximately $7,959,645.49; WHEREAS, in order to consummate the Refinancing, the Borrower intends to issue 115/8% Senior Unsecured Notes due 2007 in an original principal amount equal to $177,000,000 (the "SENIOR UNSECURED NOTES"), pursuant to the Indenture; WHEREAS, in order to consummate the Refinancing and to provide for the general corporate and working capital needs of the Borrower and certain of its Subsidiaries, the Borrower desires to obtain from the Lenders a (a) Revolving Loan Commitment and (b) Swing Line Loan Commitment (which shall be a sub-facility of the Revolving Loan Commitment) and, from the Issuers, a Letter of Credit Commitment (which shall be a sub-facility of the Revolving Loan Commitment), with all the proceeds of such Credit Extensions to be used for one or more of the purposes specified in SECTION 7.1.7; and WHEREAS, the Lenders and the Issuers are willing, on the terms and subject to the conditions hereinafter set forth, to extend the Commitments and make Loans to the Borrower and issue (or participate in) Letters of Credit; NOW, THEREFORE, the parties hereto agree as follows. ARTICLE I DEFINITIONS AND ACCOUNTING TERMS SECTION 1.1. DEFINED TERMS. The following terms (whether or not underscored) when used in this Agreement, including its preamble and recitals, shall, except where the context otherwise requires, have the following meanings (such meanings to be equally applicable to the singular and plural forms thereof): "ACCOUNT" means any account (as that term is defined in SECTION 9-102(a)(2)(i) of the UCC) of the Borrower or any of its wholly owned U.S. Subsidiaries arising from the sale or lease of goods or rendering of services. "ACCOUNT CONTROL AGREEMENT" means the control agreement executed and delivered by each of Taylor Holding Co., the Administrative Agent, and State Street Bank and Trust Company, in form and substance satisfactory to the Administrative Agent. "ACCOUNTING CHANGES" means: (a) changes in accounting principles required by GAAP and implemented by the Borrower or any of its Subsidiaries and (b) changes in accounting principles recommended by the Borrower's certified public accountants and implemented by the Borrower or any of its Subsidiaries. "ADDITIONAL EQUITY" means the amount of cash received by the Borrower following the Closing Date in consideration for the issuance of its Capital Securities (other than Disqualified Capital Securities). "ADMINISTRATIVE AGENT" is defined in the PREAMBLE and includes each other Person appointed as the successor Administrative Agent pursuant to SECTION 9.4. "AFFILIATE" means as to any Person: (a) each person directly or indirectly controlling, controlled by, or under common control with such Person; (b) each Person that, directly or indirectly owns or holds ten percent (10%) or more of whose voting stock or other equity interest is directly or indirectly owned or held by such Person. For purposes of this definition, "CONTROL" (including with correlative meanings, the terms "CONTROLLING", "CONTROLLED BY" and "UNDER COMMON CONTROL WITH") means the possession directly or indirectly of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities or by contract or otherwise. -2- "AGREEMENT" means, on any date, this Credit Agreement as originally in effect on the Effective Date and as thereafter from time to time amended, supplemented, amended and restated or otherwise modified from time to time and in effect on such date. "ALTERNATE BASE RATE" means, on any date and with respect to all Base Rate Loans, a fluctuating rate of interest per annum (rounded upward, if necessary, to the next highest 1/16 of 1%) equal to the higher of (a) the Base Rate in effect on such day; and (b) the Federal Funds Rate in effect on such day plus1/2of 1%. Changes in the rate of interest on that portion of any Loans maintained as Base Rate Loans will take effect simultaneously with each change in the Alternate Base Rate. The Administrative Agent will give notice promptly to the Borrower and the Lenders of changes in the Alternate Base Rate; PROVIDED, that the failure to give such notice shall not affect the Alternate Base Rate in effect after such change. "APPLICABLE MARGIN" means the applicable percentage set forth below corresponding to the relevant Leverage Ratio:
Applicable Applicable Leverage Margin For Margin For Ratio Base Rate Loans LIBO Rate Loans ----- --------------- --------------- GREATER THAN5.00:1 3.25% 4.25% GREATER THAN 4.50:1 but LESS THAN OR EQUAL TO 5.00:1 2.75% 3.75% GREATER THAN 4.00:1 but LESS THAN OR EQUAL TO 4.50:1 2.50% 3.50% GREATER THAN 3.50:1 but LESS THAN OR EQUAL TO 4.00:1 2.25% 3.25% GREATER THAN 3.00:1 but LESS THAN OR EQUAL TO 3.50:1 2.00% 3.00% LESS THAN OR EQUAL TO 3.00:1 1.50% 2.50%
Notwithstanding anything to the contrary set forth in this Agreement (including the then effective Leverage Ratio), the Applicable Margin for all Loans from the Effective Date through (and including) the date (referred to as the "DELIVERY DATE") of the delivery of the quarterly financial information required pursuant to CLAUSE (a) of SECTION 7.1.1 in respect of the second full Fiscal Quarter following the Effective Date shall be at least 3.5% in the case of LIBO Rate Loans and at least 2.5% in the case of Base Rate Loans. The Leverage Ratio used to compute the Applicable Margin shall be the Leverage Ratio set forth in the Compliance Certificate most recently delivered by the Borrower to the Administrative Agent. Changes in the Applicable Margin resulting from a change in the Leverage Ratio shall become effective upon delivery by the Borrower to the Administrative Agent of a new Compliance Certificate pursuant to CLAUSE (c) of SECTION 7.1.1. If the Borrower shall fail to deliver a Compliance Certificate within 45 days after the end of any Fiscal Quarter (or within 90 days, in the case of the last Fiscal Quarter of the -3- Fiscal Year), the Applicable Margin from and including the 46th (or 91st, as the case may be) day after the end of such Fiscal Quarter to but not including the date the Borrower delivers to the Administrative Agent a Compliance Certificate shall conclusively equal the highest Applicable Margin set forth above. "APPLICABLE UTILIZATION FEE MARGIN" means the applicable percentage set forth below corresponding to the applicable Utilization Ratio:
Utilization Applicable Utilization Ratio Fee Margin ----------- ---------- GREATER THAN 50% 0.50% GREATER THAN 25% but LESS THAN OR EQUAL TO 50% 0.75% LESS THAN OR EQUAL TO 25% 1.00%
The Utilization Ratio used to compute the Applicable Utilization Fee Margin shall be determined by the Administrative Agent (which determination shall be conclusive absent manifest error) following the last day of each Fiscal Quarter, and shall be assessed for the Fiscal Quarter most recently ended. Notwithstanding anything to the contrary set forth in this Agreement (including the immediately preceding sentence), the Applicable Utilization Fee Margin from the Effective Date through (and including) the Delivery Date shall be at least .75%. "ASSET DISPOSITION" means the Disposition whether by sale, lease, transfer, loss, damage, destruction, condemnation or otherwise of (a) any of the Capital Securities of any Subsidiary Guarantor or (b) any or all of the assets of the Borrower or any Subsidiary Guarantor other than sales of inventory in the ordinary course of business. "ASSIGNEE LENDER" is defined in SECTION 10.11.1. "AUTHORIZED OFFICER" means, relative to any Obligor, those of its officers, general partners or managing members (as applicable) whose signatures and incumbency shall have been certified to the Administrative Agent, the Lenders and the Issuers pursuant to SECTION 5.1.1. "BANKRUPTCY CODE" means Title 11 of the United States Code entitled "BANKRUPTCY", as amended from time to time or any applicable bankruptcy, insolvency or other similar law now or hereafter in effect and all rules and regulations promulgated thereunder. "BASE RATE" means, at any time, the rate of interest then most recently established by the Administrative Agent in New York as its base rate for Dollars loaned in the United States. The Base Rate is not necessarily intended to be the lowest rate of interest determined by the Administrative Agent in connection with extensions of credit. "BASE RATE LOAN" means a Loan bearing interest at a fluctuating rate determined by reference to the Alternate Base Rate. "BORROWER" is defined in the PREAMBLE. -4- "BORROWER CLOSING DATE CERTIFICATE" means the closing date certificate executed and delivered by an Authorized Officer of the Borrower substantially in the form of EXHIBIT D hereto. "BORROWER PLEDGE AND SECURITY AGREEMENT" means the Pledge and Security Agreement executed and delivered by an Authorized Officer of the Borrower, substantially in the form of EXHIBIT G-1 hereto, as amended, supplemented, amended and restated or otherwise modified from time to time. "BORROWING" means the Loans of the same type and, in the case of LIBO Rate Loans, having the same Interest Period made by all Lenders required to make such Loans on the same Business Day and pursuant to the same Borrowing Request in accordance with SECTION 2.1. "BORROWING BASE AMOUNT" means, at any time, the difference of (x) the Net Asset Value of all Eligible Accounts and Eligible Inventory at such time as determined in accordance with the definition of "Net Asset Value", LESS (y) the then applicable "Account Receivable Reported Amount" (as defined in the Intercreditor Agreement), in each case as certified by the Borrower to the Lenders in the most recently delivered Borrowing Base Certificate, including the Borrowing Base Certificate delivered on the Closing Date pursuant to CLAUSE (c) of SECTION 5.1.6, LESS (z) any amount deducted from the Borrowing Base Amount to the extent required pursuant to CLAUSE (b) of SECTION 7.2.15. "BORROWING BASE CERTIFICATE" means a certificate, substantially in the form of EXHIBIT B-3 hereto, duly completed and executed by an Authorized Officer that is the president, the chief executive officer, the chief financial or accounting officer, or the treasurer or assistant treasurer of the Borrower (or, prior to March 20, 2002, duly completed and executed by the controller of the Borrower, PROVIDED such Person's signature and incumbency shall have been certified to the Administrative Agent, the Lenders and the Issuer pursuant to SECTION 5.1.1). "BORROWING REQUEST" means a Loan request and certificate duly executed by an Authorized Officer of the Borrower substantially in the form of EXHIBIT B-1 hereto. "BUSINESS DAY" means (a) for all purposes other than as covered by CLAUSE (b) below, any day excluding Saturday, Sunday and any day which is a legal holiday under the laws of the Commonwealth of Pennsylvania, the State of New York or the State of Illinois, or is a day on which banking institutions located in any such states are closed, and (b) with respect to all notices, determinations, fundings and payments in connection with LIBO Rate Loans, any day that is a Business Day described in CLAUSE (a) above and that is also a day for trading by and between banks in Dollar deposits in the applicable interbank LIBOR market. "CAPITAL EXPENDITURES" means, for any period and without duplication, the aggregate amount of (a) all expenditures of the Borrower and its Subsidiaries for fixed or capital assets made during such period which, in accordance with GAAP, would be classified as capital expenditures and (b) Capitalized Lease Liabilities incurred by the Borrower and its Subsidiaries during such period. "CAPITAL SECURITIES" means (a) with respect to any Person that is a corporation, any and all shares, interests, participations or other equivalents (however designated and whether or not -5- voting) of corporate stock, including each class of Common Stock and Preferred Stock of such Person, and all options, warrants or other rights to purchase or acquire any of the foregoing; and (b) with respect to any Person that is not a corporation, any and all partnership, membership or other equity interests of such Person, and all options, warrants or other rights to purchase or acquire any of the foregoing. "CAPITALIZATION DOCUMENTS" means, collectively: (a) any or all of the certificates, notes, debentures or other instruments representing securities bought, sold or issued, or loans made on the Closing Date, including the Senior Unsecured Notes; (b) the indentures or other documents pursuant to which such securities bought, sold or issued on the Closing Date, or any such certificates, notes, debentures or other instruments are issued or to be issued, including the Senior Unsecured Note Documents; (c) each document governing the issuance of, or setting forth the terms of, such securities, certificates, notes, debentures or other instruments; (d) any equityholders, registration or intercreditor agreement among or between the holders of such equity interests, certificates, notes, debentures or other instruments; (e) the CBI Senior Subordinated Notes and the CBI Indenture; and (f) all other instruments, documents and agreements executed in connection with the foregoing; but in each case excluding all Loan Documents. "CAPITALIZED LEASE LIABILITIES" means, with respect to any Person, all monetary obligations of such Person and its Subsidiaries under any leasing or similar arrangement which have been (or, in accordance with GAAP, should be) classified as capitalized leases, and for purposes of each Loan Document the amount of such obligations shall be the capitalized amount thereof, determined in accordance with GAAP, and the stated maturity thereof shall be the date of the last payment of rent or any other amount due under such lease prior to the first date upon which such lease may be terminated by the lessee without payment of a premium or a penalty. "CASH COLLATERALIZE" means, with respect to a Letter of Credit, the deposit of immediately available funds into a cash collateral account maintained with (or on behalf of) the Administrative Agent on terms satisfactory to the Administrative Agent in an amount equal to the Stated Amount of such Letter of Credit. "CASH EQUIVALENT INVESTMENTS" means: (i) marketable direct obligations issued or unconditionally guarantied by the United States Government or issued by any agency thereof and backed by the full faith and credit of the United States, in each case maturing within one (1) year from the date of acquisition thereof; (ii) commercial paper maturing no more than one (1) year from the date issued and, at the time of acquisition, having a rating of at least A-1 from Standard & Poor's Ratings Group or at least P-1 from Moody's Investors Service, Inc.; (iii) certificates of deposit or bankers' acceptances maturing within one (1) year from the date of issuance thereof issued by, or overnight reverse repurchase agreements from, any commercial bank organized under the laws of the United States of America or any state thereof or the District of Columbia having combined capital and surplus of not less than $500,000,000; (iv) time deposits maturing no more than thirty (30) days from the date of creation thereof with commercial banks having membership in the Federal Deposit Insurance Corporation in amounts not exceeding the lesser of $100,000 or the maximum amount of insurance applicable to the aggregate amount of a Borrower's deposits at such institution; and (v) deposits or investments in mutual or similar funds offered or sponsored by brokerage or other companies having membership in the -6- Securities Investor Protection Corporation in amounts not exceeding the lesser of $100,000 or the maximum amount of insurance applicable to the aggregate amount of a Borrower's deposits at such institution. "CBI" is defined in the FIRST RECITAL. "CBI AFFILIATED GROUP" is defined in SECTION 8.1.15. "CBI INDENTURE" means the indenture dated December 16, 1996, as amended by the first supplemental indenture thereto, dated as of July 21, 2000, and as further amended or modified in accordance with SECTION 7.2.12. "CBI PREFERRED STOCK" means the Series A Preferred Stock, par value $0.01 per share, of CBI. "CBI SENIOR SUBORDINATED NOTES" means the 11% Senior Subordinated Notes Due 2007 of CBI in the original principal amount of $90,000,000, issued pursuant to the CBI Indenture. "CERCLA" means the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended. "CERCLIS" means the Comprehensive Environmental Response Compensation Liability Information System List. "CHI" means Castle Harlan, Inc., a Delaware corporation. "CHP" means (a) CHP II, CHP III and any Person controlling, controlled by, or under common control with, and any account controlled or managed by or under common control or management with, CHP II or CHP III and (b) CHI and employees, management and directors of, and Persons owning accounts managed by, any of the foregoing and their respective Affiliates. "CHP II" means Castle Harlan Partners II, L.P., a Delaware limited partnership. "CHP III" means Castle Harlan Partners III, L.P., a Delaware limited partnership. "CHANGE IN CONTROL" means (a) at any time the failure of CHP to beneficially own and control, directly or indirectly through voting trusts or otherwise, at least (i) 51% of the voting interests of the Voting Securities of the Borrower and (ii) 51% of the Capital Securities of the Borrower, such Capital Securities in each case to be held free and clear of all Liens; or (b) during any period of 24 consecutive months, individuals who at the beginning of such period constituted the Board of Directors of the Borrower (together with any new directors whose election to such Board or whose nomination for election by the stockholders of the Borrower was approved by a vote of a majority of the directors then still in office who were either directors at the beginning of such period or whose election or nomination for -7- election was previously so approved) cease for any reason to constitute a majority of the Board of Directors of the Borrower then in office; or (c) the occurrence of any "Change of Control" (or similar term) under (and as defined in) any Senior Unsecured Note Document or any Sub Debt Document. "CLOSING DATE" means the date of the initial Credit Extension hereunder, but in no event shall such date be later than February 21, 2002. "CODE" means the Internal Revenue Code of 1986, and the regulations thereunder, in each case as amended, reformed or otherwise modified from time to time. "COLLATERAL" means, collectively: (a) all Capital Securities and other property pledged pursuant to the Security Documents; (b) all "Collateral" as defined in the Security Documents; (c) all real property mortgaged pursuant to the Security Documents; and (d) any property or interest provided in addition to or in substitution for any of the foregoing. "COMMON STOCK" of any Person means any and all shares, interests or other participations in, and other equivalents (however designated and whether voting or non-voting) of such Person's common stock, whether outstanding on the Closing Date or issued after the Closing Date, and includes all series and classes of such common stock. "COMMITMENT" means, as the context may require, the Revolving Loan Commitment, Letter of Credit Commitment or Swing Line Loan Commitment. "COMMITMENT AMOUNT" means, as the context may require, the Revolving Loan Commitment Amount, the Letter of Credit Commitment Amount or the Swing Line Loan Commitment Amount. "COMMITMENT TERMINATION DATE" means the earliest of (a) the Stated Maturity Date; (b) the date on which the Revolving Loan Commitment Amount is terminated in full or reduced to zero pursuant to the terms of this Agreement; and (c) the date on which any Commitment Termination Event occurs. Upon the occurrence of any event described in the preceding CLAUSES (b) or (c), the Commitments shall terminate automatically and without any further action. "COMMITMENT TERMINATION EVENT" means (a) the occurrence of any Event of Default with respect to the Borrower described in CLAUSES (a) through (d) of SECTION 8.1.9; or (b) the occurrence and continuance of any other Event of Default and either -8- (i) the declaration of all or any portion of the Loans to be due and payable pursuant to SECTION 8.3, or (ii) the giving of notice by the Administrative Agent, acting at the direction of the Required Lenders, to the Borrower that the Commitments have been terminated. "COMPLIANCE CERTIFICATE" means a certificate duly completed and executed by an Authorized Officer of the Borrower, substantially in the form of EXHIBIT E hereto, together with such changes thereto as the Administrative Agent may from time to time request for the purpose of monitoring the Borrower's compliance with the financial covenants contained herein. "CONTINGENT LIABILITY", as applied to any Person, means any direct or indirect liability of that Person: (i) with respect to any indebtedness, lease, dividend or other obligation of another Person if the purpose or intent of the Person incurring such liability, or the effect thereof, is to provide assurance to the obligee of such liability that such liability will be paid or discharged, or that any agreements relating thereto will be complied with, or that the holders of such liability will be protected (in whole or in part) against loss with respect thereto; (ii) with respect to any letter of credit issued for the account of that Person or as to which that Person is otherwise liable for reimbursement of drawings; (iii) under any forward contracts, future contracts, foreign exchange contract, currency swap or option agreement, interest rate swap or option agreement or other similar agreement or arrangement (x) designed to alter the risks of that Person arising from fluctuations in currency values, commodity values or interest rates or (y) the value of which is dependent upon interest rates, currency exchange rates, commodities or other indices; (iv) to make take-or-pay or similar payments if required regardless of nonperformance by any other party or parties to an agreement; or (v) pursuant to any agreement to purchase, repurchase or otherwise acquire any obligation of another Person or any property constituting security therefor, to provide funds for the payment or discharge of such obligation or to maintain the solvency, financial condition or any balance sheet item or level of income of another. For purposes of this Agreement, (a) the amount of any obligation described in CLAUSE (i), (ii), (iv) or (v) shall be equal to the lower of (x) the stated or determinable amount of the primary obligation in respect of which such contingent obligation is made, and (y) the maximum amount for which such Person may be liable pursuant to the terms of the agreement embodying such contingent obligation unless such primary obligation and the maximum amount for which such Person may be liable are not stated or determinable, in which case the amount of such contingent obligation shall be such Person's reasonably anticipated maximum liability in respect thereof as determined by such Person in good faith, and (b) the amount of any obligation described in CLAUSE (iii) shall be the amounts, including any termination payments, that would be required to be paid to a counterparty upon early termination (in accordance with customary industry standards) rather than any notional amount with regard to which payments may be calculated. "CONTINUATION/CONVERSION NOTICE" means a notice of continuation or conversion and certificate duly executed by an Authorized Officer of the Borrower, substantially in the form of EXHIBIT C hereto. "CONTRACTUAL OBLIGATIONS" as applied to any Person, means any indenture, mortgage, deed of trust, contract, undertaking, agreement or other instrument to which that Person is a party or -9- by which it or any of its properties is bound or to which it or any of its properties is subject, including the Related Transactions Documents. "CONTROLLED GROUP" means all members of a controlled group of corporations and all members of a controlled group of trades or businesses (whether or not incorporated) under common control which, together with the Borrower, are treated as a single employer under Section 414(b) or 414(c) of the Code or Section 4001 of ERISA. "COPYRIGHT SECURITY AGREEMENT" means any Copyright Security Agreement executed and delivered by any Obligor in substantially the form of Exhibit C to any Pledge and Security Agreement, as amended, supplemented, amended and restated or otherwise modified from time to time. "CREDIT EXTENSION" means, as the context may require, (a) the making of a Loan by a Lender; or (b) the issuance of any Letter of Credit, or the extension of any Stated Expiry Date of any existing Letter of Credit, by an Issuer. "DEFAULT" means any Event of Default or any condition, occurrence or event which, after notice or lapse of time or both, would constitute an Event of Default. "DELIVERY DATE" is defined in the definition of "Applicable Margin". "DISBURSEMENT" is defined in SECTION 2.6.2. "DISBURSEMENT DATE" is defined in SECTION 2.6.2. "DISCLOSURE SCHEDULE" means the Disclosure Schedule attached hereto as SCHEDULE I, as it may be amended, supplemented, amended and restated or otherwise modified from time to time by the Borrower with the written consent of the Required Lenders. "DISPOSITION" (or similar words such as "DISPOSE") means any sale, transfer, lease, contribution or other conveyance (including by way of merger) of, or the granting of options, warrants or other rights to, any of the Borrower's or its Subsidiaries' assets (including accounts receivable and Capital Securities of Subsidiaries) to any other Person in a single transaction or series of transactions. "DISQUALIFIED CAPITAL SECURITIES" means that portion of any Capital Securities which, by its terms (or by the terms of any security into which it is convertible or for which it is exchangeable), or upon the happening of any event, matures or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or is redeemable, in each case for cash or property (other than Capital Securities) at the sole option of the holder thereof on or prior to the Stated Maturity Date. "DOCUMENTATION AGENT" is defined in the PREAMBLE. -10- "DOLLAR" and the sign "$" mean lawful money of the United States. "DOMESTIC OFFICE" means the office of a Lender designated as its "Domestic Office" on SCHEDULE II hereto or in a Lender Assignment Agreement, or such other office within the United States as may be designated from time to time by notice from such Lender to the Administrative Agent and the Borrower. "EBITDA" means: (d) net income (or loss) for the period of the Borrower and its Subsidiaries, but excluding: (i) the income (or loss) of any Person (other than Subsidiaries of the Borrower) in which the Borrower or any of its Subsidiaries has an ownership interest unless received by the Borrower or its Subsidiaries in a cash distribution; (ii) the income (or loss) of any Person accrued prior to the date it becomes a Subsidiary of the Borrower or is merged into or consolidated with the Borrower; and (iii) the aggregate amount of interest income earned by the Borrower and its Subsidiaries; PLUS (e) any provision for (or less any benefit from) income and franchise taxes included in the determination of net income; (f) interest expense (including that attributable to capital leases and all commissions, discounts and others fees and charges with respect to letters of credit) deducted in the determination of net income; (g) amortization and depreciation deducted in the determination of net income; (h) losses (or MINUS gains) from Asset Dispositions or other non-cash items included in the determination of net income (excluding sales, expenses or losses related to current assets); (i) transaction expenses included in the determination (for the relevant period) of net income of (A) the Related Transactions consummated on or around the Closing Date in an amount not to exceed $10,000,000 and (B) the Existing Credit Agreement (including the transactions, such as the acquisition of ECI, contemplated therein), in an amount not to exceed $7,000,000; (j) any management fee (contemplated by CLAUSE (a) of SECTION 7.2.13 of the Credit Agreement) actually paid in cash to the extent deducted in the determination of net income; (k) to the extent deducted in determining net income, an amount not to exceed $3,000,000 reflecting the cost of unwinding a portion of the interest rate swaps existing as of the Closing Date; and (l) other non-cash items deducted (or less other non-cash items added) in the determination of net income; -11- LESS (m) extraordinary gains net of related tax effects included in the determination of net income. "ECI" is defined in the FIRST RECITAL. "EFFECTIVE DATE" means the date this Agreement becomes effective pursuant to SECTION 10.8. "ELIGIBLE ACCOUNT" means, with respect to the Borrower and any of its U.S. wholly-owned Subsidiaries, at the time of any determination thereof, any Account for which none of the following criteria apply in the reasonable determination of the Administrative Agent: (n) "Balfour Representative" Accounts which remain unpaid for more than 180 days after the due date specified in the original invoice therefor (or for more than 90 days after the invoice date thereof, if no due date is specified); (o) Accounts (other than "Balfour Representative" Accounts) which remain unpaid for more than 120 days after the due date specified in the original invoice therefor (or for more than 90 days after the invoice date if no due date is specified); (p) Accounts in excess of $100,000 due from a customer whose principal place of business is located outside of the United States, or such Accounts in excess of an aggregate of $500,000, except for such Accounts that are backed by a letter of credit (provided that such letter of credit was issued or confirmed by a bank that is organized under the laws of the United States of America or a State thereof and has capital and surplus in excess of $500,000,000); (q) Accounts with respect to which the customer is the United States of America or any department, agency, or instrumentality thereof, except for those Accounts for which the applicable Obligor has complied with the Federal Assignment of Claims Act (Ref. 31 U.S.C. Section 3727) and other Accounts that do not in the aggregate exceed $1,500,000 at any time outstanding; (r) Accounts with respect to which the customer is an Affiliate of the Borrower or a director, officer, agent, stockholder, or employee of the Borrower or any of its Affiliates (this exclusion shall not include (x) Accounts with respect to which the customer is a commissioned sales representative of CBI, Taylor General Partner, Taylor or any Subsidiary of Taylor or CBI, and (y) Accounts of less than $250,000 in the aggregate with respect to which the customer is a portfolio company of CHP); (s) Accounts with respect to which there is any unresolved dispute with the respective customer but only to the extent of such dispute; (t) Accounts with respect to which the Administrative Agent does not have a valid, first priority and fully perfected security interest and Accounts subject to any Lien except those in favor of the Administrative Agent; including Accounts evidenced by an -12- instrument (as defined in Article 9 of the UCC) not in the possession of the Administrative Agent; (u) Accounts with respect to which the customer is the subject of any bankruptcy or other insolvency proceedings; (v) Accounts due from a customer to the extent that such Accounts exceed in the aggregate an amount equal to 10% (or 20% with respect to Accounts due from Wal-Mart Stores, Inc.) of the aggregate of all Accounts at such date; (w) Accounts with respect to which the customer's obligation to pay is conditional or subject to a repurchase obligation or right to return, including bill and hold sales, guarantied sales, sale or return transactions, sales on approval or consignment sales (other than Accounts of Taylor and CBI to the extent such Accounts are on terms consistent with past practices of Taylor and CBI, respectively); or (x) Accounts which do not constitute the legally valid and binding obligation of the customer to pay the same. "ELIGIBLE INVENTORY" means, with respect to the Borrower and any of its U.S. wholly-owned Subsidiaries, at the time of any determination thereof, any Inventory located in the United States arising in the ordinary course of business and for which none of the following criteria apply in the reasonable determination of the Administrative Agent, and valued at the lower of cost or market (including adequate reserves for obsolete, slow moving or excess quantities), on a first-in, first-out basis: (y) Inventory with respect to which the Administrative Agent does not have a valid, first priority and fully perfected security interest; (z) raw material Inventory of Gold content; (aa) Gold content included in finished goods Inventory and work in process Inventory; (bb) Inventory with respect to which there exists any Lien in favor of any Person other than the Administrative Agent under a Loan Document; (cc) Inventory located at a consignee, bailee, warehouseman, refiner, agent, processor or other third party location for which the Administrative Agent has not received an access agreement in form and substance satisfactory to the Administrative Agent; or (dd) Inventory produced in violation the Fair Labor Standards Act and subject to the so-called "hot goods" provisions contained in Title 25 U.S.C. 215(a)(i). "ENVIRONMENTAL LAWS" means all applicable federal, state or local statutes, laws, ordinances, codes, rules, regulations and published guidelines (including consent decrees and administrative orders) relating to public health and safety and protection of the environment. -13- "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time, and all rules and regulations promulgated thereunder. "EVENT OF DEFAULT" is defined in SECTION 8.1. "EXEMPTION CERTIFICATE" is defined in CLAUSE (e) of SECTION 4.6. "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended. "EXISTING BORROWERS" is defined in the FIRST RECITAL. "EXISTING CREDIT AGREEMENT" is defined in the FIRST RECITAL. "EXISTING PROMISSORY NOTES" is defined in the FIRST RECITAL. "FEDERAL FUNDS RATE" means, for any period, a fluctuating interest rate per annum equal for each day during such period to (a) the weighted average of the rates on overnight federal funds transactions with members of the Federal Reserve System arranged by federal funds brokers, as published for such day (or, if such day is not a Business Day, for the next preceding Business Day) by the Federal Reserve Bank of New York; or (b) if such rate is not so published for any day which is a Business Day, the average of the quotations for such day on such transactions received by the Administrative Agent from three federal funds brokers of recognized standing selected by it. "FEE LETTER" means the confidential letter, dated December 17, 2001, between Scotia Capital and the Borrower. "FILING AGENT" is defined in SECTION 5.1.9. "FILING STATEMENTS" is defined in SECTION 5.1.9. "FISCAL QUARTER" means a quarter ending on the Saturday closest to the last day of November, February, May or August. "FISCAL YEAR" means any period of twelve consecutive calendar months ending on the final Saturday of August in each calendar year; references to a Fiscal Year with a number corresponding to any calendar year (E.G., the "2002 Fiscal Year") refer to the Fiscal Year ending on the Saturday closest to August 31 of such calendar year. "FIXED CHARGE COVERAGE RATIO" means, as of the close of any Fiscal Quarter, the ratio computed for the period consisting of such Fiscal Quarter and the three immediately preceding Fiscal Quarters of the following amounts with respect to all such Fiscal Quarters: (ee) EBITDA MINUS the sum of (i) Unfinanced Capital Expenditures, (ii) any management fee (contemplated by CLAUSE (a) of SECTION 7.2.13) actually paid in cash to -14- the extent deducted in the determination of net income, and (iii) other capitalized costs (defined as the gross amount capitalized, for any period, as long term assets (net of cash received in respect of long term assets), including the purchase price of Permitted Acquisitions to the extent paid in cash from sources other than a Borrowing, other than (x) Capital Expenditures and (y) fees and expenses capitalized with respect to the Refinancing; TO (ff) Fixed Charges. "FIXED CHARGES" means (a) Interest Expense PLUS (b)(i) any provision for (or benefit from) income or franchise taxes included in the determination of net income; (ii) increases (or PLUS decreases) in short-term and long-term deferred tax assets; (iii) decreases (or MINUS increases) in short-term and long-term deferred tax liabilities; (iv) scheduled payments of principal with respect to all Indebtedness (including the principal portion of scheduled payments of Capitalized Lease Liabilities); and (v) Restricted Junior Payments made in cash (other than (i) Restricted Junior Payments which are made solely with the proceeds of a Qualified SLB or (ii) with the proceeds of Additional Equity). "FOREIGN SUBSIDIARY" means any Subsidiary that is not a U.S. Subsidiary. "F.R.S. BOARD" means the Board of Governors of the Federal Reserve System or any successor thereto. "GAAP" means generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as may be approved by a significant segment of the accounting profession of the United States, which are in effect from time to time. "GOLD" means gold in whatever form (whether bullion, granule, alloys or otherwise). "GOLD CONSIGNMENT AGREEMENT" means that certain Letter Agreement and Fee Consignment for Purchase of Gold, dated as of July 27, 2000, by and between CBI and The Bank of Nova Scotia, as amended or otherwise modified from time to time prior to the Effective Date. "GOVERNMENTAL AUTHORITY" means the government of the United States, any other nation or any political subdivision thereof, whether state or local, and any agency, authority, instrumentality, regulatory body, court, central bank or other Person exercising executive, legislative, judicial, taxing, regulatory or administrative powers or functions of or pertaining to government. "HAZARDOUS MATERIAL" means (a) any "hazardous substance", as defined by CERCLA; -15- (b) any "hazardous waste", as defined by the Resource Conservation and Recovery Act, as amended; or (c) any pollutant or contaminant or hazardous, radioactive, toxic or otherwise regulated chemical, material or substance (including any petroleum product) within the meaning of any Environmental Law, as amended. "HEDGING OBLIGATIONS" means, with respect to any Person, all liabilities of such Person under currency or commodity exchange agreements, interest rate swap agreements, interest rate cap agreements and interest rate collar agreements, and all other agreements or arrangements designed to protect such Person against fluctuations in interest rates, currency exchange rates or commodity values. "HEREIN", "HEREOF", "HERETO", "HEREUNDER" and similar terms contained in any Loan Document refer to such Loan Document as a whole and not to any particular Section, paragraph or provision of such Loan Document. "IMPERMISSIBLE QUALIFICATION" means any qualification or exception to the opinion or certification of any independent public accountant as to any financial statement of the Borrower (a) which is of a "going concern" or similar nature; (b) which relates to the limited scope of examination of matters relevant to such financial statement; or (c) which relates to the treatment or classification of any item in such financial statement and which, as a condition to its removal, would require an adjustment to such item the effect of which would be to cause the Borrower to be in Default. "INCLUDING" and "INCLUDE" means including without limiting the generality of any description preceding such term, and, for purposes of each Loan Document, the parties hereto agree that the rule of ejusdem generis shall not be applicable to limit a general statement, which is followed by or referable to an enumeration of specific matters, to matters similar to the matters specifically mentioned. "INDEBTEDNESS" of any Person means: (gg) all obligations of such Person for borrowed money or advances and all obligations of such Person evidenced by bonds, debentures, notes or similar instruments; (hh) all obligations, contingent or otherwise, relative to the face amount of all letters of credit, whether or not drawn, and banker's acceptances issued for the account of such Person; (ii) all Capitalized Lease Liabilities of such Person; (jj) for purposes of SECTION 8.1.5 only, all other items which, in accordance with GAAP, would be included as liabilities on the balance sheet of such Person as of the date at which Indebtedness is to be determined; -16- (kk) net Hedging Obligations of such Person; (ll) whether or not so included as liabilities in accordance with GAAP, all obligations of such Person to pay the deferred purchase price of property or services (excluding trade accounts payable in the ordinary course of business which are not overdue for a period of more than 90 days or, if overdue for more than 90 days, as to which a dispute exists and adequate reserves in conformity with GAAP have been established on the books of such Person), and indebtedness secured by (or for which the holder of such indebtedness has an existing right, contingent or otherwise, to be secured by) a Lien on property owned or being acquired by such Person (including indebtedness arising under conditional sales or other title retention agreements), whether or not such indebtedness shall have been assumed by such Person or is limited in recourse; (mm) obligations arising under Synthetic Leases; and (nn) all Contingent Liabilities of such Person in respect of any of the foregoing. The Indebtedness of any Person shall include the Indebtedness of any other Person (including any partnership in which such Person is a general partner) to the extent such Person is liable therefor as a result of such Person's ownership interest in or other relationship with such Person, except to the extent the terms of such Indebtedness provide that such Person is not liable therefor. "INDEMNIFIED LIABILITIES" is defined in SECTION 10.4. "INDEMNIFIED PARTIES" is defined in SECTION 10.4. "INDENTURE" means the Indenture, dated as of February 20, 2002, to the Senior Unsecured Notes, as amended, supplemented, amended and restated or otherwise modified in accordance with SECTION 7.2.12. "INTERCO SUBORDINATION AGREEMENT" means the Subordination Agreement, substantially in the form of EXHIBIT I hereto, executed and delivered by two or more Obligors pursuant to the terms of this Agreement, as amended, supplemented, amended and restated or otherwise modified from time to time. "INTERCREDITOR AGREEMENT" means the Intercreditor Agreement, substantially in the form of EXHIBIT K hereto, by and among the Administrative Agent and Scotia Capital and acknowledged by the Borrower, dated as of February 20, 2002 (as amended, supplemented, amended and restated or otherwise modified from time to time). "INTEREST COVERAGE RATIO" means as of the close of any Fiscal Quarter, the ratio computed for the period consisting of such Fiscal Quarter and the three immediately preceding Fiscal Quarters of (a) EBITDA for all such Fiscal Quarters to (b) Interest Expense for all such Fiscal Quarters. "INTEREST EXPENSE" means: -17- (oo) interest expense, net of interest income, included in the determination of net income (but including that attributable to capital leases, all commissions, discounts and other fees and charges with respect to letters of credit); MINUS (pp) amortization of capitalized fees and expenses incurred with respect to the Refinancing included in interest expense; MINUS (qq) interest paid in kind and included in interest expense. "INTEREST PERIOD" means, relative to any LIBO Rate Loan, the period beginning on (and including) the date on which such LIBO Rate Loan is made or continued as, or converted into, a LIBO Rate Loan pursuant to SECTIONS 2.3 or 2.4 and shall end on (but exclude) the day which numerically corresponds to such date one, two, three or six months thereafter (or, if such month has no numerically corresponding day, on the last Business Day of such month), as the Borrower may select in its relevant notice pursuant to SECTIONS 2.3 or 2.4; PROVIDED, HOWEVER, that (a) the Borrower shall not be permitted to select Interest Periods to be in effect at any one time which have expiration dates occurring on more than five different dates; (b) if such Interest Period would otherwise end on a day which is not a Business Day, such Interest Period shall end on the next following Business Day (unless such next following Business Day is the first Business Day of a calendar month, in which case such Interest Period shall end on the Business Day next preceding such numerically corresponding day); and (c) no Interest Period for any Loan may end later than the Stated Maturity Date for such Loan. "INVENTORY" means any "inventory" (as that term is defined in Section 9-102(a)(48)(B) and (a)(48)(D) of the UCC) of the Borrower or any of its wholly owned U.S. Subsidiaries. "INVESTMENT" means (i) any direct or indirect purchase or other acquisition by the Borrower or any of its Subsidiaries of any beneficial interest in, including Capital Securities of, or ownership interest in, any other Person; and (ii) any direct or indirect loan, advance or capital contribution by the Borrower or any of its Subsidiaries to any other Person, including all indebtedness and accounts receivable from that other Person that are not current assets or did not arise from sales or provision of services to that other Person in the ordinary course of business. The amount of any Investment shall be the original principal or capital amount thereof less all returns of principal or equity thereon and shall, if made by the transfer or exchange of property other than cash, be deemed to have been made in an original principal or capital amount equal to the fair market value of such property at the time of such Investment. "ISP RULES" is defined in SECTION 10.9. -18- "ISSUANCE REQUEST" means a Letter of Credit request and certificate duly executed by an Authorized Officer of the Borrower, substantially in the form of EXHIBIT B-2 hereto. "ISSUER" means Scotia Capital in its capacity as Issuer of the Letters of Credit. At the request of Scotia Capital and with the Borrower's consent (not to be unreasonably withheld), another Lender or an Affiliate of Scotia Capital may issue one or more Letters of Credit hereunder. "LENDER ASSIGNMENT AGREEMENT" means an assignment agreement substantially in the form of EXHIBIT J hereto. "LENDERS" is defined in the PREAMBLE. "LENDER'S ENVIRONMENTAL LIABILITY" means any and all losses, liabilities, obligations, penalties, claims, litigation, demands, defenses, costs, judgments, suits, proceedings, damages (including consequential damages), disbursements or expenses of any kind or nature whatsoever (including reasonable attorneys' fees at trial and appellate levels and experts' fees and disbursements and expenses incurred in investigating, defending against or prosecuting any litigation, claim or proceeding) which may at any time be imposed upon, incurred by or asserted or awarded against the Administrative Agent, any Lender or any Issuer or any of such Person's Affiliates, shareholders, directors, officers, employees, and agents in connection with or arising from: (a) any Hazardous Material on, in, under or affecting all or any portion of any property of the Borrower or any of its Subsidiaries, the groundwater thereunder, or any surrounding areas thereof to the extent caused by Releases from the Borrower's or any of its Subsidiaries' or any of their respective predecessors' properties; (b) any misrepresentation, inaccuracy or breach of any warranty, contained or referred to in SECTION 6.10; (c) any violation or claim of violation by the Borrower or any of its Subsidiaries of any Environmental Laws; or (d) the imposition of any lien for damages caused by or the recovery of any costs for the cleanup, release or threatened release of Hazardous Material by the Borrower or any of its Subsidiaries, or in connection with any property owned or formerly owned by the Borrower or any of its Subsidiaries. "LETTER OF CREDIT" is defined in SECTION 2.1.2. "LETTER OF CREDIT COMMITMENT" means each Issuer's obligation to issue Letters of Credit pursuant to SECTION 2.1.2. "LETTER OF CREDIT COMMITMENT AMOUNT" means, on any date, a maximum amount of $10,000,000, as such amount may be permanently reduced from time to time pursuant to SECTION 2.2. -19- "LETTER OF CREDIT OUTSTANDINGS" means, on any date, an amount equal to the sum of (i) the then aggregate amount which is undrawn and available under all issued and outstanding Letters of Credit, and (ii) the then aggregate amount of all unpaid and outstanding Reimbursement Obligations. "LEVERAGE RATIO" means, as of the last day of any Fiscal Quarter, the ratio of (a) Total Debt outstanding on the last day of such Fiscal Quarter TO (b) EBITDA computed for the period consisting of such Fiscal Quarter and each of the three immediately preceding Fiscal Quarters. "LIBO RATE" means, relative to any Interest Period for LIBO Rate Loans, the rate of interest equal to the average (rounded upwards, if necessary, to the nearest 1/16 of 1%) of the rates per annum at which Dollar deposits in immediately available funds are offered to the Administrative Agent's LIBOR Office in the London interbank market at or about 11:00 a.m. London, England time two Business Days prior to the beginning of such Interest Period for delivery on the first day of such Interest Period, and in an amount approximately equal to the amount of the Administrative Agent's LIBO Rate Loan and for a period approximately equal to such Interest Period. "LIBO RATE LOAN" means a Loan bearing interest, at all times during an Interest Period applicable to such Loan, at a rate of interest determined by reference to the LIBO Rate (Reserve Adjusted). "LIBO RATE (RESERVE ADJUSTED)" means, relative to any Loan to be made, continued or maintained as, or converted into, a LIBO Rate Loan for any Interest Period, a rate per annum (rounded upwards, if necessary, to the nearest 1/16 of 1%) determined pursuant to the following formula: LIBO RATE LIBO Rate = ---------------------------- (Reserve Adjusted) 1.00 - LIBOR Reserve Percentage The LIBO Rate (Reserve Adjusted) for any Interest Period for LIBO Rate Loans will be determined by the Administrative Agent on the basis of the LIBOR Reserve Percentage in effect two Business Days before the first day of such Interest Period. "LIBOR OFFICE" means the office of a Lender designated as its "LIBOR Office" on SCHEDULE II hereto or in a Lender Assignment Agreement, or such other office designated from time to time by notice from such Lender to the Borrower and the Administrative Agent, whether or not outside the United States, which shall be making or maintaining the LIBO Rate Loans of such Lender. "LIBOR RESERVE PERCENTAGE" means, relative to any Interest Period for LIBO Rate Loans, the reserve percentage (expressed as a decimal) equal to the maximum aggregate reserve requirements (including all basic, emergency, supplemental, marginal and other reserves and -20- taking into account any transitional adjustments or other scheduled changes in reserve requirements) specified under regulations issued from time to time by the F.R.S. Board and then applicable to assets or liabilities consisting of or including "Eurocurrency Liabilities", as currently defined in Regulation D of the F.R.S. Board, having a term approximately equal or comparable to such Interest Period. "LIEN" means any security interest, mortgage, pledge, hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or otherwise), charge against or interest in property, or other priority or preferential arrangement of any kind or nature whatsoever, to secure payment of a debt or performance of an obligation. "LOAN DOCUMENTS" means, collectively, (i) this Agreement, the Notes, the Letters of Credit, each Rate Protection Agreement, the Fee Letter, each agreement pursuant to which the Administrative Agent is granted a Lien to secure the Obligations and each other agreement, certificate, document or instrument delivered in connection with any Loan Document, whether or not specifically mentioned herein or therein and (ii) for purposes of any agreement which provides a Lien in favor of the Secured Parties, the Gold Consignment Agreement. "LOANS" means, as the context may require, a Revolving Loan or a Swing Line Loan of any type. "MATERIAL ADVERSE EFFECT" means (a) a material adverse effect upon the business, operations, properties, assets or financial condition of the Borrower and its Subsidiaries taken as a whole, or (b) the impairment of the ability of the Borrower and its Subsidiaries taken as a whole to perform their material obligations under the Loan Documents or of the Administrative Agent or any Lender to enforce any Loan Document or collect the Obligations. In determining whether any individual event would result in a Material Adverse Effect, notwithstanding that such event does not of itself have such effect, a Material Adverse Effect shall be deemed to have occurred if the cumulative effect of such event and all other then existing events would result in a Material Adverse Effect. "MEXICAN SUBSIDIARY" means Pulidos de Juarez, S.A. de C.V., a corporation organized under the laws of Mexico. "MONTHLY PAYMENT DATE" means the first day of each calendar month or, if such day is not a Business Day, the next succeeding Business Day. "MOODY'S" means Moody's Investors Service, Inc. "MORTGAGE" means each deed of trust executed and delivered by each of CBI, with respect to its real property located in Travis County, Texas as of the Closing Date, and Taylor General Partner, with respect to its real property located in Dallas County, Texas as of the Closing Date, in each case in favor of the Administrative Agent for the benefit of the Secured Parties pursuant to the requirements of this Agreement, in substantially the form of EXHIBIT H hereto, under which a Lien is granted on the real property and fixtures described therein, as amended, supplemented, amended and restated or otherwise modified from time to time. -21- "NET ASSET VALUE" means, at any time of any determination, (i) with respect to Eligible Accounts, 85% of an amount equal to (x) the book value of all Eligible Accounts as reflected on the books of the Borrower and its Subsidiaries in accordance with GAAP, net of (y) all credits, discounts and allowances (and net of all unissued credits in the form of competitive allowances or otherwise) in respect of such Eligible Accounts and (ii) with respect to Eligible Inventory, an amount equal to the sum of (x) 50%, with respect to Nonprecious Inventory and (y) 70%, with respect to Precious Metals/Stones Inventory, in each case of the net book value (determined on a standard cost basis) of all such Eligible Inventory as reflected on the books of the Borrower and the Subsidiaries as at such time, valued in accordance with GAAP. "NONPRECIOUS INVENTORY" means Eligible Inventory LESS Precious Metals/Stones Inventory. "NON-EXCLUDED TAXES" means any Taxes other than net income, branch, doing business or franchise taxes imposed with respect to any Secured Party by any Governmental Authority as a result of a present or former connection between such Secured Party and the relevant taxing jurisdiction, other than a connection arising solely from such Secured Party having executed, delivered, or performed its obligations under, or received a payment under, or enforced this Agreement or any other Loan Document. "NON-U.S. LENDER" or "NON-U.S. SECURED PARTY" means any Lender or Secured Party, as the case may be, that is not a "United States person", as defined under Section 7701(a)(30) of the Code. "NOTE" means, as the context may require, a Revolving Note or a Swing Line Note. "OBLIGATIONS" means, collectively, (i) all obligations (monetary or otherwise, whether absolute or contingent, matured or unmatured) of the Borrower and each other Obligor arising under or in connection with a Loan Document, including Reimbursement Obligations and the principal of and premium, if any, and interest (including interest accruing during the pendency of any proceeding of the type described in SECTION 8.1.9, whether or not allowed in such proceeding) on the Loans, and (ii) for purposes of any Security Document which provides a Lien in favor of the Secured Parties, all amounts owing to Scotia Capital pursuant to the Gold Consignment Agreement. "OBLIGOR" means, as the context may require, the Borrower and each of its Subsidiaries. "ORGANIC DOCUMENT" means, relative to any Obligor, as applicable, its certificate of incorporation, by-laws, certificate of partnership, partnership agreement, certificate of formation, limited liability agreement, operating agreement and all shareholder agreements, voting trusts and similar arrangements applicable to any of such Obligor's partnership interests, limited liability company interests or authorized shares of Capital Securities. "OTHER TAXES" means any and all stamp, documentary or similar Taxes, or any other excise or property Taxes or similar levies that arise on account of any payment made or required to be made under any Loan Document or from the execution, delivery, registration, recording or enforcement of any Loan Document. -22- "PARTICIPANT" is defined in SECTION 10.11.2. "PATENT SECURITY AGREEMENT" means any Patent Security Agreement executed and delivered by any Obligor in substantially the form of Exhibit A to any Pledge and Security Agreement, as amended, supplemented, amended and restated or otherwise modified from time to time. "PBGC" means the Pension Benefit Guaranty Corporation and any Person succeeding to any or all of its functions under ERISA. "PENSION PLAN" means a "pension plan", as such term is defined in Section 3(2) of ERISA, which is subject to Title IV of ERISA (other than a multiemployer plan as defined in Section 4001(a)(3) of ERISA), and to which the Borrower or any corporation, trade or business that is, along with the Borrower, a member of a Controlled Group, may have liability, including any liability by reason of having been a substantial employer within the meaning of Section 4063 of ERISA at any time during the preceding five years, or by reason of being deemed to be a contributing sponsor under Section 4069 of ERISA. "PERCENTAGE" means, relative to any Lender, the applicable percentage relating to Revolving Loans set forth opposite its name on SCHEDULE II hereto under the Revolving Loan Commitment column or set forth in a Lender Assignment Agreement under the Revolving Loan Commitment column, as such percentage may be adjusted from time to time pursuant to Lender Assignment Agreements executed by such Lender and its Assignee Lender and delivered pursuant to SECTION 10.11.1. A Lender shall not have any Revolving Loan Commitment if its percentage under the Revolving Loan Commitment column is zero. "PERMITTED ACQUISITION" means an acquisition (whether pursuant to an acquisition of Capital Securities, assets or otherwise) by the Borrower or any Subsidiary from any Person of a business in which the following conditions are satisfied or otherwise consented to by the Required Lenders: (rr) the Borrower has demonstrated in writing to the reasonable satisfaction of the Administrative Agent that the business to be acquired has had positive EBITDA, after giving effect to Pro Forma Cost Reductions, for the preceding 12 months for which a calculation of EBITDA is then available; (ss) the Borrower has demonstrated in writing to the reasonable satisfaction of the Administrative Agent that on a PRO FORMA basis, after giving effect to such acquisition, the sum of (x) the unused portion of the Revolving Loan Commitment Amount (net of Letter of Credit Outstandings) available as of the date of such acquisition (including immediately following such acquisition) and (y) the amount of Cash Equivalent Investments then owned by the Borrower, shall at all times during the 12 months following such acquisition equal or exceed $5,000,000; (tt) substantially all of the assets so acquired are located in the United States or, if such acquisition is structured as a purchase of Capital Securities, the Person so acquired is organized under the laws of a state in the United States or under the laws of the District -23- of Columbia, and substantially all of the assets owned by such Person are located in the United States; (uu) the Borrower has delivered to the Administrative Agent not less than ten (10) Business Days prior to the consummation of the acquisition an acquisition summary providing a reasonably detailed description of the Person whose Capital Securities or assets are proposed to be acquired and the terms and conditions of the proposed purchase, along with such due diligence information (including, without limitation, due diligence information regarding any environmental matters) reasonably requested by, and in form and content reasonably acceptable to, the Administrative Agent; (vv) the Borrower has delivered to the Administrative Agent all legal documentation pertaining to such acquisition, which documentation shall be in form and substance reasonably acceptable to the Administrative Agent; (ww) immediately before and after giving effect to such acquisition no Default shall have occurred and be continuing or would result therefrom (including under SECTION 7.2.1); (g) the Borrower shall have delivered to the Administrative Agent a Compliance Certificate for the period of four full Fiscal Quarters immediately preceding such acquisition (prepared in good faith and in a manner and using such methodology which is consistent with the most recent financial statements delivered pursuant to SECTION 7.1.1) giving PRO FORMA effect to the consummation of such acquisition and evidencing compliance with the covenants set forth in SECTION 7.2.4; and (h) the Total Consideration to be paid for such acquisition does not exceed $10,000,000, and together with the Total Consideration paid with respect to all other Permitted Acquisitions does not exceed $25,000,000 over the term of this Agreement. "PERMITTED ENCUMBRANCES" is defined in SECTION 7.2.3. "PERSON" means any natural person, corporation, limited liability company, partnership, joint venture, association, trust or unincorporated organization, Governmental Authority or any other legal entity, whether acting in an individual, fiduciary or other capacity. "PLEDGE AND SECURITY AGREEMENT" means, as the context may require, the Borrower Pledge and Security Agreement or the Subsidiary Pledge and Security Agreement. "PLEDGED SUBSIDIARY" means each Subsidiary in respect of which the Administrative Agent has been granted a security interest in or a pledge of (i) any of the Capital Securities of such Subsidiary or (ii) any intercompany notes of such Subsidiary owing to the Borrower or another Subsidiary. "PRECIOUS METALS/STONES INVENTORY" means Eligible Inventory consisting of precious stones and precious metals. -24- "PREFERRED STOCK" of any Person means any Capital Securities of such Person that has preferential rights to any other Capital Securities of such Person with respect to dividends or redemptions or upon liquidation. "PRO FORMA COST REDUCTION" means, with respect to any Permitted Acquisition, the estimated amount of cost savings attributable to operational efficiencies expected to be created by the Borrower with respect to the business to be acquired and the business of the Borrower and its Subsidiaries, as calculated by the Borrower and acceptable to the Administrative Agent in its discretion. "PROJECTIONS" means forecasted (a) consolidated balance sheets, cash flow statements, and capitalization statements; and (b) consolidated and consolidating profit and loss statements, all prepared with the Borrower's and its Subsidiaries' respective historical financial statements and with the financial statements required to be delivered pursuant to CLAUSE (a) and CLAUSE (b) of SECTION 7.1.1, together with appropriate supporting details and a statement of underlying assumptions. "QUALIFIED SLB" means the Sale and Leaseback Transaction by the Borrower or its Subsidiaries involving either their facilities located in Travis County, Texas as of the Closing Date or their facilities located in Dallas County, Texas as of the Closing Date. "QUARTERLY PAYMENT DATE" means the last day of March, June, September and December, or, if any such day is not a Business Day, the next succeeding Business Day. "RATE PROTECTION AGREEMENT" means, collectively, any precious metal hedge agreement, foreign exchange agreement, commodity exchange agreement, interest rate swap, cap, collar or (in each case) similar agreement entered into by the Borrower or any of its Subsidiaries under which the counterparty of such agreement is (or at the time such agreement was entered into, was) a Lender or an Affiliate of a Lender. "REFINANCING" is defined in the FIRST RECITAL. "REFUNDED SWING LINE LOANS" is defined in CLAUSE (b) of SECTION 2.3.2. "REGISTER" is defined in CLAUSE (b) of SECTION 2.7. "REIMBURSEMENT OBLIGATION" is defined in SECTION 2.6.3. "RELATED TRANSACTIONS" means the execution and delivery of the Related Transactions Documents on the Closing Date, the funding of all Credit Extensions (if any) on the Closing Date, the issuance of the Senior Unsecured Notes, and the payment of all fees, costs and expenses associated with all of the foregoing. "RELATED TRANSACTIONS DOCUMENTS" means the Loan Documents and the Capitalization Documents. "RELEASE" means a "RELEASE", as such term is defined in CERCLA. -25- "REPLACEMENT LENDER" is defined in CLAUSE (f) of SECTION 10.11.1. "REQUIRED LENDERS" means, at any time, (i) Lenders holding at least 66 2/3% of the Total Exposure Amount (if there are more than two Lenders on such date of determination) and (ii) Lenders holding 100% of the Total Exposure Amount (if there are two or fewer Lenders on such date of determination). "RESOURCE CONSERVATION AND RECOVERY ACT" means the Resource Conservation and Recovery Act, 42 U.S.C. Section 6901, ET SEQ., as amended. "RESTRICTED JUNIOR PAYMENT" means: (i) any dividend or other distribution, direct or indirect, on account of any shares of any class of Capital Securities, or ownership interest in, the Borrower or any of its Subsidiaries now or hereafter outstanding, except a dividend payable solely in shares of that class of Capital Securities or other equity security to the holders of that class; (ii) any redemption, conversion, exchange, retirement, sinking fund or similar payment, purchase or other acquisition for value, direct or indirect, of any shares of any class of Capital Securities, or ownership interest in, the Borrower or any of its Subsidiaries now or hereafter outstanding; (iii) any payment or prepayment of interest on, principal of, premium, if any, redemption, conversion, exchange, purchase, retirement, defeasance, sinking fund or similar payment with respect to any Subordinated Debt, Seller Note Indebtedness, or the Senior Unsecured Notes; and (iv) any payment made to retire, or to obtain the surrender of, any outstanding warrants, options or other rights to acquire shares of any class of Capital Securities, or ownership interest in the Borrower or any of its Subsidiaries now or hereafter outstanding. "REVOLVING LOAN" is defined in SECTION 2.1.1. "REVOLVING LOAN COMMITMENT" means, relative to any Lender, such Lender's obligation (if any) to make Revolving Loans pursuant to CLAUSE (a) of SECTION 2.1.1. "REVOLVING LOAN COMMITMENT AMOUNT" means, on any date, $40,000,000, as such amount may be reduced from time to time pursuant to SECTION 2.2. "REVOLVING NOTE" means a promissory note of the Borrower payable to any Lender, in the form of EXHIBIT A-1 hereto (as such promissory note may be amended, endorsed or otherwise modified from time to time), evidencing the aggregate Indebtedness of the Borrower to such Lender resulting from outstanding Revolving Loans, and also means all other promissory notes accepted from time to time in substitution therefor or renewal thereof. "S&P" means Standard & Poor's Rating Services, a division of McGraw-Hill, Inc. "SALE AND LEASEBACK TRANSACTION" means any agreement or arrangement providing for the sale or transfer by any Person of any real property and any improvements thereon (now owned or hereafter acquired) to another Person and the subsequent lease or rental of such real property or improvements or other similar property from such other Person. "SCOTIA CAPITAL" is defined in the PREAMBLE. "SEC" means the Securities and Exchange Commission. -26- "SECURED DEBT" means, on any date, the amount of all Total Debt secured by a Lien on any assets of the Borrower or any of its Subsidiaries. "SECURED LEVERAGE RATIO" means, as of any date of determination, the ratio of (a) all Secured Debt outstanding on such date (including after giving effect to any Credit Extensions to be made) TO (b) EBITDA computed for the period consisting of the four immediately preceding Fiscal Quarters for which financial information has been delivered to the Lenders pursuant to SECTION 7.1.1. "SECURED PARTIES" means, collectively, the Lenders, the Issuers, the Administrative Agent, each counterparty to a Rate Protection Agreement that is (or at the time such Rate Protection Agreement was entered into, was) a Lender or an Affiliate thereof, and (in each case) each of their respective successors, transferees and assigns. "SECURITY DOCUMENTS" means all instruments, documents and agreements executed by or on behalf of any Person to guaranty or provide collateral security with respect to the Obligations including any security agreement or pledge agreement, any guaranty of the Obligations, any mortgage or deed of trust, and all instruments, documents and agreements executed pursuant to the terms of the foregoing. "SELLER NOTE INDEBTEDNESS" is defined in CLAUSE (j) of SECTION 7.2.2. "SELLER NOTES" means the unsecured subordinated notes delivered by a Subsidiary of the Borrower in respect of Seller Note Indebtedness. "SENIOR UNSECURED NOTE DOCUMENTS" means collectively, the indentures (including the Indenture), note purchase agreements, promissory notes, guarantees, and other instruments and agreements evidencing the terms of the Senior Unsecured Notes, as amended, supplemented, amended and restated or otherwise modified in accordance with SECTION 7.2.12. "SENIOR UNSECURED NOTES" is defined in the SECOND RECITAL. "STATED AMOUNT" means, on any date and with respect to a particular Letter of Credit, the total amount then available to be drawn under such Letter of Credit. "STATED EXPIRY DATE" is defined in SECTION 2.6. "STATED MATURITY DATE" means February 20, 2006. "SUBJECT TRANSACTION" is defined in SECTION 1.4. "SUB DEBT DOCUMENTS" means, collectively, loan agreements, indentures (including the CBI Indenture), note purchase agreements, promissory notes, guarantees, and other instruments -27- and agreements evidencing the terms of Subordinated Debt, as amended, supplemented, amended and restated or otherwise modified in accordance with SECTION 7.2.12. "SUBORDINATED DEBT" means (i) the CBI Senior Subordinated Notes and (ii) if applicable, any other unsecured Indebtedness of the Borrower subordinated in right of payment to the Obligations pursuant to documentation containing redemption and other prepayment events, maturities, amortization schedules, covenants, events of default, remedies, acceleration rights, subordination provisions and other material terms satisfactory to the Required Lenders. "SUBORDINATION PROVISIONS" is defined in SECTION 8.1.11. "SUBSIDIARY" means, with respect to any Person, any other Person of which more than 50% of the outstanding Voting Securities of such other Person (irrespective of whether at the time Capital Securities of any other class or classes of such other Person shall or might have voting power upon the occurrence of any contingency) is at the time directly or indirectly owned or controlled by such Person, by such Person and one or more other Subsidiaries of such Person, or by one or more other Subsidiaries of such Person. Unless the context otherwise specifically requires, the term "Subsidiary" shall be a reference to a Subsidiary of the Borrower. "SUBSIDIARY GUARANTOR" means each U.S. Subsidiary existing on the Closing Date in addition to each other U.S. Subsidiary that has executed and delivered to the Administrative Agent a Subsidiary Guaranty in accordance with the terms of this Agreement. "SUBSIDIARY GUARANTY" means the subsidiary guaranty executed and delivered by an Authorized Officer of each U.S. Subsidiary pursuant to the terms of this Agreement, substantially in the form of EXHIBIT F hereto, as amended, supplemented, amended and restated or otherwise modified from time to time. "SUBSIDIARY PLEDGE AND SECURITY AGREEMENT" means the Pledge and Security Agreement executed and delivered by each U.S. Subsidiary that in turn has any Subsidiaries, substantially in the form of EXHIBIT G-2 hereto, as amended, supplemented, amended and restated or otherwise modified from time to time. "SWAP AMOUNTS" is defined in the FIRST RECITAL. "SWING LINE LENDER" means, subject to the terms of this Agreement, Scotia Capital. "SWING LINE LOAN" is defined in CLAUSE (b) of SECTION 2.1.1. "SWING LINE LOAN COMMITMENT" is defined in CLAUSE (b) of SECTION 2.1.1. "SWING LINE LOAN COMMITMENT AMOUNT" means, on any date, $2,000,000, as such amount may be reduced from time to time pursuant to SECTION 2.2. "SWING LINE NOTE" means a promissory note of the Borrower payable to the Swing Line Lender, in the form of EXHIBIT A-2 hereto (as such promissory note may be amended, endorsed or otherwise modified from time to time), evidencing the aggregate Indebtedness of the Borrower to the Swing Line Lender resulting from outstanding Swing Line Loans, and also -28- means all other promissory notes accepted from time to time in substitution therefor or renewal thereof. "SYNDICATION AGENT" is defined in the PREAMBLE. "SYNTHETIC LEASE" means, as applied to any Person, any lease (including leases that may be terminated by the lessee at any time) of any property (whether real, personal or mixed) (a) that is not a capital lease in accordance with GAAP and (b) in respect of which the lessee retains or obtains ownership of the property so leased for federal income tax purposes, other than any such lease under which that Person is the lessor. "TAXES" means all income, stamp or other taxes, duties, levies, imposts, charges, assessments, fees, deductions or withholdings, now or hereafter imposed, levied, collected, withheld or assessed by any Governmental Authority, and all interest, penalties or similar liabilities with respect thereto. "TAYLOR" is defined in the FIRST RECITAL. "TAYLOR GENERAL PARTNER" is defined in the FIRST RECITAL. "TAYLOR HOLDING CO." is defined in the FIRST RECITAL. "TAYLOR SENIOR HOLDING CORP." means Taylor Senior Holding Corp., a Delaware corporation. "TERMINATION DATE" means the date on which all Obligations (other than contingent indemnification obligations to the extent no unsatisfied claim giving rise thereto has been asserted) have been paid in full in cash, all Letters of Credit have been terminated or expired (or been Cash Collateralized), all Rate Protection Agreements have been terminated and all Commitments shall have terminated. "TOTAL CONSIDERATION" means the total consideration paid with respect to any acquisition, including (i) all payments made in cash and property, (ii) to the extent not included in CLAUSE (i) above, the amount paid or to be paid pursuant to noncompete agreements and consulting agreements, (iii) the amount of debt and other liabilities assumed and/or incurred (including in the case of an acquisition of Capital Securities, the amount of debt and other liabilities of the Person to be acquired) and (iv) the amount of all transaction fees. "TOTAL DEBT" means, on any date, the outstanding principal amount of all Indebtedness of the Borrower and its Subsidiaries of the type referred to in CLAUSE (a) (which, in the case of the Loans, shall be deemed to equal the average daily amount of the Loans outstanding for the four Fiscal Quarters ending on or immediately preceding the date of determination), CLAUSE (b) (which, in the case of Letter of Credit Outstandings shall be deemed to equal the average daily amount of Letter of Credit Outstandings for the four Fiscal Quarters ending on or immediately preceding the date of determination), CLAUSE (c) and CLAUSE (g), in each case of the definition of "Indebtedness" (exclusive of intercompany Indebtedness between the Borrower and its Subsidiaries) and any Contingent Liability in respect of any of the foregoing. -29- "TOTAL EXPOSURE AMOUNT" means, on any date of determination (and without duplication), the outstanding principal amount of all Loans, the aggregate amount of all Letter of Credit Outstandings and the unfunded amount of the Commitments. "TRADEMARK SECURITY AGREEMENT" means any Trademark Security Agreement executed and delivered by any Obligor substantially in the form of Exhibit B to any Pledge and Security Agreement, as amended, supplemented, amended and restated or otherwise modified from time to time. "TYPE" means, relative to any Loan, the portion thereof, if any, being maintained as a Base Rate Loan or a LIBO Rate Loan. "UCC" means the Uniform Commercial Code as in effect from time to time in the State of New York; PROVIDED, that if, with respect to any Filing Statement or by reason of any provisions of law, the perfection or the effect of perfection or non-perfection of the security interests granted to the Administrative Agent pursuant to the applicable Loan Document is governed by the Uniform Commercial Code as in effect in a jurisdiction of the United States other than New York, then "UCC" means the Uniform Commercial Code as in effect from time to time in such other jurisdiction for purposes of the provisions of each Loan Document and any Filing Statement relating to such perfection or effect of perfection or non-perfection. "UNFINANCED CAPITAL EXPENDITURES" means that portion of Capital Expenditures not financed under capital leases or other Indebtedness (other than Loans). "UNITED STATES" or "U.S." means the United States of America, its fifty states and the District of Columbia. "U.S. SUBSIDIARY" means any Subsidiary that is incorporated or organized under the laws of the United States or a state thereof. "UTILIZATION RATIO" means, as of the last day of any Fiscal Quarter, the ratio of (a) the sum of (i) the average daily Stated Amount of Letters of Credit plus (ii) the average daily aggregate amount of Revolving Loans outstanding, in each case during such Fiscal Quarter TO (b) the average Revolving Loan Commitment Amount during such Fiscal Quarter. "VOTING SECURITIES" means, with respect to any Person, Capital Securities of any class or kind ordinarily having the power to vote for the election of directors, managers or other voting members of the governing body of such Person. "WARRANTS" means warrants to purchase shares of Common Stock of the Borrower that expire on January 31, 2008 and were initially issued by CBI in connection with the issuance of the CBI Preferred Stock. -30- "WELFARE PLAN" means a "welfare plan", as such term is defined in Section 3(1) of ERISA. "WHOLLY OWNED SUBSIDIARY" means any Subsidiary all of the outstanding Capital Securities of which (other than any director's qualifying shares or investments by foreign nationals mandated by applicable laws) is owned directly or indirectly by the Borrower. SECTION 1.2. USE OF DEFINED TERMS. Unless otherwise defined or the context otherwise requires, terms for which meanings are provided in this Agreement shall have such meanings when used in each other Loan Document and the Disclosure Schedule. SECTION 1.3. CROSS-REFERENCES. Unless otherwise specified, references in a Loan Document to any Article or Section are references to such Article or Section of such Loan Document, and references in any Article, Section or definition to any clause are references to such clause of such Article, Section or definition. SECTION 1.4. ACCOUNTING TERMS; UTILIZATION OF GAAP FOR PURPOSES OF CALCULATIONS UNDER AGREEMENT. For purposes of this Agreement and each other Loan Document, all accounting terms not otherwise defined herein shall have the meanings assigned to such terms in conformity with GAAP. Financial statements and other information furnished to the Administrative Agent pursuant to SECTION 7.1.1 shall be prepared in accordance with GAAP. No Accounting Changes shall affect financial covenants, standards or terms in this Agreement or any other Loan Document; PROVIDED that the Borrower shall prepare footnotes to each Compliance Certificate and the financial statements required to be delivered hereunder that show the differences between the financial statements delivered (which reflect such Accounting Changes) and the basis for calculating financial covenant compliance (without reflecting such Accounting Changes). Unless otherwise expressly provided, all financial covenants and defined financial terms shall be computed on a consolidated basis for the Borrower and its Subsidiaries, in each case without duplication. In addition, with respect to any period during which a Permitted Acquisition, the Qualified SLB or any Disposition made in accordance with CLAUSE (n) of SECTION 7.2.11 has occurred (each, a "SUBJECT TRANSACTION"), EBITDA and the components of Fixed Charge Coverage Ratio and Interest Coverage Ratio shall be calculated with respect to such period on a PRO FORMA basis (including PRO FORMA adjustments arising out of events which are directly attributable to a specific transaction, are factually supportable and are expected to have a continuing impact, in each case determined on a basis consistent with the definition of "Permitted Acquisition") using the historical financial statements of any business so acquired or to be acquired or the subject of the Qualified SLB or such Disposition made in accordance with CLAUSE (n) of SECTION 7.2.11 and the consolidated financial statements of the Borrower and its Subsidiaries which shall be reformulated as if such Subject Transaction, and any Indebtedness incurred or repaid in connection therewith, had been consummated or incurred or repaid at the beginning of such period (and assuming that such Indebtedness bears interest during any portion of the applicable measurement period prior to the relevant acquisition at the weighted average of the interest rates applicable to outstanding Loans incurred during such period). -31- ARTICLE II COMMITMENTS, BORROWING AND ISSUANCE PROCEDURES, NOTES AND LETTERS OF CREDIT SECTION 2.1. COMMITMENTS. On the terms and subject to the conditions of this Agreement, the Lenders and the Issuers severally agree to make Credit Extensions as set forth below. SECTION 2.1.1. REVOLVING LOAN COMMITMENT AND SWING LINE LOAN COMMITMENT. From time to time on any Business Day occurring from and after the Effective Date but prior to the Commitment Termination Date, (a) each Lender agrees that it will make loans (relative to such Lender, its "REVOLVING LOANS") to the Borrower equal to such Lender's Percentage of the aggregate amount of each Borrowing of the Revolving Loans requested by the Borrower to be made on such day; and (b) the Swing Line Lender agrees that it will make loans (its "SWING LINE LOANS") to the Borrower equal to the principal amount of the Swing Line Loan requested by the Borrower to be made on such day. The Commitment of the Swing Line Lender described in this clause is herein referred to as its "SWING LINE LOAN COMMITMENT". On the terms and subject to the conditions hereof, the Borrower may from time to time borrow, prepay and reborrow Revolving Loans and Swing Line Loans. No Lender shall be permitted or required to make any Revolving Loan if, after giving effect thereto, the aggregate outstanding principal amount of all Revolving Loans of such Lender, together with such Lender's Percentage of the aggregate amount of all Swing Line Loans and Letter of Credit Outstandings, would exceed such Lender's Percentage of the lesser of the then existing (x) Revolving Loan Commitment Amount and (y) the Borrowing Base Amount then in effect. Furthermore, the Swing Line Lender shall not be permitted or required to make Swing Line Loans if, after giving effect thereto, (i) the aggregate outstanding principal amount of all Swing Line Loans would exceed the then existing Swing Line Loan Commitment Amount or (ii) the sum of all Swing Line Loans, Revolving Loans and the aggregate amount of Letter of Credit Outstandings would exceed the lesser of the (x) then existing Revolving Loan Commitment Amount and (y) Borrowing Base Amount then in effect. SECTION 2.1.2. LETTER OF CREDIT COMMITMENT. From time to time on any Business Day occurring from and after the Effective Date but prior to the Commitment Termination Date, the relevant Issuer agrees that it will (a) issue one or more standby letters of credit (relative to such Issuer, its "LETTER OF CREDIT") for the account of the Borrower or any Subsidiary Guarantor in the Stated Amount requested by the Borrower on such day; or (b) extend the Stated Expiry Date of an existing standby Letter of Credit previously issued hereunder. No Stated Expiry Date shall extend beyond the earlier of (i) the Commitment Termination Date and (ii) unless otherwise agreed to by such Issuer in its sole discretion, one year from the date of -32- such extension. No Issuer shall be permitted or required to issue any Letter of Credit if, after giving effect thereto, (i) the aggregate amount of all Letter of Credit Outstandings would exceed the Letter of Credit Commitment Amount or (ii) the sum of the aggregate amount of all Letter of Credit Outstandings plus the aggregate principal amount of all Revolving Loans and Swing Line Loans then outstanding would exceed the lesser of the (x) then existing Revolving Loan Commitment Amount and (y) Borrowing Base Amount then in effect. SECTION 2.2. REDUCTION OF THE COMMITMENT AMOUNTS. The Commitment Amounts are subject to reduction from time to time as set forth below. SECTION 2.2.1. OPTIONAL. The Borrower may, from time to time on any Business Day occurring after the Effective Date, voluntarily reduce the amount of the Revolving Loan Commitment Amount, the Swing Line Loan Commitment Amount or the Letter of Credit Commitment Amount on the Business Day so specified by the Borrower; PROVIDED, HOWEVER, that all such reductions shall require at least one Business Day's prior notice to the Administrative Agent and be permanent, and any partial reduction of any Commitment Amount shall be in a minimum amount of $1,000,000 and in an integral multiple of $1,000,000. Any optional or mandatory reduction of the Revolving Loan Commitment Amount pursuant to the terms of this Agreement which reduces the Revolving Loan Commitment Amount below the sum of (i) the Swing Line Loan Commitment Amount and (ii) the Letter of Credit Commitment Amount shall result in an automatic and corresponding reduction of the Swing Line Loan Commitment Amount and/or Letter of Credit Commitment Amount (as directed by the Borrower in a notice to the Administrative Agent delivered together with the notice of such voluntary reduction in the Revolving Loan Commitment Amount) to an aggregate amount not in excess of the Revolving Loan Commitment Amount, as so reduced, without any further action on the part of the Swing Line Lender or any Issuer. SECTION 2.3. BORROWING PROCEDURES. Loans (other than Swing Line Loans) shall be made by the Lenders in accordance with SECTION 2.3.1, and Swing Line Loans shall be made by the Swing Line Lender in accordance with SECTION 2.3.2. SECTION 2.3.1. BORROWING PROCEDURE. In the case of other than Swing Line Loans, by delivering a Borrowing Request to the Administrative Agent on or before 10:00 a.m. on a Business Day (of which the Administrative Agent shall inform the Lenders promptly upon receipt thereof), the Borrower may from time to time irrevocably request, on not less than one Business Day's notice in the case of Base Rate Loans, or three Business Days' notice in the case of LIBO Rate Loans, and in either case not more than five Business Days' notice, that a Borrowing be made, in the case of LIBO Rate Loans, in a minimum amount of $5,000,000 and an integral multiple of $1,000,000, in the case of Base Rate Loans, in a minimum amount of $1,000,000 and an integral multiple of $500,000 or, in either case, in the unused amount of the applicable Commitment; PROVIDED, HOWEVER, that all of the initial Loans shall be made as Base Rate Loans. On the terms and subject to the conditions of this Agreement, each Borrowing shall be comprised of the type of Loans, and shall be made on the Business Day, specified in such Borrowing Request. In the case of other than Swing Line Loans, on or before 11:00 a.m. on such Business Day each Lender that has a Commitment to make the Loans being -33- requested shall deposit with the Administrative Agent same day funds in an amount equal to such Lender's Percentage of the requested Borrowing. Such deposit will be made to an account which the Administrative Agent shall specify from time to time by notice to the Lenders. To the extent funds are received from the Lenders, the Administrative Agent shall make such funds available to the Borrower by wire transfer to the accounts the Borrower shall have specified in its Borrowing Request. No Lender's obligation to make any Loan shall be affected by any other Lender's failure to make any Loan. SECTION 2.3.2. SWING LINE LOANS. (a) By telephonic notice to the Swing Line Lender on or before 12:00 noon on a Business Day (followed (within one Business Day) by the delivery of a confirming Borrowing Request), the Borrower may from time to time irrevocably request that Swing Line Loans be made by the Swing Line Lender in an aggregate minimum principal amount of $500,000 and an integral multiple of $500,000. All Swing Line Loans shall be made as Base Rate Loans and shall not be entitled to be converted into LIBO Rate Loans. The proceeds of each Swing Line Loan shall be made available by the Swing Line Lender to the Borrower by wire transfer to the account the Borrower shall have specified in its notice therefor by the close of business on the Business Day telephonic notice is received by the Swing Line Lender. (b) If (i) any Swing Line Loan shall be outstanding for more than four Business Days, (ii) any Swing Line Loan is or will be outstanding on a date when the Borrower requests that a Revolving Loan be made, or (iii) any Default shall occur and be continuing, then each Lender (other than the Swing Line Lender) irrevocably agrees that it will, automatically and without notice from the Swing Line Lender, make a Revolving Loan (which shall initially be funded as a Base Rate Loan) in an amount equal to such Lender's Percentage of the aggregate principal amount of all such Swing Line Loans then outstanding (such outstanding Swing Line Loans hereinafter referred to as the "REFUNDED SWING LINE LOANS"). On or before 11:00 a.m. on the first Business Day following receipt by each Lender of a request to make Revolving Loans as provided in the preceding sentence, each Lender shall deposit in an account specified by the Swing Line Lender the amount so requested in same day funds and such funds shall be applied by the Swing Line Lender to repay the Refunded Swing Line Loans. At the time the Lenders make the above referenced Revolving Loans the Swing Line Lender shall be deemed to have made, in consideration of the making of the Refunded Swing Line Loans, Revolving Loans in an amount equal to the Swing Line Lender's Percentage of the aggregate principal amount of the Refunded Swing Line Loans. Upon the making (or deemed making, in the case of the Swing Line Lender) of any Revolving Loans pursuant to this clause, the amount so funded shall become outstanding under such Lender's Revolving Note and shall no longer be owed under the Swing Line Note. All interest payable with respect to any Revolving Loans made (or deemed made, in the case of the Swing Line Lender) pursuant to this clause shall be appropriately adjusted to reflect the period of time during which the Swing Line Lender had outstanding Swing Line Loans in respect of which such Revolving Loans were made. Each Lender's obligation to make the Revolving Loans referred to in this clause shall be absolute and unconditional and shall not be affected by any circumstance, including (i) any set-off, counterclaim, recoupment, defense or other right which such Lender may have against the Swing Line Lender, any Obligor or any Person for any reason whatsoever; (ii) the occurrence or continuance of any Default; (iii) -34- any adverse change in the condition (financial or otherwise) of any Obligor; (iv) the acceleration or maturity of any Obligations or the termination of any Commitment after the making of any Swing Line Loan; (v) any breach of any Loan Document by any Person; or (vi) any other circumstance, happening or event whatsoever, whether or not similar to any of the foregoing. SECTION 2.4. CONTINUATION AND CONVERSION ELECTIONS. By delivering a Continuation/ Conversion Notice to the Administrative Agent on or before 10:00 a.m. on a Business Day, the Borrower may from time to time irrevocably elect, on not less than one Business Day's notice in the case of Base Rate Loans, or three Business Days' notice in the case of LIBO Rate Loans, and in either case not more than five Business Days' notice, that all, or any portion in an aggregate minimum amount of $5,000,000 and an integral multiple of $1,000,000 be, in the case of Base Rate Loans, converted into LIBO Rate Loans or be, in the case of LIBO Rate Loans, converted into Base Rate Loans or continued as LIBO Rate Loans (in the absence of delivery of a Continuation/Conversion Notice with respect to any LIBO Rate Loan at least three Business Days (but not more than five Business Days) before the last day of the then current Interest Period with respect thereto, such LIBO Rate Loan shall, on such last day, automatically convert to a Base Rate Loan); PROVIDED, HOWEVER, that (x) each such conversion or continuation shall be pro rated among the applicable outstanding Loans of all Lenders that have made such Loans, and (y) no portion of the outstanding principal amount of any Loans may be continued as, or be converted into, LIBO Rate Loans when any Default has occurred and is continuing. SECTION 2.5. FUNDING. Each Lender may, if it so elects, fulfill its obligation to make, continue or convert LIBO Rate Loans hereunder by causing one of its foreign branches or Affiliates (or an international banking facility created by such Lender) to make or maintain such LIBO Rate Loan; PROVIDED, HOWEVER, that such LIBO Rate Loan shall nonetheless be deemed to have been made and to be held by such Lender, and the obligation of the Borrower to repay such LIBO Rate Loan shall nevertheless be to such Lender for the account of such foreign branch, Affiliate or international banking facility. In addition, the Borrower hereby consents and agrees that, for purposes of any determination to be made for purposes of SECTIONS 4.1, 4.2, 4.3 or 4.4, it shall be conclusively assumed that each Lender elected to fund all LIBO Rate Loans by purchasing Dollar deposits in its LIBOR Office's interbank eurodollar market. SECTION 2.6. ISSUANCE PROCEDURES. By delivering to the Administrative Agent an Issuance Request on or before 10:00 a.m. on a Business Day, the Borrower may from time to time irrevocably request on not less than three nor more than ten Business Days' notice, in the case of an initial issuance of a Letter of Credit and not less than three Business Days' prior notice, in the case of a request for the extension of the Stated Expiry Date of a standby Letter of Credit (in each case, unless a shorter notice period is agreed to by the Issuer, in its sole discretion), that an Issuer issue, or extend the Stated Expiry Date of, a Letter of Credit in such form as may be requested by the Borrower and approved by such Issuer, solely for the purposes described in SECTION 7.1.7. Each Letter of Credit shall by its terms be stated to expire on a date (its "STATED EXPIRY Date") no later than the earlier to occur of (i) the Commitment Termination Date or (ii) (unless otherwise agreed to by an Issuer, in its sole discretion), one year from the date of its issuance. Each Issuer will -35- make available to the beneficiary thereof the original of the Letter of Credit which it issues. SECTION 2.6.1. OTHER LENDERS' PARTICIPATION. Upon the issuance of each Letter of Credit, and without further action, each Lender (other than such Issuer) shall be deemed to have irrevocably purchased, to the extent of its Percentage to make Revolving Loans, a participation interest in such Letter of Credit (including the Contingent Liability and any Reimbursement Obligation with respect thereto), and such Lender shall, to the extent of its Percentage to make Revolving Loans, be responsible for reimbursing within one Business Day such Issuer for Reimbursement Obligations which have not been reimbursed by the Borrower in accordance with SECTION 2.6.3. In addition, such Lender shall, to the extent of its Percentage to make Revolving Loans, be entitled to receive a ratable portion of the Letter of Credit fees payable pursuant to SECTION 3.3.4 with respect to each Letter of Credit (other than the issuance fees payable to an Issuer of such Letter of Credit pursuant to the last sentence of SECTION 3.3.4) and of interest payable pursuant to SECTION 3.2 with respect to any Reimbursement Obligation. To the extent that any Lender has reimbursed any Issuer for a Disbursement, such Lender shall be entitled to receive its ratable portion of any amounts subsequently received (from the Borrower or otherwise) in respect of such Disbursement. SECTION 2.6.2. DISBURSEMENTS. An Issuer will notify the Borrower and the Administrative Agent promptly of the presentment for payment of any Letter of Credit issued by such Issuer, together with notice of the date (the "DISBURSEMENT DATE") such payment shall be made (each such payment, a "DISBURSEMENT"). Subject to the terms and provisions of such Letter of Credit and this Agreement, the applicable Issuer shall make such payment to the beneficiary (or its designee) of such Letter of Credit. Prior to 11:00 a.m. on the first Business Day following the Disbursement Date, the Borrower will reimburse the Administrative Agent, for the account of the applicable Issuer, for all amounts which such Issuer has disbursed under such Letter of Credit, together with interest thereon at a rate per annum equal to the rate per annum then in effect for Base Rate Loans (with the then Applicable Margin for Revolving Loans accruing on such amount) pursuant to SECTION 3.2 for the period from the Disbursement Date through the date of such reimbursement. Without limiting in any way the foregoing and notwithstanding anything to the contrary contained herein or in any separate application for any Letter of Credit, the Borrower hereby acknowledges and agrees that it shall be obligated to reimburse the applicable Issuer upon each Disbursement of a Letter of Credit, and it shall be deemed to be the obligor for purposes of each such Letter of Credit issued hereunder (whether the account party on such Letter of Credit is the Borrower or a Subsidiary Guarantor). SECTION 2.6.3. REIMBURSEMENT. The obligation (a "REIMBURSEMENT OBLIGATION") of the Borrower under SECTION 2.6.2 to reimburse an Issuer with respect to each Disbursement (including interest thereon), and, upon the failure of the Borrower to reimburse an Issuer, each Lender's obligation under SECTION 2.6.1 to reimburse an Issuer, shall be absolute and unconditional under any and all circumstances and irrespective of any setoff, counterclaim or defense to payment which the Borrower or such Lender, as the case may be, may have or have had against such Issuer or any Lender, including any defense based upon the failure of any Disbursement to conform to the terms of the applicable Letter of -36- Credit (if, in such Issuer's good faith opinion, such Disbursement is determined to be appropriate) or any non-application or misapplication by the beneficiary of the proceeds of such Letter of Credit; PROVIDED, HOWEVER, that after paying in full its Reimbursement Obligation hereunder, nothing herein shall adversely affect the right of the Borrower or such Lender, as the case may be, to commence any proceeding against an Issuer for any wrongful Disbursement made by such Issuer under a Letter of Credit as a result of acts or omissions constituting gross negligence or wilful misconduct on the part of such Issuer. SECTION 2.6.4. DEEMED DISBURSEMENTS. Upon the occurrence and during the continuation of any Default under SECTION 8.1.9 or upon notification by the Administrative Agent (acting at the direction of the Required Lenders) to the Borrower of its obligations under this Section, following the occurrence and during the continuation of any other Event of Default, (a) the aggregate Stated Amount of all Letters of Credit shall, without demand upon or notice to the Borrower or any other Person, be deemed to have been paid or disbursed by the Issuers of such Letters of Credit (notwithstanding that such amount may not in fact have been paid or disbursed); and (b) the Borrower shall be immediately obligated to reimburse the Issuers for the amount deemed to have been so paid or disbursed by such Issuers. Amounts payable by the Borrower pursuant to this Section shall be deposited in immediately available funds with the Administrative Agent and held as collateral security for the Reimbursement Obligations. When all Defaults giving rise to the deemed disbursements under this Section have been cured or waived the Administrative Agent shall return to the Borrower all amounts then on deposit with the Administrative Agent pursuant to this Section which have not been applied to the satisfaction of the Reimbursement Obligations. SECTION 2.6.5. NATURE OF REIMBURSEMENT OBLIGATIONS. The Borrower, each other Obligor and, to the extent set forth in SECTION 2.6.1, each Lender shall assume all risks of the acts, omissions or misuse of any Letter of Credit by the beneficiary thereof. No Issuer (except to the extent of its own gross negligence or wilful misconduct) shall be responsible for: (a) the form, validity, sufficiency, accuracy, genuineness or legal effect of any Letter of Credit or any document submitted by any party in connection with the application for and issuance of a Letter of Credit, even if it should in fact prove to be in any or all respects invalid, insufficient, inaccurate, fraudulent or forged; (b) the form, validity, sufficiency, accuracy, genuineness or legal effect of any instrument transferring or assigning or purporting to transfer or assign a Letter of Credit or the rights or benefits thereunder or the proceeds thereof in whole or in part, which may prove to be invalid or ineffective for any reason; (c) failure of the beneficiary to comply fully with conditions required in order to demand payment under a Letter of Credit; -37- (d) errors, omissions, interruptions or delays in transmission or delivery of any messages, by mail, cable, telegraph, telex or otherwise; or (e) any loss or delay in the transmission or otherwise of any document or draft required in order to make a Disbursement under a Letter of Credit. None of the foregoing shall affect, impair or prevent the vesting of any of the rights or powers granted to any Issuer or any Lender hereunder. In furtherance and not in limitation or derogation of any of the foregoing, any action taken or omitted to be taken by an Issuer in good faith (and not constituting gross negligence or wilful misconduct) shall be binding upon each Obligor and each such Secured Party, and shall not put such Issuer under any resulting liability to any Obligor or any Secured Party, as the case may be. SECTION 2.7. NOTES. (a) The Borrower agrees that, upon the request to the Administrative Agent by any Lender, the Borrower will execute and deliver to such Lender a Note evidencing the Loans made by, and payable to the order of, such Lender in a maximum principal amount equal to such Lender's Percentage of the original applicable Commitment Amount. The Borrower hereby irrevocably authorizes each Lender to make (or cause to be made) appropriate notations on the grid attached to such Lender's Note (or on any continuation of such grid), which notations, if made, shall evidence, INTER ALIA, the date of, the outstanding principal amount of, and the interest rate and Interest Period applicable to the Loans evidenced thereby. Such notations shall, to the extent not inconsistent with notations made by the Administrative Agent in the Register, be conclusive and binding on each Obligor absent manifest error; PROVIDED, HOWEVER, that the failure of any Lender to make any such notations shall not limit or otherwise affect any Obligations of any Obligor. (b) The Borrower hereby designates the Administrative Agent to serve as the Borrower's agent, solely for the purpose of this clause, to maintain a register (the "REGISTER") on which the Administrative Agent will record each Lender's Commitment, the Loans made by each Lender and each repayment in respect of the principal amount of the Loans, annexed to which the Administrative Agent shall retain a copy of each Lender Assignment Agreement delivered to the Administrative Agent pursuant to SECTION 10.11.1. Failure to make any recordation, or any error in such recordation, shall not affect any Obligor's Obligations. The entries in the Register shall be conclusive, in the absence of manifest error, and the Borrower, the Administrative Agent and the Lenders shall treat each Person in whose name a Loan is registered (or, if applicable, to which a Note has been issued) as the owner thereof for the purposes of all Loan Documents, notwithstanding notice or any provision herein to the contrary. Any assignment or transfer of a Commitment or the Loans made pursuant hereto shall be registered in the Register only upon delivery to the Administrative Agent of a Lender Assignment Agreement that has been executed by the requisite parties pursuant to SECTION 10.11.1. No assignment or transfer of a Lender's Commitment or Loans shall be effective unless such assignment or transfer shall have been recorded in the Register by the Administrative Agent as provided in this Section. -38- ARTICLE III REPAYMENTS, PREPAYMENTS, INTEREST AND FEES SECTION 3.1. REPAYMENTS AND PREPAYMENTS; APPLICATION. The Borrower agrees that the Loans shall be repaid and prepaid pursuant to the following terms. SECTION 3.1.1. REPAYMENTS AND PREPAYMENTS. The Borrower shall repay in full the unpaid principal amount of each Loan upon the applicable Stated Maturity Date therefor. Prior thereto, payments and prepayments of the Loans shall or may be made as set forth below. (a) From time to time on any Business Day, the Borrower may make a voluntary prepayment, in whole or in part, of the outstanding principal amount of any (i) Revolving Loans; PROVIDED, HOWEVER, that (A) any such prepayment of Revolving Loans shall be made PRO RATA among the Revolving Loans of the same type and, if applicable, having the same Interest Period of all Lenders that have made such Revolving Loans; (B) all such voluntary prepayments shall require at least one but no more than five Business Days' prior notice to the Administrative Agent; and (C) all such voluntary partial prepayments shall be, in the case of LIBO Rate Loans, in an aggregate minimum amount of $1,000,000 and an integral multiple of $1,000,000 and, in the case of Base Rate Loans, in an aggregate minimum amount of $500,000 and an integral multiple of $500,000; and (ii) Swing Line Loans; PROVIDED, that (A) all such voluntary prepayments shall require prior telephonic notice to the Swing Line Lender on or before 1:00 p.m. on the day of such prepayment (such notice to be confirmed in writing within 24 hours thereafter); and (B) all such voluntary partial prepayments shall be in an aggregate minimum amount of $500,000 and an integral multiple of $500,000. (b) On each date when the sum of (i) the aggregate outstanding principal amount of all Revolving Loans and Swing Line Loans and (ii) the aggregate amount of all Letter of Credit Outstandings exceeds the lesser of (x) the then existing Revolving Loan Commitment Amount (as it may be reduced from time to time pursuant to this Agreement) and (y) the then applicable Borrowing Base Amount, the Borrower shall make a mandatory prepayment of Revolving Loans or Swing Line Loans (or both) and, if necessary, Cash Collateralize all Letter of Credit Outstandings, in an aggregate amount equal to such excess. (c) Immediately upon any acceleration of the Stated Maturity Date of any Loans pursuant to SECTION 8.2 or SECTION 8.3, the Borrower shall repay all the Loans, unless, pursuant to SECTION 8.3, only a portion of all the Loans is so accelerated (in which case the portion so accelerated shall be so repaid). (d) Within three Business Days of the receipt by Taylor Holding Co. of any principal or interest on the CBI Senior Subordinated Notes, the Borrower will repay the Loans in an amount equal to the lesser of (i) the amount of principal or interest received therefrom and (ii) the amount of Loans outstanding on the date of such repayment. -39- (e) If for any period of three consecutive Business Days the sum of cash and Cash Equivalent Investments held by the Borrower and its Subsidiaries exceeds $10,000,000, then the Borrower shall on the fourth consecutive Business Day make a mandatory prepayment of Loans in an amount equal to the lesser of (x) such excess amount and (y) the aggregate outstanding principal amount of all Loans. Each prepayment of any Loans made pursuant to this Section shall be without premium or penalty, except as may be required by SECTION 4.4. SECTION 3.1.2. APPLICATION. Amounts prepaid pursuant to SECTION 3.1.1 shall be applied as set forth in this Section. Each prepayment or repayment of the principal of the Loans shall be applied, to the extent of such prepayment or repayment, FIRST, to the principal amount thereof being maintained as Base Rate Loans, and SECOND, subject to the terms of SECTION 4.4, to the principal amount thereof being maintained as LIBO Rate Loans. SECTION 3.2. INTEREST PROVISIONS. Interest on the outstanding principal amount of the Loans shall accrue and be payable in accordance with the terms set forth below. SECTION 3.2.1. RATES. Subject to SECTION 2.3.2, pursuant to an appropriately delivered Borrowing Request or Continuation/Conversion Notice, the Borrower may elect that the Loans comprising a Borrowing accrue interest at a rate per annum: (a) on that portion maintained from time to time as a Base Rate Loan, equal to the sum of the Alternate Base Rate from time to time in effect plus the Applicable Margin; PROVIDED that all Swing Line Loans shall always accrue interest at the then effective Applicable Margin for Revolving Loans maintained as Base Rate Loans; and (b) on that portion maintained as a LIBO Rate Loan, during each Interest Period applicable thereto, equal to the sum of the LIBO Rate (Reserve Adjusted) for such Interest Period plus the Applicable Margin. All LIBO Rate Loans shall bear interest from and including the first day of the applicable Interest Period to (but not including) the last day of such Interest Period at the interest rate determined as applicable to such LIBO Rate Loan. SECTION 3.2.2. POST-MATURITY RATES. At the election of the Administrative Agent or the Required Lenders, after the occurrence of an Event of Default described in SECTION 8.1.1 or SECTION 8.1.3 (resulting from non compliance with SECTION 7.2.4, or CLAUSE (c) of SECTION 7.1.1) and automatically after the occurrence of an Event of Default described in SECTION 8.1.9, in each case, for so long as it continues, the Loans and other Obligations shall bear interest at a rate that is two percent (2.0%) in excess of the rates otherwise payable under this Agreement. SECTION 3.2.3. PAYMENT DATES. Interest accrued on each Loan shall be payable, without duplication: (a) on the Stated Maturity Date therefor; -40- (b) with respect to Base Rate Loans, on each Monthly Payment Date occurring after the Effective Date; (c) with respect to LIBO Rate Loans, on the last day of each applicable Interest Period (and, if such Interest Period shall exceed three months, on the date occurring on each three-month interval occurring after the first day of such Interest Period); (d) with respect to any Base Rate Loans converted into LIBO Rate Loans on a day when interest would not otherwise have been payable pursuant to CLAUSE (c), on the date of such conversion; and (e) on that portion of any Loans the Stated Maturity Date of which is accelerated pursuant to SECTION 8.2 or SECTION 8.3, immediately upon such acceleration. Interest accrued on Loans or other monetary Obligations after the date such amount is due and payable (whether on the Stated Maturity Date, upon acceleration or otherwise) shall be payable upon demand. SECTION 3.3. FEES. The Borrower agrees to pay the fees set forth below. All such fees shall be non-refundable. SECTION 3.3.1. UTILIZATION FEE. The Borrower agrees to pay to the Administrative Agent for the account of each Lender, for the period (including any portion thereof when any of its Commitments are suspended by reason of the Borrower's inability to satisfy any condition of ARTICLE V) commencing on the Effective Date and continuing through the Commitment Termination Date, a utilization fee in an amount equal to the Applicable Utilization Fee Margin, in each case on such Lender's Percentage of the sum of the average daily unused portion of the Revolving Loan Commitment Amount (net of Letter of Credit Outstandings). All utilization fees payable pursuant to this Section shall be calculated on a year comprised of 360 days and payable by the Borrower in arrears on each Quarterly Payment Date, commencing with the first Quarterly Payment Date following the Effective Date, and on the Commitment Termination Date. The making of Swing Line Loans shall not constitute usage of the Revolving Loan Commitment with respect to the calculation of utilization fees to be paid by the Borrower to the Lenders. SECTION 3.3.2. AGENT'S FEE. The Borrower agrees to pay to the Administrative Agent, for its own account, the fees in the amounts and on the dates set forth in the Fee Letter. SECTION 3.3.3. LETTER OF CREDIT FEE. The Borrower agrees to pay to the Administrative Agent, for the PRO RATA account of the applicable Issuer and each Lender, a Letter of Credit fee in an amount equal to the then effective Applicable Margin for Revolving Loans maintained as LIBO Rate Loans, multiplied by the Stated Amount of each such Letter of Credit, such fees being payable, without duplication, quarterly in arrears on each Quarterly Payment Date following the date of issuance of each Letter of Credit, upon the expiration or termination of such Letter of Credit and on the Commitment Termination Date. The Borrower further agrees to pay to the applicable Issuer (i) a fee in the amount of 1/4 of 1% per annum on the Stated Amount of each Letter of Credit, payable (without duplication) quarterly in arrears on each Quarterly Payment Date following the date of issuance of -41- each Letter of Credit, upon the expiration or termination of such Letter of Credit and on the Commitment Termination Date and (ii) its customary administrative, issuance, amendment, payment and negotiation fees on the dates and in the amounts from time to time notified to the Borrower by such Issuer or as otherwise agreed to by the Borrower and such Issuer. ARTICLE IV CERTAIN LIBO RATE AND OTHER PROVISIONS SECTION 4.1. LIBO RATE LENDING UNLAWFUL. If any Lender shall determine (which determination shall, upon notice thereof to the Borrower and the Administrative Agent, be conclusive and binding on the Borrower) that the introduction of or any change in or in the interpretation of any law makes it unlawful, or any Governmental Authority asserts that it is unlawful, for such Lender to make or continue any Loan as, or to convert any Loan into, a LIBO Rate Loan, the obligations of such Lender to make, continue or convert any such LIBO Rate Loan shall, upon such determination, forthwith be suspended until such Lender shall notify the Administrative Agent that the circumstances causing such suspension no longer exist, and all outstanding LIBO Rate Loans payable to such Lender shall automatically convert into Base Rate Loans at the end of the then current Interest Periods with respect thereto or sooner, if required by such law or assertion. SECTION 4.2. DEPOSITS UNAVAILABLE. If the Administrative Agent shall have determined that (a) Dollar deposits in the relevant amount and for the relevant Interest Period are not available to it in its relevant market; or (b) by reason of circumstances affecting its relevant market, adequate means do not exist for ascertaining the interest rate applicable hereunder to LIBO Rate Loans; then, upon notice from the Administrative Agent to the Borrower and the Lenders, the obligations of all Lenders under SECTION 2.3 and SECTION 2.4 to make or continue any Loans as, or to convert any Loans into, LIBO Rate Loans shall forthwith be suspended until the Administrative Agent shall notify the Borrower and the Lenders that the circumstances causing such suspension no longer exist. SECTION 4.3. INCREASED LIBO RATE LOAN COSTS, ETC. The Borrower agrees to reimburse each Lender and Issuer for any increase in the cost to such Lender or Issuer of, or any reduction in the amount of any sum receivable by such Secured Party in respect of, such Secured Party's Commitments and the making of Credit Extensions hereunder (including the making, continuing or maintaining (or of its obligation to make or continue) any Loans as, or of converting (or of its obligation to convert) any Loans into, LIBO Rate Loans) that arise in connection with any change in, or the introduction, adoption, effectiveness, interpretation, reinterpretation or phase-in after the Closing Date of, any law or regulation, directive, guideline, decision or request (whether or not having the force of law) of any Governmental Authority, except for such changes with respect to increased capital costs and Taxes which are governed by SECTIONS 4.5 and 4.6, -42- respectively. Notwithstanding anything to the contrary contained herein, (i) the Borrower will not be required to compensate any Lender for any such amounts incurred by such Lender more than one hundred eighty (180) days prior to such Lender's written request to the Borrower for such compensation and (ii) a Lender shall not be entitled to any compensation described in this Section unless, at the time it requests such compensation, it is the policy or general practice of such Lender to request compensation for comparable costs in similar circumstances under other comparable loan agreements. Each affected Secured Party shall promptly notify the Administrative Agent and the Borrower in writing of the occurrence of any such event, stating the reasons therefor and the additional amount required fully to compensate such Secured Party for such increased cost or reduced amount. Such additional amounts shall be payable by the Borrower directly to such Secured Party within five days of its receipt of such notice, and such notice shall, in the absence of manifest error, be conclusive and binding on the Borrower. SECTION 4.4. FUNDING LOSSES. In the event any Lender shall incur any loss or expense (including any loss or expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired by such Lender to make or continue any portion of the principal amount of any Loan as, or to convert any portion of the principal amount of any Loan into, a LIBO Rate Loan) as a result of (a) any conversion or repayment or prepayment of the principal amount of any LIBO Rate Loan on a date other than the scheduled last day of the Interest Period applicable thereto, whether pursuant to ARTICLE III or otherwise; (b) any Loans not being made as LIBO Rate Loans in accordance with the Borrowing Request therefor; or (c) any Loans not being continued as, or converted into, LIBO Rate Loans in accordance with the Continuation/Conversion Notice therefor; then, upon the written notice of such Lender to the Borrower (with a copy to the Administrative Agent), the Borrower shall, within five days of its receipt thereof, pay directly to such Lender such amount as will (in the reasonable determination of such Lender) reimburse such Lender for such loss or expense. Such written notice shall, in the absence of manifest error, be conclusive and binding on the Borrower. SECTION 4.5. INCREASED CAPITAL COSTS. If any change in, or the introduction, adoption, effectiveness, interpretation, reinterpretation or phase-in of, any law or regulation, directive, guideline, decision or request (whether or not having the force of law) of any Governmental Authority affects or would affect the amount of capital required or expected to be maintained by any Secured Party or any Person controlling such Secured Party, and such Secured Party determines (in good faith but in its sole and absolute discretion) that the rate of return on its or such controlling Person's capital as a consequence of the Commitments or the Credit Extensions made, or the Letters of Credit participated in, by such Secured Party is reduced to a level below that which such Secured Party or such controlling Person could have achieved but for the occurrence of any such circumstance, then upon notice from time to time by such Secured Party to the -43- Borrower, the Borrower shall within five days following receipt of such notice pay directly to such Secured Party additional amounts sufficient to compensate such Secured Party or such controlling Person for such reduction in rate of return. A statement of such Secured Party as to any such additional amount or amounts shall, in the absence of manifest error, be conclusive and binding on the Borrower. In determining such amount, such Secured Party may use any method of averaging and attribution that it (in its sole and absolute discretion) shall deem applicable. Notwithstanding anything to the contrary contained herein, (i) the Borrower will not be required to compensate any Lender for any such amounts incurred by such Lender more than one hundred eighty (180) days prior to such Lender's written request to the Borrower for such compensation and (ii) a Lender shall not be entitled to any compensation described in this Section unless, at the time it requests such compensation, it is the policy or general practice of such Lender to request compensation for comparable costs in similar circumstances under other comparable loan agreements. SECTION 4.6. TAXES. The Borrower covenants and agrees as follows with respect to Taxes. (a) Any and all payments by the Borrower under each Loan Document shall be made without setoff, counterclaim or other defense, and, except as otherwise provided in this Section, free and clear of, and without deduction or withholding for or on account of, any Taxes. In the event that any Taxes are imposed and required to be deducted or withheld from any payment required to be made by any Obligor to or on behalf of any Secured Party under any Loan Document, then: (i) subject to CLAUSE (f), if such Taxes are Non-Excluded Taxes, the amount of such payment shall be increased as may be necessary so that such payment is made, after withholding or deduction for or on account of such Taxes, in an amount that is not less than the amount provided for in such Loan Document; and (ii) the Borrower shall withhold the full amount of such Taxes from such payment (as increased pursuant to CLAUSE (a)(i)) and shall pay such amount to the Governmental Authority imposing such Taxes in accordance with applicable law. (b) In addition, the Borrower shall pay all Other Taxes imposed to the relevant Governmental Authority imposing such Other Taxes in accordance with applicable law, except Other Taxes imposed on or with respect to any assignment or sale contemplated by SECTION 10.11.1 or SECTION 10.11.2. (c) As promptly as practicable after the payment by the Borrower of any Taxes or Other Taxes, and in any event within 45 days of any such payment being due, the Borrower shall furnish to the Administrative Agent a copy of an official receipt (or a certified copy thereof) evidencing the payment of such Taxes or Other Taxes or a copy of the return reporting such payment or other evidence of such payment reasonably satisfactory to the Administrative Agent. The Administrative Agent shall make copies thereof available to any Lender upon request therefor. -44- (d) Subject to CLAUSE (f), the Borrower shall indemnify each Secured Party for any Non-Excluded Taxes and Other Taxes (except Other Taxes not payable by the Borrower pursuant to CLAUSE (b)) levied, imposed or assessed by any Governmental Authority on (and whether or not paid directly by) such Secured Party whether or not such Non-Excluded Taxes or Other Taxes are correctly or legally asserted by the relevant Governmental Authority. Promptly upon having knowledge that any such Non-Excluded Taxes or Other Taxes have been levied, imposed or assessed, and promptly upon written notice thereof by any Secured Party, the Borrower shall pay such Non-Excluded Taxes or Other Taxes directly to the relevant Governmental Authority. In addition, the Borrower shall indemnify each Secured Party for any incremental Taxes that may become payable by such Secured Party as a result of any failure of the Borrower to pay any Taxes when due to the appropriate Governmental Authority or to deliver to the Administrative Agent, pursuant to CLAUSE (c), documentation evidencing the payment of Taxes or Other Taxes; PROVIDED, HOWEVER, the Borrower shall not be required to indemnify any Secured Party for any incremental Taxes resulting from a failure of the Borrower to pay any Taxes when due to the appropriate Governmental Authority if such failure by the Borrower is a result of the failure of a Secured Party to provide written notice to the Borrower of any Non-Excluded Taxes and Other Taxes levied, imposed or assessed on such Secured Party within 90 days of such levy, imposition or assessment; PROVIDED, FURTHER, the Borrower shall be required to indemnify such Secured Party for any incremental Taxes relating to any such failure of the Borrower occurring after such Secured Party provides such written notice. With respect to indemnification for Non-Excluded Taxes and Other Taxes actually paid by any Secured Party or the indemnification provided in the immediately preceding sentence, such indemnification shall be made within 30 days after the date such Secured Party makes written demand therefor (showing in reasonable detail the basis and amount for such indemnification). The Borrower acknowledges that any payment made to any Secured Party or to any Governmental Authority in respect of the indemnification obligations of the Borrower provided in this clause shall constitute a payment in respect of which the provisions of CLAUSE (a) and this clause shall apply. (e) Each Non-U.S. Secured Party, on or prior to the date on which such Non-U.S. Secured Party becomes a Secured Party hereunder (and from time to time thereafter upon the request of the Borrower or the Administrative Agent, but only for so long as such Non-U.S. Secured Party is legally able to do so), shall deliver to the Borrower and the Administrative Agent either (i) two duly completed copies of either (x) Internal Revenue Service Form W-8BEN claiming eligibility of such Non-U.S. Secured Party for benefits of an income tax treaty to which the United States is a party or (y) Internal Revenue Service Form W-8ECI, or in either case an applicable successor form; or (ii) in the case of a Non-U.S. Secured Party that is legally entitled to claim exemption from United States federal withholding tax under Section 871(h) or Section 881(c) of the Code with respect to payments of "portfolio interest", (x) a certificate to the effect that such Non-U.S. Secured Party is not (A) a "bank" within the meaning of Section 881(c)(3)(A) of the Code, (B) a "10 percent shareholder" of the Borrower within the meaning of Section 881(c)(3)(B) of the Code, or (C) a controlled foreign corporation receiving interest from a related person within the meaning of Section 881(c)(3)(C) of the Code (referred to as an "EXEMPTION CERTIFICATE") and (y) two duly completed copies of Internal Revenue Service Form W-8BEN or applicable successor form. Each Non-U.S. Secured Party shall deliver such -45- forms promptly upon the obsolescence or invalidity of any form previously delivered by such Non-U.S. Secured Party. Each Non-U.S. Secured Party shall promptly notify the Borrower at any time it determines that it is no longer in a position to provide any previously delivered certificate to the Borrower (or any other form of certification adopted by the U.S. taxing authorities for such purpose). (f) The Borrower shall not be obligated to pay any additional amounts to any Secured Party pursuant to CLAUSE (a)(i), or to indemnify any Secured Party pursuant to CLAUSE (d), in respect of any Non-Excluded Taxes or Other Taxes to the extent imposed as a result of (i) the failure of such Secured Party to deliver to the Borrower the form or forms and/or an Exemption Certificate, as applicable to such Secured Party, pursuant to CLAUSE (e), (ii) such form or forms and/or Exemption Certificate not establishing a complete exemption from U.S. federal withholding tax or the information or certifications made therein by the Secured Party being untrue or inaccurate on the date delivered in any material respect, or (iii) the Secured Party designating (x) a successor lending office at which it maintains its Loans or (y) an Assignee Lender which has the effect of causing such Secured Party or Assignee Lender to become obligated for tax payments in excess of those in effect immediately prior to such designation; PROVIDED, HOWEVER, that the Borrower shall be obligated to pay additional amounts to any such Secured Party pursuant to CLAUSE (a)(i), and to indemnify any such Secured Party pursuant to CLAUSE (d), in respect of United States federal withholding taxes if (i) any such failure to deliver a form or forms or an Exemption Certificate or the failure of such form or forms or Exemption Certificate to establish a complete exemption from U.S. federal withholding tax or inaccuracy or untruth contained therein resulted from a change in any applicable statute, treaty, regulation or other applicable law or any interpretation of any of the foregoing occurring after the Closing Date, which change rendered such Secured Party no longer legally entitled to deliver such form or forms or Exemption Certificate or otherwise ineligible for a complete exemption from U.S. federal withholding tax, or rendered the information or certifications made in such form or forms or Exemption Certificate untrue or inaccurate in a material respect, (ii) the redesignation of the Secured Party's lending office was made at the request of the Borrower or (iii) the obligation to pay any additional amounts to any such Secured Party pursuant to CLAUSE (a)(i) or to indemnify any such Secured Party pursuant to CLAUSE (d) is with respect to an Assignee Lender that becomes an Assignee Lender as a result of an assignment made at the request of the Borrower. (g) In the event that any Secured Party receives a refund in respect of any Non-Excluded Taxes or Other Taxes as to which the Borrower had paid amounts pursuant to CLAUSE (a) or CLAUSE (b) or it has been indemnified by the Borrower pursuant to CLAUSE (d) and such Secured Party determines in its sole, good faith judgment that such refund is attributable to such Non-Excluded Taxes or Other Taxes, then such Secured Party shall promptly notify the Administrative Agent and the Borrower and shall within 30 Business Days remit to the Borrower an amount as such Secured Party reasonably determines to be the proportion of the refunded amount as will leave it, after such remittance, in no better or worse position than it would have been if the Non-Excluded Taxes or Other Taxes had not been imposed and the corresponding payment not been made; PROVIDED, HOWEVER, that the Borrower, upon the written request of such Secured Party, agrees to repay the amount paid over to the Borrower to such Secured Party in the event such Secured Party is -46- required to repay such refund to a taxation authority. A Secured Party shall not be obligated to disclose information regarding its tax affairs or computations to the Borrower in connection with this CLAUSE (g). SECTION 4.7. PAYMENTS, COMPUTATIONS, ETC. Unless otherwise expressly provided in a Loan Document, all payments by the Borrower pursuant to each Loan Document shall be made by the Borrower to the Administrative Agent for the PRO RATA account of the Secured Parties entitled to receive such payment. All payments shall be made without setoff, deduction or counterclaim not later than 11:00 a.m. on the date due in same day or immediately available funds to such account as the Administrative Agent shall specify from time to time by notice to the Borrower. Funds received after that time shall be deemed to have been received by the Administrative Agent on the next succeeding Business Day. The Administrative Agent shall promptly remit in same day funds to each Secured Party its share, if any, of such payments received by the Administrative Agent for the account of such Secured Party. All interest (including interest on LIBO Rate Loans) and fees shall be computed on the basis of the actual number of days (including the first day but excluding the last day) occurring during the period for which such interest or fee is payable over a year comprised of 360 days (or, in the case of interest on a Base Rate Loan (calculated at other than the Federal Funds Rate), 365 days or, if appropriate, 366 days). Payments due on other than a Business Day shall (except as otherwise required by CLAUSE (b) of the definition of "Interest Period") be made on the next succeeding Business Day and such extension of time shall be included in computing interest and fees in connection with that payment. SECTION 4.8. SHARING OF PAYMENTS. If any Secured Party shall obtain any payment or other recovery (whether voluntary, involuntary, by application of setoff or otherwise) on account of any Credit Extension or Reimbursement Obligation (other than pursuant to the terms of SECTIONS 4.3, 4.4, 4.5 or 4.6) in excess of its PRO RATA share of payments obtained by all Secured Parties, such Secured Party shall purchase from the other Secured Parties such participations in Credit Extensions made by them as shall be necessary to cause such purchasing Secured Party to share the excess payment or other recovery ratably (to the extent such other Secured Parties were entitled to receive a portion of such payment or recovery) with each of them; PROVIDED, HOWEVER, that if all or any portion of the excess payment or other recovery is thereafter recovered from such purchasing Secured Party, the purchase shall be rescinded and each Secured Party which has sold a participation to the purchasing Secured Party shall repay to the purchasing Secured Party the purchase price to the ratable extent of such recovery together with an amount equal to such selling Secured Party's ratable share (according to the proportion of (a) the amount of such selling Secured Party's required repayment to the purchasing Secured Party TO (b) total amount so recovered from the purchasing Secured Party) of any interest or other amount paid or payable by the purchasing Secured Party in respect of the total amount so recovered. The Borrower agrees that any Secured Party purchasing a participation from another Secured Party pursuant to this Section may, to the fullest extent permitted by law, exercise all its rights of payment (including pursuant to SECTION 4.9) with respect to such participation as fully as if such Secured Party were the direct creditor of the Borrower in the amount of such participation. If under any applicable bankruptcy, insolvency or other similar law any Secured Party receives a secured claim in lieu of a setoff to which this -47- Section applies, such Secured Party shall, to the extent practicable, exercise its rights in respect of such secured claim in a manner consistent with the rights of the Secured Parties entitled under this Section to share in the benefits of any recovery on such secured claim. SECTION 4.9. SETOFF. Each Secured Party shall, upon the occurrence and during the continuance of any Default described in CLAUSES (a) through (d) of SECTION 8.1.9 or, with the consent of the Required Lenders, upon the occurrence and during the continuance of any other Event of Default, have the right to appropriate and apply to the payment of the Obligations owing to it (whether or not then due), and (as security for such Obligations) the Borrower hereby grants to each Secured Party a continuing security interest in, any and all balances, credits, deposits, accounts or moneys of the Borrower then or thereafter maintained with such Secured Party; PROVIDED, HOWEVER, that any such appropriation and application shall be subject to the provisions of SECTION 4.8. Each Secured Party agrees promptly to notify the Borrower and the Administrative Agent after any such setoff and application made by such Secured Party; PROVIDED, HOWEVER, that the failure to give such notice shall not affect the validity of such setoff and application. The rights of each Secured Party under this Section are in addition to other rights and remedies (including other rights of setoff under applicable law or otherwise) which such Secured Party may have. ARTICLE V CONDITIONS TO CREDIT EXTENSIONS SECTION 5.1. INITIAL CREDIT EXTENSION. The obligations of the Lenders and, if applicable, the Issuers to fund the initial Credit Extension shall be subject to the prior or concurrent satisfaction of each of the conditions precedent set forth in this Article. SECTION 5.1.1. RESOLUTIONS, ETC. The Administrative Agent shall have received from each Obligor, as applicable, (i) a copy of a good standing certificate, dated a date reasonably close to the Closing Date, for each such Person and (ii) a certificate, dated the Closing Date with counterparts for each Lender, duly executed and delivered by such Person's Secretary or Assistant Secretary, managing member or general partner, as applicable, as to (a) resolutions of each such Person's Board of Directors (or other managing body, in the case of other than a corporation) then in full force and effect authorizing the execution, delivery and performance of each Loan Document to be executed by such Person and the transactions contemplated hereby and thereby; (b) the incumbency and signatures of those of its officers, managing member or general partner, as applicable, authorized to act with respect to each Loan Document to be executed by such Person; and (c) the full force and validity of each Organic Document of such Person and copies thereof; -48- upon which certificates each Secured Party may conclusively rely until it shall have received a further certificate of the Secretary, Assistant Secretary, managing member or general partner, as applicable, of any such Person canceling or amending the prior certificate of such Person. SECTION 5.1.2. CLOSING DATE CERTIFICATE. The Administrative Agent shall have received, with counterparts for each Lender, the Borrower Closing Date Certificate, dated the Closing Date and duly executed and delivered by an Authorized Officer of the Borrower, in which certificate the Borrower shall agree and acknowledge that the statements made therein shall be deemed to be true and correct representations and warranties of the Borrower as of such date, and, at the time each such certificate is delivered, such statements shall in fact be true and correct. All documents and agreements required to be appended to the Borrower Closing Date Certificate shall be in form and substance satisfactory to the Administrative Agent. SECTION 5.1.3. ISSUANCE OF SENIOR UNSECURED NOTES. The Administrative Agent shall have received evidence satisfactory to it that the Borrower shall have received the proceeds from the issuance of the Senior Unsecured Notes in an original principal amount of $177,000,000 pursuant to the Senior Unsecured Note Documents, which shall be in all respects in form and substance satisfactory to the Administrative Agent. SECTION 5.1.4. PAYMENT OF OUTSTANDING INDEBTEDNESS, ETC. All Indebtedness identified in ITEM 7.2.2(h) of the Disclosure Schedule (including all Indebtedness under the Existing Credit Agreement), together with all interest, all prepayment premiums and other amounts due and payable with respect thereto, shall have been paid in full from the proceeds of the issuance of the Senior Unsecured Notes and the initial Credit Extension and the commitments in respect of such Indebtedness shall have been terminated, and all Liens securing payment of any such Indebtedness have been released and the Administrative Agent shall have received all Uniform Commercial Code Form UCC-3 termination statements or other instruments as may be suitable or appropriate in connection therewith. SECTION 5.1.5. CLOSING FEES, EXPENSES, ETC. The Administrative Agent shall have received for its own account, or for the account of each Lender, as the case may be, all fees, costs and expenses due and payable pursuant to SECTIONS 3.3 and, if then invoiced, 10.3. SECTION 5.1.6. FINANCIAL INFORMATION, ETC. The Administrative Agent shall have received, with counterparts for each Lender, (a) audited consolidated financial statements of the Borrower and its Subsidiaries as at August 25, 2001; (b) a PRO FORMA consolidated balance sheet of the Borrower and its Subsidiaries, as of the accounting month end closest to the Closing Date certified by the chief financial or accounting Authorized Officer of the Borrower, giving effect to the consummation of the transactions contemplated by this Agreement, which shall be satisfactory to the Administrative Agent; and (c) a Borrowing Base Certificate, dated as of the date of the initial Credit Extension and calculated as of December 29, 2001, duly executed (and with all schedules thereto duly -49- completed) and delivered by the chief financial or accounting Authorized Officer of the Borrower. SECTION 5.1.7. COMPLIANCE CERTIFICATE. The Administrative Agent shall have received, with counterparts for each Lender, an initial Compliance Certificate on a PRO FORMA basis as if the initial Credit Extension had been made as of November 24, 2001 and as to such items therein as the Administrative Agent reasonably requests, dated the date of the initial Credit Extension, duly executed (and with all schedules thereto duly completed) and delivered by the chief financial or accounting Authorized Officer of the Borrower. SECTION 5.1.8. OPINIONS OF COUNSEL. The Administrative Agent shall have received opinions, dated the Closing Date and addressed to the Administrative Agent and all Lenders, from (a) Schulte Roth & Zabel LLP, New York counsel to the Obligors, in form and substance satisfactory to the Administrative Agent (which opinion shall include, among others, an unqualified opinion to the effect that the Obligations of CBI arising in connection with the Subsidiary Guaranty will be "Designated Senior Indebtedness"); and (b) local counsel to the Obligors in the following jurisdictions, in form and substance, and from counsel, satisfactory to the Administrative Agent: (i) Illinois; and (ii) Texas. SECTION 5.1.9. FILING AGENT, ETC. All Uniform Commercial Code financing statements or other similar financing statements and Uniform Commercial Code (Form UCC-3) termination statements required pursuant to the Loan Documents (collectively, the "FILING STATEMENTS") shall have been delivered to CT Corporation System or another similar filing service company acceptable to the Administrative Agent (the "FILING AGENT"). The Filing Agent shall have acknowledged in a writing satisfactory to the Administrative Agent and its counsel (i) the Filing Agent's receipt of all Filing Statements, (ii) that the Filing Statements have either been submitted for filing in the appropriate filing offices or will be submitted for filing in the appropriate offices within ten days following the Closing Date and (iii) that the Filing Agent will notify the Administrative Agent and its counsel of the results of such submissions within 30 days following the Closing Date. SECTION 5.1.10. SUBSIDIARY GUARANTY. The Administrative Agent shall have received, with counterparts for each Lender, the Subsidiary Guaranty, dated as of the date hereof, duly executed and delivered by an Authorized Officer of each U.S. Subsidiary. SECTION 5.1.11. SOLVENCY, ETC. The Administrative Agent shall have received, with counterparts for each Lender, a solvency certificate duly executed and delivered by the chief financial or accounting Authorized Officer of the Borrower, dated as of the Closing Date, in form and substance satisfactory to the Administrative Agent. -50- SECTION 5.1.12. PLEDGE AND SECURITY AGREEMENTS. The Administrative Agent shall have received, with counterparts for each Lender, (a) the Borrower Pledge and Security Agreement and the Subsidiary Pledge and Security Agreement, in each case dated as of the date hereof, duly executed and delivered by an Authorized Officer of the Borrower and each U.S. Subsidiary of the Borrower, as applicable, together with (i) certificates evidencing all of the issued and outstanding Capital Securities pledged pursuant to the applicable Pledge and Security Agreement, which certificates in each case shall be accompanied by undated instruments of transfer duly executed in blank, or, if any Capital Securities are uncertificated Capital Securities, confirmation and evidence satisfactory to the Administrative Agent that the security interest therein has been transferred to and perfected by the Administrative Agent for the benefit of the Secured Parties in accordance with Articles 8 and 9 of the UCC and all laws otherwise applicable to the perfection of the pledge of such Capital Securities; (ii) all Pledged Notes (as defined in the applicable Pledge and Security Agreement), if any, evidencing Indebtedness payable to the Borrower or any such Subsidiary duly endorsed to the order of the Administrative Agent, together with Filing Statements (or similar instruments) in respect of such Pledged Notes to be filed in such jurisdictions as the Administrative Agent may reasonably request; (iii) a valid first priority perfected security interest, pursuant to the Account Control Agreement, in all CBI Senior Subordinated Notes owing to Taylor Holding Co; (iv) executed copies of Filing Statements naming the Borrower and each U.S. Subsidiary as a debtor and the Administrative Agent as the secured party, or other similar instruments or documents to be filed under the UCC of all jurisdictions as may be necessary or, in the opinion of the Administrative Agent, desirable to perfect the security interests of the Administrative Agent pursuant to each such Pledge and Security Agreement; (v) executed copies of proper UCC Form UCC-3 termination statements, if any, necessary to release all Liens and other rights of any Person (i) in any collateral described in any security agreement previously granted by any Person, and (ii) securing any of the Indebtedness identified in ITEM 7.2.2(H) of the Disclosure Schedule, together with such other UCC Form UCC-3 termination statements as the Administrative Agent may reasonably request from such Obligors; and (vi) certified copies of UCC Requests for Information or Copies (Form UCC-11), or a similar search report certified by a party acceptable to the Administrative Agent, dated a date reasonably near to the Closing Date, listing all effective financing statements which name the Borrower or any U.S. Subsidiary (under its present name and any previous names) as the debtor, together with copies of such financing statements (none of which shall cover any collateral described in any Loan Document); and (b) the Administrative Agent and its counsel shall be satisfied that (i) the Lien granted to the Administrative Agent, for the benefit of the Secured Parties in the collateral described -51- above is a first priority (or local equivalent thereof) security interest; and (ii) no Lien exists on any of the collateral described above other than the Lien created in favor of the Administrative Agent, for the benefit of the Secured Parties, pursuant to a Loan Document. SECTION 5.1.13. PATENT SECURITY AGREEMENT, COPYRIGHT SECURITY AGREEMENT AND TRADEMARK SECURITY AGREEMENT. The Administrative Agent shall have received a Patent Security Agreement, a Copyright Security Agreement and a Trademark Security Agreement, as applicable, each dated as of the date hereof, duly executed and delivered by each Obligor that has delivered a Security Agreement. SECTION 5.1.14. INSURANCE. The Administrative Agent shall have received, with copies for each Lender, certified copies of the insurance policies (or binders in respect thereof), from one or more insurance companies satisfactory to the Administrative Agent, evidencing coverage required to be maintained pursuant to each Loan Document. SECTION 5.1.15. MORTGAGES. The Administrative Agent shall have received counterparts of each Mortgage, dated as of the date hereof, duly executed by the applicable Obligor, together with (a) evidence of the completion (or satisfactory arrangements for the completion) of all recordings and filings of each Mortgage as may be necessary or, in the opinion of the Administrative Agent, desirable to create a valid, perfected first priority Lien against the properties purported to be covered thereby; and (b) such other approvals, opinions, or documents as the Administrative Agent may request in form and substance satisfactory to the Administrative Agent including consents and estoppel agreements from landlords, in form and substance satisfactory to the Administrative Agent and the title insurer, and a real estate appraisal for each such property prepared in accordance with the requirements of the Financial Institutions Reform Recovery and Enforcement Act of 1989 and the regulations promulgated thereunder. SECTION 5.1.16. INTERCREDITOR AGREEMENT. The Administrative Agent shall have received, with counterparts for each Lender, the Intercreditor Agreement, dated as of the date hereof, duly executed and delivered by the Administrative Agent and Scotia Capital, and acknowledged by the Borrower. SECTION 5.1.17. DELIVERY OF NOTES. The Administrative Agent shall have received, for the account of each Lender that has requested a Note, such Lender's Note duly executed and delivered by an Authorized Officer of the Borrower. SECTION 5.1.18. REVOLVING LOAN COMMITMENT AMOUNT AVAILABILITY. The unused portion of the Revolving Loan Commitment Amount on the Closing Date (following the initial Credit Extension) shall equal or exceed $22,500,000. SECTION 5.1.19. CBI INDENTURE ACKNOWLEDGMENT. The Administrative Agent shall have received, with copies for each Lender, a letter, in form and substance satisfactory to the -52- Administrative Agent, from CBI to the trustee under the CBI Indenture, stating that under the terms of the CBI Indenture (i) the indebtedness arising under this Agreement and the Subsidiary Guaranty collectively will be deemed "Designated Senior Indebtedness"; and (ii) the Administrative Agent shall be the "Senior Representative" for "Designated Senior Indebtedness" (each such term as defined in the CBI Indenture). SECTION 5.2. ALL CREDIT EXTENSIONS. The obligation of each Lender and each Issuer to make any Credit Extension shall be subject to and the satisfaction of each of the conditions precedent set forth below. SECTION 5.2.1. COMPLIANCE WITH WARRANTIES, NO DEFAULT, ETC. Both before and after giving effect to any Credit Extension and the application of the proceeds thereof (but, if any Default of the nature referred to in SECTION 8.1.5 shall have occurred with respect to any other Indebtedness, without giving effect to the application, directly or indirectly, of the proceeds thereof) the following statements shall be true and correct: (a) the representations and warranties set forth in each Loan Document shall, in each case, be true and correct with the same effect as if then made (unless stated to relate solely to an earlier date, in which case such representations and warranties shall be true and correct in all material respects as of such earlier date); (b) the sum of (i) the aggregate outstanding principal amount of all Revolving Loans and Swing Line Loans, plus (ii) the aggregate amount of all Letter of Credit Outstandings, does not exceed the lesser of (x) the then existing Revolving Loan Commitment Amount and (y) the then applicable Borrowing Base Amount; (c) the Borrower and its Subsidiaries shall not hold cash and Cash Equivalent Investments in an aggregate amount in excess of $10,000,000; and (d) no Default shall have then occurred and be continuing. SECTION 5.2.2. CREDIT EXTENSION REQUEST, ETC. Subject to SECTION 2.3.2, the Administrative Agent shall have received a Borrowing Request if Loans are being requested, or an Issuance Request if a Letter of Credit is being requested or extended. Each of the delivery of a Borrowing Request or Issuance Request and the acceptance by the Borrower of the proceeds of such Credit Extension shall constitute a representation and warranty by the Borrower that on the date of such Credit Extension (both immediately before and after giving effect to such Credit Extension and the application of the proceeds thereof) the statements made in SECTION 5.2.1 are true and correct in all material respects. SECTION 5.2.3. SATISFACTORY LEGAL FORM. All documents executed or submitted pursuant hereto by or on behalf of any Obligor shall be reasonably satisfactory in form and substance to the Administrative Agent and its counsel, and the Administrative Agent and its counsel shall have received all information, approvals, opinions, documents or instruments as the Administrative Agent or its counsel may reasonably request. -53- ARTICLE VI REPRESENTATIONS AND WARRANTIES In order to induce the Secured Parties to enter into this Agreement and to make Credit Extensions hereunder, the Borrower represents and warrants to each Secured Party as set forth in this Article. SECTION 6.1. ORGANIZATION, POWERS, CAPITALIZATION AND GOOD STANDING. (a) Organization and Powers. Each of the Obligors is a limited partnership or a corporation, as applicable, duly formed or incorporated, as applicable, validly existing and in good standing under the laws of its jurisdiction of formation or incorporation as applicable (which jurisdiction for each Obligor in existence as of the Closing Date is set forth on ITEM 6.1(a) of the Disclosure Schedule). Each of the Obligors has all requisite partnership or corporate power and authority to own and operate its properties, to carry on its business as now conducted and proposed to be conducted, to enter into and perform its obligations under each Related Transactions Document to which it is a party and to carry out the Related Transactions. (b) Capitalization. As of the Closing Date the authorized equity of each of the Obligors is as set forth on ITEM 6.1(b) of the Disclosure Schedule. As of the Closing Date, all issued and outstanding Capital Securities of each of the Obligors are duly authorized and validly issued, fully paid, nonassessable, free and clear of all Liens other than those in favor of the Administrative Agent, for the benefit of Secured Parties, and such Capital Securities were issued in compliance with all applicable state and federal laws concerning the issuance of securities. As of the Closing Date the Capital Securities of each of the Obligors are owned by the Persons and in the amounts set forth in ITEM 6.1(b) of the Disclosure Schedule. As of the Closing Date no Capital Securities of any Obligor, other than those described above, are issued and outstanding. As of the Closing Date there are no preemptive or other outstanding rights, options, warrants, conversion rights or similar agreements or understandings for the purchase or acquisition from any Obligor, of any Capital Securities of any such Obligor. (c) Binding Obligation. This Agreement is, and the other Related Transactions Documents heretofore executed and delivered or when executed and delivered are and will be, the legally valid and binding obligations of the applicable Obligors thereto, each enforceable against each of such Obligor, as applicable, in accordance with their respective terms, except (i) as enforceability is limited by bankruptcy, insolvency, reorganization, moratorium or other laws relating to or affecting generally the enforcement of creditors' rights and except to the extent that availability of the remedy of specific performance or injunctive relief and other equitable remedies are subject to the discretion of the court before which any proceeding therefor may be brought, and (ii) that certain provisions of the Security Documents may be unenforceable in whole or in part, but the inclusion of such provisions does not affect the validity of the Security Documents, taken as a whole, and the Security Documents, taken as a whole contain adequate provisions for realization of the principal benefits intended to be provided by the Security Documents subject to -54- clause (i) above and to the economic consequences of any delay which may result from applicable law, rules or judicial decisions. (d) Qualification. Each of the Obligors is qualified and in good standing wherever necessary to carry on its business and operations, except in jurisdictions in which the failure to be qualified and in good standing could not reasonably be expected to have a Material Adverse Effect. All jurisdictions in which each Obligor is qualified to do business as of the Closing Date are set forth on ITEM 6.1(d) of the Disclosure Schedule. SECTION 6.2. DUE AUTHORIZATION, NON-CONTRAVENTION, ETC. The execution, delivery and performance by each Obligor of each Loan Document executed or to be executed by it and the execution, delivery and performance by the Borrower or (if applicable) any Obligor of the agreements executed and delivered by it in connection herewith are in each case within such Person's powers, have been duly authorized by all necessary action, and do not (a) contravene any (i) Obligor's Organic Documents, (ii) or result in a default under any contractual restriction binding on or affecting any Obligor, (iii) court decree or order binding on or affecting any Obligor or (iv) law or governmental regulation binding on or affecting any Obligor; or (b) result in, or require the creation or imposition of, any Lien on any Obligor's properties (except as permitted by this Agreement). SECTION 6.3. GOVERNMENT APPROVAL, REGULATION, ETC. No authorization or approval or other action by, and no notice to or filing with, any Governmental Authority or other Person (other than those that have been, or on the Effective Date will be, duly obtained or made and which are, or on the Effective Date will be, in full force and effect) is required for the due execution, delivery or performance by any Obligor of any Loan Document to which it is a party, or for the continuing operations of the Borrower and the Subsidiary Guarantors. Neither the Borrower nor any of its Subsidiaries is an "investment company" within the meaning of the Investment Company Act of 1940, as amended, or a "holding company", or a "subsidiary company" of a "holding company", or an "affiliate" of a "holding company" or of a "subsidiary company" of a "holding company", within the meaning of the Public Utility Holding Company Act of 1935, as amended. SECTION 6.4. INTELLECTUAL PROPERTY. Except as set forth on ITEM 6.4(a) of the Disclosure Schedule, the Borrower and each of its Subsidiaries owns, is licensed to use or otherwise has the right to use, all patents, trademarks, trade names, copyrights, know-how and processes necessary for the conduct of its business substantially as currently conducted and that are material to the financial condition or operations of the Borrower and its Subsidiaries taken as a whole (collectively called "INTELLECTUAL PROPERTY"). All such Intellectual Property that is federally registered and owned by the Borrower or its Subsidiaries, as well as material trademarks, trade names and copyrights, necessary for the conduct of the business of any such Person and owned by any such Person, is identified on ITEM 6.4(b) of the Disclosure Schedule (as updated from time to time by delivery by the Borrower or any of its Subsidiaries of a revised ITEM 6.4(b) of the -55- Disclosure Schedule) and all such federally registered property has been duly and properly registered, filed or issued in the appropriate office and jurisdictions for such registrations, filings or issuances. Except as disclosed in ITEM 6.4(c) of the Disclosure Schedule, since the Closing Date, and to the Borrower's and its Subsidiaries' knowledge prior to the Closing Date, the use of such Intellectual Property by the Borrower and its Subsidiaries does not and has not been alleged in writing by any Person to infringe on the rights of any Person, except to the extent any such infringement or allegations of infringement could not reasonably be expected to have a Material Adverse Effect. SECTION 6.5. FINANCIAL STATEMENTS AND PROJECTIONS. All financial statements concerning the Borrower and its Subsidiaries which have been or will hereafter be furnished to the Administrative Agent pursuant to this Agreement, including the consolidated balance sheets of each of the Borrower and its Subsidiaries, in each case for the Fiscal Year of such Persons ended August 25, 2001, and the related consolidated statements of income, stockholders' equity and cash flow for such Fiscal Year, each audited by Arthur Andersen LLP, have been or will be prepared in accordance with GAAP and present fairly, in all material respects, the financial condition of the Persons covered thereby as at the dates thereof and the results of their operations for the periods then ended, subject to, in the case of unaudited financial statements, the absence of year-end adjustments. The Projections delivered on or prior to the Closing Date and the Projections to be delivered pursuant to CLAUSE (i) of SECTION 7.1.1 have been and will be prepared in good faith and based upon reasonable assumptions at the time such Projections were or will be delivered, it being understood that such Projections do not and will not constitute a warranty as to the future performance of the Borrower or any of its Subsidiaries and that actual results may vary from such Projections. SECTION 6.6. NO MATERIAL ADVERSE CHANGE. Since August 25, 2001, there have been no changes in the financial condition or results of operations of the Borrower and its Subsidiaries taken as a whole which could reasonably be expected to result in a Material Adverse Effect. SECTION 6.7. LITIGATION: ADVERSE EFFECTS. Except as set forth on ITEM 6.7 of the Disclosure Schedule, there are no judgments outstanding against any Obligor or affecting any property of any Obligor, nor is there any action, charge, claim, demand, suit, proceeding, petition, governmental investigation or arbitration now pending or, to the best knowledge of the Borrower or any of its Subsidiaries after due inquiry, threatened against or affecting any Obligor or any property of any Obligor which could reasonably be expected to result in any Material Adverse Effect. SECTION 6.8. SOLVENCY. Each of the Borrower and CBI, Taylor Holding Co., Taylor General Partner, Taylor and ECI: (a) owns and will own assets the fair saleable value of which are (i) greater than the total amount of liabilities (including Contingent Liabilities) of such Person and (ii) greater than the amount that will be required to pay the probable liabilities of such Person's then existing debts as they become absolute and matured considering all financing alternatives and potential asset sales reasonably available to such Person; (b) has capital that is not unreasonably small in relation to its business as presently conducted or after giving effect to any contemplated transaction; and (c) does -56- not intend to incur and does not believe that it will incur debts beyond its ability to pay such debts as they become due. SECTION 6.9. TAXES. The Borrower and each of its Subsidiaries has filed all tax returns and reports required by law to have been filed by it and has paid all Taxes thereby shown to be due and owing, except any such Taxes which are being diligently contested in good faith by appropriate proceedings and for which adequate reserves in accordance with GAAP shall have been set aside on its books. SECTION 6.10. ENVIRONMENTAL WARRANTIES. Except as set forth in ITEM 6.10 of the Disclosure Schedule: (a) all facilities and property (including underlying groundwater) owned, leased or operated by the Borrower or any of its Subsidiaries have been, and continue to be, owned, leased or operated by the Borrower and its Subsidiaries in material compliance with all Environmental Laws; (b) there have been no past, and there are no pending or threatened (i) claims, complaints, notices or requests for information received by the Borrower or any of its Subsidiaries with respect to any alleged violation of any Environmental Law, or (ii) complaints, notices or inquiries to the Borrower or any of its Subsidiaries regarding potential liability under any Environmental Law, in either case which could reasonably be expected to have a Material Adverse Effect; (c) there have been no Releases of Hazardous Materials at, on or under any property now or previously owned or leased by the Borrower or any of its Subsidiaries that have, or could reasonably be expected to have, a Material Adverse Effect; (d) the Borrower and its Subsidiaries have been issued and are in material compliance with all permits, certificates, approvals and licenses required under Environmental Law; (e) no property now or previously owned or leased by the Borrower or any of its Subsidiaries is listed or proposed for listing (with respect to owned property only) on the National Priorities List pursuant to CERCLA, on the CERCLIS or on any similar state list of sites requiring investigation or clean-up; (f) there are no underground or aboveground storage tanks, active or abandoned, including petroleum underground or aboveground storage tanks, on or under any property now or previously owned or leased by the Borrower or any of its Subsidiaries that, singly or in the aggregate, have, or could reasonably be expected to have, a Material Adverse Effect; (g) neither the Borrower nor any Subsidiary has directly transported or directly arranged for the transportation of any Hazardous Material to any location which is listed or proposed for listing on the National Priorities List pursuant to CERCLA, on the CERCLIS or on any similar state list or which is the subject of federal, state or local enforcement actions or other investigations which may lead to material claims against the Borrower or such Subsidiary for any remedial work, damage to natural resources or personal injury, including claims under CERCLA; -57- (h) there are no polychlorinated biphenyls or friable asbestos present at any property now or previously owned or leased by the Borrower or any Subsidiary that, singly or in the aggregate, have, or could reasonably be expected to have, a Material Adverse Effect; and (i) no conditions exist at, on or under any property now or previously owned or leased by the Borrower which, with the passage of time, or the giving of notice or both, would give rise to material liability under any Environmental Law. SECTION 6.11. DISCLOSURE. No representation or warranty of any Obligor contained in this Agreement, the financial statements (other than the Projections) referred to in CLAUSE (a) of SECTION 5.1.6, the other Loan Documents or any other document, certificate or written statement furnished to the Administrative Agent or any Lender by or on behalf of an Obligor for use in connection with the Loan Documents contains as of the date of such representation, warranty, document, certificate or written statement was so furnished any untrue statement of a material fact or omitted to state a material fact necessary in order to make the statements contained herein or therein not misleading, in each case in light of the circumstances in which the same were made. SECTION 6.12. USE OF PROCEEDS: Margin Regulations. Neither the Borrower nor any of its Subsidiaries is engaged principally, or as one of its important activities, in the business of extending credit for the purpose of purchasing or carrying margin stock (within the meaning of the Regulation U or X of the Board of Governors of the Federal Reserve System) and no part of the proceeds of any Loan will be used to acquire any margin stock. SECTION 6.13. CBI SENIOR SUBORDINATED NOTES. The consummation of the Related Transactions will not violate, conflict with or result in a breach of any provision of the CBI Indenture. No Indebtedness, other than the Obligations, has been designated as "Designated Senior Indebtedness" under the CBI Indenture and except for an amendment thereto on July 27, 2000 the CBI Indenture has not been amended or otherwise modified. None of the Related Transactions, either individually or collectively, constitutes an "Asset Sale" or a "Change of Control" under the CBI Indenture. The Subsidiary Guaranty as it relates to CBI falls within the definition of the term "Bank Credit Facility" as set forth in the CBI Indenture and the Obligations owing under the Subsidiary Guaranty as it relates to CBI constitute "Designated Senior Indebtedness" as set forth in the CBI Indenture. Aside from that certain Guaranty issued by Taylor Holding Co. on or about March 19, 2001 to all of the holders of the CBI Senior Subordinated Notes, no additional consideration was given to Angelo, Gordon & Co., L.P. to induce it to enter into that certain agreement dated March 19, 2001 between Angelo, Gordon & Co., L.P. and CBI. The Borrower acknowledges that the Administrative Agent, each Lender and each Issuer is entering into this Agreement and is extending its Commitments in reliance upon the subordination provisions of the CBI Indenture. SECTION 6.14. NO DEFAULT. The consummation of the Related Transactions by the Obligors does not and will not violate or conflict with any laws, rules, regulations or orders of any governmental authority or violate, conflict with, result in a breach of, or constitute a default (with due notice or lapse of time or both) under any Contractual Obligation or any -58- Obligor except if such violations, conflicts, breaches or defaults have either been waived on or before the Closing Date or could not reasonably be expected to have, either individually or in the aggregate, a Material Adverse Effect. SECTION 6.15. INVESTIGATIONS, AUDITS, ETC. Except as set forth on ITEM 6.15 of the Disclosure Schedule, as of the Closing Date neither Borrower nor any of its Subsidiaries, is the subject of any review or audit by the Internal Revenue Service or any governmental investigation concerning the violation or possible violation of any law that may reasonably be expected to have a Material Adverse Effect. SECTION 6.16. EMPLOYEE MATTERS. Except as set forth on ITEM 6.16 of the Disclosure Schedule, as of the Closing Date (a) no Obligor nor any of their respective employees is subject to any collective bargaining agreement, (b) no petition for certification or union election is pending with respect to the employees of any Obligor and no union or collective bargaining unit has sought such certification or recognition with respect to the employees of any Obligor and (c) there are no strikes, slowdowns, work stoppages or controversies pending or, to the best knowledge of the Borrower or any of its Subsidiaries after due inquiry, threatened between any Obligor and its respective employees, other than employee grievances arising in the ordinary course of business which could not reasonably be expected to have a Material Adverse Effect. Except as set forth on ITEM 6.16 of the Disclosure Schedule, as of the Closing Date neither the Borrower nor any of its Subsidiaries is party to an employment contract that provides for annual payments after the date hereof in excess of $150,000. ARTICLE VII COVENANTS SECTION 7.1. AFFIRMATIVE COVENANTS. The Borrower agrees with each Lender, each Issuer and the Administrative Agent that until the Termination Date has occurred, the Borrower will, and will cause its Subsidiaries to, perform or cause to be performed the obligations set forth below. SECTION 7.1.1. FINANCIAL STATEMENTS AND OTHER REPORTS. The Borrower will maintain, and cause each of its Subsidiaries to maintain, a system of accounting established and administered in accordance with sound business practices to permit preparation of financial statements in conformity with GAAP (it being understood that monthly financial statements are subject to normal year-end adjustments and are not required to have footnote disclosures). The Borrower will deliver each of the financial statements and other reports described below to the Administrative Agent (and each Lender in the case of the financial statements and other reports described in CLAUSES (a), (b), (c), (e), (g), (i), (j) and (k)). (a) QUARTERLY FINANCIALS. As soon as available and in any event within 45 days after the end of each of the first three Fiscal Quarters, the Borrower will deliver unaudited consolidated and consolidating balance sheets and income statements of the Borrower and its Subsidiaries as of the end of such Fiscal Quarter and consolidated cash flow statements of the Borrower and its Subsidiaries for such Fiscal Quarter and for the period commencing -59- at the end of the previous Fiscal Year and ending with the end of such Fiscal Quarter, and including (in each case) in comparative form the figures for the corresponding Fiscal Quarter in, and year to date portion of, the immediately preceding Fiscal Year and to the most recently delivered annual budget, certified as complete and correct by the chief financial or accounting Authorized Officer of the Borrower. (b) YEAR-END FINANCIALS. As soon as available and in any event within ninety (90) days after the end of each Fiscal Year, the Borrower will deliver (i) the consolidated balance sheet of the Borrower and its Subsidiaries as at the end of such Fiscal Year, and the related consolidated statements of income, stockholders' equity and cash flow for such Fiscal Year, (ii) a schedule of the outstanding Indebtedness for borrowed money of the Borrower and its Subsidiaries describing in reasonable detail each such debt issue or loan outstanding and the principal amount and amount of accrued and unpaid interest with respect to each such debt issue or loan and (iii) a report with respect to the consolidated financial statements of the Borrower and its Subsidiaries from a firm of certified public accountants selected by the Borrower and reasonably acceptable to the Administrative Agent, which report shall be prepared in accordance with Statement of Auditing Standards No. 58 entitled "Reports on Audited Financial Statements" and such report shall be without (x) a "going concern" or like qualification or exception, (y) any qualification or exception as to the scope of such audit or (z) any qualification which relates to the treatment or classification of any item and which, as a condition to the removal of such qualification, would require an adjustment to such item, the effect of which would be to cause the Borrower to be in default of any of its obligations under SECTION 7.2.4 or SECTION 7.2.7. (c) COMPLIANCE CERTIFICATE. Together with each delivery of financial statements of the Borrower and its Subsidiaries pursuant to CLAUSES (a) and (b), the Borrower will deliver a fully and properly completed Compliance Certificate (in substantially the same form as EXHIBIT E) signed by the chief executive Authorized Officer, chief financial Authorized Officer, or treasurer of the Borrower. (d) ACCOUNTANTS' REPORTS. Promptly upon receipt thereof, the Borrower will deliver copies of all significant reports submitted by the Borrower's firm of certified public accountants in connection with each annual, interim or special audit or review of any type of the financial statements or related internal control systems of the Borrower made by such accountants, including any comment letter submitted by such accountants to management in connection with their services. (e) BORROWING BASE CERTIFICATE. As soon as available and in any event within ten (10) Business Days after the end of each month, and from time to time upon the request of the Administrative Agent after the occurrence and during the continuation of any Event of Default, the Borrower will deliver a Borrowing Base Certificate (in substantially the same form as EXHIBIT B-3) as at the last day of such period. (f) MANAGEMENT REPORT. Together with each delivery of financial statements pursuant to CLAUSES (a) and (b), the Borrower will deliver a management report (i) describing the operations and financial condition of the Borrower and its Subsidiaries for the month then ended and -60- the portion of the current Fiscal Year then elapsed (or for the Fiscal Year then ended in the case of year-end financials), (ii) setting forth in comparative form the corresponding figures for the corresponding periods of the previous Fiscal Year and the corresponding figures from the most recent Projections for the current Fiscal Year delivered pursuant to CLAUSE (i) and (iii) discussing the reasons for any significant variations. (g) COLLATERAL VALUE REPORT. Upon the request of the Administrative Agent, which may be made not more than once each year prior to an Event of Default (and prior to an Event of Default, the Borrower shall not be liable for costs, fees and expenses incurred by the Administrative Agent and the Lenders in excess of $30,000 during any eighteen (18) month period in connection with any collateral value report required pursuant to this CLAUSE (g)) and at any time (but not more often than quarterly) while and so long as an Event of Default shall be continuing, the Borrower will obtain and deliver to the Administrative Agent a report of an independent collateral auditor satisfactory to the Administrative Agent (which may be, or be affiliated with, a Lender) with respect to the Eligible Accounts and Eligible Inventory components included in the Borrowing Base Amount, which report shall indicate whether or not the information set forth in the Borrowing Base Certificate most recently delivered is accurate and complete in all material respects based upon a review by such auditors of the Eligible Accounts (including verification with respect to the amount, aging, identity and credit of the respective account debtors and the billing practices of the Borrower) and Eligible Inventory (including verification as to the value, location and respective types). (h) APPRAISALS. From time to time, if the Administrative Agent or any Lender determines that obtaining appraisals is necessary in order for the Administrative Agent or such Lender to comply with applicable laws or regulations, the Administrative Agent will, at the Borrower's expense, obtain appraisal reports in form and substance and from appraisers reasonably satisfactory to the Administrative Agent stating the then current fair market values of all or any portion of the real estate owned by the Borrower or any of its Subsidiaries. (i) PROJECTIONS. As soon as available and in any event no later than 45 days after the last day of each Fiscal Year, the Borrower will deliver Projections of the Borrower and its Subsidiaries for the forthcoming Fiscal Year, month by month. (j) SEC FILINGS AND PRESS RELEASES. Promptly upon their becoming available, the Borrower will deliver copies of (i) all financial statements, reports, notices and proxy statements sent or made available by the Borrower or any of its Subsidiaries to its security holders, (ii) all regular and periodic reports and all registration statements and prospectuses, if any, filed by the Borrower or any of its Subsidiaries with any securities exchange or with the SEC, or any material reports, statements and prospectuses, if any, filed with any other governmental or private regulatory authority and (iii) all material press releases. (k) EVENTS OF DEFAULT, ETC. Promptly upon any officer of the Borrower obtaining actual knowledge of any of the following events or conditions, the Borrower shall deliver copies of all notices given or received by the Borrower with respect to any such event or condition and a certificate of the Borrower's chief executive Authorized Officer -61- specifying the nature and period of existence of such event or condition and what action the Borrower has taken, is taking and proposes to take with respect thereto: (i) any condition or event that constitutes an Event of Default; (ii) any notice that any Person has given to the Borrower or any of its Subsidiaries or any other action taken, in each case with respect to a claimed Default or event or condition of the type referred to in SECTION 8.1.5; or (iii) any event or condition that could reasonably be expected to result in any Material Adverse Effect. (l) LITIGATION. Promptly upon any officer of the Borrower obtaining actual knowledge of (i) the institution of any action, suit, proceeding, governmental investigation or arbitration against or affecting any Obligor or any property of any Obligor not previously disclosed by the Borrower to the Administrative Agent or (ii) any material order is entered in any action, suit, proceeding, governmental investigation or arbitration at any time pending against or affecting any Obligor or any property of any Obligor which, in each case, could reasonably be expected to have a Material Adverse Effect, the Borrower will promptly give notice thereof to the Administrative Agent and provide such other information as may be reasonably available to it (except to the extent such information is protected by attorney-client privilege) to enable the Administrative Agent and its counsel to evaluate such matter. (m) NOTICE OF CORPORATE AND OTHER CHANGES. The Borrower shall provide prompt written notice of (i) any material change after the Closing Date in the authorized and issued Capital Securities of any Obligor or any of their respective Subsidiaries or any other material amendment to their Organic Documents, and (ii) any Subsidiary created or acquired by any Obligor after the Closing Date, such notice, in each case, to identify the applicable jurisdictions, capital structures or Subsidiaries, as applicable. (n) OTHER INFORMATION. With reasonable promptness, the Borrower will deliver such other information and data with respect to any Obligor or any Subsidiary of any Obligor as from time to time may be reasonably requested by the Administrative Agent. SECTION 7.1.2. COMPLIANCE WITH LAWS AND CONTRACTUAL OBLIGATIONS. The Borrower will (a) comply with and will cause each of its Subsidiaries to comply with (i) the requirements of all applicable laws, rules, regulations and orders of any governmental authority (including laws, rules, regulations and orders relating to taxes, employer and employee contributions, securities, employee retirement and welfare benefits, environmental protection matters and employee health and safety) as now in effect and which may be imposed in the future in all jurisdictions in which the Borrower or its Subsidiaries are now doing business or may hereafter be doing business and (ii) the obligations, covenants and conditions contained in all Contractual Obligations of the Borrower or such Subsidiary, as applicable, other than those laws, rules, regulations, orders and provisions of such Contractual Obligations the noncompliance with which could not be reasonably expected to have, either individually or in the aggregate, a Material Adverse Effect, and (b) maintain or obtain and will cause each of its Subsidiaries to maintain or obtain, all licenses, qualifications and permits now held or hereafter required to be held by the Borrower or any of its Subsidiaries, for which the loss, suspension, revocation or failure to obtain or renew, could reasonably be expected to have a Material Adverse Effect. This -62- Section shall not preclude the Borrower or any Subsidiary from contesting any taxes or other payments, if they are being diligently contested in good faith in a manner which stays enforcement thereof and if appropriate expense provisions have been recorded in conformity with GAAP. The Borrower represents and warrants that as of the date hereof, it (i) is in compliance and each of its Subsidiaries is in compliance with the requirements of all applicable laws, rules, regulations and orders of any governmental authority other than those laws, rules, regulations, orders and provisions of such Contractual Obligations, the noncompliance with which could not be reasonably expected to have, either individually or in the aggregate, a Material Adverse Effect and (ii) maintains and each of its Subsidiaries maintains all licenses, qualifications and permits referred to above, except where a failure to do so could not be reasonably expected to have a Material Adverse Effect. SECTION 7.1.3. MAINTENANCE OF PROPERTIES; INSURANCE. The Borrower will, and will cause its Subsidiaries to, maintain or cause to be maintained in good repair, working order and condition (ordinary wear and tear and casualty events excepted) all material properties used in the business of the Borrower and its Subsidiaries and will make or cause to be made all repairs, renewals and replacements thereof as in the reasonable judgment of the Borrower are necessary to carry on their business. The Borrower will, and will cause its Subsidiaries to, maintain or cause to be maintained, with financially sound and reputable insurers, public liability and property damage insurance with respect to its business and properties and the business and properties of its Subsidiaries against loss or damage of the kinds, and in the amounts, customarily carried or maintained by corporations of established reputation engaged in similar activities in similar geographic locations and will deliver evidence thereof to the Administrative Agent. The Borrower will, and will cause its Subsidiaries to, also maintain (i) business interruption insurance providing coverage for a period of at least six months and in an amount not less than (x) $6,000,000 for Taylor General Partner and Taylor, (y) $25,000,000 for CBI and (z) $2,000,000 for ECI and (ii) the environmental insurance in effect on the Closing Date and described on ITEM 7.1.3 of the Disclosure Schedule (the Administrative Agent and the Lenders acknowledge that such environmental insurance satisfies the requirements for environmental insurance set forth in this Section). The Borrower will, and will cause its Subsidiaries to, cause the Administrative Agent, pursuant to endorsements and/or assignments in form and substance reasonably satisfactory to the Administrative Agent, to be named (x) as lender's loss payee, with respect to all claims at any time in the aggregate in excess of $100,000 (which such loss payee provision shall name the Borrower and the applicable Subsidiary, and the Administrative Agent jointly as loss payees), in the case of property insurance, (y) additional insured in the case of all liability insurance and (z) assignee/loss payee, with respect to all claims at any time in the aggregate in excess of $100,000 (which such assignee/loss payee provision shall name the Borrower and the applicable Subsidiary, and the Administrative Agent jointly as assignees/loss payees), in the case of all business interruption insurance, in each case for the benefit of the Secured Parties. The Borrower represents and warrants that it and each of its Subsidiaries currently maintains all material properties as set forth above and maintains all insurance described above. In the event that the Borrower or a Subsidiary fails to provide the Administrative Agent with evidence of the insurance coverage required by this Agreement promptly after the Administrative Agent requests in writing -63- such evidence, the Administrative Agent may purchase insurance at the Borrower's expense to protect the Administrative Agent's interests in the Collateral. This insurance may, but need not, protect the Borrower's interests. The coverage purchased by the Administrative Agent may not pay any claim made by the Borrower or any Subsidiary or any claim that is made against the Borrower or any Subsidiary in connection with the Collateral. The Borrower may later cancel any insurance purchased by the Administrative Agent, but only after providing the Administrative Agent with evidence that the Borrower has obtained insurance as required by this Agreement. If the Administrative Agent purchases insurance for the Collateral, the Borrower will be responsible for the costs of that insurance, including interest and other charges imposed by the Administrative Agent in connection with the placement of the insurance, until the effective date of the cancellation or expiration of the insurance. The costs of the insurance may be added to the Obligations. The costs of the insurance may be more than the cost of insurance the Borrower or its Subsidiaries are able to obtain on their own. SECTION 7.1.4. INSPECTION; LENDER MEETING. The Borrower shall, and cause each U.S. Subsidiary to, permit any authorized representatives of the Administrative Agent to visit and inspect any of the properties of the Borrower or any of such Subsidiaries, including its and their financial and accounting records, and to make copies and take extracts therefrom, other than materials that are protected by attorney-client privilege and materials the Borrower or its Subsidiary may not disclose to the Administrative Agent or any Lender under confidentiality agreements and to discuss its and their affairs, finances and business with its and their officers and certified public accountants, at such reasonable times during normal business hours, as often as may be reasonably requested, upon reasonable prior notice and so long as such visit and inspection does not materially interfere with the business and the operations of the Borrower and its Subsidiaries taken as a whole; provided that prior to the occurrence and continuance of an Event of Default, the Borrower or such Subsidiary shall not be required to permit more than three (3) such visits and inspections during any year. Upon at least twenty-four (24) hours prior notice to the Borrower, representatives of each Lender will be permitted to accompany representatives of the Administrative Agent during each visit, inspection and discussion referred to in the immediately preceding sentence. Without in any way limiting the foregoing, the Borrower will, and cause each U.S. Subsidiary to, participate and will cause its key management personnel to participate in a meeting with the Administrative Agent and the Lenders at least once during each year, which meeting shall be held at such time and such place as may be reasonably requested by the Administrative Agent. At no time does this Agreement provide the Lenders or the Administrative Agent the authority to conduct or cause the Borrower to conduct any subsurface investigation, except to the extent required under Environmental Law or in fulfillment of an express requirement of a Governmental Authority. SECTION 7.1.5. CORPORATE/LIMITED PARTNERSHIP EXISTENCE. Except as otherwise permitted by SECTION 7.2.10, the Borrower will, and will cause each of its Subsidiaries to, preserve and keep in full force and effect its corporate existence (or in the case of Taylor, its limited partnership existence) and all rights and corporate/limited partnership franchises material to its business. -64- SECTION 7.1.6. ENVIRONMENTAL LAW COVENANT. The Borrower will, and will cause each of its Subsidiaries to, (a) use and operate all of its and their facilities and properties in material compliance with all Environmental Laws, keep all necessary permits, approvals, certificates and licenses required under Environmental Law and remain in material compliance therewith, and handle all Hazardous Materials in material compliance with all applicable Environmental Laws; and (b) notify the Administrative Agent within fourteen (14) days and provide copies upon receipt of all written claims, complaints, notices or inquiries relating to the condition of its facilities and properties in respect of, or as to compliance with, Environmental Laws, and shall use its best efforts to resolve any non-compliance with Environmental Laws and keep its property free of any Lien imposed by any Environmental Law, except to the extent such non-compliance could not reasonably be expected to result in a Material Adverse Effect. SECTION 7.1.7. USE OF PROCEEDS. The Borrower will apply the proceeds of the Credit Extensions as follows: (a) to repay the Indebtedness identified in ITEM 7.2.2(h) of the Disclosure Schedule (including Indebtedness under the Existing Credit Agreement, the Existing Promissory Notes, and the Swap Amounts) and fees and expenses related to the Refinancing; (b) for working capital and general corporate purposes of the Borrower and the Subsidiary Guarantors, including Permitted Acquisitions by such Persons; and (c) for issuing Letters of Credit for the account of the Borrower and the Subsidiary Guarantors. SECTION 7.1.8. FURTHER ASSURANCES. (a) The Borrower shall, and shall cause each Obligor to, from time to time, execute such financing statements, documents, security agreements and reports as the Administrative Agent or the Required Lenders at any time may reasonably request to evidence, perfect or otherwise implement the guaranties and security for repayment of the Obligations contemplated by the Loan Documents. (b) In the event that the Borrower or any Subsidiary thereof (other than the Mexican Subsidiary) acquires a fee interest in any real property after the Closing Date, the Borrower shall, and shall cause each such Subsidiary to, deliver to the Administrative Agent a fully executed mortgage or deed of trust over such real property in form and substance reasonably satisfactory to the Administrative Agent, together with such title insurance policies, surveys, appraisals, evidence of insurance, legal opinions, environmental assessments and other documents and certificates as shall be reasonably required by the Administrative Agent and are consistent with the requirements imposed with respect to real property interests of the Borrower and its Subsidiaries at the Closing Date. In the event that the Borrower or any Subsidiary thereof (other than the Mexican Subsidiary) acquires a leasehold interest in any real property after the Closing Date, at the request of the Administrative Agent and if and to the extent permitted and/or consented to by the -65- landlord under the lease or sublease under which such interest is conveyed, the Borrower shall or shall cause each such Subsidiary to deliver to the Administrative Agent a fully executed leasehold mortgage or deed of trust over such leasehold estate in form and substance reasonably satisfactory to the Administrative Agent, together with any of those items, documents or certificates listed in the preceding sentence that the Administrative Agent may reasonably require with respect to any real property owned in fee by the Borrower or its Subsidiary, and which are consistent with the requirements imposed by the Administrative Agent with respect to real property interests of the Borrower and its Subsidiaries at the Closing Date. (c) At the Administrative Agent's or the Required Lenders' request, the Borrower shall cause (x) each Subsidiary (other than the Mexican Subsidiary) promptly to guaranty the Obligations and to grant to the Administrative Agent, for the benefit of the Secured Parties, a Lien on substantially all of the real, personal and mixed property of such Subsidiary to secure the Obligations (except as otherwise expressly provided herein) and (y) the Capital Securities of each Subsidiary (other than the Mexican Subsidiary) of the Borrower promptly to be pledged to the Administrative Agent, for the ratable benefit of the Secured Parties, to secure the Obligations. The documentation for such guaranty, security or pledge shall be substantially similar to the Loan Documents executed concurrently herewith with such modifications as are reasonably requested by the Administrative Agent. SECTION 7.1.9. LANDLORD ESTOPPEL LETTERS. The Borrower shall use its best efforts to have the lessors of the property located at each of 67 Great Valley Parkway, Malvern, Pennsylvania, and at 7101 Intermodal Drive, Louisville, Kentucky, execute and deliver to the Administrative Agent within 45 days following the Closing Date an estoppel letter (with respect to the leases for such property) in form and substance reasonably satisfactory to the Administrative Agent. SECTION 7.1.10. TITLE INSURANCE. The Borrower shall deliver to the Administrative Agent within 30 days following the Closing Date, mortgagee's title insurance policies in favor of the Administrative Agent for the benefit of the Secured Parties in amounts and in form and substance and issued by insurers, satisfactory to the Administrative Agent, with respect to the property purported to be covered by each Mortgage, insuring that title to such property is marketable and that the interests created by each Mortgage constitute valid first Liens thereon free and clear of all defects and encumbrances other than as approved by the Administrative Agent, and such policies shall also include a current survey reading, and, if required by the Administrative Agent and if available, revolving credit endorsement, comprehensive endorsement, variable rate endorsement, access and utilities endorsements, mechanic's lien endorsement and such other endorsements as the Administrative Agent shall reasonably request and shall be accompanied by evidence of the payment in full of all premiums thereon. SECTION 7.2. NEGATIVE COVENANTS. The Borrower covenants and agrees with each Lender, each Issuer and the Administrative Agent that until the Termination Date has occurred, the Borrower will, and will cause its Subsidiaries to, perform or cause to be performed the obligations set forth below. -66- SECTION 7.2.1. CONDUCT OF BUSINESS. The Borrower will not, nor will the Borrower permit any of its Subsidiaries to, directly or indirectly engage in any business other than the respective businesses of the type described on ITEM 7.2.1 of the Disclosure Schedule with respect to each such Person or are reasonably related thereto. Taylor Holding Co. will not engage in any type of business activity other than (i) the ownership of 1% of the Capital Securities of Taylor, (ii) the ownership of the CBI Subordinated Notes owned by it as of the Closing Date and (iii) the performance of its obligations under the Loan Documents to which it is a party, except as otherwise permitted hereunder. SECTION 7.2.2. INDEBTEDNESS. The Borrower will not, nor will the Borrower permit any of its Subsidiaries directly or indirectly to, create, incur, assume, or otherwise become or remain directly or indirectly liable with respect to any Indebtedness except: (a) the Obligations; (b) unsecured Indebtedness of the Borrower evidenced by the Senior Unsecured Notes in a principal amount not to exceed $177,000,000, and unsecured guarantees of such Indebtedness delivered by Subsidiary Guarantors; (c) Indebtedness of any Subsidiary (other than Taylor Holding Co.) owing to the Borrower or any other Subsidiary, which Indebtedness (i) shall, if payable to the Borrower or a Subsidiary Guarantor (and not incurred under CLAUSE (g)), be evidenced by one or more promissory notes in form and substance satisfactory to the Administrative Agent, duly executed and delivered in pledge to the Administrative Agent pursuant to a Loan Document, and (unless otherwise agreed to by the Administrative Agent) shall not be forgiven or otherwise discharged for any consideration other than payment in full or in part in cash (PROVIDED, that only the amount repaid in part shall be discharged); and (ii) if incurred by a Foreign Subsidiary owing to the Borrower or a Subsidiary Guarantor, shall not (when aggregated with (i) the amount of Investments made by the Borrower and the Subsidiary Guarantors in Foreign Subsidiaries under CLAUSE (r) of SECTION 7.2.5 and (ii) the amount of Dispositions made by the Borrower and the Subsidiary Guarantors to Foreign Subsidiaries pursuant to CLAUSE (m) of SECTION 7.2.11) exceed $5,000,000 at any time; (d) unsecured Indebtedness (not evidenced by a note or other instrument) of the Borrower owing to a Subsidiary (other than Taylor Holding Co.), provided such Subsidiary has previously executed and delivered to the Administrative Agent the Interco Subordination Agreement; (e) Indebtedness of the Borrower and its Subsidiaries (other than Taylor Holding Co.) secured by Liens permitted by CLAUSES (e) or (k) of SECTION 7.2.3; PROVIDED, that the Indebtedness is incurred within 60 days following the acquisition of the property subject to such Lien and the aggregate amount of such Indebtedness shall not exceed $10,000,000 at any one time outstanding; -67- (f) Indebtedness of CBI evidenced by the CBI Senior Subordinated Notes; PROVIDED that not less than 51% of the aggregate outstanding principal amount of such CBI Senior Subordinated Notes shall be owing only to Taylor Holding Co. until such time, if any, that CBI retires, cancels or otherwise terminates the Senior Subordinated Notes owing to Taylor Holding Co.; (g) intercompany Indebtedness, constituting accounts payable, owing by one Subsidiary to another Subsidiary, for services rendered in the ordinary course of business by one Subsidiary to another Subsidiary reflecting reimbursements for services which are rendered to such Subsidiary (the "SHARED SERVICES") with the allocable costs thereof being reimbursed to the Subsidiary which paid for such Shared Services; (h) Indebtedness outstanding on the date hereof and listed on ITEM 7.2.2(H) of the Disclosure Schedule and refinancing of such Indebtedness in a principal amount not in excess of that which is outstanding on the Effective Date (as such amount has been reduced following the Effective Date); (i) unsecured Indebtedness incurred to repurchase equity issued by the Borrower to employees, consultants, agents, officers and directors of the Borrower or its Subsidiaries, to the extent such repurchase is permitted by CLAUSE (a) of SECTION 7.2.6; (j) unsecured Indebtedness (referred to as "SELLER NOTE INDEBTEDNESS") which is subordinated to the Obligations in a manner, and has terms and conditions (including as to its maturity), satisfactory to the Required Lenders and which is incurred in connection with the consummation of any Permitted Acquisition and which is owing to a seller of the Capital Securities or assets sold pursuant to such Permitted Acquisition; (k) Contingent Liabilities incurred by any Person to the extent such Person is permitted to incur such Contingent Liabilities pursuant to SECTION 7.2.8; and (l) additional Indebtedness (other than Indebtedness of Foreign Subsidiaries owing to the Borrower or Subsidiary Guarantors) of the Borrower and its Subsidiaries (other than Taylor Holding Co.) not contemplated by CLAUSES (a) through (k) above, provided that the aggregate principal amount of Indebtedness incurred and remaining outstanding pursuant to this clause shall not at any time exceed $10,000,000. PROVIDED, HOWEVER, that no Indebtedness otherwise permitted by CLAUSES (e), (i) or (L) shall be assumed, created or otherwise incurred if a Default has occurred and is then continuing or would result therefrom. SECTION 7.2.3. LIENS AND RELATED MATTERS. The Borrower will not, nor will the Borrower permit any of its Subsidiaries directly or indirectly to, create, incur, assume or permit to exist any Lien on or with respect to any property or asset of the Borrower or any of its Subsidiaries, whether now owned or hereafter acquired, or any income or profits therefrom, except Permitted Encumbrances. "PERMITTED ENCUMBRANCES" means the following: -68- (a) Liens for taxes, assessments or other governmental charges in respect of obligations not yet due and payable or which are being contested in good faith by appropriate proceedings and for which appropriate reserves have been established in accordance with GAAP; (b) (i) statutory Liens of landlord, carriers, warehousemen, mechanics, materialmen and other similar liens imposed by law; and (ii) consensual Liens granted to carriers, warehousemen which at no time will store inventory of the Obligors having a value in excess of $2,500,000, mechanics and materialmen; which in all such cases (whether pursuant to CLAUSE (b)(i) or (b)(ii) above) are incurred in the ordinary course of business for sums not more than sixty (60) days delinquent or which are being diligently contested in good faith and by appropriate proceedings in a manner which stays enforcement of such Liens; (c) Liens (other than any Lien imposed by ERISA) incurred or deposits made in the ordinary course of business in connection with workers' compensation, unemployment insurance and other types of social security, or to secure the performance of tenders, statutory obligations, surety, stay, customs and appeal bonds, bids, leases, government contracts, trade contracts, performance and return of money bonds and other similar obligations (exclusive of obligations for the payment of borrowed money); (d) deposits, in an aggregate amount not to exceed $1,000,000 for the Borrower and its Subsidiaries, made in the ordinary course of business to secure liability to insurance carriers; (e) Liens for purchase money obligations and capital leases; PROVIDED, that: (i) purchase of the asset subject to any such Lien is permitted under SECTION 7.2.7; (ii) the Indebtedness secured by any such Lien is permitted under SECTION 7.2.2; and (iii) any such Lien encumbers only the asset so purchased (and improvements, replacements, substitutions, accessions and additions thereto); (f) any attachment or judgment Lien not constituting an Event of Default under SECTION 8.1.6; (g) easements, rights of way, zoning restrictions, restrictions, covenants, and other similar charges or encumbrances not interfering in any material respect with the ordinary conduct of the business of the Borrower or any of its Subsidiaries; (h) any interest or title of a lessor or sublessor under any lease or of a licensor or sublicensor under a license or sublicense; (i) Liens in favor of the Administrative Agent, for the benefit of the Administrative Agent and the other Secured Parties; (j) Liens existing on the date hereof and renewals and extensions thereof, which Liens are set forth on ITEM 7.2.3(j) of the Disclosure Schedule; (k) Liens existing on any property or asset of any Person at the time of acquisition thereof or existing on any property or asset of any Person that becomes a Subsidiary after the date hereof in connection with the consummation of a Permitted Acquisition at the time such -69- Person becomes a Subsidiary; PROVIDED, that (i) such Lien is not created in contemplation of or in connection with such acquisition or such Person becoming a Subsidiary, as the case may be, (ii) such Lien shall not apply to any other property or assets of the Borrower or any of its Subsidiaries (other than improvements, replacements, substitutions accessions and additions to the property or asset subject to such Lien), and (iii) such Lien in the Administrative Agent's determination, does not secure all or substantially all of, and is not a "blanket lien" on, the assets of such Person and in any event shall secure only those obligations that it secures on the date of acquisition or the date such Person becomes a Subsidiary and such obligations are permitted hereunder; (l) Liens in replacement of Liens described in CLAUSES (e), (j) and (k); PROVIDED, that such replacement Liens do not extend to any assets not subject to the Lien being replaced; (m) consignments of inventory by a Subsidiary entered into in the ordinary course of business consistent with past practices as in effect on the Closing Date; (n) leases, subleases, licenses and sublicenses of property permitted by CLAUSE (b) of SECTION 7.2.11; (o) ownership interests of Persons who consign Gold to CBI in the ordinary course of business; PROVIDED, that the interests of such Persons are limited to such consigned Gold; (p) Liens in favor of Scotia Capital on the "Collateral", as such term is defined in the Gold Consignment Agreement and under the Security Documents; (q) Liens in favor of Persons who refine Gold for CBI, in the ordinary course of business of CBI and consistent with past practices of CBI as in effect on the Closing Date, on Gold owned by CBI; and (r) Liens and encumbrances on each parcel or property mortgaged in favor of the Administrative Agent (on behalf of the Secured Parties) as and to the extent permitted by the mortgage or deed of trust applicable thereto. SECTION 7.2.4. FINANCIAL CONDITION AND OPERATIONS. The Borrower will not permit any of the events set forth below to occur. (a) The Borrower will not permit the Secured Leverage Ratio at any time to be greater than 1:1. (b) The Borrower will not permit the Fixed Charge Coverage Ratio as of the last day of any Fiscal Quarter occurring during any period set forth below to be less than the ratio set forth opposite such period:
Fixed Charge Period Coverage Ratio ------ -------------- Closing Date through (and including) 08/31/02 1.10:1.00 09/01/02 through (and including) 08/30/03 1.15:1.00
-70-
Fixed Charge Period Coverage Ratio ------ -------------- 08/31/03 and thereafter 1.20:1.00
(c) The Borrower will not permit the Interest Coverage Ratio as of the last day 6 of any Fiscal Quarter occurring during any period set forth below to be less than the ratio set forth opposite such period:
Interest Period Coverage Ratio ------ -------------- Closing Date through (and including) 08/31/02 1.60:1.00 09/01/02 through (and including) 08/30/03 1.65:1.00 08/31/03 and thereafter 1.75:1.00
SECTION 7.2.5. INVESTMENTS; JOINT VENTURES. The Borrower will not, nor will the Borrower permit any of its Subsidiaries directly or indirectly to, make or own any Investment in any Person except: (a) the Borrower and its Subsidiaries may make and own Investments in Cash Equivalent Investments; PROVIDED, that such Cash Equivalent Investments are not subject to setoff rights (other than in favor of a Secured Party); PROVIDED further that, to the extent any Loans are outstanding, the aggregate amount of cash and Cash Equivalent Investments held by the Borrower and its Subsidiaries shall not exceed $10,000,000 for any period of three consecutive Business Days; (b) intercompany loans permitted by CLAUSES (c), () and (G) of SECTION 7.2.2; (c) capital contributions made by (i) the Borrower in Subsidiary Guarantors (other than Taylor Holding Co.), (ii) Subsidiary Guarantors in other Subsidiary Guarantors (other than Taylor Holding Co.) and (iii) Subsidiary Guarantors in the Borrower; (d) the Borrower and its Subsidiaries (other than Taylor Holding Co.) may make Investments to consummate a Permitted Acquisition; (e) the Borrower and its Subsidiaries may make loans and advances to employees for moving, entertainment, travel, relocation and other similar expenses in the ordinary course of business not to exceed $1,000,000 (MINUS the aggregate amount of Contingent Liabilities incurred in accordance with CLAUSE (i) of SECTION 7.2.8) in the aggregate at any time outstanding; (f) Investments constituting Capital Expenditures to the extent permitted by the terms of this Agreement; -71- (g) Investments consisting of the extension of trade credit by the Borrower or any of its Subsidiaries made in the ordinary course of business; (h) Investments consisting of advances to sales representatives in the ordinary course of business and in a manner consistent with past practices of the Borrower and its Subsidiaries; (i) Investments made in exchange for accounts receivable of the Borrower or any of its Subsidiaries arising in the ordinary course of business which are, in the good faith judgment of such Person, substantially uncollectible; (j) Investments (including debt obligations, Capital Securities or other property) to the extent received from another Person by the Borrower or any of its Subsidiaries in connection with (i) any bankruptcy, reorganization, composition, readjustment of debt or workout of any supplier or customer of any such Person in settlement of delinquent obligations of, and other disputes with, such suppliers or customers and (ii) the satisfaction or enforcement of indebtedness or claims due or owing to the Borrower or any of its Subsidiaries or as security for any such indebtedness or claim, in each case arising in the ordinary course of business; (k) Investments existing on the date hereof and set forth on ITEM 7.2.5(k) of the Disclosure Schedule and all extensions or renewals of such existing Investments on substantially similar terms; (l) Contingent Liabilities permitted by SECTION 7.2.8; (m) Investments consisting of promissory notes and other noncash consideration received as proceeds of Asset Dispositions permitted by SECTION 7.2.11; (n) Investments consisting of acceptance and endorsements of checks or other negotiable instruments for deposit or collection in the ordinary course of business; (o) Investments in performance, bid or advance payment bonds and insurance contracts to the extent not prohibited by this Agreement and in a manner consistent with past practices (as in effect on the Closing Date) of the Borrower and its Subsidiaries; (p) Investments consistent with past practices (as in effect on the Closing Date) of the Borrower and its Subsidiaries consisting of guaranties of Indebtedness of, or loans or advances to, sales representatives of such Obligors to finance the acquisition of sales territories from former sales representatives of such Obligors to the extent that the aggregate amount of such Investments shall not exceed $5,000,000 at any time outstanding; (q) Investments made pursuant to CLAUSE (a) of SECTION 7.2.6; (r) Investments made by the Borrower and/or Subsidiary Guarantors in Foreign Subsidiaries; PROVIDED, that the amount of such Investments, when aggregated with (i) the amount of intercompany Indebtedness owed by Foreign Subsidiaries to the -72- Borrower and the Subsidiary Guarantors pursuant to CLAUSE (c)(ii) of SECTION 7.2.2 and (ii) the amount of Dispositions made by the Borrower and the Subsidiary Guarantors to Foreign Subsidiaries pursuant to CLAUSE (m) of SECTION 7.2.11, shall not exceed $5,000,000 at any time; and (s) other Investments in the ordinary course of business not to exceed $2,000,000; PROVIDED that such Investments shall not be used by Taylor Holding Co.; PROVIDED, HOWEVER, that any Investment which when made complies with the requirements of the definition of the term "Cash Equivalent Investment" may continue to be held notwithstanding that such Investment if made thereafter would not comply with such requirements; and no Investment otherwise permitted by CLAUSES (d), (p) or (S) shall be permitted to be made if any Default has occurred and is continuing or would result therefrom. SECTION 7.2.6. RESTRICTED JUNIOR PAYMENTS. The Borrower will not, nor will the Borrower permit any of its Subsidiaries directly or indirectly to, declare, order, pay, make or set apart any sum for any Restricted Junior Payment, except that: (a) any Subsidiary may make payments and distributions to the Borrower or to any Subsidiary Guarantor (other than Taylor Holding Co.); PROVIDED, that Restricted Junior Payments that are used in all such cases to permit such Obligor to redeem, retire or purchase its Capital Securities issued to employees, consultants, agents, officers and directors of such Obligor or any of its Subsidiaries shall only be permitted if no Default has occurred and is continuing before or will exist immediately after giving effect to such Restricted Junior Payment, and PROVIDED FURTHER, that the aggregate amount of all such Restricted Junior Payments do not exceed $500,000 during any Fiscal Year and $2,000,000 during the term of this Agreement; (b) the Borrower and the Subsidiary Guarantors may make (i) the payment (when due) of the semi-annual interest payments on the Senior Unsecured Notes and (ii) the prepayment or redemption of the principal of Senior Unsecured Notes (together with accrued interest thereon and premium, if any) pursuant to Section 4.10 of the Indenture with the proceeds of asset sales that have not been reinvested in replacement assets by the Borrower or any Subsidiary Guarantor or used to prepay the principal amount of the Loans, in each case as described in the Indenture; (c) CBI may make scheduled interest payments with respect to the CBI Senior Subordinated Notes; PROVIDED, that (i) no Event of Default under SECTION 8.1.1 exists at the time of any such payment, (ii) no "Payment Blockage Period" is then in effect under the CBI Indenture, and (iii) such payments are not precluded by Section 10.2(a) of the CBI Indenture; (d) the Borrower and its Subsidiaries may make scheduled interest payments with respect to Seller Note Indebtedness; PROVIDED, that (i) no Default shall exist before or after making such payment and (ii) such payment would not be in contravention of the subordination term governing such Seller Note Indebtedness; -73- (e) Restricted Junior Payments made by the Borrower to redeem shares of CBI Preferred Stock, the Warrants and other Capital Securities of the Borrower, with the proceeds of a sale and leaseback transaction permitted pursuant to SECTION 7.2.15 or from Additional Equity, PROVIDED, that no Default shall exist before or after making such Restricted Payment; and (f) Restricted Junior Payments made by the Borrower and its Subsidiaries to prepay, redeem, purchase or otherwise acquire Senior Unsecured Notes and/or the CBI Senior Subordinated Notes and/or Seller Note Indebtedness with the proceeds of Additional Equity or from a sale and leaseback transaction permitted pursuant to SECTION 7.2.15, so long as no Default shall exist before or after making such payment. SECTION 7.2.7. CAPITAL EXPENDITURES, ETC. Subject (in the case of Capitalized Lease Liabilities), to CLAUSE (e) of SECTION 7.2.2, the Borrower will not, and will not permit any of its Subsidiaries to, make or commit to make Capital Expenditures in any Fiscal Year which aggregate in excess of (x) $15,000,000 in Fiscal Year 2002 and (y) $12,000,000 in each Fiscal Year thereafter; PROVIDED, HOWEVER, that to the extent the amount of Capital Expenditures permitted to be made in any Fiscal Year pursuant to this Section exceeds the aggregate amount of Capital Expenditures actually made during such Fiscal Year, such excess amount (up to the lesser of (i) $3,000,000 or (ii) 75% of the total amount of unutilized Capital Expenditures permitted to be made in such Fiscal Year, without giving effect to any carry-forward) may be carried forward to (but only to) the next succeeding Fiscal Year (any such amount to be certified by the Borrower to the Administrative Agent in the Compliance Certificate delivered for the last Fiscal Quarter of such Fiscal Year, and any such amount carried forward to a succeeding Fiscal Year shall be deemed to be used prior to the Borrower and its Subsidiaries using the amount of Capital Expenditures permitted by this Section in such succeeding Fiscal Year without giving effect to such carry-forward). SECTION 7.2.8. CONTINGENT LIABILITIES. The Borrower will not, nor will the Borrower permit any of its Subsidiaries directly or indirectly to, create or become or be liable with respect to any Contingent Liability except: (a) the Obligations; (b) those resulting from endorsement of negotiable instruments for collection in the ordinary course of business; (c) those existing on the Closing Date (including unsecured guarantees of the Senior Unsecured Notes delivered by Subsidiary Guarantors) and described in ITEM 7.2.8(c) of the Disclosure Schedule and any refinancings, refundings, renewals or extensions thereof; (d) those arising under indemnity agreements to title insurers to cause such title insurers to issue to the Administrative Agent mortgagee title insurance policies; (e) those arising with respect to customary indemnification obligations incurred in connection with Asset Dispositions; -74- (f) those incurred by the Borrower and its Subsidiaries in the ordinary course of business with respect to surety and appeal bonds, performance and return-of-money bonds and other similar obligations not exceeding at any time outstanding $3,500,000 in aggregate liability; (g) those incurred by any Person with respect to Indebtedness that such Person is permitted to incur pursuant to SECTION 7.2.2; (h) those incurred by the Borrower and its Subsidiaries with respect to the obligations or liabilities of the Borrower or other Subsidiaries (other than Taylor Holding Co.), including any guaranty by the Borrower or any Subsidiary of rental payment obligations of the Mexican Subsidiary under real property leases, so long as the aggregate amount of obligations and liabilities so guarantied under this clause shall not exceed $1,000,000 in any Fiscal Year; (i) those incurred by the Borrower or any of its Subsidiaries with respect to obligations or liabilities of employees in the ordinary course of business not to exceed $1,000,000 (minus the aggregate amount of Investments made in accordance with CLAUSE (e) of SECTION 7.2.5) for the Borrower and its Subsidiaries in the aggregate at any time outstanding; (j) guaranties permitted by CLAUSE (p) of SECTION 7.2.5; (k) unsecured (unless a Lien is granted in favor of Scotia Capital) Contingent Liabilities incurred in the ordinary course of business and not for speculative purposes to fix or hedge foreign currency risk or commodity risk in connection with the purchase of Gold; and (l) any other Contingent Liabilities (other than Contingent Liabilities in favor of Taylor Holding Co.) of the Borrower and its Subsidiaries not expressly permitted by CLAUSES (a) through (k) above, so long as any such other Contingent Liabilities do not exceed $1,000,000. SECTION 7.2.9. ISSUANCE OF CAPITAL SECURITIES. The Borrower will not permit any of its U.S. Subsidiaries to issue any Capital Securities (whether for value or otherwise) to a Person other than the Borrower or another wholly owned Subsidiary (other than Taylor Holding Co.); PROVIDED that such Capital Securities shall be pledged to the Administrative Agent pursuant to a Loan Document within five Business Days following such issuance. SECTION 7.2.10. RESTRICTION ON FUNDAMENTAL CHANGES. The Borrower will not, nor will the Borrower permit any of its Subsidiaries directly or indirectly to, (a) amend, modify or waive any term or provision of its organizational documents, including its articles of incorporation, certificates of designations pertaining to preferred stock, by-laws, partnership agreement or members' agreement except in a manner that would not conflict with any provision of any Loan Document and would not be adverse in any material respect to Lenders, unless required by law; (b) enter into any transaction of merger or consolidation except (i) to consummate a Permitted Acquisition, (ii) upon not less than five (5) Business Days prior written notice to the Administrative Agent, any Subsidiary Guarantor (other than Taylor Holding Co.) may be merged or consolidated with or into -75- another Subsidiary Guarantor (other than Taylor Holding Co.), and (iii) the Borrower and its Subsidiaries may enter into an agreement to effect any merger or consolidation, the closing of which is conditioned upon the payment in full in cash of all of the Obligations (other than contingent indemnification obligations to the extent no unsatisfied claim giving rise thereto has been asserted) and the termination of the Revolving Loan Commitment; (c) liquidate, wind-up or dissolve itself (or suffer any liquidation or dissolution), except if it is permitted by CLAUSE (b) or (i) to the extent such Subsidiary is dormant, (ii) to the extent such dissolution, wind-up or liquidation will not have a Material Adverse Effect, or (iii) the Administrative Agent shall have consented thereto; or (d) except for Permitted Acquisitions, acquire by purchase or otherwise all or any substantial part of the business or assets of any other Person. SECTION 7.2.11. DISPOSAL OF ASSETS OR SUBSIDIARY STOCK. The Borrower will not, nor will the Borrower permit any of its Subsidiaries directly or indirectly to, Dispose of, or grant any Person an option to acquire, in one transaction or a series of transactions, any of its property, business or assets, or the Capital Securities of any of its Subsidiaries, whether now owned or hereafter acquired, except for: (a) sales of inventory, Dispositions of obsolete or slow moving inventory and Dispositions of obsolete or worn out machinery and equipment, in each case made in the ordinary course of business and in a manner consistent with past practices as in effect on the Closing Date; (b) licensing or sublicensing of intellectual property and general intangibles (including the licensing or granting of rights to sales representatives to sell products of the Borrower and its Subsidiaries) and other property of the Borrower or any of its Subsidiaries, in each case which do not materially interfere with the business of the Borrower or any of its Subsidiaries, made in the ordinary course of business and in a manner consistent with past practices in effect on the Closing Date; (c) transfers of assets resulting from any casualty or condemnation of such assets; (d) an agreement to effect the Disposition of all or a portion of the assets of the Borrower or such Subsidiary, the closing of which is conditioned upon the payment in full in cash of all of the Obligations (other than contingent indemnification obligations to the extent no unsatisfied claim giving rise thereto has been asserted) and the termination of the Revolving Loan Commitment; (e) the sale or discount of overdue accounts receivable arising in the ordinary course of business, but only if no Event of Default exists and only in connection with the compromise or collection thereof; (f) the sale or other Disposition, in each case for fair market value, of any Investments (exclusive of Investments in Subsidiaries) permitted to be made by SECTION 7.2.5; (g) the leasing or subleasing of real estate in the ordinary course of business, including entering into renewals or extensions of existing leases, entering into replacement leases, entering into subleases and other similar transactions; -76- (h) an Asset Disposition otherwise permitted by SECTION 7.2.10; (i) the sale or issuance of Capital Securities by a Subsidiary to another wholly owned Subsidiary (other than Taylor Holding Co.) or to the Borrower; PROVIDED, that any Capital Securities issued by a U.S. Subsidiary shall be pledged (together with undated stock powers executed in blank) to the Administrative Agent under a Loan Document within five Business Days following its issuance; (j) any consignment arrangements or similar arrangements for the sale of assets in the ordinary course of business and consistent with past practices as in effect on the Closing Date; (k) the Qualified SLB; (l) Dispositions made by (i) the Borrower to Subsidiary Guarantors (other than Taylor Holding Co.), (ii) Subsidiary Guarantors to other Subsidiary Guarantors (other than Taylor Holding Co.) and (iii) Subsidiary Guarantors to the Borrower; (m) Dispositions made by the Borrower and/or Subsidiary Guarantors to Foreign Subsidiaries; PROVIDED, that the amount of such Dispositions, when aggregated with (i) the amount of intercompany Indebtedness owed by Foreign Subsidiaries to the Borrower and the Subsidiary Guarantors pursuant to CLAUSE (c)(ii) of SECTION 7.2.2 and (ii) the amount of Investments made by the Borrower and the Subsidiary Guarantors in Foreign Subsidiaries pursuant to CLAUSE (r) of SECTION 7.2.5, shall not exceed $5,000,000 at any time; and (n) other Asset Dispositions (exclusive of Investments in Subsidiaries and Asset Dispositions to Taylor Holding Co.) by the Borrower or any of its Subsidiaries if all of the following conditions are met: (i) the market value of assets Disposed of in any single transaction or series of related transactions does not exceed $750,000 and the aggregate market value of assets Disposed of in any Fiscal Year does not exceed $1,500,000; (ii) the consideration received is approximately equal to the fair market value of such assets; (iii) the sole consideration received is cash; (iv) after giving effect to the Asset Disposition and the repayment of Indebtedness (if any) with the proceeds thereof, the Borrower is in compliance on a PRO FORMA basis with the covenants set forth in SECTION 7.2.4 recomputed for the most recently ended Fiscal Quarter for which information is available and is in compliance with all other terms and conditions contained in this Agreement; and (v) no Default then exists or shall result from such Asset Disposition. Notwithstanding any of the foregoing, the Borrower will not permit Taylor Holding Co. to assign, pledge (except in favor of the Administrative Agent), sell or otherwise transfer in any manner whatsoever any CBI Senior Subordinated Notes held by Taylor Holding Co. to any Person; PROVIDED, HOWEVER, that Taylor Holding Co. shall be permitted to retire, cancel or otherwise terminate such CBI Senior Subordinated Notes in a manner reasonably satisfactory to the Administrative Agent. SECTION 7.2.12. CHANGES RELATING TO INDEBTEDNESS/GOLD CONSIGNMENT AGREEMENT. The Borrower will not, nor will the Borrower permit any of its Subsidiaries directly or indirectly to, -77- (a) change or amend the terms of any of its Subordinated Debt, the Seller Notes or the Senior Unsecured Notes if the effect of such amendment is to: (i) increase the interest rate on such Indebtedness; (ii) change the dates upon which payments of principal or interest are due on such Indebtedness (other than any changes that would extend the maturity or date of payment of such principal or interest or reduce the amount of such payment); (iii) change any event of default or add or make more restrictive any covenant with respect to such Indebtedness; (iv) change the prepayment provisions of such Indebtedness; (v) change the subordination provisions thereof (or the subordination terms of any guaranty thereof); or (vi) change or amend any other term if such change or amendment would materially increase the obligations of the obligor or confer additional material rights on the holder of such Indebtedness in a manner adverse to the Borrower, any of its Subsidiaries or the Lenders; PROVIDED, that CBI will not designate any Indebtedness (other than the Obligations) as "Designated Senior Indebtedness" under clause (i) of the definition thereof under the CBI Indenture, nor will the Borrower or any of its Subsidiaries pay any monetary consideration for any amendments, waiver or other modifications permitted in CLAUSES (i) through (vi) above; or b) change or amend the terms of the Gold Consignment Agreement if the effect of such amendment is to (i) increase the "Commitment Amount", as such term is defined in the Gold Consignment Agreement, by more than 10% during any Fiscal Year; (ii) change any event of default or add or make more restrictive any covenant with respect thereto; (iii) grant additional collateral (other than that in effect on the Closing Date); or (iv) change or amend any other term if such change or amendment would (A) materially increase the monetary obligations of the obligor or (B) confer additional material rights on the holder of the Gold Consignment Agreement in a manner adverse to the Lenders. SECTION 7.2.13. TRANSACTIONS WITH AFFILIATES. The Borrower will not, nor will the Borrower permit any of its Subsidiaries directly or indirectly to, enter into or permit to exist any transaction (including the purchase, sale, lease or exchange of any property or the rendering of any management, consulting, investment banking, advisory or other similar services) with any Affiliate or with any director, officer or employee of any Obligor, except (a) payments of the management fees as set forth on ITEM 7.2.13 of the Disclosure Schedule not to exceed $3,000,000 in any Fiscal Year; provided that the maximum amount of fees for any Fiscal Year may be increased by an amount equal to the lesser of (a) $1,000,000 and (b) the sum of (i) 6% of the increase, if any, in EBITDA for such Fiscal Year resulting from Permitted Acquisitions consummated during such Fiscal Year and (ii) the lesser of (x) 6% of the increase, if any, in EBITDA for such Fiscal Year due to equity -78- contributions to the Borrower and its Subsidiaries made by CHP during such Fiscal Year for purposes other than to consummate Permitted Acquisitions and (y) 25% of the aggregate amount of equity contributions to the Borrower and its Subsidiaries made by CHP during such Fiscal Year for purposes other than to consummate Permitted Acquisitions. Notwithstanding any of the foregoing, payments of management fees pursuant to this Section may only be made so long as both before and after giving effect to any such payment no Default shall have occurred and be continuing and the Borrower is in compliance with the covenants set forth in SECTION 7.2.4 assuming that the payment proposed to be made had been made on the last day of the calendar quarter most recently ended (PROVIDED, however after the cure or waiver of any such Event of Default or financial covenant non-compliance, the Borrower may pay management fees that were not paid as a result of the existence of such Event of Default or financial covenant non-compliance); (b) transactions (other than those described in CLAUSE (c) below) in the ordinary course of business and pursuant to the reasonable requirements of the business of the Borrower and its Subsidiaries and upon fair and reasonable terms which are fully disclosed to the Administrative Agent (PROVIDED, that the terms of transactions with portfolio companies of CHP are not required to be disclosed to the Administrative Agent) and are no less favorable to the Borrower or Subsidiary than would be obtained in a comparable arm's length transaction with a Person that is not an Affiliate; (c) payments of brokerage, investment bankers, director and other comparable fees upon fair and reasonable terms, are no less favorable to the Borrower or Subsidiary than would be obtained in a comparable arm's length transaction with a Person that is not an Affiliate and the aggregate amount of all payments made by the Borrower and its Subsidiaries in connection therewith do not exceed $750,000 during any Fiscal Year and $2,000,000 during the term of this Agreement; (d) payment of reasonable compensation (including reasonable bonuses) to officers and employees for services actually rendered to the Borrower or a Subsidiary of the Borrower; and (e) transactions among the Borrower and its Subsidiaries (and among Subsidiaries) otherwise permitted herein. SECTION 7.2.14. NO RESTRICTIONS ON SUBSIDIARY DISTRIBUTIONS TO OBLIGORS. Except as provided herein, the Borrower will not, nor will the Borrower permit any of its Subsidiaries directly or indirectly to, create or otherwise cause or suffer to exist or become effective any consensual encumbrance or restriction of any kind on the ability of any such Subsidiary to: (a) pay dividends or make any other distribution on any of such Subsidiary's Capital Securities owned by the Borrower or any Obligor; (b) pay any Indebtedness owed to the Borrower or any other Obligor; (c) make loans or advances to the Borrower or any other Obligor; -79- (d) transfer any of its property or assets to the Borrower or any other Obligor; (e) create or assume any Lien upon its properties, revenues or assets, whether now owned or hereafter acquired; or (f) amend or otherwise modify any Loan Document. The foregoing prohibitions shall not apply to restrictions contained (i) in any Loan Document or (ii) in the case of CLAUSE (c), any agreement governing any Indebtedness permitted by CLAUSE (e) of SECTION 7.2.2 as to the assets financed with the proceeds of such Indebtedness. SECTION 7.2.15. SALE AND LEASEBACK; LANDLORD WAIVER. (a) The Borrower will not, and will not permit any of its Subsidiaries to, directly or indirectly enter into any Sale and Leaseback Transaction; PROVIDED that the Borrower may enter into the Qualified SLB so long as (i) no Default has occurred and is continuing or would result therefrom and (ii) the Borrower shall have provided the Administrative Agent written notice of the Qualified SLB at least 15 Business Days prior to the consummation thereof. (b) The Borrower shall use its best efforts to have the lessor of the property that is the subject of the Qualified SLB (prior to the consummation of the Qualified SLB) execute and deliver to the Administrative Agent a waiver (with respect to the lease for such property) in form and substance reasonably satisfactory to the Administrative Agent; PROVIDED, that until the Administrative Agent receives a copy of such waiver, duly executed by such lessor, or in the event such best efforts do not result in the delivery of such a waiver, the Borrowing Base Amount shall be reduced by an amount equal to six (6) months of the then current rent under the terms of the lease relating to the property that is the subject of the Qualified SLB. SECTION 7.2.16. SUBSIDIARIES. The Borrower will not, nor will the Borrower permit any of its Subsidiaries directly or indirectly to, establish, create or acquire any new Subsidiary, except that the Borrower and its Subsidiaries (other than Taylor Holding Co.) may establish, create or acquire Subsidiaries to consummate a Permitted Acquisition. The Borrower shall give the Administrative Agent at least ten (10) Business Days' advance written notice of the establishment, creation or acquisition of any such Subsidiary and shall comply with SECTION 7.1.8. SECTION 7.2.17. ACCOUNTING CHANGES. The Borrower will not, and will not permit any of its Subsidiaries to, change its or their Fiscal Year. ARTICLE VIII EVENTS OF DEFAULT SECTION 8.1. LISTING OF EVENTS OF DEFAULT. Each of the following events or occurrences described in this Article shall constitute an "EVENT OF DEFAULT". -80- SECTION 8.1.1. PAYMENT. The Borrower shall default in the payment or prepayment when due of (a) any payment of principal of any Loan when due, or to reimburse the Administrative Agent for any Reimbursement Obligation or any deposit of cash for collateral purposes pursuant to SECTION 2.6.4; or (b) any interest on any Loan, or any fee described in Article III or any other monetary Obligation, and such default shall continue unremedied for a period of five days after such amount was due. SECTION 8.1.2. BREACH OF WARRANTY. Any representation, warranty, certification or other statement made by any Obligor in any Loan Document or in any statement or certificate at any time given by such Person in writing pursuant or in connection with any Loan Document is false in any material respect on the date made. SECTION 8.1.3. BREACH OF CERTAIN PROVISIONS. Failure of the Borrower or a Subsidiary to perform or comply with any term or condition contained in (i) SECTION 7.2 (other than SECTION 7.2.1), SECTION 7.1.1, SECTION 7.1.7 or SECTION 7.1.10; or (ii) that portion of SECTION 7.1.3 relating to the Borrower's and its Subsidiaries' obligation to maintain insurance and such failure is not remedied or waived within five (5) days of such failure; or (iii) SECTION 7.1.4 or SECTION 7.2.1 and such failure is not remedied or waived within ten (10) days of such failure. SECTION 8.1.4. OTHER DEFAULTS UNDER LOAN DOCUMENTS. The Borrower or any other Obligor defaults in the performance of or compliance with any term contained in this Agreement or the other Loan Documents and such default is not remedied or waived within thirty (30) days after receipt by the Borrower of notice from the Administrative Agent or the Required Lenders of such default (other than occurrences described in other provisions of this Article for which a different grace or cure period is specified or which constitute immediate Events of Default). SECTION 8.1.5. DEFAULT IN OTHER AGREEMENTS. (i) Failure of the Borrower or any of its Subsidiaries to pay when due (whether by acceleration or otherwise) or within any applicable grace period any principal or stated amount of, or interest on, Indebtedness (other than the Credit Extensions) or any Contingent Liability or (ii) breach or default of the Borrower or any of its Subsidiaries, or the occurrence of any condition or event, with respect to any Indebtedness (other than the Credit Extensions) or any Contingent Liabilities, if the effect of such failure to pay, breach, default or occurrence is to cause, or to permit the holder or holders (or, if applicable, the trustee or agent for such holders) then to cause, Indebtedness and/or Contingent Liabilities having an individual principal amount in excess of $500,000 or having an aggregate principal (or stated) amount in excess of $1,000,000 to become or be declared due prior to their stated maturity or to require such Indebtedness and/or Contingent Liabilities to be redeemed, purchased or defeased (or require an offer to be made to the holders thereof to redeem, purchase or defease such Indebtedness and/or Contingent Liabilities). -81- SECTION 8.1.6. JUDGMENTS AND ATTACHMENTS. Any money judgment (other than those described in SECTION 8.1.9) involving (1) an amount in any individual case in excess of $500,000 or (2) an amount in the aggregate at any time in excess of $1,000,000 (in either case to the extent not adequately covered by insurance) is entered or filed against the Borrower or any of its Subsidiaries or any of their respective assets and remains undischarged, unvacated, unbonded or unstated for a period of sixty (60) days or in any event later than five (5) Business Days prior to the date of any proposed sale of assets thereunder with a fair market or book value in excess of $250,000 in the aggregate. SECTION 8.1.7. ERISA; PENSION PLANS. Either (i) the Borrower or any of its Affiliates fails to make full payment when due of all amounts which, under the provisions of any employee benefit plans or any applicable provisions of the Code, any such Person is required to pay as contributions thereto and such failure results in or is likely to result in a Material Adverse Effect; or (ii) an accumulated funding deficiency in excess of $1,000,000 occurs or exists, whether or not waived, with respect to any such employee benefit plans; or (iii) any employee benefit plan loses its status as a qualified plan under the Code which results in or could reasonably be expected to result in a Material Adverse Effect. SECTION 8.1.8. CHANGE IN CONTROL. Any Change in Control shall occur. SECTION 8.1.9. INVOLUNTARY BANKRUPTCY; APPOINTMENT OF RECEIVER, ETC. Any of the following events shall occur: (a) a court enters a decree or order for relief with respect to the Borrower or any of its Subsidiaries (other than the Mexican Subsidiary) in an involuntary case under the Bankruptcy Code, which decree or order is not stayed or other similar relief is not granted under any applicable federal or state law; or (b) the continuance of any of the following events for seventy-five (75) days unless dismissed, stayed, bonded or discharged; (i) an involuntary case is commenced against the Borrower or any of its Subsidiaries (other than the Mexican Subsidiary), under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect; or (ii) a decree or order of a court for the appointment of a receiver, liquidator, sequestrator, trustee, custodian or other officer having similar powers over the Borrower or any of its Subsidiaries (other than the Mexican Subsidiary), or over all or a substantial part of its property, is entered; or (iii) an interim receiver, trustee or other custodian is appointed without the consent of the Borrower or any of its Subsidiaries (other than the Mexican Subsidiary), for all or a substantial part of the property of any such Person; or (c) the Borrower or any of its Subsidiaries (other than the Mexican Subsidiary) commences a voluntary case under the Bankruptcy Code, or consents to the entry of an order for relief in an involuntary case or to the conversion of an involuntary case to be a voluntary case under any such law or consents to the appointment of or taking possession by a receiver, trustee or other custodian for all or a substantial part of its property; or (d) the Borrower or any of its Subsidiaries (other than the Mexican Subsidiary) makes any assignment for the benefit of creditors; or -82- (e) the Board of Directors of the Borrower or any of its Subsidiaries (other than the Mexican Subsidiary) adopts any resolution or otherwise authorizes action to approve any of the actions referred to in this section. SECTION 8.1.10. FAILURE OF SECURITY. The Administrative Agent, for the benefit of the Administrative Agent and the Secured Parties, does not have or ceases to have a valid and perfected first priority security interest free and clear of all Liens or claims (except for Liens permitted pursuant to SECTION 7.2.3) in all or any substantial portion of the Collateral, in each case, for any reason other than the failure of the Administrative Agent to take any action within its control. SECTION 8.1.11. FAILURE OF SUBORDINATION. Unless otherwise waived or consented to by the Administrative Agent, the Lenders and the Issuers in writing, the subordination provisions relating to any Subordinated Debt or Seller Note Indebtedness (the "SUBORDINATION PROVISIONS") shall fail to be enforceable by the Administrative Agent, the Lenders and the Issuers in accordance with the terms thereof, or the monetary Obligations shall fail to constitute "Senior Indebtedness" (or similar term) referring to the Obligations; or the Borrower or any of its Subsidiaries shall, directly or indirectly, disavow or contest in any manner (i) the effectiveness, validity or enforceability of any of the Subordination Provisions, (ii) that the Subordination Provisions exist for the benefit of the Administrative Agent, the Lenders and the Issuers or (iii) that all payments of principal of or premium and interest on the Subordinated Debt or Seller Note Indebtedness, or realized from the liquidation of any property of any Obligor, shall be subject to any of such Subordination Provisions. SECTION 8.1.12. DAMAGES; CASUALTY. Any material damage to, or loss, theft or destruction of, any Collateral, whether or not insured, or any lockout, embargo, condemnation, act of God or public enemy, or other casualty or any other event which causes, for more than thirty (30) consecutive days, the cessation or substantial curtailment of revenue producing activities at any facility of the Borrower or any of its Subsidiaries, if any such event or circumstance could reasonably be expected to have a Material Adverse Effect. SECTION 8.1.13. LICENSES AND PERMITS. The loss, suspension or revocation of, or failure to renew, any license or permit now held or hereafter acquired by the Borrower or any of its Subsidiaries, if such loss, suspension, revocation or failure to renew could reasonably be expected to have a Material Adverse Effect. SECTION 8.1.14. CHANGE OF CONTROL/ASSET SALE UNDER CBI INDENTURE. A "CHANGE OF CONTROL" or "ASSET SALE", each as defined in the CBI Indenture, shall occur. SECTION 8.1.15. NET OPERATING LOSSES. A change in the ownership of any stock issued by the Borrower or CBI shall occur and (i) as a result of such change in stock ownership, CBI shall experience an "ownership change" within the meaning of Section 382 of the Code, (ii) as a result of such ownership change, the ability of CBI or the affiliated group of corporations for Federal income tax purposes that includes CBI (the "CBI AFFILIATED GROUP") to use net operating losses ("NOLs") to offset taxable income earned by CBI or the CBI Affiliated Group is restricted, and (iii) such restriction would result in an -83- increase in the Federal income tax liability of CBI or the CBI Affiliated Group and, in the year such ownership change occurs or any later taxable year, would reduce the amount of NOLs available to offset taxable income earned by CBI or the CBI Affiliated Group by at least $10,000,000. SECTION 8.1.16. INJUNCTION. The Borrower and its Subsidiaries taken as a whole are enjoined, restrained or in any way prevented by the order of any court or any administrative or regulatory agency from conducting all or any material part of its business for more than thirty (30) days if any such event or circumstances could reasonably be expected to have a Material Adverse Effect. SECTION 8.1.17. ENVIRONMENTAL MATTERS. The Borrower or any of its Subsidiaries fails to: (i) obtain or maintain any operating licenses or permits required by Environmental Law; (ii) begin, continue or complete any remediation activities as required by any Environmental Law; (iii) store or dispose of any Hazardous Materials in accordance with applicable Environmental Laws; or (iv) comply with any Environmental Law; if any such failure, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect. SECTION 8.1.18. DISSOLUTION. Any order, judgment or decree is entered against the Borrower or any of its Subsidiaries (other than the Mexican Subsidiary) decreeing the dissolution of any such Person and such order remains undischarged, unvacated, unbonded or unstayed for a period in excess of fifteen (15) days. SECTION 8.1.19. SOLVENCY. The Borrower or any Subsidiary Guarantor admits in writing its present or prospective inability to pay its debts as they become due. SECTION 8.1.20. INVALIDITY OF LOAN DOCUMENTS. Any of the Loan Documents for any reason, other than a partial or full release in accordance with the terms thereof, ceases to be in full force and effect or is declared to be null and void (and, if such invalidity is such so as to be amenable to cure without disadvantaging the position of the Lenders thereunder, the Borrower shall have failed to cure such invalidity within thirty (30) days after notice from the Administrative Agent), or any Obligor denies that it has any further liability under any Loan Documents to which it is party, or gives notice to such effect (except as such Loan Documents may be terminated or no longer in force and effect in accordance with the terms thereof). SECTION 8.1.21. EVENT OF DEFAULT UNDER GOLD CONSIGNMENT AGREEMENT. The existence of an "EVENT OF DEFAULT", as defined in the Gold Consignment Agreement. SECTION 8.1.22. CONDUCT OF BUSINESS. Taylor Holding Co. engages in any type of business activity other than (i) the ownership of 1% of the Capital Securities of Taylor, (ii) the ownership of the CBI Senior Subordinated Notes owned by it as of the Closing Date and (iii) the performance of its obligations under the Loan Documents to which it is a party. SECTION 8.2. ACTION IF BANKRUPTCY. If any Event of Default described in CLAUSES (a) through (d) of SECTION 8.1.9 with respect to the Borrower shall occur, the Commitments (if not theretofore terminated) shall automatically terminate and the outstanding principal -84- amount of all outstanding Loans and all other Obligations (including Reimbursement Obligations) shall automatically be and become immediately due and payable, without notice or demand to any Person, each Obligor shall automatically and immediately be obligated to Cash Collateralize all Letter of Credit Outstandings and the Obligations of each Subsidiary Guarantor under the Subsidiary Guaranty shall automatically be deemed accelerated. SECTION 8.3. ACTION IF OTHER EVENT OF DEFAULT. If any Event of Default (other than any Event of Default described in CLAUSES (a) through (D) of SECTION 8.1.9 with respect to the Borrower) shall occur for any reason, whether voluntary or involuntary, and be continuing, the Administrative Agent, upon the direction of the Required Lenders, shall by notice to the Borrower declare all or any portion of the outstanding principal amount of the Loans and other Obligations (including Reimbursement Obligations) to be due and payable and/or the Commitments (if not theretofore terminated) to be terminated, whereupon the full unpaid amount of such Loans and other Obligations which shall be so declared due and payable shall be and become immediately due and payable, without further notice, demand or presentment, and/or, as the case may be, the Commitments shall terminate and the Borrower shall automatically and immediately be obligated to Cash Collateralize all Letter of Credit Outstandings. At such time the obligations of each Subsidiary Guarantor under the Subsidiary Guaranty shall automatically be deemed accelerated. ARTICLE IX THE ADMINISTRATIVE AGENT SECTION 9.1. ACTIONS. Each Lender hereby appoints Scotia Capital as its Administrative Agent under and for purposes of each Loan Document. Each Lender authorizes the Administrative Agent to act on behalf of such Lender under each Loan Document and, in the absence of other written instructions from the Required Lenders received from time to time by the Administrative Agent (with respect to which the Administrative Agent agrees that it will comply, except as otherwise provided in this Section or as otherwise advised by counsel in order to avoid contravention of applicable law), to exercise such powers hereunder and thereunder as are specifically delegated to or required of the Administrative Agent by the terms hereof and thereof, together with such powers as may be incidental thereto. Each Lender hereby indemnifies (which indemnity shall survive any termination of this Agreement) the Administrative Agent, PRO RATA according to such Lender's proportionate Total Exposure Amount, from and against any and all liabilities, obligations, losses, damages, claims, costs or expenses of any kind or nature whatsoever which may at any time be imposed on, incurred by, or asserted against, the Administrative Agent in any way relating to or arising out of any Loan Document, (including attorneys' fees), and as to which the Administrative Agent is not reimbursed by the Borrower; PROVIDED, HOWEVER, that no Lender shall be liable for the payment of any portion of such liabilities, obligations, losses, damages, claims, costs or expenses which are determined by a court of competent jurisdiction in a final proceeding to have resulted from the Administrative Agent's gross negligence or wilful misconduct. The Administrative Agent shall not be required to take any action under any Loan Document, or to prosecute or defend any suit in respect of any Loan Document, unless it is -85- indemnified hereunder to its satisfaction. If any indemnity in favor of the Administrative Agent shall be or become, in the Administrative Agent's determination, inadequate, the Administrative Agent may call for additional indemnification from the Lenders and cease to do the acts indemnified against hereunder until such additional indemnity is given. SECTION 9.2. FUNDING RELIANCE, ETC. Unless the Administrative Agent shall have been notified in writing by any Lender by 3:00 p.m. on the Business Day prior to a Borrowing that such Lender will not make available the amount which would constitute its Percentage of such Borrowing on the date specified therefor, the Administrative Agent may assume that such Lender has made such amount available to the Administrative Agent and, in reliance upon such assumption, make available to the Borrower a corresponding amount. If and to the extent that such Lender shall not have made such amount available to the Administrative Agent, such Lender and the Borrower severally agree to repay the Administrative Agent forthwith on demand such corresponding amount together with interest thereon, for each day from the date the Administrative Agent made such amount available to the Borrower to the date such amount is repaid to the Administrative Agent, at the interest rate applicable at the time to Loans comprising such Borrowing (in the case of the Borrower) and (in the case of a Lender), at the Federal Funds Rate (for the first two Business Days after which such amount has not been repaid), and thereafter at the interest rate applicable to Loans comprising such Borrowing. SECTION 9.3. EXCULPATION. Neither the Administrative Agent nor any of its directors, officers, employees or agents shall be liable to any Secured Party for any action taken or omitted to be taken by it under any Loan Document, or in connection therewith, except for its own wilful misconduct or gross negligence, nor responsible for any recitals or warranties herein or therein, nor for the effectiveness, enforceability, validity or due execution of any Loan Document, nor for the creation, perfection or priority of any Liens purported to be created by any of the Loan Documents, or the validity, genuineness, enforceability, existence, value or sufficiency of any collateral security, nor to make any inquiry respecting the performance by any Obligor of its Obligations. Any such inquiry which may be made by the Administrative Agent shall not obligate it to make any further inquiry or to take any action. The Administrative Agent shall be entitled to rely upon advice of counsel concerning legal matters and upon any notice, consent, certificate, statement or writing which the Administrative Agent believes to be genuine and to have been presented by a proper Person. SECTION 9.4. SUCCESSOR. The Administrative Agent may resign as such at any time upon at least 30 days' prior notice to the Borrower and all Lenders. If the Administrative Agent at any time shall resign, the Required Lenders may appoint another Lender as a successor Administrative Agent which shall thereupon become the Administrative Agent hereunder. If no successor Administrative Agent shall have been so appointed by the Required Lenders, and shall have accepted such appointment, within 30 days after the retiring Administrative Agent's giving notice of resignation, then the retiring Administrative Agent may, on behalf of the Lenders, appoint a successor Administrative Agent, which shall be one of the Lenders or a commercial banking institution organized under the laws of the United States (or any State thereof) or a United States branch or agency of a commercial banking institution, and having a combined capital and surplus of -86- at least $250,000,000; PROVIDED, HOWEVER, that if, such retiring Administrative Agent is unable to find a commercial banking institution which is willing to accept such appointment and which meets the qualifications set forth in above, the retiring Administrative Agent's resignation shall nevertheless thereupon become effective and the Lenders shall assume and perform all of the duties of the Administrative Agent hereunder until such time, if any, as the Required Lenders appoint a successor as provided for above. Upon the acceptance of any appointment as Administrative Agent hereunder by a successor Administrative Agent, such successor Administrative Agent shall be entitled to receive from the retiring Administrative Agent such documents of transfer and assignment as such successor Administrative Agent may reasonably request, and shall thereupon succeed to and become vested with all rights, powers, privileges and duties of the retiring Administrative Agent, and the retiring Administrative Agent shall be discharged from its duties and obligations under the Loan Documents. After any retiring Administrative Agent's resignation hereunder as the Administrative Agent, the provisions of this Article shall inure to its benefit as to any actions taken or omitted to be taken by it while it was the Administrative Agent under the Loan Documents, and SECTION 10.3 and SECTION 10.4 shall continue to inure to its benefit. SECTION 9.5. LOANS BY SCOTIA CAPITAL. Scotia Capital shall have the same rights and powers with respect to (x) the Credit Extensions made by it or any of its Affiliates, and (y) the Notes held by it or any of its Affiliates as any other Lender and may exercise the same as if it were not the Administrative Agent. Scotia Capital and its Affiliates may accept deposits from, lend money to, and generally engage in any kind of business with the Borrower or any Subsidiary or Affiliate of the Borrower as if Scotia Capital were not the Administrative Agent hereunder. SECTION 9.6. CREDIT DECISIONS. Each Lender acknowledges that it has, independently of the Administrative Agent and each other Lender, and based on such Lender's review of the financial information of the Borrower, the Loan Documents (the terms and provisions of which being satisfactory to such Lender) and such other documents, information and investigations as such Lender has deemed appropriate, made its own credit decision to extend its Commitments. Each Lender also acknowledges that it will, independently of the Administrative Agent and each other Lender, and based on such other documents, information and investigations as it shall deem appropriate at any time, continue to make its own credit decisions as to exercising or not exercising from time to time any rights and privileges available to it under the Loan Documents. SECTION 9.7. COPIES, ETC. The Administrative Agent shall give prompt notice to each Lender of each notice or request required or permitted to be given to the Administrative Agent by the Borrower or any other Obligor pursuant to the terms of the Loan Documents (unless concurrently delivered to the Lenders by the Borrower or such Obligor). The Administrative Agent will distribute to each Lender each document or instrument received for its account and copies of all other communications received by the Administrative Agent from the Borrower or any other Obligor for distribution to the Lenders by the Administrative Agent in accordance with the terms of the Loan Documents. The Administrative Agent will distribute to each Lender copies of notices -87- received by the Administrative Agent in its capacity as "Agent" under the Intercreditor Agreement. SECTION 9.8. RELIANCE BY ADMINISTRATIVE AGENT. The Administrative Agent shall be entitled to rely upon any certification, notice or other communication (including any thereof by telephone, telecopy, telegram or cable) believed by it to be genuine and correct and to have been signed or sent by or on behalf of the proper Person, and upon advice and statements of legal counsel, independent accountants and other experts selected by the Administrative Agent. As to any matters not expressly provided for by the Loan Documents, the Administrative Agent shall in all cases be fully protected in acting, or in refraining from acting, thereunder in accordance with instructions given by the Required Lenders or all of the Lenders as is required in such circumstance, and such instructions of such Lenders and any action taken or failure to act pursuant thereto shall be binding on all Secured Parties. For purposes of applying amounts in accordance with this Section, the Administrative Agent shall be entitled to rely upon any Secured Party that has entered into a Rate Protection Agreement with any Obligor for a determination (which such Secured Party agrees to provide or cause to be provided upon request of the Administrative Agent) of the outstanding Obligations owed to such Secured Party under any Rate Protection Agreement. Unless it has actual knowledge evidenced by way of written notice from any such Secured Party and the Borrower to the contrary, the Administrative Agent, in acting in such capacity under the Loan Documents, shall be entitled to assume that no Rate Protection Agreements or Obligations in respect thereof are in existence or outstanding between any Secured Party and any Obligor. SECTION 9.9. DEFAULTS. The Administrative Agent shall not be deemed to have knowledge or notice of the occurrence of a Default unless the Administrative Agent has received a written notice from a Lender or the Borrower specifying such Default and stating that such notice is a "Notice of Default". In the event that the Administrative Agent receives such a notice of the occurrence of a Default, the Administrative Agent shall give prompt notice thereof to the Lenders. The Administrative Agent shall (subject to SECTION 10.1) take such action with respect to such Default as shall be directed by the Required Lenders; PROVIDED, that unless and until the Administrative Agent shall have received such directions, the Administrative Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Default as it shall deem advisable in the best interest of the Secured Parties except to the extent that this Agreement expressly requires that such action be taken, or not be taken, only with the consent or upon the authorization of the Required Lenders or all Lenders. SECTION 9.10. OTHER AGENTS. Each Person identified on the signature pages of this Agreement as the "Syndication Agent" or the "Documentation Agent" shall not have any right, power, obligation, liability, responsibility or duty under this Agreement (or any other Loan Document) other than those applicable to it in its capacity as a Lender to the extent it is a Lender hereunder. Without limiting the foregoing, the Lender so identified as the "Syndication Agent" or the "Documentation Agent" shall not have or be deemed to have any fiduciary relationship with any Lender. Each Person party hereto acknowledges that it has not relied, and will not rely, on any Person so identified as the "Syndication Agent" or the "Documentation Agent" in deciding to enter into this Agreement and each other -88- Loan Document to which it is a party or in taking or not taking action hereunder or thereunder. ARTICLE X MISCELLANEOUS PROVISIONS SECTION 10.1. WAIVERS, AMENDMENTS, ETC. The provisions of each Loan Document may from time to time be amended, modified or waived, if such amendment, modification or waiver is in writing and consented to by the Borrower and the Required Lenders; PROVIDED, HOWEVER, that no such amendment, modification or waiver shall: (a) modify this Section without the consent of all Lenders; (b) increase the aggregate amount of any Credit Extensions required to be made by a Lender pursuant to its Commitments, extend the final Commitment Termination Date of Credit Extensions made (or participated in) by a Lender or extend the final Stated Maturity Date for any Lender's Loan, in each case without the consent of such Lender (it being agreed, however, that any vote to rescind any acceleration made pursuant to SECTION 8.2 and SECTION 8.3 of amounts owing with respect to the Loans and other Obligations shall only require the vote of the Required Lenders); (c) reduce the principal amount of or rate of interest on any Lender's Loan, reduce any fees payable to any Lender or extend the date on which interest or fees are payable in respect of such Lender's Loans, in each case without the consent of such Lender; (d) reduce the percentage set forth in the definition of "Required Lenders" or modify any requirement hereunder that any particular action be taken by all Lenders without the consent of all Lenders; (e) increase the Stated Amount of any Letter of Credit unless consented to by the Issuer of such Letter of Credit; (f) except as otherwise expressly provided in a Loan Document, release (i) the Borrower from its Obligations under the Loan Documents or any Subsidiary Guarantor from its obligations under a Guaranty or (ii) all or a significant portion of the collateral under the Loan Documents, in each case without the consent of all Lenders; (g) affect adversely the interests, rights or obligations of the Administrative Agent (in its capacity as the Administrative Agent) or any Issuer (in its capacity as Issuer) or the Swing Line Lender, unless consented to by the Administrative Agent or such Issuer, as the case may be; or (h) change the definition of "Borrowing Base Amount", "Eligible Account", "Eligible Inventory" or "Net Asset Value" (in each case if the effect of such change would be to require a Lender to make or participate in a Credit Extension in an amount that is greater than such Lender would have had to make or participate in immediately prior to such change). -89- No failure or delay on the part of any Secured Party in exercising any power or right under any Loan Document shall operate as a waiver thereof, nor shall any single or partial exercise of any such power or right preclude any other or further exercise thereof or the exercise of any other power or right. No notice to or demand on any Obligor in any case shall entitle it to any notice or demand in similar or other circumstances. No waiver or approval by any Secured Party under any Loan Document shall, except as may be otherwise stated in such waiver or approval, be applicable to subsequent transactions. No waiver or approval hereunder shall require any similar or dissimilar waiver or approval thereafter to be granted hereunder. SECTION 10.2. NOTICES; TIME. All notices and other communications provided under each Loan Document shall be in writing or by facsimile and addressed, delivered or transmitted, if to the Borrower or the Administrative Agent, at its address or facsimile number set forth below its signature in this Agreement, and if to a Lender or Issuer to the applicable Person at its address or facsimile number set forth on SCHEDULE II hereto or set forth in the Lender Assignment Agreement, or at such other address or facsimile number as may be designated by such party in a notice to the other parties. Any notice, if mailed and properly addressed with postage prepaid or if properly addressed and sent by pre-paid courier service, shall be deemed given when received; any notice, if transmitted by facsimile, shall be deemed given when the confirmation of transmission thereof is received by the transmitter. The parties hereto agree that delivery of an executed counterpart of a signature page to this Agreement and each other Loan Document by facsimile shall be effective as delivery of an original executed counterpart of this Agreement or such other Loan Document. Unless otherwise indicated, all references to the time of a day in a Loan Document shall refer to New York time. SECTION 10.3. PAYMENT OF COSTS AND EXPENSES. The Borrower agrees to pay on demand all expenses of the Administrative Agent (including the fees and out-of-pocket expenses of Mayer, Brown, Rowe & Maw, counsel to the Administrative Agent and of local counsel, if any, who may be retained by or on behalf of the Administrative Agent) in connection with (a) the negotiation, preparation, execution and delivery of each Loan Document, including schedules and exhibits, and any amendments, waivers, consents, supplements or other modifications to any Loan Document as may from time to time hereafter be required, whether or not the transactions contemplated hereby are consummated; and (b) the filing or recording of any Loan Document (including the Filing Statements) and all amendments, supplements, amendment and restatements and other modifications to any thereof, searches made following the Effective Date in jurisdictions where Filing Statements (or other documents evidencing Liens in favor of the Secured Parties) have been recorded and any and all other documents or instruments of further assurance required to be filed or recorded by the terms of any Loan Document; and (c) the preparation and review of the form of any document or instrument relevant to any Loan Document. -90- The Borrower further agrees to pay, and to save each Secured Party harmless from all liability for any Other Taxes as provided in SECTION 4.6. The Borrower also agrees to reimburse each Secured Party upon demand for all reasonable out-of-pocket expenses (including reasonable attorneys' fees and legal expenses of counsel to each Secured Party) incurred by such Secured Party in connection with (x) the negotiation of any restructuring or "work-out" with the Borrower, whether or not consummated, of any Obligations and (y) the enforcement of any Obligations. SECTION 10.4. INDEMNIFICATION. In consideration of the execution and delivery of this Agreement by each Secured Party, the Borrower hereby indemnifies, exonerates and holds each Secured Party and each of their respective officers, directors, employees and agents (collectively, the "INDEMNIFIED PARTIES") free and harmless from and against any and all actions, causes of action, suits, losses, costs, liabilities and damages, and expenses incurred in connection therewith (irrespective of whether any such Indemnified Party is a party to the action for which indemnification hereunder is sought), including reasonable attorneys' fees and disbursements, whether incurred in connection with actions between or among the parties hereto or the parties hereto and third parties (collectively, the "INDEMNIFIED LIABILITIES"), incurred by the Indemnified Parties or any of them as a result of, or arising out of, or relating to (a) any transaction financed or to be financed in whole or in part, directly or indirectly, with the proceeds of any Credit Extension; (b) the entering into and performance of any Loan Document by any of the Indemnified Parties (including any action brought by or on behalf of the Borrower as the result of any determination by the Required Lenders pursuant to ARTICLE V not to fund any Credit Extension, provided that any such action is resolved in favor of such Indemnified Party); (c) any investigation, litigation or proceeding related to any acquisition or proposed acquisition by any Obligor or any Subsidiary thereof of all or any portion of the Capital Securities or assets of any Person, whether or not an Indemnified Party is party thereto; (d) any investigation, litigation or proceeding related to any environmental cleanup, audit, compliance or other matter relating to the protection of the environment or the Release by any Obligor or any Subsidiary thereof of any Hazardous Material; (e) the presence on or under, or the Release from, any real property owned or operated by any Obligor or any Subsidiary thereof of any Hazardous Material (including any losses, liabilities, damages, injuries, costs, expenses or claims asserted or arising under any Environmental Law), regardless of whether caused by, or within the control of, such Obligor or Subsidiary; or (f) each Lender's Environmental Liability (the indemnification herein shall survive repayment of the Obligations and any transfer of the property of any Obligor or its Subsidiaries by foreclosure or by a deed in lieu of foreclosure for any Lender's Environmental Liability, regardless of whether caused by, or within the control of, such Obligor or such Subsidiary); -91- except for Indemnified Liabilities arising for the account of a particular Indemnified Party by reason of the relevant Indemnified Party's gross negligence or wilful misconduct. Each Obligor and its successors and assigns hereby waive, release and agree not to make any claim or bring any cost recovery action against, any Indemnified Party under CERCLA or any state equivalent, or any similar law now existing or hereafter enacted. It is expressly understood and agreed that to the extent that any Indemnified Party is strictly liable under any Environmental Laws, each Obligor's obligation to such Indemnified Party under this indemnity shall likewise be without regard to fault on the part of any Obligor with respect to the violation or condition which results in liability of an Indemnified Party. If and to the extent that the foregoing undertaking may be unenforceable for any reason, each Obligor agrees to make the maximum contribution to the payment and satisfaction of each of the Indemnified Liabilities which is permissible under applicable law. SECTION 10.5. SURVIVAL. The obligations of the Borrower under SECTIONS 4.3, 4.4, 4.5, 4.6, 10.3 and 10.4, and the obligations of the Lenders under SECTION 9.1, shall in each case survive any assignment from one Lender to another (in the case of SECTIONS 10.3 and 10.4) and the occurrence of the Termination Date. The representations and warranties made by each Obligor in each Loan Document shall survive the execution and delivery of such Loan Document. SECTION 10.6. SEVERABILITY. Any provision of any Loan Document which is prohibited or unenforceable in any jurisdiction shall, as to such provision and such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions of such Loan Document or affecting the validity or enforceability of such provision in any other jurisdiction. SECTION 10.7. HEADINGS. The various headings of each Loan Document are inserted for convenience only and shall not affect the meaning or interpretation of such Loan Document or any provisions thereof. SECTION 10.8. EXECUTION IN COUNTERPARTS, EFFECTIVENESS, ETC. This Agreement may be executed by the parties hereto in several counterparts, each of which shall be an original and all of which shall constitute together but one and the same agreement. This Agreement shall become effective when counterparts hereof executed on behalf of the Borrower, the Administrative Agent and each Lender (or notice thereof satisfactory to the Administrative Agent), shall have been received by the Administrative Agent. SECTION 10.9. GOVERNING LAW; ENTIRE AGREEMENT. EACH LOAN DOCUMENT (OTHER THAN THE LETTERS OF CREDIT, TO THE EXTENT SPECIFIED BELOW AND EXCEPT AS OTHERWISE EXPRESSLY SET FORTH IN A LOAN DOCUMENT) WILL EACH BE DEEMED TO BE A CONTRACT MADE UNDER AND GOVERNED BY THE INTERNAL LAWS OF THE STATE OF NEW YORK (INCLUDING FOR SUCH PURPOSE SECTIONS 5-1401 AND 5-1402 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK). EACH LETTER OF CREDIT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OR RULES DESIGNATED IN SUCH LETTER OF CREDIT, OR IF NO LAWS OR RULES ARE DESIGNATED, THE -92- INTERNATIONAL STANDBY PRACTICES (ISP98 - INTERNATIONAL CHAMBER OF COMMERCE PUBLICATION NUMBER 590 (THE "ISP RULES")) AND, AS TO MATTERS NOT GOVERNED BY THE ISP RULES, THE INTERNAL LAWS OF THE STATE OF NEW YORK. The Loan Documents constitute the entire understanding among the parties hereto with respect to the subject matter thereof and supersede any prior agreements, written or oral, with respect thereto. SECTION 10.10. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and assigns; PROVIDED, HOWEVER, that the Borrower may not assign or transfer its rights or obligations hereunder without the consent of all Lenders. SECTION 10.11. SALE AND TRANSFER OF CREDIT EXTENSIONS; PARTICIPATIONS IN CREDIT EXTENSIONS AND NOTES. Each Lender may assign, or sell participations in, its Loans, Letters of Credit and Commitments to one or more other Persons in accordance with this the terms set forth below. SECTION 10.11.1. ASSIGNMENTS. Any Lender, pursuant to a Lender Assignment Agreement, (a) with the consent of the Borrower, the Administrative Agent, the Issuer (if different) and the Swing Line Lender (if different) (which consents shall not be unreasonably delayed or withheld and, which consent, in the case of the Borrower, shall not be required during the continuation of an Event of Default; PROVIDED, HOWEVER, that the Administrative Agent, the Borrower, the Issuer and the Swing Line Lender may withhold such consent in their sole discretion to an assignment to a Person not satisfying the credit ratings set forth in CLAUSE (f)) may at any time assign and delegate to one or more commercial banks or other financial institutions; and (b) upon notice to the Borrower, the Administrative Agent, the Issuer and the Swing Line Lender, upon the Administrative Agent's acknowledgment on a Lender Assignment Agreement, may assign and delegate to any of its Affiliates or to any other Lender; (each Person described in either of the foregoing clauses as being the Person to whom such assignment and delegation is to be made, being hereinafter referred to as an "ASSIGNEE LENDER"), all or any fraction of such Lender's Loans, Letter of Credit Outstandings and Commitments in a minimum aggregate amount of $2,500,000 (or, if less, the entire remaining amount of such Lender's Loans, Letter of Credit Outstandings and Commitments). Each Obligor and the Administrative Agent shall be entitled to continue to deal solely and directly with a Lender in connection with the interests so assigned and delegated to an Assignee Lender until (c) notice of such assignment and delegation, together with (i) payment instructions, (ii) the Internal Revenue Service forms or other statements contemplated or required to be delivered pursuant to SECTION 4.6, if applicable, and (iii) addresses and related information with respect to such Assignee Lender, shall have been delivered to the Borrower and the Administrative Agent by such assignor Lender and such Assignee Lender; -93- (d) such Assignee Lender shall have executed and delivered to the Borrower and the Administrative Agent a Lender Assignment Agreement, accepted by the Administrative Agent; and (e) the processing fees described below shall have been paid. From and after the date that the Administrative Agent accepts such Lender Assignment Agreement and such assignment is registered with Register pursuant to CLAUSE (b) of SECTION 2.7, (x) the Assignee Lender thereunder shall be deemed automatically to have become a party hereto and to the extent that rights and obligations hereunder have been assigned and delegated to such Assignee Lender in connection with such Lender Assignment Agreement, shall have the rights and obligations of a Lender under the Loan Documents, and (y) the assignor Lender, to the extent that rights and obligations hereunder have been assigned and delegated by it in connection with such Lender Assignment Agreement, shall be released from its obligations hereunder and under the other Loan Documents. Within five Business Days after its receipt of notice that the Administrative Agent has received and accepted an executed Lender Assignment Agreement (and if requested by the Assignee Lender), but subject to CLAUSE (c), the Borrower shall execute and deliver to the Administrative Agent (for delivery to the relevant Assignee Lender) a new Note evidencing such Assignee Lender's assigned Loans and Commitments and, if the assignor Lender has retained Loans and Commitments hereunder (and if requested by such Lender), a replacement Note in the principal amount of the Loans and Commitments retained by the assignor Lender hereunder (such Note to be in exchange for, but not in payment of, the Note then held by such assignor Lender). Each such Note shall be dated the date of the predecessor Note. The assignor Lender shall mark each predecessor Note "exchanged" and deliver each of them to the Borrower. Accrued interest on that part of each predecessor Note evidenced by a new Note, and accrued fees, shall be paid as provided in the Lender Assignment Agreement. Accrued interest on that part of each predecessor Note evidenced by a replacement Note shall be paid to the assignor Lender. Accrued interest and accrued fees shall be paid at the same time or times provided in the predecessor Note and in this Agreement. Such assignor Lender or such Assignee Lender must also pay a processing fee in the amount of $3,500 to the Administrative Agent upon delivery of any Lender Assignment Agreement. Notwithstanding any other term of this Section, the agreement of Scotia Capital to provide the Swing Line Loan Commitment shall not impair or otherwise restrict in any manner the ability of Scotia Capital to make any assignment of its Loans or Commitments, it being understood and agreed that Scotia Capital may terminate its Swing Line Loan Commitment, either in whole or in part, in connection with the making of any assignment. Any attempted assignment and delegation not made in accordance with this Section shall be null and void. Notwithstanding anything to the contrary set forth above, any Lender may (without requesting the consent of the Borrower or the Administrative Agent) pledge its Loans to a Federal Reserve Bank in support of borrowings made by such Lender from such Federal Reserve Bank. (f) In the event that S&P or Moody's, shall, after the date that any Person becomes a Lender, downgrade the long-term certificate of deposit ratings of such Lender, and the resulting ratings shall be below BBB- or Baa3, respectively, or the equivalent, then the Borrower, the Swing Line Lender and each Issuer shall each have the right, but not the obligation, upon notice to such Lender and the Administrative Agent, to replace such Lender with a financial institution (a "REPLACEMENT LENDER") acceptable to the Borrower, the -94- Administrative Agent, the Issuer and the Swing Line Lender (such consents not to be unreasonably withheld or delayed; PROVIDED, that no such consent shall be required if the Replacement Lender is an existing Lender), and upon any such downgrading of any Lender's long-term certificate of deposit rating, each such Lender hereby agrees to transfer and assign (in accordance with SECTION 10.11.1) all of its Commitments and other rights and obligations under the Loan Documents (including Reimbursement Obligations) to such Replacement Lender; PROVIDED, HOWEVER, that (i) such assignment shall be without recourse, representation or warranty (other than that such Lender owns the Commitments, Loans and Notes being assigned, free and clear of any Liens) and (ii) the purchase price paid by the Replacement Lender shall be in the amount of such Lender's Loans and its Percentage of outstanding Reimbursement Obligations, together with all accrued and unpaid interest and fees in respect thereof, plus all other amounts (other than the amounts (if any) demanded and unreimbursed under SECTIONS 4.2, 4.3, 4.5 and 4.6, which shall be paid by the Borrower), owing to such Lender hereunder. Upon any such termination or assignment, such Lender shall cease to be a party hereto but shall continue to be entitled to the benefits of any provisions of this Agreement which by their terms survive the termination of this Agreement. SECTION 10.11.2. PARTICIPATIONS. Any Lender may sell to one or more commercial banks or other Persons (each of such commercial banks and other Persons being herein called a "PARTICIPANT") participating interests in any of the Loans, Commitments, or other interests of such Lender hereunder; PROVIDED, HOWEVER, that (a) no participation contemplated in this Section shall relieve such Lender from its Commitments or its other obligations under any Loan Document; (b) such Lender shall remain solely responsible for the performance of its Commitments and such other obligations; (c) each Obligor and the Administrative Agent shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under each Loan Document; (d) no Participant, unless such Participant is an Affiliate of such Lender or is itself a Lender, shall be entitled to require such Lender to take or refrain from taking any action under any Loan Document, except that such Lender may agree with any Participant that such Lender will not, without such Participant's consent, take any actions of the type described in CLAUSES (a), (b), (c) or (f) of SECTION 10.1 with respect to Obligations participated in by such Participant; (e) the Borrower shall not be required to pay any amount under this Agreement that is greater than the amount which it would have been required to pay had no participating interest been sold; and (f) such Lender that sells a participating interest in any Loan, Commitment or other interest to a Participant shall, as agent of the Borrower solely for the purpose of this Section, record in -95- book entries maintained by such Lender the name of its Participants and the amount such Participants are entitled to receive in respect of any participating interests. The Borrower acknowledges and agrees that each Participant, for purposes of SECTIONS 4.3, 4.4, 4.5, 4.6, 4.8, 4.9 and 7.1.1, shall be considered a Lender. The Borrower acknowledges and agrees that, for purposes of its obligations under SECTIONS 10.3 and 10.4, it will not assert that any Lender be entitled to less than would otherwise be payable to such Lender under such Sections, solely as a result of a Participant reimbursing such Lender for amounts paid by such Lender. Each Participant shall only be indemnified for increased costs pursuant to SECTION 4.3, 4.5 or 4.6 if and to the extent that the Lender which sold such participating interest to such Participant concurrently is entitled to make, and does make, a claim on the Borrower for such increased costs. Any Lender that sells a participating interest in any Loan, Commitment or other interest to a Participant under this Section shall indemnify and hold harmless the Borrower and the Administrative Agent from and against any Taxes, penalties, interest or other costs or losses (including reasonable attorneys' fees and expenses) incurred or payable by the Borrower or the Administrative Agent as a result of the failure of the Borrower or the Administrative Agent to comply with its obligations to deduct or withhold any Taxes from any payments made pursuant to this Agreement to such Lender or the Administrative Agent, as the case may be, which Taxes would not have been incurred or payable if such Participant had been a Non-U.S. Lender that was entitled to deliver to the Borrower, the Administrative Agent or such Lender, and did in fact so deliver, a duly completed and valid Internal Revenue Service Form W-8BEN or W-8ECI (or applicable successor form) entitling such Participant to receive payments under this Agreement without deduction or withholding of any United States federal Taxes. SECTION 10.12. OTHER TRANSACTIONS. Nothing contained herein shall preclude the Administrative Agent, any Issuer or any other Lender from engaging in any transaction, in addition to those contemplated by the Loan Documents, with the Borrower or any of its Affiliates in which the Borrower or such Affiliate is not restricted hereby from engaging with any other Person. SECTION 10.13. FORUM SELECTION AND CONSENT TO JURISDICTION. ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH, ANY LOAN DOCUMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN) OR ACTIONS OF THE ADMINISTRATIVE AGENT, THE LENDERS, ANY ISSUER OR THE BORROWER IN CONNECTION HEREWITH OR THEREWITH MAY BE BROUGHT AND MAINTAINED IN THE COURTS OF THE STATE OF NEW YORK OR IN THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK; PROVIDED, HOWEVER, THAT ANY SUIT SEEKING ENFORCEMENT AGAINST ANY COLLATERAL OR OTHER PROPERTY MAY BE BROUGHT, AT THE ADMINISTRATIVE AGENT'S OPTION, IN THE COURTS OF ANY JURISDICTION WHERE SUCH COLLATERAL OR OTHER PROPERTY MAY BE FOUND. THE BORROWER IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS BY REGISTERED MAIL, POSTAGE PREPAID, OR BY PERSONAL SERVICE WITHIN OR WITHOUT THE STATE OF NEW YORK AT THE ADDRESS FOR NOTICES SPECIFIED IN SECTION 10.2. THE BORROWER HEREBY -96- EXPRESSLY AND IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY HAVE OR HEREAFTER MAY HAVE TO THE LAYING OF VENUE OF ANY SUCH LITIGATION BROUGHT IN ANY SUCH COURT REFERRED TO ABOVE AND ANY CLAIM THAT ANY SUCH LITIGATION HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. TO THE EXTENT THAT THE BORROWER HAS OR HEREAFTER MAY ACQUIRE ANY IMMUNITY FROM JURISDICTION OF ANY COURT OR FROM ANY LEGAL PROCESS (WHETHER THROUGH SERVICE OR NOTICE, ATTACHMENT PRIOR TO JUDGMENT, ATTACHMENT IN AID OF EXECUTION OR OTHERWISE) WITH RESPECT TO ITSELF OR ITS PROPERTY, THE BORROWER HEREBY IRREVOCABLY WAIVES TO THE FULLEST EXTENT PERMITTED BY LAW SUCH IMMUNITY IN RESPECT OF ITS OBLIGATIONS UNDER THE LOAN DOCUMENTS. SECTION 10.14. WAIVER OF JURY TRIAL. THE ADMINISTRATIVE AGENT, EACH LENDER, EACH ISSUER AND THE BORROWER HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE TO THE FULLEST EXTENT PERMITTED BY LAW ANY RIGHTS THEY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH, EACH LOAN DOCUMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN) OR ACTIONS OF THE ADMINISTRATIVE AGENT, SUCH LENDER, SUCH ISSUER OR THE BORROWER IN CONNECTION THEREWITH. THE BORROWER ACKNOWLEDGES AND AGREES THAT IT HAS RECEIVED FULL AND SUFFICIENT CONSIDERATION FOR THIS PROVISION (AND EACH OTHER PROVISION OF EACH OTHER LOAN DOCUMENT TO WHICH IT IS A PARTY) AND THAT THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE ADMINISTRATIVE AGENT, EACH LENDER AND EACH ISSUER ENTERING INTO THE LOAN DOCUMENTS. -97- IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective officers thereunto duly authorized as of the day and year first above written. AMERICAN ACHIEVEMENT CORPORATION By: /s/ Sherice P. Bench --------------------------------------- Title: Chief Financial Officer Address: Facsimile No.: Attention: THE BANK OF NOVA SCOTIA, as the Administrative Agent and as a Lender By: /s/ Jerome Noto --------------------------------------- Title: Director Address: One Liberty Plaza New York, New York 10006 Facsimile No.: (212) 225-5090 Attention: GENERAL ELECTRIC CAPITAL CORPORATION, as the Syndication Agent and as a Lender By: --------------------------------------- Title: Senior Vice President Address: 305 Madison Avenue New York, New York 10017 Facsimile No.: 212-309-8983 Attention: BANKERS TRUST COMPANY, as the Documentation Agent and as a Lender By: /s/ Mary Kay Coyle --------------------------------------- Title: Managing Director Address: Facsimile No.: Attention: SCHEDULE I DISCLOSURE SCHEDULE TO CREDIT AGREEMENT ITEM 6.1(a) Organization and Powers. ITEM 6.1(b) Capitalization. ITEM 6.1(d) Qualification. ITEM 6.4 Intellectual Property. ITEM 6.7 Litigation. ITEM 6.10 Environmental Matters. ITEM 6.15 Investigations, Audits, etc. ITEM 6.16 Employment Matters. ITEM 7.1.3 Maintenance of Properties; Insurance. ITEM 7.2.1 Conduct of Business. ITEM 7.2.2(h) Indebtedness to be Paid. CREDITOR OUTSTANDING PRINCIPAL AMOUNT ITEM 7.2.3(j) Ongoing Liens. ITEM 7.2.5(k) Ongoing Investments. ITEM 7.2.8(c) Existing Contingent Liabilities ITEM 7.2.13 Management Fees DISCLOSURE SCHEDULE ITEM 6.1(a) JURISDICTION OF ORGANIZATION 1. American Achievement Corporation (f/k/a Commemorative Brands Holding Corp.) Delaware 2. Educational Communications, Inc. Illinois 3. Commemorative Brands, Inc. Delaware 4. TP Holding Corp. (f/k/a TP Acquisition Corp.) Delaware 5. Taylor Publishing Company Delaware 6. Taylor Production Services Company (L.P.) Delaware 7. Taylor Senior Holding Corp. Delaware 8. CBI North America, Inc. Delaware DISCLOSURE SCHEDULE ITEM 6.1(b) CAPITALIZATION
Entity Authorized Equity Issued and Outstanding Owner ============================================================================================================ 1. American Achievement 1,250,000 shares of 1,006,847 shares See attached Corporation Preferred Stock, par Preferred Stock capitalization value $.01 per share table. (American Achievement 809,351 shares of Corporation Preferred Common Stock Stock), of which 1,200,000 shares have Warrants to purchase Warrants to been designated as 21,405 shares of Common purchase 1,585 Series A Preferred Stock at an exercise shares of Common Stock ($.01 par price of $6.67 per Stock are held value). (The 25,000 share. The Warrants by Deutsche Bank shares that were expire on January 31, Securities, Inc. designated as Series 2008 and if exercised Warrants to Preferred Stock ($.01 in full represent less purchase 19,820 par value) were than 1.2% of the Common shares of Common canceled on December Stock on a fully Stock are held 19, 2001.) diluted basis. by CHP III. 1,250,000 shares of common stock, par value $.01 per share (American Achievement Corporation Common Stock) - ------------------------------------------------------------------------------------------------------------ 2. Taylor Senior Holding Corp. 1,000 shares of 1,000 Shares of Taylor American Preferred Stock, par Preferred Stock Achievement value $.01 per share Corporation ("Taylor Preferred 1,000 Shares of Taylor Stock") Common Stock 1,000 shares of Common Stock, par value $.01 per share ("Taylor Common Stock") - ------------------------------------------------------------------------------------------------------------
Entity Authorized Equity Issued and Outstanding Owner ============================================================================================================ 3. Taylor Holding Co. 50,000 shares of 30,000 shares of Taylor Taylor Senior Preferred Stock, par Holding Co. Preferred Holding Corp. value $.01 per share Stock ("Taylor Holding Co. Preferred Stock") 50,000 shares of Common 30,000 shares of Taylor Stock, par value $.01 Holding Co. Common Stock per share (Taylor Holding Co. Common Stock") - ------------------------------------------------------------------------------------------------------------ 4. Taylor General Partner 1000 shares of common 10 shares Taylor Holding stock, par value $1.00 Co. per share - ------------------------------------------------------------------------------------------------------------ 5. Taylor 99% General Partnership Taylor General Interest Partner (99% GP interest) 1% Limited Partnership Taylor Holding Interest Co. (1% LP interest) - ------------------------------------------------------------------------------------------------------------ 6. CBI 750,000 shares of 100,000 shares of CHP III (Series preferred stock, $.01 Series A Preferred A shares) par value 750,000 shares of 460,985 shares of American common stock, par value Series B Preferred Achievement $.01 per share. Corporation 375,985 shares of (Series B and common stock common shares) - ------------------------------------------------------------------------------------------------------------ 7. CBI North America, Inc. 3,000 shares of common 1,000 shares CBI stock, par value $.01 per share - ------------------------------------------------------------------------------------------------------------ 8. ECI 1,000 shares of common 1,000 shares American stock, no par value Achievement Corporation
DISCLOSURE SCHEDULE ITEM 6.1(D) QUALIFICATION
ENTITY JURISDICTIONS 1. Educational Communications, Inc. Illinois 2. American Achievement Corporation None 3. Taylor Senior Holding Corp. None 4. TP Holding Corp. None 5. Taylor Publishing Company California Pennsylvania Colorado Rhode Island Connecticut Texas Delaware Utah Georgia Vermont Indiana Wisconsin Maine Washington DC Maryland Michigan Minnesota Nebraska New Jersey North Carolina Oklahoma 6. Taylor Production Services Company, L.P. Pennsylvania Texas 7. CBI North America, Inc. Wisconsin Texas 8. Commemorative Brands, Inc. Arkansas Alabama California Arizona Colorado Washington D.C. Connecticut Illinois Florida Hawaii Georgia New Mexico Idaho Alaska Indiana New Hampshire Iowa Delaware Kansas Kentucky Louisiana
JURISDICTIONS ------------- Maine Maryland Michigan Minnesota Mississippi Missouri Montana Nebraska Nevada New Jersey New York North Carolina North Dakota Ohio Oklahoma Oregon Pennsylvania Rhode Island South Carolina South Dakota Tennessee Texas Utah Vermont Virginia Washington West Virginia Wisconsin Wyoming
DISCLOSURE SCHEDULE ITEM 6.4(a) INTELLECTUAL PROPERTY TAYLOR PUBLISHING COMPANY 1. The software development agreement dated as of April 2, 1996 between Brian Stewart and Taylor General Partner provides: "If this agreement is terminated by [Taylor General Partner] for any reason other than for cause, ownership of the software shall be assigned by [Taylor General Partner] to the Developer, eighteen (18) months after termination of this agreement." In Taylor General Partner's opinion, Taylor General Partner terminated this agreement for cause. Mr. Stewart did not complete the development of the Software in a form and having capabilities acceptable to Taylor General Partner by April 30, 1996. The Existing Borrowers currently have possession of the software developed by Mr. Stewart but have no present plans to use it in their business, and in the Existing Borrowers' opinion, it is not material to their business. 2. Vision 2000 includes code that is generated by or comprises a part of toolkits designed for and licensed for such purposes ("toolkit code"). The shrinkwrap licenses granting permission to Taylor General Partner to license toolkit code with Vision 2000 have some provisions that may require updating of Taylor General Partner's shrinkwrap licenses and documentation to fully comply with the provisions of the toolkit shrinkwrap licenses. In addition, future versions of the Vision 2000 product may or may not require the purchase of additional licenses from at least some of the toolkit licensors. 3. Taylor General Partner is unaware whether any employees who worked on the Ultravision software executed any written agreement with Taylor General Partner. To Taylor General Partner's knowledge, and except where not material, all authors (within the meaning of the copyright laws of the United States) of the Ultravision software were employees (within the meaning of the copyright laws of the United States) of Taylor General Partner. 4. Various copyright registrations relating to works in Taylor General Partner's specialty publishing business may be partially owned by the author or authors of particular works. In addition, as to various of these copyright registrations, rights may have reverted to the author or authors or particular works or some authors may be entitled to have rights reverted that have not yet been reverted. To Taylor General Partner's knowledge and except where not material, Taylor General Partner either owns copyrights or has been granted permission by the owner of the copyrights to publish and sell the books (1) that have been published and sold in the last three years and/or (2) that are currently being published and sold. 5. Taylor General Partner and Taylor are aware of other businesses having the words "Taylor Publishing" in their name. To Taylor General Partner's and Taylor's knowledge, none of these businesses publish school yearbooks competitively with, or of the general kind published by, Taylor General Partner or Taylor. EDUCATIONAL COMMUNICATIONS, INC. 1. Pursuant to an Oral Agreement entered into in 1997, between Kyle Bolstad (a recent college graduate, whose address was 345 Sherman Avenue, Evanston, IL 60602) and ECI relating to the initial development of ECI's website, ECI was provided with source code relating to the developed software. Mr. Bolstad has ceased performing his obligations in accordance with that certain Oral Agreement entered into in 1997, between Kyle Bolstad and ECI relating to initial development of ECI's website. Thereafter, ECI engaged Azavar Technologies Corporation to modify its website. Accordingly, since no formal written assignment of ownership has been executed, ECI does not possess clear title to the initial code written by Mr. Bolstad, but instead claims ownership to it as a "work for hire" under the U.S. Copyright Act. 2. ECI republishes in certain of the biographical directories it publishes, photographs provided to it by its customers. Since no formal written agreements have been entered into with such persons authorizing ECI to reproduce their likeness, these persons could request ECI to remove such photographs from such biographical directories. 3. In connection with litigation brought in 1999 in the District Court for the Western District of Missouri by NRCCUA and Student Research, Inc. against Educational Research Center of America, Inc. ("ERCA"), certain Business Trade Secrets relating to ECI's relationship with NRCCUA, American Student List Company, Inc. and Student Research, Inc., and the mechanisms employed by, ECI, NRCCUA, American Student List Company, Inc. and Student Research, Inc. were disclosed. DISCLOSURE SCHEDULE ITEM 6.4(B) INTELLECTUAL PROPERTY OWNERSHIP
OBLIGOR PATENTS: DESCRIPTION: - ------------------------------------------------------------------------------------------------- Taylor U.S. Patent No. 5,293,475 Electronic Yearbook Publication System - ------------------------------------------------------------------------------------------------- Taylor U.S. Patent No. 5,428,777 Automated Indexing and Spell Checking of Yearbooks - ------------------------------------------------------------------------------------------------- CBI U.S. Patent No. 387,300 Carousel Pin/Pendant - ------------------------------------------------------------------------------------------------- CBI U.S. Patent No. 372,681 Finger Ring - ------------------------------------------------------------------------------------------------- CBI U.S. Patent No. 300,308 Class Ring - ------------------------------------------------------------------------------------------------- CBI U.S. Patent No. 327,660 Finger Ring - ------------------------------------------------------------------------------------------------- CBI U.S. Patent No. 322,587 Finger Ring - ------------------------------------------------------------------------------------------------- CBI U.S. Patent No. 321,840 Finger Ring - ------------------------------------------------------------------------------------------------- CBI U.S. Patent No. 300,126 Class Ring - ------------------------------------------------------------------------------------------------- CBI U.S. Patent No. 382,831 Finger Ring - ------------------------------------------------------------------------------------------------- CBI U.S. Patent No. 396,659 Finger Ring - ------------------------------------------------------------------------------------------------- CBI U.S. Patent No. 393,811 Finger Ring - ------------------------------------------------------------------------------------------------- CBI U.S. Patent No. 390,801 Finger Ring - ------------------------------------------------------------------------------------------------- CBI U.S. Patent No. 389,774 Finger Ring - ------------------------------------------------------------------------------------------------- CBI U.S. Patent No. 384,903 Six Stone Diagonal Ribbon Necklace Pendant - ------------------------------------------------------------------------------------------------- CBI U.S. Patent No. 392,204 Five Stone Diagonal Ribbon Necklace Pendant - ------------------------------------------------------------------------------------------------- CBI U.S. Patent No. 389,770 Four Stone Diagonal Ribbon Necklace Pendant - ------------------------------------------------------------------------------------------------- CBI U.S. Patent No. 386,441 Three Stone Diagonal Ribbon Necklace Pendant - ------------------------------------------------------------------------------------------------- CBI U.S. Patent No. 389,769 Two Stone Diagonal Ribbon Necklace Pendant - ------------------------------------------------------------------------------------------------- CBI U.S. Patent No. 392,587 Finger Ring (Swirl Ribbon) - ------------------------------------------------------------------------------------------------- CBI U.S. Patent No. 423,977 Finger Ring - ------------------------------------------------------------------------------------------------- CBI U.S. Patent No. 396,822 Finger Ring
OBLIGOR PATENTS: DESCRIPTION: - ------------------------------------------------------------------------------------------------- CBI U.S. Patent No. 393,225 Finger Ring - ------------------------------------------------------------------------------------------------- CBI U.S. Patent No. 383,704 Angel Pendant - ------------------------------------------------------------------------------------------------- CBI U.S. Patent No. 389,771 Rope Chain Pendant - ------------------------------------------------------------------------------------------------- CBI U.S. Patent No. 393,428 Tennis Bracelet Pendant - ------------------------------------------------------------------------------------------------- CBI U.S. Patent No. 288,155 Jewelry Display Stand - ------------------------------------------------------------------------------------------------- CBI U.S. Patent No. 272,806 Packaging Container - ------------------------------------------------------------------------------------------------- CBI U.S. Patent No. 270,786 Pouch for carrying jewelry or similar items - ------------------------------------------------------------------------------------------------- CBI U.S. Serial No. 60/339,572 High Strength, Tarnish Resistant Composition of Metal - ------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------- OBLIGOR TRADEMARKS: MARK: - ------------------------------------------------------------------------------------------------- Taylor U.S. Trademark No. 2,263,634 EZPIX - ------------------------------------------------------------------------------------------------- Taylor U.S. Trademark No. 1,471,319 MONEYVISION - ------------------------------------------------------------------------------------------------- Taylor U.S. Trademark No. 1,483,179 INDEXVISION - ------------------------------------------------------------------------------------------------- Taylor U.S. Trademark No. 1,501,046 TYPEVISION - ------------------------------------------------------------------------------------------------- Taylor U.S. Trademark No. 1,541,265 PAGEVISION - ------------------------------------------------------------------------------------------------- Taylor U.S. Trademark No. 2,032,446 DESIGNCHECK - ------------------------------------------------------------------------------------------------- Taylor U.S. Trademark No. 2,198,157 ULTRAVISION(1) - ------------------------------------------------------------------------------------------------- Taylor U.S. Trademark No. 2,321,891 YEARZINE - ------------------------------------------------------------------------------------------------- Taylor U.S. Trademark No. 2,411,040 NET CHEK - ------------------------------------------------------------------------------------------------- CBI U.S. Trademark No. 751,685 14-K and design - ------------------------------------------------------------------------------------------------- CBI U.S. Trademark No. 750,851 14K and heart design - ------------------------------------------------------------------------------------------------- CBI U.S. Trademark No. 2,126,269 ACADEMY SERIES BY BALFOUR - ------------------------------------------------------------------------------------------------- CBI Trademark No. 309229 ACCR and design (Canada) - ------------------------------------------------------------------------------------------------- CBI U.S. Trademark No. 1,301,528 ACCR and design - ------------------------------------------------------------------------------------------------- CBI U.S. Trademark No. 1,301,533 ALLEGRO - ------------------------------------------------------------------------------------------------- CBI U.S. Trademark No. 1,418,308 AMERICA'S MASTER JEWELER - ------------------------------------------------------------------------------------------------- CBI Trademark No. 51076 ARTCARVED (Canada) - ------------------------------------------------------------------------------------------------- CBI Trademark No. 98648 ARTCARVED (Costa Rica) - ------------------------------------------------------------------------------------------------- CBI Trademark No. 152660305 ARTCARVED (Spain) - ------------------------------------------------------------------------------------------------- CBI Trademark No. 88415 ARTCARVED (Guatemala) - ------------------------------------------------------------------------------------------------- CBI Trademark No. 383987 ARTCARVED (Mexico) - ------------------------------------------------------------------------------------------------- CBI Trademark No. 81264 ARTCARVED (Panama) - ------------------------------------------------------------------------------------------------- CBI U.S. Trademark No. 764668 ARTCARVED - ------------------------------------------------------------------------------------------------- CBI Trademark No. 495916 ARTCARVED BRIDAL JEWELRY and design (Canada) - ------------------------------------------------------------------------------------------------- CBI Trademark No. 319292 ARTCARVED CLASS RINGS (Canada) - ------------------------------------------------------------------------------------------------- CBI U.S. Trademark No. 2,425,520 BAL
- ---------- (1) See below under qualification for further information
OBLIGOR TRADEMARKS: MARK: - ------------------------------------------------------------------------------------------------- CBI U.S. Trademark No. 1,373,682 BALFOUR - ------------------------------------------------------------------------------------------------- CBI Trademark No. 47033 BALFOUR (Venezuela) - ------------------------------------------------------------------------------------------------- CBI U.S. Trademark No. 2,138,090 BALFOUR "CHOICE OF CHAMPIONS" - ------------------------------------------------------------------------------------------------- CBI Trademark No. 289600 BALFOUR and house design (hexagon) (Canada) - ------------------------------------------------------------------------------------------------- CBI U.S. Trademark No. 2,383,837 BALFOUR FITS YOUR LIFE - ------------------------------------------------------------------------------------------------- CBI U.S. Trademark No. 1,267,451 BALFOUR HOUSE DESIGN - ------------------------------------------------------------------------------------------------- CBI U.S. Trademark No. 766,694 BELLAIRE - ------------------------------------------------------------------------------------------------- CBI U.S. Trademark No. 1,315,677 CAMPUS - ------------------------------------------------------------------------------------------------- CBI U.S. Trademark No. 2,013,791 CELEBRATIONS OF LIFE - ------------------------------------------------------------------------------------------------- CBI U.S. Trademark No. 1,182,023 CELESTRIUM - ------------------------------------------------------------------------------------------------- CBI U.S. Trademark No. 751,246 CEME AND DESIGN - ------------------------------------------------------------------------------------------------- CBI U.S. Trademark No. 2,053,689 CLASS RINGS LIMITED DESIGN - ------------------------------------------------------------------------------------------------- CBI Trademark No. 517893 CLASS THOUGHTS (Mexico) - ------------------------------------------------------------------------------------------------- CBI U.S. Trademark No. 2,029,920 CLASS THOUGHTS - ------------------------------------------------------------------------------------------------- CBI U.S. Trademark No. 1,368,860 DESIGN - ------------------------------------------------------------------------------------------------- CBI U.S. Trademark No. 1,099,453 DESIGNER - ------------------------------------------------------------------------------------------------- CBI U.S. Trademark No. 1,305,827 DIMONIQUE - ------------------------------------------------------------------------------------------------- CBI U.S. Trademark No. 1,702,485 DYNALLOY - ------------------------------------------------------------------------------------------------- CBI U.S. Trademark No. 1,279,766 EVERLASTING - ------------------------------------------------------------------------------------------------- CBI U.S. Trademark No. 1,293,285 FREEDOM OF CHOICE - ------------------------------------------------------------------------------------------------- CBI U.S. Trademark No. 2,170,084 G L DESIGN - ------------------------------------------------------------------------------------------------- CBI U.S. Trademark No. 2,189,715 GENERATIONS OF LOVE - ------------------------------------------------------------------------------------------------- CBI U.S. Trademark No. 1,702,486 GOLDEN DYNALLOY - ------------------------------------------------------------------------------------------------- CBI U.S. Trademark No. 1,340,604 GOLDEN SADDLE - ------------------------------------------------------------------------------------------------- CBI U.S. Trademark No. 1,229,607 GRADUATE TO GOLD - ------------------------------------------------------------------------------------------------- CBI U.S. Trademark No. 1,690,099 HERALDRY HOUSE - ------------------------------------------------------------------------------------------------- CBI U.S. Trademark No. 1,936,229 IMAGE INLAY - ------------------------------------------------------------------------------------------------- CBI Trademark No. 327135 J R AND DESIGN (Canada) - ------------------------------------------------------------------------------------------------- CBI U.S. Trademark No. 930,499 J R AND DESIGN - ------------------------------------------------------------------------------------------------- CBI U.S. Trademark No. 2,026,934 JEWELRY FOR GENERATIONS - ------------------------------------------------------------------------------------------------- CBI U.S. Trademark No. 785,584 JEWELRY'S FINEST CRAFTSMAN - ------------------------------------------------------------------------------------------------- CBI U.S. Trademark No. 1,598,500 JOHN ROBERTS - ------------------------------------------------------------------------------------------------- CBI U.S. Trademark No. 2,063,574 K AND DESIGN - ------------------------------------------------------------------------------------------------- CBI Trademark No. 5893 KEEPSAKE (Barbados) - ------------------------------------------------------------------------------------------------- CBI Trademark No. UCA11868 KEEPSAKE (Canada) - ------------------------------------------------------------------------------------------------- CBI Trademark No. 284006 KEEPSAKE (Canada) - ------------------------------------------------------------------------------------------------- CBI Trademark No. 2206366 KEEPSAKE (Japan) - ------------------------------------------------------------------------------------------------- CBI Trademark No. 14805 KEEPSAKE (Puerto Rico) - ------------------------------------------------------------------------------------------------- CBI Trademark No. 12163 KEEPSAKE (Turkey) - ------------------------------------------------------------------------------------------------- CBI U.S. Trademark No. 1,476,898 KEEPSAKE - ------------------------------------------------------------------------------------------------- CBI Trademark No. 105199 KEEPSAKE (Venezuela) - ------------------------------------------------------------------------------------------------- CBI Trademark No. 25576 KEEPSAKE (Venezuela)
OBLIGOR TRADEMARKS: MARK: - ------------------------------------------------------------------------------------------------- CBI U.S. Trademark No. 1,892,645 KEEPSAKE AND DESIGN - ------------------------------------------------------------------------------------------------- CBI U.S. Trademark No. 1,799,274 KEEPSAKE (Block Letters) - ------------------------------------------------------------------------------------------------- CBI U.S. Trademark No. 917,169 KEEPSAKE (Stylized) - ------------------------------------------------------------------------------------------------- CBI Trademark No. 720061 KEYHOLE DESIGN (Canada) - ------------------------------------------------------------------------------------------------- CBI Trademark No. 470255 KEYHOLE DESIGN (Mexico) - ------------------------------------------------------------------------------------------------- CBI U.S. Trademark No. 1,768,581 KEYHOLE DESIGN - ------------------------------------------------------------------------------------------------- CBI U.S. Trademark No. 1,805,999 KEYSTONE - ------------------------------------------------------------------------------------------------- CBI Trademark No. 457258 KEYSTONE AND DESIGN - ------------------------------------------------------------------------------------------------- CBI Trademark No. 460405 KEYSTONE AND DESIGN - ------------------------------------------------------------------------------------------------- CBI U.S. Trademark No. 1,976,772 KEYSTONE (Stylized) - ------------------------------------------------------------------------------------------------- CBI Trademark No. 425800 KEYSTONE (WORD) - ------------------------------------------------------------------------------------------------- CBI Trademark No. 436961 KEYSTONE (WORD) - ------------------------------------------------------------------------------------------------- CBI U.S. Trademark No. 1,398,462 KEYSTONE AND DESIGN - ------------------------------------------------------------------------------------------------- CBI U.S. Trademark No. 1,356,522 KPS - ------------------------------------------------------------------------------------------------- CBI Trademark No. 135,814 LAZY W (Canada) - ------------------------------------------------------------------------------------------------- CBI U.S. Trademark No. 764,669 Lazy W - Design only - ------------------------------------------------------------------------------------------------- CBI U.S. Trademark No. 1,704,202 LETTERMAN - ------------------------------------------------------------------------------------------------- CBI U.S. Trademark No. 0414464 LGB - ------------------------------------------------------------------------------------------------- CBI U.S. Trademark No. 1,594,125 MASTER - ------------------------------------------------------------------------------------------------- CBI U.S. Trademark No. 755,467 MIDNIGHT STAR - ------------------------------------------------------------------------------------------------- CBI U.S. Trademark No. 1,985,712 NS - ------------------------------------------------------------------------------------------------- CBI Trademark No. 137485 P.V.P. (Canada) - ------------------------------------------------------------------------------------------------- CBI U.S. Trademark No. 884,783 P.V.P. - ------------------------------------------------------------------------------------------------- CBI U.S. Trademark No. 1,852,353 PANDORA LTD. - ------------------------------------------------------------------------------------------------- CBI Trademark No. 137507 PERMANENT VALUE PLAN (Canada) - ------------------------------------------------------------------------------------------------- CBI U.S. Trademark No. 967,840 PERMANENT VALUE PLAN - ------------------------------------------------------------------------------------------------- CBI U.S. Trademark No. 1,596,306 QUALIUM - ------------------------------------------------------------------------------------------------- CBI U.S. Trademark No. 1,904,358 R. JOHNS - ------------------------------------------------------------------------------------------------- CBI U.S. Trademark No. 1,904,359 R. JOHNS, LTD. - ------------------------------------------------------------------------------------------------- CBI U.S. Trademark No. 2,331,035 RECOGNIZING LIFE'S ACHIEVEMENTS - ------------------------------------------------------------------------------------------------- CBI U.S. Trademark No. 2,179,081 REFLECTION SERIES BY BALFOUR - ------------------------------------------------------------------------------------------------- CBI U.S. Trademark No. 2,095,726 RING OF CHAMPIONS - ------------------------------------------------------------------------------------------------- CBI Trademark No. 323388 S Design(Canada) - ------------------------------------------------------------------------------------------------- CBI U.S. Trademark No. 1,934,198 NAME-SAKE - ------------------------------------------------------------------------------------------------- CBI Trademark No. 319,431 SILADIUM (Canada) - ------------------------------------------------------------------------------------------------- CBI U.S. Trademark No. 989,301 SILADIUM - ------------------------------------------------------------------------------------------------- CBI Trademark No. 4815 STARFIRE (Bahamas) - ------------------------------------------------------------------------------------------------- CBI U.S. Trademark No. 2,310,595 STARFIRE - ------------------------------------------------------------------------------------------------- CBI U.S. Trademark No. 1,368,909 THE BALFOUR BLUE BOOK - ------------------------------------------------------------------------------------------------- CBI U.S. Trademark No. 1,365,476 THE DESIGNER COLLECTION - ------------------------------------------------------------------------------------------------- CBI U.S. Trademark No. 1,462,750 VALADIUM
OBLIGOR TRADEMARKS: MARK: - ------------------------------------------------------------------------------------------------- CBI U.S. Trademark No. 1,220,792 WHITE FIRE - ------------------------------------------------------------------------------------------------- CBI U.S. Trademark No. 1,193,591 WHITE FIRE DIAMOND RINGS & DESIGN - ------------------------------------------------------------------------------------------------- ECI U.S. Trademark Number 1,427,881 ANNUAL SURVEY OF HIGH ACHIEVERS - ------------------------------------------------------------------------------------------------- ECI U.S. Trademark Number 1,521,769 COLLEGE BOUND DIGEST - ------------------------------------------------------------------------------------------------- ECI U.S. Trademark Number 1,289,534 COLLEGE-BOUND DIGEST - ------------------------------------------------------------------------------------------------- ECI U.S. Trademark Number 1,602,930 CRS - ------------------------------------------------------------------------------------------------- ECI U.S. Trademark Number 1,652,639 EDUCATIONAL COMMUNICATIONS - ------------------------------------------------------------------------------------------------- ECI Trademark Number 54808 EDUCATIONAL COMMUNICATIONS SCHOLARSHIP (Illinois) FOUNDATION - ------------------------------------------------------------------------------------------------- ECI U.S. Trademark Number 1,267,915 EDUCATIONAL COMMUNICATIONS SCHOLARSHIP FOUNDATION - ------------------------------------------------------------------------------------------------- ECI U.S. Trademark Number 1,227,499 EDUCATIONAL COMMUNICATIONS, INC. - ------------------------------------------------------------------------------------------------- ECI U.S. Trademark Number 1,279,172 EDUCATIONAL COMMUNICATIONS, INC. - ------------------------------------------------------------------------------------------------- ECI U.S. Trademark Number 1,562,662 FEATHER DESIGN - ------------------------------------------------------------------------------------------------- ECI U.S. Trademark Number 1,279,896 FEATHER DESIGN - ------------------------------------------------------------------------------------------------- ECI U.S. Trademark Number 1,269,802 FEATHER DESIGN - ------------------------------------------------------------------------------------------------- ECI U.S. Trademark Number 1,286,045 FEATHER DESIGN - ------------------------------------------------------------------------------------------------- ECI U.S. Trademark Number 1,270,216 FEATHER DESIGN - ------------------------------------------------------------------------------------------------- ECI U.S. Trademark Number 1,306,934 FEATHER DESIGN - ------------------------------------------------------------------------------------------------- ECI U.S. Trademark Number 2,356,378 HONORING AMERICA'S OUTSTANDING COLLEGE STUDENTS - ------------------------------------------------------------------------------------------------- ECI U.S. Trademark Number 1,237,383 HONORING TOMORROW'S LEADERS TODAY - ------------------------------------------------------------------------------------------------- ECI U.S. Trademark Number 1,233,603 HONORING TOMORROW'S LEADERS TODAY
OBLIGOR TRADEMARKS: MARK: - ------------------------------------------------------------------------------------------------- ECI U.S. Trademark Number 1,231,889 HONORING TOMORROW'S LEADERS TODAY - ------------------------------------------------------------------------------------------------- ECI U.S. Trademark Number 1,262,961 HONORING TOMORROW'S LEADERS TODAY - ------------------------------------------------------------------------------------------------- ECI U.S. Trademark Number 1,536,873 HONORING TOMORROW'S LEADERS TODAY - ------------------------------------------------------------------------------------------------- ECI U.S. Trademark Number 1,233,557 MORTARBOARD DESIGN - ------------------------------------------------------------------------------------------------- ECI U.S. Trademark Number 1,538,526 MORTARBOARD DESIGN - ------------------------------------------------------------------------------------------------- ECI U.S. Trademark No. 1,584,665 MORTARBOARD DESIGN - ------------------------------------------------------------------------------------------------- ECI U.S. Trademark Number 1,235,810 MORTARBOARD DESIGN - ------------------------------------------------------------------------------------------------- ECI U.S. Trademark Number 1,214,291 MORTARBOARD DESIGN - ------------------------------------------------------------------------------------------------- ECI U.S. Trademark Number 1,253,784 MORTARBOARD DESIGN - ------------------------------------------------------------------------------------------------- ECI U.S. Trademark Number 1,510,245 MORTARBOARD DESIGN - ------------------------------------------------------------------------------------------------- ECI U.S. Trademark Number 1,269,830 MORTARBOARD DESIGN - ------------------------------------------------------------------------------------------------- ECI U.S. Trademark Number 1,228,517 MORTARBOARD DESIGN - ------------------------------------------------------------------------------------------------- ECI U.S. Trademark Number 1,578,049 SRS - ------------------------------------------------------------------------------------------------- ECI U.S. Trademark Number 1,453,579 STUDENT REFERRAL SERVICE - ------------------------------------------------------------------------------------------------- ECI U.S. Trademark Number 1,878,333 THE BEST TEACHERS IN AMERICA SELECTED BY THE BEST STUDENTS - ------------------------------------------------------------------------------------------------- ECI U.S. Trademark Number 1,832,243 THE BEST TEACHERS IN AMERICA SELECTED BY THE BEST STUDENTS - ------------------------------------------------------------------------------------------------- ECI U.S. Trademark Number 1,776,124 THE BEST TEACHERS IN AMERICA SELECTED BY THE BEST STUDENTS - ------------------------------------------------------------------------------------------------- ECI U.S. Trademark Number 1,699,480 THE BEST TEACHERS IN AMERICA SELECTED BY THE BEST STUDENTS - ------------------------------------------------------------------------------------------------- ECI U.S. Trademark Number 1,371,790 THE COLLEGE REFERRAL SERVICE - ------------------------------------------------------------------------------------------------- ECI Trademark Number 095035 THE NATIONAL DEAN'S LIST (California) - ------------------------------------------------------------------------------------------------- ECI Trademark Number 19921100546 THE NATIONAL DEAN'S LIST (Colorado)
OBLIGOR TRADEMARKS: MARK: - ------------------------------------------------------------------------------------------------- ECI Trademark Number 8958 THE NATIONAL DEAN'S LIST Connecticut) - ------------------------------------------------------------------------------------------------- ECI Trademark Number T11487 THE NATIONAL DEAN'S LIST (Florida) - ------------------------------------------------------------------------------------------------ ECI Trademark Number T-11653 THE NATIONAL DEAN'S LIST (Georgia) - ------------------------------------------------------------------------------------------------- ECI Trademark Number 54809 THE NATIONAL DEAN'S LIST (Illinois) - ------------------------------------------------------------------------------------------------- ECI Trademark Number 10960 THE NATIONAL DEAN'S LIST (Kentucky) - ------------------------------------------------------------------------------------------------- ECI Trademark Number 19927403 THE NATIONAL DEAN'S LIST (Maryland) - ------------------------------------------------------------------------------------------------- ECI Trademark Number 47496 THE NATIONAL DEAN'S LIST (Massachusetts) - ------------------------------------------------------------------------------------------------- ECI Trademark Number 00000000 THE NATIONAL DEAN'S LIST (New Jersey) - ------------------------------------------------------------------------------------------------- ECI Trademark Number R-26988 THE NATIONAL DEAN'S LIST (New York) - ------------------------------------------------------------------------------------------------- ECI Trademark Number 051958 THE NATIONAL DEAN'S LIST (Texas) - ------------------------------------------------------------------------------------------------- ECI U.S. Trademark Number 1,531,337 THE NATIONAL DEAN'S LIST - ------------------------------------------------------------------------------------------------- ECI U.S. Trademark Number 1,247,029 THE NATIONAL DEAN'S LIST - ------------------------------------------------------------------------------------------------- ECI U.S. Trademark Number 1,763,265 THE NATIONAL DEAN'S LIST - ------------------------------------------------------------------------------------------------- ECI Trademark Number 0920728 THE NATIONAL DEAN'S LIST (Virginia) - ------------------------------------------------------------------------------------------------- ECI Trademark Number 10377 THE NATIONAL DEAN'S LIST (New Jersey) - ------------------------------------------------------------------------------------------------- ECI U.S. Trademark Number 1,787,618 THE NATIONAL DEAN'S LIST ALUMNI ASSOCIATION - ------------------------------------------------------------------------------------------------- ECI U.S. Trademark Number 1,604,536 THE NATIONAL DEAN'S LIST AND DESIGN - ------------------------------------------------------------------------------------------------- ECI U.S. Trademark Number 1,534,731 THE NATIONAL DEAN'S LIST AND DESIGN - ------------------------------------------------------------------------------------------------- ECI U.S. Trademark Number 1,266,349 THE NATIONAL DEAN'S LIST AND DESIGN - ------------------------------------------------------------------------------------------------- ECI U.S. Trademark Number 1,233,602 THE NATIONAL DEAN'S LIST AND DESIGN - ------------------------------------------------------------------------------------------------- ECI U.S. Trademark Number 1,229,605 THE NATIONAL DEAN'S LIST AND DESIGN - ------------------------------------------------------------------------------------------------- ECI U.S. Trademark Number 1,238,293 THE NATIONAL DEAN'S LIST AND DESIGN
OBLIGOR TRADEMARKS: MARK: - ------------------------------------------------------------------------------------------------------ ECI U.S. Trademark Number 1,260,236 THE NATIONAL DEAN'S LIST AND DESIGN - ------------------------------------------------------------------------------------------------------ ECI U.S. Trademark Number 1,596,872 WHO'S WHO AMONG AMERICA'S TEACHERS - ------------------------------------------------------------------------------------------------------ ECI U.S. Trademark Number 1,873,885 WHO'S WHO AMONG AMERICA'S TEACHERS - ------------------------------------------------------------------------------------------------------ ECI U.S. Trademark Number 1,659,216 WHO'S WHO AMONG AMERICA'S TEACHERS - ------------------------------------------------------------------------------------------------------ ECI U.S. Trademark Number 1,899,189 WHO'S WHO AMONG AMERICA'S TEACHERS - ------------------------------------------------------------------------------------------------------ ECI U.S. Trademark Number 1,871,371 WHO'S WHO AMONG AMERICA'S TEACHERS - ------------------------------------------------------------------------------------------------------ ECI Trademark Number 095057 WHO'S WHO AMONG AMERICAN HIGH SCHOOL (California) STUDENTS - ------------------------------------------------------------------------------------------------------ ECI Trademark Number 19931056646 WHO'S WHO AMONG AMERICAN HIGH SCHOOL STUDENTS (Colorado) - ------------------------------------------------------------------------------------------------------ ECI Trademark Number 8957 WHO'S WHO AMONG AMERICAN HIGH SCHOOL STUDENTS (Connecticut) - ------------------------------------------------------------------------------------------------------ ECI Trademark Number T11488 WHO'S WHO AMONG AMERICAN HIGH SCHOOL STUDENTS (Florida) - ------------------------------------------------------------------------------------------------------ ECI Trademark Number T05932 WHO'S WHO AMONG AMERICAN HIGH SCHOOL STUDENTS (Florida) - ------------------------------------------------------------------------------------------------------ ECI Trademark Number T05933 WHO'S WHO AMONG AMERICAN HIGH SCHOOL STUDENTS (Florida) - ------------------------------------------------------------------------------------------------------ ECI Trademark Number T-11564 WHO'S WHO AMONG AMERICAN HIGH SCHOOL STUDENTS (Georgia) - ------------------------------------------------------------------------------------------------------ ECI Trademark Number 54810 WHO'S WHO AMONG AMERICAN HIGH SCHOOL STUDENTS (Illinois) - ------------------------------------------------------------------------------------------------------ ECI Trademark Number 10959 WHO'S WHO AMONG AMERICAN HIGH SCHOOL STUDENTS (Kentucky) - ------------------------------------------------------------------------------------------------------ ECI Trademark Number 19927404 WHO'S WHO AMONG AMERICAN HIGH SCHOOL STUDENTS (Maryland) - ------------------------------------------------------------------------------------------------------ ECI Trademark Number 47517 WHO'S WHO AMONG AMERICAN HIGH SCHOOL STUDENTS (Massachusetts) - ------------------------------------------------------------------------------------------------------ ECI Trademark Number 0920728 WHO'S WHO AMONG AMERICAN HIGH SCHOOL STUDENTS (Virginia) - ------------------------------------------------------------------------------------------------------ ECI Trademark Number R-26989 WHO'S WHO AMONG AMERICAN HIGH SCHOOL STUDENTS (New York) - ------------------------------------------------------------------------------------------------------ ECI Trademark Number 051959 WHO'S WHO AMONG AMERICAN HIGH SCHOOL STUDENTS (Texas) - ------------------------------------------------------------------------------------------------------ ECI Trademark Number 10376 WHO'S WHO AMONG AMERICAN HIGH SCHOOL STUDENTS (New Jersey) - ------------------------------------------------------------------------------------------------------ ECI U.S. Trademark Number 1,238,888 WHO'S WHO AMONG AMERICAN HIGH SCHOOL STUDENTS
OBLIGOR TRADEMARKS: MARK: - ------------------------------------------------------------------------------------------------- ECI U.S. Trademark Number 1,044,814 WHO'S WHO AMONG AMERICAN HIGH SCHOOL STUDENTS - ------------------------------------------------------------------------------------------------- ECI U.S. Trademark Number 1,755,706 WHO'S WHO AMONG AMERICAN HIGH SCHOOL STUDENTS - ------------------------------------------------------------------------------------------------- ECI U.S. Trademark Number 1,267,914 WHO'S WHO AMONG AMERICAN HIGH SCHOOL STUDENTS - ------------------------------------------------------------------------------------------------- ECI U.S. Trademark Number 1,571,332 WHO'S WHO AMONG AMERICAN HIGH SCHOOL STUDENTS - ------------------------------------------------------------------------------------------------- ECI U.S. Trademark Number 1,541,690 WHO'S WHO AMONG AMERICAN HIGH SCHOOL STUDENTS - ------------------------------------------------------------------------------------------------- ECI U.S. Trademark Number 1,606,342 WHO'S WHO AMONG AMERICAN HIGH SCHOOL STUDENTS - ------------------------------------------------------------------------------------------------- ECI U.S. Trademark Number 1,221,233 WHO'S WHO AMONG AMERICAN HIGH SCHOOL STUDENTS - ------------------------------------------------------------------------------------------------- ECI U.S. Trademark Number 1,215,740 WHO'S WHO AMONG AMERICAN HIGH SCHOOL STUDENTS - ------------------------------------------------------------------------------------------------- ECI U.S. Trademark Number 1,221,763 WHO'S WHO AMONG AMERICAN HIGH SCHOOL STUDENTS - ------------------------------------------------------------------------------------------------- ECI U.S. Trademark Number 1,259,455 WHO'S WHO AMONG AMERICAN HIGH SCHOOL STUDENTS - ------------------------------------------------------------------------------------------------- ECI U.S. Trademark Number 1,245,969 WHO'S WHO AMONG AMERICAN HIGH SCHOOL STUDENTS - ------------------------------------------------------------------------------------------------- ECI U.S. Trademark Number 1,296,043 WHO'S WHO AMONG AMERICAN HIGH SCHOOL STUDENTS - ------------------------------------------------------------------------------------------------- ECI Trademark Number 0920728 WHO'S WHO AMONG AMERICAN (Virginia) HIGH SCHOOL STUDENTS - ------------------------------------------------------------------------------------------------- ECI U.S. Trademark Number 1,222,572 WHO'S WHO REPORTS - ------------------------------------------------------------------------------------------------- ECI Trademark Number T05934 WHO'S WHO REVIEW (Florida) - ------------------------------------------------------------------------------------------------- ECI U.S. Trademark Number 1,397,634 WHO'S WHO REVIEW - ------------------------------------------------------------------------------------------------- Taylor U.S. Trademark App. No. 76/178,190 ELITEVISION - ------------------------------------------------------------------------------------------------- Taylor U.S. Trademark App. No. 76/208,495 SAM (and design) - ------------------------------------------------------------------------------------------------- Taylor U.S. Trademark App. No. 76/176,954 SMART PAY - ------------------------------------------------------------------------------------------------- Taylor U.S. Trademark App. No. 76/343,521 SPECTRA - ------------------------------------------------------------------------------------------------- Taylor U.S. Trademark App. No. 76/342,917 YB!PRO - ------------------------------------------------------------------------------------------------- CBI Trademark App. No. 320855 ARTCARVED BRIDAL JEWELRY (Mexico) - ------------------------------------------------------------------------------------------------- CBI U.S. Trademark No. 2,441,434 BALFOUR SPORTS (STYLIZED)
OBLIGOR TRADEMARKS: MARK: - ------------------------------------------------------------------------------------------------- CBI U.S. Trademark App. No. 75/111,974 BOY'S ALL*STAR - ------------------------------------------------------------------------------------------------- CBI U.S. Trademark App. No. 75/484,104 CLASS OF YOUR OWN - ------------------------------------------------------------------------------------------------- CBI U.S. Trademark App. No. 75/111,746 GIRL'S ALL*STAR - ------------------------------------------------------------------------------------------------- CBI U.S. Trademark App. No. 75/470,814 GRADUATION CELEBRATION - ------------------------------------------------------------------------------------------------- CBI U.S. Trademark App. No. 76/129,040 GRADUATION CELEBRATION - ------------------------------------------------------------------------------------------------- CBI U.S. Trademark App. No. 75/111,745 THE ALL STAR SERIES - ------------------------------------------------------------------------------------------------- CBI U.S. Trademark No. 2,502,361 YOUR BALFOUR COLLEGE RING...THE WEARABLE RESUME - ------------------------------------------------------------------------------------------------- ECI U.S. Trademark App. No. 2,479,133 WHO'S WHO AMONG AMERICAN HIGH SCHOOL STUDENT ALUMNI ASSOCIATION - ------------------------------------------------------------------------------------------------- Taylor Unregistered Stylized Taylor(2) - ------------------------------------------------------------------------------------------------- Taylor Unregistered Stylized Taylor Publishing Co.(3) - ------------------------------------------------------------------------------------------------- Taylor Unregistered Artquest(4) - ------------------------------------------------------------------------------------------------- Taylor Unregistered Taylor Reunion Services(5) - ------------------------------------------------------------------------------------------------- Taylor Unregistered Positively For Kids(6) - ------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------- OBLIGOR COPYRIGHTS: DESCRIPTION - ------------------------------------------------------------------------------------------------- Taylor U.S. Copyright No. TX 5-156-252 ULTRAVISION - version 1.29 Computer Software Program - ------------------------------------------------------------------------------------------------- Taylor U.S. Copyright No. TX 5-156-251 VISION 2000 - version 2.047 Computer Software Program - ------------------------------------------------------------------------------------------------- Taylor U.S. Copyright No. TX 5-156-250 VISION 2000 - version 2.065 Computer Software Program - ------------------------------------------------------------------------------------------------- Taylor U.S. Copyright No. TXu 940-489 EZPIX Computer Software Program - ------------------------------------------------------------------------------------------------- CBI U.S. Copyright No. 300,742 Birthstone Bouquet Ring - ------------------------------------------------------------------------------------------------- CBI U.S. Copyright No. 606,818 Boy's all-star ring - ------------------------------------------------------------------------------------------------- CBI U.S. Copyright No. 559,686 Eagle ring
(2) Logo, Taylor General Partner has choosen not to register (3) Logo, Taylor General Partner has chosen not to register (4) Artquest is the name of a contest sponsored by the Taylor General Partner over the last two years and will likely sponsor again, Taylor General Taylor General Partner has chosen not to register (5) Taylor Reunion Services is the same of the business segment which conducts reunion services, Taylor General Partner has not pursued registration. (6) Positively For Kids, is a series of children's books in the speciality publishing segment, Taylor General Partner has not pursued registration.
OBLIGOR COPYRIGHTS: DESCRIPTION - ------------------------------------------------------------------------------------------------------------------------------ CBI U.S. Copyright No. 606,816 Girl's all-star ring - ------------------------------------------------------------------------------------------------------------------------------ CBI U.S. Copyright No. 427,298 Hole-in-one - ------------------------------------------------------------------------------------------------------------------------------ CBI U.S. Copyright No. none available Journey - ------------------------------------------------------------------------------------------------------------------------------ CBI U.S. Copyright No. 380,032 Legend - ------------------------------------------------------------------------------------------------------------------------------ CBI U.S. Copyright No. 584,862 Nobility/royal - ------------------------------------------------------------------------------------------------------------------------------ CBI U.S. Copyright No. none available Radiance - ------------------------------------------------------------------------------------------------------------------------------ CBI U.S. Copyright No. 557,203 rose ring - ------------------------------------------------------------------------------------------------------------------------------ CBI U.S. Copyright No. 629,612 tenderness locket - ------------------------------------------------------------------------------------------------------------------------------ ECI U.S. Copyright No. TX 5-073-052 Who's Who Among American High School Students 1999-2000 (34th Edition) Volume I - ------------------------------------------------------------------------------------------------------------------------------ ECI U.S. Copyright No. TX 5-073-053 Who's Who Among American High School Students 1999-2000 (34th Edition) Volume II - ------------------------------------------------------------------------------------------------------------------------------ ECI U.S. Copyright No. TX 5-073-054 Who's Who Among American High School Students 1999-2000 (34th Edition) Volume III - ------------------------------------------------------------------------------------------------------------------------------ ECI U.S. Copyright No. TX 5-073-055 Who's Who Among American High School Students 1999-2000 (34th Edition) Volume IV - ------------------------------------------------------------------------------------------------------------------------------ ECI U.S. Copyright No. TX 5-073-056 Who's Who Among American High School Students 1999-2000 (34th Edition) Volume V - ------------------------------------------------------------------------------------------------------------------------------ ECI U.S. Copyright No. TX 5-073-047 Who's Who Among American High School Students 1999-2000 (34th Edition) Volume VI - ------------------------------------------------------------------------------------------------------------------------------ ECI U.S. Copyright No. TX 5-073-041 Who's Who Among American High School Students1999-2000 (34th Edition) Volume VII - ------------------------------------------------------------------------------------------------------------------------------ ECI U.S. Copyright No. TX 5-073-040 Who's Who Among American High School Students 1999-2000 (34th Edition) Volume VIII - ------------------------------------------------------------------------------------------------------------------------------ ECI U.S. Copyright No. TX 5-073-048 Who's Who Among American High School Students 1999-2000 (34th Edition) Volume IX
OBLIGOR COPYRIGHTS: DESCRIPTION - ----------------------------------------------------------------------------------------------------------------------------------- ECI U.S. Copyright No. TX 5-073-049 Who's Who Among American High School Students 1999-2000 (34th Edition) Volume X - ----------------------------------------------------------------------------------------------------------------------------------- ECI U.S. Copyright No. TX 5-073-050 Who's Who Among American High School Students 1999-2000 (34th Edition) Volume XI - ----------------------------------------------------------------------------------------------------------------------------------- ECI U.S. Copyright No. TX 5-073-051 Who's Who Among American High School Students 1999-2000 (34th Edition) Volume XII - ----------------------------------------------------------------------------------------------------------------------------------- ECI U.S. Copyright No. TX 5-073-046 Who's Who Among American High School Students 1999-2000 (34th Edition) Volume XIII - ----------------------------------------------------------------------------------------------------------------------------------- ECI U.S. Copyright No. TX 5-073-045 Who's Who Among American High School Students 1999-2000 (34th Edition) Volume XIV - ----------------------------------------------------------------------------------------------------------------------------------- ECI U.S. Copyright No. TX 5-377-170 Who's Who Among American High School Students 1999-2000 (34th Edition) Volume XV - ----------------------------------------------------------------------------------------------------------------------------------- ECI U.S. Copyright No. TX 5-073-044 Who's Who Among American High School Students 1999-2000 (34th Edition) Volume XVI - ----------------------------------------------------------------------------------------------------------------------------------- ECI U.S. Copyright No. TX 5-073-043 Who's Who Among American High School Students 1999-2000 (34th Edition) Volume XVII - ----------------------------------------------------------------------------------------------------------------------------------- ECI U.S. Copyright No. TX 5-073-042 Who's Who Among American High School Students 1999-2000 (34th Edition) Volume XVIII - ----------------------------------------------------------------------------------------------------------------------------------- ECI U.S. Copyright No. TX 5-037-750 Who's Who Among American High School Students 1998-99 (33rd Edition) Volume I - ----------------------------------------------------------------------------------------------------------------------------------- ECI U.S. Copyright No. TX 5-037-750 Who's Who Among American High School Students 1998-99 (33rd Edition) Volume I - ----------------------------------------------------------------------------------------------------------------------------------- ECI U.S. Copyright No. TX 5-037-754 Who's Who Among American High School Students 1998-99 (33rd Edition) Volume II
OBLIGOR COPYRIGHTS: DESCRIPTION - ----------------------------------------------------------------------------------------------------------------------------------- ECI U.S. Copyright No. TX 5-037-632 Who's Who Among American High School Students 1998-99 (33rd Edition) Volume III - ----------------------------------------------------------------------------------------------------------------------------------- ECI U.S. Copyright No. TX 5-037-631 Who's Who Among American High School Students 1998-99 (33rd Edition) Volume IV - ----------------------------------------------------------------------------------------------------------------------------------- ECI U.S. Copyright No. TX 5-037-747 Who's Who Among American High School Students 1998-99 (33rd Edition) Volume V - ----------------------------------------------------------------------------------------------------------------------------------- ECI U.S. Copyright No. TX 5-037-756 Who's Who Among American High School Students 1998-99 (33rd Edition) Volume VI - ----------------------------------------------------------------------------------------------------------------------------------- ECI U.S. Copyright No. TX 5-037-626 Who's Who Among American High School Students 1998-99 (33rd Edition) Volume VII - ----------------------------------------------------------------------------------------------------------------------------------- ECI U.S. Copyright No. TX 5-037-748 Who's Who Among American High School Students 1998-99 (33rd Edition) Volume VIII - ----------------------------------------------------------------------------------------------------------------------------------- ECI U.S. Copyright No. TX 5-037-753 Who's Who Among American High School Students 1998-99 (33rd Edition) Volume IX - ----------------------------------------------------------------------------------------------------------------------------------- ECI U.S. Copyright No. TX 5-037-752 Who's Who Among American High School Students 1998-99 (33rd Edition) Volume X - ----------------------------------------------------------------------------------------------------------------------------------- ECI U.S. Copyright No. TX 5-037-749 Who's Who Among American High School Students 1998-99 (33rd Edition) Volume XI - ----------------------------------------------------------------------------------------------------------------------------------- ECI U.S. Copyright No. TX 5-037-633 Who's Who Among American High School Students 1998-99 (33rd Edition) Volume XII - ----------------------------------------------------------------------------------------------------------------------------------- ECI U.S. Copyright No. TX 5-037-628 Who's Who Among American High School Students 1998-99 (33rd Edition) Volume XIII
OBLIGOR COPYRIGHTS: DESCRIPTION - ----------------------------------------------------------------------------------------------------------------------------------- ECI U.S. Copyright No. TX 5-037-627 Who's Who Among American High School Students 1998-99 (33rd Edition) Volume XIV - ----------------------------------------------------------------------------------------------------------------------------------- ECI U.S. Copyright No. TX 5-037-751 Who's Who Among American High School Students 1998-99 (33rd Edition) Volume XV - ----------------------------------------------------------------------------------------------------------------------------------- ECI U.S. Copyright No. TX 5-037-630 Who's Who Among American High School Students 1998-99 (33rd Edition) Volume XVI - ----------------------------------------------------------------------------------------------------------------------------------- ECI U.S. Copyright No. TX 5-037-755 Who's Who Among American High School Students 1998-99 (33rd Edition) Volume XVII - ----------------------------------------------------------------------------------------------------------------------------------- ECI U.S. Copyright No. TX 5-037-629 Who's Who Among American High School Students 1998-99 (33rd Edition) Volume XVIII - ----------------------------------------------------------------------------------------------------------------------------------- ECI U.S. Copyright No. TX 4-896-465 Who's Who Among American High School Students 1997-98 (32nd Edition) Volume I - ----------------------------------------------------------------------------------------------------------------------------------- ECI U.S. Copyright No. TX 4-896-501 Who's Who Among American High School Students 1997-98 (32nd Edition) Volume II - ----------------------------------------------------------------------------------------------------------------------------------- ECI U.S. Copyright No. TX 4-896-504 Who's Who Among American High School Students 1997-98 (32nd Edition) Volume III - ----------------------------------------------------------------------------------------------------------------------------------- ECI U.S. Copyright No. TX 4-896-476 Who's Who Among American High School Students 1997-98 (32nd Edition) Volume IV - ----------------------------------------------------------------------------------------------------------------------------------- ECI U.S. Copyright No. TX 4-896-498 Who's Who Among American High School Students 1997-98 (32nd Edition) Volume V - ----------------------------------------------------------------------------------------------------------------------------------- ECI U.S. Copyright No. TX 4-896-497 Who's Who Among American High School Students 1997-98 (32nd Edition) Volume VI
OBLIGOR COPYRIGHTS: DESCRIPTION - ----------------------------------------------------------------------------------------------------------------------------------- ECI U.S. Copyright No. TX 4-896-477 Who's Who Among American High School Students 1997-98 (32nd Edition) Volume VII - ----------------------------------------------------------------------------------------------------------------------------------- ECI U.S. Copyright No. TX 4-896-503 Who's Who Among American High School Students 1997-98 (32nd Edition) Volume VIII - ----------------------------------------------------------------------------------------------------------------------------------- ECI U.S. Copyright No. TX 4-896-502 Who's Who Among American High School Students 1997-98 (32nd Edition) Volume IX - ----------------------------------------------------------------------------------------------------------------------------------- ECI U.S. Copyright No. TX 4-896-499 Who's Who Among American High School Students 1997-98 (32nd Edition) Volume X - ----------------------------------------------------------------------------------------------------------------------------------- ECI U.S. Copyright No. TX 4-896-500 Who's Who Among American High School Students 1997-98 (32nd Edition) Volume XI - ----------------------------------------------------------------------------------------------------------------------------------- ECI U.S. Copyright No. TX 4-896-508 Who's Who Among American High School Students 1997-98 (32nd Edition) Volume XII - ----------------------------------------------------------------------------------------------------------------------------------- ECI U.S. Copyright No. TX 4-896-506 Who's Who Among American High School Students 1997-98 (32nd Edition) Volume XIII - ----------------------------------------------------------------------------------------------------------------------------------- ECI U.S. Copyright No. TX 4-896-505 Who's Who Among American High School Students 1997-98 (32nd Edition) Volume XIV - ----------------------------------------------------------------------------------------------------------------------------------- ECI U.S. Copyright No. TX 4-896-507 Who's Who Among American High School Students 1997-98 (32nd Edition) Volume XV - ----------------------------------------------------------------------------------------------------------------------------------- ECI U.S. Copyright No. TX 4-896-467 Who's Who Among American High School Students 1997-98 (32nd Edition) Volume XVI - ----------------------------------------------------------------------------------------------------------------------------------- ECI U.S. Copyright No. TX 4-896-475 Who's Who Among American High School Students 1997-98 (32nd Edition) Volume XVII
OBLIGOR COPYRIGHTS: DESCRIPTION - ----------------------------------------------------------------------------------------------------------------------------------- ECI U.S. Copyright No. TX 4-896-466 Who's Who Among American High School Students 1997-98 (32nd Edition) Volume XVIII - ----------------------------------------------------------------------------------------------------------------------------------- ECI U.S. Copyright No. TX 4-691-581 Who's Who Among American High School Students 1996-97 (31st Edition) Volume I - ----------------------------------------------------------------------------------------------------------------------------------- ECI U.S. Copyright No. TX 4-691-580 Who's Who Among American High School Students 1996-97 (31st Edition) Volume II - ----------------------------------------------------------------------------------------------------------------------------------- ECI U.S. Copyright No. TX 4-691-575 Who's Who Among American High School Students 1996-97 (31st Edition) Volume III - ----------------------------------------------------------------------------------------------------------------------------------- ECI U.S. Copyright No. TX 4-691-573 Who's Who Among American High School Students 1996-97 (31st Edition) Volume IV - ----------------------------------------------------------------------------------------------------------------------------------- ECI U.S. Copyright No. TX 4-691-576 Who's Who Among American High School Students 1996-97 (31st Edition) Volume V - ----------------------------------------------------------------------------------------------------------------------------------- ECI U.S. Copyright No. TX 4-691-582 Who's Who Among American High School Students 1996-97 (31st Edition) Volume VI - ----------------------------------------------------------------------------------------------------------------------------------- ECI U.S. Copyright No. TX 4-691-579 Who's Who Among American High School Students 1996-97 (31st Edition) Volume VII - ----------------------------------------------------------------------------------------------------------------------------------- ECI U.S. Copyright No. TX 4-691-567 Who's Who Among American High School Students 1996-97 (31st Edition) Volume VIII - ----------------------------------------------------------------------------------------------------------------------------------- ECI U.S. Copyright No. TX 4-691-572 Who's Who Among American High School Students 1996-97 (31st Edition) Volume IX - ----------------------------------------------------------------------------------------------------------------------------------- ECI U.S. Copyright No. TX 4-691-583 Who's Who Among American High School Students 1996-97 (31st Edition) Volume X
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OBLIGOR COPYRIGHTS: DESCRIPTION - ----------------------------------------------------------------------------------------------------------------------------------- ECI U.S. Copyright No. A 190806 Merit's Who's Who Among American High School Students 1969-1970 - ----------------------------------------------------------------------------------------------------------------------------------- ECI U.S. Copyright No. A 122921 Merit's Who's Who Among American High School Students 1968-1969 - ----------------------------------------------------------------------------------------------------------------------------------- ECI U.S. Copyright No. A 65657 Merit's Who's Who Among American High School Students 1967-1968 - ----------------------------------------------------------------------------------------------------------------------------------- ECI U.S. Copyright No. A 984826 Merit's Who's Who Among American High School Students A 958282 1966-1967 - ----------------------------------------------------------------------------------------------------------------------------------- ECI U.S. Copyright No. TX 5-073-057 WHO'S WHO AMONG AMERICA'S TEACHERS 2000 (6TH EDITION) VOLUME I - ----------------------------------------------------------------------------------------------------------------------------------- ECI U.S. Copyright No. TX 5-073-058 WHO'S WHO AMONG AMERICA'S TEACHERS 2000 (6TH EDITION) VOLUME II - ----------------------------------------------------------------------------------------------------------------------------------- ECI U.S. Copyright No. TX 5-073-059 WHO'S WHO AMONG AMERICA'S TEACHERS 2000 (6TH EDITION) VOLUME III - ----------------------------------------------------------------------------------------------------------------------------------- ECI U.S. Copyright No. TX 5-073-060 WHO'S WHO AMONG AMERICA'S TEACHERS 2000 (6TH EDITION) VOLUME IV - ----------------------------------------------------------------------------------------------------------------------------------- ECI U.S. Copyright No. TX 4-833-393 Who's Who Among America's Teachers 1998 (5th Edition) Volume I - ----------------------------------------------------------------------------------------------------------------------------------- ECI U.S. Copyright No. TX 4-833-394 Who's Who Among America's Teachers 1998 (5th Edition) Volume II - ----------------------------------------------------------------------------------------------------------------------------------- ECI U.S. Copyright No. TX 4-833-391 Who's Who Among America's Teachers 1998 (5th Edition) Volume III - ----------------------------------------------------------------------------------------------------------------------------------- ECI U.S. Copyright No. TX 4-833-392 Who's Who Among America's Teachers 1998 (5th Edition) Volume IV - ----------------------------------------------------------------------------------------------------------------------------------- ECI U.S. Copyright No. TX 4-469-764 Who's Who Among America's Teachers 1996 (4th Edition) Volume I - ----------------------------------------------------------------------------------------------------------------------------------- ECI U.S. Copyright No. TX 4-469-767 Who's Who Among America's Teachers 1996 (4th Edition) Volume II - ----------------------------------------------------------------------------------------------------------------------------------- ECI U.S. Copyright No. TX 4-469-765 Who's Who Among America's Teachers 1996 (4th Edition) Volume III
OBLIGOR COPYRIGHTS: DESCRIPTION - ----------------------------------------------------------------------------------------------------------------------------------- ECI U.S. Copyright No. TX 4-469-766 Who's Who Among America's Teachers 1996 (4th Edition) Volume IV - ----------------------------------------------------------------------------------------------------------------------------------- ECI U.S. Copyright No. TX 3-899-380 Who's Who Among America's Teachers 1994 (3rd Edition) Volume I - ----------------------------------------------------------------------------------------------------------------------------------- ECI U.S. Copyright No. TX 3-899-381 Who's Who Among America's Teachers 1994 (3rd Edition) Volume II - ----------------------------------------------------------------------------------------------------------------------------------- ECI U.S. Copyright No. TX 3-423-206 Who's Who Among America's Teachers 1992 (2nd Edition) Volume I - ----------------------------------------------------------------------------------------------------------------------------------- ECI U.S. Copyright No. TX 3-426-091 Who's Who Among America's Teachers 1992 (2nd Edition) Volume II - ----------------------------------------------------------------------------------------------------------------------------------- ECI U.S. Copyright No. TX 2-931-185 Who's Who Among America's Teachers (1st Edition) 1989-90 - ----------------------------------------------------------------------------------------------------------------------------------- ECI U.S. Copyright No. TX 5-439-844 THE NATIONAL DEAN'S LIST 2000-2001 (24TH EDITION) VOLUME I - ----------------------------------------------------------------------------------------------------------------------------------- ECI U.S. Copyright No. TX 5-439-846 THE NATIONAL DEAN'S LIST 2000-2001 (24TH EDITION) VOLUME II - ----------------------------------------------------------------------------------------------------------------------------------- ECI U.S. Copyright No. TX 5-439-845 THE NATIONAL DEAN'S LIST 2000-2001 (24TH EDITION) VOLUME III - ----------------------------------------------------------------------------------------------------------------------------------- ECI U.S. Copyright No. TX 5-313-157 THE NATIONAL DEAN'S LIST 1999-2000 (23RD EDITION) VOLUME I - ----------------------------------------------------------------------------------------------------------------------------------- ECI U.S. Copyright No. TX 5-313-156 THE NATIONAL DEAN'S LIST 1999-2000 (23RD EDITION) VOLUME II - ----------------------------------------------------------------------------------------------------------------------------------- ECI U.S. Copyright No. TX 5-054-154 The National Dean's List 1998-1999 22nd Edition Volume I - ----------------------------------------------------------------------------------------------------------------------------------- ECI U.S. Copyright No. TX 5-052-410 The National Dean's List 1998-1999 22nd Edition Volume II - ----------------------------------------------------------------------------------------------------------------------------------- ECI U.S. Copyright No. TX 4-888-637 The National Dean's List 1997-1998 21st Edition Volume I - ----------------------------------------------------------------------------------------------------------------------------------- ECI U.S. Copyright No. TX 4-885-940 The National Dean's List 1997-1998 21st Edition Volume II
OBLIGOR COPYRIGHTS: DESCRIPTION - ----------------------------------------------------------------------------------------------------------------------------------- ECI U.S. Copyright No. TX 4-586-406 The National Dean's List 1996-1997 20th Edition Volume I - ----------------------------------------------------------------------------------------------------------------------------------- ECI U.S. Copyright No. TX 4-586-407 The National Dean's List 1996-1997 20th Edition Volume II - ----------------------------------------------------------------------------------------------------------------------------------- ECI U.S. Copyright No. TX 4-423-941 The National Dean's List 1995-1996 19th Edition Volume I - ----------------------------------------------------------------------------------------------------------------------------------- ECI U.S. Copyright No. TX 4-423-940 The National Dean's List 1995-1996 19th Edition Volume II - ----------------------------------------------------------------------------------------------------------------------------------- ECI U.S. Copyright No. TX 4-141-994 The National Dean's List 1994-1995 18th Edition Volume I - ----------------------------------------------------------------------------------------------------------------------------------- ECI U.S. Copyright No. TX 4-134-540 The National Dean's List 1994-1995 18th Edition Volume II - ----------------------------------------------------------------------------------------------------------------------------------- ECI U.S. Copyright No. TX 3-646-461 The National Dean's List 1993-94 17th Edition Volume I - ----------------------------------------------------------------------------------------------------------------------------------- ECI U.S. Copyright No. TX 3-646-462 The National Dean's List 1993-94 17th Edition Volume II - ----------------------------------------------------------------------------------------------------------------------------------- ECI U.S. Copyright No. TX 3-673-315 The National Dean's List 1992-93 16th Edition Volume I - ----------------------------------------------------------------------------------------------------------------------------------- ECI U.S. Copyright No. TX 3-673-314 The National Dean's List 1992-93 16th Edition Volume II - ----------------------------------------------------------------------------------------------------------------------------------- ECI U.S. Copyright No. TX 3-440-206 The National Dean's List 1991-92 15th Edition Volume I - ----------------------------------------------------------------------------------------------------------------------------------- ECI U.S. Copyright No. TX 3-440-207 The National Dean's List 1991-92 15th Edition Volume II - ----------------------------------------------------------------------------------------------------------------------------------- ECI U.S. Copyright No. TX 3-185-101 The National Dean's List 1990-91 14th Edition Volume I - ----------------------------------------------------------------------------------------------------------------------------------- TX 3-185-102 The National Dean's List 1990-91 14th Edition Volume TX 3-431-218 II - ----------------------------------------------------------------------------------------------------------------------------------- ECI U.S. Copyright No. TX 2 951-961 The National Dean's List 1989-90 13th Edition Volume I - ----------------------------------------------------------------------------------------------------------------------------------- ECI U.S. Copyright No. TX 2 951 960 The National Dean's List 1989-90 13th Edition Volume II
OBLIGOR COPYRIGHTS: DESCRIPTION - ----------------------------------------------------------------------------------------------------------------------------------- ECI U.S. Copyright No. TX 2 750 950 The National Dean's List 1988-89 12th Edition Volume I - ----------------------------------------------------------------------------------------------------------------------------------- ECI U.S. Copyright No. TX 2 750 949 The National Dean's List 1988-89 12th Edition Volume II - ----------------------------------------------------------------------------------------------------------------------------------- ECI U.S. Copyright No. TX 2 463-958 The National Dean's List 1987-88 11th Edition Volume 1 - ----------------------------------------------------------------------------------------------------------------------------------- ECI U.S. Copyright No. TX 2 463-959 The National Dean's List 1987-88 11th Edition Volume 2 - ----------------------------------------------------------------------------------------------------------------------------------- ECI U.S. Copyright No. TX 2 317-119 The National Dean's List 1986-87 10th Edition - ----------------------------------------------------------------------------------------------------------------------------------- ECI U.S. Copyright No. TX 2 011-683 The National Dean's List 1985-86 9th Edition - ----------------------------------------------------------------------------------------------------------------------------------- ECI U.S. Copyright No. TX 1 711-881 The National Dean's List 1984-85 8th Edition - ----------------------------------------------------------------------------------------------------------------------------------- ECI U.S. Copyright No. TX 1 596-311 The National Dean's List 1983-84 7th Edition - ----------------------------------------------------------------------------------------------------------------------------------- ECI U.S. Copyright No. TX 1-253-069 The National Dean's List 6th Edition - ----------------------------------------------------------------------------------------------------------------------------------- ECI U.S. Copyright No. TX 1-057-142 The National Dean's List 5th Edition - ----------------------------------------------------------------------------------------------------------------------------------- ECI U.S. Copyright No. TX 821-905 The National Dean's List 4th Edition - ----------------------------------------------------------------------------------------------------------------------------------- ECI U.S. Copyright No. TX 727-542 The National Dean's List 3rd Edition - ----------------------------------------------------------------------------------------------------------------------------------- ECI U.S. Copyright No. TX 727-541 The National Dean's List 2nd Edition - ----------------------------------------------------------------------------------------------------------------------------------- ECI U.S. Copyright No. TX 210-053 The National Dean's List - ----------------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------------- UNREGISTERED COPYRIGHTS: DESCRIPTION: - ----------------------------------------------------------------------------------------------------------------------------------- ECI Database(s) of the identity of and information pertaining to customers - ----------------------------------------------------------------------------------------------------------------------------------- ECI Application submitted to Who's Who Among American High School Students Copyright Office 2000-2001 (35th Edition) Volume I
UNREGISTERED COPYRIGHTS: DESCRIPTION: - ----------------------------------------------------------------------------------------------------------------------------------- ECI APPLICATION SUBMITTED TO Who's Who Among American High School Students COPYRIGHT OFFICE 2000-2001 (35th Edition) Volume II - ----------------------------------------------------------------------------------------------------------------------------------- ECI APPLICATION SUBMITTED TO Who's Who Among American High School Students COPYRIGHT OFFICE 2000-2001 (35th Edition) Volume III - ----------------------------------------------------------------------------------------------------------------------------------- ECI APPLICATION SUBMITTED TO Who's Who Among American High School Students COPYRIGHT OFFICE 2000-2001 (35th Edition) Volume IV - ----------------------------------------------------------------------------------------------------------------------------------- ECI APPLICATION SUBMITTED TO Who's Who Among American High School Students COPYRIGHT OFFICE 2000-2001 (35th Edition) Volume V - ----------------------------------------------------------------------------------------------------------------------------------- ECI APPLICATION SUBMITTED TO Who's Who Among American High School Students COPYRIGHT OFFICE 2000-2001 (35th Edition) Volume VI - ----------------------------------------------------------------------------------------------------------------------------------- ECI APPLICATION SUBMITTED TO Who's Who Among American High School Students COPYRIGHT OFFICE 2000-2001 (35th Edition) Volume VII - ----------------------------------------------------------------------------------------------------------------------------------- ECI APPLICATION SUBMITTED TO Who's Who Among American High School Students COPYRIGHT OFFICE 2000-2001 (35th Edition) Volume VIII - ----------------------------------------------------------------------------------------------------------------------------------- ECI APPLICATION SUBMITTED TO Who's Who Among American High School Students COPYRIGHT OFFICE 2000-2001 (35th Edition) Volume IX - ----------------------------------------------------------------------------------------------------------------------------------- ECI APPLICATION SUBMITTED TO Who's Who Among American High School Students COPYRIGHT OFFICE 2000-2001 (35th Edition) Volume X - ----------------------------------------------------------------------------------------------------------------------------------- ECI APPLICATION SUBMITTED TO Who's Who Among American High School Students COPYRIGHT OFFICE 2000-2001 (35th Edition) Volume XI - ----------------------------------------------------------------------------------------------------------------------------------- ECI APPLICATION SUBMITTED TO Who's Who Among American High COPYRIGHT OFFICE School Students 2000-2001 (35th Edition) Volume XII
UNREGISTERED COPYRIGHTS: DESCRIPTION: - ----------------------------------------------------------------------------------------------------------------------------------- ECI Application submitted to Who's Who Among American High Copyright Office School Students 2000-2001 (35th Edition) Volume XIII - ----------------------------------------------------------------------------------------------------------------------------------- ECI Application submitted to Who's Who Among American High Copyright Office School Students 2000-2001 (35th Edition) Volume XIV - ----------------------------------------------------------------------------------------------------------------------------------- ECI Application submitted to Who's Who Among American High Copyright Office School Students 2000-2001 (35th Edition) Volume XV - ----------------------------------------------------------------------------------------------------------------------------------- ECI Application submitted to Who's Who Among American High Copyright Office School Students 2000-2001 (35th Edition) Volume XVI - ----------------------------------------------------------------------------------------------------------------------------------- ECI Application submitted to Who's Who Among American High Copyright Office School Students 2000-2001 (34th Edition) Volume XVII - ----------------------------------------------------------------------------------------------------------------------------------- ECI Application submitted to Who's Who Among American High School Students Copyright Office 2000-2001 (35th Edition) Volume XVIII - ----------------------------------------------------------------------------------------------------------------------------------- OBLIGOR INTERNET DOMAIN NAME: - ----------------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------------- Taylor taylorpub.com - ----------------------------------------------------------------------------------------------------------------------------------- Taylor taylorreunions.net - ----------------------------------------------------------------------------------------------------------------------------------- Taylor taylorreunions.com - ----------------------------------------------------------------------------------------------------------------------------------- Taylor taylorreunion.com - ----------------------------------------------------------------------------------------------------------------------------------- Taylor taylorreunion.net - ----------------------------------------------------------------------------------------------------------------------------------- Taylor taylorpublishing.com - ----------------------------------------------------------------------------------------------------------------------------------- Taylor taylorpublishing.net - ----------------------------------------------------------------------------------------------------------------------------------- Taylor taylorpublishing.org - ----------------------------------------------------------------------------------------------------------------------------------- Taylor taylorreunionservices.com - ----------------------------------------------------------------------------------------------------------------------------------- Taylor taylorreunionservices.net - ----------------------------------------------------------------------------------------------------------------------------------- Taylor tayloryearbooks.com - ----------------------------------------------------------------------------------------------------------------------------------- Taylor tayloryearbooks.net - ----------------------------------------------------------------------------------------------------------------------------------- Taylor tayloryearbooks.org - ----------------------------------------------------------------------------------------------------------------------------------- Taylor yearbookpaymentcenter.com
OBLIGOR INTERNET DOMAIN NAME: - ----------------------------------------------------------------------------------------------------------------------------------- Taylor yearbookpaymentcenter.net - ----------------------------------------------------------------------------------------------------------------------------------- Taylor yearbookpaymentcenter.org - ----------------------------------------------------------------------------------------------------------------------------------- Taylor yearzine.com - ----------------------------------------------------------------------------------------------------------------------------------- Taylor ordermyyearbook.com - ----------------------------------------------------------------------------------------------------------------------------------- Taylor ordermyyearbook.net - ----------------------------------------------------------------------------------------------------------------------------------- Taylor ordermyyearbook.org - ----------------------------------------------------------------------------------------------------------------------------------- Taylor reunionmates.com - ----------------------------------------------------------------------------------------------------------------------------------- Taylor commemorativebrands.com - ----------------------------------------------------------------------------------------------------------------------------------- Taylor commemorativebrands.net - ----------------------------------------------------------------------------------------------------------------------------------- Taylor commemorativebrands.org - ----------------------------------------------------------------------------------------------------------------------------------- Taylor commemorativeedition.com - ----------------------------------------------------------------------------------------------------------------------------------- Taylor commemorativeedition.net - ----------------------------------------------------------------------------------------------------------------------------------- Taylor commemorativeedition.org - ----------------------------------------------------------------------------------------------------------------------------------- Taylor commemorativeeditions.com - ----------------------------------------------------------------------------------------------------------------------------------- Taylor commemorativeeditions.net - ----------------------------------------------------------------------------------------------------------------------------------- Taylor commemorativeeditions.org - ----------------------------------------------------------------------------------------------------------------------------------- Taylor buymyyearbook.com - ----------------------------------------------------------------------------------------------------------------------------------- Taylor buymyyearbook.net - ----------------------------------------------------------------------------------------------------------------------------------- Taylor buymyyearbook.org - ----------------------------------------------------------------------------------------------------------------------------------- Taylor Available Not Ours taylorfinebooks.com - ----------------------------------------------------------------------------------------------------------------------------------- CBI cbi-graphics.com - ----------------------------------------------------------------------------------------------------------------------------------- CBI graduationrings.com - ----------------------------------------------------------------------------------------------------------------------------------- CBI artcarved.com - ----------------------------------------------------------------------------------------------------------------------------------- CBI balfoursports.com - ----------------------------------------------------------------------------------------------------------------------------------- CBI balfour-sports.com - ----------------------------------------------------------------------------------------------------------------------------------- CBI balfourgrad.com - ----------------------------------------------------------------------------------------------------------------------------------- CBI cbi-insignia.com - ----------------------------------------------------------------------------------------------------------------------------------- CBI balfour.com - ----------------------------------------------------------------------------------------------------------------------------------- CBI cbi-vpn.com - ----------------------------------------------------------------------------------------------------------------------------------- CBI rjohns.com - ----------------------------------------------------------------------------------------------------------------------------------- CBI cbi-inet.com - ----------------------------------------------------------------------------------------------------------------------------------- CBI myring.com - ----------------------------------------------------------------------------------------------------------------------------------- CBI artcarvedhigh.com - ----------------------------------------------------------------------------------------------------------------------------------- CBI Owned Not Ours irings.com - ----------------------------------------------------------------------------------------------------------------------------------- CBI artcarvedgrad.com - ----------------------------------------------------------------------------------------------------------------------------------- CBI cbi-rings.com - ----------------------------------------------------------------------------------------------------------------------------------- CBI celebrationsoflife.com - ----------------------------------------------------------------------------------------------------------------------------------- CBI iclassring.com - ----------------------------------------------------------------------------------------------------------------------------------- CBI iclassrings.com - ----------------------------------------------------------------------------------------------------------------------------------- CBI highschoolclassring.com - ----------------------------------------------------------------------------------------------------------------------------------- CBI highschoolclassrings.com - ----------------------------------------------------------------------------------------------------------------------------------- CBI Owned Not Ours graduations.com - ----------------------------------------------------------------------------------------------------------------------------------- CBI Available Not Ours celebrationrings.com - ----------------------------------------------------------------------------------------------------------------------------------- CBI Available Not Ours virginiatech2000.com
OBLIGOR INTERNET DOMAIN NAME: - ----------------------------------------------------------------------------------------------------------------------------------- CBI artcarved.cc - ---------------------------------------------------------------------------------------------------------------------------------- CBI myclassrings.cc - ---------------------------------------------------------------------------------------------------------------------------------- CBI highschoolclassring.cc - ---------------------------------------------------------------------------------------------------------------------------------- CBI classring.cc - ---------------------------------------------------------------------------------------------------------------------------------- CBI Available Not Ours aboutofficialring.com - ---------------------------------------------------------------------------------------------------------------------------------- CBI officialringonline.com - ---------------------------------------------------------------------------------------------------------------------------------- CBI officialring.net - ---------------------------------------------------------------------------------------------------------------------------------- CBI Available Not Ours cbiwebjam.net - ---------------------------------------------------------------------------------------------------------------------------------- CBI officialringcentral.com - ---------------------------------------------------------------------------------------------------------------------------------- CBI officialring.org - ---------------------------------------------------------------------------------------------------------------------------------- CBI e-officialring.com - ---------------------------------------------------------------------------------------------------------------------------------- CBI myofficialring.com - ---------------------------------------------------------------------------------------------------------------------------------- CBI officialring.com - ---------------------------------------------------------------------------------------------------------------------------------- CBI Available Not Ours cbiwebjam.com - ---------------------------------------------------------------------------------------------------------------------------------- ECI deans-list.com(7) - ---------------------------------------------------------------------------------------------------------------------------------- ECI eci-online.com - ---------------------------------------------------------------------------------------------------------------------------------- ECI eci-scholar.com - ---------------------------------------------------------------------------------------------------------------------------------- ECI ecisucks.com - ---------------------------------------------------------------------------------------------------------------------------------- ECI eci-whoswho.com - ---------------------------------------------------------------------------------------------------------------------------------- ECI eci-whoswho.cc - ---------------------------------------------------------------------------------------------------------------------------------- ECI honoring.cc - ---------------------------------------------------------------------------------------------------------------------------------- ECI honoring.com - ---------------------------------------------------------------------------------------------------------------------------------- ECI honoring.net - ---------------------------------------------------------------------------------------------------------------------------------- ECI honoring.org - ---------------------------------------------------------------------------------------------------------------------------------- ECI whos-who.com - ---------------------------------------------------------------------------------------------------------------------------------- ECI whoswho-hs.com - ---------------------------------------------------------------------------------------------------------------------------------- ECI whoswhosucks.com - ---------------------------------------------------------------------------------------------------------------------------------- ECI whoswho-teachers.com - ---------------------------------------------------------------------------------------------------------------------------------- ECI ECSF.org - ---------------------------------------------------------------------------------------------------------------------------------- CBI Add Artcarved.biz - ---------------------------------------------------------------------------------------------------------------------------------- CBI Add Artcarved.info - ---------------------------------------------------------------------------------------------------------------------------------- CBI Add Artcarvedbridal.com - ---------------------------------------------------------------------------------------------------------------------------------- CBI Add Artcarvedwedding.com - ---------------------------------------------------------------------------------------------------------------------------------- CBI Add Balfour.biz - ---------------------------------------------------------------------------------------------------------------------------------- CBI Add Balfour.info - ---------------------------------------------------------------------------------------------------------------------------------- CBI Add Keepsakediamond.com - ---------------------------------------------------------------------------------------------------------------------------------- CBI Add Artcarveddiamond.com - ---------------------------------------------------------------------------------------------------------------------------------- CBI Add Balfour-rings.com - ---------------------------------------------------------------------------------------------------------------------------------- CBI Add Taylorpublishing.biz - ---------------------------------------------------------------------------------------------------------------------------------- CBI Add Taylorpublishing.info - ---------------------------------------------------------------------------------------------------------------------------------- - ----------------------- (7) Although registered on behalf of the Company, Network Solutions' WHOIS database lists the registrant for the domain names DEANS-LIST.COM, ECI-SCHOLAR.COM, WHOS-WHO.COM AND WHOSWHO-TEACHERS.COM AS "whos who in american high schools". CBI Add Taylorpublishingcommercial.com - ----------------------------------------------------------------------------------------------------------------------------------
DISCLOSURE SCHEDULE ITEM 6.4(c) INTELLECTUAL PROPERTY INFRINGEMENT EDUCATIONAL COMMUNICATIONS, INC. 1. Incorporated here by reference are items 2 and 3 of ITEM 6.7 of the Disclosure Schedule to the Credit Agreement. 2. ECI received a letter from the American Library Association ("ALA") dated June 29, 2000 alleging that ECI was misusing the name of the ALA. On July 11, 2000, ECI sent the ALA a response to its letter. ECI subsequently received a letter dated September 6, 2000 from the ALA stating that ECI's response in its July 11, 2000 letter was unsatisfactory. On September 28, 2000, counsel for ECI sent a letter to counsel for the ALA indicating that ECI had elected to cease the activities discussed in the ALA's letters. Since the mailing of the September 28, 2000 letter, neither counsel for ECI nor ECI has had any additional communications with the ALA. Obligors represent and warrant that this matter could not reasonably be expected to have a Material Adverse Effect. DISCLOSURE SCHEDULE ITEM 6.7 LITIGATION 1. Incorporated here by reference are items 1, 3, 4 and 5 of ITEM 6.15 of the Disclosure Schedule to the Credit Agreement. 2. On March 19, 1999, William Kannanack, counsel for National Educational Publications, Inc., a Florida corporation, and defendant in certain copyright and unfair competitions actions subsequently brought by the Educational Communications Scholarship Foundation (the "Foundation"), alleged that certain of the practices of American Student List Company, Inc. and ECI not renting the use of jointly developed names to third parties was actionable under the Sherman Act. On March 29, 1999, after consultation with antitrust counsel for ECI (Arnold & Porter, which previously had issued a written opinion to ECI relating to this practice), ECI counsel spoke with Mr. Kannanack by telephone regarding his allegations and informed Mr. Kannanack that his allegations were without merit. Since that telephone call, no additional communications have been had with Mr. Kannanack regarding his allegations. The Borrower represents and warrants that this matter could not reasonably be expected to have a Material Adverse Effect. 3. In connection with litigation brought in 1999 in the District Court for the Western District of Missouri by NRCCUA and SRI against Educational Research Center of America, Inc. ("ERCA"), Jan Stumacher, principal of ERCA, Rhina International, Inc. and Student Marketing Group, Inc., threatened litigation involving ECI's, American Student List Company, Inc.'s, NRCCUA's and SRI's practice of not renting the use of jointly developed names to third parties. The District Court denied NRCCUA's and SRI's motion for a preliminary injunction against ERCA and NRCCUA and SRI subsequently moved to dismiss the action with prejudice. ERCA filed a motion to recover attorneys' fees and costs. The District Court denied ERCA's motion. The period for filing appeals in this action has passed. There has been no further communications between the parties on this matter. The Borrower represents and warrants that this matter could not reasonably be expected to have a Material Adverse Effect. 4. Incorporated here by reference is item 2 of ITEM 6.4(c) (Intellectual Property Infringement) of the Disclosure Schedule to the Credit Agreement. DISCLOSURE SCHEDULE ITEM 6.10 ENVIRONMENTAL MATTERS 1. Phase I Environmental Site and Regulatory Assessment for facility located on Railroad Drive, El Paso, Texas, prepared by Malcolm Pirnie, Inc., dated November 3, 1999. 2. Phase I Environmental Site and Regulatory Assessment for facility located on Dyer Street, El Paso, Texas, prepared by Malcolm Pirnie, Inc., dated November 3, 1999. 3. Phase I Environmental Site and Regulatory Assessment for facility located in San Angelo, Texas, prepared by Malcolm Pirnie, Inc., dated November 3, 1999. 4. Phase I Environmental Site and Regulatory Assessment for facility located in Dallas, Texas, prepared by Malcolm Pirnie, Inc., dated November 3, 1999. 5. Phase I Environmental Site and Regulatory Assessment for facility located in Malvern, Pennsylvania, prepared by Malcolm Pirnie, Inc., dated November 3, 1999. 6. Phase I Environmental Site Assessment and Compliance Review for facility located on Osborne Drive, El Paso, Texas, prepared by GaiaTech Incorporated, dated July 14, 2000. 7. Phase I Environmental Site Assessment and Compliance Review for facility located on Intermodal Drive, Louisville, Kentucky, prepared by GaiaTech Incorporated, dated July 13, 2000. 8. Phase I Environmental Site Assessment and Compliance Review for facility located on Circle S Road, Austin, Texas, prepared by GaiaTech Incorporated, dated July 13, 2000. DISCLOSURE SCHEDULE ITEM 6.15 INVESTIGATIONS; AUDITS 1. Taylor General Partner and Taylor are currently under audit by the Internal Revenue Service for the tax periods January 1, 1991 through December 31, 1998. Various adjustments (as detailed below) have been proposed by the Internal Revenue Service relating to Taylor General Partner and Taylor. Taylor General Partner and Taylor agree with these adjustments. Pursuant to the Purchase Agreement dated as of December 17, 1999 by and among Taylor Holding Co., Taylor General Partner and Insilco Corporation (the "Purchase Agreement"), Insilco Corporation has agreed to indemnify Existing Borrowers for any liability resulting from this audit). The expected completion of the audit is 60-90 days from March 2002. The amount of the proposed adjustments (not the resulting tax) is as follows: 1991 $ 2,026,920 1992 $ (106,585) 1993 $ 169,313 1994 $ 229,482 1996 $ 161,456 1997 $ 0.00 1998 $ 0.00
2. Waivers of statutes of limitations: Taylor General Partner and Taylor have granted statute waivers to the Internal Revenue Service for the years 1991, 1992, 1993, 1994, 1995 and 1996 until September 30, 2001. The year 1997 has been extended until September 30, 2002 and the year 1998 has not been extended. 3. The State of Michigan sales tax audit of Taylor General Partner for the period January, 1, 1996 through October 31, 1999 resulted in a zero assessment. The State of Michigan Single Business Tax audit for the period of December 31, 1999 resulted in an assessment of $38,918, which Insilco Corporation has appealed to the State of Michigan. Pursuant to the Purchase Agreement, Insilco Corporation has agreed to indemnify Existing Borrowers for any assessment resulting from this audit. 4. Commemorative Brands, Inc. has been notified by the State of Kentucky that it intends to audit the tax periods January 1998 through July 2002 starting in September of 2002. 5. In a letter dated January 29, 2002, Educational Communications, Inc.("ECI") was notified by the Federal Trade Commission ("FTC") that, with respect to ECIs' role in a survey conducted by the National Research Center for College and University Admissions ("NRCCUA"), the FTC is requesting copies of agreements, contracts, correspondence or other documents relating to the relationship between (i) ECI and Student Research, Inc. ("SRI"), who owns the NRCCUA trade name and trademark, (ii) ECI and/or SRI and NRCCUA, and (iii) ECI and/or SRI and American Student Lists, who, together with ECI, funds the NRCCUA survey. ECI is in the process of providing the requested data as of the Closing Date. DISCLOSURE SCHEDULE ITEM 6.16 EMPLOYMENT MATTERS UNION CONTRACTS 1. Management Union Agreement between Taylor and Graphic Communications International Union Local 367M, effective February 28, 2000 through March 5, 2004. 2. Management Union Agreement between Taylor General Partner and Graphic Communications International Union Local 367M, effective July 3, 2000 through July 7, 2003. 3. Agreement between CBI and Local Union No. 1751, Southern Council of Industrial Workers, United Brotherhood of Carpenters and Joiners of America, AFL-CIO, effective June 1, 2000 through May 31, 2003. EMPLOYEE GRIEVANCES 4. None. EMPLOYMENT CONTRACTS 5. Employment Agreement between CBI and David Fiore, dated July 13, 1999 and effective August 2, 1999, and as amended and effective on February 1, 2002. 6. Employment Agreement between CBI and Sherice P. Bench dated as of December 16, 1996. 7. Employment Agreement between CBI and Parke H. Davis, dated as of December 16, 1996. 8. Employment Agreement between CBI and Norman C. Smith, dated as of January 14, 2000. 9. Employment Agreement between CBI and Donald J. Percenti, dated as of December 16, 1996. 10. Employment Agreement between CBI and Charlyn Cook, dated as of December 16, 1996. 11. Employment Agreement between ECI and Paul C. Krouse, dated as of March 30, 2001, and as amended and restated on September 1, 2001. 12. Employment Agreement between ECI and Ann W. Krouse, dated as of March 30, 2001, as amended and restated on September 1, 2001. DISCLOSURE SCHEDULE ITEM 7.1.3 MAINTENANCE OF PROPERTIES; INSURANCE A. MAINTENANCE OF PROPERTIES Samples, promotional materials and other similar items of property, may not be at the locations referred to below. Such property, which constitutes approximately 1-2% of the total amount of property owned by the Obligors, are at various locations of vendors (including sales representatives and college bookstores). AMERICAN ACHIEVEMENT CORPORATION OFFICE LOCATION: 7211 Circle S Road, Austin, TX 78745 COMMEMORATIVE BRANDS, INC. AND CBI NORTH AMERICA, INC. OWNED PROPERTY: 1. 7211 Circle S Road, Austin, TX 78745 LEASED PROPERTY (applies to Commemorative Brands, Inc. only; CBI North America, Inc. does not have any leased properties): 1. 7101 Intermodal Drive, Louisville, KY 2. 6404 Burleson Road, Suite 120, Austin, TX 3. 4605 Osborn, El Paso, TX 4. Fulton #820, Parque Industrial Antonio J. Bermudez, Juarez, Chihuahua, Mexico MANUFACTURER AND REFINERS: 1. Stern Leach, Inc., 49 Pearl Street, Attleboro, MA; Refiner 2. Pease and Curren, Inc., 75 Pennsylvania Avenue, Warwick, RI; Refiner 3. Hereaus PPM, Inc., 65 Euclid Avenue, Newark, NJ; Refiner 4. Metalor USA Refining Corporation, 225 John Diestch Boulevard, North Attleboro, MA; Refiner 5. OK Casting, 3520 Charleston Road, Norman, OK; Contract Manufacturer 6. AuraFin Corporation, 770 International Parkway, Sunrise, FL; Contract Manufacturer 7. Dunhams Jewelry Manufacturing, 7365 Remeon, Suite 8204, El Paso, TX; Contract Manufacturer 8. Richards and West, Inc., 1255 University Avenue, Rochester, NY; Contract Manufacturer 9. Herbert Stephan, Hauptstrasse 282 Idar-Oberstein Germany Contract Manufacturer (manufactures synthetic stones and holds approximately $70,000 worth of stones belonging to CBI) 10. Metech International Inc., 120 Mapleville Main Street, P.O. Box 500 Mapleville, RI; Refiner 11. Technic Inc., 1 Spectacle Street, Cranston, RI; Fabricator 12. Angelo, Inc., 8255 Firestone Boulevard, Suite 500, Downey, CA; Contract Manufacturer 13. Sippi Metals, 1720 North Elston Ave, Chicago, IL; Refiner 14. Empresa Plat-Mex, S.A., Rosas Moreno #68 Col. San Rafael, C.P. 06470 Mexico, D.F. Mexico; Contract Manufacturer 15. AMC Company, 2412 Greenlawn Parkway, Austin, TX Refiner 16. Carriage Casting, 5935 Cromo Dr., El Paso, TX Contract Manufacturer 17. Henry Marnolejo Jewelry Shop, 4667 Montana Ave., El Paso, TX Contract Manufacturer 18. CBC Jewelry Shop, 5024 Donipahn Drive, Suite 4, El Paso, TX Contract Manufacturer 19. American Mullion, Inc., 125 Selandia Lane, Carson, CA Fabricator TAYLOR PUBLISHING COMPANY OWNED PROPERTY: 1. 1550 W. Mockingbird Lane, Dallas TX. LEASED PROPERTY: 1. 67 Great Valley Parkway, Malvern PA. 2. 2027 Industrial Avenue, San Angelo TX. 3. 1821 Knickerbocker Road, San Angelo TX. 4. 3134 A Executive Drive, San Angelo TX. 5. 10365 Railroad Drive, El Paso TX. WAREHOUSES: 6. Grand Logistics Services (Owner, Willie Chavez), 10574 King William Drive, Dallas, TX. TAYLOR PRODUCTION SERVICES COMPANY, L.P. OFFICE LOCATION: 1550 W. Mockingbird Lane, Dallas TX. EDUCATIONAL COMMUNICATIONS, INC. OFFICE LOCATION: 721 N. McKinley Road, Lake Forest, Illinois 60045 LEASED PROPERTY: 1. 721 N. McKinley Road, Lake Forest, Illinois 60045. Location of company headquarters and books and records. 2. Acorn Self-Storage, Storage Room #5243, 1255 Town Line Road, Mundelein, Illinois 60060. Houses old computer tapes. PRINTERS, MAILING AND FULFILLMENT HOUSES: 1. Quebecor World, 1133 County Seat, Taunton, MA 02780; Printer. 2. RR Donnelly, 1145 Conwell Ave., Willard OH 44890; Printer. 3. RUF Enterprises, 7544 Oakton, Niles, IL 60714; Plaque, Jewelry, Patch order fulfillment. 4. International Decal, 3332 Commercial Ave., Northbrook, IL 60062; Mugs and Ornaments order fulfillment. 5. Total Promotions, 1340 Old Skokie Road, Highland Park, IL 60035; Portfolios, Pens, Tote Bags fulfillment. 6. Mailways Enterprises, 6105 Factory Road, Crystal Lake, IL 60014; Printed Materials. 7. Midwest Compuservice, 9800 S. Industrial Drive, Bridgeview, IL 60455; Printed Materials. 8. XL Marketing, 845 Bonnie Lane, Elk Grove Village, IL 60007; Printed Materials. None of the above locations for ECI will at any time have more than $100,000 worth of inventory or other assets individually, or more than $500,000 worth of inventory or other assets in the aggregate. TP HOLDING CORP. Office Location: 1550 W. Mockingbird Lane, Dallas, TX TAYLOR SENIOR HOLDING CORP. Office Location: 1550 W. Mockingbird Lane, Dallas, TX B. INSURANCE SEE ATTACHED COPY OF ENVIRONMENTAL INSURANCE CERTIFICATE. DISCLOSURE SCHEDULE ITEM 7.2.1 CONDUCT OF BUSINESS PRINTING & PUBLISHING. Taylor General Partner and Taylor manufacture and sell student-created yearbooks in elementary schools, middle schools, high schools and colleges. Taylor General Partner and Taylor manufacture and sell customer-created fine books to governmental entities. Taylor General Partner and Taylor also print commercial brochures, commercial books, and promotional books and materials. ECI publishes three educational directories, WHO'S WHO AMONG AMERICAN HIGH SCHOOL STUDENTS, THE NATIONAL DEAN'S LIST, and WHO'S WHO AMONG AMERICA'S TEACHERS, which are sold to the individuals honored in each publication, as well as achievement recognition directories. SCHOOL PRODUCTS AND SERVICES. Taylor General Partner and Taylor distribute and sell school related non-print products and provide management services to elementary schools, middle schools, high schools and colleges. COMPUTER SOFTWARE AND HARDWARE. Taylor General Partner and Taylor develop and sell computer software and distribute computer hardware and photographic equipment in conjunction with their printing and publishing services. CLASS RINGS. CBI and CBI North America, Inc. ("CBI-N.A.") produce, distribute and sell class rings to the high school and college markets. FINE PAPER PRODUCTS. CBI produces and markets a variety of fine paper products, including customized graduation announcements, name cards, thank-you stationery, business cards, diplomas, mini-diplomas, certificates, appreciation covers, diploma covers and fine paper accessory items. PERSONALIZED FAMILY JEWELRY. CBI and CBI-N.A. produce, distribute and sell personalized family jewelry, including rings and pendants with children's names. CONSUMER SPORTS JEWELRY. CBI and CBI-N.A. produce, distribute and sell licensed consumer sports jewelry, made for fans to show support for their favorite team. PROFESSIONAL SPORTS CHAMPIONSHIP JEWELRY. CBI and CBI-N.A. produce, distribute and sell professional sports championship jewelry to various sports teams to commemorate accomplishments and achievements such as winning championship titles. RECOGNITION PRODUCTS. CBI and CBI-N.A. produce, distribute and sell corporate achievement jewelry designed to commemorate accomplishments and achievements in corporate or business endeavors and to express pride in one's affiliations with a particular organization. ECI produces and distributes scholastic achievement products designed to recognize and honor the achievements of top high school students, college students and teachers. DIRECT MARKETING. Taylor General Partner, CBI, CBI-N.A. and ECI direct market products and services. In conjunction with these activities, they engage in affinity marketing programs and referral services. CBI has license agreements with Frederick Goldman Corp. for the limited use of its Keepsake and ArtCarved tradenames and a distribution agreement with Wal-Mart for sale of Keepsake branded products to be sold through Wal-Mart stores. DISCLOSURE SCHEDULE ITEM 7.2.2(h) INDEBTEDNESS TO BE PAID ITEM A. INDEBTEDNESS TO BE PAID ON THE CLOSING DATE 1. Indebtedness outstanding under the Existing Credit Agreement is $138,734,743.22. 2. $28,382,918.10 of subordinated debt outstanding is owed to CHP II under (A) two promissory notes issued by Taylor Holding Co. the aggregate principal amount of approximately $18,500,000 and (B) a promissory note issued by the Borrower in the principal amount of approximately $9,200,000. 3. Settlement amount in the aggregate amount of $1,463,000 will be paid to The Bank of Nova Scotia on the Closing Date with respect to certain interest rate swap agreements. 4. Settlement amount in the aggregate amount of $243,766 will be paid to Key Bank on the Closing Date with respect to certain interest rate swap agreements. ITEM B. ONGOING INDEBTEDNESS 1. The outstanding aggregate amount of $1,247,714.53 as of January 25, 2002 are owed with respect to certain interest rate swap agreements. 2. Taylor General Partner has leased from Point Financial certain telecommunications equipment with lease payments in any one year not exceeding $29,000. Renewed in February 1, 2002 for 1 year for $16,740.00. 3. Konica Business Machines has leased certain Konica Copier Systems to Taylor General Partner and Taylor with lease payments in any one year not exceeding $160,000. 4. Leasenet, Inc. has leased certain equipment, software, and other personal property and modifications and additions thereto and replacements and substitutions therefore to Taylor General Partner with lease payments in any one year not exceeding $110,000. 5. Safeco Credit Co. Inc. DBA SAFELINE Leasing has leased four Yale Forklifts to Taylor General Partner and Taylor with lease payments in any one year not exceeding $24,000. 6. Neopost Leasing has leased certain mailing, shipping, computing and other equipment to Taylor General Partner with lease payments in any one year not exceeding $10,000. 7. Lucent Technologies has leased certain telephone equipment to Taylor General Partner and Taylor with lease payments in any one year not exceeding $8,000. 8. Minolta Business Solutions has leased certain Minolta Copier Systems to Taylor General Partner and Taylor with lease payments in any one year not exceeding $7,000. 9. CBI has leased from AT&T Wireless Services equipment with monthly service charges for 36 months beginning November 1, 1999 with monthly service charges not exceeding $12,500. 10. CBI has leased from The CIT Group a Sunrise Thremography heat unit for a monthly service charge not to exceed $580.75 for 36 months beginning November 22, 1999. 11. CBI has leased from The CIT Group a used Caterpillar Autofeed Feeder for a monthly service charge of $632.10 for 36 months beginning February 11, 2000. 12. CBI has leased from The CIT Group a Baum Folder and wet scores for a monthly service charge not to exceed $775 for 59 months beginning February 11, 2000. 13. CBI has leased from IKON Office Solutions certain Xerox copiers for a monthly charge of $7,125 for 48 months beginning October 8, 1999. 14. CBI has leased from The CIT Group a rebuilt Caterpillar Autofeed feeder for a monthly service charge of $902.27 for 60 months beginning August 11, 2000. 15. CBI has leased from Pitney Bowes Credit Corporation certain postage equipment for a monthly service charge of $325 for three months beginning July 6, 2000 and $386 for 51 months thereafter. 16. CBI has leased from Pitney Bowes Credit Corporation certain postage equipment for a monthly service charge of $150 for 72 months beginning June 8, 2000. 17. CBI has contracted with J&J Mechanical for air conditioner maintenance with a quarterly charge of $990 for 12 months beginning April 30, 2000. Expires April 30, 2001. New contract signed with a quarterly charge of $1,029.60 for 12 months beginning April 27, 2001. Expires April 27, 2002. 18. CBI has leased from Fidelity Leasing a Xerox copier for a monthly charge of $75.11 for 60 months beginning October 7, 1999. 19. CBI has leased from IKON Office Solutions an OCE 3165 printer for a monthly charge of $3,752 for 48 months beginning August 26, 1999. 20. CBI has contracted with IKON Office Solutions for a maintenance agreement on OCE 3165 for $0.09 per copy beginning August 26, 1999. 21. CBI has leased from NRD, Inc. a Nuclecel In Line Ionizer for an annual charge of $177 as of December 16, 1999. 22. CBI has contracted with IOS Capital for two pieces of equipment (an Encad 700 and a Fiery Wide format controller) for 48 months beginning July 26, 2000 with monthly charges of $815. 23. CBI has leased from NTFC Capital Corporation telephone services for 60 months beginning November, 24, 1999 with monthly charges of $4,469.63. 24. CBI has leased from CCA Financial a 9406-830 AS/400 computer. A term of 36 months @ $30,846.73 per month commencing May, 2001. 25. CBI has leased from IKON Office Solutions two (2) OCE 8465 printers. A term of 36 months @ $9,542.22 per month commencing May 31, 2000. 26. CBI has contracted with IKON Office Solutions for a maintenance agreement on various printers throughout the company at $0.25 per image. The term of this agreement is 36 months, commencing on May 31, 2000. The cost for the first 12 months was $33,600.00. DISCLOSURE SCHEDULE ITEM 7.2.3(j) ONGOING LIENS 1. The software development agreement dated as of April 2, 1996 between Brian Stewart and Taylor General Partner provides: "If this agreement is terminated by [Taylor General Partner] for any reason other than for cause, ownership of the software shall be assigned by [Taylor General Partner] to the Developer, eighteen (18) months after termination of this agreement." In Taylor General Partner's opinion, Taylor General Partner terminated this agreement for cause. Mr. Stewart did not complete the development of the Software in a form and having capabilities acceptable to Taylor General Partner by April 30, 1996. The Obligors currently have possession of the software developed by Mr. Stewart but have no present plans to use it in their business, and in the Obligors' opinion, it is not material to their business. 2. Taylor does not have valid legal title to consignment inventory until it uses the same. Most of Taylor's consignment inventory is made up of paper, cover paper, cover boards, cover materials and film. Taylor also keeps plates, ink, foil, tape, various chemicals, art supplies, bindery materials and other printing press materials as consignment inventory. 3. EI DuPont de Nemours & Co. has filed a financing statement which covers, one WaterProof Proofing System and all present and future attachments, accessories, replacements, substitutions, modifications, software, equipment and additions. UCC-1 Financing Statement filed 11/20/95, Texas file number 222140. 4. ABV Graphics, Inc. has filed a financing statement covering all of its inventory consigned to Taylor wherever located on Taylor's premises. UCC-1 Financing Statement filed 2/12/96, Texas file number 027983. 5. Point Financial has filed one financing statement giving public notice of the lease of one DEC 2100 Alpha Configuration and one financing statement giving public notice of the lease of certain specified items. UCC-1 Financing Statement filed 3/4/97, Texas file number 042555. UCC-1 Financing Statement filed 1/20/99, Texas file number 99-013243. This lease expired and Taylor purchased the equipment. 6. Konica Business Machines has filed three financing statements giving public notice of the lease of certain specified Konica Copier Systems. UCC-1 Financing Statement filed 4/3/97, Texas file number 066155. UCC-1 Financing Statement filed 1/13/98, Texas file number 008641. UCC-1 Financing Statement filed 8/13/98, Texas file number 98-164723. 7. Fuji Photo Film U.S.A., Inc. has filed one financing statement covering a Colorart CA600P S/N 541224 and a CA680T S/N 5482889 and a second financing statement covering a Teaneck TFDS-6 S/N 970718. UCC-1 Financing Statement filed 7/03/97, Texas file number 139669. UCC-1 Financing Statement filed 8/21/97, Texas file number 175381. 8. Norwest / Mark of Distinction, has filed a financing statement covering one Four station folder / inserter sn 10503, one 6 bin collator sn 50100741 and 1072205-1 lls. UCC-1 Financing Statement filed 8/4/97, Texas file number 162037. 9. Leasenet, Inc. has filed a financing statement giving public notice of the lease of certain equipment, software, and other personal property and modifications and additions thereto and replacements and substitutions therefor. UCC-1 Financing Statement filed 10/27/98, Texas file number 98-214825. This lease expired and the equipment was purchased in December, 2001. 10. Safeco Credit Co. Inc. DBA SAFELINE Leasing has filed four financing statements one gives public notice of the lease of a 1998 Yale Forklift, the other three each give public notice of the lease of a separate 1999 Yale Forklift. UCC-1 Financing Statements filed 3/10/99, Texas file numbers 99-048120, 99-048147 and 99-048210. UCC-1 Financing Statement filed 4/30/99, Texas file number 99-087072. 11. Transilwrap Company, Inc. has filed a financing statement covering rolls of plastic film products labeled "Transkote" 22 inch. UCC-1 Financing Statement filed 4/26/99, Texas file number 99-084207. 12. NMHG Financial Services, Inc. has filed a financing statement covering one new Yale Forklift GP040; and all accessions, additions, replacements and substitutions thereto and therefor and all proceeds, including insurance proceeds, thereof. UCC-1 Financing Statement filed 6/29/99, Texas file number 99-132413. 13. Neopost Leasing has filed a financing statement against certain mailing, shipping, computing and other equipment which they lease to Taylor Publishing. UCC-1 Financing Statement filed 4/17/95, Texas file number 075515. 14. The title search for 1550 West Mockingbird Lane, Dallas, revealed several easements over the property including an oil pipeline right-of-way granted to Sinclair Refining Company in 1946 which was assigned to ARCO Pipe Line Company in 1992. See attached Title Search. 15. Williams Communications Systems, Inc. has filed financing statements against certain telephone equipment and systems which they lease to CBI in Kentucky and Texas. UCC-1 Financing Statement filed 12/12/96, Kentucky file number 97-10285; UCC-1 Financing Statement filed 10/31/97, Texas file number 224860. We lease our telephone equipment from NTFC Capital Corporation for the Kentucky facility. Maintenance with Williams Communications Systems is included in the lease. We own the equipment at the Austin facility and the maintenance is provided by Southwestern Bell. 16. Fidelity Leasing Inc. has filed financing statements against certain specified office equipment which they lease to CBI, located in Kentucky and Texas. UCC-1 Financing Statement filed 1/21/98, Kentucky file number 98-00550; UCC-1 Financing Statement filed 10/22/99, Texas file number 99-214342. 17. Computer Sales International has filed a financing statement against certain computer equipment which they lease to CBI. UCC-1 Financing Statement filed 2/18/97, Massachusetts file number 449181. 18. IBM Credit Corporation has filed a financing statement against certain computer equipment which they lease to CBI. UCC-1 Financing Statement filed 10/22/97, Texas file number 218159. This lease has expired. 19. Copelco Capital has filed a financing statement against certain computer equipment which they lease to CBI. UCC-1 Financing Statement filed 11/3/97, Texas file number 226840. 20. Pitney Bowes Credit Corporation has filed a financing statement against certain postage equipment which they lease to CBI. UCC-1 Financing Statement filed 9/28/98, Texas file number 98-194106. 21. IKON Office Solutions has filed financing statements against certain office equipment which they lease to CBI. UCC-1 Financing Statements filed:
DATE OF FILING TEXAS FILE NUMBER 1/6/98 003834 5/20/98 98-103509 9/16/98 98-187263 2/22/99 99-035745 11/1/99 99-219754
22. Sovereign Bank has been assigned rights under financing statements filed in Connecticut and Massachusetts by Rhode Island Hospital Trust National Bank ("Consignor") against CBI ("Consignee") with respect to all gold which is at any time consigned by the Consignor to or for the account of Consignee, and all proceeds and products thereof. These financing statements will be terminated within 30 days of the Closing Date.
STATE OF FILING ASSIGNMENT FILE DATE OF DATE OF ORIG ORIG UCC-1 FILE NUMBER ASSIGNMENT UCC-1 FILING NUMBER FILING Connecticut 0002013693 8/3/00 12/20/96 0001739005 Massachusetts 735145 8/3/00 12/19/96 437108
23. The Bank of Nova Scotia has filed financing statements against CBI with respect to all gold and processed gold of any quality or fineness, whether now existing or hereafter acquired, located from time to time at certain plants, and all proceeds thereof (Letter Agreement dated 7.27.00). UCC-1 Financing Statements filed:
STATE OF FILING DATE OF FILING FILE NUMBER Connecticut 8/8/00 0002014413 Delaware 8/30/00 20000057057 Florida 8/4/00 200000179657
STATE OF FILING DATE OF FILING FILE NUMBER Kentucky (SOS) 8/7/00 1604279 Kentucky (Jefferson Cty) 8/9/00 0006629 Massachusetts (SOS) 8/4/00 735634 Massachusetts (Attleboro Town) 8/4/00 347-M New Jersey 8/4/00 1990478 New York (SOS) 8/4/00 152596 New York (Monroe Cty) 8/10/00 2000-005069 Oklahoma (Oklahoma Cty) 8/7/00 0042678 Rhode Island (SOS) 8/12/00 716248
24. Wells Fargo Financial Leasing, Inc. has filed a financing statement against certain copying equipment which they lease to Taylor General Partner. UCC-1 Financing Statement filed 12/28/00, Texas file number 00650636. 25. MBO Binder and Co. of America, Inc. has filed a financing statement against certain folding machines which they lease to Taylor General Partner. UCC-1 Financing Statement filed 1/3/00, Texas file number 01-00001961. 26. Xerox Corporation has filed a financing statement against certain copying equipment which they lease to Taylor General Partner. UCC-1 Financing Statement filed 2/5/01, Texas file number 01-00023971. DISCLOSURE SCHEDULE ITEM 7.2.5(k) ONGOING INVESTMENTS CBI: 1. 27,000 shares of capital stock of Nakagawa - John Roberts, Incorporated, incorporated in Japan. 288,000 shares of common stock, 500 yen per share par value authorized, of which 108,000 are issued and outstanding DISCLOSURE SCHEDULE ITEM 7.2.8(c) EXISTING CONTINGENT LIABILITIES 1. Westvaco entered into a Consignment Agreement, at the request of Taylor General Partner, with regard to Westvaco products that provides for indemnification of Westvaco by Taylor General Partner and Taylor for liability arising from death or injury to any person from the unloading, storing, transferring or handling of any of Westvaco's inventory stored on Taylor's facilities. This indemnification is limited by the amounts set forth in the applicable workers' compensation statutes. Westvaco provides paper products and the likelihood of liability under this agreement is negligible. 2. Taylor Holding Co. Guaranty dated March 19, 2001 in favor of the holders defined therein, executed in connection with the Agreement dated March 19, 2001 between CBI and Angelo, Gordon and Co., L.P. and agreed to by Taylor Holding Co. 3. Guaranty by TP Holding Corp. in favor of certain holders of notes issued under the Indenture dated December 16, 1996 between Commemorative Brands, Inc. and HSBC Bank USA as Trustee, as amended. DISCLOSURE SCHEDULE ITEM 7.2.13 MANAGEMENT FEES MANAGEMENT FEE. Pursuant to the Management Agreement dated as of March 30, 2001, by and among CHI, CBI Holding Co., ECI, Taylor Holding Co. and Taylor General Partner, and subject to the following sentence, the parties to such agreement shall pay to CHI an annual management fee of $3,000,000 commencing fiscal year 2002 (the "Management Fee") and the Out-of-Pocket Expenses (as that term is defined therein). The Management Fee will be paid on a quarterly basis in arrears, payable on the last business day of each fiscal quarter commencing on the last business day of the fiscal quarter following the Closing Date. SCHEDULE II PERCENTAGES; LIBOR OFFICE; DOMESTIC OFFICE NAME AND NOTICE ADDRESS DOCUMENTATION AGENT Bankers Trust Company 31 West 52nd, 7th Floor Mail Stop NYC01-0705 New York, NY 10019 Attention: Mary Kay Coyle Fax: (646) 324 7456 SYNDICATION AGENT General Electric Capital Corporation 335 Madison Avenue, 12th Floor New York, NY 10017 Attention: George Curteson Fax: (212) 370 8066 ADMINISTRATIVE AGENT/ISSUER The Bank of Nova Scotia Suite 3000, 1100 Louisiana Street Houston, TX 77002 Attention: Richard Bartolo Fax: (713) 752 2425
PERCENTAGE - --------------------------------------------- Revolving Loan Commitment The Bank of Nova Scotia $20,000,000 General Electric Capital $12,000,000 Corporation Bankers Trust Company $ 8,000,000 ----------- total 100%
EX-10.2 25 a2071988zex-10_2.txt EXHIBIT 10.2 EXHIBIT 10.2 GOLD CONSIGNMENT AGREEMENT DATED JULY 27, 2000 BETWEEN COMMEMORATIVE BRANDS, INC. AND THE BANK OF NOVA SCOTIA TABLE OF CONTENTS
PAGE ---- 1. Availability.....................................................4 2. Commitment, Reduction of Commitment..............................4 3. Extension of Consignment Maturity Date...........................5 4. Orders...........................................................5 5. Deliveries by Scotiabank.........................................6 6. Fees.............................................................6 7. Title............................................................7 8. Commingling......................................................7 9. Safekeeping......................................................7 10. Purchase Request.................................................7 11. Purchase.........................................................8 12. Security.........................................................8 13. Invoices.........................................................9 14. Payments........................................................10 15. Reports, etc....................................................10 16. Period of Agreement.............................................10 17. Events of Default...............................................10 18. Agreement Effectiveness.........................................12 19. All Deliveries under Consignment................................13 20. Authorized Representatives......................................14 21. Representations of the Consignee................................14 22. Representations of Scotiabank...................................15 23. Covenants of the Consignee......................................15
-i- 24. Notices.........................................................16 25. Deliveries by Consignee.........................................17 26. Indemnity Provisions............................................18 27. Assignment......................................................18 28. LAWS............................................................18 29. Amendments......................................................18 30. Judgment Currency...............................................18 31. Force Majeure...................................................19 32. Determination...................................................19 33. Expenses........................................................19 34. Survival........................................................19 35. Severability....................................................20 36. Execution in Counterparts, Effectiveness, etc...................20 37. Forum Selection and Consent to Jurisdiction.....................20 38. Waiver of Jury Trial............................................21
-ii- February 13, 2002 Commemorative Brands, Inc. 7211 Circle S Rd. Austin, Texas 78745 Attention: Leah Bush Re: EXTENSION OF MATURITY DATE Dear Ladies and Gentlemen: Please refer to the Letter Agreement for Fee Consignment and Purchase of Gold (the "Consignment Agreement") dated as of July 27, 2000 between Commemorative Brands, Inc. and The Bank of Nova Scotia. Terms defined in the Consignment Agreement are, unless otherwise defined herein, used herein as defined therein. This letter will confirm our agreement with you to extend Consignment Maturity Date from July 26, 2001 to July 25, 2002. Please acknowledge your agreement with the foregoing by signing a counterpart of this letter and returning it to us. Very truly yours, THE BANK OF NOVA SCOTIA By: /s/ Joseph A. Lasiewski ---------------------------------- Joseph A. Lasiewski Director - Metals Operations By: /s/ Randy M. Weinerman ---------------------------------- Randy M. Weinerman Senior Manager ACKNOWLEDGED AND AGREED: COMMEMORATIVE BRANDS, INC. By: /s/ Leah Bush ----------------------- Its: Controller ------------- 2 July 27,2000 Commemorative Brands, Inc. 7211 Circle S Road Austin, Texas 78745 Re: Letter Agreement (this "Agreement") for Fee Consignment and Purchase of Gold Dear Ladies and Gentlemen: We are pleased to confirm that, subject to your acceptance of this facility, THE BANK OF NOVA SCOTIA ("Scotiabank") will be prepared to deliver from time to time on a Business Day occurring prior to the Commitment Termination Date, Gold (as such terms are defined below) upon consignment (the "Consignment(s)") to Commemorative Brands, Inc. (the "Consignee") subject to availability and to the terms and conditions outlined herein. DEFINITIONS. For the purposes of this Agreement: "Approved Inventory Location" shall mean any location set forth under the appropriate heading on Exhibit A, and each other location previously approved by Scotiabank from time to time. "Base Rate" shall mean the higher of (with any change in the Base Rate to be effective as of the date of change of either of the following rates): (i) the rate of interest then most recently established by Scotiabank in New York from time to time to be its base rate for Dollars loaned in the United States, as in effect from time to time, and (ii) the Federal Funds Rate, as in effect from time to time, PLUS one-half of one percent (0.50%) per annum. Scotiabank's base rate is a reference rate and does not necessarily represent the lowest or best rate charged to customers; Scotiabank may make commercial loans or other loans at rates of interest at, above or below Scotiabank's base rate. "Borrowing Base" shall mean at any date of determination the amount determined by Scotiabank based on the most recent Borrowing Base Certificate of the sum of (i) 90% of the Dollar Value of the aggregate troy ounces of Gold located at the Consignee's Plants, PLUS (ii) 70% of the Dollar Value of the aggregate troy ounces of Gold located at Approved Inventory Locations, PLUS (iii) 40% of the Dollar Value of the aggregate troy ounces of Gold located with the Consignee's salesmen, college book stores or jewelry stores as samples (but such contribution to the Borrowing Base shall not exceed $1,000,000), PLUS (iv) 70% of the Dollar Value of the aggregate troy ounces of Gold located with refiners approved by Scotiabank, PLUS (v) 90% of the Dollar Value of the aggregate troy ounces of Gold located in the Consignee's pooled account with Stern Leach, PROVIDED that the Borrowing Base shall not include the Dollar Value of Processed Gold returned to the Consignee by the purchaser thereof for any reason (including pursuant to customer warranty repairs). "Borrowing Base Certificate" shall mean a certificate executed by an authorized officer of the Consignee substantially in the form of Exhibit D. "Business Day" shall mean any day, other than a Saturday, a Sunday or a day that banks are authorized or entitled to be closed for business in New York, New York, or in the case of any location to which Gold is to be delivered or received, a day that transactions cannot be carried out at such location. "Commitment" is defined in paragraph 2(a). "Commitment Amount" is defined in paragraph 1. "Commitment Termination Date" means the earliest of (i) the Consignment Maturity Date, (ii) the date on which the Commitment Amount is terminated in full pursuant to the terms hereof, (iii) the occurrence of any Event of Default in paragraph 17(d) or (e) and (iv) the occurrence of any other Event of Default and either (A) the declaration by Scotiabank that the Gold is to be returned to it from consignment pursuant to paragraph 17 or (B) in the absence of such declaration, the giving of notice by Scotiabank to the Consignee that the Commitment has been terminated. "Consignment Documents" shall mean, collectively, this Agreement, the Guarantee and other related documents. "Consignment Maturity Date" shall mean July 26, 2001, as such date may be extended in the sole discretion of Scotiabank pursuant to paragraph 3. "Consignment Request" shall mean a request delivered by an authorized officer of the Consignee to Scotiabank in the form of Exhibit B hereto. "Dollar Value" with respect to Gold shall mean, on the day of determination, the value in dollars of one troy ounce of Gold, determined by the daily London Afternoon Fixing Price with respect to Gold on such day times the number of ounces of Gold in respect of which the Dollar Value is being determined. In the event that there is no London Afternoon Fixing Price for Gold on a particular day, the last established London Afternoon Fixing Price for Gold shall apply. "Dollars" and "$" shall mean lawful currency of the United States. "Event of Default" is defined in paragraph 17. -2- "Federal Funds Rate" shall mean for any period, a fluctuating interest rate per annum equal for each day during such period to the weighted average of the rates on overnight Federal funds transactions with member banks of the Federal Reserve System arranged by Federal funds brokers, as published for such day (or, if such day is not a Business Day, for the next preceding Business Day) by the Federal Reserve Bank of New York, or, if such rate is not so published for any day which is a Business Day, the average of the quotations for such day on such transactions received by Scotiabank from three Federal funds brokers of recognized standing selected by Scotiabank. "Gold" shall mean gold in London Good Delivery bar form, loco London, England, and of a minimum fineness of .9995, unless otherwise mutually agreed to by Scotiabank and Consignee in advance of delivery to the Consignee. Gold shall exclude customer gold contained in rings returned to the Consignee for repair, replacement or resizing. "Gold Rate" shall mean, with respect to any Consignment term, the arithmetic mean rate for the relevant Consignment term as shown on Reuters LIBO screen as at 10:00 a.m. London, England time three (3) Business Days prior to the first day of the Consignment term, LESS the mean rate shown on such date on the Reuters GOFO page as at 10:00 a.m. London, England time. "Governmental Authority" shall mean any Federal, state, local or foreign court or governmental agency, authority, instrumentality or regulatory body. "Guaranty" is defined in paragraph 12. "Guarantor" is defined in paragraph 12. "including" shall mean "including without limitation". "Intercreditor Agreement" shall mean the Intercreditor Agreement dated as of July 27, 2000 between Scotiabank and Heller Financial, Inc., as agent under the Taylor-CBI Credit Agreement confirming the priority of the security interest of Scotiabank in the consigned Gold, in all respects in form and substance satisfactory to Scotiabank, as in effect on the date hereof and as the same maybe amended or modified from time to time. "Lien" shall mean any security interest, mortgage, pledge, hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or otherwise), charge against or interest in property to secure payment of a debt or performance of an obligation or other priority or preferential arrangement of any kind or nature whatsoever. "Obligations" shall mean all obligations (monetary or otherwise) now or hereafter arising of the Consignee or the Guarantor arising under or in respect of this Agreement or other Consignment Document, including the obligations of the Consignee to return or purchase Gold pursuant to the terms hereof, but excluding the obligations of the Consignee and the Guarantor under or in respect of the Taylor-CBI Credit Agreement. -3- "Organic Document" shall mean, relative to the Consignee or the Guarantor, its certificate of incorporation, its by-laws and all shareholder agreements, voting trusts and similar arrangements applicable to any of its authorized shares of capital stock. "Plant" shall mean, as the context may require, any of the Consignee's facilities set forth under the appropriate heading on Exhibit A. "Processed Gold" shall mean an undivided interest in each product of any goods and inventory containing Gold located at a Plant or an Approved Inventory Location or for which Gold located at a Plant or an Approved inventory Location comprises a part thereof, which undivided interest shall be, with respect to any such product, equal to the ratio that the Dollar Value of such Gold contained in such product or comprising a part thereof bears to the cost of such product. Terms defined in the U.C.C. and used in this definition have the meanings set forth in the U.C.C. "Taylor-CBI Credit Agreement" shall mean the Amended and Restated Credit Agreement dated as of July 27, 2000 among TP Holding Corp., Taylor Publishing Company, Taylor Production Services Co., LP and the Consignee as borrowers, Heller Financial, Inc., as agent, Key Corporate Capital, Inc., as syndication agent, Scotiabank, as documentation agent, and the financial institutions party thereto as in effect on the date hereof and as amended or modified from time to time; PROVIDED that if such Credit Agreement shall be refinanced or otherwise terminated and is no longer of force and effect at a time when this Agreement is still in effect, then, for purposes of this Agreement, the "Taylor-CBI Credit Agreement" shall mean the Taylor-CBI Credit Agreement, as in effect immediately prior to the date of such refinancing or termination. "U.C.C." shall mean the Uniform Commercial Code as in effect in the State of New York from time to time. "Value Date" shall mean the date two Business Days after the rate is set for the purchase of Gold hereunder. 1. AVAILABILITY. Gold delivered and held on consignment hereunder from time to time by the Consignee shall not at any time have a Dollar Value which is in excess of the least of (i) the Dollar Value of 27,000 troy ounces of Gold, (ii) $10,125,000 and (iii) the Borrowing Base (the least of (i), (ii) and (iii) being the "Commitment Amount"). 2. COMMITMENT; REDUCTION OF COMMITMENT. (a) COMMITMENT. On the terms and subject to the conditions of this Agreement (including paragraphs 18 and 19), Scotiabank agrees from time to time on any Business Day occurring prior to the Commitment Termination Date to deliver Gold that will be held on consignment by the Consignee in an aggregate amount (not in excess of the Commitment Amount) as requested by the Consignee. The commitment of Scotiabank described in this paragraph 2(a) is herein referred to as its "Commitment." On the terms and subject to the conditions hereof, the Consignee may from time to time prior to the Commitment Termination Date have Gold consigned to it, continue to hold under consignment all or a portion of such -4- Gold, return all or a portion of such Gold from consignment to Scotiabank and/or purchase all or a portion of such Gold, and thereafter have Gold consigned to it again. (b) RESTORATION OF COMMITMENT AMOUNT. If at any time the Dollar Value of the Gold held on consignment hereunder by the Consignee should exceed the Commitment Amount (as such amount may have been reduced pursuant to the terms of this Agreement), then Scotiabank may at its option, by telex or telecopied notice to the Consignee, require that by the end of the Business Day immediately following the day upon which such telex or telecopied notice is given, the Consignee to either: (i) re-deliver to Scotiabank a portion of the Gold held on consignment hereunder sufficient to reduce the Dollar Value of the Gold continued to be held on consignment hereunder to an amount no greater than the Commitment Amount; or (ii) purchase from Scotiabank, at a purchase price agreed to between the parties by the end of such Business Day, a quantity of the Gold held on consignment hereunder sufficient to reduce the Dollar Value of the Gold held on consignment hereunder to an amount no greater than the Commitment Amount. With respect to item (ii) above, if the parties are unable to agree to a purchase price, then the Commitment Amount shall be restored pursuant to the provisions of item (i) above. 3. EXTENSION OF CONSIGNMENT MATURITY DATE. The Consignment Maturity Date shall be subject to extension as set forth in this paragraph. (a) Scotiabank may, by written notice to the Consignee given not later than 60 days prior to the first Consignment Maturity Date and/or each and any successive Consignment Maturity Date thereafter (if the Commitment then remains in effect), extend the then existing Consignment Maturity Date for 364 days from the date of such notice. The Consignee acknowledges and agrees that Scotiabank is under no obligation, express or implied, to extend the Commitment Termination Date. (b) The Consignee or Scotiabank may, by delivery of written notice to the other party given not later than 60 days prior to the first Consignment Maturity Date, and/or each and any successive Consignment Maturity Date thereafter (if the Commitment then remains in effect), irrevocably indicate that it does not wish to extend the then Consignment Maturity Date, and this Agreement shall terminate on the then Consignment Maturity Date. 4. ORDERS. Requests for delivery of Gold will be made by an authorized representative of the Consignee to an authorized officer of Scotiabank by telephone, telex or telecopied transmission. Each request will indicate the quantity and quality of the Gold to be delivered, the date on which the delivery is requested to be made and the required term of the Consignment (which shall not extend past the then existing Consignment Maturity Date), which term may be for up to six (6) months or any other term which is acceptable to Scotiabank. All telephone requests shall be confirmed in writing to Scotiabank within five (5) days of such request. -5- 5. DELIVERIES BY SCOTIABANK. (a) Following receipt of a request for delivery of Gold by the Consignee, Scotiabank will arrange for the delivery of the Gold to a Plant or an Approved Inventory Location and on the date agreed upon for delivery. Scotiabank will assume all risk of loss or damage to the Gold until it has been delivered to a Plant or, if applicable, an Approved Inventory Location at which time such risk shall pass to the Consignee. Such delivery shall be accompanied by a delivery statement provided by Scotiabank setting out the quantity and quality of Gold delivered. (b) If on receipt of the Gold it is determined by the Consignee that the Gold delivered by Scotiabank to the Consignee is of a different quantity and/or quality than is set out in the delivery statement, the Consignee shall forthwith give notice of such discrepancy to Scotiabank. In that event, Scotiabank shall be entitled to conduct such tests and make such examination of the Gold as it considers necessary or desirable. If such tests or examinations determine that the Gold delivered by Scotiabank to the Consignee is of a different quantity and/or quality than was set out in the said delivery statement, then Scotiabank or the Consignee, as the case maybe, shall make the appropriate adjustments. (c) Unless Scotiabank receives from the Consignee the above described notice of discrepancy within three (3) Business Days of receipt of the Gold, then the Gold delivered will be deemed to be as set out in the delivery statement that accompanied the delivery. 6. FEES. (a) The Consignee will pay (i) on the Consignment Maturity Date, (ii) monthly within five (5) days following the receipt by the Consignee of an invoice from Scotiabank pursuant to paragraph 13, (iii) on the last day of a Consignment term and (iv) on the date of any reduction in the Commitment Amount pursuant to paragraph 2(b); in making up the applicable Consignment at a per annum rate _____________________ (i) the sum of (x) the Gold Rate on the Dollar Value of each on consignment hereunder as in effect three (3) Business Day of the applicable Consignment then in effect for such Gold PLUS ____________ BY (ii) the number of troy ounces of Gold consigned for ________________ which rate shall remain in effect for the term of the applicable ____________________ event that a Consignment is made with no fixed Consignment __________ applicable thereto, then the rate applicable to such Consignment shall be as agreed upon by the parties and subject to change upon three (3) Business Days' notice by Scotiabank to the Consignee, and the Consignee agrees that such rate shall not be subject to approval by the Consignee. In the event that the Consignee and Scotiabank should fail at any time to agree upon the rate to apply to a Consignment or the renewal of a Consignment term, then the Consignee shall immediately deliver the subject Gold for which there is no agreement to Scotiabank, as provided for in paragraph 16 hereof. (b) The Consignee agrees to pay to Scotiabank (i) on the date hereof, an upfront fee equal to $50,625 and (ii) a commitment fee equal to 0.375% per annum MULTIPLIED BY the difference between (A) $10,125,000 and(B) the average Dollar Value of the daily number of ounces of Gold actually consigned hereunder during the relevant period, such commitment fee -6- to be payable in arrears on the last day of each month and on the Commitment Termination Date, and (iii) an annual renewal fee of $21,000, payable on each renewal date hereof if Scotiabank extends the Consignment Maturity Date pursuant to paragraph 3. (c) All rates in this Agreement shall be calculated on the basis of a 360 day year and for the actual number of days elapsed. 7. TITLE. (a) Title to the Gold delivered by Scotiabank and held by the Consignee on consignment for Scotiabank will remain with Scotiabank and will not pass to the Consignee until such time as the Gold is purchased by the Consignee as provided for in paragraphs 7(b), 10, and 11 hereof. In the event that only a portion of a Consignment is purchased, then title as pertains to that portion only will transfer to the Consignee. (b) Title to the Gold purchased by the Consignee as provided for in paragraphs 10 and 11 hereof will pass to the Consignee upon receipt by Scotiabank of all Dollars due to it from the Consignee in payment for the Gold purchased. 8. COMMINGLING. The Consignee and Scotiabank agree that the Consignee shall be permitted, in the ordinary course of its business as being conducted on the date of this Agreement, to commingle the Gold held on consignment for Scotiabank with any other Gold or Gold (in each case located at the Plants or Approved Inventory Locations) containing alloys being held by the Consignee on consignment, safekeeping, or trust, or with Gold or Gold containing alloys owned by the Consignee. The Consignee shall also be permitted to accept returns from its customers containing Gold for repair, replacement, restyling etc. without being in violation of this Agreement. 9. SAFEKEEPING. Until such time as the Gold being returned to Scotiabank has been received by Scotiabank, or purchased by the Consignee, as hereinafter provided, the Consignee will afford the Gold no less safekeeping protection than it affords Gold held for its own account. The Consignee will arrange insurance coverage, acceptable to Scotiabank and naming Heller Financial, Inc., as agent as loss payee and additional insured, on the Gold held on consignment for Scotiabank by the Consignee in such amounts and covering such risks as is usually carried by companies engaged in a similar business and the Consignee shall, upon request, deliver to Scotiabank a copy of all policies for such insurance. If Scotiabank delivers written notice to the Consignee setting forth Scotiabank's reasonable belief that an Approved Inventory Location offers inadequate safekeeping protection for the Gold, the Consignee shall transfer all Gold contained at such Approved Inventory Location to a Plant or another Approved Inventory Location within 10 days following receipt of such notice. 10. PURCHASE REQUEST. If the Consignee wishes to purchase part or all of the Gold held hereunder on consignment for Scotiabank, an authorized representative of the Consignee will make a request to an authorized officer of Scotiabank by telephone, telex or telecopied transmission stating the quantity and quality of Gold to be purchased and the proposed Value Date of the purchase. All telephone requests shall be confirmed in writing to Scotiabank within five (5) days of such request. -7- 11. PURCHASE. Scotiabank shall at least two (2) Business Days prior to the proposed Value Date for a purchase or such lesser period as Scotiabank may accommodate (in its sole discretion), by its authorized officer, provide an authorized representative of the Consignee with a quotation of the price (based on the current market price for such Gold), as of the Value Date, of the Gold to be purchased. If such price is agreed to by the authorized representative of the Consignee, such Gold will thereupon be conclusively deemed to have been contracted for purchase, with payment of the purchase price by the Consignee to be on the relevant Value Date. 12. SECURITY. (a) As continuing collateral security for the present and future Obligations of the Consignee to Scotiabank hereunder and under the other Consignment Documents, Commemorative Brands Holding Corp. (the "Guarantor") shall deliver in favor of Scotiabank (together with registrations, filings and other supporting documentation deemed necessary by Scotiabank to perfect same), in the form attached hereto as Exhibit C, its unsecured guaranty (the "Guaranty") of the present and future Obligations of the Consignee to Scotiabank. (b) The intent of the parties hereto is to create a true consignment from Scotiabank to the Consignee and not a consignment for security; PROVIDED, HOWEVER, that in order to protect the rights of Scotiabank in the event that either this Agreement and under the other Consignment Documents and the transactions contemplated hereby and thereby are construed at any time with respect to any Gold as other than a true consignment from Scotiabank to the Consignee (including as a result of a Gold Sale), then as security for its Obligations the Consignee hereby grants Scotiabank a Lien on and security interest in and to the Collateral (whether now or hereafter existing). "COLLATERAL" means all of the Consignee's right, title and interest in and to (i) all Gold of any quality or fineness (including the Gold consigned and purchased under this Agreement), located from time to time at the Plants or the Approved Inventory Locations or in transit or with the Consignee's salesmen, college book stores or jewelry stores as samples, (ii) all Processed Gold located from time to time at the Plants or the Approved Inventory Locations or in transit or with the Consignee's salesmen, college book stores or jewelry stores as samples and (iii) an undivided interest in all proceeds of such Gold, including, to the extent that the Consignee has not returned to Scotiabank and/or purchased pursuant to the terms hereof any amount of Gold that is delivered to any account debtor of the Consignee, an undivided interest in the accounts owing by such account debtor, and related general intangibles (if any) arising from the sale of such Gold (including the Gold and the Gold comprising any Processed Gold) in each case which undivided interest shall be, with respect to any such proceeds, accounts or general intangibles, equal to the ratio that the Dollar Value of such Gold contained in the goods delivered to such account debtor or comprising a part thereof bears to the total cost of such goods. Terms used in the definition of Collateral for which meanings are provided in the U.C.C. are used in the definition of Collateral with such meanings. "Gold Sale" means any sale of Gold by Scotiabank to the Consignee, which sale shall occur at any time the Consignee takes title to any Gold, whether pursuant to paragraph 10 and 11 or at such earlier or other date as provided by law or court order or decree. To the extent this Agreement and any other Consignment Document and the transactions contemplated hereby and thereby are not construed as a true consignment from Scotiabank to the Consignee, or upon the occurrence of any Gold Sale, the security interest granted pursuant to this paragraph secures the complete and punctual payment of all Obligations of the Consignee, whether now or hereafter -8- existing. To the extent any Gold of any quality or fineness located at a Plant or any Approved Inventory Location becomes part of a product, Scotiabank shall only have and shall continue to have rights or interests in and to such product to the extent of an undivided interest in such product that is equal to the ratio that the cost of such Gold contained in such product or comprising a part thereof bears to the cost of such product. In addition, Gold of any quality or fineness (including the Gold) located at a Plant or any Approved Inventory Location that becomes part of a product shall continue to be considered as being consigned to the Consignee hereunder to the same extent as if such Gold did not become part of a product and shall be subject to all the terms hereof and any other Consignment Document (including the continuation of title to such Gold in Scotiabank). Notwithstanding the express intent of the parties hereto that this Agreement and any other Consignment Document and the transactions contemplated hereby be a true consignment from Scotiabank to the Consignee, the Consignee shall file precautionary Uniform Commercial Code financing statements to protect the rights of Scotiabank in and to the Collateral. In furtherance of the intent of the parties hereto that this Agreement and the transactions contemplated hereunder and thereunder are a true consignment from Scotiabank to the Consignee, and not a consignment for security, Scotiabank agrees that for so long as no Event of Default has occurred and is continuing, it will not initiate any action, suit or proceeding claiming that this Agreement or any of the transactions contemplated hereunder are other than a true consignment from Scotiabank to the Consignee. (c) The Consignee agrees that, from time to time at its own expense, the Consignee will promptly execute and deliver all further instruments and documents, and take all further action, that may be necessary or desirable, or that Scotiabank may request, in order to perfect, preserve and protect any of its interest in the Gold. 13. INVOICES. (a) Scotiabank will furnish the Consignee, as at the last day of each month and as at the last day of a Consignment term, a statement of the quantity and quality of Gold held on consignment for Scotiabank and a calculation of the consignment fee in accordance with paragraph 6 hereof payable by the Consignee, together with an invoice for such charges. (b) In the case of purchases of Gold in accordance with paragraphs 10 and 11, Scotiabank will furnish the Consignee promptly after each purchase is agreed to with a statement setting forth the quantity and quality of the Gold sold, and a calculation of the purchase price payable by the Consignee, together with an invoice for such purchase price. (c) Fai1ure by Scotiabank to issue a statement and/or an invoice or failure to issue such statement and/or invoice in a timely manner, does not negate the Consignee's Obligations. (d) If there is a discrepancy between the statement provided by Scotiabank and the agreed to terms of the purchase by the Consignee, as the Consignee understands them to be, the Consignee shall forthwith notify Scotiabank of such discrepancy. If such notification is not received by Scotiabank within three (3) Business Days of receipt of the statement by the Consignee then such statement shall be deemed to be correct. -9- 14. PAYMENTS. Payment of the consignment fee will be made by the Consignee within ten (10) Business Days following the last day of each month and on the last day of a Consignment term. Payment of the purchase price of the Gold will be made on the Value Date. In either case, payment will be made in Dollars in same day funds by any method mutually agreed upon from time to time. If an amount payable hereunder is not paid when due, the Consignee will pay interest on the unpaid amount, based on a 360 day year, calculated and payable upon demand for the actual number of days elapsed and compounded monthly until paid in full, at the Base Rate plus 2% per annum. 15. REPORTS, ETC. (a) Within ten (10) days after the end of each month, the Consignee will send a report in writing to Scotiabank setting out the quantity and quality of the Gold held on consignment for Scotiabank as of the end of such month and the location (whether at a Plant, an Approved Inventory Location or otherwise) of all Gold (by ounces) consigned hereunder. (b) The Consignee will deliver a Borrowing Base Certificate (as of the last Business Day of the previous week) to Scotiabank on the date hereof and every two weeks thereafter on every other Monday (or if such date of delivery is not a Business Day, the next succeeding Business Day) during the term of this Agreement. (c) The Consignee will deliver to Scotiabank its and the Guarantor's quarterly financial statements within forty-five (45) days after the end of each of such party's first three fiscal quarters and their respective annual audited financial statements within ninety (90) days after the end of each fiscal year of such party and any other information as Scotiabank may reasonably request from time to time. 16. PERIOD OF AGREEMENT. (a) On the relevant Consignment Maturity Date, the Consignee shall, if it has not already done so, re-deliver to Scotiabank all Gold which is held for Scotiabank by the Consignee under the relevant terminated Consignments by either physically delivering the Gold to Scotiabank, or by purchasing the Gold from Scotiabank as provided for in paragraphs 10 and 11 hereof and shall pay to Scotiabank all applicable amounts due and accruing to it hereunder. If an Event of Default should occur prior to the Consignment Maturity Date or prior to any other applicable date of termination for a Consignment, Scotiabank's right to terminate this Agreement and make demand hereunder shall take effect immediately. (b) If the Taylor-CBI Credit Agreement is terminated and the obligations of CBI thereunder are paid in full, then the Consignee and Scotiabank agree to amend this Agreement to provide for an uncommitted facility without any commitment fee. 17. EVENTS OF DEFAULT. Upon the occurrence of any one of the following events of default (an "Event of Default"): (a) failure by the Consignee to deliver any amount of Gold or pay any purchase price, consignment fees, interest or other amounts in respect of any Gold held on -10- consignment hereunder or purchased from Scotiabank, within three (3) Business Days of the date on which it is due hereunder; (b) failure by the Consignee to restore the Commitment Amount as required by paragraph 2; (c) the Consignee or the Guarantor makes any representation or warranty hereunder which is incorrect in any material respect; or breaches any covenant hereunder or under any other Consignment Document or fails to perform or observe, in any material respect, any other term or provision contained in this Agreement or under any other Consignment Document and any such breach of covenant or failure to perform or observe shall remain unremedied for ten (10) days after written notice thereof has been given by Scotiabank to the Consignee in the manner provided for in paragraph 23 hereof; (d) any bankruptcy, reorganization, arrangement, insolvency or liquidation proceedings, or any other proceedings for the relief of debtors and/or creditors are instituted by or against the Consignee or the Guarantor, and, in the case of any such proceeding instituted against the Consignee or the Guarantor (but not instituted by such party), any such proceeding shall remain undismissed, or unstayed for a period of seventy-five (75) days or any of the actions sought in such proceeding (including the entry of an order for relief against it or the appointment of a receiver, trustee, custodian or other similar official for it or for any substantial part of its property) shall occur; (e) an order is made or an effective resolution passed for the winding-up or liquidation of the Consignee or the Guarantor; or a secured party takes possession of all or any material part of the undertaking, property or assets of the Consignee or the Guarantor; or the Consignee or the Guarantor has a distress, execution, attachment, sequestration or other legal process levied, enforced or sued on or against all or substantially all of its undertaking, property or assets and such secured party maintains possession, or any such process is not dismissed, discharged, stayed or restrained, in each case within seventy-five (75) days thereafter; (f) subject to the provisions contained in Section 3 of the Intercreditor Agreement, the Consignee or the Guarantor admits its inability to pay its debts generally; or the Consignee or the Guarantor fails to pay any of its indebtedness in an aggregate amount of not less than $5,000,000 when due and such failure continues after any applicable grace period specified in an agreement or instrument relating to such indebtedness; (g) subject to the provisions contained in Section 3 of the Intercreditor Agreement, the Consignee or the Guarantor permits any default under any agreement or instrument relating to its indebtedness, or any other event, to occur and continue after any applicable grace period specified in such agreement or instrument and the effect of such default or event is to accelerate, or to permit the acceleration of, the maturity of indebtedness in an aggregate amount of not less than $5,000,000; (h) the Consignee or the Guarantor denies, to any extent, its respective obligations under the Guaranty or any other Consignment Document or claims the Guaranty or any other Consignment Document to be invalid or withdrawn in whole or in part; or the -11- Guaranty is determined to be invalid in whole or in part by a court or other judicial entity, or is invalidated in whole or in part by any Act, regulation or governmental action; or the Consignee or the Guarantor breaches any of its covenants as contained in the Guaranty or any other Consignment Document and such breach is not remedied or waived within 10 days of such breach, or makes any representation or warranty as contained in the Guaranty or any other Consignment Document which is incorrect in any material respect; or (i) subject to the provisions contained in Section 3 of the Intercreditor Agreement, any Event of Default under and as defined in the Taylor-CBI Credit Agreement occurs and is continuing; then Scotiabank may terminate the Commitment and accelerate the Consignment Maturity Date and, upon making a demand in writing upon the Consignee, will become entitled to have the Consignee deliver to Scotiabank forthwith all Gold held by the Consignee on consignment for Scotiabank hereunder and shall be entitled to receive payment forthwith from the Consignee of all amounts due and accruing to Scotiabank hereunder and under the other Consignment Documents. Delivery of such Gold shall be made by either physically delivering the Gold to Scotiabank or by paying to Scotiabank the spot value of the Gold then held by the Consignee, as determined by Scotiabank, as of the date and time of termination and/or acceleration (as applicable), and by so paying such amount, the Consignee shall be deemed to have purchased the Gold which it was required to re-deliver to Scotiabank. If the Consignee fails to immediately deliver to Scotiabank all such Gold held on consignment hereunder or fails to immediately pay to Scotiabank all other amounts due to it hereunder, Scotiabank may proceed to take such steps as it deems fit, including realizing upon any security it holds in that respect. 18. AGREEMENT EFFECTIVENESS. The agreement of Scotiabank to make the initial consignment of Gold shall be subject to the prior or concurrent satisfaction of each of the conditions precedent set forth below: (a) the delivery of resolutions of the Board of Directors of the Consignee and the Guarantor then in full force and effect authorizing the execution, delivery and performance of this Agreement and each other document to be executed by it hereunder; (b) the delivery of true and complete copies of the Organic Documents of the Consignee and the Guarantor; (c) the delivery of the incumbency and signatures of the officers of the Consignee and the Guarantor authorized to act with respect to this Agreement and each other document executed by it; (d) the delivery of acknowledgment copies (or other evidence satisfactory to Scotiabank) of properly filed Uniform Commercial Code financing statements (Form UCC-1) dated a date reasonably near to the date hereof, naming Commemorative Brands, Inc., as the consignee and The Bank of Nova Scotia as the consignor or other similar instruments or documents, flied under the Uniform Commercial Code of all jurisdictions as may be necessary or, in the opinion of Scotiabank, desirable to perfect the interest of Scotiabank pursuant to the terms of this Agreement. -12- (e) the delivery of executed copies of proper Uniform Commercial Code Form UCC-3 amendment and/or termination statements, if any, necessary to assign or terminate all Liens and other rights of any Person in any Collateral previously granted by the Consignee to Scotiabank; (f) the delivery of certified copies of Uniform Commercial Code Requests for Information or Copies (Form UCC-1), or a similar search report certified by a party acceptable to Scotiabank, dated a date reasonably near to the date hereof, listing all effective financing statements which name the Consignee (under its trade names, present name and any previous names) as the debtor and which are filed in the jurisdictions in which filings were made pursuant to CLAUSE (D) above, together with copies of such financing statements (none of which shall cover any Collateral); (g) the delivery of the opinion of Schulte Roth & Zabel LLP counsel for the Consignee and Guarantor in form and substance acceptable to Scotiabank; (h) the delivery of insurance certificates in form and substance reasonably acceptable to Scotiabank and showing Heller Financial Inc. as loss payee and as an additional insured; and (i) the delivery of the Intercreditor Agreement and the satisfaction or waiver of the conditions set forth in Section 7.1 of the Taylor-CBI Credit Agreement and the concurrent funding of the initial loans thereunder. 19. ALL DELIVERIES UNDER CONSIGNMENT. The obligation of Scotiabank to deliver any Gold on the occasion of any consignment (including the initial consignment) to the Consignee and the requirement that Scotiabank continue to consign to the Consignee any previously consigned Gold subject to a maturing term of consignment (upon the occasion of the expiration of such term) is subject to satisfaction of each of the conditions precedent set forth in this paragraph 19: (a) COMPLIANCE WITH WARRANTIES, NO DEFAULT, ETC. Both before and after giving effect to the delivery of Gold requested to be held under consignment hereunder, the following statements shall be true and correct: (i) the representations and warranties set forth in this Agreement and each other Consignment Document shall be true and correct in all material respects with the same effect as if then made (unless stated to relate solely to an earlier date, in which case such representations and warranties shall be true and correct as of such earlier date); (ii) except as disclosed by the Consignee to Scotiabank on the date hereof, (A) no litigation, arbitration or governmental investigation or proceeding shall be pending or, to the knowledge of the Consignee, threatened against the Guarantor, the Consignee or any of its subsidiaries which may reasonably be expected to materially adversely affect the Consignee's, or the Consignee and its Subsidiaries' taken as a whole, business, operations, assets, revenues, properties or prospects; and (B) no development shall have occurred in any litigation, arbitration or governmental investigation or proceeding disclosed by the Consignee to Scotiabank on the date hereof which may reasonably be expected to materially adversely affect the business, operations, assets, revenues, properties or prospects of the Guarantor, the Consignee or the Consignee and its subsidiaries, taken as a whole; -13- (b) there shall not be any pending or, to the knowledge of the Consignee, threatened, litigation, arbitration or governmental investigation or proceeding which purports to affect the legality, validity or enforceability of this Agreement or any other Consignment Document; (c) there is sufficient availability under paragraph 1, and a sufficient Commitment under paragraph 2, to make the requested consignment of Gold; (d) all documents executed or submitted pursuant hereto by or on behalf of the Consignee in connection with such consignment (or continuation, as the case may be) shall be satisfactory in form and substance to Scotiabank and its counsel; Scotiabank and its counsel shall have received all information, approvals, opinions, documents or instruments as Scotiabank or its counsel may reasonably request; (e) no Event of Default (nor any event which with the passage of time or the giving of notice, or both, would become an Event of Default) shall have then occurred and be continuing, and neither the Guarantor, the Consignee nor any of its subsidiaries shall be in material violation of any law or governmental regulation or court order or decree the violation of which would have a material adverse effect on the business, operations, assets, revenues, properties or prospects of the Guarantor, the Consignee or the Consignee and its subsidiaries, taken as a whole; and (f) Scotiabank shall have received a Consignment Request for such Consignment. Each of the delivery of a Consignment Request and the acceptance by the Consignee of any Gold to be held by it under consignment shall constitute a representation and warranty by the Consignee to Scotiabank that on the date of such consignment or extension of term (both immediately before and after giving effect thereto) the statements made in CLAUSES (a), (b), (c), (d) and (e) of this paragraph 19 are true and correct. 20. AUTHORIZED REPRESENTATIVES. Scotiabank will, from time to time, provide the Consignee with the names and specimen signatures of two or more persons who are to be its authorized officers for the purposes hereof. 21. REPRESENTATIONS OF THE CONSIGNEE. The Consignee hereby represents and warrants to Scotiabank that: (a) it has full corporate power and authority to purchase Gold from Scotiabank and to receive and hold Gold for Scotiabank on the terms and conditions contained herein; (b) it has obtained all necessary governmental and other approvals, if any, to receive and hold and purchase Gold; (c) this Agreement has been duly authorized by all necessary corporate action; (d) the execution, delivery and performance of this Agreement by the Consignee will not result in the breach of its Organic Documents or a violation of or default under any contract or agreement to which the Consignee or its properties is bound; and (e) when executed and delivered by the Consignee, this Agreement will constitute the legal, valid and binding obligation of the Consignee, enforceable in accordance with the terms hereof, except as enforceability is limited by bankruptcy, insolvency, reorganization, moratorium or other laws relating to or affecting generally the enforcement of creditors' rights and except to the extent that availability of the remedy of specific performance or injunctive relief and other equitable remedies. -14- 22. REPRESENTATIONS OF SCOTIABANK. Scotiabank hereby represents and warrants to the Consignee that it shall have title free and clear of any encumbrance to all Gold to be delivered to the Consignee under this Agreement, and that it has full power and authority to deliver and sell Gold to the Consignee on the terms and conditions contained herein. 23. COVENANTS OF THE CONSIGNEE. (a) RECORDS: The Consignee shall maintain at its principal place of business records reasonably satisfactory to Scotiabank with respect to the Gold delivered by Scotiabank hereunder, and shall permit an authorized officer of Scotiabank, or a representative not necessarily in Scotiabank's employ, at the Consignee's expense (up to $45,000 per year), to examine such records at any reasonable time during normal business hours, at reasonable intervals and without prior notice. (b) TAXES: The Consignee shall pay all taxes, customs duties, assessments and charges lawfully levied, assessed or imposed in respect of the Gold held by the Consignee for Scotiabank hereunder or upon the sale of such Gold by Scotiabank to the Consignee, except any tax in respect of the income of Scotiabank. All payments by the Consignee shall be made without set-off or counterclaim and free and clear of any taxes (including any value added tax), levies, duties, charges, fees or deductions for withholdings whatsoever. If, as a result of any requirement, it should be necessary for the Consignee to deduct or withhold any amount from any payment hereunder, then the Consignee shall make an additional payment so that the amount received by Scotiabank after such deduction or withholding equals the amount that would have been received by Scotiabank if there had been no such deduction or withholding requirement. Evidence satisfactory to Scotiabank of the payment of any tax, etc. referred to in this paragraph will, upon the request of Scotiabank made from time to time, be provided by the Consignee to Scotiabank. (c) OBSERVE LAWS: The Consignee shall duly observe and conform in all material respects to all valid requirements of any Governmental Authority relative to the holding of Gold by the Consignee for Scotiabank hereunder. (d) The Consignee agrees that it will at all times cause all Gold held on consignment hereunder and not sold to a customer of the Consignee to be located only (i) at the Plants or the Approved Inventory Locations, (ii) in transit between the Plants or the Approved Inventory Locations, (iii) with its salesmen, college book stores or jewelry stores as samples, and/or (iv) in transit to Scotiabank; PROVIDED, HOWEVER, that no sale to any customer of the Consignee shall be made unless the Consignee shall have first either purchased or returned a like amount of Gold to Scotiabank pursuant to the terms of this Agreement. The Consignee further agrees that except for Gold (under and as defined in this Agreement), no other Gold that is not owned by the Consignor will be kept in a Plant or an Approved Inventory Location. In any event, if any Gold (other than Gold (under and as defined in this Agreement), Processed Gold owned by the Consignee and Processed Gold to be returned to the owner thereof) shall at any -15- time be located at a Plant or an Approved Inventory Location, the Consignee agrees that such Gold shall be transferred (by book entry or otherwise) as soon as practicable (and in any event no later than the next Business Day) to another facility of the Consignee's. The Consignee shall also be permitted to accept returns from its customers containing Gold for repair, replacement, restyling etc. without being in violation of this Agreement. (e) The Consignee agrees that it shall use the Gold held on consignment pursuant to the terms of this Agreement only in connection with the completion of customer orders in the ordinary course of business at the Plants or the Approved Inventory Locations. (f) The Consignee agrees that it shall, within 20 days after the date hereof, use reasonable efforts to cause the delivery of acknowledgment copies (or other evidence satisfactory to Scotiabank) of properly filed Uniform Commercial Code financing statements (Form UCC-1) dated a date reasonably near to the date hereof, (1) naming Commemorative Brands, Inc. as the consignee and The Bank of Nova Scotia as the Consignor, or other similar instruments or documents, filed under the Uniform Commercial Code in jurisdictions to be agreed by the Consignee and Scotiabank for Gold located with the Consignee's salesmen, college book stores or jewelry stores as samples, and (ii) naming Commemorative Brands, Inc., as the consignor and The Bank of Nova Scotia as the assignee of the consignor and as consignees the various operators of the Approved Inventory Locations (but limited to Richards and West, AuraFin, and Traditional Heritage and those that are refiners) or other similar instruments or documents, filed under the Uniform Commercial Code of all jurisdictions as may be necessary or, in the opinion of Scotiabank, desirable to perfect the interest of Scotiabank pursuant to the terms of this Agreement. (g) The Consignee agrees that it will not permit to be located at any of (i) the OK Casting Approved Inventory Location, (ii) the Durhams Approved Inventory Location or (iii) any other Approved Inventory Location located in a jurisdiction in which Scotiabank has not filed UCC-1 financing statements of the type referred to in clause (f)(ii) above with respect to the Collateral, Gold with a Dollar Value in excess of $100,000 at any one Approved Inventory Location or $500,000 at all such Approved Inventory Locations. 24. NOTICES. Any notice in writing may be given by being delivered by hand or by being sent by authenticated telex, telecopied transmission in the case of the Consignee to: Commemorative Brands, Inc. 7211 Circle S Rd. Austin, TX 78745 Attention:Clyde W. Walls, Treasurer Facsimile No.: (512) 443-5213 -16- WITH A COPY TO: Schulte Roth & Zabel LLP 900 Third Avenue New York, NY 10022 Attention: Marc Weingarten, Esq. Facsimile No.: (212) 593-5955 AND IN THE CASE OF SCOTIABANK TO: The Bank of Nova Scotia c/o Scotia Mocatta One Liberty Plaza New York, New York 10006 Attention: Director of Operations Facsimile No.: (212) 912-8503 WITH A COPY TO: Mayer, Brown & Platt 190 S. LaSalle Street Chicago, Illinois 60603 Attention: J. Thomas Mullen, Esq. Facsimile No.: (312) 701-7711 or to such other address, telex or telecopier number as may hereafter be notified in writing by the Consignee or Scotiabank, respectively and any such notice, if given by band, authenticated telex or telecopied transmission will be deemed to have been given when delivered or sent. If the Consignee or any of its agents or employees makes an oral request or gives an oral notice hereunder to Scotiabank, whether to an agent or an employee of Scotiabank then, until it has received notice in writing by the Consignee, Scotiabank shall be entitled to rely on its dealings with the Consignee upon those oral instructions whether by telephone or otherwise. In so relying, neither Scotiabank nor any agent or employee shall incur any liability to the Consignee in acting upon such oral instructions, contemplated hereby and which Scotiabank believes in good faith to have been given by a person authorized by the Consignee to effect any applicable transaction. In the event there is a discrepancy between the oral instructions and any written confirmation in respect thereof, or in the absence of receiving confirmation, the oral instructions as understood by Scotiabank will be deemed to be the controlling instructions. 25. DELIVERIES BY CONSIGNEE. All deliveries of Gold to be made hereunder by the Consignee to Scotiabank will be free of all Liens, and made in accordance with the directions of Scotiabank or, in the absence of such directions, in a commercially acceptable manner to Scotiabank at the address of Scotiabank specified in paragraph 24 above. The Consignee shall bear the cost of such delivery and shall bear the risk of loss of or damage to such Gold until delivery is made by it to Scotiabank. -17- 26. INDEMNITY PROVISIONS. If the introduction of or any change in or in the interpretation of, or any change in its application to the Consignee of, any law or any regulation or guideline issued by any central bank or other Governmental Authority (whether or not having the force of law), including any reserve or special deposit requirement or any tax (other than tax on Scotiabank's general income), or any capital requirement, has due to Scotiabank's compliance the effect, directly or indirectly, of (i) increasing the cost to Scotiabank of performing its obligations hereunder; (ii) reducing any amount received or receivable by Scotiabank hereunder or its effective return hereunder or on its capital; or (iii) causing Scotiabank to make any payment or to forgo any return based on any amount received or receivable by Scotiabank hereunder, then upon demand from time to time the Consignee shall pay such amount as shall compensate Scotiabank for any such cost, reduction, payment or forgone return. The Consignee shall further indemnify Scotiabank for all costs, losses and expenses incurred by Scotiabank in connection with (i) the early termination of any Consignment term, (ii) the failure of the Consignee for any reason to return the required amount of Gold back to Scotiabank on the dates required pursuant to the terms of this Agreement, except to the extent the Consignee has purchased such Gold from Scotiabank in accordance with the terms hereof or (iii) the return of any Gold to Scotiabank on other than the last day of the Consignment term applicable to such Gold; and agrees that Scotiabank shall have no liability to the Consignee for any reason in respect of this facility other than on account of Scotiabank's gross negligence or willful misconduct. Any certificate of Scotiabank in respect of the foregoing will be conclusive and binding upon the Consignee, except for manifest error, PROVIDED that Scotiabank shall determine the amounts owing to it in good faith using any reasonable averaging and attribution methods. 27. ASSIGNMENT. The Consignee may not assign or transfer any of its rights or obligations hereunder without the prior written consent of Scotiabank. Scotiabank may at any time assign or transfer all or any of its rights and/or obligations hereunder, provided such assignment or transfer is to its successors in title or to a wholly-owned subsidiary or a branch or office of Scotiabank and each such assignee is entitled to rely on the provisions contained in paragraph 25. 28. LAWS. THIS AGREEMENT WILL BE INTERPRETED AND GOVERNED IN ALL RESPECT BY THE INTERNAL LAWS OF THE STATE OF NEW YORK. 29. AMENDMENTS. This Agreement constitutes the entire Agreement between the Consignee and Scotiabank in respect of the subject matter hereof and may only be amended by a document signed by the Consignee and Scotiabank. 30. JUDGMENT CURRENCY. If any payment of a currency required hereunder is required to be made in a currency of payment which is different from the currency of exchange in the jurisdiction in which it is to be received, the obligation of the payor to make payments in the currency of payment will not be discharged or satisfied by any tender or recovery pursuant to any judgment expressed or converted into the applicable currency of exchange of the jurisdiction of the payment except to the extent such tender or recovery shall result in the effective receipt (upon legal conversion from the applicable currency of exchange to the required currency of payment at the spot buying rate of Scotiabank of the currency of payment in the applicable currency of exchange quoted by Scotiabank at the time of conversion and receipt of the funds) by -18- the payee of the full amount of such currency of payment as at the date when such payment was due with interest to the date of such payment or, if greater, on the date when payment is made. The obligation of the payor shall be enforceable as an additional or alternative cause of action for the purpose of recovery in the currency of exchange of the jurisdiction of the payment of the amount (if any) by which such effective receipt shall fall short of the full amount of such currency of payment and such right shall not be affected or merged into any judgment obtained in the applicable currency of exchange. 31. FORCE MAJEURE. If Scotiabank is prevented from or hindered in making delivery of Gold or the making of delivery is delayed by reason of force majeure (which shall be deemed for this purpose to include war, civil commotion, act of terrorism, hijacking, strike, walkout, industrial dispute, fire, explosion, storm, tempest, flood, act or omission of any Governmental Authority or of a person or body for the time being exercising the power and authority of such body (whether in Canada, New York, Texas or elsewhere) or any further cause not within the direct control of Scotiabank) Scotiabank shall be under no liability whatsoever in respect thereof and the time for delivery by Scotiabank shall be extended for a period equal to that during which delivery is so prevented, hindered or delayed; however, notwithstanding the foregoing, Scotiabank may, if it so chooses, by notice in writing given to the Consignee, advise that it will not make the delivery affected by the force majeure. Scotiabank shall not be liable for any loss arising on or in connection with any lack of delivery of Gold to the Consignee hereunder as a result of moratorium, currency restrictions or changes thereof and the Consignee shall indemnify Scotiabank against any loss suffered as a result thereof. 32. DETERMINATION. Scotiabank shall have the right to determine at any time, and in its discretion (exercised in good faith as defined in Section 1-201 of the UCC), as to whether any event, circumstance, or thing envisaged in this Agreement is or would be "material" or "adverse", as such terms are used herein. 33. EXPENSES. The Consignee agrees to pay on demand all out-of-pocket expenses of Scotiabank (including reasonable attorneys' fees), in connection with (i) the negotiation, preparation, execution and delivery of this Agreement and the other Consignment Documents, including any amendments, waivers, consents, supplements or other modifications to this Agreement and the other Consignment Documents as may from time to time hereafter be required, whether or not the transactions contemplated hereby are consummated, (ii) the preparation and review of the form of any document or instrument relevant to this Agreement and the other Consignment Documents, (iii) the filing, recording, refilling or recording of any Uniform Commercial Code financing statements relating thereto and all amendments, supplements and modifications to any thereof and any and all other documents or instruments of further assurance required to be filed or recorded or refiled or rerecorded by the terms hereof; (iv) the exercise by Scotiabank of its examination rights as set forth in and subject to paragraph 23(a) and (v) the administration and monitoring of this Agreement and the other Consignment Documents, and compliance of the parties hereto with respect to the terms hereof. 34. SURVIVAL. The obligations of the Consignee under paragraphs 25, 26, 29 and 33 shall survive any termination of this Agreement, the payment in full of all Obligations, -19- the return to the Scotiabank of all Gold and the termination of the Commitment. The representations and warranties made by the Consignee in this Agreement and in each other Consignment Document shall survive the execution and delivery of this Agreement and each such other Consignment Document. 35. SEVERABILITY. Any provision of this Agreement or any other Consignment Document which is prohibited or unenforceable in any jurisdiction shall, as to such provision and such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions of this Agreement or such other Consignment Document or affecting the validity or enforceability of such provision in any other jurisdiction. 36. EXECUTION IN COUNTERPARTS, EFFECTIVENESS, ETC. This Agreement may be executed by the parties hereto in several counterparts, each of which shall be deemed to be an original and all of which shall constitute together but one and the same agreement. This Agreement shall become effective when counterparts hereof executed on behalf of the Consignee and Scotiabank (or notice thereof satisfactory to Scotiabank) shall have been received by Scotiabank and notice thereof shall have been given by Scotiabank to the Consignee. 37. FORUM SELECTION AND CONSENT TO JURISDICTION. ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS AGREEMENT OR ANY OTHER CONSIGNMENT DOCUMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN) OR ACTIONS OF SCOTIABANK OR THE CONSIGNEE SHALL BE BROUGHT AND MAINTAINED EXCLUSIVELY IN THE COURTS OF THE CITY AND STATE OF NEW YORK OR IN THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK; PROVIDED, HOWEVER. THAT ANY SUIT SEEKING ENFORCEMENT AGAINST ANY COLLATERAL OR OTHER PROPERTY MAY BE BROUGHT, AT SCOTIABANK'S OPTION, IN THE COURTS OF ANY JURISDICTION WHERE SUCH COLLATERAL OR OTHER PROPERTY MAY BE FOUND. THE CONSIGNEE HEREBY EXPRESSLY AND IRREVOCABLY SUBMITS, FOR ITSELF AND TO THE EXTENT PERMITTED BY APPLICABLE LAW, ITS PROPERTY, TO THE JURISDICTION OF THE COURTS OF THE CITY AND STATE OF NEW YORK AND OF THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK FOR THE PURPOSE OF ANY SUCH LITIGATION AS SET FORTH ABOVE AND IRREVOCABLY AGREES TO BE BOUND BY ANY JUDGMENT RENDERED THEREBY IN CONNECTION WITH SUCH LITIGATION. THE CONSIGNEE FURTHER IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS BY REGISTERED MAIL, POSTAGE PREPAID, OR BY PERSONAL SERVICE WITHIN OR WITHOUT THE STATE OF NEW YORK. THE CONSIGNEE HEREBY EXPRESSLY AND IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY HAVE OR HEREAFTER MAY HAVE TO THE LAYING OF VENUE OF ANY SUCH LITIGATION BROUGHT IN ANY SUCH COURT REFERRED TO ABOVE AND ANY CLAIM THAT ANY SUCH LITIGATION HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. TO THE EXTENT THAT THE CONSIGNEE HAS OR HEREAFTER MAY ACQUIRE ANY IMMUNITY FROM JURISDICTION OF ANY COURT OR FROM ANY LEGAL PROCESS (WHETHER THROUGH SERVICE OR -20- NOTICE, ATTACHMENT PRIOR TO JUDGMENT, ATTACHMENT IN AID OF EXECUTION OR OTHERWISE) WITH RESPECT TO ITSELF OR ITS PROPERTY, THE CONSIGNEE HEREBY IRREVOCABLY WAIVES SUCH IMMUNITY IN RESPECT OF ITS OBLIGATIONS UNDER THIS AGREEMENT AND THE OTHER CONSIGNMENT DOCUMENTS. 38. WAIVER OF JURY TRIAL. SCOTIABANK AND THE CONSIGNEE HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHTS THEY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON OR BASED, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS AGREEMENT OR ANY OTHER CONSIGNMENT DOCUMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN) OR ACTIONS OF SCOTIABANK OR THE CONSIGNEE. THE CONSIGNEE ACKNOWLEDGES AND AGREES THAT IT HAS RECEIVED FULL AND SUFFICIENT CONSIDERATION FOR THIS PROVISION (AND EACH OTHER PROVISION OF EACH OTHER CONSIGNMENT DOCUMENT TO WHICH IT IS A PARTY) AND THAT THIS PROVISION IS A MATERIAL INDUCEMENT FOR SCOTIABANK ENTERING INTO THIS AGREEMENT AND EACH SUCH OTHER CONSIGNMENT DOCUMENT. -21- If the foregoing terms and conditions are satisfactory, please so indicate by executing on the enclosed copy of this Agreement the form of acceptance and returning it to us on or before July 27, 2000, failing which this offer will expire. Yours truly, THE BANK OF NOVA SCOTIA By: /s/ Joseph A. Lasiewski ------------------------------------- Its: Director - Metals Operations By: /s/ Randy M. Weinerman ------------------------------------- Its: Senior Manager ACCEPTED: Dated: July 27, 2000. COMMEMORATIVE BRANDS, INC. By: /s/ David B. Pittaway ----------------------------- Name: David B. Pittaway Title: Vice President -22- EXHIBIT A PLANTS AND APPROVED INVENTORY LOCATIONS PLANTS OWNED PROPERTY: 1. 7211 Circle S Road, Austin, TX LEASED PROPERTY: 1. 7101 Intermodal Drive, Louisville, KY 2. 6404 Burleson Road, Suite 120, Austin, TX 3. 15 John Dietsch Boulevard, North Attleboro, MA 4. 4605 Osborn, El Paso, TX APPROVED INVENTORY LOCATIONS 1. Richards and West, 1255 University Avenue, Rochester, NY; Contract Manufacturer 2. Stern Leach, 49 Pearl Street, Attleboro, MA; Refiner 3. Pease and Curren, 75 Pennsylvania Avenue, Worwick, RI; Refiner 4. Hereaus, 65 Euclid Avenue, Newark, NJ; Refiner 5. Metalor, 225 John Diestch Boulevard, North Attleboro, MA; Refiner 6. OK Casting, 3520 Charleston Road, Norman, OK; Contract Manufacturer 7. AuraFin, 770 International Parkway, Sunrise, FL; Contract Manufacturer 8. Traditional Heritage, 3051 Rd. 591, Ponce, PR; Contract Manufacturer 9. Dunhams, 7365 Remeon, Suite 8204, El Paso, TX; Contract Manufacturer A-1 EXHIBIT B FORM OF CONSIGNMENT REQUEST The Bank of Nova Scotia, as Consignor One Liberty Plaza New York, New York 10006 Attention: Director of Operations Re: COMMEMORATIVE BRANDS, INC. Gentlemen and Ladies: This Consignment Request is delivered to you pursuant to paragraph 19(f) of the Letter Agreement for Fee Consignment and Purchase of Gold dated as of July 27, 2000 (as amended, supplemented, amended and restated or otherwise modified from time to time, the "Agreement"), between Commemorative Brands, Inc., a Delaware corporation (the "Consignee") and The Bank of Nova Scotia ("Scotiabank"). Unless otherwise defined herein or the context otherwise requires, terms used herein have the meanings provided in (or by reference in) the Agreement. The Consignee hereby requests that Scotiabank make a consignment of __________ troy ounces of Gold to the Consignee on _________ __, 200_ for a Consignment term of ________ month(s) to be delivered to the [Plant][Approved Inventory Location] located at ___________________________________. The proposed Value Date is __________, 200__. The Consignee hereby certifies and warrants that both before and after giving effect to the consignments requested HEREBY, all statements set forth in clauses (a), (b), (c), (d) and (e) of paragraph 19 of the Agreement are true and correct in all material respects, and all conditions to consignment in clauses (a), (b), (c), (d) and (e) of such paragraph have been satisfied. The Consignee agrees that if prior to the time of the making of the consignment requested hereby any matter certified to herein by it will not be true and correct at such time as if then made, it will immediately so notify Scotiabank. Except to the extent, if any, that prior to the time of the making of the consignment requested hereby Scotiabank shall receive written notice to the contrary from the Consignee, each matter certified to herein shall be deemed once again to be certified as true and correct at the date of the making of such consignment as if then made. B-1 The Consignee has caused this Consignment Request to be executed and delivered, and the certification arid warranties contained herein to be made, by its duly Authorized Officer this ____ day of _________________, 200__. COMMEMORATIVE BRANDS, INC. By: -------------------------------------- Title: B-2 EXHIBIT C FORM OF GUARANTY GUARANTY THIS GUARANTY dated as of July 27, 2000, is executed in favor of The Bank of Nova Scotia ("Scotiabank"). W I T N E S S E T H: WHEREAS, Commemorative Brands, Inc. (the "Company") has entered into a Letter Agreement for Fee Consignment and Purchase of Gold dated as of even date herewith (as amended or otherwise modified from time to time, the "Consignment Agreement"; capitalized terms used herein but not otherwise defined have the respective meanings set forth in the Consignment Agreement) with Scotiabank pursuant to which Scotiabank has agreed to deliver Gold to the Company on consignment subject to the terms and conditions set forth therein. WHEREAS, the operations of the undersigned are integrated with those of the Company to such an extent that the financial strength and flexibility of the Company have a direct impact on the undersigned; and WHEREAS, the undersigned will benefit from the consignment of Gold to the Company pursuant to the Consignment Agreement and is willing to guaranty the Liabilities (as defined below) as hereinafter set forth; NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the undersigned hereby unconditionally, as primary obligor and not merely as surety, guarantees the full and prompt payment when due, whether by acceleration or otherwise, and at all times thereafter, of all obligations (monetary or otherwise) of the Company to Scotiabank, howsoever created, arising or evidenced, whether direct or indirect, absolute or contingent, now or hereafter existing, or due or to become due, which arise out of or in connection with the Consignment Agreement, any other Consignment Document or any document or instrument executed in connection therewith, in each case as the same may be amended, modified, extended or renewed from time to time, and all costs and expenses paid or incurred by Scotiabank in enforcing this Guaranty against the undersigned (all such obligations, costs and expenses being herein collectively called the "Liabilities"); PROVIDED, HOWEVER, that the liability of the undersigned hereunder shall be limited to the maximum amount of the Liabilities which the undersigned may guaranty without violating any fraudulent conveyance or fraudulent transfer law. The undersigned agrees that, in the event of the dissolution or insolvency of the Company or the undersigned, or the inability or failure of the Company or the undersigned to pay debts as they become due, or an assignment by the Company or the undersigned for the benefit of creditors, or the occurrence of any other Event of Default (as defined in the Consignment Agreement) under paragraphs 17(d) or 17(e) of the Consignment Agreement, and if such event shall occur at a time when any of the Liabilities may not then be due and payable, C-1 the undersigned will pay to Scotiabank forthwith the full amount which would be payable hereunder by the undersigned if all Liabilities were then due and payable. This Guaranty shall in all respects be a continuing, absolute and unconditional guaranty, and shall remain in full force and effect (notwithstanding, without limitation, the dissolution of the undersigned or that at any time or from time to time no Liabilities are outstanding) until the Commitment (as defined in the Consignment Agreement) has terminated and all Liabilities have been paid in full. The undersigned further agrees that if at any time all or any part of any payment theretofore applied by Scotiabank to any of the Liabilities is or must be rescinded or returned by Scotiabank for any reason whatsoever (including, without limitation, the insolvency, bankruptcy or reorganization of the Company or the undersigned), such Liabilities shall, for the purposes of this Guaranty, to the extent that such payment is or must be rescinded or returned, be deemed to have continued in existence, notwithstanding such application by Scotiabank, and this Guaranty shall continue to be effective or be reinstated, as the case may be, as to such Liabilities, all as though such application by Scotiabank had not been made. Scotiabank may, from time to time, at its sole discretion and without notice to the undersigned, take any or all of the following actions: (a) retain or obtain the primary or secondary obligation of any obligor or obligors, in addition to the undersigned, with respect to any of the Liabilities, (b) extend or renew any of the Liabilities for one or more periods (whether or not longer than the original period), alter or exchange any of the Liabilities, or release or compromise any obligation of the undersigned hereunder or any obligation of any nature of any other obligor with respect to any of the Liabilities, (c) release its security interest in, or surrender, release or permit any substitution or exchange for, all or any part of any property securing any of the Liabilities or any obligation hereunder, or extend or renew for one or more periods (whether or not longer than the original period) or release, compromise, alter or exchange any obligations of any nature of any obligor with respect to any such property, and (d) resort to the undersigned for payment of any of the Liabilities when due, whether or not Scotiabank shall have resorted to any property securing any of the Liabilities or any obligation hereunder or shall have proceeded against any other obligor primarily or secondarily obligated with respect to any of the Liabilities. Notwithstanding any payment made by or for the account of the undersigned pursuant to this Guaranty, the undersigned shall not be subrogated to any rights of Scotiabank until such time as this Guaranty shall have been discontinued and Scotiabank shall have received payment of the full amount of all liabilities of the undersigned hereunder. The undersigned hereby expressly waives: (a) notice of the acceptance by Scotiabank of this Guaranty, (b) notice of the existence or creation or non-payment of all or any of the Liabilities, (c) presentment, demand, notice of dishonor, protest, and all other notices whatsoever, and (d) all diligence in collection or protection of or realization upon any Liabilities or any security for or guaranty of any Liabilities. The creation or existence from time to time of additional Liabilities to Scotiabank is hereby authorized, without notice to the undersigned, and shall in no way affect or impair the rights of Scotiabank or the obligations of the undersigned under this Guaranty. C-2 No delay on the part of Scotiabank in the exercise of any right or remedy shall operate as a waiver thereof, and no single or partial exercise by Scotiabank of any right or remedy shall preclude other or further exercise thereof or the exercise of any other right or remedy; nor shall any modification or waiver of any provision of this Guaranty be binding upon Scotiabank except as expressly set forth in a writing duly signed and delivered on behalf of Scotiabank. No action of Scotiabank permitted hereunder shall in any way affect or impair the rights of Scotiabank or the obligations of the undersigned under this Guaranty. For purposes of this Guaranty, Liabilities shall include all obligations of the Company to Scotiabank arising under or in connection with the Consignment Agreement or any other Consignment Document, notwithstanding any right or power of the Company or anyone else to assert any claim or defense as to the invalidity or unenforceability of any obligation, and no such claim or defense shall affect or impair the obligations of the undersigned hereunder. Pursuant to the Consignment Agreement, (a) this Guaranty has been delivered to Scotiabank and (b) Scotiabank has been authorized to enforce this Guaranty on behalf of itself. All payments by the undersigned pursuant to this Guaranty shall be made to Scotiabank. This Guaranty shall be binding upon the undersigned and the successors and assigns of the undersigned; and to the extent that the Company or the undersigned is either a partnership or a corporation, all references herein to the Company and to the undersigned, respectively, shall be deemed to include any successor or successors, whether immediate or remote, to such partnership or corporation. This Guaranty shall be construed in accordance with and governed by the internal laws of the State of New York. Wherever possible each provision of this Guaranty shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Guaranty shall be prohibited by or invalid under such law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Guaranty. This Guaranty may be executed in any number of counterparts, and each such counterpart shall be deemed to be an original but all such counterparts shall together constitute one and the same Guaranty. ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS GUARANTY OR ANY OTHER CONSIGNMENT DOCUMENT SHALL BE BROUGHT AND MAINTAINED EXCLUSIVELY IN THE COURTS OF THE STATE OF NEW YORK OR IN THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK; PROVIDED, HOWEVER, THAT ANY SUIT SEEKING ENFORCEMENT AGAINST ANY COLLATERAL OR OTHER PROPERTY MAY BE BROUGHT, AT SCOTIABANK'S OPTION, IN THE COURTS OF ANY JURISDICTION WHERE SUCH COLLATERAL OR OTHER PROPERTY MAY BE FOUND. THE UNDERSIGNED HEREBY EXPRESSLY AND IRREVOCABLY SUBMITS TO THE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK AND OF THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK FOR THE PURPOSE OF ANY SUCH LITIGATION AS SET FORTH ABOVE. THE UNDERSIGNED FURTHER C-3 IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS BY REGISTERED MAIL, POSTAGE PREPAID, TO THE ADDRESS SET FORTH BELOW ITS SIGNATURE HERETO (OR SUCH OTHER ADDRESS AS IT SHALL HAVE SPECIFIED IN WRITING TO SCOTIABANK AS ITS ADDRESS FOR NOTICES HEREUNDER) OR BY PERSONAL SERVICE WITHIN OR WITHOUT THE STATE OF NEW YORK. THE UNDERSIGNED HEREBY EXPRESSLY AND IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY SUCH LITIGATION BROUGHT IN ANY SUCH COURT REFERRED TO ABOVE AND ANY CLAIM THAT ANY SUCH LITIGATION HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. TO THE EXTENT THAT THE UNDERSIGNED HAS OR HEREAFTER MAY ACQUIRE ANY IMMUNITY FROM JURISDICTION OF ANY COURT OR FROM ANY LEGAL PROCESS (WHETHER THROUGH SERVICE OR NOTICE, ATTACHMENT PRIOR TO JUDGMENT, ATTACHMENT IN AID OF EXECUTION OR OTHERWISE) WITH RESPECT TO ITSELF OR ITS PROPERTY, THE UNDERSIGNED HEREBY IRREVOCABLY WAIVES SUCH IMMUNITY IN RESPECT OF ITS OBLIGATIONS UNDER THIS GUARANTY AND THE OTHER CONSIGNMENT DOCUMENTS. THE UNDERSIGNED, AND (BY ACCEPTING THE BENEFITS HEREOF) SCOTIABANK, HEREBY WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS UNDER THIS GUARANTY, ANY OTHER CONSIGNMENT DOCUMENT AND ANY AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT DELIVERED OR WHICH MAY IN THE FUTURE BE DELIVERED IN CONNECTION HEREWITH OR THEREWITH OR ARISING FROM ANY LENDING RELATIONSHIP EXISTING IN CONNECTION WITH ANY OF THE FOREGOING, AND AGREES THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY. C-4 IN WITNESS WHEREOF, this Guaranty has been duly executed and delivered as of the day and year first above written. COMMEMORATIVE BRANDS HOLDING CORP. By: -------------------------------- Name: Title: Address: c/o Castle Harlan Partners III, L.P. 150 East 58th Street 37th Floor New York, New York 10155 Attention: David B. Pittaway Facsimile: (212) 207-8042 C-5 EXHIBIT D FORM OF BORROWING BASE CERTIFICATE The Bank of Nova Scotia One Liberty Plaza New York, New York 10006 Re: Letter Agreement for Fee Consignment and Purchase of Gold, dated as of July 27, 2000 (as amended or otherwise modified from time to time, the "Gold Cosignment Agreement") between Commemorative Brands, Inc. and The Bank of Nova Scotia Ladies/Gentlemen: Terms to which meanings are ascribed in the Gold Consignment Agreement are used in this Borrowing Base Certificate with such meanings. The Company hereby certifies that the Dollar Value of Gold held on consignment under the Gold Consignment Agreement on ________________ did not exceed the Borrowing Base. The related computations are set forth in SCHEDULE I hereto. IN WITNESS WHEREOF, the Company has caused this Borrowing Base Certificate to be executed and delivered by its chief financial officer on the ____ day of _______________, ___. COMMEMORATIVE BRANDS, INC. By: -------------------------------------- Name: Title: D-1 SCHEDULE I TO BORROWING BASE CERTIFICATE 1. GOLD AT THE COMPANY'S PLANTS 1A. Dollar Value of Gold located at the Company's Plants $______ 1B. Percentage of the Dollar Value of Gold located at the Company's Plants 90% included in Borrowing Base 1C. Margined Dollar Value of Gold located at the Company's Plants (item 1A $______ times item 1B) 2. GOLD AT APPROVED INVENTORY LOCATIONS 2A. Dollar Value of Gold located at Approved Inventory Locations $______ 2B. Percentage of the Dollar Value of Gold located at Approved Inventory 70% Locations included in Borrowing Base 2C. Margined Dollar Value of Gold located at Approved Inventory Locations (item $______ 2A times item 2B) 3. GOLD WITH COMPANY'S SALESPERSONS 3A. Dollar Value of Gold located with the Company's salespersons, bookstores $______ and jewelry stores as samples 3B. Percentage of the Dollar Value of Gold located with the Company's 40% salespersons, bookstores and jewelry stores as samples included in Borrowing Base 3C. Margined Dollar Value of Gold located with the Company's salespersons, $______ bookstores and jewelry stores as samples (the lesser of: (i) item 3A times item 3B or (ii) $1,000,000) 4. GOLD AT APPROVED REFINERS 4A. Dollar Value of Gold located at approved refiners $______ 4B. Percentage of the Dollar Value of Gold located at approved refiners 70% included in Borrowing Base
Sched. I-1 4C. Margined Dollar Value of Gold located at approved refiners (item 4A times $______ item 4B) 5. GOLD IN STERN LEACH POOLED ACCOUNT 5A. Dollar Value of Gold located in pooled account with Stern Leach $______ 5B. Percentage of the Dollar Value of Gold located in pooled account with Stern 90% Leach included in Borrowing Base 5C. Margined Dollar Value of Gold located in pooled account with Stern Leach $______ (item 5A times item 5(C) 6. BORROWING BASE $______ (item 1C + item 2C + item 3C + item 4C + item 5C) 7. DOLLAR VALVE OF GOLD ON CONSIGNMENT $______ 8. ACCOUNTS SUBJECT TO SECURITY INTEREST 8A. Aggregate amount owing by the Company to Scotiabank for Gold purchased from $______ Scotiabank 83. Accounts receivable of Account Debtors to the Company with respect to Gold $______ purchased from Scotiabank 8C. Accounts receivable subject to lien of Scotiabank (lesser of item 8A and $______ item 8B)
Sched. I-2 If the foregoing terms and conditions are satisfactory, please so indicate by executing on the enclosed copy of this Agreement the form of acceptance and returning it to us on or before July __, 2000, failing which this offer will expire. Yours truly, THE BANK OF NOVA SCOTIA By: /s/ Joseph A. Lasiewski -------------------------------------- Its: Director - Metals Operations By: /s/ Randy M. Weinerman -------------------------------------- Its: Senior Manager ACCEPTED Dated: July __, 2000. COMMEMORATIVE BRANDS, INC. By: /s/ David B. Pittaway ----------------------------- Name: David B. Pittaway Title: Vice President Sched. I-3 PLANTS AND APPROVED LOCATIONS OWNED PROPERTY: 1. 7211 Circle S Road, Austin, TX LEASED PROPERTY: 1. 7101 Intermodal Drive, Louisville, KY 2. 6404 Burleson Road, Suite 120, Austin, TX 3. 15 John Dietsch Boulevard, North Attleboro, MA 4. 4605 Osborn, El Paso, TX 5. Fulton #820, Parque Industrial Antonio J. Bermudez, Juarez, Chihuahua, Mexico MANUFACTURER AND REFINERS: 1. Stem Leach, 49 Pearl Street, Attleboro, MA; Refiner 2. Pease and Curren, 75 Pennsylvania Avenue, Worwick, RI; Refiner 3. Hereaus, 65 Euclid Avenue, Newark, NJ; Refiner 4. Handy & Harmon, 300 Rye Street, South Windsor, CT; Refiner 5. Metalor, 225 John Diestch Boulevard, North Attleboro, MA; Refiner 6. OK Casting, 3520 Charleston Road, Norman, OK; Contract Manufacturer 7. AuraFin, 770 International Parkway, Sunrise, FL; Contract Manufacturer 8. Traditional Heritage, 3051 Rd. 591, Ponce, PR; Contract Manufacturer 9. Dunhams, 7365 Remeon, Suite 8204, El Paso, TX; Contract Manufacturer 10. Richards and West, 1255 University Avenue, Rochester, NY; Contract Manufacturer 11. Herbert Stephan, Hauptstrasse 282 Idar-Oberstein Germany; Contract Manufacturer (manufactures synthetic stones and holds approximately $80,000 worth of stones belonging to CBI) Sched. I-5 EX-10.3 26 a2071988zex-10_3.txt EXHIBIT 10.3 EXHIBIT 10.3 SUBSIDIARY PLEDGE AND SECURITY AGREEMENT, DATED AS OF FEBRUARY 20, 2002, MADE BY AMERICAN ACHIEVEMENT CORPORATION IN FAVOR OF THE BANK OF NOVA SCOTIA, AS ADMINISTRATIVE AGENT FOR EACH OF THE SECURED PARTIES (AS DEFINED THEREIN) SUBSIDIARY PLEDGE AND SECURITY AGREEMENT This SUBSIDIARY PLEDGE AND SECURITY AGREEMENT, dated as of February 20, 2002 (as amended, supplemented, amended and restated or otherwise modified from time to time, this "AGREEMENT"), is made by each Subsidiary that is a U.S. Subsidiary of the Borrower (as defined below) from time to time a party to this Agreement (each individually a "GRANTOR" and collectively, the "GRANTORS"), in favor of THE BANK OF NOVA SCOTIA, as administrative agent (together with its successor(s) thereto in such capacity, the "ADMINISTRATIVE AGENT") for each of the Secured Parties. W I T N E S S E T H : WHEREAS, pursuant to a Credit Agreement, dated as of the date hereof (as amended, supplemented, amended and restated or otherwise modified from time to time, the "CREDIT AGREEMENT"), among American Achievement Corporation (formerly known as Commemorative Brands Holding Corp.), a Delaware corporation (the "BORROWER"), the Lenders, General Electric Capital Corporation, as the Syndication Agent for the Lenders, Bankers Trust Company, as the Documentation Agent for the Lenders and the Administrative Agent, the Lenders and the Issuer have extended Commitments to make Credit Extensions to the Borrower; and WHEREAS, as a condition precedent to the making of the Credit Extensions under the Credit Agreement, each Grantor is required to execute and deliver this Agreement; NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, each Grantor agrees, for the benefit of each Secured Party, as follows: ARTICLE I DEFINITIONS SECTION 1.1. CERTAIN TERMS. The following terms (whether or not underscored) when used in this Agreement, including its preamble and recitals, shall have the following meanings (such definitions to be equally applicable to the singular and plural forms thereof): "ADMINISTRATIVE AGENT" is defined in the PREAMBLE. "AGREEMENT" is defined in the PREAMBLE. "BORROWER" is defined in the FIRST RECITAL. "COLLATERAL" is defined in SECTION 2.1. "COLLATERAL ACCOUNT" is defined in CLAUSE (b) of SECTION 4.3. "COMPUTER HARDWARE AND SOFTWARE COLLATERAL" means: -2- (a) all computer and other electronic data processing hardware, integrated computer systems, central processing units, memory units, display terminals, printers, features, computer elements, card readers, tape drives, hard and soft disk drives, cables, electrical supply hardware, generators, power equalizers, accessories and all peripheral devices and other related computer hardware; (b) all software programs (including both source code, object code and all related applications and data files), whether now owned, licensed or leased or hereafter acquired by a Grantor, designed for use on the computers and electronic data processing hardware described in CLAUSE (a) above; (c) all firmware associated therewith; (d) all documentation (including flow charts, logic diagrams, manuals, guides and specifications) with respect to such hardware, software and firmware described in the preceding CLAUSES (a) through (c); and (e) all rights with respect to all of the foregoing, including any and all copyrights, licenses, options, warranties, service contracts, program services, test rights, maintenance rights, support rights, improvement rights, renewal rights and indemnifications and any substitutions, replacements, additions or model conversions of any of the foregoing. "CONTROL AGREEMENT" means an agreement in form and substance satisfactory to the Administrative Agent which provides for the Administrative Agent to have "control" (as defined in Section 8-106 of the UCC, as such term relates to investment property (other than certificated securities or commodity contracts), or as used in Section 9-106 of the UCC, as such term relates to commodity contracts). "COPYRIGHT COLLATERAL" means all copyrights of the Grantors, whether statutory or common law, registered or unregistered and whether published or unpublished, now or hereafter in force throughout the world including all of the Grantors' rights, titles and interests in and to all copyrights registered in the United States Copyright Office or anywhere else in the world, including the copyrights referred to in ITEM A of SCHEDULE V hereto, and registrations and recordings thereof and all applications for registration thereof, whether pending or in preparation, all copyright licenses, including each copyright license referred to in ITEM B of SCHEDULE V hereto, the right to sue for past, present and future infringements of any of the foregoing, all rights corresponding thereto, all extensions and renewals of any thereof and all proceeds of the foregoing, including licenses, royalties, income, payments, claims, damages and proceeds of suit. "CREDIT AGREEMENT" is defined in the FIRST RECITAL. "DISTRIBUTIONS" means all non-cash dividends paid on Capital Securities, liquidating dividends paid on Capital Securities, Capital Securities resulting from (or in connection with the exercise of) stock splits, reclassifications, warrants, options, non-cash dividends, mergers and consolidations, and all other distributions (whether similar or dissimilar to the foregoing) on or with respect to any Capital Securities constituting Collateral, but excluding Dividends. -3- "DIVIDENDS" means cash dividends and cash distributions with respect to any Capital Securities constituting Collateral that are not a liquidating dividend. "GOLD CONSIGNOR" means The Bank of Nova Scotia, in its capacity as consignor under the Gold Consignment Agreement (or its Affiliates in such capacity). "GRANTOR" and "GRANTORS" are defined in the PREAMBLE. "INTELLECTUAL PROPERTY COLLATERAL" means, collectively, the Computer Hardware and Software Collateral, the Copyright Collateral, the Patent Collateral, the Trademark Collateral and the Trade Secrets Collateral. "PATENT COLLATERAL" means: (a) all letters patent and applications for letters patent throughout the world, including all patent applications in preparation for filing and each patent and patent application referred to in ITEM A of SCHEDULE III hereto; (b) all reissues, divisions, continuations, continuations-in-part, extensions, renewals and reexaminations of any of the items described in CLAUSE (a); (c) all patent licenses, and other agreements providing a Grantor with the right to use any items of the type referred to in CLAUSES (a) and (b) above, including each patent license referred to in ITEM B of SCHEDULE III hereto; and (d) all proceeds of, and rights associated with, the foregoing (including license royalties and proceeds of infringement suits), the right to sue third parties for past, present or future infringements of any patent or patent application, and for breach or enforcement of any patent license. "PLEDGED NOTE" means a promissory note payable to the Grantor, in form and substance satisfactory to the Administrative Agent, as amended, modified or supplemented from time to time in accordance with CLAUSE (c) of SECTION 4.7, together with any notes delivered in extension or renewal thereof or substitution therefor. "RECEIVABLES" is defined in CLAUSE (c) of SECTION 2.1. "RELATED CONTRACTS" is defined in CLAUSE (c) of SECTION 2.1. "RESTRICTED ASSET" is defined in SECTION 2.1. "SECURED PARTY" means, collectively, (i) each of the Secured Parties, as such term is defined in the Credit Agreement and (ii) the Gold Consignor. "SECURITIES ACT" is defined in CLAUSE (a) of SECTION 6.2. "SPECIFIED EVENT" means the occurrence and continuance of a Default under clauses (a) through (d) of Section 8.1.9 of the Credit Agreement or any other Event of Default. -4- "TERMINATION DATE" means the date on which (i) all Obligations (other than contingent indemnification obligations to the extent no unsatisfied claim giving rise thereto has been asserted) have been paid in full in cash, all Letters of Credit have been terminated or expired (or been Cash Collateralized), all Rate Protection Agreements have been terminated and all Commitments shall have terminated and (ii) all obligations (other than contingent indemnification obligations to the extent no unsatisfied claim giving rise thereto has been asserted) arising under or in connection with the Gold Consignment Agreement (and related documents and instruments) have been paid in full in cash and all commitments of the Gold Consignor thereunder have terminated. "TRADEMARK COLLATERAL" means: (e) (i) all trademarks, trade names, corporate names, company names, business names, fictitious business names, trade styles, service marks, certification marks, collective marks, logos and other source or business identifiers, and all goodwill of the business associated therewith, now existing or hereafter adopted or acquired including those referred to in ITEM A of SCHEDULE IV hereto, whether currently in use or not, all registrations and recordings thereof and all applications in connection therewith, whether pending or in preparation for filing, including registrations, recordings and applications in the United States Patent and Trademark Office or in any office or agency of the United States of America or any State thereof or any other country or political subdivision thereof or otherwise, and all common-law rights relating to the foregoing, and (ii) the right to obtain all reissues, extensions or renewals of the foregoing (collectively referred to as the "TRADEMARK"); (f) all Trademark licenses for the grant by or to a Grantor of any right to use any Trademark, including each Trademark license referred to in ITEM B of SCHEDULE IV hereto; (g) all of the goodwill of the business connected with the use of, and symbolized by the items described in, clause (a) and, to the extent applicable clause (b); (h) the right to sue third parties for past, present and future infringements of any Trademark Collateral described in clause (a) and, to the extent applicable, clause (b); and (i) all proceeds of, and rights associated with, the foregoing, including any claim by a Grantor against third parties for past, present or future infringement or dilution of any Trademark, Trademark registration or Trademark license, or for any injury to the goodwill associated with the use of any such Trademark or for breach or enforcement of any Trademark license and all rights corresponding thereto throughout the world. "TRADE SECRETS COLLATERAL" means all common law and statutory trade secrets and all other confidential, proprietary or useful information and all know-how obtained by or used in or contemplated at any time for use in the business of a Grantor (all of the foregoing being collectively called a "TRADE SECRET"), whether or not such Trade Secret has been reduced to a writing or other tangible form, including all documents and things embodying, incorporating or referring in any way to such Trade Secret, all Trade Secret licenses, including each Trade Secret license referred to in SCHEDULE VI hereto, and including the right to sue for and to enjoin and to -5- collect damages for the actual or threatened misappropriation of any Trade Secret and for the breach or enforcement of any such Trade Secret license. SECTION 1.2. CREDIT AGREEMENT DEFINITIONS. Unless otherwise defined herein or the context otherwise requires, terms used in this Agreement, including its preamble, recitals, schedules and exhibits, have the meanings provided in the Credit Agreement. SECTION 1.3. UCC DEFINITIONS. Unless otherwise defined herein or in the Credit Agreement or the context otherwise requires, terms for which meanings are provided in the UCC are used in this Agreement, including its preamble, recitals, schedules and exhibits, with such meanings. ARTICLE II SECURITY INTEREST SECTION 2.1. GRANT OF SECURITY INTEREST. Each Grantor hereby assigns, pledges, hypothecates, charges, mortgages, delivers, and transfers to the Administrative Agent, for its benefit and the ratable benefit of each other Secured Party, and hereby grants to the Administrative Agent, for its benefit and the ratable benefit of each other Secured Party, a continuing security interest in all assets, including without limitation all of the following property, whether tangible or intangible, whether now or hereafter existing, owned or acquired by such Grantor, and wherever located (the "COLLATERAL"): (a) (i) all investment property in which such Grantor has an interest (including the Capital Securities of each issuer of such Capital Securities described in SCHEDULE I hereto) and (ii) all other Capital Securities which are interests in limited liability companies or partnerships in which such Grantor has an interest (including the Capital Securities of each issuer of such Capital Securities described in ITEM A of SCHEDULE I hereto), in each case together with Dividends and Distributions payable in respect of the Collateral described in the foregoing CLAUSES (a)(i) and (a)(ii); (b) all goods, including all equipment (including any equipment that is or may constitute a fixture) and inventory in all of its forms of such Grantor; (c) all accounts, contracts, contract rights, chattel paper, documents, instruments, promissory notes (including Pledged Notes described in ITEM B of SCHEDULE I) and general intangibles (including tax refunds and all payment intangibles) of such Grantor, whether or not arising out of or in connection with the sale or lease of goods or the rendering of services, and all rights of such Grantor now or hereafter existing in and to all security agreements, guaranties, leases and other contracts securing or otherwise relating to any such accounts, contracts, contract rights, chattel paper, documents, instruments, promissory notes and general intangibles (all of the foregoing collectively referred to as the "RECEIVABLES", and any and all such security agreements, guaranties, leases and other contracts collectively referred to as the "RELATED CONTRACTS"); (d) all Intellectual Property Collateral of such Grantor; -6- (e) all deposit accounts (including the Collateral Account) of such Grantor and all cash, checks, drafts, notes, bills of exchange, money orders, other like instruments and all investment property held in the Collateral Account (or in any sub-account thereof) and all interest and earnings in respect thereof; (f) all of such Grantor's letter of credit rights; (g) all commercial tort claims in which such Grantor has rights (including as a plaintiff), as set forth on ITEM F of SCHEDULE II hereto; (h) all books, records, writings, data bases, information and other property relating to, used or useful in connection with, evidencing, embodying, incorporating or referring to, any of the foregoing in this Section; (i) all of such Grantor's other property and rights of every kind and description and interests therein; and (j) all products, offspring, rents, issues, profits, returns, income, supporting obligations and proceeds of and from any and all of the foregoing Collateral (including proceeds which constitute property of the types described in CLAUSES (a) through (i), and, to the extent not otherwise included, all payments under insurance (whether or not the Administrative Agent is the loss payee thereof), or any indemnity, warranty or guaranty, payable by reason of loss or damage to or otherwise with respect to any of the foregoing Collateral). Notwithstanding the foregoing, "Collateral" shall not include (i) such Grantor's real property leaseholds; (ii) any general intangibles or other rights arising under any contracts, instruments, licenses or other documents as to which the grant of a security interest would (A) constitute a violation of a valid and enforceable restriction in favor of a third party on such grant, unless and until any required consents shall have been obtained or (B) give any other party to such contract, instrument, license or other document the right to terminate its obligations thereunder (the "RESTRICTED ASSETS"), PROVIDED that this clause shall not limit the grant of any security interest in any proceeds of any Restricted Asset or any Restricted Asset to the extent that the UCC or any other applicable law provides that such grant of security interest is effective irrespective of any prohibitions to such grant provided in the underlying contract, instrument, license or other document; and (iii) Capital Securities of a Foreign Subsidiary in excess of 65% of the total combined voting power of all Capital Securities of such Foreign Subsidiary (other than a Foreign Subsidiary that (i) is treated as a partnership under the Code or (ii) is not treated as an entity that is separate from such Grantor); PROVIDED, that, if any change in, or the introduction, adoption, effectiveness, interpretation, reinterpretation or phase in of, any law or regulation, directive or guidelines of any Governmental Authority could reasonably be expected to reduce the amount of United States federal income tax that would otherwise be payable by such Grantor if it pledged more than 65% of such combined voting power, then the Administrative Agent or the Required Lenders may require such Grantor to pledge more than 65% of the Capital Securities of such Foreign Subsidiary. SECTION 2.2. SECURITY FOR OBLIGATIONS. This Agreement and the Collateral in which the Administrative Agent for the benefit of the Secured Parties is granted a security interest -7- hereunder by the Grantors secures the payment of all Obligations now or hereafter existing. SECTION 2.3. GRANTORS REMAIN LIABLE. Anything herein to the contrary notwithstanding (a) the Grantors will remain liable under the contracts and agreements included in the Collateral to the extent set forth therein, and will perform all of their duties and obligations under such contracts and agreements to the same extent as if this Agreement had not been executed; (b) the exercise by the Administrative Agent of any of its rights hereunder will not release any Grantor from any of its duties or obligations under any such contracts or agreements included in the Collateral; and (c) no Secured Party will have any obligation or liability (other than as a result of such Secured Party's gross negligence or willful misconduct) under any contracts or agreements included in the Collateral by reason of this Agreement, nor will any Secured Party be obligated to perform any of the obligations or duties of any Grantor thereunder or to take any action to collect or enforce any claim for payment assigned hereunder. SECTION 2.4. DIVIDENDS ON PLEDGED SHARES. In the event that any Dividend with respect to any Capital Securities pledged hereunder is permitted to be paid (in accordance with Section 7.2.6 of the Credit Agreement), such Dividend or payment may be paid directly to the applicable Grantor. If any Dividend or payment is paid in contravention of Section 7.2.6 of the Credit Agreement, then such Grantor shall hold the same segregated and in trust for the Administrative Agent until paid to the Administrative Agent in accordance with SECTION 4.1.5 hereto. SECTION 2.5. CBI SENIOR SUBORDINATED NOTES. (a) Notwithstanding any other provision in this Agreement to the contrary, the Administrative Agent shall not be entitled to exercise any rights or remedies under this Agreement against the CBI Senior Subordinated Notes purchased by Taylor Holding Co. on or around July 27, 2000 (collectively, the "PLEDGED CBI SENIOR SUBORDINATED NOTES"), unless and until an Event of Default has occurred and is continuing under Section 8.1.9 of the Credit Agreement (any such Event of Default is herein referred to as a "BANKRUPTCY EVENT OF DEFAULT") and if any such Bankruptcy Event of Default has occurred and is continuing, the only rights the Administrative Agent shall have with respect to the Pledged CBI Senior Subordinated Notes shall be to exercise voting rights pertaining to the Pledged CBI Senior Subordinated Notes (but not to assign such rights to vote) and collect payments owing thereon for application to the Obligations in accordance with SECTION 6.1 (but not the right to assign such rights to collect payment). It being understood that the Administrative Agent shall not be (x) entitled to exercise the aforementioned voting rights unless the then acting Administrative Agent was a party to the Credit Agreement as of the Closing Date or for at least six months prior to the occurrence of the Bankruptcy Event of Default and the Required Lenders directing the Administrative Agent to vote in the exercise of the aforementioned voting rights were a -8- party to the Credit Agreement as of the Closing Date or for at least six months prior to the occurrence of the Bankruptcy Event of Default or (y) permitted to assign such voting rights or such collection rights except to a successor Administrative Agent under the Credit Agreement (bound as the Administrative Agent to the terms hereof). The Administrative Agent shall not assign, pledge, sell or otherwise transfer in any manner whatsoever the Pledged CBI Senior Subordinated Notes to any Person at any time for any reason. The Administrative Agent acknowledges and agrees that a breach of any of the covenants contained in this CLAUSE (a) will cause irreparable injury to the Obligors and that the Obligors have no adequate remedy at law in respect of such breaches and therefore agrees that such covenants of the Administrative Agent contained in this CLAUSE (a) shall be specifically enforceable against the Administrative Agent. (b) Taylor Holding Co. shall not assign, pledge (except in favor of the Administrative Agent), sell or otherwise transfer in any manner whatsoever the Pledged CBI Senior Subordinated Notes to any Person. Taylor Holding Co. acknowledges and agrees that a breach of the covenant contained in this CLAUSE (b) will cause irreparable injury to the Administrative Agent and the other Secured Parties and that the Administrative Agent has no adequate remedy at law in respect of such breaches and therefore agrees, without limiting the right of the Administrative Agent to seek and obtain specific performance of other obligations of any Obligor contained in this Agreement, that such covenant of Taylor Holding Co. contained in this CLAUSE (b) shall be specifically enforceable against Taylor Holding Co. SECTION 2.6. POSTPONEMENT OF SUBROGATION. Each Grantor agrees that it will not exercise any rights which it may acquire by way of rights of subrogation under any Loan Document to which it is a party. No Grantor shall seek or be entitled to seek any contribution or reimbursement from any Obligor, in respect of any payment made under any Loan Document or otherwise, until following the Termination Date. Any amount paid to such Grantor on account of any such subrogation rights prior to the Termination Date shall be held in trust for the benefit of the Secured Parties and shall immediately be paid and turned over to the Administrative Agent for the benefit of the Secured Parties in the exact form received by such Grantor (duly endorsed in favor of the Administrative Agent, if required), to be credited and applied against the Obligations, whether matured or unmatured, in accordance with SECTION 6.1; PROVIDED that if such Grantor has made payment to the Secured Parties of all or any part of the Obligations and the Termination Date has occurred, then at such Grantor's request, the Administrative Agent (on behalf of the Secured Parties) will, at the expense of such Grantor, execute and deliver to such Grantor appropriate documents (without recourse and without representation or warranty) necessary to evidence the transfer by subrogation to such Grantor of an interest in the Obligations resulting from such payment. In furtherance of the foregoing, at all times prior to the Termination Date, such Grantor shall refrain from taking any action or commencing any proceeding against any Obligor (or its successors or assigns, whether in connection with a bankruptcy proceeding or otherwise) to recover any amounts in respect of payments made under this Agreement to any Secured Party. -9- ARTICLE III REPRESENTATIONS AND WARRANTIES In order to induce the Secured Parties (other than the Gold Consignor) to enter into the Credit Agreement and make Credit Extensions thereunder, to induce Secured Parties (other than the Gold Consignor) to enter into Rate Protection Agreements, and to induce the Gold Consignor to continue its obligations under the Gold Consignment Agreement, the Grantors represent and warrant to each Secured Party as set forth below. SECTION 3.1. AS TO CAPITAL SECURITIES OF THE SUBSIDIARIES. With respect to any Subsidiary of any Grantor that is (a) a corporation, business trust, joint stock company or similar Person, all Capital Securities issued by such Subsidiary are duly authorized and validly issued, fully paid and non-assessable, and represented by a certificate; and (b) a partnership or limited liability company, no Capital Securities issued by such Subsidiary (i) are dealt in or traded on securities exchanges or in securities markets, (ii) expressly provide that such Capital Securities are a security governed by Article 8 of the UCC, (iii) are held in a securities account or (iv) are represented by a certificate. The percentage of the issued and outstanding Capital Securities of each Subsidiary pledged by any Grantor hereunder as of the Closing Date is as set forth on SCHEDULE I hereto. SECTION 3.2. GRANTOR NAMES, ETC. Each Grantor's jurisdiction of incorporation is set forth on ITEM A of SCHEDULE II hereto. No Grantor has any trade names other than those set forth in ITEM A of SCHEDULE II hereto. During the four months preceding the date hereof, no Grantor has been known by any legal name different from the one set forth on the signature page hereto, nor has any Grantor been the subject of any merger or other corporate reorganization. During the four months preceding the date hereof, each Grantor's equipment and inventory (if any) has been located at the places set forth in ITEM B of SCHEDULE II hereto. The Grantors' federal taxpayer identification numbers and organizational identification numbers are (and, during the four months preceding the date hereof, no Grantor has had a federal taxpayer identification number or organizational identification number different from those) set forth in ITEM C of SCHEDULE II hereto. If the Collateral of any Grantor includes any inventory located in the State of California, such Grantor is not a "retail merchant" within the meaning of Section 9102 of the California UCC. No Grantor is a party to any federal, state or local government contract which is part of the Collateral except as set forth in ITEM D of SCHEDULE II hereto. No Grantor maintains any deposit accounts with any Person except as set forth in ITEM E of SCHEDULE II hereto. As of the Closing Date, each Grantor has rights with respect to the commercial tort claims set forth on ITEM F of SCHEDULE II hereto. SECTION 3.3. OWNERSHIP, NO LIENS, ETC. Each Grantor owns its Collateral free and clear of any Lien, except for Liens (a) created by this Agreement and (b) in the case of Collateral other than any investment property (including Capital Securities), permitted by Section 7.2.3 of the Credit Agreement. No effective financing statement or other filing similar in -10- effect covering any Collateral is on file in any recording office, except those filed in favor of the Administrative Agent relating to this Agreement or those filed in connection with Liens permitted by Section 7.2.3 of the Credit Agreement or as to which a termination statement relating to such financing statement or other instrument has been delivered to the Administrative Agent on the Closing Date. No Grantor owns any Restricted Assets that would impair, in any material respect, the Administrative Agent's ability to sell or otherwise transfer such Grantor's business as a going concern. SECTION 3.4. POSSESSION OF INVENTORY, ETC. Each Grantor agrees that it will maintain exclusive possession of its goods, instruments, promissory notes and inventory, other than (a) as otherwise permitted hereunder, (b) goods sold or otherwise disposed of in accordance with Section 7.2.11 of the Credit Agreement, (c) goods being repaired, refurbished or overhauled in the ordinary course of any Grantor's business, PROVIDED, that such Collateral does not remain outside of a location specified on ITEM B of SCHEDULE II for more than sixty (60) days, (d) goods located at any other location within the continental United States or Canada, PROVIDED, that the Grantors give the Administrative Agent written notice of such location at least twenty (20) days prior to moving or locating any such Collateral at such location, (e) inventory of CBI held by sales representatives of CBI, with an aggregate value which does not exceed $500,000, (f) inventory of CBI on consignment to retail sellers with an aggregate value which does not exceed $500,000, and (g) instruments or promissory notes that have been delivered to the Administrative Agent pursuant to SECTION 3.5. None of said locations are leased by any Grantor as lessee except those designated as such on ITEM G of SCHEDULE II. No Grantor sells any inventory to any customer on approval or on any other basis which entitles the customer to return, or which may obligate such Grantor to repurchase, such inventory (other than inventory sold by CBI and Taylor, to the extent such sales are on terms consistent with past practices of CBI and Taylor, respectively). The completion of the manufacturing process of such inventory by a Person other than an Obligor would be permitted under any contract to which such Grantor is a party or to which such inventory is subject. SECTION 3.5. NEGOTIABLE DOCUMENTS, INSTRUMENTS AND CHATTEL PAPER. Each Grantor has delivered to the Administrative Agent possession of all originals of all negotiable documents, instruments, promissory notes (including Pledged Notes) and chattel paper owned or held by such Grantor on the Closing Date. SECTION 3.6. INTELLECTUAL PROPERTY COLLATERAL. With respect to any Intellectual Property Collateral the loss, impairment or infringement of which could reasonably be expected to have a Material Adverse Effect: (a) such Intellectual Property Collateral is subsisting and has not been adjudged invalid or unenforceable, in whole or in part; (b) such Intellectual Property Collateral is valid and enforceable; (c) each Grantor has made all necessary filings and recordations to protect its interest in such Intellectual Property Collateral, including recordations of all of its interests in the Patent Collateral and Trademark Collateral in the United States Patent and Trademark Office -11- and (subject to the terms of the Credit Agreement) in corresponding offices throughout the world, and its claims to the Copyright Collateral in the United States Copyright Office and (subject to the terms of the Credit Agreement) in corresponding offices throughout the world; (d) each Grantor is the exclusive owner of the entire and unencumbered right, title and interest in and to such Intellectual Property Collateral and no claim has been made that the use of such Intellectual Property Collateral does or may violate the asserted rights of any third party; and (e) each Grantor has performed and will continue to perform all acts and has paid and will continue to pay all required fees and Taxes to maintain each and every such item of Intellectual Property Collateral in full force and effect throughout the world, as applicable. Each Grantor owns directly or is entitled to use by license or otherwise, all patents, Trademarks, Trade Secrets, copyrights, mask works, licenses, technology, know-how, processes and rights with respect to any of the foregoing used in, necessary for or of importance to the conduct of such Grantor's business. SECTION 3.7. VALIDITY, ETC. This Agreement creates a valid security interest in favor of the Administrative Agent (for the benefit of the Secured Parties) in the Collateral as security for the Obligations. The Administrative Agent's having possession of all instruments and cash constituting Collateral from time to time, the recording of the Patent Security Agreement, the Trademark Security Agreement, and the Copyright Security Agreement, as applicable, executed pursuant hereto in the United States Patent and Trademark Office and the United States Copyright Office, as applicable, and the filing of the Filing Statements described in SCHEDULE VII hereto and, with respect to Patent Collateral, Trademark Collateral and Copyright Collateral hereafter existing and not covered by a Patent Security Agreement, Trademark Security Agreement or Copyright Security Agreement, as applicable, the recording in the United States Patent and Trademark Office and the United States Copyright Office, as applicable, of appropriate instruments of assignment, result in the perfection of such security interests. Such security interests are, or in the case of Collateral in which a Grantor obtains rights after the date hereof, will be, perfected, first priority security interests, subject only to the security interests and other Liens permitted pursuant to Section 7.2.3 of the Credit Agreement and the recording of such instruments of assignment. Such recordings and filings and all other action necessary or desirable to perfect and protect such security interest have been duly taken, except for the Administrative Agent's having possession of instruments and cash constituting Collateral after the date hereof and the other filings and recordations described in SECTION 3.8 hereof. SECTION 3.8. AUTHORIZATION, APPROVAL, ETC. Except as have been obtained or made and are in full force and effect, no authorization, approval or other action by, and no notice to or filing with, any Governmental Authority is required either -12- (a) for the grant by the Grantors of the security interest granted hereby, the pledge by the Grantors of any Collateral pursuant hereto or for the execution, delivery and performance of this Agreement by the Grantors; (b) for the perfection of or the exercise by the Administrative Agent of its rights and remedies hereunder except (A) the filing under the UCC as in effect in the applicable jurisdiction of the Filing Statements described in SCHEDULE VII hereto, (B) with respect to the perfection of the security interest created hereby in Patent Collateral, Trademark Collateral and Copyright Collateral in the United States, for the recording of the Patent Security Agreement, Trademark Security Agreement and Copyright Security Agreement, as applicable, in the United States Patent and Trademark Office and the United States Copyright Office, as applicable, (C) with respect to the perfection of the security interest created hereby in foreign Patent Collateral, Trademark Collateral and Copyright Collateral, for registrations and filings in jurisdictions located outside of the United States and covering rights in such jurisdictions relating to Patent Collateral, Trademark Collateral and Copyright Collateral, and (D) with respect to the perfection of the security interest created hereby in motor vehicles for which the title to such motor vehicles is governed by a certificate of title or ownership (collectively, the "MOTOR VEHICLES"), for the submission of an appropriate application requesting that the Lien of the Administrative Agent be noted on the certificate of title or ownership, completed and authenticated by each Grantor, together with the certificate of title, with respect to each Motor Vehicle, to the appropriate state agency; or (c) for the exercise by the Administrative Agent of the voting or other rights provided for in this Agreement, or, except with respect to any securities issued by a Subsidiary of the Grantors, as may be required in connection with a disposition of such securities by laws affecting the offering and sale of securities generally and the remedies in respect of the Collateral pursuant to this Agreement. SECTION 3.9. BEST INTERESTS. It is in the best interests of each Grantor to execute this Agreement inasmuch as such Grantor will, as a result of being a Subsidiary of the Borrower, derive substantial direct and indirect benefits from the Credit Extensions made from time to time to the Borrower by the Lenders and the Issuer pursuant to the Credit Agreement and the execution and delivery of Rate Protection Agreements between the Borrower, other Obligors and certain Secured Parties, and each Grantor agrees that the Secured Parties are relying on this representation in agreeing to make Credit Extensions to the Borrower. ARTICLE IV COVENANTS Each Grantor covenants and agrees that, until the Termination Date, such Grantor will perform, comply with and be bound by the obligations set forth below. SECTION 4.1. AS TO INVESTMENT PROPERTY, ETC. -13- SECTION 4.1.1. CAPITAL SECURITIES OF SUBSIDIARIES. No Grantor will allow any of its Subsidiaries that is (a) a corporation, business trust, joint stock company or similar Person, to issue uncertificated securities; and (b) a partnership or limited liability company, to (i) issue Capital Securities that are to be dealt in or traded on securities exchanges or in securities markets, (ii) expressly provide in its Organic Documents that its Capital Securities are securities governed by Article 8 of the UCC, (iii) place such Subsidiaries' Capital Securities in a securities account or (iv) cause such Subsidiaries' Capital Securities to be represented by a certificate. SECTION 4.1.2. INVESTMENT PROPERTY (OTHER THAN CERTIFICATED SECURITIES). With respect to any investment property (other than certificated securities) owned by any Grantor, such Grantor will cause a Control Agreement relating to such investment property to be executed and delivered by such Grantor and the applicable financial intermediary in favor of the Administrative Agent. SECTION 4.1.3. STOCK POWERS, ETC. Each Grantor agrees that all certificated securities delivered by such Grantor pursuant to this Agreement will be accompanied by undated stock powers duly executed in blank, or other equivalent instruments of transfer acceptable to the Administrative Agent. SECTION 4.1.4. CONTINUOUS PLEDGE. Each Grantor will (subject to the terms of the Credit Agreement) deliver to the Administrative Agent and at all times keep pledged to the Administrative Agent pursuant hereto, on a first-priority, perfected basis all Collateral, all payment intangibles to the extent they are evidenced by a document, instrument, promissory note (including a Pledged Note) or chattel paper and are, when aggregated with all other such Collateral of the Borrower and each other Grantor, in an aggregate face amount of more than $50,000, and all interest and principal with respect to the payment intangibles, and all proceeds and rights from time to time received by or distributable to such Grantor in respect of any of the foregoing Collateral. Each Grantor agrees that it will, promptly following receipt, deliver to the Administrative Agent possession of all originals of negotiable documents, instruments, promissory notes (including Pledged Notes) and chattel paper that it acquires following the Closing Date. SECTION 4.1.5. VOTING RIGHTS; DIVIDENDS, ETC. Each Grantor agrees: (a) promptly upon receipt of notice of the occurrence and continuance of a Specified Event from the Administrative Agent and without any request therefor by the Administrative Agent, so long as such Specified Event shall continue, to deliver (properly endorsed where required hereby or requested by the Administrative Agent) to the Administrative Agent all Dividends and Distributions with respect to investment property, all interest, principal, other cash payments on payment intangibles, and all proceeds of the Collateral, in each case thereafter received by such Grantor, all of which shall be held by the Administrative Agent as additional Collateral; and -14- (b) promptly upon receipt of notice of the occurrence and continuance of a Specified Event from the Administrative Agent and upon request therefor by the Administrative Agent, so long as such Specified Event shall continue, with respect to Collateral consisting of general partner interests or limited liability company interests, cause modifications to the respective Organic Documents to admit the Administrative Agent as a general partner or member, respectively; and (c) immediately upon the occurrence and continuance of a Specified Event and so long as the Administrative Agent has notified the Grantor of the Administrative Agent's intention to exercise its voting power under this clause, (i) that the Administrative Agent may exercise (to the exclusion of such Grantor) the voting power and all other incidental rights of ownership with respect to any investment property constituting Collateral and such Grantor hereby grants the Administrative Agent an irrevocable proxy, exercisable under such circumstances, to vote such investment property; and (ii) to promptly deliver to the Administrative Agent such additional proxies and other documents as may be necessary to allow the Administrative Agent to exercise such voting power. All Dividends, Distributions, interest, principal, cash payments, payment intangibles and proceeds which may at any time and from time to time be held by such Grantor but which such Grantor is then obligated to deliver to the Administrative Agent, shall, until delivery to the Administrative Agent, be held by such Grantor separate and apart from its other property in trust for the Administrative Agent. The Administrative Agent agrees that unless a Specified Event shall have occurred and be continuing and the Administrative Agent shall have given the notice referred to in CLAUSE (b), such Grantor will have the exclusive voting power with respect to any investment property constituting Collateral and the Administrative Agent will, upon the written request of such Grantor, promptly deliver such proxies and other documents, if any, as shall be reasonably requested by such Grantor which are necessary to allow such Grantor to exercise that voting power; PROVIDED that no vote shall be cast, or consent, waiver, or ratification given, or action taken by such Grantor that would impair any such Collateral or be inconsistent with or violate any provision of any Loan Document. SECTION 4.2. CHANGE OF NAME, ETC. No Grantor will change its name or place of incorporation or organization or federal taxpayer identification number except upon 30 days' prior written notice to the Administrative Agent. In addition, each Grantor shall supplement the information contained in SCHEDULE II hereto on the Compliance Certificate on each date a Compliance Certificate is required to be delivered to the Administrative Agent under the Credit Agreement, including any changes to the information set forth in SECTION 3.2. SECTION 4.3. AS TO RECEIVABLES; COLLATERAL ACCOUNT. (a) Each Grantor shall have the right to collect all Receivables so long as no Specified Event shall have occurred and be continuing. -15- (b) Upon (i) the occurrence and continuance of a Specified Event and (ii) the delivery of written notice by the Administrative Agent to each Grantor, all proceeds of Collateral received by such Grantor shall be delivered in kind to the Administrative Agent for deposit into a deposit account (the "COLLATERAL ACCOUNT") of such Grantor maintained with the Administrative Agent (or such other institution which has executed and delivered to the Administrative Agent a "lockbox" agreement in form and substance and satisfactory to the Administrative Agent), and such Grantor shall not commingle any such proceeds, and shall hold separate and apart from all other property, all such proceeds in express trust for the benefit of the Administrative Agent until delivery thereof is made to the Administrative Agent. (c) Following the delivery of notice pursuant to CLAUSE (b)(ii), the Administrative Agent shall have the right to apply any amount in the Collateral Account to the payment of any Obligations which are due and payable. (d) With respect to the Collateral Account, it is hereby confirmed and agreed that (i) deposits in each Collateral Account are subject to a security interest as contemplated hereby, (ii) each such Collateral Account shall be under the sole dominion and control of the Administrative Agent and (iii) the Administrative Agent shall have the sole right of withdrawal over the amounts deposited in such Collateral Account. SECTION 4.4. AS TO COLLATERAL. (a) Subject to CLAUSE (b), each Grantor (i) may in the ordinary course of its business, at its own expense, sell, lease or furnish under the contracts of service any of the inventory normally held by such Grantor for such purpose, and use and consume, in the ordinary course of its business, any raw materials, work in process or materials normally held by such Grantor for such purpose, (ii) will, at its own expense, endeavor to collect, as and when due, all amounts due with respect to any of the Collateral, including the taking of such action with respect to such collection as the Administrative Agent may reasonably request following the occurrence of a Specified Event or, in the absence of such request, as such Grantor may deem advisable, and (iii) may grant, in the ordinary course of business, to any party obligated on any of the Collateral, any rebate, refund or allowance to which such party may be lawfully entitled, and may accept, in connection therewith, the return of goods, the sale or lease of which shall have given rise to such Collateral. (b) At any time following the occurrence and during the continuance of a Specified Event, whether before or after the maturity of any of the Obligations, the Administrative Agent may (i) revoke any or all of the rights of each Grantor set forth in CLAUSE (a), (ii) notify any parties obligated on any of the Collateral to make payment to the Administrative Agent of any amounts due or to become due thereunder and (iii) enforce collection of any of the Collateral by suit or otherwise and surrender, release, or exchange all or any part thereof, or compromise or extend or renew for any period (whether or not longer than the original period) any indebtedness thereunder or evidenced thereby. -16- (c) Upon request of the Administrative Agent following the occurrence and during the continuance of a Specified Event, each Grantor will, at its own expense, notify any parties obligated on any of the Collateral to make payment to the Administrative Agent of any amounts due or to become due thereunder. (d) Each Grantor hereby authorizes the Administrative Agent to endorse, in the name of such Grantor, any item, howsoever received by the Administrative Agent, representing any payment on or other proceeds of any of the Collateral. SECTION 4.5. AS TO INTELLECTUAL PROPERTY COLLATERAL. Each Grantor covenants and agrees to comply with the following provisions as such provisions relate to any Intellectual Property Collateral of such Grantor: (a) such Grantor will not (i) do or fail to perform any act whereby any of the Patent Collateral may lapse or become abandoned or dedicated to the public or unenforceable, (ii) permit any of its licensees to (A) fail to continue to use any of the Trademark Collateral in order to maintain all of the Trademark Collateral in full force free from any claim of abandonment for non-use, (B) fail to maintain as in the past the quality of products and services offered under all of the Trademark Collateral, (C) fail to employ all of the Trademark Collateral registered with any federal or state or foreign authority with an appropriate notice of such registration, (D) adopt or use any other Trademark which is confusingly similar or a colorable imitation of any of the Trademark Collateral, (E) use any of the Trademark Collateral registered with any federal, state or foreign authority except for the uses for which registration or application for registration of all of the Trademark Collateral has been made or (F) do or permit any act or knowingly omit to do any act whereby any of the Trademark Collateral may lapse or become invalid or unenforceable, or (iii) do or permit any act or knowingly omit to do any act whereby any of the Copyright Collateral or any of the Trade Secrets Collateral may lapse or become invalid or unenforceable or placed in the public domain except upon expiration of the end of an unrenewable term of a registration thereof, unless, in the case of any of the foregoing requirements in CLAUSES (i), (ii) and (iii), such Grantor shall either (x) reasonably and in good faith determine that any of such Intellectual Property Collateral is of negligible economic value to such Grantor, or (y) have a valid business purpose to do otherwise; (b) such Grantor shall promptly notify the Administrative Agent if it knows, or has reason to know, that any application or registration relating to any material item of the Intellectual Property Collateral may become abandoned or dedicated to the public or placed in the public domain or invalid or unenforceable, or of any adverse determination or development (including the institution of, or any such determination or development in, any proceeding in the United States Patent and Trademark Office, the United States Copyright Office or any foreign counterpart thereof or any court) regarding such Grantor's ownership of any of the Intellectual Property Collateral, its right to register the same or to keep and maintain and enforce the same; (c) in no event will such Grantor or any of its agents, employees, designees or licensees file an application for the registration of any Intellectual Property Collateral with the United -17- States Patent and Trademark Office, the United States Copyright Office or any similar office or agency in any other country or any political subdivision thereof, unless it promptly informs the Administrative Agent, and upon request of the Administrative Agent (subject to Section 7.1.8 of the Credit Agreement), executes and delivers all agreements, instruments and documents as the Administrative Agent may reasonably request to evidence the Administrative Agent's security interest in such Intellectual Property Collateral; (d) such Grantor will take all necessary steps, including in any proceeding before the United States Patent and Trademark Office, the United States Copyright Office or (subject to Section 7.1.8 of the Credit Agreement) any similar office or agency in any other country or any political subdivision thereof, to maintain and pursue any application (and to obtain the relevant registration) filed with respect to, and to maintain any registration of, the Intellectual Property Collateral, including the filing of applications for renewal, affidavits of use, affidavits of incontestability and opposition, interference and cancellation proceedings and the payment of fees and taxes (except to the extent that dedication, abandonment or invalidation is permitted under the foregoing CLAUSE (a) or (b)); and (e) such Grantor will promptly (but no less than quarterly) execute and deliver to the Administrative Agent (as applicable) a Patent Security Agreement, Trademark Security Agreement and/or Copyright Security Agreement, as the case may be, in the forms of EXHIBIT A, EXHIBIT B and EXHIBIT C hereto following its obtaining an interest in any such Intellectual Property, and shall execute and deliver to the Administrative Agent any other document required to acknowledge or register or perfect the Administrative Agent's interest in any part of such item of Intellectual Property Collateral. SECTION 4.6. BAILEES. With respect to Collateral that is in the possession of any landlord, refinery, consignee, warehouseman, bailee, agent or processor, upon the request of the Administrative Agent, any Grantor so requested shall promptly upon such request use its best efforts to enter into a landlord, refinery, consignee, warehouseman, bailee, agent or processor arrangement (including but not limited to a waiver of any Lien held by such Person against such Collateral) in form and substance reasonably satisfactory to the Administrative Agent. Upon the request of the Administrative Agent, such Grantor shall provide warehouse receipts or bailee letters reasonably satisfactory to the Administrative Agent prior to the commencement of such storage with any such Person. The applicable Grantor shall, upon the request of the Administrative Agent, notify any such landlord, refinery, consignee, warehouseman, bailee, agent, processor or other Person of the security interest created hereby and shall instruct such Person to hold all such Collateral for the account of the Administrative Agent subject to the instructions of the Administrative Agent. SECTION 4.7. FURTHER ASSURANCES, ETC. Each Grantor agrees that, from time to time at its own expense, it will promptly execute and deliver all further instruments and documents, and take all further action, that may be necessary or that the Administrative Agent may reasonably request, in order to perfect, preserve and protect any security interest granted or purported to be granted hereby or to enable the Administrative Agent to exercise and -18- enforce its rights and remedies hereunder with respect to any Collateral. Without limiting the generality of the foregoing, such Grantor will (a) from time to time upon the request of the Administrative Agent, promptly deliver to the Administrative Agent such stock powers, instruments and similar documents, satisfactory in form and substance to the Administrative Agent, with respect to such Collateral as the Administrative Agent may reasonably request and will, from time to time upon the request of the Administrative Agent after the occurrence and during the continuance of any Specified Event promptly transfer any securities constituting Collateral into the name of any nominee designated by the Administrative Agent; if any Account or Receivable shall be evidenced by an instrument, negotiable document, promissory note or chattel paper, deliver and pledge to the Administrative Agent hereunder such instrument, negotiable document, promissory note or chattel paper duly endorsed and accompanied by duly executed instruments of transfer or assignment, all in form and substance satisfactory to the Administrative Agent; (b) file (or cause to be filed) such Filing Statements or continuation statements, or amendments thereto, and such other instruments or notices (including any assignment of claim form under or pursuant to the federal assignment of claims statute, 31 U.S.C. Section 3726, any successor or amended version thereof or any regulation promulgated under or pursuant to any version thereof), as may be necessary or that the Administrative Agent may reasonably request in order to perfect and preserve the security interests and other rights granted or purported to be granted to the Administrative Agent hereby; (c) deliver to the Administrative Agent and at all times keep pledged to the Administrative Agent pursuant hereto, on a first-priority, perfected basis, at the reasonable request of the Administrative Agent, all investment property constituting Collateral, all Dividends and Distributions with respect thereto, and all interest and principal with respect to promissory notes (including Pledged Notes), and all proceeds and rights from time to time received by or distributable to such Grantor in respect of any of the foregoing Collateral; (d) except as permitted by the terms of the Credit Agreement, not take or omit to take any action the taking or the omission of which would result in any impairment or alteration of any obligation of the maker of any payment intangible or other instrument constituting Collateral; (e) not acquire any Restricted Assets (or acquire a series of related Restricted Assets) if such acquisition (or series of related acquisitions) would impair, in any material respect, the Administrative Agent's ability to sell or otherwise transfer such Grantor's business as a going concern; (f) furnish to the Administrative Agent, from time to time at the Administrative Agent's request, statements and schedules further identifying and describing the Collateral and such other reports in connection with the Collateral as the Administrative Agent may reasonably request, all in reasonable detail; -19- (g) not permit any items of equipment to become fixtures to real estate other than real estate subject to a Mortgage or real estate owned by a landlord that has signed a landlord's waiver in form and substance satisfactory to the Administrative Agent (for its own benefit and on behalf of the Secured Parties); (h) not adjust, settle or compromise any account, or release wholly or partly any party or obligation thereof, or allow any credit or discount thereon (collectively an "Adjustment"), unless (i) the Administrative Agent grants its consent prior to any such Adjustment which consent shall not be unreasonably withheld or delayed or (ii) such Adjustment is made in the ordinary course of business of such Grantor and is for an amount not in excess of $50,000 (provided that no such Adjustment may be made without the prior written consent of the Administrative Agent during the continuance of a Specified Event); (i) do all things reasonably requested by the Administrative Agent in order to enable the Administrative Agent to have control (as such term is defined in Article 8 and Article 9 of any applicable Uniform Commercial Code relevant to the creation, perfection or priority of Collateral consisting of deposit accounts, accounts and letter of credit rights) over any Collateral; and (j) promptly notify the Administrative Agent if such Grantor believes it has rights in respect of any amounts in a commercial tort claim and such Grantor shall take all such action reasonably requested by the Administrative Agent perfect the Administrative Agent's security interest in such commercial tort claim. With respect to the foregoing and the grant of the security interest hereunder, each Grantor hereby authorizes the Administrative Agent to file one or more financing or continuation statements, and amendments thereto, relative to all or any part of the Collateral without the signature of such Grantor where permitted by law. Each Grantor agrees that a carbon, photographic or other reproduction of this Agreement or any financing statement covering the Collateral or any part thereof shall be sufficient as a financing statement where permitted by law. SECTION 4.8. FILING REQUIREMENTS. None of the Collateral (other than motor vehicles not having a market value in excess of $75,000 in the aggregate) is covered by any certificate of title. Upon request of the Administrative Agent, each Grantor shall promptly deliver to the Administrative Agent any and all certificates of title, applications for title or similar evidence of ownership of such Collateral and shall cause the Administrative Agent to be named as lienholder on any such certificate of title or other evidence of ownership. None of the Collateral is of a type in which security interests or liens may be registered, recorded or filed under, or notice thereof given under, any federal statute or regulation except for Collateral described on the schedules to any Copyright Security Agreement, Patent Security Agreement or Trademark Security Agreement. Each Grantor shall promptly notify the Administrative Agent in writing upon acquiring any interest hereafter in any property which constitutes "Collateral" under this Agreement and which is of a type where a security interest or lien may be registered, recorded or filed under, or notice thereof given under, any federal statute or regulation. -20- SECTION 4.9. COLLATERAL REQUIREMENTS. Taylor Holding Co. hereby agrees that it will not maintain any assets or other property (other than CBI Senior Subordinated Notes held by it as of the Closing Date or thereafter) with State Street Bank and Trust Company or any of its affiliates. ARTICLE V THE ADMINISTRATIVE AGENT SECTION 5.1. ADMINISTRATIVE AGENT APPOINTED ATTORNEY-IN-FACT. Each Grantor hereby irrevocably appoints the Administrative Agent its attorney-in-fact, with full authority in the place and stead of such Grantor and in the name of such Grantor or otherwise, from time to time in the Administrative Agent's discretion, following the occurrence and during the continuance of a Specified Event, to take any action and to execute any instrument which the Administrative Agent may deem necessary or advisable to accomplish the purposes of this Agreement, including: (a) to ask, demand, collect, sue for, recover, compromise, receive and give acquittance and receipts for moneys due and to become due under or in respect of any of the Collateral; (b) to receive, endorse, and collect any drafts or other instruments, documents and chattel paper, in connection with CLAUSE (a) above; (c) to file any claims or take any action or institute any proceedings which the Administrative Agent may deem necessary or desirable for the collection of any of the Collateral or otherwise to enforce the rights of the Administrative Agent with respect to any of the Collateral; and (d) to perform the affirmative obligations of such Grantor hereunder (including all obligations of such Grantor pursuant to SECTION 4.6). Each Grantor hereby acknowledges, consents and agrees that the power of attorney granted pursuant to this Section is irrevocable and coupled with an interest. SECTION 5.2. ADMINISTRATIVE AGENT MAY PERFORM. If any Grantor fails to perform any agreement contained herein, the Administrative Agent may itself perform, or cause performance of, such agreement, and the expenses of the Administrative Agent incurred in connection therewith shall be payable by such Grantor pursuant to SECTION 6.4. SECTION 5.3. ADMINISTRATIVE AGENT HAS NO DUTY. The powers conferred on the Administrative Agent hereunder are solely to protect its interest (on behalf of the Secured Parties) in the Collateral and shall not impose any duty on it to exercise any such powers. Except for reasonable care of any Collateral in its possession and the accounting for moneys actually received by it hereunder, the Administrative Agent shall have no duty as to any Collateral or responsibility for (a) ascertaining or taking action with respect to calls, conversions, exchanges, maturities, tenders or other matters relative to any investment property, whether or not the Administrative Agent has or is deemed to have knowledge of such matters, or -21- (b) taking any necessary steps to preserve rights against prior parties or any other rights pertaining to any Collateral. SECTION 5.4. REASONABLE CARE. The Administrative Agent is required to exercise reasonable care in the custody and preservation of any of the Collateral in its possession; PROVIDED, that the Administrative Agent shall be deemed to have exercised reasonable care in the custody and preservation of any of the Collateral, if it takes such action for that purpose as each Grantor reasonably requests in writing at times other than upon the occurrence and during the continuance of any Specified Event, but failure of the Administrative Agent to comply with any such request at any time shall not in itself be deemed a failure to exercise reasonable care. ARTICLE VI REMEDIES SECTION 6.1. CERTAIN REMEDIES. If any Specified Event shall have occurred and be continuing: (a) The Administrative Agent may exercise in respect of the Collateral, in addition to other rights and remedies provided for herein or otherwise available to it, all the rights and remedies of a secured party on default under the UCC (whether or not the UCC applies to the affected Collateral) and also may (i) require each Grantor to, and each Grantor hereby agrees that it will, at its expense and upon request of the Administrative Agent forthwith, assemble all or part of the Collateral as directed by the Administrative Agent and make it available to the Administrative Agent at a place to be designated by the Administrative Agent which is reasonably convenient to both parties, and (ii) without notice except as specified below, sell the Collateral or any part thereof in one or more parcels at public or private sale, at any of the Administrative Agent's offices or elsewhere, for cash, on credit or for future delivery, and upon such other terms as the Administrative Agent may deem commercially reasonable. Each Grantor agrees that, to the extent notice of sale shall be required by law, at least ten days prior notice to such Grantor of the time and place of any public sale or the time after which any private sale is to be made shall constitute reasonable notification. The Administrative Agent shall not be obligated to make any sale of Collateral regardless of notice of sale having been given. The Administrative Agent may adjourn any public or private sale from time to time by announcement at the time and place fixed therefor, and such sale may, without further notice, be made at the time and place to which it was so adjourned. (b) All cash proceeds received by the Administrative Agent in respect of any sale of, collection from, or other realization upon, all or any part of the Collateral may, in the discretion of the Administrative Agent, be held by the Administrative Agent as collateral for, and/or then or at any time thereafter applied by the Administrative Agent against all or any part of the Obligations as follows: -22- (i) FIRST, to the payment of any amounts payable to the Administrative Agent, in its capacity as Administrative Agent, pursuant to Section 10.3 of the Credit Agreement and SECTION 6.4; (ii) SECOND, to the equal and ratable payment of the Obligations, applied as to each Secured Party: (A) first to fees then due to such Secured Party, (B) then to interest due to such Secured Party, (C) then to the Cash Collateralization of all Letter of Credit Outstandings, (D) then to principal amounts owing to, or to reduce the "credit exposure" of, such Secured Party with respect to the Loans or the Gold Consignment Agreement, or under such Rate Protection Agreement, as the case may be, and (E) then to the remaining outstanding Obligations, including, without duplication of any amounts paid pursuant to this clause, to the amounts owing pursuant to Section 10.4 of the Credit Agreement and Sections 26 and 33 of the Gold Consignment Agreement; and (iii) THIRD, to the applicable Grantor or to whomsoever may be lawfully entitled to receive such surplus. For purposes of this Agreement, the "credit exposure" at any time of any Secured Party with respect to a Rate Protection Agreement to which such Secured Party is a party shall be determined at such time in accordance with the customary methods of calculating credit exposure under similar arrangements by the counterparty to such arrangements, taking into account potential interest rate movements and the respective termination provisions and notional principal amount and term of such Rate Protection Agreement. (c) The Administrative Agent may (i) transfer all or any part of the Collateral into the name of the Administrative Agent or its nominee, with or without disclosing that such Collateral is subject to the Lien hereunder, (ii) notify the parties obligated on any of the Collateral to make payment to the Administrative Agent of any amount due or to become due thereunder, (iii) enforce collection of any of the Collateral by suit or otherwise, and surrender, release or exchange all or any part thereof, or compromise or extend or renew for any period (whether or not longer than the original period) any obligations of any nature of any party with respect thereto, (iv) endorse any checks, drafts, or other writings in any Grantor's name to allow collection of the Collateral, (v) take control of any proceeds of the Collateral, and (vi) execute (in the name, place and stead of any Grantor) endorsements, assignments, stock powers and other instruments of conveyance or transfer with respect to all or any of the Collateral. -23- SECTION 6.2. SECURITIES LAWS. If the Administrative Agent shall determine to exercise its right to sell all or any of the Collateral pursuant to SECTION 6.1, each Grantor agrees that, upon request of the Administrative Agent, such Grantor will, at its own expense: (a) execute and deliver, and cause (or, with respect to any issuer which is not a Subsidiary of the Grantor, use its best efforts to cause) each issuer of the Capital Securities contemplated to be sold and the directors and officers thereof to execute and deliver, all such instruments and documents, and do or cause to be done all such other acts and things, as may be necessary or, in the opinion of the Administrative Agent, advisable to register such Capital Securities under the provisions of the Securities Act of 1933, as from time to time amended (the "Securities Act"), and cause the registration statement relating thereto to become effective and to remain effective for such period as prospectuses are required by law to be furnished, and to make all amendments and supplements thereto and to the related prospectus which, in the reasonable opinion of the Administrative Agent, are necessary or advisable, all in conformity with the requirements of the Securities Act and the rules and regulations of the SEC applicable thereto; (b) use its best efforts to exempt such Capital Securities under the state securities or "Blue Sky" laws and to obtain all necessary governmental approvals for the sale of such Capital Securities, as requested by the Administrative Agent; (c) cause (or, with respect to any issuer which is not a Subsidiary of the Grantor, use its best efforts to cause) each such issuer to make available to its security holders, as soon as practicable, an earnings statement that will satisfy the provisions of Section 11(a) of the Securities Act; and (d) do or cause to be done all such other acts and things as may be necessary to make such sale of such Collateral or any part thereof valid and binding and in compliance with applicable law. Each Grantor further acknowledges the impossibility of ascertaining the amount of damages that would be suffered by the Administrative Agent or the Secured Parties by reason of the failure by such Grantor to perform any of the covenants contained in this Section and consequently agrees that, if such Grantor shall fail to perform any of such covenants, it shall pay, as liquidated damages and not as a penalty, an amount equal to the value (as determined by the Administrative Agent) of such Collateral on the date the Administrative Agent shall demand compliance with this Section. SECTION 6.3. COMPLIANCE WITH RESTRICTIONS. Each Grantor agrees that in any sale of any of the Collateral whenever a Specified Event shall have occurred and be continuing, the Administrative Agent is hereby authorized to comply with any limitation or restriction in connection with such sale as it may be advised by counsel is necessary in order to avoid any violation of applicable law (including compliance with such procedures as may restrict the number of prospective bidders and purchasers, require that such prospective bidders and purchasers have certain qualifications, and restrict such prospective bidders and purchasers to Persons who will represent and agree that they are purchasing for their own account for investment and not with a view to the distribution or resale of such -24- Collateral), or in order to obtain any required approval of the sale or of the purchaser by any Governmental Authority or official, and such Grantor further agrees that such compliance shall not result in such sale being considered or deemed not to have been made in a commercially reasonable manner, nor shall the Administrative Agent be liable nor accountable to such Grantor for any discount allowed by the reason of the fact that such Collateral is sold in compliance with any such limitation or restriction. SECTION 6.4. INDEMNITY AND EXPENSES. (a) Each Grantor agrees to indemnify the Administrative Agent from and against any and all claims, losses and liabilities arising out of or resulting from this Agreement (including enforcement of this Agreement), except claims, losses or liabilities resulting from the Administrative Agent's gross negligence or wilful misconduct. (b) Each Grantor will, upon demand, pay to the Administrative Agent the amount of any and all reasonable expenses, including the reasonable fees and disbursements of its counsel and of any experts and agents, which the Administrative Agent may incur in connection with: (i) the administration of each Loan Document, (ii) the custody, preservation, use or operation of, or the sale of, collection from, or other realization upon, any of the Collateral, (iii) the exercise or enforcement of any of the rights of the Administrative Agent or the Secured Parties hereunder, and (iv) the failure by such Grantor to perform or observe any of the provisions hereof. SECTION 6.5. PROTECTION OF COLLATERAL. The Administrative Agent may from time to time, at its option, perform any act which any Grantor fails to perform after being requested in writing so to perform (it being understood that no such request need be given after the occurrence and during the continuance of a Specified Event) and the Administrative Agent may from time to time take any other action which the Administrative Agent reasonably deems necessary for the maintenance, preservation or protection of any of the Collateral or of its security interest therein. ARTICLE VII MISCELLANEOUS PROVISIONS SECTION 7.1. LOAN DOCUMENT. This Agreement is a Loan Document executed pursuant to the Credit Agreement and shall (unless otherwise expressly indicated herein) be construed, administered and applied in accordance with the terms and provisions thereof, including Article X thereof. SECTION 7.2. BINDING ON SUCCESSORS, TRANSFEREES AND ASSIGNS; ASSIGNMENT. This Agreement shall remain in full force and effect until the Termination Date has occurred, shall be binding upon the Grantors and their successors, transferees and assigns and shall inure to -25- the benefit of and be enforceable by each Secured Party and its successors, transferees and assigns; PROVIDED that no Grantor may (unless otherwise permitted under the terms of the Credit Agreement) assign any of its obligations hereunder without the prior written consent of all Lenders. SECTION 7.3. AMENDMENTS, ETC. No amendment to or waiver of any provision of this Agreement, nor consent to any departure by any Grantor from its obligations under this Agreement, shall in any event be effective unless the same shall be in writing and signed by the Administrative Agent (on behalf of the Lenders or the Required Lenders, as the case may be, pursuant to Section 10.1 of the Credit Agreement) and by the Gold Consignor and the Grantors and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. SECTION 7.4. NOTICES. All notices and other communications provided for hereunder shall be in writing or by facsimile and addressed, delivered or transmitted to the appropriate party at the address or facsimile number of such party specified in the Credit Agreement, or if to the Gold Consignor to the address or facsimile number set forth in the Gold Consignment Agreement or at such other address or facsimile number as may be designated by such Person in a notice to the other party (and to the Gold Consignor). Any notice or other communication, if mailed and properly addressed with postage prepaid or if properly addressed and sent by pre-paid courier service, shall be deemed given when received; any such notice or other communication, if transmitted by facsimile, shall be deemed given when transmitted and electronically confirmed. SECTION 7.5. RELEASE OF LIENS. Upon (a) the Disposition of Collateral in accordance with the Credit Agreement or (b) the occurrence of the Termination Date, the security interests granted herein shall automatically terminate with respect to (i) such Collateral (in the case of CLAUSE (a)) or (ii) all Collateral (in the case of CLAUSE (b)). Upon any such Disposition or termination, the Administrative Agent will, at the applicable Grantor's sole expense, deliver to such Grantor, without any representations, warranties or recourse of any kind whatsoever, such Collateral (in the case of clause (a)) or all Collateral (in the case of CLAUSE (b)) held by the Administrative Agent hereunder, and execute and deliver to such Grantor such documents as such Grantor shall reasonably request to evidence such termination. For the avoidance of doubt, upon the retirement, cancellation or other termination of the CBI Senior Subordinated Notes held by Taylor Holding Co. in accordance with the Credit Agreement, the Administrative Agent shall release such CBI Senior Subordinated Notes to Taylor Holding Co. contemporaneously with such retirement, cancellation or termination. SECTION 7.6. ADDITIONAL GRANTORS. Upon the execution and delivery by any other Person of a supplement in the form of ANNEX I hereto, such Person shall become a "Grantor" hereunder with the same force and effect as if it were originally a party to this Agreement and named as a "Grantor" hereunder. The execution and delivery of such supplement shall not require the consent of any other Grantor hereunder, and the rights and obligations of each Grantor hereunder shall remain in full force and effect notwithstanding the addition of any new Grantor as a party to this Agreement. -26- SECTION 7.7. NO WAIVER; REMEDIES. No failure on the part of any Secured Party to exercise, and no delay in exercising, any right hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any right hereunder preclude any other or further exercise thereof or the exercise of any other right. The remedies herein provided are cumulative and not exclusive of any remedies provided by law. SECTION 7.8. HEADINGS. The various headings of this Agreement are inserted for convenience only and shall not affect the meaning or interpretation of this Agreement or any provisions thereof. SECTION 7.9. SEVERABILITY. Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such provision and such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions of this Agreement or affecting the validity or enforceability of such provision in any other jurisdiction. SECTION 7.10. GOVERNING LAW, ENTIRE AGREEMENT, ETC. THIS AGREEMENT SHALL BE DEEMED TO BE A CONTRACT MADE UNDER AND GOVERNED BY THE INTERNAL LAWS OF THE STATE OF NEW YORK (INCLUDING FOR SUCH PURPOSE SECTIONS 5-1401 AND 5-1402 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK), EXCEPT TO THE EXTENT THAT THE VALIDITY OR PERFECTION OF THE SECURITY INTEREST HEREUNDER, OR REMEDIES HEREUNDER, IN RESPECT OF ANY PARTICULAR COLLATERAL ARE GOVERNED BY THE LAWS OF A JURISDICTION OTHER THAN THE STATE OF NEW YORK. This Agreement and the other Loan Documents constitute the entire understanding among the parties hereto with respect to the subject matter hereof and thereof and supersede any prior agreements, written or oral, with respect thereto. SECTION 7.11. COUNTERPARTS. This Agreement may be executed by the parties hereto in several counterparts, each of which shall be deemed to be an original and all of which shall constitute together but one and the same agreement. Delivery of an executed counterpart of a signature page to this Agreement by facsimile shall be effective as delivery of manually executed counterpart of this Agreement. -27- IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be duly executed and delivered by its Authorized Officer as of the date first above written. COMMEMORATIVE BRANDS, INC. By: /s/ Sherice P. Bench ------------------------------------- Name: Sherice P. Bench Title: Chief Financial Officer TP HOLDING CORP. By: /s/ Sherice P. Bench ------------------------------------- Name: Sherice P. Bench Title: Chief Financial Officer TAYLOR PUBLISHING COMPANY By: /s/ Sherice P. Bench ------------------------------------- Name: Sherice P. Bench Title: Chief Financial Officer TAYLOR PRODUCTION SERVICES COMPANY, L.P. By: TAYLOR PUBLISHING COMPANY, Its general partner By: /s/ Sherice P. Bench ------------------------------------- Name: Sherice P. Bench Title: Chief Financial Officer -28- EDUCATIONAL COMMUNICATIONS, INC. By: /s/ Sherice P. Bench ---------------------- Name: Sherice P. Bench Title: Chief Financial Officer TAYLOR SENIOR HOLDINGS CORP. By: /s/ Sherice P. Bench ---------------------- Name: Sherice P. Bench Title: Chief Financial Officer CBI NORTH AMERICA, INC. By: /s/ Sherice P. Bench ---------------------- Name: Sherice P. Bench Title: Chief Financial Officer THE BANK OF NOVA SCOTIA, as Administrative Agent By: /s/ Jerome Noto ---------------- Name: Jerome Noto Title: Director -29- SCHEDULE I to Subsidiary Pledge and Security Agreement ITEM A. CAPITAL SECURITIES
STOCK CERTIFICATE AUTHORIZED OUTSTANDING NUMBER OF % OF SHARES ISSUER (CORPORATE) CLASS OF STOCK NUMBER SHARES SHARES SHARES PLEDGED - ------------------ -------------- ---------------- --------- ---------- --------- ----------- 1. TAYLOR SENIOR HOLDING CORP. TP Holding Corp. Preferred 2 50,000 30,000 30,000 100% TP Holding Corp. Common 3 50,000 30,000 30,000 100% 2. TAYLOR HOLDING CORP. Taylor Publishing Common 2 1,000 10 10 100% Company Limited Taylor Production Partnership Services Company, L.P. Interest None 1% 3. COMMEMORATIVE BRANDS, INC. CBI North America, Inc. Common 1 3,000 1,000 1,000 100% 4. TAYLOR PUBLISHING COMPANY Limited Taylor Production Partnership Services Company L.P. Interest None 99%
30 ITEM B. PLEDGED NOTES 1. Taylor Senior Holding Corp. [None] 2. Taylor Holding Corp.
Original Principal Name of Issuer Description Amount TP Holding Corp. Intercompany Term Note (Bond 2007) $______________ Taylor Publishing Company Intercompany Term Note (Bond 2007) $______________ Commemorative Brands, Inc. Intercompany Term Note (Bond 2007) $______________ Educational Communications, Inc. Intercompany Term Note (Bond 2007) $______________ Commemorative Brands, Inc. 11% Senior Subordinated Notes due 2007 pursuant to the Indenture dated December 16, 1996, as amended by the first supplemental indenture thereto, dated as of July 21, 2000, and as further amended or modified in accordance with Section 7.2.12 $ 90,000,000
3. Commemorative Brands, Inc. [None] 4. Taylor Publishing Company [None] 5. Taylor Production Services, L.P. [None] -31- 6. CBI North America, Inc. [None] -32- SCHEDULE II to Subsidiary Pledge and Security Agreement ITEM A. JURISDICATION OF INCORPORATION; TRADE NAMES (i) Jurisdictions of Incorporation
GRANTOR JURISDICTIONAL ------- INCORPORATION/FOUNDATION ------------------------ Taylor Senior Holding Corp. Delaware Taylor Holding Corp. Delaware Commemorative Brands, Inc. Delaware Taylor Publishing Company Delaware Educational Communications, Inc. Illinois Taylor Production ServicesCompany, L.P. Delaware CBI North America, Inc. Delaware
(ii) TRADENAMES 1. Taylor Reunion Services, a tradename of Taylor General Partner (No longer actively used.) 2. Newsfoto Publishing, a tradename of Taylor General Partner 3. Balfour, a tradename of Commemorative Brands, Inc. 4. ArtCarved, a tradename of Commemorative Brands, Inc. 5. Keystone, a tradename of Commemoratiave Brands, Inc. 6. Master, a tradename of Commemorative Brands, Inc. 7. Namesake, a tradename of Commemorative Brands, Inc. 8. Class Rings, Ltd., a tradename of Commemorative Brands, Inc. -33- 9. R. Johns, Ltd., a tradename of Commemorative Brands, Inc. 10. Generations of Love, a tradename of Commemorative Brands, Inc. 11. John Roberts, Inc., a tradename of Commemorative Brands, Inc. 12. Balfour Sports, a tradename of Commemorative Brands, Inc. ITEM B. LOCATION OF INVENTORY, EQUIPMENT TP HOLDING CORP. Office Location: 1550 W. Mockingbird Lane, Dallas, TX TAYLOR SENIOR HOLDING CORP. Office Location: 1550 W. Mockingbird Lane, Dallas, TX COMMEMORATIVE BRANDS, INC. AND CBI NORTH AMERICA, INC. OWNED PROPERTY: 1. 7211 Circle S. Road, Austin, TX 78745 MANUFACTURER AND REFINERS: 1. Stern Leach, Inc., 49 Pearl Sreet, Attleboro, MA; Refiner 2. Pease and Curren, Inc., 75 Pennsylvania Avenue, Warwick, RI; Refiner 3. Hereaus PPM, Inc., 65 Euclid Avenue, Newark, NJ; Refiner 4. Metalor USA Refining Corporation, 225 John Diestch Boulevard, North Attleboro, MA; Refiner 5. OK Casting, 3520 Cherleston Road, Norman, OK; Contract Manufacturer 6. AuraFin Corporation, 770 International Parkway, Sunrise, FL; Contract Manufacturer -34- 7. Dunhams Jewelry Manufacturing, 7365 Remeon, Suite 8204, El Paso, TX; Contract Manufacturer 8. Richards and West, Inc., 1255 University Avenue, Rochester, NY; Contract Manufacturer 9. Herbert Stephan, Hauptstrasse 282 Idar-Oberstein Germany; Contract Manufacturer (manufactures synthetic stones and holds approximately $70,000 worth of stones belonging to CBI) 10. Metech International, Inc., 120 Mapleville Main Street, P.O. Box 500, Mapleville, RI; Refiner 11. Technic Inc., 1 Spectacle Street, Cranston, RI; Fabricator 12. Angelo, Inc. 8255 Firestone Boulevard, Suite 500, Downey, CA; Contract Manufacturer 13. Sippi Metals, 1720 North Elston Avenue, Chicago, IL; Refiner 14. Emporesa Plat-Mex, S.A., Rosas Moreno #68 Col. San Rafael, C.P. 06470 Mexico, D.F. Mexico; Contract Manufacturer 15. AMC Company, 2412 Greenlawn Parkway, Austin, TX; Refiner 16. Carriage Casting, 5935 Cromo Drive, El Paso, TX; Contract Manufacturer 17. Henry Marnolejo Jewelry Shop, 4667 Montana Avenue, El Paso, TX; Contract Manufacturer 18. CBC Jewelry Shop, 5024 Donipahn Drive, Suite 4, El Paso, TX; Contract Manufacturer 19. American Mullion, Inc. 125 Selandia Lane, Carson, CA; Fabricator -35- TAYLOR PUBLISHING COMPANY OWNED PROPERTY: 1. 1550 W. Mockingbird Lane, Dallas, TX WAREHOUSES: 6. Grand Logistics Services (Owner, Willie Chavez), 10574 King William Drive, Dallas, TX TAYLOR PRODUCTION SERVICES COMPANY, L.P. OFFICE LOCATION: 1550 W. Mockingbird Lane, Dallas, TX EDUCATIONAL COMMUNICATIONS, INC. OFFICE LOCATION: 721 N. McKinley Road, Lake Forest, Illinois 60045 PRINTERS, MAILING AND FULFILLMENT HOUSES: 1. Quebecor World, 1133 County Seat, Taunton, MA 02780; Printer 2. RR Donnelly, 1145 Conwell Ave., Willard OH 44890; Printer 3. RUF Enterprises, 7544 Oakton, Niles, IL 60714; Plaque, Jewelry, Patch order fulfillment. 4. International Decal, 3332 Commercial Avenue, Northbrook, IL 60062; Mugs and Ornaments order fulfillment. 5. Total Promotions; 1340 Old Skokie Road, Highland Park, IL 60035; Portfolios, Pens, Tote Bags fulfillment. -36- 6. Mailways Enterprises, 6105 Factory Road, Crystal Lake, IL 60014; Printed Materials. 7. Midwest Compuservice, 9800 S. Industrial Drive, Bridgeview, IL 60455; Printed Materials. 8. XL Marketing, 845 Bonnie Lane, Elk Grove Village, IL 60007; Printed Materials ITEM C. FEDERAL TAXPAYER IDENTIFICATION NUMBER
GRANTOR FEIN ORGANIZATIONAL NUMBER ------- ---- --------------------- Taylor Senior Holding Corp. 13-4099532 3171031 Taylor Holding Corp. 13-4099531 3132882 Commemorative Brands, Inc. 13-3915801 2607410 Taylor Publishing Company 75-1251430 0659915 CBI North America, Inc. 74-2802215 2687796 Taylor Production Services, L.P. 31-1576205 2831121 Educational Communications, Inc. 36-2613715 47656931
ITEM D. GOVERNMENT CONTRACTS [None] -37- ITEM E. DEPOSIT ACCOUNTS
GRANTOR BANK NAME AND ADDRESS ACCOUNT NUMBER ------- --------------------- -------------- Taylor Senior Holding Corp. None Taylor Holding Corp. None Commemorative Brands, Inc. Chase Bank of Texas, N.A. 09922274690 Austin, TX 78701 Taylor Publishing Company Chase Bank of Texas, N.A. 08806264527 Dallas, TX 75266-0197 Educational Communications, Inc. Northern Trust Bank 1901225701 The Northern Trust Company 265 Deerpath Road Lake Forest, IL 60045 Taylor Production ServicesCompany, None L.P. CBI North America, Inc. None
ITEM F. COMMERCIAL TORT CLAIMS. [None.] -38- ITEM G. LEASED LOCATIONS
GRANTOR ------- Taylor Senior Holding Corp. None Taylor Holding Corp. None Commemorative Brands, Inc. 1. 7101 Intermodal Drive, Louisvilee, KY 2. 6404 Burleson Road, Suite 120, Austin, TX 3. 4605 Osborn, El Paso, TX 4. Fulton #820, Parqu Instrial Antonio J. Bermudez, Juarez, Chihuahua, Mexico Taylor Publishing Company 1. 67 Great Valley Parkway, Malvern, PA 2. 2027 Industrial Avenue, San Angelo, TX 3. 1821 Knickerbocker Road, San Angelo, TX 4. 3134 A Executive Drive, San Angelo, TX 5. 10365 Railroad Drive, El Paso, TX Educational Communications, Inc. 1. 721 N. McKinley Road, Lake Forest, IL 2. 1200 N. Greenbay Road, Lake Forest, IL 3. Acorn Self-Storage, Storage Room #5243, 1255 Town Line Road, Mundelein, IL 60060 Taylor Production ServicesCompany, None L.P.
-39- CBI North America, Inc. 1. 7101 Intermodal Drive, Louisvilee, KY 2. 6404 Burleson Road, Suite 120, Austin, TX 3. 4605 Osborn, El Paso, TX 4. Fulton #820, Parqu Instrial Antonio J. Bermudez, Juarez, Chihuahua, Mexico
-40- SCHEDULE III to Subsidiary Pledge and Security Agreement Item A. PATENTS ISSUED PATENTS
COUNTRY PATENT NO. ISSUE DATE INVENTOR(S) TITLE - ------- --------- ---------- ---------- -----
PENDING PATENT APPLICATIONS ---------------------------
COUNTRY SERIAL NO. FILING DATE INVENTOR(S) TITLE - ------- --------- ---------- ---------- -----
PATENT APPLICATIONS IN PREPARATION ----------------------------------
EXPECTED COUNTRY DOCKET NO. FILING DATE INVENTOR(S) TITLE - ------- --------- ----------- ----------- -----
Item B. PATENT LICENSES
COUNTRY OR EFFECTIVE EXPIRATION SUBJECT TERRITORY LICENSOR LICENSEE DATE DATE MATTER - --------- -------- -------- --------- ---------- -------
-41- SCHEDULE IV to Subsidiary Pledge and Security Agreement Item A. TRADEMARKS REGISTERED TRADEMARKS
COUNTRY TRADEMARK REGISTRATION NO. REGISTRATION DATE - ------- --------- ---------------- ------------------
PENDING TRADEMARK APPLICATIONS
COUNTRY TRADEMARK SERIAL NO. FILING DATE - ------- --------- ---------- -----------
TRADEMARK APPLICATIONS IN PREPARATION
EXPECTED PRODUCTS/ COUNTRY TRADEMARK DOCKET NO. FILING DATE SERVICES - ------- --------- ---------- ----------- --------
Item B. TRADEMARK LICENSES
COUNTRY OR EFFECTIVE EXPIRATION TERRITORY TRADEMARK LICENSOR LICENSEE DATE DATE - ---------- --------- -------- -------- --------- ----------
-42- SCHEDULE V to Subsidiary Pledge and Security Agreement Item A. COPYRIGHTS/MASK WORKS REGISTERED COPYRIGHTS/MASK WORKS
COUNTRY REGISTRATION NO. REGISTRATION DATE AUTHOR(S) TITLE - ------- ---------------- ----------------- --------- -----
COPYRIGHT/MASK WORK PENDING REGISTRATION APPLICATIONS
COUNTRY SERIAL NO. FILING DATE AUTHOR(S) TITLE - ------- ---------- ----------- --------- -----
COPYRIGHT/MASK WORK REGISTRATION APPLICATIONS IN PREPARATION
EXPECTED COUNTRY DOCKET NO. FILING DATE AUTHOR(S) TITLE - ------- ---------- ----------- --------- -----
Item B. COPYRIGHT/MASK WORK LICENSES
COUNTRY OR EFFECTIVE EXPIRATION SUBJECT TERRITORY LICENSOR LICENSEE DATE DATE MATTER - --------- -------- -------- --------- ---------- ------
-43- SCHEDULE VI to Subsidiary Pledge and Security Agreement TRADE SECRET OR KNOW-HOW LICENSES -44- SCHEDULE VII to Subsidiary Pledge and Security Agreement FINANCING STATEMENTS -45- EXHIBIT A to Subsidiary Pledge and Security Agreement PATENT SECURITY AGREEMENT This PATENT SECURITY AGREEMENT, dated as of ____ __, 200_ (this "SECURITY AGREEMENT"), is made by [NAME OF GRANTOR] (the "GRANTOR") in favor of THE BANK OF NOVA SCOTIA, as administrative agent (together with its successor(s) thereto in such capacity, the "ADMINISTRATIVE AGENT") for each of the Secured Parties. W I T N E S S E T H : WHEREAS, pursuant to a Credit Agreement, dated as of February 20, 2002 (as amended, supplemented, amended and restated or otherwise modified from time to time, the "CREDIT AGREEMENT"), among American Achievement Corporation (formerly known as Commemorative Brands Holding Corp.), a Delaware corporation (the "BORROWER"), the Lenders, General Electric Capital Corporation, as the Syndication Agent for the Lenders, Bankers Trust Company, as the Documentation Agent for the Lenders and the Administrative Agent, the Lenders and the Issuer have extended Commitments to make Credit Extensions to the Borrower; WHEREAS, in connection with the Credit Agreement, the Grantor has executed and delivered a Subsidiary Pledge and Security Agreement, dated as of February 20, 2002 (as amended, supplemented, amended and restated or otherwise modified from time to time, the "AGREEMENT"); WHEREAS, pursuant to the Credit Agreement and the Agreement, the Grantor is required to execute and deliver this Security Agreement and to grant to the Administrative Agent a continuing security interest in all of the Patent Collateral (as defined below) to secure all Obligations; and WHEREAS, the Grantor has duly authorized the execution, delivery and performance of this Security Agreement; NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Grantor agrees, for the benefit of each Secured Party, as follows: SECTION 1. DEFINITIONS. Unless otherwise defined herein or the context otherwise requires, terms used in this Security Agreement, including its preamble and recitals, have the meanings provided in the Agreement. SECTION 2. GRANT OF SECURITY INTEREST. The Grantor hereby assigns, pledges, hypothecates, charges, mortgages, delivers, and transfers to the Administrative Agent, for its benefit and the ratable benefit of each other Secured Party, and hereby grants to the Administrative Agent, for its benefit and the ratable benefit of each other Secured Party, a continuing security interest in all of the following property, whether now or hereafter existing or acquired by the Grantor (the "PATENT COLLATERAL"): (a) all of its letters patent and applications for letters patent throughout the world, including all patent applications in preparation for filing and each patent and patent application referred to in ITEM A of SCHEDULE I attached hereto; (b) all reissues, divisions, continuations, continuations-in-part, extensions, renewals and reexaminations of any of the items described in CLAUSE (a); (c) all of its patent licenses, and other agreements providing the Grantor with the right to use any items of the type referred to in clauses (a) and (b) above, including each patent license referred to in ITEM B of SCHEDULE I attached hereto; and (d) all proceeds of, and rights associated with, the foregoing (including license royalties and proceeds of infringement suits), the right to sue third parties for past, present or future infringements of any patent or patent application, and for breach or enforcement of any patent license. SECTION 3. SECURITY AGREEMENT. This Security Agreement has been executed and delivered by the Grantor for the purpose of registering the security interest of the Administrative Agent in the Patent Collateral with the United States Patent and Trademark Office and corresponding offices in other countries of the world. The security interest granted hereby has been granted as a supplement to, and not in limitation of, the security interest granted to the Administrative Agent for its benefit and the ratable benefit of each other Secured Party under the Agreement. The Agreement (and all rights and remedies of the Administrative Agent and each Secured Party thereunder) shall remain in full force and effect in accordance with its terms. SECTION 4. RELEASE OF LIENS. Upon (i) the Disposition of Patent Collateral in accordance with the Credit Agreement or (ii) the occurrence of the Termination Date, the security interests granted herein shall automatically terminate with respect to (A) such Patent Collateral (in the case of CLAUSE (i)) or (B) all Patent Collateral (in the case of CLAUSE (ii)). Upon any such Disposition or termination, the Administrative Agent will, at the Grantor's sole expense, deliver to the Grantor, without any representations, warranties or recourse of any kind whatsoever, all Patent Collateral held by the Administrative Agent hereunder, and execute and deliver to the Grantor such documents as the Grantor shall reasonably request to evidence such termination. SECTION 5. ACKNOWLEDGMENT. The Grantor does hereby further acknowledge and affirm that the rights and remedies of the Administrative Agent with respect to the security interest in the Patent Collateral granted hereby are more fully set forth in the Agreement, the terms and provisions of which (including the remedies provided for therein) are incorporated by reference herein as if fully set forth herein. SECTION 6. LOAN DOCUMENT. This Security Agreement is a Loan Document executed pursuant to the Credit Agreement and shall (unless otherwise expressly EXHIBIT A -2- indicated herein) be construed, administered and applied in accordance with the terms and provisions thereof, including Article_X thereof. SECTION 7. COUNTERPARTS. This Security Agreement may be executed by the parties hereto in several counterparts, each of which shall be deemed to be an original and all of which shall constitute together but one and the same agreement. * * * * * EXHIBIT A -3- IN WITNESS WHEREOF, each of the parties hereto has caused this Security Agreement to be duly executed and delivered by its Authorized Officer as of the date first above written. [NAME OF GRANTOR] By: ------------------------------------- Name: Title: THE BANK OF NOVA SCOTIA, as Administrative Agent By: ------------------------------------- Name: Title: EXHIBIT A -4- SCHEDULE I to Patent Security Agreement Item A. PATENTS ISSUED PATENTS
COUNTRY PATENT NO. ISSUE DATE INVENTOR(S) TITLE - ------- ---------- ---------- ----------- -----
PENDING PATENT APPLICATIONS
COUNTRY SERIAL NO. FILING DATE INVENTOR(S) TITLE - ------- ---------- ----------- ----------- -----
PATENT APPLICATIONS IN PREPARATION
EXPECTED COUNTRY DOCKET NO. FILING DATE INVENTOR(S) TITLE - ------- ---------- ----------- ----------- -----
Item B. PATENT LICENSES
COUNTRY OR EFFECTIVE EXPIRATION SUBJECT TERRITORY LICENSOR LICENSEE DATE DATE MATTER - --------- -------- -------- ---- ---- ------
EXHIBIT A -5- EXHIBIT B to Subsidiary Pledge and Security Agreement TRADEMARK SECURITY AGREEMENT This TRADEMARK SECURITY AGREEMENT, dated as of _______, 200_ (this "SECURITY AGREEMENT"), is made by [NAME OF GRANTOR] (the "GRANTOR") in favor of THE BANK OF NOVA SCOTIA, as administrative agent (together with its successor(s) thereto in such capacity, the "ADMINISTRATIVE AGENT") for each of the Secured Parties. W I T N E S S E T H : WHEREAS, pursuant to a Credit Agreement, dated as of February 20, 2002 (as amended, supplemented, amended and restated or otherwise modified from time to time, the "CREDIT AGREEMENT"), among American Achievement Corporation (formerly known as Commemorative Brands Holding Corp.), a Delaware corporation (the "BORROWER"), the Lenders, General Electric Capital Corporation, as the Syndication Agent for the Lenders, Bankers Trust Company, as the Documentation Agent for the Lenders and the Administrative Agent, the Lenders and the Issuer have extended Commitments to make Credit Extensions to the Borrower; WHEREAS, in connection with the Credit Agreement, the Grantor has executed and delivered a Subsidiary Pledge and Security Agreement, dated as of February 20, 2002 (as amended, supplemented, amended and restated or otherwise modified from time to time, the "AGREEMENT"); WHEREAS, pursuant to the Credit Agreement and the Agreement, the Grantor is required to execute and deliver this Security Agreement and to grant to the Administrative Agent a continuing security interest in all of the Trademark Collateral (as defined below) to secure all Obligations; and WHEREAS, the Grantor has duly authorized the execution, delivery and performance of this Security Agreement; NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Grantor agrees, for the benefit of each Secured Party, as follows: SECTION 1. DEFINITIONS. Unless otherwise defined herein or the context otherwise requires, terms used in this Security Agreement, including its preamble and recitals, have the meanings provided in the Agreement. SECTION 2. GRANT OF SECURITY INTEREST. The Grantor hereby assigns, pledges, hypothecates, charges, mortgages, delivers, and transfers to the Administrative Agent, for its benefit and the ratable benefit of each other Secured Party, and hereby grants to the Administrative Agent, for its benefit and the ratable benefit of each other Secured Party, a continuing security interest in all of the following property, whether now or hereafter existing or acquired by the Grantor (the "TRADEMARK COLLATERAL"): EXHIBIT B -1- (a) (i) all of its trademarks, trade names, corporate names, company names, business names, fictitious business names, trade styles, service marks, certification marks, collective marks, logos and other source or business identifiers, and all goodwill of the business associated therewith, now existing or hereafter adopted or acquired including those referred to in ITEM A of SCHEDULE I hereto, whether currently in use or not, all registrations and recordings thereof and all applications in connection therewith, whether pending or in preparation for filing, including registrations, recordings and applications in the United States Patent and Trademark Office or in any office or agency of the United States of America or any State thereof or any other country or political subdivision thereof or otherwise, and all common-law rights relating to the foregoing, and (ii) the right to obtain all reissues, extensions or renewals of the foregoing (collectively referred to as the "TRADEMARK"); (b) all of the goodwill of the business connected with the use of, and symbolized by the items described in, clause (a), and to the extent applicable clause (b); (c) the right to sue third parties for past, present and future infringements of any Trademark Collateral described in clause (a) and, to the extent applicable, clause (b); and (d) all proceeds of, and rights associated with, the foregoing, including any claim by the Grantor against third parties for past, present or future infringement or dilution of any Trademark, Trademark registration or Trademark license, or for any injury to the goodwill associated with the use of any such Trademark or for breach or enforcement of any Trademark license and all rights corresponding thereto throughout the world. SECTION 3. SECURITY AGREEMENT. This Security Agreement has been executed and delivered by the Grantor for the purpose of registering the security interest of the Administrative Agent in the Trademark Collateral with the United States Patent and Trademark Office and corresponding offices in other countries of the world. The security interest granted hereby has been granted as a supplement to, and not in limitation of, the security interest granted to the Administrative Agent for its benefit and the ratable benefit of each other Secured Party under the Agreement. The Agreement (and all rights and remedies of the Administrative Agent and each Secured Party thereunder) shall remain in full force and effect in accordance with its terms. SECTION 4. RELEASE OF LIENS. Upon (i) the Disposition of Trademark Collateral in accordance with the Credit Agreement or (ii) the occurrence of the Termination Date, the security interests granted herein shall automatically terminate with respect to (A) such Trademark Collateral (in the case of CLAUSE (i)) or (B) all Trademark Collateral (in the case of CLAUSE (ii)). Upon any such Disposition or termination, the Administrative Agent will, at the Grantor's sole expense, deliver to the Grantor, without any representations, warranties or recourse of any kind whatsoever, all Trademark Collateral held by the Administrative Agent hereunder, and execute and deliver to the Grantor such documents as the Grantor shall reasonably request to evidence such termination. SECTION 5. ACKNOWLEDGMENT. The Grantor does hereby further acknowledge and affirm that the rights and remedies of the Administrative Agent with respect to the security interest in the Trademark Collateral granted hereby are more fully set forth in the Agreement, the EXHIBIT B -2- terms and provisions of which (including the remedies provided for therein) are incorporated by reference herein as if fully set forth herein. SECTION 6. LOAN DOCUMENT. This Security Agreement is a Loan Document executed pursuant to the Credit Agreement and shall (unless otherwise expressly indicated herein) be construed, administered and applied in accordance with the terms and provisions thereof, including Article X thereof. SECTION 7. COUNTERPARTS. This Security Agreement may be executed by the parties hereto in several counterparts, each of which shall be deemed to be an original and all of which shall constitute together but one and the same agreement. * * * * * EXHIBIT B -3- IN WITNESS WHEREOF, each of the parties hereto has caused this Security Agreement to be duly executed and delivered by its Authorized Officer as of the date first above written. [NAME OF GRANTOR] By: ------------------------------------- Name: Title: THE BANK OF NOVA SCOTIA, as Administrative Agent By: ------------------------------------- Name: Title: EXHIBIT B -4- SCHEDULE I to Trademark Security Agreement Item A. TRADEMARKS REGISTERED TRADEMARKS
COUNTRY TRADEMARK REGISTRATION NO. REGISTRATION DATE - ------- --------- ---------------- -----------------
PENDING TRADEMARK APPLICATIONS
COUNTRY TRADEMARK SERIAL NO. FILING DATE - ------- --------- ---------- -----------
TRADEMARK APPLICATIONS IN PREPARATION
EXPECTED PRODUCTS/ COUNTRY TRADEMARK DOCKET NO. FILING DATE SERVICES - ------- --------- ---------- ----------- --------
Item B. TRADEMARK LICENSES
COUNTRY OR EFFECTIVE EXPIRATION TERRITORY TRADEMARK LICENSOR LICENSEE DATE DATE - --------- --------- -------- -------- ---- ----
EXHIBIT B -5- EXHIBIT C to Subsidiary Pledge and Security Agreement COPYRIGHT SECURITY AGREEMENT This COPYRIGHT SECURITY AGREEMENT, dated as of ____ __, 200_ (this "SECURITY AGREEMENT"), is made by [NAME OF GRANTOR] (the "GRANTOR") in favor of THE BANK OF NOVA SCOTIA, as administrative agent (together with its successor(s) thereto in such capacity, the "ADMINISTRATIVE AGENT") for each of the Secured Parties. W I T N E S S E T H : WHEREAS, pursuant to a Credit Agreement, dated as of February 20, 2002 (as amended, supplemented, amended and restated or otherwise modified from time to time, the "CREDIT AGREEMENT"), among American Achievement Corporation (formerly known as Commemorative Brands Holding Corp.), a Delaware corporation (the "BORROWER"), the Lenders, General Electric Capital Corporation, as the Syndication Agent for the Lenders, Bankers Trust Company, as the Documentation Agent for the Lenders and the Administrative Agent, the Lenders and the Issuer have extended Commitments to make Credit Extensions to the Borrower; WHEREAS, in connection with the Credit Agreement, the Grantor has executed and delivered a Subsidiary Pledge and Security Agreement, dated as of February 20, 2002 (as amended, supplemented, amended and restated or otherwise modified from time to time, the "AGREEMENT"); WHEREAS, pursuant to the Credit Agreement and the Agreement, the Grantor is required to execute and deliver this Security Agreement and to grant to the Administrative Agent a continuing security interest in all of the Copyright Collateral (as defined below) to secure all Obligations; and WHEREAS, the Grantor has duly authorized the execution, delivery and performance of this Security Agreement; NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Grantor agrees, for the benefit of each Secured Party, as follows: SECTION 8. DEFINITIONS. Unless otherwise defined herein or the context otherwise requires, terms used in this Security Agreement, including its preamble and recitals, have the meanings provided in the Agreement. SECTION 9. GRANT OF SECURITY INTEREST. The Grantor hereby assigns, pledges, hypothecates, charges, mortgages, delivers, and transfers to the Administrative Agent, for its benefit and the ratable benefit of each other Secured Party, and hereby grants to the Administrative Agent, for its benefit and the ratable benefit of each other Secured Party, a continuing security interest in all of the following Copyright Collateral (as defined below), whether now or hereafter existing or acquired by the Grantor. "COPYRIGHT COLLATERAL" means all copyrights of the Grantor, whether statutory or common law, registered or unregistered and whether published or unpublished, now or hereafter in force throughout the world including all of the Grantor's right, title and interest in and to all copyrights registered in the United States Copyright Office or anywhere else in the world and also including the copyrights referred to in ITEM A of SCHEDULE I attached hereto, and registrations and recordings thereof and all applications for registration thereof, whether pending or in preparation, all copyright licenses, including each copyright license referred to in ITEM B of SCHEDULE I attached hereto, the right to sue for past, present and future infringements of any of the foregoing, all rights corresponding thereto, all extensions and renewals of any thereof and all proceeds of the foregoing, including licenses, royalties, income, payments, claims, damages and proceeds of suit. SECTION 10. SECURITY AGREEMENT. This Security Agreement has been executed and delivered by the Grantor for the purpose of registering the security interest of the Administrative Agent in the Copyright Collateral with the United States Copyright Office and corresponding offices in other countries of the world. The security interest granted hereby has been granted as a supplement to, and not in limitation of, the security interest granted to the Administrative Agent for its benefit and the ratable benefit of each other Secured Party under the Agreement. The Agreement (and all rights and remedies of the Administrative Agent and each Secured Party thereunder) shall remain in full force and effect in accordance with its terms. SECTION 11. RELEASE OF LIENS. Upon (i) the Disposition of Copyright Collateral in accordance with the Credit Agreement or (ii) the occurrence of the Termination Date, the security interests granted herein shall automatically terminate with respect to (A) such Copyright Collateral (in the case of CLAUSE (i)) or (B) all Copyright Collateral (in the case of CLAUSE (ii)). Upon any such Disposition or termination, the Administrative Agent will, at the Grantor's sole expense, deliver to the Grantor, without any representations, warranties or recourse of any kind whatsoever, all Copyright Collateral held by the Administrative Agent hereunder, and execute and deliver to the Grantor such documents as the Grantor shall reasonably request to evidence such termination. SECTION 12. ACKNOWLEDGMENT. The Grantor does hereby further acknowledge and affirm that the rights and remedies of the Administrative Agent with respect to the security interest in the Copyright Collateral granted hereby are more fully set forth in the Agreement, the terms and provisions of which (including the remedies provided for therein) are incorporated by reference herein as if fully set forth herein. SECTION 13. LOAN DOCUMENT. This Security Agreement is a Loan Document executed pursuant to the Credit Agreement and shall (unless otherwise expressly indicated herein) be construed, administered and applied in accordance with the terms and provisions thereof, including Article X thereof. SECTION 14. COUNTERPARTS. This Security Agreement may be executed by the parties hereto in several counterparts, each of which shall be deemed to be an original and all of which shall constitute together but one and the same agreement. * * * * * EXHIBIT C -2- IN WITNESS WHEREOF, each of the parties hereto has caused this Security Agreement to be duly executed and delivered by its Authorized Officer as of the date first above written. [NAME OF GRANTOR] By: ------------------------------------- Name: Title: THE BANK OF NOVA SCOTIA, as Administrative Agent By: ------------------------------------- Name: Title: EXHIBIT C -3- SCHEDULE I to Copyright Security Agreement Item A. COPYRIGHTS/MASK WORKS REGISTERED COPYRIGHTS/MASK WORKS
COUNTRY REGISTRATION NO. REGISTRATION DATEAUTHOR(S) TITLE - ------- ---------------- ------------ ------------- -----
COPYRIGHT/MASK WORK PENDING REGISTRATION APPLICATIONS
COUNTRY SERIAL NO. FILING DATE AUTHOR(S) TITLE - ------- ---------- ----------- --------- -----
COPYRIGHT/MASK WORK REGISTRATION APPLICATIONS IN PREPARATION
EXPECTED COUNTRY DOCKET NO. FILING DATE AUTHOR(S) TITLE - ------- ---------- ----------- --------- -----
Item B. COPYRIGHT/MASK WORK LICENSES
COUNTRY OR EFFECTIVE EXPIRATION TERRITORY LICENSOR LICENSEE DATE DATE - --------- -------- -------- -------- ---------
EXHIBIT C -4- ANNEX I to the Subsidiary Pledge and Security Agreement SUPPLEMENT TO SUBSIDIARY PLEDGE AND SECURITY AGREMENT This SUPPLEMENT, dated as of ________________, _____ (this "SUPPLEMENT"), is to the Subsidiary Pledge and Security Agreement, dated as of February 20, 2002 (as amended, supplemented, amended and restated or otherwise modified from time to time, the "SUBSIDIARY PLEDGE AND SECURITY AGREEMENT"), among the Grantors (such capitalized term, and other terms used in this Supplement, to have the meanings set forth in Article I of the Subsidiary Pledge and Security Agreement) from time to time party thereto, in favor of THE BANK OF NOVA SCOTIA, as administrative agent (together with its successor(s) thereto in such capacity, the "ADMINISTRATIVE AGENT") for each of the Secured Parties. W I T N E S S E T H : WHEREAS, pursuant to a Credit Agreement, dated as of February 20, 2002 (as amended, supplemented, amended and restated or otherwise modified from time to time, the "CREDIT AGREEMENT"), among American Achievement Corporation (formerly known as Commemorative Brands Holding Corp.), a Delaware corporation (the "BORROWER"), the Lenders, General Electric Capital Corporation, as the Syndication Agent for the Lenders, Bankers Trust Company, as the Documentation Agent for the Lenders and the Administrative Agent, the Lenders and the Issuer have extended Commitments to make Credit Extensions to the Borrower; WHEREAS, pursuant to the provisions of Section 7.6 of the Subsidiary Pledge and Security Agreement, each of the undersigned is becoming a Grantor under the Subsidiary Pledge and Security Agreement; and WHEREAS, each of the undersigned desires to become a "Grantor" under the Subsidiary Pledge and Security Agreement in order to induce the Secured Parties to continue to extend Credit Extensions under the Credit Agreement; NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, each of the undersigned agrees, for the benefit of each Secured Party, as follows. SECTION 15. PARTY TO SUBSIDIARY PLEDGE AND SECURITY AGREEMENT, ETC. In accordance with the terms of the Subsidiary Pledge and Security Agreement, by its signature below each of the undersigned hereby irrevocably agrees to become a Grantor under the Subsidiary Pledge and Security Agreement with the same force and effect as if it were an original signatory thereto and each of the undersigned hereby (a) agrees to be bound by and comply with all of the terms and provisions of the Subsidiary Pledge and Security Agreement applicable to it as a Grantor and (b) represents and warrants that the representations and warranties made by it as a Grantor thereunder are true and correct as of the date hereof, unless stated to relate solely to an earlier date, in which case such representations and warranties shall be true and correct as of such earlier date. In furtherance of the foregoing, each reference to a "Grantor" and/or "Grantors" in the Subsidiary Pledge and Security Agreement shall be deemed to include each of the undersigned. SECTION 16. REPRESENTATIONS. Each of the undersigned Grantor hereby represents and warrants that this Supplement has been duly authorized, executed and delivered by it and that this Supplement and the Subsidiary Pledge and Security Agreement constitute the legal, valid and binding obligation of each of the undersigned, enforceable against it in accordance with its terms. SECTION 17. FULL FORCE OF SUBSIDIARY PLEDGE AND SECURITY AGREEMENT. Except as expressly supplemented hereby, the Subsidiary Pledge and Security Agreement shall remain in full force and effect in accordance with its terms. SECTION 18. SEVERABILITY. Wherever possible each provision of this Supplement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Supplement shall be prohibited by or invalid under such law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Supplement or the Subsidiary Pledge and Security Agreement. SECTION 19. GOVERNING LAW, ENTIRE AGREEMENT, ETC. THIS SUPPLEMENT SHALL BE DEEMED TO BE A CONTRACT MADE UNDER AND GOVERNED BY THE INTERNAL LAWS OF THE STATE OF NEW YORK (INCLUDING FOR SUCH PURPOSE SECTIONS 5-1401 AND 5-1402 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK). This Supplement and the other Loan Documents constitute the entire understanding among the parties hereto with respect to the subject matter thereof and supersede any prior agreements, written or oral, with respect thereto. SECTION 20. COUNTERPARTS. This Supplement may be executed by the parties hereto in several counterparts, each of which shall be deemed to be an original and all of which shall constitute together but one and the same agreement. * * * * * IN WITNESS WHEREOF, each of the parties hereto has caused this Supplement to be duly executed and delivered by its Authorized Officer as of the date first above written. [NAME OF ADDITIONAL SUBSIDIARY] By: ------------------------------------- Name: Title: [NAME OF ADDITIONAL SUBSIDIARY] By: ------------------------------------- Name: Title: ACCEPTED AND AGREED FOR ITSELF AND ON BEHALF OF THE SECURED PARTIES: THE BANK OF NOVA SCOTIA, as Administrative Agent By: ----------------------------- Name: Title: SCHEDULE I to Supplement No.___ to Subsidiary Pledge and Security Agreement ([Name of Additional Subsidiary]) CORPORATION COMMON STOCK
NUMBER ISSUER (CORPORATE) OF AUTHORIZED OUTSTANDING % OF SHARES - ------------------ CERT. # SHARES SHARES SHARES PLEDGED ------- ------ ------ ------ -------
LIMITED LIABILITY COMPANY INTERESTS
ISSUER (LIMITED LIABILITY % OF LIMITED LIABILITY TYPE OF LIMITED LIABILITY COMPANY) COMPANY INTERESTS PLEDGED COMPANY INTERESTS PLEDGED - -------- ------------------------- -------------------------
PARTNERSHIP INTERESTS
% OF PARTNERSHIP % OF PARTNERSHIP ISSUER (PARTNERSHIP) INTERESTS OWNED INTERESTS PLEDGED - -------------------- --------------- -----------------
SCHEDULE II to Supplement No.___ to Subsidiary Pledge and Security Agreement ([Name of Additional Subsidiary]) Item A. Jurisdiction of Incorporation; Trade Names Item B. Location of Inventory, Equipment Item C. Federal Taxpayer Identification Number Item D. Government Contracts SCHEDULE III to Supplement No.___ to Subsidiary Pledge and Security Agreement ([Name of Additional Subsidiary]) Item A. PATENTS ISSUED PATENTS
COUNTRY PATENT NO. ISSUE DATE INVENTOR(S) TITLE - ------- ---------- ---------- ----------- -----
PENDING PATENT APPLICATIONS
COUNTRY SERIAL NO FILING DATE INVENTOR(S) TITLE - ------- --------- ----------- ----------- -----
PATENT APPLICATIONS IN PREPARATION
EXPECTED COUNTRY DOCKET NO. FILING DATE INVENTOR(S) TITLE - ------- ---------- ----------- ----------- -----
Item B. PATENT LICENSES
COUNTRY OR EFFECTIVE EXPIRATION SUBJECT TERRITORY LICENSOR LICENSEE DATE DATE MATTER - --------- -------- -------- --------- ---------- ------
SCHEDULE IV to Supplement No.___ to Subsidiary Pledge and Security Agreement ([Name of Additional Subsidiary]) Item A. TRADEMARKS REGISTERED TRADEMARKS
Country Trademark Registration No. Registration Date - ------- --------- ---------------- -----------------
PENDING TRADEMARK APPLICATIONS
COUNTRY TRADEMARK SERIAL NO. FILING DATE - ------- --------- ---------- -----------
TRADEMARK APPLICATIONS IN PREPARATION
EXPECTED PRODUCTS/ COUNTRY TRADEMARK DOCKET NO. FILING DATE SERVICES - ------- --------- ---------- ----------- --------
Item B. TRADEMARK LICENSES
COUNTRY OR EFFECTIVE EXPIRATION TERRITORY TRADEMARK LICENSOR LICENSEE DATE DATE - --------- --------- -------- -------- -------- ---------
SCHEDULE V to Supplement No. ___ to Subsidiary Pledge and Security Agreement ([Name of Additional Subsidiary]) Item A. COPYRIGHTS/MASK WORKS REGISTERED COPYRIGHTS/MASK WORKS
COUNTRY REGISTRATION NO. REGISTRATION DATE AUTHOR(S) TITLE - ------- ---------------- ----------------- --------- -----
COPYRIGHT/MASK WORK PENDING REGISTRATION APPLICATIONS
COUNTRY SERIAL NO. FILING DATE AUTHOR(S) TITLE - ------- ---------- ----------- --------- -----
COPYRIGHT/MASK WORK REGISTRATION APPLICATIONS IN PREPARATION
EXPECTED COUNTRY DOCKET NO. FILING DATE AUTHOR(S) TITLE - ------- ---------- ----------- --------- -----
Item B. COPYRIGHT/MASK WORK LICENSES
COUNTRY OR EFFECTIVE EXPIRATION SUBJECT TERRITORY LICENSOR LICENSEE DATE DATE MATTER - --------- -------- -------- --------- ---------- ------
SCHEDULE VI to Supplement No.___ to Subsidiary Pledge and Security Agreement ([Name of Additional Subsidiary]) TRADE SECRET OR KNOW-HOW LICENSES
COUNTRY OR EFFECTIVE EXPIRATION SUBJECT TERRITORY LICENSOR LICENSEE DATE DATE MATTER - --------- -------- -------- --------- ---------- ------
EX-10.4 27 a2071988zex-10_4.txt EXHIBIT 10.4 EXHIBIT 10.4 BORROWER PLEDGE AND SECURITY AGREEMENT, DATED AS OF FEBRUARY 20, 2002, MADE BY EACH DOMESTIC SUBSIDIARY OF AMERICAN ACHIEVEMENT CORPORATION FROM TIME TO TIME PARTY HERETO IN FAVOR OF THE BANK OF NOVA SCOTIA, AS ADMINISTRATIVE AGENT FOR EACH OF THE SECURED PARTIES (AS DEFINED THEREIN) BORROWER PLEDGE AND SECURITY AGREEMENT This BORROWER PLEDGE AND SECURITY AGREEMENT, dated as of February 20, 2002 (as amended, supplemented, amended and restated or otherwise modified from time to time, this "AGREEMENT"), is made by AMERICAN ACHIEVEMENT CORPORATION (formerly known as Commemorative Brands Holding Corp.), a Delaware corporation (the "GRANTOR"), in favor of THE BANK OF NOVA SCOTIA, as administrative agent (together with its successor(s) thereto in such capacity, the "ADMINISTRATIVE AGENT") for each of the Secured Parties. W I T N E S S E T H : WHEREAS, pursuant to a Credit Agreement, dated as of the date hereof (as amended, supplemented, amended and restated or otherwise modified from time to time, the "CREDIT AGREEMENT"), among the Grantor (as the Borrower), the Lenders, General Electric Capital Corporation, as the Syndication Agent for the Lenders, Bankers Trust Company, as the Documentation Agent for the Lenders and the Administrative Agent, the Lenders and the Issuer have extended Commitments to make Credit Extensions to the Grantor; and WHEREAS, as a condition precedent to the making of the Credit Extensions under the Credit Agreement, the Grantor is required to execute and deliver this Agreement; NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Grantor agrees, for the benefit of each Secured Party, as follows: ARTICLE I DEFINITIONS SECTION 1.1. CERTAIN TERMS. The following terms (whether or not underscored) when used in this Agreement, including its preamble and recitals, shall have the following meanings (such definitions to be equally applicable to the singular and plural forms thereof): "ADMINISTRATIVE AGENT" is defined in the PREAMBLE. "AGREEMENT" is defined in the PREAMBLE. "COLLATERAL" is defined in SECTION 2.1. "COLLATERAL ACCOUNT" is defined in CLAUSE (b) of SECTION 4.3. 2 "COMPUTER HARDWARE AND SOFTWARE COLLATERAL" means: (a) all computer and other electronic data processing hardware, integrated computer systems, central processing units, memory units, display terminals, printers, features, computer elements, card readers, tape drives, hard and soft disk drives, cables, electrical supply hardware, generators, power equalizers, accessories and all peripheral devices and other related computer hardware; (b) all software programs (including both source code, object code and all related applications and data files), whether now owned, licensed or leased or hereafter acquired by the Grantor, designed for use on the computers and electronic data processing hardware described in CLAUSE (a) above; (c) all firmware associated therewith; (d) all documentation (including flow charts, logic diagrams, manuals, guides and specifications) with respect to such hardware, software and firmware described in the preceding CLAUSES (b) through (c); and (e) all rights with respect to all of the foregoing, including any and all copyrights, licenses, options, warranties, service contracts, program services, test rights, maintenance rights, support rights, improvement rights, renewal rights and indemnifications and any substitutions, replacements, additions or model conversions of any of the foregoing. "CONTROL AGREEMENT" means an agreement in form and substance satisfactory to the Administrative Agent which provides for the Administrative Agent to have "control" (as defined in Section 8-106 of the UCC, as such term relates to investment property (other than certificated securities or commodity contracts), or as used in Section 9-106 of the UCC, as such term relates to commodity contracts). "COPYRIGHT COLLATERAL" means all copyrights of the Grantor, whether statutory or common law, registered or unregistered and whether published or unpublished, now or hereafter in force throughout the world including all of the Grantor's rights, titles and interests in and to all copyrights registered in the United States Copyright Office or anywhere else in the world, including the copyrights referred to in ITEM A of SCHEDULE V hereto, and registrations and recordings thereof and all applications for registration thereof, whether pending or in preparation, all copyright licenses, including each copyright license referred to in ITEM B of SCHEDULE V hereto, the right to sue for past, present and future infringements of any of the foregoing, all rights corresponding thereto, all extensions and renewals of any thereof and all proceeds of the foregoing, including licenses, royalties, income, payments, claims, damages and proceeds of suit. "CREDIT AGREEMENT" is defined in the FIRST RECITAL. "DISTRIBUTIONS" means all non-cash dividends paid on Capital Securities, liquidating dividends paid on Capital Securities, Capital Securities resulting from (or in connection with the exercise of) stock splits, reclassifications, warrants, options, non-cash dividends, mergers and consolidations, and all other distributions (whether similar or dissimilar to the foregoing) on or with respect to any Capital Securities constituting Collateral, but excluding Dividends. 3 "DIVIDENDS" means cash dividends and cash distributions with respect to any Capital Securities constituting Collateral that are not a liquidating dividend. "GOLD CONSIGNOR" means The Bank of Nova Scotia, in its capacity as consignor under the Gold Consignment Agreement (or its Affiliates in such capacity). "GRANTOR" is defined in the PREAMBLE. "INTELLECTUAL PROPERTY COLLATERAL" means, collectively, the Computer Hardware and Software Collateral, the Copyright Collateral, the Patent Collateral, the Trademark Collateral and the Trade Secrets Collateral. "PATENT COLLATERAL" means: (a) all letters patent and applications for letters patent throughout the world, including all patent applications in preparation for filing and each patent and patent application referred to in ITEM A of SCHEDULE III hereto; (b) all reissues, divisions, continuations, continuations-in-part, extensions, renewals and reexaminations of any of the items described in CLAUSE (a); (c) all patent licenses, and other agreements providing the Grantor with the right to use any items of the type referred to in CLAUSES (a) and (b) above, including each patent license referred to in ITEM B of SCHEDULE III hereto; and (d) all proceeds of, and rights associated with, the foregoing (including license royalties and proceeds of infringement suits), the right to sue third parties for past, present or future infringements of any patent or patent application, and for breach or enforcement of any patent license. "PLEDGED NOTE" means a promissory note payable to the Grantor, in form and substance satisfactory to the Administrative Agent, as amended, modified or supplemented from time to time in accordance with CLAUSE (c) of SECTION 4.7, together with any notes delivered in extension or renewal thereof or substitution therefor. "RECEIVABLES" is defined in CLAUSE (c) of SECTION 2.1. "RELATED CONTRACTS" is defined in CLAUSE (c) of SECTION 2.1. "RESTRICTED ASSET" is defined in SECTION 2.1. "SECURED PARTY" means, collectively, (i) each of the Secured Parties, as such term is defined in the Credit Agreement and (ii) the Gold Consignor. "SECURITIES ACT" is defined in CLAUSE (a) of SECTION 6.2. "SPECIFIED EVENT" means the occurrence and continuance of a Default under clauses (a) through (d) of Section 8.1.9 of the Credit Agreement or any other Event of Default. 4 "TERMINATION DATE" means the date on which (i) all Obligations (other than contingent indemnification obligations to the extent no unsatisfied claim giving rise thereto has been asserted) have been paid in full in cash, all Letters of Credit have been terminated or expired (or been Cash Collateralized), all Rate Protection Agreements have been terminated and all Commitments shall have terminated and (ii) all obligations (other than contingent indemnification obligations to the extent no unsatisfied claim giving rise thereto has been asserted) arising under or in connection with the Gold Consignment Agreement (and related documents and instruments) have been paid in full in cash and all commitments of the Gold Consignor thereunder have terminated. "TRADEMARK COLLATERAL" means: (a) (i) all trademarks, trade names, corporate names, company names, business names, fictitious business names, trade styles, service marks, certification marks, collective marks, logos and other source or business identifiers, and all goodwill of the business associated therewith, now existing or hereafter adopted or acquired including those referred to in ITEM A of SCHEDULE IV hereto, whether currently in use or not, all registrations and recordings thereof and all applications in connection therewith, whether pending or in preparation for filing, including registrations, recordings and applications in the United States Patent and Trademark Office or in any office or agency of the United States of America or any State thereof or any other country or political subdivision thereof or otherwise, and all common-law rights relating to the foregoing, and (ii) the right to obtain all reissues, extensions or renewals of the foregoing (collectively referred to as the "TRADEMARK"); (b) all Trademark licenses for the grant by or to the Grantor of any right to use any Trademark, including each Trademark license referred to in ITEM B of SCHEDULE IV hereto; (c) all of the goodwill of the business connected with the use of, and symbolized by the items described in, CLAUSE (a) and, to the extent applicable, CLAUSE (b); (d) the right to sue third parties for past, present and future infringements of any Trademark Collateral described in CLAUSE (a) and, to the extent applicable, CLAUSE (b); and (e) all proceeds of, and rights associated with, the foregoing, including any claim by the Grantor against third parties for past, present or future infringement or dilution of any Trademark, Trademark registration or Trademark license, or for any injury to the goodwill associated with the use of any such Trademark or for breach or enforcement of any Trademark license and all rights corresponding thereto throughout the world. "TRADE SECRETS COLLATERAL" means all common law and statutory trade secrets and all other confidential, proprietary or useful information and all know-how obtained by or used in or contemplated at any time for use in the business of the Grantor (all of the foregoing being collectively called a "TRADE SECRET"), whether or not such Trade Secret has been reduced to a writing or other tangible form, including all documents and things embodying, incorporating or referring in any way to such Trade Secret, all Trade Secret licenses, including each Trade Secret 5 license referred to in SCHEDULE VI hereto, and including the right to sue for and to enjoin and to collect damages for the actual or threatened misappropriation of any Trade Secret and for the breach or enforcement of any such Trade Secret license. SECTION 1.2. CREDIT AGREEMENT DEFINITIONS. Unless otherwise defined herein or the context otherwise requires, terms used in this Agreement, including its preamble, recitals, schedules and exhibits, have the meanings provided in the Credit Agreement. SECTION 1.3. UCC DEFINITIONS. Unless otherwise defined herein or in the Credit Agreement or the context otherwise requires, terms for which meanings are provided in the UCC are used in this Agreement, including its preamble, recitals, schedules and exhibits, with such meanings. ARTICLE II SECURITY INTEREST SECTION 2.1. GRANT OF SECURITY INTEREST. The Grantor hereby assigns, pledges, hypothecates, charges, mortgages, delivers, and transfers to the Administrative Agent, for its benefit and the ratable benefit of each other Secured Party, and hereby grants to the Administrative Agent, for its benefit and the ratable benefit of each other Secured Party, a continuing security interest in all assets, including without limitation all of the following property, whether tangible or intangible, whether now or hereafter existing, owned or acquired by the Grantor, and wherever located (the "COLLATERAL"): (a) (i) all investment property in which the Grantor has an interest (including the Capital Securities of each issuer of such Capital Securities described in SCHEDULE I hereto) and (ii) all other Capital Securities which are interests in limited liability companies or partnerships in which the Grantor has an interest (including the Capital Securities of each issuer of such Capital Securities described in ITEM A of SCHEDULE I hereto), in each case together with Dividends and Distributions payable in respect of the Collateral described in the foregoing CLAUSES (a)(i) and (a)(ii); (b) all goods, including all equipment (including any equipment that is or may constitute a fixture) and inventory in all of its forms of the Grantor; (c) all accounts, contracts, contract rights, chattel paper, documents, instruments, promissory notes (including Pledged Notes described in ITEM B of SCHEDULE I) and general intangibles (including tax refunds and all payment intangibles) of the Grantor, whether or not arising out of or in connection with the sale or lease of goods or the rendering of services, and all rights of the Grantor now or hereafter existing in and to all security agreements, guaranties, leases and other contracts securing or otherwise relating to any such accounts, contracts, contract rights, chattel paper, documents, instruments, promissory notes and general intangibles (all of the foregoing collectively referred to as the "RECEIVABLES", and any and all such security agreements, guaranties, leases and other contracts collectively referred to as the "RELATED CONTRACTS"); (d) all Intellectual Property Collateral of the Grantor; 6 (e) all deposit accounts (including the Collateral Account) of the Grantor and all cash, checks, drafts, notes, bills of exchange, money orders, other like instruments and all investment property held in the Collateral Account (or in any sub-account thereof) and all interest and earnings in respect thereof; (f) all of the Grantor's letter of credit rights; (g) all commercial tort claims in which the Grantor has rights (including as a plaintiff), as set forth on ITEM F of SCHEDULE II hereto; (h) all books, records, writings, data bases, information and other property relating to, used or useful in connection with, evidencing, embodying, incorporating or referring to, any of the foregoing in this Section; (i) all of the Grantor's other property and rights of every kind and description and interests therein; and (j) all products, offspring, rents, issues, profits, returns, income, supporting obligations and proceeds of and from any and all of the foregoing Collateral (including proceeds which constitute property of the types described in CLAUSES (a) through (i), and, to the extent not otherwise included, all payments under insurance (whether or not the Administrative Agent is the loss payee thereof), or any indemnity, warranty or guaranty payable by reason of loss or damage to or otherwise with respect to any of the foregoing Collateral). Notwithstanding the foregoing, "Collateral" shall not include (i) the Grantor's real property leaseholds; (ii) any general intangibles or other rights arising under any contracts, instruments, licenses or other documents as to which the grant of a security interest would (A) constitute a violation of a valid and enforceable restriction in favor of a third party on such grant, unless and until any required consents shall have been obtained or (B) give any other party to such contract, instrument, license or other document the right to terminate its obligations thereunder (the "RESTRICTED ASSETS"), PROVIDED that this clause shall not limit the grant of any security interest in any proceeds of any Restricted Asset or any Restricted Asset to the extent that the UCC or any other applicable law provides that such grant of security interest is effective irrespective of any prohibitions to such grant provided in the underlying contract, instrument, license or other document; and (iii) Capital Securities of a Foreign Subsidiary in excess of 65% of the total combined voting power of all Capital Securities of such Foreign Subsidiary (other than a Foreign Subsidiary that (i) is treated as a partnership under the Code or (ii) is not treated as an entity that is separate from the Grantor); PROVIDED, that, if any change in, or the introduction, adoption, effectiveness, interpretation, reinterpretation or phase in of, any law or regulation, directive or guidelines of any Governmental Authority could reasonably be expected to reduce the amount of United States federal income tax that would otherwise be payable by the Grantor if it pledged more than 65% of such combined voting power, then the Administrative Agent or the Required Lenders may require the Grantor to pledge more than 65% of the Capital Securities of such Foreign Subsidiary. 7 SECTION 2.2. SECURITY FOR OBLIGATIONS. This Agreement and the Collateral in which the Administrative Agent for the benefit of the Secured Parties is granted a security interest hereunder by the Grantor secures the payment of all Obligations now or hereafter existing. SECTION 2.3. GRANTOR REMAINS LIABLE. Anything herein to the contrary notwithstanding (a) the Grantor will remain liable under the contracts and agreements included in the Collateral to the extent set forth therein, and will perform all of its duties and obligations under such contracts and agreements to the same extent as if this Agreement had not been executed; (b) the exercise by the Administrative Agent of any of its rights hereunder will not release the Grantor from any of its duties or obligations under any contracts or agreements included in the Collateral; and (c) no Secured Party will have any obligation or liability (other than as a result of such Secured Party's gross negligence or willful misconduct) under any contracts or agreements included in the Collateral by reason of this Agreement, nor will any Secured Party be obligated to perform any of the obligations or duties of the Grantor thereunder or to take any action to collect or enforce any claim for payment assigned hereunder. SECTION 2.4. DIVIDENDS ON PLEDGED SHARES. In the event that any Dividend with respect to any Capital Securities pledged hereunder is permitted to be paid (in accordance with Section 7.2.6 of the Credit Agreement), such Dividend or payment may be paid directly to the Grantor. If any Dividend or payment is paid in contravention of Section 7.2.6 of the Credit Agreement, then the Grantor shall hold the same segregated and in trust for the Administrative Agent until paid to the Administrative Agent in accordance with SECTION 4.1.5 hereto. ARTICLE III REPRESENTATIONS AND WARRANTIES In order to induce the Secured Parties (other than the Gold Consignor) to enter into the Credit Agreement and make Credit Extensions thereunder, to induce Secured Parties (other than the Gold Consignor) to enter into Rate Protection Agreements, and to induce the Gold Consignor to continue its obligations under the Gold Consignment Agreement, the Grantor represents and warrants to each Secured Party as set forth below. SECTION 3.1. AS TO CAPITAL SECURITIES OF THE SUBSIDIARIES. With respect to any Subsidiary of the Grantor that is (a) a corporation, business trust, joint stock company or similar Person, all Capital Securities issued by such Subsidiary are duly authorized and validly issued, fully paid and non-assessable, and represented by a certificate; and (b) a partnership or limited liability company, no Capital Securities issued by such Subsidiary (i) are dealt in or traded on securities exchanges or in securities markets, (ii) 8 expressly provide that such Capital Securities are a security governed by Article 8 of the UCC, (iii) are held in a securities account or (iv) are represented by a certificate. The percentage of the issued and outstanding Capital Securities of each Subsidiary pledged by the Grantor hereunder as of the Closing Date is as set forth on SCHEDULE I hereto. SECTION 3.2. GRANTOR NAME, ETC. The Grantor's jurisdiction of incorporation is Delaware. The Grantor does not have any trade names other than those set forth in ITEM A of SCHEDULE II hereto. During the four months preceding the date hereof, the Grantor has not been known by any legal name different from the one set forth on the signature page hereto (other than Commemorative Brands Holding Corp.), nor has the Grantor been the subject of any merger or other corporate reorganization. During the four months preceding the date hereof, the Grantor's equipment and inventory (if any) has been located at the places set forth in ITEM B of SCHEDULE II hereto. The Grantor's federal taxpayer identification number and organizational identification number are (and, during the four months preceding the date hereof, the Grantor has not had a federal taxpayer identification number or organizational identification number different from that) set forth in ITEM C of SCHEDULE II hereto. If the Collateral of the Grantor includes any inventory located in the State of California, the Grantor is not a "retail merchant" within the meaning of Section 9102 of the California UCC. The Grantor is not a party to any federal, state or local government contract which is part of the Collateral except as set forth in ITEM D of SCHEDULE II hereto. The Grantor does not maintain any deposit accounts with any Person except as set forth in ITEM E of SCHEDULE II hereto. As of the Closing Date, the Grantor has rights with respect to the commercial tort claims set forth on ITEM F of SCHEDULE II hereto. SECTION 3.3. OWNERSHIP, NO LIENS, ETC. The Grantor owns its Collateral free and clear of any Lien, except for Liens (a) created by this Agreement and (b) in the case of Collateral other than any investment property (including Capital Securities), permitted by Section 7.2.3 of the Credit Agreement. No effective financing statement or other filing similar in effect covering any Collateral is on file in any recording office, except those filed in favor of the Administrative Agent relating to this Agreement or those filed in connection with Liens permitted by Section 7.2.3 of the Credit Agreement or as to which a termination statement relating to such financing statement or other instrument has been delivered to the Administrative Agent on the Closing Date. The Grantor does not own any Restricted Assets that would impair, in any material respect, the Administrative Agent's ability to sell or otherwise transfer the Grantor's business as a going concern. SECTION 3.4. POSSESSION OF INVENTORY, ETC. The Grantor agrees that it will maintain exclusive possession of its goods, instruments, promissory notes and inventory, other than (a) inventory in transit in the ordinary course of business, (b) instruments or promissory notes that have been delivered to the Administrative Agent pursuant to SECTION 3.5 or (c) as otherwise permitted hereunder. SECTION 3.5. NEGOTIABLE DOCUMENTS, INSTRUMENTS AND CHATTEL PAPER. The Grantor has delivered to the Administrative Agent possession of all originals of all negotiable documents, instruments, promissory notes (including Pledged Notes) and chattel paper owned or held by the Grantor on the Closing Date. 9 SECTION 3.6. INTELLECTUAL PROPERTY COLLATERAL. With respect to any Intellectual Property Collateral the loss, impairment or infringement of which could reasonably be expected to have a Material Adverse Effect: (a) such Intellectual Property Collateral is subsisting and has not been adjudged invalid or unenforceable, in whole or in part; (b) such Intellectual Property Collateral is valid and enforceable; (c) the Grantor has made all necessary filings and recordations to protect its interest in such Intellectual Property Collateral, including recordations of all of its interests in the Patent Collateral and Trademark Collateral in the United States Patent and Trademark Office and (subject to the terms of the Credit Agreement) in corresponding offices throughout the world, and its claims to the Copyright Collateral in the United States Copyright Office and (subject to the terms of the Credit Agreement) in corresponding offices throughout the world; (d) the Grantor is the exclusive owner of the entire and unencumbered right, title and interest in and to such Intellectual Property Collateral and no claim has been made that the use of such Intellectual Property Collateral does or may violate the asserted rights of any third party; and (e) the Grantor has performed and will continue to perform all acts and has paid and will continue to pay all required fees and Taxes to maintain each and every such item of Intellectual Property Collateral in full force and effect throughout the world, as applicable. The Grantor owns directly or is entitled to use by license or otherwise, all patents, Trademarks, Trade Secrets, copyrights, mask works, licenses, technology, know-how, processes and rights with respect to any of the foregoing used in, necessary for or of importance to the conduct of the Grantor's business. SECTION 3.7. VALIDITY, ETC. This Agreement creates a valid security interest in favor of the Administrative Agent (for the benefit of the Secured Parties) in the Collateral as security for the Obligations. The Administrative Agent's having possession of all instruments and cash constituting Collateral from time to time, the recording of the Patent Security Agreement, the Trademark Security Agreement, and the Copyright Security Agreement, as applicable, executed pursuant hereto in the United States Patent and Trademark Office and the United States Copyright Office, as applicable, and the filing of the Filing Statements described in SCHEDULE VII hereto and, with respect to Patent Collateral, Trademark Collateral and Copyright Collateral hereafter existing and not covered by a Patent Security Agreement, Trademark Security Agreement or Copyright Security Agreement, as applicable, the recording in the United States Patent and Trademark Office and the United States Copyright Office, as applicable, of appropriate instruments of assignment, result in the perfection of such security interests. Such security interests are, or in the case of Collateral in which the Grantor obtains rights after the date hereof, will be, perfected, first priority security interests, subject only to the security interests and other Liens permitted pursuant to Section 7.2.3 of the Credit Agreement and the recording of such instruments of assignment. Such recordings and filings and all other action necessary or 10 desirable to perfect and protect such security interest have been duly taken, except for the Administrative Agent's having possession of instruments and cash constituting Collateral after the date hereof and the other filings and recordations described in SECTION 3.8 hereof. SECTION 3.8. AUTHORIZATION, APPROVAL, ETC. Except as have been obtained or made and are in full force and effect, no authorization, approval or other action by, and no notice to or filing with, any Governmental Authority is required either (a) for the grant by the Grantor of the security interest granted hereby, the pledge by the Grantor of any Collateral pursuant hereto or for the execution, delivery and performance of this Agreement by the Grantor; (b) for the perfection of or the exercise by the Administrative Agent of its rights and remedies hereunder except (A) the filing under the UCC as in effect in the applicable jurisdiction of the Filing Statements described in SCHEDULE VII hereto, (B) with respect to the perfection of the security interest created hereby in Patent Collateral, Trademark Collateral and Copyright Collateral in the United States, for the recording of the Patent Security Agreement, Trademark Security Agreement and Copyright Security Agreement, as applicable, in the United States Patent and Trademark Office and the United States Copyright Office, as applicable, (C) with respect to the perfection of the security interest created hereby in foreign Patent Collateral, Trademark Collateral and Copyright Collateral, for registrations and filings in jurisdictions located outside of the United States and covering rights in such jurisdictions relating to Patent Collateral, Trademark Collateral and Copyright Collateral, and (D) with respect to the perfection of the security interest created hereby in motor vehicles for which the title to such motor vehicles is governed by a certificate of title or ownership (collectively, the "MOTOR VEHICLES"), for the submission of an appropriate application requesting that the Lien of the Administrative Agent be noted on the certificate of title or ownership, completed and authenticated by the Grantor, together with the certificate of title, with respect to each Motor Vehicle, to the appropriate state agency; or (c) for the exercise by the Administrative Agent of the voting or other rights provided for in this Agreement, or, except with respect to any securities issued by a Subsidiary of the Grantor, as may be required in connection with a disposition of such securities by laws affecting the offering and sale of securities generally and the remedies in respect of the Collateral pursuant to this Agreement. ARTICLE IV COVENANTS The Grantor covenants and agrees that, until the Termination Date, it will perform, comply with and be bound by the obligations set forth below. SECTION 4.1. AS TO INVESTMENT PROPERTY, ETC. SECTION 4.1.1 CAPITAL SECURITIES OF SUBSIDIARIES. The Grantor will not allow any of its Subsidiaries that is 11 (a) a corporation, business trust, joint stock company or similar Person, to issue uncertificated securities; and (b) a partnership or limited liability company, to (i) issue Capital Securities that are to be dealt in or traded on securities exchanges or in securities markets, (ii) expressly provide in its Organic Documents that its Capital Securities are securities governed by Article 8 of the UCC, (iii) place such Subsidiaries' Capital Securities in a securities account or (iv) cause such Subsidiaries' Capital Securities to be represented by a certificate. SECTION 4.1.2 INVESTMENT PROPERTY (OTHER THAN CERTIFICATED SECURITIES). With respect to any investment property (other than certificated securities) owned by the Grantor, the Grantor will cause a Control Agreement relating to such investment property to be executed and delivered by the Grantor and the applicable financial intermediary in favor of the Administrative Agent. SECTION 4.1.3 STOCK POWERS, ETC. The Grantor agrees that all certificated securities delivered by the Grantor pursuant to this Agreement will be accompanied by undated stock powers duly executed in blank, or other equivalent instruments of transfer acceptable to the Administrative Agent. SECTION 4.1.4 CONTINUOUS PLEDGE. The Grantor will (subject to the terms of the Credit Agreement) deliver to the Administrative Agent and at all times keep pledged to the Administrative Agent pursuant hereto, on a first-priority, perfected basis all Collateral, all payment intangibles to the extent they are evidenced by a document, instrument, promissory note (including a Pledged Note) or chattel paper and are, when aggregated with all other such Collateral of each Subsidiary Guarantor, in an aggregate face amount of more than $50,000, and all interest and principal with respect to the payment intangibles, and all proceeds and rights from time to time received by or distributable to the Grantor in respect of any of the foregoing Collateral. The Grantor agrees that it will, promptly following receipt, deliver to the Administrative Agent possession of all originals of negotiable documents, instruments, promissory notes (including Pledged Notes) and chattel paper that it acquires following the Closing Date. SECTION 4.1.5 VOTING RIGHTS; DIVIDENDS, ETC. The Grantor agrees: (a) promptly upon receipt of notice of the occurrence and continuance of a Specified Event from the Administrative Agent and without any request therefor by the Administrative Agent, so long as such Specified Event shall continue, to deliver (properly endorsed where required hereby or requested by the Administrative Agent) to the Administrative Agent all Dividends and Distributions with respect to investment property, all interest, principal, other cash payments on payment intangibles, and all proceeds of the Collateral, in each case thereafter received by the Grantor, all of which shall be held by the Administrative Agent as additional Collateral; and (b) promptly upon receipt of notice of the occurrence and continuance of a Specified Event from the Administrative Agent and upon request therefor by the Administrative Agent, so long as such Specified Event shall continue, with respect to Collateral 12 consisting of general partner interests or limited liability company interests, to cause modifications to the respective Organic Documents to admit the Administrative Agent as a general partner or member, respectively; and (c) immediately upon the occurrence and continuance of a Specified Event and so long as the Administrative Agent has notified the Grantor of the Administrative Agent's intention to exercise its voting power under this clause, (i) that the Administrative Agent may exercise (to the exclusion of the Grantor) the voting power and all other incidental rights of ownership with respect to any investment property constituting Collateral and the Grantor hereby grants the Administrative Agent an irrevocable proxy, exercisable under such circumstances, to vote such investment property; and (ii) to promptly deliver to the Administrative Agent such additional proxies and other documents as may be necessary to allow the Administrative Agent to exercise such voting power. All Dividends, Distributions, interest, principal, cash payments, payment intangibles and proceeds which may at any time and from time to time be held by the Grantor but which the Grantor is then obligated to deliver to the Administrative Agent, shall, until delivery to the Administrative Agent, be held by the Grantor separate and apart from its other property in trust for the Administrative Agent. The Administrative Agent agrees that unless a Specified Event shall have occurred and be continuing and the Administrative Agent shall have given the notice referred to in CLAUSE (b), the Grantor will have the exclusive voting power with respect to any investment property constituting Collateral and the Administrative Agent will, upon the written request of the Grantor, promptly deliver such proxies and other documents, if any, as shall be reasonably requested by the Grantor which are necessary to allow the Grantor to exercise that voting power; PROVIDED that no vote shall be cast, or consent, waiver, or ratification given, or action taken by the Grantor that would impair any such Collateral or be inconsistent with or violate any provision of any Loan Document. SECTION 4.2. CHANGE OF NAME, ETC. The Grantor will not change its name or place of incorporation or organization or federal taxpayer identification number except upon 30 days' prior written notice to the Administrative Agent. In addition, the Grantor shall supplement the information contained in SCHEDULE II hereto on the Compliance Certificate on each date a Compliance Certificate is required to be delivered to the Administrative Agent under the Credit Agreement, including any changes to the information set forth in SECTION 3.2. SECTION 4.3. AS TO RECEIVABLES; COLLATERAL ACCOUNT. (a) The Grantor shall have the right to collect all Receivables so long as no Specified Event shall have occurred and be continuing. (b) Upon (i) the occurrence and continuance of a Specified Event and (ii) the delivery of written notice by the Administrative Agent to the Grantor, all proceeds of Collateral received by the Grantor shall be delivered in kind to the Administrative Agent for deposit into a deposit account (the "COLLATERAL ACCOUNT") of the Grantor maintained with the 13 Administrative Agent (or such other institution which has executed and delivered to the Administrative Agent a "lockbox" agreement in form and substance and satisfactory to the Administrative Agent), and the Grantor shall not commingle any such proceeds, and shall hold separate and apart from all other property, all such proceeds in express trust for the benefit of the Administrative Agent until delivery thereof is made to the Administrative Agent. (c) Following the delivery of notice pursuant to CLAUSE (b)(ii), the Administrative Agent shall have the right to apply any amount in the Collateral Account to the payment of any Obligations which are due and payable. (d) With respect to the Collateral Account, it is hereby confirmed and agreed that (i) deposits in each Collateral Account are subject to a security interest as contemplated hereby, (ii) each such Collateral Account shall be under the sole dominion and control of the Administrative Agent and (iii) the Administrative Agent shall have the sole right of withdrawal over the amounts deposited in such Collateral Account. SECTION 4.4. AS TO COLLATERAL. (a) Subject to CLAUSE (b), the Grantor (i) may in the ordinary course of its business, at its own expense, sell, lease or furnish under the contracts of service any of the inventory normally held by the Grantor for such purpose, and use and consume, in the ordinary course of its business, any raw materials, work in process or materials normally held by the Grantor for such purpose, (ii) will, at its own expense, endeavor to collect, as and when due, all amounts due with respect to any of the Collateral, including the taking of such action with respect to such collection as the Administrative Agent may reasonably request following the occurrence of a Specified Event or, in the absence of such request, as the Grantor may deem advisable, and (iii) may grant, in the ordinary course of business, to any party obligated on any of the Collateral, any rebate, refund or allowance to which such party may be lawfully entitled, and may accept, in connection therewith, the return of goods, the sale or lease of which shall have given rise to such Collateral. (b) At any time following the occurrence and during the continuance of a Specified Event, whether before or after the maturity of any of the Obligations, the Administrative Agent may (i) revoke any or all of the rights of the Grantor set forth in CLAUSE (a), (ii) notify any parties obligated on any of the Collateral to make payment to the Administrative Agent of any amounts due or to become due thereunder and (iii) enforce collection of any of the Collateral by suit or otherwise and surrender, release, or exchange all or any part thereof, or compromise or extend or renew for any period (whether or not longer than the original period) any indebtedness thereunder or evidenced thereby. (c) Upon request of the Administrative Agent following the occurrence and during the continuance of a Specified Event, the Grantor will, at its own expense, notify any parties obligated on any of the Collateral to make payment to the Administrative Agent of any amounts due or to become due thereunder. 14 (d) The Grantor hereby authorizes the Administrative Agent to endorse, in the name of the Grantor, any item, howsoever received by the Administrative Agent, representing any payment on or other proceeds of any of the Collateral. SECTION 4.5. AS TO INTELLECTUAL PROPERTY COLLATERAL. The Grantor covenants and agrees to comply with the following provisions as such provisions relate to any Intellectual Property Collateral of the Grantor: (a) the Grantor will not (i) do or fail to perform any act whereby any of the Patent Collateral may lapse or become abandoned or dedicated to the public or unenforceable, (ii) permit any of its licensees to (A) fail to continue to use any of the Trademark Collateral in order to maintain all of the Trademark Collateral in full force free from any claim of abandonment for non-use, (B) fail to maintain as in the past the quality of products and services offered under all of the Trademark Collateral, (C) fail to employ all of the Trademark Collateral registered with any federal or state or foreign authority with an appropriate notice of such registration, (D) adopt or use any other Trademark which is confusingly similar or a colorable imitation of any of the Trademark Collateral, (E) use any of the Trademark Collateral registered with any federal, state or foreign authority except for the uses for which registration or application for registration of all of the Trademark Collateral has been made or (F) do or permit any act or knowingly omit to do any act whereby any of the Trademark Collateral may lapse or become invalid or unenforceable, or (iii) do or permit any act or knowingly omit to do any act whereby any of the Copyright Collateral or any of the Trade Secrets Collateral may lapse or become invalid or unenforceable or placed in the public domain except upon expiration of the end of an unrenewable term of a registration thereof, unless, in the case of any of the foregoing requirements in CLAUSES (i), (ii) and (iii), the Grantor shall either (x) reasonably and in good faith determine that any of such Intellectual Property Collateral is of negligible economic value to the Grantor, or (y) have a valid business purpose to do otherwise; (b) the Grantor shall promptly notify the Administrative Agent if it knows, or has reason to know, that any application or registration relating to any material item of the Intellectual Property Collateral may become abandoned or dedicated to the public or placed in the public domain or invalid or unenforceable, or of any adverse determination or development (including the institution of, or any such determination or development in, any proceeding in the United States Patent and Trademark Office, the United States Copyright Office or any foreign counterpart thereof or any court) regarding the Grantor's ownership of any of the Intellectual Property Collateral, its right to register the same or to keep and maintain and enforce the same; (c) in no event will the Grantor or any of its agents, employees, designees or licensees file an application for the registration of any Intellectual Property Collateral with the United States Patent and Trademark Office, the United States Copyright Office or any similar office or agency in any other country or any political subdivision thereof, unless it promptly informs the Administrative Agent, and upon request of the Administrative Agent (subject to Section 7.1.8 of the Credit Agreement), executes and delivers all agreements, instruments and documents as the Administrative Agent may reasonably request to evidence the Administrative Agent's security interest in such Intellectual Property Collateral; 15 (d) the Grantor will take all necessary steps, including in any proceeding before the United States Patent and Trademark Office, the United States Copyright Office or (subject to Section 7.1.8 of the Credit Agreement) any similar office or agency in any other country or any political subdivision thereof, to maintain and pursue any application (and to obtain the relevant registration) filed with respect to, and to maintain any registration of, the Intellectual Property Collateral, including the filing of applications for renewal, affidavits of use, affidavits of incontestability and opposition, interference and cancellation proceedings and the payment of fees and taxes (except to the extent that dedication, abandonment or invalidation is permitted under the foregoing CLAUSE (a) or (b)); and (e) the Grantor will promptly (but no less than quarterly) execute and deliver to the Administrative Agent (as applicable) a Patent Security Agreement, Trademark Security Agreement and/or Copyright Security Agreement, as the case may be, in the forms of EXHIBIT A, EXHIBIT B and EXHIBIT C hereto following its obtaining an interest in any such Intellectual Property, and shall execute and deliver to the Administrative Agent any other document required to acknowledge or register or perfect the Administrative Agent's interest in any part of such item of Intellectual Property Collateral. SECTION 4.6. BAILEES. With respect to Collateral that is in the possession of any landlord, refinery, consignee, warehouseman, bailee, agent or processor, upon the request of the Administrative Agent, the Grantor shall promptly upon such request use its best efforts to enter into a landlord, refinery, consignee, warehouseman, bailee, agent or processor arrangement (including but not limited to a waiver of any Lien held by such Person against such Collateral) in form and substance reasonably satisfactory to the Administrative Agent. Upon the request of the Administrative Agent, the Grantor shall provide warehouse receipts or bailee letters reasonably satisfactory to the Administrative Agent prior to the commencement of such storage with any such Person. The Grantor shall, upon the request of the Administrative Agent, notify any such landlord, refinery, consignee, warehouseman, bailee, agent, processor or other Person of the security interest created hereby and shall instruct such Person to hold all such Collateral for the account of the Administrative Agent subject to the instructions of the Administrative Agent. SECTION 4.7. FURTHER ASSURANCES, ETC. The Grantor agrees that, from time to time at its own expense, it will promptly execute and deliver all further instruments and documents, and take all further action, that may be necessary or that the Administrative Agent may reasonably request, in order to perfect, preserve and protect any security interest granted or purported to be granted hereby or to enable the Administrative Agent to exercise and enforce its rights and remedies hereunder with respect to any Collateral. Without limiting the generality of the foregoing, the Grantor will (a) from time to time upon the request of the Administrative Agent, promptly deliver to the Administrative Agent such stock powers, instruments and similar documents, satisfactory in form and substance to the Administrative Agent, with respect to such Collateral as the Administrative Agent may reasonably request and will, from time to time upon the request of the Administrative Agent after the occurrence and during the continuance of any Specified Event promptly transfer any securities constituting Collateral into the name of any nominee designated by the Administrative Agent; if any Account or Receivable shall be evidenced by an instrument, negotiable document, promissory note or chattel paper, deliver and 16 pledge to the Administrative Agent hereunder such instrument, negotiable document, promissory note or chattel paper duly endorsed and accompanied by duly executed instruments of transfer or assignment, all in form and substance satisfactory to the Administrative Agent; (b) file (or cause to be filed) such Filing Statements or continuation statements, or amendments thereto, and such other instruments or notices (including any assignment of claim form under or pursuant to the federal assignment of claims statute, 31 U.S.C. Section 3726, any successor or amended version thereof or any regulation promulgated under or pursuant to any version thereof), as may be necessary or that the Administrative Agent may reasonably request in order to perfect and preserve the security interests and other rights granted or purported to be granted to the Administrative Agent hereby; (c) deliver to the Administrative Agent and at all times keep pledged to the Administrative Agent pursuant hereto, on a first-priority, perfected basis, at the reasonable request of the Administrative Agent, all investment property constituting Collateral, all Dividends and Distributions with respect thereto, and all interest and principal with respect to promissory notes (including Pledged Notes), and all proceeds and rights from time to time received by or distributable to the Grantor in respect of any of the foregoing Collateral; (d) except as permitted by the terms of the Credit Agreement, not take or omit to take any action the taking or the omission of which would result in any impairment or alteration of any obligation of the maker of any payment intangible or other instrument constituting Collateral; (e) not acquire any Restricted Assets (or acquire a series of related Restricted Assets) if such acquisition (or series of related acquisitions) would impair, in any material respect, the Administrative Agent's ability to sell or otherwise transfer the Grantor's business as a going concern; (f) furnish to the Administrative Agent, from time to time at the Administrative Agent's request, statements and schedules further identifying and describing the Collateral and such other reports in connection with the Collateral as the Administrative Agent may reasonably request, all in reasonable detail; (g) not permit any items of equipment to become fixtures to real estate other than real estate subject to a Mortgage or real estate owned by a landlord that has signed a landlord's waiver in form and substance satisfactory to the Administrative Agent (for its own benefit and on behalf of the Secured Parties); (h) not adjust, settle or compromise any account, or release wholly or partly any party or obligation thereof, or allow any credit or discount thereon (collectively an "ADJUSTMENT"), unless (i) the Administrative Agent grants its consent prior to any such Adjustment which consent shall not be unreasonably withheld or delayed or (ii) such Adjustment is made in the ordinary course of business of the Grantor and is for an amount not in excess of $50,000 (provided that no such Adjustment may be made without the prior written consent of the Administrative Agent during the continuance of a Specified Event); 17 (i) do all things reasonably requested by the Administrative Agent in order to enable the Administrative Agent to have control (as such term is defined in Article 8 and Article 9 of any applicable Uniform Commercial Code relevant to the creation, perfection or priority of Collateral consisting of deposit accounts, accounts and letter of credit rights) over any Collateral; and (j) promptly notify the Administrative Agent if the Grantor believes it has rights in respect of any amounts in a commercial tort claim and the Grantor shall take all action reasonably requested by the Administrative Agent to perfect the Administrative Agent's security interest in such commercial tort claim. With respect to the foregoing and the grant of the security interest hereunder, the Grantor hereby authorizes the Administrative Agent to file one or more financing or continuation statements, and amendments thereto, relative to all or any part of the Collateral without the signature of the Grantor where permitted by law. The Grantor agrees that a carbon, photographic or other reproduction of this Agreement or any financing statement covering the Collateral or any part thereof shall be sufficient as a financing statement where permitted by law. SECTION 4.8. FILING REQUIREMENTS. None of the Collateral (other than motor vehicles not having a market value in excess of $75,000 in the aggregate) is covered by any certificate of title. Upon request of the Administrative Agent, the Grantor shall promptly deliver to the Administrative Agent any and all certificates of title, applications for title or similar evidence of ownership of such Collateral and shall cause the Administrative Agent to be named as lienholder on any such certificate of title or other evidence of ownership. None of the Collateral is of a type in which security interests or liens may be registered, recorded or filed under, or notice thereof given under, any federal statute or regulation except for Collateral described on the schedules to any Copyright Security Agreement, Patent Security Agreement or Trademark Security Agreement. The Grantor shall promptly notify the Administrative Agent in writing upon acquiring any interest hereafter in any property which constitutes "Collateral" under this Agreement and which is of a type where a security interest or lien may be registered, recorded or filed under, or notice thereof given under, any federal statute or regulation. ARTICLE V THE ADMINISTRATIVE AGENT SECTION 5.1. ADMINISTRATIVE AGENT APPOINTED ATTORNEY-IN-FACT. The Grantor hereby irrevocably appoints the Administrative Agent its attorney-in-fact, with full authority in the place and stead of the Grantor and in the name of the Grantor or otherwise, from time to time in the Administrative Agent's discretion, following the occurrence and during the continuance of a Specified Event, to take any action and to execute any instrument which the Administrative Agent may deem necessary or advisable to accomplish the purposes of this Agreement, including: 18 (a) to ask, demand, collect, sue for, recover, compromise, receive and give acquittance and receipts for moneys due and to become due under or in respect of any of the Collateral; (b) to receive, endorse, and collect any drafts or other instruments, documents and chattel paper, in connection with CLAUSE (a) above; (c) to file any claims or take any action or institute any proceedings which the Administrative Agent may deem necessary or desirable for the collection of any of the Collateral or otherwise to enforce the rights of the Administrative Agent with respect to any of the Collateral; and (d) to perform the affirmative obligations of the Grantor hereunder (including all obligations of the Grantor pursuant to SECTION 4.6). The Grantor hereby acknowledges, consents and agrees that the power of attorney granted pursuant to this Section is irrevocable and coupled with an interest. SECTION 5.2. ADMINISTRATIVE AGENT MAY PERFORM. If the Grantor fails to perform any agreement contained herein, the Administrative Agent may itself perform, or cause performance of, such agreement, and the expenses of the Administrative Agent incurred in connection therewith shall be payable by the Grantor pursuant to SECTION 6.4. SECTION 5.3. ADMINISTRATIVE AGENT HAS NO DUTY. The powers conferred on the Administrative Agent hereunder are solely to protect its interest (on behalf of the Secured Parties) in the Collateral and shall not impose any duty on it to exercise any such powers. Except for reasonable care of any Collateral in its possession and the accounting for moneys actually received by it hereunder, the Administrative Agent shall have no duty as to any Collateral or responsibility for (a) ascertaining or taking action with respect to calls, conversions, exchanges, maturities, tenders or other matters relative to any investment property, whether or not the Administrative Agent has or is deemed to have knowledge of such matters, or (b) taking any necessary steps to preserve rights against prior parties or any other rights pertaining to any Collateral. SECTION 5.4. REASONABLE CARE. The Administrative Agent is required to exercise reasonable care in the custody and preservation of any of the Collateral in its possession; PROVIDED, that the Administrative Agent shall be deemed to have exercised reasonable care in the custody and preservation of any of the Collateral, if it takes such action for that purpose as the Grantor reasonably requests in writing at times other than upon the occurrence and during the continuance of any Specified Event, but failure of the Administrative Agent to comply with any such request at any time shall not in itself be deemed a failure to exercise reasonable care. 19 ARTICLE VI REMEDIES SECTION 6.1. CERTAIN REMEDIES. If any Specified Event shall have occurred and be continuing: (a) The Administrative Agent may exercise in respect of the Collateral, in addition to other rights and remedies provided for herein or otherwise available to it, all the rights and remedies of a secured party on default under the UCC (whether or not the UCC applies to the affected Collateral) and also may (i) require the Grantor to, and the Grantor hereby agrees that it will, at its expense and upon request of the Administrative Agent forthwith, assemble all or part of the Collateral as directed by the Administrative Agent and make it available to the Administrative Agent at a place to be designated by the Administrative Agent which is reasonably convenient to both parties, and (ii) without notice except as specified below, sell the Collateral or any part thereof in one or more parcels at public or private sale, at any of the Administrative Agent's offices or elsewhere, for cash, on credit or for future delivery, and upon such other terms as the Administrative Agent may deem commercially reasonable. The Grantor agrees that, to the extent notice of sale shall be required by law, at least ten days prior notice to the Grantor of the time and place of any public sale or the time after which any private sale is to be made shall constitute reasonable notification. The Administrative Agent shall not be obligated to make any sale of Collateral regardless of notice of sale having been given. The Administrative Agent may adjourn any public or private sale from time to time by announcement at the time and place fixed therefor, and such sale may, without further notice, be made at the time and place to which it was so adjourned. (b) All cash proceeds received by the Administrative Agent in respect of any sale of, collection from, or other realization upon, all or any part of the Collateral may, in the discretion of the Administrative Agent, be held by the Administrative Agent as collateral for, and/or then or at any time thereafter applied by the Administrative Agent against all or any part of the Obligations as follows: (i) FIRST, to the payment of any amounts payable to the Administrative Agent, in its capacity as Administrative Agent, pursuant to Section 10.3 of the Credit Agreement and SECTION 6.4; (ii) SECOND, to the equal and ratable payment of the Obligations, applied as to each Secured Party: (A) first to fees then due to such Secured Party, (B) then to interest due to such Secured Party, (C) then to the Cash Collateralization of all Letter of Credit Outstandings, (D) then to principal amounts owing to, or to reduce the "credit exposure" of, such Secured Party with respect to the Loans or the Gold Consignment Agreement, or under such Rate Protection Agreement, as the case may be, and (E) then to the remaining outstanding Obligations, including, without duplication of any amounts paid pursuant to this clause, to the 20 amounts owing pursuant to Section 10.4 of the Credit Agreement and Sections 26 and 33 of the Gold Consignment Agreement; and (iii) THIRD, to the Grantor or to whomsoever may be lawfully entitled to receive such surplus. For purposes of this Agreement, the "credit exposure" at any time of any Secured Party with respect to a Rate Protection Agreement to which such Secured Party is a party shall be determined at such time in accordance with the customary methods of calculating credit exposure under similar arrangements by the counterparty to such arrangements, taking into account potential interest rate movements and the respective termination provisions and notional principal amount and term of such Rate Protection Agreement. (c) The Administrative Agent may (i) transfer all or any part of the Collateral into the name of the Administrative Agent or its nominee, with or without disclosing that such Collateral is subject to the Lien hereunder, (ii) notify the parties obligated on any of the Collateral to make payment to the Administrative Agent of any amount due or to become due thereunder, (iii) enforce collection of any of the Collateral by suit or otherwise, and surrender, release or exchange all or any part thereof, or compromise or extend or renew for any period (whether or not longer than the original period) any obligations of any nature of any party with respect thereto, (iv) endorse any checks, drafts, or other writings in the Grantor's name to allow collection of the Collateral, (v) take control of any proceeds of the Collateral, and (vi) execute (in the name, place and stead of the Grantor) endorsements, assignments, stock powers and other instruments of conveyance or transfer with respect to all or any of the Collateral. SECTION 6.2. SECURITIES LAWS. If the Administrative Agent shall determine to exercise its right to sell all or any of the Collateral pursuant to SECTION 6.1, the Grantor agrees that, upon request of the Administrative Agent, the Grantor will, at its own expense: (a) execute and deliver, and cause (or, with respect to any issuer which is not a Subsidiary of the Grantor, use its best efforts to cause) each issuer of the Capital Securities contemplated to be sold and the directors and officers thereof to execute and deliver, all such instruments and documents, and do or cause to be done all such other acts and things, as may be necessary or, in the opinion of the Administrative Agent, advisable to register such Capital Securities under the provisions of the Securities Act of 1933, as from time to time amended (the "SECURITIES ACT"), and cause the registration statement relating thereto to become effective and to remain effective for such period as prospectuses are required by law to be furnished, and to make 21 all amendments and supplements thereto and to the related prospectus which, in the reasonable opinion of the Administrative Agent, are necessary or advisable, all in conformity with the requirements of the Securities Act and the rules and regulations of the SEC applicable thereto; (b) use its best efforts to exempt such Capital Securities under the state securities or "Blue Sky" laws and to obtain all necessary governmental approvals for the sale of such Capital Securities, as requested by the Administrative Agent; (c) cause (or, with respect to any issuer which is not a Subsidiary of the Grantor, use its best efforts to cause) each such issuer to make available to its security holders, as soon as practicable, an earnings statement that will satisfy the provisions of Section 11(a) of the Securities Act; and (d) do or cause to be done all such other acts and things as may be necessary to make such sale of such Collateral or any part thereof valid and binding and in compliance with applicable law. The Grantor further acknowledges the impossibility of ascertaining the amount of damages that would be suffered by the Administrative Agent or the Secured Parties by reason of the failure by the Grantor to perform any of the covenants contained in this Section and consequently agrees that, if the Grantor shall fail to perform any of such covenants, it shall pay, as liquidated damages and not as a penalty, an amount equal to the value (as determined by the Administrative Agent) of such Collateral on the date the Administrative Agent shall demand compliance with this Section. SECTION 6.3. COMPLIANCE WITH RESTRICTIONS. The Grantor agrees that in any sale of any of the Collateral whenever a Specified Event shall have occurred and be continuing, the Administrative Agent is hereby authorized to comply with any limitation or restriction in connection with such sale as it may be advised by counsel is necessary in order to avoid any violation of applicable law (including compliance with such procedures as may restrict the number of prospective bidders and purchasers, require that such prospective bidders and purchasers have certain qualifications, and restrict such prospective bidders and purchasers to Persons who will represent and agree that they are purchasing for their own account for investment and not with a view to the distribution or resale of such Collateral), or in order to obtain any required approval of the sale or of the purchaser by any Governmental Authority or official, and the Grantor further agrees that such compliance shall not result in such sale being considered or deemed not to have been made in a commercially reasonable manner, nor shall the Administrative Agent be liable nor accountable to the Grantor for any discount allowed by the reason of the fact that such Collateral is sold in compliance with any such limitation or restriction. SECTION 6.4. EXPENSES. The Grantor will, upon demand, pay to the Administrative Agent the amount of any and all reasonable expenses, including the reasonable fees and disbursements of its counsel and of any experts and agents, which the Administrative Agent may incur in connection with: (i) the administration of each Loan Document, 22 (ii) the custody, preservation, use or operation of, or the sale of, collection from, or other realization upon, any of the Collateral, (iii) the exercise or enforcement of any of the rights of the Administrative Agent or the Secured Parties hereunder, and (iv) the failure by the Grantor to perform or observe any of the provisions hereof. SECTION 6.5. PROTECTION OF COLLATERAL. The Administrative Agent may from time to time, at its option, perform any act which the Grantor fails to perform after being requested in writing so to perform (it being understood that no such request need be given after the occurrence and during the continuance of a Specified Event) and the Administrative Agent may from time to time take any other action which the Administrative Agent reasonably deems necessary for the maintenance, preservation or protection of any of the Collateral or of its security interest therein. ARTICLE VII MISCELLANEOUS PROVISIONS SECTION 7.1. LOAN DOCUMENT. This Agreement is a Loan Document executed pursuant to the Credit Agreement and shall (unless otherwise expressly indicated herein) be construed, administered and applied in accordance with the terms and provisions thereof, including Article X thereof. SECTION 7.2. BINDING ON SUCCESSORS, TRANSFEREES AND ASSIGNS; ASSIGNMENT. This Agreement shall remain in full force and effect until the Termination Date has occurred, shall be binding upon the Grantor and its successors, transferees and assigns and shall inure to the benefit of and be enforceable by each Secured Party and its successors, transferees and assigns; PROVIDED that the Grantor may not (unless otherwise permitted under the terms of the Credit Agreement) assign any of its obligations hereunder without the prior written consent of all Lenders. SECTION 7.3. AMENDMENTS, ETC. No amendment to or waiver of any provision of this Agreement, nor consent to any departure by the Grantor from its obligations under this Agreement, shall in any event be effective unless the same shall be in writing and signed by the Administrative Agent (on behalf of the Lenders or the Required Lenders, as the case may be, pursuant to Section 10.1 of the Credit Agreement) and by the Gold Consignor and the Grantor and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. SECTION 7.4. NOTICES. All notices and other communications provided for hereunder shall be in writing or by facsimile and addressed, delivered or transmitted to the appropriate party at the address or facsimile number of such party specified in the Credit Agreement, or if to the Gold Consignor to the address or facsimile number set forth in the Gold Consignment Agreement or at such other address or facsimile number as may be designated by such Person in a notice to the other party (and to the Gold Consignor). Any notice or other communication, if mailed and properly addressed with postage prepaid or if properly addressed and sent by pre-paid 23 courier service, shall be deemed given when received; any such notice or other communication, if transmitted by facsimile, shall be deemed given when transmitted and electronically confirmed. SECTION 7.5. RELEASE OF LIENS. Upon (a) the Disposition of Collateral in accordance with the Credit Agreement or (b) the occurrence of the Termination Date, the security interests granted herein shall automatically terminate with respect to (i) such Collateral (in the case of CLAUSE (a)) or (ii) all Collateral (in the case of CLAUSE (b)). Upon any such Disposition or termination, the Administrative Agent will, at the Grantor's sole expense, deliver to the Grantor, without any representations, warranties or recourse of any kind whatsoever, such Collateral (in the case of CLAUSE (a)) or all Collateral (in the case of CLAUSE (b)) held by the Administrative Agent hereunder, and execute and deliver to the Grantor such documents as the Grantor shall reasonably request to evidence such termination. SECTION 7.6. NO WAIVER; REMEDIES. No failure on the part of any Secured Party to exercise, and no delay in exercising, any right hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any right hereunder preclude any other or further exercise thereof or the exercise of any other right. The remedies herein provided are cumulative and not exclusive of any remedies provided by law. SECTION 7.7. HEADINGS. The various headings of this Agreement are inserted for convenience only and shall not affect the meaning or interpretation of this Agreement or any provisions thereof. SECTION 7.8. SEVERABILITY. Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such provision and such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions of this Agreement or affecting the validity or enforceability of such provision in any other jurisdiction. SECTION 7.9. GOVERNING LAW, ENTIRE AGREEMENT, ETC. THIS AGREEMENT SHALL BE DEEMED TO BE A CONTRACT MADE UNDER AND GOVERNED BY THE INTERNAL LAWS OF THE STATE OF NEW YORK (INCLUDING FOR SUCH PURPOSE SECTIONS 5-1401 AND 5-1402 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK), EXCEPT TO THE EXTENT THAT THE VALIDITY OR PERFECTION OF THE SECURITY INTEREST HEREUNDER, OR REMEDIES HEREUNDER, IN RESPECT OF ANY PARTICULAR COLLATERAL ARE GOVERNED BY THE LAWS OF A JURISDICTION OTHER THAN THE STATE OF NEW YORK. This Agreement and the other Loan Documents constitute the entire understanding among the parties hereto with respect to the subject matter hereof and thereof and supersede any prior agreements, written or oral, with respect thereto. SECTION 7.10. COUNTERPARTS. This Agreement may be executed by the parties hereto in several counterparts, each of which shall be deemed to be an original and all of which shall constitute together but one and the same agreement. Delivery of an executed counterpart of a signature page to this Agreement by facsimile shall be effective as delivery of a manually executed counterpart of this Agreement. 24 IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be duly executed and delivered by its Authorized Officer as of the date first above written. AMERICAN ACHIEVEMENT CORPORATION By: /s/ Sherice P. Bench ------------------------------------------ Name: Sherice P. Bench Title: Chief Financial Officer THE BANK OF NOVA SCOTIA, as Administrative Agent By: /s/ Jerome Noto ------------------------------------------ Name: Jerome Noto Title: Director SCHEDULE I to Borrower Pledge and Security Agreement ITEM A. CAPITAL SECURITIES
STOCK CERTIFICATE AUTHORIZED OUTSTANDING NUMBER OF % OF SHARES ISSUER (CORPORATE) CLASS OF STOCK NUMBER SHARES SHARES SHARES PLEDGED - ------------------ -------------- ------ ------ ------ ------ ------- Commemorative Brands, Inc. Common 22 75,000 375,985 375,985 100% 460,985 Commemorative Brands, Inc. Series B 750,000 (Series B 460,985 100% Preferred B-28 (Preferred) Preferred) Taylor Senior Holding Corp. Preferred 10 1,000 1,000 1,000 100% Taylor Senior Holding Corp. Common 10 1,000 1,000 1,000 100% Educational Communications, Inc. Common 46 1,000 1,000 1,000 100%
ITEM B. PLEDGED NOTES
ORIGINAL PRINCIPAL NAME OF MAKER DESCRIPTION AMOUNT ------------- ----------- ------ Taylor Publishing Company Intercompany Revolving Note (Nova Scotia) $40,000,000 Commemorative Brands, Inc. Intercompany Revolving Note (Nova Scotia) $40,000,000 Educational Communications, Inc. Intercompany Revolving Note (Nova Scotia) $40,000,000
SCHEDULE II to Borrower Pledge and Security Agreement Item A. Trade Names [None] Item B. Location of Inventory, Equipment 7211 Circle S Road, Austin, TX 78745 Item C. Federal Taxpayer Identification Number 13-4126506 Organizational Number 3251589 Item D. Government Contracts [None] Item E. Deposit Accounts [To be provided by company] Item F. Commercial Tort Claims [To be provided by company] SCHEDULE III to Borrower Pledge and Security Agreement
Item A. PATENTS ------- ISSUED PATENTS -------------- COUNTRY PATENT NO. ISSUE DATE INVENTOR(S) TITLE ------- ---------- ---------- ----------- ----- PENDING PATENT APPLICATIONS --------------------------- COUNTRY SERIAL NO. FILING DATE INVENTOR(S) TITLE ------- ---------- ----------- ----------- ----- PATENT APPLICATIONS IN PREPARATION COUNTRY PATENT NO. ISSUE DATE INVENTOR(S) TITLE ------- ---------- ---------- ----------- ----- Item B. PATENT LICENSES --------------- COUNTRY OR EFFECTIVE EXPIRATION SUBJECT TERRITORY LICENSOR LICENSEE DATE DATE MATTER ---------- -------- -------- --------- ---------- -------
SCHEDULE IV to Borrower Pledge and Security Agreement
Item A. TRADEMARKS REGISTERED TRADEMARKS --------------------- COUNTRY TRADEMARK REGISTRATION NO. REGISTRATION DATE ------- ---------- ---------------- ----------------- PENDING TRADEMARK APPLICATIONS ------------------------------ COUNTRY TRADEMARK SERIAL NO. FILING DATE ------- ---------- ---------------- ----------------- TRADEMARK APPLICATIONS IN PREPARATION ------------------------------------- EXPECTED PRODUCTS/ COUNTRY TRADEMARK DOCKET NO. FILING DATE SERVICES -------- ---------- ---------- ----------- -------- Item B. TRADEMARK LICENSES ------------------ COUNTRY EFFECTIVE EXPIRATION TERRITORY TRADEMARK LICENSOR LICENSEE DATE DATE --------- --------- -------- -------- --------- ----------
SCHEDULE V to Borrower Pledge and Security Agreement
Item A. COPYRIGHTS/MASK WORKS --------------------- REGISTERED COPYRIGHTS/MASK WORKS -------------------------------- COUNTRY REGISTRATION NO. REGISTRATION DATE AUTHOR(S) TITLE ------- ---------- ---------------- -------- ----- COPYRIGHT/MASK WORK PENDING REGISTRATION APPLICATIONS ----------------------------------------------------- COUNTRY SERIAL NO. FILING DATE AUTHOR(S) TITLE ------- ---------- ----------- --------- ----- COPYRIGHT/MASK WORK REGISTRATION APPLICATIONS IN PREPARATION ------------------------------------------------------------ EXPECTED COUNTRY DOCKET NO. FILING DATE AUTHOR(S) TITLE ------- ---------- ----------- --------- ----- Item B. COPYRIGHT/MASK WORK LICENSES ---------------------------- COUNTRY OR EFFECTIVE EXPIRATION SUBJECT TERRITORY LICENSOR LICENSEE DATE DATE MATTER ---------- ---------- -------- ---- ---- ------
SCHEDULE VI to Borrower Pledge and Security Agreement TRADE SECRET OR KNOW-HOW LICENSES SCHEDULE VII to Borrower Pledge and Security Agreement FILING STATEMENTS EXHIBIT A to Borrower Pledge and Security Agreement PATENT SECURITY AGREEMENT This PATENT SECURITY AGREEMENT, dated as of ________ __, 200_ (this "SECURITY AGREEMENT"), is made by AMERICAN ACHIEVEMENT CORPORATION (formerly known as Commemorative Brands Holding Corp.) (the "GRANTOR") in favor of THE BANK OF NOVA SCOTIA, as administrative agent (together with its successor(s) thereto in such capacity, the "ADMINISTRATIVE Agent") for each of the Secured Parties. W I T N E S S E T H: WHEREAS, pursuant to a Credit Agreement, dated as of February 20, 2002 (as amended, supplemented, amended and restated or otherwise modified from time to time, the "CREDIT AGREEMENT"), among the Grantor (as the Borrower), the Lenders, General Electric Capital Corporation, as the Syndication Agent for the Lenders, Bankers Trust Company, as the Documentation Agent for the Lenders and the Administrative Agent, the Lenders and the Issuer have extended Commitments to make Credit Extensions to the Grantor; WHEREAS, in connection with the Credit Agreement, the Grantor has executed and delivered a Borrower Pledge and Security Agreement, dated as of February 20, 2002 (as amended, supplemented, amended and restated or otherwise modified from time to time, the "AGREEMENT"); WHEREAS, pursuant to the Credit Agreement and the Agreement, the Grantor is required to execute and deliver this Security Agreement and to grant to the Administrative Agent a continuing security interest in all of the Patent Collateral (as defined below) to secure all Obligations; and WHEREAS, the Grantor has duly authorized the execution, delivery and performance of this Security Agreement; NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Grantor agrees, for the benefit of each Secured Party, as follows: DEFINITIONS. Unless otherwise defined herein or the context otherwise requires, terms used in this Security Agreement, including its preamble and recitals, have the meanings provided in the Agreement. GRANT OF SECURITY INTEREST. The Grantor hereby assigns, pledges, hypothecates, charges, mortgages, delivers, and transfers to the Administrative Agent, for its benefit and the ratable benefit of each other Secured Party, and hereby grants to the Administrative Agent, for its benefit and the ratable benefit of each other Secured Party, a continuing security interest in all of the following property, whether now or hereafter existing or acquired by the Grantor (the "PATENT COLLATERAL"): all of its letters patent and applications for letters patent throughout the world, including all patent applications in preparation for filing and each patent and patent application referred to in ITEM A of SCHEDULE I attached hereto; all reissues, divisions, continuations, continuations-in-part, extensions, renewals and reexaminations of any of the items described in CLAUSE (a); all of its patent licenses, and other agreements providing the Grantor with the right to use any items of the type referred to in CLAUSES (a) and (b) above, including each patent license referred to in ITEM B of SCHEDULE I attached hereto; and all proceeds of, and rights associated with, the foregoing (including license royalties and proceeds of infringement suits), the right to sue third parties for past, present or future infringements of any patent or patent application, and for breach or enforcement of any patent license. SECURITY AGREEMENT. This Security Agreement has been executed and delivered by the Grantor for the purpose of registering the security interest of the Administrative Agent in the Patent Collateral with the United States Patent and Trademark Office and corresponding offices in other countries of the world. The security interest granted hereby has been granted as a supplement to, and not in limitation of, the security interest granted to the Administrative Agent for its benefit and the ratable benefit of each other Secured Party under the Agreement. The Agreement (and all rights and remedies of the Administrative Agent and each Secured Party thereunder) shall remain in full force and effect in accordance with its terms. RELEASE OF LIENS. Upon (i) the Disposition of Patent Collateral in accordance with the Credit Agreement or (ii) the occurrence of the Termination Date, the security interests granted herein shall automatically terminate with respect to (A) such Patent Collateral (in the case of CLAUSE (i)) or (B) all Patent Collateral (in the case of CLAUSE (ii)). Upon any such Disposition or termination, the Administrative Agent will, at the Grantor's sole expense, deliver to the Grantor, without any representations, warranties or recourse of any kind whatsoever, all Patent Collateral held by the Administrative Agent hereunder, and execute and deliver to the Grantor such documents as the Grantor shall reasonably request to evidence such termination. ACKNOWLEDGMENT. The Grantor does hereby further acknowledge and affirm that the rights and remedies of the Administrative Agent with respect to the security interest in the Patent Collateral granted hereby are more fully set forth in the Agreement, the terms and provisions of which (including the remedies provided for therein) are incorporated by reference herein as if fully set forth herein. LOAN DOCUMENT. This Security Agreement is a Loan Document executed pursuant to the Credit Agreement and shall (unless otherwise expressly indicated herein) be construed, administered and applied in accordance with the terms and provisions thereof, including Article X thereof. EXHIBIT A -2- COUNTERPARTS. This Security Agreement may be executed by the parties hereto in several counterparts, each of which shall be deemed to be an original and all of which shall constitute together but one and the same agreement. IN WITNESS WHEREOF, each of the parties hereto has caused this Security Agreement to be duly executed and delivered by its Authorized Officer as of the date first above written. AMERICAN ACHIEVEMENT CORPORATION By: /s/ Sherice P. Bench ----------------------------------------- Name: Sherice P. Bench Title: THE BANK OF NOVA SCOTIA, as Administrative Agent By: /s/ Jerome Noto ----------------------------------------- Name: Jerome Noto Title: Director EXHIBIT A -3- SCHEDULE I to Patent Security Agreement
Item A. PATENTS ------- ISSUED PATENTS -------------- COUNTRY PATENT NO. ISSUE DATE INVENTOR(S) TITLE ------- ---------- ---------- ----------- ----- PENDING PATENT APPLICATIONS --------------------------- COUNTRY SERIAL NO. FILING DATE INVENTOR(S) TITLE ------- ---------- ----------- ----------- ----- PATENT APPLICATIONS IN PREPARATION ---------------------------------- COUNTRY PATENT NO. ISSUE DATE INVENTOR(S) TITLE ------- ---------- ---------- ----------- ----- Item B. PATENT LICENSES --------------- COUNTRY OR EFFECTIVE EXPIRATION SUBJECT TERRITORY LICENSOR LICENSEE DATE DATE MATTER --------- -------- -------- ---- ---- ------
EXHIBIT A -4- EXHIBIT B to Borrower Pledge and Security Agreement TRADEMARK SECURITY AGREEMENT This TRADEMARK SECURITY AGREEMENT, dated as of _________ __, 200_ (this "SECURITY AGREEMENT"), is made by AMERICAN ACHIEVEMENT CORPORATION (formerly known as Commemorative Brands Holding Corp.) (the "GRANTOR") in favor of THE BANK OF NOVA SCOTIA, as administrative agent (together with its successor(s) thereto in such capacity, the "ADMINISTRATIVE AGENT") for each of the Secured Parties. W I T N E S S E T H: WHEREAS, pursuant to a Credit Agreement, dated as of February 20, 2002 (as amended, supplemented, amended and restated or otherwise modified from time to time, the "CREDIT AGREEMENT"), among the Grantor (as the Borrower), the Lenders, General Electric Capital Corporation, as the Syndication Agent for the Lenders, Bankers Trust Company, as the Documentation Agent for the Lenders and the Administrative Agent, the Lenders and the Issuer have extended Co0mmitments to make Credit Extensions to the Grantor; WHEREAS, in connection with the Credit Agreement, the Grantor has executed and delivered a Borrower Pledge and Security Agreement, dated as of February 20, 2002 (as amended, supplemented, amended and restated or otherwise modified from time to time, the "AGREEMENT"); WHEREAS, pursuant to the Credit Agreement and the Agreement, the Grantor is required to execute and deliver this Security Agreement and to grant to the Administrative Agent a continuing security interest in all of the Trademark Collateral (as defined below) to secure all Obligations; and WHEREAS, the Grantor has duly authorized the execution, delivery and performance of this Security Agreement; NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Grantor agrees, for the benefit of each Secured Party, as follows: SECTION 1. DEFINITIONS. Unless otherwise defined herein or the context otherwise requires, terms used in this Security Agreement, including its preamble and recitals, have the meanings provided in the Agreement. SECTION 2. GRANT OF SECURITY INTEREST. The Grantor hereby assigns, pledges, hypothecates, charges, mortgages, delivers, and transfers to the Administrative Agent, for its benefit and the ratable benefit of each other Secured Party, and hereby grants to the Administrative Agent, for its benefit and the ratable benefit of each other Secured Party, a continuing security interest in all of the following property, whether now or hereafter existing or acquired by the Grantor (the "TRADEMARK COLLATERAL"): (i) all of its trademarks, trade names, corporate names, company names, business names, fictitious business names, trade styles, service marks, certification marks, collective marks, logos and other source or business identifiers, and all goodwill of the business associated therewith, now existing or hereafter adopted or acquired including those referred to in ITEM A of SCHEDULE I hereto, whether currently in use or not, all registrations and recordings thereof and all applications in connection therewith, whether pending or in preparation for filing, including registrations, recordings and applications in the United States Patent and Trademark Office or in any office or agency of the United States of America or any State thereof or any other country or political subdivision thereof or otherwise, and all common-law rights relating to the foregoing, and (ii) the right to obtain all reissues, extensions or renewals of the foregoing (collectively referred to as the "TRADEMARK"); all of the goodwill of the business connected with the use of, and symbolized by the items described in, CLAUSE (a), and to the extent applicable CLAUSE (b); the right to sue third parties for past, present and future infringements of any Trademark Collateral described in CLAUSE (a) and, to the extent applicable, CLAUSE (b); and all proceeds of, and rights associated with, the foregoing, including any claim by the Grantor against third parties for past, present or future infringement or dilution of any Trademark, Trademark registration or Trademark license, or for any injury to the goodwill associated with the use of any such Trademark or for breach or enforcement of any Trademark license and all rights corresponding thereto throughout the world. SECTION 3. SECURITY AGREEMENT. This Security Agreement has been executed and delivered by the Grantor for the purpose of registering the security interest of the Administrative Agent in the Trademark Collateral with the United States Patent and Trademark Office and corresponding offices in other countries of the world. The security interest granted hereby has been granted as a supplement to, and not in limitation of, the security interest granted to the Administrative Agent for its benefit and the ratable benefit of each other Secured Party under the Agreement. The Agreement (and all rights and remedies of the Administrative Agent and each Secured Party thereunder) shall remain in full force and effect in accordance with its terms. SECTION 4. RELEASE OF LIENS. Upon (i) the Disposition of Trademark Collateral in accordance with the Credit Agreement or (ii) the occurrence of the Termination Date, the security interests granted herein shall automatically terminate with respect to (A) such Trademark Collateral (in the case of CLAUSE (i)) or (B) all Trademark Collateral (in the case of CLAUSE (ii)). Upon any such Disposition or termination, the Administrative Agent will, at the Grantor's sole expense, deliver to the Grantor, without any representations, warranties or recourse of any kind whatsoever, all Trademark Collateral held by the Administrative Agent EXHIBIT B -2- hereunder, and execute and deliver to the Grantor such documents as the Grantor shall reasonably request to evidence such termination. SECTION 5. ACKNOWLEDGMENT. The Grantor does hereby further acknowledge and affirm that the rights and remedies of the Administrative Agent with respect to the security interest in the Trademark Collateral granted hereby are more fully set forth in the Agreement, the terms and provisions of which (including the remedies provided for therein) are incorporated by reference herein as if fully set forth herein. SECTION 6. LOAN DOCUMENT. This Security Agreement is a Loan Document executed pursuant to the Credit Agreement and shall (unless otherwise expressly indicated herein) be construed, administered and applied in accordance with the terms and provisions thereof, including Article X thereof. SECTION 7. COUNTERPARTS. This Security Agreement may be executed by the parties hereto in several counterparts, each of which shall be deemed to be an original and all of which shall constitute together but one and the same agreement. IN WITNESS WHEREOF, each of the parties hereto has caused this Security Agreement to be duly executed and delivered by its Authorized Officer as of the date first above written. AMERICAN ACHIEVEMENT CORPORATION By: ------------------------------------------ Name: Title: THE BANK OF NOVA SCOTIA, as Administrative Agent By: ------------------------------------------ Name: Title: EXHIBIT B -3- SCHEDULE I to Trademark Security Agreement
Item A. TRADEMARKS ---------- REGISTERED TRADEMARKS --------------------- COUNTRY TRADEMARK REGISTRATION NO. REGISTRATION DATE ------- --------- ---------------- ----------------- PENDING TRADEMARK APPLICATIONS ------------------------------ COUNTRY TRADEMARK SERIAL NO. FILING DATE ------- --------- ---------- ----------- TRADEMARK APPLICATIONS IN PREPARATION ------------------------------------- EXPECTED PRODUCTS/ COUNTRY TRADEMARK DOCKET NO. FILING DATE SERVICES ------- --------- ---------- ----------- -------- Item B. TRADEMARK LICENSES ------------------ COUNTRY EFFECTIVE EXPIRATION TERRITORY TRADEMARK LICENSOR LICENSEE DATE DATE --------- --------- -------- -------- ---- ----
EXHIBIT C to Borrower Pledge and Security Agreement COPYRIGHT SECURITY AGREEMENT This COPYRIGHT SECURITY AGREEMENT, dated as of ________ __, 200__ (this "SECURITY AGREEMENT"), is made by AMERICAN ACHIEVEMENT CORPORATION (formerly known as Commemorative Brands Holding Corp.) (the "GRANTOR") in favor of THE BANK OF NOVA SCOTIA, as administrative agent (together with its successor(s) thereto in such capacity, the "ADMINISTRATIVE AGENT") for each of the Secured Parties. W I T N E S S E T H: WHEREAS, pursuant to a Credit Agreement, dated as of February 20, 2002 (as amended, supplemented, amended and restated or otherwise modified from time to time, the "CREDIT AGREEMENT"), among the Grantor (as the Borrower), the Lenders, General Electric Capital Corporation, as the Syndication Agent for the Lenders, Bankers Trust Company, as the Documentation Agent for the Lenders and the Administrative Agent, the Lenders and the Issuer have extended Commitments to make Credit Extensions to the Grantor; WHEREAS, in connection with the Credit Agreement, the Grantor has executed and delivered a Borrower Pledge and Security Agreement, dated as of February 20, 2002 (as amended, supplemented, amended and restated or otherwise modified from time to time, the "AGREEMENT"); WHEREAS, pursuant to the Credit Agreement and the Agreement, the Grantor is required to execute and deliver this Security Agreement and to grant to the Administrative Agent a continuing security interest in all of the Copyright Collateral (as defined below) to secure all Obligations; and WHEREAS, the Grantor has duly authorized the execution, delivery and performance of this Security Agreement; NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Grantor agrees, for the benefit of each Secured Party, as follows: SECTION 1. DEFINITIONS. Unless otherwise defined herein or the context otherwise requires, terms used in this Security Agreement, including its preamble and recitals, have the meanings provided in the Agreement. GRANT OF SECURITY INTEREST. The Grantor hereby assigns, pledges, hypothecates, charges, mortgages, delivers, and transfers to the Administrative Agent, for its benefit and the ratable benefit of each other Secured Party, and hereby grants to the Administrative Agent, for its benefit and the ratable benefit of each other Secured Party, a continuing security interest in all of the following Copyright Collateral (as defined below), whether now or hereafter existing or acquired by the Grantor. "COPYRIGHT COLLATERAL" means all copyrights of the Grantor, whether statutory or common law, registered or unregistered and whether published or unpublished, now or hereafter in force throughout the world including all of the Grantor's right, title and interest in and to all copyrights registered in the United States Copyright Office or anywhere else in the world and also including the copyrights referred to in ITEM A of SCHEDULE I attached hereto, and registrations and recordings thereof and all applications for registration thereof, whether pending or in preparation, all copyright licenses, including each copyright license referred to in ITEM B of SCHEDULE I attached hereto, the right to sue for past, present and future infringements of any of the foregoing, all rights corresponding thereto, all extensions and renewals of any thereof and all proceeds of the foregoing, including licenses, royalties, income, payments, claims, damages and proceeds of suit. SECURITY AGREEMENT. This Security Agreement has been executed and delivered by the Grantor for the purpose of registering the security interest of the Administrative Agent in the Copyright Collateral with the United States Copyright Office and corresponding offices in other countries of the world. The security interest granted hereby has been granted as a supplement to, and not in limitation of, the security interest granted to the Administrative Agent for its benefit and the ratable benefit of each other Secured Party under the Agreement. The Agreement (and all rights and remedies of the Administrative Agent and each Secured Party thereunder) shall remain in full force and effect in accordance with its terms. RELEASE OF LIENS. Upon (i) the Disposition of Copyright Collateral in accordance with the Credit Agreement or (ii) the occurrence of the Termination Date, the security interests granted herein shall automatically terminate with respect to (A) such Copyright Collateral (in the case of CLAUSE (i)) or (B) all Copyright Collateral (in the case of CLAUSE (ii)). Upon any such Disposition or termination, the Administrative Agent will, at the Grantor's sole expense, deliver to the Grantor, without any representations, warranties or recourse of any kind whatsoever, all Copyright Collateral held by the Administrative Agent hereunder, and execute and deliver to the Grantor such documents as the Grantor shall reasonably request to evidence such termination. ACKNOWLEDGMENT. The Grantor does hereby further acknowledge and affirm that the rights and remedies of the Administrative Agent with respect to the security interest in the Copyright Collateral granted hereby are more fully set forth in the Agreement, the terms and provisions of which (including the remedies provided for therein) are incorporated by reference herein as if fully set forth herein. LOAN DOCUMENT. This Security Agreement is a Loan Document executed pursuant to the Credit Agreement and shall (unless otherwise expressly indicated herein) be construed, administered and applied in accordance with the terms and provisions thereof, including Article X thereof. COUNTERPARTS. This Security Agreement may be executed by the parties hereto in several counterparts, each of which shall be deemed to be an original and all of which shall constitute together but one and the same agreement. EXHIBIT C 2 * * * * * EXHIBIT C 3 IN WITNESS WHEREOF, each of the parties hereto has caused this Security Agreement to be duly executed and delivered by its Authorized Officer as of the date first above written. AMERICAN ACHIEVEMENT CORPORATION By: ------------------------------------------ Name: Title: THE BANK OF NOVA SCOTIA, as Administrative Agent By: ------------------------------------------ Name: Title: EXHIBIT C 4 SCHEDULE I to Copyright Security Agreement
Item A. COPYRIGHTS/MASK WORKS --------------------- REGISTERED COPYRIGHTS/MASK WORKS -------------------------------- COUNTRY REGISTRATION NO. REGISTRATION DATE AUTHOR(S) TITLE ------- ---------------- ----------------- --------- ----- COPYRIGHT/MASK WORK PENDING REGISTRATION APPLICATIONS ----------------------------------------------------- COUNTRY SERIAL NO. FILING DATE AUTHOR(S) TITLE ------- ---------- ----------- --------- ----- COPYRIGHT/MASK WORK REGISTRATION APPLICATIONS IN PREPARATION ------------------------------------------------------------ EXPECTED COUNTRY DOCKET NO. FILING DATE AUTHOR(S) TITLE ------- ---------- ----------- --------- ----- Item B. COPYRIGHT/MASK WORK LICENSES ---------------------------- COUNTRY OR EFFECTIVE EXPIRATION TERRITORY LICENSOR LICENSEE DATE DATE --------- -------- -------- ---- ----
EX-10.5 28 a2071988zex-10_5.txt EXHIBIT 10.5 EXHIBIT 10.5 SUBSIDIARY GUARANTY, DATED AS OF FEBRUARY 20, 2002, MADE BY EACH SUBSIDIARY OF AMERICAN ACHIEVEMENT CORPORATION FROM TIME TO TIME PARTY HERETO IN FAVOR OF THE BANK OF NOVA SCOTIA, AS ADMINISTRATIVE AGENT FOR EACH OF THE SECURED PARTIES (AS DEFINED THEREIN) SUBSIDIARY GUARANTY This SUBSIDIARY GUARANTY (as amended, supplemented, amended and restated or otherwise modified from time to time, this "GUARANTY"), dated as of February 20, 2002, is made by each Subsidiary of American Achievement Corporation (formerly known as Commemorative Brands Holding Corp.), a Delaware corporation (the "BORROWER"), from time to time party hereto (each individually, a "GUARANTOR" and, collectively, the "GUARANTORS"), in favor of THE BANK OF NOVA SCOTIA, as administrative agent (together with its successor(s) thereto in such capacity, the "ADMINISTRATIVE AGENT") for each of the Secured Parties. W I T N E S S E T H: WHEREAS, pursuant to a Credit Agreement, dated as of February 20, 2002 (as amended, supplemented, amended and restated or otherwise modified from time to time, the "CREDIT AGREEMENT"), among the Borrower, the Lenders, General Electric Capital Corporation, as the Syndication Agent for the Lenders, Bankers Trust Company, as the Documentation Agent for the Lenders and the Administrative Agent, the Lenders and the Issuer have extended Commitments to make Credit Extensions to the Borrower; and WHEREAS, as a condition precedent to the making of the Credit Extensions under the Credit Agreement, each Guarantor is required to execute and deliver this Guaranty; NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and in order to induce (i) the Lenders and the Issuer to make Credit Extensions to the Borrower pursuant to the Credit Agreement and (ii) the Secured Parties to enter into Rate Protection Agreements, each Guarantor jointly and severally agrees, for the benefit of each Secured Party, as follows: DEFINITIONS Certain Terms. The following terms (whether or not underscored) when used in this Guaranty, including its preamble and recitals, shall have the following meanings (such definitions to be equally applicable to the singular and plural forms thereof): "ADMINISTRATIVE AGENT" is defined in the PREAMBLE. "BORROWER" is defined in the PREAMBLE. "CREDIT AGREEMENT" is defined in the FIRST RECITAL. "GUARANTOR" and "GUARANTORS" are defined in the PREAMBLE. "GUARANTY" is defined in the PREAMBLE. F-2 CREDIT AGREEMENT DEFINITIONS. Unless otherwise defined herein or the context otherwise requires, terms used in this Guaranty, including its preamble and recitals, have the meanings provided in the Credit Agreement. GUARANTY PROVISIONS GUARANTY. Each Guarantor hereby jointly and severally absolutely, unconditionally and irrevocably guarantees the full and punctual payment when due, whether at stated maturity, by required prepayment, declaration, acceleration, demand or otherwise, of all Obligations now or hereafter existing, whether for principal, interest (including interest accruing at the then applicable rate provided in the Credit Agreement after the occurrence of any Default set forth in Section 8.1.9 of the Credit Agreement, whether or not a claim for post-filing or post-petition interest is allowed under applicable law following the institution of a proceeding under bankruptcy, insolvency or similar laws), fees, Reimbursement Obligations, expenses or otherwise (including all such amounts which would become due but for the operation of the automatic stay under Section 362(a) of the United States Bankruptcy Code, 11 U.S.C. Section 362(a), and the operation of Sections 502(b) and 506(b) of the United States Bankruptcy Code, 11 U.S.C. Sections 502(b) and Sections 506(b)); and indemnifies and holds harmless each Secured Party for any and all costs and expenses (including reasonable attorneys' fees and expenses) incurred by such Secured Party in enforcing any rights under this Guaranty; PROVIDED, however, that each Guarantor shall only be liable under this Guaranty for the maximum amount of such liability that can be hereby incurred without rendering this Guaranty, as it relates to such Guarantor, voidable under applicable law relating to fraudulent conveyance or fraudulent transfer, and not for any greater amount. This Guaranty constitutes a guaranty of payment when due and not of collection, and each Guarantor specifically agrees that it shall not be necessary or required that any Secured Party exercise any right, assert any claim or demand or enforce any remedy whatsoever against any Obligor or any other Person before or as a condition to the obligations of such Guarantor hereunder. REINSTATEMENT, ETC. Each Guarantor hereby jointly and severally agrees that this Guaranty shall continue to be effective or be reinstated, as the case may be, if at any time any payment (in whole or in part) of any of the Obligations is invalidated, declared to be fraudulent or preferential, set aside, rescinded or must otherwise be restored by any Secured Party, including upon the occurrence of any Default set forth in Section 8.1.9 of the Credit Agreement or otherwise, all as though such payment had not been made. GUARANTY ABSOLUTE, ETC. This Guaranty shall in all respects be a continuing, absolute, unconditional and irrevocable guaranty of payment, and shall remain in full force and effect until the Termination Date has occurred. Each Guarantor jointly and severally guarantees that the Obligations will be paid strictly in accordance with the terms of each Loan Document under which they arise, regardless of any law, regulation or order now or hereafter in effect in any F-3 jurisdiction affecting any of such terms or the rights of any Secured Party with respect thereto. The liability of each Guarantor under this Guaranty shall be joint and several, absolute, unconditional and irrevocable irrespective of: any lack of validity, legality or enforceability of any Loan Document; the failure of any Secured Party to assert any claim or demand or to enforce any right or remedy against any Obligor or any other Person (including any other guarantor (and including any other Guarantor)) under the provisions of any Loan Document or otherwise, or to exercise any right or remedy against any other guarantor (including any Guarantor) of, or collateral securing, any Obligations; any change in the time, manner or place of payment of, or in any other term of, all or any part of the Obligations, or any other extension, compromise or renewal of any Obligation; any reduction, limitation, impairment or termination of any Obligations for any reason, including any claim of waiver, release, surrender, alteration or compromise, and shall not be subject to (and each Guarantor hereby waives any right to or claim of) any defense of setoff, counterclaim, recoupment or termination whatsoever by reason of the invalidity, illegality, nongenuineness, irregularity, compromise, unenforceability of, or any other event or occurrence affecting, any Obligations or otherwise; any amendment to, rescission, waiver, or other modification of, or any consent to or departure from, any of the terms of any Loan Document; any addition, exchange or release of any collateral or of any Person that is (or will become) a guarantor (including a Guarantor hereunder) of the Obligations, or any surrender or non-perfection of any collateral, or any amendment to or waiver or release or addition to, or consent to or departure from, any other guaranty held by any Secured Party securing any of the Obligations; or any other circumstance which might otherwise constitute a defense available to, or a legal or equitable discharge of, any Obligor, any surety or any guarantor. SETOFF. Each Guarantor hereby irrevocably authorizes the Administrative Agent and each Lender, without the requirement that any notice be given to such Guarantor (such notice being expressly waived by each Guarantor), upon the occurrence and during the continuance of any Default described in Section 8.1.9 of the Credit Agreement or, with the consent of the Required Lenders, upon the occurrence and during the continuance of any other Event of Default, to setoff and appropriate and apply to the payment of the Obligations (whether or not then due, and whether or not any Secured Party has made any demand for payment of the Obligations), any and all balances, claims, credits, deposits (general or special, time or demand, provisional or final), accounts or money of such Guarantor then or thereafter maintained with such Secured Party; PROVIDED, however, that any such appropriation and application shall be subject to the provisions of Section 4.8 of the Credit Agreement. Each Secured Party agrees to notify the F-4 applicable Guarantor and the Administrative Agent after any such setoff and application made by such Secured Party; PROVIDED further, however, that the failure to give such notice shall not affect the validity of such setoff and application. The rights of each Secured Party under this Section are in addition to other rights and remedies (including other rights of setoff under applicable law or otherwise) which such Secured Party may have. WAIVER, ETC. Each Guarantor hereby waives promptness, diligence, notice of acceptance and any other notice with respect to any of the Obligations and this Guaranty and any requirement that any Secured Party protect, secure, perfect or insure any Lien, or any property subject thereto, or exhaust any right or take any action against any Obligor or any other Person (including any other guarantor) or entity or any collateral securing the Obligations, as the case may be. POSTPONEMENT OF SUBROGATION, ETC. Each Guarantor agrees that it will not exercise any rights which it may acquire by way of rights of subrogation under any Loan Document to which it is a party, nor shall any Guarantor seek or be entitled to seek any contribution or reimbursement from any Obligor, in respect of any payment made under any Loan Document or otherwise, until following the Termination Date. Any amount paid to any Guarantor on account of any such subrogation rights prior to the Termination Date shall be held in trust for the benefit of the Secured Parties and shall immediately be paid and turned over to the Administrative Agent for the benefit of the Secured Parties in the exact form received by such Guarantor (duly endorsed in favor of the Administrative Agent, if required), to be credited and applied against the Obligations, whether matured or unmatured, in accordance with SECTION 2.7; PROVIDED, however, that if any Guarantor has made payment to the Secured Parties of all or any part of the Obligations and the Termination Date has occurred, then at such Guarantor's request, the Administrative Agent (on behalf of the Secured Parties) will, at the expense of such Guarantor, execute and deliver to such Guarantor appropriate documents (without recourse and without representation or warranty) necessary to evidence the transfer by subrogation to such Guarantor of an interest in the Obligations resulting from such payment. In furtherance of the foregoing, at all times prior to the Termination Date, each Guarantor shall refrain from taking any action or commencing any proceeding against any Obligor (or its successors or assigns, whether in connection with a bankruptcy proceeding or otherwise) to recover any amounts in respect of payments made under this Guaranty to any Secured Party. PAYMENTS; APPLICATION. Each Guarantor hereby agrees with each Secured Party as follows: Each Guarantor agrees that all payments made by such Guarantor hereunder will be made in Dollars to the Administrative Agent, without setoff, counterclaim or other defense and in accordance with Sections 4.6 and 4.7 of the Credit Agreement, free and clear of and without deduction for any Taxes, each Guarantor hereby agreeing to comply with and be bound by the provisions of Sections 4.6 and 4.7 of the Credit Agreement in respect of all payments made by it hereunder and the provisions of which Sections are hereby incorporated into and made a part of this Guaranty by this reference as if set forth herein; PROVIDED, that references to the "Borrower" in such Sections shall be deemed to be references to each Guarantor, and references to "this Agreement" in such Sections shall be deemed to be references to this Guaranty. All payments made hereunder shall be applied upon receipt F-5 FIRST, to the payment of any amounts payable to the Administrative Agent, in its capacity as Administrative Agent, pursuant to Section 10.3 of the Credit Agreement; SECOND, to the equal and ratable payment of the Obligations, applied, as to each Secured Party: (A) first to fees then due to such Secured Party, (B) then to interest due to such Secured Party, (C) then to the Cash Collateralization of all Letter of Credit Outstandings, (D) then to principal of the Loans owing to, or to reduce the "credit exposure" of, such Secured Party with respect to such Loan or under such Rate Protection Agreement, as the case may be, and (E) then to the remaining outstanding Obligations, including without duplication of any amounts paid pursuant to this clause, to the amount owing pursuant to Section 10.4 of the Credit Agreement and Sections 26 and 33 of the Gold Consignment Agreement; and THIRD, to the Guarantors or to whomsoever may be lawfully entitled to receive such surplus. For purposes of this Guaranty, the "credit exposure" at any time of any Secured Party with respect to a Rate Protection Agreement to which such Secured Party is a party shall be determined at such time in accordance with the customary methods of calculating credit exposure under similar arrangements by the counterparty to such arrangements, taking into account potential interest rate movements and the respective termination provisions and notional principal amount and term of such Rate Protection Agreement. DESIGNATED SENIOR INDEBTEDNESS. CBI hereby specifically designates and affirms that its Obligations under this Guaranty are "Designated Senior Indebtedness" for the purposes of, and as defined in, the CBI Indenture. REPRESENTATIONS AND WARRANTIES In order to induce the Secured Parties to enter into the Credit Agreement and make Credit Extensions thereunder, and to induce Secured Parties to enter into Rate Protection Agreements, each Guarantor represents and warrants to each Secured Party as set forth below. CREDIT AGREEMENT REPRESENTATIONS AND WARRANTIES. The representations and warranties contained in Article VI of the Credit Agreement, insofar as the representations and warranties contained therein are applicable to any Guarantor and its properties, are true and correct in all material respects, each such representation and warranty set forth in such Article (insofar as applicable as aforesaid) and all other terms of the Credit Agreement to which reference is made therein, together with all related definitions and ancillary provisions, being hereby incorporated into this Guaranty by this reference as though specifically set forth in this Article. FINANCIAL CONDITION, ETC. Each Guarantor has knowledge of each other Obligor's financial condition and affairs and that it has adequate means to obtain from each such Obligor on an ongoing basis information relating thereto and to such Obligor's ability to pay and perform the Obligations, and agrees to assume the responsibility for keeping, and to keep, so informed for so long as this Guaranty is in effect. Each Guarantor acknowledges and agrees that the Secured Parties shall have no obligation to investigate the financial condition or affairs of any Obligor for the benefit of such Guarantor nor to advise such Guarantor of any fact respecting, or any change F-6 in, the financial condition or affairs of any other Obligor that might become known to any Secured Party at any time, whether or not such Secured Party knows or believes or has reason to know or believe that any such fact or change is unknown to such Guarantor, or might (or does) materially increase the risk of such Guarantor as guarantor, or might (or would) affect the willingness of such Guarantor to continue as a guarantor of the Obligations. BEST INTERESTS. It is in the best interests of each Guarantor to execute this Guaranty inasmuch as such Guarantor will, as a result of being a Subsidiary of the Borrower, derive substantial direct and indirect benefits from the Credit Extensions made from time to time to the Borrower by the Lenders, the Swing Line Lender and the Issuer pursuant to the Credit Agreement and the execution and delivery of Rate Protection Agreements between the Borrower, other Obligors and certain Secured Parties, and each Guarantor agrees that the Secured Parties are relying on this representation in agreeing to make Credit Extensions to the Borrower. COVENANTS, ETC. Each Guarantor covenants and agrees that, at all times prior to the Termination Date, it will perform, comply with and be bound by all of the agreements, covenants and obligations contained in the Credit Agreement (including Article VII and Section 8.1.9 of the Credit Agreement) which are applicable to such Guarantor or its properties, each such agreement, covenant and obligation contained in the Credit Agreement and all other terms of the Credit Agreement to which reference is made in this Article, together with all related definitions and ancillary provisions, being hereby incorporated into this Guaranty by this reference as though specifically set forth in this Article. An acceleration under the Credit Agreement shall constitute an acceleration hereunder (there being no obligation on the part of the Administrative Agent to give notice of such acceleration to any Guarantor). MISCELLANEOUS PROVISIONS LOAN DOCUMENT. This Guaranty is a Loan Document executed pursuant to the Credit Agreement and shall (unless otherwise expressly indicated herein) be construed, administered and applied in accordance with the terms and provisions thereof, including Article X thereof. BINDING ON SUCCESSORS, TRANSFEREES AND ASSIGNS; ASSIGNMENT. This Guaranty shall remain in full force and effect until the Termination Date has occurred, shall be jointly and severally binding upon each Guarantor and its successors, transferees and assigns and shall inure to the benefit of and be enforceable by each Secured Party and its successors, transferees and assigns; PROVIDED, however, that no Guarantor may (unless otherwise permitted under the terms of the Credit Agreement) assign any of its obligations hereunder without the prior written consent of all Lenders. AMENDMENTS, ETC. No amendment to or waiver of any provision of this Guaranty, nor consent to any departure by any Guarantor from its obligations under this Guaranty, shall in any F-7 event be effective unless the same shall be in writing and signed by the Administrative Agent (on behalf of the Lenders or the Required Lenders, as the case may be, pursuant to Section 10.1 of the Credit Agreement) and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. NOTICES. All notices and other communications provided for hereunder shall be in writing or by facsimile and addressed, delivered or transmitted to the appropriate party at the address or facsimile number of such party (in the case of any Guarantor, in care of the Borrower) set forth on Schedule II to the Credit Agreement or at such other address or facsimile number as may be designated by such party in a notice to the other party. Any notice, if mailed and properly addressed with postage prepaid or if properly addressed and sent by pre-paid courier service, shall be deemed given when received; any such notice, if transmitted by facsimile, shall be deemed given when the confirmation of transmission thereof is received by the transmitter. ADDITIONAL GUARANTORS. Upon the execution and delivery by any other Person of a supplement in the form of ANNEX I hereto, such Person shall become a "Guarantor" hereunder with the same force and effect as if it were originally a party to this Guaranty and named as a "Guarantor" hereunder. The execution and delivery of such supplement shall not require the consent of any other Guarantor hereunder, and the rights and obligations of each Guarantor hereunder shall remain in full force and effect notwithstanding the addition of any new Guarantor as a party to this Guaranty. RELEASE OF GUARANTOR. Upon the occurrence of the Termination Date, this Guaranty and all obligations of each Guarantor hereunder shall terminate, without delivery of any instrument or performance of any act by any party. In addition, at the request of the Borrower, and at the sole expense of the Borrower, a Guarantor shall be released from its obligations hereunder in the event that the Capital Securities of such Guarantor are Disposed of in a transaction permitted by the Credit Agreement; PROVIDED, that the Borrower shall have delivered to the Administrative Agent, at least three Business Days prior to the date of the proposed release, a written request for release identifying the relevant Guarantor and a certification by the Borrower stating that such transaction is in compliance with the Loan Documents. NO WAIVER; REMEDIES. In addition to, and not in limitation of, SECTIONS 2.3 and 2.5, no failure on the part of any Secured Party to exercise, and no delay in exercising, any right hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any right hereunder preclude any other or further exercise thereof or the exercise of any other right. The remedies herein provided are cumulative and not exclusive of any remedies provided by law. SECTION CAPTIONS. Section captions used in this Guaranty are for convenience of reference only, and shall not affect the construction of this Guaranty. SEVERABILITY. Wherever possible each provision of this Guaranty shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Guaranty shall be prohibited by or invalid under such law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Guaranty. F-8 GOVERNING LAW, ENTIRE AGREEMENT, ETC. THIS GUARANTY WILL BE DEEMED TO BE A CONTRACT MADE UNDER AND GOVERNED BY THE INTERNAL LAWS OF THE STATE OF NEW YORK (INCLUDING FOR SUCH PURPOSE SECTIONS 5-1401 AND 5-1402 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK). This Guaranty and the other Loan Documents constitute the entire understanding among the parties hereto with respect to the subject matter thereof and supersede any prior agreements, written or oral, with respect thereto. FORUM SELECTION AND CONSENT TO JURISDICTION. ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH, ANY LOAN DOCUMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN) OR ACTIONS OF THE ADMINISTRATIVE AGENT, THE LENDERS, THE ISSUER OR ANY GUARANTOR IN CONNECTION HEREWITH OR THEREWITH MAY BE BROUGHT AND MAINTAINED IN THE COURTS OF THE STATE OF NEW YORK OR IN THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK; PROVIDED, HOWEVER, THAT ANY SUIT SEEKING ENFORCEMENT AGAINST ANY COLLATERAL OR OTHER PROPERTY MAY BE BROUGHT, AT THE ADMINISTRATIVE AGENT'S OPTION, IN THE COURTS OF ANY JURISDICTION WHERE SUCH COLLATERAL OR OTHER PROPERTY MAY BE FOUND. EACH GUARANTOR HEREBY IRREVOCABLY APPOINTS CT CORPORATION SYSTEM (THE "PROCESS AGENT"), WITH AN OFFICE ON THE DATE HEREOF AT 1633 BROADWAY, NEW YORK, NEW YORK 10019, UNITED STATES, AS ITS AGENT TO RECEIVE, ON SUCH GUARANTOR'S BEHALF AND ON BEHALF OF SUCH GUARANTOR'S PROPERTY, SERVICE OF COPIES OF THE SUMMONS AND COMPLAINT AND ANY OTHER PROCESS WHICH MAY BE SERVED IN ANY SUCH ACTION OR PROCEEDING. SUCH SERVICE MAY BE MADE BY MAILING OR DELIVERING A COPY OF SUCH PROCESS TO SUCH GUARANTOR IN CARE OF THE PROCESS AGENT AT THE PROCESS AGENT'S ABOVE ADDRESS, AND SUCH GUARANTOR HEREBY IRREVOCABLY AUTHORIZES AND DIRECTS THE PROCESS AGENT TO ACCEPT SUCH SERVICE ON ITS BEHALF. AS AN ALTERNATIVE METHOD OF SERVICE, EACH GUARANTOR FURTHER IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS BY REGISTERED MAIL, POSTAGE PREPAID, OR BY PERSONAL SERVICE WITHIN OR WITHOUT THE STATE OF NEW YORK AT THE ADDRESS FOR NOTICES SPECIFIED FOR THE BORROWER IN SECTION 10.2 OF THE CREDIT AGREEMENT. EACH GUARANTOR HEREBY EXPRESSLY AND IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY HAVE OR HEREAFTER MAY HAVE TO THE LAYING OF VENUE OF ANY SUCH LITIGATION BROUGHT IN ANY SUCH COURT REFERRED TO ABOVE AND ANY CLAIM THAT ANY SUCH LITIGATION HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. TO THE EXTENT THAT ANY GUARANTOR HAS OR HEREAFTER MAY ACQUIRE ANY IMMUNITY FROM JURISDICTION OF ANY COURT OR FROM ANY LEGAL PROCESS (WHETHER THROUGH SERVICE OR NOTICE, ATTACHMENT PRIOR TO JUDGMENT, ATTACHMENT IN AID OF EXECUTION OR OTHERWISE) WITH RESPECT TO ITSELF OR ITS PROPERTY, SUCH GUARANTOR HEREBY IRREVOCABLY WAIVES TO THE FULLEST EXTENT PERMITTED BY LAW SUCH IMMUNITY IN RESPECT OF ITS OBLIGATIONS UNDER THE LOAN DOCUMENTS. F-9 WAIVER OF JURY TRIAL. THE ADMINISTRATIVE AGENT (ON BEHALF OF ITSELF AND EACH OTHER SECURED PARTY) AND EACH GUARANTOR HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE TO THE FULLEST EXTENT PERMITTED BY LAW ANY RIGHTS THEY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH, EACH LOAN DOCUMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN) OR ACTIONS OF THE ADMINISTRATIVE AGENT, SUCH LENDER, THE ISSUER OR SUCH GUARANTOR IN CONNECTION THEREWITH. EACH GUARANTOR ACKNOWLEDGES AND AGREES THAT IT HAS RECEIVED FULL AND SUFFICIENT CONSIDERATION FOR THIS PROVISION (AND EACH OTHER PROVISION OF EACH OTHER LOAN DOCUMENT TO WHICH IT IS A PARTY) AND THAT THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE ADMINISTRATIVE AGENT, EACH LENDER AND THE ISSUER ENTERING INTO THE LOAN DOCUMENTS. COUNTERPARTS. This Guaranty may be executed by the parties hereto in several counterparts, each of which shall be deemed to be an original and all of which shall constitute together but one and the same agreement. F-10 IN WITNESS WHEREOF, each Guarantor has caused this Guaranty to be duly executed and delivered by its Authorized Officer as of the date first above written. COMMEMORATIVE BRANDS, INC. By: /s/ David G. Fiore -------------------------------------------- Name: David G. Fiore Title: President and Chief Financial Officer TP HOLDING CORP. By: /s/ David G. Fiore -------------------------------------------- Name: David G. Fiore Title: President and Chief Financial Officer TAYLOR PUBLISHING COMPANY By: /s/ David G. Fiore -------------------------------------------- Name: David G. Fiore Title: President and Chief Financial Officer TAYLOR PRODUCTION SERVICES COMPANY, L.P. By: TAYLOR PUBLISHING COMPANY, its general partner By: /s/ David G. Fiore -------------------------------------------- Name: David G. Fiore Title: President and Chief Financial Officer EDUCATIONAL COMMUNICATIONS, INC. By: /s/ Sherice P. Bench ----------------------------------------- Name: Sherice P. Bench Title: Chief Financial Officer F-11 TAYLOR SENIOR HOLDING CORP. By: /s/ David G. Fiore -------------------------------------------- Name: David G. Fiore Title: President and Chief Financial Officer CBI NORTH AMERICA, INC. By: /s/ David G. Fiore -------------------------------------------- Name: David G. Fiore Title: President and Chief Financial Officer ACCEPTED AND AGREED FOR ITSELF AND ON BEHALF OF THE SECURED PARTIES: THE BANK OF NOVA SCOTIA, as Administrative Agent By: /s/ Jerome Noto --------------------------------- Name: Jerome Noto Title: Director F-12 ANNEX I to the Subsidiary Guaranty THIS SUPPLEMENT, dated as of ____________ ___, _____ (this "SUPPLEMENT"), is to the Subsidiary Guaranty, dated as of February __, 2002 (as amended, supplemented, amended and restated or otherwise modified from time to time, the "GUARANTY"), among the Guarantors (such capitalized term, and other terms used in this Supplement, to have the meanings set forth in Article I of the Guaranty) from time to time party thereto, in favor of THE BANK OF NOVA SCOTIA, as administrative agent (together with its successor(s) thereto in such capacity, the "ADMINISTRATIVE AGENT") for each of the Secured Parties. W I T N E S S E T H : WHEREAS, pursuant to the provisions of Section 5.5 of the Guaranty, each of the undersigned is becoming a Guarantor under the Guaranty; and WHEREAS, each of the undersigned desires to become a "Guarantor" under the Guaranty in order to induce the Secured Parties to continue to extend Credit Extensions under the Credit Agreement; NOW, THEREFORE, in consideration of the premises, and for other consideration (the receipt and sufficiency of which is hereby acknowledged), each of the undersigned agrees, for the benefit of each Secured Party, as follows. SECTION 1. PARTY TO GUARANTY, ETC. In accordance with the terms of the Guaranty, by its signature below, each of the undersigned hereby irrevocably agrees to become a Guarantor under the Guaranty with the same force and effect as if it were an original signatory thereto and each of the undersigned hereby (a) agrees to be bound by and comply with all of the terms and provisions of the Guaranty applicable to it as a Guarantor and (b) represents and warrants that the representations and warranties made by it as a Guarantor thereunder are true and correct as of the date hereof. In furtherance of the foregoing, each reference to a "Guarantor" and/or "Guarantors" in the Guaranty shall be deemed to include each of the undersigned. SECTION 2. REPRESENTATIONS. Each of the undersigned hereby represents and warrants that this Supplement has been duly authorized, executed and delivered by it and that this Supplement and the Guaranty constitute the legal, valid and binding obligation of each of the undersigned, enforceable against it in accordance with its terms. SECTION 3. FULL FORCE OF GUARANTY. Except as expressly supplemented hereby, the Guaranty shall remain in full force and effect in accordance with its terms. SECTION 4. SEVERABILITY. Wherever possible each provision of this Supplement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Supplement shall be prohibited by or invalid under such law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Supplement or the Guaranty. SECTION 5. INDEMNITY; FEES AND EXPENSES, ETC. Without limiting the provisions of any other Loan Document, each of the undersigned agrees to reimburse the Administrative Agent for its reasonable out-of-pocket expenses incurred in connection with this Supplement, including reasonable attorney's fees and expenses of the Administrative Agent's counsel. SECTION 6. GOVERNING LAW, ENTIRE AGREEMENT, ETC. THIS SUPPLEMENT WILL BE DEEMED TO BE A CONTRACT MADE UNDER AND GOVERNED BY THE INTERNAL LAWS OF THE STATE OF NEW YORK (INCLUDING FOR SUCH PURPOSE SECTIONS 5-1401 AND 5-1402 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK). This Supplement and the other Loan Documents constitute the entire understanding among the parties hereto with respect to the subject matter thereof and supersede any prior agreements, written or oral, with respect thereto. SECTION 7. COUNTERPARTS. This Supplement may be executed by the parties hereto in several counterparts, each of which shall be deemed to be an original and all of which shall constitute together but one and the same agreement. IN WITNESS WHEREOF, each of the undersigned has caused this Supplement to be duly executed and delivered by its Authorized Officer as of the date first above written. [NAME OF ADDITIONAL SUBSIDIARY] By -------------------------------------------- Title: [NAME OF ADDITIONAL SUBSIDIARY] By -------------------------------------------- Title: [NAME OF ADDITIONAL SUBSIDIARY] By -------------------------------------------- Title: ACCEPTED AND AGREED FOR ITSELF AND ON BEHALF OF THE SECURED PARTIES: THE BANK OF NOVA SCOTIA, as Administrative Agent By ----------------------------------- Title: EX-10.6 29 a2071988zex-10_6.txt EXHIBIT 10.6 EXHIBIT 10.6 FORM OF THE MANAGEMENT AGREEMENT DATED AS OF MARCH 30, 2001, AMONG AMERICAN ACHIEVEMENT CORPORATION, ITS SUBSIDIARIES LISTED THEREIN AND CASTLE HARLAN, INC. MANAGEMENT AGREEMENT AGREEMENT made as of March 30, 2001, by and among Castle Harlan, Inc., a Delaware corporation ("CHI"), Commemorative Brands Holding Corp., a Delaware corporation ("CBI Holding"), Educational Communications, Inc., a Delaware corporation and a direct subsidiary of CBI Holding ("ECI"), Commemorative Brands, Inc., a Delaware corporation and a direct subsidiary of CBI Holding ("CBI"), TP Holding Corp., a Delaware corporation and an indirect subsidiary of CBI Holding, ("TPH") and Taylor Publishing Company, a Delaware corporation and subsidiary of TPH ("TPC", and together with CBI Holding, CBI and TPH, collectively, the "Obligors"). W I T N E S S E T H: - - - - - - - - - - WHEREAS, the Obligors desire to retain CHI to provide business and organizational strategy, financial and investment management, advisory and merchant and investment banking services to the Obligors, upon the terms and conditions hereinafter set forth, and CHI is willing to undertake such obligations. NOW, THEREFORE, in consideration of the mutual covenants and agreements hereinafter set forth, the parties hereto agree as follows: 1. APPOINTMENT. Each Obligor hereby engages CHI, and CHI hereby agrees, upon the terms and subject to the conditions set forth herein, to provide certain services to the Obligors as described in Section 3 hereof. 2. TERM. (a) The term of this Agreement shall be for an initial term of ten (10) years. Such term shall be renewed automatically for additional one-year terms thereafter unless CHI or the Obligors shall give notice in writing within 90 days before the expiration of the initial five-year term or any one-year renewal thereof of its desire to terminate this Agreement, such termination to become effective at the end of the then current term. The provisions of Paragraph 6 and otherwise as the context so requires shall survive the termination of this Agreement. (b) If Castle Harlan Partners II, L.P., Castle Harlan Partners III, L.P. and their affiliates and partners shall own less than 5% of the then aggregate outstanding capital stock of any Obligor, this Agreement shall be subject to renegotiation by the Board of Directors of such Obligor. 3. DUTIES OF CHI. CHI shall provide the Obligors with consulting services (collectively, the "Consulting Services"), as and to the extent reasonably requested from time to time by the Obligors, related to the following: (i) business and organizational strategy, including strategy relating to -2- (a) (development of new products and new markets, and analysis and research related thereto; (b) new product implementation; (c) development of broad business growth strategies; and (ii) human resource management, including (a) design and development of incentive and bonus programs for management teams; (b) assistance with senior executive hiring decisions; (c) coordination of activities of compensation committees of the respective Board of Directors of the Obligors; (d) design and development of employee stock ownership programs; and (iii) public relations and related matters, including (a) assistance in developing an enhanced public relations program designed to broaden name recognition of the Obligors in the business community; (b) advice on general labor matters; and (iv) financial and investment management, merchant and investment banking and corporate finance services, including (a) identification and implementation of merger and acquisition opportunities for the Obligors for which CHI may receive additional consideration; (b) assistance with negotiation of loan documentation (including amendments thereto) and lender relationships on an ongoing basis; (c) advice regarding acquisition strategies and responses to external proposals; and (d) advice regarding additional capital requirements. Without limitation if any of the foregoing, representatives of CHI may participate, without additional compensation, on the Obligors' and certain of their affiliates' Boards of Directors and Board Committees. -3- 3.1 EXCLUSIONS FROM "CONSULTING SERVICES". Notwithstanding anything in the foregoing to the contrary, the following services are specifically excluded from the definition of "Consulting Services": (i) INDEPENDENT ACCOUNTING SERVICES. Accounting services rendered to any Obligor or CHI with prior notice and consultation with such Obligor's management, by an independent accounting firm or accountant (I.E., an accountant who ---- is not an employee of CHI); (ii) INDEPENDENT ACTUARIAL SERVICES. Actuarial services rendered to any Obligor or CHI with prior notice and consultation with the management of such Obligor, by an independent actuarial firm or actuary (I.E., an actuary who is not an employee of CHI). (iii) LEGAL SERVICES. Legal services rendered to any Obligor or CHI with prior notice and consultation with the management of such Obligor, by an independent law firm or attorney (I.E., an attorney who is not an employee of CHI); and (iv) TRANSACTION SERVICES. Services in connection with any transaction in which Obligors or any of their respective subsidiaries may be, or may consider becoming, involved, it being understood that CHI shall have the right of first refusal concerning all opportunities to perform, for an additional fee, any of such transaction related services. Such right must be exercised within 30 business days of receipt by CHI of such offer. 4. POWERS OF CHI. So that it may properly perform its duties hereunder, CHI shall, subject to Section 7 hereof, have the authority to do all things necessary and proper to carry out the duties set forth in Section 3 hereof. 5. COMPENSATION AND REIMBURSEMENT. As consideration payable to CHI or any of its affiliates for providing the Consulting Services to the Obligors, the Obligors hereby agree, jointly and severally, to pay to CHI on a fiscal quarterly basis in arrears, payable on the last business day of each fiscal quarter commencing on last business day of the fiscal quarter following the Closing Date (and defined in the Credit Agreement, as defined below) an annual management fee of $3,000,000 (the "Annual Fee") commencing fiscal year 2002 (the annual management fee to be paid during fiscal year 2001 to equal $3,265,000, $640,000 of which shall be paid on the Closing Date and $625,000 of which has already been paid) so long as such payments are not in violation of the Second Amended and Restated Credit Agreement, dated as of March ___, 2001 (as amended or modified from time to time, the "Credit Agreement"), by CBI, TPH, ECI, TPC, and Taylor Production Services Company, L.P., as borrowers, Heller Financial, Inc., as agent, and the various lenders from time to time parties thereto. Such payments shall accrue to the extent not paid. In addition to the Annual Fee, the Obligors hereby agree, jointly and severally, to, at the direction of CHI, pay directly or reimburse CHI for its Out-of-Pocket Expenses (as hereinafter defined) incurred in connection with the Consulting Services provided for in Section 3 hereof. For purposes of this Agreement, the term "Out-of-Pocket Expenses" shall mean the reasonable amounts paid by CHI in connection with the Consulting Services provided for in Section 3, including (i) fees and disbursements of any independent -4- professionals and organizations, including independent auditors and outside legal counsel, investment bankers or other financial advisors or consultants, (ii) costs of any outside services of independent contractors such as financial printers, couriers, business publications or similar services and (iii) transportation, per diem, telephone calls, entertainment and all other reasonable expenses actually incurred by CHI in rendering the Consulting Services provided for herein. All reimbursements for Out-of-Pocket Expenses shall be made promptly upon or as soon as practicable after presentation by CHI to the Obligors of the statement in connection therewith. Notwithstanding the foregoing, at any time and so long as CBI shall be in default with respect to any payment under the indenture dated as of December 16, 1996 (the "Indenture"), and any amendment thereof, between CBI and HSBC Bank USA (formerly known as Marine Midland Bank) (as Trustee), CBI may defer payment of any fees payable hereunder until such time as CBI shall no longer be in default or no Notes (as defined in the Indenture) remain outstanding. 6. INDEMNIFICATION. The Obligors hereby agree, jointly and severally, to indemnify and hold harmless CHI and its officers, directors, employees, agents, representatives and affiliates (each being an "Indemnified Party") from and against any and all losses, claims, damages and liabilities to which such Indemnified Party may become subject under any applicable federal or state law, any claim made by any third party or otherwise, relating to or arising out of the advisory and the Consulting Services contemplated by this Agreement or the engagement of CHI pursuant to, and the performance or alleged performance by CHI or such Indemnified Party of the Consulting Services, and the Obligors shall jointly and severally reimburse any Indemnified Party for all costs and expenses (including reasonable attorneys' fees and expenses) as they are incurred in connection with the investigation of, preparation for or defense of any pending or threatened claim, or any action or proceeding arising therefrom, whether or not such Indemnified Party is a party thereto. The Obligors will not be liable under the foregoing indemnification provision to the extent that any loss, claim, damage, liability, cost or expense is determined by a court, in a final judgment from which no further appeal may be taken, to have resulted solely from the gross negligence or willful misconduct of CHI. The reimbursement and indemnity obligations of the Obligors under this Section shall be in addition to any liability which the Obligors may otherwise have, shall extend upon the same terms and conditions to any affiliate of CHI and the stockholders, officers, directors, employees, agents, representatives, affiliates and controlling persons (if any), as the case may be, of CHI and any such affiliate and shall be binding upon and inure to the benefit of any successors, assigns, heirs and personal representatives of the Obligors, CHI, any such affiliate and any such person. The foregoing provisions shall survive the termination of this Agreement. 7. INDEPENDENT CONTRACTORS. Nothing herein shall be construed to create a joint venture or partnership between the parties hereto or an employee/employer relationship. CHI shall be an independent contractor pursuant to this Agreement. The parties hereto shall have no express or implied right or authority to assume or create any obligations on behalf of or in the name of the other parties or to bind the other parties to any contract, agreement or undertaking with any third party. 8. NOTICES. Any notice or other communications required or permitted to be given hereunder shall be in writing and delivered by hand or mailed by registered or certified mail, return receipt requested, or by telecopier to the party to whom it is to be given at its address set forth herein, or to such other address as the party shall have specified by notice similarly -5- given and the mailing date shall be deemed the date from which all time periods pertaining to a date of notice shall run. (i) If to TPH or TPC, to them at: 1550 W. Mockingbird Lane Dallas, Texas 75235 Attention: Mr. Steve Kreider Fax: (714) 542-8078 (ii) If to CBI, to it at: 7211 Circle S. Road Austin, Texas 78745-6603 Attention: Mr. David G. Fiore Fax: (512) 443-5213 (iii) If to CBI Holding or CHI, to it at: 150 East 58th Street 37th Floor New York, New York 10155 Attention: Mr. David B. Pittaway Fax: (212) 207-8042 with a copy to: Schulte Roth & Zabel LLP 919 Third Avenue New York, New York 10022 Attention: Marc Weingarten, Esq. Fax: (212) 593-5955 -6- 9. ASSIGNMENT. This Agreement shall inure to the benefit of and be binding upon the parties and their successors and permitted assigns. However, neither this Agreement nor any of the rights of the parties hereunder may be transferred or assigned by the parties hereto, except that (i) if any Obligor shall merge or consolidate with or into, or sell or otherwise transfer substantially all of its assets to, another entity that assumes such Obligor's obligations under this Agreement, such Obligor may assign its rights hereunder to that entity, and (ii) CHI may assign its rights and obligations hereunder to any other person or entity controlled, directly or indirectly, by John K. Castle and/or Leonard M. Harlan. Any attempted transfer or assignment in violation of this Section 9 shall be void. 10. PERMISSIBLE ACTIVITIES. Nothing herein shall in any way preclude CHI or its affiliates or its respective officers, directors and partners from engaging in any business activities or from performing services for its or their own account or for the account of others, including companies which may be in competition with the business conducted by any Obligor. 11. GENERAL. No amendment or waiver of any provision of this Agreement, or consent to any departure by either party from any such provision, shall in any event be effective unless the same shall be in writing and signed by the parties to this Agreement and then such amendment, waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. The waiver of any party of any breach of this Agreement shall not operate or be construed to be a waiver of any subsequent breach. 12. ENTIRE AGREEMENT. (a)This Agreement contains the entire agreement between the parties hereto and supersedes all prior agreements and understandings, oral and written, among the parties hereto with respect to the subject matter hereof. (b) CBI and CHI hereby acknowledge that this Agreement supersedes the Management Agreement dated as of December 16, 1996, between CBI (formerly known as Scholastic Brands, Inc.) and CHI (the "Prior CBI Management Agreement") and that the Prior CBI Management Agreement is hereby terminated in accordance with its terms; provided, however, that any accrued fees and expenses, if any, payable by CBI to CHI shall be payable by CBI on the Closing Date. (c) TPH, TPC and CHI hereby acknowledge that this Agreement supersedes the Management Agreement dated as of February 11, 2000, among TPH (formerly known as TP Acquisition Corp.), TPC and CHI (the "Prior Taylor Management Agreement") and that the Prior Taylor Management Agreement is hereby terminated in accordance with its terms; provided, however, that any accrued fees and expenses, if any, payable by TPH and/or TPC to CHI shall be payable by such parties on the Closing Date. (d) CBI Holding, CBI, TPH, TPC, and CHI hereby acknowledge that this Agreement supersedes the Management Agreement dated as of July 21, 2000, between CBI Holding, CBI, TPH, TPC, and CHI (the "Prior July 2000 Management Agreement") and that the Prior July 2000 Management Agreement is hereby terminated in accordance with its terms; -7- provided, however, that any accrued fees and expenses, if any, payable by party thereto to CHI shall be payable by such parties on the Closing Date. 13. SECTION HEADINGS. The section headings contained herein are included for convenience of reference only and shall not constitute a part of this Agreement for any other purpose. 14. APPLICABLE LAW. This agreement and the rights and obligations of the parties hereunder shall be governed by, and construed and interpreted in accordance with, the internal laws of the State of New York. Each of the parties hereto hereby irrevocably submits to the exclusive jurisdiction of any Federal court sitting in the Southern District of New York over any suit, action or proceeding arising out of or relating to this agreement. Each of the parties hereto hereby irrevocably waives, to the fullest extent permitted or not prohibited by law, any objection which it may now or hereafter have to the laying of the venue of any such suit, action or proceeding brought in such a court and any claim that any such suit, action or proceeding brought in such a court has been brought in an inconvenient forum. Each of the parties hereto hereby irrevocably consents to the service of process in any suit, action or proceeding by sending the same by certified mail, return receipt requested or by overnight courier service, to the address of such party set forth in Section 8 or in the records of the Company. EACH PARTY HERETO WAIVES ANY RIGHT IT MAY HAVE TO TRIAL BY JURY IN ANY ACTION BROUGHT HEREUNDER OR ARISING OUT OF THE TRANSACTIONS CONTEMPLATED HEREBY. 15. SEVERABILITY. If any section, clause, sentence, provision, subparagraph or paragraph of this Agreement is held by a court of competent jurisdiction to be invalid, illegal or ineffective for any reason, such section, clause, sentence, provision, subparagraph or paragraph so held to be invalid, illegal or ineffective shall be ineffective, but the effect thereof shall not impair, invalidate or nullify the remainder of this Agreement, and the remainder of the terms, provisions, covenants and restrictions of this Agreement shall remain in full force and effect and in no way shall be affected, impaired or invalidated. -8- IN WITNESS WHEREOF, the parties hereto have signed this Agreement as of the day and year first above written. CASTLE HARLAN, INC. By: /s/ David B. Pittaway ----------------------------------------- Name: David B. Pittaway Title: Senior Managing Director COMMEMORATIVE BRANDS HOLDING CORP. By: ----------------------------------------- Name: Title: COMMEMORATIVE BRANDS, INC. By: ----------------------------------------- Name: Title: EDUCATIONAL COMMUNICATIONS, INC. By: ----------------------------------------- Name: Title: TP HOLDING CORP. By: ----------------------------------------- Name: Title: TAYLOR PUBLISHING COMPANY By: ----------------------------------------- Name: Title: -9- EX-10.7 30 a2071988zex-10_7.txt EXHIBIT 10.7 EXHIBIT 10.7 LETTER AGREEMENT, DATED AS OF OCTOBER 11, 2000, AMENDED AS OF NOVEMBER 3, 2000, BETWEEN SCOTIABANK AND TP HOLDINGS CORP., REGARDING (i) USD 27,500,000.00MM INTEREST RATE SWAP TRANSACTION (REF: S24041) AND (ii) USD 25,000,000.00 MM INTEREST RATE SWAP TRANSACTION (REF: S24042) SCOTIABANK THE BANK OF NOVA SCOTIA International Banking Division Derivative Products 44 King St. West, 14th Floor, Toronto, Ontario, Canada M5H 1H1 (416) 86~5-54l5 October 11, 2000 Amended November 3, 2000 TP HOLDINGS CORP 1550 W. Mockingbird Lane Dallas, Texas 75235 ATTENTION: STEVEN KREIDER, CFO Re: The Bank of Nova Scotia ("Party A")/TP Holdings Corp ("Party B") Swap Transaction Our Reference No. S24042 (Previously S23703) ----------------------------------------------- Dear Sirs, This transaction was affected through Scotia Capital (USA) Inc., a U.S. broker-dealer subsidiary of the Bank of Nova Scotia (BNS), who acted as agent in the transaction. The purpose of this letter is to confirm the terms and conditions of the transaction entered into between us on the Trade Date specified below (the "Transaction"). This letter agreement constitutes a "Confirmation" as referred to in the ISDA Agreement specified below. The definitions and provisions contained in the 1991 ISDA Definitions (as amended and supplemented by the 1998 Supplement to the 1991 ISDA Definitions) as published by the International Swaps and Derivatives Association, Inc. ("ISDA") are incorporated into this Confirmation. This Confirmation is subject to and incorporates the definitions contained in Section 14 of the form of the 1992 ISDA Master Agreement (Multicurrency - Cross Border), but without any Schedule or other modification thereto, as published by ISDA (the "ISDA Agreement"). In the event of any inconsistency between the definitions contained in Section 14 of the ISDA Agreement and this Confirmation, this Confirmation will govern. Until such time as an ISDA Agreement is entered into between you and us, this Confirmation evidences a complete binding agreement between you and us as to the terms of the Transaction to which this Confirmation relates. Upon execution by you and us of an ISDA Agreement, with such ISDA Agreement incorporating such modifications as you and we shall in good faith agree, this Confirmation will supplement, form part of, and be subject to, the ISDA Agreement. All provisions contained in the ISDA Agreement upon its execution shall govern this Confirmation except as expressly modified below. 1. Each party will make each payment specified in this Confirmation as being payable by it, not later than the due date for value on that date in the place specified below, in freely transferable funds and in the manner customary for such payments in the required -2- currency. If on any date amounts would otherwise be payable in the same currency by each party to the other, then, on such date, each party's obligation to make payment of any such amount will be automatically satisfied and discharged and, if the aggregate amount that would otherwise have been payable by one party exceeds the aggregate amount that would otherwise have been payable by the other party, replaced by an obligation upon the party by whom the larger aggregate amount would have been payable to pay to the other party the excess of the larger aggregate amount over the smaller aggregate amount. 2. The following provisions will govern this Transaction until such time as an ISDA Agreement is entered into between you and us whereupon such provisions shall be replaced by the terms of the ISDA Agreement: (a) If at any time, a party hereto shall (i) fail to make, when due, any payment required of it under this Confirmation and if such failure is not remedied within three Business Days following written notice of such failure; (ii) fail to deliver, when due, any Collateral (as defined below) required of it under this Confirmation; or (iii) becomes subject to a Bankruptcy (as defined in Section 5(a)(vii) of the ISDA Agreement) (such party being hereinafter referred to as the "Defaulting Party"), then the other party (hereinafter referred to as the "Non-defaulting Party"), shall have the right to early terminate and liquidate this Transaction, together with all other Specified Transaction entered into between Party A and Party B (collectively the "Terminated Transactions") and determine a net amount due in respect of the Terminated Transactions in accordance with the early termination payment calculation provisions of Section 6(e)(i) of the ISDA Agreement based on a payment measure of Loss and a payment method of Second Method. For purposes of giving effect to the foregoing, the Termination Currency shall be United States Dollars. (b) The Non-defaulting Party may exercise its right to early termination and liquidate the Terminated Transactions by written notice to the Defaulting Party, which notice shall set forth the amount of the termination payment derived by the Non-defaulting Party as set forth above; provided that, in the event the Defaulting Party becomes subject to a Bankruptcy in the nature of any one of the events specified in Section 5(a)(vii) (1), (3), (4), (5), (6) or, to the extent analogous thereto, (8), of the ISDA Agreement and any court, tribunal or regulatory authority with competent jurisdiction acting pursuant to any bankruptcy or insolvency law or other similar law affecting the Defaulting Party makes an order which has or purports to have the effect of prohibiting the Non-defaulting Party from terminating the Terminated Transactions at any time after the occurrence of any such events, then the Terminated Transactions shall be deemed to have been terminated immediately upon the occurrence of any of the events specified in Section 5(a)(vii) (1) (3), (5), (6) or, to the extent analogous thereto, (8) and as of the time immediately preceding the institution of the relevant proceeding or the presentation of the relevant petition in respect of Section 5(a)(vii) (4) or, to the extent analogous thereto, (8). (c) In the event the termination payment derived in accordance with the foregoing represents an amount owing by the Non-defaulting Party to the Defaulting Party, the Non-defaulting Party shall have the right to set off such termination payment against any amounts payable (whether at such time or in the future or upon the -3- occurrence of a contingency) by the Defaulting Party to the Non-defaulting Party (irrespective of the currency or the place of payment of the obligation) under any other agreement between the Defaulting Party and the Non-defaulting Party (the "Other Agreement Amount"). For this purpose, the termination payment of the Other Agreement Amount may be converted into the currency in which the other is denominated by the Non-defaulting Party acting in a commercially reasonable manner. If all or part of the Other Agreement Amount is not then due, such Other Agreement Amount, or part thereof, may be present-valued by the Non-defaulting Party acting in a commercially reasonable manner. If all or part of the Other Agreement Amount is unascertained, the Non-defaulting Party may in good faith estimate such amount and set off in respect of the estimate subject to accounting to the Defaulting Party when the obligation is ascertained. 3. Each of the parties hereto makes to the other each of the "Basic Representations" contained in Section 3(a) and (c) of the ISDA Agreement. 4. Neither this Confirmation nor any interest or obligation in or under this Confirmation may be transferred (whether by way of security or otherwise) by either party without the prior written consent of the other party and any purported transfer in violation hereof shall be void. 5. The Confirmation will be governed and construed in accordance with the laws of the State of New York. 6. The terms of the particular Transaction to which this Confirmation relates are as follows: Notional Amount: USD 25,000,000.00 Trade Date: Oct 11, 2000 Effective Date: Oct 13, 2000 Termination Date Mar 31, 2003; subject to adjustment in accordance with the Modified Following Business Day Convention FIXED AMOUNTS: Fixed Rate Payer: TP HOLDINGS CORP Fixed Rate Payer Adjusted in accordance with the Modified Following Payment Dates: Business Day Convention. Dec 29, 2000 Mar 30, 2001 Jun 29, 2001 Sep 28, 2001 Dec 31, 2001 Mar 28, 2002 Jun 28, 2002 Sep 30, 2002 Dec 31, 2002 Mar 31, 2003 -4- Fixed Rates: 6.60% Paid Quarterly Fixed Rate Day Count Fraction: Actual/36O Business Days for Payments London, New York F1OATING AMOUNTS: Floating Rate Payer: THE BANK OF NOVA SCOTIA Floating Rate Payer Payment Dates: Adjusted in accordance with the Modified Following Business Day Convention. Dec 29, 2000 Mar 30, 2001 Jun 29, 2001 Sep 28, 2001 Dec 3l, 2001 Mar 28, 2002 Jun 28, 2002 Sep 30, 2002 Dec 31, 2002 Mar 31, 2003 Floating Rate for initial Calculation Period: 6.65% (For the period Oct 13, 2000 to Dec 29, 2000) Floating Rate Option: USD-LIBOR-BBA Floating Rate Day Count Fraction: Actual/360 Designated Maturity: 3-month Spread: None Reset Dates: The first date of the relevant Calculation period. Compounding: Inapplicable 'Business Days for Payments: London, New York Business Days for Rate Resets: London Calculation Agent: The Bank of Nova Scotia -5- 7. Credit Support Documents: As per Credit Agreement Dated as of July 27, 2000 8. Relationship Between Parties: Each party will be deemed to represent to the other on the date of this Confirmation on which it enters into a Transaction that (absent a written agreement between the parties that expressly imposes affirmative obligations to the contrary for the Transaction): (a) NON-RELIANCE. It is acting for its own account, and it has made its own independent decisions to enter into that Transaction and as to whether that Transaction is appropriate or proper for it based upon its own judgment and upon advise from such advisors as it has deemed necessary. It is not relying on any communication (written or oral) of the other party as investment advise or as a recommendation to enter into that Transaction; it being understood that information and explanations related to the terms and conditions of a Transaction shall not be considered investment advise or a recommendation to enter into that Transaction. It has not received from the other party any assurance or guarantee as to the expected results of that Transaction. (b) ASSESSMENT AND UNDERSTANDING. It is capable of assessing the merits of and understanding (on its own behalf or through independent professional advise), and understands and accepts, the terms, conditions and risks of that Transaction. It is also capable of assuming and assumes, the risk of that Transaction. (c) STATUS OF PARTIES. The other party is not acting as a fiduciary for or as an advisor to it in respect of that Transaction. (d) COMMITMENT TO UNWIND. Neither party has committed to unwind any Transaction. 9. Offices (a) For purposes of this Transaction, the Office of The Bank of Nova Scotia is Toronto, Ontario. (b) For purposes of this Transaction, the Office of TP Holdings Corp is Dallas, Texas. 10. Account Details Payments to THE BANK OF NOVA SCOTIA: Accounts for payments in USD: The Bank of Nova Scotia New York Agency 1 Liberty Plaza, 165 Broadway 26th Floor, N.Y., New York ABA 0260-02532 A/C 6027-36 Attn: Derivative Products -6- Payments to TP HOLDINGS CORP: Accounts for payments in USD: (Please provide upon return fax to ensure prompt payment procedures) 11. The parties hereto agree that this Confirmation, whether received in original or facsimile form, may be executed in counterparts, which execution may be effected by means of facsimile transmission, and which when taken together shall constitute a single and original agreement between the parties and a binding supplement to the Agreement. Where execution is effected by means of facsimile transmission, the parties agree that the sender's signature as printed by the recipient's facsimile machine shall be deemed to be the sender's original signature. Please confirm that the foregoing correctly sets forth the terms of our agreement by executing the copy of this Confirmation enclosed for that purpose and returning it to us. Yours sincerely, THE BANK OF NOVA SCOTIA By:/s/ Kathryn J. Iozzo -------------------------------- Name: Kathryn J. Iozzo Title: Manager By:/s/ Chris Colman -------------------------------- Name: Chris Colman Title: Confirmation Officer Confirmed as of the date first written: TP HOLDINGS CORP By: /s/ Stephen Kreider --------------------------------------- Name: Stephen Kreider Title: CFO By: /s/ Steven J. Bauer --------------------------------------- Name: Steven J. Bauer Title: Controller -7- SCOTIABANK THE BANK OF NOVA SCOTIA International Banking Division Derivative Products 44 King St. West, 14th Floor, Toronto, Ontario, Canada M5H 1H1 (416) 865-54l5 October 11, 2000 Amended November 3, 2000 TP HOLDINGS CORP 1550 W. Mockingbird Lane Dallas, Texas 75235 ATTENTION: STEVEN KREIDER, CFO Re: The Bank of Nova Scotia ("Party A")/TP Holdings Corp ("Party B") Swap Transaction Our Reference No. S24041 (Previously S23702) ----------------------------------------------- Dear Sirs, This transaction was affected through Scotia Capital (USA) Inc., a U.S. broker-dealer subsidiary of the Bank of Nova Scotia (BNS), who acted as agent in the transaction. The purpose of this letter is to confirm the terms and conditions of the transaction entered into between us on the Trade Date specified below (the "Transaction"). This letter agreement constitutes a "Confirmation" as referred to in the ISDA Agreement specified below. The definitions and provisions contained in the 1991 ISDA Definitions (as amended and supplemented by the 1998 Supplement to the 1991 ISDA Definitions) as published by the International Swaps and Derivatives Association, Inc. (ISDA") are incorporated into this Confirmation. This Confirmation is subject to and incorporates the definitions contained in Section 14 of the form of the 1992 ISDA Master Agreement (Multicurrency - Cross Border), but without any Schedule or other modification thereto, as published by ISDA (the "ISDA Agreement"). In the event of any inconsistency between the definitions contained in Section 14 of the ISDA Agreement and this Confirmation, this Confirmation will govern. Until such time as an ISDA Agreement is entered into between you and us, this Confirmation evidences a complete binding agreement between you and us as to the terms of the Transaction to which this Confirmation relates. Upon execution by you and us of an ISDA Agreement, with such ISDA Agreement incorporating such modifications as you and we shall in good faith agree, this Confirmation will supplement, form part of, and be subject to, the ISDA Agreement. All provisions contained in the ISDA Agreement upon its execution shall govern this Confirmation except as expressly modified below. 1. Each party will make each payment specified in this Confirmation as being payable by it, not later than the due date for value on that date in the place specified below, in freely transferable funds and in the manner customary for such payments in the required currency. If on any date amounts would otherwise be payable in the same currency by each party to the other, then, on such date, each party's obligation to make payment of any such amount will be automatically satisfied and discharged and, if the aggregate amount that would otherwise have been payable by one party exceeds the aggregate amount that would otherwise have been payable by the other party, replaced by an obligation upon the party by whom the larger aggregate amount would have been payable to pay to the other party the excess of the larger aggregate amount over the smaller aggregate amount. 2. The following provisions will govern this Transaction until such time as an ISDA Agreement is entered into between you and us whereupon such provisions shall be replaced by the terms of the ISDA Agreement: (a) If at any time, a party hereto shall (i) fail to make, when due, any payment required of it under this Confirmation and if such failure is not remedied within three Business Days following written notice of such failure; (ii) fail to deliver, when due, any Collateral (as defined below) required of it under this Confirmation; or (iii) becomes subject to a Bankruptcy (as defined in Section 5(a)(vii) of the ISDA Agreement) (such party being hereinafter referred to as the "Defaulting Party"), then the other party (hereinafter referred to as the "Non-defaulting Party"), shall have the right to early terminate and liquidate this Transaction, together with all other Specified Transaction entered into between Party A and Party B (collectively the "Terminated Transactions") and determine a net amount due in respect of the Terminated Transactions in accordance with the early termination payment calculation provisions of Section 6(e)(i) of the ISDA Agreement based on a payment measure of Loss and a payment method of Second Method. For purposes of giving effect to the foregoing, the Termination Currency shall be United States Dollars. (b) The Non-defaulting Party may exercise its right to early termination and liquidate the Terminated Transactions by written notice to the Defaulting Party, which notice shall set forth the amount of the termination payment derived by the Non-defaulting Party as set forth above; provided that, in the event the Defaulting Party becomes subject to a Bankruptcy in the nature of any one of the events specified in Section 5(a)(vii) (1), (3), (4), (5), (6) or, to the extent analogous thereto, (8), of the ISDA Agreement and any court, tribunal or regulatory authority with competent jurisdiction acting pursuant to any bankruptcy or insolvency law or other similar law affecting the Defaulting Party makes an order which has or purports to have the effect of prohibiting the Non-defaulting Party from terminating the Terminated Transactions at any time after the occurrence of any such events, then the Terminated Transactions shall be deemed to have been terminated immediately upon the occurrence of any of the events specified in Section 5(a)(vii) (1), (3), (5), (6) or, to the extent analogous thereto, (8) and as of the time immediately preceding the institution of the relevant proceeding or the presentation of the relevant petition in respect of Section 5(a)(vii) (4) or, to the extent analogous thereto, (8). (c) In the event the termination payment derived in accordance with the foregoing represents an amount owing by the Non-defaulting Party to the Defaulting Party, the Non-defaulting Party shall have the right to set off such termination payment against any amounts payable (whether at such time or in the future or upon the -2- occurrence of a contingency) by the Defaulting Party to the Non-defaulting Party (irrespective of the currency or the place of payment of the obligation) under any other agreement between the Defaulting Party and the Non-defaulting Party (the "Other Agreement Amount"). For this purpose, the termination payment of the Other Agreement Amount may be converted into the currency in which the other is denominated by the Non-defaulting Party acting in a commercially reasonable manner. If all or part of the Other Agreement Amount is not then due, such Other Agreement Amount, or part thereof, may be present-valued by the Non-defaulting Party acting in a commercially reasonable manner. If all or part of the Other Agreement Amount is unascertained, the Non-defaulting Party may in good faith estimate such amount and set off in respect of the estimate subject to accounting to the Defaulting Party when the obligation is ascertained. 3. Each of the parties hereto makes to the other each of the "Basic Representations" contained in Section 3(a) and (c) of the ISDA Agreement. 4. Neither this Confirmation nor any interest or obligation in or under this Confirmation may be transferred (whether by way of security or otherwise) by either party without the prior written consent of the other party and any purported transfer in violation hereof shall be void. 5. The Confirmation will be governed and construed in accordance with the laws of the State of New York. 6. The terms of the particular Transaction to which this Confirmation relates are as follows: Notional Amount: USD 27,500,000.00 Trade Date: Oct 11, 2000 Effective Date: Oct 13, 2000 Termination Date Mar 31, 2003; subject to adjustment in accordance with the Modified Following Business Day Convention FIXED AMOUNTS: Fixed Rate Payer: TP HOLDINGS CORP Fixed Rate Payer Adjusted in accordance with the Modified Payment Dates: Following Business Day Convention. Dec 29, 2000 Mar 30, 2001 Jun 29, 2001 Sep 28, 2001 Dec 31, 2001 Mar 28, 2002 Jun 28, 2002 Sep 30, 2002 Dec 31, 2002 Mar 31, 2003 -3- Fixed Rates: 6.6% Paid Quarterly Fixed Rate Day Count Fraction: Actual/360 Business Days for Payments London, New York F1OATING AMOUNTS: Floating Rate Payer: THE BANK OF NOVA SCOTIA Floating Rate Payer Payment Dates: Adjusted in accordance with the Modified Following Business Day Convention. Dec 29, 2000 Mar 30, 2001 Jun 29, 2001 Sep 28, 2001 Dec 31, 2001 Mar 28, 2002 Jun 28, 2002 Sep 30, 2002 Dec 31, 2002 Mar 31, 2003 Floating Rate for initial Calculation Period: 6.65% (For the period Oct 13, 2000 to Dec 29, 2000) Floating Rate Option: USD-LIBOR-BBA Floating Rate Day Count Fraction: Actual/360 Designated Maturity: 3-month Spread: None Reset Dates: The first date of the relevant Calculation period. Compounding: Inapplicable Business Days for Payments: London, New York Business Days for Rate Resets: London Calculation Agent: The Bank of Nova Scotia -4- 7. Credit Support Documents: As per Credit Agreement Dated as of July 27, 2000 8. Relationship Between Parties: Each party will be deemed to represent to the other on the date of this Confirmation on which it enters into a Transaction that (absent a written agreement between the parties that expressly imposes affirmative obligations to the contrary for the Transaction): (a) NON-RELIANCE. It is acting for its own account, and it has made its own independent decisions to enter into that Transaction and as to whether that Transaction is appropriate or proper for it based upon its own judgment and upon advise from such advisors as it has deemed necessary. It is not relying on any communication (written or oral) of the other party as investment advise or as a recommendation to enter into that Transaction; it being understood that information and explanations related to the terms and conditions of a Transaction shall not be considered investment advise or a recommendation to enter into that Transaction. It has not received from the other party any assurance or guarantee as to the expected results of that Transaction. (b) ASSESSMENT AND UNDERSTANDING. It is capable of assessing the merits of and understanding (on its own behalf or through independent professional advise), and understands and accepts, the terms, conditions and risks of that Transaction. It is also capable of assuming and assumes, the risk of that Transaction. (c) STATUS OF PARTIES. The other party is not acting as a fiduciary for or as an advisor to it in respect of that Transaction. (d) COMMITMENT TO UNWIND. Neither party has committed to unwind any Transaction. 9. Offices (a) For purposes of this Transaction, the Office of The Bank of Nova Scotia is Toronto, Ontario. (b) For purposes of this Transaction, the Office of TP' Holdings Corp is Dallas, Texas. 10. Account Details Payments to THE BANK OF NOVA SCOTIA: Accounts for payments in USD: The Bank of Nova Scotia New York Agency 1 Liberty Plaza, 165 Broadway 26th Floor, N.Y., New York ABA 0260-02532 A/C 6027-36 Attn: Derivative Products -5- Payments to TP HOLDINGS CORP: Accounts for payments in USD: (Please provide upon return fax to ensure prompt payment procedures) 11. The parties hereto agree that this Confirmation, whether received in original or facsimile form, may be executed in counterparts, which execution may be effected by means of facsimile transmission, and which when taken together shall constitute a single and original agreement between the parties and a binding supplement to the Agreement. Where execution is effected by means of facsimile transmission, the parties agree that the sender's signature as printed by the recipient's facsimile machine shall be deemed to be the sender's original signature. Please confirm that the foregoing correctly sets forth the terms of our agreement by executing the copy of this Confirmation enclosed for that purpose and returning it to us. Yours sincerely, THE BANK OF NOVA SCOTIA By: /s/ Kathryn J. Iozzo --------------------------------- Name: Kathryn J. Iozzo Title: Manager By: /s/ Chris Colman --------------------------------- Name: Chris Colman Title: Confirmation Officer Confirmed as of the date first written: TP HOLDINGS CORP By: /s/ Stephen Kreider ---------------------------- Name: Stephen Kreider Title: CFO By: /s/ Steven J. Bauer ---------------------------- Name: Steven J. Bauer Title: Controller -6- EX-10.8 31 a2071988zex-10_8.txt EXHIBIT 10.8 EXHIBIT 10.8 EMPLOYMENT AGREEMENT, DATED AS OF JULY 13, 1999 BY AND BETWEEN COMMEMORATIVE BRANDS, INC. AND DAVID G. FIORE EMPLOYMENT AGREEMENT This Employment Agreement ("Agreement") is entered into as of this 13th day of July, 1999, by and between COMMEMORATIVE BRANDS, INC. and any successors thereto (collectively referred to as the "Company") and David G. Fiore ("Executive"). The parties hereby agree as follows: 1. EMPLOYMENT. Executive will serve the Company in an executive capacity as President and Chief Executive Officer and shall report to the Board of Directors of the Company and will perform, faithfully and diligently, the services and functions performed and will carry out the functions of his office and furnish his best advice, information, judgment and knowledge with respect to the business of the Company and its subsidiaries, if any. If Executive is elected to the Board of Directors of the Company, Executive agrees to serve on the board of directors of the Company during the term of this Agreement. Executive agrees to perform such duties as hereinabove described and to devote full-time attention and energy to the business of the Company. Executive will not, during the term of employment under this Agreement, engage in any other business activity if such business activity would materially impair Executive's ability to carry out his duties under this Agreement. 2. TERM. The period of the Executive's employment under this Agreement (the "Employment Term") shall commence on August 2, 1999 (the "Commencement Date") and shall terminate on August 1, 2001, unless sooner terminated in accordance with this Agreement. Notwithstanding the aforementioned termination date, the termination date of this Agreement (and the Employment Term) shall be automatically extended in a constant fashion so that the Employment Term shall always have two years remaining unless either party provides written notice to the other party (the "Termination Notice") of its or his intent to terminate at the end of the Employment Term. At the time of the delivery of the Termination Notice, the termination date shall then be fixed on the date that is two years from the date of such notice, and shall not be subject to further extension. Unless this Agreement is terminated in the manner as aforesaid, this Agreement and the Employment Term shall be extended as aforesaid without any further action of the parties, on the same terms and conditions as set forth herein, including without limitation the extension provision to provide for a constant two year remaining Employment Term. 3. PLACE OF EMPLOYMENT. The Executive's principal place of employment shall be in Austin, Texas, unless moved with the written consent of the Executive. 4. COMPENSATION AND OTHER BENEFITS. 4.1. SALARY. The minimum salary compensation to be paid by the Company to Executive and which Executive agrees to accept from the Company for services performed and to be performed by Executive hereunder shall be an annual gross amount, before applicable withholding and other payroll deductions, of $300,000 payable in equal bi-weekly installments of $11,538.46, subject to such increases as the Board of Directors of the Company may, in its sole discretion, from time to time determine. The salary and/or any increase from time to time, shall be deemed a minimum salary which, once established, cannot be reduced during the Employment Term. 4.2. BONUS. (1) For each full or partial fiscal year of the Company during the Employment Term and, if applicable, the Balance of the Employment Term (as defined in Section 7.5), the Company shall pay to the Executive a bonus ("Bonus") in an amount of up to $200,000 based upon targets or standards (E.G. EBITDA, sales) as shall be determined by the Board of Directors, in each case, within three months of the commencement of each fiscal year. (2) All Bonuses actually earned by the Executive and payable to the Executive (or his estate or other legal representative as provided below) for any full or partial fiscal year pursuant to this Section 4.2 shall be paid by the Company within 120 days following the end of such fiscal year. (3) For each full or partial fiscal year during the Employment Term and if applicable, the Balance of the Employment Term, the Company may pay to the Executive a Discretionary Bonus ("Discretionary Bonus") based on other factors at the discretion of the compensation committee of the Board of Directors in an amount of up to $100,000. (4) If the Company achieves $30,000,000 of Consolidated EBITDA (as hereinafter defined) within three years of the effective date of this Agreement, the Executive shall be paid a long-term incentive bonus of $1,000,000 ("Long Term Bonus") in the form of Series "B" preferred stock of the Company having a face value of $1,000,000 on the date of issuance. (5) The preferred stock shall be issued to Executive within ninety (90) days following the achievement of $30,000,000 Consolidated EBITDA by the Company, provided that the Company achieves $30,000,000 Consolidated EBITDA, within three (3) years of the date of this Agreement. (6) To the extent that the above-referenced grant of preferred stock is a taxable event under Federal, State, FICA/Medicare, unemployment law or any other tax law, such taxes will be paid by the Company or if paid by Executive, shall be reimbursed to the Executive by the Company upon its receipt of satisfactory evidence of such payment having been made. For purposes hereof, Consolidated EBITDA shall have the meaning set forth in the Company's Revolving Credit, Term Loan and Gold Consignment Agreement dated as of December 16, 1996, as heretofore amended and as may hereafter be amended from time to time (to the extent the definition of Consolidated EBITDA is thereby amended with the consent of the Executive, which consent shall not be unreasonably withheld by the Executive) which current definition is attached hereto as Exhibit A. 4.3. STOCK OPTIONS. At the commencement of the term of this Agreement, the Executive shall receive an initial grant of stock options pursuant to the terms of the Company's qualified incentive stock option plan, a copy of which is attached hereto as Exhibit B, equivalent to 3% of the issued and outstanding shares of the common stock of the Company on a fully diluted basis on the date hereof. All of the stock options initially granted pursuant to this Section 4.3 shall be divested if the Executive's employment hereunder is terminated by the Company or by the Executive for any reason whatsoever prior to the first anniversary of this Agreement and one-half of all of the stock options granted pursuant to this Section 4.3 shall be divested if the Executive's employment hereunder is terminated by the Company or by the Executive for any reason whatsoever between the first and second anniversary of this Agreement. After the second anniversary of this Agreement, none of the stock options granted pursuant to this Section 4.3 may be divested if the Executive's employment hereunder is terminated by the Company or by the Executive. If the Company attains the stated Consolidated EBITDA target within the stated time frames in the chart below, the following additional qualified incentive stock options for common stock will be granted to the Executive pursuant to the terms of the Company's incentive stock option plan, based upon the issued and outstanding shares of the common stock of the Company on a fully diluted basis at the date hereof: Consolidated Yr End EBITDA AUG OPTIONS ------ --- ------- $26.5M FY 2000 0.5% $28.0M FY 2001 0.5% $32.5M FY 2002 0.5% $35.0M FY 2003 0.5% $37.5M FY 2003 0.5% $40.0M FY 2003 0.5% Such additional incentive stock options shall vest when earned. These additional incentive stock options are subject to a "look-back" period of one year, so that if the Company meets the Consolidated EBITDA goal in any year listed, the Executive shall be entitled to stock options for that year and for the prior year if the Consolidated EBITDA goal for the prior year was not achieved; provided however that each "look-back" period shall apply for only one year. For example, if Consolidated EBITDA for fiscal year 2000 is less than $26.5M, then Executive will receive no stock options at the end of fiscal year 2000. However, if Consolidated EBITDA for fiscal year 2001 is $28.0M or more while Consolidated EBITDA for fiscal year 2000 was less than $26.5M, then Executive will receive stock options equal to 1% of the issued and outstanding common stock of the Company at the end of fiscal year 2001. If Consolidated EBITDA for fiscal year 2000 is less than $26.5m and Consolidated EIBTDA for fiscal year 2001 is less than $28.0M, but Consolidated EBITDA for fiscal year 2002 is $32.5M or more, then Executive will receive stock options equal to 1% of the issued and outstanding common stock of the Company at the end of fiscal year 2002. Executive may receive a maximum of 3% of the issued and outstanding Common Stock of the Company under this Section 4.3 if the requisite goals are met, but cannot exceed an aggregate of 3% of the issued and outstanding common stock of the Company under this Section 4.3. Further, Executive would only receive options equal to 2% of the issued and outstanding common stock of the Company if Consolidated EBITDA for the Company in fiscal year 2003 equals or exceeds $40M but Consolidated EBITDA for the Company was less than $26.5M in fiscal year 2000, $28.0M in fiscal year 2001 and $32.5M in fiscal year 2002. 4.4. HEALTH BENEFITS, CAR ALLOWANCE, COUNTRY CLUB & LIFE INSURANCE. The Company will provide health benefits to Executive and his family at least equal to the current health benefits now provided to other executives of the Company. Additionally, the Company shall pay for the Executive's country club membership initiation fee(s) and monthly/annual dues in a country club of his selection located in the Austin, Texas area, a car allowance of up to $750 a month and will provide $500,000 of life insurance paid for by the Company. 4.5. BENEFITS. Executive shall be entitled to participate in such other employee benefit programs, plans and policies as are maintained by the Company and as may be established for the employees of the Company from time to time on the same basis as other executive employees are entitled thereto. It is understood that the establishment, termination or change in any such other executive employee benefit programs, plans or policies shall be at the instance of the Company in the exercise of its sole discretion, from time to time, and any such termination or change in such other program, plan or policy will not affect this Agreement (except as provided herein) so long as Executive is treated on the same basis as other executive employees participating in such other program, plan or policy, as the case may be. Upon termination of employment under this Agreement, without regard to the manner in which the termination was brought about, Executive's rights in such other employee benefit program, plans or policies covered by this Section 4.5 shall be governed solely by the terms of the program, plan or policy itself and not this Agreement. However, Executive's compensation as provided in Sections 4.1, 4.2, 4.3, 4.4, 4.6 and 4.7 of this Agreement shall be government by this Agreement. Executive shall be entitled to an annual paid vacation in accordance with the Company's personnel policy for his years of services completed as an employee of the Company; provided, however, he shall always be entitled to a minimum of four weeks per year. The Executive shall also be entitled to participate in all other benefits provided to executives of the Company. 4.6. RELOCATION. The Company shall reimburse Executive for the following costs of relocated to the Austin, Texas area: ---------- (1) The closing costs of selling Executive's existing residence in Plano, Texas; (2) Packing and moving expenses (3) Temporary and Interim Housing (including temporary housing for Executive and his family until suitable housing is obtained in Austin, Texas and interim housing [E.G. an apartment or condominium] for Executive in Austin, Texas while the Executive's primary residence in Plano, Texas remains unsold and Executive's family continues to reside in Plano, Texas; and (4) The expenses of locating housing in Austin, Texas (E.G. the reasonable costs associated with a reasonable number of house hunting trips for Executive and his spouse in the Austin, Texas area); and (5) Up to $25,000 of seller's real estate brokerage commissions and up to $30,000 of points on financing for the purchase of new housing for the Executive in the Austin, Texas area. 4.7. DIRECTIONS' AND OFFICERS' INSURANCE. The Company will carry Directors' and Officers' liability insurance in the form and to the extent determined by the Board of Directors to in the best interests of the Company and its officers and directors from time to time. In the event the Company fails to carry any such insurance or fails to carry it in an amount and with a carrier reasonably similar to the insurance in place as of the date hereof, it shall indemnify and hold harmless Executive from any claims which would have been covered by such insurance. In addition, Company will indemnify Executive to the maximum extent permitted by Delaware law. 5. WORKING FACILITIES. During the term of his employment under this Agreement, Executive shall be furnished with a private office, stenographic and secretarial services, cell phone, page, lap top, voice mail, e-mail and such other facilities and services as are commensurate with his position with the Company and adequate for the performance of his duties under this Agreement. 6. EXPENSES. During the term of his employment under this Agreement, Executive is authorized to incur reasonable out-of-pocket expenses for the discharge of his duties hereunder and the promotion of business of the Company, including expenses for entertainment, travel and related items. The Company shall reimburse Executive for all such expenses upon presentation by Executive from time to time of itemized accounts of expenditures incurred in accordance with customary Company policies. 7. TERMINATION. Executive's employment under this Agreement may be terminated other than pursuant to a Termination Notice pursuant to Section 2 hereinabove, by either Company or Executive upon the following terms and conditions. 7.1. TERMINATION BY COMPANY FOR SUBSTANTIAL CAUSE. If any of the following events or circumstances occur, the Company may terminate Executive's employment under this Agreement at any time during or at the end of the initial or any extended term of this Agreement for any of the following causes (each a "Substantial Cause"). The Company may at any time by written notice to the Executive terminate the Term of the Executive's employment hereunder for Substantial Cause ("Substantial Cause Notice") and the Executive shall have no right to receive any compensation or benefit hereunder on and after the effective date of such Substantial Cause Notice except as provided in this Agreement. For purposes hereof, the term "Substantial Cause" shall mean: (a) a conviction of the Executive for any crime constituting a felony in the jurisdiction in which committed, or for any other criminal act against the Company or the Subsidiaries involving dishonesty or willful misconduct intended to injure the Company or the Subsidiaries (whether or not a felony and whether or not criminal proceedings are initiated); or (b) failure or refusal of the Executive in any material respect to follow the lawful and proper directives of the Board of Directors and such failure or refusal continues uncured for a period of twenty (20) days after written notice thereof, specifying the nature of such failure or refusal and requesting that it be cured, is given by the Company to the Executive; or (c) any willful or intentional act of the Executive committed for the purpose, or having the reasonably foreseeable effect, of injuring the Company, the Subsidiaries or their business or reputation or of improperly or unlawfully converting for the Executive's own personal benefit any property of the Company or the Subsidiaries. For purposes hereof, any act or failure to act of the Executive shall not be considered "willful" or "intentional" unless done or omitted to be done by the Executive in bad faith and without a reasonable belief that the Executive's action or omission was in the best interest of the Company; provided however, that no termination of the Executive's employment shall be for Substantial Cause until (i) there shall have been delivered to the Executive a copy of a written Substantial Cause Notice setting forth that the Executive was guilty of the conduct set forth above, specifying the particulars thereof in detail and (ii) the Executive shall have been provided an opportunity to be heard by the Board (with the assistance of the Executive's counsel if the Executive so desires). Any termination of Executive for Substantial Cause must be approved by a majority of the entire Board of Directors. In the event that Executive is terminated based on a conviction as provided in this Section 7.1 and that conviction is not final, then Executive shall be placed on an unpaid leave of absence until such time as the conviction has become final or has been overturned. If the conviction does not become final (E.G. it is dismissed or overturned) then, Executive shall be treated as having been terminated without Substantial Cause and the Company will immediately pay in one lump sum the Termination Payments and Termination Benefits or, in lieu thereof, at Executive's election, if the position of President and Chief Executive Officer is vacant rehire Executive. Upon payment by the Company to Executive of all salary payable, accrued and unused vacation, and any accrued bonus to the date of such termination, the Company shall have no further liability to Executive for compensation in accordance herewith, and Executive will not be entitled to receive any Termination Payments or Termination Benefits (as such terms are defined below) except aforesaid vacation and any accrued bonus. 7.2. TERMINATION BY COMPANY WITHOUT SUBSTANTIAL CAUSE. In the event of the termination of Executive's employment under this Agreement by the Company at any time during or at the end of the initial or any extended term of this Agreement without Substantial Cause as defined in Paragraph 7.1 above, Executive will be entitled to receive his salary for the Balance of the Employment Term, plus the aggregate of the Bonus actually earned by the Executive through the date of termination, plus the Long-Term Bonus and any stock options actually earned through the date of termination ("Termination Payments"), less legally required withholdings. In addition to the Termination Payments, the Company will provide Executive and covered family members with health benefits for 24 months beginning on the date that Executive's health coverage ceases due to his termination, accrued by unused vacation, and any accrued bonus ("Termination Benefits"). Health care benefits shall cease upon Executive and covered family members becoming covered under a new employer's health coverage plan at no cost to Executive and with no applicable pre-existing condition limitation. The combination of the Termination Payments and the Termination Benefits constitute the sole amount to which Executive is entitled if termination is without Substantial Cause. The Company's obligation to make the Termination Payments and provide the Termination Benefits and otherwise to perform its obligations under this Agreement shall not be affected by any setoff, counterclaim, recoupment, defense or other claim, right or action which it may have against the Executive or others. 7.3. TERMINATION BY EXECUTIVE WITHOUT GOOD REASON. Executive may terminate his employment under this Agreement without Good Reason as defined in Paragraph 7.4 below upon the giving of 90 days written notice of termination. In the event of such termination, the Company may elect to pay Executive six months of compensation in a lump sum including unused accrued vacation and any accrued bonus in lieu of 90 days notice, in which event Executive's services to the Company will be terminated immediately. No Termination Payments or Termination Benefits other than as set forth in Section 7.7 shall be payable upon Executive's termination of this Agreement without Good Reason. 7.4. TERMINATION BY EXECUTIVE WITH GOOD REASON. Executive may terminate his employment under this Agreement for Good Reason. For purposes of this Agreement, "Good Reason" shall mean: (1) Without Executive's consent, a material adverse change in the Executive's status, title, position, responsibilities (including reporting responsibilities), authority or duties which represents a material adverse change from the status, title, position, responsibilities (including reporting responsibilities), authority or duties as in effect immediately prior thereto; the assignment to the Executive of any additional duties or responsibilities which materially impair his ability to perform his other responsibilities, authority, or duties; or any removal of the Executive from or failure to reappoint or reelect Executive to any of offices or positions except in connection with the termination of his employment for Substantial Cause or as a result of his death or permanent disability; or (2) The Company requiring Executive to relocate anywhere other than Austin, Texas, except for required travel on the Company's business to an extent substantially consistent with Executive's business travel obligations, or, in the event Executive consents to such relocation out of Austin, Texas, the failure by the Company to pay or reimburse Executive for the closing costs of selling any existing home, temporary housing, expenses of locating housing, all reasonable moving expenses incurred by Executive relating to a change of Executive's principal residence in connection with such relocation, and any other relocation costs/allowances payable in accordance with standard Company policy or policies then in effect for the Company's senior executives and to indemnify Executive against any loss (defined as the difference between the actual bona fide sale price of such residence and the fair market value of such residence as determined by a member of the Society of Real Estate Appraisers designated by Executive and satisfactory to the Company) realized in the sale of Executive's principal residence in connection with any such change in residence; or (3) A decrease in Executive's annual salary from his salary in effect immediately prior to such decrease; or (4) The failure of the Company to grant and vest incentive stock options to the extent earned in accordance with Section 4.3; or (5) The failure of the Company to pay the Bonus or Long-Term Bonus to the extent earned in accordance with Section 4.2; or (6) Any action taken or suffered by the Company as of or following the Change of Control which shall cause the Company to have the inability to reach the goals so that the Executive may earn the Bonuses or stock options set out in Section 4.2 or 4.3 unless the Company or its successors or assigns shall, in good faith, provide the Executive with a reasonably equivalent position and compensation package reasonably acceptable to the Executive to take effect immediately following the Change of Control; or (7) The failure by the Company to continue in effect (without reduction in benefit level and/or reward opportunities) any material compensation or employee benefit plan in which the Executive was participating unless (i) a change is made pursuant to Section 4.5 of this Agreement, or (ii) a substitute or replacement plan has been implemented which provides substantially identical compensation and benefits to the Executive; or (8) The failure by the Company to provide insurance or indemnification as provided in Section 4.7; or (9) Any material breach by the Company of any of its material obligations under this Agreement; or (10) Any purported termination of the Executive's employment for Substantial Cause by the Company which does not comply with the terms of this Agreement. The failure by Executive to set forth in any notice of termination of employment any fact or circumstance which contributes to a showing of Good Reason shall not waive any of Executive's rights hereunder or preclude Executive from asserting such fact or circumstance in enforcing Executive's rights hereunder. In the event of termination under this Section 7.4, the Company shall pay to Executive the same Termination Payments and Termination Benefits to which Executive would have been entitled had he been terminated by the Company without Substantial Cause. 7.5. DEATH OR PERMANENT DISABILITY. Executive's employment under this Agreement shall terminate upon Executive's death or permanent disability (as defined in the Company's or Executive's disability insurance policies except as provided herein). Accrued but unused vacation, and any actually earned by unpaid bonus, Termination Payments and Termination Benefits shall be payable upon Executive's death or permanent disability in accordance with this Section 7.5. In the event of the death of the Executive, the Company shall continue to pay to his estate or other legal representative the Executive's salary and any earned bonus for the Balance of the Employment Term (as defined below), and shall pay an amount equal to any accrued and unpaid vacation days through the date of death. Rights and benefits of the estate or other legal representative of the Executive under the benefit plans and programs of the Company shall be determined in accordance with the provisions of such plans and program. For purposes of this Agreement, the "Balance of the Employment Term" shall mean the period of time commencing with any termination of the Executive's employment with the Company for any reason and ending on the date the Employment Term would have expired pursuant to Section 2, assuming that, if a Termination Notice has not already been given by such date, that each party would have given the Termination Notice on such date. Regardless of the definition of permanent disability in the Company's or Executive's disability insurance policies, Executive shall not be considered permanently disabled unless he shall have at least become incapacitated by reason of physical or mental disability and shall be unable to perform his normal duties hereunder for a period of more than six (6) months in any twelve (12) month period. Executive agrees to cooperate with the reasonable requests of the Company in obtaining life insurance coverage of the Executive if the Company desires to obtain "key man" life insurance on the Executive and so notifies the Executive. 7.6. VESTING OF OPTIONS. Except as otherwise provided in Section 4.3 above, all stock actually earned and all stock options actually earned vest upon a termination by the Executive for Good Reason or for any termination of the Executive by the Company other than for Substantial Cause. 7.7. CHANGE IN CONTROL. (1) Notwithstanding anything contained in this Agreement to the contrary, in the event that the Executive, within thirty (30) days following the expiration of the first 6 months after a Change in Control elects to terminate his employment without Good Reason, then, in such event, the Company shall pay to the Executive, or to his estate or legal representative, a fixed sum of Four Hundred Fifty Thousand and No/100 Dollars ($450,000.00). In addition, the Company shall provide to the Executive and his covered family members, at the Company's sole cost and expense, post-termination health benefits for eighteen (18) months) following his termination at least equal to the health benefits then provided to the Executive and his covered family members through the Company. The payments required under this Section 7.7 shall be made in a lump sum payable within 30 days of the Executive's termination or election to terminate as aforesaid, and shall be in lieu of any other payments due to the Executive under this Agreement. In the event of any other termination of the Executive after a Change in Control, then Section 7.1, 7.2, 7.3, 7.4, 7.5 or 7.6, as applicable, will continue to apply. (2) For purposes hereof, "Change in Control" shall mean any event or occurrence that reduces the combined voting power or voting control of the "Castle Harlan Group" to a point where the "Castle Harlan Group" no longer has sufficient voting power or voting control to assure the election of a majority of the members of the board of directors of the Company by the members of the Castle Harlan Group. For purposes of this Agreement, the term "Castle Harlan Group" means Castle Harlan Partners II, L.P. and any person or entity which controls, or is controlled by, or is under common control with, Castle Harlan Partners II, L.P. and/or its investment advisor, Castle Harlan, Inc. and any current, former of future officer, director, partner, or employee of Castle Harlan, Inc., including but not limited to Castle Harlan Offshore Partners, L.P. and Dresdner Bank, A.G.-Cayman Branch. 7.8. RELEASE AGREEMENT. Executive's right to receive Termination Payments and Termination Benefits pursuant to this Section 7 is contingent upon Executive executing a Release Agreement after termination, a copy of which is attached to this Agreement as Exhibit C. It is understood that Executive may preserve all rights and causes of action in the event of termination by the Company and evidence of release of same will only be by execution of said Release Agreement after termination. 8. CONFIDENTIALITY. During and after the term of employment under this Agreement, Executive agrees that he shall not, without the express written consent of Company, directly or indirectly communicate or divulge to, or use for his own benefit or for the benefit of any other person, firm, association or corporation, any of Company's trade secrets, proprietary data or other confidential information, which trade secrets, proprietary data or other confidential information were communicated to or otherwise learned or acquired by Executive during his employment relationship with Company ("Confidential Information"), except that Executive may disclose such matters to the extent that disclosure is required (a) as part of his duties under this Agreement or (b) at Company's direction or (c) by a court or other governmental agency of competent jurisdiction. As long as such matters remain trade secrets, proprietary data or other confidential information, Executive shall not use such trade secrets, proprietary data or other confidential information in any way or in any capacity other than as expressly consented to by Company. Confidential Information shall not mean any information which Executive can demonstrate was known to him prior to receiving it from the Company or which is now or hereafter becomes generally available to the public through not act or failure to act on the part of the Executive or which is disclosed to the Executive by a third party who has no obligation to the Company to maintain the information in confidence. 9. COVENANT NOT TO COMPETE OR SOLICIT 9.1. Executive agrees to refrain for one year after the termination of his employment under this Agreement for any reason, without written permission of the Company, from becoming involved in any way, within the boundaries of the United States, in the business of manufacturing, designing, servicing or selling, the type of jewelry or fine paper or other scholastic, licenses sports, insignia, recognition or affinity products manufactured or sold (or then contemplated to be manufactured or sold) by the Company, its divisions, subsidiaries and/or other affiliated entities, including but not limited to, as an employee, consultant, independent representative, partner or proprietor. 9.2. Executive also agrees to refrain during his employment under this Agreement, and in the event of the termination of his employment under this Agreement for any reason, for one year thereafter, without written permission from the Company, from diverting, taking, soliciting and/or accepting on his own behalf or on the behalf of another person, firm or company, the scholastic, licensed sport, insignias, recognition or affinity business of any customer of the Company, its divisions, subsidiaries and/or affiliated entities, or any potential customer of the Company, its divisions, subsidiaries and/or affiliated entities whose identity became known to Executive through his employment by the Company and to which the Company has made a written business proposal or provided written pricing information before the termination of Executive's employment under this Agreement. 9.3. Executive agrees to refrain during his employment under this Agreement, and in the event of the termination of his employment under this Agreement for any reason for a period of one year thereafter, from inducing or attempting to influence any employee or independent representative of the Company, its divisions, subsidiaries and/or affiliated entities to terminate his or her employment or association with the Company or such other entity. 9.4. Executive further agrees that the covenants in Sections 9.1 and 9.2 are made to protect the legitimate business interests of the Company, including interests in the Company's "Confidential Information", as defined in Section 8 of this Agreement, and not to restrict his mobility or to prevent him from utilizing his skills. Executive understands as a part of these covenants that the Company intends to exercise whatever legal recourse against him for any breach of this Agreement and in particular for breach of these covenants. 10. CONTROLLING LAW AND PERFORMABILITY. The execution, validity, interpretation and performance of this Agreement will be governed by the law of the State of Texas. 11. SEPARABILITY. If any provisions of this Agreement is rendered or declared illegal or unenforceable, all other provisions of this Agreement will remain in full force and effect. 12. NOTICES. Any notice required or permitted to be given under this Agreement shall be sufficient if in writing and if sent by certified mail (return receipt requested) addressed as follows (or to such other address as any party hereto may specify in a written notice given in accordance with this Section 12): If to Executive: David G. Fiore 6833 Alcove Lane Plano, Texas, 75024 Telephone: 972-618-9078 Facsimile: 972-379-7070 With copy to: John W. Hamilton, Esq. Hamilton & Hartsfield, P.C. 14651 Dallas Parkway, Suite 102 Dallas, Texas 75240-7477 Telephone: 972-991-7311 Facsimile: 972-991-7744 If to the Company: Chairman of the Board Commemorative Brands, Inc. 7211 Circle S Road Austin, TX 78745 Telephone: 512-444-0591 Facsimile: 512-443-5213 With Copy to: David B. Pittaway Castle Harlan, Inc. 150 East 58th Street New York, NY 10155 Telephone: 212-644-8600 Facsimile: 212-207-8042 13. ASSIGNMENT. The rights and obligation of the Company under this Agreement shall inure to the benefit of and be binding upon its successors and assigns. The rights and obligations of Executive under this Agreement are of a personal nature and shall neither be transferred or assigned in whole or in part by Executive. In the event of any sale or other transfer of all or substantially all of the business and assets of the Company other than by a sale of stock of the Company or a merger or consolidation, the person or entity to whom such sale or transfer is made shall be required to assume all of the Company's obligations under this Agreement. In the event such purchaser does not assume the Company's obligations under this Agreement, the Company shall remain liable for any amounts that become due under this Agreement. 14. NON-WAIVER. No waiver of or failure to assert any claim, right, benefit or remedy hereunder shall operate as a waiver of any other claim, right, benefit or remedy of the Company or Executive. 15. REVIEW AND CONSULTATION. Executive acknowledges that he has had a reasonable time to review and consider this Agreement and has consulted with an attorney. 16. LEGAL FEES. The Company shall reimburse the Executive for reasonable legal fees incurred by the Executive in reviewing and negotiating this Agreement. 17. ENTIRE AGREEMENT AND AMENDMENT. This Agreement contains the entire agreement of Executive and the Company relating to the matter contained in this Agreement and supersedes all prior agreements and understandings, oral or written, between Executive and the Company with respect to the subject matter in this Agreement. This Agreement may be changed only by an agreement in writing by Executive and the Company, except as provided in Section 11 hereof. IN WITNESS WHEREOF, the parties have executed this Agreement on the date and year first above written. COMMEMORATIVE BRANDS, INC. By: /S/ David B. Pittaway ----------------------- Name: David B. Pittaway Title: Director EXECUTIVE By: /S/ David G. Fiore ----------------------- David G. Fiore EX-10.9 32 a2071988zex-10_9.txt EXHIBIT 10.9 EXHIBIT 10.9 FIRST AMENDMENT TO THE EMPLOYMENT AGREEMENT BY AND BETWEEN COMMEMORATIVE BRANDS, INC. AND DAVID G. FIORE DATED FEBRUARY 1, 2002 FIRST AMENDMENT TO THE EMPLOYMENT AGREEMENT BY AND BETWEEN COMMEMORATIVE BRANDS, INC. AND DAVID G. FIORE WHEREAS, Commemorative Brands, Inc. ("CBI") and David G. Fiore ("Executive") entered into an employment agreement, dated as of July 13, 1999 (the "Agreement"), pursuant to which Executive agreed to serve as President and Chief Executive Officer of CBI; WHEREAS, under Section 17 of the Agreement, the Agreement may be amended by an agreement in writing signed by Executive and CBI; WHEREAS, as a result of the Agreement and Plan of Merger among CBI, Commemorative Brands Holding Corp. ("Holding") and Commemorative Brands Acquisition Corp., dated as of July 26, 2000 (the "Merger"), CBI and Taylor Senior Holding Corp. became wholly-owned subsidiaries of Holding; WHEREAS, as of January 23, 2002, the name of Holding was changed to American Achievement Corporation ("American"); WHEREAS, Section 4.2 of the Agreement provides, among other things, that if CBI achieves $30 million of Consolidated EBITDA (as defined therein) within three years of the effective date of the Agreement, Executive shall be paid a long-term incentive bonus of $1 million ("Long-Term Bonus") in the form of Series "B" preferred stock of CBI having a face value of $1 million on the date of issuance. To the extent that such grant of preferred stock is taxable under Federal, State, FICA/Medicare, unemployment law or other tax law, under the Agreement, such taxes are to be paid by CBI or, if paid by Executive, shall be reimbursed to Executive by CBI; WHEREAS, the Series "B" preferred stock of American has been converted to Series "A" preferred stock of American; WHEREAS, in full and complete satisfaction of its obligations under Section 4.2 of the Agreement (as such section read prior to this Amendment), CBI has paid Executive $550,000 of the Long-Term Bonus in the form of Series "A" preferred stock of American having a face value of $550,000 on the date of issuance, and has also paid Executive the taxes under Federal, State, FICA/Medicare, unemployment law or other tax law associated with such bonus; and WHEREAS, American now wishes to retain Executive as President and Chief Executive Officer and to revise the Agreement to reflect the new corporate structure resulting from the Merger. NOW THEREFORE, pursuant to Section 17 of the Agreement, the Agreement is hereby amended effective as of February 1, 2002 as follows: 1. The recital paragraph to the Agreement shall be amended to read as follows: "This Employment Agreement ("Agreement") is entered into as of this 13th day of July, 1999, and amended as of February 1, 2002, by and between AMERICAN ACHIEVEMENT CORPORATION (formerly known as Commemorative Brands Holding Corp.) and any successors thereto (collectively referred to as the "Company") and David G. Fiore ("Executive")." 2. Section 1 of the Agreement is amended by adding the following sentence to the end thereof: "Effective as of July 27, 2000, if directed by the Board of Directors of the Company (the "Board"), Executive will serve in an executive capacity to any subsidiary of the Company (each a "Subsidiary") without additional compensation; provided that nothing in this Section 1 shall be construed as negating or otherwise modifying any rights or obligations of the parties under Section 4.1 hereof." 3. The fourth and fifth sentences of Section 4.2 of the Agreement are amended to read as follows: "If the Company achieves (a) $57,000,000 of EBITDA (as hereinafter defined) during fiscal years 2002, 2003 or 2004, the Executive shall be paid a long-term incentive bonus of $500,000 in the form of Series "A" preferred stock of the Company having a face value of $500,000 on the date of issuance; and (b) $62,000,000 of EBITDA (as hereinafter defined) during fiscal years 2002, 2003 or 2004, the Executive shall be paid a long-term incentive bonus (in addition to such amounts payable under (a) above) of $500,000 in the form of Series "A" preferred stock of the Company having a face value of $500,000 on the date of issuance (collectively, the "Long-Term Bonus"). The preferred stock shall be issued to Executive within ninety (90) days following the achievement of the applicable EBITDA target by the Company, provided that the Company achieves such EBITDA target during fiscal years 2002, 2003 or 2004. Notwithstanding the foregoing, to the extent the Company's EBITDA is materially changed as a result of a capital transaction of the Company, appropriate adjustments shall be made to the EBITDA targets used for determining the Executive's entitlement to the Long-Term Bonus under this Section 4.2 hereof, as shall be agreed to in good faith by the parties." 4. The last sentence of Section 4.2 of the Agreement is amended to read as follows: "For purposes hereof, EBITDA shall have the meaning set forth in the Amended and Restated Credit Agreement, dated as of July 27, 2000, currently in effect among CBI, TP Holding Corp., Taylor Publishing Company, Taylor Production Services Company, L.P., Heller Financial, Inc., Key Corporate Capital, Inc., and The Bank of Nova Scotia, as may be hereafter amended from time to time (or any successor Credit Agreement thereto) (to the extent the definition of EBITDA is thereby amended with the consent of the Executive, which consent shall not be unreasonably withheld by the Executive) which current definition is attached hereto as Exhibit A." 5. Section 4.3 of the Agreement shall be amended to read as follows: "As of July 27, 2000, Executive shall receive a grant of stock options pursuant to the terms of the Company's stock option plan (the "Plan"), a copy of which is attached hereto as Exhibit B, in exchange for any options to purchase common stock of CBI held by Executive as of July 27, 2000, equivalent to the amount provided under the Agreement and Plan of Merger among CBI, the Company and Commemorative Brands Acquisition Corp., dated as of July 26, 2000, and at a price per share equal to the fair market value of the Company's shares at the time of grant. Executive shall also be (i) entitled to an option, granted as of February 1, 2002, to purchase 12,500 shares of the common stock of the Company (the "2002 Option"); and (ii) eligible, at the sole and absolute discretion of the Board, for the grant of an option to purchase 15,000 shares of the common stock of the Company, to be granted (if at all) at such time as may be determined by the Board in its sole and absolute discretion (together with the 2002 Option, the "Future Options"). The Future Options shall be granted at a price per share equal to the fair market value of the Company's shares at the time of grant and shall have such other terms as set forth in the Plan and the Option Agreements to be entered into between the Company and Executive. Thereafter, additional grants of stock options to Executive (if any) shall be made at such times and in such amounts as the Board shall determine in its sole and absolute discretion." 6. Section 7.2 of the Agreement shall be amended by deleting the phrase "and any stock options actually earned through the date of termination" from the first sentence thereof and replacing it with the phrase "and the 2002 Option, to the extent such 2002 Option has not been granted as of the date of termination". 7. Section 7.4(iv) of the Agreement shall be amended by replacing the phrase "incentive stock options to the extent earned in accordance with Section 4.3" with the phrase "the 2002 Option". 8. Section 7.4(vi) shall be amended by deleting the phrases "or stock options" and "or 4.3." 9. Section 7.6 of the Agreement shall be amended to read as follows: "7.6 VESTING. Except as otherwise provided herein, all stock actually earned shall vest upon termination by the Executive for Good Reason or for any termination of the Executive by the Company other than for Substantial Cause." 10. Section 9.1 of the Agreement shall be amended to read as follows: "9.1 Executive agrees to refrain during his employment and for one year after the termination of his employment under this Agreement for any reason, without written permission of the Company, from becoming involved in any way, within the boundaries of the United States, in the businesses (the "Businesses") of: (i) manufacturing, designing, servicing or selling, the type of jewelry or fine paper or other scholastic, licensed sports, insignia, recognition or affinity products manufactured or sold (or then contemplated to be manufactured or sold) by the Company, any of its divisions, Subsidiaries and/or other affiliated entities; (ii) designing, publishing, servicing or selling yearbook products or scholastic recognition publications or directories; or (iii) providing event planning services for school alumni, including but not limited to, as an employee, consultant, independent representative, partner or proprietor." 11. Section 9.2 of the Agreement shall be amended by deleting the phrase "scholastic, licensed sport, insignias, recognition or affinity business" and replacing it with the phrase "business (as it relates to the Businesses)". 12. This Amendment may be executed in two counterparts, each of which shall be deemed an original but both of which together shall constitute one and the same instrument. 13. The Agreement, except as otherwise set forth herein, shall remain in full force and effect in all other respects. IN WITNESS WHEREOF, the parties have executed this Amendment as of February 1, 2002. AMERICAN ACHIEVEMENT CORPORATION (formerly known as Commemorative Brands Holding Corp.) /s/ David B. Pittaway --------------------------------------- Name: Title: COMMEMORATIVE BRANDS, INC. /s/ Sherice P. Bench --------------------------------------- Name: Title: EXECUTIVE /s/ David G. Fiore --------------------------------------- David G. Fiore EX-10.10 33 a2071988zex-10_10.txt EXHIBIT 10.10 EXHIBIT 10.10 EMPLOYMENT AGREEMENT, DATED AS OF DECEMBER 16, 1996 BY AND BETWEEN COMMEMORATIVE BRANDS, INC. AND SHERICE P. BENCH, AS AMENDED EMPLOYMENT AGREEMENT This Employment Agreement ("Agreement") is entered into as of this 16th day of December, 1996, by and between COMMEMORATIVE BRANDS, INC. and any successors thereto (collectively referred to as the "Company") and SHERICE BENCH ("Executive"). The parties hereby agree as follows: 1. EMPLOYMENT. Executive will serve the Company in an executive capacity in such office as from time to time shall be determined by the Board of Directors of the Company, and will perform, faithfully and diligently, the services and functions performed and will carry out the functions of her office and furnish her best advice, information, judgment and knowledge with respect to the business of the Company. Executive agrees to perform such duties as hereinabove described and to devote full-time attention and energy to the business of the Company. Executive will not, during the term of employment under this Agreement, engage in any other business activity if such business activity would impair Executive's ability to carry out her duties under this Agreement. 2. TERM. This Agreement shall be effective upon consummation of the acquisition by the Company of substantially all of the assets and businesses of CJC Holdings, Inc. and L.G. Balfour Company, Inc., on December 16, 1996 and shall thereafter terminate on December 15, 1998; PROVIDED, that the term of this Agreement may be automatically extended for an additional year on December 15, 1998 and each anniversary of December 15, 1998, unless at least 60 days prior to December 15, 1998, or such anniversary date, the Company shall give notice to Executive that the termination date shall not be so extended. 3. COMPENSATION AND OTHER BENEFITS. 3.1 SALARY. The salary compensation to be paid by the Company to Executive and which Executive agrees to accept from the Company for services performed and to be performed by Executive hereunder shall be an annual gross amount, before applicable withholding and other payroll deductions, of $85,000, payable in equal bi-weekly installments of $3,269.23, subject to such changes as the Chief Executive Officer of the Company may, in his sole discretion, from time to determine. 3.2 BENEFITS. Executive shall be entitled to participate in such employee benefit programs, plans and policies (including incentive bonus plans and incentive stock option plans) as are maintained by the Company and as may be established for the employees of the Company from time to time on the same basis as other executive employees are entitled thereto. It is understood that the establishment, termination or change in any such Executive employee benefit programs, plans or policies shall be at the instance of the Company in the exercise of its sole discretion, from time to time, and any such termination or change in such program, plan or policy will not affect this Agreement so long as Executive is treated on the same basis as other executive employees participating in such program, plan or policy, as the case may be. Upon termination of employment under this Agreement, without regard to the manner in which the termination was brought about, Executive's rights in such employee benefit programs, plans or policies shall be governed solely by the terms of the program, plan or policy itself and not this Agreement. Executive shall be entitled to an annual paid vacation in accordance with the Company's personnel policy for her years of service completed as an employee of the Company (and, to the extent applicable, the Company's predecessors). 4. WORKING FACILITIES. During the term of her employment under this Agreement, Executive shall be furnished with a private office, stenographic services and such other facilities and services as are -2- commensurate with her position with the Company and adequate for the performance of her duties under this Agreement. 5. EXPENSES. During the term of her employment under this Agreement, Executive is authorized to incur reasonable out-of-pocket expenses for the discharge of her duties hereunder and the promotion of business of the Company, including expenses for entertainment, travel and related items. The Company shall reimburse Executive for all such expenses upon presentation by Executive from time to time of itemized accounts of expenditures incurred in accordance with customary Company policies. 6. TERMINATION. Executive's employment under this Agreement may be terminated with or without cause or reason by either Company or Executive upon the following terms and conditions. 6.1 TERMINATION BY COMPANY FOR CAUSE. If any of the following events or circumstances occur, the Company may terminate Executive's employment under this Agreement at any time during or at the end of the initial or any extended term of this Agreement for any of the following causes (each a "Cause"). (i) Executive's conviction of a felony; (ii) Executive's intentional failure to observe or perform material provisions of this Agreement required to be observed or performed by her; or (iii) Executive's intentional substantial wrongful damage to property of the Company. Upon payment by the Company to Executive of all salary payable, accrued and unused vacation, and any accrued bonus to the date of such termination, the Company shall have no further liability to Executive for compensation in accordance herewith, and Executive will not be entitled to receive the Termination Payment or Termination Benefits (as such terms are defined below) except aforesaid vacation and any accrued bonus. 6.2 TERMINATION BY COMPANY WITHOUT CAUSE. In the event of the termination of Executive's employment under this Agreement by the Company at any time during or at the end of the initial or any extended term of this Agreement without Cause (as defined in Paragraph 6.1 above), Executive will be entitled to receive 26 bi-weekly payments equal to the average of her bi-weekly compensation in effect within the two years preceding the termination (including, for these purposes, average bi-weekly compensation of Executive from the Company's predecessors) ("Termination Payments"), less legally required withholdings. In addition to the Termination Payments, Executive will be entitled to elect the continuation of health benefits under COBRA and the Company will pay the COBRA premiums for an 18-month period, beginning on the date that Executive's health coverage ceases due to her termination, accrued but unused vacation, and any accrued bonus ("Termination Benefits"). If Executive obtains employment while she is entitled to receive the Termination Payments and the Termination Benefits, each Termination Payment shall be reduced by the amount of her average bi-weekly compensation to be received in connection with her new employment and the payment of the Termination Benefits shall cease upon Executive becoming covered under the new employer's health coverage plan at no cost to Executive. The combination of the Termination Payments and the Termination Benefits constitute the sole amount to which Executive is entitled if termination is without Cause. 6.3 TERMINATION BY EXECUTIVE WITHOUT GOOD REASON. Executive may terminate her employment under this Agreement without Good Reason as defined in Paragraph 6.4 below upon the giving of 90 days written notice of termination. In the event of such termination, the Company may elect -3- to pay Executive six months of compensation including unused accrued vacation and any accrued bonus in lieu of 90 days notice, in which event Executive's services to the Company will be terminated immediately. No Termination Payments or Termination Benefits other than as set forth in Section 6.3 shall be payable upon Executive's termination of this Agreement without Good Reason. 6.4 TERMINATION BY EXECUTIVE WITH GOOD REASON. Executive may terminate her employment under this Agreement for Good Reason. For purposes of this Agreement, "Good Reason" shall mean: (i) Without Executive's consent, the assignment to Executive of substantial duties inconsistent with Executive's then-current position, duties, responsibilities and status with the Company, or any removal of Executive from her titles and offices, except in connection with the termination of Executive's employment under this Agreement by Company or as a result of Executive's death or permanent disability (as defined in the Company's or Executive's disability insurance policies); (ii) The Company requiring Executive to relocate anywhere other than Austin, Texas, except for required travel on the Company's business to an extent substantially consistent with Executive's business travel obligations, or, in the event Executive consents to such relocation out of Austin, Texas, the failure by the Company to pay or reimburse Executive for all reasonable moving expenses incurred by Executive relating to a change of Executive's principal residence in connection with such relocation and to indemnify Executive against any loss (defined as the difference between the actual bona fide sale price of such residence and the fair market value of such residence as determined by a member of the Society of Real Estate Appraisers designated by Executive and satisfactory to the Company) realized in the sale of Executive's principal residence in connection with any such change in residence; or (iii) A decrease in Executive's salary from the salary in effect upon the date hereof that is inconsistent with or not commensurate with Executive's then current position with the Company. In the event of termination under this Section 6.4, the Company shall pay to Executive the same Termination Payments and Termination Benefits to which Executive would have been entitled had she been terminated by the Company without Cause. 6.5 DEATH OR PERMANENT DISABILITY. Executive's employment under this Agreement shall terminate upon Executive's death or permanent disability (as defined in the Company's or Executive's disability insurance policies). Other than accrued but unused vacation and any accrued but unpaid bonus, no Termination Payments or Termination Benefits shall be payable upon Executive's death or permanent disability. 6.6 RELEASE AGREEMENT. The Termination Payments and Termination Benefits pursuant to Section 6 are contingent upon Executive executing a Release Agreement after termination, a copy of which is attached to this Agreement. It is understood that Executive may preserve all rights and causes of action in the event of termination by the Company and evidence of release of same will only be by execution of said Release Agreement after termination. -4- 7. CONFIDENTIALITY. During and after the term of employment under this Agreement, Executive agrees that she shall not, without the express written consent of Company, directly or indirectly communicate or divulge to, or use for her own benefit or for the benefit of any other person, firm, association or corporation, any of Company's trade secrets, proprietary data or other confidential information, which trade secrets, proprietary data or other confidential information were communicated to or otherwise learned or acquired by Executive during her employment relationship with Company ("Confidential Information"), except that Executive may disclose such matters to the extent that disclosure is required (a) at Company's direction or (b) by a court or other governmental agency of competent jurisdiction. As long as such matters remain trade secrets, proprietary data or other confidential information, Executive shall not use such trade secrets, proprietary data or other confidential information in any way or in any capacity other than as expressly consented to by Company. 8. COVENANT NOT TO COMPETE OR SOLICIT. 8.1 Executive agrees to refrain for one year after the termination of her employment under this Agreement for any reason, without written permission of the Company, from becoming involved in any way, within the boundaries of the United States, in the business of manufacturing, designing, servicing or selling, the type of jewelry or fine paper or other scholastic, licensed sports, insignia, recognition or affinity products manufactured or sold (or then contemplated to be manufactured or sold) by the Company, its divisions, subsidiaries and/or other affiliated entities, including but not limited to, as an employee, consultant, independent representative, partner or proprietor. 8.2 Executive also agrees to refrain during her employment under this Agreement, and in the event of the termination of her employment under this Agreement for any reason, for one year thereafter, without written permission from the Company, from diverting, taking, soliciting and/or accepting on her own behalf or on the behalf of another person, firm, or company, the scholastic, licensed sports, insignia, recognition or affinity business of any customer of the Company, its divisions, subsidiaries and/or affiliated entities, or any potential customer of the Company, its divisions, subsidiaries and/or affiliated entities whose identity became known to Executive through her employment by the Company and to which the Company has made a written business proposal or provided written pricing information before the termination of Executive's employment under this Agreement. 8.3 Executive agrees to refrain during her employment under this Agreement, and in the event of the termination of her employment under this Agreement for any reason for a period of one year thereafter, from inducing or attempting to influence any employee or independent representative of the Company, its divisions, subsidiaries, and/or affiliated entities to terminate his or her employment or association with the Company or such other entity. 8.4 Executive further agrees that the covenants in Sections 8.1 and 8.2 are made to protect the legitimate business interests of the Company, including interests in the Company's "Confidential Information," as defined in Section 7 of this Agreement, and not to restrict her mobility or to prevent her from utilizing her skills. Executive understands as a part of these covenants that the Company intends to exercise whatever legal recourse against her for any breach of this Agreement and in particular for breach of these covenants. 9. CONTROLLING LAW AND PERFORMABILITY. The execution, validity, interpretation and performance of this Agreement will be governed by the law of the State of Texas. 10. SEPARABILITY. If any provision of this Agreement is rendered or declared illegal or unenforceable, all other provisions of this Agreement will remain in full force and effect. -5- 11. NOTICES. Any notice required or permitted to be given under this Agreement shall be sufficient if in writing and if sent by certified mail (return receipt requested) addressed as follows: If to Executive: Sherice Bench 3396 South Eldorado Austin, TX 78734 If to the Company: Chief Executive Officer Commemorative Brands, Inc. 7211 Circle S Road Austin, TX 78745 12. ASSIGNMENT. The rights and obligations of the Company under this Agreement shall inure to the benefit of and be binding upon its successors and assigns. The rights and obligations of Executive under this Agreement are of a personal nature and shall neither be transferred or assigned in whole or in part by Executive. 13. NON-WAIVER. No waiver of or failure to assert any claim, right, benefit or remedy hereunder shall operate as a waiver of any other claim, right, benefit or remedy of the Company or Executive. 14. REVIEW AND CONSULTATION. Executive acknowledges that she has had a reasonable time to review and consider this Agreement and has been given the opportunity to consult with an attorney. 15. ENTIRE AGREEMENT AND AMENDMENTS. This Agreement contains the entire agreement of Executive and the Company relating to the matters contained in this Agreement and supersedes all prior agreements and understandings, oral or written, between Executive and the Company with respect to the subject matter in this Agreement. This Agreement may be changed only by an agreement in writing by Executive and the Company. -6- IN WITNESS WHEREOF, the parties have executed this Agreement on the date and year first above written. COMMEMORATIVE BRANDS, INC. By: --------------------------------- Name: Jeffrey H. Brennan Title: Chief Executive Officer EXECUTIVE -------------------------------------- Sherice Bench -7- SEPARATION AND RELEASE AGREEMENT This Separation and Release Agreement ("Agreement"), dated ___________________________, between COMMEMORATIVE BRANDS, INC. and any successor thereto (collectively, the "Company") and SHERICE BENCH ("Employee"). Employee and Company agree as follows: 1. The employment relationship between Employee and Company terminated on __________________________________ (the "Termination Date"). 2. In accordance with Employee's Employment Agreement, the Company has agreed to pay Employee, after the Termination Date, 26 bi-weekly payments less required withholdings and certain other benefits. 3. In consideration of the above, the sufficiency of which Employee hereby acknowledges, Employee, on behalf of Employee and her heirs, executors and assigns, hereby releases and forever discharges the Company and its members, parents, affiliates, subsidiaries, divisions, any and all current and former directors, officers, employees, agents, and contractors and their heirs and assigns, from all claims, charges, or demands, in law or in equity, whether known or unknown, which may have existed or which may now exist from the beginning of time to the date of this letter agreement, including, without limitation, any claims Employee may have arising from or relating to Employee's employment or termination from employment with the Company, including a release of any rights or claims Employee may have under Title VII of the Civil Rights Act of 1964, as amended, and the Civil Rights Act of 1991 (which prohibit discrimination in employment based upon race, color, sex, religion, and national origin); the Americans with Disabilities Act of 1990, as amended, and the Rehabilitation Act of 1973 (which prohibit discrimination based upon disability); the Family and Medical Leave Act of 1993 (which prohibits discrimination based on requesting or taking a family or medical leave); Section 1981 of the Civil Rights Act of 1866 (which prohibits discrimination based upon race); Section 1985(3) of the Civil Rights Act of 1871 (which prohibits conspiracies to discriminate); the Employee Retirement Income Security Act of 1974, as amended (which prohibits discrimination with regard to benefits); any other federal, state or local laws against discrimination; or any other federal, state, or local statute, or common law relating to employment, wages, hours, or any other terms and conditions of employment. This includes a release by Employee of any claims for wrongful discharge, breach of contract, torts or any other claims in any way related to Employee's employment with or resignation or termination from the Company. This release also includes a release of any claims for age discrimination under the Age Discrimination in Employment Act, as amended ("ADEA"). The ADEA requires that Employee be advised to consult with an attorney before Employee waives any claim under ADEA. In addition, the ADEA provides Employee with at least 21 days to decide whether to waive claims under ADEA and seven days after Employee signs the Agreement to revoke that waiver. Additionally, the Company agrees to discharge and release Employee and her heirs from any claims, demands, and/or causes of action whatsoever, presently known or unknown, that are based upon facts occurring prior to the date of this Agreement, including, but not limited to, any claim, matter or action related to Employee's employment and/or affiliation with, or termination and separation from Company. 4. This Agreement is not an admission by either Employee or Company of any wrongdoing or liability. 5. Employee agrees that she waives any right to reinstatement or future employment with Company following his separation from Company on the Termination Date. 6. Employee further agrees that she shall engage in no act after execution of the Separation and Release Agreement that is intended, or may reasonably be expected to harm the reputation, business, prospects or operations of the Company, its officers, directors, stockholders or employees. Company further agrees that it will engage in no act which is intended, or may reasonably be expected to harm the reputation, business or prospects of Employee. 7. Employee agrees that she shall continue to be bound by Sections 7 and 8 of her Employment Agreement. 8. The parties agree to keep the substantive terms of this Agreement, including the amount of consideration mentioned therein, confidential and agree not to disclose the substantive contents of the Agreement. Notwithstanding the above provisions, the parties may disclose the terms and provisions of the Agreement to their spouses and to taxing authorities, including the Internal Revenue Service, regulatory bodies, and/or governmental agencies having a valid, legal right to the information contained therein and making a valid and proper request therefor. The parties may also disclose the terms and provisions of the Agreement to their attorneys, accountants, bankers and/or investment advisors. The Company may disclose the terms and provisions of the Agreement to individuals within the corporate organization where such disclosure is necessary for the business operations of the corporation. Any party may disclose the terms and provisions of the agreement with the written consent of the opposing party, or as may be otherwise required by law. 9. Employee shall return all Company property in her possession, including, but not limited to, Company keys, credit cards, and originals or copies of books, records, or other information pertaining to Company business. 10. The execution, validity, interpretation and performance of this Agreement shall be determined and governed exclusively by the laws of the State of Texas, without reference to the principles of conflict of laws. Exclusive jurisdiction with respect to any legal proceeding brought concerning any subject matter contained in this Agreement may be settled by arbitration in Austin, Texas, in accordance with the Employment Dispute Resolution Rules of the American Arbitration Association. Judgment upon the award rendered by the arbitrator may be entered in any court having jurisdiction. In reaching his or her decision, the arbitrator shall have no authority to change or modify any provision of this Agreement. In addition, any and all charges which may be made for the cost of the arbitration and the fees and expenses of the arbitrator shall be borne equally by the parties. Jurisdiction with respect to any legal proceeding brought by Company or Employee, concerning any subject matter contained in this Agreement shall rest in state or federal courts sitting in the State of Texas. Also, Company or Employee, at its election, may submit any dispute it has with the other party under this Agreement to arbitration in accord with the procedures set forth in this section. 11. This Agreement represents the complete agreement between Employee and Company concerning the subject matter of this Agreement and supersedes all prior agreements or understandings, written or oral. No attempted modification or waiver of any of the provisions of this Agreement shall be binding on either party unless in writing and signed by both Employee and Company. 12. Each of the sections contained in this Agreement shall be enforceable independently of every other section in this Agreement, and the invalidity or nonenforceability of any section shall not invalidate or render unenforceable any other section contained in this Agreement. -2- 13. It is further understood that for a period of 7 days following the execution of this Agreement in duplicate originals, Employee may revoke the Agreement, and the Agreement shall not become effective or enforceable until the revocation period has expired. No revocation of this Agreement by Employee shall be effective unless Company has received within the 7-day revocation period, written notice of any revocation, all monies received by Employee under this Agreement and all originals and copies of this Agreement. 14. This Agreement has been entered into voluntarily and not as a result of coercion, duress, or undue influence. Employee acknowledges that he has read and fully understands the terms of this Agreement and has been advised to consult with an attorney before executing this Agreement. Additionally, Employee acknowledges that he has been afforded the opportunity of at least 21 days to consider this Agreement. The parties to this Agreement have executed this Agreement as of the day and year first written above. COMMEMORATIVE BRANDS, INC. By:/s/ Jeffrey H. Brennan ----------------------------------- Name: Jeffrey H. Brennan ------------------------------- Title: Chief Executive Officer ------------------------------- EXECUTIVE /s/ Sherice Bench -------------------------------------- Sherice Bench -3- Friday, July 02, 1999 Sherice P. Bench 3396 South Eldorado Austin, Texas 78734 RE: EMPLOYMENT AGREEMENT DATED DECEMBER 16, 1996 Dear Sherice: In accordance with our agreement, and effective immediately, your above referenced Employment Agreement is hereby amended as follows: Paragraph 6.2, the first sentence is hereby replaced in its entirety as follows: In the event of the termination of Executive's employment under this Agreement by the company at any time during or at the end of the initial or any extended term of this agreement without Cause as defined in Paragraph 6.1 above, Executive will be entitled to receive 39 bi-weekly payments equal to the average of his bi-weekly compensation in effect within the two years preceding the termination (including, for these purposes, average bi-weekly compensation of Executive from the Company's predecessors) ("Termination Payments"), less legally required withholdings. All other terms and conditions of the Agreement remain unchanged. Sincerely, /s/ Robert F. Amter Robert F. Amter President Agreed and accepted: /s/ Sherice P. Bench 7/2/99 - --------------------- ------ Sherice P. Bench Date EX-10.11 34 a2071988zex-10_11.txt EXHIBIT 10.11 EXHIBIT 10.11 EMPLOYMENT AGREEMENT, DATED AS OF DECEMBER 16, 1996 BY AND BETWEEN COMMEMORATIVE BRANDS, INC. AND DONALD J. PERCENTI EMPLOYMENT AGREEMENT This Employment Agreement ("Agreement") is entered into as of this 16th day of December, 1996, by and between COMMEMORATIVE BRANDS, INC. and any successors thereto (collectively referred to as the "Company") and DONALD J. PERCENTI ("Executive"). The parties hereby agree as follows: 1. EMPLOYMENT. Executive will serve the Company in an executive capacity as Vice President - On-Campus Sales and Marketing. Executive will be responsible for all sales and marketing of scholastic products through the on-campus distribution channel including the Balfour high school "in-school" channel and the college on-campus channel (both ArtCarved and Balfour). Executive will report directly to the Company's Chief Executive Officer and will perform, faithfully and diligently, the services and functions performed and will carry out the functions of his office and furnish his best advice, information, judgment and knowledge with respect to the business of the Company. Executive agrees to perform such duties as hereinabove described and to devote full-time attention and energy to the business of the Company. Executive will not, during the term of employment under this Agreement, engage in any other business activity if such business activity would impair Executive's ability to carry out his duties under this Agreement. 2. TERM. This Agreement shall be effective upon the consummation of the acquisition by the Company of substantially all of the assets and businesses of L.G. Balfour Company, Inc. and CJC Holdings, Inc. on December 16, 1996, and shall thereafter terminate on December 15, 1999; PROVIDED, that the term of this Agreement may be automatically extended for an additional year on December 15, - -------- 1999, and each anniversary of December 15, 1999, unless at least 60 days prior to December 15, 1999, or such anniversary date, the Company shall give notice to Executive that the termination date shall not be so extended. 3. COMPENSATION AND OTHER BENEFITS. 3.1. SALARY; BONUS. The salary compensation to be paid by the Company to Executive and which Executive agrees to accept from the Company for services performed and to be performed by Executive hereunder shall be an annual gross amount, before applicable withholding and other payroll deductions, of $160,000, payable in equal bi-weekly installments of $6,153.85, subject to such changes as the Board of Directors of the Company may, in its sole discretion, from time to time determine. In addition, the Company agrees to pay Executive a $50,000 bonus if Executive remains employed by the Company during the period from December 16, 1996, through December 15, 1997, or if Executive's employment is earlier terminated by the Company without Cause (as defined in paragraph 6.1 below) or by Executive with Good Reason (as defined in paragraph 6.4 below), in each case, subject to approval by the Board of Directors of the Company based on Executive's performance during such period. 3.2. BENEFITS. Executive shall be entitled to participate in such employee benefit programs, plans and policies (including incentive bonus plans and incentive stock option plans) as are maintained by the Company and as may be established for the employees of the Company from time to time on the same basis as other executive employees are entitled thereto. 2 It is understood that the establishment, termination or change in any such Executive employee benefit programs, plans or policies shall be at the instance of the Company in the exercise of its sole discretion, from time to time, and any such termination or change in such program, plan or policy will not affect this Agreement so long as Executive is treated on the same basis as other executive employees participating in such program, plan or policy, as the case may be. Upon termination of employment under this Agreement, without regard to the manner in which the termination was brought about, Executive's rights in such employee benefit programs, plans or policies shall be governed solely by the terms of the program, plan or policy itself and not this Agreement. Executive shall be entitled to an annual paid vacation in accordance with the Company's personnel policy for his years of service completed as an employee of the Company (and, if applicable, the Company's predecessors). 4. WORKING FACILITIES. During the term of his employment under this Agreement, Executive shall be furnished with a private office, stenographic services and such other facilities and services as are commensurate with his position with the Company and adequate for the performance of his duties under this Agreement. 5. EXPENSES. During the term of his employment under this Agreement, Executive is authorized to incur reasonable out-of-pocket expenses for the discharge of his duties hereunder and the promotion of business of the Company, including expenses for entertainment, travel and related items. The Company shall reimburse Executive for all such expenses upon presentation by Executive from time to time of itemized accounts of expenditures incurred in accordance with customary Company policies. 6. TERMINATION. Executive's employment under this Agreement may be terminated with or without cause or reason by either Company or Executive upon the following terms and conditions. 6.1. TERMINATION BY COMPANY FOR CAUSE. If any of the following events or circumstances occur, the Company may terminate Executive's employment under this Agreement at any time during or at the end of the initial or any extended term of this Agreement for any of the following causes (each, a "Cause"). (i) Executive's conviction of a felony; (ii) Executive's intentional failure to observe or perform material provisions of this Agreement required to be observed or performed by him; or (iii) Executive's intentional substantial wrongful damage to property of the Company. Upon payment by the Company to Executive of all salary payable, accrued and unused vacation, and any accrued bonus to the date of such termination, the Company shall have no further liability to Executive for compensation in accordance herewith, and Executive will not be entitled to receive the Termination Payment or Termination Benefits (as such terms are defined below) except aforesaid vacation and any accrued bonus. 3 6.2. TERMINATION BY COMPANY WITHOUT CAUSE. In the event of the termination of Executive's employment under this Agreement by the Company at any time during or at the end of the initial or any extended term of this Agreement without Cause as defined in Paragraph 6.1 above, Executive will be entitled to receive bi-weekly payments equal to the average of his bi-weekly compensation in effect within the two years preceding the termination (including, for these purposes, average bi-weekly compensation of Executive from the Company's predecessors) ("Termination Payments"), less legally required withholdings, for a period of the greater of 18 months or the remaining term of this Agreement, PROVIDED however, that at the option of Executive, Executive may elect at any time not to be bound by the provisions of Section 8.1 below, in which event Executive shall not be entitled to any of the foregoing Termination Payments or the Termination Benefits referred to below. In addition to the Termination Payments, Executive will be entitled to elect the continuation of health benefits under COBRA and the Company will pay the COBRA premiums for an 18-month period, beginning on the date that Executive's health coverage ceases due to his termination, accrued but unused vacation, and any accrued bonus ("Termination Benefits"). If Executive obtains employment while he is entitled to receive the Termination Benefits, the payment of the Termination Benefits shall cease upon Executive becoming covered under the new employer's health coverage plan at no cost to Executive. The combination of the Termination Payments and the Termination Benefits constitute the sole amount to which Executive is entitled if termination is without Cause. 6.3. TERMINATION BY EXECUTIVE WITHOUT GOOD REASON. Executive may terminate his employment under this Agreement without Good Reason as defined in Paragraph 6.4 below upon the giving of 90 days written notice of termination. In the event of such termination, the Company may elect to pay Executive six months of compensation including unused accrued vacation and any accrued bonus in lieu of 90 days notice, in which event Executive's services to the Company will be terminated immediately. No Termination Payments or Termination Benefits other than as set forth in Section 6.3 shall be payable upon Executive's termination of this Agreement without Good Reason. 6.4. TERMINATION BY EXECUTIVE WITH GOOD REASON. Executive may terminate his employment under this Agreement for Good Reason. For purposes of this Agreement, "Good Reason" shall mean: (i) Without Executive's consent, the assignment to Executive of substantial duties inconsistent with Executive's then-current position, duties, responsibilities and status with the Company, or any removal of Executive from his titles and offices, except in connection with the termination of Executive's employment under this Agreement by Company or as a result of Executive's death or permanent disability (as defined in the Company's or Executive's disability insurance policies); (ii) The Company requiring Executive to relocate anywhere other than to Austin, Texas, except for required travel on the Company's business to an extent substantially consistent with Executive's business travel obligations, or, in the event Executive consents to relocation from Attleboro, Massachusetts other than to Austin, Texas, or any further relocation out of Austin, Texas, the failure by the Company to pay or reimburse Executive 5 for all reasonable moving expenses incurred by Executive relating to a change of Executive's principal residence in connection with such relocation and to indemnify Executive against any loss (defined as the difference between the actual bona fide sale price of such residence and the fair market value of such residence as determined by a member of the Society of Real Estate Appraisers designated by Executive and satisfactory to the Company) realized in the sale of Executive's principal residence in connection with any such change in residence; or (iii) A decrease in Executive's salary from the salary in effect upon the date hereof that is inconsistent with, or not commensurate with, Executive's then current position with the Company. In the event of termination under this Section 6.4, the Company shall pay to Executive the same Termination Payments and Termination Benefits to which Executive would have been entitled had he been terminated by the Company without Cause. 6.5. DEATH OR PERMANENT DISABILITY. Executive's employment under this Agreement shall terminate upon Executive's death or permanent disability (as defined in the Company's or Executive's disability insurance policies). Other than accrued but unused vacation and any accrued but unpaid bonus, no Termination Payments or Termination Benefits shall be payable upon Executive's death or permanent disability. 6.6. RELEASE AGREEMENT. The Termination Payments and Termination Benefits pursuant to Section 6 are contingent upon Executive executing a Release Agreement after termination, a copy of which is attached to this Agreement. It is understood that Executive may preserve all rights and causes of action in the event of termination by the Company and evidence of release of same will only be by execution of said Release Agreement after termination. 7. CONFIDENTIALITY. During and after the term of employment under this Agreement, Executive agrees that he shall not, without the express written consent of Company, directly or indirectly communicate or divulge to, or use for his own benefit or for the benefit of any other person, firm, association or corporation, any of Company's trade secrets, proprietary data or other confidential information, which trade secrets, proprietary data or other confidential information were communicated to or otherwise learned or acquired by Executive during his employment relationship with Company ("Confidential Information"), except that Executive may disclose such matters to the extent that disclosure is required (a) at Company's direction or (b) by a court or other governmental agency of competent jurisdiction. As long as such matters remain trade secrets, proprietary data or other confidential information, Executive shall not use such trade secrets, proprietary data or other confidential information in any way or in any capacity other than as expressly consented to by Company. 8. COVENANT NOT TO COMPETE OR SOLICIT. 8.1. Executive agrees to refrain for one year after the termination of his employment under this Agreement for any reason, without written permission of the Company, from becoming involved in any way, within the boundaries of the United States, in the business 5 of manufacturing, designing, servicing or selling, the type of jewelry or fine paper or other scholastic, licensed sports, insignia, recognition or affinity products manufactured or sold (or then contemplated to be manufactured or sold) by the Company, its divisions, subsidiaries and/or other affiliated entities, including but not limited to, as an employee, consultant, independent representative, partner or proprietor; PROVIDED however, that in the event of the termination of Executive's employment by the Company without Cause (as defined in paragraph 6.2), by Executive without Good Reason (as defined in paragraph 6.3), or by Executive with Good Reason (as defined in paragraph 6.4), if Executive elects to forego payment of all Termination Payments and Termination Benefits and other payments that would otherwise be due to him pursuant to Section 6 of this Agreement, then Executive shall not be bound by the provisions of this paragraph 8.1. 8.2. Executive also agrees to refrain during his employment under this Agreement, and in the event of the termination of his employment under this Agreement for any reason, for one year thereafter, without written permission from the Company, from diverting, taking, soliciting and/or accepting on his own behalf or on the behalf of another person, firm, or company, the scholastic, licensed sports, insignia, recognition or affinity business of any customer of the Company, its divisions, subsidiaries and/or affiliated entities, or any potential customer of the Company, its divisions, subsidiaries and/or affiliated entities whose identity became known to Executive through his employment by the Company and to which the Company has made a written business proposal or provided written pricing information before the termination of Executive's employment under this Agreement. 8.3. Executive agrees to refrain during his employment under this Agreement, and in the event of the termination of his employment under this Agreement for any reason for a period of one year thereafter, from inducing or attempting to influence any employee or independent representative of the Company, its divisions, subsidiaries and/or affiliated entities to terminate his or her employment or association with the Company or such other entity. 8.4. Executive further agrees that the covenants in Sections 8.1 and 8.2 are made to protect the legitimate business interests of the Company, including interests in the Company's "Confidential Information," as defined in Section 7 of this Agreement, and not to restrict his mobility or to prevent him from utilizing his skills. Executive understands as a part of these covenants that the Company intends to exercise whatever legal recourse against him for any breach of this Agreement and in particular for breach of these covenants. 9. CONTROLLING LAW AND PERFORMABILITY. The execution, validity, interpretation and performance of this Agreement will be governed by the law of the State of Texas. 10. SEPARABILITY. If any provision of this Agreement is rendered or declared illegal or unenforceable, all other provisions of this Agreement will remain in full force and effect. 11. NOTICES. Any notice required or permitted to be given under this Agreement shall be sufficient if in writing and if sent by certified mail (return receipt requested) addressed as follows: 6 If to Executive: Donald J. Percenti 126 Augsberg Drive Attleboro, MA 02703 If to the Company: Chief Executive Officer Commemorative Brands, Inc. 7211 Circle S Road Austin, TX 78745 12. ASSIGNMENT. The rights and obligations of the Company under this Agreement shall inure to the benefit of and be binding upon its successors and assigns. The rights and obligations of Executive under this Agreement are of a personal nature and shall neither be transferred or assigned in whole or in part by Executive. 13. NON-WAIVER. No waiver of or failure to assert any claim, right, benefit or remedy hereunder shall operate as a waiver of any other claim, right, benefit or remedy of the Company or Executive. 14. REVIEW AND CONSULTATION. Executive acknowledges that he has had a reasonable time to review and consider this Agreement and has been given the opportunity to consult with an attorney. 15. ENTIRE AGREEMENT AND AMENDMENTS. This Agreement, together with that certain letter agreement, of even date herewith, between the Company and Executive contain the entire agreement of Executive and the Company relating to the matters contained in this Agreement and supersedes all prior agreements and understandings, oral or written, between Executive and the Company with respect to the subject matter herein. This Agreement may be changed only by an agreement in writing by Executive and the Company. 7 IN WITNESS WHEREOF, the parties have executed this Agreement on the date and year first above written. COMMEMORATIVE BRANDS, INC. By: /S/ JEFFREY H. BRENNAN Name: Jeffrey H. Brennan Title: Chief Executive Officer EXECUTIVE /S/ DONALD J. PERCENTI Donald J. Percenti 8 EX-10.12 35 a2071988zex-10_12.txt EXHIBIT 10.12 EXHIBIT 10.12 EMPLOYMENT AGREEMENT, DATED AS OF DECEMBER 16, 1996 BY AND BETWEEN COMMEMORATIVE BRANDS, INC. AND CHARLYN A. COOK EMPLOYMENT AGREEMENT This Employment Agreement ("Agreement") is entered into as of this 16th day of December, 1996, by and between COMMEMORATIVE BRANDS, INC. and any successors thereto (collectively referred to as the "Company") and CHARLYN A. COOK ("Executive"). The parties hereby agree as follows: 1. EMPLOYMENT. Executive will serve the Company in an executive capacity in such office as from time to time shall be determined by the Board of Directors of the Company, and will perform, faithfully and diligently, the services and functions performed and will carry out the functions of her office and furnish her best advice, information, judgment and knowledge with respect to the business of the Company. Executive agrees to perform such duties as hereinabove described and to devote full-time attention and energy to the business of the Company. Executive will not, during the term of employment under this Agreement, engage in any other business activity if such business activity would impair Executive's ability to carry out her duties under this Agreement. 2. TERM. This Agreement shall be effective upon consummation of the acquisition by the Company of substantially all of the assets and businesses of CJC Holdings, Inc. and L.G. Balfour Company, Inc. on December 16, 1996 and shall thereafter terminate on December 15, 1999; provided that the term of this Agreement shall be extended automatically for an additional year on December 15, 1999, and each anniversary of December 15, 1999, unless at least 60 days prior to December 15, 1999, or such anniversary date, the Company shall give notice to Executive that the termination date shall not be so extended. 3. COMPENSATION AND OTHER BENEFITS. 3.1 SALARY. The salary compensation to be paid by the Company to Executive and which Executive agrees to accept from the Company for services performed and to be performed by Executive hereunder shall be an annual gross amount, before applicable withholding and other payroll deductions, of $160,000, payable in equal bi-weekly installments of $6,153.85, subject to such changes as the Board of Directors of the Company may, in its sole discretion, from time to time determine. 3.2 BENEFITS. Executive shall be entitled to participate in such employee benefit programs, plans and policies (including incentive bonus plans and incentive stock option plans) as are maintained by the Company and as may be established for the employees of the Company from time to time on the same basis as other executive employees are entitled thereto. It is understood that the establishment, termination or change in any such Executive employee benefit programs, plans or policies shall be at the instance of the Company in the exercise of its sole discretion, from time to time, and any such termination or change in such program, plan or policy will not affect this Agreement so long as Executive is treated on the same basis as other executive employees participating in such program, plan or policy, as the case may be. Upon termination of employment under this Agreement, without regard to the manner in which the termination was brought about, Executive's rights in such employee benefit programs, plans or policies shall be governed solely by the terms of the program, plan or policy itself and not this -2- Agreement. Executive shall be entitled to an annual paid vacation in accordance with the Company's personnel policy for her years of service completed as an employee of the Company and the Company's predecessors. 4. WORKING FACILITIES. During the term of her employment under this Agreement, Executive shall be furnished with a private office, stenographic services and such other facilities and services as are commensurate with her position with the Company and adequate for the performance of her duties under this Agreement. 5. EXPENSES. During the term of her employment under this Agreement, Executive is authorized to incur reasonable out-of-pocket expenses for the discharge of her duties hereunder and the promotion of business of the Company, including expenses for entertainment, travel and related items. The Company shall reimburse Executive for all such expenses upon presentation by Executive from time to time of itemized accounts of expenditures incurred in accordance with customary Company policies. 6. TERMINATION. Executive's employment under this Agreement may be terminated with or without cause or reason by either Company or Executive upon the following terms and conditions. 6.1 TERMINATION BY COMPANY FOR CAUSE. If any of the following events or circumstances occur, the Company may terminate Executive's employment under this Agreement at any time during or at the end of the term of this Agreement for any of the following causes (each a "Cause"). (i) Executive's conviction of a felony; (ii) Executive's intentional failure to observe or perform material provisions of this Agreement required to be observed or performed by her; or (iii) Executive's intentional substantial wrongful damage to property of the Company. Upon payment by the Company to Executive of all salary payable, accrued and unused vacation, and any accrued bonus to the date of such termination, the Company shall have no further liability to Executive for compensation in accordance herewith, and Executive will not be entitled to receive the Termination Payment or Termination Benefits (as such terms are defined below) except aforesaid vacation and any accrued bonus. 6.2 TERMINATION BY COMPANY WITHOUT CAUSE. In the event of the termination of Executive's employment under this Agreement by the Company at any time during or at the end of the term of this Agreement without Cause as defined in Paragraph 6.1 above, Executive will be entitled to receive 39 bi-weekly payments equal to the average of her bi-weekly compensation in effect within the two years preceding the termination (including, for these purposes, average bi-weekly compensation of Executive from the Company's predecessors) ("Termination Payments"), less legally required withholdings. In addition to the Termination Payments, Executive will be entitled to elect the continuation of health benefits under COBRA and the Company will pay the COBRA premiums for an 18-month period, beginning on the date that -3- Executive's health coverage ceases due to her termination, accrued but unused vacation, and any accrued bonus ("Termination Benefits"). If Executive obtains employment while she is entitled to receive the Termination Payments and the Termination Benefits, each Termination Payment shall be reduced by the amount of her average bi-weekly compensation to be received in connection with her new employment and the payment of the Termination Benefits shall cease upon Executive becoming covered under the new employer's health coverage plan at no cost to Executive. The combination of the Termination Payments and the Termination Benefits constitute the sole amount to which Executive is entitled if termination is without Cause. 6.3 TERMINATION BY EXECUTIVE WITHOUT GOOD REASON. Executive may terminate her employment under this Agreement without Good Reason as defined in Paragraph 6.4 below upon the giving of 90 days written notice of termination. In the event of such termination, the Company may elect to pay Executive six months of compensation including unused accrued vacation and any accrued bonus in lieu of 90 days notice, in which event Executive's services to the Company will be terminated immediately. No Termination Payments or Termination Benefits other than as set forth in Section 6.3 shall be payable upon Executive's termination of this Agreement without Good Reason. 6.4 TERMINATION BY EXECUTIVE WITH GOOD REASON. Executive may terminate her employment under this Agreement for Good Reason. For purposes of this Agreement, "Good Reason" shall mean: (i) Without Executive's consent, the assignment to Executive of substantial duties inconsistent with Executive's then-current position, duties, responsibilities and status with the Company, or any removal of Executive from her titles and offices, except in connection with the termination of Executive's employment under this Agreement by Company or as a result of Executive's death or permanent disability (as defined in the Company's or Executive's disability insurance policies); (ii) The Company requiring Executive to relocate anywhere other than Austin, Texas, except for required travel on the Company's business to an extent substantially consistent with Executive's business travel obligations, or, in the event Executive consents to such relocation out of Austin, Texas, the failure by the Company to pay or reimburse Executive for all reasonable moving expenses incurred by Executive relating to a change of Executive's principal residence in connection with such relocation and to indemnify Executive against any loss (defined as the difference between the actual bona fide sale price of such residence and the fair market value of such residence as determined by a member of the Society of Real Estate Appraisers designated by Executive and satisfactory to the Company) realized in the sale of Executive's principal residence in connection with any such change in residence; or (iii) A decrease in Executive's salary from the salary in effect upon the date hereof that is inconsistent with or not commensurate with Executive's then current position with the Company. -4- In the event of termination under this Section 6.4, the Company shall pay to Executive the same Termination Payments and Termination Benefits to which Executive would have been entitled had she been terminated by the Company without Cause. 6.5 DEATH OR PERMANENT DISABILITY. Executive's employment under this Agreement shall terminate upon Executive's death or permanent disability (as defined in the Company's or Executive's disability insurance policies). Other than accrued but unused vacation and any accrued but unpaid bonus, no Termination Payments or Termination Benefits shall be payable upon Executive's death or permanent disability. 6.6 RELEASE AGREEMENT. The Termination Payments and Termination Benefits pursuant to Section 6 are contingent upon Executive executing a Release Agreement after termination, a copy of which is attached to this Agreement. It is understood that Executive may preserve all rights and causes of action in the event of termination by the Company and evidence of release of same will only be by execution of said Release Agreement after termination. 7. CONFIDENTIALITY. During and after the term of employment under this Agreement, Executive agrees that she shall not, without the express written consent of Company, directly or indirectly communicate or divulge to, or use for her own benefit or for the benefit of any other person, firm, association or corporation, any of Company's trade secrets, proprietary data or other confidential information, which trade secrets, proprietary data or other confidential information were communicated to or otherwise learned or acquired by Executive during her employment relationship with Company ("Confidential Information"), except that Executive may disclose such matters to the extent that disclosure is required (a) at Company's direction or (b) by a court or other governmental agency of competent jurisdiction. As long as such matters remain trade secrets, proprietary data or other confidential information, Executive shall not use such trade secrets, proprietary data or other confidential information in any way or in any capacity other than as expressly consented to by Company. 8. COVENANT NOT TO COMPETE OR SOLICIT. 8.1 Executive agrees to refrain for one year after the termination of her employment under this Agreement for any reason, without written permission of the Company, from becoming involved in any way, within the boundaries of the United States, in the business of manufacturing, designing, servicing or selling, the type of jewelry or fine paper or other scholastic, licensed sports, insignia, recognition or affinity products manufactured or sold (or then contemplated to be manufactured or sold) by the Company, its divisions, subsidiaries and/or other affiliated entities, including but not limited to, as an employee, consultant, independent representative, partner or proprietor. 8.2 Executive also agrees to refrain during her employment under this Agreement, and in the event of the termination of her employment under this Agreement for any reason, for one year thereafter, without written permission from the Company, from diverting, taking, soliciting and/or accepting on her own behalf or on the behalf of another person, firm, or company, the scholastic licensed sports, insignia, recognition or affinity business of any customer of the Company, its divisions, subsidiaries and/or affiliated entities, or any potential customer of the Company, its divisions, subsidiaries and/or affiliated entities whose identity -5- became known to Executive through her employment by the Company and to which the Company has made a written business proposal or provided written pricing information before the termination of Executive's employment under this Agreement. 8.3 Executive also agrees to refrain during her employment under this Agreement, and in the event of the termination of her employment under this Agreement for any reason for a period of one year thereafter, from inducing or attempting to influence any employee or independent representative of the Company, its divisions, subsidiaries, and/or affiliated entities to terminate his or her employment or association with the Company or such other entity. 8.4 Executive further agrees that the covenants in Sections 8.1 and 8.2 are made to protect the legitimate business interests of the Company, including interests in the Company's "Confidential Information," as defined in Section 7 of this Agreement, and not to restrict her mobility or to prevent her from utilizing her skills. Executive understands as a part of these covenants that the Company intends to exercise whatever legal recourse against her for any breach of this Agreement and in particular for breach of these covenants. 9. CONTROLLING LAW AND PERFORMABILITY. The execution, validity, interpretation and performance of this Agreement will be governed by the law of the State of Texas. 10. SEPARABILITY. If any provision of this Agreement is rendered or declared illegal or unenforceable, all other provisions of this Agreement will remain in full force and effect. 11. NOTICES. Any notice required or permitted to be given under this Agreement shall be sufficient if in writing and if sent by certified mail (return receipt requested) addressed as follows: If to Executive: Charlyn A. Cook 1115 Elm Street Austin, TX 78703 If to the Company: Chief Executive Officer Commemorative Brands, Inc. 7211 Circle S Road Austin, TX 78745 12. ASSIGNMENT. The rights and obligations of the Company under this Agreement shall inure to the benefit of and be binding upon its successors and assigns. The rights and obligations of Executive under this Agreement are of a personal nature and shall neither be transferred or assigned in whole or in part by Executive. 13. NON-WAIVER. No waiver of or failure to assert any claim, right, benefit or remedy hereunder shall operate as a waiver of any other claim, right, benefit or remedy of the Company or Executive. -6- 14. REVIEW AND CONSULTATION. Executive acknowledges that she has had a reasonable time to review and consider this Agreement and has been given the opportunity to consult with an attorney. 15. ENTIRE AGREEMENT AND AMENDMENTS. This Agreement contains the entire agreement of Executive and the Company relating to the matters contained in this Agreement and supersedes all prior agreements and understandings, oral or written, between Executive and the Company with respect to the subject matter in this Agreement. This Agreement may be changed only by an agreement in writing by Executive and the Company. -7- IN WITNESS WHEREOF, the parties have executed this Agreement on the date and year first above written. COMMEMORATIVE BRANDS, INC. By: /S/ JEFFREY H. BRENNAN ----------------------------- Name: Jeffrey H. Brennan Title: Chief Executive Officer EXECUTIVE /S/ CHARLYN A. COOK -8- EX-10.13 36 a2071988zex-10_13.txt EXHIBIT 10.13 EXHIBIT 10.13 AMERICAN ACHIEVEMENT CORPORATION 2000 STOCK OPTION PLAN (f/k/a COMMEMORATIVE BRANDS HOLDING CORP. 2000 STOCK OPTION PLAN) COMMEMORATIVE BRANDS HOLDING CORP. 2000 STOCK OPTION PLAN 1. PURPOSE. The purpose of the Commemorative Brands Holding Corp. 2000 Stock Option Plan (the "Plan") is to motivate and retain key employees and directors who are responsible for the attainment of the primary long-term performance goals of Commemorative Brands Holding Corp. (the "Corporation"). The Plan is designed to increase the ability of the Corporation and its Subsidiaries to attract and retain individuals of exceptional ability and to give them a proprietary interest in the success of the Corporation and such Subsidiaries. This Plan is subject to approval by the Corporation's stockholders. 2. DEFINITIONS. When used herein, the following terms shall have the following meanings: "Administrator" means the Board or any other duly established committee or subcommittee of the Board "Affiliate" means, as to the Corporation or any other specified Person, (i) any Person directly or indirectly controlling, controlled by or under direct or indirect common control with the Corporation (or other specified Person), or employed by the Corporation (or other specified Person), and (ii) any Person, directly or indirectly, beneficially owning at least 10% of any class of outstanding capital stock or other evidence of beneficial interest of the Corporation or such other Person; PROVIDED, HOWEVER, that no individual stockholder shall by reason of holding such securities be an Affiliate of the Corporation or any of its Subsidiaries for purposes of this Plan. "Board" means the Board of Directors of the Corporation. "Cause" means, with respect to a Participant, a finding by the Administrator based upon reasonable evidence presented in writing to the Participant that the Participant engaged in: (a) a criminal act involving moral turpitude, or any criminal act or willful misconduct which in either case is inconsistent with such Participant's employment responsibilities or contractual relationship with the Corporation or any Subsidiary thereof, (b) continued nonperformance of such Participant's duties, (c) repeated acts of insubordination, (d) acts of dishonesty resulting or intending to result in personal gain or enrichment at the expense of the Corporation or any Subsidiary thereof, or (e) conduct not conforming to standards of good citizenship or good moral character or which is potentially detrimental to the Corporation's or its Subsidiaries' business, reputation, character or standing; PROVIDED, that if such Participant is subject to an employment agreement with the Corporation or any Subsidiary thereof which provides for a definition of cause or substantial cause or the like, then "Cause" shall have the meaning set forth in such employment agreement. -2- "Change in Control" means, at any time prior to the consummation of an Initial Public Offering: (i) the sale of all or substantially all of the business and/or assets of the Corporation or any Subsidiary with whom a Participant is employed at the time in question to a Person or entity that is not a Subsidiary or other Affiliate of the Corporation or CHP, or (ii) the merger or consolidation or other reorganization of the Corporation or any Subsidiary with whom a Participant is employed at the time in question with or into one or more entities that are not Subsidiaries or other Affiliates of the Corporation or CHP, respectively, which results in less than 50% of the outstanding equity interests of the surviving or resulting entity immediately after the reorganization being owned, directly or indirectly, by the holders (or Affiliates of the holders) of equity interests of the Corporation or such Subsidiary immediately before such reorganization or (iii) approval by the stockholders of the Corporation of the dissolution or liquidation of the Corporation; provided, however, that the occurrence of one of the foregoing events shall not constitute a Change in Control if, following such event, CHP maintains the ability, directly or indirectly, to elect a majority of the Board of Directors of the Corporation or Subsidiary, as the case may be. "CHP" means Castle Harlan Partners III, L.P., Castle Harlan Partners II, L.P., and their Affiliates, including Castle Harlan, Inc. ("CHI") and related accounts or funds managed by CHI or an Affiliate of CHI. "Code" means the Internal Revenue Code of 1986, as amended, or any successor statute thereto. "Common Stock" means the Common Stock, par value $0.01 per share, of the Corporation. "Corporation" means Commemorative Brands Holding Corp., a Delaware corporation. "Disability" has the meaning set forth in Section 22(e)(3) of the Code, as determined by the Administrator. "EBITDA" means, for any period, the amount equal to: (a) the net income (or net loss) of the Corporation and its Subsidiaries during such period after deduction of all expenses, taxes and other charges, determined in accordance with generally accepted accounting principles, after eliminating therefrom all extraordinary items of income and expense PLUS (b) any provision for (or less any benefit from) income or franchise taxes included in the determination of (a) above; PLUS (c) depreciation, depletion and amortization; PLUS (d) the expenses of the Corporation and its Subsidiaries charged to income for interest on indebtedness (including the current portion thereof), determined in accordance with generally accepted accounting principles. "Exchange Act" means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder. "Fair Market Value" means, on any day, with respect to Common Stock which is (a) listed on a United States securities exchange, the last sales price of such stock on such day on -3- the largest United States securities exchange on which such stock shall have traded on such day, or if such day is not a day on which a United States securities exchange is open for trading, on the immediately preceding day on which such securities exchange was open; (b) not listed on a United States securities exchange but is included in The NASDAQ Stock Market System (including the NASDAQ National Market), the last sales price on such system of such stock on such day, or if such day is not a trading day, on the immediately preceding trading day; or (c) neither listed on a United States securities exchange nor included in The NASDAQ Stock Market System, the fair market value of such stock as determined from time to time by the Administrator in good faith in its sole discretion. "Fully-Diluted Shares of Common Stock" shall mean giving effect, without duplication, to (i) all shares of Common Stock outstanding at the time of determination plus (ii) all shares of Common Stock issuable upon conversion of any convertible securities or the exercise of any option, warrant or similar right outstanding at the time of determination, whether or not then presently exercisable. "Good Reason" means, with respect to a Participant, (a) a reduction in base salary, bonus or any agreed upon benefit provided under any employment agreement with the Participant without the Participant's consent; PROVIDED, that the Corporation (or any Subsidiary with whom the Participant is employed) may at any time or from time to time amend, modify, suspend or terminate any bonus, incentive compensation or other benefit plans or programs provided to the Participant for any reason and without the Participant's consent if such modification, suspension or termination is consistent for similarly situated employees; or (b) a material adverse change in the Participant's responsibilities or position or the duties, resources, personnel, reporting responsibilities, or support assigned to the Participant without such Participant's prior consent; PROVIDED, that if such Participant is subject to an employment agreement with the Corporation or any Subsidiary thereof which provides for a definition of good reason, then "Good Reason" shall have the meaning set forth in such employment agreement. "Incentive Stock Option" means an Option that is designated by the Administrator as an incentive stock option and qualifies as such within the meaning of Section 422 of the Code and is granted by the Administrator to a Participant. "Initial Public Offering" means a public offering of Common Stock pursuant to a registration statement filed with, and declared effective by, the Securities and Exchange Commission other than on Forms S-4 or S-8 (or successors thereto), upon the consummation of which the shares so registered are listed on a United States securities exchange or included in The NASDAQ Stock Market System. "Key Employee" means an employee who owns more than 10% of the total combined voting power of all classes of stock of the Corporation, determined at the time an Option is granted. -4- "Multiplier" means the number, determined in accordance with the provisions of Section 12 hereof, which is multiplied by EBITDA for the applicable calendar year in order to calculate Purchase Price for purposes of Section 12 hereof. "Non-qualified Stock Option" means an Option, which is not an Incentive Stock Option, granted by the Administrator to a Participant. "Option" means a right granted under the Plan to a Participant to purchase a stated number of shares of Common Stock as an Incentive Stock Option or Non-qualified Stock Option. "Participant" means an employee or director of the Corporation or any Subsidiary thereof who is selected to participate in the Plan in accordance with Section 4. "Person" means any individual, partnership, firm, trust, corporation or other similar entity. When two or more Persons act as a partnership, limited partnership, syndicate or other group for the purpose of acquiring, holding or disposing of securities of the Corporation, such partnership, limited partnership, syndicate or group shall be deemed a "Person." "Plan" means the Commemorative Brands Holding Corp. 2000 Stock Option Plan. "Purchase Price" means an amount equal to (i) EBITDA for the immediately preceding calendar year, times the applicable Multiplier, minus the sum of (x) the amount of the Corporation's consolidated debt (determined in accordance with generally accepted accounting principles as set forth on the Corporation's most recently prepared internal financial statements) and accrued interest, and (y) the liquidation preference plus accrued and unpaid dividends on the Corporation's and any of its Subsidiaries' preferred stock, divided by (ii) the number of Fully-Diluted Shares of Common Stock "Subsidiary" means a corporation or other entity of which the Corporation possesses, directly or indirectly, the power to (i) vote fifty percent (50%) or more of the securities having ordinary voting power for the election of directors of such corporation or other entity, or (ii) direct or cause the direction of the management and policies of such corporation or other entity, whether through the ownership of voting securities, by contract or otherwise. 3. ADMINISTRATION. The Plan shall be administered by the Administrator. Subject to the provisions of the Plan, the Administrator shall have the authority to: (a) select the Participants; (b) determine the number of shares of Common Stock covered by any Option granted to a Participant; PROVIDED, HOWEVER, that no Option shall be granted after the expiration of the period of ten (10) years from the effective date of this Plan, as specified in Section 21 hereof; (c) determine whether each Option shall be an Incentive Stock Option or a Non-qualified Stock Option; and -5- (d) establish from time to time regulations for the administration of the Plan, interpret the Plan, delegate in writing administrative matters to committees of the Board or to other persons, and make such other determinations and take such other action, as it deems necessary or advisable for the administration of the Plan. All decisions, actions and interpretations of the Administrator shall be final, conclusive and binding upon all parties. 4. PARTICIPATION. Participants in the Plan shall be limited to those employees and directors of the Corporation or any Subsidiary thereof who have been notified in writing by the Administrator that they have been selected to participate in the Plan. A member of the Board who is not an employee of the Corporation shall not be eligible for the grant of an Incentive Stock Option. 5. SHARES SUBJECT TO THE PLAN. Options may be granted by the Administrator to Participants from time to time to purchase not more than an aggregate of 122,985 shares of Common Stock (subject to adjustment as provided in Section 7(i)) (the "Maximum Amount"), all of which shares of Common Stock shall be reserved for Options granted under the Plan. The shares issued upon the exercise of Options granted under the Plan may be authorized and unissued shares, shares held in the treasury of the Corporation, or, if applicable, shares purchased on the open market by the Corporation (at such time or times and in such manner as it may determine). The Corporation shall be under no obligation to acquire Common Stock for distribution to Participants before payment in shares of Common Stock is due. If any Option granted under the Plan shall be canceled or shall expire without the shares covered by such Option being purchased by the applicable Participant thereunder, new Options may thereafter be granted covering such shares. 6. GRANTING OPTIONS. The Administrator may grant Options under the Plan to any Participant, exercisable for such number of shares of Common Stock as the Administrator shall designate, subject to the provisions of Section 7. 7. TERMS AND CONDITIONS OF OPTIONS. Each Option granted under the Plan shall be evidenced by a written agreement, in form approved by the Administrator and executed by the President or Chief Financial Officer of the Corporation, which shall be subject to the following express terms and conditions and to such other terms and conditions as the Administrator may deem appropriate: (a) OPTION PERIOD. Each Option agreement shall specify that the Option thereunder is granted for a period of ten years, or such shorter period as the Administrator may determine, from the date of grant and shall provide that the Option shall expire on such ten year anniversary, or shorter period, as the case may be (unless earlier exercised or terminated pursuant to its terms); PROVIDED, HOWEVER, that any Incentive Stock Option granted to a Key Employee shall specify that the Incentive Stock Option is granted for a -6- period of five (5) years from the date of grant and shall expire on such five (5) year anniversary. (b) OPTION PRICE. The Option price per share shall be the Fair Market Value at the time the Option is granted or, with respect to a Non-qualified Stock Option, such lower price as the Administrator shall determine; PROVIDED, HOWEVER, that the Option price per share for any Incentive Stock Option granted to a Key Employee shall equal 110% of the Fair Market Value at the time the Incentive Stock Option is granted. (c) EXERCISE OF OPTION. Subject to Sections 7(f) and 8, (i) Options granted hereunder shall become exercisable such that on the first anniversary of the date of grant the amount exercisable shall be 25% and on each of the second, third and fourth anniversaries of the date of grant the amount exercisable shall cumulatively increase by 25%, as set forth in the following schedule:
Years from Amount Date of Grant Exercisable ------------- ----------- One...............................................25% Two...............................................50% Three.............................................75% Four.............................................100%
(ii) Notwithstanding the foregoing schedule, the Administrator may grant Options that become exercisable in accordance with such other vesting schedule and upon such terms and conditions as the Administrator shall determine, as set forth in the Option agreement between the Corporation and the Participant, and all Options are subject to the Administrator's authority to accelerate such vesting schedule. (d) LIMITATION ON AMOUNT OF INCENTIVE STOCK OPTIONS GRANTED. To the extent that the aggregate Fair Market Value of stock with respect to which Incentive Stock Options are exercisable for the first time by any Participant during any calendar year (whether under the terms of the Plan or any other stock option plan of the Corporation or of its parent or any Subsidiary corporation) exceeds $100,000, such Options shall be treated as Non-qualified Stock Options. Fair Market Value shall be determined as of the time the Option with respect to such stock is granted. (e) PAYMENT OF OPTION PRICE UPON EXERCISE. The option price of the shares as to which an Option shall be exercised shall be paid to the Corporation at the time of exercise at the option of the Participant either (a) in cash or by -7- check, bank draft or money order payment to the Corporation, (b) by delivering Common Stock of the Corporation already owned by the Participant and having a total Fair Market Value on the date of such delivery equal to the option price, (c) to the extent authorized by the Administrator, through the written election of the Participant to have shares of Common Stock withheld by the Corporation from the shares otherwise to be received, with such withheld shares having an aggregate Fair Market Value on the date of exercise equal to the option price, or (d) by any combination of the above methods of payment. -8- (f) TERMINATION OF EMPLOYMENT. (i) If the employment of a Participant terminates on account of death or Disability, the Options granted to such Participant that are exercisable as of the date of termination of employment may be so exercised within six months after termination of employment, or such longer period as the Administrator may determine, and shall then terminate; PROVIDED, HOWEVER, that any Incentive Stock Options shall no longer be treated as Incentive Stock Options unless exercised within three months of the Participant's termination of employment for a reason other than Disability or death or 12 months of the Participant's termination of employment on account of Disability. (ii) If the employment of a Participant is terminated for Cause or without Good Reason, all Options that have been granted to such Participant shall terminate and be forfeited as of the date of termination of employment. (iii) If the employment of a Participant terminates for any other reason, the Options granted to such Participant that are exercisable as of the date of termination of employment may be so exercised within three months after termination of employment, or such longer period as the Administrator may determine, and shall then terminate. (iv) In no event may such Options be exercised after the expiration date of such Options as established in accordance with Section 7(a). (v) All Options that have been granted to a Participant which are not exercisable as of the date of the Participant's termination of employment shall terminate as of such date. (g) TRANSFERABILITY OF OPTIONS. No Option granted under the Plan and no right arising under such Option shall be transferable other than by will or by the laws of descent and distribution. During the lifetime of the Participant an Option shall be exercisable only by such Participant. Any Option exercisable at the date of the Participant's death and transferred by will or by the laws of descent and distribution shall be exercisable in accordance with the terms of such Option by the executor or administrator, as the case may be, of the Participant's estate for a period of six months after the date of the Participant's death, or such longer period as the Administrator may determine, and shall then terminate; PROVIDED, HOWEVER, that in no event may such Options be exercised after the expiration date of such Options as established in accordance with Section 7(a). All Options not exercisable at the date of the Participant's death shall terminate as of such date. -9- (h) INVESTMENT REPRESENTATION. Each Option agreement may contain an undertaking that, upon demand by the Administrator for such a representation, the Participant (or any person acting under Section 7(g)) shall deliver to the Administrator at the time of any exercise of an Option a written representation that the shares of Common Stock to be acquired upon such exercise are to be acquired for such Participant's own account and not with a view to, or for resale in connection with, any distribution. Upon such demand, delivery of such representation prior to the delivery of any shares issued upon exercise of an Option shall be a condition precedent to the right of the Participant or such other Person to purchase any shares. (i) ADJUSTMENTS IN EVENT OF CHANGE IN COMMON STOCK. In the event of any change in the Common Stock by reason of any stock dividend, recapitalization, reorganization, merger, consolidation, split-up, combination or exchange of shares, or of any similar change affecting the Common Stock, the number and kind of shares which thereafter may be optioned and sold under the Plan and the number and kind of shares subject to Option in outstanding Option agreements and the purchase price per share thereof shall be appropriately adjusted consistent with such change in such manner as the Board may deem equitable to prevent substantial dilution or enlargement of the rights granted to, or available for, participants in the Plan. Without limiting the generality of the foregoing, if the Common Stock is recapitalized into multiple classes of common stock, the kind of shares subject to Option shall be those common shares intended for broad general ownership rather than any class of special super-voting or other control stock. (j) PARTICIPANTS TO HAVE NO RIGHTS AS STOCKHOLDERS. No Participant shall have any rights as a stockholder with respect to any shares subject to such Participant's Option prior to the date on which such Participant is recorded as the holder of such shares on the records of the Corporation. (k) PLAN AND OPTION NOT TO CONFER RIGHTS WITH RESPECT TO CONTINUANCE OF EMPLOYMENT. Neither the Plan nor any action taken thereunder shall be construed as giving any employee the right to be retained in the employ of the Corporation or any Subsidiary thereof, nor shall it interfere in any way with the right of the Corporation or any such Subsidiary to terminate any Participant's employment at any time with or without Cause. (l) OTHER OPTION PROVISIONS. The form of option agreement authorized by the Plan may contain such other provisions, consistent with this Plan, as the Administrator may, from time to time, determine. (m) NOTIFICATION OF SALES OF COMMON STOCK. Any Participant who disposes of shares of Common Stock acquired upon the exercise of an Incentive Stock Option either (a) within two years from the date of the grant of the Incentive -10- Stock Option under which the Common Stock was acquired or (b) within one year after the transfer of such shares of Common Stock to the Participant, shall notify the Corporation of such disposition and of the amount realized upon such disposition. 8. EFFECT OF CHANGE IN CONTROL. Notwithstanding the provisions of Section 7, if there should be a Change in Control: (a) the Corporation shall give each Participant written notice of such Change in Control as promptly as practicable prior to the effective date thereof; and (b) all of the Options granted to a Participant not currently exercisable shall become exercisable immediately prior to the effective date of such Change in Control; PROVIDED, that all or a portion of such Options shall not be exercisable to the extent that the exercise would cause the Participant to be subject to taxes under Section 4999 of the Code. 9. NO CLAIM OR RIGHT UNDER THE PLAN. No employee shall at any time have the right to be selected as a Participant in the Plan nor, having been selected as a Participant and granted an Option, to be granted any additional Options. 10. LISTING AND QUALIFICATION OF SHARES. The Plan, the grant and exercise of Options thereunder, and the obligation of the Corporation to sell and deliver shares under such Options, shall be subject to all applicable federal and state laws, rules and regulations and to such approvals by any government or regulatory agency as may be required. The Corporation may require any Participant, beneficiary or legal representative to make such representations and furnish such information as it may consider appropriate in connection with the issuance or delivery of the shares in compliance with applicable laws, rules and regulations. Certificates representing shares of Common Stock acquired by the exercise of an Option may bear such legend as the Corporation may consider appropriate under the circumstances. 11. STOCKHOLDERS' AGREEMENT. At the request of the Administrator, upon the grant of any Option hereunder, the Participant shall be deemed to have accepted, and the Option granted hereunder and the Common Stock deliverable upon exercise of the Option shall be subject to, the provisions of any Stockholders' Agreement of the Corporation then in effect (the "Stockholders' Agreement"). In addition, the Corporation may, in its discretion as a condition precedent to the grant or exercise of any Option hereunder, require that a Participant become a party to the provisions of any such Stockholders' Agreement. Notwithstanding anything herein to the contrary, to the extent any provision of the Plan is inconsistent with such Stockholders' Agreement, the Stockholders' Agreement shall govern with respect to any Participant who is or becomes a party thereto. 12. DISPOSITION OF SHARES. At any time prior to the consummation of an Initial Public Offering, each share of Common Stock acquired by an exercise of an Option granted under the Plan may be transferred, other than by will or the laws of descent and distribution, only to the Corporation and only in accordance with the following provisions of this Section 12. Each -11- certificate representing shares of Common Stock acquired by the exercise of an Option shall bear a legend to such effect. (a) CALL BY CORPORATION. The Corporation shall have the right to purchase from a Participant, within six (6) months following the termination of such employee Participant's employment by the Corporation or any of its Subsidiaries without Cause, the Common Stock acquired by the exercise of Options by such Participant for an amount equal to the Purchase Price where the Multiplier is 5.5. The Corporation shall have the right to purchase from a Participant within six (6) months following the termination of such employee Participant's employment by the Corporation or any of its Subsidiaries for Cause, or the resignation by the Participant, the Common Stock acquired by such Participant, for an amount equal to the Purchase Price where the Multiplier is 4.5. (b) The purchase of Common Stock by the Corporation pursuant to the foregoing provisions of this Section 12 may, at the discretion of the Administrator, be paid for either (i) in cash or (ii) up to forty percent (40%) in cash with the balance payable under a note issued by the Corporation with principal payments made in four (4) equal annual installments and bearing interest, payable annually, at the rate of the greater of (A) seven percent (7%) per annum and (B) the lowest interest rate required to avoid imputed interest; provided, however, that in the event the foregoing provisions of this Section 12(b) conflict with any agreement to which the Corporation is a party, the purchase of Common Stock by the Corporation may be paid in such other form as determined in the sole discretion of the Administrator, including, but not limited to, through the issuance of a subordinated note with comparable terms as those provided in subsection (ii) above. 13. DRAG ALONG RIGHTS. Notwithstanding anything herein to the contrary: (a) CHP shall have the right in connection with a bona fide offer (a "Compelled Sale Offer") by a Person not constituted within CHP (a "Compelled Sale Purchaser") to purchase at least 80% of the shares of Common Stock, preferred stock and any other equity securities (including, without limitation, warrants, options, and preferred stock) of the Corporation held by CHP (for either cash, securities of a class registered under Section 12 of the Exchange Act (or convertible into such a class of securities) or any combination thereof) to require each (but not less than each) of the Participants to sell the same percentage or all of the Common Stock then held by such Participants, to the Compelled Sale Purchaser, for the equivalent consideration per share of Common Stock (a "Compelled Sale Offer Price(s)") and otherwise on the same terms and conditions upon which CHP sells its Common Stock. -12- (b) If CHP elects to exercise its right to compel sale pursuant to this Section 13, CHP shall deliver a written notice (a "Compelled FFF Sale Notice") of the Compelled Sale Offer to each Participant and the Corporation at least 10 days prior to the consummation of any such sale, setting forth the Compelled Sale Offer Price(s), the identity of the Compelled Sale Purchaser and the other terms and conditions thereof. Each Participant shall deliver to CHP in trust, not less than five business days before the proposed date of consummation of the Compelled Sale Offer, the duly endorsed certificate or certificates representing the requisite number of shares of Common Stock owned by such Participant, together with a limited power-of-attorney authorizing CHP to transfer such Common Stock to the Compelled Sale Purchaser pursuant to the terms of the Compelled Sale Offer at the Compelled Sale Offer Price(s), and in accordance with the provisions hereof. (c) CHP shall have 90 days from the date the Compelled Sale Notice is received by the Participants (the "Compelled Sale Notice Date") to sell, and to cause the other Persons constituted within CHP to sell, to the Compelled Sale Purchaser at the Compelled Sale Offer Price(s) all of the Common Stock subject to the Compelled Sale Offer. Immediately after completion of any such sale pursuant to this Section 13, CHP shall notify the Corporation and each Participant of such completion and shall furnish such evidence of such sale (including time of completion) and the terms thereof as the Corporation or any Participant may reasonably request. CHP shall substantially concurrently with such closing also remit to each Participant the proceeds of such sale attributable to the sale of such Participant's Common Stock immediately upon receipt thereof. If any sale to a Compelled Sale Purchaser is not completed by the expiration of the 90-day period referred to in this Section 13(c), then, without prejudice to CHP's right to seek to compel a sale under this Section 13 in the future, CHP shall return to each Participant all certificates representing the shares of Common Stock of such Participant. (d) No Participant required to sell Common Stock pursuant to a Compelled Sale Offer shall be required to make any representation or warranty in connection with such Compelled Sale Offer other than as to such Participant's ownership and authority to transfer, free of liens, claims and encumbrances, the Common Stock proposed to be sold by it. 14. TAXES. The Administrator may make such provisions and take such steps as it may deem necessary or appropriate for the withholding of all federal, state, local and other taxes required by law to be withheld by the Corporation with respect to Options under the Plan including, but not limited to (a) reducing the number of shares of Common Stock otherwise deliverable, based upon their Fair Market Value on the date of exercise, to permit deduction of the amount of any such withholding taxes from the amount otherwise payable under the Plan, (b) -13- deducting the amount of any such withholding taxes from any other amount then or thereafter payable to a Participant, or (c) requiring a Participant, beneficiary or legal representative to pay to the Corporation the amount required to be withheld or to execute such documents as the Administrator deems necessary or desirable to enable the Corporation to satisfy its withholding obligations as a condition of releasing the Common Stock. 15. NO LIABILITY OF BOARD MEMBERS. No member of the Board shall be personally liable by reason of any contract or other instrument executed by such member or on such member's behalf in such member's capacity as a member of the Board or the Administrator nor for any mistake of judgment made in good faith, and the Corporation shall indemnify and hold harmless each employee, officer or director of the Corporation to whom any duty or power relating to the administration or interpretation of the Plan may be allocated or delegated, against any cost or expense (including counsel fees) or liability (including any sum paid in settlement of a claim with the approval of the Board) arising out of any act or omission to act in connection with the Plan unless arising out of such person's own fraud or bad faith. 16. AMENDMENT OR TERMINATION. The Administrator may, with prospective effect, amend, suspend, or terminate the Plan or any portion thereof; PROVIDED, HOWEVER, that no amendment, suspension or termination of the Plan shall deprive any Participant of any right with respect to any Option granted under the Plan without such Participant's written consent; and PROVIDED, FURTHER, that unless duly approved by the holders of stock entitled to vote thereon at a meeting (which may be the annual meeting) duly called and held for such purpose, except as provided in Section 7(i), no amendment or change shall be made to the Plan (a) increasing the total number of shares which may be issued or transferred under the Plan, (b) changing the exercise price specified for the shares subject to the Options, (c) changing the maximum periods during which Options may be exercised, (d) extending the period during which Options may be granted under the Plan, (e) materially changing the designation of persons eligible to receive Options under the Plan, or (f) materially increasing in any other way the benefits accruing to Participants under the Plan. 17. CAPTIONS. The captions preceding the sections of the Plan have been inserted solely as a matter of convenience and shall not in any manner define or limit the scope or intent of any provisions of the Plan. 18. GOVERNING LAW. The Plan and all rights thereunder shall be governed by and construed in accordance with the laws of the State of New York applicable to contracts made and to be performed entirely within such State. 19. NON-UNIFORM DETERMINATIONS. The Administrator's determinations under the Plan (including, without limitation, determinations of the persons to receive Options, the form, term, provisions, amount and the timing of the grant of such Options and of the Agreements evidencing the same) need not be uniform and may be made by it selectively among persons who receive, or are eligible to receive, Options under the Plan, whether or not such persons are similarly situated. -14- 20. SEVERABILITY. In the event that any provision of the Plan shall be held illegal or invalid for any reason, such illegality or invalidity shall not affect the remaining parts of the Plan, and the Plan shall be construed and enforced as if the illegal or invalid provision had not been included. 21. EFFECTIVE DATE. The Plan shall become effective as of July 27, 2000. -15- EX-12.1 37 a2071988zex-12_1.txt EXHIBIT 12.1 Exhibit 12.1 STATEMENT REGARDING COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES OF AMERICAN ACHIEVEMENT CORPORATION CALCULATION OF RATIO OF EARNINGS TO FIXED CHARGES (DOLLARS IN THOUSANDS) (UNAUDITED)
Fiscal Years Ended- Three Months ------------------------------------------------------------ Ended August 30, August 29, August 28, August 26, August 25, November 24, 1997 1998 1999 2000 2001 2001 ------------------------------------------------------------ Net income before income taxes $ (8,967) $ (4,637) $ (4,072) $ 106 $ (3,207) $ 3,293 Fixed charges: (1) Interest charges 9,797 14,829 14,594 15,691 22,846 5,930 Interest portion of lease expense 348 225 272 309 735 236 -------- -------- -------- -------- -------- -------- Total fixed charges 10,145 15,084 14,866 16,000 23,581 6,166 Net income from operations before income taxes and fixed charges $ 1,278 $ 10,447 $ 10,794 $ 16,106 $ 20,374 $ 9,459 ======== ======== ======== ======== ======== ======== Ratio of earnings to fixed charges (2) - - - 1.0x - 1.5x
(1) During the periods presented the Company had no preferred stock outstanding that required a cash payment. Therefore, the ratio of earnings to combined fixed charges and preference dividends was the same as the ratio of earnings to fixed charges for each of the periods presented. (2) For purposes of computing this ratio, earnings consist of income (loss) before taxes on income and fixed charges. Fixed charges consist of interest expense, amortization of deferred debt issuance costs and the portion of rental expense that includes an interest factor. For the fiscal years ended August 30, 1997, August 29, 1998, August 28, 1999 and August 25, 2001, earnings before fixed charges were insufficient to cover fixed charges by approximately $8.9 million, $4.6 million, $4.1 million and $3.2 million, respectively. CALCULATION FOR PRO FORMA RATIO OF EARNINGS TO FIXED CHARGES (DOLLARS IN THOUSANDS) (UNAUDITED)
Pro Forma ------------------------------------------------- For the Year Ended For the Three Months August 25, 2001 Ended November 24, 2001 ------------------------------------------------- Net income before income taxes $ (1,639) $ 2,088 Fixed charges: (1) Interest charges 28,071 7,135 Interest portion of lease expense 735 236 --- --- Total fixed charges 28,806 7,371 Net income from operations before income taxes and fixed charges $ 27,167 $ 9,459 =============== ============== Ratio of earnings to fixed charges (2) - 1.3x
(1) During the periods presented the Company had no preferred stock outstanding that required a cash payment. Therefore, the ratio of earnings to combined fixed charges and preference dividends was the same as the ratio of earnings to fixed charges for each of the periods presented. (2) For purposes of computing this ratio, earnings consist of income (loss) before taxes on income and fixed charges. Fixed charges consist of interest expense, amortization of deferred debt issuance costs and the portion of rental expense that includes an interest factor. For the proforma fiscal year ended August 25, 2001, earnings before fixed charges were insufficient to cover fixed charges by approximately $1.6 million. SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS (DOLLARS IN THOUSANDS)
Additions Deduction --------- --------- Balance at Charged to Charged to Balance at Beginning of Costs and Other End of Description Period Expenses Accounts(1) Write-offs(2) Period ----------- ------ -------- ----------- ------------- ------ Reserve on Sales Representative Advances For the Year Ended August 28, 1999 1,041 292 (88) 1,245 August 26, 2000 1,245 412 3,449 (828) 4,278 August 25, 2001 4,278 1,473 (2,747) 3,004
(1) Amounts charged to other accounts represents the reserve acquired from Taylor Publishing Company as of the acquisition date of July 27, 2000. (2) Represents principally write-offs of terminated sales representative amounts and forgiveness of amounts by the Company. EX-21 38 a2071988zex-21.txt EXHIBIT 21 EXHIBIT 21 SUBSIDIARIES OF AMERICAN ACHIEVEMENT CORPORATION Commemorative Brands, Inc. CBI North America, Inc. Taylor Senior Holdings Corp. Taylor Publishing Company TP Holding Corp. Taylor Production Services, L.P. Educational Communications, Inc. EX-23.1 39 a2071988zex-23_1.txt EXHIBIT 23.1 EXHIBIT 23.1 CONSENT OF ARTHUR ANDERSEN LLP As independent public accountants, we hereby consent to the use of our reports (and to all references to our Firm) included in or made a part of this registration statement. s/s Arthur Andersen LLP Austin, Texas March 12, 2002 EX-23.2 40 a2071988zex-23_2.txt EXHIBIT 23.2 EXHIBIT 23.2 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS The Board of Directors American Achievement Corporation: We consent to the use of our report included herein and to the reference to our firm under the heading "Experts" in the prospectus. s/s KPMG LLP Dallas, Texas March 12, 2002 EX-23.3 41 a2071988zex-23_3.txt EXHIBIT 23.3 EXHIBIT 23.3 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the use of our report and to the reference to our Firm under the heading "Experts" included in this registration statement. s/s Altschuler, Melvoin and Glasser LLP Chicago, Illinois March 12, 2002 EX-25 42 a2071988zex-25.txt EXHIBIT 25 EXHIBIT 25 STATEMENT OF ELIGIBILITY AND QUALIFICATION ON FORM t-1 OF THE BANK OF NEW YORK, AS TRUSTEE ================================================================================ FORM T-1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 STATEMENT OF ELIGIBILITY UNDER THE TRUST INDENTURE ACT OF 1939 OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A TRUSTEE PURSUANT TO SECTION 305(b)(2) |__| THE BANK OF NEW YORK (Exact name of trustee as specified in its charter) New York 13-5160382 (State of incorporation (I.R.S. employer if not a U.S. national bank) identification no.) One Wall Street, New York, N.Y. 10286 (Address of principal executive offices) (Zip code) AMERICAN ACHIEVEMENT CORPORATION (Exact name of obligor as specified in its charter) Delaware 13-4126506 (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification no.) 7211 Circle S. Road P.O. Box 149107 Austin, Texas 78745 (Address of principal executive offices) (Zip code) COMMEMORATIVE BRANDS, INC. (Exact name of obligor as specified in its charter) Delaware 13-3915801 (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification no.) c/o American Achievement Corporation 7211 Circle S. Road P.O. Box 149107 Austin, Texas 78745 (Address of principal executive offices) (Zip code) CBI NORTH AMERICA, INC. (Exact name of obligor as specified in its charter) Delaware 74-2802215 (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification no.) c/o American Achievement Corporation 7211 Circle S. Road P.O. Box 149107 Austin, Texas 78745 (Address of principal executive offices) (Zip code) TAYLOR SENIOR HOLDING CORP. (Exact name of obligor as specified in its charter) Delaware 13-4099532 (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification no.) c/o American Achievement Corporation 7211 Circle S. Road P.O. Box 149107 Austin, Texas 78745 (Address of principal executive offices) (Zip code) TP HOLDING CORP. (Exact name of obligor as specified in its charter) Delaware 13-4099531 (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification no.) c/o American Achievement Corporation 7211 Circle S. Road P.O. Box 149107 Austin, Texas 78745 (Address of principal executive offices) (Zip code) TAYLOR PUBLISHING COMPANY (Exact name of obligor as specified in its charter) Delaware 75-1251430 (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification no.) c/o American Achievement Corporation 7211 Circle S. Road P.O. Box 149107 Austin, Texas 78745 (Address of principal executive offices) (Zip code) TAYLOR PRODUCTION SERVICES COMPANY, L.P. (Exact name of obligor as specified in its charter) Delaware 31-1576205 (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification no.) c/o American Achievement Corporation 7211 Circle S. Road P.O. Box 149107 Austin, Texas 78745 (Address of principal executive offices) (Zip code) EDUCATIONAL COMMUNICATIONS, INC. (Exact name of obligor as specified in its charter) Illinois 23-7032032 (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification no.) c/o American Achievement Corporation 7211 Circle S. Road P.O. Box 149107 Austin, Texas 78745 (Address of principal executive offices) (Zip code) 11-5/8% Series B Senior Notes due 2007 (Title of the indenture securities) ================================================================================ 1. GENERAL INFORMATION. FURNISH THE FOLLOWING INFORMATION AS TO THE TRUSTEE: (a) NAME AND ADDRESS OF EACH EXAMINING OR SUPERVISING AUTHORITY TO WHICH IT IS SUBJECT.
- ------------------------------------------------------------------------------ Name Address - ------------------------------------------------------------------------------ Superintendent of Banks of the State of 2 Rector Street, New York, New York N.Y. 10006, and Albany, N.Y. 12203 Federal Reserve Bank of New York 33 Liberty Plaza, New York, N.Y. 10045 Federal Deposit Insurance Corporation Washington, D.C. 20429 New York Clearing House Association New York, New York 10005
(b) WHETHER IT IS AUTHORIZED TO EXERCISE CORPORATE TRUST POWERS. Yes. 2. AFFILIATIONS WITH OBLIGOR. IF THE OBLIGOR IS AN AFFILIATE OF THE TRUSTEE, DESCRIBE EACH SUCH AFFILIATION. None. 16. LIST OF EXHIBITS. EXHIBITS IDENTIFIED IN PARENTHESES BELOW, ON FILE WITH THE COMMISSION, ARE INCORPORATED HEREIN BY REFERENCE AS AN EXHIBIT HERETO, PURSUANT TO RULE 7a-29 UNDER THE TRUST INDENTURE ACT OF 1939 (THE "ACT") AND 17 C.F.R. 229.10(d). 1. A copy of the Organization Certificate of The Bank of New York (formerly Irving Trust Company) as now in effect, which contains the authority to commence business and a grant of powers to exercise corporate trust powers. (Exhibit 1 to Amendment No. 1 to Form T-1 filed with Registration Statement No. 33-6215, Exhibits 1a and 1b to Form T-1 filed with Registration Statement No. 33-21672 and Exhibit 1 to Form T-1 filed with Registration Statement No. 33-29637.) 4. A copy of the existing By-laws of the Trustee. (Exhibit 4 to Form T-1 filed with Registration Statement No. 33-31019.) 6. The consent of the Trustee required by Section 321(b) of the Act. (Exhibit 6 to Form T-1 filed with Registration Statement No. 33-44051.) 7. A copy of the latest report of condition of the Trustee published pursuant to law or to the requirements of its supervising or examining authority. SIGNATURE Pursuant to the requirements of the Act, the Trustee, The Bank of New York, a corporation organized and existing under the laws of the State of New York, has duly caused this statement of eligibility to be signed on its behalf by the undersigned, thereunto duly authorized, all in The City of New York, and State of New York, on the 8th day of March, 2002. THE BANK OF NEW YORK By: /s/ MARY LAGUMINA ------------------------------ Name: MARY LAGUMINA Title: VICE PRESIDENT EXHIBIT 7 TO T-1 Consolidated Report of Condition of THE BANK OF NEW YORK of One Wall Street, New York, N.Y. 10286 And Foreign and Domestic Subsidiaries, a member of the Federal Reserve System, at the close of business September 30, 2001, published in accordance with a call made by the Federal Reserve Bank of this District pursuant to the provisions of the Federal Reserve Act.
Dollar Amounts ASSETS In Thousands Cash and balances due from depository institutions: Noninterest-bearing balances and currency and coin.................. $ 3,238,092 Interest-bearing balances........... 5,255,952 Securities: Held-to-maturity securities......... 127,193 Available-for-sale securities....... 12,143,488 Federal funds sold and Securities purchased under agreements to resell 281,677 Loans and lease financing receivables: Loans and leases held for sale...... 786 Loans and leases, net of unearned income...............46,206,726 LESS: Allowance for loan and lease losses............607,115 Loans and leases, net of unearned income and allowance............... 45,599,611 Trading Assets........................ 9,074,924 Premises and fixed assets (including capitalized leases)................. 783,165 Other real estate owned............... 935 Investments in unconsolidated subsidiaries and associated companies........................... 200,944 Customers' liability to this bank on acceptances outstanding............. 311,521 Intangible assets..................... Goodwill........................... 1,546,125 Other intangible assets............ 8,497 Other assets.......................... 8,761,129 ----------- Total assets.......................... $87,334,039 =========== LIABILITIES Deposits: In domestic offices................. $28,254,986 Noninterest-bearing.......10,843,829
Interest-bearing..........17,411,157 In foreign offices, Edge and Agreement subsidiaries, and IBFs... 31,999,406 Noninterest-bearing........1,006,193 Interest-bearing..........30,993,213 Federal funds purchased and securities sold under agreements to repurchase.......................... 6,004,678 Trading liabilities................... 2,286,940 Other borrowed money: (includes mortgage indebtedness and obligations under capitalized leases)....... 1,845,865 Bank's liability on acceptances executed and outstanding............ 440,362 Subordinated notes and debentures..... 2,196,000 Other liabilities..................... 7,606,565 ----------- Total liabilities..................... $80,634,802 =========== EQUITY CAPITAL Common stock.......................... 1,135,284 Surplus............................... 1,050,729 Retained earnings..................... 4,436,230 Accumulated other comprehensive income......... 76,292 Other equity capital components..................... 0 - --------------------------------------------------------------------------- Total equity capital.................. 6,698,535 ----------- Total liabilities and equity capital.. $87,334,039 ===========
I, Thomas J. Mastro, Senior Vice President and Comptroller of the above-named bank do hereby declare that this Report of Condition has been prepared in conformance with the instructions issued by the Board of Governors of the Federal Reserve System and is true to the best of my knowledge and belief. Thomas J. Mastro, Senior Vice President and Comptroller We, the undersigned directors, attest to the correctness of this Report of Condition and declare that it has been examined by us and to the best of our knowledge and belief has been prepared in conformance with the instructions issued by the Board of Governors of the Federal Reserve System and is true and correct. Thomas A. Renyi Gerald L. Hassell Alan R. Griffith Directors -----END PRIVACY-ENHANCED MESSAGE-----