<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 29, 1997
REGISTRATION NO. 333-27239
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
AMENDMENT NO. 1
TO
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
LINENS 'N THINGS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 5700 22-3463939
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
6 BRIGHTON ROAD
CLIFTON, NEW JERSEY 07015
(201) 778-1300
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
NORMAN AXELROD
CHAIRMAN OF THE BOARD, CHIEF EXECUTIVE OFFICER AND PRESIDENT
6 BRIGHTON ROAD
CLIFTON, NEW JERSEY 07015
(201) 778-1300
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------
COPIES TO:
<TABLE>
<S> <C>
WARREN J. CASEY, ESQ. ROGER H. KIMMEL, ESQ.
PITNEY, HARDIN, KIPP & SZUCH LATHAM & WATKINS
200 CAMPUS DR. 53RD AT THIRD, SUITE 1000
POST OFFICE BOX 1945 885 THIRD AVENUE
MORRISTOWN, N.J. 07962-1945 NEW YORK, N.Y. 10022
(201) 966-6300 (212) 906-1200
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, 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, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [ ]
------------------------
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, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
================================================================================
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED MAY 29, 1997
5,250,000 Shares
[LINEN N THINGS LOGO]
Common Stock
(par value $.01 per share)
All of the shares of Common Stock (the "Common Stock") of Linens 'n Things, Inc.
("Linens 'n Things" or the "Company") offered hereby (the "Offering") are being
sold by the Selling Shareholder named herein under "Principal and Selling
Shareholder and Management." The Company will not receive any proceeds from the
sale of shares by the Selling Shareholder.
The Common Stock is listed on the New York Stock Exchange under the symbol
"LIN". The last reported sale price of the Common Stock on the New York Stock
Exchange Composite Tape on May 28, 1997 was $23.125 per share. See "Price Range
of Common Stock."
FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED IN CONNECTION WITH
AN
INVESTMENT IN THE COMMON STOCK, SEE "RISK FACTORS" BEGINNING ON PAGE 7 HEREIN.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS
PRICE TO DISCOUNTS AND TO SELLING
PUBLIC COMMISSIONS SHAREHOLDER(1)
-------------- -------------- --------------
<S> <C> <C> <C>
Per Share.................................... $ $ $
Total(2)..................................... $ $ $
</TABLE>
(1) Before deduction of expenses payable by the Company estimated at $200,000
and by the Selling Shareholder estimated at $400,000.
(2) The Selling Shareholder has granted the Underwriters an option, exercisable
for 30 days from the date of this Prospectus, to purchase a maximum of
750,000 additional shares to cover over-allotments of shares. If the option
is exercised in full, the total Price to Public will be $ ,
Underwriting Discounts and Commissions will be $ and Proceeds to
Selling Shareholder will be $ .
The shares will be offered by the several Underwriters when, as and if
delivered to and accepted by the Underwriters and subject to their right to
reject orders in whole or in part. It is expected that the shares will be ready
for delivery on or about , 1997, against payment in immediately
available funds.
CREDIT SUISSE FIRST BOSTON DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
Prospectus dated , 1997.
<PAGE> 3
MAP OF LOCATIONS
<TABLE>
<S> <C> <C> <C> <C>
ARIZONA -- 2 CONNECTICUT -- CONT'D ILLINOIS -- 12 MICHIGAN -- 2 NEW JERSEY -- CONT'D
Peoria Farmington Bloomingdale Rochester Hills Toms River
Scottsdale Fiesta Manchester Clark Street Sterling Heights Totowa
ARKANSAS -- 1 Merritt Downers Grove MINNESOTA -- 6 NEW YORK -- 8
Little Rock Milford Michigan Ave. Burnsville Amherst
CALIFORNIA -- 17 Newington Naperville Mall of America Carle Place
Carmel Mt. Norwalk Northbrook Minnetonka Niagara
Costa Mesa FLORIDA -- 16 Oakbrook Plymouth Patchogue
Encinitas Altamonte Springs Orland Park Roseville Rochester
Fresno Aventura Palatine Woodbury Southtown
La Jolla Boca Raton Skokie (2) MISSOURI -- 2 Staten Island
Milipitas Clearwater Woodfield Clayton Stony Brook
Mission Viejo Coral Springs INDIANA -- 1 Manchester NORTH CAROLINA -- 9
Montclair Fort Meyers Indianapolis NEBRASKA -- 1 Asheville
Pleasanton Ft. Lauderdale LOUISIANA -- 1 Omaha Burlington
Roseville (2) Highland Lakes Harahan NEVADA -- 2 Cary
Sacramento Kendall MAINE -- 1 Henderson Charlotte
Stevens Creek Mall of Americas Kittery Las Vegas Durham
Thousand Oaks Naples MARYLAND -- 3 NEW JERSEY -- 11 Matthews Corner
Torrance Orlando Rockville Bridgewater Pineville
Valencia Plantation Silver Springs East Hanover Raleigh
West Covina Sarasota Towson Freehold Winston-Salem
COLORADO -- 3 Tampa MASSACHUSETTS -- 6 Menlo Park OHIO -- 3
Belleview Shores Venetian Braintree Mount Laurel Cassinelli Square
Park Meadows GEORGIA -- 7 Burlington Paramus Columbus
Westminster Alpharetta Danvers Princeton Kenwood
CONNECTICUT -- 8 Buckhead Framington Shrewsbury OKLAHOMA -- 1
Danbury Duluth Franklin Springfield Tulsa
Fairfield Kennesaw N. Attleboro
Lawrenceville
Perimeter
Stone Mountain Sq.
<CAPTION>
ARIZONA -- 2 OREGON -- 1 UTAH -- 1
Scottsdale Fiesta PENNSYLVANIA -- 4 VERMONT -- 1
ARKANSAS -- 1 Lancaster Chittenden
Little Rock Langhorne VIRGINIA -- 12
CALIFORNIA -- 17 Montgomeryville Dale City
Carmel Mt. Willow Grove Fairfax
Costa Mesa RHODE ISLAND -- 1 Falls Church
Encinitas Cranston Greenbriar
Fresno TENNESSEE -- 5 Lightfoot
La Jolla Goodlettsville Manassas
Milipitas Hickory Ridge Midlothian
Mission Viejo Memphis (2) Springfield
Montclair Murfreesboro Sterling
Pleasanton TEXAS -- 14 Tysons
Roseville (2) Arlington Virginia Beach
Sacramento Austin Westpark
Stevens Creek Baybrook WASHINGTON -- 1
Thousand Oaks Dallas (2) Tukwila
Torrance Fort Worth WASHINGTON DC -- 1
Valencia Grapevine Pentagon Centre
West Covina Houston (2) WISCONSIN -- 1
COLORADO -- 3 Lewisville Brookfield
Belleview Shores Preston Park
Park Meadows San Antonio
Westminster Sugarland
CONNECTICUT -- 8 Woodlands
Danbury
Fairfield
<CAPTION>
Peoria Portland Sandy
</TABLE>
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK
OFFERED HEREBY, INCLUDING OVER-ALLOTMENT, STABILIZING TRANSACTIONS, SYNDICATE
SHORT COVERING TRANSACTIONS AND PENALTY BIDS. FOR A DESCRIPTION OF THESE
ACTIVITIES, SEE "UNDERWRITING."
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and financial statements
appearing elsewhere in this Prospectus. Unless otherwise indicated, the
information in this Prospectus assumes the Underwriters' over-allotment option
is not exercised.
THE COMPANY
Linens 'n Things, Inc. (with its subsidiaries and its predecessors, "Linens
'n Things" or the "Company") is one of the leading, national large format
retailers of home textiles, housewares and home accessories operating in 34
states. According to Home Textiles Today, Linens 'n Things was the largest
specialty retailer (as measured by sales) in the home linens category in 1995,
the most recent year for which such information was published. As of March 29,
1997, the Company operated 132 superstores averaging approximately 33,000 gross
square feet in size and 33 smaller traditional stores averaging approximately
10,000 gross square feet in size. The Company's newest superstores range between
35,000 and 40,000 gross square feet in size and are located in strip malls or
power center locations. The Company's business strategy is to offer a broad
assortment of high quality, brand name merchandise at everyday low prices,
provide efficient customer service and maintain low operating costs.
Linens 'n Things' extensive selection of over 25,000 stock keeping units
("SKUs") in its superstores is driven by the Company's commitment to offering a
broad and deep assortment of high quality, brand name "linens" (e.g., bedding,
towels and pillows) and "things" (e.g., housewares and home accessories). Brand
names sold by the Company include Wamsutta, Cannon, Laura Ashley, Martex,
Waverly, Royal Velvet, Braun, Krups, Calphalon and Henckels. The Company also
sells an increasing amount of merchandise under its own private label
(approximately 10% of 1996 sales) which is designed to supplement the Company's
offering of brand name products by offering high quality merchandise at value
prices. The Company's merchandise offering is coupled with a "won't be
undersold" everyday low pricing strategy with price points substantially below
regular department store prices and comparable with or below department store
sale prices.
From its founding in 1975 through the late 1980s, the Company operated
traditional stores ranging between 7,500 and 10,000 gross square feet in size.
Beginning in 1990, the Company introduced its superstore format which has
evolved from 20,000 gross square feet in size to its current size of 35,000 to
40,000 gross square feet, offering a broad merchandise assortment in a more
visually appealing, customer friendly format. The Company's introduction of
superstores has resulted in the closing or relocation of 108 of the Company's
traditional stores through March 29, 1997. As a result of superstore openings
and traditional store closings, the Company's gross square footage more than
tripled from 1.2 million to 4.7 million between January 1991 and March 29, 1997,
although its store base only increased 17%, from 141 to 165 stores during this
period. Over this same period, the Company's net sales increased from $202.1
million for the year ended December 31, 1990 to $737.9 million for the 12 months
ended March 29, 1997. In addition, as part of its strategic initiative to
capitalize on customer demand for one-stop shopping destinations, the Company
has balanced its merchandise mix from being driven primarily by the "linens"
side of its business to a fuller assortment of "linens" and "things." The
Company estimates that the "things" side of its business has increased from less
than 10% of net sales in 1991 to 35% in 1996.
Key components of the Company's strategy to increase sales and
profitability are: (i) new superstore expansion and (ii) increasing productivity
of the existing store base. Principal elements of the Company's growth strategy
are highlighted as follows:
NEW SUPERSTORE EXPANSION. The Company's expansion strategy is to increase
market share in existing markets and to penetrate new markets in which the
Company believes it can become a leading operator of home furnishings
superstores. Management believes that these new markets will be primarily
located in the western region of the United States in trading areas of 200,000
persons within a ten-mile radius and with demographic characteristics that match
the Company's target profile. The Company believes that it is well-positioned to
take advantage of the continued market share gain by the superstore chains in
the home furnishings sector. The Company believes there is an opportunity to
more than triple the number of its current prototype superstores across the
country, providing the Company with significant growth opportunities to
profitably enter new markets,
3
<PAGE> 5
as well as backfill in existing markets. In 1997, the Company plans to open 20
to 25 new superstores, of which four were opened as of May 15, 1997, and close
12 to 17 stores (primarily traditional stores), of which seven were closed as of
May 15, 1997. In 1998, the Company plans to open 25 to 30 new superstores and
close 10 to 15 stores (primarily traditional stores). As of March 29, 1997, the
Company operated 132 superstores, representing 80% of its total stores, and 33
traditional stores. The Company's long-term plans include closing most of the
remaining traditional stores as opportunities arise.
INCREASE PRODUCTIVITY OF EXISTING STORE BASE. The Company is committed to
increasing its sales per square foot, inventory turnover ratio and return on
invested capital. The Company believes the following initiatives will allow it
to achieve this goal:
Enhance Merchandise Mix and Presentation. The Company continues to explore
opportunities to increase sales of "things" merchandise while maintaining
the strength of its "linens" side of the business. The Company's long-term
goal is to increase the sales of "things" merchandise to approximately 50%
of net sales as part of its strategic initiative to capitalize on customer
demand for one-stop shopping destinations. The Company expects this shift
to positively impact net sales per square foot and inventory turnover since
"things" merchandise tends to be more impulse driven merchandise as
compared to the "linens" portion of the business and therefore increases
the average sale per customer. In addition, sales of "things" merchandise
typically result in higher margins than "linens" products. The Company
intends to continue improving its merchandising presentation and
techniques, space planning and store layout to further improve the
productivity of its existing and future superstore locations.
Increase Operating Efficiencies. As part of its strategy to increase
operating efficiencies, the Company has invested significant capital in
building a centralized infrastructure, including a distribution center and
a management information system, which it believes will allow it to
maintain low operating costs as it pursues its superstore expansion
strategy. In July 1995, the Company began full operations of its 275,000
square foot distribution center in Greensboro, North Carolina. By the end
of 1996, approximately 80% of merchandise was received at the Company's
distribution center, as compared to approximately 20% at the end of 1995.
The utilization of the distribution center has resulted in lower average
freight costs, more efficient scheduling of inventory shipments to the
stores, improved inventory turnover, better in-stock positions and improved
information flow. In addition, the Company believes that the transfer of
inventory receiving responsibilities from the stores to the distribution
center has allowed store sales associates to redirect their focus to the
sales floor, thereby increasing the level of customer service. The
Company's ability to effectively manage its inventory is also enhanced by a
centralized merchandising management team and its MIS system which allows
the Company to more accurately monitor and better balance inventory levels
and improve in-stock positions in its stores.
------------------------
The Company was founded in 1975 and was acquired in 1983 by CVS Corporation
(formerly known as Melville Corporation) (CVS Corporation together with its
subsidiaries, "CVS"). From its formation, the Company was operated as a wholly
owned indirect subsidiary of CVS until November 1996, when CVS sold 13,000,000
shares representing approximately 67.5% of the outstanding shares of the
Company, in an initial public offering (the "IPO"). CVS currently owns
approximately 32.5% of the outstanding shares of the Company's Common Stock.
Upon completion of the sale of the shares offered hereby (the "Offering") CVS
will own approximately 5.3% (1.4% if the Underwriters' over-allotment option is
exercised in full) of the Company's Common Stock.
The Company's corporate offices are located at 6 Brighton Road, Clifton,
New Jersey 07015, and its telephone number is (201) 778-1300.
4
<PAGE> 6
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Selling 5,250,000 shares(1)
Shareholder................................
Common Stock outstanding(2).................. 19,268,458 shares(2)
Dividend policy.............................. The Company intends to retain all its
earnings for the foreseeable future for use
in the operation and expansion of its
business and, accordingly, the Company
currently has no plans to pay cash dividends
on the Common Stock. See "Dividend Policy."
New York Stock Exchange symbol............... "LIN"
</TABLE>
- ---------------
(1) 6,000,000, if the Underwriters' over-allotment option is exercised in full.
(2) The number of outstanding shares will not change upon completion of the
Offering. The number shown excludes approximately 163,000 shares of deferred
stock grants and approximately 1,001,000 shares issuable upon the exercise
of outstanding stock options. See "Underwriting" and "Management -- 1996
Incentive Compensation Plan" and "Management -- Compensation of Directors."
5
<PAGE> 7
SUMMARY FINANCIAL AND OPERATING DATA
<TABLE>
<CAPTION>
THIRTEEN
WEEKS ENDED(1)
YEAR ENDED DECEMBER 31, -----------------------
-------------------------------------------------------- MARCH 30, MARCH 29,
1992 1993 1994 1995 1996 1996 1997
-------- -------- -------- -------- -------- --------- ---------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA AND SELECTED OPERATING DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS
DATA:
Net sales............................ $270,889 $333,178 $440,118 $555,095 $696,107 $138,167 $179,911
Gross profit......................... 108,794 133,871 174,397 209,933(2) 269,911 50,498 68,315
Selling, general & administrative
expense............................ 95,904 112,135 142,155 190,826(2) 239,228 51,509 67,371
Restructuring and asset impairment
charges............................ 13,100(3) -- -- 10,974(2) -- -- --
Operating profit (loss).............. (210)(3) 21,736 32,242 8,133(2) 30,683 (1,011) 944
Interest expense, net................ 1,301 1,398 3,170 7,059 4,692 2,082 336
Income (loss) before provision for
income taxes and cumulative effect
of change in accounting
principle.......................... (1,511) 20,338 29,072 1,074 25,991 (3,093) 608
Net income (loss).................... (1,201) 11,719 17,198 (212) 15,039 (1,786) 352
Net income (loss) per share.......... $(0.06) $0.61 $0.89 $(0.01) $0.78 $(0.09) $0.02
Weighted average number of shares
outstanding (in thousands)......... 19,268 19,268 19,268 19,268 19,286 19,268 19,706
SELECTED OPERATING DATA:
Number of stores:
At beginning of period............. 143 144 143 145 155 155 169
Opened during period............... 22 20 29 28 36 3 1
Closed during period............... 21 21 27 18 22 10 5
-------- -------- -------- -------- -------- -------- --------
At end of period:
Traditional stores............... 119 98 71 54 37 46 33
Superstores...................... 25 45 74 101 132 102 132
-------- -------- -------- -------- -------- -------- --------
Total stores................... 144 143 145 155 169 148 165
======== ======== ======== ======== ======== ======== ========
Total gross square feet of store
space (000's)(4)................... 1,633 2,078 2,865 3,691 4,727 3,680 4,696
Net sales per gross square
foot(4)(5)......................... $185 $187 $190 $178 $171 $175(6) $173(6)
Increase (decrease) in comparable
store net sales(7)................. 7.5% 5.0% 5.4% (1.5)% 1.1% 1.7% 5.7%
</TABLE>
<TABLE>
<CAPTION>
MARCH 29, 1997
--------------
(DOLLARS IN
THOUSANDS)
<S> <C>
BALANCE SHEET DATA:
Working capital....................................................................... $113,701
Total assets.......................................................................... 396,879
Total debt(8)......................................................................... 19,220
Shareholders' equity.................................................................. 250,079
</TABLE>
- ---------------
(1) The operating results for the interim periods are not necessarily indicative
of the results that may be expected for a full year. The Company's quarters
end on the Saturday nearest to the end of the last month of such quarter,
except the fourth quarter which ends on December 31.
(2) Reflects certain one-time special charges related to the CVS Strategic
Program (as defined in "Management's Discussion and Analysis of Financial
Condition and Results of Operations"). Gross profit and operating profit in
1995 excluding the effect of these charges would have been $218.1 million
and $31.5 million, respectively. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
(3) Reflects a $13.1 million realignment charge associated with the anticipated
costs of closing 66 traditional stores from 1993 to 1995. This charge
includes the write-down of fixed assets, lease settlement costs, severance
and inventory liquidation costs. Operating profit in 1992 excluding the
effect of this charge would have been $12.9 million.
(4) Store space includes the storage, receiving and office space that generally
occupies 10% to 15% of total store space. All numbers provided are for the
end of the respective periods.
(5) Net sales per square foot is the result of dividing net sales for the period
by the average gross square footage at the beginning of the year and at the
end of each interim quarterly and year period.
(6) Amounts for interim periods are calculated based on annual net sales for the
52 weeks ending at the end of such interim period.
(7) New store net sales become comparable in the first full month following 13
full months of operations. Stores that undergo major expansion or that are
relocated are not included in the comparable store base. Comparable store
net sales include traditional stores and superstores.
(8) Total debt consists of a $13.5 million subordinated note issued to CVS, the
balance of short-term debt outstanding of $0.7 million under the Revolving
Credit Facility (as defined herein), and $5.0 million of borrowings under
uncommitted lines of credit unrelated to the Revolving Credit Facility. See
"Relationship with CVS and Related Party Transactions -- Financing."
6
<PAGE> 8
RISK FACTORS
Prospective investors should carefully consider the factors set forth
below, as well as other information contained in this Prospectus, in evaluating
an investment in the Common Stock.
This Prospectus contains forward-looking statements within the meaning of
The Private Securities Litigation Reform Act of 1995. The statements are made a
number of times throughout the Prospectus and may be identified by use of
forward-looking terminology such as "expect," "believe," "may," "will" or
similar terms or variations of such terms. Such forward-looking statements
involve certain risks and uncertainties and, in each case, actual results may
differ materially from those reflected in the forward-looking statements.
Certain important factors that may cause actual results to differ materially
from those reflected in the forward-looking statements are set forth below in
this "Risk Factors" section of the Prospectus. You are urged to consider all
such factors. The Company assumes no obligation for updating any such
forward-looking statements.
RISKS OF GROWTH STRATEGY
The growth of the Company is dependent, in large part, upon the Company's
ability to successfully execute its superstore expansion program and to increase
productivity of the existing store base. Pursuant to the expansion program the
Company plans to open 20 to 25 superstores in 1997, of which four were opened as
of May 15, 1997, and close 12 to 17 stores (primarily traditional stores), of
which seven were closed as of May 15, 1997. In 1998, the Company plans to open
25 to 30 new superstores and close 10 to 15 stores (primarily traditional
stores). See "Business -- Growth Strategy -- New Superstore Expansion." The
success of the Company's expansion program will be dependent upon, among other
things, the identification of suitable markets and sites for new superstores,
negotiation of leases on acceptable terms, construction or renovation of sites
and obtaining financing for those sites. In addition, the Company must be able
to hire, train and retain competent managers and personnel and manage the
systems and operational components of its growth. The failure of the Company to
open new superstores on a timely basis, obtain acceptance in markets in which it
currently has limited or no presence, attract qualified management and personnel
or appropriately adjust operational systems and procedures would adversely
affect the Company's future operating results. There can be no assurance that
the Company will be able to locate suitable store sites or enter into suitable
lease agreements. In addition, there can be no assurance that as the Company
opens new superstores in existing markets, that these new stores will not have
an adverse effect on comparable store net sales at existing stores in these
markets. In addition, the Company's continuing strategy is to increase
productivity at its existing store base in part by enhancing its merchandise and
presentation mix. There is no assurance that the Company will be able to
increase store profitability by enhancing its merchandise and presentation mix
or that the Company will be able to increase the "things" side of the business
to the Company's targeted goal of 50% of net sales. See "Business -- Growth
Strategy -- Increase Productivity of Existing Store Base." There can be no
assurance that the Company will be able to successfully implement its growth
strategies, continue to introduce the superstore format or maintain its current
growth levels.
COMPETITION
The market for home textiles, housewares and home accessories is fragmented
and highly competitive. The Company competes with many different types of
retailers that sell many or most of the items sold by the Company, including
department stores, mass merchandisers, specialty retail stores, mail order and
other retailers. Many of the Company's competitors have substantially greater
financial and other resources than the Company, including, in some cases, more
profitable store economics or better name recognition. See "Business --
Industry" and "Business -- Competition." In addition, there can be no assurance
that additional competitors will not enter the Company's existing or planned new
markets. Increased competition by existing or future competitors, resulting in
the Company reducing prices in an effort to gain or retain market share, could
result in reductions in the Company's sales and profitability which could have a
material adverse effect on the Company's business and financial condition. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Results of Operations."
7
<PAGE> 9
RELIANCE ON SYSTEMS AND DISTRIBUTION CENTER
The Company relies upon its existing management information systems in
operating and monitoring all major aspects of the Company's business, including
sales, warehousing, distribution, purchasing, inventory control, merchandise
planning and replenishment, as well as various financial systems. Any disruption
in the operation of the Company's management information systems, or the
Company's failure to continue to upgrade, integrate or expend capital on such
systems as its business expands, would have a material adverse effect upon the
Company. Like many computer systems, the Company's systems use two digit data
fields which recognize dates using the assumption that the first two digits are
"19" (i.e., the number 97 is recognized as the year 1997). Therefore, the
Company's date critical functions relating to the year 2000 and beyond, such as
sales, distribution, purchasing, inventory control, merchandise planning and
replenishment, and financial systems, may be severely affected unless changes
are made to these computer systems. The Company expects to resolve these issues
in a timely manner and is currently engaged in a review of all existing computer
systems in order to implement the required changes. However, no assurance can be
given that these issues can be resolved in a timely manner or that the Company
will not incur significant expense in resolving these issues. In addition, the
Company is committed to a centralized distribution strategy and, as a result,
began full operations of its new distribution center in July 1995. By the end of
1996, approximately 80% of merchandise was received at the Company's
distribution center, as compared to approximately 20% at the end of 1995.
Management believes the systems and controls related to the distribution center
are fully integrated and are adequate to support the Company's growth over the
next few years. However, a disruption in the operations of the distribution
center could have a material adverse effect on the Company's business. The
Company's expansion into the western United States could result in freight costs
higher than experienced to date. See "Business -- Growth Strategy -- Increase
Productivity of Existing Store Base" and "Business -- Management Information
Systems."
EFFECT OF ECONOMIC CONDITIONS AND CONSUMER TRENDS
The success of the Company's operations depends upon a number of factors
relating to consumer spending, including future economic conditions affecting
disposable consumer income such as employment, business conditions, interest
rates and taxation. If existing economic conditions deteriorate, consumer
spending may decline, thereby adversely affecting the Company's business and
results of operations.
The success of the Company depends on its ability to anticipate and respond
to changing merchandise trends and consumer demands in a timely manner. If the
Company miscalculates either the market for its merchandise or its customers'
purchasing habits, it may be required to sell a significant amount of inventory
at reduced margins. These outcomes may have a material adverse effect on the
Company's operating results and financial condition. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
RELIANCE ON KEY VENDORS
The Company purchases its inventory from over 1,000 suppliers and has no
long-term purchase commitments or exclusive contracts with any vendor or
supplier. Springs Industries, Inc., through its various operating companies,
supplied approximately 13% of the Company's total purchases in 1996. The Company
also purchases significant amounts of products from other key suppliers, none of
which supplied greater than 10% of the Company's purchases in 1996. The
Company's results of operations could be adversely affected by a disruption in
purchases from any of these key suppliers. In addition, many of the Company's
key suppliers currently provide the Company with certain incentives, such as
volume purchasing allowances, trade discounts, cooperative advertising and other
purchasing incentives. A reduction or discontinuance of these incentives could
have a material adverse effect on the Company. Although the Company believes
that its relationships with key vendors are good, the Company has no supply
contracts with any of its vendors, and any vendor could discontinue selling to
the Company at any time.
8
<PAGE> 10
DEPENDENCE UPON KEY EMPLOYEES
The Company's success is largely dependent on the efforts and abilities of
its executive officers, particularly, Norman Axelrod, Chairman of the Board,
Chief Executive Officer and President. The loss of the services of Mr. Axelrod
or other key employees could have a material adverse impact on the Company. The
Company has entered into an employment agreement with Mr. Axelrod. The Company's
success is also dependent upon its ability to continue to attract and retain
qualified employees to meet the Company's needs for its planned superstore
expansion. See "Business -- Business Strategy" and "Management."
SEASONALITY AND QUARTERLY FLUCTUATIONS
The Company's business is subject to substantial seasonal variations.
Historically, the Company has realized a significant portion of its net sales
and substantially all of its net income for the year during the third and fourth
quarters, with a majority of net sales and net income for such quarters realized
in the fourth quarter. The Company's quarterly results of operations may also
fluctuate significantly as a result of a variety of other factors, including the
timing of new store openings. The Company believes this is the general pattern
associated with its segment of the retail industry and expects this pattern will
continue in the future. In anticipation of its peak selling season, the Company
substantially increases its inventory levels and hires a significant number of
part-time employees. If for any reason the Company's sales during the fourth
quarter were substantially below expectations, the Company's annual results
would be adversely affected. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
INFLUENCE BY CVS
CVS, the Company's former parent and the Selling Shareholder, currently
owns approximately 32.5% of the outstanding Common Stock of the Company. As a
result of the ownership by CVS of the outstanding Common Stock, CVS is currently
in a position to significantly influence the outcome of all matters requiring a
shareholder vote, including the election of directors. Upon completion of the
Offering, CVS will beneficially own approximately 5.3% (1.4% if the
Underwriters' over-allotment option is exercised in full) of the outstanding
Common Stock of the Company. As a result of the reduction in CVS's ownership of
Common Stock of the Company upon completion of the Offering, the ability of CVS
to influence the Company will be significantly reduced, but will not be
eliminated. Pursuant to the Company's Certificate of Incorporation and the
Stockholder Agreement between CVS and the Company dated as of December 2, 1996
(the "Stockholder Agreement"), CVS currently has the right to designate two
members of the Board of Directors of the Company. Upon consummation of the
Offering, CVS will have the right to designate one member of the Board of
Directors of the Company if the Underwriters' over-allotment option is not
exercised, and no members if the over-allotment option is exercised in full. The
Company may ask current CVS designee directors to continue to serve on the
Company's Board of Directors after they are no longer CVS designees.
In addition, pursuant to the Stockholder Agreement, no person or group may
become the beneficial owner of a majority of the Common Stock of the Company
("Majority Beneficial Ownership") unless: (i) CVS has received prior written
notice that such person or group proposes to acquire Majority Beneficial
Ownership; and (ii) prior to such acquisition such person or group provides to
CVS (unless waived by CVS in writing) a guarantee, in form and substance
satisfactory to CVS, of the obligations of the Company under the Stockholder
Agreement to indemnify CVS in respect of the CVS Lease Guarantees (as defined
herein). These provisions regarding acquisition of Majority Beneficial Ownership
could limit the ability or willingness of a third party to make an offer to
acquire the Company. See "Relationship with CVS and Related Party
Transactions -- The Stockholder Agreement."
The Company currently has subordinated aggregate indebtedness outstanding
of $13.5 million to CVS, of which $3.5 million may be converted into equity upon
consummation of this Offering, depending on the sale price of the Company's
Common Stock in this Offering. See "Relationship with CVS and Related Party
Transactions -- Financing." As a result of CVS's ownership of Common Stock and
its position as a creditor of the Company, various conflicts of interest may
arise. See "Principal and Selling Shareholder and Management," "Relationship
with CVS and Related Party Transactions" and "Description of Capital Stock."
9
<PAGE> 11
LIMITED OPERATING HISTORY AS A STAND-ALONE COMPANY
The Company began operating as a stand-alone public company on November 26,
1996, upon completion of the IPO. The historical financial data reflects periods
during which the Company did not operate as an independent company and,
accordingly, certain allocations were made in preparing such financial data. The
Company is subject to the risks and uncertainties associated with any newly
independent company. Prior to the date of the IPO, the Company had access to
financial and other support from CVS. Since the IPO, the Company no longer is
able to rely on CVS for financial support or benefit from its relationship with
CVS to obtain credit or receive favorable terms for the purchase of certain
limited goods and services. Prior to the IPO, CVS acted as the guarantor with
regard to substantially all of the Company's store leases. CVS will not enter
into any additional guarantees of leases on behalf of the Company. As a result,
there can be no assurance in the future that store leases will be available, or
that the Company will be able to secure leases, on similar terms or in as
desirable locations, as those that were available to the Company in the past.
SHARES ELIGIBLE FOR FUTURE SALE
The Company had 19,268,458 shares of Common Stock outstanding as of May 28,
1997. The 5,250,000 shares of Common Stock sold in the Offering (6,000,000
shares if the Underwriters' over-allotment option is exercised in full) will be
freely tradeable without restriction under the Securities Act of 1933, as
amended (the "Securities Act"), except any such shares which may be acquired by
an "affiliate" of the Company. The remaining shares of Common Stock held by CVS
will be eligible for sale in the public market, either pursuant to a
Registration Statement or in compliance with the resale volume limitations and
other restrictions of Rule 144 under the Securities Act. Upon completion of this
Offering, CVS will have one remaining "demand" registration right pursuant to
the Stockholder Agreement. CVS has publicly announced its intention to reduce
its ownership of the Company's Common Stock below 10% of the outstanding shares
by the end of 1997. Future sales of the shares of Common Stock held by CVS or
other existing shareholders could have an adverse effect on the price of the
Common Stock and could impair the Company's ability to raise capital through an
offering of equity securities. See "Shares Eligible for Future Sale."
POSSIBLE VOLATILITY OF STOCK PRICE
The Common Stock is listed on the New York Stock Exchange. The market price
of the Common Stock may be subject to significant fluctuations in response to
operating results and other factors. In addition, the stock market in recent
years has experienced price and volume fluctuations that often have been
unrelated or disproportionate to the operating performance of companies. These
fluctuations, as well as general economic and market conditions, may adversely
affect the market price of the Common Stock. See "Price Range of Common Stock."
USE OF PROCEEDS
The Company will not receive any proceeds from the sale of shares of Common
Stock offered hereby.
10
<PAGE> 12
CAPITALIZATION
The following table sets forth the capitalization of the Company at March
29, 1997. The table should be read in conjunction with the historical
Consolidated Financial Statements and Notes thereto included elsewhere in this
Prospectus and "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
<TABLE>
<CAPTION>
MARCH 29, 1997
(UNAUDITED)
(IN THOUSANDS)
--------------
<S> <C>
Short-term debt:
Revolving credit facility............................................ $ 720
Other short-term debt................................................ 5,000
--------
Total short-term debt........................................ 5,720
--------
Long-term debt:
Subordinated note.................................................... 13,500(1)
--------
Total long-term debt......................................... 13,500
--------
Total debt................................................... 19,220
--------
Shareholders' equity:
Preferred Stock, $.01 par value; 1,000,000 shares authorized; none
issued and outstanding............................................ --
Common Stock, $.01 par value; 60,000,000 shares authorized;
19,267,758 shares issued and outstanding.......................... 193
Additional paid-in capital........................................... 200,189
Retained earnings.................................................... 49,697
--------
Total shareholders' equity................................... 250,079
--------
Total capitalization......................................... $269,299
========
</TABLE>
- ---------------
(1) The Company currently has subordinated aggregate indebtedness outstanding of
$13.5 million to CVS, of which $3.5 million may be converted into equity
upon consummation of this Offering, depending on the sale price of the
Company's Common Stock in this Offering. See "Relationship with CVS and
Related Party Transactions -- Financing."
DIVIDEND POLICY
The Company has not paid any dividends since the IPO. The Company intends
to retain all its earnings for the foreseeable future for use in the operation
and expansion of its business. Accordingly, the Company currently has no plans
to pay cash dividends on the Common Stock. The payment of any future cash
dividends will be determined by the Board of Directors in light of conditions
then existing, including the Company's earnings, financial condition and
requirements, restrictions in financing agreements, business conditions and
other factors. The Company's payment of cash dividends is prohibited under its
Revolving Credit Facility (as defined herein). See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources."
PRICE RANGE OF COMMON STOCK
The Company's Common Stock has traded on the New York Stock Exchange under
the symbol "LIN" since November 26, 1996. The following table sets forth the
high and low trading prices per share of Common Stock reported on the New York
Stock Exchange for the periods indicated.
<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
1996
Fourth Quarter (from November 26, 1996).................... $19.75 $15.50
1997
First Quarter.............................................. $26.00 $17.50
Second Quarter (through May 28, 1997)...................... $24.88 $18.25
</TABLE>
On May 28, 1997, the last reported sale price of the Common Stock was
$23.125. As of May 28, 1997, there were approximately 38 holders of record of
the Company's Common Stock.
11
<PAGE> 13
SELECTED FINANCIAL AND OPERATING DATA
The table below sets forth the selected historical consolidated financial
data for the Company. The historical financial data presented below reflect
periods during which the Company did not operate as an independent company and,
accordingly, certain allocations were made in preparing such financial data.
Therefore, such data may not reflect the results of operations or the financial
condition which would have resulted if the Company had operated as a separate,
independent company during such periods and are not necessarily indicative of
the Company's future results of operations or financial condition.
The selected financial data presented below under the captions "Income
Statement Data" and "Balance Sheet Data" have been derived from the Consolidated
Financial Statements of the Company which have been audited by KPMG Peat Marwick
LLP, whose report on the Consolidated Financial Statements as of December 31,
1995 and 1996 and for the years ended December 31, 1994, 1995 and 1996 is
included elsewhere in this Prospectus. The selected financial data as of March
30, 1996 and March 29, 1997 and for the thirteen weeks ended March 30, 1996 and
March 29, 1997 have been derived from unaudited consolidated financial
statements of the Company which are included elsewhere in this Prospectus and
include all adjustments consisting only of normal recurring adjustments
necessary for a fair presentation of the operating results and financial
position as of and for the unaudited periods. The information presented below
under the caption "Selected Operating Data" is unaudited. The selected financial
data should be read in conjunction with the consolidated financial statements as
of December 31, 1995 and 1996 and for the years ended December 31, 1994, 1995
and 1996, the related notes and the audit report thereto. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Consolidated Financial Statements."
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED(1)
YEAR ENDED DECEMBER 31, -----------------------
-------------------------------------------------------- MARCH 30, MARCH 29,
1992 1993 1994 1995 1996 1996 1997
-------- -------- -------- -------- -------- --------- ---------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA AND SELECTED OPERATING DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales................................ $270,889 $333,178 $440,118 $555,095 $696,107 $138,167 $179,911
Cost of sales, including buying and
warehousing costs...................... 162,095 199,307 265,721 345,162(2) 426,196 87,669 111,596
-------- -------- -------- -------- -------- --------- ---------
Gross profit............................. 108,794 133,871 174,397 209,933(2) 269,911 50,498 68,315
Selling, general and administrative
expenses............................... 95,904 112,135 142,155 190,826(2) 239,228 51,509 67,371
Restructuring and asset impairment
charge................................. 13,100(3) -- -- 10,974(2) -- -- --
-------- -------- -------- -------- -------- --------- ---------
Operating profit (loss).................. (210)(3) 21,736 32,242 8,133(2) 30,683 (1,011) 944
Interest expense, net.................... 1,301 1,398 3,170 7,059 4,692 2,082 336
-------- -------- -------- -------- -------- --------- ---------
Income (loss) before provision for income
taxes and cumulative effect of change
in accounting principle................ (1,511) 20,338 29,072 1,074 25,991 (3,093) 608
Provision for (benefit from) income
taxes.................................. (310) 8,619 11,874 1,108 10,952 (1,307) 256
-------- -------- -------- -------- -------- --------- ---------
Income (loss) before cumulative effect of
change in accounting principle......... (1,201) 11,719 17,198 (34) 15,039 (1,786) 352
Cumulative effect of change in accounting
principle, net......................... -- -- -- 178 -- -- --
-------- -------- -------- -------- -------- --------- ---------
Net income (loss)........................ $ (1,201) $ 11,719 $ 17,198 $ (212) $ 15,039 $ (1,786) $ 352
======== ======== ======== ======== ======== ======== ========
Net income (loss) per share.............. $(0.06) $0.61 $0.89 $(0.01) $0.78 $(0.09) $0.02
Weighted average number of shares
outstanding............................ 19,268 19,268 19,268 19,268 19,286 19,268 19,706
SELECTED OPERATING DATA:
Number of stores:
At beginning of period................. 143 144 143 145 155 155 169
Opened during period................... 22 20 29 28 36 3 1
Closed during period................... 21 21 27 18 22 10 5
-------- -------- -------- -------- -------- --------- ---------
At end of period:
Traditional stores................... 119 98 71 54 37 46 33
Superstores.......................... 25 45 74 101 132 102 132
-------- -------- -------- -------- -------- --------- ---------
Total stores....................... 144 143 145 155 169 148 165
======== ======== ======== ======== ======== ======== ========
Total gross square feet of store space
(000's)(4)............................. 1,633 2,078 2,865 3,691 4,727 3,680 4,696
Net sales per gross square foot(4)(5).... $185 $187 $190 $178 $171 $175 (6) $173 (6)
Increase (decrease) in comparable store
net sales(7)........................... 7.5% 5.0% 5.4% (1.5)% 1.1% 1.7 % 5.7 %
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------------- MARCH 29,
1992 1993 1994 1995 1996 1997
-------- -------- -------- -------- -------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital.................................. $ 34,606 $ 35,143 $ 42,315 $ 68,332 $111,056 $ 113,701
Total assets..................................... 157,639 196,517 273,167 343,522 423,957 396,879
Total debt(8).................................... 31,180 44,620 67,452 118,652 13,500 19,220
Shareholders' equity............................. 65,170 74,340 85,819 76,678 249,727 250,079
</TABLE>
12
<PAGE> 14
- ---------------
(1) The operating results for the interim periods are not necessarily indicative
of the results that may be expected for a full year. The Company's quarters
end on the Saturday nearest to the end of the last month of such quarter,
except the fourth quarter which ends on December 31.
(2) Reflects certain one-time special charges related to the CVS Strategic
Program (as defined in "Management's Discussion and Analysis of Financial
Condition and Results of Operations"). Gross profit and operating profit in
1995 excluding the effect of these charges would have been $218.1 million
and $31.5 million, respectively. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
(3) Reflects a $13.1 million realignment charge associated with the anticipated
costs of closing 66 traditional stores from 1993 to 1995. This charge
includes the write-down of fixed assets, lease settlement costs, severance
and inventory liquidation costs. Operating profit in 1992 excluding the
effect of this charge would have been $12.9 million.
(4) Store space includes the storage, receiving and office space that generally
occupies 10% to 15% of total store space. All numbers provided are for the
end of the respective periods.
(5) Net sales per square foot is the result of dividing net sales for the period
by the average gross square footage at the beginning of the year and at the
end of each interim quarterly and year period.
(6) Amounts for interim periods are calculated based on annual net sales for the
52 weeks ending at the end of such interim period.
(7) New store net sales become comparable in the first full month following 13
full months of operations. Stores that undergo major expansion or that are
relocated are not included in the comparable store base. Comparable store
net sales include traditional stores and superstores.
(8) As of March 29, 1997, total debt consists of a $13.5 million subordinated
note issued to CVS, the balance of short-term debt outstanding of $0.7
million under the Revolving Credit Facility (as defined herein), and $5.0
million of borrowings under uncommitted lines of credit unrelated to the
Revolving Credit Facility. See "Relationship with CVS and Related Party
Transactions -- Financing."
13
<PAGE> 15
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
Linens 'n Things, a leading specialty retailer of home textiles, housewares
and home accessories currently operating in 34 states, was founded in 1975 and
was operated as a private company until it was acquired by CVS in 1983. The
Company was wholly-owned by CVS from 1983 until November 26, 1996, the date of
the IPO. As of March 29, 1997, the Company operated 132 superstores averaging
approximately 33,000 gross square feet in size and 33 smaller traditional stores
averaging approximately 10,000 gross square feet in size. The Company's newest
superstores range between 35,000 and 40,000 gross square feet in size. The
Company's business strategy is to offer a broad assortment of high quality,
brand name merchandise at everyday low prices, provide efficient customer
service and maintain low operating costs.
From its founding in 1975 through the late 1980s, the Company operated
traditional stores ranging between 7,500 and 10,000 gross square feet in size.
Beginning in 1990, the Company introduced its superstore format which has
evolved from 20,000 gross square feet in size to its current size of 35,000 to
40,000 gross square feet, offering a broad merchandise assortment in a more
visually appealing, customer friendly format. The Company's introduction of
superstores has resulted in the closing or relocation of 108 of the Company's
traditional stores through March 29, 1997. As a result of superstore openings
and traditional store closings, the Company's gross square footage more than
tripled from 1.2 million to 4.7 million between January 1991 and March 29, 1997,
although its store base only increased 17% from 141 to 165 stores. Over this
same period, the Company's net sales increased from $202.1 million for the year
ended December 31, 1990 to $737.9 million for the 12 months ended March 29,
1997. In addition, as part of the strategic initiative to capitalize on customer
demand for one-stop shopping destinations, the Company has balanced its
merchandise mix from being driven primarily by the "linens" side of its business
to a fuller assortment of "linens" and "things." The Company believes that this
shift will positively impact net sales per square foot and inventory turnover
since "things" merchandise tends to be more impulse driven as compared to the
"linens" portion of the business and therefore increases the average sale per
customer. In addition, sales of "things" merchandise typically result in higher
margins than "linens" products. The Company estimates that the "things" side of
its business has increased from less than 10% of net sales in 1991 to 35% in
1996.
Beginning in the second half of 1995 through the first half of 1996,
approximately 40% of the Company's superstores included in the comparable store
base which previously had limited competition from other superstores experienced
new competitive intrusions, resulting in a decrease in comparable store net
sales at these stores. Typically, store sales begin to recover after one full
year of competition. In the second half of 1996 and 1997 to date, these stores
impacted by competitive intrusions are trending positive as a group.
In July 1995, the Company began operations of its 275,000 square foot
state-of-the-art distribution center in Greensboro, North Carolina. After the
distribution center became fully operational in 1995, the Company's gross margin
was negatively affected initially by the following factors: (i) transitional
costs associated with the start-up of the distribution center and (ii) higher
freight and handling costs incurred given the less than full utilization of the
distribution center during its implementation phase. The utilization of the
distribution center has resulted in lower average freight costs, more timely
control of inventory shipments to the stores, improved inventory turnover,
better in-stock positions and improved information flow. In addition, the
Company believes that the transfer of inventory receiving responsibilities from
the stores to the distribution center has allowed store associates to redirect
their focus to the sales floor, thereby increasing the level of customer
service. At the end of 1996 approximately 80% of merchandise was being received
at the Company's distribution center, as compared to approximately 20% at the
end of 1995.
In 1992, the Company established a realignment reserve of $13.1 million for
the anticipated costs of closing 66 traditional stores between 1993 and 1995.
In 1994, CVS announced the initiation of a strategic review to increase its
sales and profits by examining the mix of its business. The review culminated in
the announcement, on October 24, 1995, of a comprehensive strategic program (the
"CVS Strategic Program"), which resulted, insofar as it relates to the Company,
in the
14
<PAGE> 16
Company recording a pre-tax charge of $23.4 million in the fourth quarter of
1995. The CVS Strategic Program and related pre-tax charge of $23.4 million,
insofar as they relate to the Company, consisted of: (i) restructuring charges
of $9.5 million including primarily estimated tenancy costs ($3.8 million) and
asset write-offs ($5.0 million) associated with the closing of six unprofitable
stores and asset write-offs related to management information systems
outsourcing ($0.7 million); (ii) a non-cash asset impairment charge of $1.4
million due to the early adoption of Statement of Financial Accounting Standards
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of" ("SFAS No. 121") relating to store fixtures and
leasehold improvements; and (iii) asset write-offs and other non-cash charges
totaling $12.5 million consisting primarily of the write-off of certain
non-productive assets, as well as costs associated with the changeover to the
Company's new distribution network relating to the opening of the distribution
center.
In 1995, as part of a $9.5 million restructuring charge associated with the
CVS Strategic Program, the Company reserved $8.8 million for the anticipated
costs of closing six unprofitable stores. The $8.8 million cost, which consisted
of the write-off of fixed assets, lease acquisition costs and future lease
obligation costs associated with these stores, was higher than the usual such
closing costs because the Company elected to close these stores and terminate
these leases before their stated lease termination dates. The net sales and
operating losses in 1995 of the stores to be closed were approximately $14.3
million and $1.5 million, respectively. Accordingly, management believes that
such actions and costs associated with the CVS Strategic Program will not have a
significant impact on the Company's future earnings or cash flows. Cash outflows
relating to the lease obligation costs totaling in the aggregate of $3.8 million
will continue for the duration of the lease terms. Of the six stores included in
the reserve, five were closed in 1996 and one was closed in early 1997.
The SFAS No. 121 charge related entirely to assets to be held or used as
defined in SFAS No. 121. The charge resulted from the Company grouping assets at
a lower level than under its previous accounting policy regarding asset
impairment. Factors leading to impairment were a combination of historical
losses, anticipated future losses and inadequate cash flows.
All charges relating to asset write-offs were non-cash charges based on
recorded net book values and estimated tenancy costs were non-cash charges based
on future lease obligations. The reduction in depreciation expense and
amortization expense in the future relating to the write-off of fixed assets and
lease acquisition costs is not expected to be material to the Company's results
of operations.
Excluding these charges in connection with the CVS Strategic Program, gross
profit and operating profit would have been $218.1 million and $31.5 million in
1995, respectively, as compared to $209.9 million and $8.1 million,
respectively, reflected in the Company's consolidated statement of operations
for such year.
The Company's policy for costs associated with stores closed in the normal
course of business is to charge such costs to current operations, and,
accordingly, the Company has not provided for any costs relating to future store
closings. In 1997, the Company expects to close approximately 12 to 17 stores
(primarily traditional stores), seven of which have been closed as of May 15,
1997. Management anticipates that the aggregate cost to the Company of all store
closings during 1997 will be approximately $4.0 to $5.0 million. As a result,
these store closing costs will adversely affect the Company's results of
operations in the periods in which they are closed. In addition, the Company
expects that continuing competitive intrusions in markets where certain of its
traditional stores operate will result in lower operating profit for those
stores than that previously experienced. The Company's long-term plans are to
close most of the remaining traditional stores as opportunities arise.
Effective January 1, 1995, the Company changed its policy from capitalizing
internally developed software costs to expensing them as incurred. The impact on
1995 as a result of this change exclusive of the cumulative effect of $0.3
million (before income tax effect) was to reduce net income by $0.2 million.
The historical financial information presented herein reflects certain
periods during which the Company did not operate as an independent company, and
accordingly, certain allocations were made in preparing such financial
information. Such information may not necessarily reflect the results of
operations and financial condition of the Company which would have resulted had
the Company been an independent public company during the reporting periods. In
addition, operating and financing costs may be higher in future reporting
periods for the Company than such costs as reported in the financial information
included herein and as a result the
15
<PAGE> 17
Company's results of operations and financial condition may be adversely
affected. See "Risk Factors -- Limited Operating History as a Stand-Alone
Company."
In connection with the IPO, a one-time charge of $1.5 million was recorded
in the fourth quarter of 1996 related to the termination of certain executive
compensation programs.
In February 1997, Statement of Financial Accounting Standards No. 128,
"Earnings per Share" ("SFAS No. 128") was issued. SFAS No. 128 simplifies the
standards for computing earnings per share and makes the United States standards
for computing earnings per share more comparable to international standards.
SFAS No. 128 requires the presentation of "basic" earnings per share (which
excludes dilution) and "diluted" earnings per share. The Company does not
believe the adoption of SFAS No. 128 in fiscal 1997 will have a significant
impact on the Company's reported earnings per share. SFAS No. 128 is effective
for financial statements issued for periods ending after December 15, 1997 and
requires restatement of prior period earnings per share presented.
RESULTS OF OPERATIONS
The following table sets forth the percentage of net sales and percentage
change of certain items included in the Company's statements of operations for
the periods indicated:
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED THIRTEEN
YEAR ENDED WEEKS
YEAR ENDED DECEMBER 31, -------------------- DECEMBER 31, ENDED
------------------------- MARCH 30, MARCH 29, ----------------- MARCH 29,
1994 1995 1996 1996 1997 1995 1996 1997
----- ----- ----- --------- --------- ------ ------ ---------
PERCENTAGE CHANGE FROM PRIOR
PERCENTAGE OF NET SALES PERIOD INCREASE (DECREASE)
------------------------------------------------- -------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales................ 100.0% 100.0% 100.0% 100.0% 100.0% 26.1% 25.4% 30.2%
Cost of sales, including
buying and warehousing
costs.................. 60.4 62.2 61.2 63.4 62.0 29.9 23.5 27.3
----- ----- ----- ----- ----- ------ ------ -----
Gross profit............. 39.6 37.8 38.8 36.6 38.0 20.4 28.6 35.3
Selling, general and
administrative
expenses............... 32.3 34.3 34.4 37.3 37.5 34.2 25.4 30.8
Restructuring and asset
impairment charges..... -- 2.0 -- -- -- -- (100.0) --
----- ----- ----- ----- ----- ------ ------ -----
Operating profit
(loss)................. 7.3 1.5 4.4 (0.7) 0.5 (74.8) NM NM
Interest expense, net.... 0.7 1.3 0.7 1.5 0.2 122.7 (33.5) (83.9)
Income (loss) before
income taxes and
cumulative effect of
change in accounting
principle.............. 6.6 0.2 3.7 (2.2) 0.3 (96.3) NM 119.7
Provision for (benefit
from) income taxes..... 2.7 0.2 1.5 (0.9) 0.1 (90.7) NM 119.6
Income (loss) before
cumulative effect of
change in accounting
principle.............. 3.9 0.0 2.2 (1.3) 0.2 (101.2) NM 119.7
Cumulative effect of
change in accounting
principle, net......... -- 0.0 -- -- -- -- (100.0) --
----- ----- ----- ----- ----- ------ ------ -----
Net income (loss)........ 3.9% 0.0% 2.2% (1.3)% 0.2% (101.2)% NM 119.7%
===== ===== ===== ===== ===== ====== ====== =====
</TABLE>
NM -- Percentage change is not meaningful.
16
<PAGE> 18
THIRTEEN WEEKS ENDED MARCH 29, 1997 COMPARED TO THIRTEEN WEEKS ENDED MARCH 30,
1996
During the thirteen weeks ended March 29, 1997, the Company opened one
superstore and closed five stores, as compared to opening three superstores and
closing ten stores in the thirteen weeks ended March 30, 1996. At March 29,
1997, the Company operated 165 stores, of which 132 were superstores, as
compared to 148 stores, of which 102 were superstores, at March 30, 1996. Store
square footage increased 28% to 4,696,000 at March 29, 1997 from 3,680,000 at
March 30, 1996.
Net sales increased 30.2% to $179.9 million for the thirteen weeks ended
March 29, 1997, compared to $138.2 million for the same period last year,
primarily as a result of new store openings since March 30, 1996. Comparable
store net sales for the thirteen weeks ended March 29, 1997 increased 7.7% at
the Company's superstore locations and 5.7% for the Company as a whole.
Traditional store net sales were less than 10% of total net sales during the
thirteen weeks ended March 29, 1997, and will continue to represent a declining
percentage of total net sales throughout the year as more superstores are opened
and traditional stores are closed. The Company's average net sales per
superstore were $5.6 million for the fifty-two weeks ended March 29, 1997, up
from $5.2 million for the same period in 1996. For the fifty-two weeks ended
March 29, 1997 average superstore net sales per square foot increased to $173
from $171 in the prior fifty-two week period. Comparable store net sales
increased in key product categories of the Company's business and across all
major markets. Net sales for the thirteen weeks ended March 29, 1997 reflect the
entire Easter selling season, and a milder winter as compared to the same period
in 1996. In 1996 the final week of the Easter selling season fell in the second
quarter.
For the thirteen weeks ended March 29, 1997, while both the "linens" and
"things" sides of the business experienced comparable store net sales gains,
"things" continued to grow at a faster pace than "linens." For the thirteen
weeks ended March 29, 1997, net sales of "things" merchandise increased
approximately 45% over the same period in the prior year, while net sales of
"linens" merchandise increased approximately 24% for the same period. The
increase in net sales of "things" merchandise primarily resulted from the growth
in the number of superstore locations which carry a larger line of "things"
products as well as the overall expansion of the product categories in existing
stores.
Gross profit for the thirteen weeks ended March 29, 1997 was $68.3 million,
or 38.0% of net sales, compared to $50.5 million, or 36.6% of net sales, in the
same period during 1996. The improvements in gross profit were due primarily to
lower clearance markdowns, improved margins due to the shift in merchandise mix
towards "things" and lower freight costs as a result of increased utilization of
the Company's distribution center during the thirteen weeks ended March 29, 1997
compared to the prior year period. Gross margin for both "linens" and "things"
merchandise increased consistent with the Company's consolidated results. The
gross margin for "things" merchandise was slightly higher than the gross margin
for "linens" merchandise for the first thirteen week periods in both 1997 and
1996.
Selling, general and administrative expenses ("SG&A") for the thirteen
weeks ended March 29, 1997 were $67.4 million, or 37.5% of net sales, compared
to $51.5 million, or 37.3% of net sales in the corresponding period during 1996.
During the thirteen weeks ended March 30, 1996, the Company recorded a $0.5
million insurance recovery gain associated with damages to one of its stores
caused by severe winter conditions. Excluding this gain, SG&A as a percentage of
net sales would have shown an improvement of 20 basis points (37.5% for the
thirteen weeks ended March 29, 1997 compared to 37.7% for the same period in the
prior year). This improvement is primarily attributable to the sales volume
increasing faster than increases in SG&A during the thirteen weeks ended March
29, 1997 compared to the prior year period (excluding the insurance recovery
gain).
Operating profit for the thirteen weeks ended March 29, 1997 increased to
$0.9 million, or 0.5% of net sales, compared to a loss of $1.0 million, or
(0.7%) of net sales, during the same period in 1996.
Net interest expense (including commitment fees in connection with the $125
million Revolving Credit Facility) for the thirteen weeks ended March 29, 1997
was $336,000 compared to $2.1 million for the thirteen weeks ended March 30,
1996. The reduction in net interest expense is due to a reduction in net average
borrowings, which were $7.9 million in the thirteen weeks ended March 29, 1997
as compared to $145.0 million in the same period in 1996. The reduction in net
average borrowings is a result of the capital contributions from CVS of $158.0
million in 1996 prior to the IPO and improved operating performance. See
"-- Liquidity and Capital Resources."
17
<PAGE> 19
The Company's income tax expense for the thirteen weeks ended March 29,
1997 was $256,000, as compared to a benefit of $1.3 million during the same
period in 1996.
Net income for the thirteen weeks ended March 29, 1997 increased to
$352,000, or $0.02 per share, compared to a net loss of $1.8 million, or ($0.09)
per share, during the same period in 1996.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
During 1996, the Company opened 36 superstores and closed 22 stores, as
compared to opening 28 superstores and closing 18 stores in 1995. At December
31, 1996, the Company operated 169 stores, of which 132 were superstores, as
compared to 155 stores, of which 101 were superstores, at December 31, 1995. Net
sales for 1996 were $696.1 million, an increase of 25.4% over 1995 sales of
$555.1 million, primarily as a result of new store openings. Comparable store
net sales in 1996 increased 1.1% compared to a decrease of 1.5% in 1995. During
the first half of 1996, the Company's comparable store net sales decreased below
the same period in 1995 by 2.7% due primarily to increased competitive
intrusions at approximately 40% of the Company's superstores in existing
markets. These competitive intrusions commenced primarily in mid-1995. However,
for the second half of 1996, comparable store net sales increased 4.1% as a
result of a strong back-to-school and holiday selling season, as well as the
diminishing effect of the prior year's competitive intrusions.
In 1996, the Company's average net sales per superstore increased slightly
to $5.5 million from $5.4 million in 1995, while average net sales per
traditional store remained flat at $1.7 million. For 1996 average superstore net
sales per square foot decreased to $171 from $178 and average traditional store
net sales per square foot remained flat at $177 per square foot. The decrease in
average superstore net sales per square foot is due to the relative immaturity
of the 36 superstores opened in 1996, 18 of which were opened in the fourth
quarter. In 1996, net sales of "things" merchandise increased approximately 36%
over the prior year, while net sales of "linens" merchandise increased
approximately 20% for the same period. The increase in "things" merchandise
primarily resulted from the growth in the number of superstore locations which
carry a larger line of "things" products as well as the overall expansion of the
product categories in existing stores.
Gross profit for 1996 was $269.9 million, or 38.8% of net sales, as
compared to $209.9 million, or 37.8% of net sales, in 1995. Excluding charges
related to the CVS Strategic Program (discussed in the Notes to Consolidated
Financial Statements), gross profit in 1995 would have been $218.1 million or
39.3% of net sales. This decrease as a percentage of net sales resulted from
higher clearance markdowns during the spring associated with the closing of
traditional stores partially offset by reduced freight expenses as a percentage
of net sales. See Note 4 of Notes to Consolidated Financial Statements.
Excluding charges related to the CVS Strategic Program recorded in 1995,
the Company's average superstore gross margin in 1996 was 39.8% as compared to
39.7% in 1995 and average traditional store gross margin was 34.5% as compared
to 37.8% in the prior year. The gross margin for "things" merchandise was
slightly higher than the gross margin for "linens" merchandise for each period,
accounting for a higher gross margin in the superstores, which have a higher mix
of "things" versus "linens" as compared to the traditional stores. The decline
in gross margin in the traditional stores was due primarily to higher markdowns
associated with closing stores.
SG&A for 1996 were $239.2 million or 34.4% of net sales, as compared to
$190.8 million, or 34.3% of net sales in 1995. This increase as a percentage of
net sales resulted from a one-time charge of $1.5 million relating to certain
employee benefit costs associated with the IPO.
Operating profit for 1996 increased to $30.7 million or 4.4% of net sales,
from $8.1 million, or 1.5% of net sales, during 1995. Excluding one-time charges
relating to the CVS Strategic Program, the Company's operating profit in 1995
would have been $31.5 million or 5.7% of net sales.
Net interest expense in 1996 decreased 33.5% to $4.7 million, or 0.7% of
net sales, from $7.1 million, or 1.3% of net sales, during 1995. This decrease
was due primarily to $158.0 million in capital contributions from CVS in 1996
which were used to repay the Company's intercompany debt to CVS.
18
<PAGE> 20
The Company's income tax expense for 1996 was $11.0 million, as compared to
$1.1 million during 1995. The Company's effective tax rate in 1996 was 42.1%, as
compared to 103.2% in 1995, primarily due to the effect of the Company's
one-time charges incurred in 1995. Excluding these charges, the Company's
effective tax rate would have been 42.3% in 1995.
Effective January 1, 1995, the Company changed its policy from capitalizing
internally developed software costs to expensing them as incurred. The impact in
1995, as a result of this change exclusive of the cumulative effect of $0.3
million (before income tax effect) was to reduce net income by $0.2 million.
Net income for 1996 was $15.0 million, or 2.2% of net sales, as compared to
a net loss of $212,000 in 1995. Excluding one-time charges relating to the CVS
Strategic Program, the Company's net income would have been $14.1 million, or
2.5% of net sales, in 1995.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
During 1995, the Company opened 28 superstores and closed 18 stores, as
compared to opening 29 superstores and closing 27 stores in 1994. At the end of
1995, the Company operated 155 stores, of which 101 were superstores, as
compared to 145 stores, of which 74 were superstores, at the end of 1994. Net
sales increased 26.1% to $555.1 million in 1995, as compared to $440.1 million
in 1994, primarily as a result of new store openings. Comparable store net sales
in 1995 decreased 1.5% primarily due to new competitive intrusions in existing
markets at approximately 40% of the Company's superstores included in the
comparable store base which previously had limited competition from other
superstores, as well as to a general slowdown in the retail sector during 1995.
In 1995, the Company's average net sales per superstore increased slightly
to $5.4 million from $5.1 million and its average net sales per traditional
store decreased slightly to $1.7 million from $1.9 million, during the same
period in the prior year. In 1995, average superstore net sales per square foot
decreased to $178 from $187 and average traditional store net sales per square
foot decreased to $177 from $195 for the same period in the prior year due to
factors described in the preceding paragraph. In 1995, net sales of "things"
merchandise increased approximately 45% over the same period in the prior year,
while net sales of "linens" merchandise increased approximately 19% for the same
period. The increase in "things" merchandise resulted from the growth in the
number of superstore locations which carry a larger line of "things" products as
well as the overall expansion of the product categories in existing stores.
Gross profit in 1995 was $209.9 million, or 37.8% of net sales, as compared
to $174.4 million, or 39.6% of net sales, in 1994. This decrease as a percentage
of net sales was primarily due to transitional costs associated with the
start-up of the distribution center. Excluding these costs, the Company's gross
profit would have been $218.1 million or 39.3% of net sales. The remaining
decrease is primarily attributable to higher freight and handling costs incurred
given the less than full usage of the distribution center during its
implementation phase and the Company's expansion to the western United States.
In 1995, the Company's average superstore gross margin was 38.2% as
compared to 40.2% in 1994, and average traditional store gross margin was 36.3%
as compared to 38.7% during the same period in the prior year due to the factors
described above. Gross margins for both "linens" and "things" merchandise
declined consistent with the Company's consolidated results. The gross margin
for "things" merchandise was slightly higher than the gross margin for "linens"
merchandise for each such period.
SG&A in 1995 were $190.8 million, or 34.3% of net sales, as compared to
$142.2 million, or 32.3% of net sales, in 1994. This increase as a percentage of
net sales was primarily attributable to higher occupancy costs due to a higher
proportion of superstores located in prime real estate locations as compared to
the prior year and lower fixed expense leverage due to the decrease in
comparable store net sales.
In fourth quarter of 1995, the Company incurred a $11.0 million, or 2.0% of
net sales, pre-tax restructuring and asset impairment charge as a result of the
CVS Strategic Program. In connection with the CVS Strategic Program, six
underperforming stores were identified to be closed in 1996. The net sales and
operating losses in 1995 of these six stores aggregated approximately $14.3
million and $1.5 million, respectively.
19
<PAGE> 21
Operating profit in 1995 decreased to $8.1 million, or 1.5% of net sales,
from $32.2 million, or 7.3% of net sales, in 1994. Excluding charges related to
the CVS Strategic Program, operating profit in 1995 would have been $31.5
million, or 5.7% of net sales.
Net interest expense in 1995 increased 122.7% to $7.1 million, or 1.3% of
net sales, from $3.2 million, or 0.7% of net sales, in 1994. This increase is
attributable to a higher level of intercompany debt due to CVS in 1995 relating
to capital expenditures and working capital increases in support of the
Company's store expansion program and capital expenditures in connection with
the purchase of material handling equipment for the distribution center. In
addition, there was a higher weighted average interest rate of 6.5% in 1995 as
compared to 4.9% in 1994.
The Company's income tax expense in 1995 was $1.1 million, as compared to
$11.9 million in 1994. The Company's effective tax rate in 1995 was 103.2%, as
compared to 40.8% in 1994, primarily due to the effect of the Company's one-time
charges incurred in 1995. Excluding these charges, the Company's effective tax
rate would have been 42.3% in 1995. This increase was primarily attributable to
a decrease in earnings before taxes, while book to tax permanent differences
remained constant.
Effective October 1, 1995, the Company adopted SFAS No. 121. As a result of
this adoption, the Company incurred a charge of $1.4 million in 1995.
Effective January 1, 1995, the Company changed its policy from capitalizing
internally developed software costs to expensing them as incurred. The impact on
1995 as a result of this change exclusive of the cumulative effect of $0.3
million (before income tax effect) was to reduce net income by $0.2 million.
The Company incurred a net loss of $212,000 in 1995, as compared to net
income of $17.2 million, or 3.9% of net sales, in 1994. Excluding one-time
charges relating to the CVS Strategic Program, the Company's net income would
have been $14.1 million, or 2.5% of net sales, in 1995.
LIQUIDITY AND CAPITAL RESOURCES
The Company's capital requirements have been used primarily for capital
investment in new stores, new store inventory purchases and seasonal working
capital. The capital requirements and working capital needs have been funded
through a combination of internally generated cash from operations, credit
extended by suppliers and borrowings from CVS.
Net cash used in operating activities for the first quarter of 1997 was
$14.0 million compared to $21.0 million for the same period last year. The
decrease in cash used during the first quarter of 1997 was due to a $2.1 million
increase in profitability and only a slight increase in inventory due to an
improved inventory turnover rate compared to the first quarter of 1996. The
decrease was also due to a smaller reduction in current liabilities caused by
the timing of vendor payments.
Net cash provided from operating activities in 1996 was $20.2 million, as
compared to net cash used of $12.1 million in 1995. The operating cash provided
in 1996 was primarily due to improved inventory management which resulted in a
reduction of inventory on a per square foot basis. The improved management of
inventory was the result of efficiencies achieved from the Company's new
distribution center and more conservative inventory purchasing in 1996 as
compared to 1995. This was offset in part by a smaller increase in accounts
payable caused by the timing of vendor payments. The increase in accrued
expenses was due to the timing of advertising and salary and benefit payments.
Net cash used in investing activities during the first quarter of 1997 was
$3.9 million compared to $6.9 million in the same period last year. The decrease
from the first quarter of 1996 is associated with the timing of the Company's
new store openings. Net cash used in investing activities in 1996 was $46.4
million, as compared to $41.3 million in 1995. This increase was primarily due
to higher capital expenditures associated with the Company's store opening
program, which was partially offset by lower capital expenditures associated
with the distribution center in 1996 as compared to 1995.
Net cash used in financing activities during the first quarter of 1997 was
$6.0 million compared to net cash provided by financing activities of $27.9
million for the same period last year. Net cash used during the first
20
<PAGE> 22
quarter of 1997 was primarily the result of the timing of the settlement of
vendor payments offset by borrowings of $5.7 million. Net cash provided during
the first quarter of 1996 was primarily the result of CVS's funding of the
Company's increased working capital needs.
Net cash provided by financing activities in 1996 was $48.9 million, as
compared to $53.5 million in 1995. Net cash provided by financing activities in
1996 was primarily the result of capital contributions of $158.0 million from
CVS, which was used to repay the intercompany debt. In addition, in connection
with the IPO, CVS also provided the Company with a four-year $13.5 million
subordinated note of which $3.5 million may be converted into equity upon
consummation of this Offering, depending on the sale price of the Company's
Common Stock in this Offering. See "Relationship with CVS and Related Party
Transactions -- Financing." The decrease was attributable to the effect of the
timing of the settlement of vendor payments offset by the discontinuance of
dividend payments to CVS in 1996.
The Company has available a $125 million three-year senior revolving credit
facility (the "Revolving Credit Facility"). At March 29, 1997, the Company had
borrowings of $0.7 million under this facility. The Revolving Credit Facility
contains certain financial covenants, including those relating to the
maintenance of a minimum tangible net worth, a minimum fixed charge coverage
ratio, and a maximum leverage ratio, as defined in the Revolving Credit
Facility. Interest on all borrowings is determined based upon several
alternative rates as stipulated in the facility. The average borrowing rate for
the quarter ended March 29, 1997 was 5.78%. The facility allows for $10.0
million in borrowings from uncommitted lines unrelated to the Revolving Credit
Facility. As of March 29, 1997, the Company had $5.0 million in borrowings under
its uncommitted lines of credit. At May 14, 1997, the Company had total
borrowings of $10.3 million under the Revolving Credit Facility and $8.0 million
under its uncommitted lines of credit. Management believes that the Company's
cash flow from operations and the Revolving Credit Facility will be sufficient
to fund anticipated capital expenditures and working capital requirements for at
least the next three years. The Company is in compliance with all terms and
conditions of the credit facility.
INFLATION
The Company does not believe that its operating results have been
materially affected by inflation during the preceding three years. There can be
no assurance, however, that the Company's operating results will not be affected
by inflation in the future.
SEASONALITY AND QUARTERLY RESULTS
The Company's business is subject to substantial seasonal variations.
Historically, the Company has realized a significant portion of its net sales
and substantially all of its net income for the year during the third and fourth
quarters, with a majority of net sales and net income for such quarters realized
in the fourth quarter. The Company's quarterly results of operations may also
fluctuate significantly as a result of a variety of other factors, including the
timing of new store openings. The Company believes this is the general pattern
associated with its segment of the retail industry and expects this pattern will
continue in the future. Consequently, comparisons between quarters are not
necessarily meaningful and the results for any quarter are not necessarily
indicative of future results.
21
<PAGE> 23
The following table sets forth certain unaudited financial information for
the Company in each quarter during 1995 and 1996 and the first quarter of 1997.
The unaudited quarterly information includes all normal recurring adjustments
which management considers necessary for a fair presentation of the information
shown. See "Risk Factors -- Seasonality and Quarterly Fluctuations."
QUARTERLY RESULTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
1995 QUARTER QUARTER QUARTER QUARTER YEAR
- ------------------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net sales................ $115,298 $124,290 $138,050 $177,457 $555,095
Gross profit............. 42,787 47,896 54,666 64,584(1) 209,933
Operating profit
(loss)................. 2,890 4,667 6,432 (5,856)(1) 8,133
Net income (loss)........ 682 1,644 2,599 (5,137)(1) (212)
Percentage increase
(decrease) in
comparable store net
sales.................. 1.4% 4.7% (6.6)%(2) (3.3)%(2) (1.5)%(2)
Total stores (end of
period)................ 139 142 146 155 155
<CAPTION>
FIRST SECOND THIRD FOURTH
1996 QUARTER QUARTER QUARTER QUARTER YEAR
- ------------------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net sales................ $138,167(2) $147,649(2) $180,438 $229,853 $696,107
Gross profit............. 50,498 56,252 69,159 94,002 269,911
Operating profit
(loss)................. (1,011) 1,026 9,279 21,389 30,683
Net income (loss)........ (1,786) (411) 4,966 12,270 15,039
Percentage increase
(decrease) in
comparable store net
sales.................. 1.7%(2) (6.7)%(2) 2.9% 5.0% 1.1%
Total stores (end of
period)................ 148 155 156 169 169
<CAPTION>
FIRST
1997 QUARTER
- ------------------------- --------
<S> <C> <C> <C> <C> <C>
Net sales................ $179,911
Gross profit............. 68,315
Operating profit......... 944
Net income............... 352
Percentage increase in
comparable store net
sales.................. 5.7%
Total stores (end of
period)................ 165
</TABLE>
- ---------------
(1) Excluding the CVS Strategic Program, gross profit, operating profit and net
income in the fourth quarter of 1995 would have been $72.8 million, $17.5
million and $9.0 million, respectively.
(2) Comparable store net sales were negatively affected primarily due to new
competitive intrusions in existing markets at approximately 40% of the
Company's superstores included in the comparable store base which previously
had limited competition from other superstores. In addition, the fluctuation
between the first and second quarter in 1995 and 1996 is due in part to the
inclusion of a smaller portion of the Easter selling season in the first
quarter of 1996, as compared to in the first quarter of 1995.
22
<PAGE> 24
BUSINESS
GENERAL
Linens 'n Things is one of the leading, national large format retailers of
home textiles, housewares and home accessories operating in 34 states. According
to Home Textiles Today, Linens 'n Things was the largest specialty retailer (as
measured by sales) in the home linens category in 1995, the most recent year for
which such information was published. As of March 29, 1997, the Company operated
132 superstores averaging approximately 33,000 gross square feet in size and 33
smaller traditional stores averaging approximately 10,000 gross square feet in
size. The Company's newest stores range between 35,000 and 40,000 gross square
feet in size and are located in strip malls or power center locations. The
Company's business strategy is to offer a broad assortment of high quality,
brand name merchandise at everyday low prices, provide efficient customer
service and maintain low operating costs.
Linens 'n Things' extensive selection of over 25,000 SKUs in its
superstores is driven by the Company's commitment to offering a broad and deep
assortment of high quality, brand name "linens" (e.g., bedding, towels and
pillows) and "things" (e.g., housewares and home accessories) merchandise. Brand
names sold by the Company include Wamsutta, Cannon, Laura Ashley, Martex,
Waverly, Royal Velvet, Braun, Krups, Calphalon and Henckels. The Company also
sells an increasing amount of merchandise under its own private label
(approximately 10% of sales in 1996) which is designed to supplement the
Company's offering of brand name products by offering high quality merchandise
at value prices. The Company's merchandise offering is coupled with a "won't be
undersold" everyday low pricing strategy with price points substantially below
regular department store prices and comparable with or below department store
sale prices.
From its founding in 1975 through the late 1980's, the Company operated
traditional stores ranging between 7,500 and 10,000 gross square feet in size.
Beginning in 1990, the Company introduced its superstore format which has
evolved from 20,000 gross square feet in size to its current size of 35,000 to
40,000 gross square feet, offering a broad merchandise assortment in a more
visually appealing, customer friendly format. The Company's introduction of
superstores has resulted in the closing or relocation of 108 of the Company's
traditional stores through March 29, 1997. As a result of superstore openings
and traditional store closings, the Company's gross square footage more than
tripled from 1.2 million to 4.7 million between January 1991 and March 29, 1997,
although its store base only increased 17% from 141 to 165 stores during this
period. The Company's net sales have increased from $202.1 million for the year
ended December 31, 1990 to $737.9 million for the 12 months ended March 29,
1997. As part of this strategy, the Company instituted centralized management
and operating programs and invested significant capital in its distribution and
management information systems infrastructure in order to control operating
expenses as the Company grows. In addition, as part of its strategic initiative
to capitalize on customer demand for one-stop shopping destinations, the Company
has balanced its merchandise mix from being driven primarily by the "linens"
side of its business to a fuller assortment of "linens" and "things." The
Company estimates that the "things" side of its business has increased from less
than 10% of net sales in 1991 to 35% in 1996.
BUSINESS STRATEGY
The Company's business strategy is to offer a broad assortment of high
quality, brand name products at everyday low prices, provide efficient customer
service and maintain low operating costs. Key elements of the Company's business
strategy are as follows:
Offer a Broad Assortment of Quality Name Brands at Everyday Low
Prices. Linens 'n Things' merchandising strategy is to offer the largest
breadth of selection in high quality, brand name fashion home textiles,
housewares and home accessories at everyday low prices. The Company offers over
25,000 SKUs in its superstores across six departments, including bath, home
accessories, housewares, storage, top of the bed and window treatments. The
Company continues to explore opportunities to increase sales in its "things"
merchandise while maintaining the strength of its "linens" portion of the
business. The Company's long-term goal is to increase the sales of the "things"
merchandise to approximately 50% of net sales. See "-- Growth
Strategy -- Increase Productivity of Existing Store Base." The Company is one of
the largest retailers of brand names, including Wamsutta, Laura
23
<PAGE> 25
Ashley, Martex, Waverly, Royal Velvet, Braun, Krups and Calphalon. The Company
also sells an increasing amount of merchandise under its own private label
(approximately 10% of sales in 1996) which is designed to supplement the
Company's offering of brand name products by offering high quality merchandise
at value prices. The Company believes its prices are typically well below the
non-sale prices offered by department stores and are comparable to or slightly
below the sale prices offered by such stores. In addition, the Company maintains
a "won't be undersold" approach which guarantees its customers prices as low as
those offered by any of its competitors.
Provide Efficient Customer Service and Shopping Convenience. To enhance
customer satisfaction and loyalty, Linens 'n Things strives to provide prompt,
knowledgeable sales assistance and enthusiastic customer service. Linens 'n
Things emphasizes competitive wages, training and personnel development in order
to attract and retain well-qualified, highly motivated employees committed to
providing efficient customer service. Linens 'n Things also endeavors to provide
more knowledgeable sales associates by providing training through various
programs which include management training, daily sales associate meetings and
vendor product support seminars. In addition, the Company has taken initiatives
to enhance the speed of its customer service, including installing satellite
transmission for credit card authorizations and upgrading its current
point-of-sale ("POS") system. The customer's experience is also enhanced by the
availability of sales associates who, since the transfer of inventory and
receiving responsibilities from the stores to the distribution center, have
redirected their focus from the backroom to the selling floor. The Company's
superstore format is designed to save the customer time by having inventory
visible and accessible on the selling floor for immediate purchase. A number of
the superstores have additional in-store customer services, such as same day
monogramming, and the Company is currently implementing a bridal registry
service in all of its stores, which it expects will be completed in 1997. The
Company believes its knowledgeable sales staff and efficient customer service,
together with the Company's liberal return policy, create a positive shopping
experience which engenders customer loyalty.
Maintain Low Operating Costs. A cornerstone of the Company's business
strategy is its commitment to maintaining low operating costs. In addition to
savings realized through sales volume efficiencies, operational efficiencies are
expected to be achieved through the streamlining of the Company's centralized
merchandising structure, the use of integrated management information systems
and the utilization of the distribution center. The Company believes that its
significant investment in the technology of its management information systems
and in its distribution center will allow the Company to grow without requiring
significant additional capital contributions to its infrastructure through 1998.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations." The Company is able to limit its advertising expenses by relying
upon an everyday low price strategy which reduces the Company's need to
advertise sales.
GROWTH STRATEGY
NEW SUPERSTORE EXPANSION. The Company's expansion strategy is to increase
market share in existing markets and to penetrate new markets in which the
Company believes it can become a leading operator of home furnishings
superstores. Management believes that the new markets will be primarily located
in the western region of the United States. In addition, the Company may in the
future explore opportunities to expand abroad. The Company believes that it is
well-positioned to take advantage of the continued market share gain by the
superstore chains in the home furnishings sector. The Company believes there is
an opportunity to more than triple the number of its current prototype
superstores across the country, providing the Company with significant growth
opportunities to profitably enter new markets, as well as backfill in existing
markets. In 1997, the Company plans to open 20 to 25 new superstores, of which
four were opened as of May 15, 1997, and close approximately 12 to 17 stores
(primarily traditional stores), of which seven were closed as of May 15, 1997.
In 1998, the Company plans to open 25 to 30 new superstores and close 10 to 15
stores (primarily traditional stores). As of March 29, 1997, the Company
operated 132 superstores, representing 80% of its total stores, and 33
traditional stores. The Company's long-term plans include closing most of the
remaining traditional stores as opportunities arise.
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<PAGE> 26
The following table sets forth information concerning the Company's
expansion program during the most recent five years and the first quarter of
1997:
<TABLE>
<CAPTION>
SQUARE FOOTAGE
(IN THOUSANDS) STORE COUNT
---------------- ----------------
BEGIN END BEGIN END
PERIOD OPENINGS CLOSINGS PERIOD PERIOD PERIOD PERIOD
- -------------------------------------------- -------- -------- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
1992........................................ 22 21 1,350 1,633 143 144
1993........................................ 20 21 1,633 2,078 144 143
1994........................................ 29 27 2,078 2,865 143 145
1995........................................ 28 18 2,865 3,691 145 155
1996........................................ 36 22 3,691 4,727 155 169
1997 (1st Quarter).......................... 1 5 4,727 4,696 169 165
</TABLE>
Linens 'n Things focuses on opening new superstores in metropolitan areas
where it believes it can become a leading retailer of home-related products. The
Company's goal is to enter two to three new markets a year through its expansion
efforts. Markets for new superstores are selected on the basis of demographic
factors, such as income, population and number of households. Linens 'n Things
focuses its site locations on prime locations within trading areas of 200,000
persons within a ten-mile radius and demographic characteristics that match the
Company's target profile. The Company's stores are located predominantly in
power strip centers and, to a lesser extent, in malls and as stand-alone stores.
The Company currently operates all of its superstores on an operating lease
basis. Based upon the Company's prior experience, the Company estimates that the
net cost of opening a superstore 35,000 to 40,000 gross square feet in size is
$2.0 to $2.4 million. This amount includes $0.9 to $1.1 million of inventory
(net of vendor payables), $0.9 to $1.1 million for leasehold improvements and
fixtures and $225,000 to $250,000 for pre-opening expenses, which are expensed
as incurred. Based on historical performance, new stores are typically
profitable within their first full year of operations. Management estimates that
the aggregate cost of its planned store closings will be approximately $4.0 to
$5.0 million in 1997, and approximately $3.0 to $4.0 million in 1998. The
Company believes that its current management infrastructure and management
information systems, together with its new distribution center, are capable of
supporting planned expansion through 1998. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- General."
INCREASE PRODUCTIVITY OF EXISTING STORE BASE. The Company is committed to
increasing its net sales per square foot, inventory turnover ratio and return on
invested capital. The Company believes the following initiatives will allow it
to achieve these goals:
Enhance Merchandise Mix and Presentation. The Company continues to explore
opportunities to increase sales of "things" merchandise without sacrificing
market share or customer image in the "linens" side of the business. The
Company's long-term goal is to increase the sales of the "things" merchandise to
approximately 50% of net sales as part of its strategic initiative to capitalize
on customer demand for one-stop shopping destinations. The Company expects this
shift to positively impact net sales per square foot and inventory turnover
since "things" merchandise tends to be more impulse driven merchandise as
compared to the "linens" portion of the business and therefore increases the
average sale per customer. In addition, sales of "things" merchandise typically
result in higher margins than "linens" products. The Company plans on regularly
introducing new products which it expects will increase sales and generate
additional customer traffic.
In addition, the Company intends to continue improving its merchandising
presentation techniques, space planning and store layout to further improve the
productivity of its existing and future superstore locations. The Company
periodically restyles its stores to incorporate new offerings and realign its
store space with its growth segments. The Company expects that the addition of
in-store customer services, such as the bridal registry service, will further
improve its store productivity.
Increase Operating Efficiencies. As part of its strategy to increase
operating efficiencies, the Company has invested significant capital in building
a centralized infrastructure, including a distribution center and a management
information system, which it believes will allow it to maintain low operating
costs as it pursues its
25
<PAGE> 27
superstore expansion strategy. In July 1995, the Company began full operations
of its 275,000 square foot distribution center in Greensboro, North Carolina. By
the end of 1996, approximately 80% of merchandise was being received at the
distribution center, as compared to approximately 20% at the end of 1995. The
utilization of the distribution center has resulted in lower average freight
costs, more efficient scheduling of inventory shipments to the stores, improved
inventory turnover, better in-stock positions and improved information flow. The
Company believes that the transfer of inventory receiving responsibilities from
the stores to the distribution center allows store sales associates to redirect
their focus to the sales floor, thereby increasing the level of customer
service. The warehouse portion of the distribution center provides the Company
flexibility to manage safety stock and take advantage of opportunistic
purchases. The Company's ability to effectively manage its inventory is also
enhanced by a centralized merchandising management team and its MIS system which
allows the Company to more accurately monitor and better balance inventory
levels and improve in-stock positions in its stores.
INDUSTRY
According to U.S. Department of Commerce data, total industry sales of
products sold in the Company's stores, which primarily includes home textiles,
housewares and decorative furnishings categories, were estimated to be over $60
billion in 1995 (the last year for which such information is currently
available). The market for home furnishings is fragmented and highly
competitive. Specialty superstores are the fastest growing channel of
distribution in this market. In 1995, the three largest specialty superstore
retailers of fashion home textiles (including the Company) had aggregate sales
of approximately $1.4 billion, representing less than 3% of the industry's total
unit sales.
The Company competes with many different types of retailers that sell many
or most of the items sold by the Company, including department stores, mass
merchandisers, specialty retail stores and other retailers. Linens 'n Things
generally classifies its competition within one of the following categories:
Department Stores. This category includes national and regional department
stores such as J.C. Penney Company Inc., Sears, Roebuck and Co., Dillard
Department Stores, Inc. and the department store chains operated by Federated
Department Stores, Inc. and The May Department Store Company. These retailers
offer branded merchandise as well as their own private label furnishings in a
high service environment. Department stores also offer certain designer
merchandise, such as Ralph Lauren, which is not generally distributed through
the specialty and mass merchandise distribution channels. In general, the
department stores offer a more limited selection of merchandise than the
Company. The prices offered by department stores during off-sale periods are
significantly higher than those of the Company and during on-sale periods are
comparable to or slightly higher than those of the Company.
Mass Merchandisers. This category includes companies such as Wal-Mart
Stores, Inc., the Target Stores division of Dayton Hudson Corporation and Kmart
Corporation. Fashion home furnishings represent only a small portion of the
total merchandise sales in these stores and reflect a significantly more limited
selection with fewer high quality name brands and lower quality merchandise at
lower price points than specialty stores or department stores. In addition,
these mass merchandisers typically have more limited customer services staffs
than the Company.
Specialty Stores/Retailers. This category includes large format home
furnishings retailers most similar to Linens 'n Things, including Bed Bath &
Beyond Inc., Home Place and Strouds, Inc. and smaller niche retailers such as
Crate & Barrel, Lechters, Inc. and Williams-Sonoma, Inc. The Company estimates
that large format stores range in size from approximately 30,000 to 50,000 gross
square feet and offer a home furnishings merchandise selection of approximately
20,000 to 30,000 SKUs. The Company believes that these retailers have similar
pricing on comparable brand name merchandise and that they compete by attempting
to develop loyal customers and increase customer traffic by providing a single
outlet to satisfy all the customer's household needs. The niche retailers are
typically smaller in size than the large format superstores and offer a highly
focused and broad assortment within a specific niche. The prices offered by
niche retailers are often higher than the large format superstores and most do
not maintain an everyday low price strategy.
26
<PAGE> 28
Other Retailers. This category includes mail order retailers, such as
Spiegel Inc. and Domestications, off-price retailers, such as the T.J. Maxx and
Marshall's divisions of the TJX Companies, Inc. and local "mom and pop" retail
stores. Both mail order retailers and smaller local retailers generally offer a
more limited selection of brand name merchandise at prices which tend to be
higher than those of the Company. Off-price retailers typically offer close-out
or out of season brand name merchandise at competitive prices.
MERCHANDISING
The Company offers quality home textiles, housewares and home accessories
at everyday low prices. The Company's strategy consists of a commitment to offer
a breadth and depth of selection and to create merchandise presentation that
makes it easy to shop in a visually pleasing environment. The stores feature a
"racetrack" layout, enabling the customer to visualize and purchase fully
coordinated and accessorized ensembles. Seasonal merchandise is featured at the
front of every store to create variety and excitement and to capitalize on key
selling seasons including back-to-school and holiday events.
The Company's extensive merchandise offering of over 25,000 SKUs enables
its customers to select from a wide assortment of styles, brands, colors and
designs within each of the Company's major product lines. The Company is
committed to maintaining a consistent in-stock inventory position. This
presentation of merchandise enhances the customer's impression of a dominant
assortment of merchandise in an easy to shop environment. The Company's broad
and deep merchandise offering is coupled with everyday low prices that are
substantially below regular department store prices and comparable with or
slightly below department store sale prices. The Company has adopted a "won't be
undersold" approach and believes that the uniform application of its everyday
low price policy is essential to maintaining the integrity of this policy. This
is an important factor in establishing its reputation as a price leader and in
helping to build customer loyalty. In addition, the Company offers on a regular
basis "special" purchases which it obtains primarily through opportunistic
purchasing to enhance its high value perception among its customers.
The Company also sells an increasing amount of merchandise under its own
private label (approximately 10% of net sales in 1996) which is designed to
supplement the Company's offering of brand name products by offering high
quality merchandise at value prices. The Company believes its private label
program will continue to enhance customer awareness of its superstores and
provides a distinct competitive advantage. Merchandise directly imported
represented approximately 5% of net sales in 1996.
Merchandise and sample brands offered in each major department are
highlighted below:
<TABLE>
<CAPTION>
DEPARTMENT ITEMS SOLD SAMPLE BRANDS
- -------------------- ------------------------------------ ------------------------------------
<S> <C> <C>
Bath Towels, shower curtains, waste Fieldcrest, Martex, Royal Velvet and
baskets, hampers, bathroom rugs and Springmaid.
wall hardware.
Home Accessories Decorative pillows, napkins, Dakotah, Waverly and Laura Ashley.
tablecloths, placemats, lamps,
gifts, picture frames and framed
art.
Housewares Cookware, cutlery, kitchen gadgets, Braun, Krups, Calphalon, Henckels,
small electric appliances (such as Mikasa, Circulon, Farberware, Black
blenders and coffee grinders), & Decker, Kitchen Aid, Copco and
dinnerware, flatware and glassware. International Silver.
Storage Closet-related items (such as Rubbermaid and Closetmaid.
hangers, organizers and shoe racks).
Top of the Bed Sheets, comforters, comforter Wamsutta, Laura Ashley, Revman,
covers, bedspreads, bed pillows, Croscill, Fieldcrest, Springmaid,
blankets and mattress pads. Royal Sateen and Beautyrest.
Window Treatment Curtains, valances and window Croscill, Graber, Bali, Waverly and
hardware. Laura Ashley.
</TABLE>
27
<PAGE> 29
As part of a strategic effort to capitalize on consumer demand for one-stop
shopping destinations, the Company has balanced its merchandise mix from being
driven primarily by the "linens" side of its business to a fuller assortment of
"linens" and "things." The Company estimates that the "things" side of its
business has increased from less than 10% of its net sales in 1991 to 35% in
1996. The Company continues to explore opportunities to increase sales of
"things" merchandise while maintaining the strength of its "linens" side of the
business. The Company's long-term goal is to increase the sales of "things"
merchandise to approximately 50% of net sales. See "-- Growth
Strategy -- Increase Productivity of Existing Store Base."
The Company's "racetrack" layout allows customers to easily shop between
corresponding departments and stimulates impulse sales by encouraging the
customers to shop the entire store. The Company also believes its stores allow
customers to locate products easily and reinforce the customer's perception of
an extensive merchandise selection. In addition, the Company actively works with
vendors to improve the customers' in-store experience through designing
displays, unique packaging and product information signs that optimally showcase
its product offering and by training associates in product education in order to
maximize service to the customer.
CUSTOMER SERVICE
Linens 'n Things treats every customer as a guest. The Company's philosophy
supports enhancing the guest's entire shopping experience and believes that all
elements of service differentiate it from the competition. To facilitate the
ease of shopping, the assisted self service culture is complemented by trained
department specialists, zoned floor coverage, product information displays and
videos, self demonstrations and vendor supported training seminars. This
philosophy is designed to encourage guest loyalty as well as continually develop
knowledgeable Company associates. A number of the superstores have in-store
services, such as monogramming, and the Company is currently implementing a
bridal registry service in most of its stores. The entire store team is hired
and trained to be highly visible in order to assist guests with their
selections. The ability to assist guests has been enhanced by the transfer of
inventory receiving responsibilities from the stores, allowing sales associates
to focus on the sales floor. Enhanced management systems which provide efficient
customer service and liberal return procedures are geared toward making each
guest's final impression of visiting a store a convenient, efficient and
pleasant experience.
ADVERTISING
Advertising programs are focused on building and strengthening the Linens
'n Things superstore concept and image. Because of the Company's commitment to
everyday low prices, advertising vehicles are aggressively used in positioning
the Company among new and existing customers by communicating price, value and
breadth and depth of selection, with a "won't be undersold" approach. The
Company focuses its advertising programs during key selling seasons such as
back-to-school and holidays.
The Company primarily uses full color inserts in newspapers to reach its
customers. In addition, the Company periodically advertises on television and
radio during peak seasonal periods or promotional events. Grand opening
promotional events are used to support new stores, with more emphasis placed on
those located in new markets. The Company's marketing programs are targeted at
its primary customer base of women, age 35-55, with household income greater
than $50,000.
STORES
The Company's 165 stores are located in 34 states, principally in suburban
areas of medium and large sized cities. Store locations are targeted primarily
for power strip centers and mall-proximate sites in densely populated areas
within trading areas of 200,000 persons within a ten-mile radius.
The Company's superstores range in size from 19,000 to 50,000 gross square
feet, but are predominantly between 35,000 and 40,000 gross square feet in size.
The Company's traditional stores range in size from 7,500 to 10,000 gross square
feet. In both superstores and traditional stores, approximately 85% to 90% of
store space is used for selling areas and the balance for storage, receiving and
office space.
For a list of store locations as of March 29, 1997, see the inside front
cover of this Prospectus.
28
<PAGE> 30
PURCHASING AND SUPPLIERS
The Company maintains its own central buying staff, comprised of one Senior
Vice President, two Vice Presidents and twelve Buyers. The merchandising mix for
each store is selected by the central buying staff in consultation with district
store managers. The Company purchases its merchandise from over 1,000 suppliers.
Springs Industries, Inc., through its various operating companies, supplied
approximately 13% of the Company's total purchases in 1996. In 1996, the Company
purchased a significant number of products from other key suppliers. See "Risk
Factors -- Reliance on Key Vendors." Due to its breadth of selection, the
Company is often one of the largest customers for certain of its vendors. The
Company believes that this buying power and its ability to make centralized
purchases generally allows it to acquire products at favorable terms. In
addition, the Company has established programs with certain vendors that allow
merchandise to be shipped floor-ready and pre-ticketed with the Company's price
labels, increasing overall operating efficiency. In 1996, approximately 95% of
the Company's merchandise was purchased in the United States.
DISTRIBUTION
In 1995, the Company began full operations of its 275,000 square foot
state-of-the-art distribution center in Greensboro, North Carolina. The system
that supports this facility was designed to use the latest electronic data
interchange ("EDI") capabilities to optimize allocation of products to the
locations that achieve the highest sales and inventory productivity potential.
The utilization of the centralized distribution center has resulted in lower
average freight expense, more timely control of inventory shipment to stores,
improved inventory turnover, better in-stock positions and improved information
flow. In addition, the transfer of inventory receiving responsibilities from the
stores to the distribution center allows the sales associates to redirect their
focus to the sales floor, thereby increasing the level of customer service. The
Company believes strong distribution support for its stores is a critical
element to its growth strategy and is central to its ability to maintain a low
cost operating structure.
The Company manages the distribution process centrally from its corporate
headquarters. Purchase orders issued by Linens 'n Things are electronically
transmitted to the majority of its suppliers. At the end of 1996, approximately
80% of total inventory was being received through the distribution center. The
balance of the Company's merchandise is directly shipped to individual stores.
The Company plans to continue efforts to ship as much merchandise through the
distribution center as possible to ensure all benefits of the Company's
logistics strategy are fully leveraged. Continued growth will also facilitate
new uses of EDI technologies between Linens 'n Things and its suppliers to
exploit the most productive and beneficial use of its assets and resources.
Management estimates that the distribution center can support the Company's
growth through the end of 1998. As the Company continues to open more
superstores in the western United States, another distribution center may be
desirable to support the further growth of the Company. Such a distribution
center would further increase freight savings and reduce transit time to the
western stores. In order to realize greater efficiency, the Company uses third
party delivery services to ship its merchandise from the distribution center to
its stores.
MANAGEMENT INFORMATION SYSTEMS
Over the last three years, the Company has made significant investment in
technology to improve customer service, gain efficiencies and reduce operating
costs. Linens 'n Things has installed an IBM AS/400, with a customized
management information system, which integrates all major aspects of the
Company's business, including sales, distribution, purchasing, inventory
control, merchandise planning and replenishment and financial systems. The
Company utilizes POS terminals with price look-up capabilities for both
inventory and sales transactions on a SKU basis. Information obtained daily by
the system results in automatic inventory replenishment in response to specific
requirements of each superstore. The upgraded terminals will also enable the
store operator to initiate the credit approval process and will have the
capability to support the Company's bridal registry service. The Company has
further integrated its planning process through a comprehensive EDI system used
for substantially all purchase orders, invoices and bills of lading and which,
combined with automatic shipping notice technology used in the distribution
systems, creates additional efficiencies by capturing data through bar codes
thereby reducing clerical errors and inventory shrinkage.
29
<PAGE> 31
The Company believes its management information systems have fully
integrated the Company's stores, distribution center and home office. The
Company continually evaluates and upgrades its management information systems on
a regular basis to enhance the quantity, quality and timeliness of information
available to management.
STORE MANAGEMENT AND OPERATIONS
Each superstore is staffed with one General Manager, two to four
Merchandise Managers and one Receiving Manager. The operations of each store are
supervised by a District Manager who generally supervises six to ten stores and
one of three Zone Vice Presidents. Each Zone Vice President reports to the
Senior Vice President of Store Operations.
The Company places a strong emphasis on its people, their development and
opportunity for advancement, particularly at the store level. The Company's
commitment to maintaining a high internal promotion rate is best exemplified
through the practice of opening each new store with a seasoned management crew,
who participate in training at an existing store immediately prior to the new
opening. As a result, the vast majority of General Managers opening a new store
have significant experience at the Company. Additionally, the structured
management training program requires each new associate to learn all facets of
the business within the framework of a fully operational store. This program
includes, among other things, product knowledge, merchandise presentation,
business and sales perspective, employee relations and manpower planning,
complemented at the associate level through daily product knowledge seminars and
structured register training materials. The Company believes that its policy of
promoting from within the Company, as well as the opportunities for advancement
generated by its ongoing store expansion program, serve as incentives to attract
and retain quality individuals which, the Company believes, results in lower
turnover.
Linens 'n Things stores are open seven days a week, generally from 10:00
a.m. to 9:00 p.m. Monday through Saturday and 11:00 a.m. to 6:00 p.m. on Sunday,
unless affected by local laws.
EMPLOYEES
As of March 29, 1997, the Company employed approximately 6,100 people of
whom approximately 2,600 were full-time employees and 3,500 were part-time
employees. Less than 7% of employees are non-store personnel. None of the
Company's employees are represented by unions, and the Company believes that its
relationship with its employees is good.
COMPETITION
The Company believes that although it will continue to face competition
from retailers in all four of the categories referred to in
"Business -- Industry," its most significant competition is from the large
format specialty stores. The home textiles industry is becoming increasingly
competitive as several specialty retailers are in the process of expanding into
new markets. The visibility of the Company may encourage additional competitors
or may encourage existing competitors to imitate the Company's format and
methods. If any of the Company's major competitors seek to gain or retain market
share by reducing prices, the Company may be required to reduce its prices in
order to remain competitive.
The Company believes that the ability to compete successfully in its
markets is determined by several factors, including price, breadth and quality
of product selection, in-stock availability of merchandise, effective
merchandise presentation, customer service and superior store locations. The
Company believes that it is well positioned to compete on the basis of these
factors. Nevertheless, there can be no assurance that any or all of the factors
that enable the Company to compete favorably will not be adopted by companies
having greater financial and other resources than the Company.
PROPERTIES
The Company currently leases all of its existing stores and expects that
its policy of leasing rather than owning will continue as it expands. The
Company's leases provide for original lease terms that generally range
30
<PAGE> 32
from 5 to 20 years and certain of the leases provide for renewal options that
range from 5 to 15 years at increased rents. Certain of the leases provide for
scheduled rent increases (which, in the case of fixed increases, the Company
accounts for on a straight line basis over the noncancelable lease term) and
certain of the leases provide for contingent rent (based upon store sales
exceeding stipulated amounts). CVS remains obligated under its guarantees of the
Company's store leases where CVS guaranteed such leases in the past (including
extensions and renewals provided for in the terms of such leases at the time
such guarantees were furnished, and certain new leases identified in the
Stockholder Agreement through the initial lease terms thereof. CVS will not
enter into any additional guarantees of leases on behalf of the Company. See
"Risk Factors -- Limited Operating History as a Stand-Alone Company."
The Company owns its 275,000 square foot distribution center in North
Carolina. The Company leases its 59,000 square foot corporate office in Clifton,
New Jersey.
LEGAL PROCEEDINGS
There are no material legal proceedings against the Company. The Company is
involved in various claims and legal actions arising in the ordinary course of
business. In the opinion of management, the ultimate disposition of these
matters will not have a material adverse effect on the Company's consolidated
financial position, results of operations or liquidity.
TRADE NAMES AND SERVICE MARKS
The Company uses the "Linens 'n Things" name as a trade name and as a
service mark in connection with retail services. The Company has registered the
"Linens 'n Things" logo as a service mark with the United States Patent and
Trademark Office. Management believes that the name Linens 'n Things is an
important element of the Company's business.
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<PAGE> 33
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth information regarding the executive officers
and directors of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------ --- ------------------------------------------------
<S> <C> <C>
Norman Axelrod................ 44 Chairman of the Board, Chief Executive Officer,
President and Director
James M. Tomaszewski.......... 48 Senior Vice President, Chief Financial Officer
Steven B. Silverstein......... 37 Senior Vice President, General Merchandise
Manager
Hugh J. Scullin............... 48 Senior Vice President, Store Operations
Stanley P. Goldstein.......... 62 Director
Charles C. Conaway............ 36 Director
Philip E. Beekman............. 65 Director
</TABLE>
Mr. Axelrod has been Chief Executive Officer and President of the Company
since 1988, a Director since September 1996 and Chairman of the Board since
January 1997. Prior to joining Linens 'n Things, Mr. Axelrod held various
management positions at Bloomingdale's between 1976 to 1988 including: Buyer,
Divisional Merchandise Manager, Vice President/Merchandise Manager and Senior
Vice President/General Merchandise Manager. Mr. Axelrod earned his B.S. from
Lehigh University and his M.B.A. from New York University.
Mr. Tomaszewski has served as Senior Vice President, Chief Financial
Officer since joining Linens 'n Things in 1994. Mr. Tomaszewski began his career
with J.L. Hudsons Department Store in Detroit in 1970. In 1982, he was promoted
to Vice President Controller of Diamonds Department Store in Tempe, Arizona. In
1985, he joined Filene's Department Store as Vice President, Controller, and
later that year he was promoted to Senior Vice President and Chief Financial
Officer for Filene's Basement. In 1987, Mr. Tomaszewski joined Lechmere's in
Boston as Senior Vice President and Chief Financial Officer. In 1992, he was
promoted to Executive Vice President Retail Operations at Lechmere's and elected
to Lechmere's Board of Directors. Mr. Tomaszewski has a B.S. in Finance and
Economics and an M.B.A. in Finance from Wayne State University.
Mr. Silverstein joined Linens 'n Things in 1992 as Vice President, General
Merchandise Manager. Prior to joining Linens 'n Things, Mr. Silverstein was
Merchandise Vice President of Home Textiles at Bloomingdale's from 1985 to 1992.
Mr. Silverstein has been Senior Vice President, General Merchandise Manager
since 1993. He received his B.A. from Cornell University and his M.B.A. from
Wharton Business School.
Mr. Scullin joined Linens 'n Things in 1989 as Vice President, Store
Operations. Mr. Scullin has been Senior Vice President, Store Operations since
1994. From 1978 to 1987, Mr. Scullin held various management positions with The
Gap, Inc., including Zone Vice President at both The Gap and Banana Republic
from 1984 to 1987. From 1987 to 1989, Mr. Scullin was Vice President of Stores
with Alcott and Andrews. Mr. Scullin graduated from St. Joseph's University with
a B.S. in Marketing Management.
Mr. Goldstein has been a Director of the Company since October 1996. Mr.
Goldstein is Chairman and Chief Executive Officer of CVS and has served in
various capacities at CVS since 1969. He served as President of CVS from January
1987 to January 1994 and as Executive Vice President of CVS from 1984 to
December 1986. Prior to that, he served as President of CVS which was a division
of Melville Corporation. Mr. Goldstein also serves on the board of NYNEX and
Footstar, Inc. Mr. Goldstein received his B.S. from The Wharton School of the
University of Pennsylvania.
Mr. Conaway has been a Director of the Company since September 1996. Mr.
Conaway is Executive Vice President and Chief Financial Officer of CVS. Prior to
joining CVS, he held the position of Executive Vice President and Chief
Operating Officer for Reliable Drug Stores, Inc. Mr. Conaway joined CVS in 1992
as the Senior Vice President, Pharmacy and has held his current positions since
1995. Mr. Conaway holds a B.S. in Accounting from Michigan State University and
an M.B.A. from the University of Michigan.
32
<PAGE> 34
Mr. Beekman has been a Director of the Company since January 1997. Mr.
Beekman is President of Owl Hollow Enterprises, Inc., a consulting and
investment company. From 1986 to 1994, he was Chairman of the Board and Chief
Executive Officer of Hook SupeRx, Inc., a retail drug store chain. Prior to that
he was President and Chief Operating Officer of Seagram Company Limited. Mr.
Beekman is also a director of Fisher Scientific International, Inc., Mafco
Consolidated Group Inc., General Chemical Group, Inc. and BT Office Products
International.
The Board of Directors currently consists of four members and is divided
into three classes approximately equal in size. Directors are generally elected
for three-year terms on a staggered term basis, so that the term of office of
one class will expire each year and the terms of office of the other classes
will extend for additional periods of one and two years, respectively. The
Company currently intends to increase the number of directors serving on its
Board to six or seven by the end of 1997.
Pursuant to the Company's Certificate of Incorporation and the Stockholder
Agreement, CVS currently has the right to designate two members of the Board of
Directors of the Company. Upon completion of the Offering, CVS will have the
right to designate one member of the Company's Board of Directors if the
Underwriter's over-allotment option is not exercised, and no members if the
over-allotment option is exercised in full. The Company may ask current CVS
designee directors to continue to serve on the Company's Board of Directors
after they are no longer CVS designees.
KEY MANAGERS
The following table sets forth information regarding the key managers of
the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------- --- -----------------------------------
<S> <C> <C>
William T. Giles..................... 37 Vice President, Finance, Controller
Matthew J. Meaney.................... 50 Vice President, Management
Information Systems
Brian D. Silva....................... 40 Vice President, Human Resources
Dominick J. Trapasso................. 43 Vice President, Logistics
</TABLE>
Mr. Giles joined Linens 'n Things in 1991 as Assistant Controller and was
promoted to Vice President, Finance, Controller in 1994. From 1981 to 1990, Mr.
Giles was with Price Waterhouse. From 1990 to 1991, Mr. Giles held the position
of Director of Financial Reporting with Melville Corporation. Mr. Giles is a
certified public accountant and member of the American Institute of Certified
Public Accountants. He graduated from Alfred University with a B.A. in
Accounting and Management.
Mr. Meaney joined Linens 'n Things in 1991 as Vice President, Management
Information Systems. From 1985 to 1991, Mr. Meaney was Vice President of
Management Information Services for Laura Ashley, Inc. Mr. Meaney received a
B.S. in Economics from St. Peter's College and an M.B.A. in Finance from Seton
Hall University.
Mr. Silva has been Vice President, Human Resources, since joining Linens 'n
Things in 1995. Mr. Silva was Assistant Vice President, Human Resources at The
Guardian, an insurance and financial services company, from 1986 to 1995. He
holds an M.A. in Organizational Development from Columbia University and an M.A.
in Human Resources Management from New York Institute of Technology. Mr. Silva
received his B.A. from St. John's University.
Mr. Trapasso has been Vice President, Logistics since joining Linens 'n
Things in 1993. From 1979 to 1986, he was employed with John Wanamaker as
Director, Warehouse, Distribution. From 1986 to 1993, he was Senior Vice
President, Distribution, Transportation at Charming Shoppes, Inc. Mr. Trapasso
received his B.A. from New York University.
33
<PAGE> 35
COMPENSATION OF DIRECTORS
Directors who are not receiving compensation as officers or employees of
the Company or any of its affiliates are paid an annual retainer of $10,000 and
a $750 fee for attendance at each meeting of the Board or any committee of the
Board. Non-employee directors are also eligible to participate in the 1996
Non-Employee Director Stock Plan (the "1996 Director Plan"). Under the 1996
Director Plan, each non-employee director is entitled to receive an option to
purchase 7,000 shares of the Company's Common Stock upon the director's first
election to the Board. In addition, each non-employee director is entitled to
receive an option to purchase 700 shares of Common Stock on the date of each
annual meeting commencing with the 1997 Annual Meeting. The 1996 Director Plan
also provides for automatic grants of 700 stock units ("Stock Units") to each
non-employee director in 1996 and thereafter on the date of each annual meeting.
Each Stock Unit represents the right to receive one share of Common Stock at the
end of a specified period. One-half of such Stock Units will be paid six months
and a day after the grant date and the other half on the next annual meeting,
provided that on such date the non-employee director has not ceased to serve as
a director for any reason other than death, disability, or retirement at or
after attaining age 65.
EXECUTIVE COMPENSATION
The following table sets forth information on compensation earned in fiscal
years 1996 and 1995 by the Company's Chairman of the Board, Chief Executive
Officer and President and the three other most highly compensated key policy
making officers of the Company.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
-----------------------------
AWARDS
-----------------------------
NUMBER OF
ANNUAL COMPENSATION RESTRICTED SECURITIES
FISCAL ---------------------- STOCK UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) AWARD(S) ($) OPTIONS/SARS # COMPENSATION ($)
- ---------------------------- ------ ---------- --------- ------------ -------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Norman Axelrod,............. 1996 475,000 65,313 999,353(1) 385,355 3,167(5)
Chairman of the Board, 1995 455,000 0 750,004(2) 75,069(3)(4) 6,918(6)
Chief Executive Officer
and President
James M. Tomaszewski,....... 1996 279,000 27,900 290,438(1) 75,000 1,357(5)
Senior Vice President, 1995 264,000 0 100,016(2) 17,324(3)(4) 5,373(6)
Chief Financial Officer
Steven B. Silverstein,...... 1996 275,000 27,500 290,438(1) 75,000 3,167(5)
Senior Vice President, 1995 265,000 0 200,031(2) 23,098(3)(4) 7,069(6)
General Merchandise
Manager
Hugh J. Scullin,............ 1996 210,000 21,000 174,263(1) 45,000 3,167(5)
Senior Vice President, 1995 210,000 0 0 6,929(3)(4) 8,519(6)
Store Operations
</TABLE>
- ---------------
(1) Valuation of the restricted stock awards in the above table is based on the
offering price in the IPO of $15.50, net of consideration paid of $0.01 per
share. The number and value of the restricted stock holdings at the end of
fiscal 1996 for each of the named executives is: Mr. Axelrod, 64,516 shares,
$1,265,481; Mr. Tomaszewski 18,750 shares, $367,781; Mr. Silverstein 18,750
shares, $367,781; and Mr. Scullin 11,250 shares, $220,669. The foregoing
values are calculated by multiplying the total number of restricted shares
by the closing price of the Company's Common Stock on the last day of fiscal
1996, $19.625, net of consideration paid of $0.01 per share. Shares of
restricted stock vest 25% on July 1, 1997, July 1, 1998, July 1, 1999 and
July 1, 2000. Holders of restricted stock are entitled to receive dividends,
if any, on the restricted stock.
(2) Represents CVS restricted stock which was subject to a four year vesting
period from the date of grant, April 11, 1995. As of the IPO date Messrs.
Tomaszewski and Silverstein elected to surrender 3,091 and 6,182 CVS
34
<PAGE> 36
restricted shares, with a value of $129,822 and $259,644, respectively,
(based on the value of CVS common stock on the IPO date of $42.00), for an
equivalent number of vested CVS share units payable on November 25, 1999.
With respect to Mr. Axelrod, all remaining shares of CVS restricted stock
became immediately vested in connection with the IPO and, along with certain
stock options and accumulated pension benefits, were terminated and a
deferred compensation account was established for him in lieu thereof. See
"-- Employment Agreements and Change in Control Agreements."
(3) These options were grants to buy CVS common stock which become exercisable
in one-third increments over a three year period, except for Mr. Scullin who
received a traditional grant which was fully exercisable one year after the
grant date. An additional one-third of the options granted to Messrs.
Tomaszewski and Silverstein became fully vested and were exercisable for
approximately a 90-day period following the IPO at which time the exercise
period expired. In the case of Mr. Scullin, his options were fully
exercisable for approximately a 90-day period following the IPO. In the case
of Mr. Axelrod, his options are fully exercisable until December 31, 1999.
See footnote (1) to table entitled "Aggregated Option/SAR Exercises in Last
Fiscal Year and Fiscal Year-End Option/SAR Values" for description of option
exercises in 1996. Except in the case of Mr. Axelrod, all CVS options have
been cancelled following the expiration of the 90-day period after the IPO.
(4) The information shown in the table reflects the spinoff by CVS of Footstar,
Inc. in October 1996 which resulted in (i) reducing the exercise price of
the options to buy CVS common stock to 86.59% of the original exercise price
and increasing the number of securities underlying such options by 15.49%;
and (ii) increasing the number of shares of restricted stock by 15.49%.
(5) Represents $3,167, $1,357, $3,167 and $3,167 contributed under the CVS
401(k) Profit Sharing Plan from January through November of 1996 for Messrs.
Axelrod, Tomaszewski, Silverstein and Scullin, respectively.
(6) Includes $3,918, $2,373, $4,069 and $5,519 contributed under the CVS 401(k)
Profit Sharing Plan for Messrs. Axelrod, Tomaszewski, Silverstein and
Scullin, respectively, and shares of CVS common stock with a value of $3,000
contributed under the CVS Employee Stock Ownership Plan for each of the
named executives.
Option Grants in Last Fiscal Year. The table below sets forth certain
information concerning stock options granted during 1996 by the Company to the
Chief Executive Officer and each of the other named executive officers of the
Company. The hypothetical present values on date of grant shown in the last
column below for stock options granted in 1996 are presented pursuant to the
rules of the Securities and Exchange Commission (the "SEC" or the "Commission")
and are calculated under the modified Black-Scholes Model for pricing options.
The Company is not aware of any model or formula which will determine with
reasonable accuracy a present value for stock options. The actual before-tax
amount, if any, realized upon the exercise of stock options will depend upon the
excess, if any, of the market price of the Company's Common Stock over the
exercise price per share of Common Stock of the stock option at the time the
stock option is exercised. There is no assurance that the hypothetical present
values of the stock options reflected in this table will be realized. No stock
appreciation rights ("SARs") have been granted or are outstanding.
35
<PAGE> 37
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
---------------------------------------------------------------------
NUMBER OF PERCENT OF GRANT
SECURITIES TOTAL OPTIONS DATE
UNDERLYING OPTIONS GRANTED TO EXERCISE OR PRESENT
GRANTED EMPLOYEES IN BASE PRICE EXPIRATION VALUE
NAME (#)(1) FISCAL YEAR (2) ($/SHARE) DATE ($)(3)
- ------------------------- ------------------ --------------- ----------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Norman Axelrod........... 385,355 38.8% 15.500 11/24/2006 2,512,515
James M. Tomaszewski..... 75,000 7.5% 15.500 11/24/2006 489,000
Steven B. Silverstein.... 75,000 7.5% 15.500 11/24/2006 489,000
Hugh J. Scullin.......... 45,000 4.5% 15.500 11/24/2006 293,400
</TABLE>
- ---------------
(1) These ten year options were granted under the 1996 Incentive Compensation
Plan at fair market value and vest and become exercisable with respect to
25% of the underlying shares on November 25, 1997, 1998, 1999 and 2000.
(2) Options were granted during 1996 to purchase a total of 994,330 shares.
(3) The hypothetical present values on grant date are calculated under the
modified Black-Scholes Model, which is a mathematical formula used to value
options traded on stock exchanges. This formula considers a number of
factors in hypothesizing an option's present value. Factors used to value
options granted include the stock's expected volatility rate (45%), risk
free rate of return (6.0%), dividend yield (0%), projected time of exercise
(5 years) and projected risk of forfeiture and non-marketability for the
vesting period (5% per annum).
Option Exercises And Year-End Option Holdings. The following table shows
information regarding option exercises during 1996 as well as 1996 year-end
option holdings for each of the named executive officers.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF SECURITIES IN-THE-MONEY
SHARES UNDERLYING UNEXERCISED OPTIONS/SARS
ACQUIRED ON OPTIONS/SARS AT FY-END AT FY-END ($)
EXERCISE VALUE (#) EXERCISABLE/ EXERCISABLE/
NAME (#) REALIZED ($) UNEXERCISABLE(1) UNEXERCISABLE(1)
- ---------------------------- ----------- ------------ ------------------------ --------------------
<S> <C> <C> <C> <C>
Norman Axelrod.............. 0 0 0/385,355 0/1,589,589
James M. Tomaszewski........ 0 0 0/75,000 0/309,375
Steven B. Silverstein....... 0 0 0/75,000 0/309,375
Hugh J. Scullin............. 0 0 0/45,000 0/185,625
</TABLE>
- ---------------
(1) Each of the named executive officers also received from CVS, prior to the
IPO, options to purchase shares of CVS common stock. As of December 31, 1996
the number of exercisable and unexercisable securities underlying such
options were as follows: Mr. Axelrod 75,069/0, Mr. Tomaszewski 20,210/0, Mr.
Silverstein 25,214/0 and Mr. Scullin 12,705/0. The value of unexercised,
in-the-money options as of December 31, 1996, measured against the closing
price of CVS common stock of $41.375, for options that were exercisable and
for options that were unexercisable, is as follows: Mr. Axelrod $676,562/0,
Mr. Tomaszewski $169,025/0, Mr. Silverstein $159,768/0 and Mr. Scullin
$30,908/0. Only Mr. Scullin exercised CVS options during 1996, for a
realized value of $58,375, by exercising 9,816 options. The information in
this footnote reflects the spinoff by CVS of Footstar, Inc. in October 1996,
which resulted in reducing the exercise price of the options to buy CVS
common stock to 86.59% of the original exercise price and increasing the
number of securities underlying such options by 15.49%. None of such
options, except those held by Mr. Axelrod, are currently outstanding. See
footnote (3) to the Summary Compensation Table.
Employment Agreements and Change in Control Agreements. The Company has
entered into employment agreements with Messrs. Axelrod, Tomaszewski,
Silverstein, and Scullin (each referred to in this section
36
<PAGE> 38
individually as an "Employment Agreement" and collectively as the "Employment
Agreements"). The following briefly summarizes the principal terms of the
Employment Agreements.
The period of employment under the Employment Agreements extends initially
for four years subject to automatic one-year extensions at the end of the
initial term unless either party gives notice of non-renewal at least 180 days
prior to expiration of the term. The Employment Agreements generally provide for
payment of an annual base salary that will be reviewed each year, but may not be
decreased from the amount in effect in the previous year. The base salary
currently is $505,000, $279,000, $275,000 and $210,000 for Messrs. Axelrod,
Tomaszewski, Silverstein and Scullin, respectively, and there is an annual
target bonus opportunity of a minimum of 55% and a maximum of 110% of base
salary for Mr. Axelrod and a minimum of 40% and a maximum of 80% of base salary
for the other named executive officers. The Employment Agreements also generally
provide for (i) continued payment of base salary, incentive compensation, and
other benefits for 24 months in the case of Mr. Axelrod and for 12 months in the
case of the other named executive officers in the event the executive's
employment is terminated other than in connection with the death of the
executive, a termination by the Company for "cause" or voluntary termination by
the executive without "good reason;" (ii) other restrictive covenants including
non-disclosure, non-solicitation of employees and availability for litigation
support; (iii) participation in certain benefit plans and programs (including
retirement benefits, disability and life insurance, and medical benefits); (iv)
annual and long-term incentive compensation opportunities; and (v) deferred
compensation arrangements. In the case of Mr. Axelrod, he received from the
Company an initial crediting to a deferred compensation account of approximately
$2.2 million in lieu of certain accumulated CVS pension benefits, outstanding
CVS restricted stock awards and outstanding CVS stock options.
In the event of a change in control, the Employment Agreements generally
provide lump sum severance benefits equal to 2 times (2.99 for Mr. Axelrod) base
salary and target bonus and continued participation in certain welfare benefit
plans for 24 months (36 months for Mr. Axelrod). In addition, in the case of
voluntary termination the Company may elect to pay the executive over a 12 month
period an amount equal to annual base salary plus target annual bonus in
exchange for the executive's agreement not to compete with the Company for a
period of one year. Upon a termination for cause, the executives have agreed not
to compete with the Company for a period of one year.
A "change in control" is defined to include a variety of events, including
significant changes in the stock ownership of the Company or a significant
subsidiary, certain changes in the Company's Board of Directors, certain mergers
and consolidations of the Company or a significant subsidiary, and the sale or
disposition of all or substantially all of the consolidated assets of the
Company. "Good reason" is defined generally as demotion, reduction in
compensation, unapproved relocation in the case of Mr. Axelrod or a material
breach of the Employment Agreement by the Company. "Cause" is defined generally
as a breach of the restrictive covenants referred to in clause (ii) above,
certain felony convictions, or willful acts or gross negligence that are
materially damaging to the Company.
If payments under the Employment Agreements following a change in control
are subject to the "golden parachute" excise tax, the Company will make an
additional "gross-up" payment sufficient to ensure that the net after-tax amount
retained by the executive (taking into account all taxes, including those on the
gross-up payment) is the same as would have been the case had such excise tax
not applied. The Employment Agreements obligate the Company to indemnify the
executives to the fullest extent permitted by law, including the advancement of
expenses, and, in the case of Mr. Axelrod, provides that the Company generally
will reimburse Mr. Axelrod for expenses incurred in seeking enforcement of his
Employment Agreement, unless Mr. Axelrod's assertion of such rights is in bad
faith or is frivolous.
Compensation Committee Interlocks and Insider Participation. The
Compensation Committee of the Board of Directors is comprised of Mr. Goldstein
and Mr. Conaway. Mr. Goldstein is Chairman of the Board, Chief Executive Officer
and a Director of CVS and Mr. Conaway is Executive Vice President and Chief
Financial Officer of CVS. CVS currently owns approximately 32.5% of the
Company's Common Stock.
37
<PAGE> 39
1996 INCENTIVE COMPENSATION PLAN
The Company has adopted the 1996 Incentive Compensation Plan (the "1996
ICP"). The Company's Board of Directors believes that attracting and retaining
key employees is essential to the Company's growth and success. The 1996 ICP
provide for grants of stock options, stock appreciation rights ("SARs"),
restricted stock, deferred stock, other stock-related awards, and performance or
annual incentive awards that may be settled in cash, stock, or other property
("Awards"). The total number of shares of the Company's Common Stock reserved
and available for delivery to participants in connection with Awards is (i)
2,312,132 shares, plus (ii) 12% of the number of shares of Common Stock newly
issued by the Company or delivered out of treasury shares during the term of the
Plan (excluding any issuance or delivery in connection with Awards, or any other
compensation or benefit plan of the Company); provided, however, that the total
number of shares of Common Stock with respect to which incentive stock options
may be granted is 1,974,944 shares. The Committee administering the 1996 ICP
may, in its discretion, accelerate the exercisability, the lapsing of
restrictions, or the expiration of deferral or vesting periods of any Award, and
such accelerated exercisability, lapse, expiration and vesting will occur
automatically in the case of a "change in control" of the Company except to the
extent otherwise determined by the Committee at the date of grant. In addition,
the Committee may provide that the performance goals relating to any
performance-based award will be deemed to have been met upon the occurrence of
any change in control. The Board of Directors may amend, alter, suspend,
discontinue, or terminate the 1996 ICP or the Committee's authority to grant
Awards without further stockholder approval, except stockholder approval must be
obtained for any amendment or alteration if required by law or regulation or
under the rules of any stock exchange or automated quotation system on which the
shares are then listed or quoted.
PRINCIPAL AND SELLING SHAREHOLDER AND MANAGEMENT
The following table and the notes thereto set forth information as of
immediately prior to and immediately after completion of the Offering relating
to beneficial ownership (as defined in Rule 13d-3 of the Securities and Exchange
Act of 1934, as amended (the "Exchange Act")) of the Company's Common Stock by
the Selling Shareholder, by each of the Company's executive officers and
directors and by the executive officers and directors as a group. Other than as
set forth below, the Company knows of no person, entity or group which owns 5%
or more of the Company's Common Stock.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP
OF COMMON STOCK OF COMMON STOCK
PRIOR TO OFFERING(1) AFTER OFFERING(2)
--------------------- ---------------------
NUMBER NUMBER
OF SHARES PERCENT OF SHARES PERCENT
---------- ------- ---------- -------
<S> <C> <C> <C> <C>
Selling Shareholder
Nashua Hollis CVS, Inc.(3)....................... 6,267,758 32.5% 1,017,758 5.3%
Executive Officers and Directors
Norman Axelrod(4)................................ 64,816 * 64,816 *
Philip E. Beekman................................ 1,000 * 1,000 *
Charles C. Conaway............................... 350 * 350 *
Stanley P. Goldstein............................. 350 * 350 *
James M. Tomaszewski(5).......................... 18,750 * 18,750 *
Steven B. Silverstein(6)......................... 19,750 * 19,750 *
Hugh J. Scullin(7)............................... 13,950 * 13,950 *
Executive Officers and Directors as a
Group(3)(4)(5)(6)(7)............................. 118,966 * 118,966 *
</TABLE>
- ---------------
* Represents less than 1% of the total outstanding Common Stock.
(1) Common Stock is the only class of equity securities of the Company
outstanding.
(2) Assuming the Underwriter's over-allotment option is not exercised.
38
<PAGE> 40
(3) Nashua Hollis CVS, Inc. is an indirect subsidiary of CVS. Nashua Hollis CVS,
Inc. is a New Hampshire corporation with offices located at 670 White Plains
Road, Suite 210, Scarsdale, New York 10583.
(4) Includes 64,516 shares of restricted stock. Includes 200 shares held by Mr.
Axelrod's minor children, as to which shares Mr. Axelrod disclaims
beneficial ownership.
(5) Represents 18,750 shares of restricted stock.
(6) Includes 18,750 shares of restricted stock.
(7) Includes 11,250 shares of restricted stock and includes 500 shares as to
which shares Mr. Scullin disclaims beneficial ownership held by Mr.
Scullin's minor child.
39
<PAGE> 41
RELATIONSHIP WITH CVS AND RELATED PARTY TRANSACTIONS
CVS currently owns approximately 32.5% of the Common Stock of the Company
and has the right to designate two members of the Board of Directors of the
Company. Upon completion of the Offering CVS will own approximately 5.3% of the
Common Stock of the Company and will have the right to designate one member of
the Board of Directors of the Company if the Underwriter's over-allotment option
is not exercised, and no members if the over-allotment option is exercised in
full. See "Management" and "-- The Stockholder Agreement." This section
describes certain current arrangements between CVS and the Company.
The following are summary descriptions of the terms and conditions of the
Transitional Services Agreement, Stockholder Agreement, Subordinated Note and
Tax Disaffiliation Agreement. The descriptions do not purport to be complete and
are subject to, and are qualified in their entirety by reference to, all of the
provisions of such documents, which are filed as exhibits to the Registration
Statement of which this Prospectus forms a part.
Administrative Costs. CVS historically allocated various administrative
costs to the Company. Allocations were based on the Company's ratable share of
costs incurred by CVS on behalf of the Company for the combined programs. The
total costs allocated to the Company in 1996 through the date of the IPO was
approximately $900,000. Since the IPO, CVS no longer provides administrative
services to the Company, except for the transitional services referred to below.
Lease Guarantees. CVS guaranteed the leases of certain stores operated by
the Company and, prior to the IPO, charged a fee for that service which amounted
to approximately $300,000 in 1996. Subsequent to the IPO, CVS no longer charges
the Company a fee for this service. Since the IPO, CVS has remained obligated
under its guarantees of the Company's store leases where CVS guaranteed such
leases in the past (including extensions and renewals provided for in the terms
of such leases at the time such guarantees were furnished) and certain new
leases identified in the Stockholder Agreement through the initial lease terms
thereof. CVS will not enter into any additional guarantees of leases on behalf
of the Company. The Company has agreed to indemnify CVS under the Stockholder
Agreement for any losses arising in connection with such lease guarantees.
Transitional Services Agreement. CVS and the Company entered into a
transitional services agreement (the "Transitional Services Agreement")
effective concurrently with the IPO under which CVS provides or causes to be
provided to the Company certain specified services for a transitional period
after the IPO. The transitional services to be provided by CVS include check
authorization and collection, insurance claims administration and, under certain
circumstances, VSAT satellite communications system services (the "Services").
The Transitional Services Agreement provides that the Services will be provided
in exchange for fees based on CVS's costs for such Services. The period for
which CVS is to provide the Services varies depending on the type of Service,
but will not exceed 18 months unless the parties otherwise agree. Pursuant to
the Stockholder Agreement, CVS may terminate the provision of any or all of the
Services if a person or group acquires Majority Beneficial Ownership of the
Company.
Financing. The weighted average interest rate on borrowings by the Company
from CVS for 1996 through the IPO was 6.2%. Concurrently with the IPO, the
Company issued $13.5 million of subordinated indebtedness to CVS. The
Subordinated Note consisted of a $10 million tranche ("Tranche A") and a $3.5
million tranche ("Tranche B"), each of which is for a four year term at an
interest rate of 90-day LIBOR plus the spread that would from time to time be
applicable to 90-day LIBOR borrowings under the Company's Revolving Credit
Facility. There is no principal amortization prior to maturity. If the net
proceeds to CVS of the IPO (which were $188,370,000) plus the net proceeds from
any subsequent public or private sales of Common Stock by CVS (including
proceeds from the sale of shares offered hereby), together with the market value
of the Common Stock of which CVS continues to be the beneficial owner at
December 31, 1997 (collectively, the "CVS Value") (i) exceeds $375 million but
is less than $400 million, then CVS would be required to reduce by 50% the
outstanding principal amount of Tranche A; (ii) exceeds $400 million, then CVS
would be required to reduce by 75% the outstanding principal amount of Tranche
A; and (iii) exceeds $450 million, then CVS would be required to reduce by 100%
the total outstanding principal amount of Tranche A. To the extent that the
gross proceeds received by CVS from any public or private sale by CVS of shares
of the Company's Common Stock after the IPO (including proceeds from the sale of
shares offered hereby) exceeds (such excess, the "Appreciated
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<PAGE> 42
Amount") the amount equal to the number of shares sold in such sales (the
"Post-IPO Sold Shares") times $16.00 per share, the principal amount of Tranche
B is reduced by: (i) 50% of the portion of the Adjusted Proceeds Amount (defined
as the Appreciated Amount less transaction expenses attributable to the
Appreciated Amount, determined on an after-tax basis at the applicable effective
tax rate for CVS) up to $2.00 times the Post-IPO Sold Shares; and (ii) 65% of
the remaining portion, if any, of the Adjusted Proceeds Amount (up to a maximum
aggregate reduction for Tranche B of $3.5 million). The Company anticipates that
the $3.5 million Tranche B indebtedness will be converted into equity upon
consummation of this Offering, depending on the sale price of the Company's
Common Stock in this Offering, pursuant to the above-described provisions. With
the exception of the Subordinated Note, the Company no longer receives financing
assistance support from CVS.
The Stockholder Agreement. The Company and CVS entered into the
Stockholder Agreement as of December 2, 1996 in connection with the IPO. The
Stockholder Agreement provides that the Company and CVS will indemnify each
other against certain liabilities. In addition, pursuant to the Stockholder
Agreement no person or group may acquire Majority Beneficial Ownership of the
Company unless (i) CVS receives prior written notice that such person or group
proposes to acquire Majority Beneficial Ownership and (ii) prior to such
acquisition such person or group provides to CVS (unless waived by CVS in
writing) a guarantee, in form and substance acceptable to CVS, of the
obligations of the Company under the Stockholder Agreement to indemnify CVS in
respect of the CVS Lease Guarantees. Upon such person or group acquiring
Majority Beneficial Ownership, CVS may terminate the provision of any or all of
its services under the Transitional Services Agreement. These provisions
regarding acquisition of Majority Beneficial Ownership could limit the ability
or willingness of a third party to make an offer to acquire the Company.
The Stockholder Agreement also provides that, at the request of CVS, the
Company will use its best efforts to effect registration under the applicable
federal and state securities laws of the shares of the Common Stock held by CVS
for sale in accordance with certain specified methods described in the
Stockholder Agreement on up to two occasions (one of which includes this
Offering), and will take such other action necessary to permit the sale thereof
in other jurisdictions, subject to certain limitations specified in the
Stockholder Agreement. Upon completion of this Offering, CVS will have one
customary "demand" registration right remaining under the Stockholder Agreement.
CVS will also have the right, which it may exercise from time to time, to
include the shares of Common Stock (and any other securities issued in respect
of or in exchange for such shares) held by it in certain other registrations of
Common Stock initiated by the Company on its own behalf or on behalf of its
other shareholders. CVS may transfer certain registration rights to purchasers
of the Company's Common Stock from CVS, which transferees may collectively
exercise "demand" registration rights on not more than two occasions (which
exercise will not diminish CVS's remaining "demand" registration rights). The
Company will be responsible for customary registration and related expenses in
connection with the exercise of such registration rights, except that CVS will
pay one-half of such expenses in connection with each demand registration
(including the registration in connection with this Offering) requested by CVS
(and the excess of the Company's share of such CVS demand registration expenses
over $200,000 in the aggregate). Without the written consent of CVS, the Company
may not grant to any person registration rights entitling such person to request
that the Company effect, prior to January 1, 1998, a registration of Company
securities under the Securities Act of 1933 for the account of such person.
Terms of the Tax Disaffiliation Agreement. CVS and the Company have
entered into a tax disaffiliation agreement (the "Tax Disaffiliation Agreement")
that sets forth each party's rights and obligations with respect to payments and
refunds, if any, with respect to taxes for periods before and after the IPO and
related matters such as the filing of tax returns and the conduct of audits or
other proceedings involving claims made by taxing authorities.
In general, CVS is responsible for filing consolidated federal and
consolidated, combined or unitary state income tax returns for periods through
the date the IPO was completed, and paying the associated taxes. The Company
will reimburse CVS for the portion of such taxes, if any, relating to the
Company's businesses, provided, however, that with respect to any combined and
unitary state income taxes based in part on allocation percentages, the Company
will reimburse CVS for the portion of such taxes attributable to the Company's
businesses' contributions to the relevant allocation percentage. The Company
will be reimbursed, however, for tax attributes, such as net operating losses
and foreign tax credits, when and to the extent that they are used on a
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<PAGE> 43
consolidated, combined or unitary basis. The Company will be responsible for
filing, and paying the taxes associated with, all other tax returns for tax
periods (or portions thereof) relating solely to the Company's businesses. CVS,
however, will be responsible for preparing all income tax returns to be filed by
the Company for tax periods that end on or before the date on which the IPO was
completed.
In general, the Company has agreed to indemnify CVS for taxes relating to a
tax period (or portion thereof) ending on or before the completion of the IPO to
the extent such taxes are attributable to the Company's businesses or, in the
case of any combined and unitary state income taxes based in part on allocation
percentages, to the extent such taxes are attributable to contribution of the
Company's businesses to the relevant allocation percentage and CVS will agree to
indemnify the Company for all other taxes relating to a tax period (or portion
thereof) ending on or before the completion of the IPO. The Tax Disaffiliation
Agreement also provides that CVS will generally pay to the Company the net
benefit realized by CVS relating to the Company's businesses from the carryback
to tax periods or portions thereof ending on or before the completion of the IPO
of certain tax attributes of the Company arising in tax periods or portions
thereof beginning after the completion of the IPO.
The Company and CVS have agreed not to take (or omit to take) any action
that results in any increased liability relating to a tax period (or portion
thereof) ending on or before the completion of the IPO. The Company and CVS have
each agreed to indemnify the other for liabilities arising as a result of the
breach of this agreement. The Company has also agreed to indemnify CVS for
liabilities resulting from a breach by the Company of a similar agreement and
certain other agreements contained in the Tax Disaffiliation Agreement among
Footstar, Inc., Melville Corporation (CVS's predecessor) and their respective
affiliates, to which the Company continues to be a party.
For details as to other related party transactions, see note 16 in the
Notes to Consolidated Financial Statements.
SHARES ELIGIBLE FOR FUTURE SALE
The Company has 19,268,458 outstanding shares of Common Stock. The
5,250,000 shares of Common Stock offered hereby will be immediately freely
tradeable without restriction under the Securities Act except for any shares
purchased by an "affiliate" of the Company (as that term is defined under the
rules and regulations of the Securities Act), which will be subject to the
resale limitations of Rule 144 adopted under the Securities Act. The remaining
1,017,758 shares of Common Stock held by CVS upon completion of the Offering are
"restricted securities" for purposes of Rule 144 and may not be resold in a
public distribution except in compliance with the registration requirements of
the Securities Act or pursuant to Rule 144. The share numbers in this section
assume that the Underwriters' over-allotment options are not exercised.
In general, under Rule 144, as currently in effect, a shareholder (or
shareholders whose shares are aggregated) who has beneficially owned for at
least one year shares of Common Stock which are treated as "restricted
securities," including persons who may be deemed affiliates of the Company,
would be entitled to sell, within any three-month period, a number of shares
that does not exceed the greater of 1% of the then outstanding shares of Common
Stock (192,685 shares as of the date of this Prospectus) or the average weekly
reported trading volume in the Common Stock during the four calendar weeks
preceding the date on which notice of such sale is given, provided certain
manner of sale and notice requirements and requirements as to the availability
of current public information about the Company are satisfied (which
requirements as to the availability of current public information are expected
to be satisfied for all periods after the date of this Prospectus). In addition,
affiliates of the Company must comply with the restrictions and requirements of
Rule 144, other than the one-year holding period requirement, in order to sell
shares of Common Stock which are not "restricted securities" (such as shares
acquired by affiliates in the Offering). Under Rule 144(k) a shareholder who is
deemed not to have been an affiliate of the Company at any time during the 90
days preceding a sale, and who has beneficially owned for at least two years
shares of Common Stock which are treated as "restricted securities," would be
entitled to sell such shares, without regard to the foregoing restrictions and
requirements.
The Company and CVS have agreed pursuant to the Underwriting Agreement that
they will not, with certain limited exceptions, sell any Common Stock without
the prior consent of Credit Suisse First Boston Corporation
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("Credit Suisse First Boston") for a period of 90 days from the date of this
Prospectus. See "Underwriting." After the expiration of such 90-day period, or
earlier in certain circumstances or if permitted by Credit Suisse First Boston,
the 1,017,758 shares of Common Stock held by CVS will become available for sale
subject to the applicable resale limitations of Rule 144.
CVS has certain rights to register its shares of Common Stock under the
Securities Act. See "Relationship with CVS and all Related Party
Transactions -- The Stockholder Agreement." CVS has publicly announced its
intention to reduce its ownership of the Company's Common Stock below 10% of the
outstanding shares by the end of 1997. The Stockholder Agreement provides that,
at the request of CVS, the Company will use its best efforts to effect
registration under the applicable federal and state securities laws of the
shares of the Common Stock held by CVS for sale in accordance with certain
specified methods described in the Stockholder Agreement on up to two occasions
(one of which includes this Offering), and will take such other action necessary
to permit the sale thereof in other jurisdictions, subject to certain
limitations specified in the Stockholder Agreement. Upon completion of the
Offering, CVS will have one remaining customary "demand" registration right. CVS
will also have the right, which it may exercise from time to time, to include
the shares of the Common Stock (and any other securities issued in respect of or
in exchange for such shares) held by it in certain other registrations of the
Common Stock initiated by the Company on its own behalf or on behalf of its
other shareholders.
The Common Stock is listed on the New York Stock Exchange under the symbol
"LIN". See "Price Range of Common Stock." The Company can make no prediction as
to the effect, if any, that sales of shares of Common Stock or the availability
of shares for sale will have on the market price prevailing from time to time.
Nevertheless, sales of substantial amounts of the Common Stock in the public
market could adversely affect the market price of the Common Stock and could
impair the Company's future ability to raise capital through an offering of
equity securities.
DESCRIPTION OF CAPITAL STOCK
GENERAL
The authorized capital stock of the Company consists of 1,000,000 shares of
Preferred Stock, par value $.01 per share and 60,000,000 shares of Common Stock,
par value $.01 per share. As of the date of this Prospectus, the Company had
19,268,458 shares of Common Stock issued and outstanding, 2,511,432 shares of
Common Stock reserved for issuance pursuant to outstanding stock options and
existing benefit plans, no treasury shares and no shares of Preferred Stock
outstanding.
PREFERRED STOCK
The Board of Directors has the authority, subject to any limitations
prescribed by law, to issue the Preferred Stock in one or more series and to fix
the rights, preferences, privileges and restrictions thereof, including dividend
rights, dividend rates, conversion rights, voting rights, terms of redemption,
redemption prices, liquidation preferences and the number of shares constituting
any series or the designation of such series, without further vote or action by
the shareholders of the Company. The issuance of Preferred Stock may have the
effect of delaying, deferring or preventing a change in control of the Company
without further action by the shareholders and may adversely affect the voting
and other rights of the holders of Common Stock. The Company has no current
plans to issue any of the Preferred Stock.
COMMON STOCK
Each holder of Common Stock is entitled to one vote per share on all
matters submitted to a vote of shareholders, including the election of
directors. The Common Stock does not have cumulative voting rights, which means
that the holders of a majority of the shares voting for election of directors
can elect all members of the Board of Directors. Under Delaware law, the
approval of the holders of a majority of all outstanding stock is required to
effect a merger of the Company, the disposition of all or substantially all of
the Company's assets or for certain other actions. The Certificate of
Incorporation prohibits removal of directors by the stockholders, except for
cause with the affirmative vote of the holders of not less than a majority of
the total voting power of all
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outstanding voting securities voting as a class. The Certificate of
Incorporation prohibits the taking of stockholder action by written consent in
lieu of a meeting, and generally permits special meetings of stockholders to be
called only by the Board of Directors, the Chairman of the Board, the President
or the Secretary of the Company, or by CVS so long as CVS owns 10% of the
Company's Common Stock. Upon consummation of this Offering, CVS will no longer
own 10% of the Company's Common Stock. The affirmative vote of 80% of the total
voting power of all outstanding securities voting as a class is required to
amend any provision of the Certificate of Incorporation, other than those
provisions relating to the Company's name, registered agent, purpose or
authorized stock. See "Risk Factors -- Influence by CVS" and "Principal and
Selling Shareholder and Management." Subject to the preferential rights of the
holders of shares of Preferred Stock, if any, the holders of Common Stock are
entitled to share ratably in such dividends, if any, as may be declared and paid
by the Board of Directors out of funds legally available therefor. See "Dividend
Policy." Upon liquidation or dissolution of the Company, the holders of Common
Stock of the Company will be entitled to share ratably in the assets of the
Company legally available for distribution to shareholders after payment of
liabilities and subject to the prior rights of any holders of Preferred Stock
then outstanding. Holders of Common Stock have no conversion, sinking fund,
redemption, preemptive or subscription rights. The shares of Common Stock
presently issued and outstanding, including the shares of Common Stock offered
hereby, are fully paid and nonassessable. The rights, preferences and privileges
of holders of Common Stock are subject to the rights of the holders of shares of
any series of Preferred Stock which the Company may issue in the future.
CERTAIN PROVISIONS OF LAW
The Company is subject to the "Business Combination" provisions contained
in Section 203 of the Delaware General Corporation Law. In general, such
provisions prohibit a publicly held Delaware corporation from engaging in
various "business combination" transactions with any "interested stockholder"
for a period of three years after the date of the transaction which the person
became an "interested stockholder," unless (i) the transaction is approved by
the Board of Directors prior to the date the "interested stockholder" obtained
such status, (ii) upon consummation of the transaction which resulted in the
stockholder becoming an "interested stockholder," the "interested stockholder,"
owned at least 85% of the voting stock of the corporation outstanding at the
time the transaction commenced, excluding for purposes of determining the number
of shares outstanding those shares owned by (a) persons who are directors and
also officers and (b) employee stock plans in which employee participants do not
have the right to determine confidentially whether shares held subject to the
plan will be tendered in a tender or exchange offer, or (iii) on or subsequent
to such date the "business combination" is approved by the board of directors
and authorized at an annual or special meeting of shareholders by the
affirmative vote of at least 66 2/3% of the outstanding voting stock which is
not owned by the "interested stockholder." A "business combination" is defined
to include mergers, asset sales and other transactions resulting in financial
benefit to a stockholder. In general, an "interested stockholder" is a Person
who, together with affiliates and associates, owns (or within three years, did
own) 15% or more of a corporation's voting stock. The statute could prohibit or
delay mergers or other takeover or change in control attempts with respect to
the Company and, accordingly, may discourage attempts to acquire the Company.
TRANSFER AGENT
The transfer agent for the Company's Common Stock is the First National
Bank of Boston.
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UNDERWRITING
Under the terms and subject to the conditions contained in an Underwriting
Agreement dated , 1997 (the "Underwriting Agreement"), the
Underwriters named below (the "Underwriters"), for whom Credit Suisse First
Boston and Donaldson, Lufkin & Jenrette Securities Corporation are acting as the
representatives (the "Representatives"), have severally but not jointly agreed
to purchase from the Selling Shareholder the following respective numbers of
shares of Common Stock:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
- --------------------------------------------------------------------------------- ---------
<S> <C>
Credit Suisse First Boston Corporation...........................................
Donaldson, Lufkin & Jenrette Securities Corporation..............................
---------
Total.................................................................. 5,250,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent and that the
Underwriters will be obligated to purchase all of the shares of Common Stock
offered hereby (other than those shares covered by the over-allotment option
described below) if any are purchased. The Underwriting Agreement provides that,
in the event of a default by an Underwriter, in certain circumstances the
purchase commitments of the non-defaulting Underwriters may be increased or the
Underwriting Agreement may be terminated.
The Selling Shareholder has granted to the Underwriters an option, expiring
at the close of business on the 30th day after the date of this Prospectus, to
purchase up to 750,000 additional shares at the public offering price less the
underwriting discounts and commissions, all as set forth on the cover page of
this Prospectus. Such option may be exercised only to cover over-allotments in
the sale of the shares of Common Stock. To the extent such option is exercised,
each Underwriter will become obligated, subject to certain conditions, to
purchase approximately the same percentage of such additional shares of Common
Stock as it was obligated to purchase pursuant to the Underwriting Agreement.
The Company and the Selling Shareholder have been advised by the
Representatives that the Underwriters propose to offer shares of Common Stock to
the public initially at the public offering price set forth on the cover page of
this Prospectus and, through the Representatives, to certain dealers at such
price less a concession of $ per share, and the Underwriters and such
dealers may allow a discount of $ per share on sales to certain other
dealers. After the commencement of the offering, the public offering price and
concession and discount to dealers may be changed by the Representatives.
The Company, CVS, the Selling Shareholder and certain executive officers of
the Company have agreed that during the period beginning from the date of the
Prospectus (as defined in the Underwriting Agreement) and continuing to and
including the date 90 days after the date of the Prospectus not to offer, sell,
contract to sell, grant any option to purchase, establish a put equivalent
position (as defined in Rule 16a-1(h) under the Exchange Act), pledge or
otherwise dispose of, directly or indirectly, any shares of Common Stock, or any
securities that are substantially similar to the Common Stock, including but not
limited to any securities that are convertible into or exercisable or
exchangeable for, or that represent the right to receive, Common Stock or any
substantially similar securities or, in the case of the Company and the
executive officers, publicly disclose the intention to make any such offer,
sale, pledge or disposal, without the prior written consent of Credit Suisse
First Boston, except (i) for private sales so long as the purchaser thereof
enters into a corresponding lockup agreement with Credit Suisse First Boston for
the then unexpired portion of the 90-day period, (ii) for grants of employee
stock options pursuant to the terms of a plan in effect on the date hereof,
issuances of Common Stock pursuant to the exercise of such options or the
exercise of any other employee stock options outstanding on the date hereof and
(iii) for preparation of a registration statement or preparation for an offering
so as to be in a position to file a registration statement and proceed with an
offering immediately after expiration of such 90-day period.
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The Company and CVS have agreed to indemnify the Underwriters against
certain liabilities, including civil liabilities under the Securities Act, or
contribute to payments which the Underwriters may be required to make in respect
thereof.
The Representatives, on behalf of the Underwriters, may engage in
over-allotment, stabilizing transactions, syndicate covering transactions and
penalty bids in accordance with Regulation M under the Exchange Act. Over-
allotment involves syndicate sales in excess of the offering size, which creates
a syndicate short position. Stabilizing transactions permit bids to purchase the
underlying security so long as the stabilizing bids do not exceed a specified
maximum. Syndicate covering transactions involve purchases of the Common Stock
in the open market after the distribution has been completed in order to cover
syndicate short positions. Penalty bids permit the Representatives to reclaim a
selling concession from a syndicate member when the shares of Common Stock
originally sold by such syndicate member is purchased in a syndicate covering
transaction to cover syndicate short positions. Such stabilizing transactions,
syndicate covering transactions and penalty bids may cause the price of the
Common Stock to be higher than it would otherwise be in the absence of such
transactions. These transactions may be effected on the New York Stock Exchange
or otherwise and, if commenced, may be discontinued at any time.
Certain of the Underwriters and their affiliates have provided from time to
time, and expect to provide in the future, various investment banking and
commercial banking services for CVS and the Company, for which such Underwriters
have received and will receive customary fees and commissions.
NOTICE TO CANADIAN RESIDENTS
RESALE RESTRICTIONS
The distribution of the Common Stock in Canada is being made only on a
private placement basis exempt from the requirement that the Company and the
Selling Shareholder prepare and file a prospectus with the securities regulatory
authorities in each province where trades of Common Stock are effected.
Accordingly, any resale of the Common Stock in Canada must be made in accordance
with applicable securities laws which will vary depending on the relevant
jurisdiction, and which may require resales to be made in accordance with
available statutory exemptions or pursuant to a discretionary exemption granted
by the applicable Canadian securities regulatory authority. Purchasers are
advised to seek legal advice prior to any resale of the Common Stock.
REPRESENTATIONS OF PURCHASERS
Each purchaser of Common Stock in Canada who receives a purchase
confirmation will be deemed to represent to the Company, the Selling Shareholder
and the dealer from whom such purchase confirmation is received that (i) such
purchaser is entitled under applicable provincial securities laws to purchase
such Common Stock without the benefit of a prospectus qualified under such
securities laws, (ii) where required by law, that such purchaser is purchasing
as principal and not as agent and (iii) such purchaser has reviewed the text
above under "Resale Restrictions."
RIGHT OF ACTION AND ENFORCEMENT
The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
Section 32 of the Regulation under the Securities Act (Ontario). As a result,
Ontario purchasers must rely on other remedies that may be available, including
common law rights of action for damages or rescission or rights of action under
the civil liability provisions of the U.S. federal securities laws.
All of the Company's directors and officers as well as the experts and the
Selling Shareholder named herein may be located outside of Canada and, as a
result, it may not be possible for Canadian purchasers to effect service
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<PAGE> 48
of process within Canada upon the Company or such persons. All or a substantial
portion of the assets of the Company and such persons may be located outside of
Canada and, as a result, it may not be possible to satisfy a judgment against
the Company or such persons in Canada or to enforce a judgment obtained in
Canadian courts against the Company of such persons outside of Canada.
NOTICE TO BRITISH COLUMBIA RESIDENTS
A purchaser of Common Stock to whom the Securities Act (British Columbia)
applies is advised that such purchaser is required to file with the British
Columbia Securities Commission a report within ten days of the sale of any
Common Stock acquired by such purchaser pursuant to the Offering. Such report
must be in the form attached to British Columbia Securities Commission Blanket
Order BOR #95/17, a copy of which may be obtained from the Company. Only one
such report must be filed in respect of Common Stock acquired on the same date
and under the same prospectus exemption.
TAXATION AND ELIGIBILITY FOR INVESTMENT
Canadian purchasers of Common Stock should consult their own legal and tax
advisers with respect to the tax consequences of an investment in the Common
Stock in their particular circumstances and with respect to the eligibility of
the Common Stock for investment by such purchasers under relevant Canadian
legislation.
CERTAIN U.S. FEDERAL TAX CONSIDERATIONS
FOR NON-U.S. HOLDERS OF COMMON STOCK
The following is a general discussion of certain U.S. federal income and
estate tax consequences of the ownership and disposition of Common Stock by a
beneficial owner thereof that is a "Non-U.S. Holder." A "Non-U.S. Holder" is a
person or entity that, for U.S. federal income tax purposes, is a non-resident
alien individual, a foreign corporation, a foreign partnership, or a
non-resident fiduciary of a foreign estate or trust.
This discussion is based on the Internal Revenue Code of 1986, as amended
(the "Code"), and administrative interpretations as of the date hereof, all of
which are subject to change, including changes with retroactive effect. This
discussion does not address all aspects of U.S. federal income and estate
taxation that may be relevant to Non-U.S. Holders in light of their particular
circumstances and does not address any tax consequences arising under the laws
of any state, local or foreign jurisdiction. Prospective holders should consult
their tax advisors with respect to the particular tax consequences to them of
owning and disposing of Common Stock, including the consequences under the laws
of any state, local or foreign jurisdiction.
Proposed United States Treasury Regulations were issued in April 1996 (the
"Proposed Regulations") which, if adopted, would affect the United States
taxation of dividends paid to a Non-U.S. Holder on Common Stock. The Proposed
Regulations are generally proposed to be effective with respect to dividends
paid after December 31, 1997, subject to certain transition rules. It is not
clear whether the Proposed Regulations would be finalized in the current form.
The discussion below is not intended to be a complete discussion of the
provisions of the Proposed Regulations, and prospective investors are urged to
consult their tax advisors with respect to the effect the Proposed Regulations
would have if adopted.
DIVIDENDS
Subject to the discussion below, dividends, if any, paid to a Non-U.S.
Holder of Common Stock generally will be subject to withholding tax at a rate of
30% of the gross amount of the dividend or such lower rate as may be specified
by an applicable income tax treaty. For purposes of determining whether tax is
to be withheld at a 30% rate or at a reduced rate as specified by an income tax
treaty, in accordance with existing United States Treasury Regulations, the
Company ordinarily will presume that dividends paid to an address in a foreign
country are paid to a resident of such country absent knowledge that such
presumption is not warranted.
Under the Proposed Regulations, to obtain a reduced rate of withholding
under a treaty, a Non-United States Holder would generally be required to
provide an Internal Revenue Service Form W-8 certifying such Non-United States
Holder's entitlement to benefits under a treaty. The Proposed Regulations would
also provide
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<PAGE> 49
special rules to determine whether, for purposes of determining the
applicability of a tax treaty, dividends paid to a Non-United States Holder that
is an entity should be treated as paid to the entity or those holding an
interest in that entity.
There will be no withholding tax on dividends paid to a Non-U.S. Holder
that are effectively connected with the Non-U.S. Holder's conduct of a trade or
business within the United States if a Form 4224 stating that the dividends are
so connected is filed with the Company or its Paying Agent. Instead, the
effectively connected dividends will be subject to regular U.S. income tax at
the graduated rate in the same manner as if the Non-U.S. Holder were a U.S.
resident. In addition to such graduated tax, a non-U.S. corporation receiving
effectively connected dividends may be subject to a "branch profits tax" which
is imposed, under certain circumstances, at a rate of 30% (or such lower rate as
may be specified by an applicable treaty) of the non-U.S. corporation's
effectively connected earnings and profits, subject to certain adjustments.
GAIN ON DISPOSITION OF COMMON STOCK
A Non-U.S. Holder generally will not be subject to U.S. federal income tax
(and no tax will generally be withheld) with respect to gain realized on a sale
or other disposition of Common Stock unless (i) the gain is effectively
connected with a trade or business of such holder in the United States, (ii) in
the case of certain Non-U.S. Holders who are non-resident alien individuals and
hold the Common Stock as a capital asset, such individuals are present in the
United States for 183 or more days in the taxable year of the disposition, (iii)
the Non-U.S. Holder is subject to tax pursuant to the provisions of the Code
regarding the taxation of U.S. expatriates, or (iv) the Company is or has been a
"U.S. real property holding corporation" for federal income tax purposes and the
Non-U.S. Holder owned directly or pursuant to certain attribution rules more
than 5% of the Company's Common Stock (assuming the Common Stock is regularly
traded on an established securities market) at any time within the shorter of
the five-year period preceding such disposition or such holder's holding period.
The Company is not, and does not anticipate becoming, a U.S. real property
holding corporation.
INFORMATION REPORTING REQUIREMENTS AND BACKUP WITHHOLDING
Generally, the Company must report to the U.S. Internal Revenue Service the
amount of dividends paid, the name and address of the recipient, and the amount,
if any, of tax withheld. A similar report is sent to the holder. Pursuant to tax
treaties or certain other agreements, the U.S. Internal Revenue Service may make
its reports available to tax authorities in the recipient's country of
residence.
Dividends paid to a Non-U.S. Holder that are subject to the 30% or reduced
treaty rate of withholding tax previously discussed will be exempt from the U.S.
backup withholding tax. Otherwise, dividends may be subject to backup
withholding imposed at a rate of 31% if the Non-U.S. Holder fails to establish
that it is entitled to an exemption or to provide a correct taxpayer
identification number and certain other information to the Company or its Paying
Agent.
Under current United States federal income tax law, information reporting
and backup withholding imposed at a rate of 31% will apply to the proceeds of a
disposition of Common Stock paid to or through a U.S. office of a broker unless
the disposing holder certifies as to its non-U.S. status or otherwise
establishes an exemption. Generally, U.S. information reporting and backup
withholding will not apply to a payment of disposition proceeds if the payment
is made outside the United States through a non-U.S. office of a non-U.S.
broker. However, U.S. information reporting requirements (but not backup
withholding) will apply to a payment of disposition proceeds outside the United
States if the payment is made through an office outside the United States of a
broker that is (i) a U.S. person, (ii) a foreign person which derives 50% or
more of its gross income for certain periods from the conduct of a trade or
business in the United States or (iii) a "controlled foreign corporation" for
U.S. federal income tax purposes, unless the broker maintains documentary
evidence that the holder is a Non-U.S. Holder and that certain conditions are
met, or that the holder otherwise is entitled to an exemption.
The Proposed Regulations would, if adopted, alter the foregoing rules in
certain respects. Among other things, the Proposed Regulations would provide
certain presumptions under which a Non-United States Holder
48
<PAGE> 50
would be subject to backup withholding and information reporting unless the
Company receives certification from the holder of non-U.S. status.
Backup withholding is not an additional tax. Rather, the tax liability of
persons subject to backup withholding will be reduced by the amount of tax
withheld. If withholding results in an overpayment of taxes, a refund may be
obtained, provided that the required information is furnished to the U.S.
Internal Revenue Service.
FEDERAL ESTATE TAX
An individual Non-U.S. Holder who at the time of death is treated as the
owner of, or has made certain lifetime transfers of, an interest in the Common
Stock will be required to include the value thereof in his gross estate for U.S.
federal estate tax purposes, and may be subject to U.S. federal estate tax
unless an applicable estate tax treaty provides otherwise.
LEGAL MATTERS
The validity of the shares of the Common Stock being offered hereby will be
passed upon for the Company by Pitney, Hardin, Kipp & Szuch, Morristown, New
Jersey, and for the Selling Shareholder by Davis Polk & Wardwell. Certain legal
matters relating to the Common Stock offered hereby will be passed on for the
Underwriters by Latham & Watkins, New York, New York.
EXPERTS
The consolidated financial statements of Linens 'n Things, Inc. and its
subsidiaries as of December 31, 1995 and 1996 and for each of the years in the
three-year period ended December 31, 1996, included herein and elsewhere in this
Prospectus, have been included herein and in the registration statement in
reliance upon the reports of KPMG Peat Marwick LLP, independent certified public
accountants, appearing elsewhere herein, and upon the authority of said firm as
experts in accounting and auditing.
AVAILABLE INFORMATION
The Company is subject to the informational reporting requirements of the
Exchange Act and, in accordance therewith, files reports, proxy statements, and
other information with the Commission. Such reports, proxy statements and other
information filed by the Company with the Commission may be inspected and copied
at the Commission's Public Reference Room, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549, and at the Commission's regional offices located
in New York (Seven World Trade Center, 13th Floor, New York, New York 10048) and
Chicago (Northwest Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661). Copies of such materials may be obtained at prescribed rates
from the Public Reference Section of the Commission at Room 1024, Judiciary
Plaza, 450 Fifth Street, NW, Washington, D.C. 20549. The Commission maintains a
site on the World Side Web at http://www.sec.gov that contains reports, proxy
and information statements and other information regarding registrants, such as
the Company, that file electronically with the Commission through the
Commission's Electronic Data Gathering, Analysis and Retrieval (EDGAR) system.
The Company's Common Stock is listed on the New York Stock Exchange.
Periodic reports, proxy statements, and other information concerning the Company
can be inspected at the offices of the New York Stock Exchange at 20 Broad
Street, New York, New York 10005.
49
<PAGE> 51
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement under
the Securities Act with respect to the Common Stock offered hereby. This
Prospectus does not contain all of the information set forth in the Registration
Statement and the exhibits and schedules thereto, as permitted by the Rules and
Regulations of the Commission. For further information with respect to the
Company and the Common Stock, reference is hereby made to such Registration
Statement and the exhibits and schedules filed therewith. Statements contained
in this Prospectus as to the contents of any contract or other document referred
to herein are not necessarily complete and where such contract or other document
is an exhibit to the Registration Statement, each such statement is qualified in
all respects by the provisions of such exhibit, to which reference is hereby
made for a full statement of the provisions thereof. The Registration Statement,
including the exhibits and schedules filed therewith, may be inspected without
charge at the public reference facilities maintained by the Commission at Room
1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the
Commission's regional offices located in New York (Seven World Trade Center,
13th Floor, New York, New York 10048) and Chicago (Northwest Atrium Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661). Copies of these
documents may be obtained at prescribed rates from the Public Reference Section
of the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549. Such material may be accessed electronically by means of
the Commission's World Wide Web site at http://www.sec.gov.
The Company distributes to its shareholders annual reports containing
audited financial statements certified by its independent accountants and
quarterly reports for the first three quarters of each year containing unaudited
financial information.
50
<PAGE> 52
LINENS 'N THINGS, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report.......................................................... F-2
Consolidated Balance Sheets as of December 31, 1995, December 31, 1996, March 30, 1996
and March 29, 1997.................................................................. F-3
Consolidated Statements of Operations for the fiscal years 1994, 1995 and 1996 and for
the thirteen weeks ended March 30, 1996 and March 29, 1997.......................... F-4
Consolidated Statements of Shareholders' Equity for the fiscal years 1994, 1995 and
1996 and for the thirteen weeks ended March 29, 1997................................ F-5
Consolidated Statements of Cash Flows for the fiscal years 1994, 1995 and 1996 and for
the thirteen weeks ended March 30, 1996 and March 29, 1997.......................... F-6
Notes to Consolidated Financial Statements............................................ F-7
</TABLE>
F-1
<PAGE> 53
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Linens 'n Things, Inc.
We have audited the accompanying consolidated balance sheets of Linens 'n
Things, Inc. and Subsidiaries as of December 31, 1995 and 1996 and the related
consolidated statements of operations, shareholders' equity and cash flows for
each of the years in the three-year period ended December 31, 1996. 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 generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Linens 'n
Things, Inc. and Subsidiaries as of December 31, 1995 and 1996, and the results
of their operations and their cash flows for each of the years in the three-year
period ended December 31, 1996 in conformity with generally accepted accounting
principles.
As discussed in the notes to the consolidated financial statements, the
Company has adopted Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of," effective October 1, 1995 and changed its policy for accounting
for the costs of internally developed software effective January 1, 1995.
/s/ KPMG PEAT MARWICK LLP
New York, New York
February 4, 1997
F-2
<PAGE> 54
LINENS 'N THINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, MARCH MARCH
--------------------- 30, 29,
1995 1996 1996 1997
-------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.................. $ 4,222 $ 26,914 $ 4,251 $ 3,048
Accounts receivable, net................... 13,955 17,384 9,633 15,738
Inventories................................ 176,893 202,134 180,348 202,166
Prepaid expenses and other current
assets................................... 11,076 10,360 10,755 9,785
-------- -------- -------- --------
TOTAL CURRENT ASSETS.......................... 206,146 256,792 204,987 230,737
-------- -------- -------- --------
Property and equipment, net................ 107,542 138,508 111,111 137,862
Goodwill, net of accumulated amortization
of $3,965 at December 31, 1995, $4,814 at
December 31, 1996, $4,178 at March 30, 1996
and $5,028 at March 29, 1997............... 23,225 22,376 23,013 22,163
Deferred charges and other noncurrent
assets, net.............................. 6,609 6,281 6,433 6,117
-------- -------- -------- --------
TOTAL ASSETS.................................. $343,522 $423,957 $345,544 $396,879
======== ======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable........................... $ 96,496 $ 92,529 $ 69,427 $ 67,971
Accrued expenses and other current
liabilities.............................. 41,318 53,207 28,706 43,345
Short-term debt............................ -- -- -- 5,720
Due to related parties..................... 118,652 -- 159,854 --
-------- -------- -------- --------
TOTAL CURRENT LIABILITIES..................... 256,466 145,736 257,987 117,036
Long-term note............................. -- 13,500 -- 13,500
Deferred income taxes and other long-term
liabilities................................ 10,378 14,994 12,666 16,264
-------- -------- -------- --------
TOTAL LIABILITIES............................. 266,844 174,230 270,653 146,800
-------- -------- -------- --------
SHAREHOLDERS' EQUITY:
Preferred stock $.01 par value; 1,000,000
shares authorized; none issued and
outstanding................................ -- -- -- --
Common stock, $.01 par value; 60,000,000
shares authorized; 19,267,758 issued and
outstanding at December 31, 1996 and March
29, 1997................................... -- 193 -- 193
Additional paid-in capital................. 42,372 200,189 42,372 200,189
Retained earnings.......................... 34,306 49,345 32,519 49,697
-------- -------- -------- --------
TOTAL SHAREHOLDERS' EQUITY.................... 76,678 249,727 74,891 250,079
-------- -------- -------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY...... $343,522 $423,957 $345,544 $396,879
======== ======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements
F-3
<PAGE> 55
LINENS 'N THINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THIRTEEN WEEKS
ENDED
-------------------
YEAR ENDED DECEMBER 31, MARCH MARCH
------------------------------ 30, 29,
1994 1995 1996 1996 1997
-------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales................................... $440,118 $555,095 $696,107 $138,167 $179,911
Cost of sales, including buying and
warehousing costs......................... 265,721 345,162 426,196 87,669 111,596
-------- -------- -------- -------- --------
Gross profit.............................. 174,397 209,933 269,911 50,498 68,315
Selling, general and administrative
expenses.................................. 142,155 190,826 239,228 51,509 67,371
Restructuring and asset impairment
charges................................... -- 10,974 -- -- --
-------- -------- -------- -------- --------
Operating profit (loss)................... 32,242 8,133 30,683 (1,011) 944
Interest expense, net....................... 3,170 7,059 4,692 2,082 336
-------- -------- -------- -------- --------
Income before income taxes and cumulative
effect of change in accounting
principle.............................. 29,072 1,074 25,991 (3,093) 608
Provision for income taxes.................. 11,874 1,108 10,952 (1,307) 256
-------- -------- -------- -------- --------
Income (loss) before cumulative effect of
change in accounting principle......... 17,198 (34) 15,039 (1,786) 352
Cumulative effect of change in accounting
principle, net......................... -- 178 -- -- --
-------- -------- -------- -------- --------
Net income (loss)........................... $ 17,198 $ (212) $ 15,039 $ (1,786) $ 352
======== ======== ======== ======== ========
Per share of common stock:
Income (loss) before cumulative effect of
change in accounting principle......... $ 0.89 $ (0.00) $ 0.78 $ (0.09) $ 0.02
Cumulative effect of change in accounting
principle, net......................... -- 0.01 -- -- --
-------- -------- -------- -------- --------
Net income (loss)......................... $ 0.89 $ (0.01) $ 0.78 $ (0.09) $ 0.02
-------- -------- -------- -------- --------
Weighted average shares outstanding....... 19,268 19,268 19,286 19,268 19,706
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 56
LINENS 'N THINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT NUMBER OF SHARES)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
------------------- PAID-IN RETAINED
SHARES AMOUNT CAPITAL EARNINGS TOTAL
---------- ------ -------- ------- --------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1993.................. 100 $ -- $ 42,372 $31,968 $ 74,340
Net income.................................. -- -- -- 17,198 17,198
Dividends paid to CVS....................... -- -- -- (5,719) (5,719)
---------- ---- -------- ------- --------
Balance at December 31, 1994.................. 100 -- 42,372 43,447 85,819
Net loss.................................... -- -- -- (212) (212)
Dividends paid to CVS....................... -- -- -- (8,929) (8,929)
---------- ---- -------- ------- --------
Balance at December 31, 1995.................. 100 -- 42,372 34,306 76,678
Net income.................................. -- -- -- 15,039 15,039
Capital contributions by CVS, net of assets
and liabilities transferred.............. -- -- 158,010 -- 158,010
Conversion of common stock.................. 19,267,658 193 (193) -- --
---------- ---- -------- ------- --------
Balance at December 31, 1996.................. 19,267,758 193 200,189 49,345 249,727
Net income (unaudited)...................... -- -- -- 352 352
---------- ---- -------- ------- --------
Balance at March 29, 1997 (unaudited)......... 19,267,758 $193 $200,189 $49,697 $250,079
========== ==== ======== ======= ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 57
LINENS 'N THINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED
YEAR ENDED DECEMBER 31, -----------------------
----------------------------------- MARCH 30, MARCH 29,
1994 1995 1996 1996 1997
-------- -------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss).......................... $ 17,198 $ (212) $ 15,039 $ (1,786) $ 352
Adjustments to reconcile net income (loss)
to net cash provided by (used in)
operating activities:
Depreciation and amortization............ 9,588 12,862 14,569 3,538 4,264
Restructuring and asset impairment
charges................................ -- 10,974 -- -- --
Cumulative effect of change in accounting
principle.............................. -- 294 -- -- --
Deferred income taxes.................... 3,580 (3,296) 4,342 1,559 450
Loss on disposal of assets............... 2,928 3,817 2,400 172 634
Changes in assets and liabilities:
(Increase) decrease in accounts
receivable.......................... (6,122) (1,933) (3,429) 4,322 1,646
Increase in inventories................ (42,171) (46,333) (25,241) (3,455) (32)
Decrease (increase) in prepaid expenses
and other current assets............ 421 (1,928) (957) 814 1,099
(Increase) decrease in deferred charges
and other noncurrent assets......... (318) 567 (329) (3) --
Increase (decrease) in accounts
payable............................. 24,946 17,246 9 (13,556) (19,241)
Increase (decrease) in accrued expenses
and other liabilities............... 5,625 (4,135) 13,836 (12,584) (3,161)
-------- -------- --------- -------- --------
NET CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES............................... 15,675 (12,077) 20,239 (20,979) (13,989)
-------- -------- --------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment........ (39,074) (41,329) (46,429) (6,889) (3,875)
-------- -------- --------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Capital contributions by CVS............... -- -- 158,010 -- --
Increase (decrease) in due to related
parties.................................. 22,832 51,200 (118,652) 41,202 --
Proceeds from issuance of short-term
debt..................................... -- -- -- -- 5,720
Dividends paid to CVS...................... (5,719) (8,929) -- -- --
Issuance of long-term note................. -- -- 13,500 -- --
Increase (decrease) in book overdrafts..... 8,169 11,251 (3,976) (13,305) (11,722)
-------- -------- --------- -------- --------
NET CASH PROVIDED BY FINANCING
ACTIVITIES............................... 25,282 53,522 48,882 27,897 (6,002)
-------- -------- --------- -------- --------
Net increase (decrease) in cash and cash
equivalents.............................. 1,883 116 22,692 29 (23,866)
Cash and cash equivalents at beginning of
period................................... 2,223 4,106 4,222 4,222 26,914
-------- -------- --------- -------- --------
CASH AND CASH EQUIVALENTS AT END OF
PERIOD................................... $ 4,106 $ 4,222 $ 26,914 $ 4,251 $ 3,048
======== ======== ========= ======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION
CASH PAID DURING THE YEAR FOR:
Interest (net of amounts capitalized)...... $ 3,360 $ 7,339 $ 4,957 $ 2,214 $ 386
======== ======== ========= ======== ========
Income taxes............................... $ 9,014 $ 7,214 $ 6,590 $ 67 $ 881
======== ======== ========= ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 58
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS
Linens 'n Things, Inc. and subsidiaries (collectively the "Company")
operated 169 stores, including 132 superstores, in 34 states across the United
States as of December 31, 1996. The Company's stores emphasize a broad
assortment of home textiles, housewares and home accessories, carrying both
national brand and private label goods.
2. INITIAL PUBLIC OFFERING
The Company was a wholly-owned subsidiary of CVS Corporation ("CVS" or the
"Parent"), formerly Melville Corporation, until November 26, 1996, when CVS
completed an initial public offering ("IPO") of 13,000,000 shares of the
Company's common stock. Subsequent to the IPO, CVS owned approximately 32.5% of
the Company's common stock, having retained 6,267,758 shares.
During 1996, CVS acquired 100 shares of common stock of Linens 'n Things
Center, Inc. ("LNT Center"), a newly formed California corporation, for
$130,010,000. In June, 1996, CVS contributed all outstanding shares of common
stock of Bloomington, MN., L.T., Inc. to LNT Center. In addition, CVS made a
capital contribution of $28,000,000 to LNT Center during October, 1996.
Subsequently, CVS contributed all outstanding shares of common stock of LNT
Center to Linens 'n Things, Inc., a newly formed Delaware corporation. The
accompanying consolidated financial statements are presented as if Linens 'n
Things, Inc. had existed and owned LNT Center and Bloomington, MN., L.T., Inc.
throughout 1994, 1995 and 1996.
Immediately prior to the completion of the IPO, the authorized capital
stock of the Company was changed from 100 shares of common stock, par value $.01
per share, to 60 million shares of common stock, par value $.01 per share, and
each issued and outstanding share of common stock was converted into 192,677.58
shares of common stock.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The consolidated financial statements include those of the Company and its
wholly-owned subsidiaries. All intercompany balances and transactions have been
eliminated.
Accounting Changes
Effective January 1, 1996, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based Compensation"
("SFAS No. 123"). As permitted under SFAS No. 123, the Company elected not to
adopt the fair value based method of accounting for its stock-based compensation
plans, but will account for such compensation under the provisions of Accounting
Principles Board Opinion No. 25 ("APB No. 25"). The Company has, however,
complied with the disclosure requirements of SFAS No. 123.
Effective October 1, 1995, the Company adopted SFAS No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of" ("SFAS No. 121").
Effective January 1, 1995, the Company changed its policy from capitalizing
internally developed software costs to expensing them as incurred. The Company
believes that this change results in a better matching of revenues and expenses.
The impact on 1995 as a result of this change, exclusive of the cumulative
effect of $0.3 million (before income tax effect), was to reduce net income by
$0.2 million.
Fair Value of Financial Instruments
SFAS No. 107, "Disclosures About Fair Value Of Financial Instruments,"
requires disclosure of the fair value of certain financial instruments. Cash and
cash equivalents, accounts receivable, accounts payable and
F-7
<PAGE> 59
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
accrued expenses are reflected in the consolidated financial statements at
carrying value which approximates fair value due to the short-term nature of
these instruments. The carrying value of the Company's borrowings approximates
the fair value based on the current rates available to the Company for similar
instruments.
Cash and Cash Equivalents
The Company's cash management program utilizes zero balance accounts.
Accordingly, all book overdraft balances have been reclassified to current
liabilities. Cash equivalents are considered, in general, to be those securities
with maturities of three months or less when purchased.
Inventories
Inventories consist of finished goods merchandise purchased from domestic
and foreign vendors and are carried at the lower of cost or market. Inventories
are determined on the retail inventory method valued on a first-in, first-out
(FIFO) basis.
Property and Equipment
Property and equipment are stated at cost. Depreciation is computed on a
straight-line basis over the estimated useful lives of the assets (generally 40
years for buildings and 10 years for furniture, fixtures and equipment).
Capitalized software costs are amortized on a straight-line basis over their
estimated useful lives (generally 5 years), beginning in the year placed in
service. Leasehold improvements are amortized over the shorter of the related
lease term or the economic lives of the related assets. Fully depreciated
property and equipment is removed from the asset and related accumulated
depreciation accounts.
Maintenance and repairs are charged directly to expense as incurred. Major
renewals or replacements are capitalized after making the necessary adjustments
to the asset and accumulated depreciation accounts of the items renewed or
replaced.
Impairment of Long-Lived Assets
When changes in circumstance warrant measurement, impairment losses for
store fixed assets are calculated by comparing the present value of projected
individual store cash flows over the lease term to the asset carrying values.
Deferred Charges
Deferred charges, principally beneficial leasehold costs, are amortized on
a straight-line basis, generally over the remaining life of the leasehold
acquired.
Goodwill
The excess of acquisition costs over the fair value of net assets acquired
is amortized on a straight-line basis not to exceed 40 years. Impairment is
assessed based on the profitability of the related business relative to planned
levels.
Store Opening and Closing Costs
New store opening costs are charged to expense as incurred. In the event a
store is closed before its lease has expired, the total lease obligation, less
sublease rental income, is provided for in the year of closing.
Advertising Costs
The Company charges production costs of advertising to expense the first
time the advertising takes place.
F-8
<PAGE> 60
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Income Taxes
The Company and CVS have entered into a Tax Disaffiliation Agreement. Under
the agreement, the Company is generally responsible for any of its tax with
respect to periods prior to the IPO, determined as if on a separate company
basis. For periods subsequent to the IPO, the Company will file its own federal
and state tax returns.
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. 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.
Earnings Per Share
Earnings per share is calculated by dividing net income (loss) by the
weighted average shares outstanding, which includes common stock equivalents.
For the periods prior to the IPO, the weighted average shares assumed are based
on the actual shares outstanding at the time of the IPO.
Interim Financial Statements
The accompanying consolidated balance sheets as of March 30, 1996 and March
29, 1997 and the related consolidated statements of operations and cash flows
for the thirteen weeks ended March 30, 1996 and March 29, 1997 and consolidated
statement of shareholders' equity for the thirteen weeks ended March 29, 1997
are unaudited. The unaudited consolidated financial statements have been
prepared on the same basis as the audited consolidated financial statements and,
in the opinion of management, include all adjustments (consisting only of normal
recurring accruals) necessary for a fair presentation for the periods presented.
The results of operations for the thirteen weeks ended March 30, 1996 and
March 29, 1997 are not necessarily indicative of results to be achieved for the
full fiscal year.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of expenses during the reporting period.
Actual results could be different from those estimates.
4. STRATEGIC PROGRAM AND ASSET IMPAIRMENT CHARGE
During the fourth quarter of 1995, CVS announced a comprehensive strategic
program (the "CVS Strategic Program") which resulted, insofar as it relates to
the Company, in the Company recording a pre-tax charge of $23.4 million in the
fourth quarter of 1995. The pre-tax charge of $23.4 million consisted of: (i)
restructuring charges of $9.5 million consisting of estimated tenancy costs
($3.8 million) and asset write-offs ($5.0 million) associated with the closing
of six unprofitable stores and asset write-offs related to management
information systems outsourcing ($0.7 million); (ii) asset write-offs and other
non-cash charges totaling $12.5 million consisting primarily of the write-off of
certain non-productive assets, as well as costs associated with the changeover
to the Company's new distribution network relating to the opening of the
distribution center; and (iii) a non-cash asset impairment charge of $1.4
million due to the early adoption of SFAS No. 121 relating to store fixtures and
leasehold improvements. The charge resulted from the Company grouping assets at
a lower level than under its previous accounting policy regarding asset
impairment. Factors leading to impairment were a combination of historical
losses, anticipated future losses and inadequate cash flows. The net sales and
operating losses in 1995 of the stores to be closed were approximately $14.3
million and $1.5 million, respectively.
F-9
<PAGE> 61
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Of the six stores to be closed pursuant to the restructuring, five were
closed in 1996 and the remaining store was closed in early 1997.
The restructuring reserve balance of $1.9 million as of December 31, 1996
relates primarily to remaining tenancy costs.
5. ACCOUNTS RECEIVABLE, NET
Accounts receivable, net consisted of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1995 1996
------- -------
<S> <C> <C>
Credit and charge card receivables............................... $ 5,353 $ 3,379
Due from landlords............................................... 4,069 10,536
Other, net of allowance.......................................... 4,533 3,469
------- -------
Total.................................................. $13,955 $17,384
======= =======
</TABLE>
6. PREPAID EXPENSES AND OTHER CURRENT ASSETS
Prepaid expenses and other current assets consisted of the following (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1995 1996
------- -------
<S> <C> <C>
Deferred income taxes............................................ $ 8,323 $ 6,650
Other............................................................ 2,753 3,710
------- -------
Total.................................................. $11,076 $10,360
======= =======
</TABLE>
7. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1995 1996
-------- --------
<S> <C> <C>
Land........................................................... $ 430 $ 430
Building....................................................... 4,760 4,760
Furniture, fixtures and equipment.............................. 89,792 118,072
Leasehold improvements......................................... 35,034 46,454
Computer software.............................................. 4,404 6,331
------- -------
134,420 176,047
Less accumulated depreciation and amortization................. 26,878 37,539
------- -------
Total................................................ $107,542 $138,508
======= =======
</TABLE>
F-10
<PAGE> 62
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities consisted of the following
(in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1995 1996
------- -------
<S> <C> <C>
Income taxes payable............................................. $ 2,472 $ 994
Other taxes payable.............................................. 6,051 8,678
Rent............................................................. 6,082 5,844
Salaries and employee benefits................................... 3,331 7,347
Restructuring reserves........................................... 3,835 1,878
Other............................................................ 19,547 28,466
------- -------
Total.................................................. $41,318 $53,207
======= =======
</TABLE>
9. SHORT-TERM BORROWING ARRANGEMENTS
Prior to the IPO, all financing was provided by CVS. Interest rates charged
on borrowings from CVS were based on CVS' commercial paper borrowing rates. In
connection with the IPO, the Company repaid all indebtedness to CVS and entered
into a three-year, $125 million senior revolving credit facility agreement (the
"Credit Agreement"). The Credit Agreement contains certain financial covenants,
including those relating to the maintenance of a minimum tangible net worth, a
minimum fixed charge coverage ratio, and a maximum leverage ratio, as defined in
the Credit Agreement. As of December 31, 1996, the Company was in compliance
with all terms and conditions of the Credit Agreement.
Interest on all borrowings is determined based upon several alternative
rates as stipulated in the Credit Agreement. As of December 31, 1996, there were
no borrowings under the Credit Agreement but $2.3 million of letters of credit
were outstanding under the Credit Agreement. The letters of credit were used to
guarantee certain foreign purchase contracts. The Company is not obligated under
any formal or informal compensating balance requirements.
10. LONG-TERM NOTE
In conjunction with the IPO, the Company issued a four-year, $13.5 million
subordinated note (the "Note") to CVS. The Note contains no principal
amortization prior to maturity in December 2000, and requires quarterly interest
payments at the 90-day LIBOR rate plus the applicable spread under the Credit
Agreement described above. The Note also provides for forgiveness by CVS, at
varying amounts, based upon the proceeds from any sales of the Company's common
stock by CVS together with the market value of the common stock which CVS
continues to own at December 31, 1997. The borrowing rate at December 31, 1996
was 6.875%.
11. DEFERRED INCOME TAXES AND OTHER LONG-TERM LIABILITIES
Deferred income taxes and other long-term liabilities consisted of the
following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1995 1996
------- -------
<S> <C> <C>
Deferred income taxes............................................ $ 8,015 $10,684
Other............................................................ 2,363 4,310
------- -------
Total.......................................................... $10,378 $14,994
======= =======
</TABLE>
12. LEASES
The Company has non-cancelable operating leases, primarily for retail
stores, which expire through 2022. The leases generally contain renewal options
for periods ranging from five to fifteen years and require the
F-11
<PAGE> 63
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Company to pay costs such as real estate taxes and common area maintenance.
Contingent rentals are paid based on a percentage of sales. Net rental expense
for all operating leases for the years ended December 31 was as follows (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1994 1995 1996
------------ ------------ ------------
<S> <C> <C> <C>
Minimum rentals.............................. $ 28,065 $ 38,788 $ 53,264
Contingent rentals........................... 492 201 210
------- ------- -------
28,557 38,989 53,474
Less sublease rentals........................ 45 151 151
------- ------- -------
Total.............................. $ 28,512 $ 38,838 $ 53,323
======= ======= =======
</TABLE>
At December 31, 1996, the future minimum rental payments required under
operating leases and the future minimum sublease rentals excluding lease
obligations for closed stores were as follows (in thousands):
<TABLE>
<CAPTION>
OPERATING
YEAR LEASES
----------------------------------------------------------------- ----------
<S> <C>
1997............................................................. $ 65,067
1998............................................................. 69,564
1999............................................................. 68,686
2000............................................................. 69,456
2001............................................................. 69,863
Thereafter....................................................... 747,467
----------
$1,090,103
==========
Total future minimum sublease rentals............................ $ 322
==========
</TABLE>
13. STOCK INCENTIVE PLANS
Concurrent with the IPO, the Company adopted the 1996 Incentive
Compensation Plan (the "Plan"), which provides for the granting of options,
deferred stock grants and other stock-based awards, up to a maximum of 2,312,132
shares of common stock, to key employees. The Company also adopted the 1996
Non-Employee Directors Stock Plan (the "Directors' Plan"), which provides for
the granting of options and stock unit grants to non-employee directors
("eligible directors"), up to a maximum of 200,000 shares. The Company has
reserved 2,512,132 shares for the issuance under these plans.
Stock options and grants under the Plan and the Directors' Plan are awarded
at the fair market value of the shares at the date of grant. The right to
exercise options generally commences one to four years after, and expires ten
years after, the grant date, provided the optionee or eligible director
continues to be employed by, or remain in service as director to, the Company.
Under the Directors' Plan, any person who becomes an eligible director
receives an initial option grant to purchase 7,000 shares of common stock, and,
at the date of each annual shareholders meeting thereafter, will receive an
option grant to purchase 700 shares and a stock unit grant for 700 shares.
As of December 31, 1996, options to purchase 994,330 shares and 14,000
shares were granted under the Plan and Directors' Plan, respectively, and none
were exercised or cancelled. No options granted were exercisable as of December
31, 1996. Additionally, in 1996, 160,666 deferred stock grants were awarded
under the Plan.
F-12
<PAGE> 64
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The fair value of each stock option granted during 1996 is estimated on the
date of grant using the Black-Scholes option pricing model using the following
assumptions:
<TABLE>
<S> <C>
Expected life (years).................................................. 5.0
Expected volatility.................................................... 45%
Risk-free interest rate................................................ 6%
Expected dividend yield................................................ 0%
</TABLE>
The following table summarizes information about stock options outstanding
at December 31, 1996:
<TABLE>
<S> <C>
OUTSTANDING EXERCISE PRICE............................................. $15.50
Number Outstanding................................................... 994,330
Weighted Average Remaining Contractual Life.......................... 5 years
EXERCISABLE
Weighted Average Exercise Price...................................... $15.50
Exercisable Number................................................... --
</TABLE>
The Company applies APB No. 25 and related interpretations in accounting
for its stock-based compensation plans. Accordingly, no compensation cost has
been recognized in connection with these plans. Set forth below are the
Company's net income and net income per share presented "as reported" and as if
compensation cost had been recognized in accordance with the provisions of SFAS
No. 123:
<TABLE>
<CAPTION>
1996
-------------
(IN MILLIONS,
EXCEPT PER
SHARE DATA)
<S> <C>
NET INCOME:
As reported........................................................ $15.0
Pro-forma.......................................................... $14.9
NET INCOME PER SHARE OF COMMON STOCK:
As reported........................................................ $0.78
Pro-forma.......................................................... $0.77
</TABLE>
The effects of applying SFAS No. 123 in this pro-forma disclosure are not
necessarily indicative of future amounts. The Company anticipates granting
additional awards in future years that based on the plans' current design will,
on an annual basis, be less than the initial year's (1996) award.
14. EMPLOYEE BENEFIT PLANS
Upon completion of the IPO, the Company discontinued participation in CVS'
401(k) profit-sharing plan. On December 1, 1996, the Company adopted a 401(k)
savings plan. All employees who were eligible to participate in the 401(k)
profit-sharing plan administered by CVS prior to the IPO were immediately
eligible to participate in the new plan. All other employees become eligible
upon completion of twelve months of service within which 1,000 hours were
worked, provided the employee is at least 21 years of age. Participants may
contribute between 2% and 15% of annual earnings, subject to statutory
limitations. Company contributions for the matching component of both plans
amounted to approximately $0.4 million, $0.6 million and $0.3 million for the
years ended December 31, 1994, 1995 and 1996, respectively.
F-13
<PAGE> 65
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
15. INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax assets and liabilities at December 31 were as follows
(in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1995 1996
------ -------
<S> <C> <C>
DEFERRED TAX ASSETS:
Employee benefits................................................. $1,030 $ 4,011
Inventories....................................................... 5,156 4,313
Other............................................................. 872 1,297
------ -------
TOTAL DEFERRED TAX ASSETS........................................... 7,058 9,621
DEFERRED TAX LIABILITIES:
Property and equipment............................................ 6,750 13,655
------ -------
NET DEFERRED TAX ASSET (LIABILITY).................................. $ 308 $(4,034)
====== =======
</TABLE>
Based on the Company's historical and current pretax earnings, management
believes it is more likely than not that the Company will realize the deferred
tax assets.
The provision for income taxes comprised the following (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1994 1995 1996
------- ------ -------
<S> <C> <C> <C>
CURRENT:
Federal.................................................. $ 6,161 $2,565 $ 3,030
State.................................................... 1,272 914 1,106
------- ------ -------
7,433 3,479 4,136
DEFERRED:
Federal.................................................. 3,580 (2,143) 5,484
State.................................................... 861 (228) 1,332
------- ------ -------
4,441 (2,371) 6,816
------- ------ -------
Total............................................ $11,874 $1,108 $10,952
======= ====== =======
</TABLE>
The following is a reconciliation between the statutory Federal income tax
rate and the effective rate for the years ended December 31:
<TABLE>
<CAPTION>
1994 1995 1996
----- ------ -----
<S> <C> <C> <C>
Effective tax rate........................................... 40.8% 103.2% 42.1%
State income taxes, net of Federal benefit................... (4.8) (41.5) (6.1)
Goodwill..................................................... (1.0) (27.8) (1.1)
Meals and entertainment...................................... (0.2) (5.1) (0.3)
Targeted jobs tax credit..................................... 0.2 5.5 --
Other........................................................ -- 0.7 0.4
----- ------ -----
Statutory Federal income tax rate.................. 35.0% 35.0% 35.0%
</TABLE>
16. RELATED PARTY TRANSACTIONS
Prior to the IPO, CVS provided financing and cash management for the
Company, allocated certain costs to the Company for services provided, and
charged the Company for costs related to participation in certain employee
benefit programs. Such charges terminated upon the completion of the IPO and
have been replaced by
F-14
<PAGE> 66
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
costs of the Company's own programs. Allocations to the Company by CVS were
based on the Company's share of costs paid by the Parent on its behalf for
consolidated programs. Such allocations may not be reflective of the costs which
would have been incurred if the Company operated on a stand-alone basis or which
will be incurred in the future. Management believes that the basis for
allocations was reasonable. If the Company had operated on a stand-alone basis
for the years ended December 31, 1994, 1995 and 1996, it would have incurred a
net increase in expense of an estimated $755,000 pre-tax, in each such years.
The following is a summary of the amounts charged or allocated to the Company:
Administrative Costs
CVS allocated various administrative costs to the Company. Allocations were
based on the Company's ratable share of costs incurred by CVS on behalf of the
Company for the combined programs. The total costs allocated to the Company for
the years ended December 31, 1994, 1995, and 1996 were approximately $3.3
million, $3.0 million and $0.9 million, respectively.
In addition, CVS guaranteed the leases of certain stores operated by the
Company and charged a fee, prior to the IPO, for that service which amounted to
approximately $0.3 million for each of the years ended December 31, 1994, 1995
and 1996.
Borrowings
The weighted average interest rate on borrowings from CVS and other
divisions for the years ended December 31, 1994, 1995 and 1996 was 4.9%, 6.5%
and 6.2%, respectively. The related interest expense recognized by the Company
on such borrowings was $3.2 million, $7.1 million and $4.6 million,
respectively.
Employee Stock Ownership Program
The Company's employees participated in CVS' Employee Stock Ownership
("ESOP"). The ESOP was a defined contribution plan for all employees meeting
certain eligibility requirements.
CVS charged compensation expense to the Company based upon total payments
due to the ESOP. The charge allocated to the Company was based on the Company's
proportionate share of qualifying compensation expense and did not reflect the
manner in which CVS funded these costs or the related tax benefits realized by
CVS. As a result of the Company's allocation from CVS, compensation expense of
approximately $0.7 million, $1.0 million and $1.5 million was recognized for the
years ended December 31, 1994, 1995 and 1996, respectively.
These costs, with the exception of interest expense, are included in
selling, general and administrative expenses on the Consolidated Statements of
Operations.
17. COMMITMENTS AND CONTINGENCIES
The Company is involved in various claims and legal actions arising in the
ordinary course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse effect on the
Company's consolidated financial position, results of operations or liquidity.
F-15
<PAGE> 67
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
18. SUMMARY OF QUARTERLY RESULTS (UNAUDITED)
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER YEAR
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
NET SALES
1995.................................. $115,298 $124,290 $138,050 $177,457 $555,095
1996.................................. 138,167 147,649 180,438 229,853 696,107
GROSS PROFIT
1995.................................. 42,787 47,896 54,666 64,584(1) 209,933(2)
1996.................................. 50,498 56,252 69,159 94,002 269,911
INCOME (LOSS) BEFORE CUMULATIVE EFFECT
OF CHANGE IN ACCOUNTING PRINCIPLE, NET
1995.................................. 860 1,644 2,599 (5,137) (34)
1996.................................. (1,786) (411) 4,966 12,270 15,039
NET INCOME (LOSS)
1995.................................. 682 1,644 2,599 (5,137)(1) (212)(2)
1996.................................. (1,786) (411) 4,966 12,270 15,039
NET INCOME (LOSS) PER SHARE
1995.................................. .04 .09 .13 (.27)(1) (0.01)(2)
1996.................................. (.09) (.02) .26 .63 0.78
</TABLE>
- ---------------
(1) Excluding the CVS Strategic Program, gross profit and net income in the
fourth quarter of 1995 would have been $72.8 million and $9.0 million,
respectively, and earnings per share would have been $.47.
(2) Excluding the CVS Strategic Program, gross profit and net income for the
year ended 1995 would have been $218.1 million and $13.9 million,
respectively, and earnings per share would have been $.72.
F-16
<PAGE> 68
- ------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY, THE SELLING SHAREHOLDER OR ANY
UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY IN ANY
JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER IN SUCH
JURISDICTION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE
INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF OR
THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE SUCH DATE.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 7
Use of Proceeds....................... 10
Capitalization........................ 11
Dividend Policy....................... 11
Price Range of Common Stock........... 11
Selected Financial and Operating
Data................................ 12
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 14
Business.............................. 23
Management............................ 32
Principal and Selling Shareholder and
Management.......................... 38
Relationship with CVS and Related
Party Transactions.................. 40
Shares Eligible for Future Sale....... 42
Description of Capital Stock.......... 43
Underwriting.......................... 45
Notice to Canadian Residents.......... 46
Certain U.S. Federal Tax
Considerations for Non-U.S. Holders
of Common Stock..................... 47
Legal Matters......................... 49
Experts............................... 49
Available Information................. 49
Additional Information................ 50
Index to Consolidated Financial
Statements.......................... F-1
</TABLE>
======================================================
[LINENS 'N THINGS LOGO]
5,250,000 Shares
Common Stock
($.01 par value)
PROSPECTUS
Credit Suisse First Boston
Donaldson, Lufkin & Jenrette
Securities Corporation
- ------------------------------------------------------
<PAGE> 69
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The Common Stock to be registered is to be offered for the account of the
Selling Shareholders. The following sets forth expenses and costs (other than
underwriting discounts and commissions) expected to be incurred in connection
with the issuance and distribution of the securities offered hereby.
<TABLE>
<S> <C>
SEC Registration Fee.............................................................. $ 42,273
NASD Filing Fee................................................................... 14,450
Transfer Agent's Fee.............................................................. 2,500
Printing and Engraving............................................................ 75,000
Legal Fees........................................................................ 380,000
Accounting Fees................................................................... 60,000
Blue Sky Fees and Expenses (including fees and expenses of counsel)............... 15,000
Miscellaneous..................................................................... 10,777
---------
Total................................................................... $600,000
=========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Act permits the Registrant
to indemnify officers, directors or employees against expenses (including
attorney's fees), judgments, fines and amounts paid in settlement in connection
with legal proceedings "if [as to any officer, director or employee] 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 act or
proceeding, had no reasonable cause to believe his conduct was unlawful,"
provided that with respect to actions by, or in the right of the corporation
against, such individuals, indemnification is not permitted as to any 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 of Chancery or 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 the Court of Chancery or such other court shall deem proper." Individuals
who are successful in the defense of such action are entitled to indemnity for
such expenses reasonably incurred in connection therewith.
The By-Laws of the Registrant require the Registrant to indemnify directors
and officers against liabilities which they may incur under the circumstances
set forth in the preceding paragraph.
The Registrant maintains standard policies of insurance under which
coverage is provided (a) to its directors and officers against loss rising from
claims made by reason of breach of duty or other wrongful act, and (b) to the
Registrant with respect to payments which may be made by the Registrant to such
officers and directors pursuant to the above indemnification provision or
otherwise as a matter of law.
The proposed form of Underwriting Agreement filed as Exhibit 1 to this
Registration Statement provides for indemnification of directors and officers of
the Registrant by the underwriters against certain liabilities.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Except for the issuance of common stock to CVS, the Company has not issued
any securities in unregistered transactions. Such issuance to CVS was exempt
from the registration requirements of the Securities Act pursuant to Section
4(2) thereof.
II-1
<PAGE> 70
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) The following exhibits are filed as part of this Registration
Statement:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- -------- ----------------------------------------------------------------------------------
<C> <S>
1 Form of Underwriting Agreement
3.1 Amended and Restated Certificate of Incorporation of the Registrant
3.2 By-Laws of the Registrant
*4 Specimen Certificate of Common Stock
***5 Opinion of Pitney, Hardin, Kipp & Szuch
10.1 Transitional Services Agreement between the Registrant and CVS Corporation
10.2 Stockholder Agreement between the Registrant and CVS Corporation
10.3 Tax Disaffiliation Agreement between the Registrant and CVS Corporation
10.4 Subordinated Note between the Registrant and CVS Corporation
10.5 Credit Facility
+10.6 Employment Agreement between Norman Axelrod and the Registrant
+10.7 Employment Agreement between James M. Tomaszewski and the Registrant
+10.8 Employment Agreement between Steven B. Silverstein and the Registrant
+10.9 Employment Agreement between Hugh J. Scullin and the Registrant
+*10.10 1996 Incentive Compensation Plan
+*10.11 1996 Non-Employee Director Stock Plan
**21 List of Subsidiaries
23.1 Consent of KPMG Peat Marwick LLP
***23.2 Consent of Pitney, Hardin, Kipp & Szuch (included in Exhibit 5)
***24 Power of Attorney
</TABLE>
- ---------------
+ Compensatory plan, contract or arrangement.
* Incorporated by reference to the Exhibits filed with the Registrant's
Registration Statement on Form S-1 (No. 333-12267), which Registration
Statement was declared effective by the Securities and Exchange Commission
on November 26, 1996.
** Incorporated by reference to the Exhibits filed with the Registrant's Annual
Report on Form 10-K (No. 1-12381) for fiscal year 1996 as filed with the
Securities and Exchange Commission.
*** Previously filed.
(b) The following financial statement schedules are filed as part of this
Registration Statement:
Not applicable.
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes:
(a) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and persons
controlling the registrant pursuant to the foregoing provisions, or
otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification (other than by
policies of insurance) is against public policy as expressed in the 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 registrant will, unless in the
opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate
II-2
<PAGE> 71
jurisdiction the question of whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
(b) The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act of 1933, the information omitted from the form of prospectus filed
as part of this registration statement in reliance upon rule 430A and
contained in a form of prospectus filed by the registrant pursuant to
rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed
to be part of this registration statement as of the time it was declared
effective.
(2) For the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that contains a
form of prospectus shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide
offering thereof.
II-3
<PAGE> 72
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
Linens'n Things, Inc. certifies that it has reasonable grounds to believe that
it meets all of the requirements for filing on Form S-1 and has duly caused this
Amendment No. 1 to the Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Clifton, State of New
Jersey on the 29th day of May, 1997.
LINENS'N THINGS, INC.
By: /s/ NORMAN AXELROD
------------------------------------
Norman Axelrod
Chairman of the Board and
Chief Executive Officer and
President
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment No. 1 to the Registration Statement has been signed by the
following persons in the capacities in the dates indicated:
<TABLE>
<CAPTION>
TITLE DATE
------------------------------------------- -------------
<S> <C> <C>
/s/ NORMAN AXELROD Chairman of the Board, Chief Executive May 29, 1997
- ----------------------------------- Officer, President and Director (principal
Norman Axelrod executive officer)
JAMES M. TOMASZEWSKI* Senior Vice President and Chief May 29, 1997
- ----------------------------------- Administrative Officer (principal financial
James M. Tomaszewski and accounting officer)
WILLIAM T. GILES* Vice President of Finance, Controller May 29, 1997
- -----------------------------------
William T. Giles
CHARLES C. CONAWAY* Director May 29, 1997
- -----------------------------------
Charles C. Conaway
STANLEY P. GOLDSTEIN* Director May 29, 1997
- -----------------------------------
Stanley P. Goldstein
PHILIP E. BEEKMAN* Director May 29, 1997
- -----------------------------------
Philip E. Beekman
*By: /s/ NORMAN AXELROD
------------------------------
Attorney-in-fact
</TABLE>
II-4
<PAGE> 73
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGES
- --------- -------------------------------------------------------------------- ------------
<C> <S> <C>
1 Form of Underwriting Agreement......................................
3.1 Amended and Restated Certificate of Incorporation of the
Registrant..........................................................
3.2 By-Laws of the Registrant...........................................
*4 Specimen Certificate of Common Stock................................
***5 Opinion of Pitney, Hardin, Kipp & Szuch.............................
10.1 Transitional Services Agreement between the Registrant and CVS
Corporation.........................................................
10.2 Stockholder Agreement between the Registrant and CVS Corporation....
10.3 Tax Disaffiliation Agreement between the Registrant and CVS
Corporation.........................................................
10.4 Subordinated Note between the Registrant and CVS Corporation........
10.5 Credit Facility.....................................................
+10.6 Employment Agreement between Norman Axelrod and the Registrant......
+10.7 Employment Agreement between James M. Tomaszewski and the
Registrant..........................................................
+10.8 Employment Agreement between Steven B. Silverstein and the
Registrant..........................................................
+10.9 Employment Agreement between Hugh J. Scullin and the Registrant.....
+*10.10 1996 Incentive Compensation Plan....................................
+*10.11 1996 Non-Employee Director Stock Plan...............................
**21 List of Subsidiaries................................................
23.1 Consent of KPMG Peat Marwick LLP....................................
***23.2 Consent of Pitney, Hardin, Kipp & Szuch (included in Exhibit 5).....
***24 Power of Attorney (contained on the signature page of this
Registration Statement).............................................
</TABLE>
- ---------------
+ Compensatory plan, contract or arrangement.
* Incorporated by reference to the Exhibits filed with the Registrant's
Registration Statement on Form S-1 (No. 333-12267), which Registration
Statement was declared effective by the Securities and Exchange Commission
on November 26, 1996.
** Incorporated by reference to the Exhibits filed with the Registrant's Annual
Report on Form 10-K (No. 1-12381) for fiscal year 1996 as filed with the
Securities and Exchange Commission.
*** Previously filed.
II-5
<PAGE> 1
Exhibit 1
5,250,000 SHARES
LINENS 'N THINGS, INC.
COMMON STOCK
UNDERWRITING AGREEMENT
May __, 1997
CREDIT SUISSE FIRST BOSTON CORPORATION
DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION
As Representatives of the Several Underwriters,
c/o Credit Suisse First Boston Corporation
Eleven Madison Avenue
New York, NY 10010-3629
Ladies and Gentlemen:
1. Introductory. Nashua Hollis CVS, Inc., a New Hampshire corporation (the
"Selling Shareholder") and an indirect wholly owned subsidiary of CVS
Corporation, a Delaware corporation ("CVS"), proposes to sell 5,250,000
outstanding shares of common stock, par value $0.01 per share (the
"Securities"), of Linens 'n Things, Inc., a Delaware corporation (the "Company")
(such 5,250,000 shares of Securities being hereinafter referred to as the "Firm
Securities"). The Selling Shareholder also proposes to sell to the Underwriters,
at the option of the Underwriters, an aggregate of not more than 750,000
additional shares of the Securities, as set forth below (such 750,000 additional
shares being hereinafter referred to as the "Optional Securities"). The Firm
Securities and the Optional Securities are herein collectively called the
"Offered Securities." For purposes of this Agreement, CVS and its subsidiaries
will be deemed not to include the Company and its subsidiaries. The Company, the
Selling Shareholder and CVS hereby agree with the several Underwriters named in
Schedule A hereto (the "Underwriters") as follows:
2. Representations and Warranties of the Company, the Selling Shareholder
and CVS. (a) The Company represents and warrants to, and agrees with, the
several Underwriters that:
(i) A registration statement (No. 333-27239) relating to the Offered
Securities, including a form of prospectus, has been filed with the
Securities and Exchange Commission (the "Commission") and either (A) has
been declared effective under the Securities Act of 1933, as amended (the
"Act") and is not proposed to be amended or (B) is proposed to be amended
by amendment or post-effective amendment. If such registration statement
(the "initial registration statement") has been declared effective, either
(A) an additional registration statement (the "additional registration
statement") relating to the Offered Securities may have been filed with the
Commission pursuant to Rule 462(b) ("Rule 462(b)") under the Act and, if so
filed, has
<PAGE> 2
become effective upon filing pursuant to such Rule and the Offered
Securities all have been duly registered under the Act pursuant to the
initial registration statement and, if applicable, the additional
registration statement or (B) such an additional registration statement may
be proposed to be filed with the Commission pursuant to Rule 462(b) and, if
so filed will become effective upon filing pursuant to such Rule and upon
such filing the Offered Securities will all have been duly registered under
the Act pursuant to the initial registration statement and, if applicable,
such additional registration statement. If the Company does not propose to
amend the initial registration statement or if an additional registration
statement has been filed and the Company does not propose to amend it, and
if any post-effective amendment to either such registration statement has
been filed with the Commission prior to the execution and delivery of this
Agreement, the most recent amendment (if any) to each such registration
statement has been declared effective by the Commission or has become
effective upon filing pursuant to Rule 462(c) ("Rule 462(c)") under the Act
or, in the case of the additional registration statement, Rule 462(b). For
purposes of this Agreement, "Effective Time" with respect to the initial
registration statement or, if filed prior to the execution and delivery of
this Agreement, the additional registration statement means (A) if the
Company has advised the Representatives that it does not propose to amend
such registration statement, the date and time as of which such
registration statement, or the most recent post-effective amendment thereto
(if any) filed prior to the execution and delivery of this Agreement, was
declared effective by the Commission or has become effective upon filing
pursuant to Rule 462(c), or (B) if the Company has advised the
Representatives that it proposes to file an amendment or post-effective
amendment to such registration statement, the date and time as of which
such registration statement, as amended by such amendment or post-effective
amendment, as the case may be, is declared effective by the Commission. If
an additional registration statement has not been filed prior to the
execution and delivery of this Agreement but the Company has advised the
Representatives that it proposes to file one, "Effective Time" with respect
to such additional registration statement means the date and time as of
which such registration statement is filed and becomes effective pursuant
to Rule 462(b). "Effective Date" with respect to the initial registration
statement or the additional registration statement (if any) means the date
of the Effective Time thereof. The initial registration statement, as
amended at its Effective Time, including all information contained in the
additional registration statement (if any) and deemed to be a part of the
initial registration statement as of the Effective Time of the additional
registration statement pursuant to the General Instructions of the Form on
which it is filed and including all information (if any) deemed to be a
part of the initial registration statement as of its Effective Time
pursuant to Rule 430A(b) ("Rule 430A(b)") under the Act, is hereinafter
referred to as the "Initial Registration Statement." The additional
registration statement, as amended at its Effective Time, including the
contents of the initial registration statement incorporated by reference
therein and including all information (if any) deemed to be a part of the
additional registration statement as of its Effective Time pursuant to Rule
430A(b), is hereinafter referred to as the "Additional Registration
Statement." The Initial Registration Statement and the Additional
Registration Statement are hereinafter referred to collectively as the
"Registration Statements" and individually as a "Registration Statement."
The form of prospectus relating to the Offered Securities, as first filed
with the Commission pursuant to and in accordance with Rule 424(b) ("Rule
424(b)") under the Act or (if no such filing is required) as included in a
Registration Statement, is hereinafter referred to as the "Prospectus." No
document has been or will be prepared or distributed in reliance on Rule
434 under the Act.
2
<PAGE> 3
(ii) If the Effective Time of the Initial Registration Statement is
prior to the execution and delivery of this Agreement: (A) on the Effective
Date of the Initial Registration Statement, the Initial Registration
Statement conformed in all respects to the requirements of the Act and the
rules and regulations of the Commission (the "Rules and Regulations") and
did not include 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 not misleading, (B) on the Effective Date of the
Additional Registration Statement (if any), each Registration Statement
conformed or will conform, in all respects to the requirements of the Act
and the Rules and Regulations and did not include, or will not include, any
untrue statement of a material fact and did not omit, or will not omit, to
state any material fact required to be stated therein or necessary to make
the statements therein not misleading, and (C) on the date of this
Agreement, the Initial Registration Statement and, if the Effective Time of
the Additional Registration Statement is prior to the execution and
delivery of this Agreement, the Additional Registration Statement each
conforms, and at the time of filing of the Prospectus pursuant to Rule
424(b) or (if no such filing is required) at the Effective Date of the
Additional Registration Statement in which the Prospectus is included, each
Registration Statement and the Prospectus will conform, in all respects to
the requirements of the Act and the Rules and Regulations, and neither of
such documents includes, or will include, any untrue statement of a
material fact or omits, or will omit, to state any material fact required
to be stated therein or necessary to make the statements therein not
misleading. If the Effective Time of the Initial Registration Statement is
subsequent to the execution and delivery of this Agreement: on the
Effective Date of the Initial Registration Statement, the Initial
Registration Statement and the Prospectus will conform in all respects to
the requirements of the Act and the Rules and Regulations, neither of such
documents will include any untrue statement of a material fact or will omit
to state any material fact required to be stated therein or necessary to
make the statements therein not misleading, and no Additional Registration
Statement has been or will be filed. The two preceding sentences do not
apply to statements in or omissions from a Registration Statement or the
Prospectus based upon written information furnished to the Company by any
Underwriter through the Representatives specifically for use therein, it
being understood and agreed that the only such information is that
described as such in Section 7(d).
(iii) The Company has been duly incorporated and is an existing
corporation in good standing under the laws of the State of Delaware, with
power and authority (corporate and other) to own its properties and conduct
its business as described in the Prospectus; and the Company is duly
qualified to do business as a foreign corporation in good standing in all
other jurisdictions in which its ownership or lease of property or the
conduct of its business requires such qualification, except to the extent
that the failure to be so qualified or be in good standing would not have a
material adverse effect on the current or future financial position,
shareholders' equity, properties, business, results of operations,
condition (financial or otherwise), affairs or prospects of the Company and
its subsidiaries taken as a whole (a "Material Adverse Effect").
(iv) Each subsidiary of the Company has been duly incorporated and is
an existing corporation in good standing under the laws of the jurisdiction
of its incorporation, with power and authority (corporate and other) to own
its properties and conduct its business as described in the Prospectus; and
each subsidiary of the Company is duly qualified to do business as a
foreign corporation in good standing in all other jurisdictions in which
its ownership or lease of
3
<PAGE> 4
property or the conduct of its business requires such qualification except
to the extent that the failure to be so qualified or be in good standing
would not have a Material Adverse Effect; all of the issued and outstanding
capital stock of each subsidiary of the Company has been duly authorized
and validly issued and is fully paid and nonassessable; and the capital
stock of each subsidiary owned by the Company, directly or through
subsidiaries, is owned free from liens, encumbrances and defects.
(v) The Offered Securities and all other outstanding shares of capital
stock of the Company have been duly authorized and validly issued, are
fully paid and nonassessable and conform, as to legal matters, in all
material respects to the description thereof contained in the Prospectus;
and the stockholders of the Company have no preemptive rights with respect
to the Securities.
(vi) Except as disclosed in the Prospectus, there are no contracts,
agreements or understandings between the Company and any person that would
give rise to a valid claim against the Company or any Underwriter for a
brokerage commission, finder's fee or other like payment.
(vii) Except as described in the Prospectus, there are no contracts,
agreements or understandings between the Company and any person granting
such person the right to require the Company to file a registration
statement under the Act with respect to any securities of the Company owned
or to be owned by such person or to require the Company to include such
securities in the securities registered pursuant to a Registration
Statement or in any securities being registered pursuant to any other
registration statement filed by the Company under the Act.
(viii) The Securities are listed on the New York Stock Exchange.
(ix) No consent, approval, authorization, or order of, or filing with,
any governmental agency or body or any court is required to be obtained or
made by the Company or the Selling Shareholder for the consummation of the
transactions contemplated by this Agreement in connection with the sale of
the Offered Securities, except such as have been obtained and made under
the Act and such as may be required under state securities laws or Blue Sky
laws.
(x) Neither the Company nor any of its subsidiaries is in violation of
its respective charter or by-laws or in default in the performance of any
obligation, agreement or condition contained in any bond, debenture, note
or any other evidence of indebtedness or in any other agreement, indenture
or instrument material to the conduct of the business of the Company and
its subsidiaries, taken as a whole, to which the Company or any of its
subsidiaries is a party or by which it or any of its subsidiaries or their
respective property is bound, except for breaches, violations, and defaults
that could not reasonably be expected to have a Material Adverse Effect.
(xi) The execution, delivery and performance of this Agreement, and
the consummation of the transactions herein contemplated will not result in
a breach or violation of any of the terms and provisions of, or constitute
a default under, any statute, any rule, regulation or order of any
governmental agency or body or any court, domestic or foreign, having
4
<PAGE> 5
jurisdiction over the Company or any subsidiary of the Company or any of
their properties, or any agreement or instrument to which the Company or
any such subsidiary is a party or by which the Company or any such
subsidiary is bound or to which any of the properties of the Company or any
such subsidiary is subject, or the charter or by-laws of the Company or any
such subsidiary.
(xii) This Agreement has been duly authorized, executed and delivered
by the Company.
(xiii) The Company and its subsidiaries hold all leased, real or
personal property under valid and enforceable leases with no exceptions
that would materially interfere with the use made or to be made thereof by
them, except as would not have a Material Adverse Effect.
(xiv) The Company and its subsidiaries possess adequate certificates,
authorities or permits issued by appropriate governmental agencies or
bodies necessary to conduct the business now operated by them, except as
would not have a Material Adverse Effect, and have not received any notice
of proceedings relating to the revocation or modification of any such
certificate, authority or permit that, individually or in the aggregate,
could reasonably be expected to have a Material Adverse Effect.
(xv) The Company and each of its subsidiaries maintains reasonably
adequate insurance covering their properties, operations, personnel and
businesses in accordance with customary industry practice to protect the
Company and each of its subsidiaries and their businesses.
(xvi) The Company and its subsidiaries own, possess or can acquire on
reasonable terms, adequate trademarks, trade names and other rights to
inventions, know-how, patents, copyrights, confidential information and
other intellectual property (collectively, "intellectual property rights")
necessary to conduct the business now operated by them, or presently
employed by them, and have not received any notice of infringement of or
conflict with asserted rights of others with respect to any intellectual
property rights that, individually or in the aggregate, could reasonably be
expected to have a Material Adverse Effect.
(xvii) Except as disclosed in the Prospectus, neither the Company nor
any of its subsidiaries is in violation of any statute, any rule,
regulation, decision or order of any governmental agency or body or any
court, domestic or foreign, relating to the use, disposal or release of
hazardous or toxic substances or relating to the protection or restoration
of the environment or human exposure to hazardous or toxic substances
(collectively, "environmental laws"), owns or operates any real property
contaminated with any substance that is subject to any environmental laws,
is liable for any off-site disposal or contamination pursuant to any
environmental laws, or is subject to any claim relating to any
environmental laws, which violation, contamination, liability or claim
would individually or in the aggregate could reasonably be expected to have
a Material Adverse Effect; and the Company is not aware of any pending
investigation which might lead to such a claim.
5
<PAGE> 6
(xviii) In the ordinary course of business, the Company and its
subsidiaries conduct a periodic review of the effect of environmental laws
on their business, operations and properties, in the course of which they
identify and evaluate associated costs and liabilities (including, without
limitation, any current or anticipated capital or operating expenditures
required for clean-up, compliance with the "cluster rules," closure of
properties or compliance with environmental laws or any permit, license or
approval, any related constraints on operating activities and any potential
liabilities to third parties). On the basis of such review, no such
associated costs and liabilities would, individually or in the aggregate,
have a Material Adverse Effect.
(xix) Except as disclosed in the Prospectus, there are no pending
actions, suits or proceedings against or affecting the Company, any of its
subsidiaries or any of their respective properties that, individually or in
the aggregate, could reasonably be expected to have a Material Adverse
Effect, or could reasonably be expected to materially and adversely affect
the ability of the Company to perform its obligations under this Agreement
or to sell the Offered Securities; and no such actions, suits or
proceedings are threatened or, to the Company's knowledge, contemplated.
(xx) The financial statements included in each Registration Statement
and the Prospectus present fairly the financial position of the Company and
its consolidated subsidiaries as of the dates shown and their results of
operations and cash flows for the periods shown, and such financial
statements have been prepared in conformity with the generally accepted
accounting principles in the United States applied on a consistent basis
and the schedules included in each Registration Statement present fairly
the information required to be stated therein; and the assumptions used in
preparing the pro forma financial information included in each Registration
Statement and the Prospectus provide a reasonable basis for presenting the
significant effects directly attributable to the transactions or events
described therein, the related pro forma adjustments give appropriate
effect to those assumptions, and the pro forma columns therein reflect the
proper application of those adjustments to the corresponding historical
financial statement amounts.
(xxi) Except as disclosed in the Prospectus, since the date of the
latest audited financial statements included in the Prospectus there has
been no material adverse change, nor any development or event involving a
prospective material adverse change, in the condition (financial or
otherwise), business, properties or results of operations of the Company
and its subsidiaries taken as a whole, and, except as disclosed in or
contemplated by the Prospectus, there has been no dividend or distribution
of any kind declared, paid or made by the Company on any class of its
capital stock.
(xxii) The Company and its subsidiaries maintains a system of internal
auditing controls sufficient to provide reasonable assurances that (A)
transactions are executed in accordance with management's general or
specific authorization; (B) transactions are recorded as necessary to
permit preparation of financial statements in conformity with generally
accepted accounting principles and to maintain accountability for assets;
(C) access to assets is permitted only in accordance with management's
general or specific authorization; and (D) the recorded accountability for
assets is compared with existing assets at reasonable intervals and
appropriate
6
<PAGE> 7
action is taken with respect to any differences.
(xxiii) The Company and each of its subsidiaries have filed all tax
returns required to be filed, which returns are complete and correct, and
neither the Company nor any of its subsidiaries is in default in the
payment of any taxes which were payable pursuant to said returns or any
assessments with respect thereto.
(xxiv) The Company is not and, after giving effect to the offering and
sale of the Offered Securities and the application of the proceeds thereof
as described in the Prospectus, will not be an "investment company" as
defined in the Investment Company Act of 1940, as amended.
(xxv) Neither the Company nor any of its affiliates does business with
the government of Cuba or with any person or affiliate located in Cuba
within the meaning of Section 517.075, Florida Statutes and the Company
agrees to comply with such Section if prior to the completion of the
distribution of the Offered Securities it commences doing such business.
(b) The Selling Shareholder represents and warrants to, and agrees with, the
several Underwriters that:
(i) The Selling Shareholder has and on each Closing Date hereinafter
mentioned will have valid and unencumbered title to the Offered Securities
to be delivered by the Selling Shareholder on such Closing Date and full
right, power and authority to enter into this Agreement and to sell,
assign, transfer and deliver the Offered Securities to be delivered by the
Selling Shareholder on such Closing Date hereunder in the manner provided
herein and this Agreement has been duly authorized, executed and delivered
by the Selling Shareholder and is a valid and binding agreement of the
Selling Shareholder, enforceable in accordance with its terms (except as
rights to indemnification and contribution may be limited by applicable
federal or state laws).
(ii) Upon the delivery of and payment for the Offered Securities on
each Closing Date hereunder the several Underwriters will acquire valid and
unencumbered title to the Offered Securities to be delivered by the Selling
Shareholder on such Closing Date.
(iii) The descriptions in the Registration Statement and Prospectus
under the heading "Relationship with CVS and Related Party Transactions" and
"Stock Ownership of Principal and Selling Shareholder and Management"
insofar as such descriptions relate to the Selling Shareholder, do not, and
will not on each Closing Date hereinafter mentioned, include 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 not
misleading.
(iv) The execution, delivery and performance of this Agreement, and
the consummation of the transactions herein contemplated will not result in
a breach or violation of any of the terms and provisions of, or constitute
a default under, any statute, any rule, regulation or order of any
governmental agency or body or any court, domestic or foreign, having
jurisdiction over the Selling Shareholder or any subsidiary of the Selling
Shareholder or any of their properties, or any agreement or instrument to
which the Selling Shareholder or any such subsidiary is a party or by which
the Selling Shareholder or any such subsidiary is bound or to which any of
the properties of the Selling Shareholder or any such subsidiary is
subject, or the charter or by-laws of the Selling Shareholder or any such
subsidiary except for breaches, violations or defaults that would not
reasonably be expected to have a Material Adverse Effect or a material
adverse effect on CVS and its subsidiaries taken as a whole.
(v) Except as disclosed in the Prospectus, there are no pending
actions, suits or proceedings against or affecting the Selling Shareholder,
any of its subsidiaries or any of their respective properties that,
individually or in the aggregate, could reasonably be expected to have a
Material Adverse Effect, or could reasonably be expected to materially and
adversely affect the ability of the Selling Shareholder to perform its
obligations under this Agreement or to sell the Offered Securities; and no
such actions, suits or proceedings are threatened or, to the Selling
Shareholder's knowledge, contemplated.
(c) CVS represents and warrants to, and agrees with, the several Underwriters
that:
(i) CVS has and on each Closing Date hereinafter mentioned will have
full right, power and authority to enter into this Agreement and this
Agreement is a valid and binding agreement of CVS, enforceable in
accordance with its terms (except as rights to indemnification and
contribution may be limited by applicable federal or state laws).
7
<PAGE> 8
(ii) The execution, delivery and performance of this Agreement and the
consummation of the transactions herein contemplated will not result in a breach
or violation of any of the terms and provisions of, or constitute a default
under, (A) any statute, any rule, regulation or order of any governmental agency
or body or any court, domestic or foreign, having jurisdiction over CVS or any
subsidiary of CVS or any of their properties, or (B) any agreement or instrument
to which CVS or any subsidiary is a party or by which CVS or any such subsidiary
is bound or to which any of the properties of CVS or any such subsidiary is
subject, or (C) the charter or by-laws of CVS or any such subsidiary, except, in
the case of (A) and (B), for any breach, violation or default that would not
reasonably be expected to have a material adverse effect on CVS and its
subsidiaries taken as a whole.
(iii) Except as disclosed in the Prospectus, there are no pending
actions, suits or proceedings against or affecting CVS, any of its subsidiaries
or any of their respective properties that, individually or in the aggregate,
could reasonably be expected to have a Material Adverse Effect, or could
reasonably be expected to materially and adversely affect the ability of CVS to
perform its obligations under this Agreement; and no such actions, suits or
proceedings are threatened or, to CVS's knowledge, contemplated.
3. Purchase, Sale and Delivery of Offered Securities. On the basis of the
representations, warranties and agreements herein contained, but subject to the
terms and conditions herein set forth, the Selling Shareholder agrees to sell to
each Underwriter, and each Underwriter agrees, severally and not jointly, to
purchase from the Selling Shareholder, at a purchase price of $___ per share,
the number of Firm Securities set forth opposite the name of such Underwriter in
Schedule A hereto.
The Selling Shareholder will deliver the Firm Securities to Credit Suisse
First Boston Corporation ("CSFBC") the accounts of the Underwriters, against
payment of the purchase price therefor in federal or other funds immediately
available in New York City by wire transfer to the account of the Selling
Shareholder, at the office of Latham & Watkins, 885 Third Avenue, New York, New
York at 10:00 a.m., New York time, on June __, 1997, or at such other time not
later than seven full business days thereafter as CSFBC and the Company
determine, such time being herein referred to as the "First Closing Date." For
purposes of Rule 15c6-1 under the Securities Exchange Act of 1934, the First
Closing Date (if later than the otherwise applicable settlement date) shall be
the settlement date for payment of funds and delivery of securities for all the
Offered Securities sold pursuant to the offering. The certificates for the Firm
Securities so to be delivered will be in definitive form, in such denominations
and registered in such names as CSFBC requests and will be made available for
checking and packaging at the office of CSFBC, 55 East 52nd Street, New York,
New York at least 24 hours prior to the First Closing Date.
In addition, upon written notice from CSFBC given to the Company and the
Selling Shareholder from time to time not more than 30 days subsequent to the
date of the Prospectus, the Underwriters may purchase all or less than all of
the Optional Securities at the purchase price per Security to be paid for the
Firm Securities. The Selling Shareholder agrees to sell to the Underwriters the
number of shares of Optional Securities specified in such notice and the
Underwriters agree, severally and not jointly, to purchase such Optional
Securities. Such Optional Securities shall be purchased for the account of each
Underwriter in the same proportion as the number of Firm Securities set forth
opposite such Underwriter's name bears to the total number of Firm Securities
(subject to adjustment by CSFBC to eliminate fractions) and may be purchased by
the Underwriters only for the purpose of covering over-allotments made in
connection with the sale of the Firm Securities. No Optional Securities shall be
sold or delivered unless the Firm Securities previously have been, or
simultaneously are, sold and delivered. The right to purchase the Optional
Securities or any portion thereof may be exercised from time to time and to the
extent not previously exercised may be surrendered and terminated at any time
upon notice by CSFBC to the Company and the Selling Shareholder.
Each time for the delivery of and payment for the Optional Securities,
being herein referred to as an "Optional Closing Date," which may be the First
Closing Date (the First Closing Date and each
8
<PAGE> 9
Optional Closing Date, if any, being sometimes referred to as a "Closing Date"),
shall be determined by CSFBC but shall be not later than five full business days
after written notice of election to purchase Optional Securities is given. The
Selling Shareholder will deliver the Optional Securities being purchased on each
Optional Closing Date to CSFBC for the accounts of the several
Underwriters, against payment of the purchase price therefor in federal or other
funds immediately available in New York City by wire transfer to the account of
the Selling Shareholder, at the above office of Latham & Watkins. The
certificates for the Optional Securities being purchased on each Optional
Closing Date will be in definitive form, in such denominations and registered in
such names as CSFBC requests upon reasonable notice prior to such Optional
Closing Date and will be made available for checking and packaging at the above
office of Latham & Watkins at a reasonable time in advance of such Optional
Closing Date.
4. Offering by Underwriters. It is understood that the several Underwriters
propose to offer the Offered Securities for sale to the public as set forth in
the Prospectus.
5. Certain Agreements of the Company and the Selling Shareholder. The
Company agrees with the several Underwriters and the Selling Shareholder that:
(a) If the Effective Time of the Initial Registration Statement is
prior to the execution and delivery of this Agreement, the Company will
file the Prospectus with the Commission pursuant to and in accordance with
subparagraph (1) (or, if applicable and if consented to by CSFBC,
subparagraph (4)) of Rule 424(b) not later than the earlier of (A) the
second business day following the execution and delivery of this Agreement
or (B) the fifteenth business day after the Effective Date of the Initial
Registration Statement.
The Company will advise CSFBC promptly of any such filing pursuant to
Rule 424(b). If the Effective Time of the Initial Registration Statement is
prior to the execution and delivery of this Agreement and an additional
registration statement is necessary to register a portion of the Offered
Securities under the Act but the Effective Time thereof has not occurred as
of such execution and delivery, the Company will file the additional
registration statement or, if filed, will file a post-effective amendment
thereto with the Commission pursuant to and in accordance with Rule 462(b)
on or prior to 10:00 p.m., New York time, on the date of this Agreement or,
if earlier, on or prior to the time the Prospectus is printed and
distributed to any Underwriter, or will make such filing at such later date
as shall have been consented to by CSFBC, which consent shall not be
unreasonably withheld.
(b) The Company will advise CSFBC promptly of any proposal to amend or
supplement the initial registration statement or any additional
registration statement as filed or the related prospectus or the Initial
Registration Statement, the Additional Registration Statement (if any) or
the Prospectus and will not effect such amendment or supplementation
without CSFBC's consent, which consent shall not be unreasonably withheld;
and the Company will also advise CSFBC promptly of the effectiveness of
each Registration Statement (if its Effective Time is subsequent to the
execution and delivery of this Agreement) and of any amendment or
supplementation of a Registration Statement or the Prospectus and of the
institution by the Commission of any stop order proceedings in respect of a
Registration Statement and will use its best efforts to prevent the
issuance of any such stop order and to obtain as soon as possible
9
<PAGE> 10
its lifting, if issued.
(c) If, at any time when a prospectus relating to the Offered
Securities is required to be delivered under the Act in connection with
sales by any Underwriter or dealer, any event occurs as a result of which
the Prospectus as then amended or supplemented would include an untrue
statement of a material fact or omit to state any material fact necessary
to make the statements therein, in the light of the circumstances under
which they were made, not misleading, or if it is necessary at any time to
amend the Prospectus to comply with the Act, the Company will promptly
notify CSFBC of such event and will promptly prepare and file with the
Commission, at its own expense, an amendment or supplement which will
correct such statement or omission or will effect such compliance. Neither
CSFBC's consent to, nor the Underwriters' delivery of, any such amendment
or supplement shall constitute a waiver of any of the conditions set forth
in Section 6.
(d) As soon as practicable, but not later than the Availability Date
(as defined below), the Company will make generally available to its
securityholders an earnings statement covering a period of at least 12
months beginning after the Effective Date of the Initial Registration
Statement (or, if later, the Effective Date of the Additional Registration
Statement) which will satisfy the provisions of Section 11(a) of the Act.
For the purpose of the preceding sentence, "Availability Date" means the
45th day after the end of the fourth fiscal quarter following the fiscal
quarter that includes such Effective Date, except that, if such fourth
fiscal quarter is the last quarter of the Company's fiscal year,
"Availability Date" means the 90th day after the end of such fourth fiscal
quarter.
(e) The Company will furnish to the Representatives copies of each
Registration Statement (two of which will be signed and will include all
exhibits), each related preliminary prospectus, and, so long as delivery of
a prospectus relating to the Offered Securities is required to be delivered
under the Act in connection with sales by any Underwriter or dealer, the
Prospectus and all amendments and supplements to such documents, in each
case in such quantities as CSFBC requests. The Prospectus shall be so
furnished on or prior to 3:00 p.m., New York time, on the business day
following the later of the execution and delivery of this Agreement or the
Effective Time of the Initial Registration Statement. All other such
documents shall be so furnished as soon as available.
(f) The Company will arrange for the qualification of the Offered
Securities for sale under the laws of such jurisdictions as CSFBC
designates and will continue such qualifications in effect so long as
required for the distribution.
(g) During the period of five years hereafter, the Company will
furnish to the Representatives and, upon request, to each of the other
Underwriters, as soon as practicable after the end of each fiscal year, a
copy of its annual report to stockholders for such year; and the Company
will furnish to the Representatives (i) as soon as available, a copy of
each report and any definitive proxy statement of the Company filed with
the Commission under the Securities Exchange Act of 1934 or mailed to
stockholders, and (ii) from time to time, such other information concerning
the Company as CSFBC may reasonably request.
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(h) For a period of 90 days after the date of the offering of the
Offered Securities, the Company and CVS, together with their subsidiaries
and affiliates, other than affiliates who are individuals (with the
exception of Norman Axelrod, James M. Tomaszewski, Steven B. Silverstein
and Hugh J. Scullin (the "Executive Officers")), will not offer, sell,
contract to sell, pledge or otherwise dispose of, directly or indirectly,
any additional shares of its Securities or securities convertible into or
exchangeable or exercisable for any shares of its Securities, or, in the
case of the Company (except as to shares of common stock of the Company
owned by CVS or any of its subsidiaries), publicly disclose the intention
to make any such offer, sale, pledge, disposal or filing, without the prior
written consent of CSFBC, except (i) for private sales by CVS or any of its
subsidiaries so long as the purchaser thereof enters into a corresponding
lockup agreement with CSFBC for the then unexpired portion of such 90-day
period, (ii) for grants of employee stock options pursuant to the terms of
a plan in effect on the date hereof, issuances of Securities pursuant to
the exercise of such options or the exercise of any other employee stock
options outstanding on the date hereof and (iii) for preparation of a
registration statement or preparation for an offering by CVS or any of its
subsidiaries so as to be in a position to file a registration statement and
proceed with an offering immediately after expiration of such 90-day
period; and on or prior to the date hereof, the Company will deliver "lock
up" letters in form and substance reasonably satisfactory to you with
respect to the Executive Officers.
The Company agrees with the several Underwriters, the Selling Shareholder
and CVS that CVS and the Company will be responsible for, and will each
reimburse the Underwriters for (if and to the extent incurred by them) one-half
of the Registration Expenses of the public offering of the Offered Securities up
to $200,000 each, and CVS will be responsible for, and will reimburse the
Underwriters for (if and to the extent incurred by them), all of the
Registration Expenses which exceed $400,000 in the aggregate. Registration
Expenses include for the purposes of this Agreement: any filing fees and other
expenses (including fees and disbursements of counsel) incurred by them in
connection with qualification of the Offered Securities for sale under the laws
of such jurisdictions as CSFBC designates and the printing of memoranda relating
thereto; the filing fee of the National Association of Securities Dealers, Inc.
relating to the Offered Securities; any travel expenses of the Company's or
CVS's officers and employees; the expenses of printing and distributing to the
Underwriters the documents to be provided to the Underwriters pursuant to
Section 5(e); any other expenses of the Company, the Selling Shareholder and
CVS in connection with attending or hosting meetings with prospective
purchasers of the Offered Securities; any transfer taxes on the sale by the
Selling Shareholder of the Offered Securities to the Underwriters; and expenses
incurred in distributing preliminary prospectuses and the Prospectus (including
any amendments and supplements thereto) to the Underwriters.
The Selling Shareholder agrees to deliver to CSFBC, attention:
Transactions Advisory Group, on or prior to the First Closing Date, a properly
completed and executed United States Treasury Department Form W-9 (or other
applicable form or statement specified by Treasury Department regulations in
lieu thereof).
6. Conditions of the Obligations of the Underwriters. The obligations of
the several Underwriters to purchase and pay for the Firm Securities on the
First Closing Date and the Optional Securities to be
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<PAGE> 12
purchased on each Optional Closing Date will be subject to the accuracy of the
representations and warranties on the part of the Company and the Selling
Shareholder herein, to the accuracy of the statements of Company officers made
pursuant to the provisions hereof, to the performance by the Company and the
Selling Shareholder of their obligations hereunder and to the following
additional conditions precedent:
(a) The Representatives shall have received a letter, dated the date
of delivery thereof (which, if the Effective Time of the Initial
Registration Statement is prior to the execution and delivery of this
Agreement, shall be on or prior to the date of this Agreement or, if the
Effective Time of the Initial Registration Statement is subsequent to the
execution and delivery of this Agreement, shall be prior to the filing of
the amendment or post-effective amendment to the registration statement to
be filed shortly prior to such Effective Time), of KPMG Peat Marwick LLP
confirming that they are independent public accountants within the meaning
of the Act and the applicable published Rules and Regulations thereunder
and stating to the effect that:
(i) in their opinion the financial statements, schedules and
summary of earnings examined by them and included or incorporated by
reference in the Registration Statements comply as to form in all
material respects with the applicable accounting requirements of the
Act and the related published Rules and Regulations;
(ii) they have performed the procedures specified by the American
Institute of Certified Public Accountants for a review of interim
financial information as described in Statement of Auditing Standards
No. 71, Interim Financial Information, on the unaudited financial
statements included in the Registration Statements;
(iii) on the basis of the review referred to in clause (ii)
above, a reading of the latest available interim financial statements
of the Company, inquiries of officials of the Company who have
responsibility for financial and accounting matters and other
specified procedures, nothing came to their attention that caused them
to believe that:
(A) the unaudited financial statements included in the
Registration Statements do not comply as to form in all material
respects with the applicable accounting requirements of the Act
and the related published Rules and Regulations or any material
modifications should be made to such unaudited financial
statements for them to be in conformity with generally accepted
accounting principles;
(B) at the date of the latest available balance sheet read
by such accountants, or at a subsequent specified date not more
than five days prior to
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<PAGE> 13
the date of this Agreement, there was any change in the capital
stock or any increase in short-term indebtedness or long-term
debt of the Company and its consolidated subsidiaries or, at the
date of the latest available balance sheet read by such
accountants, there was any decrease in consolidated net current
assets or net assets, as compared with amounts shown on the
latest balance sheet included in the Prospectus; or
(C) for the period from the closing date of the latest
income statement included in the Prospectus to the closing date
of the latest available income statement read by such accountants
there were any decreases, as compared with the corresponding
period of the previous year, in consolidated net sales or net
operating income in the total or per share amounts of
consolidated net income;
except in all cases set forth in clauses (B) and (C) above for
changes, increases or decreases which the Prospectus discloses have
occurred or may occur or which are described in such letter; and
(iv) they have compared specified dollar amounts (or percentages
derived from such dollar amounts) and other financial information
contained in the Registration Statements (in each case to the extent
that such dollar amounts, percentages and other financial information
are derived from the general accounting records of the Company and its
subsidiaries subject to the internal controls of the Company's
accounting system or are derived directly from such records by
analysis or computation) with the results obtained from inquiries, a
reading of such general accounting records and other procedures
specified in such letter and have found such dollar amounts,
percentages and other financial information to be in agreement with
such results, except as otherwise specified in such letter.
For purposes of this subsection, (i) if the Effective Time of the Initial
Registration Statements is subsequent to the execution and delivery of this
Agreement, "Registration Statements" shall mean the initial registration
statement as proposed to be amended by the amendment or post-effective amendment
to be filed shortly prior to its Effective Time, (ii) if the Effective Time of
the Initial Registration Statements is prior to the execution and delivery of
this Agreement but the Effective Time of the Additional Registration Statement
is subsequent to such execution and delivery, "Registration Statements" shall
mean the Initial Registration Statement and the additional registration
statement as proposed to be filed or as proposed to be amended by the
post-effective amendment to be filed shortly prior to its Effective Time, and
(iii) "Prospectus" shall mean the prospectus included in the Registration
Statements.
(b) If the Effective Time of the Initial Registration Statement is not
prior to the execution and delivery of this Agreement, such Effective Time
shall have occurred not later than 10:00 p.m., New York time, on the date
of this Agreement or such later date as shall have been consented to by
CSFBC. If the Effective Time of the Additional Registration Statement (if
any) is not prior to the execution and delivery of this Agreement, such
Effective Time shall have occurred not later than 10:00 p.m., New York
time, on the date of this Agreement or, if
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<PAGE> 14
earlier, the time the Prospectus is printed and distributed to any
Underwriter, or shall have occurred at such later date as shall have been
consented to by CSFBC. If the Effective Time of the Initial Registration
Statement is prior to the execution and delivery of this Agreement, the
Prospectus shall have been filed with the Commission in accordance with the
Rules and Regulations and Section 5(a) of this Agreement. Prior to such
Closing Date, no stop order suspending the effectiveness of a Registration
Statement shall have been issued and no proceedings for that purpose shall
have been instituted or, to the knowledge of the Selling Shareholder, the
Company or the Representatives, shall be contemplated by the Commission.
(c) Subsequent to the execution and delivery of this Agreement, there
shall not have occurred (i) any change, or any development or event
involving a prospective change, in the condition (financial or other),
business, properties or results of operations of the Company or its
subsidiaries which, in the judgment of CSFBC, is material and adverse and
makes it impractical or inadvisable to proceed with completion of the
public offering or the sale of and payment for the Offered Securities; (ii)
any suspension or limitation of trading in securities generally on the New
York Stock Exchange or any setting of minimum prices for trading on such
exchange, or any suspension of trading of any securities of the Company on
any exchange or in the over-the-counter market; (iii) any banking
moratorium declared by U.S. Federal or New York authorities; or (iv) any
outbreak or escalation of major hostilities in which the United States is
involved, any declaration of war by Congress or any other substantial
national or international calamity or emergency if, in the judgment of
CSFBC, the effect of any such outbreak, escalation, declaration, calamity
or emergency makes it impractical or inadvisable to proceed with completion
of the public offering or the sale of and payment for the Offered
Securities.
(d) The Representatives shall have received an opinion, dated such
Closing Date, of Pitney, Hardin, Kipp & Szuch, counsel for the Company,
to the effect that:
(i) The Company has been duly incorporated and is an existing
corporation in good standing under the laws of the jurisdiction of its
incorporation, with corporate power and authority to own its
properties and conduct its business as described in the Prospectus;
(ii) The Offered Securities delivered on such Closing Date and
all other outstanding shares of the Common Stock of the Company have
been duly authorized and validly issued, are fully paid and
nonassessable and conform, as to legal matters in all material
respects, to the description thereof contained in the Prospectus; and
the stockholders of the Company have no preemptive rights with respect
to the Securities;
(iii) Except as disclosed in the Prospectus, there are no
contracts, agreements or understandings known to such counsel between
the Company and any person granting such person the right to require
the Company to file a registration
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<PAGE> 15
statement under the Act with respect to any securities of the Company
owned or to be owned by such person or to require the Company to
include such securities in the securities registered pursuant to the
Registration Statement or in any securities being registered pursuant
to any other registration statement filed by the Company under the
Act;
(iv) No consent, approval, authorization or order of, or filing
with, any governmental agency or body or any court is required to be
obtained or made by the Company under New Jersey or federal law or the
General Corporation Law of the State of Delaware (the "Delaware GCL")
for the consummation of the transactions contemplated by this
Agreement in connection with the sale of the Offered Securities,
except such as have been obtained and made under the Act and such as
may be required under state securities laws or Blue Sky laws;
(v) The Company will not be in violation of its charter or
by-laws upon the sale of the Offered Securities as contemplated
hereby;
(vi) The execution, delivery and performance of this Agreement by
the Company and the sale of the Offered Securities hereby will not
result in a breach or violation of any of the terms and provisions of,
or constitute a default under any applicable New York or federal law
or statute or the Delaware GCL, and, such counsel has no knowledge
that the execution, delivery and performance of this Agreement by the
Company and the sale of the Offered Securities hereby will result in a
breach or violation of any of the terms and provisions of, or
constitute a default under any agreement or instrument that is an
exhibit to the Registration Statement to which the Company or of its
subsidiaries is a party (except as rights to indemnification and
contribution may be limited by applicable federal or state laws), and
except for breaches, violations and defaults that could not reasonably
be expected to result in a Material Adverse Effect;
(vii) The authorized capital stock of the Company, including the
Common Stock, conforms as to legal matters to the description thereof
contained in the Prospectus;
(viii) The Initial Registration Statement and the Additional
Registration Statement (if any) are effective under the Act, any
required filing of the Prospectus pursuant to Rule 424(b) has been
made in the manner and within the time period
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<PAGE> 16
required by Rule 424(b) and, such counsel, has no knowledge of any
stop order suspending the effectiveness of a Registration
Statement being issued or any proceedings for that purpose being
instituted or pending or contemplated under the Act, and each
Registration Statement and the Prospectus, and each amendment or
supplement thereto, as of their respective effective or issue
dates, complied as to form in all material respects with the
requirements of the Act and the Rules and Regulations; such
counsel have no reason to believe that any part of a Registration
Statement or any amendment thereto, as of its effective date,
contained any untrue statement of a material fact or omitted to
state any material fact required to be stated therein or necessary
to make the statements therein not misleading; or that the
Prospectus or any amendment or supplement thereto, as of its issue
date or as of such Closing Date, contained any untrue statement of
a material fact or omitted to state any material fact necessary in
order to make the statements therein, in the light of the
circumstances under which they were made, not misleading; it being
understood that such counsel need express no opinion as to the
financial statements and schedules or other financial and
statistical data contained in, or omitted from, the Registration
Statements or the Prospectus;
(ix) The descriptions in the Registration Statements and
Prospectus under the headings "Relationship with CVS and Related Party
Transactions," "Shares Eligible for Future Sale," "Underwriting,"
"Certain U.S. Federal Tax Considerations for Non-U.S. Holders of
Common Stock," "Risk Factors -- Influence by CVS," "Risk
Factors -- Shares Eligible for Future Sale" and "Description of
Capital Stock" insofar as statements therein constitute a summary of
legal matters, documents or proceedings referred to therein, fairly
present and summarize such matters in all material respects;
(x) This Agreement has been duly authorized, executed and
delivered by the Company; and
(xi) The Company is not an "investment company" or a company
"controlled" by an "investment company" within the meaning of the
Investment Company Act of 1940, as amended.
With respect to subparagraph (viii) of paragraph (d) above,
Pitney, Hardin, Kipp & Szuch may state that their opinion and belief
are based upon their participation in the preparation of the
Registration and Prospectus and any amendments or supplements thereto
and review and discussion of the contents thereof, but are without
independent check or verification, except as specified.
(e) The Representatives shall have received an opinion, dated such
Closing Date, of Denise Tolles, General Attorney to the Company, to the
effect that:
(i) Each of the Company's subsidiaries has been duly incorporated
and is an existing corporation in good standing under the laws of the
jurisdiction of its incorporation, with corporate power and authority
to own or lease, as the case may be, its properties and conduct its
business as described in the Prospectus; and each of the Company's
subsidiaries
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<PAGE> 17
is duly qualified to do business as a foreign corporation in good
standing in all other jurisdictions in which respective ownership or
lease of property or the conduct of its business requires such
qualification, except where the failure to be so qualified or be in
good standing would not have a Material Adverse Effect;
(ii) All of the outstanding shares of capital stock of, or other
ownership interests in, each of the Company's subsidiaries have been
duly and validly authorized and issued and are fully paid and
non-assessable, and are owned by the Company, free and clear of any
security interest, claim, lien, encumbrance or adverse interest of any
nature;
(iii) None of the subsidiaries of the Company is in violation of
its respective charter or by-laws and, to the best of such counsel's
knowledge after due inquiry, none of the Company nor any of its
subsidiaries is in default in the performance of any obligation,
agreement or condition contained in any bond, debenture, note or any
other evidence of indebtedness or in any other agreement, indenture or
instrument material to the conduct of the business of the Company or
any of its subsidiaries to which the Company or any of its
subsidiaries is a party or by which it or its property is bound except
for any violation or default that would not reasonably be expected to
have a Material Adverse Effect; and
(iv) The execution, delivery and performance of this Agreement
and the sale of the Offered Securities hereby, consummation of the
transactions herein or therein contemplated will not result in a
breach or violation of any of the terms and provisions of, or
constitute a default under any lease or material agreement or
instrument to which any subsidiary of the Company is a party or by
which any such subsidiary is bound or to which any of the properties
of any such subsidiary is subject, or the charter or by-laws of any
such subsidiary (except as rights to indemnification and contribution
may be limited by applicable federal or state law, and except for
breaches, violations and defaults that could not reasonably be
expected to result in a Material Adverse Effect.
(f) The Representatives shall have received an opinion, dated such
Closing Date, of Davis Polk & Wardwell, counsel for CVS and the Selling
Shareholder, to the effect that:
(i) Immediately prior to the date hereof, the Selling Shareholder
was the sole registered owner of the Offered Securities and (b) the
Selling Shareholder has the corporate power and authority to enter
into the Underwriting Agreement and to sell, transfer and deliver the
Offered Securities to be sold by the Selling Stockholder thereunder;
(ii) Upon registration of the Securities in the names of the
Underwriters in the stock records of the Company and the issuance of
new certificates registered in the names of the Underwriters
representing such Securities, assuming the Underwriters purchased the
Securities in good faith and without notice of any adverse claim
within the meaning of Section 8-302 of the Uniform Commercial Code of
the State of New York, the Underwriters will have acquired all rights
of the Selling Shareholder in the Securities free of any adverse claim
(as defined in such Section) and the owner of the Securities, if other
than the Selling Shareholder, will be precluded from asserting against
the Underwriters the ineffectiveness of any unauthorized endorsement;
(iii) No consent, approval, authorization or order of, or filing
with, any governmental agency or body or any court is required to be
obtained or made by the Selling Shareholder under New York or federal
law or the Delaware GCL for the consummation of the transactions
contemplated by this Agreement in connection with the sale of the
Offered Securities sold by the Selling Shareholder, except such as may
be required under the Act and under state securities laws;
(iv) The execution, delivery and performance by CVS and the
Selling Shareholder of this Agreement and the consummation by them of
the transactions therein and herein contemplated will not result in a
breach or violation of any of the terms and provisions of, or
constitute a default under, any of the charter or by-laws of CVS or
the Selling Shareholder;
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and
(v) This Agreement has been duly authorized, executed and
delivered by each of CVS and the Selling Shareholder.
(g) The Representatives shall have received from Latham & Watkins,
counsel for the Underwriters, such opinion or opinions, dated such Closing
Date, with respect to the incorporation of the Company, the validity of the
Offered Securities delivered on such Closing Date, the Registration
Statements, the Prospectus and other related matters as the Representatives
may require, and the Selling Shareholder and the Company shall have
furnished to such counsel such documents as they request for the purpose of
enabling them to pass upon such matters.
(h) The Representatives shall have received a certificate, dated such
Closing Date, of the President or any Vice-President and a principal
financial or accounting officer of the Company in which such officers, to
the best of their knowledge after reasonable investigation, shall state
that: the representations and warranties of the Company in this Agreement
are true and correct; the Company has complied with all agreements and
satisfied all conditions on its part to be performed or satisfied hereunder
at or prior to such Closing Date; no stop order suspending the
effectiveness of any Registration Statement has been issued and no
proceedings for that purpose have been instituted or are contemplated by
the Commission; the Additional Registration Statement (if any) satisfying
the requirements of subparagraphs (1) and (3) of Rule 462(b) was filed
pursuant to Rule 462(b), including payment of the applicable filing fee in
accordance with Rule 111(a) or (b) under the Act, prior to the time the
Prospectus was printed and distributed to any Underwriter; and, subsequent
to the date of the most recent financial statements in the Prospectus,
there has been no material adverse change, nor any development or event
involving a prospective material adverse change, in the condition
(financial or otherwise), business, properties or results of operations of
the Company and its subsidiaries taken as a whole, except as set forth in
or contemplated by the Prospectus or as described in such certificate.
(i) The Representatives shall have received a letter, dated such
Closing Date, of KPMG Peat Marwick LLP which meets the requirements of
subsection (a) of this Section, except that the specified date referred to
in such subsection will be a date not more than five days prior to such
Closing Date for the purposes of this subsection;
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<PAGE> 19
(j) The Securities shall be listed on the New York Stock Exchange.
The Selling Shareholder and the Company will furnish the Representatives with
such conformed copies of the foregoing opinions, certificates, letters and
documents as the Representatives reasonably request. CSFBC may in its
sole discretion waive on behalf of the Underwriters compliance with any
conditions to the obligations of the Underwriters hereunder, whether in respect
of an Optional Closing Date or otherwise.
7. Indemnification and Contribution. (a) The Company will indemnify and
hold harmless each Underwriter, the Selling Shareholder, CVS and each person, if
any, who controls any Underwriter or the Selling Shareholder within the meaning
of either Section 15 of the Act or Section 20 of the Exchange Act against any
losses, claims, damages or liabilities, joint or several, to which such
Underwriter, the Selling Shareholder or CVS may become subject, under the Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in any Registration Statement,
the Prospectus, or any amendment or supplement thereto, or any related
preliminary prospectus, or arise out of or are based upon the omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, and will reimburse
each Underwriter, the Selling Shareholder or CVS for any legal or other expenses
reasonably incurred by such Underwriter, the Selling Shareholder or CVS in
connection with investigating or defending any such loss, claim, damage,
liability or action as such expenses are incurred; provided, however, that the
Company 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 an untrue statement or
alleged untrue statement in or omission or alleged omission from any of such
documents in reliance upon and in conformity with written information furnished
to the Company by any Underwriter through the Representatives specifically for
use therein, it being understood and agreed that the only such information
furnished by any Underwriter consists of the information described as such in
subsection (d) below and (B) that the foregoing indemnity agreement with respect
to any untrue statement or omission in the preliminary prospectus shall not
inure to the benefit of any Underwriter from whom the person asserting any such
losses, claims, damages or liabilities purchased Offered Securities or any
person controlling such Underwriter, if a copy of the Prospectus (as then
amended or supplemented if the Company shall have furnished any amendments or
supplements thereto) was not sent or given by or on behalf of such Underwriter
to such person, if required by law so to have been delivered, at or prior to the
written confirmation of the sale of the Securities to such person, and if the
Prospectus (as so amended or supplemented) would have cured the defect giving
rise to such losses, claims, damages or liabilities and (ii) the Company will
not be liable to the Selling Shareholder or CVS in any such case to the extent
that any such loss, claim, damage or liability arises out of or is based upon an
untrue statement or alleged untrue statement in or omission or alleged omission
from any of such documents in reliance upon and in confromity with written
information relating to the Selling Shareholder or CVS furnished to the Company
by the Selling Shareholder or CVS specifically for use therein.
(b) CVS will indemnify and hold harmless the Company, each Underwriter, the
directors of the Company, the officers of the Company who sign the Registration
Statement and each person, if any, who controls the Company or any Underwriter
within the meaning of either Section 15 of the Act or Section 20 of the Exchange
Act against any losses, claims, damages or liabilities, joint or several, to
which such person may become subject, under the Act or otherwise, insofar as
such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon without
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<PAGE> 20
any untrue statement or alleged untrue statement of a material fact contained in
any Registration Statement, the Prospectus, or any amendment or supplement
thereto, or any related preliminary prospectus, or arise out of or are based
upon the omission or alleged omission to state therein a material fact required
to be stated therein 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 relates to or
arises from any breach of the representations and warranties made by the Selling
Shareholders in Section 2(b) of this Agreement or was made in reliance upon and
in conformity with written information furnished by or on behalf of CVS, or the
Selling Shareholder to the Company expressly for use in the Registration
Statement, the Prospectus or any amendment or supplement thereto, and will
reimburse each Underwriter for any legal or other expenses reasonably incurred
by such Underwriter the directors of the Company, the officers of the Company
who signs the Registration Statement and each person, if any, who controls the
Company or any Underwriter within the meaning of either Section 15 of the Act or
Section 20 of the Exchange Act in connection with investigating or defending any
such loss, claim, damage, liability or action as such expenses are incurred;
provided, however, that the foregoing indemnity agreement with respect to any
untrue statement or omission the preliminary prospectus, shall not inure to the
benefit of any Underwriter from whom the person asserting any such losses,
claims, damages or liabilities purchased Offered Securities or any person
controlling such Underwriter, if a copy of the Prospectus (as then amended or
supplemented if the Company shall have furnished any amendments or supplements
thereto) was not sent or given by or on behalf of such Underwriter to such
person, if required by law so to have been delivered, at or prior to the written
confirmation of the sale of the Securities to such person, and if the Prospectus
(as so amended or supplemented) would have cured the defect giving rise to such
losses, claims, damages or liabilities.
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(c) The Selling Shareholder will indemnify and hold harmless each
Underwriter and each person, if any, who controls any Underwriter within the
meaning of either Section 15 of the Act or Section 20 of the Exchange Act
against any losses, claims, damages or liabilities, joint or several, to which
such Underwriter may become subject, under the Act or otherwise, insofar as
such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon any untrue statement or alleged untrue statement
of any material fact contained in any Registration Statement, the Prospectus,
or any amendment or supplement thereto, or any related preliminary prospectus,
or arise out of or are based upon the omission or alleged omission to state
therein a material fact required to be stated therein 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 relates to or arises from any breach of the representations
and warranties made by the Selling Shareholder in Section 2(b) of this
Agreement, and will reimburse each Underwriter for any legal or other expenses
reasonably incurred by such Underwriter in connection with investigating or
defending any such loss, claim, damage, liability or action as such expenses
are incurred; provided, however, that the foregoing indemnity agreement with
respect to any untrue statement or omission in the preliminary prospectus shall
not inure to the benefit of any Underwriter from whom the person asserting any
such losses, claims, damages or liabilities purchased Offered Securities or any
person controlling such Underwriter, if a copy of the Prospectus (as then
amended or supplemented if the Company shall have furnished any amendments or
supplements thereto) was not sent or given by or on behalf of such Underwriter
to such person, if required by law so to have been delivered, at or prior to
the written confirmation of the sale of the Securities to such person, and if
the Prospectus (as so amended or supplemented) would have cured the defect
giving rise to such losses, claims, damages or liabilities.
(d) Each Underwriter will severally and not jointly indemnify and hold
harmless the Company, CVS and the Selling Shareholder and each person, if any,
who controls the Company, CVS or the Selling Shareholder within the meaning of
either Section 15 of the Act or Section 20 of the Exchange Act against any
losses, claims, damages or liabilities to which the Company, CVS or the Selling
Shareholder or any person, if any, who controls any of them within the meaning
of either such section may become subject, under the Act or otherwise, insofar
as such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon any untrue statement or alleged untrue statement
of any material fact contained in the Registration Statement, the Prospectus,
or any amendment or supplement thereto, or any related preliminary prospectus,
or arise out of or are based upon the omission or the alleged omission to state
therein a material fact required to be stated therein 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 furnished to the Company by such Underwriter through the
Representatives specifically for use therein, and will reimburse any legal or
other expenses reasonably
21
<PAGE> 22
incurred by the Company, CVS or the Selling Shareholder in connection with
investigating or defending any such loss, claim, damage, liability or action as
such expenses are incurred, it being understood and agreed that the only such
information furnished by any Underwriter consists of the following information
in the Prospectus furnished on behalf of each Underwriter: the last paragraph
at the bottom of the cover page concerning the terms of the offering by the
Underwriters, the legend concerning over-allotments and stabilizing and passive
market making on the inside front cover page and the concession and reallowance
figures appearing in the fourth paragraph under the caption "Underwriting" and
the information contained in the fifth paragraph under the caption
"Underwriting."
(e) Promptly after receipt by an indemnified party under this Section
of notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against an indemnifying party under
subsection (a), (b), (c) or (d) above, notify the indemnifying party of the
commencement thereof; but the omission so to notify the indemnifying party will
not relieve it from any liability which it may have to any indemnified party
otherwise than under subsection (a), (b), (c) or (d) above. In case any such
action is brought against any indemnified party and it notifies an 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, and after notice
from the indemnifying party to such indemnified party of its election so to
assume the defense thereof, the indemnifying party will not be liable to such
indemnified party under this Section for any legal or other expenses
subsequently incurred by such indemnified party in connection with the defense
thereof other than reasonable costs of investigation and the indemnified
parties will be entitled to separate counsel if, in the opinion of counsel to
an indemnified party, there may be one or more legal defenses available to it
which are different from or additional to those available to such indemnifying
party (in which case such indemnifying party shall not have the right to assume
the defense of such action on behalf of such indemnified person), it being
understood, however, that such indemnifying party shall not, in connection with
any one such action or separate but substantially similar or related actions in
the same jurisdiction arising out of the same general allegations or
circumstances, be liable for the fees and expenses of more than one separate
firm of attorneys (in addition to any local counsel) for all such indemnified
persons, which firm shall be designated in writing by CSFBC, and that all such
fees and expenses shall be reimbursed as they are incurred. No indemnifying
party shall, without the prior written consent of the indemnified party, effect
any settlement of any pending or threatened action in respect of which any
indemnified party is or could have been a party and indemnity could have been
sought hereunder by such indemnified party unless such settlement includes an
unconditional release of such indemnified party from all liability on any
claims that are the subject matter of such action.
(f) If the indemnification provided for in this Section is unavailable or
insufficient to hold harmless an indemnified party under subsection (a), (b),
(c) or (d) above, then each indemnifying party shall contribute to the amount
paid or payable by such indemnified party as a result of the losses, claims,
damages or liabilities referred to in subsection (a), (b), (c) or (d) above (A)
as between the Company and the Underwriters (i) in such proportion as is
appropriate to reflect the relative benefits received by the Company, on the one
hand and the Underwriters on the other from the offering of the Securities or
(ii) if the allocation provided by clause (i) above is not permitted by
applicable law, in such proportion as is appropriate to reflect not only the
relative benefits referred to in clause (i) above but also the relative fault of
the indemnifying party or parties, on the one hand and of the indemnified party
or parties on the other in connection with the statements or omissions which
resulted in such losses,
22
<PAGE> 23
claims, damages or liabilities as well as any other relevant equitable
considerations, and (B) as between (i) the Company on the one hand and the
Selling Shareholder and CVS, on the other, or (ii) the Selling Shareholder and
CVS, on the one hand and the Underwriter on the other in such proportion as is
appropriate to reflect the relative fault of the indemnifying party or parties
on the one hand and of the indemnified party or parties on the other hand in
connection with the statements or omissions which resulted in such losses,
claims, damages or liabilities, as well as any other relevant equitable
considerations. The relative benefits received by the Company, on the one hand
and the Underwriters on the other shall be deemed to be in the same proportion
as the total net proceeds from the offering (before deducting expenses) received
by the Company (as, if, with respect to the Company, for purposes of this clause
(f), the Company had received all of the proceeds of each secondary offering
hereunder) bear to the total underwriting discounts and commissions received by
the Underwriters. The relative fault of the Company and/or the Selling
Shareholder and/or CVS and/or the Underwriters 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, the Selling Shareholder, CVS or
the Underwriters and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such untrue statement or
omission. The amount paid by an indemnified party as a result of the losses,
claims, damages or liabilities referred to in the first sentence of this
subsection (f) shall be deemed to include any legal or other expenses reasonably
incurred by such indemnified party in connection with investigating or defending
any action or claim which is the subject of this subsection (f). Notwithstanding
the provisions of this subsection (f), no Underwriter shall be required to
contribute any amount in excess of the amount by which the total price at which
the Securities underwritten by it and distributed to the public were offered to
the public exceeds the amount of any damages which such Underwriter has
otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. 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. The Underwriters' obligations in this subsection (f) to
contribute are several in proportion to their respective underwriting
obligations and not joint. The remedies provided for in this Section are not
exclusive and shall not limit any rights or remedies which may otherwise be
available to any indemnified party at law or in equity.
23
<PAGE> 24
(g) Notwithstanding anything to the contrary contained in this Agreement,
the aggregate liability of CVS under subsection (b) and (f) above shall be
limited to an amount equal to the aggregate purchase price received by the
Selling Shareholder from the sale of the Offered Securities.
(h) The obligations of the Company, CVS and the Selling Shareholder under
this Section shall be in addition to any liability which the Company, CVS and
the Selling Shareholder may otherwise have and shall extend, upon the same terms
and conditions, to each person, if any, who controls any Underwriter within the
meaning of either Section 15 of the Act or Section 20 of the Exchange Act; and
the obligations of the Underwriters under this Section shall be in addition to
any liability which the respective Underwriters may otherwise have and shall
extend, upon the same terms and conditions, to each director of the Company, CVS
or the Selling Shareholder, to each officer of the Company who has signed a
Registration Statement and to each person, if any, who controls the Company, CVS
or the Selling Shareholder within the meaning of either Section 15 of the Act or
Section 20 of the Exchange Act.
(i) The Obligations of the Company, CVS and the Selling Shareholder under
this Section shall not limit any obligations of the Company, CVS and the Selling
Shareholder pursuant to the Stockholder Agreement dated as of December 2, 1996
among the Company, CVS and the Selling Shareholder.
8. Default of Underwriters. If any Underwriter or Underwriters default in
their obligations to purchase Offered Securities hereunder on either the First
or any Optional Closing Date and the aggregate number of shares of Offered
Securities that such defaulting Underwriter or Underwriters agreed but failed to
purchase does not exceed 10% of the total number of shares of Offered Securities
that the Underwriters are obligated to purchase on such Closing Date, CSFBC may
make arrangements satisfactory to the Company and the Selling Shareholder for
the purchase of such Offered Securities by other persons, including any of the
Underwriters, but if no such arrangements are made by such Closing Date, the
non-defaulting Underwriters shall be obligated severally, in proportion to their
respective commitments hereunder, to purchase the Offered Securities that such
defaulting Underwriters agreed but failed to purchase on such Closing Date. If
any Underwriter or Underwriters so default and the aggregate number of shares of
Offered Securities with respect to which such default or defaults occur exceeds
10% of the total number of shares of Offered Securities that the Underwriters
are obligated to purchase on such Closing Date and arrangements satisfactory to
CSFBC, the Company and the Selling Shareholder for the purchase of such Offered
Securities by other persons are not made within 36 hours after such default,
this Agreement will terminate without liability on the part of any
non-defaulting Underwriter, the Company or the Selling Shareholder, except as
provided in Section 9 (provided that if such default occurs with respect to
Optional Securities after the First Closing Date, this Agreement will not
terminate as to the Firm Securities or any Optional Securities purchased prior
to such termination). As used in this Agreement, the term "Underwriter" includes
any person substituted for an Underwriter under this Section. Nothing herein
will relieve a defaulting Underwriter from liability for its default.
9. Survival of Certain Representations and Obligations. The respective
indemnities, agreements, representations, warranties and other statements of the
Selling Shareholder, of CVS, of the
24
<PAGE> 25
Company or their officers and of the several Underwriters set forth in or made
pursuant to this Agreement will remain in full force and effect, regardless of
any investigation, or statement as to the results thereof, made by or on behalf
of any Underwriter, the Selling Shareholder, CVS, the Company or any of their
respective representatives, officers or directors or any controlling person,
and will survive delivery of and payment for the Offered Securities. If this
Agreement is terminated pursuant to Section 8 or if for any reason the purchase
of the Offered Securities by the Underwriters is not consummated, the Company,
CVS and the Selling Shareholder shall remain responsible for the expenses to be
paid or reimbursed by them pursuant to Section 5 (except as to any defaulting
underwriter) and the respective obligations of the Company, CVS, the Selling
Shareholder, and the Underwriters pursuant to Section 7 shall remain in effect,
but shall not inure to the benefit of any defaulting Underwriter, and if any
Offered Securities have been purchased hereunder the representations and
warranties in Section 2 and all obligations under Section 5 shall also remain
in effect but shall not inure to the benefit of any defaulting Underwriter. If
the purchase of the Offered Securities by the Underwriters is not consummated
for any reason other than solely because of the termination of this Agreement
pursuant to Section 8 or the occurrence of any event specified in clause (ii),
(iii) or (iv) of Section 6(c), the Company, CVS and the Selling Shareholder
will, jointly and severally, reimburse the Underwriters for all out-of-pocket
expenses (including fees and disbursements of counsel) reasonably incurred by
them in connection with the offering of the Offered Securities.
10. Notices. All communications hereunder will be in writing and, if sent
to the Underwriters, will be mailed, delivered or telegraphed and confirmed to
Credit Suisse First Boston Corporation, 11 Madison Avenue, New York, NY 10010,
Attention: Investment Banking Department - Transactions Advisory Group, with a
copy to Latham & Watkins, 885 Third Avenue, New York, NY, Attention: Roger H.
Kimmel, or, if sent to the Company, will be mailed, delivered or telegraphed and
confirmed to it at 6 Brighton Road, Clifton, NJ 07015, Attention: Chief
Financial Officer, with a copy to Pitney, Hardin, Kipp & Szuch, 200 Campus
Drive, P.O. Box 1945, Morristown, New Jersey 07962-1945, Attention: Warren S.
Casey, or, if sent to CVS or the Selling Shareholder, will be mailed, delivered
or telegraphed and confirmed to CVS at One CVS Drive, Woonsocket, RI 02895, with
a copy to Davis Polk & Wardwell, 450 Lexington Avenue, New York, NY 10017,
Attention: Dennis S. Hersch; provided, however, that any notice to an
Underwriter pursuant to Section 7 will be mailed, delivered or telegraphed and
confirmed to such Underwriter.
11. Successors. This Agreement will inure to the benefit of and be binding
upon the parties hereto and their respective successors and the officers and
directors and controlling persons referred to in Section 7, and no other person
will have any right or obligation hereunder.
12. Representation. CSFBC will act for the several Underwriters in
connection with the transactions contemplated by this Agreement, and any action
under this Agreement taken by CSFBC will be binding upon all the Underwriters.
13. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all such
counterparts shall together constitute one and the same Agreement.
14. APPLICABLE LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES
OF CONFLICTS OF LAWS.
The Company hereby submits to the non-exclusive jurisdiction of the Federal
and state courts in the Borough of Manhattan in The City of New York in any suit
or proceeding arising out of or relating to this Agreement or the transactions
contemplated hereby.
25
<PAGE> 26
If the foregoing is in accordance with the Representatives' understanding
of our agreement, kindly sign and return to the Company one of the counterparts
hereof, whereupon it will become a binding agreement among the Selling
Shareholder, CVS, the Company and the several Underwriters in accordance with
its terms.
Very truly yours,
LINENS 'N THINGS, INC.
By: ______________________________
Name:
Title:
CVS CORPORATION
By: ______________________________
Name:
Title:
NASHUA HOLLIS CVS, INC.
By: ______________________________
Name:
Title:
The foregoing Underwriting Agreement is hereby
confirmed and accepted as of the date first
above written.
CREDIT SUISSE FIRST BOSTON CORPORATION
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
Acting on behalf of themselves and as the
Representatives of the several
Underwriters.
By: CREDIT SUISSE FIRST BOSTON CORPORATION
By:_______________________________
Name:
Title:
<PAGE> 27
SCHEDULE A
Number of Firm
Securities to be
Underwriter Purchased
- ----------- ----------------
Credit Suisse First Boston Corporation
Donaldson, Lufkin & Jenrette
Securities Corporation
5,250,000
TOTAL ________________
<PAGE> 1
Exhibit 3.1
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
Linens 'n Things, Inc.
Linens 'n Things, Inc., a corporation organized and existing
under the laws of the State of Delaware (the "Corporation"), hereby certifies as
follows:
1. The name of the Corporation is Linens 'n Things, Inc., and
the name under which the Corporation was originally formed is Linens 'n Things,
Inc. The Corporation's original certificate of incorporation was filed with the
Secretary of State of Delaware on September 10, 1996.
2. This Amended and Restated Certificate of Incorporation
(this "Restated Certificate") has been duly adopted and proposed to the sole
stockholder of the Corporation by the Board of Directors of the Corporation, and
has been approved and adopted by the sole stockholder of the Corporation, in
accordance with Sections 242 and 245 of the General Corporation Law of the State
of Delaware.
3. Pursuant to Sections 242 and 245 of the General Corporation
Law of the State of Delaware, this Amended and Restated Certificate of
Incorporation restates and integrates and further amends the provisions of the
Certificate of Incorporation of the Corporation.
4. The text of the Certificate of Incorporation as heretofore
amended is hereby restated and further amended to read in its entirety as
hereinafter set forth:
FIRST: The name of the Corporation is Linens 'n
Things, Inc.
SECOND: The address of its registered office in the
State of Delaware is Corporation Service Company, 1013 Centre Road, City of
Wilmington, County of New Castle, Delaware 19805. The name of its registered
agent at such address is The Corporation Service Company.
<PAGE> 2
THIRD: 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 as the same exists or may hereafter be
amended ("Delaware Law").
FOURTH: (a) The total number of shares of stock which the
Corporation shall have authority to issue is 61,000,000, consisting of
60,000,000 shares of Common Stock, par value $.01 per share (the "Common
Stock"), and 1,000,000 shares of Preferred Stock, par value $.01 per share (the
"Preferred Stock").
(b) The Board of Directors is hereby empowered to authorize by
resolution or resolutions from time to time the issuance of one or more classes
or series of Preferred Stock and to fix the designations, powers, preferences
and relative, participating, optional or other rights, if any, and the
qualifications, limitations or restrictions thereof, if any, with respect to
each such class or series of Preferred Stock and the number of shares
constituting each such class or series, and to increase or decrease the number
of shares of any such class or series to the extent permitted by Delaware Law.
(c) Effective upon the filing of this Restated Certificate
with the Secretary of State of the State of Delaware (the "Effective Time"),
each share of Common Stock outstanding immediately prior to the Effective Time
shall be, without further action by the Corporation or the holder thereof,
changed and converted into the number of shares of Common Stock determined by
multiplying such outstanding share of Common Stock by 192,677.58 (the "Stock
Split Factor"). Each stock certificate representing shares of Common Stock
outstanding immediately prior to the Effective Time shall automatically
represent from and after the Effective Time that number of shares of Common
Stock equal to the number of shares shown on the face of the certificate
multiplied by the Stock Split Factor.
(d) Notwithstanding the foregoing, in the event that the
conversion of the Common Stock described above would result in any holder of
shares of Common Stock holding a share of Common Stock that is not an integral
multiple of one, the effect of the conversion shall be such that the shares of
Common Stock issued as a result of the conversion shall be the integral multiple
of one closest to the product of the Stock Split Factor times the number of
shares of Common Stock held by such holder immediately prior to the Effective
Time, with fractions of 0.50 and greater being rounded up to the next higher
integral multiple of one and fractions less than 0.50 being rounded down to the
next lower integral multiple of one. No consideration will be paid in lieu of
fractions that are rounded down.
2
<PAGE> 3
FIFTH: (a) The business and affairs of the Corporation
shall be managed by or under the direction of the Board of
Directors.
(b) The number of directors which shall constitute the whole
Board shall be fixed from time to time by resolution of the Board of Directors
but shall not be less than three nor more than ten; provided that so long as CVS
Corporation, a Delaware corporation "(CVS"), is a Principal Stockholder (as
defined below), the number of directors which shall constitute the whole Board
shall be seven.
(c) The directors shall be divided into three classes,
designated Class I, Class II and Class III. Each class shall consist, as nearly
as may be possible, of one-third of the total number of directors constituting
the entire Board of Directors. Each director shall serve for a term ending on
the date of the third annual meeting of stockholders next following the annual
meeting at which such director was elected, provided that directors initially
designated as Class I directors shall serve for a term ending on the date of the
1997 annual meeting, directors initially designated as Class II directors
shall serve for a term ending on the 1998 annual meeting, and directors
initially designated as Class III directors shall serve for a term ending on the
date of the 1999 annual meeting. Notwithstanding the foregoing, each director
shall hold office until such director's successor shall have been duly elected
and qualified or until such director's earlier death, resignation or removal. In
the event of any change in the number of directors, the Board of Directors shall
apportion any newly created directorships among, or reduce the number of
directorships in, such class or classes as shall equalize, as nearly as
possible, the number of directors in each class. In no event will a decrease in
the number of directors shorten the term of any incumbent director.
(d) CVS shall have the right to designate the Applicable CVS
Number (as defined below) of directors to the Board of Directors and the right
to designate the class to which each such CVS designee shall be elected. In
connection with each election of directors, the Corporation shall nominate each
of the Applicable CVS Number of individuals designated by CVS (each, a "CVS
Designee") as a director to the Board of Directors (in the class so designated
by CVS) and shall recommend to the stockholders the election of each CVS
Designee as a director (in the class so designated by CVS).
(e) In the event of a decrease in the Applicable CVS Number at
any time, (i) one or more (as appropriate) CVS Designees (selected by CVS as
provided in clause (ii)) shall
3
<PAGE> 4
automatically be deemed removed from the Board effective at such time, and (ii)
CVS shall have the right to select the individual to be removed if any CVS
Designee is to remain as a director after giving effect to such decrease;
provided that if after giving effect to such decrease the Applicable CVS Number
is zero, one CVS Designee (selected by CVS) shall continue to serve as a
director until the next annual meeting of stockholders. Except as aforesaid, (x)
vacancies on the Board resulting from the removal, death, resignation or other
departure of a CVS Designee may only be filled in the manner provided in the
Stockholder Agreement dated as of December 2, 1996 among CVS, Nashua Hollis CVS,
Inc. and the Corporation (the "Stockholder Agreement"), and (y) each director
who is a CVS Designee may only be removed in the manner provided in the
Stockholder Agreement or as provided in clause (g) of this Article FIFTH.
(f) Subject to clause (e) of this Article FIFTH, vacancies on
the Board of Directors resulting from death, resignation, removal or otherwise
and newly created directorships resulting from any increase in the number of
directors may be filled solely by a majority of the directors then in office
(although less than a quorum) or by the sole remaining director. Each director
(including any CVS Designee) elected to fill a vacancy shall hold office for a
term that shall coincide with the term of the Class to which such director shall
have been elected.
(g) Subject to clause (e) of this Article FIFTH in the case of
CVS Designees, no director may be removed from office by the stockholders except
for cause with the affirmative vote of the holders of not less than a majority
of the total voting power of all outstanding securities of the Corporation then
entitled to vote generally in the election of directors, voting together as a
single class.
(h) There shall be no cumulative voting in the election of
directors. Election of directors need not be by written ballot unless the bylaws
of the Corporation so provide.
(i) Notwithstanding the foregoing, whenever the holders of one
or more classes or series of Preferred Stock shall have the right, voting
separately as a class or series, to elect directors, the election, term of
office, filling of vacancies, removal and other features of such directorships
shall be governed by the terms of the resolution or resolutions adopted by the
Board of Directors pursuant to ARTICLE FOURTH applicable thereto, and such
directors so elected shall not be subject to the provisions of this ARTICLE
FIFTH unless otherwise provided therein.
(j) For purposes of this Restated Certificate, the
4
<PAGE> 5
following terms shall have the following respective meanings:
(i) "Affiliate" has the meaning assigned to such term in Rule
12b-2 of the General Rules and Regulations under the Securities Exchange Act of
1934, as amended.
(ii) "Applicable CVS Number" shall be (i) two, so long as
the CVS Group in aggregate owns at least 15% of the total Voting Power, (ii)
one, so long as the CVS Group in aggregate owns at least 5% but less than 15% of
the total Voting Power, and (iii) zero, as soon as the CVS Group in aggregate
owns less than 5% of the total Voting Power.
(iii) "CVS Group" means CVS and its Affiliates.
(iv) CVS shall constitute a "Principal Stockholder" so long as
the CVS Group in aggregate owns at least 10% of the total Voting Power.
(v) "Voting Power" means the number of votes represented by
the total outstanding Voting Stock.
(vi) "Voting Stock" means the stock of the Corporation of any
class or series entitled to vote generally in the election of directors.
SIXTH: The Board of Directors shall have the power to
adopt, amend or repeal the bylaws of the Corporation.
SEVENTH: Any action required or permitted to be taken at any
annual or special meeting of stockholders may be taken only upon the vote of
stockholders at an annual or special meeting duly noticed and called in
accordance with Delaware Law and may not be taken by written consent of
stockholders without a meeting.
EIGHTH: Special meetings of the stockholders may be called by
the Board of Directors, the Chairman of the Board of Directors, the President or
the Secretary of the Corporation and may not be called by any other person.
Notwithstanding the foregoing, (i) for so long as CVS is a Principal
Stockholder, special meetings of the stockholders may be called by CVS, and (ii)
whenever holders of one or more classes or series of Preferred Stock shall have
the right, voting separately as a class or series, to elect directors, such
holders may call, pursuant to the terms of the resolution or resolutions adopted
by the Board of Directors pursuant to ARTICLE FOURTH, special meetings of
holders of such Preferred Stock.
NINTH: (1) A director of the Corporation shall, to
5
<PAGE> 6
the fullest extent permitted by Delaware Law, not be liable to the Corporation
or its stockholders for monetary damages for breach of fiduciary duty as a
director.
(2) (a) Each person (and the heirs, executors or
administrators of such person) who was or is a party or is threatened to be made
a party to, or is involved in any threatened, pending or completed action, suit
or proceeding, whether civil, criminal, administrative or investigative, 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, shall be indemnified and held harmless by the Corporation to the
fullest extent permitted by Delaware Law. The right to indemnification conferred
in this ARTICLE NINTH shall also include the right to be paid by the Corporation
the expenses incurred in connection with any such proceeding in advance of its
final disposition to the fullest extent authorized by Delaware Law. The right to
indemnification conferred in this ARTICLE NINTH shall be a contract right.
(b) The Corporation may, by action of its Board of Directors,
provide indemnification to such of the employees and agents of the Corporation
to such extent and to such effect as the Board of Directors shall determine to
be appropriate and authorized by Delaware Law.
(3) 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 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 expense, liability or loss
incurred by such person 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 Delaware Law.
(4) The rights and authority conferred in this ARTICLE NINTH
shall not be exclusive of any other right which any person may otherwise have or
hereafter acquire.
(5) Neither the amendment nor repeal of this ARTICLE NINTH,
nor the adoption of any provision of this Certificate of Incorporation or the
bylaws of the Corporation, nor, to the fullest extent permitted by Delaware Law,
any modification of law, shall eliminate or reduce the effect of this ARTICLE
NINTH in respect of any acts or omissions occurring prior to such amendment,
repeal, adoption or modification.
6
<PAGE> 7
TENTH: The Corporation reserves the right to amend this
Certificate of Incorporation in any manner permitted by Delaware Law and all
rights and powers conferred upon stockholders, directors and officers herein are
granted subject to this reservation. Notwithstanding the foregoing, the
provisions set forth in ARTICLE FIFTH through ARTICLE TENTH, inclusive, may not
be repealed or amended in any respect, and no other provision may be adopted,
amended or repealed which would have the effect of modifying or permitting the
circumvention of the provisions set forth in ARTICLE FIFTH through ARTICLE
TENTH, inclusive, unless such action is approved by the affirmative vote of the
holders of not less than 80% of the total voting power of all outstanding
securities of the Corporation then entitled to vote generally in the election of
directors, voting together as a single class.
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IN WITNESS WHEREOF, the undersigned has caused this Restated
Certificate to be signed on its behalf as of the 27th day of November, 1996.
LINENS 'N THINGS, INC.
By: /s/ JAMES M. TOMASZEWSKI
--------------------------------
Name: James M. Tomaszewski
Title: Senior Vice President/CEO
Attest: DENISE TOLLES
------------------------------
Name: Denise Tolles
Title: Assistant Secretary
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Exhibit 3.2
BYLAWS
OF
Linens 'n Things, Inc.
* * * * *
ARTICLE I
OFFICES
Section 1. Registered Office. The registered office shall be
in the City of Wilmington, County of New Castle, 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 or the business of the
Corporation may require.
Section 3. Books. The books of the Corporation may be kept
within or without of the State of Delaware as the Board of Directors may from
time to time determine or the business of the Corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. Time and Place of Meetings. All meetings of
stockholders shall be held at such place, either within or without the State of
Delaware, on such date and at such time as may be determined from time to time
by the Board of Directors (or the Chairman of the Board in the absence of a
designation by the Board of Directors).
Section 2. Annual Meetings. Annual meetings of stockholders,
commencing with the year 1997, shall be held to elect directors and transact
such other business as may properly be brought before the meeting.
<PAGE> 2
Section 3. Special Meetings. Special meetings of stockholders may be
called by the Board of Directors or the Chairman of the Board of Directors, the
President or the Secretary of the Corporation and may not be called by any other
person. Notwithstanding the foregoing, (i) for so long as CVS Corporation
("CVS") is a Principal Stockholder (as defined in the certificate of
incorporation), special meetings of the stockholders may be called by CVS, and
(ii) whenever holders of one or more classes or series of Preferred Stock shall
have the right, voting separately as a class or series, to elect directors, such
holders may call, pursuant to the terms of the resolution or resolutions adopted
by the Board of Directors pursuant to Article Four of the certificate of
incorporation, special meetings of holders of such Preferred Stock.
Section 4. Notice of Meetings and Adjourned Meetings; Waivers of
Notice. (a) Whenever stockholders are required or permitted to take any action
at a meeting, a written notice of the meeting shall be given which shall state
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. Unless otherwise
provided by the General Corporation Law of the State of Delaware as the same
exists or may hereafter be amended ("Delaware Law"), such notice shall be given
not less than 10 nor more than 60 days before the date of the meeting to each
stockholder of record entitled to vote at such meeting. Unless these bylaws
otherwise require, when a meeting is adjourned to another time or place (whether
or not a quorum is present), 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. At the adjourned meeting, the Corporation may transact any
business which might have been transacted at the original meeting. If the
adjournment is for more than 30 days, or 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 of record entitled to vote at the meeting.
(b) A written waiver of any such notice signed by the person entitled
thereto, whether before or after the time stated therein, shall be deemed
equivalent to notice. Attendance of a person at a meeting shall constitute a
waiver of notice of such meeting, except when the person attends the 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. Business transacted at any special meeting of stockholders shall be
limited to the purposes stated in the notice.
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Section 5. Quorum. Unless otherwise provided under the certificate of
incorporation or these bylaws and subject to Delaware Law, the presence, in
person or by proxy, of the holders of a majority of the outstanding capital
stock of the Corporation entitled to vote at a meeting of stockholders shall
constitute a quorum for the transaction of business.
Section 6. Voting. (a) Unless otherwise provided in the certificate of
incorporation and subject to Delaware Law, each stockholder shall be entitled to
one vote for each outstanding share of capital stock of the Corporation held by
such stockholder. Unless otherwise provided in Delaware Law, the certificate of
incorporation or these bylaws, the affirmative vote of a majority of the shares
of capital stock of the Corporation present, in person or by proxy, at a meeting
of stockholders and entitled to vote on the subject matter shall be the act of
the stockholders.
(b) Each stockholder entitled to vote at a meeting of stockholders or
to express consent or dissent to a corporate action in writing without a meeting
may authorize another person or persons to act for him or her by proxy, but no
such proxy shall be voted or acted upon after three years from its date, unless
the proxy provides for a longer period.
Section 7. No Action by Consent. Any action required or permitted to
be taken at any annual or special meeting of stockholders may be taken only upon
the vote of stockholders at an annual or special meeting duly noticed and called
in accordance with Delaware Law and may not be taken by written consent of
stockholders without a meeting.
Section 8. Organization. At each meeting of stockholders, the Chairman
of the Board, if one shall have been elected, (or in his or her absence or if
one shall not have been elected, the President) shall act as chair of the
meeting. The Secretary (or in his or her absence or inability to act, the person
whom the chair of the meeting shall appoint secretary of the meeting) shall act
as secretary of the meeting and keep the minutes thereof.
Section 9. Order of Business. The order of business and rules of
conduct at all meetings of stockholders shall be as determined by the chair of
the meeting.
Section 10. Notice of Business. At any meeting of the stockholders,
only such business shall be conducted as shall have been brought before the
meeting (a) by or at the direction of the Board of Directors or (b) in the case
of an annual meeting of stockholders, by any stockholder of the
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Corporation who is a stockholder of record at the time of giving of the notice
provided for in this Section 11, who shall be entitled to vote at such meeting
and who complies with the notice procedures set forth in this Section 11. For
business to be properly brought by a stockholder before an annual meeting of
stockholders, the stockholder must have given timely notice thereof in writing
to the secretary of the Corporation. To be timely, a stockholder's notice must
be delivered to or mailed and received at the principal executive offices of the
Corporation not less than 60 days nor more than 90 days prior to the meeting;
provided, however, that in the event that less than 70 days' notice or prior
public disclosure of the date of the meeting is given or made to stockholders,
notice by the stockholder to be timely must be received no later than the close
of business on the 10th day following the day on which such notice of the date
of the meeting was mailed or such public disclosure was given or made. A
stockholder's notice to the secretary shall set forth as to each matter the
stockholder proposes to bring before the meeting (a) a brief description of the
business desired to be brought before the meeting and the reasons for conducting
such business at the meeting, (b) the name and address, as they appear on the
Corporation's books, of the stockholder proposing such business, (c) the class
and number of shares of the Corporation which are beneficially owned by the
stockholder and (d) any material interest of the stockholder in such business.
Notwithstanding anything in the bylaws to the contrary, no business shall be
conducted at a stockholder meeting except in accordance with the procedures set
forth in this Section 11, provided that CVS shall not be required to comply with
this Section 11 so long as it is a Principal Stockholder. The chair of the
meeting shall, if the facts warrant, determine and declare to the meeting that
business was not properly brought before the meeting and in accordance with the
provisions of the bylaws, and if he should so determine, he shall so declare to
the meeting and any such business not properly brought before the meeting shall
not be transacted. Notwithstanding the foregoing, provisions of this Section 11,
a stockholder shall also comply with all applicable requirements of the
Securities Exchange Act of 1934, and the rules and regulations thereunder with
respect to the matters set forth in this Section 11.
ARTICLE III
DIRECTORS
Section 1. General Powers. Except as otherwise provided in Delaware
Law or the certificate of incorporation,
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the business and affairs of the Corporation shall be managed by or under the
direction of the Board of Directors.
Section 2. Number, Classes, Term of Office, etc. Except as otherwise
provided in the certificate of incorporation, the number of directors which
shall constitute the whole Board shall be fixed from time to time by resolution
of the Board of Directors but shall not be less than three nor more than ten.
The directors shall be divided into three classes, designated Class I, Class II
and Class III. Each class shall consist, as nearly as may be possible, of
one-third of the total number of directors constituting the entire Board of
Directors. Except as otherwise provided in the certificate of incorporation,
each director shall serve for a term ending on the date of the third annual
meeting of stockholders next following the annual meeting at which such director
was elected. Notwithstanding the foregoing, each director shall hold office
until such director's successor shall have been duly elected and qualified or
until such director's earlier death, resignation or removal. Directors need not
be stockholders. The provisions of this Section 2 shall be subject, in each
case, to the rights of holders of one or more series of Preferred Stock of the
Corporation with respect to the election of directors set forth in Section 15 of
this Article III.
Section 3. Quorum and Manner of Acting. Unless the certificate of
incorporation or these bylaws require a greater number, a majority of the total
number of directors (so long as such majority includes a director that is a CVS
Designee in the event that CVS is then a Principal Stockholder (as each such
capitalized term is defined in the certificate of incorporation)) shall
constitute a quorum for the transaction of business, and the affirmative vote of
a majority of the directors present at a meeting at which a quorum is present
shall be the act of the Board of Directors. When a meeting is adjourned to
another time or place (whether or not a quorum is present), 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. At the adjourned meeting, the
Board of Directors may transact any business which might have been transacted at
the original meeting. 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 4. Time and Place of Meetings. The Board of Directors shall
hold its meetings at such place, either within or without the State of Delaware,
and at such time as
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<PAGE> 6
may be determined from time to time by the Board of Directors (or the Chairman
in the absence of a determination by the Board of Directors).
Section 5. Annual Meeting. The Board of Directors shall meet for the
purpose of electing officers and transacting other business, as soon as
practicable after each annual meeting of stockholders, on the same day and at
the same place where such annual meeting shall be held. Notice of such meeting
need not be given. In the event such annual meeting is not so held, the annual
meeting of the Board of Directors may be held at such place either within or
without the State of Delaware, on such date and at such time as shall be
specified in a notice thereof given as hereinafter provided in Section 7 of this
Article III or in a waiver of notice thereof signed by any director who chooses
to waive the requirement of notice.
Section 6. Regular Meetings. After the place and time of regular
meetings of the Board of Directors shall have been determined and notice thereof
shall have been once given to each member of the Board of Directors, regular
meetings may be held without further notice being given.
Section 7. Special Meetings. Special meetings of the Board of
Directors may be called by the Chairman of the Board or the President and shall
be called by the Chairman of the Board, President or Secretary on the written
request of (i) three directors or (ii) so long as CVS is a Principal
Stockholder, of any director who is a designee of CVS. Notice of special
meetings of the Board of Directors shall be given to each director at least
three days before the date of the meeting in such manner as is determined by the
Board of Directors.
Section 8. Committees. The Board of Directors may, by resolution
passed by a majority of the whole Board, designate one or more committees, each
committee to consist of one or more of the directors of the Corporation. The
Board may designate one or more directors as alternate members of any committee,
who may replace any absent or disqualified member at any meeting of the
committee. Any such committee, to the extent provided in the resolution of the
Board of Directors, 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, and may authorize the seal of the Corporation to be affixed to all
papers which may require it; but no such committee shall have the power or
authority in reference to amending the certificate of incorporation, adopting an
agreement of merger or
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<PAGE> 7
consolidation, recommending to the stockholders the sale, lease or exchange of
all or substantially all of the Corporation's property and assets, recommending
to the stockholders a dissolution of the Corporation or a revocation of a
dissolution, or amending the bylaws of the Corporation; and unless the
resolution of the Board of Directors or the certificate of incorporation
expressly so provide, no such committee shall have the power or authority to
declare a dividend or to authorize the issuance of stock. Each committee shall
keep regular minutes of its meetings and report the same to the Board of
Directors when required.
Section 9. Action by Consent. Unless otherwise restricted 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 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 10. Telephonic Meetings. Unless otherwise restricted 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, 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 in a meeting shall constitute presence in person at the meeting.
Section 11. Resignation. Any director may resign at any time by giving
written notice to the Board of Directors or to the Secretary of the Corporation.
The resignation of any director shall take effect upon receipt of notice thereof
or at such later time as shall be specified in such notice; and unless otherwise
specified therein, the acceptance of such resignation shall not be necessary to
make it effective.
Section 12. Vacancies. Unless otherwise provided in the certificate of
incorporation or the Stockholder Agreement dated as of December 2, 1996 among
CVS, Nashua Hollis CVS, Inc. and the Corporation (the "Stockholder Agreement"),
vacancies on the Board of Directors resulting from death, resignation, removal
or otherwise and newly created directorships resulting from any increase in the
number of directors may be filled solely by a majority of the directors then in
office (although less than a quorum) or by the sole remaining director. Whenever
the holders of any class or
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<PAGE> 8
classes of stock or series thereof are entitled to elect one or more directors
by the certificate of incorporation, vacancies and newly created directorships
of such class or classes or series may be filled by a majority of directors
elected by such class or classes or series thereof then in office, or by a sole
remaining director so elected. Each director elected to fill a vacancy shall
hold office for a term that shall coincide with the term of the Class to which
such director shall have been elected. If there are no directors in office, then
an election of directors may be held in accordance with Delaware Law. Unless
otherwise provided in the certificate of incorporation, when one or more
directors shall resign from the Board, effective at a future date, a majority of
the directors then in office, including those who have so resigned, shall have
the power to fill such vacancy or vacancies, the vote thereon to take effect
when such resignation or resignations shall become effective, and each director
so chosen shall hold office as provided in the filling of the other vacancies.
Section 13. Removal. Except as provided in the certificate of
incorporation or the Stockholder Agreement, no director may be removed from
office by the stockholders except for cause with the affirmative vote of the
holders of not less than a majority of the total voting power of all outstanding
securities of the corporation then entitled to vote generally in the election of
directors, voting together as a single class.
Section 14. Compensation. Unless otherwise restricted by the
certificate of incorporation or these bylaws, the Board of Directors shall have
authority to fix the compensation of directors, including fees and reimbursement
of expenses.
Section 15. Preferred Directors. Notwithstanding anything else
contained herein, whenever the holders of one or more classes or series of
Preferred Stock shall have the right, voting separately as a class or series, to
elect directors, the election, term of office, filling of vacancies, removal and
other features of such directorships shall be governed by the terms of the
resolutions adopted by the Board of Directors pursuant to the certificate of
incorporation applicable thereto, and such directors so elected shall not be
subject to the provisions of Sections 2, 12 and 13 of this Article III unless
otherwise provided therein (but shall be subject to the rights of CVS relating
to the designation and election of directors as provided in the certificate of
incorporation and the Stockholder Agreement).
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ARTICLE IV
OFFICERS
Section 1. Principal Officers. The principal officers of the
Corporation shall be a Chairman of the Board, a Chief Executive Officer, a
President, one or more Vice Presidents, a Treasurer and a Secretary who shall
have the duty, among other things, to record the proceedings of the meetings of
stockholders and directors in a book kept for that purpose. The Corporation may
also have such other principal officers, including one or more Controllers, as
the Board may in its discretion appoint. One person may hold the offices and
perform the duties of any two or more of said offices, except that no one person
shall hold the offices and perform the duties of President and Secretary.
Section 2. Election and Term of Office. The principal officers of the
Corporation shall be elected annually by the Board of Directors at the annual
meeting thereof. Each such officer shall hold office until his or her successor
is elected and qualified, or until his or her earlier death, resignation or
removal. Any vacancy in any office shall be filled in such manner as the Board
of Directors shall determine.
Section 3. Subordinate Officers. In addition to the principal officers
enumerated in Section 1 of this Article IV, the Corporation may have one or more
Assistant Treasurers, Assistant Secretaries and Assistant Controllers and such
other subordinate officers, agents and employees as the Board of Directors may
deem necessary, each of whom shall hold office for such period as the Board of
Directors may from time to time determine. The Board of Directors may delegate
to any principal officer the power to appoint and to remove any such subordinate
officers, agents or employees.
Section 4. Removal. Except as otherwise permitted with respect to
subordinate officers, any officer may be removed, with or without cause, at any
time, by resolution adopted by the Board of Directors.
Section 5. Resignations. Any officer may resign at any time by giving
written notice to the Board of Directors (or to a principal officer if the Board
of Directors has delegated to such principal officer the power to appoint and to
remove such officer). The resignation of any officer shall take effect upon
receipt of notice thereof or at such later time as shall be specified in such
notice; and unless otherwise specified therein, the acceptance of such
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<PAGE> 10
resignation shall not be necessary to make it effective.
Section 6. Powers and Duties. The officers of the Corporation shall
have such powers and perform such duties incident to each of their respective
offices and such other duties as may from time to time be conferred upon or
assigned to them by the Board of Directors.
ARTICLE V
GENERAL PROVISIONS
Section 1. Fixing the Record Date. (a) In order that the Corporation
may determine the stockholders entitled to notice of or to vote at any meeting
of stockholders or any adjournment thereof, 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 of Directors, and
which record date shall not be more than 60 nor less than 10 days before the
date of such meeting. If no record date is fixed by the Board of Directors, the
record date for determining stockholders entitled to notice of or to vote at a
meeting of stockholders shall be at the close of business on the day preceding
the day on which notice is given, or, if notice is waived, at the close of
business on the day preceding the day on which the meeting is held. A
determination of stockholders of record entitled to notice of or to vote at a
meeting of stockholders shall apply to any adjournment of the meeting; provided
that the Board of Directors may fix a new record date for the adjourned meeting.
(b) In order that the Corporation may determine the stockholders
entitled to receive payment of any dividend or other distribution or allotment
of any rights or the stockholders entitled to exercise any rights in respect of
any change, conversion or exchange of stock, or for the purpose of any other
lawful 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, and which record date shall be not more than 60 days prior to such
action. If no record date is fixed, the record date for determining stockholders
for any such purpose shall be at the close of business on the day on which the
Board of Directors adopts the resolution relating thereto.
Section 2. Dividends. Subject to limitations contained in Delaware Law
and the certificate of incorporation, the Board of Directors may declare and pay
dividends upon the shares of capital stock of the Corporation,
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which dividends may be paid in cash, in property or in shares of the capital
stock of the Corporation.
Section 3. 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, affixed or otherwise reproduced.
Section 4. Voting of Stock Owned by the Corporation. Unless otherwise
ordered by the Board of Directors, the Chairman of the Board may authorize any
person, on behalf of the Corporation, to attend, vote at and grant proxies to be
used at any meeting of stockholders of any corporation (except this Corporation)
in which the Corporation may hold stock.
Section 5. Fiscal Year. The fiscal year of the Corporation shall
commence on January 1 and end on December 31 of each year.
Section 6. Amendments. These bylaws or any of them, may be altered,
amended or repealed, or new bylaws may be made, by the Board of Directors.
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Exhibit 10.1
TRANSITIONAL SERVICES AGREEMENT
This Agreement dated as of December 2, 1996 is between CVS
Corporation, a Delaware corporation ("CVS"), and Linens 'n Things, Inc., a
Delaware corporation ("Linens").
WITNESSETH:
WHEREAS, Linens is presently a wholly owned Subsidiary of
CVS;
WHEREAS, after the sale on the date hereof of Common Stock,
$0.01 par value per share (the "Common Stock"), of Linens to the public in an
initial public offering (the "Initial Public Offering") registered under the
Securities Act of 1933, as amended, CVS will own approximately 32.5% of the
outstanding Common Stock of Linens;
WHEREAS, CVS and Linens are concurrently herewith entering
into the Stockholder Agreement and the Tax Disaffiliation Agreement;
WHEREAS, the parties hereto desire to set forth herein the
transitional services to be performed by CVS hereunder in order to allow for an
orderly transition of ownership of the Linens business (as currently conducted,
the "Business") to the public following the Initial Public Offering;
NOW, THEREFORE, in consideration of the foregoing and the
agreements contained herein, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, and intending to be
legally bound, the parties hereto agree as follows:
1. DEFINITIONS
(a) As used herein, the following terms shall have the
following meanings:
"Agreement" means this Transitional Services Agreement
including all Exhibits hereto, as amended from time to time.
"Costs" means any and all (i) actual costs incurred by CVS or
its Affiliates in connection with or with respect to performing the CVS Services
hereunder (including all costs and charges referred to in the Exhibits hereto)
and (ii) incremental
<PAGE> 2
costs of performing or providing any Service hereunder that are incurred as a
result of or otherwise arise from any third party consent required in connection
with (x) the provision of such Service hereunder or (y) the performance by CVS
of its obligations hereunder.
"CVS Services" or "Services" means the services (and related
agreements) set forth on Exhibits A-1, A-2, A-3 and A-4 hereto.
"Initial Public Offering Date" means the business day as of
which the Initial Public Offering shall be consummated.
"Term" means, with respect to any Service, the term applicable
to the provision of such Service hereunder as determined pursuant to Section 4.
(b) Capitalized terms used herein and not otherwise defined
herein are used herein as defined in the Stockholder Agreement dated as of the
date hereof between CVS, Nashua Hollis and Linens.
2. PROVISION OF SERVICES
(a) During the Term applicable to the provision or performance
of each CVS Service to be provided or performed by CVS (or an Affiliate) to
Linens with respect to the Business hereunder (as set forth in Exhibits A-1,
A-2, A-3 and A-4 hereto), Linens shall purchase and pay for, and CVS (or such
Affiliate) shall provide and perform, each such CVS Service, upon the terms and
conditions set forth in this Agreement (including the applicable Exhibits
hereto).
(b) All Services provided or performed by CVS or its
Affiliates hereunder shall be performed in a manner consistent with past
practice applicable to the provision or performance of such Services by CVS or
its Affiliates with respect to the Business.
(c) Each of CVS and Linens will use reasonable efforts to
complete the transition as promptly as practicable.
3. SERVICE CHARGES
Linens shall pay or reimburse CVS for all Costs attributable
to the provision or performance by CVS of CVS Services hereunder. Such payment
or reimbursement shall be made as provided in Section 5.
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4. TERM OF PROVISION OF SERVICES
The obligation of CVS to provide or perform any Service
hereunder shall terminate on the last day of the term for which such Service is
required to be provided or performed hereunder (as specified in the applicable
Exhibit hereto), after giving effect to the valid exercise of any extension
option with respect to, or termination of, the term applicable to the provision
or performance of such Service.
5. PAYMENT TERMS
All Costs required to be paid or reimbursed to CVS hereunder
shall be invoiced monthly by CVS. Invoiced amounts shall be due and payable
thirty (30) days from date of receipt of invoice.
6. INSPECTION
(a) Linens shall, during normal business hours and with
reasonable prior notice to CVS, have reasonable access to the properties,
offices, books and records of CVS for the purpose of observing that Services are
being procured or performed in accordance with the terms of this Agreement and
past practices relevant to the procurement or performance of such Services with
respect to the Business and to verify Cost amounts.
(b) CVS and Linens shall, from time to time but not more often
than once each month, review the basis and amounts of Costs charged hereunder.
In the course of such review, the parties shall in good faith, other than with
respect to Costs paid or payable to outside vendors as provided in Exhibit A-1,
(i) establish principles for determining Costs to be charged hereunder on a
prospective basis and (ii) determine the amount of any adjustment, if any,
payable by a party to the other with respect to Costs charged and reimbursed in
respect of any preceding period.
7. FORCE MAJEURE
CVS shall not be liable to Linens or any other Person for any
delay or default in performance where occasioned by any cause of any kind or
extent beyond CVS's control including, by way of example, but not limitation,
any act of God, any act, regulation or law of any government, war, civil
commotion, destruction of production facilities or materials by fire, earthquake
or storm, labor disturbance, epidemic, equipment breakdown or failure, failure
to obtain any third party or governmental consent required to perform Services
hereunder, or failure of suppliers, public utilities or common carriers ("Force
Majeure"). CVS shall promptly notify Linens in writing of the Force Majeure
causing delay or
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default in performance, the probable extent to which it will be unable to
perform, and the actions it intends to take to remove such Force Majeure, to the
extent reasonably possible to do so. CVS shall take reasonable action within its
control to alleviate the Force Majeure causing delay or default in performance
(it being understood that any costs or expenses incurred by CVS in connection
therewith shall constitute Costs for purposes of this Agreement).
8. ASSIGNMENT
No party hereto may assign its rights or delegate its
obligations hereunder without the prior written consent of the other parties,
and any attempted assignment or delegation without such consent shall be void.
Any Services required to be performed by CVS hereunder may be performed by an
Affiliate of CVS, provided that CVS shall not thereby be relieved of its
obligations hereunder. For purposes of this Agreement, Linens shall not be
considered to be an Affiliate of CVS.
9. DEFAULT
If Linens shall be in default of any payment or indemnity
obligation hereunder, CVS may terminate this Agreement by giving thirty (30)
days' written notice to Linens, specifying the basis for termination, provided
if within thirty (30) days after receipt of such notice Linens shall cure the
default by making the required payment, such notice shall cease to be
operational and this Agreement shall continue in full force. The right of CVS to
terminate this Agreement, as provided in this Section 9, shall not be affected
in any way by its waiver of, or failure to take action with respect to, any
previous payment defaults.
Notwithstanding the foregoing, the occurrence of any of the
following events with respect to a party hereto shall be deemed to constitute a
default which shall give rise to an immediate right of the other party to
terminate this Agreement without notice: the making of a general assignment for
the benefit of creditors, insolvency, the institution of bankruptcy,
reorganization, liquidation or receivership proceedings by or against a party
hereto and, if instituted against such party, its consent thereto or the failure
to cause such proceedings to be discharged within thirty (30) days thereafter.
The remedies provided for in this Section 9 are not intended
to be exclusive, and shall be in addition to any rights and remedies which the
parties have at law or in equity.
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10. EXCULPATION; INDEMNIFICATION
(a) Neither CVS nor any of its Affiliates nor any officer,
director, employee or agent of CVS or any such Affiliate (each, an "Indemnified
Party") shall be liable to any other party or Person for any damages, losses,
liabilities or expenses directly or indirectly arising out of, relating to or in
connection with this Agreement or the performance or non-performance of Services
hereunder, except to the extent such damages, losses, liabilities or expenses
are attributable to such Indemnified Party's gross negligence or wilful
misconduct.
(b) Linens shall indemnify each Indemnified Party for, and
hold each Indemnified Party harmless from and against, any and all damages,
losses, liabilities and expenses (including all reasonable legal fees and
expenses with respect thereto) ("Damages") arising out of, relating to or in
connection with this Agreement or the performance or non-performance of Services
hereunder, except to the extent such Damages are attributable to such
Indemnified Party's wilful misconduct.
11. MISCELLANEOUS
(a) Notices. All notices, statements or other communications
hereunder shall be in writing (including telecopy or similar transmission) and
shall be delivered as provided hereunder. A notice shall be deemed to have been
received by a party if delivered by (i) overnight courier, on the date of actual
delivery to the recipient's address (evidenced by confirmation of delivery from
the courier service making such delivery), (ii) mail, three business days after
being sent, if sent by registered or certified mail, with first-class postage
prepaid, or (iii) telecopier, upon receipt (evidenced by receipt of a
transmission confirmation form or the recipient's confirmation of receipt).
Notices shall be delivered to each party at the following addresses or at such
other
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<PAGE> 6
address as may be designated by such party by notice in writing sent in like
manner.
For Linens: Linens 'n Things, Inc.
6 Brighton Road
Clifton, NJ 07015
Attention:
Telecopier: (201) 778-1300
With a copy to:
For CVS: CVS Corporation
One CVS Drive
Woonsocket, Rhode Island
Attention: Chief Financial Officer
Telecopier: 401-
With a copy to: Davis Polk & Wardwell
450 Lexington Avenue
New York, New York 10017
Telecopier: 212-450-4800
Attention: Dennis S. Hersch
(b) Entire Agreement; Amendments. This Agreement and the
exhibits hereto constitute the entire understanding of the parties with respect
to the subject matter hereof and thereof and supersede all prior agreements,
understandings and negotiations, both written and oral, between the parties with
respect to the subject matter hereof and thereof. This Agreement may not be
amended except by written agreement executed by each of the parties hereto.
(c) Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York (without regard
to its conflict of laws provisions).
(d) Independent Contractors. The parties hereto are
independent contractors. Nothing in this Agreement is intended or shall be
deemed to constitute a partnership, agency, franchise or joint venture
relationship between the parties. No party shall incur any debts or make any
commitments for the other, except to the extent, if at all, specifically
provided herein.
(e) No Waiver. Any party's failure to insist upon strict
performance of any provision of this Agreement shall not be deemed to be a
waiver thereof. No waiver shall be effective unless specifically made in writing
and signed by a duly authorized representative of the party granting such
waiver.
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(f) Severability. If it shall be determined by court order not
subject to appeal or discretionary review that any provision or wording of this
Agreement shall be invalid or unenforceable under applicable law, such
invalidity or unenforceability shall not invalidate the entire Agreement and
shall be construed so as to limit any term or provision so as to make it
enforceable or valid within the requirements of applicable law, and, in the
event such term or provision cannot be so limited, this Agreement shall be
construed to omit such invalid or unenforceable provisions.
(g) Counterparts. This Agreement may be signed in any number
of counterparts and by the different parties on separate counterparts, each of
which shall be an original, with the same effect as if the signatures thereto
and hereto were upon the same instrument.
(h) Headings. The paragraph headings used herein have been
inserted for convenience only and shall not be used in any way to construe or
interpret this Agreement.
(i) Effective Date. This Agreement shall become effective on
the Initial Public Offering Date.
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<PAGE> 8
IN WITNESS WHEREOF, the parties have caused this Transitional
Services Agreement to be executed as of the day and year first above written.
CVS CORPORATION
By CHARLES C. CONAWAY
--------------------------
Name: Charles C. Conaway
Title: Executive Vice President
and Chief Financial Officer
LINENS 'N THINGS, INC.
By JAMES M. TOMASZEWSKI
--------------------------
NAME: James M. Tomaszewski
Title: Senior Vice President/CFO
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EXHIBIT A
Services Provided by CVS to Linens
with respect to the Business
Capitalized terms used in this Exhibit A and not defined
herein are used as defined in the related Transitional
Services Agreement dated as of December 2, 1996 (the
"Agreement").
<PAGE> 10
EXHIBIT A-1
BAD DEBT COLLECTION AND PREVENTION
SERVICES AND RELATED AGREEMENTS
Linens has requested that CVS provide transitional services to
Linens pertaining to (i) check authorization, (ii) credit
transaction routing, (iii) check collection and reporting, and
(iv) bad debt collection and prevention ((i), (ii), (iii) and
(iv) collectively being the "Check Services").
On the terms and conditions set forth in this Exhibit and the
Agreement and for the Term set forth below, CVS will provide
to Linens, and Linens will purchase from CVS, the Check
Services with respect to the Linens Business, including
services by CVS (i) using CVS's software system for bad debt
collection, check authorization and credit transaction routing
(the "Bad Debt System") and (ii) providing unlimited access to
the negative check file and the positive check file with
respect to the Linens Business only.
Access by Linens to the negative check file can be continued
by Linens only so long as Linens continues to perform its
obligations under the ETC/SCAN Service Agreement (the "ETC
Agreement") (since Electronic Transaction Corporation ("ETC")
is the owner of the negative check file). ETC has agreed to
allow Linens to continue to obtain services under the ETC
Agreement during the transition period, and ETC has informally
advised that such continued services will be at the same ETC
rates as have heretofore been applicable to the Linens
Business (since CVS's original agreement with ETC covers
Linens). Notwithstanding anything else contained in this
Exhibit or the Agreement, CVS will have no obligation to
provide Linens with any access to the negative check file (or
access at such existing rates) if ETC does not permit Linens
such access (or such access at such existing rates) or Linens
otherwise does not continue to have any rights under the ETC
Agreement.
Ownership of all technology, software, intellectual property,
know-how, systems and other proprietary rights relating to the
Check Services (including without limitation the Bad Debt
System) vest in and shall remain with the CVS Group, and no
Person in the Linens Group shall
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assert any ownership interest therein. No assignment or
transfer to any Person in the Linens Group of any right or
license in or to any such technology, software, intellectual
property, know-how, systems or other proprietary right owned,
licensed or held for use by the CVS Group shall occur or be
deemed to occur by virtue of or in connection with the
provision of Services by CVS hereunder.
Information relating to Linens customers will be treated
confidentially so as to preserve confidentiality from, and
preclude any use by, CVS and its Affiliates, except that CVS
shall have unlimited access to Linens's positive check file.
In addition, Linens will have unlimited access to CVS's
positive check file, as these positive check files are
presently mutually inclusive.
Separate collection letters and telephone collection calls
will be made on Linens bad checks.
Charges for services will be (1) $.02 per check authorization
request, (2) $.02 per credit card routing request and (3)
$5.78 per returned item received, provided that such charges
shall be subject to increase in the event of any increase in
CVS's internal costs with respect to the related services.
At Linens' expense, CVS will provide to Linens, if requested
by Linens, a copy of the information in the negative and
positive check files that has been contributed by Linens.
CVS will use reasonable efforts to accommodate any required or
requested modification of CVS's Check Authorization, Credit
Routing and/or Collection Management Systems, provided that
Linens will be responsible for all additional costs, as
approved by Linens, associated with each such modification
unless such modification is required under the ETC Agreement
and CVS would have made such modification regardless of
services related to this Agreement.
All funds recovered or collected by CVS or its designated
Collection Agencies pursuant to the provision of services
hereunder will be deposited into a Bank of Boston recovery
account that will be opened and maintained at Linens's
expense. Linens may request that additional collection
agencies be approved by CVS, and CVS will give reasonable
consideration to such requests.
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<PAGE> 12
Linens agrees to direct all customer inquiries, correspondence
and payments concerning returned checks to the Collections
Department, 200 Brickstone Square, P.O. Box 9031, Andover, MA
01810 or to telephone (508) 474-7200.
TERM
The term for the provision and purchase of Check Services
hereunder shall be from the Initial Public Offering Date until
the first anniversary of the Initial Public Offering Date;
provided that (i) Linens may terminate the Check Services by
giving CVS 60 days' written notice of such termination and
(ii) CVS may terminate the Check Services hereunder (x) if at
any time such termination is required (or continued provision
of Check Services would result in any penalty or other
burdensome consequence or requirement being imposed) by any
federal or state regulatory agency or (y) as provided in
Section 3.04 of the Stockholder Agreement.
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<PAGE> 13
EXHIBIT A-2
INSURANCE CLAIMS ADMINISTRATION
SERVICES AND RELATED AGREEMENTS
On the terms and conditions set forth in this Exhibit and the
Agreement and for the Term set forth below, CVS will provide
to Linens, and Linens will purchase from CVS, claims
administration services ("Claims Services") relating to Linens
worker's compensation, general liability and property
insurance claims made prior to the Initial Public Offering
Date.
CVS shall maintain a special bank account (the "Claims
Account") for claims payment in connection with Claims
Services. CVS shall, on a regular basis, render a statement to
Linens of the amount of each claim to be paid pursuant to the
provision of Claims Services hereunder. Linens shall, promptly
upon receipt of such statement, deposit (by wire transfer) the
aggregate amount of the claims covered by such statement into
the Claims Account. CVS shall make payment of claims by checks
drawn on the Claims Account, but shall only release such
checks once funds therefor have been so deposited by Linens
into the Claims Account. In addition, CVS shall allow Linens
and/or its agents reasonable access to its books and records
relating to Claims Services in order to perform claim reviews.
Within 30 days after the later of (i) the Initial Public
Offering Date and (ii) receipt by Linens of an invoice
therefor from CVS, Linens shall reimburse CVS for all claims
handling charges and loss disbursements made prior to the
Initial Public Offering Date (whether billed or unbilled by
the Initial Public Offering Date). Additionally, following the
close of each month CVS will invoice Linens for all claims
reported to CVS during such month. Upon termination of the
Term relating to Claims Services, all fees and charges due and
owed by Linens through termination will be paid within 30 days
after the later of (x) the termination date and (y) receipt by
Linens of an invoice therefor from CVS.
TERM
The term for the provision and purchase of Claims Services
hereunder shall be from the Initial Public Offering Date until
the first anniversary of the Initial Public Offering
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<PAGE> 14
Date, unless theretofore terminated by CVS as provided in
Section 3.04 of the Agreement or terminated by Linens upon 30
days' notice to CVS.
Upon termination, at Linens' expense and with CVS'
cooperation, all open and outstanding claims will be copied
and moved to a third party processor of Linens' choosing.
Additionally, upon termination Linens will make arrangements
at its expense for moving and storing of all closed claims
previously handled by the CVS claims unit within a reasonable
period of time not to exceed 60 days.
CLAIMS RUNOUT
For a period of at least five years after the Initial Public
Offering Date, the Linens Group will continue to have
insurance coverage with respect to claims made (i.e. claims
runout) after the Initial Public Offering Date in respect of
claims or losses incurred or events occurring prior to the
Initial Public Offering Date (i) to the extent such claims or
losses are covered under CVS insurance policies under which
the Linens Group or the Business had coverage up to the
Initial Public Offering Date and (ii) on the terms in effect
under such policies at the time such pre-Initial Public
Offering claims or losses were incurred or events occurred.
Notwithstanding anything else contained herein, CVS will be
liable for any deductible or retention amounts under its
directors and officers liability insurance policies with
respect to claims under such policies in respect of
individuals who were officers, directors and/or employees of
the CVS Group prior to the Initial Public Offering and arising
from acts, omissions or events occurring prior to the Initial
Public Offering.
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EXHIBIT A-3
VSAT/HUB SERVICES
PROVISION OF SERVICES AND RELATED AGREEMENTS
It is acknowledged by the parties that (i) the Hughes
satellite is owned by Hughes, (ii) the VSAT and HUB equipment
located at CVS or Linens offices and/or at store locations has
been outsourced to and is currently owned by Lockheed, and
(iii) services relating to such VSAT and HUB equipment with
respect to the Business have prior to the date hereof been
provided by Lockheed.
It is possible that after the date hereof CVS may (but shall
not be obligated to) reacquire such VSAT and HUB equipment
from Lockheed, terminate such outsourcing arrangement with
Lockheed and again operate such VSAT and HUB systems
internally. In the event such reacquisition and internal
operation is implemented by CVS by the first anniversary of
the Initial Public Offering Date, CVS agrees to provide to the
Linens Group services relating to such VSAT and HUB equipment
with respect to the Business, on a transitional basis for a
reasonable period of time (not to exceed six months) at market
rates, to enable Linens during such time period to enter into
an alternative arrangement for the procurement of VSAT and HUB
services from a third party other than CVS.
Linens agrees that if CVS does not implement such
reacquisition and internal operation by the first anniversary
of the Initial Public Offering Date (whether because CVS
continues its outsourcing arrangement with Lockheed, enters
into a new outsourcing arrangement, or otherwise), CVS will
have no obligation to procure VSAT or HUB services for, or
provide VSAT or HUB services to, Linens, and Linens will
itself be responsible for procuring VSAT and HUB services from
a third party provider other than CVS.
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EXHIBIT A-4
CERTAIN CORPORATE BOOKS AND RECORDS SERVICE
Nature of Services
Linens has requested that CVS maintain the corporate minute and stock
books for subsidiaries of Linens during the term specified below (the "Books
and Records Services").
On the terms and conditions set forth in this Exhibit and the Agreement
and for the Term set forth below, CVS will provide to Linens, and Linens will
purchase from CVS, the Books and Records Services; provided that performance by
CVS of the Books and Records Services shall not include any obligation to
complete, correct or locate documents, records or other information
attributable or relating to periods prior to the Initial Public Offering.
Charges
Charges for Books and Records Services will be determined by multiplying
the portion of the total payroll and benefits costs of CVS personnel
attributable to their time spend performing comparable books and records
services for CVS and it Subsidiaries during the Term by a ratio the numerator
of which shall equal the time spent by such personnel in performing the Books
and Records Services (based upon good faith estimates made by each of these
employees) during the Term and the denominator of which shall equal the total
time spent by such personnel in performing the Books and Records Services and
the comparable services for CVS and its Subsidiaries during the Term. Linens
shall also reimburse CVS for reasonable out-of-pocket expenses incurred in
connection with the performance by CVS of the Books and Records Services.
Term
The term for the provision and purchase of Books and Records Services
hereunder shall be from the Initial Public offering Date through and including
January 31, 1997; provided that (i) Linens may terminate the Books and Records
Services by giving CVS 10 days' written notice of such termination and (ii) CVS
may terminate the Books and Records Services hereunder as provided in Section
3.04 of the Stockholder Agreement.
<PAGE> 1
Exhibit 10.2
STOCKHOLDER AGREEMENT
STOCKHOLDER AGREEMENT dated as of December 2, 1996 (the
"Agreement") between CVS Corporation, a Delware Corporation ("CVS"), Nashua
Hollis CVS, Inc. a New Hampshire Corporation ("Nashua Hollis"), and Linens 'n
Things, Inc. ("Linens"), a Delaware corporation.
W I T N E S S E T H:
WHEREAS, Linens is presently a wholly owned Subsidiary
of CVS;
WHEREAS, after the sale on the date hereof of Common Stock,
$0.01 par value per share (the "Common Stock"), of Linens to the public in an
initial public offering (the "Initial Public Offering") registered under the
Securities Act of 1933, as amended, CVS will own approximately 32.5% of the
outstanding Common Stock of Linens;
WHEREAS, CVS and Linens are concurrently herewith entering
into the Transitional Services Agreement and the Tax Disaffiliation Agreement;
WHEREAS, the parties hereto desire to set forth herein certain
matters relating to the relationship and the respective rights and obligations
of the parties following the Initial Public Offering;
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
Section 1.01. Definitions. The following terms, as used
herein, have the following meanings:
"Action" means any claim, suit, action, arbitration,
investigation or other proceeding by or before any court, governmental or other
regulatory or administrative agency or commission or any other tribunal.
"Affiliate" means, with respect to any Person, any
other Person directly or indirectly controlling, controlled by,
or under common control with, such Person. For the purposes of
<PAGE> 2
this definition, "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 to the foregoing; provided that, for purposes hereof, CVS and Linens
will be deemed not to be Affiliates of each other.
"Applicable CVS Number" has the meaning assigned to such term
in the Linens Charter.
"Commission" means the Securities and Exchange Commission.
"Common Stock" has the meaning assigned thereto in the
recitals above.
"CVS Group" means CVS and its Subsidiaries (other than any
Subsidiary or member of, or other entity in, the Linens Group).
"CVS Liabilities" means all (i) Liabilities of the CVS Group
under this Agreement and (ii) except as otherwise specifically provided herein
or in the Tax Disaffiliation Agreement, other Liabilities that arise from or in
connection with a Third Party Claim, whether arising before, on or after the
Initial Public Offering Date, and that are of or relate to the CVS Group or
arise from or in connection with the conduct of the businesses of the CVS Group
(other than the Linens Business) or the ownership or use of assets in connection
therewith. Notwithstanding the foregoing, "CVS Liabilities" shall exclude (x)
any Liabilities for Taxes (since such Liabilities shall be governed by the Tax
Disaffiliation Agreement) and (y) any Liabilities specifically retained or
assumed by Linens pursuant to this Agreement.
"Environmental Laws" means any and all federal, state, local
and foreign statutes, laws, judicial decisions, regulations, ordinances, rules,
judgments, orders, decrees, codes, plans, permits, licenses and governmental
restrictions, whether now or hereafter in effect, relating to the environment,
the effect of the environment on human health or to emissions, discharges,
releases, manufacturing, storage, processing, distribution, use, treatment,
disposal, transportation or handling of pollutants, contaminants, petroleum or
petroleum products, chemicals or industrial, toxic, radioactive or hazardous
substances or wastes or the clean-up or other remediation thereof.
"Finally Determined" means, with respect to any Action
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<PAGE> 3
or other matter, that the outcome or resolution of such Action or matter has
been judicially determined by judgment or order not subject to further appeal or
discretionary review.
"Group" means, as the context requires, the Linens Group or
the CVS Group.
"Guaranteed Lease" has the meaning assigned to such term in
Section 3.01.
"Indemnified Party" has the meaning set forth in Section 2.04.
"Indemnifying Party" has the meaning set forth in Section
2.04.
"Initial Public Offering Date" means the date on which the
closing of the Initial Public Offering is consummated.
"Lease Guarantee" has the meaning assigned to such term in
Section 3.01.
"Liabilities" means any and all claims, debts, liabilities and
obligations, absolute or contingent, matured or not matured, liquidated or
unliquidated, accrued or unaccrued, known or unknown, whenever arising,
including all costs and expenses relating thereto, and including, without
limitation, those debts, liabilities and obligations arising under this
Agreement, any law, rule, regulation, any action, order, injunction or consent
decree of any governmental agency or entity, or any award of any arbitrator of
any kind, and those arising under any agreement, commitment or undertaking.
"Linens Business" means the businesses and operations
(including, without limitation, the home textiles and housewares- related
purchasing, distribution and sales operations and activities) associated with
Linens or otherwise of the Linens Group, in each case whether conducted prior
to, on or after the Initial Public Offering Date.
"Linens Charter" means the Amended and Restated Certificate of
Incorporation of Linens in effect as of the date hereof.
"Linens Group" means Linens and its Subsidiaries as of (and,
except where the context clearly indicates otherwise, after) the Initial Public
Offering Date (including all predecessors to such Persons).
"Linens Liabilities" means all (i) Liabilities of the
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Linens Group under this Agreement and (ii) except as otherwise specifically
provided herein or in the Tax Disaffiliation Agreement, other Liabilities that
arise from or in connection with a Third Party Claim, whether arising before, on
or after the Initial Public Offering Date, and that are of or relate to the
Linens Group or arise from or in connection with the conduct of the Linens
Business or the ownership or use of assets in connection therewith, including
without limitation any such Liabilities that arise under or relate to
Environmental Laws. Notwithstanding the foregoing, "Linens Liabilities" shall
exclude: (x) any Liabilities for Taxes (since such Liabilities shall be governed
by the Tax Disaffiliation Agreement), (y) any Liabilities arising from
shareholder derivative lawsuits against CVS, and (z) any Liabilities
specifically retained or assumed by CVS pursuant to this Agreement.
"Losses" means, with respect to any Person, any and all
damage, loss, liability and expense incurred or suffered by such Person
(including, without limitation, reasonable expenses of investigation and
reasonable attorneys' fees and expenses in connection with any and all Actions
or threatened Actions).
"1933 Act" means the Securities Act of 1933, as amended, and
the rules and regulations promulgated thereunder.
"1934 Act" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder.
"Person" means an individual, corporation, limited liability
company, partnership, association, trust or other entity or organization,
including a governmental or political subdivision or an agency or
instrumentality thereof.
"Principal Stockholder" has the meaning assigned to
such term in the Linens Charter.
"Prospectus" means the prospectus relating to the Registration
Statement in the form first used to confirm the sale of shares of Common Stock
in the Initial Public Offering.
"Registration Statement" means the registration statement on
Form S-1 filed with the Commission relating to the offering and sale of the
shares of Common Stock of Linens in the Initial Public Offering.
"Stockholder Documents" means all of the agreements and other
documents entered into between Linens and CVS in connection with the Initial
Public Offering as contemplated hereby, including, without limitation, this
Agreement, the Transitional Services Agreement and the Tax Disaffiliation
Agreement.
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"Subsidiary" means, with respect to any Person, any other
entity of which securities or other ownership interests having ordinary voting
power to elect a majority of the board of directors or other persons performing
similar functions are at the time directly or indirectly owned by such Person.
"Tax" means Tax as such term is defined in the Tax
Disaffiliation Agreement.
"Tax Disaffiliation Agreement" means the Tax Disaffiliation
Agreement dated as of the date hereof between CVS and Linens.
"Third-Party Claim" has the meaning set forth in Section 2.05.
ARTICLE II
INDEMNIFICATION
Section 2.01. Linens Indemnification of the CVS Group. (a)
Subject to Section 2.03, on and after the Initial Public Offering Date, Linens
shall indemnify, defend and hold harmless the CVS Group and the respective
directors, officers and Affiliates of each Person in the CVS Group (the "CVS
Indemnitees") from and against any and all Losses incurred or suffered by any of
the CVS Indemnitees arising out of, or due to the failure of any Person in the
Linens Group to pay, perform or otherwise discharge, any of the Linens
Liabilities.
(b) Subject to Section 2.03, Linens shall indemnify, defend
and hold harmless each of the CVS Indemnitees and each Person, if any, who
controls any CVS Indemnitee within the meaning of either Section 15 of the 1933
Act or Section 20 of the 1934 Act from and against any and all Losses caused by
any untrue statement or alleged untrue statement of a material fact contained in
the Registration Statement or any amendment thereof, any preliminary prospectus
or the Prospectus (as amended or supplemented if Linens shall have furnished any
amendments or supplements thereto), or caused by any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, except insofar as such
Losses are caused by any such untrue statement or omission or alleged untrue
statement or omission based upon information furnished to Linens in writing by
CVS expressly for use therein.
(c) Subject to Section 2.03, on and after the Initial
Public Offering Date, Linens shall indemnify, defend and hold
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harmless each of the CVS Indemnitees and each Person, if any, who controls any
CVS Indemnitee from and against any and all Losses incurred or suffered by any
of the CVS Indemnitees (i) due to the failure of any Person in the Linens Group
to pay, perform or otherwise discharge its obligations under any of the
Guaranteed Leases or (ii) otherwise arising out of or with respect to any of the
Guaranteed Leases or Lease Guarantees, except in the case of this clause (ii),
to the extent Losses are attributable to any breach of any agreement or covenant
by the CVS Group under any Lease Guarantee.
Section 2.02. CVS Indemnification of Linens Group. (a) Subject
to Section 2.03, on and after the Initial Public Offering Date, CVS shall
indemnify, defend and hold harmless the Linens Group and the respective
directors, officers and Affiliates of each Person in the Linens Group (the
"Linens Indemnitees") from and against any and all Losses incurred or suffered
by any of the Linens Indemnitees and arising out of, or due to the failure of
any Person in the CVS Group to pay, perform or otherwise discharge, any of the
CVS Liabilities.
(b) Subject to Section 2.03, CVS shall indemnify, defend and
hold harmless each of the Linens Indemnities and each Person, if any, who
controls any Linens Indemnitee within the meaning of either Section 15 of the
1933 Act or Section 20 of the 1934 Act from and against any and all Losses
caused by any untrue statement or alleged untrue statement of a material fact
contained in the Registration Statement or any amendment thereof, any
preliminary prospectus or the Prospectus (as amended or supplemented if Linens
shall have furnished any amendments or supplements thereto), or caused by any
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, in
each case to the extent, but only to the extent, that such Losses are caused by
any such untrue statement or omission or alleged untrue statement or omission
based upon information furnished to Linens in writing by CVS expressly for use
therein.
(c) The parties agree that, for purposes of Sections 2.01(b)
and 2.02(b) hereof, the only information furnished to Linens in writing by CVS
expressly for use in the Registration Statement or any amendment thereof, any
preliminary prospectus or the Prospectus (as amended or supplemented if Linens
shall have furnished any amendments or supplements thereto) is the information
contained therein under the following captions: "Risk Factors--Control of the
Company by CVS" and "Relationship with CVS and Related Party Transactions".
Section 2.03. Insurance; Third Party Obligations; Tax
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Benefits. Any indemnification pursuant to Sections 2.01 or 2.02 shall be paid
net of the amount of any insurance or other amounts that would be payable by any
third party to the Indemnified Party (as defined below) in the absence of this
Agreement (irrespective of time of receipt of such insurance or other amounts)
and net of any tax benefit to the Indemnified Party attributable to the relevant
payment or Liability. It is expressly agreed that no insurer or any other third
party shall be (i) entitled to a benefit it would not be entitled to receive in
the absence of the foregoing indemnification provisions, (ii) relieved of the
responsibility to pay any claims to which it is obligated or (iii) entitled to
any subrogation rights with respect to any obligation hereunder.
Section 2.04. Notice and Payment of Claims. If any CVS
Indemnitee or Linens Indemnitee (the "Indemnified Party") determines that it is
or may be entitled to indemnification by any party (the "Indemnifying Party")
under Article II (other than in connection with any Action subject to Section
2.05), the Indemnified Party shall deliver to the Indemnifying Party a written
notice specifying, to the extent reasonably practicable, the basis for its claim
for indemnification and the amount for which the Indemnified Party reasonably
believes it is entitled to be indemnified. Within 30 days after receipt of such
notice, the Indemnifying Party shall pay the Indemnified Party such amount in
cash or other immediately available funds unless the Indemnifying Party objects
to the claim for indemnification or the amount thereof. If the Indemnifying
Party does not give the Indemnified Party written notice objecting to such
indemnity claim and setting forth the grounds therefore within such 30-day
period, the Indemnifying Party shall be deemed to have acknowledged its
liability for such claim and the Indemnified Party may exercise any and all of
its rights under applicable law to collect such amount. In the event of such a
timely objection by the Indemnifying Party, the amount, if any, that is Finally
Determined to be required to be paid by the Indemnifying Party in respect of
such indemnity claim shall be paid by the Indemnifying Party to the Indemnified
Party in cash within 15 days after such indemnity claim has been so Finally
Determined.
Section 2.05. Notice and Defense of Third-Party Claims.
Promptly following the earlier of (i) receipt of notice of the commencement by a
third party of any Action against or otherwise involving any Indemnified Party
or (ii) receipt of information from a third party alleging the existence of a
claim against an Indemnified Party, in either case, with respect to which
indemnification may be sought pursuant to this Agreement (a "Third-Party
Claim"), the Indemnified Party shall give the Indemnifying Party written notice
thereof. The failure of the Indemnified Party to give notice as provided in this
Section 2.05
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<PAGE> 8
shall not relieve the Indemnifying Party of its obligations under this
Agreement, except to the extent that the Indemnifying Party is prejudiced by
such failure to give notice. Within 30 days after receipt of such notice, the
Indemnifying Party may (i) by giving written notice thereof to the Indemnified
Party, acknowledge liability for such indemnification claim and at its option
elect to assume the defense of such Third-Party Claim at its sole cost and
expense or (ii) object to the claim for indemnification set forth in the notice
delivered by the Indemnified Party pursuant to the first sentence of this
Section 2.05; provided that if the Indemnifying Party does not within such
30-day period give the Indemnified Party written notice objecting to such
indemnification claim and setting forth the grounds therefor, the Indemnifying
Party shall be deemed to have acknowledged its liability for such
indemnification claim. If the Indemnifying Party has elected to assume the
defense of a Third-Party Claim, (x) the defense shall be conducted by counsel
retained by the Indemnifying Party and reasonably satisfactory to the
Indemnified Party, provided that the Indemnified Party shall have the right to
participate in such proceedings and to be represented by counsel of its own
choosing at the Indemnified Party's sole cost and expense; and (y) the
Indemnifying Party may settle or compromise the Third Party Claim without the
prior written consent of the Indemnified Party so long as such settlement
includes an unconditional release of the Indemnified Party from all claims that
are the subject of such Third Party Claim, provided that the Indemnifying Party
may not agree to any such settlement pursuant to which any remedy or relief,
other than monetary damages for which the Indemnifying Party shall be
responsible hereunder, shall be applied to or against the Indemnified Party,
without the prior written consent of the Indemnified Party, which consent shall
not be unreasonably withheld. If the Indemnifying Party does not assume the
defense of a Third-Party Claim for which it has acknowledged liability for
indemnification hereunder, the Indemnified Party may require the Indemnifying
Party to reimburse it on a current basis for its reasonable expenses of
investigation, reasonable attorney's fees and reasonable out-of-pocket expenses
incurred in defending against such Third-Party Claim and the Indemnifying Party
shall be bound by the result obtained with respect thereto by the Indemnified
Party; provided that the Indemnifying Party shall not be liable for any
settlement effected without its consent, which consent shall not be unreasonably
withheld. The Indemnifying Party shall pay to the Indemnified Party in cash the
amount, if any, for which the Indemnified Party is entitled to be indemnified
hereunder within 15 days after such Third Party Claim has been Finally
Determined, in the case of an indemnity claim as to which the Indemnifying Party
has acknowledged liability or, in the case of any indemnity claim as to which
the Indemnifying Party has not acknowledged liability, within 15 days after such
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<PAGE> 9
Indemnifying Party's objection to liability hereunder has been Finally
Determined.
Section 2.06. Certain Limitations on Claims. Notwithstanding
anything else contained in this Agreement, no claim may be made under Section
2.01(a), 2.01 (b), 2.02(a) or 2.02(b): (a) in respect of any single Loss claim
or item of $500 or less, provided that this clause (a) shall not preclude a
claim under any such Section in an amount in excess of $500 that is made up of
several related claims or items that individually are less than $500 in amount,
or (b) if the Loss giving rise to such claim is incurred after the fifth
anniversary of the date hereof.
Section 2.07. Contribution. If for any reason the
indemnification provided for in Section 2.01 or 2.02 is unavailable to any
Indemnified Party, or insufficient to hold it harmless, then, subject to the
provisions of the Underwriting Agreement relating to the Initial Public
Offering, the Indemnifying Party shall contribute to the amount paid or payable
by such Indemnified Party as a result of such Losses in such proportion as is
appropriate to reflect all relevant equitable considerations.
Section 2.08. Non-Exclusivity of Remedies. The remedies
provided for in this Article II are not exclusive and shall not limit any rights
or remedies which may otherwise be available to any Indemnified Party at law or
in equity.
ARTICLE III
CERTAIN AGREEMENTS RELATING TO LEASES; OTHER AGREEMENTS
Section 3.01. Continuity of Existing Lease Guarantees. With
respect to each real estate lease under which any Person in the Linens Group is
a lessee or sublessee and that is in effect prior to the date hereof (including,
without limitation, the leases set forth in Schedule 3.01 hereto (the "Scheduled
Leases")) and that remains in effect following the date hereof (i) without any
renewal option having been exercised or (ii) except in the case of the Scheduled
Leases (which will be guaranteed only through the initial term thereof), by
reason of the exercise of any renewal option provided for in the terms of such
lease as in effect as of the date hereof (collectively, the "Guaranteed
Leases"), any lease guarantee of such Guaranteed Lease provided by CVS or any of
its Affiliates and in effect as of the date hereof (a "Lease Guarantee") will
remain in effect after the date hereof for the duration of the term of such
lease and, except in the case of the Scheduled Leases (which will be guaranteed
only through initial term thereof), any extension thereof pursuant to the
exercise of any such renewal option. CVS
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<PAGE> 10
and its Affiliates shall be indemnified against any Losses arising from such
Guaranteed Leases or Lease Guarantees, as provided in Section 2.01(c).
Section 3.02. No New CVS Lease Guarantees To be Furnished
After The Initial Public Offering. Except as expressly provided otherwise in
Section 3.01, to the extent that any guarantee is required to be provided after
the date hereof with respect to any real estate or other lease entered into by a
Person in the Linens Group, such guarantee shall not be furnished by any Person
in the CVS Group.
Section 3.03. Intercompany Accounts. All intercompany
receivable, payable and loan balances in existence as of the date hereof between
the CVS Group and Linens Group will be eliminated in the manner described in
the Registration Statement.
Section 3.04. Certain Rights Upon a Third Party Obtaining
Above a Specified Ownership Level of Linens Common Stock. (a) No Person or group
(within the meaning of Section 13(d) under the 1934 Act) of Persons shall become
the beneficial owner (within the meaning of Rule 13d-3 under the 1934 Act) of a
majority of the Common Stock (such beneficial ownership level being "Majority
Beneficial Ownership") unless (i) CVS shall have received prior written notice
that such Person or group proposes to acquire Majority Beneficial Ownership and
(ii) prior to such acquisition such Person or group provides to CVS (unless
waived by CVS in writing) a guarantee, in form and substance acceptable to CVS,
of the obligations of Linens under Section 2.01(c) of this Agreement. In
addition, upon any such Person or group acquiring Majority Beneficial Ownership,
CVS may, at its election, forthwith terminate its provision of any or all of the
Services under the Transitional Services Agreement.
(b) As soon as Linens is aware or has reason to believe that
any Person or group proposes to acquire (or is considering acquiring) Majority
Beneficial Ownership, (i) Linens shall promptly provide written notice thereof
to CVS and (ii) Linens shall promptly inform such Person or group in writing of
the provisions of this Section 3.04. So long as (x) Linens has a class of its
capital stock registered under Section 12 of the 1934 Act and (y) the aggregate
future minimum lease payments under the Guaranteed Leases is greater than $50
million, Linens shall disclose the provisions of this Section 3.04 in each
Linens' Annual Report on Form 10-K filed under the 1934 Act.
Section 3.05. Intellectual Property Rights and Licenses.
Neither Group shall have any right or license in or to any
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technology, software, intellectual property (including any trademark, service
mark, patent or copyright), know-how or other proprietary right owned, licensed
or held for use by the other Group.
ARTICLE IV
REGISTRATION RIGHTS
Section 4.01. General. Linens grants to CVS and each other
Person in the CVS Group that agrees to be bound by the terms of Appendix A
hereto the registration rights set forth in Appendix A hereto. CVS, Nashua
Hollis and Linens hereby agree to the terms and provisions set forth in Appendix
A hereto.
ARTICLE V
ACCESS TO INFORMATION
Section 5.01. Provision of Corporate Records. Immediately
prior to or as soon as practicable following the Initial Public Offering Date,
each Group shall provide to the other Group all documents, contracts, books,
records and data (including but not limited to minute books, stock registers,
stock certificates and documents of title) in its possession relating to such
other Group or such other Group's business and affairs; provided that if any
such documents, contracts, books, records or data relate to both Groups or the
business and operations of both Groups, each such Group shall provide to the
other Group true and complete copies of such documents, contracts, books,
records or data.
Section 5.02. Access to Information. From and after the
Initial Public Offering Date until the later of (a) two years after the date
hereof and (b) the date CVS ceases to be a Principal Stockholder, each Group
shall afford promptly to the other Group and its accountants, counsel and other
designated representatives reasonable access during normal business hours to all
documents, contracts, books, records, computer data and other data in such
Group's possession relating to such other Group or the business and affairs of
such other Group (other than data and information subject to an attorney/client
or other privilege), insofar as such access is reasonably required by such other
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Group, including, without limitation, for audit, accounting, litigation and
disclosure and reporting purposes.
Section 5.03. Litigation Cooperation. Each Group shall use
reasonable efforts to make available to the other Group and its accountants,
counsel, and other designated representatives, upon written request, its
directors, officers, employees and representatives as witnesses, and shall
otherwise cooperate with the other Group, to the extent reasonably required in
connection with any legal, administrative or other proceedings arising out of
either Group's business and operations prior to the Initial Public Offering Date
in which the requesting party may from time to time be involved.
Section 5.04. Reimbursement. Each Group providing information
or witnesses to the other Group, or otherwise incurring any expense in
connection with cooperating, under Sections 5.01, 5.02 or 5.03 shall be entitled
to receive from the recipient thereof, upon the presentation of invoices
therefor, payment for all out-of-pocket costs and expenses (excluding charges
for employee time) as may be reasonably incurred in providing such information,
witnesses or cooperation.
Section 5.05. Retention of Records. Except as otherwise
required by law or agreed to in writing, each party shall, and shall cause the
members of its respective Group to, retain all information relating to the other
Group's business and operations in accordance with the past practice of such
party. Notwithstanding the foregoing, any party may destroy or otherwise dispose
of any such information at any time, provided that, prior to such destruction or
disposal, (i) such party shall provide not less than 90 days' prior written
notice to the other party, specifying the information proposed to be destroyed
or disposed of, and (ii) if the recipient of such notice shall request in
writing prior to the scheduled date for such destruction or disposal that any of
the information proposed to be destroyed or disposed of be delivered to such
requesting party, the party proposing the destruction or disposal shall promptly
arrange for the delivery of such of the information as was requested at the
expense of the requesting party.
Section 5.06. Confidentiality. Each party shall hold and shall
cause its directors, officers, employees, agents, consultants and advisors
("Representatives") to hold in strict confidence all information (other than any
such information relating solely to the business or affairs of such party)
concerning the other party unless (i) such party is compelled to disclose such
information by judicial or administrative process or, in the opinion of its
counsel, by other requirements of law or (ii) such information can be shown to
have been (A) in the
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public domain through no fault of such party or (B) lawfully acquired after the
date hereof on a non-confidential basis from other sources. Notwithstanding the
foregoing, such party may disclose such information to its Representatives so
long as such Persons are informed by such party of the confidential nature of
such information and are directed by such party to treat such information
confidentially. If such party or any of its Representatives becomes legally
compelled to disclose any documents or information subject to this Section, such
party will promptly notify the other party so that the other party may seek a
protective order or other remedy or waive such party's compliance with this
Section. If no such protective order or other remedy is obtained or waiver
granted, such party will furnish only that portion of the information which it
is advised by counsel is legally required and will exercise its reasonable
efforts to obtain reliable assurance that confidential treatment will be
accorded such information. Such party agrees to be responsible for any breach of
this Section by it and its Representatives.
Section 5.07. Inapplicability of Article V to Tax Matters.
Notwithstanding anything to the contrary in Article V, Article V shall not apply
with respect to information, records and other matters relating to Taxes, all of
which shall be governed by the Tax Disaffiliation Agreement.
ARTICLE VI
EMPLOYEE MATTERS
Section 6.01. Employee Matters. With respect to employee
matters and employee benefit arrangements, the parties hereto agree as set forth
in Schedule 6.01.
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ARTICLE VII
CVS' GOVERNANCE RIGHTS
Section 7.01. Appointment of Outside Directors. Within three
months after the date hereof, the Board of Directors of Linens (the "Linens
Board") shall fill two of the vacancies on the Linens Board with individuals
who are not officers or employees of any entity in the CVS Group or the Linens
Group.
Section 7.02. CVS Designated Directors. CVS shall have the
right to designate the Applicable CVS Number of directors to the Linens Board
and the right to designate the class of the Linens Board to which each such CVS
designee shall be elected. In connection with each election of directors, Linens
shall nominate each of the Applicable CVS Number of individuals designated by
CVS (each, a "CVS Designee") as a director to the Board of Directors and shall
recommend to the stockholders the election of each CVS Designee as a director
(in the class so designated by CVS). Within three months after the date hereof,
the Linens Board shall fill one or more vacancies on the Linens Board with
individuals who are CVS Designees so that, after giving effect thereto, the
Applicable CVS Number of CVS Designees shall serve as directors on the Linens
Board.
Section 7.03. Removal of CVS Designees. In the event of a
decrease in the Applicable CVS Number at any time, (i) one or more (as
appropriate) CVS Designees (selected by CVS as provided in clause (ii)) shall
automatically be deemed removed from the Board effective at such time, and (ii)
CVS shall have the right to select the individual to be removed if any CVS
Designee is to remain as a director after giving effect to such decrease;
provided that if after giving effect to such decrease the Applicable CVS Number
is zero, one CVS Designee (selected by CVS) shall continue to serve as a
director until the next annual meeting of stockholders. Except as aforesaid or
as provided in clause (g) of Article FIFTH of the Linens Charter, no CVS
Designee may be removed from the Linens Board except with the written consent of
CVS. CVS shall have the right to remove any CVS Designee at any time (such
removal to be effective upon delivery of notice thereof to Linens), and the
vacancy resulting from such removal shall be filled as provided in Section 7.04.
Section 7.04. Filling of Vacancy of CVS Designee. In the event
that (i) there occurs at any time a vacancy in the Linens Board by reason of the
death, retirement, resignation, removal or other departure of any CVS Designee
and (ii) after giving effect to such vacancy the number of CVS Designees on the
Linens Board is less than the Applicable CVS Number at such time, the Linens
Board will act as promptly as practicable to fill such
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vacancy with a CVS Designee (and will so fill multiple vacancies, if necessary)
so that, after giving effect to the election of such CVS Designee as a director,
the Applicable CVS Number of CVS Designees shall serve as directors on the
Linens Board.
ARTICLE VIII
MISCELLANEOUS
Section 8.01. Notices. All notices and other communications to
any party hereunder shall be in writing (including telex, telecopy or similar
writing) and shall be deemed given when received addressed as follows:
If to CVS, to:
CVS Corporation
1 CVS Drive
Woonsocket, Rhode Island 02895
Telecopy: (401) 765-4128
Attention: Chief Financial Officer and
General Counsel
With a copy to:
Davis Polk & Wardwell
450 Lexington Avenue
New York, New York 10017
Telecopy: (212) 450-4800
Attention: Dennis S. Hersch
If to Linens, to:
Linens 'n Things, Inc.
6 Brighton Road
Clifton, New Jersey 07015
Telecopy: (201) 778-1300
Attention:
With a copy to:
Davis Polk & Wardwell
450 Lexington Avenue
New York, New York 10017
Telecopy: (212) 450-4800
Attention: Dennis S. Hersch
Any party may, by written notice so delivered to the other parties, change the
address to which delivery of any notice shall
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thereafter be made.
Section 8.02. Amendments; No Waivers. (a) Any provision of
this Agreement may be amended or waived if, and only if, such amendment or
waiver is in writing and signed, in the case of an amendment, by CVS and Linens,
or in the case of a waiver, by the party against whom the waiver is to be
effective.
(b) No failure or delay by any party in exercising any right,
power or privilege hereunder shall operate as a waiver thereof nor shall any
single or partial exercise thereof preclude any other or further exercise
thereof or the exercise of any other right, power or privilege. The rights and
remedies herein provided shall be cumulative and not exclusive of any rights or
remedies provided by law.
Section 8.03. Expenses. Except as specifically provided
otherwise in this Agreement, the Transitional Services Agreement or the Tax
Disaffiliation Agreement (including, without limitation, in Article II, Sections
3.03, 5.04, 5.05 and 8.08(c) and Schedule 6.01 of this Agreement), all costs and
expenses incurred in connection with the preparation, execution and delivery of
the Stockholder Documents and the consummation of the Initial Public Offering
(including the fees and expenses of all counsel, accountants and financial and
other advisors of both Groups in connection therewith, and all expenses in
connection with preparation, filing and printing of the Registration Statement
relating to the Initial Public Offering) shall be paid by CVS; provided that
Linens shall be responsible for and pay the fees, expenses and other amounts
payable to the lenders under Linens's credit facilities and all other fees and
expenses incurred in connection therewith (including the fees and expenses of
Linens's counsel in connection with the preparation and negotiation of all
documentation relating to such credit facilities).
Section 8.04. Successor and Assigns. The provisions of this
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns; provided that no party may assign,
delegate or otherwise transfer any of its rights or obligations under this
Agreement without the consent of the other parties hereto.
Section 8.05. Governing Law. This Agreement shall be construed
in accordance with and governed by the law of the State of New York (except for
Article VII, which shall be construed in accordance with and governed by the law
of the State of Delaware), without regard to the conflicts of laws rules of
either such State.
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Section 8.06. Counterparts; Effectiveness. This Agreement may
be signed in any number of counterparts, each of which shall be an original,
with the same effect as if the signatures thereto and hereto were upon the same
instrument. This Agreement shall become effective when each party hereto shall
have received a counterpart hereof signed by the other parties hereto.
Section 8.07. Entire Agreement. This Agreement and the other
Stockholder Documents constitute the entire understanding of the parties with
respect to the subject matter hereof and thereof and supersede all prior
agreements, understandings and negotiations, both written and oral, between the
parties with respect to the subject matter hereof and thereof. No
representation, inducement, promise, understanding, condition or warranty not
set forth herein or in the other Stockholder Documents has been made or relied
upon by any party hereto. Neither this Agreement nor any provision hereof is
intended to confer upon any Person other than the parties hereto any rights or
remedies hereunder.
Section 8.08. Tax Disaffiliation Agreement; Set-Off. (a) Except as
otherwise provided herein and not inconsistent with the Tax Disaffiliation
Agreement, this Agreement shall not govern any Tax, and any and all claims,
losses, damages, demands, costs, expenses or liabilities relating to Taxes shall
be exclusively governed by the Tax Disaffiliation Agreement.
(b) If, at the time Linens is required to make any payment to
CVS under this Agreement, CVS owes Linens any amount under this Agreement or the
Tax Disaffiliation Agreement, then such amounts shall be offset and the excess
shall be paid by the party liable for such excess. Similarly, if at the time CVS
is required to make any payment to Linens under this Agreement, Linens owes CVS
any amount under this Agreement or the Tax Disaffiliation Agreement, then such
amounts shall be offset and the excess shall be paid by the party liable for
such excess.
(c) If, pursuant to a Final Determination, any amount paid by
CVS, Linens or their respective Post-Distribution Affiliates pursuant to this
Agreement results in any increased Tax liability or reduction of any Tax Asset
of any member of the Linens Group, Linens or its Post-Distribution Affiliates,
or the CVS Group, CVS or its Post-Distribution Affiliates, respectively, then
CVS or Linens, as the case may be, shall indemnify the other party and hold it
harmless from any interest or penalty attributable to such increased Tax
liability or the reduction of such Tax asset and shall pay to the other party,
in addition to amounts otherwise owed, 100 percent of the After-Tax Amount. All
capitalized terms used in this Section 8.08(c) and not otherwise
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defined in this Agreement are used as defined in the Tax Disaffiliation
Agreement.
Section 8.09. Jurisdiction. Any suit, action or proceeding
seeking to enforce any provision of, or based on any matter arising out of or in
connection with, this Agreement or the transactions contemplated hereby may be
brought in the United States District Court for the Southern District of New
York or the United States District Court for the District of Delaware or any
other New York State court sitting in New York County or any other court of the
State of Delaware, and each of the parties hereby consents to the jurisdiction
of such courts (and of the appropriate appellate courts therefrom) in any such
suit, action or proceeding and irrevocably waives, to the fullest extent
permitted by law, any objection which it may now or hereafter have to the laying
of the venue of any such suit, action or proceeding in any such court or that
any such suit, action or proceeding which is brought in any such court has been
brought in an inconvenient form. Process in any such suit, action or proceeding
may be served on any party anywhere in the world, whether within or without the
jurisdiction of any such court. Without limiting the foregoing, each party
agrees that service of process on such party as provided in Section 8.01 shall
be deemed effective service of process on such party.
Section 8.10. Existing Arrangements. Except as otherwise
contemplated hereby, all prior agreements and arrangements, including those
relating to goods, rights or services provided or licensed, between the Linens
Group and the CVS Group shall be terminated effective as of the Initial Public
Offering Date, if not theretofore terminated. No such agreements or arrangements
shall be in effect after the Initial Public Offering Date unless embodied in the
Stockholder Documents.
Section 8.11. Further Assurances. In addition to the actions
specifically provided for elsewhere in the Stockholder Documents, each of the
parties hereto shall use its reasonable efforts to take, or cause to be taken,
all actions, and to do, or cause to be done, all things, reasonably necessary,
proper or advisable under applicable laws, regulations and agreements or
otherwise to consummate and make effective the transactions contemplated by the
Stockholder Documents.
Section 8.12. Effective Date. This Agreement shall
become effective upon the closing of the Initial Public Offering.
Section 8.13. Captions. The captions herein are included for
convenience of reference only and shall be ignored in the construction or
interpretation hereof.
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IN WITNESS WHEREOF the parties hereto have caused this
Stockholder Agreement to be duly executed by their respective authorized
officers as of the date first above written.
CVS CORPORATION
By CHARLES C. CONAWAY
-------------------------
Name: Charles C. Conaway
Title: Executive Vice President and
Chief Financial Officer
LINENS 'N THINGS, INC.
By JAMES M. TOMASEWSKI
------------------------
Name: James M. Tomaszewski
Title: Senior Vice President/CFO
NASHUA HOLLIS CVS, INC.
By NANCY CHRISTAL
-------------------------
Name: Nancy Christal
Title: Vice President of Investor Relations
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SCHEDULE 6.01
EMPLOYEE MATTERS
Section 1. General. Except as otherwise set forth in this
Schedule 6.01, (a) CVS shall retain (i) any and all liabilities relating to or
arising out of any employee benefit or compensation arrangement (a "Plan") in
respect of any employee or former employee of CVS and any Affiliate of CVS who
is not a Transferred Employee (as hereinafter defined), and (ii) any and all
liabilities relating to or arising out of any Plan in respect of all Transferred
Employees that were incurred or are otherwise related to any period prior to and
including the Initial Public Offering Date and (b) CVS shall have no liability
relating to or arising out of any Plan in respect of Transferred Employees to
the extent that any such liability is incurred or otherwise relates to any
period after the Initial Public Offering Date.
Section 2. Employees. With respect to Terrence Grossman or
each Individual who, as of the Initial Public Offering Date, is employed
(including persons absent from active service by reason of Short Term Disability
or Long Term Disability, as hereinafter defined, or absence not relating to
disability, whether paid or unpaid) in the Linens Business ("Transferred
Employees"), Linens shall cause the employment of each Transferred Employee to
be continued on the Initial Public Offering Date, provided that nothing stated
herein shall limit the right of Linens or any Subsidiary to terminate the
employment of any Transferred Employee following the Initial Public Offering
Date or to reduce or otherwise modify the position, responsibilities,
compensation or benefits of any Transferred Employee at any time, and provided
further that an individual who is employed as of the Initial Public Offering
Date by Linens or any of its Subsidiaries, but on such date is absent from
active service and (i) is receiving Long Term Disability Benefits (as
hereinafter defined) or (ii) is absent by reason of Short Term Disability but
subsequently begins to receive Long Term Disability Benefits shall not be
considered a Transferred Employee for purposes of the CVS Long Term Disability
Plan. The employee benefit plans and arrangements maintained by Linens shall
give full service credit for purposes of eligibility and vesting (and in
connection with any such severance or vacation plan or policy, for purposes of
determining the level of benefit) for any service on or prior to the Initial
Public Offering Date of a Transferred Employee with CVS and its Subsidiaries.
For purposes of this Agreement, (i) "Short Term Disability" shall mean a
condition with respect to which an employee is receiving
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benefits, as of the Initial Public Offering Date, under either the CVS Short
Term Disability Plan or the CVS Salary Continuation Plan, and (ii) "Long Term
Disability Benefits" shall mean benefits under the CVS Long Term Disability
Plan.
Section 3. Qualified Plans. (a) CVS shall retain all
liabilities and obligations in respect to benefits accrued by Transferred
Employees under CVS's ESOP. CVS shall cause each Transferred Employee to become
100% vested in the employee's account in CVS's ESOP as of the Initial Public
Offering Date. As soon as practicable after the Initial Public Offering Date,
CVS shall take such action as may be necessary, if any, to permit each
Transferred Employee to exercise his rights under CVS's ESOP to effect an
immediate distribution of such Transferred Employee's full account balances
under CVS's ESOP or to effect a tax-free rollover of the taxable portion of the
account balances into an eligible retirement plan (within the meaning of Section
401(a)(31) of the Internal Revenue Code ("Code"), a "Direct Rollover")
maintained by Linens (the "Linens Plan") or to an individual retirement account.
CVS and Linens shall work together in order to facilitate any such distribution
or rollover and to effect a Direct Rollover for those participants who elect to
roll over their account balances directly into the Linens Plan; provided that
nothing contained herein shall obligate the Linens Plan to accept a Direct
Rollover in a form other than cash.
(b) On the Initial Public Offering Date, or as soon as
practicable thereafter, Linens shall establish or designate the Linens Plan in
order to accommodate the Direct Rollovers described above and shall take all
action necessary, if any, to qualify the Linens Plan under the applicable
provisions of the Code and shall make any and all filings and submissions to the
appropriate governmental authorities required to be made by it in connection
with any Direct Rollover.
(c) As soon as practicable after the Initial Public Offering
Date, Linens shall establish or designate an individual account plan (the
"Successor Individual Account Plan"), which may be the same plan as the Linens
Plan, for the benefit of Transferred Employees, shall take all necessary action,
if any, to qualify such plan under the applicable provisions of the Code and
shall make any and all filings and submissions to the appropriate governmental
agencies required to be made by it in connection with the transfer of assets
described below. CVS shall cause each Transferred Employee to be 100% vested in
the employee's account balance under CVS's 401(k) Profit Sharing Plan as of the
Initial Public Offering Date. No later than the date of the transfer described
herein, Linens shall make all applicable 401(k), profit sharing, matching
contributions and
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qualified non-elective contributions payable under CVS's 401(k) Profit Sharing
Plan with respect to Transferred Employees for periods on or prior to the
Initial Public Offering Date and shall be entitled to retain any applicable
reserves or accruals relating thereto. As soon as practicable following the
Initial Public Offering Date, CVS shall cause the trustee of CVS's 401(k) Profit
Sharing Plan to transfer in the form of cash or, to the extent applicable, notes
representing outstanding loans made to Transferred Employees under CVS's 401(k)
Profit Sharing Plan (or such other form as may be agreed to by CVS and Linens)
the full account balances of Transferred Employees (and beneficiaries thereof)
under CVS's 401(k) Profit Sharing Plan (which account balances will have been
credited with appropriate earnings attributable to the period from the Initial
Public Offering Date to the date of transfer described herein), reduced by any
necessary benefit or withdrawal payments to or in respect of Transferred
Employees occurring during the period from the Initial Public Offering Date to
the date of transfer described herein, to the appropriate trustee as designed by
Linens under the trust agreement forming a part of the Successor Individual
Account Plan, it being understood that CVS is under no obligation to effect a
distribution, payment or loan under CVS's 401(k) Profit Sharing Plan in respect
of a Transferred Employee who either requests a loan or terminates employment
after the Initial Public Offering Date but prior to the date of transfer
described herein if the required distribution, payment or loan, as the case may
be, forms have not been received by CVS prior to the last day of the month
preceding the month in which the transfer described herein occurs. CVS and
Linens agree to take such actions and enter into such agreements, if any, that
may be necessary to effect the transfer described herein. In consideration for
the transfer of assets described herein, Linens shall, effective as of the date
of transfer described herein, assume all of the obligations of CVS in respect of
the account balances accumulated by Transferred Employees under CVS's 401(k)
Profit Sharing Plan (exclusive of any portion of such account balances which are
paid or otherwise withdrawn prior to the date of transfer described herein) with
respect to the account balances transferred to the Successor Individual Account
Plan. CVS hereby indemnifies Linens, the Company and the Subsidiaries against
and agrees to hold them harmless from any liabilities or claims (including
claims for benefits or for breach of fiduciary duties, but excluding claims for
benefits to the extent of the assets transferred hereunder) relating to CVS's
401(k) Profit Sharing Plan (or the qualified status of that Plan) which arose
prior to the transfer of assets described herein or which relate to the
operation or administration of that Plan prior to the transfer of assets. Linens
hereby indemnifies CVS against and agrees to hold it harmless from any
liabilities or claims relating to the qualified status of the Successor
Individual Account Plan or the
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operation or administration of that Plan following the transfer of assets
described herein.
Section 4. Welfare Plans and Worker Compensation. (a) Linens and its
Affiliates shall each establish or designate welfare benefit plans, within the
meaning of Section 3(2) of the Employee Retirement Income Security Act of 1974,
as amended, and applicable workers compensation plans, for the benefit of their
respective Transferred Employees (the "Replacement Welfare Plans"). The
Replacement Welfare Plans shall be effective as of the Initial Public Offering
Date, provided, that at the request of Linens, CVS shall continue to provide, to
the extent applicable, services for (i) Transferred Employees (and eligible
spouses and dependents) and (ii) former employees of the Linens Business and
their qualified beneficiaries who as of the Initial Public Offering Date are
covered pursuant to Title X of the Consolidated Omnibus Budget Reconciliation
Act of 1985 and Section 4980B of the Code under its Plans which provide medical,
dental, life insurance, accidental death and dismemberment, pharmacy, eyecare
and disability benefits for such period of time from the Initial Public Offering
Date to not later than May 1, 1997 as Linens shall specify in such request (the
"Benefit Transition Period"). Linens shall pay the claim and claims processing
cost of such services during the Benefit Transition Period (including claims
runout in respect of claims incurred both before and after the Initial Public
Offering Date) and shall directly fund all medical and dental claims through a
bank account set up solely for such purposes. In addition, Linens shall be
entitled to retain any applicable reserves or accruals relating to such
benefits. Linens and its designated Affiliates shall retain or assume all of the
obligations for any retiree benefits under any welfare plan provided Transferred
Employees (and dependents) and retirees (and dependents) terminated while
employed by Linens and any Affiliate or while employed in the Linens Business
prior to the Initial Public Offering Date. Linens and its Affiliates shall
assume as of the end of the Benefit Transition Period all obligations to provide
coverage and benefits for Transferred Employees and former employees of the
Linens Business and their qualified beneficiaries under the Title X of the
Consolidated Omnibus Budget Reconciliation Act of 1985 and Section 4980B of the
Code.
(b) Linens shall be responsible for all workers compensation
claims, whether arising before or after the Initial Public Offering Date, with
respect to any employee or former employee of the Linens Business, including,
but not limited to, any Transferred Employee. In addition, Linens shall be
entitled to retain any applicable reserves or accruals relating thereto.
Section 5. Stock Options. Except as otherwise
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provided in any agreement with a Transferred Employee, as of the Initial Public
Offering Date all outstanding options issued to Transferred Employees to
purchase CVS Common Stock that have heretofore been granted under any employee
stock option plan of CVS and are exercisable on the Initial Public Offering Date
shall be exercisable for a period of 90 days from the Initial Public Offering
Date.
Section 6. Bonus and Profit Incentive Plans. Except as otherwise
provided in any agreement with a Transferred Employee, CVS shall have no
liability for any bonus or profit incentive awards and Linens shall be
responsible for all such awards relating to the period beginning on the Initial
Public Offering Date.
Section 7. Severance. The continued employment by Linens and its
Affiliates of Transferred Employees after the Initial Public Offering Date shall
not be deemed a severance of employment of such Transferred Employees from CVS
for purposes of any policy, Plan, program or agreement of CVS or any of its
Subsidiaries that provides for the payment of severance, salary continuation or
similar benefits.
Section 8. Supplemental Retirement Benefits and Deferred
Compensation. (a) Linens and its Affiliates shall assume as of the Initial
Public Offering Date all of the obligations and liabilities of CVS and any of
its Affiliates for any Transferred Employee under the Deferred Compensation Plan
of CVS Corporation and Affiliated Companies and any reserve or accrual in
respect of such Transferred Employees shall be retained by Linens.
(b) CVS shall have no liability for any obligation relating to
Transferred Employees under the Supplemental Retirement Plans I and II for
Select Senior Management of CVS Corporation and any Linens reserve or accrual in
respect of such Transferred Employees shall be transferred to CVS.
Section 9. No Third Party Beneficiaries. Neither Transferred
Employees nor any current, former or retired employee of CVS or its affiliates
shall be entitled to enforce the provisions of this Schedule 6.01 against the
respective parties as third party beneficiaries thereof.
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APPENDIX A
REGISTRATION RIGHTS
ARTICLE I
DEFINITIONS
1.1. Definitions. (a) Terms defined in the Stockholder
Agreement (the "Agreement") dated as of December 2, 1996 between CVS
Corporation ("CVS"), Nashua Hollis CVS, Inc. ("Nashua Hollis") and Linens 'n
Things, Inc. ("Linens") are used herein as therein defined.
(b) In addition, as used in this Appendix A, the following
terms will have the following meanings, applicable both to the singular and the
plural forms of the terms described:
"Agreement" has the meaning ascribed thereto in Section 1.1(a)
hereto, as such agreement may be amended and supplemented from time to time in
accordance with its terms.
"Company Securities" has the meaning ascribed thereto in
Section 2.2(b).
"CVS Holder" means any Holder that is a Person in the CVS
Group.
"CVS Personal Demands" has the meaning ascribed thereto in
Section 2.1(a)(ii).
"CVS Holder Securities" has the meaning ascribed thereto in
Section 2.2(b).
"Disadvantageous Condition" has the meaning ascribed thereto
in Section 2.1(a).
"Holder" means CVS, each Subsidiary of CVS and any Transferee.
"Initial Public Offering Date" means the date of completion of
the initial sale of Common Stock in the Initial Public Offering.
"Lockup Period" has the meaning ascribed thereto in Section
2.1(d).
"Other Holders" has the meaning ascribed thereto in Section
2.2(c).
<PAGE> 26
"Other Securities" has the meaning ascribed thereto in Section
2.2.
"Person" means any individual, partnership, limited liability
company, joint venture, corporation, trust, unincorporated organization,
government (and any department or agency thereof) or other entity.
"Registrable Securities" means Common Stock or any other class
or series of capital stock of Linens and any stock or other securities into
which or for which such capital stock may hereafter be changed, converted or
exchanged and any other shares or securities issued to Holders of such capital
stock (or such shares or other securities into which or for which such shares
are so changed, converted or exchanged) upon any reclassification, share
combination, share subdivision, share dividend, share exchange, merger,
consolidation or similar transaction or event. As to any particular Registrable
Securities, such Registrable Securities shall cease to be Registrable Securities
when (i) a registration statement with respect to the sale by the Holder thereof
shall have been declared effective under the 1933 Act and such securities shall
have been disposed of in accordance with such registration statement, (ii) they
shall have been distributed to the public in accordance with Rule 144, (iii)
they shall have been otherwise transferred, new certificates for them not
bearing a legend restricting further transfer shall have been delivered by
Linens and subsequent disposition of them shall not require registration or
qualification of them under the 1933 Act or any state securities or blue sky law
then in effect or (iv) they shall have ceased to be outstanding.
"Registration Expenses" means any and all expenses incident to
performance of or compliance with any registration or marketing of securities
pursuant to Article II, including, without limitation, (i) the fees,
disbursements and expenses of Linens' counsel and accountants in connection with
this Agreement and the performance of Linens' obligations hereunder; (ii) all
expenses, including filing fees, in connection with the preparation, printing
and filing of the registration statement, any preliminary prospectus or final
prospectus, any other offering document and amendments and supplements thereto
and the mailing and delivering of copies thereof to any underwriters and
dealers; (iii) the cost of printing or producing any agreements among
underwriters, underwriting agreements, and blue sky or legal investment
memoranda, any selling agreements and any other documents in connection with the
offering, sale or delivery of the securities to be
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disposed of; (iv) all expenses in connection with the qualification of the
securities to be disposed of for offering and sale under state securities laws,
including the fees and disbursements of counsel for the underwriters or the
Holders of securities in connection with such qualification and in connection
with any blue sky and legal investment surveys; (v) the filing fees incident to
securing any required review by the National Association of Securities Dealers,
Inc. of the terms of the sale of the securities to be disposed of; (vi) transfer
agents' and registrars' fees and expenses and the fees and expenses of any other
agent or trustee appointed in connection with such offering; (vii) all security
engraving and security printing expenses; (viii) all fees and expenses payable
in connection with the listing of the securities on any securities exchange or
automated interdealer quotation system or the rating of such securities; (ix)
any other fees and disbursements of underwriters customarily paid by the issuers
of securities, but excluding underwriting discounts and commissions and transfer
taxes, if any; (x) the costs and expenses of Linens relating to analyst or
investor presentations or any "road show" undertaken in connection with the
registration and/or marketing of any Registrable Securities; and (xi) other
reasonable out-of-pocket expenses of Holders other than legal fees and expenses
referred to in clause (iv) above.
"Rule 144" means Rule 144 (or any successor rule to similar
effect) promulgated under the 1933 Act.
"Rule 415 Offering" means an offering on a delayed or
continuous basis pursuant to Rule 415 (or any successor rule to similar effect)
promulgated under the 1933 Act.
"Selling Holder" has the meaning ascribed thereto in Section
2.5(e).
"Transferee" has the meaning ascribed thereto in Section 2.9.
"Unfettered CVS Demand Registration" has the meaning ascribed
thereto in clause (x) of the proviso to Section 2.1(a)(i).
1.2. Internal References. Unless the context indicates
otherwise, references to Articles, Sections and paragraphs shall refer to the
corresponding articles, sections and paragraphs in this Appendix A, and
references to the parties shall mean the parties to the Agreement.
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ARTICLE II
REGISTRATION RIGHTS
2.1. Demand Registration - Registrable Securities. (a) Upon
written notice provided at any time after the Initial Public Offering Date by
a CVS Holder or, subject to Section 2.11(b)(i), by a Transferee requesting that
Linens effect the registration under the 1933 Act of any or all of the
Registrable Securities held by such requesting Holder, which notice shall
specify the intended method or methods of disposition of such Registrable
Securities, Linens shall prepare and (within 90 days (or, in the case of the
Unfettered CVS Demand Registration contemplated in Section 2.1(d), immediately)
after such request has been given) file with the Commission a registration
statement with respect to such Registrable Securities and thereafter use its
best efforts to effect the registration under the 1933 Act and applicable state
securities laws of such Registrable Securities for disposition in accordance
with the intended method or methods of disposition stated in such request (which
requested method of disposition may be a Rule 415 Offering); provided that:
(i) with respect to any registration statement filed, or to be
filed, pursuant to this Section 2.1, if Linens shall furnish to the
Holders of Registrable Securities that have made such request a
certified resolution of the Board of Directors of Linens (adopted by
the affirmative vote of a majority of the directors not designated by
the CVS Group) stating that in the Board of Directors' good faith
judgment it would (because of the existence of, or in anticipation of,
any acquisition or other material event or transaction the public
disclosure of which at the time would be materially prejudicial to
Linens) be significantly disadvantageous (a "Disadvantageous
Condition") to Linens for such a registration statement to be
maintained effective, or to be filed and become effective, and setting
forth the general reasons for such judgment, Linens shall be entitled
to cause such registration statement to be withdrawn and the
effectiveness of such registration statement terminated, or, in the
event no registration statement has yet been filed, shall be entitled
not to file any such registration statement, until such Disadvantageous
Condition no longer exists (notice of which Linens shall promptly
deliver to such Holders). Upon receipt of any such certification of a
Disadvantageous Condition, such Holders shall forthwith discontinue use
of the prospectus contained in such registration
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statement and, if so directed by Linens, each such Holder will deliver
to Linens all copies, other than permanent file copies then in such
Holder's possession, of the prospectus then covering such Registrable
Securities current at the time of receipt of such notice; provided
that, notwithstanding anything else contained in the Stockholder
Documents, (x) Linens shall have no right to delay the filing or
effectiveness of a registration statement, to withdraw a registration
statement, or to terminate its effectiveness pursuant to its rights
under clause (i) until one registration statement filed pursuant to a
request made by CVS under Section 2.1 (the "Unfettered CVS Demand
Registration") shall have become effective and all the Registrable
Securities registered thereunder for sale by CVS shall have been
disposed of (whereupon the Unfettered CVS Demand Registration shall be
deemed completed), and (y) subject to clause (x) of this proviso, (1)
neither the filing nor the effectiveness of any such registration
statement may be delayed for a period in excess of 180 days due to the
occurrence of any particular Disadvantageous Condition and (2) Linens
may exercise its delay rights under this clause (i) on only one
occasion (and then for not more than 180 days) in connection with any
registration request under Section 2.1;
(ii) the CVS Holders may collectively exercise their rights
under this Section 2.1 on not more than two occasions (including the
Unfettered CVS Demand Registration as one of such two occasions) (the
"CVS Personal Demands");
(iii) Holders will have the right to transfer the right to
request a registration under this Section 2.1 to Transferees in
accordance with Section 2.9, which Transferees may not in the aggregate
exercise their rights under this Section 2.1 on more than two occasions
(it being understood that such transfers in accordance with Section 2.9
will not reduce the two CVS Personal Demands);
(iv) following completion of the Unfettered CVS Demand
Registration, the Holders of Registrable Securities shall not have the
right to require the filing of a registration statement pursuant to
this Section 2.1 within six months following the registration and sale
of Registrable Securities effected pursuant to a prior exercise of the
registration rights provided in this Section 2.1; and
(v) following completion of the Unfettered CVS Demand
Registration, a request for registration of Registrable Securities
pursuant to this Section 2.1 may not be made unless the Registrable
Securities subject
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to such request represent (x) at least $5 million in proposed gross
offering proceeds to the Selling Holders, (y) at least 300,000 shares
of Common Stock of Linens, or (z) if less than (x) and (y), all
Registrable Securities then held by the requesting Holder.
(b) Notwithstanding any other provision of this Agreement to
the contrary, a registration requested by a Holder of Registrable Securities
pursuant to this Section 2.1 shall not be deemed to have been effected (and,
therefore, not requested (and rights of a Holder shall be deemed not to have
been exercised) for purposes of paragraph (a) above), (i) unless it has
become effective, (ii) if after it has become effective such registration is
interfered with by any stop order, injunction or other order or requirement of
the Commission or other governmental agency or court for any reason other than a
misrepresentation or an omission by such Holder and, as a result thereof, the
Registrable Securities requested to be registered cannot be completely
distributed in accordance with the plan of distribution set forth in the related
registration statement or (iii) if the conditions to closing specified in the
purchase agreement or underwriting agreement entered into in connection with
such registration are not satisfied or waived other than by reason of some act
or omission by such Holder of Registrable Securities.
(c) In the event that any registration pursuant to this
Section 2.1 shall involve, in whole or in part, an underwritten offering, the
Holders of a majority of the Registrable Securities to be registered shall have
the right to designate an underwriter or underwriters as the lead or managing
underwriters of such underwritten offering who shall, in the case of any
registration effected following completion of the Unfettered CVS Demand
Registration, be reasonably acceptable to Linens and, in connection with each
registration pursuant to this Section 2.1, such Holders may select one counsel
to represent all such Holders.
(d) Notwithstanding anything else contained in any Stockholder
Document, (i) it is understood that CVS intends that, subject to market
conditions, the Unfettered CVS Demand Registration will be effected immediately
after expiration of the 180-day underwriter "lockup" period (the "Lockup
Period") provided for in the underwriting agreement relating to the Initial
Public Offering and (ii) to that end, Linens agrees that it shall co-operate
with CVS and take all action (including preparing a registration statement)
during the Lockup Period so as to be in a position to file the registration
statement relating to the Unfettered CVS Demand Registration with the Commission
under the 1933 Act as soon as requested by any CVS Holder immediately after
expiration of the Lockup Period. The right to request the Unfettered CVS Demand
Registration (x) may be exercised only by a CVS Holder and may not be
transferred to any Person that is not a CVS Holder and (y) may not be exercised
as such after December 31, 1997; provided that if CVS does not exercise its
right to request the Unfettered CVS Demand Registration prior to December 31,
1997, the CVS Holders will continue to have all of their rights hereunder,
including the right to request two CVS Personal Demands.
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(e) Subject to Section 2.11, Linens shall have the right to
cause the registration of additional equity securities for sale for the account
of any Person that is not a Holder (including, without limitation, Linens and
any existing or former directors, officers or employees of the Linens Group) in
any registration of Registrable Securities requested by the Holders pursuant to
paragraph (a) above; provided that if such Holders are advised in writing (with
a copy to Linens) by a nationally recognized investment banking firm selected by
such Holders reasonably acceptable to Linens (which shall be the lead
underwriter or a managing underwriter in the case of an underwritten offering
and which, in the case of any registration effected after completion of the CUS
Unfettered Demand Registration, shall be reasonably acceptable to Linens)
that, in such firm's good faith view, all or a part of such additional equity
securities cannot be sold and the inclusion of such additional equity securities
in such registration would be likely to have an adverse effect on the price,
timing or distribution of the offering and sale of the Registrable Securities
then contemplated by any Holder, the registration of such additional equity
securities or part thereof shall not be permitted. The Holders of the
Registrable Securities to be offered pursuant to paragraph (a) above may require
that any such additional equity securities be included in the offering proposed
by such Holders on the same conditions as the Registrable Securities that are
included therein. In the event that the number of Registrable Securities
requested to be included in a registration statement by the Holders thereof
exceeds the number which, in the good faith view of such investment banking
firm, can be sold without adversely affecting the price, timing, distribution or
sale of securities in the offering, the number shall be allocated pro rata among
the requesting Holders on the basis of the relative number of Registrable
Securities then held by each such Holder (provided that any number in excess of
a Holder's request may be reallocated among the remaining requesting Holders in
a like manner).
2.2. Piggyback Registration. Subject to Section 2.11, in the
event that Linens proposes to register any of its Common Stock, any other of its
equity securities or securities convertible into or exchangeable for its equity
securities (collectively, including Common Stock, "Other Securities") under the
1933 Act, whether or not for sale for its own account, in a manner that would
permit registration of Registrable Securities for sale for cash to the public
under the 1933 Act, it shall (1) in the case of each such proposed registration
prior to the later of (i) January 1, 1998 and (ii) such time as CVS beneficially
owns less than 5% of Linens' Common Stock, give prompt written notice to each
Holder of Registrable Securities, and (2) in the case of each such proposed
registration occurring after
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expiration of the period referred to in clause (1) and prior to December 31,
1999, give prompt written notice to each Holder of Registrable Securities (other
than any CVS Holder), in the case of each of clause (1) and (2), of its
intention to do so and of the rights of such Holder under this Section 2.2 (with
only the Holders so required to be notified pursuant to the foregoing clauses
(1) and (2) having rights pursuant to this Section 2.2). Subject to the terms
and conditions hereof, such notice shall offer each such Holder the opportunity
to include in such registration statement such number of Registrable Securities
as such Holder may request. Upon the written request of any such Holder made
within 15 days after the receipt of Linens' notice (which request shall specify
the number of Registrable Securities intended to be disposed of and the intended
method of disposition thereof), Linens shall use its best efforts to effect, in
connection with the registration of the Other Securities, the registration under
the 1933 Act of all Registrable Securities which Linens has been so requested to
register, to the extent required to permit the disposition (in accordance with
such intended methods thereof) of the Registrable Securities so requested to be
registered; provided, that:
(a) if, at any time after giving such written notice of its
intention to register any Other Securities and prior to the effective date of
the registration statement filed in connection with such registration, Linens
shall determine for any reason not to register the Other Securities, Linens may,
at its election, give written notice of such determination to such Holders and
thereupon Linens shall be relieved of its obligation to register such
Registrable Securities in connection with the registration of such Other
Securities, without prejudice, however, to the rights of the Holders of
Registrable Securities immediately to request that such registration be effected
as a registration under Section 2.1 to the extent permitted thereunder;
(b) if the registration referred to in the first sentence of
this Section 2.2 is to be an underwritten registration on behalf of Linens, and
a nationally recognized investment banking firm selected by Linens advises
Linens in writing that, in such firm's good faith view, the inclusion of all or
a part of such Registrable Securities in such registration would be likely to
have an adverse effect upon the price, timing or distribution of the offering
and sale of the Other Securities then contemplated, Linens shall include in such
registration: (i) first, all Other Securities Linens proposes to sell for its
own account ("Company Securities"), (ii) second, up to the full number
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<PAGE> 33
of Registrable Securities held by CVS Holders that are requested to be included
in such registration (Registrable Securities that are so held being sometimes
referred to herein as "CVS Holder Securities") in excess of the number of
Company Securities to be sold in such offering which, in the good faith view of
such investment banking firm, can be sold without adversely affecting such
offering and the sale of the Other Securities then contemplated (and (x) if such
number is less than the full number of such CVS Holder Securities, such number
shall be allocated by CVS among such CVS Holders and (y) in the event that such
investment banking firm advises that less than all of such CVS Holder Securities
may be included in such offering, such CVS Holders may withdraw their request
for registration of their Registrable Securities under this Section 2.2 and
request that 90 days subsequent to the effective date of the registration
statement for the registration of such Other Securities such registration of CVS
Holder Securities be effected as a registration under Section 2.1 to the extent
permitted thereunder), (iii) third, up to the full number of Registrable
Securities held by Holders (other than the CVS Holders) of Registrable
Securities that are requested to be included in such registration in excess of
the number of Company Securities and CVS Holder Securities to be sold in such
offering which, in the good faith view of such investment banking firm, can be
so sold without so adversely affecting such offering (and (x) if such number is
less than the full number of such Registrable Securities, such number shall be
allocated pro rata among such Holders on the basis of the number of Registrable
Securities requested to be included therein by each such Holder and (y) in the
event that such investment banking firm advises that less than all of such
Registrable Securities may be included in such offering, such Holders may
withdraw their request for registration of their Registrable Securities under
this Section 2.2 and request that 90 days subsequent to the effective date of
the registration statement for the registration of such Other Securities such
registration be effected as a registration under Section 2.1 to the extent
permitted thereunder), and (iv) fourth, up to the full number of the Other
Securities (other than Company Securities), if any, in excess of the number of
Company Securities and Registrable Securities to be sold in such offering which,
in the good faith view of such investment banking firm, can be so sold without
so adversely affecting such offering (and, if such number is less than the full
number of such Other Securities, such number shall be allocated pro rata among
the holders of such Other Securities (other than Company Securities) on the
basis of the number of securities requested to be included therein by each such
holder);
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(c) if the registration referred to in the first sentence of
this Section 2.2 is to be an underwritten secondary registration, permitted by
Section 2.11, on behalf of holders (the "Other Holders") of Other Securities
that are not Holders, and the lead underwriter or managing underwriter advises
Linens in writing that in their good faith view, all or a part of such Other
Securities cannot be sold and the inclusion of such additional securities in
such registration would be likely to have an adverse effect on the price, timing
or distribution of the offering and sale of the Other Securities then
contemplated, Linens shall include in such registration the number of securities
(including Registrable Securities) that such underwriters advise can be so sold
without adversely affecting such offering, allocated pro rata among the Other
Holders and the Holders of Registrable Securities on the basis of the number of
securities (including Registrable Securities) requested to be included therein
by each Other Holder and each Holder of Registrable Securities; provided, that
if such Other Holders have requested that such registration statement be filed
pursuant to demand registration rights granted to them by Linens in accordance
with Section 2.11, Linens shall include in such registration (i) first, Other
Securities sought to be included therein by the Other Holders pursuant to the
exercise of such demand registration rights, (ii) second, the number of CVS
Holder Securities sought to be included in such registration in excess of the
number of Other Securities sought to be included in such registration by the
Other Holders which in the good faith view of such investment banking firm, can
be so sold without so adversely affecting such offering (and (x) if such number
is less than the full number of such CVS Holder Securities, such number shall be
allocated by CVS among such CVS Holders and (y) in the event that such
investment banking firm advises that less than all of such CVS Holder Securities
may be included in such offering, such CVS Holders may withdraw their request
for registration of their Registrable Securities under this Section 2.2 and
request that 90 days subsequent to the effective date of the registration
statement for the registration of such Other Securities such registration be
effected as a registration under Section 2.1 to the extent permitted thereunder)
and (iii) third, the number of Registrable Securities sought to be included in
such registration by Holders (other than the CVS Holders) of Registrable
Securities in excess of the number of Other Securities and the number of CVS
Holder Securities sought to be included in such registration which, in the good
faith view of such investment banking firm, can be so sold without so adversely
affecting such offering (and (x) if such number is less than the full number of
such Registrable Securities, such number shall be allocated pro rata among such
Holders
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on the basis of the number of Registrable Securities requested to be included
therein by each such Holder and (y) in the event that such investment banking
firm advises that less than all of such Registrable Securities may be included
in such offering, such Holders may withdraw their request for registration of
their Registrable Securities under this Section 2.2 and request that 90 days
subsequent to the effective date of the registration statement for the
registration of such Other Securities such registration be effected as a
registration under Section 2.l to the extent permitted thereunder);
(d) Linens shall not be required to effect any registration of
Registrable Securities under this Section 2.2 incidental to the registration of
any of its securities in connection with mergers, acquisitions, exchange offers,
subscription offers, dividend reinvestment plans or stock option or other
executive or employee benefit or compensation plans; and
(e) no registration of Registrable Securities effected under
this Section 2.2 shall relieve Linens of its obligation to effect a registration
of Registrable Securities pursuant to Section 2.1.
2.3. Expenses. Except as provided herein, Linens shall pay all
Registration Expenses with respect to a particular offering (or proposed
offering). Notwithstanding the foregoing, (i) CVS shall be responsible for
one-half of the Registration Expenses incurred in connection with any CVS
Personal Demand (and all the Registration Expenses incurred in connection with a
CVS Personal Demand as soon as the aggregate amount of Registration Expenses
paid by Linens in connection with all CVS Personal Demands exceeds $200,000) and
(ii) each Holder and Linens shall be responsible for its own internal
administrative and similar costs, which shall not constitute Registration
Expenses.
2.4. Registration and Qualification. If and whenever Linens is
required to effect the registration of any Registrable Securities under the 1933
Act as provided in Sections 2.1 or 2.2, Linens shall as promptly as practicable:
(a) prepare, file and use its reasonable best efforts to cause
to become effective a registration statement under the 1933 Act relating to the
Registrable Securities to be offered in accordance with the intended method of
disposition thereof;
(b) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in connection
therewith as may be necessary to keep such registration statement effective and
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to comply with the provisions of the 1933 Act with respect to the disposition of
all Registrable Securities until the earlier of (A) such time as all of such
Registrable Securities have been disposed of in accordance with the intended
methods of disposition set forth in such registration statement and (B) the
expiration of 90 days (or, in the case of the Unfettered CVS Demand
Registration, six months) after such registration statement becomes effective;
provided, that such six-month or 90-day period shall be extended for such number
of days that equals the number of days elapsing from (x) the date the written
notice contemplated by paragraph (f) below is given by Linens to (y) the date on
which Linens delivers to the Holders of Registrable Securities the supplement or
amendment contemplated by paragraph (f) below;
(c) furnish to the Holders of Registrable Securities and to
any underwriter of such Registrable Securities such number of conformed copies
of such registration statement and of each such amendment and supplement thereto
(in each case including all exhibits), such number of copies of the prospectus
included in such registration statement (including each preliminary prospectus
and any summary prospectus), in conformity with the requirements of the 1933
Act, such documents incorporated by reference in such registration statement or
prospectus, and such other documents, as the Holders of Registrable Securities
or such underwriter may reasonably request, and a copy of any and all
transmittal letters or other correspondence to or received from, the Commission
or any other governmental agency or self-regulatory body or other body having
jurisdiction (including any domestic or foreign securities exchange) relating to
such offering;
(d) use its best efforts to register or qualify all
Registrable Securities covered by such registration statement under the
securities or blue sky laws of such jurisdictions as the Holders of such
Registrable Securities or any underwriter of such Registrable Securities shall
request, and use its best efforts to obtain all appropriate registrations,
permits and consents in connection therewith, and do any and all other acts and
things which may be necessary or advisable to enable the Holders of Registrable
Securities or any such underwriter to consummate the disposition in such
jurisdictions of its Registrable Securities covered by such registration
statement; provided, that Linens shall not for any such purpose be required to
qualify generally to do business as a foreign corporation in any such
jurisdiction wherein it is not so qualified or to consent to general service of
process in any such jurisdiction;
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(e) (i) use its best efforts to furnish to each Holder of
Registrable Securities included in such registration (each, a "Selling Holder")
and to any underwriter of such Registrable Securities an opinion of counsel for
Linens addressed to each Selling Holder and dated the date of the closing under
the underwriting agreement (if any) (or if such offering is not underwritten,
dated the effective date of the registration statement), and (ii) use its best
efforts to furnish to each Selling Holder a "cold comfort" letter addressed to
each Selling Holder and signed by the independent public accountants who have
audited the financial statements of Linens included in such registration
statement, in each such case covering substantially the same matters with
respect to such registration statement (and the prospectus included therein) as
are customarily covered in opinions of issuer's counsel and in accountants'
letters delivered to underwriters in underwritten public offerings of securities
and such other matters as the Selling Holders may reasonably request and, in the
case of such accountants' letter, with respect to events subsequent to the date
of such financial statements;
(f) as promptly as practicable, notify the Selling Holders in
writing (i) at any time when a prospectus relating to a registration pursuant to
Sections 2.1 or 2.2 is required to be delivered under the 1933 Act of the
happening of any event as a result of which the prospectus included in such
registration statement, as then in effect, includes an untrue statement of a
material fact or omits to state any material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading, and (ii) of any request by the Commission
or any other regulatory body or other body having jurisdiction for any amendment
of or supplement to any registration statement or other document relating to
such offering, and in either such case, at the request of the Selling Holders
prepare and furnish to the Selling Holders a reasonable number of copies of a
supplement to or an amendment of such prospectus as may be necessary so that, as
thereafter delivered to the purchasers of such Registrable Securities, such
prospectus shall not include 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 light of the circumstances under which they are made, not
misleading;
(g) if reasonably requested by the lead or managing
underwriters, use its best efforts to list all such Registrable Securities
covered by such registration on each securities exchange and automated
inter-dealer quotation
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<PAGE> 38
system on which a class of common equity securities of Linens is then listed;
(h) send appropriate officers of Linens to attend any "road
shows" and analysts presentations scheduled in connection with any such
registration and use reasonable efforts to co-operate as requested by the
Holders in the marketing of the Registrable Securities, with all out-of-pocket
costs and expense incurred by Linens or such officers in connection with such
attendance or co-operation to be paid by Linens; and
(i) furnish for delivery in connection with the closing of any
offering of Registrable Securities pursuant to a registration effected pursuant
to Sections 2.1 or 2.2 unlegended certificates representing ownership of the
Registrable Securities being sold in such denominations as shall be requested by
the Selling Holders or the underwriters.
2.5. Conversion of Other Securities, Etc. In the event that
any Holder offers any options, rights, warrants or other securities issued by it
or any other Person that are offered with, convertible into or exercisable or
exchangeable for any Registrable Securities, the Registrable Securities
underlying such options, rights, warrants or other securities shall continue to
be eligible for registration pursuant to Sections 2.1 and 2.2.
2.6. Underwriting; Due Diligence. (a) If requested by the
underwriters for any underwritten offering of Registrable Securities pursuant to
a registration requested under this Article II, Linens shall enter into an
underwriting agreement with such underwriters for such offering, which agreement
will contain such representations and warranties by Linens and such other terms
and provisions as are customarily contained in underwriting agreements with
respect to secondary distributions, including, without limitation,
indemnification and contribution provisions substantially to the effect and to
the extent provided in Section 2.7, and agreements as to the provision of
opinions of counsel and accountants' letters to the effect and to the extent
provided in Section 2.4(e). The Selling Holders on whose behalf the Registrable
Securities are to be distributed by such underwriters shall be parties to any
such underwriting agreement and the representations and warranties by, and the
other agreements on the part of, Linens to and for the benefit of such
underwriters, shall also be made to and for the benefit of such Selling Holders.
Such underwriting agreement shall also contain such representations and
warranties by such Selling Holders and
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<PAGE> 39
such other terms and provisions as are customarily contained in underwriting
agreements with respect to secondary distributions, including, without
limitation, indemnification and contribution provisions substantially to the
effect and to the extent provided in Section 2.7.
(b) In connection with the preparation and filing of each
registration statement registering Registrable Securities under the 1933 Act
pursuant to this Article II, Linens shall give the Holders of such Registrable
Securities and the underwriters, if any, and their respective counsel and
accountants, such reasonable and customary access to its books, records and
properties and such opportunities to discuss the business and affairs of Linens
with its officers and the independent public accountants who have certified the
financial statements of Linens as shall be necessary, in the opinion of such
Holders and such underwriters or their respective counsel, to conduct a
reasonable investigation within the meaning of the 1933 Act; provided, that such
Holders and the underwriters and their respective counsel and accountants shall
use their reasonable best efforts to coordinate any such investigation of the
books, records and properties of Linens and any such discussions with Linens'
officers and accountants so that all such investigations occur at the same time
and all such discussions occur at the same time.
2.7. Indemnification and Contribution. (a) Linens agrees to
indemnify and hold harmless each Selling Holder and each person, if any, who
controls each Selling Holder within the meaning of either Section 15 of the
Securities Act or Section 20 of the Exchange Act from and against any and all
losses, claims, damages and liabilities (including, without limitation, any
legal or other expenses reasonably incurred in connection with defending or
investigating any such action or claim) insofar as such losses, claims, damages
or liabilities are caused by any untrue statement or alleged untrue statement of
a material fact contained in any registration statement or any amendment
thereof, any preliminary prospectus or prospectus (as amended or supplemented if
Linens shall have furnished any amendments or supplements thereto) relating to
the Registrable Securities, or caused by any omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, except insofar as such losses, claims,
damages or liabilities are caused by any such untrue statement or omission or
alleged untrue statement or omission based upon information relating to a
Selling Holder furnished to Linens in writing by a Selling Holder expressly for
use therein. Linens also agrees to indemnify any
15
<PAGE> 40
underwriter of the Registrable Securities so offered and each person, if any,
who controls such underwriter on substantially the same basis as that of the
indemnification by Linens of the Selling Holder provided in this Section 2.7(a).
(b) Each Selling Holder agrees to indemnify and hold harmless
Linens, its directors, the officers who sign the Registration Statement and each
person, if any who controls Linens within the meaning of either Section 15 of
the Securities Act or Section 20 of the Exchange Act, from and against any and
all losses, claims, damages and liabilities (including, without limitation, any
legal or other expenses reasonably incurred in connection with defending or
investigating any such action or claim) insofar as such losses, claims, damages
or liabilities are caused by any untrue statement or alleged untrue statement of
a material fact contained in any registration statement or any amendment
thereof, any preliminary prospectus or prospectus (as amended or supplemented if
Linens shall have furnished any amendments or supplements thereto) relating to
the Registrable Securities, or caused by any omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, but only with reference to information
relating to a Selling Holder furnished in writing by or on behalf of a Selling
Holder expressly for use in a registration statement, any preliminary
prospectus, prospectus or any amendments or supplements thereto. Each Selling
Holder also agrees to indemnify any underwriter of the Registrable Securities so
offered and each person, if any, who controls such underwriter on substantially
the same basis as that of the indemnification by such Selling Holder of Linens
provided in this Section 2.7(b).
(c) Each party indemnified under paragraph (a) or (b) above
shall, promptly after receipt of notice of a claim or action against such
indemnified party in respect of which indemnity may be sought hereunder, notify
the indemnifying party in writing of the claim or action; provided, that the
failure to notify the indemnifying party shall not relieve it from any liability
that it may have to an indemnified party on account of the indemnity agreement
contained in paragraph (a) or (b) above except to the extent that the
indemnifying party was actually prejudiced by such failure, and in no event
shall such failure relieve the indemnifying party from any other liability that
it may have to such indemnified party. If any such claim or action shall be
brought against an indemnified party, and it shall have notified the
indemnifying party thereof, unless in such indemnified party's reasonable
judgment a conflict of
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interest between such indemnified party and indemnifying parties may exist in
respect of such claim, the indemnifying party shall be entitled to participate
therein, and, to the extent that it wishes, jointly with any other similarly
notified indemnifying party, to assume the defense thereof with counsel
satisfactory to the indemnified party. After notice from the indemnifying party
to the indemnified party of its election to assume the defense of such claim or
action, the indemnifying party shall not be liable to the indemnified party
under this Section 2.7 for any legal or other expenses subsequently incurred by
the indemnified party in connection with the defense thereof other than
reasonable costs of investigation. Any indemnifying party against whom indemnity
may be sought under this Section 2.7 shall not be liable to indemnify an
indemnified party if such indemnified party settles such claim or action without
the consent of the indemnifying party. The indemnifying party may not agree to
any settlement of any such claim or action, other than solely for monetary
damages for which the indemnifying party shall be responsible hereunder, the
result of which any remedy or relief shall be applied to or against the
indemnified party, without the prior written consent of the indemnified party,
which consent shall not be unreasonably withheld. In any action hereunder as to
which the indemnifying party has assumed the defense thereof with counsel
satisfactory to the indemnified party, the indemnified party shall continue to
be entitled to participate in the defense thereof, with counsel of its own
choice, but the indemnifying party shall not be obligated hereunder to reimburse
the indemnified party for the costs thereof.
(d) If the indemnification provided for in this Section 2.7
shall for any reason be unavailable (other than in accordance with its terms) to
an indemnified party in respect of any loss, liability, cost, claim or damage
referred to therein, then each indemnifying party shall, in lieu of indemnifying
such indemnified party, contribute to the amount paid or payable by such
indemnified party as a result of such loss, liability, cost, claim or damage (A)
as between Linens and the underwriters, (i) in such proportion as is appropriate
to reflect the relative benefits received by Linens on the one hand and the
underwriters on the other hand from the offering of the Registrable Securities
or (ii) if the allocation provided by clause (i) above is not permitted by
applicable law, in such proportion as is appropriate to reflect not only the
relative benefits referred to in clause (i) above but also the relative fault of
the indemnifying party or parties on the one hand and of the indemnified party
or parties on the other hand in connection with the statements or omissions that
resulted in
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such losses, claims, damages or liabilities, as well as any other relevant
equitable considerations, and (B) as between (x) Linens and the Selling Holders,
or (y) the Selling Holders and the underwriters, in such proportion as is
appropriate to reflect the relative fault of the indemnifying party or parties
on the one hand and of the indemnified party or parties on the other hand in
connection with the statements or omissions that resulted in such losses,
claims, damages or liabilities, as well as any other relevant equitable
considerations. The relative benefits received by Linens on the one hand and the
underwriters on the other hand in connection with the offering of the
Registrable Securities shall be deemed to be in the same respective proportions
as the net proceeds from the offering of the Registrable Securities (before
deducting expenses) (as if, for purposes of this clause (d), Linens had received
the proceeds of any secondary offering) and the total underwriting discounts and
commissions received by the underwriters, in each case as set forth in the table
on the cover of a prospectus, bear to the aggregate public offering price of the
Registrable Securities. The relative fault of Linens and the Selling Holder on
the one hand and the underwriters on the other hand 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 Linens, by a Selling Holder or by the
underwriters and the parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such statement or omission. The amount
paid or payable by an indemnified party as a result of the loss, cost, claim,
damage or liability, or action in respect thereof, referred to above in this
paragraph (d) shall be deemed to include, for purposes of this paragraph (d),
any legal or other expenses reasonably incurred by such indemnified party in
connection with investigating or defending any such action or claim. Linens and
the Selling Holders agree that it would not be just and equitable if
contribution pursuant to this Section 2.7 were determined by pro rata allocation
(even if the underwriters were treated as one entity for such purpose) or by any
other method of allocation which does not take account of the equitable
considerations referred to in this paragraph. Notwithstanding any other
provision of this Section 2.7, no Selling Holder shall be required to contribute
any amount in excess of the amount by which the total price at which the
Registrable Securities of such Selling Holder were offered to the public exceeds
the amount of any damages which such Selling Holder has otherwise been required
to pay by reason of such untrue or alleged untrue statement or omission or
alleged omission. Each Selling Holder's obligations to
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contribute pursuant to this Section 2.7 are several in proportion to the
proceeds of the offering received by such Selling Holder bears to the total
proceeds of the offering received by all the Selling Holders and not joint. No
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the 1933 Act) shall be entitled to contribution from any person who was
not guilty of such fraudulent misrepresentation.
(e) Indemnification and contribution similar to that specified
in the preceding paragraphs of this Section 2.7 (with appropriate modifications)
shall be given by Linens, the Selling Holders and underwriters with respect to
any required registration or other qualification of securities under any state
law or regulation or governmental authority.
(f) The obligations of the parties under this Section 2.7
shall be in addition to any liability which any party may otherwise have to any
other party.
2.8. Rule 144 and Form S-3. Commencing 90 days after the
Initial Public Offering Date, Linens shall use its best efforts to ensure that
the conditions to the availability of Rule 144 set forth in paragraph (c)
thereof shall be satisfied. Upon the request of any Holder of Registrable
Securities, Linens will deliver to such Holder a written statement as to whether
it has complied with such requirements. Linens further agrees to use its
reasonable efforts to cause all conditions to the availability of Form S-3 (or
any successor form) under the 1933 Act for the filing of registration statements
under this Agreement to be met as soon as practicable after the Initial Public
Offering Date.
2.9. Transfer of Registration Rights. Any Holder may, at any
time prior to January 1, 1998, transfer all or any portion of its rights under
Article II to any transferee of Registrable Securities owned by such Holder
(each transferee that receives such Registrable Securities, a "Transferee"). Any
transfer of registration rights pursuant to this Section 2.9 shall be effective
upon receipt by Linens of (i) written notice from such Holder stating the name
and address of any Transferee and identifying the number of Registrable
Securities with respect to which the rights under this Agreement are being
transferred and the nature of the rights so transferred and (ii) a written
agreement from such Transferee to be bound by the terms of this Appendix. The
Holders may exercise their rights hereunder in such priority as they shall agree
upon among themselves.
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2.10. Holdback Agreement. If any registration pursuant to this
Article II shall be in connection with an underwritten public offering of
Registrable Securities, each Selling Holder agrees not to effect any public sale
or distribution, including any sale under Rule 144, of any equity security of
Linens (otherwise than through the registered public offering then being made),
within 7 days prior to or 90 days (or such lesser period as the lead or managing
underwriters may permit) after the effective date of the registration statement
(or the commencement of the offering to the public of such Registrable
Securities in the case of Rule 415 Offerings). Linens hereby also so agrees and
agrees to cause each other holder of equity securities or securities convertible
into or exchangeable or exercisable for such securities (other than in the case
of equity securities issued under dividend reinvestment plans or employee stock
plans) purchased from Linens otherwise than in a public offering to so agree.
2.11 Restrictions on Other Registrations and Registration
Rights. (a) If during the period after Expiration of the Lockup Period and prior
to any written notice having been provided by a CVS Holder to Linens pursuant to
Section 2.1(a) in respect of the Unfettered CVS Demand Registration Linens
desires to register any of its equity securities under the 1993 Act for sale for
its own account, Linens may during such period notify CVS to such effect. Within
14 days after receipt of such notice from Linens, a CVS Holder may provide
written notice to Linens exercising such CVS Holder's right to require that the
Unfettered CVS Demand Registration then be effected pursuant to Section 2.1, in
which case Linens shall have the right to include additional securities in the
Unfettered CVS Demand Registration for Linens' own account to the extent
permitted by Section 2.1(e). If no CVS Holder within such 14 day period
exercises the right of a CVS Holder to require that the Unfettered CVS Demand
Registration then be effected pursuant to Section 2.1, Linens may proceed to
effect a registration of any of its equity securities for its own account;
provided that (i) the CVS Holders shall not in such case lose their right to
require that the Unfettered CVS Demand Registration be effected at any time
thereafter pursuant to Section 2.1(a), (ii) if Linens does not effect such
registration for its own account within 30 days after the end of such 14 day
period, Linens shall not be permitted to effect such registration without first
again complying with the provisions of this Section 2.11(a), and (iii) Linens
shall be required to again comply with the provisions of this Section 2.11(a)
should Linens desire to effect a subsequent registration of its equity
securities for its own account during the period referred to in the first
sentence of this Section 2.11(a).
(b) Notwithstanding anything else contained in the Stockholder
Documents, except as provided in Section 2.11(a), Linens shall not, without the
prior written consent of CVS:
(i) effect the registration under the 1933 Act of any equity
security of Linens for sale for the account of Linens or any other
Person (except for (i) any registration requested by a CVS Holder in
accordance with the terms hereof, and (ii) any registration on Form S-8
of securities issued to Linens employees pursuant to stock option or
other executive or employee benefit or compensation plans) until after
completion of the Unfettered CVS Demand Registration, or
(ii) grant or issue to any Person any right, or enter into any
agreement with any Person entitling such Person, to request or require
that Linens effect, prior to January 1, 1998, the registration under
the 1933 Act of any security of Linens for the account of any Person
(other than the rights granted to the Holders hereunder).
ARTICLE III
PRIVATE PLACEMENTS
3.1 Private Placements. (a) Linens will use its reasonable
best efforts to cooperate with and assist the CVS Holders, at their request, in
the marketing by the CVS Holders, at any time and from time to time prior to
December
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31, 1997, of any securities of Linens held by the CVS Holders in any private
transaction not requiring registration under the 1933 Act, including without
limitation (i) providing reasonable access to Linens' books, records,
properties, offices, officers, employees, accountants, counsel, and other
agents, (ii) making available senior management of Linens for participation in
analyst, investor and "road show" presentations, and (iii) in preparation of a
private placement memorandum or other selling or marketing materials (the
"Selling Materials") relating to any such sale of Linens securities.
(b) Linens shall be responsible for all expenses incurred in
connection with such co-operation, assistance and marketing efforts contemplated
by Section 3.1(a), including, without limitation, (1) the fees, disbursements
and expenses of Linens' counsel and accountants in connection therewith, (2) all
expenses in connection with the preparation and printing of all Selling
Materials and amendments and supplements thereto and the mailing and delivering
of copies thereof to any placement agents and other intermediaries, (3) the cost
of preparing and printing or producing any agreements with placement agents or
other intermediaries involved in such private placement transaction and any blue
sky or legal investment memoranda, any selling agreements and any other
documents in connection with the offering, sale or delivery of the securities to
be disposed of, (4) all expenses in connection with the qualification of the
securities to be disposed of for offering and sale under state securities laws,
including the fees and disbursements of counsel for the placement agents or
other intermediaries or the CVS Holders of securities in connection with such
qualification and in connection with any blue sky and legal investment surveys,
(5) transfer agents' and registrars' fees and expenses and the fees and expenses
of any other agent or trustee appointed in connection with such transaction, (6)
all security engraving and security printing expenses, (7) all fees and expenses
payable in connection with the rating of such securities, (8) any other fees and
disbursements of placement agents or other intermediaries customarily paid by
the issuers of securities, but excluding placement or selling fees and
commissions and transfer taxes, if any, (9) the costs and expenses of Linens
relating to analyst or investor presentations or any "road show" undertaken in
connection with the marketing of any such securities, and (10) other reasonable
out-of-pocket expenses of CVS Holders in connection therewith. Notwithstanding
the foregoing, (i) each CVS Holder and Linens shall be responsible for its own
internal administrative and similar costs, and (ii) each CVS Holder shall be
responsible for the legal fees and expenses
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of its own counsel in connection with any marketing efforts requested by a CVS
Holder pursuant to Section 3.1.
(c) Linens agrees to indemnify and hold harmless each CVS
Holder and each person, if any, who controls each CVS Holder within the meaning
of either Section 15 of the Securities Act or Section 20 of the Exchange Act
from and against any and all losses, claims, damages and liabilities (including,
without limitation, any legal or other expenses reasonably incurred in
connection with defending or investigating any such action or claim) insofar as
such losses, claims, damages or liabilities are caused by any untrue statement
or alleged untrue statement of a material fact contained in any such Selling
Materials or caused by any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, except insofar as such losses, claims, damages or
liabilities are caused by any such untrue statement or omission or alleged
untrue statement or omission based upon information relating to a CVS Holder
furnished to Linens in writing by a CVS Holder expressly for use therein. CVS
agrees to indemnify and hold harmless Linens and each person who so controls
Linens to the same extent as the foregoing indemnity by Linens of the CVS
Holders and persons so controlling the CVS Holders but only with reference to
information relating to a CVS Holder furnished to Linens in writing by a CVS
Holder expressly for use therein. The provisions and procedures set forth in
Section 2.7(c) shall apply in the case of any indemnification claim made under
the foregoing provisions of this Section 3.1(c).
(d) To the extent that indemnification under Section 3.1(c) is
unavailable for any reason or insufficient to hold any indemnified party
harmless, the indemnifying party will contribute to the amount paid or payable
by the indemnified party, in such proportion as is appropriate to reflect the
relative fault of the indemnifying party or parties on the one hand and of the
indemnified party or parties on the other hand in connection with the statements
or omissions that resulted in the losses, claims, damages or liabilities (with
such relative fault to 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 Linens or by a CVS Holder and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission).
22
<PAGE> 47
(e) Nothing contained in this Article III and no performance
by Linens of its obligations under this Article III shall in any way limit or
reduce the rights of any Holder under Article II or any other provision of
Appendix A.
23
<PAGE> 1
EXHIBIT 10.3
TAX DISAFFILIATION AGREEMENT
between
CVS CORPORATION,
on behalf of itself and its
Post-Deconsolidation Affiliates
and
LINENS 'N THINGS, INC.,
on behalf of itself and its
Post-Deconsolidation Affiliates
<PAGE> 2
<TABLE>
<S> <C>
1. Definitions
-----------
2. Federal and State Taxes--Administrative and Compliance Matters.
---------------------------------------------------------------
(a) Sole Tax Sharing Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
--------------------------
(b) Designation of Agent. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
--------------------
(c) Pre-Deconsolidation Period Returns. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
----------------------------------
3. Consolidated Federal, Consolidated State and Unitary State Taxes -- Allocation of Taxes.
---------------------------------------------------------------------------------------
(a) General. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
-------
(b) Estimated Payments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
------------------
(c) Payment of Taxes at Year-End. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
----------------------------
(d) Carrybacks and Certain Other Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
------------------------------------
4. Other Taxes
-----------
5. Certain Covenants.
-----------------
(a) Linens Covenants. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
----------------
(b) CVS Covenants. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
-------------
(c) Linens and CVS Covenant. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
------------------------
6. Indemnities.
-----------
(a)(I) Linens Indemnity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
----------------
(a)(II) Linens Additional Indemnity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
---------------------------
(b) CVS Indemnity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
-------------
(c) Discharge of Indemnity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
----------------------
(d) Tax Benefits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
------------
(e) Refunds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
-------
(f) Clerical Errors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
---------------
(g) Method of Calculation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
---------------------
7. Communication and Cooperation.
-----------------------------
(a) Consult and Cooperate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
---------------------
(b) Provide Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
-------------------
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C> <C> <C>
(c) Tax Attribute Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
---------------------
8. Audits and Contest.
------------------
9.Payments.
--------
10. Notices.
-------
11.Costs and Expenses.
------------------
12.Effectiveness; Termination and Survival.
---------------------------------------
13.Section Headings.
----------------
14.Entire Agreement; Amendments and Waivers.
----------------------------------------
(a) Entire Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
----------------
(b) Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
------
15.Governing Law and Interpretation.
--------------------------------
16.Dispute Resolution.
------------------
17.Counterparts.
------------
18. Assignments; Third Party Beneficiaries.
--------------------------------------
Exhibit A
---------
Exhibit B
---------
</TABLE>
ii
<PAGE> 4
TAX DISAFFILIATION AGREEMENT
This Agreement is entered into as of the second day of December, 1996
between CVS Corporation ("CVS"), a Delaware corporation, on behalf of itself and
its Post-Deconsolidation Affiliates, and Linens 'n Things, Inc. ("Linens"), a
Delaware corporation, on behalf of itself and its Post-Deconsolidation
Affiliates.
W I T N E S S E T H:
WHEREAS CVS and Linens intend to offer shares of Linens Common Stock
to the public pursuant to which Linens will cease to be a member of the CVS
Consolidated Group, as defined below.
WHEREAS, CVS and Linens desire to set forth their agreement on the
rights and obligations of CVS, Linens and their respective Affiliates with
respect to the handling and allocation of federal, state, local and foreign
Taxes incurred in Taxable periods beginning prior to the Deconsolidation Date
and various other Tax matters;
NOW, THEREFORE, in consideration of the mutual covenants and
agreements hereinafter set forth, the parties agree as follows:
1.Definitions
(a) As used in this Agreement:
"Affiliate" of any person shall mean any individual, corporation,
partnership or other entity directly or indirectly owning more than 50 percent
1
<PAGE> 5
of, owned more than 50 percent by, or under more than 50 percent common
ownership with, such person.
"After-Tax Amount" shall mean an additional amount necessary
to reflect the hypothetical Tax consequences of the receipt or accrual of any
payment, using the maximum statutory rate (or rates, in the case of an item
that affects more than one Tax) applicable to the recipient of such payment for
the relevant year, reflecting for example, the effect of the deductions
available for interest paid or accrued and for Taxes such as state and local
income Taxes.
"CVS Consolidated Group" shall mean, with respect to any
Taxable period, (i) with respect to Consolidated Federal Taxes, the affiliated
group of corporations of which CVS or Melville Corporation ("Melville") (or a
successor of either) was or is the common parent (within the meaning of Section
1504 of the Code), (ii) with respect to Consolidated State Taxes and Unitary
State Taxes, the consolidated, combined or unitary group of which CVS or
Melville (or a successor of either) or any of their Affiliates was or is a
member, and (iii) with respect to any Other Tax payable with respect to a group
which includes or included at least one member of the CVS Group and at least
one member of the Linens Group, such group.
"CVS Group" shall mean, with respect to any Taxable period,
CVS, Melville and their Affiliates (including their predecessors and
successors)
2
<PAGE> 6
at any time prior to the Deconsolidation (including, without limitation, the
Non-Chain Corporations) other than those Affiliates comprising the Linens
Group.
"Code" shall mean the Internal Revenue Code of 1986, as
amended, or any successor thereto.
"Consolidated Federal Tax" shall mean the consolidated Federal
Tax liability of the CVS Consolidated Group for any period as to which a
consolidated Federal Tax Return was or is filed by CVS or Melville, or any
successor to either, for such group.
"Consolidated State Tax" shall mean with respect to each
State, any income or franchise Tax payable with respect to a group of at least
two corporations, other than a Unitary State Tax.
"Deconsolidation" shall mean any event pursuant to which
Linens ceases to be a subsidiary corporation includible in a consolidated tax
return of CVS for Federal Tax purposes, or in a consolidated, combined or
unitary return with a member of the CVS Group.
"Deconsolidation Date" shall mean the date on which the
Deconsolidation shall be effected.
"Federal Tax" shall mean any Tax imposed under Subtitle A of
the Code and any related penalty imposed under Subtitle F of the Code.
"Final Determination" shall mean (i) with respect to Federal
Taxes, (A) a "determination" as defined in Section 1313(a) of the Code, or (B)
3
<PAGE> 7
the date of acceptance by or on behalf of the Internal Revenue Service of Form
870-AD (or any successor form thereto), as a final resolution of Tax liability
for any Taxable period, except that a Form 870-AD (or successor form thereto)
that reserves the right of the taxpayer to file a claim for refund and/or the
right of the Internal Revenue Service to assert a further deficiency shall not
constitute a Final Determination with respect to the item or items so reserved;
(ii) with respect to Taxes other than Federal Taxes, any final determination of
liability in respect of a Tax provided for under applicable law; (iii) any
final disposition by reason of the expiration of the applicable statute of
limitations; and (iv) the payment of Tax by CVS, Linens, or any Affiliate of
CVS or Linens, whichever is responsible for payment of such Tax under
applicable law, with respect to any item disallowed or adjusted by a Taxing
Authority, provided that the provisions of Section 8 hereof have been complied
with, or, if such section is inapplicable, that the party responsible under the
terms of this Agreement for such Tax is notified by the party paying such Tax
that it has determined that no action should be taken to recoup such disallowed
item, and the other party agrees with such determination.
"Linens Group" shall mean Linens and its Affiliates
immediately after the Deconsolidation Date, including any predecessors thereto,
and any corporation that would have been an Affiliate of Linens immediately
after the
4
<PAGE> 8
Deconsolidation Date if it had not been previously sold, liquidated or
otherwise disposed of.
"Non-Chain Corporations" shall mean Computer Development,
Inc., Melville Equipment Leasing Corporation, MC Retail, Inc., Melville Realty
Company and their direct and indirect subsidiaries.
"Other Taxes" is defined in Section 4.
"Post-Deconsolidation Affiliate" shall mean with regard to
CVS, any person that is or that will be an Affiliate of CVS or a successor to
CVS after the Deconsolidation and, with regard to Linens, any person that is or
that will be an Affiliate of Linens or a successor to Linens after the
Deconsolidation.
"Post-Deconsolidation Period" shall mean any taxable period
(or portion thereof) beginning after the close of business on the
Deconsolidation Date.
"Pre-Deconsolidation Period" shall mean any Taxable period
ending on or before the close of business on the Deconsolidation Date; provided
that if a Taxable period ending after the Deconsolidation Date contains any
days which fall prior to or on the Deconsolidation Date, any portion of such
Taxable period up to or including the Deconsolidation Date shall also be
included in the Pre-Deconsolidation Period.
"Pre-Deconsolidation Tax Liability" shall mean (i) the
Consolidated Federal Tax, and (ii) the Consolidated State Tax liability of any
5
<PAGE> 9
group that includes at least one member of the CVS Group and at least one
member of the Linens Group, (iii) the Unitary State Tax liability of any group
which includes at least one member of the CVS Group and at least one member of
the Linens Group, and (iv) any Other Taxes, in each case for any
Pre-Deconsolidation Period.
"Prime" shall mean the rate announced from time to time as
"prime" by Morgan Guaranty Trust Company as its prime rate.
"Referee" is defined in Section 16.
"Return" shall mean any Tax return, statement, report or form
(including estimated Tax returns and reports, extension requests and forms, and
information returns and reports) required to be filed with any Taxing
Authority.
"Tax" (and the correlative meaning, "Taxes," "Taxing" and
"Taxable") shall mean (A) any tax imposed under Subtitle A of the Code, any net
income, gross income, gross receipts, alternative or add-on minimum, sales,
use, value-added, goods and services, ad valorem, franchise, profits, license,
withholding, payroll, employment, excise, transfer, recording, severance,
stamp, occupation, premium, property, environmental, custom duty, or other tax,
governmental fee or other like assessment or charge of any kind whatsoever,
together with any interest and any penalty, addition to tax or additional
amount imposed by a Taxing Authority; (B) any liability of a member of the CVS
Group or the Linens Group, as the case may be, for the payment of
6
<PAGE> 10
any amounts of the type described in clause (A) for any Taxable period
resulting from the application of Treasury Regulation Section 1.1502-6 or any
similar provision applicable under state, local or foreign law; and (C) any
liability of a member of the CVS Group or the Linens Group for the payment of
any amounts described in clause (A) as a result of any express or implied
obligation to indemnify any other party.
"Tax Asset" shall mean any net operating loss, net capital
loss, investment Tax credit, foreign Tax credit, target jobs Tax credit, low
income housing credit, research and experimentation credit, charitable
deduction or any other credit or Tax attribute, including additions to basis of
property, which could reduce any Tax, including, without limitation,
deductions, credits, or alternative minimum net operating loss carryforwards
related to alternative minimum Taxes.
"Tax Packages" shall mean one or more packages of information,
including but not limited to the Corptax file and the divisional
reconciliation, that are (i) reasonably necessary for the purpose of preparing
Federal Tax, Consolidated State Tax, Unitary State Tax Returns or Other Tax
returns of the CVS Consolidated Group with respect to a Pre-Deconsolidation
Period and (ii) completed in all material respects in accordance with the
standards that CVS has established for its subsidiaries with respect to the
relevant Pre-Deconsolidation Period.
7
<PAGE> 11
"Tax Proceeding" shall mean any Tax audit, dispute or
proceeding (whether administrative or judicial).
"Taxing Authority" shall mean any governmental authority
(domestic or foreign) responsible for the imposition of any Tax.
"Unitary State Tax" shall mean, with respect to each State,
any income or franchise Tax payable with respect to a group of at least two
corporations and based upon a group apportionment percentage.
(b) Any term used in this Agreement which is not defined
in this Agreement shall, to the extent the context requires, have the meaning
assigned to it in the Code or the applicable Treasury regulations thereunder
and, in the case of Consolidated State Taxes, Unitary State Taxes, and Other
Taxes, in comparable provisions of applicable law.
2. Federal and State Taxes--Administrative and
Compliance Matters.
(a) Sole Tax Sharing Agreement. The parties acknowledge
that there has not been a Final Determination of the Pre-Deconsolidation Tax
Liability, and that members of the Linens Group are includible in the CVS
Consolidated Group for the Pre-Deconsolidation Period. This Agreement shall
constitute the sole Tax sharing agreement between CVS and its
Post-Deconsolidation Affiliates, on one hand, and Linens and its
Post-Deconsolidation Affiliates, on the other hand, and, to the extent there is
any inconsistency between this Agreement and any existing Tax sharing
agreements
8
<PAGE> 12
or arrangements, written or unwritten, between CVS and its Post-Deconsolidation
Affiliates, on one hand, and Linens and its Post-Deconsolidation Affiliates, on
the other hand, this Agreement shall govern.
(b) Designation of Agent. Linens and each member of the
Linens Group, with respect to Consolidated Federal Taxes, each hereby
irrevocably designate CVS or Melville (to the extent required by applicable
law) or a successor of either as its agent, coordinator, and administrator,
and, with respect to Consolidated State Taxes, Unitary State Taxes and any
Other Taxes payable with respect to a group which includes at least one member
of the CVS Group and at least one member of the Linens Group, each hereby
irrevocably authorize CVS to designate a member of the CVS Group, or a
successor of such member, as its agent, coordinator, and administrator, for the
purpose of taking any and all actions (including the execution of waivers of
applicable statutes of limitation) necessary or incidental to the filing of any
Return, any amended Return, or any claim for refund (even where an item or Tax
Asset giving rise to an amended Return or refund claim arises in a
Post-Deconsolidation Period), credit or offset of Tax or any other proceedings,
and for the purpose of making payments to, or collecting refunds from, any
Taxing Authority, in each case relating to any Pre-Deconsolidation Period. CVS
or the member of the CVS Group, as the case may be, as agent, covenants to
Linens that it shall be responsible to see that all such administrative matters
relating thereto shall be
9
<PAGE> 13
handled promptly and appropriately. CVS shall inform and consult with Linens
prior to taking any action on behalf of, or which will have any material impact
on the Tax liability of the Linens Group.
(c) Pre-Deconsolidation Period Returns. CVS and its
Post-Deconsolidation Affiliates will prepare, with the assistance of Linens and
its Post-Deconsolidation Affiliates, and file the Consolidated Federal Tax
Returns and the Consolidated State and Unitary State Tax Returns for all
Pre-Deconsolidation Periods. With respect to the 1996 year, Linens and its
Post-Deconsolidation Affiliates shall prepare and deliver to CVS all Tax
Packages within 120 days after the Deconsolidation Date.(1)
3. Consolidated Federal, Consolidated State and Unitary
State Taxes -- Allocation of Taxes.
(a) General. For the 1995 and 1996 Taxable years of the
CVS Consolidated Group,(2) Linens shall pay, or cause to be paid, to CVS or
Melville, with respect to 1995) an amount equal to (i) the Linens Group's share
of the CVS Consolidated Group's Consolidated Federal Tax and Consolidated State
Tax liability, determined in accordance with Exhibit A to this Agreement, and
(ii) the Linens Group's share of the CVS Consolidated Group's Unitary State Tax
liability, determined in accordance with Exhibit B to this Agreement.
- --------------------
(1) Provide for 1997 if offering occurs in 1997 or if CVS continues to hold at
least 50% of Linens at any time in 1997.
(2) Provide for 1997 if offering occurs in 1997 or if CVS continues to hold at
least 50% of Linens at any time in 1997.
10
<PAGE> 14
(b) Estimated Payments. Promptly after CVS, Melville or
any of their Affiliates makes an estimated Tax payment with respect to the 1996
Taxable year (other than a payment which relates solely to minimum Taxes due),
whether or not such payment is made prior to the Deconsolidation, CVS shall (i)
in good faith determine the amount of the Linens Group's share of such
estimated Tax payment (X) in accordance with the principles of Exhibit A to
this Agreement, in the case of an estimated Tax payment in respect of the
Consolidated Federal Tax or any Consolidated State Tax liability of the CVS
Consolidated Group, and (Y) in accordance with the principles of Exhibit B to
this Agreement using 1995 apportionment factors, adjusted for significant
dispositions or transfers of assets, in the case of an estimated Tax payment in
respect of any Unitary State Tax liability of the CVS Consolidated Group and
(ii) deliver a written statement to Linens reflecting the determination
described above. Linens shall pay to CVS or CVS shall pay to Linens, as
appropriate, the amount so determined in accordance with Section 9 hereof.
(c) Payment of Taxes at Year-End.
(i) Promptly after CVS, Melville or any of their Affiliates
files an application to extend the due date of a Return for the 1995
or 1996 Taxable year, whether or not such application is filed prior
to the Deconsolidation, CVS shall (a) in good faith determine the
estimated amount of the Linens Group's share of the CVS Consolidated
Group's
11
<PAGE> 15
Consolidated Federal Tax or Consolidated State Tax liability for such
Return in accordance with the principles of Exhibit A to this
Agreement or, in the case of a Unitary State Tax Return, in accordance
with the principles of Exhibit B to this Agreement using 1994 and 1995
apportionment factors for 1995 and 1996, respectively, adjusted for
significant dispositions or transfers of assets, and (b) deliver a
written statement to Linens reflecting the determination described
above. Linens shall pay to CVS, or CVS shall pay to Linens, as
appropriate, in accordance with Section 9 hereof, an amount equal to
the difference, if any, between (x) the amounts so determined and (y)
the aggregate amount of estimated installments paid with respect to
the Linens Group's share of such Tax liability for such year made
pursuant to Section 3(b), adjusted to take into account amounts
previously paid or received by Linens or any Affiliate in connection
with any previous extension payments made either before or after the
Deconsolidation.
(ii) Promptly after CVS or a member of the CVS Consolidated
Group files a Consolidated Federal Tax Return, Consolidated State Tax
Return or Unitary State Tax Return, as the case may be, for which
payments are to be made under this Agreement, whether or not such
Return is filed prior to the Deconsolidation, CVS shall deliver to
Linens a written statement setting forth the difference between (x)
the Linens
12
<PAGE> 16
Group's share of the CVS Consolidated Group's Consolidated Federal
Tax, Consolidated State Tax or Unitary State Tax liability for such
Return, determined in accordance with the principles of Exhibit A or B
to this Agreement, as the case may be, and (y) the aggregate amount of
payments with respect to the Linens Group's share of such Tax
liability for such year made pursuant to Section 3(b) or Section
3(c)(i). Linens shall pay to CVS, or CVS shall pay to Linens, as
appropriate, in accordance with Section 9 hereof, an amount equal to
such difference, if any.
(iii) If the determination of the Linens Group's share of the
CVS Consolidated Group's Consolidated Federal Tax, Consolidated State
Tax or Unitary State Tax reflects a Tax Asset that may under
applicable law be used to reduce a Federal Tax, Consolidated State Tax
or Unitary State Tax liability, as the case may be, of any member of
the CVS Group for any Tax period, CVS shall pay to Linens, in
accordance with Section 9 hereof, the actual Tax saving produced by
such Tax Asset; provided, however, that such payment shall be made
within 30 days of the receipt by CVS or any CVS Affiliate of any
refund, credit or other offset attributable thereto from the relevant
Taxing Authority. The amount of any such tax saving for any tax
period shall be the amount of the reduction in Taxes payable to a
Taxing Authority (or the increase in
13
<PAGE> 17
any Tax refund) with respect to such period as compared to the Taxes
that would have been payable to a Taxing Authority (or the Tax refund
that would have been received) with respect to such period in the
absence of such Tax Asset; provided, however, that in the event that
the use in a Pre-Deconsolidation Period of a Tax Asset attributable to
any member of the Linens Group, gives rise to, or increases, any
alternative minimum Tax liability, CVS shall pay to Linens, or Linens
shall pay to CVS, as the case may be, an amount equal to the
difference between (i) the maximum hypothetical Tax savings that could
result from the use of such Tax Asset determined using the maximum
applicable regular tax rate in effect for such Taxable year (or, in
the case of a credit, 100 percent) and (ii) the Linens Group's share
of the alternative minimum Tax liability or increase in alternative
minimum Tax liability, as the case may be, determined in accordance
with Exhibit A to this Agreement.
(d) Carrybacks and Certain Other Matters.
(i) Subject to the provisions of Exhibit A hereto, CVS
agrees to pay Linens the actual benefit received by the CVS
Consolidated Group in any Tax period from the use in any
Pre-Deconsolidation Period of any Tax Asset arising in a
Post-Deconsolidation Period. Such benefit shall be considered equal to
the excess of the amount of Tax that would have been payable (or of
the Tax refund that would have been
14
<PAGE> 18
receivable) by the CVS Consolidated Group in such Tax period in the
absence of such carryback over the amount of Tax actually payable (or
of the Tax refund actually receivable) by the CVS Consolidated Group
in such period; provided, however, that in the event that the use in a
Pre-Deconsolidation Period of a Tax Asset, attributable to any member
of the Linens Group, gives rise to, or increases, any alternative
minimum Tax liability, CVS shall pay to Linens, or Linens shall pay to
CVS, as the case may be, an amount equal to the difference between (i)
the maximum hypothetical Tax savings that could result from the use of
such Tax Asset determined using the maximum applicable regular tax
rate in effect for such Taxable year and (ii) the Linens Group's share
of the alternative minimum Tax liability or increase in alternative
minimum Tax liability, as the case may be, determined in accordance
with Exhibit A to this Agreement. Payment of the amount of such
benefit shall be made in accordance with Section 9 hereof; provided,
however, that any such payment shall be made within 30 days of the
receipt by any member of the CVS Consolidated Group of any refund,
credit or other offset attributable thereto from the relevant Taxing
Authority.
(ii) If, subsequent to the payment by CVS to Linens of any
amount referred to in Section 3(d)(i) above, there shall be (A) a
Final Determination which results in a disallowance or a reduction of
the Tax
15
<PAGE> 19
Asset so carried back or (B) a reduction in the amount of the benefit
realized by the CVS Consolidated Group from such carryback as a result
of a Final Determination or the use by the CVS Consolidated Group of a
Tax Asset of the CVS Group, Linens shall repay to CVS the amount which
would not have been payable to Linens pursuant to Section 3(d)(i) had
the amount of the benefit been determined in light of such event. In
addition, Linens shall hold CVS and each of its Post-Deconsolidation
Affiliates harmless for any penalty or interest payable by any member
of the CVS Consolidated Group as a result of any such event referred
to in the preceding sentence. Any amounts payable under this Section
3(d)(ii) shall be paid by Linens to CVS in accordance with Section 9
hereof. To the extent Linens' repayment obligation arises due to the
use by the CVS Consolidated Group of a Tax asset of a member of the
CVS Group, Linens shall pay CVS interest on the amount repaid to CVS
from the date such amount was paid by CVS to Linens until such
repayment at Prime.
(iii) The parties hereto acknowledge that, in connection with
the disposition or deconsolidation of certain members of the CVS
Group, CVS or Melville has entered into, and intends to enter into,
agreements similar to this Agreement (the "CVS Group Agreements")
relating to
16
<PAGE> 20
Tax matters involving such members. Notwithstanding anything to the
contrary in this Agreement, to the extent that (i) CVS would be
required under Section 3 of this Agreement to make a payment to Linens
in respect of a Tax saving or Tax benefit attributable to a Tax Asset
of the Linens Group and (ii) CVS would be required under a CVS Group
Agreement or Agreements to make a similar payment to a member or
members of the CVS Group in respect of the same Tax saving or Tax
benefit, then the portion of such Tax saving or benefit attributable
to a Tax Asset of the Linens Group shall be calculated in accordance
with Treasury Regulation Section 1502-21A and any successor thereto.
4. Other Taxes
(a) Liability for all Taxes other than Consolidated
Federal Taxes or Consolidated State or Unitary Taxes ("Other Taxes")
attributable to the Linens Group shall be the sole responsibility of Linens and
its Post-Deconsolidation Affiliates. Liability for all Other Taxes
attributable to the CVS Group shall be the sole responsibility of CVS and its
Post-Deconsolidation Affiliates. The responsibility for preparing and filing
all Returns, and for making all payments to any Taxing Authority, relating
solely to Other Taxes attributable to the Linens Group shall be the sole
responsibility of Linens and its Post-Deconsolidation Affiliates. The
responsibility for preparing and filing all other Returns, and for making all
payments to any Taxing Authority, relating to
17
<PAGE> 21
Other Taxes for any Pre-Deconsolidation Period shall be the sole responsibility
of CVS and its Post-Deconsolidation Affiliates. Promptly after a payment of
Other Taxes by CVS, or any of its Post-Deconsolidation Affiliates on one hand,
or Linens or any of its Post-Deconsolidation Affiliates, on the other hand, the
paying party shall notify the non-paying party of the amount of such Other
Taxes, if any, which is attributable to the non-paying party, in accordance
with Section 4(c). The non-paying party shall pay to the paying party, in
accordance with Section 9 hereof, such amount.
(b) Linens shall be entitled to all refunds and credits
of Other Taxes attributable to the Linens Group, and CVS shall be entitled to
all refunds and credits of Other Taxes attributable to the CVS Group.
(c) The determination of whether Other Taxes are attributable
to the CVS Group, on one hand, or the Linens Group, on the other hand, shall be
made in accordance with past practices.
5. Certain Covenants.
(a) Linens Covenants. Linens covenants to CVS that
during the period beginning on the Deconsolidation Date and ending upon the
expiration of the statute of limitations period applicable to the Taxable year
in which the Deconsolidation occurs (after giving effect to any extension,
mitigation or waiver thereof), Linens will not, nor will it permit any of its
Post-Deconsolidation Affiliates to make or change any accounting method, amend
18
<PAGE> 22
any Tax Return or take any Tax position on any Tax Return, change the manner in
which it conducts its business, take any other action, omit to take any action
or enter into any transaction that results in any increased Tax liability with
respect to a Pre-Deconsolidation Period, or reduction of any Tax Asset which
was created in a Pre-Deconsolidation Period, of the CVS Group or any member
thereof without first obtaining the written consent of an authorized
representative of CVS; provided, however, that if a change in law (including
the enactment of any statute or the issuance of any proposed, temporary or
final regulations, or administrative pronouncement or judicial decision) would
have a material adverse effect on the aggregate Tax liability of Linens and its
Post-Deconsolidation Affiliates, then, notwithstanding anything to the contrary
in this Section 5(a), Linens shall be entitled to take, or to permit its
Post-Deconsolidation Affiliates to take, such minimum action as is necessary to
eliminate or mitigate the effect of the change in law. Linens agrees to notify
CVS of any action taken under the proviso contained in the preceding sentence.
(b) CVS Covenants. CVS covenants to Linens that (i) it
will not change its year-end for any Tax year beginning prior to January 1,
1997 and (ii) during the period beginning on the Deconsolidation Date and
ending upon the expiration of the statute of limitations period applicable to
the Taxable year in which the Deconsolidation occurs (after giving effect to
any extension, mitigation or waiver thereof), CVS will not, nor will it permit
any of its Post-
19
<PAGE> 23
Deconsolidation Affiliates to make or change any accounting method, amend any
Tax Return or take any Tax position on any Tax Return, change the manner in
which it conducts its business, take any other action, omit to take any action
or enter into any transaction that results in any increased Tax liability with
respect to a Pre-Deconsolidation Period, or reduction of any Tax Asset which
was created in a Pre-Deconsolidation Period, of the Linens Group or any member
thereof without first obtaining the written consent of an authorized
representative of Linens; provided, however, that if a change in law (including
the enactment of any statute or the issuance of any proposed, temporary or
final regulations, or administrative pronouncement or judicial decision) would
have a material adverse effect on the aggregate Tax liability of CVS and its
Post-Deconsolidation Affiliates, then, notwithstanding anything to the contrary
in this clause (ii), CVS shall be entitled to take, or to permit its
Post-Deconsolidation Affiliates to take, such minimum action as is necessary to
eliminate or mitigate the effect of the change in law. CVS agrees to notify
Linens of any action taken under the proviso contained in the preceding
sentence.
(c) Linens and CVS Covenant. The parties hereto agree to
act in good faith in complying with the terms of this Agreement.
6. Indemnities.
(a)(I) Linens Indemnity. Linens and each corporation that
is a Post-Deconsolidation Affiliate of Linens will jointly and severally
indemnify
20
<PAGE> 24
CVS and its Post-Deconsolidation Affiliates against and hold them harmless from
(i) any Pre-Deconsolidation Tax Liability assessed pursuant
to a Final Determination, to the extent attributable to an adjustment
of any item of income, gain, gross receipts, loss, credit, deduction
or other Tax attribute of any member of the Linens Group; and
(ii) any liability or damage resulting from a breach by
Linens or any of its Post-Deconsolidation Affiliates of any covenant
made by Linens herein.
(iii) any liability or damage under the securities laws or
otherwise resulting from information furnished by Linens in connection
with the Deconsolidation.
If a Post-Deconsolidation Affiliate of Linens ceases to be an Affiliate of
Linens as a result of a sale of its stock to a third party (whether or not
treated as a sale of stock for Tax purposes), such Post-Deconsolidation
Affiliate shall be released from its obligations under this Agreement upon such
sale and neither Linens nor any of its other Post-Deconsolidation Affiliates
shall have any obligation to indemnify CVS or any of its Post-Deconsolidation
Affiliates under Section 6(a)(I)(ii) for any liability or damage attributable
to actions taken after such sale by such Post-Deconsolidation Affiliates.
Notwithstanding anything in this Agreement to the contrary, the preceding
sentence shall have no effect on Linens' obligation to indemnify CVS and its
Post-Deconsolidation Affiliates pursuant to Section 6(a)(II) of this Agreement.
(a)(II) Linens Additional Indemnity. Linens and each of its
Post-Deconsolidation Affiliates agree to continue to be bound by the terms of
the Tax Disaffiliation Agreement between Melville and Footstar, Inc. dated as of
September 24, 1996 (the "Footstar Tax Disaffiliation Agreement") after the
Deconsolidation. Linens will indemnify CVS and its Post-Deconsolidation
Affiliates for any liability incurred by CVS or any of its Post-Deconsolidation
Affiliates pursuant to Section 6(b)(iii) of the Footstar Tax Disaffiliation
Agreement resulting from any action taken after the Deconsolidation by Linens or
any of its Post-Deconsolidation Affiliates.
21
<PAGE> 25
(b) CVS Indemnity. CVS and each corporation that is a
Post-Deconsolidation Affiliate of CVS will jointly and severally indemnify
Linens and its Post-Deconsolidation Affiliates against and hold them harmless
from
(i) any Pre-Deconsolidation Tax Liability, or Tax liability
resulting from the Deconsolidation, other than any such liabilities
described in Section 6(a);
(ii) any Tax liability allocable to a member of the CVS Group
which is a liability of the Linens Group under clause (B) of the
definition of Tax with respect to any pre-Deconsolidation Period or
any Tax year of the CVS Consolidated Group which includes (but does
not end on) the Deconsolidation Date; and
(iii) any liability or damage resulting from a breach by CVS
or any of its Post-Deconsolidation Affiliates of any covenant made by
CVS herein.
(iv) any liability of damage under the securities laws or
otherwise resulting from information furnished by CVS in connection
with the Deconsolidation.
For the purpose of avoiding ambiguity, the parties agree that CVS and its
Post-Deconsolidation Affiliates shall be responsible under this Agreement for
any Tax for a Pre-Deconsolidation Period attributable to (x) the corporations
(domestic or foreign) comprising the CVS, Bob's, Footstar (including
22
<PAGE> 26
Footaction, Meldisco, Melville (Europe) Purchasing Ltd. and Thom McAn),
Wilsons, Kay-Bee, Marshalls, This End Up, Prints Plus, Chess King, Foxmoor and
Accessory Lady retail chains, (y) the Non-Chain Corporations and (z) to any
business activity conducted by CVS or any of its Affiliates (domestic or
foreign) which is or was directly related to the businesses conducted by the
corporations specified in clauses (x) and (y). If a Post-Deconsolidation
Affiliate of CVS ceases to be an Affiliate of CVS as a result of a sale of its
stock to a third party (whether or not treated as a sale of stock for Tax
purposes), such Post-Deconsolidation Affiliate shall be released from its
obligations under this Agreement upon such sale and neither CVS nor any of its
other Post-Deconsolidation Affiliates shall have any obligation to indemnify
Linens or any of its Post-Deconsolidation Affiliates under Section 6(b)(iii)
for any liability or damage attributable to actions taken after such sale by
such Post-Deconsolidation Affiliates.
(c) Discharge of Indemnity. Linens, CVS and their
respective Post-Deconsolidation Affiliates shall discharge their obligations
under Section 6(a) and 6(b) hereof, respectively, by paying the relevant amount
within 30 days of demand therefor. After a Final Determination of an
obligation of Linens or any of its Post-Deconsolidation Affiliates under
Section 6(a), CVS shall send a statement to Linens showing the amount due
thereunder. After a Final Determination of an obligation of CVS or any of its
Post-Deconsolidation
23
<PAGE> 27
Affiliates under Section 6(b), Linens shall send a statement to CVS showing the
amount due thereunder. Calculation mechanics relating to items described in
Section 6(a)(i) are set forth in Section 3(c). Notwithstanding the foregoing,
if either Linens, CVS or any of their respective Post-Deconsolidation
Affiliates disputes in good faith the fact or the amount of its obligation
under Section 6(a) or Section 6(b), then no payment of the amount in dispute
shall be required until any such good faith dispute is resolved in accordance
with Section 16 hereof; provided, however, that any amount not paid within 30
days of demand therefor shall bear interest as provided in Section 9.
(d) Tax Benefits. If an indemnification obligation of
CVS, Linens or any of their respective Post-Deconsolidation Affiliates under
this Section 6 arises in respect of an adjustment that makes allowable to CVS
or its Affiliates, or Linens or its Affiliates, respectively, any deduction,
amortization, exclusion from income or other allowance (a "Tax Benefit") which
would not, but for such adjustment, be allowable, then any payment by CVS,
Linens or any of their respective Post-Deconsolidation Affiliates, as the case
may be, pursuant to this Section 6 shall be an amount equal to (X) the amount
otherwise due but for this subsection (d), minus (Y) the present value of the
product of the Tax Benefit multiplied (i) by the maximum federal or state, as
the case may be, corporate tax rate in effect at the time such Tax Benefit
becomes allowable to CVS or its Affiliates, or Linens or its Affiliates (as the
case may be) or (ii) in
24
<PAGE> 28
the case of a credit, by 100 percent. The present value of such product shall
be determined by discounting such product from the time the Tax Benefit becomes
allowable at a rate equal to Prime.
(e) Refunds. Any refunds of Tax received by CVS or any
of its Post-Deconsolidation Affiliates relating to a Post-Deconsolidation
Period, to the extent attributable to any item of income, loss, credit,
deduction or other tax attribute of any member of the Linens Group shall be
paid by CVS to Linens within 30 days of receipt. Any amount not paid when due
shall bear interest as provided in Section 9.
(f) Clerical Errors If, as a result of a correction of
a clerical error made by booking any item at one member of the CVS Consolidated
Group instead of another, (i) the Pre-Deconsolidation Tax Liability allocable
to the Linens Group or the CVS Group, as the case may be, is increased, (ii)
the Pre-Deconsolidation Tax Liability allocable to the other group is decreased
by an offsetting amount, and (iii) no Tax payment is required to be made to a
Taxing Authority in respect of the correction of the clerical error, then the
group referred to in clause (ii) of this Section 6(f) shall be treated as
having made a Tax payment in an amount equal to the increased
Pre-Deconsolidation Tax Liability described in clause (i) of this Section 6(f)
and shall be entitled to indemnification therefor under this Section 6 without
regard to Section 6(d).
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<PAGE> 29
(g) Method of Calculation. (i) Except as otherwise
provided, the amount of any liability of Linens and its Post-Deconsolidation
Affiliates or of CVS and its Post-Deconsolidation Affiliates under this Section
6 shall be calculated pursuant to the method described in Exhibit A hereto;
provided, however, that the calculation of any party's share of Unitary State
Tax shall be calculated pursuant to the method described in Exhibit B hereto.
(ii) For purposes of this Section 6, in the case of Taxes
that are imposed on a periodic basis and are payable for a Tax period that
includes (but does not end on) the Deconsolidation Date, the portion of such
Tax related to the portion of such Tax period ending on the Deconsolidation
Date shall (x) in the case of any Taxes other than Taxes based upon or related
to income, sales, gross receipts, wages, capital expenditures or expenses, be
deemed to be the amount of such Tax for the entire Tax period multiplied by a
fraction the numerator of which is the number of days in the Tax period ending
on the Deconsolidation Date and the denominator of which is the number of days
in the entire Tax period, and (y) in the case of any Tax based upon or related
to income, sales, gross receipts, wages, capital expenditures or expenses, be
deemed equal to the amount which would be payable if the relevant Tax period
ended on the Deconsolidation Date and applying the weighted average 1996 Tax
rate for the relevant Tax applicable to the corporation subject to such Tax.
7. Communication and Cooperation.
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<PAGE> 30
(a) Consult and Cooperate. Linens and CVS shall consult
and cooperate (and shall cause each of their Post-Deconsolidation Affiliates to
cooperate) fully at such time and to the extent reasonably requested by the
other party in connection with all matters subject to this Agreement. Such
cooperation shall include, without limitation,
(i) the retention and provision on reasonable request of
any and all information including all books, records, documentation or
other information pertaining to Tax matters relating to the CVS Group
and the Linens Group, any necessary explanations of information, and
access to personnel, until the expiration of the applicable statute of
limitation (giving effect to any extension, waiver, or mitigation
thereof);
(ii) the execution of any document that may be necessary
or helpful in connection of any required Return or in connection with
any audit, proceeding, suit or action;
(iii) reporting to the other party, on a quarterly basis,
on the status of any Tax audit relating to a Pre-Deconsolidation
Period; and
(iv) the use of the parties' best efforts to obtain any
documentation from a governmental authority or a third party that may
be necessary or helpful in connection with the foregoing.
(b) Provide Information. CVS and Linens shall keep each
other fully informed with respect to any material development relating to the
27
<PAGE> 31
matters subject to this Agreement. CVS shall provide to Linens copies of all
Information Document Requests relating to a Pre-Deconsolidation Period issued
by the Internal Revenue Services on Form 4564 or any successor thereto and any
analogous requests issued by any other Tax Authority (collectively,
"Requests"), and (to the extent practicable in light of the relevant Taxing
Authority's requirements) shall use reasonable efforts to provide copies of the
response to each Request more than two business days prior to filing such
response; provided, however, that CVS's failure to deliver a copy of a response
to a Request before such two-day period shall not relieve Linens of its
obligations under this Agreement. CVS shall not be required to provide Linens
with copies of any Requests or the responses thereto unless specifically
related to the Linens group; provided, however, Linens shall not be entitled to
review or receive the portion of any response which does not specifically
relate to the Linens Group.
(c) Tax Attribute Matters. CVS and Linens shall advise
and consult with each other with respect to any proposed Tax adjustments
relating to the CVS Consolidated Group or, with respect to Other Taxes, any
group which includes at least one member of the CVS Group and at least one
member of the Linens Group, which are the subject of an audit or investigation,
or are the subject of any proceeding or litigation, and which may affect any
Tax attribute of CVS, Linens, the CVS Group, the Linens Group or any Post-
28
<PAGE> 32
Deconsolidation Affiliate of CVS or Linens (including, but not limited to,
basis in an asset or the amount of earnings and profits).
8. Audits and Contest.
(a) Notwithstanding anything in this Agreement to the
contrary, CVS shall have full control over all matters relating to any Federal
Tax return filed by the CVS Consolidated Group, any Consolidated State or
Unitary State Tax Return, any Other Tax Return (other than one relating solely
to the Linens Group), or any Tax Proceeding relating to any Tax matters of at
least one member of the CVS Group. Except as provided in Section 8(b), CVS
shall have absolute discretion with respect to any decisions to be made, or the
nature of any action to be taken, with respect to any matter described in the
preceding sentence.
(b) No settlement of any Tax Proceeding relating to any
matter which would cause a payment obligation under Sections 6(a) or 6(b) shall
be accepted or entered into by or on behalf of the party entitled to receive a
payment under either Section 6(a) or Section 6(b), whichever is applicable,
unless the party ultimately responsible for such payment under either Section
6(a) or Section 6(b), whichever is applicable (the "Indemnitor"), consents
thereto in writing (which consent shall not be unreasonably withheld). If such
consent is unreasonably withheld, all expenses relating to the contest of such
matter shall be borne by the Indemnitor, and otherwise they shall be borne
29
<PAGE> 33
equally by the Indemnitor and the indemnified party. If the Indemnitor does
not respond to the indemnified party's request for consent within 30 days, the
Indemnitor will be deemed to have consented to the settlement. Notwithstanding
anything to the contrary herein, the indemnified party shall have the right,
without the consent of the Indemnitor, to settle any Tax Proceeding relating to
any matter which would cause a payment obligation under Sections 6(a) or 6(b),
provided, however, that in such event the Indemnitor shall have no liability
under Section 6(a) or (b), as the case may be, with respect to such matter.
(c) The indemnified party agrees to give prompt notice to
the Indemnitor of the assertion of any claim, or the commencement of any suit,
action or proceeding in respect of which indemnity may be sought hereunder.
The failure of the indemnified party to give notice as provided in this Section
8(c) shall not relieve the Indemnitor of its obligations under this Agreement,
except to the extent that the Indemnitor is materially prejudiced by such
failure to give notice.
(d) With respect to Returns relating to Other Taxes solely
attributable to the Linens Group, Linens and its Post-Deconsolidation
Affiliates shall have full control over all matters relating to any Tax
Proceeding in connection therewith. Linens and its Post-Deconsolidation
Affiliates shall have absolute discretion with respect to any decisions to be
made, or the nature of
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<PAGE> 34
any action to be taken, with respect to any matter described in the preceding
sentence.
9. Payments.
All payments to be made hereunder shall be made in immediately
available funds. Except as otherwise provided, all payments required to be
made pursuant to this Agreement will be due 30 days after the receipt of notice
of such payment or, where no notice is required, 30 days after the fixing of
liability or the resolution of a dispute. Payments shall be deemed made when
received. Any payment that is not made when due shall bear interest at the
rate per annum determined, from time to time, under the provision of Section
6621(a)(2) of the Code for each day until paid; provided, however, that, if an
obligation or the amount thereof is being disputed in good faith, any payment
required after resolution of such dispute shall bear interest at Prime until
and including the thirtieth day after such resolution. If, pursuant to a Final
Determination, any amount paid by CVS, Linens or their respective
Post-Deconsolidation Affiliates pursuant to this Agreement results in any
increased Tax liability or reduction of any Tax Asset of any member of the
Linens Group, Linens or its Post-Deconsolidation Affiliates, or the CVS Group,
CVS or its Post-Deconsolidation Affiliates, respectively, then CVS or Linens,
as the case may be, shall indemnify the other party and hold it harmless from
any interest or penalty attributable to such increased Tax liability or the
reduction of such
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<PAGE> 35
Tax asset and shall pay to the other party, in addition to amounts otherwise
owed, 50 percent of the After-Tax Amount; provided, however, that with respect
to any amount paid pursuant to Section 3(d)(ii) (other than as a result of the
use by the CVS Consolidated Group of a Tax Asset of the CVS Group), Section
6(a)(ii) or (iii) or Section 6(b)(iii) or (iv), CVS or Linens, as the case may
be, shall pay to the other party 100 percent of the After-Tax Amount.
10. Notices.
Any notice, demand, claim, or other communication under this
Agreement shall be in writing and shall be deemed to have been given upon the
delivery or mailing thereof, as the case may be, if delivered personally or
sent by certified mail, return receipt requested, postage prepaid, to the
parties at the following addresses (or at such other address as a party may
specify by notice to the other):
If to CVS, to:
Charles Conaway
1 CVS Drive
Woonsocket, RI 02895
James E. Alward
Michael Golub
67 Millbrook Street
Worcester, MA 01606
If to Linens, to:
James Tomaszewski
William Giles
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<PAGE> 36
David Dick
6 Brighton Road
Clifton, NJ 07015
11. Costs and Expenses.
Except as expressly set forth in this Agreement, each party
shall bear its own costs and expenses incurred pursuant to this Agreement. For
purposes of this Agreement, "out-of-pocket" expenses shall include reasonable
attorney fees, accountant fees and other related professional fees and
disbursements.
12. Effectiveness; Termination and Survival.
This Agreement shall become effective upon the consummation of
the Deconsolidation. Notwithstanding anything in this Agreement to the
contrary, this Agreement shall remain in effect and its provisions shall
survive for the full period of all applicable statutes of limitation (giving
effect to any extension, waiver or mitigation thereof).
13. Section Headings.
The headings contained in this Agreement are inserted for
convenience only and shall not constitute a part hereof or in any way affect
the meaning or interpretation of this Agreement.
14. Entire Agreement; Amendments and Waivers.
(a) Entire Agreement. This Agreement contains the entire
understanding of the parties hereto with respect to the subject matter
contained
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<PAGE> 37
herein. No alteration, amendment, modification, or waiver of any of the terms
of this Agreement shall be valid unless made by an instrument signed by an
authorized officer of CVS and Linens, or in the case of a waiver, by the party
against whom the waiver is to be effective.
(b) Waiver. No failure or delay by any party in
exercising any right, power or privilege hereunder shall operate as a waiver
hereof nor shall any single or partial exercise thereof preclude any other or
further exercise thereof or the exercise of any right, power or privilege.
15. Governing Law and Interpretation. This Agreement has
been made in and shall be construed and enforced in accordance with the laws of
the Commonwealth of Massachusetts.
16. Dispute Resolution. If the parties hereto are unable
to resolve any disagreement or dispute relating to this Agreement within 20
days, such disagreement or dispute shall be resolved by a nationally recognized
law firm or accounting firm expert in Tax matters that is mutually acceptable
to the parties hereto (a "Referee"). A Referee so chosen shall resolve any
such disagreement pursuant to such procedures as it may deem advisable. Any
such resolution shall be binding on the parties hereto without further
recourse. Except as otherwise provided herein, the costs of any Referee shall
be apportioned between CVS and Linens as determined by such Referee in such
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<PAGE> 38
manner as the Referee deems reasonable, taking into account the circumstances
of the dispute, the conduct of the parties and the result of the dispute.
17. Counterparts.
This Agreement may be executed in one or more counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
18. Assignments; Third Party Beneficiaries.
Except as provided below, this Agreement shall be binding upon and shall inure
only to the benefit of the parties hereto and their respective successors and
assigns. This Agreement is not intended to benefit any person other than the
parties hereto and such successors and assigns, and no such other person shall
be a third party beneficiary hereof. If, during the period beginning on the
Deconsolidation Date and ending upon the expiration of all statute of
limitations periods applicable to Pre-Deconsolidation Periods, any corporation
becomes an Affiliate of either CVS or Linens, as the case may be, then upon the
request of either Linens or CVS, as the case may be, the other party shall
provide evidence of such Affiliate's agreement to be bound by the terms of this
Agreement. During the period beginning on the Deconsolidation Date and ending
upon the expiration of all statute of limitations periods applicable to
Pre-Deconsolidation Periods, no entity shall be entitled to acquire a
controlling
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<PAGE> 39
interest in CVS or Linens unless such entity agrees to be bound by the terms of
this Agreement.
36
<PAGE> 40
IN WITNESS WHEREOF, the parties have executed and delivered
this Agreement as of the day and year first written above.
CVS on its own behalf and on
behalf of its Post-Deconsolidation
Affiliates
By: ZENON T. LANKOWSKY
-------------------------
Title: Secretary
-----------------------
Linens on its own behalf and
on behalf of its Post-Deconsolidation
Affiliates
By: JAMES M. TOMASZEWSKI
---------------------------
James M. Tomaszewski
Title: Senior Vice President/CFO
-------------------------
LNT, Inc.,
Divisional Agent for the Linens Group
By: NORMAN AXELROD
-----------------------------
Norman Axelrod
Title: Chief Executive Officer and
President
---------------------------
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Exhibit A
1. The Linens Group's share of any Pre-Deconsolidation Consolidated
Federal or Consolidated State Tax liability shall be, with respect to
such Federal or Consolidated State Taxes, as applicable, calculated as
if Linens were the parent of a group filing its own consolidated
return for all Pre-Deconsolidation Periods; provided, however, that
(i) income, deductions, credits and losses shall be computed in a
manner consistent with past practices, (ii) the applicable Tax rate
shall be the appropriate maximum statutory rate in effect during the
relevant year, (iii) in no event shall the Linens Group's share of any
Consolidated Federal or Consolidated State Tax liability exceed the
amount that would have constituted the Linens Group's share of such
liability if such share had been calculated in accordance with the
allocation principles set forth in Treas. Reg. Section 1.1552-1(a)(2)
and Treas. Reg. Section 1.1502-33(d)(2)(ii) as in effect prior to
Treasury Decision 8597, except to the extent consistent with past
practice, and (iv) notwithstanding anything to the contrary in this
Agreement, any deduction attributable to the exercise of an option to
acquire CVS stock by a person who is an employee of a member of the
Linens Group at the time of such exercise shall be treated as a
deduction allocable to the member of the Linens Group employing such
person.
2. For purposes of paragraph 1 above, "Tax liability" (1) shall exclude
any liability for the payment of alternative minimum tax; and (2)
shall refer to an actual out-of-pocket payment to any Taxing
Authority, after taking into account the utilization of net operating
losses and any other Tax Assets.
3. Any alternative minimum Tax liability (and any Tax Assets attributable
to such liability) and any environmental Tax imposed under Section 59A
of the Code shall be allocated among the members of the CVS
Consolidated Group in accordance with the formulas referenced in
Proposed Treasury Regulation Section 1.1502-5(b)(6).
4. For all Pre-Deconsolidation Periods, CVS or Melville (as appropriate)
shall have the right, in its sole discretion, to elect (in an original
or an amended return) to deduct currently any Taxes of foreign
countries and of possessions of the United States. In the event that
CVS or Melville, as the case may be, elects not to deduct currently
such Taxes but instead to elect to take a foreign tax credit under the
provisions of Part III of
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<PAGE> 42
Subchapter N of the Code, any consolidated unused foreign tax credit
of the CVS Consolidated Group shall be apportioned to the members of
such group pursuant to Treas. Reg. Section 1.1502-79(d).
5. Any interest imposed in connection with any Tax liability shall be
allocated in the same manner as the underlying Tax liability, as
provided above.
6. Any penalty imposed in connection with any Tax liability shall be the
responsibility of the party whose action or inaction resulted in the
imposition of such penalty; provided, however, that if such a
determination cannot be made, the penalty shall be allocated in the
same manner as the underlying Tax liability, as provided above.
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<PAGE> 43
Exhibit B
1. The Linens Group's share of any Pre-Deconsolidation Unitary State Tax
Liability shall be, with respect to each State, the aggregate amount
of Unitary State Tax Liability of all members of the Linens Group that
are members of the relevant CVS Consolidated Group. A member's
liability for its share of Pre-Deconsolidation Unitary State Tax shall
be determined in accordance with paragraph 3 of this Exhibit B;
provided, however, that (i) income, deductions, credits and losses
shall be computed in a manner consistent with past practices, (ii)
credits and any minimum taxes shall be allocated to the member
responsible for the generation of such credit or taxes, and (iii)
notwithstanding anything to the contrary in this Agreement, any
deduction attributable to the exercise of an option to acquire CVS
stock by a person who is an employee of a member of the Linens Group
at the time of such exercise shall be treated as a deduction allocable
to the member of the Linens Group employing such person.
2. The Linens Group's share of any Pre-Deconsolidation Unitary State Tax
Assets shall be, with respect to each State, the aggregate amount of
Unitary State Tax Assets of all members of the Linens Group. A
member's share of such Unitary State Tax Assets shall be determined in
accordance with paragraph 3 of this Exhibit B.
3. A member of the Linens Group's share of any Pre-Deconsolidation
Unitary State Tax Liability or Pre-Deconsolidation Unitary State Tax
Asset shall be the product of (i) such Unitary State Tax Liability or
Unitary State Tax Asset, as the case may be, and (ii) the percentage
of the numerator used in determining the apportionment percentage of
the CVS Consolidated Group for such Unitary State which is
attributable to such member of the Linens Group.
4. Any interest imposed in connection with any Tax liability shall be
allocated in the same manner as the underlying Tax liability, as
provided above.
5. Any penalty imposed in connection with any Tax liability shall be the
responsibility of the party whose action or inaction resulted in the
imposition of such penalty; provided, however, that if such a
determination cannot be made, the penalty shall be allocated in the
same manner as the underlying Tax liability, as provided above.
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<PAGE> 1
Exhibit 10.4
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
OR ANY STATE SECURITIES LAWS AND MAY NOT BE OFFERED OR SOLD EXCEPT IN COMPLIANCE
THEREWITH.
SUBORDINATED NOTE
$ 13,500,000
Linens 'n Things, Inc., a Delaware corporation (the "Issuer"), for
value received hereby promises to pay to Nashua Hollis CVS, Inc., a New
Hampshire corporation (the "Holder" or "Nashua Hollis"), and its successors,
transferees and assigns the principal sum of US$13,500,000 on December 2, 2000,
together with all interest accrued and unpaid hereon as of such date.
The principal amount of this Note shall be subject to reduction to the
extent provided in the following paragraphs (a) and (b) hereunder:
(a) In the event that the sum of (1) the excess, if any, of
Aggregate Cash Proceeds (including, without limitation, the proceeds received
by the CVS Group from the Initial Public Offering) over Transaction Expenses
received by the CVS Group as of any date on or prior to December 31, 1997 plus
(2) if such date is December 31, 1997, the Aggregate Market Value of the Common
Stock, if any, held by the CVS Group on December 31, 1997:
(i) exceeds $375,000,000, the principal amount hereof then outstanding
will be reduced on such date by $5,000,000;
(ii) exceeds $400,000,000, the principal amount hereof then outstanding
will be reduced on such date by $2,500,000 (the reduction pursuant to this
clause (ii) to be in addition to the amount of the reduction in principal
amount effected pursuant to clause (i) of this paragraph); and
(iii) exceeds $450,000,000, the principal amount hereof then
outstanding will be reduced on such date by $2,500,000 (the reduction
pursuant to this clause (iii) to be in addition to the amount of the
reduction in
<PAGE> 2
principal amount effected pursuant to clauses (i) and (ii) of this
paragraph);
provided that (x) only one reduction may be made under each of clauses (i), (ii)
and (iii) above, and (y) the foregoing provisions of this paragraph (a) will not
reduce the amount of (or affect the Issuer's obligation to pay) interest accrued
and unpaid on this Note as of such date.
(b) In the event that the Aggregate Cash Proceeds as of any date
subsequent to the closing of the Initial Public Offering but prior to January 1,
1998 from any public or private sale of Common Stock (excluding for purposes of
this clause (b) shares sold in the Initial Public Offering) exceeds the amount
equal to the number of shares sold in such sale (the "Post-IPO Sold Shares")
multiplied by $16.00 (such excess, the "Appreciated Amount"), the principal
amount hereof then outstanding will be reduced on such date by (i) 50% of the
portion of the Adjusted Proceeds Amount (as defined below) up to the product of
$2.00 times the aggregate number of such Post-IPO Sold Shares plus (ii) 65% of
the portion, if any, of the Adjusted Proceeds Amount in excess of the product of
$2.00 times the aggregate number of Post-IPO Sold Shares; provided that (x) the
foregoing provisions of this paragraph will not reduce the amount of (or effect
the Issuer's obligation to pay) interest accrued and unpaid on this Note as of
such date and (y) at no time shall the reductions pursuant to this paragraph (b)
in the aggregate exceed $3,500,000. As used herein, "Adjusted Proceeds Amount"
means, with respect to any Post-IPO Sold Shares sold on any date, the
Appreciated Amount with respect thereto minus the portion of the Transaction
Expenses that bears the same proportion to the total Transaction Expenses from
such sale as the Appreciated Amount bears to the Aggregate Cash Proceeds from
such sale, further reduced by an amount equal to the hypothetical tax on such
sum calculated at the combined effective federal and state rate for the CVS
Group.
Notwithstanding anything else in the foregoing paragraphs (a) and (b),
at no time shall the principal amount hereof outstanding be reduced to less than
zero. The Holder agrees that at the time of any reduction of the principal
amount of this Note pursuant to paragraph (a) or (b) above, the Holder will be a
shareholder of the Issuer.
By its acceptance of this Note, the Holder agrees to notify the Issuer
promptly in writing of each principal reduction effected on any date pursuant
to the preceding paragraphs (a) and (b) (and will furnish to the Issuer in
reasonable detail information with respect to such reductions).
The Issuer promises to pay interest, quarterly in arrears, on February
2, May 2, August 2 and November 2 (unless such day is not a Business Day, in
which event on the next succeeding Business Day) (each, an "Interest Payment
Date") of each year in which this Note remains outstanding, commencing with
February 2, 1997, on the unpaid principal sum hereof outstanding at the rate per
annum set forth below from the most recent Interest Payment Date to which
interest has been paid on this Note, or if no interest has been paid on this
Note, from December 2, 1996, until payment in full of the principal sum hereof
has been made. Interest shall accrue each day on the unpaid principal sum
2
<PAGE> 3
hereof outstanding on such day at a rate per annum equal to the sum of (x) LIBOR
plus (y) the Applicable Margin for such day (the "Interest Rate"); provided
that, subject to Section 4.2(a), interest on overdue principal shall accrue each
day that such overdue principal payment remains unpaid at a rate per annum of 2%
above the Interest Rate for such day (the "Overdue Rate"), and interest on
overdue installments of interest, to the extent lawful, shall accrue each day
that such overdue interest payment remains unpaid at the Overdue Rate for such
day. Interest hereon shall be computed on the basis of a year of 360 days of
twelve 30-day months and paid on the basis of the actual number of days elapsed.
The Issuer may at any time (but shall not be obligated to) prepay in
whole or in part the unpaid principal amount hereof then outstanding, together
with interest accrued and unpaid on this Note to (but excluding) the date of
prepayment, without any prepayment penalty or charge.
All payments of principal and interest by the Issuer hereunder shall be
made by wire transfer of immediately available funds to the Holder's account at
a bank in the United States specified by the Holder in writing to the Issuer in
such coin or currency of the United States of America as at the time of payment
shall be legal tender for the payment of public and private debts.
The issuance of this Subordinated Note arose as follows in connection
with elimination of intercompany balances as of the closing of the Initial
Public Offering. CVS New York, Inc. (formerly Melville Corporation), a New York
corporation ("CVS NY"), made an intercompany loan of $13,500,000 to Nashua
Hollis. Nashua Hollis loaned such funds to the Issuer in exchange for this
Subordinated Note. The Issuer loaned such funds to LNT, Inc. in exchange for a
note dated the date hereof made by LNT, Inc. LNT, Inc. used such funds to repay
an intercompany loan to CVS NY.
The Issuer agrees to issue to the Holder or any transferee of the Holder from
time to time a replacement Note or Notes in the form hereof and in such
denominations as such Person may request to facilitate such transfers and
assignments. In addition, after delivery of an indemnity in form and substance
satisfactory to the Issuer, the Issuer also agrees to issue replacement Notes
for Notes which have been lost, stolen, mutilated or destroyed.
The Issuer shall keep at its principal office a register (the
"Register") in which shall be entered the names and addresses of the Holders of
Notes and particulars of the respective Notes held by such Holders and of all
transfers of such Notes. References to the "Holder" or "Holders" shall mean the
Person listed in the Register as the payee of any Note unless the payee shall
have presented
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<PAGE> 4
such Note to the Issuer for transfer and the transferee shall have been entered
in the Register as a subsequent holder, in which case the term shall mean such
subsequent holder. The ownership of the Notes shall be proven by the Register.
For the purpose of paying interest and principal on the Notes, the Issuer shall
be entitled to rely on the names and addresses in the Register and
notwithstanding anything to the contrary contained in this Note, no Event of
Default shall occur under Section 3.1(a) or 3.1(b) if payment of interest and
principal is made in accordance with the names and addresses and particulars
contained in the Register.
Section 1. Certain Terms Defined. (a) The following terms for all
purposes of this Note shall have the respective meanings specified below.
"Aggregate Cash Proceeds" means, on any date on or prior to
December 31, 1997, the aggregate cash proceeds received by the CVS Group as
of such date from public or private sales by the CVS Group of equity
securities of the Issuer to any Person that is not an Affiliate of CVS.
"Aggregate Market Value" of the Common Stock, if any, held by the CVS
Group on December 31, 1997 means (i) the average of the Current Market Price of
the Common Stock for the ten trading days prior to and ending on December 31,
1997 times (ii) the number of shares of Common Stock, if any, held by the CVS
Group on December 31, 1997.
"Applicable Margin" has the meaning assigned to such term in the Credit
Agreement, without giving effect to any amendment or modification thereof after
the date hereof and whether or not the Credit Agreement remains in effect.
"Business Day" means any day except a Saturday, Sunday or other day on
which commercial banks in the City of New York, New York are authorized by law
to close.
"Collection Action" means (a) to demand or sue for (including, without
limitation, by set-off, counterclaim or in any other manner) the whole or any
part of any moneys which may now or hereafter be owing by the Issuer with
respect to the Subordinated Obligations, (b) to initiate or participate with
others in any suit, action or proceeding
4
<PAGE> 5
against the Issuer, to (i) enforce payment of or to collect the whole or any
part of the Subordinated Obligations or (ii) commence enforcement of any of the
rights and remedies under the Note or applicable law with respect to the
Subordinated Obligations, or (c) to accelerate any Subordinated Obligations.
"Common Stock" means the Issuer's common stock, $0.01 par value per
share.
"Credit Agreement" means the Credit Agreement dated as of December 2,
1996 among the Issuer, the subsidiary borrowers party thereto, the lenders party
thereto and The Bank of New York ("BNY"), as agent thereunder, as the same may
be amended or supplemented from time to time.
"Current Market Price" of publicly traded shares of Common Stock on any
trading day means the last reported sales price, regular way, or, in case no
sale takes place on such day, the average of the reported closing bid and asked
prices, regular way, in either case as reported on the New York Stock Exchange
Composite Tape or, if such security is not listed or admitted to trading on the
New York Stock Exchange, on the principal national securities exchange on which
such security is then listed or admitted to trading or, if not listed or
admitted to trading on any national securities exchange, on the NASDAQ National
Market System or, if such security is not quoted on such National Market System,
the average of the closing bid and asked prices on each such day in the
over-the-counter market as reported by NASDAQ or, if bid and asked prices for
such security on each such day shall not have been reported through NASDAQ, the
average of the bid and asked prices for such day as furnished by any New York
Stock Exchange member firm regularly making a market in such security selected
for such purpose by the Board of Directors of the Issuer on such trading day.
"Debt" of any Person means at any date, without duplication, (i) all
obligations of such Person for borrowed money (including accrued and unpaid
interest thereon and any premium with respect thereto), (ii) all obligations of
such Person evidenced by bonds, debentures, notes or other similar instruments,
(iii) all obligations of such Person in respect of letters of credit, bankers'
acceptance or other similar instruments (or reimbursement obligations with
respect thereto), (iv) all obligations of such Person to pay the deferred
purchase price of property or services, except Trade Payables, (v) all
obligations of such Person as lessee which are capitalized in accordance with
generally accepted
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<PAGE> 6
accounting principles, (vi) all Debt of others secured by a Lien on any asset of
such Person, whether or not such Debt is assumed by such Person, and (vii) all
Debt of others Guaranteed by such Person.
"Default" means any condition or event which constitutes an Event of
Default or which with the giving of notice or lapse of time or both would become
an Event of Default.
"Event of Default" means any event or condition specified as such in
Section 3.1.
"Guarantee" by any Person means any obligation, contingent or
otherwise, of such Person directly or indirectly guaranteeing any Debt of any
other Person and, without limiting the generality of the foregoing, any
obligation, direct or indirect, contingent or otherwise, of such Person (i) to
purchase or pay (or advance or supply funds for the purchase or payment of) such
Debt of such other Person (whether arising by virtue of partnership
arrangements, by agreement to keep-well, to purchase assets, goods, securities
or services, to take-or-pay, or to maintain financial statement conditions or
otherwise) or (ii) entered into for the purpose of assuring in any other manner
the obligee of such Debt for the payment thereof or to protect such obligee
against loss in respect thereof (in whole or in part); provided that the term
Guarantee shall not include endorsements for collection or deposit in the
ordinary course of business. The term "Guarantee" used as a verb has a
corresponding meaning.
"Initial Public Offering" means the sale by Nashua Hollis of Common
Stock in an initial public offering consummated on December 2, 1996 through
underwriters led by CS First Boston and Donaldson, Lufkin & Jenrette
Securities Corporation.
"LIBOR" means, with respect to any period from and including
an Interest Payment Date through but excluding the next succeeding Interest
Payment Date, the rate of interest per annum (rounded, if necessary, to the
nearest 1/16 of 1% then to the next higher 1/16 of 1%, equal to a fraction, the
numerator of which is the arithmetic mean (rounded upward, if necessary, to the
nearest 1/16 of 1%) of the offered rates for deposits in Dollars in an amount
approximately equal to the aggregate principal amount approximately equal to
the aggregate principal amount outstanding hereunder and having a three month
maturity quoted two Eurodollar Business Days (as defined in the Credit
Agreement) prior to the first day of such period to leading banks in the
interbank eurodollar market as such rates appear on the display designated as
page "LIBO" on the Reuters Monitor Money Rates Service (or such other page as
may replace the "LIBO" pages on that service for the purpose of displaying
London interbank offered rates of major banks as of 11:00 A.M. (New York City
time) on such date, and the denominator of which is an amount equal to 1.00
minus the aggregate of the then stated maximum rates during such period of all
reserve requirements (including marginal, emergency, supplemental and special
reserves), expressed as a decimal, established by the Board of Governors of the
Federal Reserve System and any other banking authority to which BNY and other
major United States money center banks are subject, in respect of eurocurrency
liabilities.
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<PAGE> 7
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset.
For the purposes of this Note, the Issuer shall be deemed to own subject to a
Lien any asset which it has acquired or holds subject to the interest of a
vendor or lessor under any conditional sale agreement, capitalized lease or
other title retention agreement relating to such asset.
"Material Debt" means (i) all Debt of the Issuer and/or one or more of
its Subsidiaries under the Credit Agreement, and (ii) any other Debt (other than
(a) the Notes, (b) Debt of the Issuer owed to any Subsidiary or (c) Debt of any
Subsidiary owed to the Issuer or any other Subsidiary) of the Issuer and/or one
or more of its Subsidiaries, arising in one or more related or unrelated
transactions, in an outstanding principal amount exceeding $2,500,000
individually or in the aggregate, whether such Debt exists as of the date hereof
or shall hereafter be created.
"Material Subsidiaries" means each of Bloomington MN., L.T., Inc.,
Rockford L.T., Inc. and LNT, Inc.
"Person" means an individual, corporation, partnership, association,
trust or other entity or organization, including a government or political
subdivision or an agency or instrumentality thereof.
"Senior Debt" means (a) all principal, premium, reimbursement
obligations in respect of any letters of credit, and interest (including,
without limitation, any interest ("Post-Petition Interest") which accrues (or
which would accrue but for any such immediately hereafter mentioned case,
proceeding or other action) after the commencement of any case, proceeding or
other action relating to the bankruptcy, insolvency or reorganization of the
Issuer or any other Borrower (as defined in the Credit Agreement) (whether or
not such interest is allowed or allowable as a claim in such case, proceeding or
other action)) under the Credit Agreement or in respect of the notes evidencing
amounts outstanding under the Credit
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<PAGE> 8
Agreement, (b) any renewals, refinancings, extensions or increases of any of the
foregoing (or any portion thereof) (including Post-Petition Interest) and (c)
all fees, expenses, indemnities and all other amounts payable by the Issuer or
any other Borrower thereunder or with respect thereto, including under any other
Loan Document (as defined in the Credit Agreement); provided that the aggregate
principal amount of Senior Debt shall not exceed $175,000,000.
"Stockholder Agreement" means the Stockholder Agreement dated as of
December 2, 1996 among CVS, the Issuer and Nashua Hollis.
"Subordinated Obligations" has the meaning set forth in Section 4.1.
"Subsidiary" means, with respect to any Person, any corporation or
other entity of which securities or other ownership interests having ordinary
voting power to elect a majority of the board of directors or other persons
performing similar functions are at the time directly or indirectly owned by
such Person.
"Trade Payables" means accounts payable or any other indebtedness or
monetary obligations to trade creditors created or assumed by the Issuer or any
Subsidiary of the Issuer in the ordinary course of business in connection with
the obtaining of materials or services.
"Transaction Expenses" means, on any date, any underwriting discounts
or commissions, any placement or selling agent fees, and all other transaction
fees and expenses (including, without limitation, reasonable fees and expenses
of counsel, accountants and financial advisers) incurred by the CVS Group as of
such date in connection with any public or private sales by the CVS Group of
equity securities of the Issuer to any Person that is not an Affiliate of the
CVS Group.
(b) Capitalized terms not otherwise defined herein are used herein as
defined in the Stockholder Agreement.
Section 2.1 Payment of Principal and Interest. Subject to Section
4.2(c), no provision of this Note shall alter or impair the obligations of the
Issuer, which are absolute and unconditional, to pay the principal of and
interest on this Note at the place, times, and rate, and in the currency, herein
prescribed.
Section 3. Events of Default and Remedies.
Section 3.1. Event of Default Defined; Acceleration of Maturity; Waiver
of Default. In case one or more of the following Events of Default (whatever the
reason for such Event of Default and whether it shall be voluntary or
involuntary or be effected by operation of law or pursuant to any judgment,
decree or order of any court or any order, rule or regulation of any
administrative or governmental body) shall have occurred and be continuing:
8
<PAGE> 9
(a) default in the payment of any interest upon the Note as and when
the same shall become due and payable, and continuance of such default for a
period of 10 days; or
(b) default in the payment of all or any part of the principal of the
Note as and when the same shall become due and payable, at maturity, by
declaration or otherwise; or
(c) (i) there shall have occurred with respect to any Senior Debt or,
if all amounts owed by the Issuer and/or one or more of its Subsidiaries in
respect of the Senior Debt shall have been paid in full and the commitments
to provide credit thereunder shall have been terminated, with respect
to any other Material Debt, whether such Debt now exists or shall hereafter
be created, an event of default which has caused the holder(s) thereof (or
agent or other representative of such holder(s)) to declare such Debt to be
due and payable prior to its stated maturity and such Debt has not been
discharged in full, or (ii) the Issuer or any of its Subsidiaries shall have
failed to make any payment in respect of any Senior Debt or, if all amounts
owed by the Issuer and/or one or more of its Subsidiaries in respect of the
Senior Debt shall have been paid in full and commitments to provide credit
thereunder shall have been terminated, in respect of any other such Material
Debt, at stated final maturity thereof; or
(d) a court having jurisdiction in the premises shall enter a decree or
order for relief in respect of the Issuer or any of its Material Subsidiaries
in an involuntary case under any applicable bankruptcy, insolvency or other
similar law now or hereafter in effect, or appointing a receiver, liquidator,
assignee, custodian, trustee, sequestrator (or similar official) of the
Issuer or any of its Material Subsidiaries or for any substantial part of the
property of the Issuer or any of its Material Subsidiaries or ordering the
winding up or liquidation of the affairs of the Issuer or any of its Material
Subsidiaries, and such decree or order shall remain unstayed and in effect
for a period of 60 consecutive days; or
(e) the Issuer or any of its Material Subsidiaries shall commence a
voluntary case under any applicable bankruptcy, insolvency or other similar
law now or hereafter in effect, or consent to the entry of an order for
relief in an involuntary case under any such law, or consent to the
appointment or taking
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<PAGE> 10
possession by a receiver, liquidator, assignee, custodian, trustee,
sequestrator (or similar official) of the Issuer or any of its Material
Subsidiaries or for any substantial part of the property of the Issuer or any
of its Material Subsidiaries, or the Issuer or any of its Material
Subsidiaries shall make any general assignment for the benefit of creditors;
then, and in each and every such case (other than an Event of Default specified
in Section 3.1(d) or 3.1(e) hereof), unless the principal of all the Notes shall
have already become due and payable, the Holders of not less than 25% in
aggregate principal amount of the Notes then outstanding, by notice in writing
to the Issuer (the "Acceleration Note"), may declare the entire principal amount
of the Notes and the interest accrued thereon to be due and payable immediately,
and upon any such declaration the same shall become immediately due and payable.
If an Event of Default specified in Section 3.1(d) or 3.1(e) occurs, the
principal of and accrued interest on the Notes shall become and be immediately
due and payable without any declaration or other act on the part of any Holder.
The Issuer shall promptly upon receipt of an Acceleration Notice
provide written notice to BNY or any successor agent or other representative
under the Credit Agreement (or other agreement evidencing Senior Debt) of the
receipt of such Acceleration Notice.
The Issuer shall deliver to each Holder of a Note, within five days
after any officer of the Issuer obtains actual knowledge of any Default, a
certificate of the chief financial officer or the chief accounting officer of
the Issuer setting forth the details thereof and the action which the Issuer is
taking or proposes to take with respect thereto.
Section 3.2. Powers and Remedies Cumulative; Delay or Omission Not
Waiver of Default. No right or remedy herein conferred upon or reserved to the
Holders is intended to be exclusive of any other right or remedy, and every
right and remedy shall, to the extent permitted by law, be cumulative and in
addition to every other right and remedy given hereunder or now or hereafter
existing at law or in equity or otherwise. The assertion or employment of any
right or remedy hereunder, or otherwise, shall not prevent the concurrent
assertion or employment of any other appropriate right or remedy.
No delay or omission of the Holders to exercise any right or power
accruing upon any Default or Event of Default occurring and continuing as
aforesaid shall impair
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<PAGE> 11
any such right or power or shall be construed to be a waiver of any such Default
or Event of Default or an acquiescence therein; and every power and remedy given
by this Note or by law may be exercised from time to time, and as often as shall
be deemed expedient, by the Holder.
Section 3.3. Waiver of Past Defaults. The Holders of a majority in
aggregate principal amount of all Notes at the time outstanding may on behalf of
the Holders of all the Notes waive any past Default or Event of Default
hereunder and its consequences. In the case of any such waiver, the Issuer and
the Holders of the Notes shall be restored to their former positions and rights
hereunder, respectively; but no such waiver shall extend to any subsequent or
other Default or impair any right consequent thereon.
Upon any such waiver, such Default shall cease to exist and be deemed
to have been cured and not to have occurred, and any Default or Event of Default
arising therefrom shall be deemed to have been cured, and not to have occurred
for every purpose of the Notes; but no such waiver shall extend to any
subsequent or other Default or Event of Default or impair any right consequent
thereon.
Section 4. Subordination.
Section 4.1. Notes Subordinated to Senior Debt. The Issuer and the
Holder agree for the benefit of the Senior Debt that all indebtedness evidenced
by this Note, including principal, premium, if any, and interest, and all other
amounts payable to the Holder hereunder (including, for all purposes of this
Note, any payment in respect of purchase or other acquisition hereof)
(collectively, the "Subordinated Obligations") shall, to the extent hereinafter
set forth, be subordinate and junior to the prior payment in full of all Senior
Debt.
This Section will constitute a continuing offer to all persons who, in
reliance upon its provisions, become holders of, or continue to hold, Senior
Debt, and such provisions are made for the benefit of the holders of Senior
Debt, and such holders are made obligees under this Section and they and/or each
of them may enforce its provisions.
Section 4.2. No Payment on Notes in Certain Circumstances. (a) If any
default in the payment of any principal of or interest on or any other amount
due in connection with any Senior Debt when due and payable, whether at
maturity, upon any redemption, by declaration or otherwise, occurs and is
continuing, no payment shall be
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made by the Issuer with respect to the principal of or interest on the Notes, or
to acquire any of the Notes for cash or property, unless and until such default
has been cured or waived in writing.
(b) If any default or event of default (other than a default or event
of default in payment of the principal of or interest on or any other amount due
in connection with any Senior Debt) occurs and is continuing with respect to any
Senior Debt (or if any such default or event of default would result upon any
payment with respect to the Subordinated Obligations), as such default or event
of default is defined in the instruments evidencing such Senior Debt or under
which it is outstanding, and if written notice (the "Blockage Notice") of the
default or event of default is given to the Issuer by the holders of such Senior
Debt (or the agent or other representative thereof) then, unless and until such
default or event of default has been cured or waived in writing, no payment will
be made by the Issuer with respect to the Subordinated Obligations or to acquire
any of the Notes for cash, property or securities other than capital stock of
the Issuer; provided that this paragraph (b) will not prevent the making of any
payment for a period (the "Blockage Period") of more than 180 days after the
date the Blockage Notice is given unless such Senior Debt in respect of which
such default or event of default exists has been declared due and payable in its
entirety within that period and that declaration has not been rescinded. If such
Senior Debt is not declared due and payable within 180 days after the giving of
the Blockage Notice, promptly after the end of the 180-day period the Issuer
will pay all sums not paid during the 180-day period because of this paragraph
(b) unless Section 4.2(a) is then applicable. During any period of 360
consecutive days only one such period during which payment of principal of, or
interest on, the Notes may not be made may commence and the duration of such
period may not exceed 180 days. For all purposes of this Section 4.2(b), no
default or event of default which existed or was continuing under the Credit
Agreement to which the Blockage Period relates on the date such Blockage Period
commenced shall be or be made the basis for the commencement of any subsequent
Blockage Period by the holder or holders of such Senior Debt (or the agent or
other representative thereof)
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unless such default or event of default is cured or waived for a period of not
less than 90 consecutive days.
(c) If on any Interest Payment Date any default or event of default in
connection with any Senior Debt has occurred and is continuing, accrued but
unpaid interest due on such Interest Payment Date in respect of any Note will be
automatically converted into principal and the principal amount of the Note will
be automatically deemed increased (without any action on the part of the Holder
or the Issuer) on such Interest Payment Date by the amount of such accrued and
unpaid interest, whereupon no interest hereon will be deemed due on such date.
(d) If, notwithstanding the foregoing, any payment or distribution of
assets of the Issuer of any kind or character, whether in cash, property or
securities is received by the Holders on account of the Subordinated Obligations
when such payment or distribution is prohibited by Section 4.2(a) or 4.2(b),
such payment or distribution will be received and held in trust for and will be
paid over to the holders of the Senior Debt then due and payable and remaining
unpaid or unprovided for (pro rata to such holders on the basis of the
respective amounts of Senior Debt held by such holders) or their representatives
for application to the payment of such Senior Debt until all such Senior Debt
has been indefeasibly paid in full or provided for in cash or cash equivalents,
after giving effect to any concurrent payment or distribution or provision
therefor to or for the holders of such Senior Debt.
Section 4.3. Notes Subordinated to Prior Payment of all Senior Debt on
Dissolution, Liquidation or Reorganization. (a) Upon any payment or distribution
of assets of the Issuer of any kind or character, whether in cash, property or
securities, upon any dissolution, winding up, liquidation or reorganization of
the Issuer (whether voluntary or involuntary or in bankruptcy, insolvency,
receivership or similar proceeding related to the Issuer or its property or upon
an assignment for the benefit of creditors or otherwise):
(i) the holders of all Senior Debt will first be entitled to receive
indefeasible payment in full or provision for payment in full in cash or cash
equivalents of the principal of and interest due on Senior Debt and other
amounts due in connection with Senior Debt (including interest accruing
subsequent to an event specified in Section 3.1(d) or 3.1(e) at the
applicable rate(s) provided for in the documents governing such Senior Debt,
whether or not such interest is an allowed claim enforceable against the
debtor in a Bankruptcy case under Title 11 of the United States Code) before
the Holders are entitled to receive any payment on account of the principal
of or interest on the Notes;
(ii) any payment or distribution of assets of the Issuer of any kind or
character, whether in cash, property or securities, to which the Holders
would be entitled but for the provisions of this Section will be paid by the
liquidating trustee or agent or other
13
<PAGE> 14
person making such a payment or distribution directly to the holders of
Senior Debt or their representatives to the extent necessary to make
indefeasible payment in full or provision for payment in full in cash or
cash equivalents of all Senior Debt remaining unpaid, after giving effect to
any concurrent payment or distribution or provision therefor to the holders
of such Senior Debt; and
(iii) if, notwithstanding the foregoing, any payment or distribution of
assets of the Issuer of any kind or character, whether in cash, property or
securities is received by the Holders on account of the Subordinated
Obligations when such payment or distribution is prohibited by this Section
4.3, such payment or distribution will be received and held in trust for and
will be paid over to the holders of the Senior Debt then due and payable and
remaining unpaid or unprovided for (pro rata to such holders on the basis of
the respective amounts of Senior Debt held by such holders) or their
representatives for application to the payment of such Senior Debt until all
such Senior Debt has been indefeasibly paid in full or provided for in cash
or cash equivalents, after giving effect to any concurrent payment or
distribution or provision therefor to or for the holders of such Senior Debt.
(b) The Issuer will give prompt written notice to the Holders of any
dissolution, winding up, liquidation or reorganization of it or any assignment
for the benefit of its creditors and of any default or event of default in
respect of Senior Debt and any of the delivery of any Blockage Notice.
(c) For purposes of this Section, the words "cash, property or
security" shall not be deemed to include (i) shares of capital stock of the
Issuer as reorganized or readjusted, (y) securities of the Issuer or any other
corporation provided for by a plan of reorganization or readjustment which are
subordinated, to at least the same extent as the Notes, to the payment of all
Senior Debt then outstanding or (z) any payment or distribution of securities of
the Issuer or any other corporation authorized by an order or decree giving
effect, and stating in such order or decree that effect has been given, to
subordination of the Notes to Senior Debt and made by a court of competent
jurisdiction in a reorganization proceeding under any applicable bankruptcy,
insolvency or similar law.
Section 4.4. Holders to be Subrogated to Rights of Holders of Senior
Debt. Following the indefeasible payment in full or provision for payment in
full of all Senior Debt, the
14
<PAGE> 15
Holders will be subrogated to the rights of the holders of Senior Debt to
receive payments or distributions of cash, property or securities of the Issuer
applicable to the Senior Debt until all principal, interest and other amounts
owing on the Notes have been paid in full, and for the purpose of such
subrogation no such payments or distributions to the holders of Senior Debt by
or on behalf of the Issuer or by or on behalf of the Holders by virtue of this
Section which otherwise would have been made to the Holders will, as between the
Issuer and the Holders, be deemed to be payment by the Issuer to or on account
of the Senior Debt, it being understood that the provisions of this Section are
and are intended solely for the purpose of defining the relative rights of the
Holders, on the one hand, and the holders of Senior Debt, on the other hand.
Section 4.5. Obligations of the Issuer Unconditional. Subject to the
last sentence of this Section 4.5, nothing contained in this Section or
elsewhere in the Notes is intended to or will impair, as between the Issuer and
the Holders, the obligations of the Issuer, which are absolute and
unconditional, to pay to the Holders the Subordinated Obligations as and when
they become due and payable in accordance with their terms, or is intended to or
will affect the relative rights of the Holders and creditors of the Issuer other
than the holders of the Senior Debt, nor will anything herein or therein prevent
any Holder from exercising all remedies otherwise permitted by applicable law
upon Default under the Notes, subject to the rights if any, under this Section
of the holders of Senior Debt in respect of cash, property or securities of the
Issuer received upon the exercise of any such remedy. Without limiting the
generality of the foregoing, nothing contained in Section 4 will restrict the
right of the Holders of Notes to take any action to declare the Notes to be due
and payable prior to their stated maturity pursuant to Section 3.1 or to pursue
any rights or remedies hereunder. Notwithstanding the foregoing, the Holders
hereby agree for the benefit of the holders of the Senior Debt that they shall
not take any Collection Actions (x) during any Blockage Period in effect under
Section 4.2(b) or (y) in the case of a default in respect of Senior Debt
referred to in Section 4.2(a), until the earlier of (i) the date such default
has been cured or waived in writing and (ii) expiration of 180 days from (and
including) the date such default occurred.
Section 4.6. Subordination Rights not Impaired by Acts or Omissions of
the Issuer or Holders of Senior Debt. No right of any present or future holders
of any Senior Debt to enforce subordination as provided herein will at any time
15
<PAGE> 16
in any way be prejudiced or impaired by any act or failure to act on the part of
the Issuer or by any act or failure to act by any such holder, or by any
noncompliance by the Issuer with the terms of this Note, regardless of any
knowledge thereof which any such holder may have or otherwise be charged with.
The holders of Senior Debt may extend, renew, modify or amend the terms of the
Senior Debt or any security therefor and release, sell or exchange such security
and otherwise deal freely with the Issuer, all without affecting the liabilities
and obligations of the Holders. No amendment to these provisions will be
effective against the holders of the Senior Debt who have not consented thereto
in writing.
Section 4.7. Not to Prevent Events of Default. The failure to make a
payment on account of the Subordinated Obligations by reason of any provision of
this Section will not, subject to Section 4.2(c), be construed as preventing
the occurrence of an Event of Default.
Section 4.8. Reliance on Judicial Order or Certificate of Liquidating
Agent. Upon any payment or distribution of assets of the Issuer referred to in
Section 4.3, the holders of the Notes shall be entitled to rely upon any order
or decree made by any court of competent jurisdiction in which bankruptcy,
dissolution, winding-up, liquidation or reorganization proceedings are pending,
or a certificate of the receiver, trustee in bankruptcy, liquidating trustee,
agent or other person making such payment or distribution, delivered to the
holders of the Notes, for the purpose of ascertaining the persons entitled to
participate in such distribution, the holders of the Senior Debt and other
indebtedness of the Issuer, the amount thereof or payable thereon, the amount or
amounts paid or distributed thereon and all other facts pertinent thereto or to
Section 4.3 of this Note.
Section 4.9. Subordination Provisions Binding on Holder and its
Successors and Assigns. The subordination provisions hereof shall be binding
upon any holder of Subordinated Obligations and upon the successors and assigns
of the Holder; and all references herein to the Holder shall be deemed to
include any successor or successors, whether immediate or remote, to the Holder.
Section 4.10. Right to File a Claim. If a proper claim or proof of debt
in the form required in an insolvency or liquidation proceeding is not filed by
or on behalf of all Holders prior to 30 days before the expiration of the time
to file such claim or proofs, then the holders or a representative of any
Senior Debt of the Issuer are hereby authorized, and shall have the right
(without any duty), to file an appropriate claim for and on behalf of the
Holders.
16
<PAGE> 17
Section 5. Modification. Subject to Section 4, the Notes, may be
modified with the written consent of the Issuer and of the Holders of a majority
in aggregate principal amount of all Notes at the time outstanding. Subject to
Section 3.1 and 3.3, the Holders of a majority in aggregate principal amount of
all Notes at the time outstanding may waive compliance by the Issuer with any
provision of the Notes. However, without the consent of each Holder affected, an
amendment, supplement or waiver of any provision of the Notes may not (1) reduce
the amount of Notes whose Holders must consent to an amendment, supplement or
waiver, (2) reduce the rate or extend the time for payment of interest on any
Note, (3) reduce the principal amount of or extend the fixed maturity of any
Note or (4) make any Note payable in money or property other than as stated in
the Notes.
Section 6. Assignment. The Holder may not at any time any Senior Debt
remains outstanding assign or otherwise transfer all or any portion of its
rights and obligations under this Note (except to CVS or a Subsidiary of CVS)
without the prior written consent of the required holders of such Senior Debt
(or the agent or representative thereof). Any Subsidiary to whom this Note
is assigned or otherwise transferred may only remain a Holder for so long as
such Subsidiary is a Subsidiary of CVS.
Section 7. Miscellaneous. This Note shall be deemed to be a contract
under the laws of the State of New York, and for all purposes shall be construed
in accordance with the laws of said State, except as may otherwise be required
by mandatory provisions of law. The parties hereto, including all guarantors or
endorsers, hereby waive presentment, demand, notice, protest and all other
demands and notices in connection with the delivery, acceptance, performance and
enforcement of this Note, except as specifically provided herein, and assent to
extensions of the time of payment, or forbearance or other indulgence without
notice. The Holder of this Note by acceptance of this Note agrees to be bound by
the provisions (including the subordination provisions) of this Note which are
expressly binding on such Holder. In determining whether the Holders of the
requisite aggregate principal amount of Notes have concurred in any direction,
consent or waiver as provided under the Notes, Notes which are owned by the
Issuer or any Subsidiary or any other obligor on the Notes shall be disregarded
and deemed not to be outstanding for the purpose of any such determination; it
being understood that any Notes owned by the CVS Group shall be deemed
outstanding for purposes of making such a determination. The Section headings
herein are for convenience only and shall not affect the construction hereof.
17
<PAGE> 18
IN WITNESS WHEREOF, the Issuer has caused this instrument to be duly executed
on the date indicated below.
Date: December 2, 1996
Linens 'n Things, Inc.
By: WILLIAM T. GILES
------------------------
Name: William T. Giles
Title: Vice President
18
<PAGE> 1
EXHIBIT 10.5
CREDIT AGREEMENT
by and among
LINENS 'N THINGS, INC.,
THE SUBSIDIARY BORROWERS PARTY HERETO,
THE LENDERS PARTY HERETO,
and
THE BANK OF NEW YORK,
as Agent,
with
BNY CAPITAL MARKETS, INC., as Arranging Agent
--------------------------
$125,000,000
--------------------------
Dated as of November 20, 1996
<PAGE> 2
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<PAGE> 3
CREDIT AGREEMENT, dated as of November 20, 1996, by and among LINENS 'N
THINGS, INC., a Delaware corporation (the "COMPANY"), each Subsidiary Borrower
which is a signatory hereto or becomes a party hereto pursuant to the provisions
of Section 2.10, the Lenders party hereto from time to time (each a "LENDER"
and, collectively, the "LENDERS") and THE BANK OF NEW YORK ("BNY"), as agent for
the Lenders (in such capacity, the "AGENT").
1. DEFINITIONS AND PRINCIPLES OF CONSTRUCTION
1.1. Definitions
When used in any Loan Document (as defined below), each of
the following terms shall have the meaning ascribed thereto unless the context
otherwise specifically requires:
"ABR Advances": the Revolving Credit Loans (or any portions thereof) at
such time as they (or such portions) are made or are being maintained at a rate
of interest based upon the Alternate Base Rate.
"Accumulated Funding Deficiency": defined in Section 302 of ERISA.
"Acquisition": with respect to any Person, the purchase or other
acquisition by such Person, by any means whatsoever (including by devise,
bequest, gift, through a dividend or otherwise), of (a) stock of, or other
equity securities of, any other Person if, immediately thereafter, such other
Person would be either a consolidated subsidiary of such Person or otherwise
under the control of such Person, (b) any business, going concern or division or
segment thereof, or (c) the Property of any other Person other than in the
ordinary course of business, provided, however, that no acquisition of
substantially all of the assets, or any division or segment, of such other
Person shall be deemed to be in the ordinary course of business.
"Affected Advance": defined in Section 3.8(b).
"Affiliate": with respect to any Person at any time and from time to
time, any other Person (other than a wholly-owned subsidiary of such Person)
which, at such time (a) controls such Person, (b) is controlled by such Person
or (c) is under common control with such Person. The term "control", as used in
this definition with respect to any Person,
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<PAGE> 4
means the power, whether direct or indirect through one or more intermediaries,
to direct or cause the direction of the management and policies of such Person,
whether through the ownership of voting securities or other interests, by
contract or otherwise.
"Agent": defined in the preamble.
"Aggregate Commitment Amount": at any time, the sum of the Commitment
Amounts of the Lenders at such time.
"Aggregate Credit Exposure": at any time, the sum of the Credit
Exposures of the Lenders at such time.
"Agreement": this Credit Agreement, as amended, supplemented or
otherwise modified from time to time.
"Alternate Base Rate": for any day, a rate per annum equal to the
greater of (a) the BNY Rate in effect on such day, or (b) 0.50% plus the Federal
Funds Effective Rate (rounded, if necessary, to the nearest 1/100th of 1% or, if
there is no nearest 1/100 of 1%, then to the next higher 1/100 of 1%) in effect
on such day.
"Amended and Restated Certificate of Incorporation": the Amended and
Restated Certificate of Incorporation of the Company to be filed by the Company
as part of the Reorganization, substantially in the form filed as an exhibit to
the Registration Statement, as the same may be amended, modified or supplemented
from time to time in accordance with Section 8.9.
"Applicable Margin": (i) with respect to the unpaid principal balance
of ABR Advances, the applicable percentage set forth below in the column
entitled "ABR Advances", (ii) with respect to the unpaid principal balance of
Eurodollar Advances, the applicable percentage set forth below in the column
entitled "Eurodollar Advances", (iii) with respect to the Commitment Fee, the
applicable percentage set forth below in the column entitled "Commitment Fee"
(iv) with respect to the Letter of Credit Participation Fee, the applicable
percentage set forth below in the column entitled "Standby Letters of Credit" or
"Commercial Letters of Credit"; in each case opposite the applicable Pricing
Level:
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<PAGE> 5
<TABLE>
<CAPTION>
Standby Commercial
ABR Eurodollar Commitment Letters Letters of
Pricing Level Advances Advances Fee of Credit Credit
- ------------- ---------- -------- ------- --------- ------
<S> <C> <C> <C> <C> <C>
Pricing Level I 0% 1.000% 0.200% 1.000% 0.5000%
Pricing Level II 0% 1.250% 0.300% 1.250% 0.6250%
Pricing Level III 0% 1.375% 0.375% 1.375% 0.6875%
Pricing Level IV 0% 1.625% 0.500% 1.625% 0.8125%
</TABLE>
Changes in the Applicable Margin resulting from a change in a
Pricing Level shall become effective upon the date of the delivery by the
Company to the Agent of a certificate pursuant to Section 7.7(c) evidencing a
change in the Fixed Charge Coverage Ratio which would affect the applicable
Pricing Level. If the Company shall fail to deliver a certificate within 50 days
after the end of each of the first three fiscal quarters (or 90 days after the
end of the last fiscal quarter) as required by Section 7.7(c), Pricing Level IV
shall apply from and including the 51st day (the 91st day in the case of the
last quarter) after the end of such fiscal quarter to the date of the delivery
by the Company to the Agent of a certificate demonstrating that a different
Pricing Level is applicable.
"Approved Bank": any bank whose short-term commercial paper rating from
(i) S&P is at least A-1 or the equivalent thereof or (ii) Moody's is at least
P-1 or the equivalent thereof.
"Assignment": defined in Section 12.7(c).
"Assignment and Acceptance Agreement": an assignment and acceptance
agreement executed by an assignor and an assignee pursuant to which, subject to
the terms and conditions hereof and thereof, the assignor assigns to the
assignee all or any portion of such assignor's interests under this Agreement,
substantially in the form of Exhibit G.
"Assignment Fee": defined in Section 12.7(c).
"Authorized Signatory": as to (i) any Person which is a corporation,
the chairman of the board, the president, any vice president, the chief
financial officer or any other officer (acceptable to the Agent) of such Person
and (ii) any Person which is not a corporation, the general partner or other
managing Person thereof.
"Benefited Lender": defined in Section 12.9(b).
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<PAGE> 6
"BNY": defined in the preamble.
"BNY Rate": a rate of interest per annum equal to the rate of interest
publicly announced in New York City by BNY from time to time as its prime
commercial lending rate, such rate to be adjusted automatically (without notice)
on the effective date of any change in such publicly announced rate.
"BNYCMI": BNY Capital Markets, Inc., the Arranging Agent.
"Borrower Addendum": an Addendum in the form of Exhibit D pursuant to
which a Subsidiary of the Company may become a Subsidiary Borrower pursuant to
the provisions of Section 2.10.
"Borrowers": collectively, the Company and the Subsidiary Borrowers;
each a "Borrower".
"Borrowing Date": (i) in respect of Revolving Credit Loans, any
Business Day on which the Lenders shall make Revolving Credit Loans pursuant to
a Borrowing Request or pursuant to a Mandatory Borrowing, (ii) in respect of
Swing Line Loans, any Business Day on which the Swing Line Lender shall make a
Swing Line Loan pursuant to a Borrowing Request and (iii) in respect of Letters
of Credit, any Business Day on which the Issuer shall issue a Letter of Credit
pursuant to a Letter of Credit Request.
"Borrowing Request": a request for Revolving Credit Loans or Swing Line
Loans in the form of Exhibit B.
"Cash Equivalents": (i) securities issued or directly and fully
guaranteed or insured by the United States or any agency or instrumentality
thereof (provided that the full faith and credit of the United States is pledged
in support thereof) having maturities of not more than six months from the date
of acquisition, (ii) Dollar denominated time deposits, certificates of deposit
and bankers acceptances of (x) any Lender or (y) any Approved Bank, in each case
with maturities of not more than six months from the date of acquisition, (iii)
commercial paper issued by any Approved Bank or by the parent company of any
Approved Bank and commercial paper issued by, or guaranteed by, any industrial
or financial company with a short-term commercial paper rating of at least A- 1
or the equivalent thereof by S&P or at least P-1 or the equivalent thereof by
Moody's, or guaranteed by any industrial or financial company with a long term
unsecured debt rating of at least A or A-2, or the equivalent of each thereof,
by S&P or Moody's, as the case
- 6 -
<PAGE> 7
may be, and in each case maturing within six months after the date of
acquisition, (iv) marketable direct obligations issued by any state of the
United States or any political subdivision of any such state or any public
instrumentality thereof maturing within six months from the date of acquisition
thereof and, at the time of acquisition, having one of the two highest ratings
obtainable from either S&P or Moody's, (v) investments in money market funds
substantially all the assets of which are comprised of securities of the types
described in clauses (i) through (iv) above, (vi) investments in tax-exempt
municipal bonds maturing within six months from the date of acquisition thereof
and, at the time of acquisition, having one of the two highest ratings
obtainable with respect thereto from either S&P or Moody's and (vii) investments
in overnight repurchase agreements with any Lender or any primary securities
dealer to the extent that such Lender or securities dealer is able to segregate
the securities subject to such repurchase agreements and such securities consist
of the type described in clauses (i) and (iii) above.
"Commitment": in respect of any Lender, such Lender's undertaking to
make Revolving Credit Loans, subject to the terms and conditions hereof, in an
aggregate outstanding principal amount not to exceed the Commitment Amount of
such Lender.
"Commitment Amount": at any time and with respect to any Lender, the
amount set forth adjacent to such Lender's name under the heading "Commitment
Amount" in Exhibit A at such time or, in the event that such Lender is not
listed on Exhibit A, the "Commitment Amount" which such Lender shall have
assumed from another Lender in accordance with Section 12.7 on or prior to such
time, as the same may be adjusted from time to time pursuant to Sections 2.6 and
12.7(c).
"Commitment Fee": defined in Section 3.11.
"Commitment Percentage": at any time and with respect to any Lender, a
fraction the numerator of which is such Lender's Commitment Amount at such time,
and the denominator of which is the Aggregate Commitment Amount at such time.
"Commitment Period": the period commencing on the Effective Date and
ending on the Commitment Termination Date, or on such earlier date as all of the
Commitments shall have been terminated in accordance with the terms hereof.
"Commitment Termination Date": the earlier of the third anniversary of
the Effective Date and the date on which the Loans shall become due and payable,
whether by acceleration, notice of intention to prepay or otherwise.
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<PAGE> 8
"Company Guaranty": the guaranty of the Company as set forth in Section
11.
"Compensatory Interest Payment": defined in Section 3.4(c).
"Consolidated": the Company and the Subsidiaries on a consolidated
basis in accordance with GAAP.
"Contingent Obligation": as to any Person (the "secondary obligor"),
any obligation of such secondary obligor (a) guaranteeing or in effect
guaranteeing any return on any investment made by another Person, or (b)
guaranteeing or in effect guaranteeing any Indebtedness, lease, dividend or
other obligation ("primary obligation") of any other Person (the "primary
obligor") in any manner, whether directly or indirectly, including any
obligation of such secondary obligor, whether contingent, (i) to purchase any
such primary obligation or any Property constituting direct or indirect security
therefor, (ii) to advance or supply funds (A) for the purchase or payment of any
such primary obligation or (B) to maintain working capital or equity capital of
the primary obligor or otherwise to maintain the net worth or solvency of the
primary obligor, (iii) to purchase Property, securities or services primarily
for the purpose of assuring the beneficiary of any such primary obligation of
the ability of the primary obligor to make payment of such primary obligation,
(iv) otherwise to assure or hold harmless the beneficiary of such primary
obligation against loss in respect thereof, and (v) in respect of the
Indebtedness of any partnership in which such secondary obligor is a general
partner, except to the extent that such Indebtedness of such partnership is
nonrecourse to such secondary obligor and its separate Property; provided that
the term "Contingent Obligation" shall not include the indorsement of
instruments for deposit or collection in the ordinary course of business or
indemnity obligations under the Stockholder Agreement.
"Control Person": defined in Section 3.6.
"Convert", "Conversion" and "Converted": each, a reference to a
conversion pursuant to Section 3.3 of one Type of Revolving Credit Loan into
another Type of Revolving Credit Loan.
"Credit Exposure": with respect to any Lender at any time, the sum at
such time of (a) the outstanding principal balance of such Lender's Revolving
Credit Loans, (b) the Swing Line Exposure of such Lender and (c) the Letter of
Credit Exposure of such Lender.
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<PAGE> 9
"Credit Parties": the Company, the Borrowers and the Guarantors; each a
"Credit Party".
"CVS": CVS Corporation, a Delaware corporation.
"CVS Group": CVS and its subsidiaries, which shall not include the
Company or any of the Subsidiaries.
"CVS Subordinated Debt": the indebtedness evidenced by the CVS
Subordinated Note.
"CVS Subordinated Note": the Subordinated Note in the principal amount
of $13,500,000, substantially in the form of Exhibit H, made by the Company to
Nashua Hollis CVS, Inc. as such Subordinated Note may be amended or otherwise
modified from time to time in accordance with Section 8.9.
"Default": any of the events specified in Section 9.1, whether any
requirement for the giving of notice, the lapse of time, or both, or any other
condition, has been satisfied.
"Disposition": with respect to any Person, any sale, assignment,
transfer or other disposition by such Person by any means, of:
(a) the Stock of, or other equity interests of, any other Person,
(b) any business, operating entity, division or segment thereof,
or
(c) any other Property of such Person, other than sales of
inventory (other than in connection with bulk transfers);
provided, however, that the term "Disposition" shall not include a sale,
assignment, transfer or other disposition by a Subsidiary to any other
Subsidiary, provided that the same does not materially and adversely affect the
interests of the Lenders under the Loan Documents or the CVS Subordinated Note.
"Dollar or "$": lawful currency of the United States of America.
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<PAGE> 10
"Domestic Business Day": any day (other than a Saturday, Sunday or
legal holiday in the State of New York) on which banks are open for business in
New York City.
"EBITDA": earnings from operations of the Company and its Subsidiaries
on a Consolidated basis for the immediately preceding four fiscal quarter
period, plus the sum of, without duplication, (i) interest expense, (ii)
provision for income taxes and (iii) depreciation and amortization for such
period, each to the extent deducted from such earnings for such period. EBITDA
shall be adjusted to exclude nonrecurring gains and losses.
"Effective Date": defined in Section 12.20.
"Employee Benefit Plan": an employee benefit plan, within the meaning
of Section 3(3) of ERISA, maintained, sponsored or contributed to by the
Company, any Subsidiary or any ERISA Affiliate.
"ERISA": the Employee Retirement Income Security Act of 1974, as
amended from time to time, or any successor thereto, and the rules and
regulations issued thereunder, as from time to time in effect.
"ERISA Affiliate": when used with respect to an Employee Benefit Plan,
ERISA, the PBGC or a provision of the Internal Revenue Code pertaining to
employee benefit plans, any Person that is a member of any group of
organizations within the meaning of Sections 414(b) or (c) of the Internal
Revenue Code or, solely with respect to the applicable provisions of the
Internal Revenue Code, Sections 414(m) or (o) of the Internal Revenue Code, of
which the Company or any Subsidiary is a member.
"Eurodollar Advance": a portion of the Revolving Credit Loans selected
by a Borrower to bear interest during a Eurodollar Interest Period selected by
such Borrower at a rate per annum based upon a Eurodollar Rate determined with
reference to such Interest Period, all pursuant to and in accordance with
Section 2.1 or 3.3.
"Eurodollar Business Day": any Domestic Business Day, other than a
Domestic Business Day on which banks are not open for dealings in Dollar
deposits in the interbank eurodollar market.
"Eurodollar Interest Period": the period commencing on any Eurodollar
Business Day selected by a Borrower in accordance with Section 2.1 or Section
3.3 and ending one,
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<PAGE> 11
two, three or six months thereafter, as selected by such Borrower in accordance
with either such Sections, subject to the following:
(i) if any Interest Period would otherwise end on a day which
is not a Eurodollar Business Day, such Interest Period shall be extended to the
immediately succeeding Eurodollar Business Day unless the result of such
extension would be to carry the end of such Interest Period into another
calendar month, in which event such Interest Period shall end on the Eurodollar
Business Day immediately preceding such day; and
(ii) if any Interest Period shall begin on the last Eurodollar
Business Day of a calendar month (or on a day for which there is no numerically
corresponding day in the calendar month at the end of such Interest Period),
such Interest Period shall end on the last Eurodollar Business Day of such
latter calendar month.
"Eurodollar Rate": with respect to each Eurodollar Advance and as
determined by the Agent, the rate of interest per annum (rounded, if necessary,
to the nearest 1/100 of 1% or, if there is no nearest 1/100 of 1%, then to the
next higher 1/100 of 1%) equal to a fraction, the numerator of which is the rate
per annum quoted by BNY at approximately 11:00 A.M. (or as soon thereafter as
practicable) two Eurodollar Business Days prior to the first day of such
Interest Period to leading banks in the interbank eurodollar market as the rate
at which BNY is offering Dollar deposits in an amount approximately equal to its
Commitment Percentage of such Eurodollar Advance and having a period to maturity
approximately equal to the Interest Period applicable to such Eurodollar
Advance, and the denominator of which is an amount equal to 1.00 minus the
aggregate of the then stated maximum rates during such Interest Period of all
reserve requirements (including marginal, emergency, supplemental and special
reserves), expressed as a decimal, established by the Board of Governors of the
Federal Reserve System and any other banking authority to which BNY and other
major United States money center banks are subject, in respect of eurocurrency
liabilities.
"Event of Default": any of the events specified in Section 9.1,
provided that any requirement for the giving of notice, the lapse of time, or
both, or any other condition has been satisfied.
"Execution Date": the date on which this Agreement is executed and
delivered by and among the parties hereto.
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<PAGE> 12
"Expiration Date": the first date, occurring after the Commitments
shall have terminated or been terminated in accordance herewith, upon which
there shall be no Loans or Letters of Credit outstanding.
"Federal Funds Effective Rate": 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 members of the Federal
Reserve System arranged by Federal funds brokers, as published for such day (or,
if such day is not a Domestic Business Day, for the next preceding Domestic
Business Day) by the Federal Reserve Bank of New York, or, if such rate is not
so published for any day which is a Domestic Business Day, the average (rounded,
if necessary, to the nearest 1/100 of 1% or, if there is no nearest 1/100 of 1%,
then to the next higher 1/100 of 1%) of the quotations for such day on such
transactions received by the Agent from three Federal funds brokers of
recognized standing selected by the Agent.
"Fees": defined in Section 3.2.
"Financial Statements": defined in Section 4.13.
"Fixed Charge Coverage Ratio: at any time of determination, the ratio
of (i) the sum of EBITDA and Rental Expense to (ii) the sum of Interest Expense
and Rental Expense.
"Free Cash Flow": at any time of determination, EBITDA for the
immediately preceding fiscal year less the sum, without duplication, of
Consolidated capital expenditures, Consolidated interest expense, Consolidated
income taxes, permanent payments and prepayments of Consolidated Indebtedness
(excluding payments and prepayments of the Loans and Indebtedness under
revolving credit, line of credit or similar facilities which may be reborrowed)
and the net increase (if positive) in Consolidated working capital, in each case
for such immediately preceding fiscal year, all as determined in accordance with
GAAP.
"GAAP": generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board and the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or such other principles as may be
approved by a significant segment of the accounting profession, which are
applicable to the circumstances as of the date of determination, consistently
applied.
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<PAGE> 13
"Governmental Authority": any foreign, federal, state, municipal or
other government, or any department, commission, board, bureau, agency, public
authority or instrumentality thereof, or any court or arbitrator.
"Guaranties": collectively, the Company Guaranty and the Subsidiary
Guaranty; individually, a "Guaranty".
"Guarantor": at any time, the Company and the Subsidiaries party to the
Subsidiary Guaranty at such time.
"Highest Lawful Rate": the maximum rate of interest, if any, which at
any time or from time to time may be contracted for, taken, charged or received
on the Loans or the Notes or which may be owing to any Lender pursuant to this
Agreement under the laws applicable to such Lender and this Agreement.
"Indebtedness": as to any Person at a particular time, all items of
such Person which constitute, without duplication, (a) indebtedness for borrowed
money or the deferred purchase price of Property (other than trade payables and
accrued expenses incurred in the ordinary course of business), (b) indebtedness
evidenced by notes, bonds, debentures or similar instruments, (c) obligations
with respect to any conditional sale or other title retention agreement, (d)
indebtedness arising under acceptance facilities and the amount available to be
drawn under all letters of credit (excluding for purposes of Section 7.10(b)
letters of credit obtained in the ordinary course of business by the Company or
any Subsidiary) issued for the account of such Person and, without duplication,
all drafts drawn thereunder to the extent such Person shall not have reimbursed
the issuer in respect of the issuer's payment of such drafts, (e) all
liabilities secured by any Lien on any Property owned by such Person even though
such Person shall not have assumed or otherwise become liable for the payment
thereof (other than carriers', warehousemen's, mechanics', repairmen's or other
like non-consensual Liens arising in the ordinary course of business), (f) that
portion of any obligation of such Person, as lessee, which in accordance with
GAAP is required to be capitalized on a balance sheet of such Person, and (g)
Contingent Obligations (excluding for purposes of Sections 7.10(b) Contingent
Obligations in respect of any indebtedness, obligation or liability other than
those described in items (a) - (f) above); provided that, for purposes of this
definition, Indebtedness shall not include Intercompany Debt and obligations in
respect of interest rate caps, collars, exchanges, swaps or other, similar
agreements.
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<PAGE> 14
"Indemnified Liabilities": defined in Section 12.5.
"Intercompany Debt": (i) Indebtedness of the Company to one or more of
the Subsidiaries and (ii) demand Indebtedness of one or more of the Subsidiaries
to the Company or any one or more of the other Subsidiaries.
"Interest Expense": the sum of all interest (adjusted to give effect to
all interest rate swap, cap or other similar interest rate hedging arrangements,
all as determined in accordance with GAAP) paid or accrued in respect of
Consolidated Indebtedness for the immediately preceding four fiscal quarter
period, determined in accordance with GAAP.
"Interest Payment Date": (i) as to any ABR Advance, the last day of
each March, June, September and December, commencing on the first of such days
to occur after such ABR Advance is made or any Eurodollar Advance is converted
to an ABR Advance, (ii) as to any Swing Line Loan, the day on which the
outstanding principal balance of such Swing Line Loan shall become due and
payable in accordance with Section 2.2(a), (iii) as to any Eurodollar Advance in
respect of which a Borrower has selected an Interest Period of one, two or three
months, the last day of such Interest Period, (iv) as to any Eurodollar Advance
in respect of which a Borrower has selected an Interest Period greater than
three months, the last day of the third month of such Interest Period and the
last day of such Interest Period.
"Interest Period": a Eurodollar Interest Period or a Swing Line
Interest Period, as the case may be.
"Internal Revenue Code": the Internal Revenue Internal Revenue Code of
1986, as amended from time to time, or any successor thereto, and the rules and
regulations issued thereunder, as from time to time in effect.
"Investments": defined in Section 8.12.
"Issuer": BNY.
"Lender": defined in the preamble; such term to also include the Swing
Line Lender and the Issuer where the context hereof requires or permits such
inclusion.
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<PAGE> 15
"Letter of Credit": defined in Section 2.7, provided that each of the
letters of credit listed on Schedule 1.1L shall constitute a Letter of Credit
for the purposes of this Agreement.
"Letter of Credit Commitment": the commitment of the Issuer to issue
Letters of Credit in an aggregate face amount not in excess of $25,000,000
pursuant to Section 2.7.
"Letter of Credit Exposure": at any time, (a) in respect of all
Lenders, the sum, without duplication, of (i) the maximum aggregate amount which
may be drawn under all unexpired Letters of Credit at such time (whether the
conditions for drawing thereunder have or may be satisfied), (ii) the aggregate
amount, at such time, of all unpaid drafts (which have not been dishonored)
drawn under all Letters of Credit, and (iii) the aggregate unpaid Reimbursement
Obligations at such time, and (b) in respect of any Lender, an amount equal to
such Lender's Commitment Percentage at such time multiplied by the amount
determined under clause (a) of this definition.
"Letter of Credit Participation": with respect to each Lender, its
obligations to the Issuer under Section 2.8.
"Letter of Credit Participation Fee": defined in Section 3.12.
"Letter of Credit Request": a request in the form of Exhibit C.
"Leverage Ratio": at any time of determination, the ratio of (i) the
sum of Consolidated Indebtedness (excluding the CVS Subordinated Debt) and eight
times Minimum Rentals to (ii) the sum of EBITDA plus Rental Expense.
"Lien": any mortgage, pledge, hypothecation, assignment, lien, deposit
arrangement, charge, encumbrance or other security arrangement or security
interest of any kind, or the interest of a vendor or lessor under any
conditional sale agreement, capital lease or other title retention agreement and
any financing lease having substantially the same economic effect as any of the
foregoing.
"Loan": a Revolving Credit Loan or a Swing Line Loan, as the case may
be.
"Loan Documents": this Agreement, the Subsidiary Guaranty and, upon the
execution and delivery thereof, any Notes executed and delivered pursuant to
Section 2.11.
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<PAGE> 16
"Loans": the Revolving Credit Loans and the Swing Line Loans.
"Mandatory Borrowing": defined in Section 2.2(b).
"Margin Stock": any "margin stock", as said term is defined in
Regulation U of the Board of Governors of the Federal Reserve System, as the
same may be amended or supplemented from time to time.
"Material Adverse": with respect to any change or effect, a material
adverse change in, or effect on, as the case may be, (i) the financial
condition, operations, business, or Property of the Company and the Subsidiaries
taken as a whole, (ii) the ability of any Credit Party to perform its
obligations under any Loan Document to which it is a party, or (iii) the ability
of the Agent or any Lender to enforce the Loan Documents or the CVS Subordinated
Note.
"Minimum Rental": Consolidated minimum rentals (determined in the same
manner as set forth in the notes to the Financial Statements) excluding up to
$5,000,000 of Consolidated equipment rentals for (i) in the case of any
determination on or prior to December 31, 1996, the twelve month period ending
September 30, 1996 and (ii) in the case of any determination thereafter, the
immediately preceding fiscal year.
"Moody's": Moody's Investors Service, Inc., or any successor thereto.
"Multiemployer Plan": a Pension Plan which is a multiemployer plan
defined in Section 4001(a)(3) of ERISA.
"Negotiated Rate": with respect to a Swing Line Loan, the rate per
annum agreed to in writing by the Borrower requesting such Swing Line Loan and
the Swing Line Lender as the interest rate which such Swing Line Loan shall
bear.
"Net Worth": at any date of determination, the sum of all amounts which
would be included under shareholders' equity on a Consolidated balance sheet of
the Company and its Subsidiaries determined in accordance with GAAP as at such
date.
"Obligations": defined in Section 11.1.
"Offering": defined in the Registration Statement.
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<PAGE> 17
"PBGC": the Pension Benefit Guaranty Corporation established pursuant
to Subtitle A of Title IV of ERISA, or any Governmental Authority succeeding to
the functions thereof.
"Pension Plan": at any time, any Employee Benefit Plan (including a
Multiemployer Plan) subject to Section 302 of ERISA or Section 412 of the
Internal Revenue Code, the funding requirements of which are, or at any time
within the six years immediately preceding the time in question, were in whole
or in part, the responsibility of the Company, any Subsidiary or an ERISA
Affiliate.
"Person": any individual, firm, partnership, limited liability company,
limited liability partnership, joint venture, corporation, association, business
trust, joint stock company, unincorporated association, trust, Governmental
Authority or any other entity, whether acting in an individual, fiduciary, or
other capacity, and for the purpose of the definition of "ERISA Affiliate", a
trade or business.
"Pricing Level I": any time when the Fixed Charge Coverage Ratio is
greater than or equal to 2.00:1.00.
"Pricing Level II": any time when (i) the Fixed Charge Coverage Ratio
is greater than or equal to 1.80:1.00 and (ii) Pricing Level I does not apply.
"Pricing Level III": any time when (i) the Fixed Charge Coverage Ratio
is greater than or equal to 1.60:1.00 and (ii) neither Pricing Level I nor
Pricing Level II applies.
"Pricing Level IV": any time when (i) the Fixed Charge Coverage Ratio
is less than 1.60:1.00 and (ii) none of Pricing Level I, Pricing Level II or
Pricing Level III applies.
"Principal Office": from time to time, the principal office of BNY,
located on the date hereof in New York, New York.
"Prohibited Transaction": a transaction that is prohibited under
Section 4975 of the Internal Revenue Code or Section 406 of ERISA and not exempt
under Section 4975 of the Internal Revenue Code or Section 408 of ERISA.
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<PAGE> 18
"Property": in respect of any Person, all types of real, personal or
mixed property and all types of tangible or intangible property owned or leased
by such Person.
"Registration Statement": the Registration Statement filed on Form S- 1
by the Company with the Securities and Exchange Commission with respect to the
offering of shares of the common stock of the Company to the public, as amended
by amendment filed October 30, 1996.
"Regulatory Change": (a) the introduction or phasing in of any law,
rule or regulation after the date hereof, (b) the issuance or promulgation after
the date hereof of any directive, guideline or request from any central bank or
United States or foreign Governmental Authority (whether having the force of
law), or (c) any change after the date hereof in the interpretation of any
existing law, rule, regulation, directive, guideline or request by any central
bank or United States or foreign Governmental Authority charged with the
administration thereof, in each case applicable to the transactions contemplated
by this Agreement.
"Reimbursement Obligations": all obligations and liabilities of the
Borrowers due and to become due hereunder in respect of Letters of Credit.
"Rental Expense": the sum of all rental expense (determined in the same
manner as set forth in the notes to the Financial Statements) of the Company and
its Subsidiaries on a Consolidated basis for the immediately preceding four
fiscal quarter period, determined in accordance with GAAP.
"Reorganization": defined in the Registration Statement (and shall
include the Offering).
"Reorganization Documents": the CVS Subordinated Note, the Stockholder
Agreement, the Tax Disaffiliation Agreement, the Transitional Services Agreement
and the Amended and Restated Certificate of Incorporation.
"Reportable Event": with respect to any Pension Plan, (a) any event set
forth in Sections 4043(b) (other than a Reportable Event as to which the 30 day
notice requirement is waived by the PBGC under applicable regulations), 4062(e)
or 4063(a) of ERISA, or the regulations thereunder, (b) an event requiring the
Company, any Subsidiary or any ERISA Affiliate to provide security to a Pension
Plan under Section 401(a)(29) of the
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<PAGE> 19
Internal Revenue Code, or (c) the failure to make any payment required by
Section 412(m) of the Internal Revenue Code.
"Required Lenders": at any time prior to the Commitment Termination
Date or such earlier date as all of the Commitments shall have terminated or
been terminated in accordance herewith, Lenders having Commitment Amounts equal
to or more than 51% of the Aggregate Commitment Amount, and at all other times,
Lenders having Credit Exposures equal to or more than 51% of the Aggregate
Credit Exposure.
"Restricted Payment": with respect to any Person, any of the following,
whether direct or indirect: (a) the declaration or payment by such Person of any
dividend or distribution on any class of Stock of such Person, other than a
dividend payable solely in shares of that class of Stock to the holders of such
class, (b) the declaration or payment by such Person of any distribution on any
other type or class of equity interest or equity investment in such Person, and
(c) any redemption, retirement, purchase or acquisition of, or sinking fund or
other similar payment in respect of, any class of Stock of, or other type or
class of equity interest or equity investment in, such Person.
"Revolving Credit Loan" and "Revolving Credit Loans": defined in
Section 2.1(a).
"S&P": Standard & Poor's Ratings Group, a division of McGraw-Hill,
Inc., or any successor thereto.
"Solvent": with respect to any Person on a particular date, the
condition that on such date, (i) the fair value of the Property of such Person
is greater than the total amount of liabilities, including, without limitation,
contingent liabilities, of such Person, (ii) the present fair salable value of
the assets of such Person is not less than the amount that will be required to
pay the probable liability of such Person on its debts as they become absolute
and matured, (iii) such Person does not intend to, and does not believe that it
will, incur debts or liabilities beyond such Person's ability to pay as such
debts and liabilities mature, and (iv) such Person is not engaged in business or
a transaction, and is not about to engage in business or a transaction, for
which such Person's Property would constitute an unreasonably small amount of
capital. For purposes of this definition, the amount of any contingent liability
at any time shall be computed as the amount that, in light of all the facts and
circumstances existing at such time, represents the amount that can reasonably
be expected to become an actual or matured liability after taking into account
probable payments by co-obligors.
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<PAGE> 20
"Special Counsel": Emmet, Marvin & Martin, LLP.
"Stock": any and all shares, interests, participations or other
equivalents (however designated) of corporate stock.
"Stockholder Agreement": the Stockholder Agreement, between the Company
and CVS, substantially in the form filed as an exhibit to the Registration
Statement, as the same may be amended, modified or supplemented from time to
time in accordance with Section 8.9.
"Subsidiary": at any time and from time to time, any corporation,
association, partnership, limited liability company, joint venture or other
business entity of which the Company and/or any Subsidiary of the Company,
directly or indirectly at such time, either (a) in respect of a corporation,
owns or controls more than 50% of the outstanding stock having ordinary voting
power to elect a majority of the board of directors or similar managing body,
irrespective of whether a class or classes shall or might have voting power by
reason of the happening of any contingency, or (b) in respect of an association,
partnership, limited liability company, joint venture or other business entity,
is entitled to share in more than 50% of the profits and losses, however
determined.
"Subsidiary Borrowers": collectively, wholly-owned Subsidiaries of the
Company which are signatories hereto on the Effective Date and each other
Subsidiary of the Company which becomes a party to this Agreement by the
execution of a Borrower Addendum pursuant to Section 2.10; each a "Subsidiary
Borrower".
"Subsidiary Guarantors": collectively, each Subsidiary of the Company
in existence on the Effective Date and each other Subsidiary which becomes a
party to the Subsidiary Guaranty by the execution of a Subsidiary Guaranty
Addendum; each a "Subsidiary Guarantor".
"Subsidiary Guaranty": the guaranty of each Subsidiary in the form of
Exhibit I.
"Subsidiary Guaranty Addendum": an addendum in the form of Annex B to
the Subsidiary Guaranty pursuant to which a new Subsidiary shall become a party
to the Subsidiary Guaranty as required by Section 8.11.
"Swing Line Commitment": the commitment of the Swing Line Lender to
make Swing Line Loans in accordance with the terms hereof, in an aggregate
outstanding prin-
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<PAGE> 21
cipal amount not exceeding at any time (i) $25,000,000 until December 31, 1996
and (ii) $15,000,000 thereafter, as the same may be reduced pursuant to Section
2.6.
"Swing Line Commitment Period": the period from the Effective Date to,
but excluding, the Swing Line Termination Date.
"Swing Line Exposure": at any time, in respect of any Lender, an amount
equal to the aggregate principal balance of Swing Line Loans at such time
multiplied by such Lender's Commitment Percentage at such time.
"Swing Line Interest Period": as to any Swing Line Loan, the period
commencing on the date of such Swing Line Loan and ending on the date set forth
by the Borrower requesting such Swing Line Loan in the Borrowing Request with
respect thereto; provided that the last day of any Swing Line Interest Period
shall not be earlier than one day after the date of such Swing Line Loan or
later than 7 days after the date of such Swing Line Loan and in no event later
than the Swing Line Termination Date; and provided further that if any Swing
Line Interest Period would end on a day other than a Business Day, such Interest
Period shall be extended to the next succeeding Business Day.
"Swing Line Lender": BNY.
"Swing Line Loan" and "Swing Line Loans": defined in Section 2.2(a).
"Swing Line Maturity Date": defined in Section 2.2(a).
"Swing Line Participation Amount": defined in Section 2.2(c).
"Swing Line Termination Date": the date which is 10 days prior to the
Commitment Termination Date.
"Tangible Net Worth": at any time of determination, Net Worth less all
assets of the Company and its Subsidiaries included in such Net Worth,
determined on a Consolidated basis at such date, that would be classified as
intangible assets in accordance with GAAP.
"Tax Disaffiliation Agreement": the Tax Disaffiliation Agreement
between the Company and CVS, substantially in the form filed as an exhibit to
the Registration
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<PAGE> 22
Statement, as the same may be amended, modified or supplemented from time to
time in accordance with Section 8.9.
"Termination Event": with respect to any Pension Plan, (a) a Reportable
Event, (b) the termination of a Pension Plan under Section 4041(c) of ERISA, or
the filing of a notice of intent to terminate a Pension Plan under Section
4041(c) of ERISA, or the treatment of a Pension Plan amendment as a termination
under Section 4041(e) of ERISA (except an amendment made after such Pension Plan
satisfies the requirement for a standard termination under Section 4041(b) of
ERISA), (c) the institution of proceedings by the PBGC to terminate a Pension
Plan under Section 4042 of ERISA, or (d) the appointment of a trustee to
administer any Pension Plan under Section 4042 of ERISA.
"Transitional Services Agreement": the Transitional Services Agreement
between the Company and CVS, substantially in the form filed as an exhibit to
the Registration Statement, as the same may be amended, modified or supplemented
from time to time in accordance with Section 8.9.
"Type": with respect to any Revolving Credit Loan, the characteristic
of such Loan as an ABR Advance or a Eurodollar Advance, each of which
constitutes a Type of Revolving Credit Loan.
"Unqualified Amount": defined in Section 3.4(c).
"Upstream Dividends": defined in Section 8.7.
1.2. Principles of Construction
(a) All capitalized terms defined in this Agreement shall have
the meanings given such capitalized terms herein when used in the other Loan
Documents or in any certificate, opinion or other document made or delivered
pursuant hereto or thereto, unless otherwise expressly provided therein.
(b) Unless otherwise expressly provided herein, the word
"fiscal" when used herein shall refer to the relevant fiscal period of the
Company. As used in the Loan Documents and in any certificate, opinion or other
document made or delivered pursuant thereto, accounting terms not defined in
Section 1.1, and accounting terms partly defined in Section 1.1, to the extent
not defined, shall have the respective meanings given to them under GAAP.
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<PAGE> 23
(c) The words "hereof", "herein", "hereto" and "hereunder" and
similar words when used in each Loan Document shall refer to such Loan Document
as a whole and not to any particular provision of such Loan Document, and
Section, schedule and exhibit references contained therein shall refer to
Sections thereof or schedules or exhibits thereto unless otherwise expressly
provided therein.
(d) All references herein to a time of day shall mean the then
applicable time in New York, New York, unless otherwise expressly provided
herein.
(e) Section headings have been inserted in the Loan Documents
for convenience only and shall not be construed to be a part thereof. Unless the
context otherwise requires, words in the singular number include the plural, and
words in the plural include the singular.
(f) Whenever in any Loan Document or in any certificate or
other document made or delivered pursuant thereto, the terms thereof require
that a Person sign or execute the same or refer to the same as having been so
signed or executed, such terms shall mean that the same shall be, or was, duly
signed or executed by an Authorized Signatory of such Person.
(g) The words "include" and "including", when used in each
Loan Document, shall mean that the same shall be included "without limitation",
unless otherwise specifically provided.
(h) Certain provisions hereof concerning Credit Parties are
incorporated by reference into other Loan Documents as if fully set forth
therein.
2. AMOUNT AND TERMS OF LOANS
2.1. Revolving Credit Loans
(a) Subject to the terms and conditions hereof, each Lender
severally (and not jointly) agrees to make loans under this Agreement (each a
"Revolving Credit Loan" and, collectively with each other Revolving Credit Loan
of such Lender and/or with each Revolving Credit Loan of each other Lender, the
"Revolving Credit Loans") to one or more Borrowers from time to time during the
Commitment Period, during which
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<PAGE> 24
period the Borrowers may borrow, prepay and reborrow in accordance with the
provisions hereof. Immediately after making each Revolving Credit Loan and after
giving effect to all Swing Line Loans repaid and all Reimbursement Obligations
paid on the same date, the Aggregate Credit Exposure will not exceed the
Aggregate Commitment Amount. With respect to each Lender, at the time of the
making of any Revolving Credit Loan, the sum of (i) the principal amount of such
Lender's Revolving Credit Loan constituting a part of the Revolving Credit Loans
to be made, (ii) the aggregate principal balance of all other Revolving Credit
Loans (exclusive of Revolving Credit Loans which are repaid with the proceeds
of, and simultaneously with the incurrence of, the Revolving Credit Loans to be
made) then outstanding from such Lender and (iii) the product of (A) such
Lender's Commitment Percentage and (B) the sum of (1) the aggregate principal
balance of all Swing Line Loans (exclusive of Swing Line Loans which are repaid
with the proceeds of, and simultaneously with the incurrence of, the respective
Revolving Credit Loans) then outstanding and (2) the Letter of Credit Exposure
of all Lenders, will not exceed the Commitment of such Lender at such time.
During the Commitment Period, each Borrower may borrow, prepay in whole or in
part and reborrow Revolving Credit Loans under the Commitments, all in
accordance with the terms and conditions hereof. At the option of a Borrower,
indicated in its Borrowing Request, Revolving Credit Loans may be made as ABR
Advances or Eurodollar Advances.
(b) The aggregate outstanding principal balance of all
Revolving Credit Loans shall be due and payable on the Commitment Termination
Date or on such earlier date upon which all of the Commitments shall have been
voluntarily terminated by the Borrower in accordance with Section 2.6.
2.2. Swing Line Loans
(a) Subject to the terms and conditions hereof, the Swing Line
Lender agrees to make loans under this Agreement (each a "Swing Line Loan" and,
collectively, the "Swing Line Loans") to one or more Borrowers from time to time
during the Swing Line Commitment Period. Swing Line Loans (i) may be repaid and
reborrowed in accordance with the provisions hereof, (ii) shall not, immediately
after giving effect thereto, result in the Aggregate Credit Exposure exceeding
the Aggregate Commitment Amount, and (iii) shall not, immediately after giving
effect thereto, result in the aggregate outstanding principal balance of all
Swing Line Loans exceeding the Swing Line Commitment. The Swing Line Lender
shall not be obligated to make any Swing Line Loan at a time when any Lender
shall be in default of its obligations under this Agreement unless the Swing
Line Lender has entered into arrangements satisfactory to it and the Company
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<PAGE> 25
to eliminate the Swing Line Lender's risk with respect to such defaulting
Lender's participation in such Swing Line Loan. The Swing Line Lender will not
make a Swing Line Loan if the Agent, or any Lender by notice to the Swing Line
Lender, the Company and the applicable Borrower no later than one Business Day
prior to the Borrowing Date with respect to such Swing Line Loan, shall have
determined that the conditions set forth in Sections 5 and 6 have not been
satisfied and such conditions remain unsatisfied as of the requested time of the
making such Loan. Each Swing Line Loan shall be due and payable on the day (the
"Swing Line Maturity Date") being the earliest of the last day of the Swing Line
Interest Period applicable thereto, the date on which the Swing Line Commitment
shall have been voluntarily terminated in accordance with Section 2.6, and the
date on which the Loans shall become due and payable pursuant to the provisions
hereof, whether by acceleration or otherwise. Each Swing Line Loan shall bear
interest at the Negotiated Rate applicable thereto. The Swing Line Lender shall
disburse the proceeds of Swing Line Loans at its office designated in Section
12.2 by crediting such proceeds to an account of the Borrower thereof maintained
with the Swing Line Lender or as such Borrower shall otherwise direct in its
Borrowing Request therefor.
(b) On any Business Day on which a Swing Line Loan shall be
due and payable and shall remain unpaid, the Swing Line Lender may, in its sole
discretion, give notice to the Lenders and the applicable Borrower that such
outstanding Swing Line Loan shall be funded with a borrowing of Revolving Credit
Loans (provided that such notice shall be deemed to have been automatically
given upon the occurrence of a Default or an Event of Default under Sections
9.1(h) or (i)), in which case a borrowing of Revolving Credit Loans made as ABR
Advances to such Borrower (each such borrowing, a "Mandatory Borrowing"), shall
be made by all Lenders pro rata based on each such Lender's Commitment
Percentage on the Business Day immediately succeeding the giving of such notice.
The proceeds of each Mandatory Borrowing shall be remitted directly to the Swing
Line Lender to repay such outstanding Swing Line Loan. Each Lender irrevocably
agrees to make a Revolving Credit Loan pursuant to each Mandatory Borrowing in
the amount and in the manner specified in the preceding sentence and on the date
specified in writing by the Swing Line Lender notwithstanding: (i) the amount of
such Mandatory Borrowing may not comply with the minimum amount for Loans
otherwise required hereunder, (ii) whether any condition specified in Section 6
is then unsatisfied, (iii) whether a Default or an Event of Default then exists,
(iv) the Borrowing Date of such Mandatory Borrowing, (v) the aggregate principal
amount of all Loans then outstanding, (vi) the Aggregate Credit Exposure at such
time and (vii) the amount of the Commitments at such time.
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(c) Upon each receipt by a Lender of notice of an Event of
Default from the Agent pursuant to Section 10.5, such Lender shall purchase
unconditionally, irrevocably, and severally (and not jointly) from the Swing
Line Lender a participation in the outstanding Swing Line Loans (including
accrued interest thereon) in an amount equal to the product of its Commitment
Percentage and the outstanding balance of the Swing Line Loans (each, a "Swing
Line Participation Amount"). Each Lender shall also be liable for an amount
equal to the product of its Commitment Percentage and any amounts paid by a
Borrower pursuant to this Section that are subsequently rescinded or avoided, or
must otherwise be restored or returned. Such liabilities shall be unconditional
and without regard to the occurrence of any Default or Event of Default or the
compliance by any Borrower with any of its obligations under the Loan Documents.
(d) In furtherance of Section 2.2(c), upon each receipt by a
Lender of notice of an Event of Default from the Agent pursuant to Section 10.5,
such Lender shall promptly make available to the Agent for the account of the
Swing Line Lender its Swing Line Participation Amount at the office of the Agent
specified in Section 12.2, in lawful money of the United States and in
immediately available funds. The Agent shall deliver the payments made by each
Lender pursuant to the immediately preceding sentence to the Swing Line Lender
promptly upon receipt thereof in like funds as received. Each Lender hereby
indemnifies and agrees to hold harmless the Agent and the Swing Line Lender from
and against any and all losses, liabilities (including liabilities for
penalties), actions, suits, judgments, demands, costs and expenses resulting
from any failure on the part of such Lender to pay, or from any delay in paying
the Agent any amount such Lender is required by notice from the Agent to pay in
accordance with this Section upon receipt of notice of an Event of Default from
the Agent pursuant to Section 10.5 (except in respect of losses, liabilities or
other obligations suffered by the Agent or the Swing Line Lender, as the case
may be, resulting from the gross negligence or willful misconduct of the Agent
or the Swing Line Lender, as the case may be), and such Lender shall pay
interest to the Agent for the account of the Swing Line Lender from the date
such amount was due until paid in full, on the unpaid portion thereof, at a rate
of interest per annum, whether before or after judgment, equal to (i) from the
date such amount was due until the third day therefrom, the Federal Funds
Effective Rate, and (ii) thereafter, the Federal Funds Effective Rate plus 2%,
payable upon demand by the Swing Line Lender. The Agent shall distribute such
interest payments to the Swing Line Lender upon receipt thereof in like funds as
received.
(e) Whenever the Agent is reimbursed by a Borrower for the
account of the Swing Line Lender for any payment in connection with Swing Line
Loans made to
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such Borrower and such payment relates to an amount previously paid by a Lender
pursuant to this Section, the Agent will promptly remit such payment to such
Lender.
2.3. Notice of Borrowing-Revolving Credit Loans and Swing Line Loans
Whenever a Borrower desires to borrow Loans hereunder
(excluding Mandatory Loans), the Company on behalf of such Borrower agrees to
notify the Agent (and with respect to a Swing Line Loan, the Swing Line Lender),
which notification shall be irrevocable, no later than (a) 12:00 Noon on the
proposed Borrowing Date in the case of Swing Line Loans, (b) 10:00 A.M. on the
proposed Borrowing Date in the case of Revolving Credit Loans to consist of ABR
Advances and (c) 9:00 A.M. at least two Eurodollar Business Days prior to the
proposed Borrowing Date in the case of Revolving Credit Loans to consist of
Eurodollar Advances. Each such notice shall specify (i) the aggregate amount
requested to be borrowed under the Commitments or the Swing Line Commitment,
(ii) the proposed Borrowing Date, (iii) whether a borrowing of Revolving Credit
Loans is to be of ABR Advances or Eurodollar Advances, and the amount of each
thereof (iv) the Interest Period for such Eurodollar Advances and (v) the Swing
Line Interest Period for, and the amount of, each Swing Line Loan. Each such
notice shall be promptly confirmed by delivery to the Agent (and, with respect
to a Swing Line Loan, the Swing Line Lender) of a Borrowing Request. Each
Eurodollar Advance to be made on a Borrowing Date, when aggregated with all
amounts to be Converted to Eurodollar Advances on such date and having the same
Interest Period as such Eurodollar Advance, shall equal no less than $1,000,000,
or an integral multiple of $1,000,000 in excess thereof, (ii) each ABR Advance
made on each Borrowing Date shall equal no less than $500,000 or an integral
multiple of $100,000 in excess thereof and (iii) each Swing Line Loan made on
each Borrowing Date shall equal no less than $500,000 or an integral multiple of
$100,000 in excess thereof. The Agent shall promptly notify each Lender (by
telephone or otherwise, such notification to be confirmed by fax or other
writing) of each such Borrowing Request. Subject to its receipt of each such
notice from the Agent and subject to the terms and conditions hereof, (A) each
Lender shall make immediately available funds available to the Agent at the
address therefor set forth in Section 12.2 not later than 1:00 P.M. on each
Borrowing Date in an amount equal to such Lender's Commitment Percentage of the
Revolving Credit Loans requested on such Borrowing Date and/or (B) the Swing
Line Lender shall make immediately available funds available to the Borrower
requesting the Swing Line Loan on such Borrowing Date in an amount equal to the
Swing Line Loan requested by such Borrower.
2.4. Use of Proceeds
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Each Borrower agrees that the proceeds of the Loans and
Letters of Credit shall be used solely for its general corporate purposes not
inconsistent with the provisions hereof. Notwithstanding anything to the
contrary contained in any Loan Document, each Borrower further agrees that no
part of the proceeds of any Loan or Letter of Credit will be used, directly or
indirectly, for a purpose which violates any law, rule or regulation of any
Governmental Authority, including the provisions of Regulations G, U or X of the
Board of Governors of the Federal Reserve System, as amended or any provision of
this Agreement, including, without limitation, the provisions of Section 4.9.
2.5. Termination or Reduction of Commitments
(a) Voluntary Termination or Reductions. At the Company's
option and upon at least three Domestic Business Days' prior irrevocable notice
to the Agent, the Company may (i) terminate the Commitments, the Swing Line
Commitment and the Letter of Credit Commitment, at any time, or (ii) permanently
reduce the Aggregate Commitment Amount, the Swing Line Commitment or the Letter
of Credit Commitment, in part at any time and from time to time, provided that
(1) each such partial reduction shall be in an amount equal to at least (i) in
the case of the Aggregate Commitment Amount, $10,000,000 or an integral multiple
of $1,000,000 in excess thereof, (ii) in the case of the Swing Line Commitment,
$1,000,000, or an integral multiple of $1,000,000 in excess thereof, and (iii)
in the case of the Letter of Credit Commitment, $1,000,000, or an integral
multiple of $1,000,000 in excess thereof, and (2) immediately after giving
effect to each such reduction, (i) the Aggregate Commitment Amount shall equal
or exceed the sum of the aggregate outstanding principal balance of all Loans
and the Letter of Credit Exposure, (ii) the Swing Line Commitment shall equal or
exceed the aggregate outstanding principal balance of all Swing Line Loans and
(iii) the Letter of Credit Commitment shall equal or exceed the Letter of Credit
Exposure of all Lenders.
(b) Mandatory Termination The Commitments shall automatically
terminate on February 15, 1997 unless the Effective Date shall have occurred by
such date.
(c) In General. Each reduction of the Aggregate Commitment
Amount shall be made by reducing each Lender's Commitment Amount by a sum equal
to such Lender's Commitment Percentage of the amount of such reduction.
2.6. Prepayments of Loans
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(a) Voluntary Prepayments. Each Borrower may prepay Revolving
Credit Loans and Swing Line Loans, in whole or in part, without premium or
penalty, but subject to Section 3.5 at any time and from time to time, by
notifying the Agent, which notification shall be irrevocable, by 9:00 A.M. at
least two Eurodollar Business Days, in the case of a prepayment of Eurodollar
Advances, or one Domestic Business Day, in the case of a prepayment of ABR
Advances, prior to the proposed prepayment date specifying (i) the Loans to be
prepaid, (ii) the amount to be prepaid, and (iii) the date of prepayment. Upon
receipt of each such notice, the Agent shall promptly notify each Lender
thereof. Each such notice given by a Borrower pursuant to this Section shall be
irrevocable. Each partial prepayment under this Section shall be in a minimum
amount of $1,000,000 ($500,000 in the case of ABR Advances and Swing Line Loans)
or an integral multiple of $1,000,000 ($100,000 in the case of ABR Advances and
Swing Line Loans) in excess thereof.
(b) Mandatory Prepayments.
(i) For 30 consecutive days during each period
beginning on December 15 and ending on the following February 28, commencing on
December 15, 1996, the Borrowers shall prepay and reduce to less than
$35,000,000 the outstanding principal balance of the Loans.
(ii) Subject to clause (iii) below with respect to
Swing Line Loans, simultaneously with each reduction of the Aggregate
Commitments under Section 2.5, the Borrowers shall prepay the Loans by the
amount, if any, by which the Aggregate Credit Exposure exceeds the amount of the
Aggregate Commitments as so reduced.
(iii) Simultaneously with each reduction of the Swing
Line Commitment under Section 2.5, the Borrowers shall prepay the Swing Line
Loans by the amount, if any, by which the outstanding principal balance of the
Swing Line Loans exceeds the amount of the Swing Line Commitment as so reduced.
(iv) If on any Borrowing Date or Conversion Date, the
Aggregate Credit Exposure shall exceed the Aggregate Commitments, the Borrowers
shall prepay the Loans in an aggregate principal amount such that immediately
after giving effect to the Loans or conversion to be made on such Borrowing Date
or Conversion Date the Aggregate Credit Exposure shall not exceed the Aggregate
Commitments.
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(c) In General. Simultaneously with each prepayment hereunder,
the Borrowers shall prepay all accrued interest on the amount prepaid through
the date of prepayment and indemnify the Lenders in accordance with Section 3.5.
2.7. Letter of Credit Sub-facility
(a) Subject to the terms and conditions hereof, the Issuer
agrees, in reliance on the agreement of the other Lenders set forth in Section
2.8, to issue standby and commercial letters of credit (each a "Letter of
Credit" and, collectively, the "Letters of Credit") during the Commitment Period
for the account of a Borrower, provided that immediately after the issuance of
each Letter of Credit (i) the Letter of Credit Exposure of all Lenders shall not
exceed the Letter of Credit Commitment, and (ii) the Aggregate Credit Exposure
would not exceed the Aggregate Commitment Amount. Each Letter of Credit shall
have an expiration date which shall be not later than the earlier to occur of 12
months from the date of issuance thereof or 10 days prior to the Commitment
Termination Date. No Letter of Credit shall be issued if the Agent, or any
Lender by notice to the Agent, the Issuer and the Company no later than 3:00
P.M. one Domestic Business Day prior to the requested date of issuance of such
Letter of Credit, shall have determined that the conditions set forth in
Sections 5 and 6 have not been satisfied and such conditions remain unsatisfied
as of the requested date of issuance of such Letter of Credit.
(b) Each Letter of Credit shall be issued for the account of
the applicable Borrower in support of an obligation of such Borrower in favor of
a beneficiary who has requested the issuance of such Letter of Credit as a
condition to a transaction entered into in connection with such Borrower's
ordinary course of business. The Company on behalf of a Borrower shall give the
Agent a Letter of Credit Request for the issuance of each Letter of Credit by
12:00 Noon at least two Domestic Business Days (or such other period as the
Issuer and the Company may agree) prior to the requested date of issuance. Upon
receipt of such Letter of Credit Request from a Borrower, the Agent shall
promptly notify the Issuer and each other Lender thereof. The Issuer shall, on
the proposed date of issuance and subject to the other terms and conditions of
this Agreement, issue the requested Letter of Credit. Each Letter of Credit
shall be in form and substance reasonably satisfactory to the Issuer, with such
provisions with respect to the conditions under which a drawing may be made
thereunder and the documentation required in respect of such drawing as the
Issuer shall reasonably require. Each Letter of Credit shall be used solely for
the purposes described therein.
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(c) Each payment by the Issuer of a draft drawn under a Letter
of Credit shall give rise to the obligation of the applicable Borrower to
immediately reimburse the Issuer for the amount thereof. If all or any portion
of any reimbursement obligation in respect of a Letter of Credit shall not be
paid when due (whether at the stated maturity thereof, by acceleration or
otherwise), such overdue amount shall bear interest, payable upon demand, at a
rate per annum equal to the Alternate Base Rate plus the Applicable Margin
applicable to ABR Advances plus 2%, from the date of such nonpayment until paid
in full (whether before or after the entry of a judgment thereon).
2.8. Letter of Credit Participation
(a) Each Lender hereby unconditionally and irrevocably,
severally (and not jointly) takes an undivided participating interest in the
obligations of the Issuer under and in connection with each Letter of Credit in
an amount equal to such Lender's Commitment Percentage of the amount of such
Letter of Credit. Each Lender shall be liable to the Issuer for its Commitment
Percentage of the unreimbursed amount of any draft drawn and honored under each
Letter of Credit. Each Lender shall also be liable for an amount equal to the
product of its Commitment Percentage and any amounts paid by a Borrower pursuant
to Sections 2.7 and 2.9 that are subsequently rescinded or avoided, or must
otherwise be restored or returned. Such liabilities shall be unconditional and
without regard to the occurrence of any Default or Event of Default or the
compliance by any Borrower with any of its obligations under the Loan Documents.
(b) The Issuer shall promptly notify the Agent, and the Agent
shall promptly notify each Lender (which notice shall be promptly confirmed in
writing), of the date and the amount of each draft paid under each Letter of
Credit with respect to which full reimbursement payment shall not have been made
by the applicable Borrower as provided in Section 2.8(c), and forthwith upon
receipt of such notice, such Lender shall promptly make available to the Agent
for the account of the Issuer its Commitment Percentage of the amount of such
unreimbursed draft at the office of the Agent specified in Section 12.2 in
lawful money of the United States and in immediately available funds. The Agent
shall distribute the payments made by each Lender pursuant to the immediately
preceding sentence to the Issuer promptly upon receipt thereof in like funds as
received. Each Lender shall indemnify and hold harmless the Agent and the Issuer
from and against any and all losses, liabilities (including liabilities for
penalties), actions, suits, judgments, demands, costs and expenses (including,
without limitation, reasonable attorneys' fees and expenses) resulting from any
failure on the part of such Lender to provide, or from any delay in providing,
the Agent with such Lender's Commitment Percentage of the amount
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of any payment made by the Issuer under a Letter of Credit in accordance with
this clause (b) above (except in respect of losses, liabilities or other
obligations suffered by the Agent or the Issuer, as the case may be, resulting
from the gross negligence or willful misconduct of the Agent or the Issuer, as
the case may be). If a Lender does not make available to the Agent when due such
Lender's Commitment Percentage of any unreimbursed payment made by the Issuer
under a Letter of Credit, such Lender shall be required to pay interest to the
Agent for the account of the Issuer on such Lender's Commitment Percentage of
such payment at a rate of interest per annum equal to (i) from the date such
Lender should have made such amount available until the third day therefrom, the
Federal Funds Effective Rate, and (ii) thereafter, the Federal Funds Effective
Rate plus 2%, in each case payable upon demand by the Issuer. The Agent shall
distribute such interest payments to the Issuer upon receipt thereof in like
funds as received.
(c) Whenever the Agent is reimbursed by a Borrower, for the
account of the Issuer, for any payment under a Letter of Credit and such payment
relates to an amount previously paid by a Lender in respect of its Commitment
Percentage of the amount of such payment under such Letter of Credit, the Agent
(or the Issuer, if such payment by a Lender was paid by the Agent to the Issuer)
will promptly pay over such payment to such Lender.
2.9. Absolute Obligation with respect to Letter of Credit Payments
A Borrower's obligation to reimburse the Agent for the account
of the Issuer for each payment under or in respect of each Letter of Credit
shall be absolute and unconditional under any and all circumstances and
irrespective of any set-off, counterclaim or defense to payment which such
Borrower may have or have had against the beneficiary of such Letter of Credit,
the Agent, the Issuer, the Swing Line Lender, any Lender or any other Person,
including, without limitation, any defense based on the failure of any drawing
to conform to the terms of such Letter of Credit, any drawing document proving
to be forged, fraudulent or invalid, or the legality, validity, regularity or
enforceability of such Letter of Credit, provided, however, that, with respect
to any Letter of Credit, the foregoing shall not relieve the Issuer of any
liability it may have to a Borrower for any actual damages sustained by such
Borrower arising from a wrongful payment under such Letter of Credit made as a
result of the Issuer's gross negligence or willful misconduct.
2.10. Borrower Addenda
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Provided that no Default or Event of Default has occurred and
is continuing, the Company may direct that any of its domestic wholly-owned
Subsidiaries which is a Subsidiary Guarantor and which is not then a Borrower
become a Borrower by submitting a Borrower Addendum to the Agent with respect to
such Subsidiary duly executed by an Authorized Signatory of each of the Company
and such Subsidiary together with (a) a certificate, dated the date of such
Borrower Addendum of the Secretary or Assistant Secretary of such Subsidiary (i)
attaching a true and complete copy of the resolutions of its Board of Directors
and of all documents evidencing other necessary corporate action (in form and
substance satisfactory to the Agent) taken by it to authorize such Borrower
Addendum, this Agreement and the transactions contemplated hereby, (ii)
attaching a true and complete copy of its certificate of incorporation, by-laws
or other organizational documents, (iii) setting forth the incumbency of its
officer or officers who may sign such Borrower Addendum, including therein a
signature specimen of such officer or officers and (iv) attaching a certificate
of good standing (or equivalent) issued by the jurisdiction of its incorporation
or formation, and (b) an opinion of counsel to such Subsidiary with respect to
such Borrower Addendum in all respects reasonably satisfactory to the Agent.
Upon receipt of a Borrower Addendum and the supporting documentation referred to
above, the Agent shall confirm such Borrower Addendum by signing a copy thereof
and shall deliver a copy thereof to the Company and each Lender. Thereupon the
Subsidiary which executed such Borrower Addendum shall become a "Subsidiary
Borrower" hereunder.
2.11. Records; Notes
(a) Lender's Records. Each Lender will note (manually or
electronically) on its records with respect to each Loan made by it (i) the date
and amount of such Loan, (ii) whether such Loan is a Revolving Loan or a Swing
Line Loan, (iii) the identity of the Borrower thereof, (iv) the interest rate
(in the case of a Eurodollar Advance or a Swing Line Loan) and Interest Period,
if any, applicable to such Loan and (v) each payment and prepayment of the
principal thereof.
(b) Agent's Records. The Agent shall keep records regarding
the Loans, the Letters of Credit and this Agreement in accordance with its
customary procedures for agented credits.
(c) Prima Facie Evidence. The entries made in the records
maintained pursuant to subsections (a) and (b) above shall, to the extent not
prohibited by applicable law, be prima facie evidence of the existence and
amount of the obligations of the
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Company and each Borrower recorded therein; provided, however, that the failure
of the Agent or any Lender, as the case may be, to make any notation on its
records shall not affect the Company's or the respective Borrower's obligations
in respect of the Loans, the Letters of Credit or this Agreement.
(d) Notes. Upon the request of any Lender (in connection with
a proposed assignment to a Federal Reserve Bank as contemplated by Section
12.7(b)) to the Agent and each Borrower, each Borrower agrees, at the expense of
the Company, to execute and deliver to the Agent for the account of such Lender
one or more promissory notes evidencing the Loan or Loans of such Lender to such
Borrower, in form and substance satisfactory to the Agent and such Lender.
3. PROCEEDS, PAYMENTS, CONVERSIONS, INTEREST, YIELD PROTECTION AND FEES
3.1. Disbursement of the Proceeds of the Loans
The Agent shall disburse the proceeds of the Loans (other than
the Swing Line Loans) at its office specified in Section 12.2 by crediting to
the applicable Borrower's general deposit account with the Agent the funds
received from each Lender. Unless the Agent shall have received prior notice
from a Lender (by telephone or otherwise, such notice to be confirmed by fax or
other writing) that such Lender will not make available to the Agent such
Lender's Commitment Percentage of the Revolving Credit Loans, to be made by it
on a Borrowing Date, the Agent may assume that such Lender has made such amount
available to the Agent on such Borrowing Date in accordance with this Section,
provided that such Lender received notice thereof from the Agent in accordance
with the terms hereof, and the Agent may, in reliance upon such assumption, make
available to the applicable Borrower on such Borrowing Date a corresponding
amount. If and to the extent such Lender shall not have so made such amount
available to the Agent, such Lender and the applicable Borrower severally agree
to pay to the Agent, forthwith on demand, such corresponding amount (to the
extent not previously paid by the other), together with interest thereon for
each day from the date such amount is made available to such Borrower until the
date such amount is paid to the Agent, at a rate per annum equal to, in the case
of such Borrower, the applicable interest rate set forth in Section 3.4(a) and,
in the case of such Lender, the Federal Funds Effective Rate from the date such
payment is due until the third day after such date and, thereafter, at the
Federal Funds Effective Rate plus 2%. Any such payment by an applicable Borrower
shall be without
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prejudice to its rights against such Lender. If such Lender shall pay to the
Agent such corresponding amount, such amount so paid shall constitute such
Lender's Loan as part of such Loans to such Borrower for purposes of this
Agreement, which Loan shall be deemed to have been made by such Lender to such
Borrower on the Borrowing Date applicable to such Loans.
3.2. Payments
(a) Each borrowing of Revolving Credit Loans by a Borrower
from the Lenders, any Conversion of Revolving Credit Loans from one Type to
another, and any reduction in the Commitments shall be made pro rata according
to the Commitment Percentage of each Lender. Each payment, including each
prepayment, of principal and interest on the Loans and of the Commitment Fee and
the Letter of Credit Participation Fee (collectively, together with all of the
other fees to be paid to the Agent, the Lenders, the Issuer and the Swing Line
Lender in connection with the Loan Documents, the "Fees"), and of all of the
other amounts to be paid to the Agent and the Lenders in connection with the
Loan Documents shall be made by the Company and the Borrowers to the Agent at
its office specified in Section 12.2 in funds immediately available in New York
by 3:00 P.M. on the due date for such payment. The failure of a Borrower to make
any such payment by such time shall not constitute a default hereunder, provided
that such payment is made on such due date, but any such payment made after 3:00
P.M. on such due date shall be deemed to have been made on the next Domestic
Business Day or Eurodollar Business Day, as the case may be, for the purpose of
calculating interest on amounts outstanding on the Loans. If the Company or a
Borrower has not made any such payment prior to 3:00 P.M., the Company and such
Borrower hereby authorize the Agent to deduct the amount of any such payment
from such account(s) as the Company and such Borrower may from time to time
designate in writing to the Agent, upon which the Agent shall apply the amount
of such deduction to such payment. Promptly upon receipt thereof by the Agent,
each payment of principal and interest on the: (i) Revolving Credit Loans shall
be remitted by the Agent in like funds as received to each Lender (a) first, pro
rata according to the amount of interest which is then due and payable to the
Lenders, and (b) second, pro rata according to the amount of principal which is
then due and payable to the Lenders and (ii) Swing Line Loans shall be remitted
by the Agent in like funds as received to the Swing Line Lender. Each payment of
the Fees shall be promptly transmitted by the Agent in like funds as received to
each party entitled thereto pro rata to each Lender in the case of the
Commitment Fee and the Letter of Credit Participation Fee according to such
Lender's Commitment Amount or, if the Commitments shall have terminated or been
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terminated, according to the outstanding principal amount of such Lender's
Revolving Credit Loans or Letter of Credit Exposure, respectively.
(b) If any payment hereunder or under the Loans shall be due
and payable on a day which is not a Domestic Business Day or Eurodollar Business
Day, as the case may be, the due date thereof (except as otherwise provided in
the definition of Eurodollar Interest Period) shall be extended to the next
Domestic Business Day or Eurodollar Business Day, as the case may be, and
(except with respect to payments in respect of the Commitment Fee and in respect
of the Letter of Credit Participation Fee) interest shall be payable at the
applicable rate specified herein during such extension.
3.3. Conversions; Other Matters
(a) The Company on behalf of a Borrower may elect at any time
and from time to time to Convert one or more Eurodollar Advances to an ABR
Advance by giving the Agent at least one Domestic Business Day's prior
irrevocable notice of such election, specifying the amount to be so Converted,
provided that any such Conversion shall only be made on the last day of the
Interest Period applicable to each such Eurodollar Advance. In addition, a
Borrower may elect from time to time to Convert an ABR Advance to any one or
more new Eurodollar Advances or to Convert any one or more existing Eurodollar
Advances to any one or more new Eurodollar Advances by giving the Agent at least
two Eurodollar Business Days' prior irrevocable notice, in the case of a
Conversion to Eurodollar Advances, of such election, specifying the amount to be
so Converted and the initial Interest Period relating thereto, provided that (i)
any Conversion of an ABR Advance to Eurodollar Advances shall only be made on a
Eurodollar Business Day and (ii) any Conversion of Eurodollar Advances shall
only be made on the last day of the Interest Period applicable thereto. The
Agent shall promptly provide the Lenders with notice of each such election. ABR
Advances and Eurodollar Advances may be Converted pursuant to this Section in
whole or in part, provided that the amount to be Converted to each Eurodollar
Advance, when aggregated with any Eurodollar Advance to be made on such date in
accordance with Section 2.1 and having the same Interest Period as such first
Eurodollar Advance, shall equal no less than $1,000,000 or an integral multiple
of $1,000,000 in excess thereof.
(b) Notwithstanding anything in this Agreement to the
contrary, upon the occurrence and during the continuance of a Default or an
Event of Default, no Borrower shall have the right to elect to Convert any
existing ABR Advance to a new Eurodollar Advance or to Convert any existing
Eurodollar Advance to a new Eurodollar Ad-
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<PAGE> 37
vance. In such event, such ABR Advance shall be automatically continued as an
ABR Advance or such Eurodollar Advance shall be automatically Converted to an
ABR Advance on the last day of the Interest Period applicable to such Eurodollar
Advance. The foregoing shall not affect any other rights or remedies that the
Agent or any Lender may have under this Agreement, any other Loan Document or
the CVS Subordinated Note.
(c) Each Conversion shall be effected by each Lender by
applying the proceeds of each new ABR Advance or Eurodollar Advance, as the case
may be, to the existing Advance (or portion thereof) being Converted (it being
understood that such Conversion shall not constitute a borrowing for purposes of
Sections 4, 5 or 6).
(d) Notwithstanding any other provision of any Loan Document:
(i) if a Borrower shall have failed to elect a
Eurodollar Advance under Section 2.3 or this Section 3.3, as the case
may be, in connection with any borrowing of new Revolving Credit Loans
or expiration of an Interest Period with respect to any existing
Eurodollar Advance, the amount of the Revolving Credit Loans subject to
such borrowing or such existing Eurodollar Advance shall thereafter be
an ABR Advance until such time, if any, as such Borrower shall elect a
new Eurodollar Advance pursuant to this Section 3.3,
(ii) a Borrower shall not be permitted to select a
Eurodollar Advance the Interest Period in respect of which ends later
than the Commitment Termination Date or such earlier date upon which
all of the Commitments shall have been voluntarily terminated in
accordance with Section 2.6, and
(iii) the Borrowers shall not be permitted to have
more than 12 Eurodollar Advances outstanding at any one time, it being
understood and agreed that each borrowing of Eurodollar Advances
pursuant to a single Borrowing Request shall constitute the making of
one Eurodollar Advance for the purpose of calculating such limitation.
3.4. Interest Rates and Payment Dates
(a) Prior to Maturity. Except as otherwise provided in
Sections 3.4(b) and 3.4(c), the Loans shall bear interest on the unpaid
principal balance thereof at the applicable interest rate or rates per annum set
forth below:
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<PAGE> 38
<TABLE>
<CAPTION>
LOANS RATE
<S> <C>
Revolving Credit Loans Alternate Base Rate applicable
made as ABR Advances thereto plus the Applicable Margin.
Revolving Credit Loans Eurodollar Rate applicable
made as Eurodollar thereto
Advances plus the Applicable Margin.
Swing Line Loans Negotiated Rate applicable
thereto as provided in
Section 2.2(a).
</TABLE>
(b) After Maturity, Late Payment Rate. After maturity, whether
by acceleration, notice of intention to prepay or otherwise, the outstanding
principal balance of the Loans shall bear interest at the Alternate Base Rate
plus 2% per annum until paid (whether before or after the entry of any judgment
thereon). Any payment of principal, interest, Fees or any other amount payable
under the Loan Documents not paid on the date when due and payable shall bear
interest at (i) in the case of principal, the applicable interest rate set forth
in Section 3.4(a) plus 2% per annum and (ii) in the case of interest, Fees or
any other amount payable under the Loan Documents, the Alternate Base Rate plus
the Applicable Margin plus 2% per annum, in each case from the due date thereof
until the date such payment is made (whether before or after the entry of any
judgment thereon.
(c) Highest Lawful Rate. Notwithstanding anything to the
contrary contained in this Agreement, at no time shall the interest rate payable
to any Lender on any of its Loans, together with the Fees and all other amounts
payable hereunder to such Lender to the extent the same constitute or are deemed
to constitute interest, exceed the Highest Lawful Rate. If in respect of any
period during the term of this Agreement, any amount paid to any Lender
hereunder, to the extent the same shall (but for the provisions of this Section
3.4) constitute or be deemed to constitute interest, would exceed the maximum
amount of interest permitted by the Highest Lawful Rate during such period (such
amount being hereinafter referred to as an "Unqualified Amount"), then (i) such
Unqualified Amount shall be applied or shall be deemed to have been applied as a
prepayment of the Loans of such Lender, and (ii) if, in any subsequent period
during the term of this Agreement, all amounts payable hereunder to such Lender
in respect of such period which con-
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<PAGE> 39
stitute or shall be deemed to constitute interest shall be less than the maximum
amount of interest permitted by the Highest Lawful Rate during such period, then
the applicable Borrower shall pay to such Lender in respect of such period an
amount (each a "Compensatory Interest Payment") equal to the lesser of (x) a sum
which, when added to all such amounts, would equal the maximum amount of
interest permitted by the Highest Lawful Rate during such period, and (y) an
amount equal to the aggregate sum of all Unqualified Amounts less all other
Compensatory Interest Payments.
(d) General. Interest shall be payable in arrears on each
Interest Payment Date and, to the extent provided in Section 2.7(b), upon each
prepayment of the Loans. Any change in the interest rate on the Loans resulting
from an increase or a decrease in the Alternate Base Rate or any reserve
requirement shall become effective as of the opening of business on the day on
which such change shall become effective. The Agent shall, as soon as
practicable, notify the Company on behalf of all Borrowers and the Lenders of
the effective date and the amount of each change in the BNY Rate, but any
failure to so notify shall not in any manner affect the obligation of the
Borrowers to pay interest on the Loans in the amounts and on the dates set forth
herein. Each determination by the Agent of the Alternate Base Rate, the Federal
Funds Effective Rate and the Eurodollar Rate pursuant to this Agreement shall be
conclusive and binding on the Borrowers absent manifest error. Each Borrower
acknowledges that to the extent interest payable on the Loans is based on the
Alternate Base Rate, such rate is only one of the bases for computing interest
on loans made by the Lenders, and by basing interest payable on ABR Advances on
the Alternate Base Rate, the Lenders have not committed to charge, and the
Borrowers have not in any way bargained for, interest based on a lower or the
lowest rate at which the Lenders may now or in the future make extensions of
credit to other Persons. All interest (other than interest calculated with
reference to the BNY Rate) shall be calculated on the basis of a 360-day year
for the actual number of days elapsed, and all interest calculated with
reference to the BNY Rate shall be made on the basis of a 365/366-day year for
the actual number of days elapsed.
3.5. Indemnification for Loss
Notwithstanding anything contained herein to the contrary, if
a Borrower shall fail to borrow a Eurodollar Advance or if a Borrower shall fail
to Convert a Eurodollar Advance after it shall have given notice to do so in
which it shall have requested a Eurodollar Advance pursuant to Section 2.3 or
3.3, as the case may be, or if the Borrower shall fail to borrow a Swing Line
Loan after it shall have agreed to a Negotiated Rate with respect thereto in
accordance with Section 2.2(a), or if a Eurodollar Advance or
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<PAGE> 40
Swing Line Loan shall be terminated for any reason prior to the last day of the
Interest Period applicable thereto, or if any repayment or prepayment of the
principal amount of a Eurodollar Advance or Swing Line Loan is made for any
reason on a date which is prior to the last day of the Interest Period
applicable thereto, such Borrower agrees to indemnify each Lender (or the Swing
Line Lender, as applicable) against, and to pay on demand directly to such
Lender the amount (calculated by such Lender using any method chosen by such
Lender which is customarily used by such Lender for such purpose) equal to any
loss or expense suffered by such Lender as a result of such failure to borrow or
Convert, or such termination, repayment or prepayment, including any loss, cost
or expense suffered by such Lender in liquidating or employing deposits acquired
to fund or maintain the funding of such Eurodollar Advance or Swing Line Loan,
as the case may be, or redeploying funds prepaid or repaid, in amounts which
correspond to such Eurodollar Advance or Swing Line Loan, as the case may be,
and any reasonable internal processing charge customarily charged by such Lender
in connection therewith.
3.6. Reimbursement for Costs, Etc.
If at any time or from time to time there shall occur a
Regulatory Change and the Issuer or any Lender shall have reasonably determined
that such Regulatory Change (i) shall have had or will thereafter have the
effect of reducing (A) the rate of return on the Issuer's or such Lender's
capital or the capital of any Person directly or indirectly owning or
controlling the Issuer or such Lender (each a "Control Person"), or (B) the
asset value (for capital purposes) to the Issuer or such Lender or such Control
Person, as applicable, of the Reimbursement Obligations, or any participation
therein, or the Loans, or any participation therein, in any case to a level
below that which the Issuer or such Lender or such Control Person could have
achieved or would thereafter be able to achieve but for such Regulatory Change
(after taking into account the Issuer's, such Lender's or such Control Person's
policies regarding capital), (ii) will impose, modify or deem applicable any
reserve, asset, special deposit or special assessment requirements on deposits
obtained in the interbank eurodollar market in connection with the Loan
Documents (excluding, with respect to any Eurodollar Advance, any such
requirement which is included in the determination of the rate applicable
thereto), (iii) will subject the Issuer, or such Lender or such Control Person,
as applicable, to any tax (documentary, stamp or otherwise) with respect to this
Agreement, any Loan Document, or (iv) will change the basis of taxation of
payments to the Issuer or such Lender or such Control Person, as applicable, of
principal, interest or fees payable under the Loan Documents (except, in the
case of clauses (iii) and (iv) above, for any tax or changes in the rate of tax
on the Issuer's, or such Lender's or such Control Person's net income) then, in
each such case,
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<PAGE> 41
within ten days after demand by the Issuer or such Lender, as applicable, the
Company shall pay to the Issuer, such Lender or such Control Person, as the case
may be, such additional amount or amounts as shall be sufficient to compensate
the Issuer, such Lender or such Control Person, as the case may be, for any such
reduction, reserve or other requirement, tax, loss, cost or expense (excluding
general administrative and overhead costs) attributable to the Issuer's, such
Lender's or such Control Person's compliance during the term hereof with such
Regulatory Change. The Issuer and each Lender may make multiple requests for
compensation under this Section.
3.7. Illegality of Funding
Notwithstanding any other provision hereof, if any Lender
shall reasonably determine that any law, regulation, treaty or directive, or any
change therein or in the interpretation or application thereof, shall make it
unlawful for such Lender to make or maintain any Eurodollar Advance as
contemplated by this Agreement, such Lender shall promptly notify the Company on
behalf of all Borrowers and the Agent thereof, and (a) the commitment of such
Lender to make such Eurodollar Advances or Convert ABR Advances to such
Eurodollar Advances shall forthwith be suspended, (b) such Lender shall fund its
portion of each requested Eurodollar Advance as an ABR Advance and (c) such
Lender's Loans then outstanding as such Eurodollar Advances, if any, shall be
Converted automatically to an ABR Advance on the last day of the then current
Interest Period applicable thereto or at such earlier time as may be required.
If the commitment of any Lender with respect to Eurodollar Advances is suspended
pursuant to this Section and such Lender shall have obtained actual knowledge
that it is once again legal for such Lender to make or maintain Eurodollar
Advances, such Lender shall promptly notify the Agent and the Company on behalf
of all Borrowers thereof and, upon receipt of such notice by each of the Agent
and the Company, such Lender's commitment to make or maintain Eurodollar
Advances shall be reinstated. If the commitment of any Lender with respect to
Eurodollar Advances is suspended pursuant to this Section, such suspension shall
not otherwise affect such Lender's Commitment.
3.8. Option to Fund; Substituted Interest Rate
(a) Each Lender has indicated that, if a Borrower requests a
Swing Line Loan or a Eurodollar Advance, such Lender may wish to purchase one or
more deposits in order to fund or maintain its funding of its Commitment
Percentage of such Swing Line Loan or Eurodollar Advance during the Interest
Period with respect thereto; it being understood that the provisions of this
Agreement relating to such funding are included
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<PAGE> 42
only for the purpose of determining the rate of interest to be paid in respect
of such Swing Line Loan or Eurodollar Advance and any amounts owing under
Sections 3.5 and 3.6. The Swing Line Lender and each Lender shall be entitled to
fund and maintain its funding of all or any part of each Swing Line Loan and
Eurodollar Advance in any manner it sees fit, but all such determinations
hereunder shall be made as if such Lender had actually funded and maintained its
Swing Line Loan or its Commitment Percentage of each Eurodollar Advance during
the applicable Interest Period through the purchase of deposits in an amount
equal to the amount of such Swing Line Loan or Eurodollar Advance, and having a
maturity corresponding to such Interest Period. The Swing Line Lender, with
respect to Swing Line Loans, and any Lender may fund its Commitment Percentage
of each Eurodollar Advance from or for the account of any branch or office of
such Lender as such Lender may choose from time to time, subject to Section
3.10.
(b) In the event that (i) the Agent shall have determined in
good faith (which determination shall be conclusive and binding upon the
Borrower) that by reason of circumstances affecting the interbank eurodollar
market either adequate and reasonable means do not exist for ascertaining the
Eurodollar Rate applicable pursuant to Section 2.3 or Section 3.3, or (ii) the
Required Lenders shall have notified the Agent that they have in good faith
determined (which determination shall be conclusive and binding on the
Borrowers) that the applicable Eurodollar Rate will not adequately and fairly
reflect the cost to such Lenders of maintaining or funding loans bearing
interest based on such Eurodollar Rate with respect to any portion of the Loans
that a Borrower has requested be made as Eurodollar Advances or any Eurodollar
Advance that will result from the requested conversion of any portion of the
Loans into Eurodollar Advances (each, an "Affected Advance"), the Agent shall
promptly notify the Company on behalf of the Borrowers and the Lenders (by
telephone or otherwise, to be promptly confirmed in writing) of such
determination on or, to the extent practicable, prior to the requested Borrowing
Date or conversion date for such Affected Advances. If the Agent shall give such
notice, (A) any Affected Advances shall be made as ABR Advances, (B) the Loans
(or any portion thereof) that were to have been Converted to Affected Advances
shall be Converted to or continued as ABR Advances, and (C) any outstanding
Affected Advances shall be Converted, on the last day of the then current
Interest Period with respect thereto, to ABR Advances. Until any notice under
clauses (i) or (ii), as the case may be, of this Section 3.8(b) has been
withdrawn by the Agent (by notice to the Company on behalf of the Borrowers)
promptly upon either (x) the Agent having determined that such circumstances
affecting the relevant market no longer exist and that adequate and reasonable
means do exist for determining the Eurodollar Rate pursuant to Section 2.3 or
Section 3.3, or (y) the Agent having been notified by such Required Lenders that
circumstances no
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<PAGE> 43
longer render the Loans (or any portion thereof) Affected Advances, no further
Eurodollar Advances shall be required to be made by the Lenders nor shall the
Borrowers have the right to Convert all or any portion of the Loans to
Eurodollar Advances.
3.9. Certificates of Payment and Reimbursement
Each of the Issuer and each Lender agrees, in connection with
any request by it for payment or reimbursement pursuant to Section 3.5 or 3.6,
to provide the applicable Borrower with a certificate, signed by an officer of
the Issuer or such Lender, as the case may be, setting forth a description in
reasonable detail of any such payment or reimbursement. Each determination by
the Issuer and each Lender of such payment or reimbursement shall be conclusive
absent manifest error.
3.10. Taxes; Net Payments
(a) All payments made by the Borrowers under the Loan
Documents shall be made free and clear of, and without reduction for or on
account of, any taxes required by law to be withheld from any amounts payable
under the Loan Documents. In the event that a Borrower is prohibited by law from
making such payments free of deductions or withholdings, then such Borrower
shall pay such additional amounts to the Agent, for the benefit of the Issuer
and the Lenders, as may be necessary in order that the actual amounts received
by the Issuer and the Lenders in respect of interest and any other amounts
payable under the Loan Documents after deduction or withholding (and after
payment of any additional taxes or other charges due as a consequence of the
payment of such additional amounts) shall equal the amount that would have been
received if such deduction or withholding were not required. In the event that
any such deduction or withholding can be reduced or nullified as a result of the
application of any relevant double taxation convention, the Lenders, the Issuer
and the Agent will, at the expense of the applicable Borrower, cooperate with
such Borrower in making application to the relevant taxing authorities seeking
to obtain such reduction or nullification, provided that the Lenders, the Issuer
and the Agent shall have no obligation to (i) engage in litigation with respect
thereto or (ii) disclose any tax return or other confidential information. If a
Borrower shall make any payment under this Section or shall make any deduction
or withholding from amounts paid under any Loan Document, such Borrower shall
forthwith forward to the Agent original or certified copies of official receipts
or other evidence acceptable to the Agent establishing each such payment,
deduction or withholding, as the case may be, and the Agent in turn shall
distribute copies thereof to the Issuer and each Lender. If any payment to the
Issuer or any Lender under any Loan Document is or becomes subject to
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<PAGE> 44
any withholding, the Issuer or such Lender, as the case may be, shall (unless
otherwise required by a Governmental Authority or as a result of any law, rule,
regulation, order or similar directive applicable to the Issuer or such Lender,
as the case may be) designate a different office or branch to which such payment
is to be made from that initially selected thereby, if such designation would
avoid such withholding and would not be otherwise disadvantageous to the Issuer
or such Lender, as the case may be, in any respect. In the event that the Issuer
or any Lender determines that it received a refund or credit for taxes paid by a
Borrower under this Section, the Issuer or such Lender, as the case may be,
shall promptly notify the Agent and such Borrower of such fact and shall remit
to such Borrower the amount of such refund or credit applicable to the payments
made by such Borrower in respect of the Issuer or such Lender, as the case may
be, under this Section.
(b) So long as it is lawfully able to do so, each Lender not
incorporated under the laws of the United States or any State thereof shall
deliver to the Company on behalf of itself and the other Borrowers such
certificates, documents, or other evidence as a Borrower may reasonably require
from time to time as are necessary to establish that such Lender is not subject
to withholding under Section 1441, 1442 or 3406 of the Internal Revenue Code or
as may be necessary to establish, under any law imposing upon such Borrower,
hereafter, an obligation to withhold any portion of the payments made by such
Borrower under the Loan Documents, that payments to the Agent on behalf of such
Lender are not subject to withholding. Notwithstanding any provision herein to
the contrary, a Borrower shall have no obligation to pay to the Issuer, the
Swing Line Lender or any Lender any amount which such Borrower is liable to
withhold due to the failure of the Issuer, the Swing Line Lender or such Lender,
as the case may be, to file any statement of exemption required by the Internal
Revenue Code.
3.11. Commitment Fee
The Company agrees to pay to the Agent for the pro rata
account of each Lender a fee (the "Commitment Fee"), payable quarterly in
arrears during the period commencing on the Execution Date and ending on the
Expiration Date on the last day of each March, June, September and December of
each year, commencing on the last day of the calendar quarter in which the
Execution Date shall have occurred, and on the Expiration Date, at a rate per
annum equal to the Applicable Margin of the difference between (i) such Lender's
Commitment and (ii) the sum of the outstanding principal balance of all
Revolving Credit Loans of such Lender, such Lender's Swing Line Exposure and
such Lender's Letter of Credit Exposure. Notwithstanding anything to the
contrary contained in this Section, on and after the Commitment Termination
Date, the
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<PAGE> 45
Commitment Fee shall be payable upon demand. In addition, upon each reduction of
the Aggregate Commitment Amount, the Company shall pay the Commitment Fee
accrued on the amount of such reduction through the date of such reduction. The
Commitment Fee shall be computed on the basis of a 360-day year for the actual
number of days elapsed.
3.12. Letter of Credit Participation Fee
The Company agrees to pay to the Agent for the pro rata
account of each Lender a fee (the "Letter of Credit Participation Fee") with
respect to each Standby Letter of Credit and Commercial Letter of Credit,
payable quarterly in arrears during the period commencing on the Effective Date
and ending on the Commitment Termination Date on the last day of each March,
June, September and December of each year, commencing on the last day of the
calendar quarter in which the Effective Date shall have occurred, and ending on
the expiration date or the date of termination of such Letter of Credit, at a
rate per annum equal to the Applicable Margin of the average daily amount which
may be drawn under such Letter of Credit during such period (whether or not the
conditions for drawing thereunder have or may be satisfied) multiplied by such
Lender's Commitment Percentage. The Letter of Credit Participation Fee shall be
computed on the basis of a 360-day year for the actual number of days elapsed.
4. REPRESENTATIONS AND WARRANTIES
In order to induce the Agent, the Lenders and the Issuer to enter into
this Agreement, the Lenders to make the Loans and the Issuer to issue Letters of
Credit, the Company (on behalf of itself and all Borrowers) hereby makes the
following representations and warranties to the Agent, the Lenders and the
Issuer:
4.1. Existence and Power
Each of the Company and the Subsidiaries is duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation or formation (except, in the case of the Subsidiaries, where the
failure to be in such good standing could not reasonably be expected to have a
Material Adverse effect), has all requisite corporate power and authority to own
its Property and to carry on its business as now conducted, and is qualified to
do business as a foreign corporation and is in good standing in each
jurisdiction in which it owns or leases real Property or in which the nature of
its business requires it to be so qualified (except those jurisdictions where
the failure to be so
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<PAGE> 46
qualified or to be in good standing could not reasonably be expected to have a
Material Adverse effect).
4.2. Authority
Each Credit Party has full corporate power and authority to
enter into, execute, deliver and perform the terms of the Loan Documents to
which it is a party, all of which have been duly authorized by all proper and
necessary corporate action and are not in contravention of any applicable law or
the terms of its Certificate of Incorporation and By-Laws. No consent or
approval of, or other action by, shareholders of any Credit Party, any
Governmental Authority, or any other Person (which has not already been
obtained) is required to authorize in respect of such Credit Party, or is
required in connection with the execution, delivery, and performance by such
Credit Party of the Loan Documents to which it is a party, or is required as a
condition to the enforceability of the Loan Documents to which it is a party
against such Credit Party.
4.3. Binding Agreement
The Loan Documents to which it is a party constitute the valid
and legally binding obligations of each Credit Party, enforceable in accordance
with their respective terms, except as such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting the enforcement of creditors' rights generally and by equitable
principles relating to the availability of specific performance as a remedy.
4.4. Litigation
There are no actions, suits, arbitration proceedings or claims
(whether purportedly on behalf of the Company or any Subsidiary or otherwise)
pending or, to the knowledge of the Company, threatened against the Company or
any Subsidiary or any of its respective Properties, or maintained by the Company
or any Subsidiary, at law or in equity, before any Governmental Authority which
could reasonably be expected to have a Material Adverse effect. There are no
proceedings pending or, to the knowledge of the Company, threatened against the
Company or any Subsidiary (a) which call into question the validity or
enforceability of, or otherwise seek to invalidate any Loan Document, or (b)
which might, individually or in the aggregate, materially and adversely affect
any of the transactions contemplated by any Loan Document.
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<PAGE> 47
4.5. No Conflicting Agreements
(a) Neither the Company nor any Subsidiary is in default under
any agreement to which it is a party or by which it or any of its Property is
bound the effect of which could reasonably be expected to have a Material
Adverse effect. No notice to, or filing with, any Governmental Authority is
required for the due execution, delivery and performance by any Credit Party of
the Loan Documents to which it is a party.
(b) No provision of any existing material mortgage, material
indenture, material contract or material agreement or of any existing statute,
rule, regulation, judgment, decree or order binding on the Company or any
Subsidiary or affecting the Property of the Company or any Subsidiary conflicts
with, or requires any consent which has not already been obtained under, or
would in any way prevent the execution, delivery or performance by any Credit
Party of the terms of, any Loan Document to which it is a party. The execution,
delivery or performance by each Credit Party of the terms of each Loan Document
to which it is a party will not constitute a default under, or result in the
creation or imposition of, or obligation to create, any Lien upon the Property
of any Credit Party pursuant to the terms of any such mortgage, indenture,
contract or agreement.
4.6. Taxes
The Company and each Subsidiary has filed or caused to be
filed all tax returns, and has paid, or has made adequate provision for the
payment of, all taxes shown to be due and payable on said returns or in any
assessments made against it, the failure of which to file or pay could
reasonably be expected to have a Material Adverse effect, and no tax Liens
(other than Liens permitted under Section 8.2) have been filed against such
Credit Party and no claims are being asserted with respect to such taxes which
are required by GAAP to be reflected in the Financial Statements and are not so
reflected, except for taxes which have been assessed but which are not yet due
and payable. The charges, accruals and reserves on the books of the Company and
each Subsidiary with respect to all federal, state, local and other taxes are
considered by the management of the Company to be adequate, and the Company
knows of no unpaid assessment which (a) could reasonably be expected to have a
Material Adverse effect, or (b) is or might be due and payable against it or any
Subsidiary or any Property of the Company or any Subsidiary, except such thereof
as are being contested in good faith and by appropriate proceedings diligently
conducted, and for which adequate reserves have been set aside in accordance
with GAAP or which have been assessed but are not yet due and payable.
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<PAGE> 48
4.7. Compliance with Applicable Laws; Filings
Neither the Company nor any Subsidiary is in default with respect
to any judgment, order, writ, injunction, decree or decision of any Governmental
Authority which default could reasonably be expected to have a Material Adverse
effect. The Company and each Subsidiary is complying with all applicable
statutes, rules and regulations of all Governmental Authorities, a violation of
which could reasonably be expected to have a Material Adverse effect. The
Company and each Subsidiary has filed or caused to be filed with all
Governmental Authorities all reports, applications, documents, instruments and
information required to be filed pursuant to all applicable laws, rules,
regulations and requests which, if not so filed, could reasonably be expected to
have a Material Adverse effect.
4.8. Governmental Regulations
Neither the Company nor any Subsidiary nor any corporation
controlling the Company or any Subsidiary or under common control with the
Company or any Subsidiary is subject to regulation under the Investment Company
Act of 1940, as amended, or is subject to any statute or regulation which
regulates the incurrence of Indebtedness.
4.9. Federal Reserve Regulations; Use of Loan Proceeds
No Credit Party is engaged principally, or as one of its important
activities, in the business of extending credit for the purpose of purchasing or
carrying any margin stock within the meaning of Regulation U of the Board of
Governors of the Federal Reserve System, as amended. No part of the proceeds of
the Loans or the Letters of Credit has been or will be used, directly or
indirectly, to purchase, acquire or carry any Margin Stock or for a purpose
which violates any law, rule or regulation of any Governmental Authority,
including, without limitation, the provisions of Regulations G, T, U or X of the
Board of Governors of the Federal Reserve System, as amended. Anything in this
Agreement to the contrary notwithstanding, no Lender shall be obligated to
extend credit to a Borrower in violation of any limitation or prohibition
provided by any applicable law, regulation or statute, including Regulation U of
the Board of Governors of the Federal Reserve System.
4.10. No Misrepresentation
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<PAGE> 49
No representation or warranty contained in any Loan Document and
no certificate or written report furnished by a Credit Party to the Agent or any
Lender contains or will contain, as of its date, a misstatement of material
fact, or omits or will omit to state, as of its date, a material fact required
to be stated in order to make the statements therein contained not misleading in
the light of the circumstances under which made.
4.11. Plans
Each Employee Benefit Plan of the Company, each Subsidiary and
each ERISA Affiliate is in compliance with ERISA and the Internal Revenue Code,
where applicable, except where the failure to so comply would not be material.
The Company, each Subsidiary and each ERISA Affiliate have complied with the
material requirements of Section 515 of ERISA with respect to each Pension Plan
which is a Multiemployer Plan, except where the failure to so comply would not
be material. The Company and each Subsidiary and each ERISA Affiliate has, as of
the date hereof, made all contributions or payments to or under each such
Pension Plan required by law or the terms of such Pension Plan or any contract
or agreement. No liability to the PBGC has been, or is reasonably expected by
the Company, any Subsidiary or any ERISA Affiliate to be, incurred by the
Company or such Subsidiary or ERISA Affiliate. Liability, as referred to in this
Section 4.11, includes any joint and several liability, but excludes any
liability for premiums under Section 4007 of ERISA. Each Employee Benefit Plan
which is a group health plan within the meaning of Section 5000(b)(1) of the
Internal Revenue Code is in material compliance with the continuation of health
care coverage requirements of Section 4980B of the Internal Revenue Code.
4.12. Environmental Matters
Neither the Company nor any Subsidiary (a) has received written
notice or otherwise learned of any claim, demand, action, event, condition,
report or investigation indicating or concerning any potential or actual
liability which individually or in the aggregate could reasonably be expected to
have a Material Adverse effect, arising in connection with (i) any
non-compliance with or violation of the requirements of any applicable federal,
state or local environmental health or safety statute or regulation, or (ii) the
release or threatened release of any
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toxic or hazardous waste, substance or constituent, or other substance into the
environment, (b) to the best knowledge of the Company, has any threatened or
actual liability in connection with the release or threatened release of any
toxic or hazardous waste, substance or constituent, or other substance into the
environment which individually or in the aggregate could reasonably be expected
to have a Material Adverse effect, (c) has received notice of any federal or
state investigation evaluating whether any remedial action is needed to respond
to a release or threatened release of any toxic or hazardous waste, substance or
constituent or other substance into the environment for which the Company or
such Subsidiary is or would be liable, which liability would reasonably be
expected to have a Material Adverse effect, or (d) has received notice that the
Company or such Subsidiary is or may be liable to any Person under the
Comprehensive Environmental Response, Compensation and Liability Act, as
amended, 42 U.S.C. Section 9601 et seq., or any analogous state law, which
liability would reasonably be expected to have a Material Adverse effect. The
Company and each Subsidiary is in compliance with the financial responsibility
requirements of federal and state environmental laws to the extent applicable,
including those contained in 40 C.F.R., parts 264 and 265, subpart H, and any
analogous state law, except in those cases in which the failure so to comply
would not reasonably be expected to have a Material Adverse effect.
4.13. Financial Statements
The Company has heretofore delivered to the Lenders through the
Agent copies of (i) the audited Consolidated Balance Sheet of the Company and
its Subsidiaries as of December 31, 1995, and the related consolidated Statement
of Income and Retained Earnings, and consolidated Statement of Cash Flows, for
the fiscal year then ended, and (ii) the unaudited pro-forma (after giving
effect to the Reorganization) Consolidated Balance Sheet of the Company as of
the proposed Reorganization Date, and the related pro-forma (after giving effect
to the Reorganization) Consolidated Statement of Income and Retained Earnings
for the period from January 1, 1996 to September 30, 1996 (collectively,
together with any related notes and schedules, the "Financial Statements"). The
Financial Statements fairly present the Consolidated financial condition and
results of the operations of the Company and the Subsidiaries, in each case as
of the dates and for the periods indicated therein and, except as noted therein,
have been prepared in conformity with GAAP as then in effect. Neither the
Company nor any Subsidiary has any obligation or liability of any kind (whether
fixed, accrued, contingent, unmatured or otherwise) which, in accordance with
GAAP as then in effect, should have been disclosed in the Financial Statements
and was not. Except with respect to the disclosures made in the Registration
Statement, since December 31, 1995 (x) there has been no Material Adverse
change, including as a result of any change in law, in the consolidated
financial condition, operations, business or Property of the Company and its
Subsidiaries and (y) the Company and its Subsidiaries have conducted their
businesses only in the ordinary course.
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4.14. Solvency
Immediately after giving effect to the transactions contemplated
by the Reorganization Documents and to the making of each Loan and the issuance
of each Letter of Credit, the Company and each Subsidiary is and will be
Solvent.
5. CONDITIONS OF LENDING-FIRST LOANS AND LETTERS OF CREDIT ON THE
FIRST BORROWING DATE
In addition to the requirements set forth in Section 6, the obligation of
each Lender on the first Borrowing Date to make one or more Revolving Credit
Loans, the Swing Line Lender to make one or more Swing Line Loans and the Issuer
to issue one or more Letters of Credit are subject to the fulfillment of the
following conditions precedent prior to or simultaneously with the Effective
Date:
5.1. Evidence of Corporate Action
The Agent shall have received a certificate, dated the Effective
Date, of the Secretary or an Assistant Secretary of each Credit Party, (i)
attaching a true and complete copy of the resolutions of its Board of Directors
and of all documents evidencing all other necessary corporate action (in form
and substance reasonably satisfactory to the Agent) taken by such Credit Party
to authorize the Loan Documents to which it is a party and the transactions
contemplated thereby (including the Reorganization), (ii) attaching a true and
complete copy of its Certificate of Incorporation and By-Laws, (iii) setting
forth the incumbency of the officer or officers of such Credit Party who may
sign the Loan Documents to which it is a party and any other certificates,
requests, notices or other documents now or in the future required thereunder,
including therein a signature specimen of such officers, and (iv) attaching a
certificate of good standing of the Secretary of State of the state of
incorporation of the Company, LNT, Inc., Rockford L.T., Inc. and Bloomington,
MN. L.T.,Inc.
5.2. Opinion of Special Counsel
The Agent shall have received from Special Counsel an opinion,
dated the Effective Date, substantially in the form of Exhibit F.
5.3. Opinion of Counsel to the Credit Parties
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The Agent shall have received an opinion of Denise Tolles, Esq.,
counsel to the Credit Parties, dated the Effective Date, substantially in the
form of Exhibit E.
5.4. Reorganization
The Agent shall have received a certificate, in form and substance
satisfactory to the Agent, from an Authorized Signatory of the Company
certifying that the Reorganization has been consummated in accordance with the
Reorganization Documents and attaching a true and complete copy of each
Reorganization Document, each of which shall be in form and substance
satisfactory to the Agent.
5.5. Subsidiary Guaranty
The Agent shall have received the Subsidiary Guaranty duly
executed by an Authorized Signatory of each Subsidiary Guarantor.
5.6. CVS Subordinated Note
The Agent shall have received a copy of the duly executed CVS
Subordinated Note.
5.7. Tangible Net Worth
The Agent shall have received a certificate from an Authorized
Signatory of the Company setting forth the computation, in detail satisfactory
to the Agent, of the best estimate (based on all information readily available
to the Company on the Effective Date) of Tangible Net Worth on the Effective
Date, such estimate to be not less than $210 million.
6. CONDITIONS OF LENDING-ALL LOANS AND LETTERS OF CREDIT
The obligation of each Lender on any Borrowing Date to make each Revolving
Credit Loan, the Swing Line Lender to make each Swing Line Loan and the Issuer
to issue each Letter of Credit are subject to the fulfillment of the following
conditions precedent:
6.1. Compliance
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On each Borrowing Date, and after giving effect to the Loans to be
made or the Letters of Credit to be issued on such Borrowing Date, (a) there
shall exist no Default or Event of Default, and (b) the representations and
warranties contained in each Loan Document shall be true and correct with the
same effect as though such representations and warranties had been made on such
Borrowing Date, except those which are expressly specified to be made as of an
earlier date.
6.2. Requests
The Agent shall have received either or both, as applicable, of a
Borrowing Request or a Letter of Credit Request from the Company on behalf of
the applicable Borrower.
6.3. Loan Closings
All documents required by the provisions of this Agreement to have
been executed or delivered to the Agent, any Lender or the Issuer on or before
the applicable Borrowing Date shall have been so executed or delivered on or
before such Borrowing Date.
7. AFFIRMATIVE AND FINANCIAL COVENANTS
The Company covenants and agrees that on and after the Effective Date and
until the later to occur of (a) the Commitment Termination Date, and (b) the
payment in full of the Loans, the Reimbursement Obligations, the Fees and all
other sums payable under the Loan Documents, the Company will:
7.1. Legal Existence
Except as may otherwise be permitted by Sections 8.3 and 8.4,
maintain, and cause each Subsidiary to maintain, its corporate existence in good
standing in the jurisdiction of its incorporation or formation and in each other
jurisdiction in which the failure so to do could reasonably be expected to have
a Material Adverse effect, except that the corporate existence of Subsidiaries
operating closing or discontinued operations may be terminated.
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7.2. Taxes
Pay and discharge when due, and cause each Subsidiary so to do,
all taxes, assessments, governmental charges, license fees and levies upon or
with respect to the Company and such Subsidiary, and upon the income, profits
and Property thereof unless, and only to the extent, that either (i)(a) such
taxes, assessments, governmental charges, license fees and levies shall be
contested in good faith and by appropriate proceedings diligently conducted by
the Company or such Subsidiary, and (b) such reserve or other appropriate
provision as shall be required by GAAP shall have been made therefor, or (ii)
the failure to pay or discharge such taxes, assessments, governmental charges,
license fees and levies could not reasonably be expected to have a Material
Adverse effect.
7.3. Insurance
Keep, and cause each Subsidiary to keep, insurance with
responsible insurance companies in such amounts and against such risks as is
usually carried by businesses similar to the Company and the Subsidiaries.
7.4. Performance of Obligations
Pay and discharge promptly when due, and cause each Subsidiary so
to do, all lawful Indebtedness, obligations and claims for labor, materials and
supplies or otherwise which, if unpaid, could reasonably be expected to (a) have
a Material Adverse effect, or (b) become a Lien on the Property of the Borrower
or any Subsidiary, except those Liens permitted under Section 8.2, provided that
neither the Company nor such Subsidiary shall be required to pay or discharge or
cause to be paid or discharged any such Indebtedness, obligation or claim so
long as (i) the validity thereof shall be contested in good faith and by
appropriate proceedings diligently conducted by the Company or such Subsidiary,
and (ii) such reserve or other appropriate provision as shall be required by
GAAP shall have been made therefor.
7.5. Condition of Property
Except for ordinary wear and tear, at all times, maintain, protect
and keep in good repair, working order and condition, all material Property
necessary for the operation of its business (other than Property which is
replaced with similar Property) as then being operated, and cause each
Subsidiary so to do.
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7.6. Observance of Legal Requirements
Observe and comply in all material respects, and cause each
Subsidiary so to do, with all laws, ordinances, orders, judgments, rules,
regulations, certifications, franchises, permits, licenses, directions and
requirements of all Governmental Authorities, which now or at any time hereafter
may be applicable to it or to such Subsidiary, a violation of which could
reasonably be expected to have a Material Adverse effect.
7.7. Financial Statements and Other Information
Maintain, and cause each Subsidiary to maintain, a standard system
of accounting in accordance with GAAP, and furnish to each Lender:
(a) As soon as available and, in any event, within 90 days after
the close of each fiscal year, a copy of (x) the Company's 10-K in respect of
such fiscal year, and (y) (i) the Company's Consolidated Balance Sheet as of the
end of such fiscal year, and (ii) the related Consolidated Statements of
Earnings, Shareholders' Equity and Cash Flows, as of and through the end of such
fiscal year, setting forth in each case in comparative form the corresponding
figures in respect of the previous fiscal year, all in reasonable detail, and
accompanied by a report of the Company's auditors, which report shall contain no
qualification as to scope of audit or going concern and shall state that (A)
such auditors audited such financial statements, (B) such audit was made in
accordance with generally accepted auditing standards in effect at the time and
provides a reasonable basis for such opinion, and (C) said financial statements
have been prepared in accordance with GAAP;
(b) As soon as available, and in any event within 50 days after
the end of each of the first three fiscal quarters of each fiscal year, a copy
of (x) the Company's 10-Q in respect of such fiscal quarter, and (y) (i) the
Company's Consolidated Balance Sheet as of the end of such quarter, and (ii) the
related Consolidated Statements of Earnings, Shareholders' Equity and Cash Flows
for (A) such quarter, and (B) the period from the beginning of the then current
fiscal year to the end of such quarter, in each case in comparable form with the
prior fiscal year, all in reasonable detail and prepared in accordance with GAAP
(without footnotes and subject to year-end adjustments);
(c) Simultaneously with the delivery of the financial statements
required by clauses (a) and (b) above, a certificate of the chief financial
officer or treasurer of the
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Company (or such other officer as shall be acceptable to the Agent) certifying
that no Default or Event of Default shall have occurred or be continuing or, if
so, specifying in such certificate all such Defaults and Events of Default, and
setting forth computations in reasonable detail demonstrating compliance with
Sections 7.10, 8.1, 8.5, 8.12 and 8.16 as at the end of such fiscal quarter or
fiscal year, as the case may be;
(d) Promptly upon becoming available, copies of all regular or
periodic reports (including, without limitation, current reports on Form 8-K)
which the Company or any Subsidiary may now or hereafter be required to file
with or deliver to the Securities and Exchange Commission, or any other
Governmental Authority succeeding to the functions thereof, and copies of all
material news releases sent to all stockholders;
(e) Prompt written notice of: (i) any citation, summons, subpoena,
order to show cause or other order naming the Company or any Subsidiary a party
to any proceeding before any Governmental Authority which could reasonably be
expected to have a Material Adverse effect, and include with such notice a copy
of such citation, summons, subpoena, order to show cause or other order, (ii)
any lapse or other termination of any license, permit, franchise or other
authorization issued to the Company or any Subsidiary by any Governmental
Authority, (iii) any refusal by any Governmental Authority to renew or extend
any license, permit, franchise or other authorization, and (iv) any dispute
between the Company or any Subsidiary and any Governmental Authority, which
lapse, termination, refusal or dispute, referred to in clause (ii), (iii) or
(iv) above, could reasonably be expected to have a Material Adverse effect;
(f) Prompt written notice of the occurrence of (i) each Default,
(ii) each Event of Default, and (iii) each Material Adverse change;
(g) Promptly upon receipt thereof, copies of any audit reports and
management letters delivered in connection with the statements referred to in
Section 7.7(a);
(h) From time to time, such other information regarding the
financial position or business of the Company and the Subsidiaries, as the
Agent, at the request of any Lender, may reasonably request; and
(i) Promptly deliver to the Agent and each Lender a copy of each
proposed modification or other change to any of the Reorganization Documents
prior to the effectiveness thereof.
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7.8. Records
Upon reasonable notice and during normal business hours, permit
representatives of the Agent and each Lender to visit the offices of the Company
and each Subsidiary, to examine the books and records (other than tax returns
and work papers related to tax returns) thereof and auditors' reports relating
thereto, to discuss the affairs of the Company and each Subsidiary with the
respective officers thereof, and to meet and discuss the affairs of the Company
and each Subsidiary with the Company's auditors. Any meeting with the Company's
auditors shall be at the expense of the Company if, at the time thereof, a
Default shall have occurred and be continuing.
7.9. Authorizations
Maintain and cause each Subsidiary to maintain, in full force and
effect, all copyrights, patents, trademarks, trade names, franchises, licenses,
permits, applications, reports, and other authorizations and rights, which, if
not so maintained, would individually or in the aggregate have a Material
Adverse effect.
7.10. Financial Covenants
(a) Fixed Charge Coverage Ratio. Maintain at all times a
Fixed Charge Coverage Ratio of not less than 1.35:1.00.
(b) Leverage Ratio. Maintain at all times during each of
the periods set forth below, a Leverage Ratio of not more than the
applicable ratio set forth below for such period:
Period Ratio
------ -----
Effective Date through
December 30, 1997 4.90:1.00
December 31, 1997 and
thereafter 4.75:1.00.
(c) Minimum Tangible Net Worth. Maintain at all times Tangible Net
Worth in an amount not less than the sum of (i) 90% of Tangible Net Worth as at
the Effective Date, as set forth in the certificate delivered pursuant to
Section 5.7, (ii) 50% of
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cumulative Consolidated net income (without giving effect to any net losses) for
each fiscal year commencing with the 1997 fiscal year and (iii) 100% of the
cumulative net proceeds received by the Company from any sale to the public of
its capital Stock for the period commencing after the Reorganization.
8. NEGATIVE COVENANTS
The Company covenants and agrees that on and after the Effective Date and
until the later to occur of (a) the Commitment Termination Date, and (b) the
payment in full of the Loans, the Reimbursement Obligations, the Fees and all
other sums which are payable under the Loan Documents, the Company will not:
8.1. Indebtedness
Create, incur, assume or suffer to exist any Indebtedness, or
permit any Subsidiary so to do, except (i) the Loans and the Letters of Credit,
(ii) capitalized lease, purchase money and real estate mortgage Indebtedness of
the Company and the Subsidiary Guarantors in an aggregate outstanding principal
amount not exceeding $12,500,000, (iii) the CVS Subordinated Debt, (iv)
Intercompany Debt and (v) additional unsecured Indebtedness of the Company and
the Subsidiary Guarantors in an aggregate outstanding principal amount not
exceeding $10,000,000.
8.2. Liens
Create, incur, assume or suffer to exist any Lien against or on
any Property now owned or hereafter acquired by the Company or any of the
Subsidiaries, or permit any Subsidiary so to do, except any one or more of the
following types of Liens: (a) Liens in connection with workers' compensation,
unemployment insurance or other social security obligations (which phrase shall
not be construed to refer to ERISA or the minimum funding obligations under
Section 412 of the Code), (b) Liens to secure the performance of bids, tenders,
letters of credit (other than letters of credit securing the payment of
Indebtedness), contracts (other than contracts for the payment of Indebtedness),
leases, statutory obligations, surety, customs, appeal, performance and payment
bonds and other obligations of like nature, in each such case arising in the
ordinary course of business, (c) mechanics', workmen's, carriers',
warehousemen's, materialmen's, landlords', or other like Liens arising in the
ordinary course of business with respect to obligations which are not due or
which are being contested in good faith and by ap-
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propriate proceedings diligently conducted, (d) Liens for taxes, assessments,
fees or governmental charges the payment of which is not required by Section
7.2, (e) easements, rights of way, restrictions, leases of Property to others,
easements for installations of public utilities, title imperfections and
restrictions, zoning ordinances and other similar encumbrances affecting
Property which in the aggregate do not materially impair its use for the
operation of the business of the Company or such Subsidiary, (f) Liens on
Property under capital leases and Liens on Property (excluding Liens on the
Stock of any Subsidiary) acquired (whether as a result of purchase, capital
lease, merger or other acquisition) and either existing on such Property when
acquired, or created contemporaneously with such acquisition to secure the
payment or financing of the purchase price of such Property (including the
construction, development, substantial repair, alteration or improvement
thereof), provided that such Liens attach only to the Property so purchased or
acquired (including any such construction, development, substantial repair,
alteration or improvement thereof) and provided further that the Indebtedness
secured by such Liens is permitted by Section 8.1, (g) statutory Liens in favor
of lessors arising in connection with Property leased to the Company or any of
the Subsidiaries, (h) Liens of attachments, judgments or awards against the
Company or any of the Subsidiaries with respect to which an appeal or proceeding
for review shall be pending or a stay of execution shall have been obtained, or
which are otherwise being contested in good faith and by appropriate proceedings
diligently conducted, and in respect of which adequate reserves shall have been
established in accordance with GAAP on the books of the Company or such
Subsidiary, and (i) Liens securing Indebtedness of a Subsidiary to the Company
or another Subsidiary.
8.3. Dispositions
Make any Disposition, or permit any Subsidiary so to do, except
any one or more of the following:
(a) Dispositions of inventory in the ordinary course of business;
(b) Dispositions of individual stores consistent with past
practices;
(c) Dispositions in the form of a sale/lease-back transaction with
respect to the distribution center located at 7500 Business Park Drive,
Greensboro, North Carolina, provided that the net proceeds received from such
sale/lease-back transaction are immediately applied to the prepayment of the
Loans;
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(d) Dispositions in the form of a sale/lease-back transaction with
respect to any store constructed by the Company or any Subsidiary, provided that
the sale/lease-back transaction is concluded within 12 months of the
commencement of operations of such store and the net proceeds from such
sale/lease-back transaction are immediately applied to the prepayment of the
Loans; and
(e) Restricted Payments to the extent permitted pursuant to
Section 8.6.
8.4. Merger or Consolidation, Etc.
Consolidate with, be acquired by, or merge into or with any
Person, or convey or otherwise transfer all or substantially all of its
Property, or permit any Subsidiary so to do, except that:
(a) any wholly-owned Subsidiary may consolidate with or merge with
any other wholly-owned Subsidiary, or convey or transfer all or substantially
all of its Property to any other wholly-owned Subsidiary, provided that
immediately before and after giving effect thereto no Default or Event of
Default shall or would exist;
(b) any wholly-owned Subsidiary may consolidate with or merge with
the Company, or convey or transfer all or substantially all of its Property to
the Company, provided that (x) immediately before and after giving effect
thereto no Default or Event of Default shall or would exist and (y) the Company
shall be the survivor of such consolidation or merger; and
(c) any Subsidiary may consolidate with or merge with another
Person, or any Subsidiary may convey or transfer all or substantially all of its
Property to such other Person, in each case solely in connection with and as
part of a permitted Disposition under Section 8.3 or a permitted Acquisition
under Section 8.5, provided that (x) immediately before and after giving effect
thereto no Default or Event of Default shall or would exist and (y) in the event
that the Company is party to any such merger or consolidation, the Company shall
be the survivor of such consolidation or merger; provided that in connection
with each such merger, conveyance or transfer the Company and each Subsidiary
party thereto shall execute and deliver to the Agent such documents and opinions
as the Agent shall require in connection therewith.
8.5. Acquisitions
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Make any Acquisition, or permit any of the Subsidiaries so to do,
except any one or more of the following: (a) Acquisitions of store leaseholds in
the ordinary course of the Company's business and (b) other Acquisitions by the
Company or any of the Subsidiaries, provided that (i) immediately before and
after giving effect to each such other Acquisition, no Default or Event of
Default shall or would exist and (ii) the aggregate amount expended on such
other Acquisitions does not exceed $10,000,000 through the Expiration Date.
8.6. Restricted Payments
Make any Restricted Payment, or permit any Subsidiary so to do,
except any one or more of the following Restricted Payments: (a) any direct or
indirect wholly-owned Subsidiary may make dividends or other distributions to
the Company or to any other direct or indirect wholly-owned Subsidiary, and (b)
the Company may make Restricted Payments in the form of repurchases of its Stock
pursuant to and in accordance with the Company's Incentive Compensation Plan,
provided that, in the case of this clause (b), immediately before and after
giving effect thereto, no Default or Event of Default shall or would exist.
8.7. Limitation on Upstream Dividends by Subsidiaries
Permit or cause any of the Subsidiaries to enter into or agree, or
otherwise be or become subject, to any agreement, contract or other arrangement
(other than this Agreement) with any Person pursuant to the terms of which (a)
such Subsidiary is or would be prohibited from declaring or paying any cash
dividends on any class of its stock owned directly or indirectly by the Company
or any of the other Subsidiaries or from making any other distribution on
account of any class of any such stock (herein referred to as "Upstream
Dividends"), or (b) the declaration or payment of Upstream Dividends by a
Subsidiary to the Company or another Subsidiary, on an annual or cumulative
basis, is or would be otherwise limited or restricted.
8.8. Limitation on Negative Pledges
Enter into any agreement, other than (i) this Agreement and (ii)
purchase money Lien documentation or capital leases permitted by this Agreement
(in which cases, any prohibition or limitation shall only be effective against
the assets financed thereby), or permit any Subsidiary so to do, which prohibits
or limits the ability of the Company or
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such Subsidiary to create, incur, assume or suffer to exist any Lien upon any of
its Property or revenues, whether now owned or hereafter acquired.
8.9. Certain Documents
Amend, modify or otherwise change any term or provision of the
organizational documents of any Credit Party or of the CVS Subordinated Note if
such change would adversely affect the interest of the Agent or the Lenders
under the Loan Documents or the CVS Subordinated Note, or amend, modify or
otherwise change any term or provision of the Reorganization Documents
(excluding the CVS Subordinated Note) if such change would materially adversely
affect the interest of the Agent or the Lenders under the Loan Documents or the
CVS Subordinated Note.
8.10. Business Change
Materially change the nature of the business of the Company and
the Subsidiaries as conducted on the Effective Date.
8.11. New Subsidiaries
Create or acquire any Subsidiary not existing on the Effective
Date, or permit any Subsidiary so to do, except (a) the Company or any
Subsidiary may create a new Subsidiary in connection with the construction or
acquisition of any new store, (b) the Company or any Subsidiary may acquire a
new Subsidiary in connection with an Acquisition permitted by Section 8.5 and
(c) the Company or any Subsidiary may create a new Subsidiary in the ordinary
course of its business. Within 30 days after each time the Agent notifies the
Company that the Agent has determined that one or more of the new Subsidiaries
which are not Subsidiary Guarantors is material, the Company shall cause such
new Subsidiaries as the Agent shall designate to execute and deliver to the
Agent a Subsidiary Guaranty Addendum and such other documents and opinions as
the Agent shall require in connection therewith. In addition, at any time the
Company may cause any Subsidiary which is not a Subsidiary Guarantor to become a
Subsidiary Guarantor by executing and delivering to the Agent a Subsidiary
Guaranty Addendum and such other documents and opinions as the Agent shall
require in connection therewith
8.12. Investments, Acquisitions, Loans, Etc.
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At any time, purchase or otherwise acquire, hold or invest in the
Stock or Property of, or any other interest in, any Person, or make any loan or
advance to, or enter into any arrangement for the purpose of providing funds or
credit to, or make any other investment, whether by way of capital contribution,
deposit or otherwise, in or with any Person, or permit any Subsidiary so to do
(all of which are sometimes referred to herein as "Investments"), except:
(a) Investments in cash or Cash Equivalents;
(b) normal business banking accounts and short-term
certificates of deposit and time deposits in, or issued by, federally insured
institutions in amounts not exceeding the limits of such insurance;
(c) Investments in the form of purchases or other acquisitions
of inventory, materials and equipment in the ordinary course of business; and
(d) Investments permitted by Sections 8.4, 8.5, 8.6 and 8.11.
8.13. Sale and Leaseback
Enter into any arrangement with any Person providing for the
leasing by it of Property which has been or is to be sold or transferred by it
to such Person or to any other Person to whom funds have been or are to be
advanced by such Person on the security of such Property or its rental
obligations, or permit any Subsidiary so to do, except to the extent permitted
under Section 8.3.
8.14. Fiscal Year
Change its fiscal year from that in effect on the Effective Date,
or permit any Subsidiary so to do, except, with 30 days' prior notice to the
Agent and the Lenders, the Company and all of the Subsidiaries may change their
fiscal year.
8.15. Transactions with Affiliates
Become a party to any transaction with an Affiliate unless the
terms and conditions relating thereto are as favorable to it as those which
would be obtainable at the time in a comparable arms-length transaction with a
Person other than an Affiliate, or permit any Subsidiary so to do, except as
provided for in the Reorganization Documents.
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8.16. Capital Expenditures
During any fiscal year, make any capital expenditures, or incur
any obligation so to do, or permit any Subsidiary so to do, in excess of the
following amounts during the following periods:
Period Amount
------ ------
1997 fiscal year $35,000,000
1998 fiscal year $40,000,000
1999 fiscal year $45,000,000
Each amount set forth above for the 1998 and 1999 fiscal years shall be
increased, on a non-cumulative basis, by an amount equal to 40% of Free Cash
Flow generated in the immediately preceding fiscal year.
8.17. CVS Subordinated Debt
Make any payment or prepayment of interest on the CVS Subordinated
Debt except as expressly permitted by the subordination terms of the CVS
Subordinated Note, or purchase or make any payment or prepayment of principal on
the CVS Subordinated Debt prior to the final stated maturity of the CVS
Subordinated Debt, or purchase or make any payment of principal on the CVS
Subordinated Debt on or after the final stated maturity of the CVS Subordinated
Debt except as expressly permitted by the subordination terms of the CVS
Subordinated Note.
9. DEFAULT
9.1. Events of Default
The following shall each constitute an "Event of Default"
hereunder:
(a) Any payment of principal on any Loan or any reimbursement
payment in respect of any Letter of Credit shall not be paid when due and
payable; or
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(b) Any payment of interest on any Loan or of any Fee shall not be
paid when due and payable and such default shall continue unremedied for a
period of 5 Domestic Business Days after the same shall be due and payable; or
(c) The failure of a Borrower to observe any agreement contained
in Section 2.4; or
(d) The failure of the Company to observe or perform any
covenant or agreement contained in Sections 7.1, 7.10 or in Section 8; or
(e) The failure of the Company or any Borrower to observe or
perform any other covenant or agreement contained in this Agreement, and such
failure shall have continued unremedied for a period of 30 days after the
Company or any Borrower shall have become aware of such failure; or
(f) Any representation or warranty made in any Loan Document, or
made in any certificate, report, opinion (other than an opinion of counsel) or
other document delivered on or after the date hereof shall in any such case
prove to have been incorrect or misleading (whether because of misstatement or
omission) in any material respect when made; or
(g) (i) Obligations in an aggregate Consolidated amount in excess
of $2,500,000 of the Company and the Subsidiaries, (other than obligations
hereunder) whether as principal, guarantor, surety or other obligor, for the
payment of any Indebtedness or any net liability under interest rate swap,
collar, exchange or cap agreements, (A) shall become or shall be declared to be
due and payable prior to the expressed maturity thereof, or (B) shall not be
paid when due or within any grace period for the payment thereof, or (ii) any
holder of any such obligations shall have the right to declare the Indebtedness
evidenced thereby due and payable prior to its stated maturity; or
(h) The Company or any Subsidiary shall (i) suspend or discontinue
its business (except for store closings in the ordinary course of business and
except in connection with a permitted Disposition under Section 8.3 and as may
otherwise be expressly permitted herein), or (ii) make an assignment for the
benefit of creditors, or (iii) generally not be paying its debts as such debts
become due, or (iv) admit in writing its inability to pay its debts as they
become due, or (v) file a voluntary petition in bankruptcy, or (vi) become
insolvent (however such insolvency shall be evidenced), or (vii) file any
petition or answer seeking for itself any reorganization, arrangement,
composition, readjustment of debt, liquidation or dissolution or similar relief
under any present or future
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statute, law or regulation of any jurisdiction (including under any law
applicable to insurance companies), or (viii) petition or apply to any tribunal,
or any other Governmental Authority, for any receiver, custodian or any trustee
for any substantial part of its Property, or (ix) be the subject of any
proceeding specified in clause (vii) or (viii) filed against it which remains
undismissed for a period of 60 consecutive days, or (x) file any answer
admitting or not contesting the material allegations of any such petition filed
against it, or of any order, judgment or decree approving such petition in any
such proceeding, or (xi) seek, approve, consent to, or acquiesce in any such
proceeding, or in the appointment of any trustee, receiver, custodian,
liquidator, or fiscal agent for it, or any substantial part of its Property, or
an order is entered appointing any such trustee, receiver, custodian, liquidator
or fiscal agent and such order remains unstayed and in effect for 60 consecutive
days, or (xii) take any formal action for the purpose of effecting any of the
foregoing (except as may otherwise be expressly permitted herein); or
(i) An order for relief is entered under the United States
bankruptcy laws or any other decree or order is entered by a court or other
Governmental Authority having jurisdiction and continues unstayed and in effect
for a period of 60 consecutive days (i) adjudging the Company or any Subsidiary
bankrupt or insolvent, or (ii) approving as properly filed a petition seeking
reorganization, liquidation, arrangement, adjustment or composition of, or in
respect of the Company or any Subsidiary under the United States bankruptcy laws
or any other applicable Federal or state law, or (iii) appointing a receiver,
liquidator, assignee, trustee, custodian, sequestrator (or other similar
official) of the Company or any Subsidiary or of substantially all of the
Property of any thereof, or (iv) ordering the winding up or liquidation of the
affairs of the Company or any Subsidiary; or
(j) Judgments or decrees in an aggregate Consolidated amount in
excess of $2,500,000 against the Company and the Subsidiaries shall remain
unpaid, unstayed on appeal, undischarged, unbonded or undismissed for a period
of 60 days; or
(k) After the Effective Date any Person (other than CVS Group),
acting alone or with a group of Persons (within the meaning of Section 13(d) of
the Securities Act of 1934, as amended) acting in concert, (i) shall have or
acquire beneficial ownership of securities (or options therefor) having 20% or
more of the ordinary voting power of the Company, or (ii) shall possess,
directly or indirectly, the power to direct or cause the direction of the
management and policies of the Company, whether through the ownership of voting
securities, by contract or otherwise; or
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(l) (i) Any Termination Event shall occur (x) with respect to any
Pension Plan (other than a Multiemployer Plan) or (y) with respect to any other
retirement plan subject to Section 302 of ERISA or Section 412 of the Internal
Revenue Code, which plan, during the five year period prior to such Termination
Event, was the responsibility in whole or in part of the Company, any Subsidiary
or any ERISA Affiliate, provided that this clause (y) shall only apply if, in
connection with such Termination Event, it is reasonably likely that liability
under Section 4069 of ERISA in an aggregate Consolidated amount in excess of
$1,000,000 will be imposed upon the Company, any Subsidiary or any ERISA
Affiliate; (ii) any Accumulated Funding Deficiency, whether or not waived, in an
aggregate Consolidated amount in excess of $1,000,000 shall exist with respect
to any Pension Plan with respect to any Pension Plan (other than a Multiemployer
Plan); (iii) any Person shall engage in any Prohibited Transaction involving any
Employee Benefit Plan; (iv) the Company, any Subsidiary or any ERISA Affiliate
shall fail to pay when due an amount which is payable by it to the PBGC or to a
Pension Plan (including a Multiemployer Plan) under Title IV of ERISA; (v) the
imposition of any tax under Section 4980(B)(a) of the Internal Revenue Code; or
(vi) the assessment of a civil penalty with respect to any Employee Benefit Plan
under Section 502(c) of ERISA; in each case, to the extent such event or
condition would have a Material Adverse effect; or
(m) A default shall occur under the Company Guaranty or the
Subsidiary Guaranty or if for any reason, after the execution and delivery
thereof, the Company Guaranty or the Subsidiary Guaranty is not in full force
and effect.
9.2. Remedies
(a) Upon the occurrence of an Event of Default or at any time
thereafter during the continuance of an Event of Default, the Agent, at the
written request of the Required Lenders, shall notify the Company (on behalf of
all Borrowers) that the Commitments, the Swing Line Commitment and the Letter of
Credit Commitment have been terminated and/or that all of the Loans and the
Reimbursement Obligations and all accrued and unpaid interest on any thereof and
all other amounts owing under the Loan Documents have been declared immediately
due and payable, provided that upon the occurrence of an Event of Default under
Section 9.1(h) or (i), the Commitments, the Swing Line Commitment and the Letter
of Credit Commitment shall automatically terminate and all of the Loans and the
Reimbursement Obligations and all accrued and unpaid interest on any thereof and
all other amounts owing under the Loan Documents shall become immediately due
and payable without declaration or notice. To the fullest extent not prohibited
by law, except for the notice provided for in the preceding sentence,
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each Borrower expressly waives any presentment, demand, protest, notice of
protest or other notice of any kind in connection with the Loan Documents and
its obligations thereunder. To the fullest extent not prohibited by law, each
Borrower further expressly waives and covenants not to assert any appraisement,
valuation, stay, extension, redemption or similar law, now or at any time
hereafter in force which might delay, prevent or otherwise impede the
performance or enforcement of the Loan Documents.
(b) In the event that the Commitments, the Swing Line Commitment
and the Letter of Credit Commitment shall have been terminated or all of the
Loans and the Reimbursement Obligations shall have been declared due and payable
pursuant to the provisions of this Section, (i) the Company shall forthwith
deposit an amount equal to the Letter of Credit Exposure in a cash collateral
account with and under the exclusive control of the Agent, and (ii) the Agent,
the Issuer and the Lenders agree, among themselves, that any funds received from
or on behalf of the Company under any Loan Document or the CVS Subordinated Note
by the Issuer or any Lender (except funds received by the Issuer or any Lender
as a result of a purchase from the Issuer or such Lender, as the case may be,
pursuant to the provisions of Section 12.9) shall be remitted to the Agent, and
shall be applied by the Agent in payment of the Loans, the Reimbursement
Obligations and the other obligations of the Credit Parties under the Loan
Documents in the following manner and order: (1) first, to reimburse the Agent,
the Issuer and the Lenders, in that order, for any expenses due from the Company
and the Borrowers pursuant to the provisions of Section 12.5 and the
Reimbursement Agreements, (2) second, to the payment of the Fees, (3) third, to
the payment of any expenses or amounts (other than the principal of and interest
on the Loans and the Reimbursement Obligations) payable by the Company and the
Borrowers to the Agent, the Issuer or any of the Lenders under the Loan
Documents, (4) fourth, to the payment, pro rata according to the outstanding
principal balance of the Loans and the Letter of Credit Exposure of each Lender,
of interest due on the Loans and the Reimbursement Obligations, (5) fifth, to
the payment, pro rata according to the sum of (A) the aggregate outstanding
principal balance of the Loans plus (B) the aggregate outstanding balance of the
Reimbursement Obligations, of the aggregate outstanding principal balance of the
Loans and the aggregate outstanding balance of the Reimbursement Obligations,
and (6) sixth, any remaining funds shall be paid to whosoever shall be entitled
thereto or as a court of competent jurisdiction shall direct.
(c) In the event that the Loans and the Reimbursement Obligations
shall have been declared due and payable pursuant to the provisions of this
Section 9.2, the Agent upon the written request of the Required Lenders, shall
proceed to enforce the Reimbursement Obligations and the rights of the holders
of the Loans by suit in equity,
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action at law and/or other appropriate proceedings, whether for payment or the
specific performance of any covenant or agreement contained in the Loan
Documents or the CVS Subordinated Note. In the event that the Agent shall fail
or refuse so to proceed, the Issuer and each Lender shall be entitled to take
such action as the Required Lenders shall deem appropriate to enforce its rights
under the Loan Documents and the CVS Subordinated Note.
10. THE AGENT
10.1. Appointment
Each Lender hereby irrevocably designates and appoints BNY as the
Agent of such Lender under the Loan Documents and the CVS Subordinated Note, and
each Lender irrevocably authorizes the Agent to take such action on its behalf
under the provisions of the Loan Documents and the CVS Subordinated Note and to
exercise such powers and perform such duties as are expressly delegated to the
Agent by the terms of the Loan Documents and the CVS Subordinated Note, together
with such other powers as are reasonably incidental thereto. Notwithstanding any
provision to the contrary contained in the Loan Documents or the CVS
Subordinated Note, the Agent shall not have any duties or responsibilities
except those expressly set forth in the Loan Documents, or any fiduciary
relationship with any Lender, and no implied covenants, functions,
responsibilities, duties, obligations or liabilities shall be read into the Loan
Documents or the CVS Subordinated Note or otherwise exist against the Agent.
10.2. Delegation of Duties
The Agent may execute any of its rights or duties under the Loan
Documents or the CVS Subordinated Note by or through agents or attorneys-in-fact
and shall be entitled to rely upon the advice of counsel concerning all matters
pertaining thereto, and shall not be liable for any action taken or omitted to
be taken in good faith upon the advice of such counsel.
10.3. Exculpatory Provisions
None of the Agent or any of its officers, directors, employees,
agents, attorneys-in-fact or Affiliates shall be (i) liable for any action
lawfully taken or omitted to be taken by the Agent or such Person under or in
connection with the Loan Documents or
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the CVS Subordinated Note (except the Agent for its own gross negligence or
willful misconduct), or (ii) responsible in any manner to any of the Lenders for
any recitals, statements, representations or warranties made by any party
contained in the Loan Documents or the CVS Subordinated Note or in any
certificate, report, statement or other document referred to or provided for in,
or received by the Agent under or in connection with, the Loan Documents or the
CVS Subordinated Note or for the value, validity, effectiveness, genuineness,
enforceability or sufficiency of any of the Loan Documents or the CVS
Subordinated Note or for any failure of any Credit Party or any other Person to
perform its obligations thereunder. The Agent shall not be under any obligation
to any Lender to ascertain or to inquire into the observance or performance of
any of the covenants or agreements contained in, or conditions of, the Loan
Documents or the CVS Subordinated Note, or to inspect the Property, books or
records of the Company or any Subsidiary. The Agent shall not be under any
liability or responsibility to any Credit Party or any other Person as a
consequence of any failure or delay in performance, or any breach, by any Lender
of any of its obligations under any of the Loan Documents or the CVS
Subordinated Note. The Lenders acknowledge that the Agent shall not be under any
duty to take any discretionary action permitted under the Loan Documents or the
CVS Subordinated Note unless the Agent shall be requested in writing to do so by
the Required Lenders.
10.4. Reliance by Agent
The Agent shall be entitled to rely, and shall be fully protected
in relying, upon any writing, resolution, notice, request, consent, certificate,
affidavit, opinion, letter, cablegram, telegram, fax, telex or teletype message,
statement, order or other document or conversation reasonably believed by it to
be genuine and correct and to have been signed, sent or made by the proper
Person or Persons and upon advice and statements of legal counsel (including
counsel to the Company), independent accountants and other experts selected by
the Agent. The Agent may treat each Lender, or the Person designated in the last
notice filed under Section 12.7, as the holder of all of the interests of such
Lender in its Loans until written notice of transfer, signed by such Lender (or
the Person designated in the last notice filed with the Agent) and by the Person
designated in such written notice of transfer, in form and substance
satisfactory to the Agent, shall have been filed with the Agent and all
requirements of Section 12.7 have been satisfied. The Agent shall not be under
any duty to examine or pass upon the validity, effectiveness or genuineness of
the Loan Documents or any instrument, document or communication furnished
pursuant thereto or in connection therewith, and the Agent shall be entitled to
assume that the same are valid, effective and genuine, have been signed or sent
by the proper parties
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and are what they purport to be. The Agent shall be fully justified in failing
or refusing to take any action not expressly required under the Loan Documents
unless it shall first receive such advice or concurrence of the Required Lenders
as it deems appropriate. The Agent shall in all cases be fully protected in
acting, or in refraining from acting, under the Loan Documents in accordance
with a request of the Required Lenders or, if required by Section 12.1, all
Lenders, and such request and any action taken or failure to act pursuant
thereto shall be binding upon the Credit Parties, all the Lenders and all future
holders of the Loans.
10.5. Notice of Default
The Agent shall not be deemed to have knowledge or notice of
the occurrence of any Default or Event of Default unless the Agent shall have
received written notice thereof from a Lender or the Company referring to this
Agreement, describing such Default or Event of Default and stating such notice
is a "Notice of Default." In the event that the Agent receives such a notice,
the Agent shall promptly give notice thereof to the Lenders. The Agent shall
take such action with respect to such Default or Event of Default as shall be
reasonably directed by the Required Lenders, provided that unless and until the
Agent shall have received such directions, the Agent may (but shall not be
obligated to) take such action or give such directions, or refrain from taking
such action or giving such directions, with respect to such Default or Event of
Default as it shall deem to be in the best interests of the Lenders.
10.6. Non-Reliance
Each Lender expressly acknowledges that neither the Agent nor
any of its officers, directors, employees, agents, attorneys-in-fact or
Affiliates has made any representations or warranties to such Lender and that no
act by the Agent hereafter, including any review of the affairs of the Company
or the Subsidiaries, shall be deemed to constitute any representation or
warranty by the Agent to any Lender. Each Lender represents to the Agent that
such Lender has, independently and without reliance upon the Agent or any other
Lender, and based on such documents and information as it has deemed
appropriate, made its own evaluation of and investigation into the business,
operations, Property, financial and other condition and creditworthiness of the
Company and the Subsidiaries and has made its own decision to enter into this
Agreement. Each Lender also represents that it will, independently and without
reliance upon the Agent or any other Lender, and based on such documents and
information as it shall deem appropriate at the time, continue to make its own
credit analysis, evaluations and decisions in taking or not taking
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action under the Loan Documents, and to make such investigation as it deems
necessary to inform itself as to the business, operations, Property, financial
and other condition and creditworthiness of the Company and the Subsidiaries.
Each Lender acknowledges that a copy of this Agreement and all exhibits and
schedules hereto have been made available to it and its individual counsel for
review, and each Lender acknowledges that it is satisfied with the form and
substance thereof. Except for notices, reports and other documents expressly
required to be furnished to the Lenders by the Agent hereunder, the Agent shall
have no duty or responsibility to provide any Lender with any credit or other
information concerning the business, operations, Property, financial and other
condition or creditworthiness of the Company or the Subsidiaries which may come
into the possession of the Agent or any of its officers, directors, employees,
agents, attorneys-in-fact or Affiliates.
10.7. Indemnification
Each Lender agrees to indemnify the Agent in its capacity as
such (to the extent not promptly reimbursed by the Company and without limiting
the obligation of the Company to do so), pro rata according to (i) at any time
when no Loans are outstanding, its Commitment Percentage, or if no Commitments
then exist, its Commitment Percentage on the last day on which Commitments did
exist, and (ii) at any time when Loans are outstanding (x) if the Commitments
then exist, its Commitment Percentage or (y) if the Commitments have been
terminated or otherwise no longer exist, the percentage equal to the fraction
(A) the numerator of which is such Lender's Credit Exposure and (B) the
denominator of which is the Aggregate Credit Exposure, from and against any and
all liabilities, obligations, claims, losses, damages, penalties, actions,
judgments, suits, costs, expenses and disbursements of any kind whatsoever,
including any amounts paid to the Lenders by or for the account of the Company
pursuant to the terms of the Loan Documents or the CVS Subordinated Note that
are subsequently rescinded or avoided (or must otherwise be restored or
returned), which may at any time (including at any time following the payment of
the Loans and the Notes) be imposed on, incurred by or asserted against the
Agent in any way relating to or arising out of the Loan Documents or the CVS
Subordinated Note or any other document contemplated by or referred to therein
or the transactions contemplated thereby or any action taken or omitted to be
taken by the Agent under or in connection therewith; provided that no Lender
shall be liable for the payment of any portion of such liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs, expenses or
disbursements to the extent resulting solely from the gross negligence or
willful misconduct of the Agent. The agreements in this Section shall survive
the payment of the Loans and all other amounts payable under the Loan Documents.
If the Agent is subsequently reimbursed by the Company for such amounts,
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the Agent shall remit to the Lenders their pro rata shares of such reimbursement
to the extent they previously paid such amounts.
10.8. Agent in Its Individual Capacity
BNY and each Affiliate thereof, may make loans to, accept
deposits from, issue letters of credit for the account of and generally engage
in any kind of business with the Borrower and the Subsidiaries as though it were
not the Agent and BNYCMI did not arrange the transactions contemplated hereby.
With respect to the Commitment made or renewed by BNY, BNY shall have the same
rights and powers under the Loan Documents and the CVS Subordinated Note as any
Lender and may exercise the same as though it were not the Agent, the Issuer and
the Swing Line Lender and the term "Lender" shall include BNY.
10.9. Successor Agent
If at any time the Agent deems it advisable, in its sole
discretion, it may submit to each Lender a written notification of its
resignation as Agent under the Loan Documents and the CVS Subordinated Note,
such resignation to be effective on the earlier to occur of (a) the thirtieth
day after the date of such notice, and (b) the date upon which any successor to
the Agent, in accordance with the provisions of this Section, shall have
accepted in writing its appointment as successor Agent. Upon any such
resignation, the Required Lenders shall have the right to appoint from among the
Lenders a successor Agent. If no such successor Agent shall have been so
appointed by the Required Lenders and accepted such appointment within 30 days
after the retiring Agent's giving of notice of resignation, then the retiring
Agent may, on behalf of the Lenders, appoint a successor Agent, which successor
Agent shall be a commercial bank organized and licensed under the laws of the
United States of America or of any State thereof and having a combined capital
and surplus of at least $500,000,000. Upon the written acceptance of any
appointment as Agent hereunder by a successor Agent, such successor Agent shall
automatically become a party to this Agreement and shall thereupon succeed to
and become vested with all the rights, powers, privileges and duties of the
retiring Agent, and the retiring Agent's rights, powers, privileges and duties
as Agent under the Loan Documents and the CVS Subordinated Note shall be
terminated. The Credit Parties and the Lenders shall execute such documents as
shall be necessary to effect such appointment. After any retiring Agent's
resignation as Agent, the provisions of this Section 10 shall inure to its
benefit as to any actions taken or omitted to be taken by it while it was the
Agent. If at any time there shall not be a duly appointed and acting Agent, upon
notice duly given, the
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Credit Parties agree to make each payment when due under the Loan Documents and
the CVS Subordinated Note directly to the Lenders entitled thereto during such
time.
11. GUARANTY OF THE COMPANY
In order to induce the Agent, the Issuing Bank and the Lenders to enter
into this Agreement, to make the Loans contemplated hereby and to issue and
participate in the Letters of Credit, the Company hereby agrees as follows:
11.1. Guaranty
The Company hereby absolutely, irrevocably and unconditionally
guarantees to the Agent, the Issuing Bank, the Swing Line Lender and the Lenders
the full and prompt payment when due, whether at stated maturity, by
acceleration, by mandatory prepayment, by notice of intention to prepay or
otherwise, of all obligations, now existing or hereafter arising, of the
Subsidiary Borrowers, including all principal and interest (whether accruing
before or after any event set forth in Sections 9.1(h) or (i) and whether or not
allowed) under this Agreement to which it is a party and whether direct,
indirect or contingent, incurred as primary obligor or otherwise, secured or
unsecured and all costs and expenses incurred by the Agent, the Issuing Bank,
the Swing Line Lender and the Lenders in enforcing any thereof, whether or not
suit is instituted (as the same may be amended, increased, modified, renewed,
refunded, extended, increased or refinanced from time to time, collectively, the
"Obligations"). Regardless of whether the Agent, the Issuing Bank, the Swing
Line Lender or the Lenders are prevented or otherwise hindered by law from
collecting or otherwise enforcing any of the Obligations in accordance with
their terms, whether as the result of the commencement of any bankruptcy or
similar proceedings against any of the Subsidiary Borrowers or otherwise, the
Agent, the Issuing Bank, the Swing Line Lender and the Lenders shall be entitled
to receive hereunder from the Company upon demand therefor the sums which would
have been otherwise due had such collection or enforcement not been prevented or
hindered.
11.2. Absolute Obligation
The obligations of the Company under this Guaranty shall be
absolute, irrevocable, unconditional and continuing until the Aggregate
Commitments have been terminated, the Swing Line Commitment has been terminated,
the Letter of Credit Commitment has been terminated, all Letters of Credit have
expired or otherwise
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terminated and all of the Obligations are indefeasibly paid in full in cash and
shall not be subject to any counterclaim, right or set-off or any defense
whatsoever. The Company acknowledges and agrees that the Agent, the Issuing
Bank, the Swing Line Lender and the Lenders have no responsibility or liability,
and shall not be deemed to have made any representation or warranty, with
respect to the validity, enforceability or collectibility of this Agreement or
any document executed or delivered in connection therewith, or any preference or
priority ranking with respect to the payment of the Obligations or the validity
or perfection of any security interest under any of this Agreement. The Agent,
the Issuing Bank, the Swing Line Lender and the Lenders shall have no obligation
to enforce this Agreement or any collateral security hereunder, by any action,
including, without limitation, making or perfecting any claim against any of the
Subsidiary Borrowers, prior to being entitled to the benefits of this Guaranty.
Nothing except the indefeasible cash payment in full of the Obligations shall
release the Company from liability under this Guaranty. The Company hereby
irrevocably and forever waives any right to succeed to any of the rights of the
Agent, the Issuing Bank, the Swing Line Lender and the Lenders against the
Subsidiary Borrowers under this Agreement, whether by way of subrogation or
otherwise until all Obligations have been indefeasibly paid in full in cash.
11.3. Guaranty of Payment
This Guaranty is a guaranty of payment. The liability and
obligations of the Company shall be primary, direct and absolute, and the
Company hereby waives any right to require that resort be had by the Agent, the
Issuing Bank, the Swing Line Lender and the Lenders against any of the
Subsidiary Borrowers or any other Person, or to require that resort be had by
the Agent, the Issuing Bank, the Swing Line Lender and the Lenders to any direct
or indirect collateral security. The Agent may, at its option, proceed against
the Company in the first instance to enforce any obligation to collect any
monies, the payment of which is guaranteed hereby, without first proceeding
against any of the Subsidiary Borrowers or any other Person and without first
resorting to any other remedies, as the Agent may deem advisable. The liability
of the Company hereunder shall in no way be affected or impaired by any
acceptance by the Agent, the Issuing Bank, the Swing Line Lender or the Lenders
or any direct or indirect security for, or other guarantor upon, any
indebtedness, liability or obligation of the Subsidiary Borrowers to the Agent,
the Issuing Bank, the Swing Line Lender and the Lenders, or by any failure,
delay, neglect or omission of the Agent, the Issuing Bank, the Swing Line Lender
or any Lenders to realize upon or perfect any such security, indebtedness,
liability or obligation, or by any direct or indirect collateral security
therefor, or by the bankruptcy,
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reorganization or insolvency of, or by any other proceeding for the relief of
debtors commenced against, any of the Subsidiary Borrowers or any other Person,
or by the release, exchange, substitution or any loss or impairment of any
collateral security, or the liability of any other Person in respect of the
Obligations, including, without limitation, the release of any other guarantor
or any collateral security provided thereby, or by the invalidity or
unenforceability of this Agreement, or any of the Obligations against any of the
Subsidiary Borrowers for any reason, or by any amendment or waiver of or any
consent to or departure from this Agreement, or by any reason or circumstance
which might constitute a defense available to or a discharge of any Subsidiary
Borrower or the Company in its capacity as a guarantor, including, without
limitation, any defense of sovereign immunity or any similar defense available
to any Subsidiary Borrower or the Company under applicable law, from any of its
obligations (including, without limitation, in respect of the Obligations), or
by the fact that at any time or from time to time none of the Obligations may be
outstanding, or by the merger or consolidation of any Subsidiary Borrower with
any other Person, or by the dissolution or liquidation of any Subsidiary
Borrower, or by any law, rule, regulation or decree now or hereafter in effect
which might affect any of the terms or conditions of the Obligations, or by the
preference, priority ranking or collectibility of any of the Obligations, or by
the existence or exercise of any right of set-off by the Agent, the Issuing
Bank, the Swing Line Lender or any Lender, or by any other reason whatsoever.
11.4. Repayment in Bankruptcy
If, at any time or times subsequent to the performance by the
Company of its obligations hereunder or the termination of this Guaranty, the
Agent, the Issuing Bank, the Swing Line Lender or any Lender shall be required
to repay any amounts previously paid by or on behalf of any of the Subsidiary
Borrowers in reduction of the Obligations under this Agreement by virtue of an
order of any court having jurisdiction in the premises, including, without
limitation, as a result of an adjudication that such amounts constituted
preferential payments or fraudulent conveyances, this Guaranty shall continue to
be effective, or shall be reinstated, as the case may be, all as though such
payments had not been made.
11.5. Other Provisions in Guaranty
(i) No failure by the Agent, the Issuing Bank, the Swing Line
Lender or any of the Lenders to exercise, and no delay by the Agent in
exercising, any right or remedy under this Agreement shall operate as a waiver
thereof.
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(ii) The Company waives all errors or omissions of the Agent,
the Issuing Bank, the Swing Line Lender or any of the Lenders in connection with
the administration of this Agreement, the Letters of Credit and any collateral
security therefor, except errors or omissions which constitute gross negligence
or willful misconduct.
(iii) Without limiting the foregoing, the Company waives any
act or omission of the Agent, the Issuing Bank, the Swing Line Lender or any of
the Lenders which may affect or change in any way the liability of the Company
under this Guaranty.
(iv) This Guaranty shall be binding upon the Company and its
successors and assigns and shall inure to the benefit of the Agent, the Issuing
Bank, the Swing Line Lender and the Lenders and their respective successors and
assigns, provided that the Company may not assign its obligations under this
Guaranty without the consent of all of the Lenders.
(v) Except as expressly provided in Section 9.1, the Company
hereby waives presentment, demand for payment, notice of default, non-
performance and dishonor, protest and notice of protest of or in respect of this
Agreement and the incurrence of the Obligations, and notice of acceptance of
this Guaranty and reliance hereupon by the Agent, the Issuing Bank, the Swing
Line Lender and the Lenders.
(vi) The Company agrees that this Guaranty shall automatically
extend, without any further action, to this Agreement and the Obligations as the
same may be amended, increased, extended, modified, supplemented or waived from
time to time in accordance with the terms hereof.
12. OTHER PROVISIONS
12.1. Amendments, Waivers, Etc.
With the written consent of the Required Lenders, the Agent
and the Credit Parties thereto may, from time to time, enter into written
amendments, supplements or modifications of the Loan Documents or the CVS
Subordinated Note and, with the written consent of the Required Lenders, the
Agent on behalf of the Lenders may execute and deliver to any such parties a
written instrument waiving or consenting to the departure
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from, on such terms and conditions as the Agent may specify in such instrument,
any of the requirements of the Loan Documents or the CVS Subordinated Note or
any Default or Event of Default and its consequences, provided that no such
amendment, supplement, modification, waiver or consent shall, without the
consent of all of the Lenders (i) increase the Commitment Amount of any Lender
(provided that no waiver of a Default or Event of Default shall be deemed to
constitute such an increase), (ii) extend the Commitment Period, (iii) reduce
the amount, or extend the time of payment, of the Fees, (iv) reduce the rate, or
extend the time of payment of, interest on any Loan, any Note or any
Reimbursement Obligation (other than the applicability of any post-default
increase in such rate of interest), (v) reduce the amount, or extend the time of
payment of any payment of any Reimbursement Obligation or principal on any Loan
or any Note, (vi) decrease or forgive the principal amount of any Loan, any Note
or any Reimbursement Obligation, (vii) consent to any assignment or delegation
by a Credit Party of any of its rights or obligations under any Loan Document to
which it is a party or the CVS Subordinated Note (except as expressly
contemplated by Section 8.4), (viii) release either Guaranty or any Guarantor
thereunder, (ix) change the provisions of this Section 12.1, (x) change the
definition of Required Lenders, (xi) change the several nature of the
obligations of the Lenders, or (xii) change the sharing provisions among
Lenders. Notwithstanding the foregoing, no such amendment, supplement,
modification, waiver or consent shall (A) amend, modify or waive any provision
of Section 10 or otherwise change any of the rights or obligations of the Agent,
the Issuer or the Swing Line Lender under any Loan Document or the CVS
Subordinated Note without the written consent of the Agent, the Issuer or the
Swing Line Lender, as the case may be, (B) change the Letter of Credit
Commitment, change the amount or the time of payment of the Letter of Credit
Commissions, or change any other term or provision which relates to the Letter
of Credit Commitment or the Letters of Credit without the written consent of the
Issuer or (C) change the Swing Line Commitment, change the amount or the time of
payment of the Swing Line Loans or interest thereon or change any other term or
provision which relates to the Swing Line Commitment or the Swing Line Loans
without the written consent of the Swing Line Lender. Any such amendment,
supplement, modification, waiver or consent shall apply equally to each of the
Lenders and shall be binding upon the parties to the applicable Loan Document,
the Lenders, the Agent and all future holders of the Loans and the Reimbursement
Obligations. In the case of any waiver, the Credit Parties, the Lenders and the
Agent shall be restored to their former position and rights under the Loan
Documents, but any Default or Event of Default waived shall not extend to any
subsequent or other Default or Event of Default, or impair any right consequent
thereon.
12.2. Notices
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Except as otherwise expressly provided herein, all notices,
requests and demands to or upon the respective parties hereto to be effective
shall be in writing and, if in writing, shall be deemed to have been duly given
or made (a) when delivered by hand, (b) one Domestic Business Day after having
been sent by overnight courier service at the cost of the sender, (c) five
Domestic Business Days after having been deposited in the mail, first-class
postage prepaid, or (d) in the case of fax notice, when sent, addressed as
follows in the case of the Company for itself and on behalf of each other Credit
Party, the Agent, the Issuer and the Swing Line Lender, and as set forth in
Exhibit A in the case of each of the Lenders, or to such other addresses as to
which the Agent may be hereafter notified by the respective parties hereto or
any future holders of the Notes:
The Company:
Linens 'n Things, Inc.
6 Brighton Road
Clifton, NJ 07015
Attention: James M. Tomaszewski,
Senior Vice President/CFO
Facsimile: (201) 614-2930
Telephone: (201) 614-2036
The Agent, the Swing Line Lender and the Issuer:
in the case of each Borrowing request, each notice of
prepayment under Section 2.7 and each Letter of Credit
Request:
The Bank of New York
One Wall Street
New York, New York 10286
Attention: Carol Surles,
Agency Function Administration
Facsimile: (212) 635-6365,6366 or 6367
Telephone: (212) 635-4695,
in all other cases:
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The Bank of New York
Retailing Industry Division
8th Floor
One Wall Street
New York, New York 10286
Attention: Howard F. Bascom,
Vice President
Facsimile: (212) 635-1481
Telephone: (212) 635-7894,
except that any notice, request or demand by a Borrower to or upon the Agent or
the Lenders pursuant to Sections 2.3, 2.4, 2.6, 2.7, 2.8, 2.9 or 3.3 shall not
be effective until received. Any party to a Loan Document may rely on signatures
of the parties thereto which are transmitted by fax or other electronic means as
fully as if originally signed, provided that any notice of Default or Event of
Default and notices under Section 9.2 shall be required to be given or made in
accordance with clauses (a), (b) or (c) of this Section 12.2.
12.3. No Waiver; Cumulative Remedies
No failure to exercise and no delay in exercising, on the part
of the Agent, any Lender or the Issuer, any right, remedy, power or privilege
under any Loan Document or the CVS Subordinated Note shall operate as a waiver
thereof, nor shall any single or partial exercise of any right, remedy, power or
privilege under any Loan Document or the CVS Subordinated Note preclude any
other or further exercise thereof or the exercise of any other right, remedy,
power or privilege. The rights, remedies, powers and privileges under the Loan
Documents and the CVS Subordinated Note are cumulative and not exclusive of any
rights, remedies, powers and privileges provided by law.
12.4. Survival of Representations and Warranties
All representations and warranties made in the Loan Documents
and in any document, certificate or statement delivered pursuant thereto or in
connection therewith shall survive the execution and delivery of the Loan
Documents.
12.5. Payment of Expenses and Taxes; Indemnified Liabilities
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The Company agrees, promptly upon presentation of a statement
or invoice therefor setting forth in reasonable detail the items thereof, and
whether any Loan is made or Letter of Credit is issued, (a) to pay or reimburse
the Agent and BNYCMI for all their reasonable costs and expenses actually
incurred in connection with the development, syndication, preparation and
execution of, and any amendment, waiver, consent, supplement or modification to,
the Loan Documents or the CVS Subordinated Note, any documents prepared in
connection therewith and the consummation of the transactions contemplated
thereby, whether such Loan Documents or CVS Subordinated Note or any such
amendment, waiver, consent, supplement or modification thereto or any documents
prepared in connection therewith are executed and whether the transactions
contemplated thereby are consummated, including the reasonable fees and
disbursements of Special Counsel, (b) to pay, indemnify, and hold the Agent, the
Lenders and the Issuer harmless from any and all recording and filing fees and
any and all liabilities and penalties with respect to, or resulting from any
delay (other than penalties to the extent attributable to the negligence of the
Agent, the Lenders or the Issuer, as the case may be, in failing to pay such
fees or other liabilities when due) in paying, stamp, excise and other similar
taxes, if any, which may be payable or determined to be payable in connection
with the execution and delivery of, or consummation of any of the transactions
contemplated by, or any amendment, supplement or modification of, or any waiver
or consent under or in respect of, the Loan Documents, the CVS Subordinated Note
and any such other documents, and (c) to pay, reimburse, indemnify and hold the
Agent, the Lenders and the Issuer and each of their respective officers,
directors and employees harmless from and against any and all other liabilities,
obligations, claims, losses, damages, penalties, actions, judgments, suits,
costs, expenses and disbursements of any kind or nature whatsoever (including
reasonable counsel fees and disbursements of counsel (including the allocated
costs of internal counsel) and such local counsel as may be required) actually
incurred with respect to the enforcement, performance of, and preservation of
rights under, the Loan Documents and the CVS Subordinated Note (all the
foregoing, collectively, the "Indemnified Liabilities") and, if and to the
extent that the foregoing indemnity may be unenforceable for any reason, the
Company agrees to make the maximum payment permitted under applicable law;
provided that the Company shall have no obligation hereunder to pay Indemnified
Liabilities to any indemnified person under this Section arising from the gross
negligence or willful misconduct of such indemnified person. The agreements in
this Section shall survive the termination of the Commitments and the payment of
the Loans and the Notes and all other amounts payable under the Loan Documents.
12.6. Lending Offices
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Each Lender shall have the right at any time and from time to
time to transfer any Loan to a different office of such Lender, subject to
Section 3.10.
12.7. Successors and Assigns
(a) The Loan Documents shall be binding upon and inure to the
benefit of the Credit Parties, the Lenders, the Agent, the Issuer, all future
holders of the Notes and the Reimbursement Obligations and their respective
successors and assigns; provided that no Credit Party shall assign, transfer or
delegate any of its rights or obligations under the Loan Documents or the CVS
Subordinated Note to which it is a party without the prior consent of the Agent,
the Issuer and all of the Lenders.
(b) Notwithstanding Section 12.7(c), but subject to Section
12.7(e), each Lender may at any time assign all or any portion of its rights
under any Loan Document to any Federal Reserve Bank.
(c) In addition to its rights under Section 12.7(b), each
Lender shall have the right, at any time, upon written notice to the Agent of
its intent to do so, to sell, assign, transfer or negotiate (each an
"Assignment") all or any portion of all of its Loans, its Commitment and its
Notes, if any, and its interest in the Loan Documents to any subsidiary or
Affiliate of such Lender, to any other Lender or, with the prior written consent
of the Company, the Swing Line Lender and the Issuer (which consents shall not
be unreasonably withheld and shall not be required of the Company if, at the
time of such Assignment, an Event of Default shall exist), to any other bank,
insurance company, pension fund, mutual or other similar fund or other financial
institution, provided that (i) each such Assignment shall be of a constant, and
not varying, percentage of all of the assigning Lender's rights and obligations
under Loan Documents and be in a minimum amount of $5,000,000 (which minimum
amount shall not be applicable to an Assignment by a Lender to a subsidiary or
Affiliate of such Lender) or the full amount of such Lender's Commitment, and
(ii) the parties to each such Assignment (excluding a Credit Party if such
Credit Party is a party to such assignment) shall execute and deliver to the
Agent an Assignment and Acceptance Agreement, together with a fee (the
"Assignment Fee"), payable to the Agent, of $3,500, provided that no Assignment
Fee shall be payable with respect to an Assignment by a Lender to one or more of
its Affiliates. Upon receipt of each such executed Assignment and Acceptance
Agreement together with the Assignment Fee therefor, the Agent shall execute the
same and, in the event that either the assignee thereunder is a Lender (or a
subsidiary or Affiliate thereof) or the Company shall have consented to such
assignment (to the extent that such consent was not unreasonably
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withheld and is required as aforesaid), (i) record the same and execute two
copies of such Assignment and Acceptance Agreement in the appropriate place,
deliver one copy to the assignor and one copy to the assignee, and (ii) request
a Borrower to execute and deliver (1) to such assignee, one or more Notes, in an
aggregate principal amount equal to the Loans assigned to, and Commitment
assumed by, such assignee, and (2) to such assignor, in the event that such
assignor shall retain any Loans and Commitment, one or more Notes in an
aggregate principal amount equal to the balance of such assignor Lender's Loans
and Commitment, in each case against receipt of such assignor Lender's existing
Note or Notes, as the case may be, appropriately marked to indicate their
substitution. Each Borrower agrees that it shall, upon each such request of the
Agent, execute and deliver such new Notes at its own cost and expense. Upon such
delivery, acceptance and recording by the Agent, from and after the effective
date specified in such Assignment and Acceptance Agreement, the assignee
thereunder shall be a party hereto and shall for all purposes of the Loan
Documents be deemed a "Lender" and, to the extent provided in such Assignment
and Acceptance Agreement, the assignor Lender thereunder shall be released from
its obligations under the Loan Documents.
(d) In addition to the participations provided for in Section
12.9(b), each Lender may grant participations in all or any part of its Loans,
its Notes and its Commitment to one or more banks, insurance companies, pension
funds, mutual funds or other financial institutions, provided that (i) such
Lender's obligations under the Loan Documents shall remain unchanged, (ii) such
Lender shall remain solely responsible to the other parties to the Loan
Documents for the performance of such obligations, (iii) the Borrowers, the
Agent, the Issuer and the Lenders shall continue to deal solely and directly
with such Lender in connection with such Lender's rights and obligations under
the Loan Documents, (iv) no subparticipations shall be permitted, and (v) the
voting rights of any holder of any participation shall be limited to decisions
that in accordance with Section 12.1 require the consent of all of the Lenders.
The Company acknowledges and agrees that any such participant shall for purposes
of Section 3.5, 3.6, 3.10 and 11.5 be deemed to be a "Lender", provided that in
no event shall the Company be liable for any amounts under said Sections in
excess of the amounts for which it would be liable but for such participation.
(e) No Lender shall, as between and among the Borrowers, the
Agent, the Issuer, the Swing Line Lender and such Lender, be relieved of any of
its obligations under the Loan Documents as a result of any assignment of or
granting of participations in, all or any part of its Loans, its Commitment and
its Notes, except that a Lender shall
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be relieved of its obligations to the extent of any such assignment of all or
any part of its Loans, its Commitment or its Notes pursuant to Section 12.7(c).
12.8. Counterparts
Each of the Loan Documents (other than any Notes) may be
executed on any number of separate counterparts and all of said counterparts
taken together shall be deemed to constitute one and the same agreement. It
shall not be necessary in making proof of any Loan Document to produce or
account for more than one counterpart signed by the party to be charged. A set
of the copies of this Agreement signed by all of the parties hereto shall be
lodged with each of the Company and the Agent. Any party to a Loan Document may
rely upon the signatures of any other party thereto which are transmitted by fax
or other electronic means to the same extent as if originally signed.
12.9. Set-off and Sharing of Payments
(a) In addition to any rights and remedies of the Lenders and
the Issuer provided by law, upon the occurrence of an Event of Default under
Section 9.1(a) or (b) or upon the acceleration of the payment of the Loans and
Reimbursement Obligations, each Lender and the Issuer shall have the right,
without prior notice to the Borrower, any such notice being expressly waived by
any Credit Party, to set-off and apply against any indebtedness or other
liability, whether matured or unmatured, of any Credit Party to such Lender or
the Issuer arising under the Loan Documents, any amount owing from such Lender
or the Issuer to such Credit Party. To the extent permitted by applicable law,
the aforesaid right of set-off may be exercised by such Lender or the Issuer
against a Credit Party or against any trustee in bankruptcy, custodian, debtor
in possession, assignee for the benefit of creditors, receiver, or execution,
judgment or attachment creditor of such Credit Party, or against anyone else
claiming through or against such Credit Party or such trustee in bankruptcy,
custodian, debtor in possession, assignee for the benefit of creditors,
receivers, or execution, judgment or attachment creditor, notwithstanding the
fact that such right of set-off shall not have been exercised by such Lender or
the Issuer prior to the making, filing or issuance of, service upon such Lender
or the Issuer of, or notice to such Lender or the Issuer of, any petition,
assignment for the benefit of creditors, appointment or application for the
appointment of a receiver, or issuance of execution, subpoena, order or warrant.
Each Lender and the Issuer agree promptly to notify the applicable Credit Party
and the Agent after each such set-off and application made by such Lender or the
Issuer, provided that the failure to give such notice shall not affect the
validity of such set-off and application.
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(b) If any Lender or the Issuer (each a "Benefited Lender")
shall obtain any payment (whether voluntary, involuntary, through the exercise
of any right of set-off, or otherwise) on account of its Loans or its Notes or
the Reimbursement Obligations in excess of its pro rata share (in accordance
with the outstanding principal balance of all Loans or the Reimbursement
Obligations ) of payments then due and payable on account of the Loans and Notes
received by all the Lenders or the Reimbursement Obligations, such Lender or the
Issuer, as the case may be, shall forthwith purchase, without recourse, for
cash, from the other Lenders such participations in their Loans and Notes or the
Reimbursement Obligations as shall be necessary to cause such purchasing Lender
or the Issuer to share the excess payment with each of them according to their
pro rata share (in accordance with the outstanding principal balance of all
Loans or the Reimbursement Obligations), provided that if all or any portion of
such excess payment is thereafter recovered from such purchasing Lender or the
Issuer, such purchase from each Lender shall be rescinded and each such Lender
shall repay to the purchasing Lender or the Issuer the purchase price to the
extent of such recovery, together with an amount equal to such Lender's pro rata
share (according to the proportion of (i) the amount of such Lender's required
repayment to (ii) the total amount so recovered from the purchasing Lender or
the Issuer) of any interest or other amount paid or payable by the purchasing
Lender in respect of the total amount so recovered. Each Credit Party agrees
that any Lender or the Issuer so purchasing a participation from another Lender
pursuant to this Section may exercise such rights to payment (including the
right of set-off) with respect to such participation as fully as if such Lender
or the Issuer were the direct creditor of such Credit Party in the amount of
such participation.
12.10. Indemnity
Each Credit Party agrees to indemnify and hold harmless each
of the Agent, BNYCMI, the Issuer and each Lender from and against any loss,
cost, liability, damage or expense, including the reasonable fees and
disbursements of counsel (including the unallocated costs of internal counsel)
and such local counsel as may be required to represent the Agent, the Issuer and
each Lender actually incurred by the Agent, the Issuer or such Lender in
preparing for, defending against, or providing evidence, producing documents or
taking any other action in respect of, any litigation, administrative proceeding
or investigation under any federal securities law or any other statute of any
jurisdiction, or any regulation, or at common law or otherwise, which is alleged
to arise out of or is based upon (1) any untrue statement or alleged untrue
statement of any material fact by or on behalf of any Credit Party, in any
document or schedule executed or
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filed with any Governmental Authority by or on behalf of a Credit Party which
relates to the transactions contemplated by the Loan Documents, (2) any omission
or alleged omission by or on behalf of a Credit Party to state any material fact
required to be stated in such document or schedule, or necessary to make the
statements made therein, in light of the circumstances under which made, not
misleading, (3) any acts, practices or omissions or alleged acts, practices or
omissions of a Credit Party or its agents relating to the use of the proceeds of
any Loan which is alleged to be in violation of Section 2.5, or in violation of
any federal securities law or of any other statute, regulation or other law of
any jurisdiction applicable thereto, or (4) any Loan Document or any other
document contemplated by or referred to therein or the transactions contemplated
thereby or any action taken or omitted to be taken by the Agent, the Issuer or
such Lender under or in connection with any of the foregoing. Notwithstanding
the above, no Credit Party shall have any liability under clause (4) of this
Section to indemnify or hold harmless any Person for any loss, cost, liability,
damage or expense relating to income or withholding taxes or any tax in lieu of
such taxes. The indemnity set forth herein shall be in addition to any other
obligations or liabilities of the Credit Parties to the Agent, the Issuer and
the Lenders under the Loan Documents or at common law or otherwise, shall
include the reasonable fees and disbursements of counsel (including the
unallocated costs of internal counsel) and such local counsel as may be required
in connection with establishing liability under this Section or collecting
amounts payable under this Section and shall survive any termination of this
Agreement, the expiration of the Commitments and the payment of all indebtedness
under the Loan Documents, provided that no Credit Party shall have any liability
under this Section to any indemnified person with respect to indemnified
liabilities which are determined by a final and nonappealable judgment of a
court of competent jurisdiction to have arisen primarily from the gross
negligence or willful misconduct of such indemnified person.
12.11. Governing Law
The Loan Documents and the rights and obligations of the
parties thereto shall be governed by, and construed and interpreted in
accordance with, the laws of the State of New York, without regard to principles
of conflict of laws.
12.12. Severability
Every provision of the Loan Documents is intended to be
severable, and if any term or provision thereof shall be invalid, illegal or
unenforceable for any reason, the validity, legality and enforceability of the
remaining provisions thereof shall not be af-
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fected or impaired thereby, and any invalidity, illegality or unenforceability
in any jurisdiction shall not affect the validity, legality or enforceability of
any such term or provision in any other jurisdiction.
12.13. Integration
All exhibits to the Loan Documents shall be deemed to be a
part thereof. Each Loan Document embodies the entire agreement and understanding
between or among the parties thereto with respect to the subject matter thereof
and supersedes all prior agreements and understandings between or among the
parties thereto with respect to the subject matter thereof.
12.14. Treatment of Certain Information
Each Lender, the Issuer and the Agent agree (on behalf of
itself and each of its affiliates, directors, officers, employees and
representatives) to use reasonable precautions to keep confidential, in
accordance with their customary procedures for handling confidential information
of the same nature and non-public information supplied by the Company pursuant
to this Agreement (a) which is identified by the Company as being confidential
at the time the same is delivered to such Lender, the Issuer or the Agent, or
(b) which constitutes any financial statement, financial projections or
forecasts, budget, compliance certificate, audit report, management letter or
accountants' certification delivered hereunder, or tax return or other tax
related information, provided that nothing herein shall limit the disclosure of
any such information (i) to the extent required by statute, rule, regulation or
judicial process, (ii) to counsel to any Lender, the Issuer or to the Agent,
(iii) to bank examiners, auditors or accountants, (iv) to the Agent, the Issuer
or the Lenders, (v) in connection with any litigation to which any one or more
of the Lenders, the Issuer or the Agent is a party, or (vi) to any assignee or
participant (or prospective assignee or participant) so long as such assignee or
participant (or prospective assignee or participant) first executes and delivers
a confidentiality agreement containing substantially the same restrictions as
set forth in this Section.
12.15. Acknowledgments
Each Credit Party acknowledges that (a) it has been advised by
counsel in the negotiation, execution and delivery of the Loan Documents, (b) by
virtue of the Loan Documents, none of the Agent, the Issuer, or any Lender has
any fiduciary relationship to any Credit Party, and the relationship between the
Agent, the Issuer, and the Lenders, on
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the one hand, and the Credit Parties, on the other hand, is solely that of
debtor and creditor, and (c) by virtue of the Loan Documents, no joint venture
exists among the Lenders or among the Credit Parties and the Lenders.
12.16. Consent to Jurisdiction
Each Credit Party irrevocably submits to the non-exclusive
jurisdiction of any New York State or Federal Court sitting in the City of New
York over any suit, action or proceeding arising out of or relating to the Loan
Documents. Each Credit Party irrevocably waives, to the fullest extent permitted
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 Credit Party agrees that a final judgment
in any such suit, action or proceeding brought in such a court, after all
appropriate appeals, shall be conclusive and binding upon it.
12.17. Service of Process
Each Credit Party agrees that process may be served against it
in any suit, action or proceeding referred to in Section 12.16 by sending the
same by first class mail, return receipt requested or by overnight courier
service, with receipt acknowledged, to the address of the Company on behalf of
such Credit Party set forth in Section 12.2. Each Credit Party agrees that any
such service (i) shall be deemed in every respect effective service of process
upon it in any such suit, action, or proceeding, and (ii) shall to the fullest
extent enforceable by law, be taken and held to be valid personal service upon
and personal delivery to it.
12.18. No Limitation on Service or Suit
Nothing in the Loan Documents or any modification, waiver, or
amendment thereto shall affect the right of the Agent, the Issuer or any Lender
to serve process in any manner permitted by law or limit the right of the Agent,
the Issuer or any Lender to bring proceedings against a Credit Party in the
courts of any jurisdiction or jurisdictions.
12.19. WAIVER OF TRIAL BY JURY
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THE AGENT, THE ISSUER, THE LENDERS AND EACH CREDIT PARTY
KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHT THEY MAY HAVE TO A
TRIAL BY JURY IN RESPECT OF ANY LITIGATION ARISING OUT OF, UNDER OR IN
CONNECTION WITH THE LOAN DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED THEREBY.
FURTHER, EACH CREDIT PARTY HEREBY CERTIFIES THAT NO REPRESENTATIVE OR AGENT OF
THE AGENT, THE ISSUER, OR THE LENDERS, OR COUNSEL TO THE AGENT, THE ISSUER, OR
THE LENDERS, HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT THE AGENT, THE
ISSUER, OR THE LENDERS WOULD NOT, IN THE EVENT OF SUCH LITIGATION, SEEK TO
ENFORCE THIS WAIVER OF RIGHT TO JURY TRIAL PROVISION. EACH CREDIT PARTY
ACKNOWLEDGES THAT THE AGENT, THE ISSUER, AND THE LENDERS HAVE BEEN INDUCED TO
ENTER INTO THIS AGREEMENT BY, INTER ALIA, THE PROVISIONS OF THIS SECTION.
12.20. Effective Date
This Agreement shall be effective at such time (the "Effective
Date") as the Agent shall have received executed counterparts hereof by the
parties hereto and the conditions set forth in Sections 5.1 through 5.7 have
been or simultaneously will be satisfied, provided that this Agreement shall not
become effective unless all of such conditions are satisfied not later than
February 15, 1997.
-89-
<PAGE> 90
AS EVIDENCE of the agreement by the parties hereto to the
terms and conditions herein contained, each such party has caused this Agreement
to be executed on its behalf.
LINENS 'N THINGS, INC.
By: /s/ JAMES M. TOMASZEWSKI
________________________________
Name: James M. Tomaszewski
______________________________
Title: Senior Vice President/CFO
______________________________
LNT, INC.
By: /s/ JAMES M. TOMASZEWSKI
________________________________
Name: James M. Tomaszewski
_____________________________
Title: Senior Vice President/CFO
_____________________________
THE BANK OF NEW YORK, in its capacity as a
Lender, as Issuer, as the Swing Line Lender
and in its capacity as the Agent
By: /s/ HOWARD F. BASCOM, JR.
________________________________
Name: Howard F. Bascom, Jr.
______________________________
Title: Vice President
______________________________
CORESTATES BANK, N.A.
By: /s/ THOMAS J. MCDONNELL
________________________________
Name: Thomas J. McDonnell
______________________________
Title: Vice President
______________________________
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<PAGE> 91
THE FIRST NATIONAL BANK OF BOSTON
By: NANCY E. FULLER
_______________________________
Name: Nancy E. Fuller
______________________________
Title: Director
______________________________
FLEET NATIONAL BANK
By: THOMAS J. BULLARD
________________________________
Name: Thomas J. Bullard
______________________________
Title: Vice President
______________________________
CREDIT SUISSE
By: EDWARD E. BARR
________________________________
Name: Edward E. Barr
______________________________
Title: Associate
______________________________
By: JOEL GLODOWSKI
________________________________
Name: Joel Glodowski
______________________________
Title: Member of Senior Management
______________________________
FIRST UNION NATIONAL BANK
By: ALAN G. LILIENTHAL
________________________________
Name: Alan G. Lilienthal
______________________________
Title: Vice President
______________________________
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<PAGE> 92
PNC BANK, NATIONAL ASSOCIATION
By: EDWARD M. TESSALONE
________________________________
Name: Edward M. Tessalone
______________________________
Title: Vice President
______________________________
THE SAKURA BANK, LTD.
By: YOSHIKAZU NAGURA
________________________________
Name: Yoshikazu Nagura
______________________________
Title: Vice President
______________________________
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<PAGE> 93
LINENS 'N THINGS EXHIBIT A
LIST OF COMMITMENTS, APPLICABLE LENDING OFFICES
AND ADDRESSES FOR NOTICES
A. LIST OF COMMITMENTS
Lender Commitment Amount
- ------------------ -----------------
THE BANK OF NEW YORK $ 25,000,000
CORESTATES BANK, N.A. $ 18,000,000
THE FIRST NATIONAL BANK OF BOSTON $ 18,000,000
FLEET NATIONAL BANK $ 18,000,000
CREDIT SUISSE $ 11,500,000
FIRST UNION NATIONAL BANK $ 11,500,000
PNC BANK, N.A. $ 11,500,000
THE SAKURA BANK, LTD. $ 11,500,000
TOTAL $125,000,000
<PAGE> 94
B. LIST OF APPLICABLE LENDING OFFICES AND ADDRESSES FOR NOTICES
THE BANK OF NEW YORK
Applicable Lending Office for each Eurodollar Advance:
The Bank of New York
One Wall Street, 18th Floor
Agency Function Administration
New York, NY 10286
Attention: Kalyani Bose
Telephone: (212) 635-4693
Facsimile: (212) 635-6365 or 6366 or 6367
Applicable Lending Office for all other Advances:
The Bank of New York
One Wall Street, 18th Floor
Agency Function Administration
New York, NY 10286
Attention: Kalyani Bose
Telephone: (212) 635-4693
Facsimile: (212) 635-6365 or 6366 or 6367
Address for Notices:
The Bank of New York
One Wall Street
8th Floor
New York, NY 10286
Attention: Howard F.Bascom,
Vice President
Telephone: (212) 635-7894
Facsimile: (212) 635-1481
CORESTATES BANK, N.A.
Applicable Lending Office for each Eurodollar Advance:
Corestates Bank, N.A.
1345 Chestnut Street
Philadelphia, Pennsylvania 19101
New York, NY 10286
Attention: Louise Clair
Telephone: (215) 786-7454
Facsimile: (215) 973-2045
<PAGE> 95
Applicable Lending Office for all other Advances:
Corestates Bank, N.A.
1345 Chestnut Street
Philadelphia, Pennsylvania 19101
New York, NY 10286
Attention: Louise Clair
Telephone: (215) 786-7454
Facsimile: (215) 973-2045
Address for Notices:
Corestates Bank, N.A.
1345 Chestnut Street
Philadelphia, Pennsylvania 19101
New York, NY 10286
Attention: Thomas J. McDonnell
Telephone: (215) 973-7667
Facsimile: (215) 973-7671
FIRST UNION NATIONAL BANK
Applicable Lending Office for each Eurodollar Advance:
First Union National Bank
550 Broad Street, NJ1535
Newark, New Jersey 07102
Attention: Mary Tenore
Telephone: (201) 565-3607
Facsimile: (201) 565-3978
Applicable Lending Office for all other Advances:
First Union National Bank
550 Broad Street, NJ1535
Newark, New Jersey 07102
Attention: Mary Tenore
Telephone: (201) 565-3607
Facsimile: (201) 565-3978
Address for Notices:
First Union National Bank
550 Broad Street, NJ1535
Newark, New Jersey 07102
Attention: Robert Koner
Telephone: (201) 565-3396
Facsimile: (201) 565-6681
<PAGE> 96
THE SAKURA BANK, LIMITED
Applicable Lending Office for each Eurodollar Advance:
The Sakura Bank, Limited
277 Park Avenue - 45th Floor
New York, New York 10172
Attention: Patricia L. Walsh
Telephone: (212) 756-6788
Facsimile: (212) 644-9565
Applicable Lending Office for all other Advances:
The Sakura Bank, Limited
277 Park Avenue - 45th Floor
New York, New York 10172
Attention: Patricia L. Walsh
Telephone: (212) 756-6788
Facsimile: (212) 644-9565
Address for Notices:
The Sakura Bank, Limited
277 Park Avenue - 45th Floor
New York, New York 10172
Attention: Philip Schubert
Telephone: (212) 756-6945
Facsimile: (212) 888-7651
PNC BANK, N.A.
Applicable Lending Office for each Eurodollar Advance:
PNC Bank, N.A.
Two Tower Center Boulevard
East Brunswick, New Jersey 08816
Attention: Jean Styles
Telephone: (908) 220-3225
Facsimile: (908) 220-3231
Applicable Lending Office for all other Advances:
PNC Bank, N.A.
Two Tower Center Boulevard
East Brunswick, New Jersey 08816
Attention: Jean Styles
Telephone: (908) 220-3225
Facsimile: (908) 220-3231
<PAGE> 97
Address for Notices:
PNC Bank, N.A.
Two Tower Center Boulevard
East Brunswick, New Jersey 08816
Attention: Edward Tessalone
Telephone: (908) 220-3227
Facsimile: (908) 220-3231
CREDIT SUISSE NEW YORK
Applicable Lending Office for each Eurodollar Advance:
Credit Suisse New York
12 East 49th Street
New York, New York 10017
Attention: Gina Manginello
Telephone: (212) 238-5407
Facsimile: (212) 238-5439
Applicable Lending Office for all other Advances:
Credit Suisse New York
12 East 49th Street
New York, New York 10017
Attention: Gina Manginello
Telephone: (212) 238-5407
Facsimile: (212) 238-5439
Address for Notices:
Credit Suisse New York
12 East 49th Street
New York, New York 10017
Attention: Edward Barr
Telephone: (212) 238-5415
Facsimile: (212) 238-5439
FIRST NATIONAL BANK OF BOSTON
Applicable Lending Office for each Eurodollar Advance:
Credit Suisse New York
12 East 49th Street
New York, New York 10017
Attention: Gina Manginello
Telephone: (212) 238-5407
Facsimile: (212) 238-5439
<PAGE> 98
Applicable Lending Office for all other Advances:
Credit Suisse New York
12 East 49th Street
New York, New York 10017
Attention: Gina Manginello
Telephone: (212) 238-5407
Facsimile: (212) 238-5439
Address for Notices:
Credit Suisse New York
12 East 49th Street
New York, New York 10017
Attention: Edward Barr
Telephone: (212) 238-5415
Facsimile: (212) 238-5439
THE FIRST NATIONAL BANK OF BOSTON
Applicable Lending Office for each Eurodollar Advance:
The First National Bank of Boston
100 Federal Street
Boston, Massachusetts 02110
Attention: Susan Santos
Telephone: (617) 434-3496
Facsimile: (617) 434-0637
Applicable Lending Office for all other Advances:
The First National Bank of Boston
100 Federal Street
Boston, Massachusetts 02110
Attention: Susan Santos
Telephone: (617) 434-3496
Facsimile: (617) 434-0637
Address for Notices:
The First National Bank of Boston
100 Federal Street
Boston, Massachusetts 02110
Attention: Terri McLaughlin
Telephone: (617) 434-6991
Facsimile: (617) 434-6685
<PAGE> 99
FLEET NATIONAL BANK
Applicable Lending Office for each Eurodollar Advance:
Fleet National Bank
One Federal Street
Boston, Massachusetts 02211
Attention: Melanie Bolster
Telephone: (617) 346-0627
Facsimile: (617) 346-0580
Applicable Lending Office for all other Advances:
Fleet National Bank
One Federal Street
Boston, Massachusetts 02211
Attention: Melanie Bolster
Telephone: (617) 346-0627
Facsimile: (617) 346-0580
Address for Notices:
Fleet National Bank
One Federal Street
Boston, Massachusetts 02211
Attention: Thomas Bullard
Telephone: (617) 346-0627
Facsimile: (617) 346-0580
<PAGE> 100
LINENS 'N THINGS EXHIBIT B
FORM OF BORROWING REQUEST
[Date]
The Bank of New York, as Agent
One Wall Street
New York, New York 10286
Attention: ______________,
______________
Re: Credit Agreement, dated as of November __, 1996, by
and among LINENS 'N THINGS, INC., a Delaware
corporation (the "COMPANY"), the Subsidiary Borrowers
party thereto (each a "SUBSIDIARY BORROWER" and
collectively with the Company, the "BORROWERS"), the
Lenders party thereto and THE BANK OF NEW YORK, as
Agent (as amended, supplemented or otherwise modified
from time to time, the "Credit Agreement")
Capitalized terms used herein that are not otherwise defined herein
shall have the respective meanings ascribed thereto in the Credit Agreement.
Pursuant to Section 2.3 of the Credit Agreement, the Company on
behalf of each applicable Borrower signatory hereto hereby gives notice of
intention to borrow Revolving Credit Loans in the aggregate sum of $____________
on ____________, and/or a Swing Line Loan in the sum of $____________ on
____________, which borrowing shall consist of the following:
Type:
(ABR, Eurodollar Interest
Borrower or Swing Line) Amount Period
- -------- ---------------- ------ --------
The Company (on behalf of itself and all Borrowers) hereby certifies
that on the date hereof and on the Borrowing Date set forth above, and after
giving effect to the Loans requested hereby:
(a) Each Credit Party is and shall be in compliance with all of the
terms, covenants and conditions of each Loan Document.
(b) There exists and there shall exist no Default or Event of
Default.
<PAGE> 101
(c) The representations and warranties contained in the Credit
Agreement are and shall be true and correct, except those which are expressly
specified to be made as of an earlier date.
IN EVIDENCE of the foregoing, the undersigned has caused this Borrowing
Request to be duly executed on its behalf.
LINENS 'N THINGS, INC.
By: ________________________
Name: ______________________
Title: _______________________
[________________________]
By: ________________________
Name: ______________________
Title: _______________________
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<PAGE> 102
LINENS 'N THINGS EXHIBIT C
FORM OF LETTER OF CREDIT REQUEST
[Date]
The Bank of New York, as Agent
One Wall Street
New York, New York 10286
Attention: ______________,
______________
Re: Credit Agreement, dated as of November __, 1996, by and among
LINENS 'N THINGS, INC., a Delaware corporation (the
"COMPANY"), the Subsidiary Borrowers party thereto, the
Lenders party thereto and THE BANK OF NEW YORK, as Agent (as
amended, supplemented or otherwise modified from time to time,
the "CREDIT AGREEMENT")
Capitalized terms used herein that are not otherwise defined herein
shall have the respective meanings ascribed thereto in the Credit Agreement.
Pursuant to Section 2.7(b) of the Credit Agreement, the Company, on
behalf of [itself/_____________], as account party (the "Account Party"), hereby
requests the Issuer to issue a Letter of Credit for the account of the Account
Party and for the benefit of ______________________ on ____________ in
connection with ___________________________ in the maximum amount of
$_______________. A drawing may be made under such Letter of Credit under the
following conditions: _______________________________________________.
The Company (on behalf of itself and all Borrowers) hereby certifies
that on the date hereof and on the above requested date of issuance of such
Letter of Credit, and after giving effect to the issuance of such Letter of
Credit:
(a) The Account Party is a Borrower.
(b) Each Credit Party is and shall be in compliance with all of the
terms, covenants and conditions of each Loan Document.
(c) There exists and there shall exist no Default or Event of
Default.
(d) The representations and warranties contained in the Credit
Agreement are and shall be true and correct, except those which are expressly
specified to be made as of an earlier date.
<PAGE> 103
IN EVIDENCE of the foregoing, the undersigned has caused this Letter of
Credit Request to be duly executed on its behalf.
LINENS 'N THINGS, INC.
By: ________________________
Name: ______________________
Title: _____________________
[__________________]
By: ________________________
Name: ______________________
Title: _____________________
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<PAGE> 104
LINENS 'N THINGS EXHIBIT D
FORM OF BORROWER ADDENDUM
BORROWER ADDENDUM, dated as of ________, 199_, made by ___________,
a corporation organized under the laws of __________ (the "NEW BORROWER") and
LINENS 'N THINGS, INC., a Delaware corporation (the "COMPANY"), to THE BANK OF
NEW YORK, as agent (the "AGENT") under the Credit Agreement, dated as of
November __, 1996, among the Company, the Subsidiary Borrowers party thereto,
the Lenders party thereto and the Agent (as the same may from time to time be
amended, supplemented or otherwise modified, the "CREDIT AGREEMENT").
I. Capitalized terms used herein and not otherwise defined
herein shall have the meanings assigned to such terms in the Credit
Agreement.
II. The Company desires to designate the New Borrower as a
Subsidiary Borrower pursuant to Section 2.10 of the Credit Agreement and the New
Borrower desires to become a Subsidiary Borrower pursuant thereto. The New
Borrower is a wholly-owned domestic Subsidiary and a Subsidiary Guarantor.
Accordingly, the Company and the New Borrower agree as follows:
A. The Company represents that no Default or Event of Default has
occurred and is continuing.
B. Pursuant to Section 2.10 of the Credit Agreement the Company
hereby designates the New Borrower as a Subsidiary Borrower under the Credit
Agreement and the New Borrower agrees that upon the acceptance hereof by the
Agent, the New Borrower (i) shall be, and shall be deemed to be, a "Subsidiary
Borrower" under, and as such term is defined in, the Credit Agreement with the
same force and effect as if originally named therein as a Subsidiary Borrower
and (ii) shall have made, and shall be deemed to have made, the representations
and warranties as to itself contained in Section 4 of the Credit Agreement.
C. There is submitted herewith by the New Borrower the certificate
required by Section 2.10 of the Credit Agreement together with the required
attachments thereto.
D. The New Borrower hereby designates the following address as its
address for notices:
______________________
______________________
Attention: ___________
___________
Telephone: (___) ___-____
Fax: (___) ___-____.
<PAGE> 105
E. This Borrower Addendum shall be governed by and construed in
accordance with the laws of the State of New York without regard to conflicts of
laws rules.
AS EVIDENCE OF THE FOREGOING, this Borrower Addendum has been
executed and delivered as of the day and year first above written.
[NAME OF NEW BORROWER]
By: ____________________________
Name:___________________________
Title: _________________________
LINENS 'N THINGS, INC.
By: ____________________________
Name:___________________________
Title: _________________________
ACCEPTED:
THE BANK OF NEW YORK, as
Agent
By: ____________________________
Name:___________________________
Title: _________________________
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<PAGE> 106
LINENS 'N THINGS EXHIBIT E
FORM OF OPINION OF
SPECIAL COUNSEL TO THE AGENT
____________, 1996
TO THE LENDERS PARTY TO THE CREDIT
AGREEMENT (AS DEFINED BELOW)
Re: Credit Agreement, dated as of November __, 1996, by and among LINENS
'N THINGS, INC., a Delaware corporation (the "COMPANY"), the
Subsidiary Borrowers party thereto, the Lenders party thereto and
THE BANK OF NEW YORK, as Agent (the "Agent") (the "Credit
Agreement")
We have acted as Special Counsel to the Agent in connection with the
Credit Agreement. Capitalized terms used herein that are not defined herein
shall have the respective meanings ascribed thereto in the Credit Agreement.
We have examined originals or copies certified to our satisfaction of the
documents required to be delivered pursuant to the provisions of Section 5 of
the Credit Agreement. In conducting such examination, we have assumed the
genuineness of all signatures, the authenticity of all documents submitted to us
as originals, and the conformity to originals of all documents submitted to us
as copies.
Based upon the foregoing examination, and (1) assuming with your
permission the accuracy of the opinion of Denise Tolles, counsel to the Credit
Parties, and (2) relying with your permission upon the representations and
warranties of the Company (on behalf of itself and all Borrowers) contained in
the Credit Agreement, we are of the opinion that all legal preconditions to the
effectiveness of the Credit Agreement have been satisfactorily met.
This opinion is rendered solely for your benefit in connection with the
transactions referred to herein and may not be relied upon by any other Person.
<PAGE> 107
We express no opinion as to laws other than the laws of the State of New
York and the federal laws of the United States of America.
Very truly yours,
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<PAGE> 108
LINENS 'N THINGS EXHIBIT F
OUTLINE OF OPINIONS OF COUNSEL TO THE CREDIT PARTIES
In connection with the Credit Agreement, dated as of November __,
1996, by and among LINENS 'N THINGS, INC. (the "COMPANY"), the Subsidiary
Borrowers party thereto (each a "SUBSIDIARY BORROWER" and collectively with the
Company, the "BORROWERS"), the Lenders party thereto and THE BANK OF NEW YORK,
as Agent (the "CREDIT AGREEMENT"), set forth below is an outline of the opinion
to be delivered to the Agent and the Lenders by counsel to the Credit Parties,
such opinion, including all qualifications, assumptions and exceptions, to be in
all respects satisfactory to the Agent (the "Opinion").
Capitalized terms used in the Opinion and which are not defined
therein shall have the meanings ascribed thereto in the Credit Agreement.
Opinions
1. Existence and Power
Each of the Company and the Subsidiaries is duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation or formation (except, in the case of the Subsidiaries, where the
failure to be in such good standing could not reasonably be expected to have a
Material Adverse effect), has all requisite corporate power and authority to own
its Property and to carry on its business as now conducted, and is qualified to
do business as a foreign corporation and is in good standing in each
jurisdiction in which it owns or leases real Property or in which the nature of
its business requires it to be so qualified (except those jurisdictions where
the failure to be so qualified or to be in good standing could not reasonably be
expected to have a Material Adverse effect).
2. Authority
Each Credit Party has full corporate power and authority to enter
into, execute, deliver and perform the terms of the Loan Documents to which it
is a party, all of which have been duly authorized by all proper and necessary
corporate action and are not in contravention of any applicable law or the terms
of its Certificate of Incorporation and By-Laws. No consent or approval of, or
other action by, shareholders of any Credit Party, any Governmental Authority,
or any other Person (which has not already been obtained) is required to
authorize in respect of such Credit Party, or is required in connection with the
execution, delivery and performance by such Credit Party of the Loan Documents
to which it is a party, or is required as a condition to the enforceability
against such Credit Party of the Loan Documents to which it is a party.
3. Binding Agreement
The Loan Documents to which it is a party constitute the valid and
legally binding obligations of each Credit Party, enforceable in accordance with
their respective
<PAGE> 109
terms, except as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting the enforcement
of creditors' rights generally and by equitable principles relating to the
availability of specific performance as a remedy.
4. Litigation
To the best of [MY/OUR] knowledge, there are no actions, suits,
arbitration proceedings or claims (whether purportedly on behalf of the Company
or any Subsidiary or otherwise) pending or threatened against the Company or any
Subsidiary or any of its respective Properties, or maintained by the Company or
any Subsidiary, at law or in equity, before any Governmental Authority which
could reasonably be expected to have a Material Adverse effect. To the best of
[MY/OUR] knowledge, there are no proceedings pending or threatened against the
Company or any Subsidiary (a) which call into question the validity or
enforceability of, or otherwise seek to invalidate any Loan Document, or (b)
which might, individually or in the aggregate, materially and adversely affect
any of the transactions contemplated by any Loan Document.
5. No Default
To the best of [MY/OUR] knowledge, neither the Company nor any
Subsidiary is in default under any agreement to which it is a party or by which
it or any of its Property is bound the effect of which could reasonably be
expected to have a Material Adverse effect. No notice to, or filing with, any
Governmental Authority is required for the due execution, delivery and
performance by any Credit Party of the Loan Documents to which it is a party.
6. No Conflicting Laws or Agreements
No provision of any existing statute, rule, regulation, or, to the
best of [MY/OUR] knowledge, any existing material mortgage, material indenture,
material contract, material agreement, judgment, decree or order binding on the
Company or any Subsidiary or affecting the Property of the Company or any
Subsidiary conflicts with, or requires any consent which has not already been
obtained under, or would in any way prevent the execution, delivery or
performance by any Credit Party of the terms of, any Loan Document to which it
is a party. To the best of [MY/OUR] knowledge, the execution, delivery and
performance by each Credit Party of the terms of each Loan Document to which it
is a party will not constitute a default under, or result in the creation or
imposition of, or obligation to create, any Lien upon the Property of any Credit
Party pursuant to the terms of any such mortgage, indenture, contract or
agreement.
7. Compliance with Applicable Laws; Filings
To the best of [MY/OUR] knowledge, neither the Company nor any
Subsidiary is in default with respect to any judgment, order, writ, injunction,
decree or decision of any Governmental Authority which default could reasonably
be expected to have a Material Adverse effect. To the best of [MY/OUR]
knowledge, the Company and each Subsidiary is complying with all applicable
statutes, rules and regulations of all
-2-
<PAGE> 110
Governmental Authorities, a violation of which could reasonably be expected to
have a Material Adverse effect. To the best of [MY/OUR] knowledge, the Company
and each Subsidiary has filed or caused to be filed with all Governmental
Authorities all reports, applications, documents, instruments and information
required to be filed pursuant to all applicable laws, rules, regulations and
requests which, if not so filed, could reasonably be expected to have a Material
Adverse effect.
8. Governmental Regulations
Neither the Company nor any Subsidiary nor any corporation
controlling the Company or any Subsidiary or under common control with the
Company or any Subsidiary is subject to regulation under the Investment Company
Act of 1940, as amended, or is subject to any statute or regulation which
regulates the incurrence of Indebtedness.
9. Federal Reserve Regulations; Use of Loan Proceeds
No Credit Party is engaged principally, or as one of its important
activities, in the business of extending credit for the purpose of purchasing or
carrying any margin stock within the meaning of Regulation U of the Board of
Governors of the Federal Reserve System, as amended. If used in accordance with
Section 2.4 of the Credit Agreement, no part of the proceeds of the Loans or the
Letters of Credit has been or will be used, directly or indirectly, to purchase,
acquire or carry any Margin Stock or for a purpose which violates any law, rule
or regulation of any Governmental Authority, including, without limitation, the
provisions of Regulations G, T, U or X of the Board of Governors of the Federal
Reserve System, as amended.
-3-
<PAGE> 111
LINENS 'N THINGS EXHIBIT G
FORM OF ASSIGNMENT AND ACCEPTANCE AGREEMENT
Assignment and Acceptance Agreement (as the same may be amended,
supplemented or otherwise modified from time to time, this "AGREEMENT"), dated
as of ____________, by and between ____________ (the "ASSIGNOR") and
____________ (the "ASSIGNEE").
RECITALS
I. Reference is made to the Credit Agreement, dated as of November __,
1996, by and among LINENS 'N THINGS, INC., a Delaware corporation (the
"COMPANY"), the Subsidiary Borrowers party thereto, the Lenders party thereto
and THE BANK OF NEW YORK, as Agent (the "AGENT") (as amended, supplemented or
otherwise modified from time to time, the "CREDIT AGREEMENT").
II. The Assignor wishes to assign and delegate to the Assignee, and the
Assignee wishes to purchase and assume from the Assignor, some or all of the
Assignor's rights and obligations under the Loan Documents upon the terms, and
subject to the conditions, contained herein.
Therefore, in consideration of the Recitals, the terms and conditions
herein contained and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Assignor and the Assignee
hereby agree as follows:
1. Defined Terms
(a) Each capitalized term used herein that is not defined herein
shall have the meaning ascribed thereto in the Credit Agreement.
(b) When used in this Agreement, each of the following capitalized
terms shall have the meaning ascribed thereto unless the context hereof
otherwise specifically requires:
"ASSIGNED PERCENTAGE": _____%.
"ASSIGNMENT EFFECTIVE DATE": as defined in Section 5.
"ASSIGNOR RIGHTS AND OBLIGATIONS": as of the Assignment
Effective Date, the Assigned Percentage of all of the Assignor's rights
and obligations under the Loan Documents, including, without limita-
tion, such percentage of its Revolving Credit Loans [,SWING LINE LOANS}
and its Commitment.
"PURCHASE PRICE": an amount equal to the Assigned Percentage
of the aggregate unpaid principal amount of the Assignor's Revolving
Credit Loans [AND SWING LINE LOANS] as of the Assignment Effective Date.
<PAGE> 112
2. Assignment; Payment by Assignee
The Assignor hereby assigns and delegates to the Assignee, and the
Assignee hereby purchases and assumes from the Assignor, without recourse or,
except as otherwise specifically provided herein, representation or warranty,
the Assignor Rights and Obligations. The Assignee agrees to pay to the Assignor
the Purchase Price on the Assignment Effective Date.
3. Representations and Warranties
(a) Assignor. The Assignor hereby represents and warrants to the
Assignee as follows:
(i) the aggregate unpaid principal amount of its Revolving
Credit Loans is $___________, and such Revolving Credit Loans are
composed of the following ABR Advances and Eurodollar Advances:
(1) ABR Advances: $__________, and (2) Eurodollar Advances: (A)
$__________ for [LENGTH OF INTEREST PERIOD], the last day of which
is _______________, (B) $__________ for [LENGTH OF INTEREST
PERIOD], the last day of which is _______________,
[(II) THE AGGREGATE UNPAID PRINCIPAL AMOUNT OF ITS SWING LINE LOANS
IS $___________, AND SUCH SWING LINE LOANS ARE COMPOSED OF THE FOLLOWING:
(A) $__________ FOR [LENGTH OF SWING LINE INTEREST PERIOD], THE LAST DAY
OF WHICH IS _______________, (B) $__________ FOR [LENGTH OF SWING LINE
INTEREST PERIOD], THE LAST DAY OF WHICH IS _______________,]
(iii) its Commitment Amount is $_______, and
(iv) it is the legal and beneficial owner of the Assignor Rights and
Obligations free and clear of any adverse claim created by it.
(b) Assignee. The Assignee hereby represents and warrants to the
Assignor that (i) it is legally authorized to enter into this Agreement, (ii) it
is an "accredited investor" within the meaning of Regulation D, as amended,
promulgated under the Securities Act of 1933, as amended, [AND] (iii) it has,
independently and without reliance upon the Assignor or the Agent, and based on
such documents and information as it has deemed appropriate, made its own
evaluation of, and investigation into, the business, operations, Property,
financial and other condition and creditworthiness of the Borrowers and made its
own decision to enter into this Agreement [, AND (IV) IT IS A LENDER OR A
SUBSIDIARY OR AFFILIATE OF A LENDER].
4. Covenants of the Assignee
The Assignee hereby covenants and agrees that it will, independently
and without reliance upon the Assignor or the Agent, and based on such documents
and information as it shall deem appropriate at the time, continue to make its
own credit analysis, evaluations and decisions in taking or not taking action
under the Loan Documents, and to make such investigation as it deems necessary
to inform itself as to the business, operations, Property, financial and other
condition and creditworthiness of the Borrowers. The Assignee further agrees to
provide to the Agent any forms required by Section 3.10 of the Credit Agreement
and any administrative questionnaire reasonably required by the Agent.
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<PAGE> 113
5. Effectiveness of this Agreement
(a) Section 2 of this Agreement shall not become effective until
such date (the "ASSIGNMENT EFFECTIVE DATE") as all of the following conditions
shall have been fulfilled:
(i) The Agent shall have executed a copy of this Agreement and shall
have received duly executed counterparts hereof by each of the Assignor,
the Assignee and, if required by the Credit Agreement, the Issuer, the
Swing Line Lender and the Company;
(ii) The Assignor shall have delivered to the Assignee (with a copy
to the Agent) a duly completed letter in the form of Annex A hereto;
(iii) The Assignee shall have confirmed in writing to the Assignor
(with a copy to the Agent) that, on or before the Assignment Effective
Date, it shall have transferred (in accordance with Section 6 hereof) the
Purchase Price to the Assignor. At the time of such confirmation, the
Assignee shall be deemed to have remade the representations and warranties
contained in Section 3(b)(i), (ii) [AND] (iii) [, AND (IV)] hereof on and
as of the date of such confirmation;
(iv) The Agent shall have received an assignment fee, for its
account, in the amount of $3,500 if required to be paid by the Credit
Agreement; and
(v) The Agent shall have received any forms required by Section 3.10
of the Credit Agreement and any administrative questionnaire reasonably
required by the Agent.
(b) Upon the Assignment Effective Date, (i) the Agent shall record
the assignment contemplated hereby, (ii) the Assignee shall be a Lender, and
(iii) the Assignor, to the extent of the assignment provided for herein, shall
be released from its obligations under the Loan Documents.
(c) The Assignee hereby appoints and authorizes the Agent to take
such action, on and after the Assignment Effective Date, as agent on its behalf
and to exercise such powers under the Loan Documents as are delegated to the
Agent by the terms thereof, together with such powers as are reasonably
incidental thereto.
(d) From and after the Assignment Effective Date, the Agent shall
make all payments in respect of the interest assigned hereby (including payments
of principal, interest, fees and other amounts) to the Assignee. The Assignor
and the Assignee shall make all appropriate adjustments with respect to amounts
under the Loan Documents which accrued prior to the Assignment Effective Date
and which were paid thereafter, directly between themselves.
6. Payment Instructions
All payments to be made to the Assignor by the Assignee hereunder
shall be made by wire transfer of immediately available funds to the Assignor
at: [WIRE INSTRUCTIONS].
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<PAGE> 114
7. Notices
All notices, requests and demands to or upon the Assignee in
connection with this Agreement and the Loan Documents are to be sent or
delivered to the place set forth adjacent to its name on the signature page(s)
hereof.
8. Miscellaneous
(a) For purposes of this Agreement, all calculations and
determinations with respect to the outstanding principal amount of the
Assignor's Loans, the Assignor's Commitment Amount and all other similar
calculations and determinations, shall be made and shall be deemed to be made as
of the commencement of business on the date of such calculation or
determination, as the case may be.
(b) Section headings have been inserted herein for convenience only
and shall not be construed to be a part hereof.
(c) This Agreement embodies the entire agreement and understanding
among the parties hereto with respect to the subject matter hereof and
supersedes all other prior arrangements and understandings among the parties
hereto with respect to the subject matter hereof.
(d) This Agreement may be executed in any number of separate
counterparts and all of said counterparts taken together shall be deemed to
constitute one and the same agreement. It shall not be necessary in making proof
of this Agreement to produce or account for more than one counterpart signed by
the party to be charged.
(e) Every provision of this Agreement is intended to be severable,
and if any term or provision hereof shall be invalid, illegal or unenforceable
for any reason, the validity, legality and enforceability of the remaining
provisions hereof shall not be affected or impaired thereby, and any invalidity,
illegality or unenforceability in any jurisdiction shall not affect the
validity, legality or enforceability of any such term or provision in any other
jurisdiction.
(f) This Agreement shall be binding upon and inure to the benefit of
the Assignor and the Assignee and their respective successors and permitted
assigns, except that neither party may assign or transfer any of its rights or
obligations hereunder (i) without the prior written consent of the other party
or (ii) in contravention of the Credit Agreement.
(g) 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 without regard to principles of
conflicts of law.
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<PAGE> 115
AS EVIDENCE of the agreement by the parties hereto to the terms and
conditions herein contained, each such party has caused this Agreement to be
duly executed on its behalf.
[NAME OF ASSIGNOR]
By: ______________________
Name: ____________________
Title: ___________________
[NAME OF ASSIGNEE}
Address for notices:
____________________ By: ______________________
____________________ Name: ____________________
____________________ Title: ___________________
Attention:__________
Telephone:_____________
Facsimile:_____________
Consented to this __ day
of __________, ____
THE BANK OF NEW YORK, as Issuer
and Swing Line Lender
By: ___________________________
Name: _________________________
Title: ________________________
[CONSENTED TO THIS __ DAY
OF __________, ____
LINENS 'N THINGS, INC.
BY: ____________________________
NAME: __________________________
TITLE: _________________________]
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<PAGE> 116
Accepted this __ day
of _________, ____
THE BANK OF NEW YORK, as Agent
By: ___________________________
Name: _________________________
Title: ________________________
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<PAGE> 117
ANNEX A TO ASSIGNMENT AND
ACCEPTANCE AGREEMENT
FORM OF LETTER
[Assignment Effective Date]
[Name and Address of Assignee]
Attention: _______________,
_______________
Re: Assignment and Acceptance Agreement, dated as of
_______________, by and between _______________ and
_______________ (as the same may be amended,
supplemented or otherwise modified from time to time,
the "AGREEMENT")
Ladies and Gentlemen:
This letter is being delivered pursuant to Section 5(a)(ii) of the
Agreement. Capitalized terms used herein that are not otherwise defined herein
shall have the respective meanings ascribed thereto in the Agreement.
The Assignor hereby represents and warrants to the Assignee as
follows:
(i) the aggregate unpaid principal amount of its Revolving
Credit Loans is $___________, and such Revolving Credit Loans are
composed of the following ABR Advances and Eurodollar Advances: (1)
ABR Advances: $_________, and (2) Eurodollar Advances: (A)
$__________ for [LENGTH OF INTEREST PERIOD], the last day of which
is _______________, (B) $__________ for [LENGTH OF INTEREST
PERIOD], the last day of which is _______________,
[(II) THE AGGREGATE UNPAID PRINCIPAL AMOUNT OF ITS SWING LINE LOANS
IS $___________, AND SUCH SWING LINE LOANS ARE COMPOSED OF THE FOLLOWING:
(A) $__________ FOR [LENGTH OF SWING LINE INTEREST PERIOD], THE LAST DAY
OF WHICH IS _______________, (B) $__________ FOR [LENGTH OF SWING LINE
INTEREST PERIOD], THE LAST DAY OF WHICH IS _______________,]
(iii) its Commitment Amount is $_______, and
<PAGE> 118
(iv) it is the legal and beneficial owner of the Assignor Rights and
Obligations free and clear of any adverse claim created by it.
Very truly yours,
[NAME OF ASSIGNOR]
By: _____________________
Name: ___________________
Title: ____________________
cc: [Name and title
of Agent contact]
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<PAGE> 119
LINENS 'N THINGS EXHIBIT H
CVS SUBORDINATED NOTE
See attached.
<PAGE> 120
SCHEDULE 4.4
LIST OF LITIGATION
None
<PAGE> 121
SCHEDULE 8.2
LIST OF EXISTING LIENS
None
<PAGE> 122
SCHEDULE 8.12
LIST OF EXISTING INVESTMENTS
None
<PAGE> 123
SCHEDULE 8.12
LIST OF EXISTING INDEBTEDNESS
CVS Subordinated Note
<PAGE> 124
LINENS 'N THINGS EXHIBIT I
SUBSIDIARY GUARANTY AND SUBORDINATION AGREEMENT
SUBSIDIARY GUARANTY AND SUBORDINATION AGREEMENT (as the same may be
amended, supplemented or otherwise modified from time to time, this
"AGREEMENT"), dated as of ________, 1996, by and among the Persons listed on
Annex A attached hereto (the "CURRENT GUARANTORS"), such other Persons which
from time to time may hereafter become party hereto pursuant to Section 9 hereof
(the "ADDITIONAL GUARANTORS", and collectively with the Current Guarantors, the
"GUARANTORS"), LINENS 'N THINGS, INC., a Delaware corporation (the "COMPANY"),
and THE BANK OF NEW YORK (the "AGENT"), in its capacity as agent for the Lenders
under the Credit Agreement referred to below.
RECITALS
I. Reference is made to the Credit Agreement, dated as of _____________,
1996, by and among the Company, the Subsidiary Borrowers party thereto (each a
"SUBSIDIARY BORROWER" and together with the Company, the "BORROWERS"), the
Lenders party thereto and the Agent (as the same may from time to time be
amended, supplemented or otherwise modified, the "CREDIT AGREEMENT").
II. The Company and the Guarantors have been, and are now, engaged in the
business of Retail Sales. In the past, as now, the Company, directly or
indirectly, has provided financing for the Guarantors and the Guarantors have
relied upon the Company to provide such financing. In addition, it is
anticipated that, if the Guarantors execute and deliver this Agreement, the
Company will continue, directly or indirectly, to provide such financing to the
Guarantors, and that the proceeds of the Loans to be made and Letters of Credit
to be issued will be used, in part, for the general working capital purposes of
the Guarantors. Pursuant to the Credit Agreement, the Lenders will not make
Loans and the Issuer will not issue Letters of Credit unless and until the
Guarantors shall have executed and delivered this Agreement and, therefore, in
light of all of the foregoing, each Guarantor expects to derive substantial
benefit from the Credit Agreement and the transactions contemplated thereby and,
in furtherance thereof, has agreed to execute and deliver this Agreement.
Therefore, in consideration of the Recitals, the terms and conditions
herein contained and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Guarantors, the Company and
the Agent hereby agree as follows:
1. Defined Terms
(a) Capitalized terms used herein which are not otherwise defined
herein shall have the respective meanings ascribed thereto in the Credit
Agreement.
<PAGE> 125
(b) When used in this Agreement, the following capitalized terms
shall have the respective meanings ascribed thereto as follows:
"BORROWER OBLIGATIONS": all of the obligations and liabilities
of the Borrowers under the Loan Documents, in each case whether direct, indirect
or contingent, incurred as primary obligor or otherwise, secured or unsecured,
now existing or hereafter arising, created, assumed, incurred or acquired, and
whether before or after the occurrence of any Insolvency Event, and including,
without limitation, (i) any obligation or liability in respect of any breach of
any representation or warranty and in respect of any rights of redemption or
rescission, and (ii) all principal and interest (including all post-petition
interest), funding losses, make-whole premiums and all reasonable costs and
expenses of the Agent and the Lenders in enforcing, preserving and protecting
any thereof, whether or not suit is instituted and whether or not allowed as a
claim in any proceeding arising in connection with an Insolvency Event (as the
same may be amended, increased, modified, renewed, refinanced, refunded or
extended from time to time).
"CONSIDERATION": as of any date of determination and with
respect to each Guarantor, an amount equal to the lesser of (i) the total
"value" (within the meaning of Section 548 of the Bankruptcy Code) given,
directly or indirectly, to such Guarantor during the period commencing on the
date such Guarantor became a party to this Agreement and ending on such date of
determination, in exchange for its execution and delivery of this Agreement, and
(ii) the amount of "fair consideration" (within the meaning of Article 10 of the
New York Debtor Creditor Law) given, directly or indirectly, to such Guarantor
during the period commencing on the date such Guarantor became a party to this
Agreement and ending on such date of determination in exchange for its execution
and delivery of this Agreement.
"EVENT OF DEFAULT": as defined in Section 5.
"GUARANTOR OBLIGATIONS": all of the obligations and li-
abilities of the Guarantors hereunder, whether fixed, contingent, now existing
or hereafter arising, created, assumed, incurred or acquired.
"INSOLVENCY EVENT": any event set forth described in Sections
9.1(h) or 9.1(i) of the Credit Agreement.
"NET WORTH": as of any date and with respect to each
Guarantor, the lesser of the following:
(a)(i) all of such Guarantor's "property, at a fair
valuation" (within the meaning of Section 101(32) of the Bankruptcy Code)
on such date, minus (ii) the sum of such Guarantor's "debts" (within the
meaning of Section 101(12) of the Bankruptcy Code) other than such
Guarantor's liability hereunder.
(b)(i) the "fair salable value of the assets" (within
the meaning of Article 10 of the New York Debtor Creditor Law) of such
Guarantor on such date, minus (ii) "the amount that will be required to
pay such Guarantor's probable liability on its existing debts as they
become absolute and matured" (as such phrase would be construed under
Article 10 of the New York Debtor Creditor Law) on such date other than
such Guarantor's liability hereunder.
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<PAGE> 126
"OBLIGATIONS": collectively, the Borrower Obligations and the
Guarantor Obligations.
"PAYMENT": the indefeasible payment in full in cash.
"SUBORDINATED DEBT": all indebtedness for borrowed
money and any other obligations, contingent or otherwise, of any
Borrower to any Guarantor, including, without limitation, all amounts,
fees and expenses payable by such Borrower to such Guarantor in respect
thereof, in each case whether now existing or hereafter arising, created,
assumed, incurred or acquired.
"SUBSIDIARY GUARANTY ADDENDUM": a Subsidiary Guaranty Addendum
to this Agreement, duly completed, in the form of Annex B attached hereto.
2. Guaranty
(a) Subject to Section 2(b) hereof, each Guarantor hereby
absolutely, irrevocably and unconditionally guarantees the full and prompt
payment when due (whether at stated maturity, by acceleration, by mandatory
prepayment, by notice of intention to prepay or otherwise) of the Borrower
Obligations. This Agreement constitutes a guaranty of payment and neither the
Agent nor any Lender shall have any obligation to enforce any Loan Document or
exercise any right or remedy with respect to any collateral security thereunder
by any action, including, without limitation, making or perfecting any claim
against any Person or any collateral security for any of the Borrower
Obligations prior to being entitled to the benefits of this Agreement. The
Guarantor Obligations shall be absolute, irrevocable, unconditional, direct and
primary and shall not be subject to any counterclaim, right of set-off or
defense whatsoever. The Agent may, at its option, proceed against the
Guarantors, or any one or more of them, in the first instance, to enforce the
Guarantor Obligations without first proceeding against the Borrowers or any
other Person, and without first resorting to any other rights or remedies, as
the Agent may deem advisable. In furtherance hereof, if the Agent or any Lender
is prevented by law from collecting or otherwise hindered from collecting or
otherwise enforcing any Borrower Obligation in accordance with its terms, the
Agent or such Lender, as the case may be, shall be entitled to receive hereunder
from the Guarantors after demand therefor, the sums which would have been
otherwise due had such collection or enforcement not been prevented or hindered.
(b) Notwithstanding anything to the contrary contained in this
Agreement, the maximum liability of each Guarantor hereunder shall not, as of
any date of determination, exceed the lesser of (i) the highest amount that is
valid and enforceable against such Guarantor under principles of New York State
contract law, and (ii) the sum of (A) all Consideration received by such
Guarantor as of such date of determination, plus (B) 95% of the Net Worth of
such Guarantor on such date of determination.
(c) Each Guarantor agrees that the Guarantor Obligations may at any
time and from time to time exceed the maximum liability of such Guarantor
hereunder without impairing this Agreement or affecting the rights and remedies
of the Agent or any Lender hereunder.
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<PAGE> 127
3. Absolute Obligation
Subject to Section 8, no Guarantor shall be released from liability
hereunder unless and until the Commitment Termination Date shall have occurred
and either (a) Payment in full of the Borrower Obligations shall have been made
or (b) Payment in full of the Guarantor Obligations of such Guarantor shall have
been made. Each Guarantor acknowledges and agrees that (i) neither the Agent nor
any Lender has made any representation or warranty to such Guarantor with
respect to the Borrowers, any of their Subsidiaries, any Loan Document, or any
agreement, instrument or document executed or delivered in connection therewith
or any other matter whatsoever, and (ii) such Guarantor shall be liable
hereunder, and such liability shall not be affected or impaired, irrespective of
(A) the validity or enforceability of any Loan Document, or any agreement,
instrument or document executed or delivered in connection therewith, or the
collectability of any of the Borrower Obligations, (B) the preference or
priority ranking with respect to any of the Borrower Obligations, (C) the
existence, validity, enforceability or perfection of any security interest or
collateral security under any Loan Document, or the release, exchange,
substitution or loss or impairment of any such security interest or collateral
security, (D) any failure, delay, neglect or omission by the Agent or any Lender
to realize upon or protect any direct or indirect collateral security,
indebtedness, liability or obligation, any Loan Document, or any agreement,
instrument or document executed or delivered in connection therewith, or any of
the Borrower Obligations, (E) the existence or exercise of any right of set-off
by the Agent or any Lender, (F) the existence, validity or enforceability of any
other guaranty with respect to any of the Borrower Obligations, the liability of
any other Person in respect of any of the Borrower Obligations, or the release
of any such Person or any other guarantor of any of the Borrower Obligations,
(G) any act or omission of the Agent or any Lender in connection with the
administration of any Loan Document, or any of the Borrower Obligations, (H) the
bankruptcy, insolvency, reorganization or receivership of, or any other
proceeding for the relief of debtors commenced by or against, any Person, (I)
the disaffirmance or rejection, or the purported disaffirmance or purported
rejection, of any of the Borrower Obligations, any Loan Document, or any
agreement, instrument or document executed or delivered in connection therewith,
in any bankruptcy, insolvency, reorganization or receivership, or any other
proceeding for the relief of debtor, relating to any Person, (J) any law,
regulation or decree now or hereafter in effect which might in any manner affect
any of the terms or provisions of any Loan Document, or any agreement,
instrument or document executed or delivered in connection therewith or any of
the Borrower Obligations, or which might cause or permit to be invoked any
alteration in the time, amount, manner or payment or performance of any of the
Borrowers' obligations and liabilities (including, without limitation, the
Borrower Obligations), (K) the merger or consolidation of any Borrower into or
with any Person, (L) the sale by any Borrower of all or any part of its assets,
(M) the fact that at any time and from time to time none of the Borrower
Obligations may be outstanding or owing to the Agent or any Lender, (N) any
amendment or modification of, or supplement to, any Loan Document or (O) any
other reason or circumstance which might otherwise constitute a defense
available to or a discharge of the Borrowers in respect of their obligations or
liabilities (including, without limitation, the Borrower Obligations) or of such
Guarantor in respect of any of the Guarantor Obligations (other than by the
performance in full thereof).
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<PAGE> 128
4. Representations and Warranties
Each Guarantor hereby represents and warrants to the Agent as
follows:
(a) Existence and Power. Such Guarantor is duly organized and
validly existing in good standing under the laws of the jurisdiction of its
incorporation and in each other jurisdiction in which the failure to be
qualified and in good standing could reasonably be expected to have a Material
Adverse Effect.
(b) Authority and Execution. Such Guarantor has full legal
power and authority to own its Property, conduct its business, and enter into,
execute, deliver and perform the terms of this Agreement which has been duly
authorized by all proper and necessary corporate or other applicable action and
is in full compliance with its Organizational Documents. Such Guarantor has duly
executed and delivered this Agreement.
(c) Binding Obligation. This Agreement constitutes the valid
and binding obligation of such Guarantor, enforceable in accordance with its
terms, except as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws related to or affecting
the enforcement of creditors' rights generally.
(d) Solvency. Such Guarantor (if a Current Guarantor, both
immediately before and after giving effect to this Agreement, or, if an
Additional Guarantor, immediately before and after giving effect to the
Subsidiary Guaranty Addendum pursuant to which it becomes a party to this
Agreement) and the transactions contemplated by the Loan Documents is Solvent.
5. Events of Default
Each of the following shall constitute an "EVENT OF DEFAULT":
(a) If any Guarantor shall fail to observe or perform any term,
covenant or agreement contained in this Agreement; or
(b) The occurrence and continuance of an Event of Default under and
as defined in the Credit Agreement.
6. Notices
Except as otherwise specifically provided herein, all notices,
requests, consents, demands, waivers and other communications hereunder shall be
in writing (including facsimile) and shall be electronically transmitted or
mailed by registered or certified mail or delivered in person, and all
statements, reports, documents, certificates and papers to be delivered
hereunder shall be mailed by first class mail or delivered in person, in each
case to the respective parties to this Agreement as follows: in the case of the
Agent or the Company, as set forth in Section 12.2 of the Credit Agreement, in
the case of each Current Guarantor, at the address set forth on Annex C
hereto, and, in the case of each Additional Guarantor, as set forth in the
Subsidiary Guaranty Addendum executed and delivered by such Additional
Guarantor, or to such other addresses as to which the Agent
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<PAGE> 129
may be hereafter notified by the respective parties hereto. Any notice, request,
consent, demand, waiver or communication given in accordance with the provisions
of this Section shall be conclusively deemed to have been received by a party
hereto and to be effective on the day on which delivered to such party at its
address specified above or, if sent by registered or certified mail, on the
delivery date noted on the receipt therefor, provided that a notice of change of
address shall be deemed to be effective only when actually received. Any party
hereto may rely on signatures of the other parties hereto which are transmitted
by facsimile or other electronic means as fully as if originally signed.
7. Expenses
Each Guarantor agrees that it shall, upon demand, pay to the Agent
any and all reasonable out-of-pocket sums, costs and expenses, which the Agent
or any Lender may pay or incur defending, protecting or enforcing this Agreement
(whether suit is instituted or not), including, without limitation, reasonable
attorneys' fees and disbursements. All sums, costs and expenses which are due
and payable pursuant to this Section shall bear interest, payable on demand, at
the highest interest rate then payable on the Borrower Obligations.
8. Repayment in Bankruptcy, etc.
If, at any time or times subsequent to the payment of all or any
part of the Borrower Obligations or the Guarantor Obligations, the Agent or any
Lender shall be required to repay any amounts previously paid by or on behalf of
the Borrowers or any Guarantor in reduction thereof by virtue of an order of any
court having jurisdiction in the premises, including, without limitation, as a
result of an adjudication that such amounts constituted preferential payments or
fraudulent conveyances, the Guarantors unconditionally agree to pay to the Agent
within 10 days after demand a sum in cash equal to the amount of such repayment,
together with interest on such amount from the date of such repayment by the
Agent or such Lender, as the case may be, to the date of payment to the Agent at
the applicable after-maturity rate set forth in the Credit Agreement.
9. Additional Guarantors
Upon the execution and delivery to the Agent of a Subsidiary
Guaranty Addendum by any Person, appropriately acknowledged, such Person
shall be a Guarantor.
10. Subordination
(a) At no time during the continuance of any Default or Event of
Default shall any payment of any nature whatsoever due in respect of the
Subordinated Debt payable to any Guarantor be made after the Agent shall have
given notice to the Company (on behalf of all Borrowers) to such effect.
(b) Upon any bankruptcy, insolvency, liquidation or reorganization
of any Borrower, or upon the filing of a petition in bankruptcy or commencement
of any proceeding in bankruptcy against any Borrower or upon any distribution of
the assets of any Borrower or upon any dissolution, winding up, liquidation or
reorganization of any Borrower, whether in bankruptcy, insolvency,
reorganization, arrangement or receivership proceedings, or upon any assignment
for the benefit of creditors, or any other marshalling
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<PAGE> 130
of the assets and liabilities of either Borrower, or in the event any of the
Subordinated Debt shall for any reason become or be declared due and payable or
otherwise:
(i) the Agent shall first be entitled to receive Payment of
all of the Obligations (whenever arising) before any Guarantor shall be entitled
to receive any payment on account of the Subordinated Debt;
(ii) any payment by, or distribution of the assets of, any
Borrower of any kind or character, whether in cash, property or securities, to
which any Guarantor would be entitled except for the provisions of this
Agreement, in connection with the Subordinated Debt, shall be paid or delivered
by the Person making such payment or distribution (whether a trustee in
bankruptcy, a receiver, custodian or liquidating trustee or otherwise) directly
to the Agent to the extent necessary to make Payment of all of the Obligations
remaining unpaid, after giving effect to any concurrent payment or distribution
(or provision therefor) in cash to the Agent;
(iii) No Guarantor shall ask, demand by legal proceedings or
otherwise, or take or receive from any Borrower, by set-off, counterclaim or in
any other manner, any payment or distribution on account of the Subordinated
Debt other than as expressly permitted hereunder; and
(iv) Each Guarantor agrees to declare the Subordinated Debt to
be due and payable and, at least 30 days before the time required by applicable
law or rule, to file proof of claim therefor, in default of which the Agent is
hereby irrevocably authorized so to declare and file in order to effectuate the
provisions hereof.
Notwithstanding the foregoing, in the event that any payment by, or
distribution of the assets of, any Borrower of any kind or character prohibited
hereby, whether in cash, property or securities, shall for any reason be
received by any Guarantor in respect of the Subordinated Debt, such payment or
distribution shall be held in trust for the benefit of the Agent, and shall be
immediately paid over to the Agent, to the extent necessary to make Payment of
all of the Obligations remaining unpaid, after giving effect to any concurrent
payment or distribution (or provision therefor) in cash to the Agent.
(c) Without the prior written consent of the Agent, no Borrower will
give, and no Guarantor will receive or accept, any collateral of any nature
whatsoever for the Subordinated Debt on any Property or assets, whether now
existing or hereafter acquired, of any Borrower.
(d) Nothing contained in this Agreement is intended to or shall
impair, as between and among the Borrowers, their creditors (other than the
holders of the Obligations) and any Guarantor, the obligation of the Borrowers
to make Payment to such Guarantor of any amount due in respect of the
Subordinated Debt as and when the same shall become due and payable in
accordance with the terms thereof, or affect the relative rights of the
Guarantors and the creditors of the Borrowers (other than the holders of the
Obligations), in each case subject to the rights of the holders of the
Obligations under this Agreement.
(e) Unless and until Payment of all of the Obligations has occurred
and the termination of the Credit Agreement, each Guarantor agrees not to
declare any part of
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<PAGE> 131
the Subordinated Debt to be due and payable or exercise any of the rights or
remedies which it may have, or bring (in its capacity as holder of the
Subordinated Debt), or join with any other creditor in instituting, any
proceedings against any Borrower under any bankruptcy, insolvency,
reorganization, arrangement, receivership or other similar law, unless the
Obligations shall have been declared immediately due and payable or, in the case
of the institution of any such proceedings, the Agent shall have joined in the
institution thereof or expressly consented thereto in writing. In the event that
the Agent shall have so declared the Obligations immediately due and payable,
each Guarantor agrees to declare the Subordinated Debt then due to be due and
payable, provided, however, if the Agent shall rescind any such declaration,
each Guarantor shall automatically be deemed to have rescinded its declaration.
(f) No right of the Agent to enforce this Agreement shall at any
time or in any way be prejudiced or impaired by any act or failure to act on the
part of any Guarantor, or by any noncompliance by any Guarantor with the terms,
provisions and covenants herein, and the Agent is hereby expressly authorized to
extend, waive, renew, increase, decrease, modify or amend the terms of the
Obligations or any collateral security therefor, and to waive any default,
modify, amend, rescind or waive any provision of any document executed and
delivered in connection with the Obligations and to release, sell or exchange
any such collateral security and otherwise deal freely with the Borrowers, all
without notice to or consent of any Guarantor and without affecting the
liabilities and obligations of the parties hereto.
(g) Each Borrower and each Guarantor waives notice of acceptance of
this Agreement by the Agent and the Lenders, and each Guarantor waives notice of
and consents to the making, amount and terms of the Obligations which may exist
from time to time and any renewal, extension, increase, amendment or
modification thereof and any other action which the Agent or any Lender in its
sole and absolute discretion, may take or omit to take with respect thereto.
This section shall constitute a continuing offer to the Agent and the Lenders,
its provisions are made for the benefit of the Agent and the Lenders, and the
Agent and the Lenders are made obligees hereunder and may enforce such
provisions.
(h) No Guarantor shall sell, assign, transfer or otherwise dispose
of all or any part of the Subordinated Debt without having first obtained the
prior written consent of the Agent.
(i) Each Borrower agrees that it will not make any payment of any of
the Subordinated Debt, or take any other action, in contravention of the
provisions of this Agreement.
(j) Each Guarantor agrees that the provisions of this Agreement
shall be applicable to the Obligations whenever the same may arise and
notwithstanding the fact that no Obligations may be outstanding from time to
time and may have paid down to zero at any time or from time to time, it being
understood that the Credit Agreement permits the Borrowers to borrow, repay and
reborrow from time to time subject to the terms and conditions thereof, all or
any of which terms and conditions may be waived.
(k) All rights and interests of the Agent hereunder, and all
agreements and obligations of the Borrowers and the Guarantors under this
Agreement, shall remain
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<PAGE> 132
in full force and effect irrespective of (i) any lack of validity or
enforceability of any of the Loan Documents; (ii) any change in the time, manner
or place of payment of, or any other term of, all or any of the Obligations, or
any other amendment or waiver of or any consent to departure from any of the
Obligations; (iii) any exchange, release or non-perfection of the Collateral, or
any release or amendment or waiver of or consent to or departure from any
guaranty, for all or any of the Obligations; or (iv) any other circumstance
which might otherwise constitute a defense available to, or a discharge of, any
Borrower in respect of the Obligations or this Agreement. This Agreement shall
continue to be effective or be reinstated, as the case may be, if at any time
any payment of any of the Obligations is rescinded or must otherwise be returned
by the Agent upon the insolvency, bankruptcy or reorganization of any Borrower
or otherwise, all as though such payment had not been made.
(l) Each Guarantor authorizes the Agent, without notice or demand
and without affecting or impairing the obligations of any Guarantor, from time
to time to (i) renew, compromise, extend, increase, accelerate or otherwise
change the time for payment of, or otherwise change the terms of the
Obligations, or any part thereof, including, without limitation, to increase or
decrease the rate of interest thereon or the principal amount thereof; (ii) take
or hold security for the payment of the Obligations and exchange, enforce,
foreclose upon, waive and release any such security; (iii) apply such security
and direct the order or manner of sale thereof as the Agent, in its sole
discretion, may determine; (iv) release and substitute one or more endorsers,
warrantors, borrowers or other obligors; and (v) exercise or refrain from
exercising any rights against the Borrowers or any other Person.
11. Miscellaneous
(a) Each Guarantor expressly waives any and all rights of
subrogation, reimbursement, indemnity, exoneration, contribution or any other
claim which such Guarantor may now or hereafter have against the Borrowers, or
against or with respect to the Borrowers' Property, arising from the existence
or performance of this Agreement until Payment of all of the Obligations has
occurred and the Credit Agreement has been terminated.
(b) Except as otherwise expressly provided in this Agreement, each
Guarantor hereby waives presentment, demand for payment, notice of default,
nonperformance and dishonor, protest and notice of protest of or in respect of
this Agreement, the other Loan Documents, and the Borrower Obligations, notice
of acceptance of this Agreement and reliance hereupon by the Agent and each
Lender, and the incurrence of any of the Borrower Obligations, notice of any
sale of collateral security or any default of any sort.
(c) No Guarantor is relying upon the Agent or any Lender to provide
to such Guarantor any information concerning the Borrowers or any Subsidiary,
and each Guarantor has made arrangements satisfactory to such Guarantor to
obtain from the Borrowers on a continuing basis such information concerning the
Borrowers and their Subsidiaries as such Guarantor may desire.
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<PAGE> 133
(d) Each Guarantor agrees that any statement of account with respect
to the Borrower Obligations from the Agent or any Lender to the Borrowers which
binds the Borrowers shall also be binding upon such Guarantor, and that copies
of said statements of account maintained in the regular course of the Agent's or
such Lender's business, as the case may be, may be used in evidence against such
Guarantor in order to establish its Guarantor Obligations.
(e) Each Guarantor acknowledges that it has received a copy of the
Loan Documents and has approved of the same. In addition, such Guarantor
acknowledges having read each Loan Document and having had the advice of counsel
in connection with all matters concerning its execution and delivery of this
Agreement.
(f) No Guarantor may assign any right, or delegate any duty, it may
have under this Agreement.
(g) Subject to the limitations set forth in Section 2(b), the
Guarantor Obligations shall be joint and several.
(h) This Agreement is the "SUBSIDIARY GUARANTY" under, and as such
term is defined in, the Credit Agreement, and is subject to, and should be
construed in accordance with, the provisions thereof. Each of the Agent and the
Borrowers acknowledges that certain provisions of the Credit Agreement,
including, without limitation, Sections 1.2 (Principles of Construction), 12.1
(Amendments, Waivers, Etc.), 12.3 (No Waiver; Cumulative Remedies), 12.4
(Survival of Representations and Warranties), 12.7 (Successors and Assigns),
12.8 (Counterparts), 12.9 (Set-off and Sharing of Payments), 12.10 (Indemnity),
12.11 (Governing Law), 12.12 (Severability), 12.13 (Integration), 12.15
(Acknowledgments), 12.16 (Consent to Jurisdiction), 12.17 (Service of Process),
12.18 (No Limitation on Service or Suit) and 12.19 (WAIVER OF TRIAL BY JURY)
thereof, are made applicable to this Agreement and all such provisions are
incorporated by reference herein as if fully set forth herein.
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<PAGE> 134
IN EVIDENCE of the agreement by the parties hereto to the terms and
conditions herein contained, each such party has caused this Subsidiary Guaranty
and Subordination Agreement to be duly executed on its behalf.
Each of the Persons listed on Schedule A
of Annex A attached hereto
By:_________________________________________
Name:_______________________________________
Title:______________________________
Each of the persons listed on Schedule B of
Annex A hereto
By:_________________________________________
Name:_______________________________________
Title:______________________________
LINENS 'N THINGS, INC., on behalf of itself
and all Borrowers
By:_________________________________________
Name:_______________________________________
Title:______________________________
THE BANK OF NEW YORK, as Agent
By:_________________________________________
Name:_______________________________________
Title:______________________________
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<PAGE> 135
ANNEX A TO THE SUBSIDIARY GUARANTY
AND SUBORDINATION AGREEMENT
DATED AS OF ___________, 1996
LIST OF CURRENT GUARANTORS
SEE SCHEDULE A AND SCHEDULE B ATTACHED HERETO.
<PAGE> 136
ANNEX B TO THE SUBSIDIARY GUARANTY
AND SUBORDINATION AGREEMENT
DATED AS OF ___________, 1996
FORM OF SUBSIDIARY GUARANTY ADDENDUM
SUBSIDIARY GUARANTY ADDENDUM, dated as of _____ __, 199_, made by
_____________, a __________ corporation (the "ADDITIONAL GUARANTOR") to the
Subsidiary Guaranty and Subordination Agreement, dated as of ________, 1996 (as
the same may be amended, supplemented or otherwise modified from time to time,
(the "AGREEMENT"), by and among each Guarantor party thereto, LINENS 'N THINGS,
INC. (the "COMPANY") and THE BANK OF NEW YORK, as Agent (in such capacity, the
"AGENT") under the Credit Agreement referred to below.
I. Reference is made to the Credit Agreement, dated as of
November __, 1996, by and among the Company, the Subsidiary Borrowers party
thereto, the Lenders party thereto, and The Bank of New York, as Agent (as the
same may be amended, supplemented or otherwise modified from time to time, the
"Credit Agreement").
II. Capitalized terms used herein and not otherwise defined herein
shall have the meanings assigned to such terms in the Agreement and the Credit
Agreement.
III. The Guarantors and the Company have entered into the Agreement
in order to induce the Agent and the Lenders to enter into the Credit Agreement
and make the Loans, the Swing Line Lender to make the Swing Line Loans, the
Issuer to issue the Letters of Credit and the Lenders to participate therein.
IV. The Additional Guarantor is executing this Subsidiary Guaranty
Addendum in accordance with the requirements of the Credit Agreement and the
Agreement, to become a Guarantor under the Agreement in order to induce the
Lenders to make additional Loans, the Swing Line Lender to make additional Swing
Line Loans, the Issuer to issue additional Letters of Credit and the Lenders to
participate therein and as consideration for Loans previously made and Letters
of Credit previously issued.
Accordingly, the Agent and the Additional Guarantor agree as
follows:
1. In accordance with Section 9 of the Agreement, by signing this
Subsidiary Guaranty Addendum and delivering the other instruments and documents
required by the Credit Agreement, the Additional Guarantor becomes a Guarantor
under the Agreement with the same force and effect as if originally named
therein as a Guarantor and the Additional Guarantor hereby agrees to all the
terms and provisions of the Agreement applicable to it as a Guarantor
thereunder.
2. The Additional Guarantor hereby makes all of the representations
and warranties made by the Guarantors in Section 4 of the Agreement, which
provisions are hereby incorporated herein by reference.
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<PAGE> 137
The Additional Guarantor and the Agent have duly executed this
Subsidiary Guaranty Addendum to the Agreement as of the day and year first above
written.
[ADDITIONAL GUARANTOR]
By:____________________________________
Name:__________________________________
Title:_____________________
Accepted:
THE BANK OF NEW YORK, as Agent
By:___________________________________
Name:_________________________________
Title:____________________
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<PAGE> 138
ANNEX C TO THE SUBSIDIARY GUARANTY
AND SUBORDINATION AGREEMENT
DATED AS OF ____________, 1996
A. SUBSIDIARY GUARANTORS:
ALL SUBSIDIARY GUARANTORS
B. ADDRESS FOR NOTICES:
c/o Linens 'n Things
6 Brighton Road
Clifton, NJ 07015
Attention: James M. Tomaszewski,
Senior Vice President/CFO
Facsimile: (201) 614-2930
Telephone: (201) 614-2036
-4-
<PAGE> 1
EXHIBIT 10.6
LINENS 'N THINGS, INC.
- -------------------------------------------------------------------------------
EMPLOYMENT AGREEMENT FOR NORMAN AXELROD
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<PAGE> 2
LINENS 'N THINGS, INC.
- -------------------------------------------------------------------------------
EMPLOYMENT AGREEMENT FOR NORMAN AXELROD
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Page
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<S> <C>
1. Definitions........................................................................................ 1
2. Term of Employment................................................................................. 2
3. Position, Duties and Responsibilities.............................................................. 3
4. Base Salary........................................................................................ 3
5. Annual Incentive Awards............................................................................ 3
6. Long-Term Stock Incentive Programs................................................................. 3
7. Employee Benefit Programs.......................................................................... 4
8. Disability......................................................................................... 6
9. Reimbursement of Business and Other Expenses; Perquisites.......................................... 7
10. Termination of Employment.......................................................................... 8
11 Confidentiality; Cooperation with Regard to Litigation............................................. 18
12. Non-competition.................................................................................... 19
13. Non-solicitation of Employees...................................................................... 20
14. Remedies........................................................................................... 20
15. Resolution of Disputes............................................................................. 20
16. Indemnification.................................................................................... 20
17. Excise Tax Gross-Up................................................................................ 21
18. Effect of Agreement on Other Benefits.............................................................. 23
19. Assignability; Binding Nature...................................................................... 23
20. Representation..................................................................................... 24
21. Entire Agreement................................................................................... 24
22. Amendment or Waiver................................................................................ 24
23. Severability....................................................................................... 24
24. Survivorship....................................................................................... 24
25. Beneficiaries/References........................................................................... 24
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
Page
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<S> <C>
26. Governing Law/Jurisdiction........................................................................ 25
27. Notices........................................................................................... 25
28. Headings.......................................................................................... 26
29. Counterparts...................................................................................... 26
</TABLE>
<PAGE> 4
EMPLOYMENT AGREEMENT
AGREEMENT, made and entered into as of the 25th day of October, 1996 by
and among Linens 'n Things, Inc., a Delaware corporation (together with its
successors and assigns, the "Company"), Melville Corporation, a New York
corporation (together with its successors and assigns, "Melville"), and Norman
Axelrod (the "Executive").
W I T N E S S E T H:
WHEREAS, the Company desires to employ the Executive pursuant to an
agreement embodying the terms of such employment (this "Agreement") and the
Executive desires to enter into this Agreement and to accept such employment,
subject to the terms and provisions of this Agreement;
WHEREAS, Melville has agreed to become a party to this Agreement for
purposes of Sections 5, 6(a), 6(d), 6(e), 10(c)(vii),10(c)(viii) and 21 hereof
in order to induce the Executive to enter into this Agreement;
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained herein and for other good and valuable consideration, the receipt of
which is mutually acknowledged, the Company and the Executive (individually a
"Party" and together the "Parties") agree as follows:
1 . Definitions.
(a) "Approved Early Retirement" shall have the meaning
set forth in Section 10(f) below.
(b) "Base Salary" shall have the meaning set forth in
Section 4 below.
(c) "Board" shall have the meaning set forth in Section
3(a) below.
(d) "Cause" shall have the meaning set forth in Section
10(b) below.
(e) "Change in Control" shall have the meaning set forth
in Section 10(c) below.
(f) "Committee" shall have the meaning set forth in
Section 4 below.
(g) "Confidential Information" shall have the meaning set
forth in Section 11(c) below.
(h) "Constructive Termination Without Cause" shall have
the meaning set forth in Section 10(c) below.
(i) "Effective Date" shall have the meaning set forth in
Section 2(a) below.
(j) "IPO Date" shall have the meaning set forth in
Section 3(a) below.
(k) "Normal Retirement" shall have the meaning set forth
in Section 10(f) below.
<PAGE> 5
(l) "Original Term of Employment" shall have the meaning
set forth in Section 2(a) below.
(m) "Renewal Term" shall have the meaning set forth in
Section 2(a) below.
(n) "Restriction Period" shall have the meaning set forth
in Section 12(b) below.
(o) "Severance Period" shall have the meaning set forth
in Section 10(c)(ii) below, except as provided
otherwise in Section 2(b) or Section 10(e) below.
(p) "Subsidiary" shall have the meaning set forth in
Section 11(d) below.
(q) "Term of Employment" shall have the meaning set forth
in Section 2(a) below.
(r) "Termination Without Cause" shall have the meaning
set forth in Section 10(c) below.
2. Term of Employment.
(a) The term of the Executive's employment under this
Agreement shall commence immediately upon the date of this agreement (the
"Effective Date") and end on the fourth anniversary of such date (the "Original
Term of Employment"), unless terminated earlier in accordance herewith. The
Original Term of Employment shall be automatically renewed for successive
one-year terms (the "Renewal Terms") unless at least 180 days prior to the
expiration of the Original Term of Employment or any Renewal Term, either Party
notifies the other Party in writing that he or it is electing to terminate this
Agreement at the expiration of the then current Term of Employment. "Term of
Employment" shall mean the Original Term of Employment and all Renewal Terms.
Notwithstanding anything to the contrary in this Agreement, the Executive may
elect, upon at least 60 days' prior written notice, to accelerate the expiration
of the Term of Employment to June 30, 1998 if neither a Change in Control nor
the IPO Date has occurred on or prior to December 31, 1997.
(b) In the event that this Agreement is not renewed because
the Company has given the 180-day notice prescribed in the preceding paragraph
on or before the expiration of the Original Term of Employment or any Renewal
Term and, in either case, should such notice result in the expiration of the
Term of Employment prior to the Executive's 60th birthday, such non-renewal
shall be treated as a "Constructive Termination Without Cause" pursuant to
Section 10(c). For purposes of calculating the benefits payable under Section
10(c) in such circumstances, the term "Severance Period" shall mean the period
of 18 months following the termination of the Executive's employment, and any
unvested Company stock options outstanding on the date of such termination shall
not be canceled upon such termination but shall continue to vest as if the
Executive had continued in employment with the Company during the Severance
Period.
(c) Notwithstanding anything in this Agreement to the
contrary, at least one year prior to the expiration of the Original Term of
Employment, upon the written request of the Company or the Executive, the
Parties shall meet to discuss this Agreement and may agree in writing to modify
any of the terms of this Agreement.
- 2 -
<PAGE> 6
3. Position, Duties and Responsibilities.
(a) Generally. Executive shall serve as President and Chief
Executive Officer of the Company and, following the date on which shares of
common stock of the Company are first sold to the public pursuant to an initial
public offering (the "IPO Date"), as Chairman of the Board of Directors of the
Company. For so long as he is serving on the Board of Directors of the Company
(the "Board"), Executive agrees to serve as a member of any committee of the
Board if the Board shall elect Executive to such positions. In any and all such
capacities, Executive shall report only to the Board. Executive shall have and
perform such duties, responsibilities, and authorities as are customary for the
president and chief executive officer (and after the IPO Date, chairman of the
board) of corporations of similar size and businesses as the Company as they may
exist from time to time and as are consistent with such positions and status.
Executive shall devote substantially all of his business time and attention
(except for periods of vacation or absence due to illness), and his best
efforts, abilities, experience, and talent to the positions of President and
Chief Executive Officer (and after the IPO Date, Chairman) and for the
businesses of the Company.
(b) Other Activities. Anything herein to the contrary
notwithstanding, nothing in this Agreement shall preclude the Executive from (i)
serving on the boards of directors of a reasonable number of other corporations
or the boards of a reasonable number of trade associations and/or charitable
organizations, (ii) engaging in charitable activities and community affairs, and
(iii) managing his personal investments and affairs, provided that such
activities do not materially interfere with the proper performance of his duties
and responsibilities under this Agreement.
(c) Place of Employment. Executive's principal place of
employment shall be the corporate offices of the Company.
(d) Rank of Executive Within Company. As President and Chief
Executive Officer of the Company, Executive shall be the highest-ranking
executive of the Company.
4. Base Salary.
The Executive shall be paid an annualized salary, payable in
accordance with the regular payroll practices of the Company, of not less than
$475,000, subject to review for increase at the discretion of the Compensation
Committee (the "Committee") of the Board ("Base Salary").
5. Annual Incentive Awards.
The Executive shall participate in the Company's (or until the
IPO Date, Melville's or the Company's) annual incentive compensation plan with a
target annual incentive award opportunity of no less than 55% of Base Salary and
a maximum annual incentive award opportunity of 110% of Base Salary. Payment of
annual incentive awards shall be made at the same time that other senior-level
executives receive their incentive awards; provided, however, that after the IPO
Date such annual incentive awards shall be paid in cash no later than 75 days
after the Company's fiscal year-end unless the Executive agrees otherwise.
6. Long-Term Incentive Programs.
(a) General. Commencing on the IPO Date, the Executive shall
be eligible to participate in the Company's long-term incentive compensation
programs (including stock options
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<PAGE> 7
and stock grants) at a level greater than any other participant therein. Until
the IPO Date, the Executive shall be eligible to participate in Melville's
long-term incentive compensation programs (including stock options and stock
grants) at a level comparable to other similarly situated executives.
(b) Grant of Stock Option. On the IPO Date, the Executive
shall be granted an option to purchase common stock of the Company in accordance
with the Stock Option Grant Agreement attached hereto as Exhibit A.
Notwithstanding the foregoing, (i) if a Change in Control occurs prior to the
IPO Date, the Executive shall be entitled to receive, in lieu of the option
grant described in Exhibit A, a cash lump-sum payment within 15 days after the
Change in Control equal to 2% of the amount, if any, by which (A) the total cash
consideration and the fair market value of any other consideration received by
the stockholders of the Company in connection with the Change in Control exceeds
(B) $325,000,000; and (ii) if neither the IPO Date nor a Change in Control has
occurred on or prior to December 31, 1997, the Company shall promptly appoint an
investment banking firm, which must be reasonably acceptable to the Executive
(the Executive's consent not to be unreasonably withheld), to determine the fair
value of all the capital stock of the Company as of December 31, 1997, and the
Executive shall be entitled to receive, in lieu of the option grant described in
Exhibit A, a cash lump-sum payment within 15 days after the delivery of such
investment banking firm's valuation opinion, which shall be delivered no later
than March 31, 1998, equal to 2% of the amount, if any, by which (A) such fair
value of capital stock exceeds (B) $325,000,000.
(c) Grant of Deferred Stock. On the IPO Date, the Executive
shall be granted shares of deferred stock in accordance with the Deferred Stock
Grant Agreement attached hereto as Exhibit B. Notwithstanding the foregoing, (i)
if a Change in Control occurs prior to the IPO Date, the Executive shall be
entitled to receive, in lieu of the deferred stock grant described in Exhibit B,
a cash lump-sum payment within 15 days after the Change in Control equal to
$1,000,000; and (ii) if neither the IPO Date nor a Change in Control has
occurred on or prior to December 31, 1997, the Executive shall be entitled to
receive, in lieu of the deferred stock grant described in Exhibit B, a cash
lump-sum payment within 15 days after the delivery of the valuation opinion
described in Section 6(b) equal to $1,000,000, but only if such valuation
opinion is equal to or greater than $300,000,000.
(d) Melville Option. On the earlier of a Change in Control or
the IPO Date, the Executive's option to purchase 65,000 shares of Melville
common stock granted to Executive on April 11, 1995 (the "1995 Melville Option")
shall become immediately vested and exercisable in whole or in part at any time
on or prior to December 31, 1999. If neither the IPO Date nor a Change in
Control has occurred on or prior to December 31, 1996, the next installment of
the Executive's 1995 Melville Option scheduled to vest on April 11, 1997, shall
immediately vest.
(e) Melville Restricted Stock. If neither the IPO Date nor a
Change in Control has occurred on or prior to December 31, 1996, the Executive
shall vest immediately in 10,000 shares of his Melville restricted stock grant
for 20,067 shares dated April 11, 1995.
7. Employee Benefit Programs.
(a) General Benefits. During the Term of Employment, the
Executive shall be entitled to participate in such employee pension and welfare
benefit plans and programs of the Company as are made available to the Company's
senior-level executives or to its employees generally, as such plans or programs
may be in effect from time to time, including, without
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<PAGE> 8
limitation, health, medical, dental, long-term disability, travel accident and
life insurance plans. Notwithstanding the foregoing, prior to the IPO Date the
Executive shall continue to participate in the employee pension and welfare
benefit plans and programs of Melville as are made available to the Company's
senior-level executives or to its employees generally, as such plans or programs
may be in effect from time to time, including, without limitation, health,
medical, dental, long-term disability, travel accident and life insurance plans.
(b) Deferral of Compensation. The Company shall implement
deferral arrangements, reasonably acceptable to Executive and the Company,
permitting Executive to elect to defer receipt, pursuant to written deferral
election terms and forms (the "Deferral Election Forms"), of all or a specified
portion of (i) his annual Base Salary and annual incentive compensation under
Sections 4 and 5, (ii) long term incentive compensation under Section 6 and
(iii) shares acquired upon exercise of options to purchase Company common stock
that are acquired in an exercise in which Executive pays the exercise price by
the surrender of previously acquired shares, to the extent of the net additional
shares otherwise issuable to Executive in such exercise; provided, however, that
such deferrals shall not reduce Executive's total cash compensation in any
calendar year below the sum of (i) the FICA maximum taxable wage base plus (ii)
the amount needed, on an after-tax basis, to enable Executive to pay the 1.45%
medicare tax imposed on his wages in excess of such FICA maximum taxable wage
base.
In accordance with such duly executed Deferral Election Forms,
the Company shall credit to a bookkeeping account (the "Deferred Compensation
Account") maintained for Executive on the respective payment date or dates,
amounts equal to the compensation subject to deferral, such credits to be
denominated in cash if the compensation would have been paid in cash but for the
deferral or in shares if the compensation would have been paid in shares but for
the deferral. An amount of cash equal in value to all cash-denominated amounts
credited to Executive's account and a number of shares of Company common stock
equal to the number of shares credited to Executive's account pursuant to this
Section 7(b) shall be transferred as soon as practicable following such
crediting by the Company to, and shall be held and invested by, an independent
trustee selected by the Company and reasonably acceptable to Executive (a
"Trustee") pursuant to a "rabbi trust" established by the Company in connection
with such deferral arrangement and as to which the Trustee shall make
investments based on Executive's investment objectives (including possible
investment in publicly traded stocks and bonds, mutual funds, and insurance
vehicles). Thereafter, Executive's deferral accounts will be valued by reference
to the value of the assets of the "rabbi trust". The Company shall pay all costs
of administration or maintenance of the deferral arrangement, without deduction
or reimbursement from the assets of the "rabbi trust."
On the earlier of a Change in Control or the IPO Date (the
"Crediting Date"), the Company shall credit to the Deferred Compensation Account
(or pay to the Executive in the event of a Change in Control) an amount equal to
the sum of: (i) $800,000; plus (ii) the excess of (A) $275,000 minus (B) 100% of
the pre-tax gain actually realized by the Executive from the exercise of any or
all of the options to purchase Melville common stock granted to Executive by
Melville that have not been exercised prior to the date of this Agreement (other
than the April 11, 1995 option to purchase 65,000 shares); plus (iii) the
product of the number of unvested shares of restricted stock of Melville held by
the Executive on the Crediting Date times the fair market value of a share of
Melville Corporation common stock on the Crediting Date. The Company and the
Executive agree that the options and restricted stock described in the preceding
clauses (ii) and (iii) (other than the April 11, 1995 option to purchase 65,000
shares referred to in Section 6(d) above) shall be canceled on the Crediting
Date, that as of the Crediting Date the Executive shall have no further rights
under the Supplemental Retirement Plan for Select Senior Management of Melville
- 5 -
<PAGE> 9
Corporation, that the fair market value of Melville common stock for purposes of
this paragraph shall be determined in accordance with the Melville Corporation
Omnibus Stock Incentive Plan, and that the amount credited to the Executive's
Deferred Compensation Account in accordance with this paragraph (and any
earnings thereon) shall be paid to the Executive in a lump sum on the third
anniversary of the Crediting Date unless the Executive has filed a Deferral
Election Form with the Company (in accordance with Company policies) specifying
a later payment date or payment method.
Except as otherwise provided under Section 10, in the event of
Executive's termination of employment with the Company or as otherwise
determined by the Committee in the event of hardship on the part of Executive,
upon such date(s) or event(s) set forth in the Deferral Election Forms
(including forms filed after deferral but before settlement in which Executive
may elect to further defer settlement), the Company shall promptly pay to
Executive cash equal to the value of the assets then credited to Executive's
deferral accounts, less applicable withholding taxes, and such distribution
shall be deemed to fully settle such accounts; provided, however, that the
Company may instead settle such accounts by directing the Trustee to distribute
Company common stock and/or other assets of the "rabbi trust." The Company and
Executive agree that compensation deferred pursuant to this Section 7(b) shall
be fully vested and nonforfeitable; however, Executive acknowledges that his
rights to the deferred compensation provided for in this Section 7(b) shall be
no greater than those of a general unsecured creditor of the Company, and that
such rights may not be pledged, collateralized, encumbered, hypothecated, or
liable for or subject to any lien, obligation, or liability of Executive, or be
assignable or transferable by Executive, otherwise than by will or the laws of
descent and distribution, provided that Executive may designate one or more
beneficiaries to receive any payment of such amounts in the event of his death.
8. Disability.
(a) During the Term of Employment, as well as during the
Severance Period, the Executive shall be entitled to disability coverage as
described in this Section 8(a). In the event the Executive becomes disabled, as
that term is defined under the Company's Long-Term Disability Plan, the
Executive shall be entitled to receive pursuant to the Company's Long-Term
Disability Plan or otherwise, and in place of his Base Salary, an amount equal
to 60% of his Base Salary, at the annual rate in effect on the commencement date
of his eligibility for the Company's long-term disability benefits
("Commencement Date") for a period beginning on the Commencement Date and ending
with the earlier to occur of (A) the Executive's attainment of age 65 or (B) the
Executive's commencement of retirement benefits from the Company in accordance
with Section 10(f) below. If (i) the Executive ceases to be disabled during the
Term of Employment (as determined in accordance with the terms of the Long-Term
Disability Plan), (ii) the positions set forth in Section 3(a) are then vacant
and (iii) the Company requests in writing that he resume such positions, he may
elect to resume such positions by written notice to the Company within 15 days
after the Company delivers its request. If he resumes such positions, he shall
thereafter be entitled to his Base Salary at the annual rate in effect on the
Commencement Date and, for the year he resumes his positions, a pro rata annual
incentive award. If he ceases to be disabled during the Term of Employment and
does not resume his positions in accordance with the preceding sentence, he
shall be treated as if he voluntarily terminated his employment pursuant to
Section 10(d) as of the date the Executive ceases to be disabled. If the
Executive is not offered such positions after he ceases to be disabled during
the Term of Employment, he shall be treated as if his employment was terminated
Without Cause pursuant to Section 10(c) as of the date the Executive ceases to
be disabled.
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<PAGE> 10
(b) The Executive shall be entitled to a pro rata annual
incentive award for the year in which the Commencement Date occurs based on 55%
of Base Salary paid to him during such year prior to the Commencement Date,
payable in a lump sum not later than 15 days after the Commencement Date. The
Executive shall not be entitled to any annual incentive award with respect to
the period following the Commencement Date. If the Executive recommences his
positions in accordance with Section 8(a), he shall be entitled to a pro rata
annual incentive award for the year he resumes such positions and shall
thereafter be entitled to annual incentive awards in accordance with Section 5
hereof.
(c) During the period the Executive is receiving disability
benefits pursuant to Section 8(a) above, he shall continue to be treated as an
employee for purposes of all employee benefits and entitlements in which he was
participating on the Commencement Date, including without limitation, the
benefits and entitlements referred to in Sections 6 and 7 above, except that the
Executive shall not be entitled to receive any annual salary increases or any
new long-term incentive plan grants following the Commencement Date.
9. Reimbursement of Business and Other Expenses: Perquisites.
(a) The Executive is authorized to incur reasonable expenses
in carrying out his duties and responsibilities under this Agreement, and the
Company shall promptly reimburse him for all business expenses incurred in
connection therewith, subject to documentation in accordance with the Company's
policy. During the Term of Employment, the Company shall, commencing 1996,
provide the Executive, in accordance with the terms adopted by the Company, with
personal financial and tax planning.
(b) The Company shall pay all reasonable legal expenses up to
$17,500 incurred by the Executive in connection with the negotiation of this
Agreement.
10. Termination of Employment.
(a) Termination Due to Death. In the event the Executive's
employment with the Company is terminated due to his death, his estate or his
beneficiaries, as the case may be, shall be entitled to and their sole remedies
under this Agreement shall be:
(i) Base Salary through the date of death, which
shall be paid in a single lump sum not later
than 15 days following the Executive's
death;
(ii) pro rata annual incentive award for the year
in which the Executive's death occurs
assuming that the Executive would have
received an award equal to 55% of Base
Salary for such year, which shall be payable
in a lump sum promptly (but in no event
later than 15 days) after his death;
(iii) elimination of all restrictions on any
deferred stock awards outstanding at the
time of his death;
(iv) immediate vesting of all outstanding stock
options and the right to exercise such stock
options for a period of one year following
death (or such longer period as may be
provided in stock options granted
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<PAGE> 11
to other similarly situated executive
officers of the Company) or for the
remainder of the exercise period, if less;
(v) immediate vesting of all outstanding
long-term incentive awards and a pro rata
payment of such awards based on target
performance, payable in a cash lump sum
promptly (but in no event later than 15
days) after his death;
(vi) the balance of any incentive awards earned
as of December 31 of the prior year (but not
yet paid), which shall be paid in a single
lump sum not later than 15 days following
the Executive's death;
(vii) settlement of all deferred compensation
arrangements in accordance with the
Executive's duly executed Deferral Election
Forms; and
(viii) other or additional benefits then due or
earned in accordance with applicable plans
and programs of the Company.
(b) Termination by the Company for Cause.
(i) "Cause" shall mean:
(A) the Executive's willful and
material breach of Sections 11, 12
or 13 of this Agreement;
(B) the Executive is convicted of a
felony involving moral turpitude;
or
(C) the Executive engages in conduct
that constitutes willful gross
neglect or willful gross misconduct
in carrying out his duties under
this Agreement, resulting, in either
case, in material harm to the
financial condition or reputation of
the Company.
For purposes of this Agreement, an act or failure to act on Executive's part
shall be considered "willful" if it was done or omitted to be done by him not in
good faith, and shall not include any act or failure to act resulting from any
incapacity of Executive.
(ii) A termination for Cause shall not take
effect unless the provisions of this
paragraph (ii) are complied with. The
Executive shall be given written notice by
the Company of its intention to terminate
him for Cause, such notice (A) to state in
detail the particular act or acts or failure
or failures to act that constitute the
grounds on which the proposed termination
for Cause is based and (B) to be given
within 90 days of the Company's learning of
such act or acts or failure or failures to
act. The Executive shall have 20 days after
the date that such written notice has been
given to him in which to cure such conduct,
to the extent such cure is possible. If he
fails to cure such conduct, the Executive
shall then be entitled to a hearing before
the Committee of the Board at which the
Executive is entitled to appear.
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<PAGE> 12
Such hearing shall be held within 25 days of
such notice to the Executive, provided he
requests such hearing within 10 days of the
written notice from the Company of the
intention to terminate him for Cause. If,
within five days following such hearing, the
Executive is furnished written notice by the
Board confirming that, in its judgment,
grounds for Cause on the basis of the
original notice exist, he shall thereupon be
terminated for Cause.
(iii) In the event the Company terminates the
Executive's employment for Cause, he shall
be entitled to and his sole remedies under
this Agreement shall be:
(A) Base Salary through the date of the
termination of his employment for
Cause, which shall be paid in a
single lump sum not later than 15
days following the Executive's
termination of employment;
(B) any incentive awards earned as of
December 31 of the prior year (but
not yet paid), which shall be paid
in a single lump sum not later than
15 days following the Executive's
termination of employment;
(C) settlement of all deferred
compensation arrangements in
accordance with the Executive's duly
executed Deferral Election Forms;
and
(D) other or additional benefits then
due or earned in accordance with
applicable plans or programs of the
Company.
(c) Termination Without Cause or Constructive Termination
Without Cause Prior to Change in Control. In the event the Executive's
employment with the Company is terminated without Cause (which termination shall
be effective as of the date specified by the Company in a written notice to the
Executive), other than due to death, or in the event there is a Constructive
Termination Without Cause (as defined below), in either case prior to a Change
in Control (as defined below) the Executive shall be entitled to and his sole
remedies under this Agreement shall be:
(i) Base Salary through the date of termination
of the Executive's employment, which shall
be paid in a single lump sum not later than
15 days following the Executive's
termination of employment;
(ii) Base Salary, at the annualized rate in
effect on the date of termination of the
Executive's employment (or in the event a
reduction in Base Salary is a basis for a
Constructive Termination Without Cause, then
the Base Salary in effect immediately prior
to such reduction), for a period of 24
months (or 18 months if Section 2(b)
applies) following such termination (the
"Severance Period");
(iii) pro rata annual incentive award for the year
in which termination occurs equal to 55% of
Base Salary (determined in accordance with
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<PAGE> 13
Section 10(c)(ii) above) for such year,
payable in a lump sum promptly (but in no
event later than 15 days) following
termination;
(iv) an amount equal to 55% of Base Salary
(determined in accordance with Section
10(c)(ii) above) multiplied by 2 (or 1.5 if
Section 2(b) applies), payable in equal
monthly payments over the Severance Period;
(v) elimination of all restrictions on any
deferred stock awards outstanding at the
time of termination of employment;
(vi) except as provided in Section 2(b), any
outstanding stock options which are unvested
shall vest and the Executive shall have the
right to exercise any vested stock options
during the Severance Period or for the
remainder of the exercise period, if less;
(vii) continued vesting (as if the Executive
remained employed by Melville during the
Severance Period) of all outstanding options
to purchase Melville common stock and the
right to exercise such stock options at any
time prior to 90 days following the
expiration of the Severance Period or for
the remainder of the exercise period, if
less;
(viii) immediate vesting in 50% of the Executive's
Melville restricted stock grant dated April
11, 1995 (i.e., the next installment) if
such termination occurs prior to April 11,
1997, and immediate vesting in 75% of such
restricted stock grant (i.e., the next
installment) if such termination occurs on
or after April 11, 1997 and prior to April
11, 1998;
(ix) immediate vesting of all outstanding
long-term incentive awards and a pro rata
payment of such awards based on target
performance, payable in a cash lump sum
promptly (but in no event later than 15
days) following the Executive's termination
of employment;
(x) the balance of any incentive awards earned
as of December 31 of the prior year (but not
yet paid), which shall be paid in a single
lump sum not later than 15 days following
the Executive's termination of employment;
(xi) settlement of all deferred compensation
arrangements in accordance with the
Executive's duly executed Deferral Election
Forms;
(xii) continued participation in all medical,
health and life insurance plans at the same
benefit level at which he was participating
on the date of the termination of his
employment until the earlier of:
(A) the end of the Severance Period; or
(B) the date, or dates, he receives
equivalent coverage and benefits
under the plans and programs of a
subsequent
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<PAGE> 14
employer (such coverage and benefits
to be determined on a
coverage-by-coverage, or
benefit-by-benefit, basis); provided
that (1) if the Executive is
precluded from continuing his
participation in any employee
benefit plan or program as provided
in this clause (xii) of this Section
10(c), he shall receive cash
payments equal on an after-tax basis
to the cost to him of obtaining the
benefits provided under the plan or
program in which he is unable to
participate for the period specified
in this clause (xii) of this Section
10(c), (2) such cost shall be deemed
to be the lowest reasonable cost
that would be incurred by the
Executive in obtaining such benefit
himself on an individual basis, and
(3) payment of such amounts shall be
made quarterly in advance; and
(xiii) other or additional benefits then due or
earned in accordance with applicable plans
and programs of the Company.
"Termination Without Cause" shall mean the Executive's
employment is terminated by the Company for any reason other than Cause (as
defined in Section 10(b)) or due to death.
"Constructive Termination Without Cause" shall mean a
termination of the Executive's employment at his initiative as provided in this
Section 10(c) following the occurrence, without the Executive's written consent,
of one or more of the following events (except as a result of a prior
termination):
(A) a material diminution or change,
adverse to Executive, in Executive's
positions, titles, or offices as set
forth in Section 3(a), status, rank,
nature of responsibilities, or
authority within the Company, or a
removal of Executive from or any
failure to elect or re-elect or, as
the case may be, nominate Executive
to any such positions or offices,
including as a member of the Board;
(B) an assignment of any duties to
Executive which are inconsistent
with his status as President and
Chief Executive Officer of the
Company and other positions held
under Section 3(a);
(C) a decrease in annual Base Salary or
target annual incentive award
opportunity below 55% of Base
Salary;
(D) any other failure by the Company to
perform any material obligation
under, or breach by the Company of
any material provision of, this
Agreement that is not cured within
30 days;
(E) a relocation of the corporate
offices of the Company outside a
35-mile radius of Clifton, New
Jersey; or
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<PAGE> 15
(F) any failure to secure the agreement
of any successor corporation or
other entity to the Company to fully
assume the Company's obligations
under this Agreement.
A "Change in Control" shall be deemed to have occurred if:
(i) any Person (other than the Company, any
trustee or other fiduciary holding
securities under any employee benefit plan
of the Company, or any company owned,
directly or indirectly, by the stockholders
of the Company immediately prior to the
occurrence with respect to which the
evaluation is being made in substantially
the same proportions as their ownership of
the common stock of the Company) becomes the
Beneficial Owner (except that a Person shall
be deemed to be the Beneficial Owner of all
shares that any such Person has the right to
acquire pursuant to any agreement or
arrangement or upon exercise of conversion
rights, warrants or options or otherwise,
without regard to the sixty day period
referred to in Rule 13d-3 under the Exchange
Act), directly or indirectly, of securities
of the Company or any Significant Subsidiary
(as defined below), representing 25% or more
of the combined voting power of the
Company's or such subsidiary's then
outstanding securities; provided, however,
that such event shall not constitute a
Change in Control unless or until the
percentage of such securities owned
beneficially, directly or indirectly, by
such Person is equal to or more than all
such securities owned beneficially, directly
or indirectly, by Melville;
(ii) during any period of two consecutive years,
individuals who at the beginning of such
period constitute the Board, and any new
director (other than a director designated
by a person who has entered into an
agreement with the Company to effect a
transaction described in clause (i), (iii),
or (iv) of this paragraph) whose election by
the Board or nomination for election by the
Company's stockholders was approved by a
vote of at least two-thirds of the
directors then still in office who either
were directors at the beginning of the
two-year period or whose election or
nomination for election was previously so
approved but excluding for this purpose any
such new director whose initial assumption
of office occurs as a result of either an
actual or threatened election contest (as
such terms are used in Rule 14a-11 of
Regulation 14A promulgated under the
Exchange Act) or other actual or threatened
solicitation of proxies or consents by or on
behalf of an individual, corporation,
partnership, group, associate or other
entity or Person other than the Board, cease
for any reason to constitute at least a
majority of the Board; provided, however,
that such event shall not constitute a
Change in Control unless or until the
percentage of voting securities of the
Company owned beneficially, directly or
indirectly, by Melville is less than 50% of
all such outstanding securities;
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<PAGE> 16
(iii) the consummation of a merger or
consolidation of the Company or any
subsidiary owning directly or indirectly all
or substantially all of the consolidated
assets of the Company (a "Significant
Subsidiary") with any other entity, other
than a merger or consolidation which would
result in the voting securities of the
Company or a Significant Subsidiary
outstanding immediately prior thereto
continuing to represent (either by remaining
outstanding or by being converted into
voting securities of the surviving or
resulting entity) more than 50% of the
combined voting power of the surviving or
resulting entity outstanding immediately
after such merger or consolidation;
(iv) the stockholders of the Company approve a
plan or agreement for the sale or
disposition of all or substantially all of
the consolidated assets of the Company
(other than such a sale or disposition
immediately after which such assets will be
owned directly or indirectly by the
stockholders of the Company in substantially
the same proportions as their ownership of
the common stock of the Company immediately
prior to such sale or disposition) in which
case the Board shall determine the effective
date of the Change in Control resulting
therefrom; or
(v) any other event occurs which the Board
determines, in its discretion, would
materially alter the structure of the
Company or its ownership.
For purposes of this definition:
(A) The term "Beneficial Owner" shall
have the meaning ascribed to such
term in Rule 13d-3 under the
Exchange Act (including any
successor to such Rule).
(B) The term "Exchange Act" means the
Securities Exchange Act of 1934, as
amended from time to time, or any
successor act thereto.
(C) The term "Person" shall have the
meaning ascribed to such term in
Section 3(a)(9) of the Exchange Act
and used in Sections 13(d) and 14(d)
thereof, including "group" as
defined in Section 13(d) thereof.
(d) Voluntary Termination. In the event of a termination of
employment by the Executive on his own initiative after delivery of 10 business
days advance written notice, other than a termination due to death, a
Constructive Termination Without Cause, an Approved Early Retirement or Normal
Retirement pursuant to Section 10(f) below, or a voluntary termination following
a Change in Control within the 30-day period described in Section 10(e) below,
the Executive shall have the same entitlements as provided in Section 10(b)(iii)
above for a termination for Cause, provided that at the Company's election,
furnished in writing to the Executive within 15 days following such notice of
termination, the Company shall in addition pay the Executive 155% of his Base
Salary for a period of 12 months following such termination in exchange for the
Executive not engaging in competition with the Company or any Subsidiary as
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<PAGE> 17
set forth in Section 12(a) below. Notwithstanding any implication to the
contrary, the Executive shall not have the right to terminate his employment
with the Company during the Term of Employment except in the event of a
Constructive Termination Without Cause, Approved Early Retirement, Normal
Retirement, or voluntary termination following a Change in Control within the
30-day period described in Section 10(e) below, and any voluntary termination of
employment during the Term of Employment in violation of this Agreement shall be
considered a material breach; provided, however, if the Company elects to pay
the Executive 155% of his Base Salary in accordance with this Section 10(d), the
Company shall waive any and all claims it may have against the Executive for any
breach of this Agreement relating to his voluntary termination of employment
unless the Executive is found by a court of competent jurisdiction not to be in
compliance with Section 12(a) below; provided further, however, that,
notwithstanding anything contained in the foregoing to the contrary, it is not
the intention of the Company to waive any claims it may have against any third
parties relating to a voluntary termination by the Executive in violation of
this Agreement.
(e) Termination Without Cause; Constructive Termination
Without Cause or Voluntary Termination Following Change in Control. In the event
the Executive's employment with the Company is terminated by the Company without
Cause (which termination shall be effective as of the date specified by the
Company in a written notice to the Executive), other than due to death, or in
the event there is a Constructive Termination Without Cause (as defined above),
in either case within two years following a Change in Control (as defined
above), or in the event the Executive elects within the 30-day period commencing
six months following a Change in Control to terminate his employment for any
reason, the Executive shall be entitled to and his sole remedies under this
Agreement shall be:
(i) Base Salary through the date of termination
of the Executive's employment, which shall
be paid in a single lump sum not later than
15 days following the Executive's
termination of employment;
(ii) an amount equal to 2.99 times the
Executive's Base Salary, at the annualized
rate in effect on the date of termination of
the Executive's employment (or in the event
a reduction in Base Salary is a basis for a
Constructive Termination Without Cause, then
the Base Salary in effect immediately prior
to such reduction), payable in a cash lump
sum promptly (but in no event later than 15
days) following the Executive's termination
of employment;
(iii) pro rata annual incentive award for the year
in which termination occurs assuming that
the Executive would have received an award
equal to 55% of Base Salary (determined in
accordance with Section 10(e)(ii) above) for
such year, payable in a cash lump sum
promptly (but in no event later than 15
days) following the Executive's termination
of employment;
(iv) an amount equal to 55% of such Base Salary
(determined in accordance with Section
10(e)(ii) above) multiplied by 2.99, payable
in a cash lump sum promptly (but in no event
later than 15 days) following the
Executive's termination of employment;
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<PAGE> 18
(v) elimination of all restrictions on any
deferred stock awards outstanding at the
time of termination of employment;
(vi) immediate vesting of all outstanding stock
options and the right to exercise such stock
options during the Severance Period or for
the remainder of the exercise period, if
less;
(vii) immediate vesting of all outstanding
long-term incentive awards and a pro rata
payment of such awards based on target
performance, payable in a cash lump sum
promptly (but in no event later than 15
days) following the Executive's termination
of employment;
(viii) the balance of any incentive awards earned
as of December 31 of the prior year (but not
yet paid), which shall be paid in a single
lump sum not later than 15 days following
the Executive's termination of employment;
(ix) settlement of all deferred compensation
arrangements in accordance with Executive's
duly executed Deferral Election Forms;
(x) continued participation in all medical,
health and life insurance plans at the same
benefit level at which he was participating
on the date of termination of his employment
until the earlier of:
(A) the end of the Severance Period; or
(B) the date, or dates, he receives
equivalent coverage and benefits
under the plans and programs of a
subsequent employer (such coverage
and benefits to be determined on a
coverage-by-coverage, or
benefit-by-benefit, basis); provided
that (1) if the Executive is
precluded from continuing his
participation in any employee
benefit plan or program as provided
in this clause (x) of this Section
10(e), he shall receive cash
payments equal on an after-tax basis
to the cost to him of obtaining the
benefits provided under the plan or
program in which he is unable to
participate for the period specified
in this clause (x) of this Section
10(e), (2) such cost shall be deemed
to be the lowest reasonable cost
that would be incurred by the
Executive in obtaining such benefit
himself on an individual basis, and
(3) payment of such amounts shall be
made quarterly in advance; and
(xi) other or additional benefits then due or
earned in accordance with applicable plans
and programs of the Company.
For purposes of any termination pursuant to this Section 10(e), the term
"Severance Period" shall mean the period of 36 months following the termination
of the Executive's employment.
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<PAGE> 19
(f) Approved Early Retirement or Normal Retirement. Upon the
Executive's Approved Early Retirement or Normal Retirement (each as defined
below), the Executive shall be entitled to and his sole remedies under this
Agreement shall be:
(i) Base Salary through the date of termination
of the Executive's employment, which shall
be paid in a single lump sum not later than
15 days following the Executive's
termination of employment;
(ii) pro rata annual incentive award for the year
in which termination occurs, based on
performance valuation at the end of such
year and payable in a cash lump sum promptly
(but in no event later than 15 days)
thereafter;
(iii) continued vesting (as if the Executive
remained employed by the Company) of any
deferred stock awards outstanding at the
time of his termination of employment;
(iv) continued vesting of all outstanding stock
options and the right to exercise such stock
options for a period of one year following
the later of the date the options are fully
vested or the Executive's termination of
employment (or such longer period as may be
provided in stock options granted to other
similarly situated executive officers of the
Company) or for the remainder of the
exercise period, if less;
(v) continued vesting (as if the Executive
remained employed by the Company) of all
outstanding long-term incentive awards and
payment of such awards based on valuation at
the end of the performance period, payable
in a cash lump sum promptly (but in no event
later than 15 days) thereafter;
(vi) the balance of any incentive awards earned
as of December 31 of the prior year (but not
yet paid), which shall be paid in a single
lump sum not later than 15 days following
the Executive's termination of employment;
(vii) settlement of all deferred compensation
arrangements in accordance with the
Executive's duly executed Deferral Election
Forms;
(viii) continued participation in all medical,
health and life insurance plans at the same
benefit level at which he was participating
on the date of the termination of his
employment until the earlier of:
(A) the Executive's attainment of age
60; or
(B) the date, or dates, he receives
substantially equivalent coverage
and benefits under the plans and
programs of a subsequent employer
(such coverage and benefits to be
determined on a
coverage-by-coverage, or benefit-by-
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<PAGE> 20
benefit, basis); provided that (1)
if the Executive is precluded from
continuing his participation in any
employee benefit plan or program as
provided in this clause (viii) of
this Section 10(f), he shall receive
cash payments equal on an after-tax
basis to the cost to him of
obtaining the benefits provided
under the plan or program in which
he is unable to participate for the
period specified in this clause
(viii) of this Section 10(f), (2)
such cost shall be deemed to be the
lowest cost that would be incurred
by the Executive in obtaining such
benefit himself on an individual
basis, and (3) payment of such
amounts shall be made quarterly in
advance; and
(ix) other or additional benefits then due or
earned in accordance with applicable plans
and programs of the Company.
"Approved Early Retirement" shall mean the Executive's
voluntary termination of employment with the Company at or after attaining age
55 but prior to attaining age 60, if such termination is approved in advance by
the Committee.
"Normal Retirement" shall mean the Executive's voluntary
termination of employment with the Company at or after attaining age 60.
(g) No Mitigation; No Offset. In the event of any termination
of employment, the Executive shall be under no obligation to seek other
employment; amounts due the Executive under this Agreement shall not be offset
by any remuneration attributable to any subsequent employment that he may
obtain.
(h) Nature of Payments. Any amounts due under this Section 10
are in the nature of severance payments considered to be reasonable by the
Company and are not in the nature of a penalty.
(i) No Further Liability; Release. In the event of the
Executive's termination of employment, payment made and performance by the
Company in accordance with this Section 10 shall operate to fully discharge and
release the Company and its directors, officers, employees, subsidiaries,
affiliates, stockholders, successors, assigns, agents and representatives from
any further obligation or liability with respect to the Executive's rights under
this Agreement. Other than payment and performance under this Section 10, the
Company and its directors, officers, employees, subsidiaries, affiliates,
stockholders, successors, assigns, agents and representatives shall have no
further obligation or liability to the Executive or any other person under this
Agreement in the event of the Executive's termination of employment. The Company
shall have the right to condition the last payment of any severance or other
amounts pursuant to this Section 10 upon the delivery by the Executive to the
Company of a release in the form satisfactory to the Company releasing any and
all claims the Executive may have against the Company and its directors,
officers, employees, subsidiaries, affiliates, stockholders, successors,
assigns, agents and representatives arising out of this Agreement.
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<PAGE> 21
11. Confidentiality: Cooperation with Regard to Litigation.
(a) During the Term of Employment and thereafter, the
Executive shall not, without the prior written consent of the Company, disclose
to anyone (except in good faith in the ordinary course of business to a person
who will be advised by the Executive to keep such information confidential) or
make use of any Confidential Information except in the performance of his duties
hereunder or when required to do so by legal process, by any governmental agency
having supervisory authority over the business of the Company or by any
administrative or legislative body (including a committee thereof) that requires
him to divulge, disclose or make accessible such information. In the event that
the Executive is so ordered, he shall give prompt written notice to the Company
in order to allow the Company the opportunity to object to or otherwise resist
such order.
(b) During the Term of Employment and thereafter, Executive
shall not disclose the existence or contents of this Agreement beyond what is
disclosed in the proxy statement or documents filed with the government unless
and to the extent such disclosure is required by law, by a governmental agency,
or in a document required by law to be filed with a governmental agency or in
connection with enforcement of his rights under this Agreement. In the event
that disclosure is so required, the Executive shall give prompt written notice
to the Company in order to allow the Company the opportunity to object to or
otherwise resist such requirement. This restriction shall not apply to such
disclosure by him to members of his immediate family, his tax, legal or
financial advisors, any lender, or tax authorities, or to potential future
employers to the extent necessary, each of whom shall be advised not to disclose
such information.
(c) "Confidential Information" shall mean all information
concerning the business of the Company or any Subsidiary relating to any of
their products, product development, trade secrets, customers, suppliers,
finances, and business plans and strategies. Excluded from the definition of
Confidential Information is information (i) that is or becomes part of the
public domain, other than through the breach of this Agreement by the Executive
or (ii) regarding the Company's business or industry properly acquired by the
Executive in the course of his career as an executive in the Company's industry
and independent of the Executive's employment by the Company or Melville. For
this purpose, information known or available generally within the trade or
industry of the Company or any Subsidiary shall be deemed to be known or
available to the public.
(d) "Subsidiary" shall mean any corporation controlled
directly or indirectly by the Company.
(e) The Executive agrees to cooperate with the Company, during
the Term of Employment and thereafter (including following the Executive's
termination of employment for any reason), by making himself reasonably
available to testify on behalf of the Company or any Subsidiary in any action,
suit, or proceeding, whether civil, criminal, administrative, or investigative,
and to assist the Company, or any Subsidiary, in any such action, suit, or
proceeding, by providing information and meeting and consulting with the Board
or its representatives or counsel, or representatives or counsel to the Company,
or any Subsidiary as requested; provided, however that the same does not
materially interfere with his then current professional activities. The Company
agrees to reimburse the Executive, on an after-tax basis, for all expenses
actually incurred in connection with his provision of testimony or assistance.
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<PAGE> 22
12. Non-competition.
(a) During the Restriction Period (as defined in Section 12(b)
below), the Executive shall not engage in Competition with the Company or any
Subsidiary. "Competition" shall mean engaging in any activity, except as
provided below, for a Competitor of the Company or any Subsidiary, whether as an
employee, consultant, principal, agent, officer, director, partner, shareholder
(except as a less than one percent shareholder of a publicly traded company) or
otherwise. A "Competitor" shall mean (i) Bed Bath & Beyond, Inc., Strouds, Inc.,
Home Express Inc. and Home Place Inc. (and any successor or successors thereto);
(ii) any specialty retailer if 40% or more of its revenues (based on the most
recent quarterly or annual financial statements available) are derived from the
sale of home textiles or housewares; (iii) any corporation, other entity, or
start-up corporation or other entity engaged primarily or organized for the
purpose of engaging primarily in the sale of home textiles or housewares having
a total capitalization (equity and/or long-term debt) in excess of $30,000,000
or revenues (based on the most recent quarterly or annual financial statements
available) in excess of $25,000,000. If the Executive commences employment or
becomes a consultant, principal, agent, officer, director, partner, or
shareholder of any entity that is not a Competitor at the time the Executive
initially becomes employed or becomes a consultant, principal, agent, officer,
director, partner, or shareholder of the entity, future activities of such
entity shall not result in a violation of this provision unless (x) such
activities were contemplated by the Executive at the time the Executive
initially became employed or becomes a consultant, principal, agent, officer,
director, partner, or shareholder of the entity or (y) the Executive commences
directly or indirectly overseeing or managing the activities of such Competitor
which are competitive with the activities of the Company or Subsidiary. The
Executive shall not be deemed indirectly overseeing or managing the activities
of such Competitor which are competitive with the activities of the Company or
Subsidiary so long as he does not regularly participate in discussions with
regard to the conduct of the competing business.
(b) For the purposes of this Section 12, "Restriction Period"
shall mean the period beginning with the Effective Date and ending with:
(i) in the case of a termination of the
Executive's employment without Cause or a
Constructive Termination Without Cause, the
Restriction Period shall terminate
immediately upon the Executive's termination
of employment;
(ii) in the case of a termination of the
Executive's employment for Cause, the first
anniversary of such termination;
(iii) in the case of a voluntary termination of
the Executive's employment pursuant to
Section 10(d) above followed by the
Company's election to pay the Executive (and
subject to the payment of) 155% of his Base
Salary, as provided in Section 10(d) above,
the first anniversary of such termination;
(iv) in the case of a voluntary termination of
the Executive's employment pursuant to
Section 10(d) above which is not followed by
the Company's election to pay the Executive
such 155% of Base Salary, the date of such
termination; or
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<PAGE> 23
(v) in the case of Approved Early Retirement or
Normal Retirement pursuant to Section 10(f)
above, the remainder of the Term of
Employment.
13. Non-solicitation of Employees.
During the period beginning with the Effective Date and ending
one year following the termination of the Executive's employment, the Executive
shall not induce employees of the Company or any Subsidiary to terminate their
employment; provided, however, that the foregoing shall not be construed to
prevent the Executive from engaging in generic nontargeted advertising for
employees generally. During such period, the Executive shall not hire, either
directly or through any employee, agent or representative, any employee of the
Company or any Subsidiary or any person who was employed by the Company or any
Subsidiary within 180 days of such hiring.
14. Remedies.
In addition to whatever other rights and remedies the Company
may have at equity or in law, if the Executive breaches any of the provisions
contained in Sections 11, 12 or 13 above, the Company (a) shall have the right
to immediately terminate all payments and benefits due under this Agreement and
(b) shall have the right to seek injunctive relief. The Executive acknowledges
that such a breach of Sections 11, 12 or 13 would cause irreparable injury and
that money damages would not provide an adequate remedy for the Company;
provided, however, the foregoing shall not prevent the Executive from contesting
the issuance of any such injunction on the ground that no violation or
threatened violation of Section 11, 12 or 13 has occurred.
15. Resolution of Disputes.
Any controversy or claim arising out of or relating to this
Agreement or any breach or asserted breach hereof or questioning the validity
and binding effect hereof arising under or in connection with this Agreement,
other than seeking injunctive relief under Section 14, shall be resolved by
binding arbitration, to be held at an office closest to the Company's principal
offices in accordance with the rules and procedures of the American Arbitration
Association, except that disputes arising under or in connection with Sections
11, 12 and 13 above shall be submitted to the federal or state courts in the
State of New Jersey. Judgment upon the award rendered by the arbitrator(s) may
be entered in any court having jurisdiction thereof. Pending the resolution of
any arbitration or court proceeding, the Company shall continue payment of all
amounts and benefits due the Executive under this Agreement. All reasonable
costs and expenses (including fees and disbursements of counsel) incurred by the
Executive pursuant to this Section 15 shall be paid on behalf of or reimbursed
to the Executive promptly by the Company; provided, however, that no
reimbursement shall be made of such expenses if and to the extent the
arbitrator(s) determine(s) that any of the Executive's litigation assertions or
defenses were in bad faith or frivolous.
16. Indemnification.
(a) Company Indemnity. The Company agrees that if the
Executive is made a party, or is threatened to be made a party, to any action,
suit or proceeding, whether civil, criminal, administrative or investigative (a
"Proceeding"), by reason of the fact that he is or was a director, officer or
employee of the Company or any Subsidiary or is or was serving at the request of
the Company or any Subsidiary as a director, officer, member, employee or agent
of
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<PAGE> 24
another corporation, partnership, joint venture, trust or other enterprise,
including service with respect to employee benefit plans, whether or not the
basis of such Proceeding is the Executive's alleged action in an official
capacity while serving as a director, officer, member, employee or agent, the
Executive shall be indemnified and held harmless by the Company to the fullest
extent legally permitted or authorized by the Company's certificate of
incorporation or bylaws or resolutions of the Company's Board or, if greater, by
the laws of the State of Delaware against all cost, expense, liability and loss
(including, without limitation, attorney's fees, judgments, fines, ERISA excise
taxes or penalties and amounts paid or to be paid in settlement) reasonably
incurred or suffered by the Executive in connection therewith, and such
indemnification shall continue as to the Executive even if he has ceased to be a
director, member, officer, employee or agent of the Company or other entity and
shall inure to the benefit of the Executive's heirs, executors and
administrators. The Company shall advance to the Executive all reasonable costs
and expenses to be incurred by him in connection with a Proceeding within 20
days after receipt by the Company of a written request for such advance. Such
request shall include an undertaking by the Executive to repay the amount of
such advance if it shall ultimately be determined that he is not entitled to be
indemnified against such costs and expenses. The provisions of this Section
16(a) shall not be deemed exclusive of any other rights of indemnification to
which the Executive may be entitled or which may be granted to him, and it shall
be in addition to any rights of indemnification to which he may be entitled
under any policy of insurance.
(b) No Presumption Regarding Standard of Conduct. Neither the
failure of the Company (including its Board, independent legal counsel or
stockholders) to have made a determination prior to the commencement of any
proceeding concerning payment of amounts claimed by the Executive under Section
16(a) above that indemnification of the Executive is proper because he has met
the applicable standard of conduct, nor a determination by the Company
(including its Board, independent legal counsel or stockholders) that the
Executive has not met such applicable standard of conduct, shall create a
presumption that the Executive has not met the applicable standard of conduct.
(c) Liability Insurance. The Company agrees to continue and
maintain a directors and officers' liability insurance policy covering the
Executive to the extent the Company provides such coverage for its other
executive officers.
17. Excise Tax Gross-Up.
If the Executive becomes entitled to one or more payments
(with a "payment" including, without limitation, the vesting of an option or
other non-cash benefit or property), whether pursuant to the terms of this
Agreement or any other plan, arrangement, or agreement with the Company or any
affiliated company (the "Total Payments"), which are or become subject to the
tax imposed by Section 4999 of the Internal Revenue Code of 1986, as amended
(the "Code") (or any similar tax that may hereafter be imposed) (the "Excise
Tax"), the Company shall pay to the Executive at the time specified below an
additional amount (the "Gross-up Payment") (which shall include, without
limitation, reimbursement for any penalties and interest that may accrue in
respect of such Excise Tax) such that the net amount retained by the Executive,
after reduction for any Excise Tax (including any penalties or interest thereon)
on the Total Payments and any federal, state and local income or employment tax
and Excise Tax on the Gross-up Payment provided for by this Section 17, but
before reduction for any federal, state, or local income or employment tax on
the Total Payments, shall be equal to the sum of (a) the Total Payments, and (b)
an amount equal to the product of any deductions disallowed for federal, state,
or local income tax purposes because of the inclusion of the Gross-up Payment in
the Executive's
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<PAGE> 25
adjusted gross income multiplied by the highest applicable marginal rate of
federal, state, or local income taxation, respectively, for the calendar year in
which the Gross-up Payment is to be made. For purposes of determining whether
any of the Total Payments will be subject to the Excise Tax and the amount of
such Excise Tax:
(i) The Total Payments shall be treated as "parachute
payments" within the meaning of Section 280G(b)(2) of
the Code, and all "excess parachute payments" within
the meaning of Section 280G(b)(1) of the Code shall
be treated as subject to the Excise Tax, unless, and
except to the extent that, in the written opinion of
independent compensation consultants, counsel or
auditors of nationally recognized standing
("Independent Advisors") selected by the Company and
reasonably acceptable to the Executive, the Total
Payments (in whole or in part) do not constitute
parachute payments, or such excess parachute payments
(in whole or in part) represent reasonable
compensation for services actually rendered within
the meaning of Section 280G(b)(4) of the Code in
excess of the base amount within the meaning of
Section 280G(b)(3) of the Code or are otherwise not
subject to the Excise Tax;
(ii) The amount of the Total Payments which shall be
treated as subject to the Excise Tax shall be equal
to the lesser of (A) the total amount of the Total
Payments or (B) the total amount of excess parachute
payments within the meaning of Section 280G(b)(1) of
the Code (after applying clause (i) above); and
(iii) The value of any non-cash benefits or any deferred
payment or benefit shall be determined by the
Independent Advisors in accordance with the
principles of Sections 280G(d)(3) and (4) of the
Code.
For purposes of determining the amount of the Gross-up
Payment, the Executive shall be deemed (A) to pay federal income taxes at the
highest marginal rate of federal income taxation for the calendar year in which
the Gross-up Payment is to be made; (B) to pay any applicable state and local
income taxes at the highest marginal rate of taxation for the calendar year in
which the Gross-up Payment is to be made, net of the maximum reduction in
federal income taxes which could be obtained from deduction of such state and
local taxes if paid in such year (determined without regard to limitations on
deductions based upon the amount of the Executive's adjusted gross income); and
(C) to have otherwise allowable deductions for federal, state, and local income
tax purposes at least equal to those disallowed because of the inclusion of the
Gross-up Payment in the Executive's adjusted gross income. In the event that the
Excise Tax is subsequently determined to be less than the amount taken into
account hereunder at the time the Gross-up Payment is made, the Executive shall
repay to the Company at the time that the amount of such reduction in Excise Tax
is finally determined (but, if previously paid to the taxing authorities, not
prior to the time the amount of such reduction is refunded to the Executive or
otherwise realized as a benefit by the Executive) the portion of the Gross-up
Payment that would not have been paid if such Excise Tax had been applied in
initially calculating the Gross-up Payment, plus interest on the amount of such
repayment at the rate provided in Section 1274(b)(2)(B) of the Code. In the
event that the Excise Tax is determined to exceed the amount taken into account
hereunder at the time the Gross-up Payment is made (including by reason of any
payment the existence or amount of which cannot be determined at the time of the
Gross-up Payment), the Company shall make an additional Gross-up Payment in
respect of such excess
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<PAGE> 26
(plus any interest and penalties payable with respect to such excess) at the
time that the amount of such excess is finally determined.
The Gross-up Payment provided for above shall be paid on the
30th day (or such earlier date as the Excise Tax becomes due and payable to the
taxing authorities) after it has been determined that the Total Payments (or any
portion thereof) are subject to the Excise Tax; provided, however, that if the
amount of such Gross-up Payment or portion thereof cannot be finally determined
on or before such day, the Company shall pay to the Executive on such day an
estimate, as determined by the Independent Advisors, of the minimum amount of
such payments and shall pay the remainder of such payments (together with
interest at the rate provided in Section 1274(b)(2)(B) of the Code), as soon as
the amount thereof can be determined. In the event that the amount of the
estimated payments exceeds the amount subsequently determined to have been due,
such excess shall constitute a loan by the Company to the Executive, payable on
the fifth day after demand by the Company (together with interest at the rate
provided in Section 1274(b)(2)(B) of the Code). If more than one Gross-up
Payment is made, the amount of each Gross-up Payment shall be computed so as not
to duplicate any prior Gross-up Payment. The Company shall have the right to
control all proceedings with the Internal Revenue Service that may arise in
connection with the determination and assessment of any Excise Tax and, at its
sole option, the Company may pursue or forego any and all administrative
appeals, proceedings, hearings, and conferences with any taxing authority in
respect of such Excise Tax (including any interest or penalties thereon);
provided, however, that the Company's control over any such proceedings shall be
limited to issues with respect to which a Gross-up Payment would be payable
hereunder, and the Executive shall be entitled to settle or contest any other
issue raised by the Internal Revenue Service or any other taxing authority. The
Executive shall cooperate with the Company in any proceedings relating to the
determination and assessment of any Excise Tax and shall not take any position
or action that would materially increase the amount of any Gross-Up Payment
hereunder.
18. Effect of Agreement on Other Benefits.
Except as specifically provided in this Agreement, the
existence of this Agreement shall not be interpreted to preclude, prohibit or
restrict the Executive's participation in any other employee benefit or other
plans or programs in which he currently participates.
19. Assignability: Binding Nature.
This Agreement shall be binding upon and inure to the benefit
of the Parties and their respective successors, heirs (in the case of the
Executive) and permitted assigns. No rights or obligations of the Company under
this Agreement may be assigned or transferred by the Company except that such
rights or obligations may be assigned or transferred in connection with the sale
or transfer of all or substantially all of the assets of the Company, provided
that the assignee or transferee is the successor to all or substantially all of
the assets of the Company and such assignee or transferee assumes the
liabilities, obligations and duties of the Company, as contained in this
Agreement, either contractually or as a matter of law. The Company further
agrees that, in the event of a sale or transfer of assets as described in the
preceding sentence, it shall take whatever action it legally can in order to
cause such assignee or transferee to expressly assume the liabilities,
obligations and duties of the Company hereunder. No rights or obligations of the
Executive under this Agreement may be assigned or transferred by the Executive
other than his rights to compensation and benefits, which may be transferred
only by will or operation of law, except as provided in Section 25 below.
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<PAGE> 27
20. Representation.
The Company represents and warrants that it is fully
authorized and empowered to enter into this Agreement and that the performance
of its obligations under this Agreement will not violate any agreement between
it and any other person, firm or organization.
21. Entire Agreement.
This Agreement contains the entire understanding and agreement
between the Parties concerning the subject matter hereof and, as of the
Effective Date, supersedes all prior agreements, understandings, discussions,
negotiations and undertakings, whether written or oral, between the Parties with
respect thereto, including, without limitation any prior change in control
agreement between the Parties or between the Executive and Melville.
22. Amendment or Waiver.
No provision in this Agreement may be amended unless such
amendment is agreed to in writing and signed by the Executive and an authorized
officer of the Company. Except as set forth herein, no delay or omission to
exercise any right, power or remedy accruing to any Party shall impair any such
right, power or remedy or shall be construed to be a waiver of or an
acquiescence to any breach hereof. No waiver by either Party of any breach by
the other Party of any condition or provision contained in this Agreement to be
performed by such other Party shall be deemed a waiver of a similar or
dissimilar condition or provision at the same or any prior or subsequent time.
Any waiver must be in writing and signed by the Executive or an authorized
officer of the Company, as the case may be.
23. Severability.
In the event that any provision or portion of this Agreement
shall be determined to be invalid or unenforceable for any reason, in whole or
in part, the remaining provisions of this Agreement shall be unaffected thereby
and shall remain in full force and effect to the fullest extent permitted by
law.
24. Survivorship.
The respective rights and obligations of the Parties hereunder
shall survive any termination of the Executive's employment to the extent
necessary to the intended preservation of such rights and obligations.
25. Beneficiaries/References.
The Executive shall be entitled, to the extent permitted under
any applicable law, to select and change a beneficiary or beneficiaries to
receive any compensation or benefit payable hereunder following the Executive's
death by giving the Company written notice thereof. In the event of the
Executive's death or a judicial determination of his incompetence, reference in
this Agreement to the Executive shall be deemed, where appropriate, to refer to
his beneficiary, estate or other legal representative.
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<PAGE> 28
26. Governing Law/Jurisdiction.
This Agreement shall be governed by and construed and
interpreted in accordance with the laws of New Jersey without reference to
principles of conflict of laws. Subject to Section 15, the Company and the
Executive hereby consent to the jurisdiction of any or all of the following
courts for purposes of resolving any dispute under this Agreement: (i) the
United States District Court for New Jersey or (ii) any of the courts of the
State of New Jersey. The Company and the Executive further agree that any
service of process or notice requirements in any such proceeding shall be
satisfied if the rules of such court relating thereto have been substantially
satisfied. The Company and the Executive hereby waive, to the fullest extent
permitted by applicable law, any objection which it or he may now or hereafter
have to such jurisdiction and any defense of inconvenient forum.
27. Notices.
Any notice given to a Party shall be in writing and shall be
deemed to have been given when delivered personally or sent by certified or
registered mail, postage prepaid, return receipt requested, duly addressed to
the Party concerned at the address indicated below or to such changed address as
such Party may subsequently give such notice of:
If to the Company: Linens 'n Things, Inc.
6 Brighton Road
Clifton, New Jersey 07015-5108
Attention: Secretary
If to the Executive: Mr. Norman Axelrod
6 Sunflower Avenue
Upper Saddle River, New Jersey 07458
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<PAGE> 29
28. Headings.
The headings of the sections contained in this Agreement are
for convenience only and shall not be deemed to control or affect the meaning or
construction of any provision of this Agreement.
29. Counterparts.
This Agreement may be executed in two or more counterparts.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date first written above.
LINENS 'N THINGS, INC.
By: BRIAN D. SILVA
_______________________________
Name: Brian d. Silva
Title: Vice President, Human
Resources
EXECUTIVE
NORMAN AXELROD
__________________________________
Norman Axelrod
For purposes of Sections 5, 6(a), 6(d), 6(e), 10(c)(vii), 10(c)(viii) and 21
hereof:
MELVILLE CORPORATION
By: STANLEY P. GOLDSTEIN
_______________________________
Name: Stanley P. Goldstein
Title: Chairman of the Board
and C.E.O.
- 26 -
<PAGE> 30
Exhibit A
LINENS 'N THINGS, INC.
STOCK OPTION GRANT AGREEMENT
THIS STOCK OPTION GRANT AGREEMENT (the "Agreement") is made as
of ______________,_____* between Linens 'n Things, Inc., a Delaware corporation
(the "Company") and Norman Axelrod (the "Employee") pursuant to the terms and
conditions of the Linens 'n Things, Inc. 1996 Incentive Compensation Plan (the
"Plan"). Capitalized terms not defined in this Agreement shall have the meanings
set forth in the Plan.
THE PARTIES AGREE AS FOLLOWS:
1. Award of Options. Pursuant to the Plan, the Company has
awarded to Employee hereunder options (the "Options") to acquire shares of
Company common stock (the "Stock"), at the exercise price per share (the
"Exercise Price"), all as set forth on the signature page hereof, subject to the
terms and conditions set forth in this Agreement and the Plan. The Options
granted hereunder are nonqualified stock options.
2. Vesting Schedule. Subject to Sections 6 and 7 hereof and
Sections 6(a) and 9 of the Plan, including the authority of the Committee in its
discretion to provide for accelerated vesting, the Options shall vest and become
exercisable in accordance with the Vesting Schedule set forth on the signature
page hereof.
3. Expiration Date. The Options subject to this Agreement
shall expire on ___________** (the "Expiration Date").
4. Payment of Exercise Price. The Exercise Price of the shares
as to which Options are exercised may be paid to the Company at the time of
exercise in cash or in Stock or in such other consideration as shall be
permitted by the Committee at the time of exercise, in each case (a) pursuant to
rules and procedures established by the Committee and (b) having a total Fair
Market Value determined as of the date of exercise equal to the Exercise Price,
or a combination of cash, Stock and such other consideration having a total Fair
Market Value equal to such Exercise Price.
5. Non-transferability. Except to the extent otherwise
determined by the Committee, the Options granted hereunder shall not be
assignable or otherwise transferable other than by will or the laws of descent
and distribution. Unless otherwise provided by the Committee, during the
lifetime of Employee the Options shall be exercisable and elections with respect
to the Options may be made only by Employee or Employee's guardian or legal
representative.
- --------
* To be dated as of the date on which shares of common stock of the
Company are first sold to the public pursuant to an initial public
offering (the "IPO Date").
** Insert date ten years after IPO Date.
<PAGE> 31
6. Termination of Employment.
(a) Except to the extent provided in Section 7 hereof or any
employment agreement between Employee and the Company, the provisions of this
Section 6 shall apply to the Options upon Employee's termination of employment
with the Company and all subsidiaries of the Company ("Termination") for any
reason.
(b) In the event of Employee's Termination for Cause, all
vested and unvested Options shall be canceled on the date of such Termination.
(c) In the event of Employee's Termination by reason of death,
all Options shall become immediately vested and shall be exercisable in whole or
in part at any time prior to the earlier of the Expiration Date and the date one
year after the date of such Termination (or such longer period as may be
provided in stock options granted to similarly situated executive officers of
the Company).
(d) In the event of Employee's Termination by reason of
Approved Early Retirement or Normal Retirement, the Options shall continue to
vest as if Employee had remained employed by the Company and, to the extent
vested, shall be exercisable in whole or in part at any time prior to the later
of one year following the date on which the Options are fully vested or one year
following such Termination (or such longer period as may be provided in stock
options granted to similarly situated executive officers of the Company), but in
no event later than the Expiration Date.
(e) In the event of a Termination without Cause (other than
due to death) or Constructive Termination Without Cause, all Options shall
become immediately vested and shall be exercisable in whole or in part at any
time prior to the earlier of the Expiration Date and the date twenty-four months
after the date of such Termination; provided, however, that in the event of a
Constructive Termination Without Cause due to the Company's failure to renew any
employment agreement between the Company and Employee then in effect, any
unvested Options shall continue to vest as if Employee had remained employed by
the Company and, to the extent vested, the Options shall be exercisable in whole
or in part at any time prior to the earlier of the Expiration Date and the date
eighteen months after the date of such Termination.
(f) In the event of Employee's Termination for any reason
other than as provided in Section 6(b), 6(c), 6(d) or 6(e), Options which are
unvested shall be canceled and Options which are vested and exercisable may be
exercised in whole or in part at any time prior to the earlier of the Expiration
Date and the date three months after the date of such Termination.
7. Change in Control.
(a) In the event of a Change in Control any Option that was
not previously exercisable and vested shall become fully exercisable and vested
at the time of the Change in Control except to the extent of any waiver by
Employee and subject to the applicable restrictions set forth in Section 9(a) of
the Plan.
(b) In the event of a Termination Without Cause (other than
due to death) or a Constructive Termination Without Cause, in either case within
two years following a Change in Control, or a voluntary termination of
employment within the 30-day period commencing six months following a Change in
Control, the Options may be exercised in whole or in part at any time prior
- 2 -
<PAGE> 32
to the earlier of the Expiration Date and the date thirty-six months after the
date of such Termination. In the event of any other Termination following a
Change in Control, the Options may be exercised for the periods provided in the
applicable subsection of Section 6.
(c) Employee shall be entitled to elect during the 60-day
period immediately following a Change in Control, in lieu of acquiring the
shares of Stock covered by an Option, to receive, and the Company shall be
obligated to pay, in cash, in respect of each share of Stock subject to an
Option the excess of the Change in Control Price over the Exercise Price of such
Option.
8. Definitions. For purposes of this Agreement:
(a) "Approved Early Retirement" shall mean Employee's
voluntary termination of employment with the Company at or after attaining age
55 but prior to attaining age 60, if such termination is approved in advance by
the Committee;
(b) "Cause" shall have the meaning given to such term in any
employment agreement between the Company and Employee in effect at the date of
Termination and, in the absence of any such agreement, shall mean (i) Employee's
willful and continued failure substantially to perform his duties (other than as
a result of total or partial incapacity due to physical or mental illness or by
reason of Employee's prior voluntary termination of employment), (ii) Employee's
dishonesty in the performance of his duties or (iii) Employee's conviction of a
felony under the laws of the United States or any state thereof;
(c) "Constructive Termination Without Cause" shall have the
meaning given to such term in any employment agreement between the Company and
Employee in effect at the date of Termination and, in the absence of any such
agreement, shall mean a termination of Employee's employment at his initiative
following the occurrence, without Employee's written consent, of one or more of
the following events (except as a result of a prior termination):
(i) a material change, adverse to Employee, in
Employee's positions, titles, offices, status, rank, nature of responsibilities,
or authority within the Company, or a removal of Employee from or any failure to
elect or re-elect or, as the case may be, nominate Employee to any such
positions or offices, including as a member of the Board;
(ii) an assignment of any duties to Employee which
are inconsistent with his status as President and Chief Executive Officer of the
Company;
(iii) a decrease in the Employee's annual base salary
or target annual incentive award opportunity below 55% of base salary;
(iv) any other failure by the Company to perform any
material obligation under, or breach by the Company of any material provision
of, any employment agreement between the Company and Employee then in effect
that is not cured within 30 days;
(v) a relocation of the corporate offices of the
Company outside a 35-mile radius of Clifton, New Jersey; or
- 3 -
<PAGE> 33
(vi) any failure to secure the agreement of any
successor corporation or other entity to the Company to fully assume the
Company's obligations under any employment agreement between the Company and
Employee then in effect; and
(d) "Normal Retirement" shall mean Employee's voluntary
termination of employment with the Company at or after attaining age 60.
9. Withholding Tax. Employee may be subject to withholding
taxes as a result of the exercise or settlement of an Option or other payment in
respect of an Option. Unless the Committee permits otherwise, Employee shall pay
to the Company in cash promptly when the amount of such obligations become
determinable, all applicable federal, state, local and foreign withholding taxes
that the Committee in its discretion determines result from each such exercise,
settlement or payment. Unless the Committee otherwise determines and subject to
such rules and procedures as the Committee may establish, Employee may make an
election to have shares of Stock withheld by the Company or to tender any such
securities to the Company to pay the amount of tax that the Committee in its
discretion determines to be required to be withheld by the Company upon exercise
of an Option, subject to satisfying any applicable requirements for compliance
with Section 16(b) of the Exchange Act. Any shares or other securities so
withheld or tendered will be valued by the Committee as of the date they are
withheld or tendered; provided, that Stock shall be valued at Fair Market Value
on such date. Unless otherwise permitted by the Committee, the value of the
shares withheld or tendered may not exceed the required federal, state, local
and foreign withholding tax obligations as computed by the Company.
10. Governing Law. This Agreement shall be governed by the
laws of the State of New Jersey, without regard to conflict of laws principles.
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the day and year first above written.
LINENS 'N THINGS, INC.
By: ____________________________
Employee hereby accepts and agrees to be bound by all the
terms and conditions of this Agreement and the Plan.
_______________________________
Norman Axelrod
Enclosures: Plan
- 4 -
<PAGE> 34
Number of Shares of Stock Subject to Options: _________*
Exercise Price: $________**
Cumulative Percentage
Vesting Schedule*** of Options Exercisable
- ---------------- ----------------------
_____________ 25%
_____________ 50%
_____________ 75%
_____________ 100%
- --------
* Insert number of shares equal to 2% of the Company's shares of common stock
outstanding immediately prior to the IPO Date.
** Insert price at which Company stock is offered to public on IPO Date.
*** Insert 1st through 4th anniversaries of IPO Date.
- 5 -
<PAGE> 35
Exhibit B
LINENS 'N THINGS, INC.
DEFERRED STOCK GRANT AGREEMENT
THIS DEFERRED STOCK GRANT AGREEMENT (the "Agreement") is made
and entered into as of ___________* between Linens 'n Things, Inc., a Delaware
corporation (the "Company") and Norman Axelrod (the "Employee") pursuant to the
terms and conditions of the Linens 'n Things , Inc. 1996 Incentive Compensation
Plan (the "Plan"). Capitalized terms not defined in this Agreement shall have
the meanings set forth in the Plan.
THE PARTIES AGREE AS FOLLOWS:
1. Award of Deferred Stock. Pursuant to the Plan, the Company
hereby awards to Employee ________**shares of deferred stock (the "Deferred
Stock") corresponding to __________**shares of Company common stock (the
"Stock"), subject to the terms and conditions set forth in this Agreement and
the Plan. A copy of the Plan has been delivered to the Employee. By signing
below, the Employee agrees to be bound by all the provisions of the Plan. The
shares of Deferred Stock constitute an unsecured promise of the Company to pay
the amounts contemplated herein, and Employee as a holder of any Deferred Stock
has only the rights of a general unsecured creditor of the Company.
2. Vesting Schedule. Subject to Sections 5 and 6 hereof, and
Sections 6(a) and 9 of the Plan, including the authority of the Committee in its
discretion to provide for accelerated vesting, the shares of Deferred Stock
shall vest in four equal installments on each of the first, second, third and
fourth anniversaries of July 1, 1996, but in no event prior to the IPO Date
(each such date and any other date on which shares of Deferred Stock vest
pursuant to this Agreement, the Plan or Committee action, a "Vesting Date").
- --------
* To be dated as of the date on which shares of common stock of the Company are
first sold to the public pursuant to an initial public offering (the "IPO
Date").
** Insert number of shares equal to $1,000,000 divided by the price at which
Company common stock is offered to the public on the IPO Date; provided,
however, if the IPO Date occurs after December 31, 1996 at an enterprise
valuation in excess of $375,000,000 (based on the shares of Company common
stock outstanding immediately prior to the IPO Date and the price at which
Company common stock is offered to the public), the number of shares to be
inserted will be increased by the result obtained by dividing (i) the sum of
(A) 2% of such enterprise value in excess of $375,000,000 plus (B) $1,000,000
multiplied by the percentage increase of such enterprise value in excess of
$375,000,000, by (ii) the price at which Company common stock is offered to
the public.
- 1 -
<PAGE> 36
3. Payment or Conversion of Deferred Shares.
(a) On the Vesting Date, the shares of Deferred Stock which vest
on such date shall be canceled and the Company shall deliver to Employee, except
to the extent Employee has otherwise elected in accordance with Committee
authorization pursuant to Section 7(c) of the Plan, as soon as practicable cash
or shares of Stock or a combination thereof (as determined by the Committee)
having a value equal to the product of (A) the Fair Market Value of a share of
Stock as of such date and (B) the number of shares of Stock corresponding to
such vested shares of Deferred Stock.
(b) For so long as Employee holds a share of Deferred Stock, at
the time any dividend is paid with respect to a share of Stock, the Company
shall pay to Employee in respect of each share of Deferred Stock an amount in
cash, in Stock, in other property or Awards, or in a combination thereof, in
each case having a value equal to the Fair Market Value of such dividend
(hereinafter "Dividend Equivalents"), subject to any deferral election by
Employee in accordance with Committee authorization pursuant to Section 7(c) of
the Plan and/or any determination by the Committee to subject such Dividend
Equivalent payment in respect of stock dividends, dividends in kind or
extraordinary dividends to the vesting provisions applicable to such share of
Deferred Stock.
4. Restrictions. Except to the extent otherwise determined by the
Committee, no shares of Deferred Stock shall be assignable or otherwise
transferable by Employee other than by will or by the laws of descent and
distribution and, unless otherwise provided by the Committee, during the life of
Employee any elections with respect to a share of Deferred Stock may be made
only by Employee or Employee's guardian or legal representative.
5. Termination of Employment.
(a) Except to the extent provided in Section 6 hereof or any
employment agreement between Employee and the Company, the provisions of this
Section 5 shall apply to the unvested shares of Deferred Stock upon Employee's
termination of employment with the Company and all subsidiaries of the Company
("Termination") for any reason.
(b) In the event of Employee's Termination for Cause, all unvested
shares of Deferred Stock shall be canceled on the date of such Termination.
(c) In the event of Employee's Termination by reason of death,
Termination without Cause or Constructive Termination Without Cause, all shares
of Deferred Stock shall become immediately vested.
(d) In the event of Employee's Termination by reason of Approved
Early Retirement or Normal Retirement, all shares of Deferred Stock shall
continue to vest as if Employee had remained employed by the Company.
- 2 -
<PAGE> 37
(e) In the event of Employee's Termination for any reason other
than as provided in Section 5(b), 5(c), or 5(d), all unvested shares of Deferred
Stock shall be canceled.
6. Change in Control. In the event of a Change in Control, all
shares of Deferred Stock shall become immediately vested at the time of the
Change in Control, except to the extent of any waiver by Employee and subject to
the applicable restrictions set forth in Section 10(a) of the Plan. As soon as
practicable following the Change in Control, the Company shall pay Employee, in
cash, for each share of Deferred Stock the Change in Control Price.
7. Definitions. For purposes of this Agreement:
(a) "Approved Early Retirement" shall mean Employee's voluntary
termination of employment with the Company at or after attaining age 55 but
prior to attaining age 60, if such termination is approved in advance by the
Committee;
(b) "Cause" shall have the meaning given to such term in any
employment agreement between the Company and Employee in effect at the date of
Termination and, in the absence of any such agreement, shall mean (i) Employee's
willful and continued failure substantially to perform his duties (other than as
a result of total or partial incapacity due to physical or mental illness or by
reason of Employee's prior voluntary termination of employment), (ii) Employee's
dishonesty in the performance of his duties or (iii) Employee's conviction of a
felony under the laws of the United States or any state thereof;
(c) "Constructive Termination Without Cause" shall have the
meaning given to such term in any employment agreement between the Company and
Employee in effect at the date of Termination and, in the absence of any such
agreement, shall mean a termination of Employee's employment at his initiative
following the occurrence, without Employee's written consent, of one or more of
the following events (except as a result of a prior termination):
(i) a material change, adverse to Employee, in Employee's
positions, titles, offices, status, rank, nature of responsibilities, or
authority within the Company, or a removal of Employee from or any failure to
elect or re-elect or, as the case may be, nominate Employee to any such
positions or offices, including as a member of the Board;
(ii) an assignment of any duties to Employee which are
inconsistent with his status as President and Chief Executive Officer of the
Company;
(iii) a decrease in the Employee's annual base salary or
target annual incentive award opportunity below 55% of base salary;
(iv) any other failure by the Company to perform any
material obligation under, or breach by the Company of any material provision
of, any employment
- 3 -
<PAGE> 38
agreement between the Company and Employee then in effect that is not cured
within 30 days;
(v) a relocation of the corporate offices of the Company
outside a 35-mile radius of Clifton, New Jersey; or
(vi) any failure to secure the agreement of any successor
corporation or other entity to the Company to fully assume the Company's
obligations under any employment agreement between the Company and Employee then
in effect.
(d) "Normal Retirement" shall mean Employee's voluntary
termination of employment with the Company at or after attaining age 60.
8. Withholding Tax. Employee may be subject to withholding taxes
as a result of delivery of shares of Stock or payment of cash upon payment or
settlement of the Deferred Stock or payments of Dividend Equivalents. Unless the
Committee permits otherwise, Employee shall pay to the Company in cash all
applicable federal, state, local and foreign withholding taxes that the Company
in its discretion determines result from such payments. Unless the Committee
otherwise determines and subject to such rules and procedures as the Company may
establish, Employee may make an election to have settlement of shares of
Deferred Stock withheld by the Company upon settlement thereof or to tender
shares of Stock to the Company to pay the amount of tax that the Company in its
discretion determines to be required so to be withheld by the Company, subject
to satisfying any applicable requirements for compliance with Section 16(b) of
the Exchange Act. Any shares of Stock or other securities so withheld or
tendered will be valued as of the date they are withheld or tendered; provided,
that Stock shall be valued at Fair Market Value on such date. Unless otherwise
permitted by the Committee, the value of shares withheld or tendered may not
exceed the required federal, state, local and foreign withholding tax
obligations as computed by the Company.
- 4 -
<PAGE> 39
9. Governing Law. This Agreement shall be governed by the laws of the
State of New Jersey, without regard to conflict of law principles.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and year first above written.
LINENS 'N THINGS, INC.
By:___________________________
Employee hereby accepts and agrees to be bound by all of the terms
and conditions of this Agreement and the Plan.
_____________________________
Norman Axelrod
Enclosures: Plan
- 5 -
<PAGE> 1
Exhibit 10.7
LINENS 'N THINGS, INC.
- --------------------------------------------------------------------------------
EMPLOYMENT AGREEMENT FOR JAMES TOMASZEWSKI
- --------------------------------------------------------------------------------
<PAGE> 2
LINENS 'N THINGS, INC.
- --------------------------------------------------------------------------------
EMPLOYMENT AGREEMENT FOR JAMES TOMASZEWSKI
- --------------------------------------------------------------------------------
Page
----
1. Definitions.................................................... 1
2. Term of Employment............................................. 2
3. Position, Duties and Responsibilities.......................... 2
4. Base Salary.................................................... 3
5. Annual Incentive Awards........................................ 3
6. Long-Term Stock Incentive Programs............................. 3
7. Employee Benefit Programs...................................... 3
8. Disability..................................................... 4
9. Reimbursement of Business and Other Expenses................... 5
10. Termination of Employment...................................... 5
11 Confidentiality; Cooperation with Regard to Litigation......... 15
12. Non-competition................................................ 16
13. Non-solicitation of Employees.................................. 17
14. Remedies....................................................... 17
15. Resolution of Disputes......................................... 17
16. Indemnification................................................ 17
17. Excise Tax Gross-Up............................................ 18
18. Effect of Agreement on Other Benefits.......................... 20
19. Assignability; Binding Nature.................................. 20
20. Representation................................................. 21
21. Entire Agreement............................................... 21
22. Amendment or Waiver............................................ 21
23. Severability................................................... 21
24. Survivorship................................................... 21
25. Beneficiaries/References....................................... 21
<PAGE> 3
Page
----
26. Governing Law/Jurisdiction..................................... 22
27. Notices........................................................ 22
28. Headings....................................................... 23
29. Counterparts................................................... 23
<PAGE> 4
EMPLOYMENT AGREEMENT
AGREEMENT, made and entered into as of the 31st day of October, 1996 by
and between Linens 'n Things, Inc., a Delaware corporation (together with its
successors and assigns, the "Company"), and James Tomaszewski (the "Executive").
W I T N E S S E T H:
WHEREAS, the Company desires to employ the Executive pursuant to an
agreement embodying the terms of such employment (this "Agreement") and the
Executive desires to enter into this Agreement and to accept such employment,
subject to the terms and provisions of this Agreement;
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained herein and for other good and valuable consideration, the receipt of
which is mutually acknowledged, the Company and the Executive (individually a
"Party" and together the "Parties") agree as follows:
1 . Definitions.
(a) "Approved Early Retirement" shall have the meaning set
forth in Section 10(f) below.
(b) "Base Salary" shall have the meaning set forth in Section
4 below.
(c) "Board" shall have the meaning set forth in Section 3(a)
below.
(d) "Cause" shall have the meaning set forth in Section 10(b)
below.
(e) "Change in Control" shall have the meaning set forth in
Section 10(c) below.
(f) "Committee" shall have the meaning set forth in Section 4
below.
(g) "Confidential Information" shall have the meaning set
forth in Section 11(c) below.
(h) "Constructive Termination Without Cause" shall have the
meaning set forth in Section 10(c) below.
(i) "Effective Date" shall have the meaning set forth in
Section 2(a) below.
(j) "Normal Retirement" shall have the meaning set forth in
Section 10(f) below.
(k) "Original Term of Employment" shall have the meaning set
forth in Section 2(a) below.
(l) "Renewal Term" shall have the meaning set forth in Section
2(a) below.
(m) "Restriction Period" shall have the meaning set forth in
Section 12(b) below.
<PAGE> 5
(n) "Severance Period" shall have the meaning set forth in
Section 10(c)(ii) below, except as provided otherwise in
Section 10(e) below.
(o) "Subsidiary" shall have the meaning set forth in Section
11(d) below.
(p) "Term of Employment" shall have the meaning set forth in
Section 2(a) below.
(q) "Termination Without Cause" shall have the meaning set
forth in Section 10(c) below.
2. Term of Employment.
(a) The term of the Executive's employment under this Agreement
shall commence on the date on which shares of common stock of the Company are
first sold to the public pursuant to an initial public offering (the "Effective
Date") and end on the fourth anniversary of such date (the "Original Term of
Employment"), unless terminated earlier in accordance herewith. The Original
Term of Employment shall be automatically renewed for successive one-year terms
(the "Renewal Terms") unless at least 180 days prior to the expiration of the
Original Term of Employment or any Renewal Term, either Party notifies the other
Party in writing that he or it is electing to terminate this Agreement at the
expiration of the then current Term of Employment. "Term of Employment" shall
mean the Original Term of Employment and all Renewal Terms.
(b) Notwithstanding anything in this Agreement to the contrary,
at least one year prior to the expiration of the Original Term of Employment,
upon the written request of the Company or the Executive, the Parties shall meet
to discuss this Agreement and may agree in writing to modify any of the terms of
this Agreement.
3. Position, Duties and Responsibilities.
(a) Generally. Executive shall serve as a senior executive of the
Company. Executive shall have and perform such duties, responsibilities, and
authorities as shall be specified by the Company from time to time and as are
customary for a senior executive of a publicly held corporation of the size,
type, and nature of the Company as they may exist from time to time and as are
consistent with such position and status. Executive shall devote substantially
all of his business time and attention (except for periods of vacation or
absence due to illness), and his best efforts, abilities, experience, and talent
to his position and the businesses of the Company.
(b) Other Activities. Anything herein to the contrary
notwithstanding, nothing in this Agreement shall preclude the Executive from (i)
serving on the boards of directors of a reasonable number of other corporations
or the boards of a reasonable number of trade associations and/or charitable
organizations, (ii) engaging in charitable activities and community affairs, and
(iii) managing his personal investments and affairs, provided that such
activities do not materially interfere with the proper performance of his duties
and responsibilities under this Agreement.
- 2 -
<PAGE> 6
4. Base Salary.
The Executive shall be paid an annualized salary, ("Base Salary")
payable in accordance with the regular payroll practices of the Company, of not
less than $279,000, subject to review for increase at the discretion of the
Compensation Committee (the "Committee") of the Company's Board of Directors
(the "Board").
5. Annual Incentive Awards.
The Executive shall participate in the Company's annual incentive
compensation plan with a target annual incentive award opportunity of no less
than 40% of Base Salary and a maximum annual incentive award opportunity of 80%
of Base Salary. Payment of annual incentive awards shall be made at the same
time that other senior-level executives receive their incentive awards.
6. Long-Term Incentive Programs.
The Executive shall be eligible to participate in the Company's
long-term incentive compensation programs (including stock options and stock
grants).
7. Employee Benefit Programs.
(a) General Benefits. During the Term of Employment, the
Executive shall be entitled to participate in such employee pension and welfare
benefit plans and programs of the Company as are made available to the Company's
senior-level executives or to its employees generally, as such plans or programs
may be in effect from time to time, including, without limitation, health,
medical, dental, long-term disability, travel accident and life insurance plans.
(b) Deferral of Compensation. The Company shall implement
deferral arrangements, reasonably acceptable to Executive and the Company,
permitting Executive to elect to defer receipt, pursuant to written deferral
election terms and forms (the "Deferral Election Forms"), of all or a specified
portion of (i) his annual Base Salary and annual incentive compensation under
Sections 4 and 5, (ii) long term incentive compensation under Section 6 and
(iii) shares acquired upon exercise of options to purchase Company common stock
that are acquired in an exercise in which Executive pays the exercise price by
the surrender of previously acquired shares, to the extent of the net additional
shares otherwise issuable to Executive in such exercise; provided, however, that
such deferrals shall not reduce Executive's total cash compensation in any
calendar year below the sum of (i) the FICA maximum taxable wage base plus (ii)
the amount needed, on an after-tax basis, to enable Executive to pay the 1.45%
medicare tax imposed on his wages in excess of such FICA maximum taxable wage
base.
In accordance with such duly executed Deferral Election Forms,
the Company shall credit to a bookkeeping account (the "Deferred Compensation
Account") maintained for Executive on the respective payment date or dates,
amounts equal to the compensation subject to deferral, such credits to be
denominated in cash if the compensation would have been paid in cash but for the
deferral or in shares if the compensation would have been paid in shares but for
the deferral. An amount of cash equal in value to all cash-denominated amounts
credited to Executive's account and a number of shares of Company common stock
equal to the number of shares credited to Executive's account pursuant to this
Section 7(b) shall be transferred as soon as practicable following such
crediting by the Company to, and shall be held and invested by, an independent
- 3 -
<PAGE> 7
trustee selected by the Company and reasonably acceptable to Executive (a
"Trustee") pursuant to a "rabbi trust" established by the Company in connection
with such deferral arrangement and as to which the Trustee shall make
investments based on Executive's investment objectives (including possible
investment in publicly traded stocks and bonds, mutual funds, and insurance
vehicles). Thereafter, Executive's deferral accounts will be valued by reference
to the value of the assets of the "rabbi trust". The Company shall pay all costs
of administration or maintenance of the deferral arrangement, without deduction
or reimbursement from the assets of the "rabbi trust."
Except as otherwise provided under Section 10, in the event of
Executive's termination of employment with the Company or as otherwise
determined by the Committee in the event of hardship on the part of Executive,
upon such date(s) or event(s) set forth in the Deferral Election Forms
(including forms filed after deferral but before settlement in which Executive
may elect to further defer settlement), the Company shall promptly pay to
Executive cash equal to the value of the assets then credited to Executive's
deferral accounts, less applicable withholding taxes, and such distribution
shall be deemed to fully settle such accounts; provided, however, that the
Company may instead settle such accounts by directing the Trustee to distribute
Company common stock and/or other assets of the "rabbi trust." The Company and
Executive agree that compensation deferred pursuant to this Section 7(b) shall
be fully vested and nonforfeitable; however, Executive acknowledges that his
rights to the deferred compensation provided for in this Section 7(b) shall be
no greater than those of a general unsecured creditor of the Company, and that
such rights may not be pledged, collateralized, encumbered, hypothecated, or
liable for or subject to any lien, obligation, or liability of Executive, or be
assignable or transferable by Executive, otherwise than by will or the laws of
descent and distribution, provided that Executive may designate one or more
beneficiaries to receive any payment of such amounts in the event of his death.
8. Disability.
(a) During the Term of Employment, as well as during the
Severance Period, the Executive shall be entitled to disability coverage as
described in this Section 8(a). In the event the Executive becomes disabled, as
that term is defined under the Company's Long-Term Disability Plan, the
Executive shall be entitled to receive pursuant to the Company's Long-Term
Disability Plan or otherwise, and in place of his Base Salary, an amount equal
to 60% of his Base Salary, at the annual rate in effect on the commencement date
of his eligibility for the Company's long-term disability benefits
("Commencement Date") for a period beginning on the Commencement Date and ending
with the earlier to occur of (A) the Executive's attainment of age 65 or (B) the
Executive's commencement of retirement benefits from the Company in accordance
with Section 10(f) below. If (i) the Executive ceases to be disabled during the
Term of Employment (as determined in accordance with the terms of the Long-Term
Disability Plan), (ii) his position or another senior executive position is then
vacant and (iii) the Company requests in writing that he resume such position,
he may elect to resume such position by written notice to the Company within 15
days after the Company delivers its request. If he resumes such position, he
shall thereafter be entitled to his Base Salary at the annual rate in effect on
the Commencement Date and, for the year he resumes his position, a pro rata
annual incentive award. If he ceases to be disabled during the Term of
Employment and does not resume his position in accordance with the preceding
sentence, he shall be treated as if he voluntarily terminated his employment
pursuant to Section 10(d) as of the date the Executive ceases to be disabled. If
the Executive is not offered his position or another senior executive position
after he ceases to be disabled during the Term of Employment, he shall be
treated as if his employment was terminated Without Cause pursuant to Section
10(c) as of the date the Executive ceases to be disabled.
- 4 -
<PAGE> 8
(b) The Executive shall be entitled to a pro rata annual
incentive award for the year in which the Commencement Date occurs based on 40%
of Base Salary paid to him during such year prior to the Commencement Date,
payable in a lump sum not later than 15 days after the Commencement Date. The
Executive shall not be entitled to any annual incentive award with respect to
the period following the Commencement Date. If the Executive recommences his
position in accordance with Section 8(a), he shall be entitled to a pro rata
annual incentive award for the year he resumes such position and shall
thereafter be entitled to annual incentive awards in accordance with Section 5
hereof.
(c) During the period the Executive is receiving disability
benefits pursuant to Section 8(a) above, he shall continue to be treated as an
employee for purposes of all employee benefits and entitlements in which he was
participating on the Commencement Date, including without limitation, the
benefits and entitlements referred to in Sections 6 and 7 above, except that the
Executive shall not be entitled to receive any annual salary increases or any
new long-term incentive plan grants following the Commencement Date.
9. Reimbursement of Business and Other Expenses.
The Executive is authorized to incur reasonable expenses in
carrying out his duties and responsibilities under this Agreement, and the
Company shall promptly reimburse him for all business expenses incurred in
connection therewith, subject to documentation in accordance with the Company's
policy.
10. Termination of Employment.
(a) Termination Due to Death. In the event the Executive's
employment with the Company is terminated due to his death, his estate or his
beneficiaries, as the case may be, shall be entitled to and their sole remedies
under this Agreement shall be:
(i) Base Salary through the date of death, which shall
be paid in a single lump sum not later than 15 days
following the Executive's death;
(ii) pro rata annual incentive award for the year in
which the Executive's death occurs assuming that
the Executive would have received an award equal to
40% of Base Salary for such year, which shall be
payable in a lump sum promptly (but in no event
later than 15 days) after his death;
(iii) elimination of all restrictions on any deferred
stock awards outstanding at the time of his death;
(iv) immediate vesting of all outstanding stock options
and the right to exercise such stock options for a
period of one year following death (or such longer
period as may be provided in stock options granted
to other similarly situated executive officers of
the Company) or for the remainder of the exercise
period, if less;
(v) immediate vesting of all outstanding long-term
incentive awards and a pro rata payment of such
awards based on target performance,
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<PAGE> 9
payable in a cash lump sum promptly (but in no
event later than 15 days) after his death;
(vi) the balance of any incentive awards earned as of
December 31 of the prior year (but not yet paid),
which shall be paid in a single lump sum not later
than 15 days following the Executive's death;
(vii) settlement of all deferred compensation
arrangements in accordance with the Executive's
duly executed Deferral Election Forms; and
(viii) other or additional benefits then due or earned in
accordance with applicable plans and programs of
the Company.
(b) Termination by the Company for Cause.
(i) "Cause" shall mean:
(A) the Executive's willful and material breach
of Sections 11, 12 or 13 of this Agreement;
(B) the Executive is convicted of a felony
involving moral turpitude; or
(C) the Executive engages in conduct that
constitutes willful gross neglect or willful
gross misconduct in carrying out his duties
under this Agreement, resulting, in either
case, in material harm to the financial
condition or reputation of the Company.
For purposes of this Agreement, an act or failure to act on Executive's part
shall be considered "willful" if it was done or omitted to be done by him not in
good faith, and shall not include any act or failure to act resulting from any
incapacity of Executive.
(ii) A termination for Cause shall not take effect
unless the provisions of this paragraph (ii) are
complied with. The Executive shall be given written
notice by the Company of its intention to terminate
him for Cause, such notice (A) to state in detail
the particular act or acts or failure or failures
to act that constitute the grounds on which the
proposed termination for Cause is based and (B) to
be given within 90 days of the Company's learning
of such act or acts or failure or failures to act.
The Executive shall have 20 days after the date
that such written notice has been given to him in
which to cure such conduct, to the extent such cure
is possible. If he fails to cure such conduct, the
Executive shall then be entitled to a hearing
before the Committee of the Board at which the
Executive is entitled to appear. Such hearing shall
be held within 25 days of such notice to the
Executive, provided he requests such hearing within
10 days of the written notice from the Company of
the intention to terminate him for Cause. If,
within five days following such hearing, the
Executive is furnished written notice by the Board
confirming that, in its judgment,
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<PAGE> 10
grounds for Cause on the basis of the original
notice exist, he shall thereupon be terminated for
Cause.
(iii) In the event the Company terminates the Executive's
employment for Cause, he shall be entitled to and
his sole remedies under this Agreement shall be:
(A) Base Salary through the date of the
termination of his employment for Cause,
which shall be paid in a single lump sum not
later than 15 days following the Executive's
termination of employment;
(B) any incentive awards earned as of December
31 of the prior year (but not yet paid),
which shall be paid in a single lump sum not
later than 15 days following the Executive's
termination of employment;
(C) settlement of all deferred compensation
arrangements in accordance with the
Executive's duly executed Deferral Election
Forms; and
(D) other or additional benefits then due or
earned in accordance with applicable plans
or programs of the Company.
(c) Termination Without Cause or Constructive Termination Without
Cause Prior to Change in Control. In the event the Executive's employment with
the Company is terminated without Cause (which termination shall be effective as
of the date specified by the Company in a written notice to the Executive),
other than due to death, or in the event there is a Constructive Termination
Without Cause (as defined below), in either case prior to a Change in Control
(as defined below) the Executive shall be entitled to and his sole remedies
under this Agreement shall be:
(i) Base Salary through the date of termination of the
Executive's employment, which shall be paid in a
single lump sum not later than 15 days following
the Executive's termination of employment;
(ii) Base Salary, at the annualized rate in effect on
the date of termination of the Executive's
employment (or in the event a reduction in Base
Salary is a basis for a Constructive Termination
Without Cause, then the Base Salary in effect
immediately prior to such reduction), for a period
of 12 months (the "Severance Period");
(iii) pro rata annual incentive award for the year in
which termination occurs equal to 40% of Base
Salary (determined in accordance with Section
10(c)(ii) above) for such year, payable in a lump
sum promptly (but in no event later than 15 days)
following termination;
(iv) the balance of any incentive awards earned as of
December 31 of the prior year (but not yet paid),
which shall be paid in a single lump
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<PAGE> 11
sum not later than 15 days following the
Executive's termination of employment;
(v) settlement of all deferred compensation
arrangements in accordance with the Executive's
duly executed Deferral Election Forms;
(vi) continued participation in all medical, health and
life insurance plans at the same benefit level at
which he was participating on the date of the
termination of his employment until the earlier of:
(A) the end of the Severance Period; or
(B) the date, or dates, he receives equivalent
coverage and benefits under the plans and
programs of a subsequent employer (such
coverage and benefits to be determined on a
coverage-by-coverage, or benefit-by-benefit,
basis); provided that (1) if the Executive
is precluded from continuing his
participation in any employee benefit plan
or program as provided in this clause (vi)
of this Section 10(c), he shall receive cash
payments equal on an after-tax basis to the
cost to him of obtaining the benefits
provided under the plan or program in which
he is unable to participate for the period
specified in this clause (vi) of this
Section 10(c), (2) such cost shall be deemed
to be the lowest reasonable cost that would
be incurred by the Executive in obtaining
such benefit himself on an individual basis,
and (3) payment of such amounts shall be
made quarterly in advance; and
(vii) other or additional benefits then due or earned in
accordance with applicable plans and programs of
the Company.
"Termination Without Cause" shall mean the Executive's employment
is terminated by the Company for any reason other than Cause (as defined in
Section 10(b)) or due to death.
"Constructive Termination Without Cause" shall mean a termination
of the Executive's employment at his initiative as provided in this Section
10(c) following the occurrence, without the Executive's written consent, of one
or more of the following events (except as a result of a prior termination):
(A) an assignment of any duties to Executive
which are inconsistent with his status as a
senior executive of the Company;
(B) a decrease in annual Base Salary or target
annual incentive award opportunity below 40%
of Base Salary;
(C) any other failure by the Company to perform
any material obligation under, or breach by
the Company of any material
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<PAGE> 12
provision of, this Agreement that is not
cured within 30 days; or
(D) any failure to secure the agreement of any
successor corporation or other entity to the
Company to fully assume the Company's
obligations under this Agreement.
In addition, following a Change in Control, "Constructive Termination Without
Cause" shall also mean a termination of the Executive's employment at his
initiative as provided in this Section 10(c) following the occurrence, without
the Executive's written consent, of a relocation of his principal place of
employment outside a 35-mile radius of his principal place of employment as in
effect immediately prior to such Change in Control.
A "Change in Control" shall be deemed to have occurred if:
(i) any Person (other than the Company, any trustee or
other fiduciary holding securities under any
employee benefit plan of the Company, or any
company owned, directly or indirectly, by the
stockholders of the Company immediately prior to
the occurrence with respect to which the evaluation
is being made in substantially the same proportions
as their ownership of the common stock of the
Company) becomes the Beneficial Owner (except that
a Person shall be deemed to be the Beneficial Owner
of all shares that any such Person has the right to
acquire pursuant to any agreement or arrangement or
upon exercise of conversion rights, warrants or
options or otherwise, without regard to the sixty
day period referred to in Rule 13d-3 under the
Exchange Act), directly or indirectly, of
securities of the Company or any Significant
Subsidiary (as defined below), representing 25% or
more of the combined voting power of the Company's
or such subsidiary's then outstanding securities;
provided, however, that such event shall not
constitute a Change in Control unless or until the
percentage of such securities owned beneficially,
directly or indirectly, by such Person is equal to
or more than all such securities owned
beneficially, directly or indirectly, by Melville
Corporation;
(ii) during any period of two consecutive years,
individuals who at the beginning of such period
constitute the Board, and any new director (other
than a director designated by a person who has
entered into an agreement with the Company to
effect a transaction described in clause (i),
(iii), or (iv) of this paragraph) whose election by
the Board or nomination for election by the
Company's stockholders was approved by a vote of at
least two- thirds of the directors then still in
office who either were directors at the beginning
of the two-year period or whose election or
nomination for election was previously so approved
but excluding for this purpose any such new
director whose initial assumption of office occurs
as a result of either an actual or threatened
election contest (as such terms are used in Rule
14a-11 of Regulation 14A promulgated under the
Exchange Act) or other actual or threatened
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<PAGE> 13
solicitation of proxies or consents by or on behalf
of an individual, corporation, partnership, group,
associate or other entity or Person other than the
Board, cease for any reason to constitute at least
a majority of the Board; provided, however, that
such event shall not constitute a Change in Control
unless or until the percentage of voting securities
of the Company owned beneficially, directly or
indirectly, by Melville Corporation is less than
50% of all such outstanding securities;
(iii) the consummation of a merger or consolidation of
the Company or any subsidiary owning directly or
indirectly all or substantially all of the
consolidated assets of the Company (a "Significant
Subsidiary") with any other entity, other than a
merger or consolidation which would result in the
voting securities of the Company or a Significant
Subsidiary outstanding immediately prior thereto
continuing to represent (either by remaining
outstanding or by being converted into voting
securities of the surviving or resulting entity)
more than 50% of the combined voting power of the
surviving or resulting entity outstanding
immediately after such merger or consolidation;
(iv) the stockholders of the Company approve a plan or
agreement for the sale or disposition of all or
substantially all of the consolidated assets of the
Company (other than such a sale or disposition
immediately after which such assets will be owned
directly or indirectly by the stockholders of the
Company in substantially the same proportions as
their ownership of the common stock of the Company
immediately prior to such sale or disposition) in
which case the Board shall determine the effective
date of the Change in Control resulting therefrom;
or
(v) any other event occurs which the Board determines,
in its discretion, would materially alter the
structure of the Company or its ownership.
For purposes of this definition:
(A) The term "Beneficial Owner" shall have the
meaning ascribed to such term in Rule 13d-3
under the Exchange Act (including any
successor to such Rule).
(B) The term "Exchange Act" means the Securities
Exchange Act of 1934, as amended from time
to time, or any successor act thereto.
(C) The term "Person" shall have the meaning
ascribed to such term in Section 3(a)(9) of
the Exchange Act and used in Sections 13(d)
and 14(d) thereof, including "group" as
defined in Section 13(d) thereof.
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<PAGE> 14
(d) Voluntary Termination. In the event of a termination of
employment by the Executive on his own initiative after delivery of 10 business
days advance written notice, other than a termination due to death, a
Constructive Termination Without Cause, or Approved Early Retirement or Normal
Retirement pursuant to Section 10(f) below, the Executive shall have the same
entitlements as provided in Section 10(b)(iii) above for a termination for
Cause, provided that at the Company's election, furnished in writing to the
Executive within 15 days following such notice of termination, the Company shall
in addition pay the Executive 140% of his Base Salary for a period of 12 months
following such termination in exchange for the Executive not engaging in
competition with the Company or any Subsidiary as set forth in Section 12(a)
below. Notwithstanding any implication to the contrary, the Executive shall not
have the right to terminate his employment with the Company during the Term of
Employment except in the event of a Constructive Termination Without Cause,
Approved Early Retirement, or Normal Retirement, and any voluntary termination
of employment during the Term of Employment in violation of this Agreement shall
be considered a material breach; provided, however, if the Company elects to pay
the Executive 140% of his Base Salary in accordance with this Section 10(d), the
Company shall waive any and all claims it may have against the Executive for any
breach of this Agreement relating to his voluntary termination of employment
unless the Executive is found by a court of competent jurisdiction not to be in
compliance with Section 12(a) below; provided further, however, that,
notwithstanding anything contained in the foregoing to the contrary, it is not
the intention of the Company to waive any claims it may have against any third
parties relating to a voluntary termination by the Executive in violation of
this Agreement.
(e) Termination Without Cause; Constructive Termination Without
Cause or Voluntary Termination Following Change in Control. In the event the
Executive's employment with the Company is terminated by the Company without
Cause (which termination shall be effective as of the date specified by the
Company in a written notice to the Executive), other than due to death, or in
the event there is a Constructive Termination Without Cause (as defined above),
in either case within two years following a Change in Control (as defined
above), the Executive shall be entitled to and his sole remedies under this
Agreement shall be:
(i) Base Salary through the date of termination of the
Executive's employment, which shall be paid in a
single lump sum not later than 15 days following
the Executive's termination of employment;
(ii) an amount equal to two times the Executive's Base
Salary, at the annualized rate in effect on the
date of termination of the Executive's employment
(or in the event a reduction in Base Salary is a
basis for a Constructive Termination Without Cause,
then the Base Salary in effect immediately prior to
such reduction), payable in a cash lump sum
promptly (but in no event later than 15 days)
following the Executive's termination of
employment;
(iii) an amount equal to 40% of such Base Salary
(determined in accordance with Section 10(e)(ii)
above) multiplied by two, payable in a cash lump
sum promptly (but in no event later than 15 days)
following the Executive's termination of
employment;
(iv) elimination of all restrictions on any deferred
stock awards outstanding at the time of termination
of employment;
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<PAGE> 15
(v) immediate vesting of all outstanding stock options
and the right to exercise such stock options during
the Severance Period or for the remainder of the
exercise period, if less;
(vi) immediate vesting of all outstanding long-term
incentive awards and a pro rata payment of such
awards based on target performance, payable in a
cash lump sum promptly (but in no event later than
15 days) following the Executive's termination of
employment;
(vii) the balance of any incentive awards earned as of
December 31 of the prior year (but not yet paid),
which shall be paid in a single lump sum not later
than 15 days following the Executive's termination
of employment;
(viii) settlement of all deferred compensation
arrangements in accordance with Executive's duly
executed Deferral Election Forms;
(ix) continued participation in all medical, health and
life insurance plans at the same benefit level at
which he was participating on the date of
termination of his employment until the earlier of:
(A) the end of the Severance Period; or
(B) the date, or dates, he receives equivalent
coverage and benefits under the plans and
programs of a subsequent employer (such
coverage and benefits to be determined on a
coverage-by-coverage, or benefit-by-benefit,
basis); provided that (1) if the Executive
is precluded from continuing his
participation in any employee benefit plan
or program as provided in this clause (ix)
of this Section 10(e), he shall receive cash
payments equal on an after-tax basis to the
cost to him of obtaining the benefits
provided under the plan or program in which
he is unable to participate for the period
specified in this clause (ix) of this
Section 10(e), (2) such cost shall be deemed
to be the lowest reasonable cost that would
be incurred by the Executive in obtaining
such benefit himself on an individual basis,
and (3) payment of such amounts shall be
made quarterly in advance; and
(x) other or additional benefits then due or earned in
accordance with applicable plans and programs of
the Company.
For purposes of any termination pursuant to this Section 10(e), the term
"Severance Period" shall mean the period of 24 months following the termination
of the Executive's employment.
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<PAGE> 16
(f) Approved Early Retirement or Normal Retirement. Upon the
Executive's Approved Early Retirement or Normal Retirement (each as defined
below), the Executive shall be entitled to and his sole remedies under this
Agreement shall be:
(i) Base Salary through the date of termination of the
Executive's employment, which shall be paid in a
single lump sum not later than 15 days following
the Executive's termination of employment;
(ii) pro rata annual incentive award for the year in
which termination occurs, based on performance
valuation at the end of such year and payable in a
cash lump sum promptly (but in no event later than
15 days) thereafter;
(iii) continued vesting (as if the Executive remained
employed by the Company) of any deferred stock
awards outstanding at the time of his termination
of employment;
(iv) continued vesting of all outstanding stock options
and the right to exercise such stock options for a
period of one year following the later of the date
the options are fully vested or the Executive's
termination of employment (or such longer period as
may be provided in stock options granted to other
similarly situated executive officers of the
Company) or for the remainder of the exercise
period, if less;
(v) continued vesting (as if the Executive remained
employed by the Company) of all outstanding
long-term incentive awards and payment of such
awards based on valuation at the end of the
performance period, payable in a cash lump sum
promptly (but in no event later than 15 days)
thereafter;
(vi) the balance of any incentive awards earned as of
December 31 of the prior year (but not yet paid),
which shall be paid in a single lump sum not later
than 15 days following the Executive's termination
of employment;
(vii) settlement of all deferred compensation
arrangements in accordance with the Executive's
duly executed Deferral Election Forms;
(viii) continued participation in all medical, health and
life insurance plans at the same benefit level at
which he was participating on the date of the
termination of his employment until the earlier of:
(A) the Executive's attainment of age 60; or
(B) the date, or dates, he receives
substantially equivalent coverage and
benefits under the plans and programs of a
subsequent employer (such coverage and
benefits to be determined on a
coverage-by-coverage, or benefit-by-
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<PAGE> 17
benefit, basis); provided that (1) if the
Executive is precluded from continuing his
participation in any employee benefit plan
or program as provided in this clause (viii)
of this Section 10(f), he shall receive cash
payments equal on an after-tax basis to the
cost to him of obtaining the benefits
provided under the plan or program in which
he is unable to participate for the period
specified in this clause (viii) of this
Section 10(f), (2) such cost shall be deemed
to be the lowest cost that would be incurred
by the Executive in obtaining such benefit
himself on an individual basis, and (3)
payment of such amounts shall be made
quarterly in advance; and
(ix) other or additional benefits then due or earned in
accordance with applicable plans and programs of
the Company.
"Approved Early Retirement" shall mean the Executive's voluntary
termination of employment with the Company at or after attaining age 55 but
prior to attaining age 60, if such termination is approved in advance by the
Committee.
"Normal Retirement" shall mean the Executive's voluntary
termination of employment with the Company at or after attaining age 60.
(g) No Mitigation; No Offset. In the event of any termination of
employment, the Executive shall be under no obligation to seek other employment;
amounts due the Executive under this Agreement shall not be offset by any
remuneration attributable to any subsequent employment that he may obtain.
(h) Nature of Payments. Any amounts due under this Section 10 are
in the nature of severance payments considered to be reasonable by the Company
and are not in the nature of a penalty.
(i) No Further Liability; Release. In the event of the
Executive's termination of employment, payment made and performance by the
Company in accordance with this Section 10 shall operate to fully discharge and
release the Company and its directors, officers, employees, subsidiaries,
affiliates, stockholders, successors, assigns, agents and representatives from
any further obligation or liability with respect to the Executive's rights under
this Agreement. Other than payment and performance under this Section 10, the
Company and its directors, officers, employees, subsidiaries, affiliates,
stockholders, successors, assigns, agents and representatives shall have no
further obligation or liability to the Executive or any other person under this
Agreement in the event of the Executive's termination of employment. The Company
shall have the right to condition the last payment of any severance or other
amounts pursuant to this Section 10 upon the delivery by the Executive to the
Company of a release in the form satisfactory to the Company releasing any and
all claims the Executive may have against the Company and its directors,
officers, employees, subsidiaries, affiliates, stockholders, successors,
assigns, agents and representatives arising out of this Agreement.
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<PAGE> 18
11. Confidentiality: Cooperation with Regard to Litigation.
(a) During the Term of Employment and thereafter, the Executive
shall not, without the prior written consent of the Company, disclose to anyone
(except in good faith in the ordinary course of business to a person who will be
advised by the Executive to keep such information confidential) or make use of
any Confidential Information except in the performance of his duties hereunder
or when required to do so by legal process, by any governmental agency having
supervisory authority over the business of the Company or by any administrative
or legislative body (including a committee thereof) that requires him to
divulge, disclose or make accessible such information. In the event that the
Executive is so ordered, he shall give prompt written notice to the Company in
order to allow the Company the opportunity to object to or otherwise resist such
order.
(b) During the Term of Employment and thereafter, Executive shall
not disclose the existence or contents of this Agreement beyond what is
disclosed in the proxy statement or documents filed with the government unless
and to the extent such disclosure is required by law, by a governmental agency,
or in a document required by law to be filed with a governmental agency or in
connection with enforcement of his rights under this Agreement. In the event
that disclosure is so required, the Executive shall give prompt written notice
to the Company in order to allow the Company the opportunity to object to or
otherwise resist such requirement. This restriction shall not apply to such
disclosure by him to members of his immediate family, his tax, legal or
financial advisors, any lender, or tax authorities, or to potential future
employers to the extent necessary, each of whom shall be advised not to disclose
such information.
(c) "Confidential Information" shall mean all information
concerning the business of the Company or any Subsidiary relating to any of
their products, product development, trade secrets, customers, suppliers,
finances, and business plans and strategies. Excluded from the definition of
Confidential Information is information (i) that is or becomes part of the
public domain, other than through the breach of this Agreement by the Executive
or (ii) regarding the Company's business or industry properly acquired by the
Executive in the course of his career as an executive in the Company's industry
and independent of the Executive's employment by the Company or Melville
Corporation. For this purpose, information known or available generally within
the trade or industry of the Company or any Subsidiary shall be deemed to be
known or available to the public.
(d) "Subsidiary" shall mean any corporation controlled directly
or indirectly by the Company.
(e) The Executive agrees to cooperate with the Company, during
the Term of Employment and thereafter (including following the Executive's
termination of employment for any reason), by making himself reasonably
available to testify on behalf of the Company or any Subsidiary in any action,
suit, or proceeding, whether civil, criminal, administrative, or investigative,
and to assist the Company, or any Subsidiary, in any such action, suit, or
proceeding, by providing information and meeting and consulting with the Board
or its representatives or counsel, or representatives or counsel to the Company,
or any Subsidiary as requested; provided, however that the same does not
materially interfere with his then current professional activities. The Company
agrees to reimburse the Executive, on an after-tax basis, for all expenses
actually incurred in connection with his provision of testimony or assistance.
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<PAGE> 19
12. Non-competition.
(a) During the Restriction Period (as defined in Section 12(b)
below), the Executive shall not engage in Competition with the Company or any
Subsidiary. "Competition" shall mean engaging in any activity, except as
provided below, for a Competitor of the Company or any Subsidiary, whether as an
employee, consultant, principal, agent, officer, director, partner, shareholder
(except as a less than one percent shareholder of a publicly traded company) or
otherwise. A "Competitor" shall mean (i) Bed Bath & Beyond, Inc., Strouds, Inc.,
Home Express Inc. and Home Place Inc. (and any successor or successors thereto);
(ii) any specialty retailer if 40% or more of its revenues (based on the most
recent quarterly or annual financial statements available) are derived from the
sale of home textiles or housewares; (iii) any corporation, other entity, or
start-up corporation or other entity engaged primarily or organized for the
purpose of engaging primarily in the sale of home textiles or housewares having
a total capitalization (equity and/or long-term debt) in excess of $30,000,000
or revenues (based on the most recent quarterly or annual financial statements
available) in excess of $25,000,000. If the Executive commences employment or
becomes a consultant, principal, agent, officer, director, partner, or
shareholder of any entity that is not a Competitor at the time the Executive
initially becomes employed or becomes a consultant, principal, agent, officer,
director, partner, or shareholder of the entity, future activities of such
entity shall not result in a violation of this provision unless (x) such
activities were contemplated by the Executive at the time the Executive
initially became employed or becomes a consultant, principal, agent, officer,
director, partner, or shareholder of the entity or (y) the Executive commences
directly or indirectly overseeing or managing the activities of an entity which
becomes a Competitor during the Restriction Period, which activities are
competitive with the activities of the Company or Subsidiary. The Executive
shall not be deemed indirectly overseeing or managing the activities of such
Competitor which are competitive with the activities of the Company or
Subsidiary so long as he does not regularly participate in discussions with
regard to the conduct of the competing business.
(b) For the purposes of this Section 12, "Restriction Period"
shall mean the period beginning with the Effective Date and ending with:
(i) in the case of a termination of the Executive's
employment without Cause or a Constructive
Termination Without Cause, the Restriction Period
shall terminate immediately upon the Executive's
termination of employment;
(ii) in the case of a termination of the Executive's
employment for Cause, the first anniversary of such
termination;
(iii) in the case of a voluntary termination of the
Executive's employment pursuant to Section 10(d)
above followed by the Company's election to pay the
Executive (and subject to the payment of) 140% of
his Base Salary, as provided in Section 10(d)
above, the first anniversary of such termination;
(iv) in the case of a voluntary termination of the
Executive's employment pursuant to Section 10(d)
above which is not followed by the Company's
election to pay the Executive such 140% of Base
Salary, the date of such termination; or
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<PAGE> 20
(v) in the case of Approved Early Retirement or Normal
Retirement pursuant to Section 10(f) above, the
remainder of the Term of Employment.
13. Non-solicitation of Employees.
During the period beginning with the Effective Date and ending
one year following the termination of the Executive's employment, the Executive
shall not induce employees of the Company or any Subsidiary to terminate their
employment; provided, however, that the foregoing shall not be construed to
prevent the Executive from engaging in generic nontargeted advertising for
employees generally. During such period, the Executive shall not hire, either
directly or through any employee, agent or representative, any employee of the
Company or any Subsidiary or any person who was employed by the Company or any
Subsidiary within 180 days of such hiring.
14. Remedies.
In addition to whatever other rights and remedies the Company may
have at equity or in law, if the Executive breaches any of the provisions
contained in Sections 11, 12 or 13 above, the Company (a) shall have the right
to immediately terminate all payments and benefits due under this Agreement and
(b) shall have the right to seek injunctive relief. The Executive acknowledges
that such a breach of Sections 11,12 or 13 would cause irreparable injury and
that money damages would not provide an adequate remedy for the Company;
provided, however, the foregoing shall not prevent the Executive from contesting
the issuance of any such injunction on the ground that no violation or
threatened violation of Section 11, 12 or 13 has occurred.
15. Resolution of Disputes.
Any controversy or claim arising out of or relating to this
Agreement or any breach or asserted breach hereof or questioning the validity
and binding effect hereof arising under or in connection with this Agreement,
other than seeking injunctive relief under Section 14, shall be resolved by
binding arbitration, to be held at an office closest to the Company's principal
offices in accordance with the rules and procedures of the American Arbitration
Association, except that disputes arising under or in connection with Sections
11, 12 and 13 above shall be submitted to the federal or state courts in the
State of New Jersey. Judgment upon the award rendered by the arbitrator(s) may
be entered in any court having jurisdiction thereof. Pending the resolution of
any arbitration or court proceeding, the Company shall continue payment of all
amounts and benefits due the Executive under this Agreement. All costs and
expenses of any arbitration or court proceeding (including fees and
disbursements of counsel) shall be borne by the respective party incurring such
costs and expenses, but the Company shall reimburse the Executive for such
reasonable costs and expenses in the event he substantially prevails in such
arbitration or court proceeding.
16. Indemnification.
(a) Company Indemnity. The Company agrees that if the Executive
is made a party, or is threatened to be made a party, to any action, suit or
proceeding, whether civil, criminal, administrative or investigative (a
"Proceeding"), by reason of the fact that he is or was a director, officer or
employee of the Company or any Subsidiary or is or was serving at the request of
the Company or any Subsidiary as a director, officer, member, employee or agent
of
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<PAGE> 21
another corporation, partnership, joint venture, trust or other enterprise,
including service with respect to employee benefit plans, whether or not the
basis of such Proceeding is the Executive's alleged action in an official
capacity while serving as a director, officer, member, employee or agent, the
Executive shall be indemnified and held harmless by the Company to the fullest
extent legally permitted or authorized by the Company's certificate of
incorporation or bylaws or resolutions of the Company's Board or, if greater, by
the laws of the State of Delaware against all cost, expense, liability and loss
(including, without limitation, attorney's fees, judgments, fines, ERISA excise
taxes or penalties and amounts paid or to be paid in settlement) reasonably
incurred or suffered by the Executive in connection therewith, and such
indemnification shall continue as to the Executive even if he has ceased to be a
director, member, officer, employee or agent of the Company or other entity and
shall inure to the benefit of the Executive's heirs, executors and
administrators. The Company shall advance to the Executive all reasonable costs
and expenses to be incurred by him in connection with a Proceeding within 20
days after receipt by the Company of a written request for such advance. Such
request shall include an undertaking by the Executive to repay the amount of
such advance if it shall ultimately be determined that he is not entitled to be
indemnified against such costs and expenses. The provisions of this Section
16(a) shall not be deemed exclusive of any other rights of indemnification to
which the Executive may be entitled or which may be granted to him, and it shall
be in addition to any rights of indemnification to which he may be entitled
under any policy of insurance.
(b) No Presumption Regarding Standard of Conduct. Neither the
failure of the Company (including its Board, independent legal counsel or
stockholders) to have made a determination prior to the commencement of any
proceeding concerning payment of amounts claimed by the Executive under Section
16(a) above that indemnification of the Executive is proper because he has met
the applicable standard of conduct, nor a determination by the Company
(including its Board, independent legal counsel or stockholders) that the
Executive has not met such applicable standard of conduct, shall create a
presumption that the Executive has not met the applicable standard of conduct.
(c) Liability Insurance. The Company agrees to continue and
maintain a directors and officers' liability insurance policy covering the
Executive to the extent the Company provides such coverage for its other
executive officers.
17. Excise Tax Gross-Up.
If the Executive becomes entitled to one or more payments (with a
"payment" including, without limitation, the vesting of an option or other
non-cash benefit or property), whether pursuant to the terms of this Agreement
or any other plan, arrangement, or agreement with the Company or any affiliated
company (the "Total Payments"), which are or become subject to the tax imposed
by Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code")
(or any similar tax that may hereafter be imposed) (the "Excise Tax"), the
Company shall pay to the Executive at the time specified below an additional
amount (the "Gross-up Payment") (which shall include, without limitation,
reimbursement for any penalties and interest that may accrue in respect of such
Excise Tax) such that the net amount retained by the Executive, after reduction
for any Excise Tax (including any penalties or interest thereon) on the Total
Payments and any federal, state and local income or employment tax and Excise
Tax on the Gross-up Payment provided for by this Section 17, but before
reduction for any federal, state, or local income or employment tax on the Total
Payments, shall be equal to the sum of (a) the Total Payments, and (b) an amount
equal to the product of any deductions disallowed for federal, state, or local
income tax purposes because of the inclusion of the Gross-up Payment in the
Executive's
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<PAGE> 22
adjusted gross income multiplied by the highest applicable marginal rate of
federal, state, or local income taxation, respectively, for the calendar year in
which the Gross-up Payment is to be made. For purposes of determining whether
any of the Total Payments will be subject to the Excise Tax and the amount of
such Excise Tax:
(i) The Total Payments shall be treated as "parachute
payments" within the meaning of Section 280G(b)(2) of the
Code, and all "excess parachute payments" within the
meaning of Section 280G(b)(1) of the Code shall be treated
as subject to the Excise Tax, unless, and except to the
extent that, in the written opinion of independent
compensation consultants, counsel or auditors of
nationally recognized standing ("Independent Advisors")
selected by the Company and reasonably acceptable to the
Executive, the Total Payments (in whole or in part) do not
constitute parachute payments, or such excess parachute
payments (in whole or in part) represent reasonable
compensation for services actually rendered within the
meaning of Section 280G(b)(4) of the Code in excess of the
base amount within the meaning of Section 280G(b)(3) of
the Code or are otherwise not subject to the Excise Tax;
(ii) The amount of the Total Payments which shall be treated as
subject to the Excise Tax shall be equal to the lesser of
(A) the total amount of the Total Payments or (B) the
total amount of excess parachute payments within the
meaning of Section 280G(b)(1) of the Code (after applying
clause (i) above); and
(iii) The value of any non-cash benefits or any deferred payment
or benefit shall be determined by the Independent Advisors
in accordance with the principles of Sections 280G(d)(3)
and (4) of the Code.
For purposes of determining the amount of the Gross-up Payment,
the Executive shall be deemed (A) to pay federal income taxes at the highest
marginal rate of federal income taxation for the calendar year in which the
Gross-up Payment is to be made; (B) to pay any applicable state and local income
taxes at the highest marginal rate of taxation for the calendar year in which
the Gross-up Payment is to be made, net of the maximum reduction in federal
income taxes which could be obtained from deduction of such state and local
taxes if paid in such year (determined without regard to limitations on
deductions based upon the amount of the Executive's adjusted gross income); and
(C) to have otherwise allowable deductions for federal, state, and local income
tax purposes at least equal to those disallowed because of the inclusion of the
Gross-up Payment in the Executive's adjusted gross income. In the event that the
Excise Tax is subsequently determined to be less than the amount taken into
account hereunder at the time the Gross-up Payment is made, the Executive shall
repay to the Company at the time that the amount of such reduction in Excise Tax
is finally determined (but, if previously paid to the taxing authorities, not
prior to the time the amount of such reduction is refunded to the Executive or
otherwise realized as a benefit by the Executive) the portion of the Gross-up
Payment that would not have been paid if such Excise Tax had been applied in
initially calculating the Gross-up Payment, plus interest on the amount of such
repayment at the rate provided in Section 1274(b)(2)(B) of the Code. In the
event that the Excise Tax is determined to exceed the amount taken into account
hereunder at the time the Gross-up Payment is made (including by reason of any
payment the existence or amount of which cannot be determined at the time of the
Gross-up Payment), the Company shall make an additional Gross-up Payment in
respect of such excess
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<PAGE> 23
(plus any interest and penalties payable with respect to such excess) at the
time that the amount of such excess is finally determined.
The Gross-up Payment provided for above shall be paid on the 30th
day (or such earlier date as the Excise Tax becomes due and payable to the
taxing authorities) after it has been determined that the Total Payments (or any
portion thereof) are subject to the Excise Tax; provided, however, that if the
amount of such Gross-up Payment or portion thereof cannot be finally determined
on or before such day, the Company shall pay to the Executive on such day an
estimate, as determined by the Independent Advisors, of the minimum amount of
such payments and shall pay the remainder of such payments (together with
interest at the rate provided in Section 1274(b)(2)(B) of the Code), as soon as
the amount thereof can be determined. In the event that the amount of the
estimated payments exceeds the amount subsequently determined to have been due,
such excess shall constitute a loan by the Company to the Executive, payable on
the fifth day after demand by the Company (together with interest at the rate
provided in Section 1274(b)(2)(B) of the Code). If more than one Gross-up
Payment is made, the amount of each Gross-up Payment shall be computed so as not
to duplicate any prior Gross-up Payment. The Company shall have the right to
control all proceedings with the Internal Revenue Service that may arise in
connection with the determination and assessment of any Excise Tax and, at its
sole option, the Company may pursue or forego any and all administrative
appeals, proceedings, hearings, and conferences with any taxing authority in
respect of such Excise Tax (including any interest or penalties thereon);
provided, however, that the Company's control over any such proceedings shall be
limited to issues with respect to which a Gross-up Payment would be payable
hereunder, and the Executive shall be entitled to settle or contest any other
issue raised by the Internal Revenue Service or any other taxing authority. The
Executive shall cooperate with the Company in any proceedings relating to the
determination and assessment of any Excise Tax and shall not take any position
or action that would materially increase the amount of any Gross-Up Payment
hereunder.
18. Effect of Agreement on Other Benefits.
Except as specifically provided in this Agreement, the existence
of this Agreement shall not be interpreted to preclude, prohibit or restrict the
Executive's participation in any other employee benefit or other plans or
programs in which he currently participates.
19. Assignability: Binding Nature.
This Agreement shall be binding upon and inure to the benefit of
the Parties and their respective successors, heirs (in the case of the
Executive) and permitted assigns. No rights or obligations of the Company under
this Agreement may be assigned or transferred by the Company except that such
rights or obligations may be assigned or transferred in connection with the sale
or transfer of all or substantially all of the assets of the Company, provided
that the assignee or transferee is the successor to all or substantially all of
the assets of the Company and such assignee or transferee assumes the
liabilities, obligations and duties of the Company, as contained in this
Agreement, either contractually or as a matter of law. The Company further
agrees that, in the event of a sale or transfer of assets as described in the
preceding sentence, it shall take whatever action it legally can in order to
cause such assignee or transferee to expressly assume the liabilities,
obligations and duties of the Company hereunder. No rights or obligations of the
Executive under this Agreement may be assigned or transferred by the Executive
other than his rights to compensation and benefits, which may be transferred
only by will or operation of law, except as provided in Section 25 below.
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<PAGE> 24
20. Representation.
The Company represents and warrants that it is fully authorized
and empowered to enter into this Agreement and that the performance of its
obligations under this Agreement will not violate any agreement between it and
any other person, firm or organization.
21. Entire Agreement.
This Agreement contains the entire understanding and agreement
between the Parties concerning the subject matter hereof and, as of the
Effective Date, supersedes all prior agreements, understandings, discussions,
negotiations and undertakings, whether written or oral, between the Parties with
respect thereto, including, without limitation any prior change in control
agreement between the Parties or between the Executive and Melville Corporation.
22. Amendment or Waiver.
No provision in this Agreement may be amended unless such
amendment is agreed to in writing and signed by the Executive and an authorized
officer of the Company. Except as set forth herein, no delay or omission to
exercise any right, power or remedy accruing to any Party shall impair any such
right, power or remedy or shall be construed to be a waiver of or an
acquiescence to any breach hereof. No waiver by either Party of any breach by
the other Party of any condition or provision contained in this Agreement to be
performed by such other Party shall be deemed a waiver of a similar or
dissimilar condition or provision at the same or any prior or subsequent time.
Any waiver must be in writing and signed by the Executive or an authorized
officer of the Company, as the case may be.
23. Severability.
In the event that any provision or portion of this Agreement
shall be determined to be invalid or unenforceable for any reason, in whole or
in part, the remaining provisions of this Agreement shall be unaffected thereby
and shall remain in full force and effect to the fullest extent permitted by
law.
24. Survivorship.
The respective rights and obligations of the Parties hereunder
shall survive any termination of the Executive's employment to the extent
necessary to the intended preservation of such rights and obligations.
25. Beneficiaries/References.
The Executive shall be entitled, to the extent permitted under
any applicable law, to select and change a beneficiary or beneficiaries to
receive any compensation or benefit payable hereunder following the Executive's
death by giving the Company written notice thereof. In the event of the
Executive's death or a judicial determination of his incompetence, reference in
this Agreement to the Executive shall be deemed, where appropriate, to refer to
his beneficiary, estate or other legal representative.
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<PAGE> 25
26. Governing Law/Jurisdiction.
This Agreement shall be governed by and construed and interpreted
in accordance with the laws of New Jersey without reference to principles of
conflict of laws. Subject to Section 15, the Company and the Executive hereby
consent to the jurisdiction of any or all of the following courts for purposes
of resolving any dispute under this Agreement: (i) the United States District
Court for New Jersey or (ii) any of the courts of the State of New Jersey. The
Company and the Executive further agree that any service of process or notice
requirements in any such proceeding shall be satisfied if the rules of such
court relating thereto have been substantially satisfied. The Company and the
Executive hereby waive, to the fullest extent permitted by applicable law, any
objection which it or he may now or hereafter have to such jurisdiction and any
defense of inconvenient forum.
27. Notices.
Any notice given to a Party shall be in writing and shall be
deemed to have been given when delivered personally or sent by certified or
registered mail, postage prepaid, return receipt requested, duly addressed to
the Party concerned at the address indicated below or to such changed address as
such Party may subsequently give such notice of:
If to the Company: Linens 'n Things, Inc.
6 Brighton Road
Clifton, New Jersey 07015-5108
Attention: Secretary
If to the Executive: James Tomaszewski
7 Heritage Court
Randolph, NJ 07869
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<PAGE> 26
28. Headings.
The headings of the sections contained in this Agreement are for
convenience only and shall not be deemed to control or affect the meaning or
construction of any provision of this Agreement.
29. Counterparts.
This Agreement may be executed in two or more counterparts.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date first written above.
LINENS 'N THINGS, INC.
BRIAN D. SILVA
By:_______________________________
Name: Brian D. Silva
Title: Vice President, Human Resources
EXECUTIVE
JAMES TOMASZEWSKI
__________________________________
James Tomaszewski
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<PAGE> 1
Exhibit 10.8
LINENS 'N THINGS, INC.
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EMPLOYMENT AGREEMENT FOR STEVEN SILVERSTEIN
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<PAGE> 2
LINENS 'N THINGS, INC.
- --------------------------------------------------------------------------------
EMPLOYMENT AGREEMENT FOR STEVEN SILVERSTEIN
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Page
----
1. Definitions...................................................... 1
2. Term of Employment............................................... 2
3. Position, Duties and Responsibilities............................ 2
4. Base Salary...................................................... 3
5. Annual Incentive Awards.......................................... 3
6. Long-Term Stock Incentive Programs............................... 3
7. Employee Benefit Programs........................................ 3
8. Disability....................................................... 4
9. Reimbursement of Business and Other Expenses..................... 5
10. Termination of Employment........................................ 5
11 Confidentiality; Cooperation with Regard to Litigation........... 15
12. Non-competition.................................................. 16
13. Non-solicitation of Employees.................................... 17
14. Remedies......................................................... 17
15. Resolution of Disputes........................................... 17
16. Indemnification.................................................. 17
17. Excise Tax Gross-Up.............................................. 18
18. Effect of Agreement on Other Benefits............................ 20
19. Assignability; Binding Nature.................................... 20
20. Representation................................................... 21
21. Entire Agreement................................................. 21
22. Amendment or Waiver.............................................. 21
23. Severability..................................................... 21
24. Survivorship..................................................... 21
25. Beneficiaries/References......................................... 21
<PAGE> 3
Page
----
26. Governing Law/Jurisdiction....................................... 22
27. Notices.......................................................... 22
28. Headings......................................................... 23
29. Counterparts..................................................... 23
<PAGE> 4
EMPLOYMENT AGREEMENT
AGREEMENT, made and entered into as of the 26th day of November, 1996 by
and between Linens 'n Things, Inc., a Delaware corporation (together with its
successors and assigns, the "Company"), and Steven Silverstein (the
"Executive").
W I T N E S S E T H:
WHEREAS, the Company desires to employ the Executive pursuant to an
agreement embodying the terms of such employment (this "Agreement") and the
Executive desires to enter into this Agreement and to accept such employment,
subject to the terms and provisions of this Agreement;
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained herein and for other good and valuable consideration, the receipt of
which is mutually acknowledged, the Company and the Executive (individually a
"Party" and together the "Parties") agree as follows:
1 . Definitions.
(a) "Approved Early Retirement" shall have the meaning set
forth in Section 10(f) below.
(b) "Base Salary" shall have the meaning set forth in Section
4 below.
(c) "Board" shall have the meaning set forth in Section 3(a)
below.
(d) "Cause" shall have the meaning set forth in Section 10(b)
below.
(e) "Change in Control" shall have the meaning set forth in
Section 10(c) below.
(f) "Committee" shall have the meaning set forth in Section 4
below.
(g) "Confidential Information" shall have the meaning set
forth in Section 11(c) below.
(h) "Constructive Termination Without Cause" shall have the
meaning set forth in Section 10(c) below.
(i) "Effective Date" shall have the meaning set forth in
Section 2(a) below.
(j) "Normal Retirement" shall have the meaning set forth in
Section 10(f) below.
(k) "Original Term of Employment" shall have the meaning set
forth in Section 2(a) below.
(l) "Renewal Term" shall have the meaning set forth in Section
2(a) below.
(m) "Restriction Period" shall have the meaning set forth in
Section 12(b) below.
<PAGE> 5
(n) "Severance Period" shall have the meaning set forth in
Section 10(c)(ii) below, except as provided otherwise in
Section 10(e) below.
(o) "Subsidiary" shall have the meaning set forth in Section
11(d) below.
(p) "Term of Employment" shall have the meaning set forth in
Section 2(a) below.
(q) "Termination Without Cause" shall have the meaning set
forth in Section 10(c) below.
2. Term of Employment.
(a) The term of the Executive's employment under this Agreement
shall commence on the date on which shares of common stock of the Company are
first sold to the public pursuant to an initial public offering (the "Effective
Date") and end on the fourth anniversary of such date (the "Original Term of
Employment"), unless terminated earlier in accordance herewith. The Original
Term of Employment shall be automatically renewed for successive one-year terms
(the "Renewal Terms") unless at least 180 days prior to the expiration of the
Original Term of Employment or any Renewal Term, either Party notifies the other
Party in writing that he or it is electing to terminate this Agreement at the
expiration of the then current Term of Employment. "Term of Employment" shall
mean the Original Term of Employment and all Renewal Terms.
(b) Notwithstanding anything in this Agreement to the contrary,
at least one year prior to the expiration of the Original Term of Employment,
upon the written request of the Company or the Executive, the Parties shall meet
to discuss this Agreement and may agree in writing to modify any of the terms of
this Agreement.
3. Position, Duties and Responsibilities.
(a) Generally. Executive shall serve as a senior executive of the
Company. Executive shall have and perform such duties, responsibilities, and
authorities as shall be specified by the Company from time to time and as are
customary for a senior executive of a publicly held corporation of the size,
type, and nature of the Company as they may exist from time to time and as are
consistent with such position and status. Executive shall devote substantially
all of his business time and attention (except for periods of vacation or
absence due to illness), and his best efforts, abilities, experience, and talent
to his position and the businesses of the Company.
(b) Other Activities. Anything herein to the contrary
notwithstanding, nothing in this Agreement shall preclude the Executive from (i)
serving on the boards of directors of a reasonable number of other corporations
or the boards of a reasonable number of trade associations and/or charitable
organizations, (ii) engaging in charitable activities and community affairs, and
(iii) managing his personal investments and affairs, provided that such
activities do not materially interfere with the proper performance of his duties
and responsibilities under this Agreement.
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<PAGE> 6
4. Base Salary.
The Executive shall be paid an annualized salary, ("Base Salary")
payable in accordance with the regular payroll practices of the Company, of not
less than $275,000, subject to review for increase at the discretion of the
Compensation Committee (the "Committee") of the Company's Board of Directors
(the "Board").
5. Annual Incentive Awards.
The Executive shall participate in the Company's annual incentive
compensation plan with a target annual incentive award opportunity of no less
than 40% of Base Salary and a maximum annual incentive award opportunity of 80%
of Base Salary. Payment of annual incentive awards shall be made at the same
time that other senior-level executives receive their incentive awards.
6. Long-Term Incentive Programs.
The Executive shall be eligible to participate in the Company's
long-term incentive compensation programs (including stock options and stock
grants).
7. Employee Benefit Programs.
(a) General Benefits. During the Term of Employment, the
Executive shall be entitled to participate in such employee pension and welfare
benefit plans and programs of the Company as are made available to the Company's
senior-level executives or to its employees generally, as such plans or programs
may be in effect from time to time, including, without limitation, health,
medical, dental, long-term disability, travel accident and life insurance plans.
(b) Deferral of Compensation. The Company shall implement
deferral arrangements, reasonably acceptable to Executive and the Company,
permitting Executive to elect to defer receipt, pursuant to written deferral
election terms and forms (the "Deferral Election Forms"), of all or a specified
portion of (i) his annual Base Salary and annual incentive compensation under
Sections 4 and 5, (ii) long term incentive compensation under Section 6 and
(iii) shares acquired upon exercise of options to purchase Company common stock
that are acquired in an exercise in which Executive pays the exercise price by
the surrender of previously acquired shares, to the extent of the net additional
shares otherwise issuable to Executive in such exercise; provided, however, that
such deferrals shall not reduce Executive's total cash compensation in any
calendar year below the sum of (i) the FICA maximum taxable wage base plus (ii)
the amount needed, on an after-tax basis, to enable Executive to pay the 1.45%
medicare tax imposed on his wages in excess of such FICA maximum taxable wage
base.
In accordance with such duly executed Deferral Election Forms,
the Company shall credit to a bookkeeping account (the "Deferred Compensation
Account") maintained for Executive on the respective payment date or dates,
amounts equal to the compensation subject to deferral, such credits to be
denominated in cash if the compensation would have been paid in cash but for the
deferral or in shares if the compensation would have been paid in shares but for
the deferral. An amount of cash equal in value to all cash-denominated amounts
credited to Executive's account and a number of shares of Company common stock
equal to the number of shares credited to Executive's account pursuant to this
Section 7(b) shall be transferred as soon as practicable following such
crediting by the Company to, and shall be held and invested by, an independent
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<PAGE> 7
trustee selected by the Company and reasonably acceptable to Executive (a
"Trustee") pursuant to a "rabbi trust" established by the Company in connection
with such deferral arrangement and as to which the Trustee shall make
investments based on Executive's investment objectives (including possible
investment in publicly traded stocks and bonds, mutual funds, and insurance
vehicles). Thereafter, Executive's deferral accounts will be valued by reference
to the value of the assets of the "rabbi trust". The Company shall pay all costs
of administration or maintenance of the deferral arrangement, without deduction
or reimbursement from the assets of the "rabbi trust."
Except as otherwise provided under Section 10, in the event of
Executive's termination of employment with the Company or as otherwise
determined by the Committee in the event of hardship on the part of Executive,
upon such date(s) or event(s) set forth in the Deferral Election Forms
(including forms filed after deferral but before settlement in which Executive
may elect to further defer settlement), the Company shall promptly pay to
Executive cash equal to the value of the assets then credited to Executive's
deferral accounts, less applicable withholding taxes, and such distribution
shall be deemed to fully settle such accounts; provided, however, that the
Company may instead settle such accounts by directing the Trustee to distribute
Company common stock and/or other assets of the "rabbi trust." The Company and
Executive agree that compensation deferred pursuant to this Section 7(b) shall
be fully vested and nonforfeitable; however, Executive acknowledges that his
rights to the deferred compensation provided for in this Section 7(b) shall be
no greater than those of a general unsecured creditor of the Company, and that
such rights may not be pledged, collateralized, encumbered, hypothecated, or
liable for or subject to any lien, obligation, or liability of Executive, or be
assignable or transferable by Executive, otherwise than by will or the laws of
descent and distribution, provided that Executive may designate one or more
beneficiaries to receive any payment of such amounts in the event of his death.
8. Disability.
(a) During the Term of Employment, as well as during the
Severance Period, the Executive shall be entitled to disability coverage as
described in this Section 8(a). In the event the Executive becomes disabled, as
that term is defined under the Company's Long-Term Disability Plan, the
Executive shall be entitled to receive pursuant to the Company's Long-Term
Disability Plan or otherwise, and in place of his Base Salary, an amount equal
to 60% of his Base Salary, at the annual rate in effect on the commencement date
of his eligibility for the Company's long-term disability benefits
("Commencement Date") for a period beginning on the Commencement Date and ending
with the earlier to occur of (A) the Executive's attainment of age 65 or (B) the
Executive's commencement of retirement benefits from the Company in accordance
with Section 10(f) below. If (i) the Executive ceases to be disabled during the
Term of Employment (as determined in accordance with the terms of the Long-Term
Disability Plan), (ii) his position or another senior executive position is then
vacant and (iii) the Company requests in writing that he resume such position,
he may elect to resume such position by written notice to the Company within 15
days after the Company delivers its request. If he resumes such position, he
shall thereafter be entitled to his Base Salary at the annual rate in effect on
the Commencement Date and, for the year he resumes his position, a pro rata
annual incentive award. If he ceases to be disabled during the Term of
Employment and does not resume his position in accordance with the preceding
sentence, he shall be treated as if he voluntarily terminated his employment
pursuant to Section 10(d) as of the date the Executive ceases to be disabled. If
the Executive is not offered his position or another senior executive position
after he ceases to be disabled during the Term of Employment, he shall be
treated as if his employment was terminated Without Cause pursuant to Section
10(c) as of the date the Executive ceases to be disabled.
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<PAGE> 8
(b) The Executive shall be entitled to a pro rata annual
incentive award for the year in which the Commencement Date occurs based on 40%
of Base Salary paid to him during such year prior to the Commencement Date,
payable in a lump sum not later than 15 days after the Commencement Date. The
Executive shall not be entitled to any annual incentive award with respect to
the period following the Commencement Date. If the Executive recommences his
position in accordance with Section 8(a), he shall be entitled to a pro rata
annual incentive award for the year he resumes such position and shall
thereafter be entitled to annual incentive awards in accordance with Section 5
hereof.
(c) During the period the Executive is receiving disability
benefits pursuant to Section 8(a) above, he shall continue to be treated as an
employee for purposes of all employee benefits and entitlements in which he was
participating on the Commencement Date, including without limitation, the
benefits and entitlements referred to in Sections 6 and 7 above, except that the
Executive shall not be entitled to receive any annual salary increases or any
new long-term incentive plan grants following the Commencement Date.
9. Reimbursement of Business and Other Expenses.
The Executive is authorized to incur reasonable expenses in
carrying out his duties and responsibilities under this Agreement, and the
Company shall promptly reimburse him for all business expenses incurred in
connection therewith, subject to documentation in accordance with the Company's
policy.
10. Termination of Employment.
(a) Termination Due to Death. In the event the Executive's
employment with the Company is terminated due to his death, his estate or his
beneficiaries, as the case may be, shall be entitled to and their sole remedies
under this Agreement shall be:
(i) Base Salary through the date of death, which shall
be paid in a single lump sum not later than 15 days
following the Executive's death;
(ii) pro rata annual incentive award for the year in
which the Executive's death occurs assuming that
the Executive would have received an award equal to
40% of Base Salary for such year, which shall be
payable in a lump sum promptly (but in no event
later than 15 days) after his death;
(iii) elimination of all restrictions on any deferred
stock awards outstanding at the time of his death;
(iv) immediate vesting of all outstanding stock options
and the right to exercise such stock options for a
period of one year following death (or such longer
period as may be provided in stock options granted
to other similarly situated executive officers of
the Company) or for the remainder of the exercise
period, if less;
(v) immediate vesting of all outstanding long-term
incentive awards and a pro rata payment of such
awards based on target performance,
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<PAGE> 9
payable in a cash lump sum promptly (but in no
event later than 15 days) after his death;
(vi) the balance of any incentive awards earned as of
December 31 of the prior year (but not yet paid),
which shall be paid in a single lump sum not later
than 15 days following the Executive's death;
(vii) settlement of all deferred compensation
arrangements in accordance with the Executive's
duly executed Deferral Election Forms; and
(viii) other or additional benefits then due or earned in
accordance with applicable plans and programs of
the Company.
(b) Termination by the Company for Cause.
(i) "Cause" shall mean:
(A) the Executive's willful and material breach
of Sections 11, 12 or 13 of this Agreement;
(B) the Executive is convicted of a felony
involving moral turpitude; or
(C) the Executive engages in conduct that
constitutes willful gross neglect or willful
gross misconduct in carrying out his duties
under this Agreement, resulting, in either
case, in material harm to the financial
condition or reputation of the Company.
For purposes of this Agreement, an act or failure to act on Executive's part
shall be considered "willful" if it was done or omitted to be done by him not in
good faith, and shall not include any act or failure to act resulting from any
incapacity of Executive.
(ii) A termination for Cause shall not take effect
unless the provisions of this paragraph (ii) are
complied with. The Executive shall be given written
notice by the Company of its intention to terminate
him for Cause, such notice (A) to state in detail
the particular act or acts or failure or failures
to act that constitute the grounds on which the
proposed termination for Cause is based and (B) to
be given within 90 days of the Company's learning
of such act or acts or failure or failures to act.
The Executive shall have 20 days after the date
that such written notice has been given to him in
which to cure such conduct, to the extent such cure
is possible. If he fails to cure such conduct, the
Executive shall then be entitled to a hearing
before the Committee of the Board at which the
Executive is entitled to appear. Such hearing shall
be held within 25 days of such notice to the
Executive, provided he requests such hearing within
10 days of the written notice from the Company of
the intention to terminate him for Cause. If,
within five days following such hearing, the
Executive is furnished written notice by the Board
confirming that, in its judgment,
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<PAGE> 10
grounds for Cause on the basis of the original
notice exist, he shall thereupon be terminated for
Cause.
(iii) In the event the Company terminates the Executive's
employment for Cause, he shall be entitled to and
his sole remedies under this Agreement shall be:
(A) Base Salary through the date of the
termination of his employment for Cause,
which shall be paid in a single lump sum not
later than 15 days following the Executive's
termination of employment;
(B) any incentive awards earned as of December
31 of the prior year (but not yet paid),
which shall be paid in a single lump sum not
later than 15 days following the Executive's
termination of employment;
(C) settlement of all deferred compensation
arrangements in accordance with the
Executive's duly executed Deferral Election
Forms; and
(D) other or additional benefits then due or
earned in accordance with applicable plans
or programs of the Company.
(c) Termination Without Cause or Constructive Termination Without
Cause Prior to Change in Control. In the event the Executive's employment with
the Company is terminated without Cause (which termination shall be effective as
of the date specified by the Company in a written notice to the Executive),
other than due to death, or in the event there is a Constructive Termination
Without Cause (as defined below), in either case prior to a Change in Control
(as defined below) the Executive shall be entitled to and his sole remedies
under this Agreement shall be:
(i) Base Salary through the date of termination of the
Executive's employment, which shall be paid in a
single lump sum not later than 15 days following
the Executive's termination of employment;
(ii) Base Salary, at the annualized rate in effect on
the date of termination of the Executive's
employment (or in the event a reduction in Base
Salary is a basis for a Constructive Termination
Without Cause, then the Base Salary in effect
immediately prior to such reduction), for a period
of 12 months (the "Severance Period");
(iii) pro rata annual incentive award for the year in
which termination occurs equal to 40% of Base
Salary (determined in accordance with Section
10(c)(ii) above) for such year, payable in a lump
sum promptly (but in no event later than 15 days)
following termination;
(iv) the balance of any incentive awards earned as of
December 31 of the prior year (but not yet paid),
which shall be paid in a single lump
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<PAGE> 11
sum not later than 15 days following the
Executive's termination of employment;
(v) settlement of all deferred compensation
arrangements in accordance with the Executive's
duly executed Deferral Election Forms;
(vi) continued participation in all medical, health and
life insurance plans at the same benefit level at
which he was participating on the date of the
termination of his employment until the earlier of:
(A) the end of the Severance Period; or
(B) the date, or dates, he receives equivalent
coverage and benefits under the plans and
programs of a subsequent employer (such
coverage and benefits to be determined on a
coverage-by-coverage, or benefit-by-benefit,
basis); provided that (1) if the Executive
is precluded from continuing his
participation in any employee benefit plan
or program as provided in this clause (vi)
of this Section 10(c), he shall receive cash
payments equal on an after-tax basis to the
cost to him of obtaining the benefits
provided under the plan or program in which
he is unable to participate for the period
specified in this clause (vi) of this
Section 10(c), (2) such cost shall be deemed
to be the lowest reasonable cost that would
be incurred by the Executive in obtaining
such benefit himself on an individual basis,
and (3) payment of such amounts shall be
made quarterly in advance; and
(vii) other or additional benefits then due or earned in
accordance with applicable plans and programs of
the Company.
"Termination Without Cause" shall mean the Executive's employment
is terminated by the Company for any reason other than Cause (as defined in
Section 10(b)) or due to death.
"Constructive Termination Without Cause" shall mean a termination
of the Executive's employment at his initiative as provided in this Section
10(c) following the occurrence, without the Executive's written consent, of one
or more of the following events (except as a result of a prior termination):
(A) an assignment of any duties to Executive
which are inconsistent with his status as a
senior executive of the Company;
(B) a decrease in annual Base Salary or target
annual incentive award opportunity below 40%
of Base Salary;
(C) any other failure by the Company to perform
any material obligation under, or breach by
the Company of any material
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<PAGE> 12
provision of, this Agreement that is not
cured within 30 days; or
(D) any failure to secure the agreement of any
successor corporation or other entity to the
Company to fully assume the Company's
obligations under this Agreement.
In addition, following a Change in Control, "Constructive Termination Without
Cause" shall also mean a termination of the Executive's employment at his
initiative as provided in this Section 10(c) following the occurrence, without
the Executive's written consent, of a relocation of his principal place of
employment outside a 35-mile radius of his principal place of employment as in
effect immediately prior to such Change in Control.
A "Change in Control" shall be deemed to have occurred if:
(i) any Person (other than the Company, any trustee or
other fiduciary holding securities under any
employee benefit plan of the Company, or any
company owned, directly or indirectly, by the
stockholders of the Company immediately prior to
the occurrence with respect to which the evaluation
is being made in substantially the same proportions
as their ownership of the common stock of the
Company) becomes the Beneficial Owner (except that
a Person shall be deemed to be the Beneficial Owner
of all shares that any such Person has the right to
acquire pursuant to any agreement or arrangement or
upon exercise of conversion rights, warrants or
options or otherwise, without regard to the sixty
day period referred to in Rule 13d-3 under the
Exchange Act), directly or indirectly, of
securities of the Company or any Significant
Subsidiary (as defined below), representing 25% or
more of the combined voting power of the Company's
or such subsidiary's then outstanding securities;
provided, however, that such event shall not
constitute a Change in Control unless or until the
percentage of such securities owned beneficially,
directly or indirectly, by such Person is equal to
or more than all such securities owned
beneficially, directly or indirectly, by Melville
Corporation;
(ii) during any period of two consecutive years,
individuals who at the beginning of such period
constitute the Board, and any new director (other
than a director designated by a person who has
entered into an agreement with the Company to
effect a transaction described in clause (i),
(iii), or (iv) of this paragraph) whose election by
the Board or nomination for election by the
Company's stockholders was approved by a vote of at
least two- thirds of the directors then still in
office who either were directors at the beginning
of the two-year period or whose election or
nomination for election was previously so approved
but excluding for this purpose any such new
director whose initial assumption of office occurs
as a result of either an actual or threatened
election contest (as such terms are used in Rule
14a-11 of Regulation 14A promulgated under the
Exchange Act) or other actual or threatened
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<PAGE> 13
solicitation of proxies or consents by or on behalf
of an individual, corporation, partnership, group,
associate or other entity or Person other than the
Board, cease for any reason to constitute at least
a majority of the Board; provided, however, that
such event shall not constitute a Change in Control
unless or until the percentage of voting securities
of the Company owned beneficially, directly or
indirectly, by Melville Corporation is less than
50% of all such outstanding securities;
(iii) the consummation of a merger or consolidation of
the Company or any subsidiary owning directly or
indirectly all or substantially all of the
consolidated assets of the Company (a "Significant
Subsidiary") with any other entity, other than a
merger or consolidation which would result in the
voting securities of the Company or a Significant
Subsidiary outstanding immediately prior thereto
continuing to represent (either by remaining
outstanding or by being converted into voting
securities of the surviving or resulting entity)
more than 50% of the combined voting power of the
surviving or resulting entity outstanding
immediately after such merger or consolidation;
(iv) the stockholders of the Company approve a plan or
agreement for the sale or disposition of all or
substantially all of the consolidated assets of the
Company (other than such a sale or disposition
immediately after which such assets will be owned
directly or indirectly by the stockholders of the
Company in substantially the same proportions as
their ownership of the common stock of the Company
immediately prior to such sale or disposition) in
which case the Board shall determine the effective
date of the Change in Control resulting therefrom;
or
(v) any other event occurs which the Board determines,
in its discretion, would materially alter the
structure of the Company or its ownership.
For purposes of this definition:
(A) The term "Beneficial Owner" shall have the
meaning ascribed to such term in Rule 13d-3
under the Exchange Act (including any
successor to such Rule).
(B) The term "Exchange Act" means the Securities
Exchange Act of 1934, as amended from time
to time, or any successor act thereto.
(C) The term "Person" shall have the meaning
ascribed to such term in Section 3(a)(9) of
the Exchange Act and used in Sections 13(d)
and 14(d) thereof, including "group" as
defined in Section 13(d) thereof.
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<PAGE> 14
(d) Voluntary Termination. In the event of a termination of
employment by the Executive on his own initiative after delivery of 10 business
days advance written notice, other than a termination due to death, a
Constructive Termination Without Cause, or Approved Early Retirement or Normal
Retirement pursuant to Section 10(f) below, the Executive shall have the same
entitlements as provided in Section 10(b)(iii) above for a termination for
Cause, provided that at the Company's election, furnished in writing to the
Executive within 15 days following such notice of termination, the Company shall
in addition pay the Executive 140% of his Base Salary for a period of 12 months
following such termination in exchange for the Executive not engaging in
competition with the Company or any Subsidiary as set forth in Section 12(a)
below. Notwithstanding any implication to the contrary, the Executive shall not
have the right to terminate his employment with the Company during the Term of
Employment except in the event of a Constructive Termination Without Cause,
Approved Early Retirement, or Normal Retirement, and any voluntary termination
of employment during the Term of Employment in violation of this Agreement shall
be considered a material breach; provided, however, if the Company elects to pay
the Executive 140% of his Base Salary in accordance with this Section 10(d), the
Company shall waive any and all claims it may have against the Executive for any
breach of this Agreement relating to his voluntary termination of employment
unless the Executive is found by a court of competent jurisdiction not to be in
compliance with Section 12(a) below; provided further, however, that,
notwithstanding anything contained in the foregoing to the contrary, it is not
the intention of the Company to waive any claims it may have against any third
parties relating to a voluntary termination by the Executive in violation of
this Agreement.
(e) Termination Without Cause; Constructive Termination Without
Cause or Voluntary Termination Following Change in Control. In the event the
Executive's employment with the Company is terminated by the Company without
Cause (which termination shall be effective as of the date specified by the
Company in a written notice to the Executive), other than due to death, or in
the event there is a Constructive Termination Without Cause (as defined above),
in either case within two years following a Change in Control (as defined
above), the Executive shall be entitled to and his sole remedies under this
Agreement shall be:
(i) Base Salary through the date of termination of the
Executive's employment, which shall be paid in a
single lump sum not later than 15 days following
the Executive's termination of employment;
(ii) an amount equal to two times the Executive's Base
Salary, at the annualized rate in effect on the
date of termination of the Executive's employment
(or in the event a reduction in Base Salary is a
basis for a Constructive Termination Without Cause,
then the Base Salary in effect immediately prior to
such reduction), payable in a cash lump sum
promptly (but in no event later than 15 days)
following the Executive's termination of
employment;
(iii) an amount equal to 40% of such Base Salary
(determined in accordance with Section 10(e)(ii)
above) multiplied by two, payable in a cash lump
sum promptly (but in no event later than 15 days)
following the Executive's termination of
employment;
(iv) elimination of all restrictions on any deferred
stock awards outstanding at the time of termination
of employment;
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<PAGE> 15
(v) immediate vesting of all outstanding stock options
and the right to exercise such stock options during
the Severance Period or for the remainder of the
exercise period, if less;
(vi) immediate vesting of all outstanding long-term
incentive awards and a pro rata payment of such
awards based on target performance, payable in a
cash lump sum promptly (but in no event later than
15 days) following the Executive's termination of
employment;
(vii) the balance of any incentive awards earned as of
December 31 of the prior year (but not yet paid),
which shall be paid in a single lump sum not later
than 15 days following the Executive's termination
of employment;
(viii) settlement of all deferred compensation
arrangements in accordance with Executive's duly
executed Deferral Election Forms;
(ix) continued participation in all medical, health and
life insurance plans at the same benefit level at
which he was participating on the date of
termination of his employment until the earlier of:
(A) the end of the Severance Period; or
(B) the date, or dates, he receives equivalent
coverage and benefits under the plans and
programs of a subsequent employer (such
coverage and benefits to be determined on a
coverage-by-coverage, or benefit-by-benefit,
basis); provided that (1) if the Executive
is precluded from continuing his
participation in any employee benefit plan
or program as provided in this clause (ix)
of this Section 10(e), he shall receive cash
payments equal on an after-tax basis to the
cost to him of obtaining the benefits
provided under the plan or program in which
he is unable to participate for the period
specified in this clause (ix) of this
Section 10(e), (2) such cost shall be deemed
to be the lowest reasonable cost that would
be incurred by the Executive in obtaining
such benefit himself on an individual basis,
and (3) payment of such amounts shall be
made quarterly in advance; and
(x) other or additional benefits then due or earned in
accordance with applicable plans and programs of
the Company.
For purposes of any termination pursuant to this Section 10(e), the term
"Severance Period" shall mean the period of 24 months following the termination
of the Executive's employment.
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<PAGE> 16
(f) Approved Early Retirement or Normal Retirement. Upon the
Executive's Approved Early Retirement or Normal Retirement (each as defined
below), the Executive shall be entitled to and his sole remedies under this
Agreement shall be:
(i) Base Salary through the date of termination of the
Executive's employment, which shall be paid in a
single lump sum not later than 15 days following
the Executive's termination of employment;
(ii) pro rata annual incentive award for the year in
which termination occurs, based on performance
valuation at the end of such year and payable in a
cash lump sum promptly (but in no event later than
15 days) thereafter;
(iii) continued vesting (as if the Executive remained
employed by the Company) of any deferred stock
awards outstanding at the time of his termination
of employment;
(iv) continued vesting of all outstanding stock options
and the right to exercise such stock options for a
period of one year following the later of the date
the options are fully vested or the Executive's
termination of employment (or such longer period as
may be provided in stock options granted to other
similarly situated executive officers of the
Company) or for the remainder of the exercise
period, if less;
(v) continued vesting (as if the Executive remained
employed by the Company) of all outstanding
long-term incentive awards and payment of such
awards based on valuation at the end of the
performance period, payable in a cash lump sum
promptly (but in no event later than 15 days)
thereafter;
(vi) the balance of any incentive awards earned as of
December 31 of the prior year (but not yet paid),
which shall be paid in a single lump sum not later
than 15 days following the Executive's termination
of employment;
(vii) settlement of all deferred compensation
arrangements in accordance with the Executive's
duly executed Deferral Election Forms;
(viii) continued participation in all medical, health and
life insurance plans at the same benefit level at
which he was participating on the date of the
termination of his employment until the earlier of:
(A) the Executive's attainment of age 60; or
(B) the date, or dates, he receives
substantially equivalent coverage and
benefits under the plans and programs of a
subsequent employer (such coverage and
benefits to be determined on a
coverage-by-coverage, or benefit-by-
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<PAGE> 17
benefit, basis); provided that (1) if the
Executive is precluded from continuing his
participation in any employee benefit plan
or program as provided in this clause (viii)
of this Section 10(f), he shall receive cash
payments equal on an after-tax basis to the
cost to him of obtaining the benefits
provided under the plan or program in which
he is unable to participate for the period
specified in this clause (viii) of this
Section 10(f), (2) such cost shall be deemed
to be the lowest cost that would be incurred
by the Executive in obtaining such benefit
himself on an individual basis, and (3)
payment of such amounts shall be made
quarterly in advance; and
(ix) other or additional benefits then due or earned in
accordance with applicable plans and programs of
the Company.
"Approved Early Retirement" shall mean the Executive's voluntary
termination of employment with the Company at or after attaining age 55 but
prior to attaining age 60, if such termination is approved in advance by the
Committee.
"Normal Retirement" shall mean the Executive's voluntary
termination of employment with the Company at or after attaining age 60.
(g) No Mitigation; No Offset. In the event of any termination of
employment, the Executive shall be under no obligation to seek other employment;
amounts due the Executive under this Agreement shall not be offset by any
remuneration attributable to any subsequent employment that he may obtain.
(h) Nature of Payments. Any amounts due under this Section 10 are
in the nature of severance payments considered to be reasonable by the Company
and are not in the nature of a penalty.
(i) No Further Liability; Release. In the event of the
Executive's termination of employment, payment made and performance by the
Company in accordance with this Section 10 shall operate to fully discharge and
release the Company and its directors, officers, employees, subsidiaries,
affiliates, stockholders, successors, assigns, agents and representatives from
any further obligation or liability with respect to the Executive's rights under
this Agreement. Other than payment and performance under this Section 10, the
Company and its directors, officers, employees, subsidiaries, affiliates,
stockholders, successors, assigns, agents and representatives shall have no
further obligation or liability to the Executive or any other person under this
Agreement in the event of the Executive's termination of employment. The Company
shall have the right to condition the last payment of any severance or other
amounts pursuant to this Section 10 upon the delivery by the Executive to the
Company of a release in the form satisfactory to the Company releasing any and
all claims the Executive may have against the Company and its directors,
officers, employees, subsidiaries, affiliates, stockholders, successors,
assigns, agents and representatives arising out of this Agreement.
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<PAGE> 18
11. Confidentiality: Cooperation with Regard to Litigation.
(a) During the Term of Employment and thereafter, the Executive
shall not, without the prior written consent of the Company, disclose to anyone
(except in good faith in the ordinary course of business to a person who will be
advised by the Executive to keep such information confidential) or make use of
any Confidential Information except in the performance of his duties hereunder
or when required to do so by legal process, by any governmental agency having
supervisory authority over the business of the Company or by any administrative
or legislative body (including a committee thereof) that requires him to
divulge, disclose or make accessible such information. In the event that the
Executive is so ordered, he shall give prompt written notice to the Company in
order to allow the Company the opportunity to object to or otherwise resist such
order.
(b) During the Term of Employment and thereafter, Executive shall
not disclose the existence or contents of this Agreement beyond what is
disclosed in the proxy statement or documents filed with the government unless
and to the extent such disclosure is required by law, by a governmental agency,
or in a document required by law to be filed with a governmental agency or in
connection with enforcement of his rights under this Agreement. In the event
that disclosure is so required, the Executive shall give prompt written notice
to the Company in order to allow the Company the opportunity to object to or
otherwise resist such requirement. This restriction shall not apply to such
disclosure by him to members of his immediate family, his tax, legal or
financial advisors, any lender, or tax authorities, or to potential future
employers to the extent necessary, each of whom shall be advised not to disclose
such information.
(c) "Confidential Information" shall mean all information
concerning the business of the Company or any Subsidiary relating to any of
their products, product development, trade secrets, customers, suppliers,
finances, and business plans and strategies. Excluded from the definition of
Confidential Information is information (i) that is or becomes part of the
public domain, other than through the breach of this Agreement by the Executive
or (ii) regarding the Company's business or industry properly acquired by the
Executive in the course of his career as an executive in the Company's industry
and independent of the Executive's employment by the Company or Melville
Corporation. For this purpose, information known or available generally within
the trade or industry of the Company or any Subsidiary shall be deemed to be
known or available to the public.
(d) "Subsidiary" shall mean any corporation controlled directly
or indirectly by the Company.
(e) The Executive agrees to cooperate with the Company, during
the Term of Employment and thereafter (including following the Executive's
termination of employment for any reason), by making himself reasonably
available to testify on behalf of the Company or any Subsidiary in any action,
suit, or proceeding, whether civil, criminal, administrative, or investigative,
and to assist the Company, or any Subsidiary, in any such action, suit, or
proceeding, by providing information and meeting and consulting with the Board
or its representatives or counsel, or representatives or counsel to the Company,
or any Subsidiary as requested; provided, however that the same does not
materially interfere with his then current professional activities. The Company
agrees to reimburse the Executive, on an after-tax basis, for all expenses
actually incurred in connection with his provision of testimony or assistance.
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<PAGE> 19
12. Non-competition.
(a) During the Restriction Period (as defined in Section 12(b)
below), the Executive shall not engage in Competition with the Company or any
Subsidiary. "Competition" shall mean engaging in any activity, except as
provided below, for a Competitor of the Company or any Subsidiary, whether as an
employee, consultant, principal, agent, officer, director, partner, shareholder
(except as a less than one percent shareholder of a publicly traded company) or
otherwise. A "Competitor" shall mean (i) Bed Bath & Beyond, Inc., Strouds, Inc.,
Home Express Inc. and Home Place Inc. (and any successor or successors thereto);
(ii) any specialty retailer if 40% or more of its revenues (based on the most
recent quarterly or annual financial statements available) are derived from the
sale of home textiles or housewares; (iii) any corporation, other entity, or
start-up corporation or other entity engaged primarily or organized for the
purpose of engaging primarily in the sale of home textiles or housewares having
a total capitalization (equity and/or long-term debt) in excess of $30,000,000
or revenues (based on the most recent quarterly or annual financial statements
available) in excess of $25,000,000. If the Executive commences employment or
becomes a consultant, principal, agent, officer, director, partner, or
shareholder of any entity that is not a Competitor at the time the Executive
initially becomes employed or becomes a consultant, principal, agent, officer,
director, partner, or shareholder of the entity, future activities of such
entity shall not result in a violation of this provision unless (x) such
activities were contemplated by the Executive at the time the Executive
initially became employed or becomes a consultant, principal, agent, officer,
director, partner, or shareholder of the entity or (y) the Executive commences
directly or indirectly overseeing or managing the activities of an entity which
becomes a Competitor during the Restriction Period, which activities are
competitive with the activities of the Company or Subsidiary. The Executive
shall not be deemed indirectly overseeing or managing the activities of such
Competitor which are competitive with the activities of the Company or
Subsidiary so long as he does not regularly participate in discussions with
regard to the conduct of the competing business.
(b) For the purposes of this Section 12, "Restriction Period"
shall mean the period beginning with the Effective Date and ending with:
(i) in the case of a termination of the Executive's
employment without Cause or a Constructive
Termination Without Cause, the Restriction Period
shall terminate immediately upon the Executive's
termination of employment;
(ii) in the case of a termination of the Executive's
employment for Cause, the first anniversary of such
termination;
(iii) in the case of a voluntary termination of the
Executive's employment pursuant to Section 10(d)
above followed by the Company's election to pay the
Executive (and subject to the payment of) 140% of
his Base Salary, as provided in Section 10(d)
above, the first anniversary of such termination;
(iv) in the case of a voluntary termination of the
Executive's employment pursuant to Section 10(d)
above which is not followed by the Company's
election to pay the Executive such 140% of Base
Salary, the date of such termination; or
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<PAGE> 20
(v) in the case of Approved Early Retirement or Normal
Retirement pursuant to Section 10(f) above, the
remainder of the Term of Employment.
13. Non-solicitation of Employees.
During the period beginning with the Effective Date and ending
one year following the termination of the Executive's employment, the Executive
shall not induce employees of the Company or any Subsidiary to terminate their
employment; provided, however, that the foregoing shall not be construed to
prevent the Executive from engaging in generic nontargeted advertising for
employees generally. During such period, the Executive shall not hire, either
directly or through any employee, agent or representative, any employee of the
Company or any Subsidiary or any person who was employed by the Company or any
Subsidiary within 180 days of such hiring.
14. Remedies.
In addition to whatever other rights and remedies the Company may
have at equity or in law, if the Executive breaches any of the provisions
contained in Sections 11, 12 or 13 above, the Company (a) shall have the right
to immediately terminate all payments and benefits due under this Agreement and
(b) shall have the right to seek injunctive relief. The Executive acknowledges
that such a breach of Sections 11,12 or 13 would cause irreparable injury and
that money damages would not provide an adequate remedy for the Company;
provided, however, the foregoing shall not prevent the Executive from contesting
the issuance of any such injunction on the ground that no violation or
threatened violation of Section 11, 12 or 13 has occurred.
15. Resolution of Disputes.
Any controversy or claim arising out of or relating to this
Agreement or any breach or asserted breach hereof or questioning the validity
and binding effect hereof arising under or in connection with this Agreement,
other than seeking injunctive relief under Section 14, shall be resolved by
binding arbitration, to be held at an office closest to the Company's principal
offices in accordance with the rules and procedures of the American Arbitration
Association, except that disputes arising under or in connection with Sections
11, 12 and 13 above shall be submitted to the federal or state courts in the
State of New Jersey. Judgment upon the award rendered by the arbitrator(s) may
be entered in any court having jurisdiction thereof. Pending the resolution of
any arbitration or court proceeding, the Company shall continue payment of all
amounts and benefits due the Executive under this Agreement. All costs and
expenses of any arbitration or court proceeding (including fees and
disbursements of counsel) shall be borne by the respective party incurring such
costs and expenses, but the Company shall reimburse the Executive for such
reasonable costs and expenses in the event he substantially prevails in such
arbitration or court proceeding.
16. Indemnification.
(a) Company Indemnity. The Company agrees that if the Executive
is made a party, or is threatened to be made a party, to any action, suit or
proceeding, whether civil, criminal, administrative or investigative (a
"Proceeding"), by reason of the fact that he is or was a director, officer or
employee of the Company or any Subsidiary or is or was serving at the request of
the Company or any Subsidiary as a director, officer, member, employee or agent
of
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<PAGE> 21
another corporation, partnership, joint venture, trust or other enterprise,
including service with respect to employee benefit plans, whether or not the
basis of such Proceeding is the Executive's alleged action in an official
capacity while serving as a director, officer, member, employee or agent, the
Executive shall be indemnified and held harmless by the Company to the fullest
extent legally permitted or authorized by the Company's certificate of
incorporation or bylaws or resolutions of the Company's Board or, if greater, by
the laws of the State of Delaware against all cost, expense, liability and loss
(including, without limitation, attorney's fees, judgments, fines, ERISA excise
taxes or penalties and amounts paid or to be paid in settlement) reasonably
incurred or suffered by the Executive in connection therewith, and such
indemnification shall continue as to the Executive even if he has ceased to be a
director, member, officer, employee or agent of the Company or other entity and
shall inure to the benefit of the Executive's heirs, executors and
administrators. The Company shall advance to the Executive all reasonable costs
and expenses to be incurred by him in connection with a Proceeding within 20
days after receipt by the Company of a written request for such advance. Such
request shall include an undertaking by the Executive to repay the amount of
such advance if it shall ultimately be determined that he is not entitled to be
indemnified against such costs and expenses. The provisions of this Section
16(a) shall not be deemed exclusive of any other rights of indemnification to
which the Executive may be entitled or which may be granted to him, and it shall
be in addition to any rights of indemnification to which he may be entitled
under any policy of insurance.
(b) No Presumption Regarding Standard of Conduct. Neither the
failure of the Company (including its Board, independent legal counsel or
stockholders) to have made a determination prior to the commencement of any
proceeding concerning payment of amounts claimed by the Executive under Section
16(a) above that indemnification of the Executive is proper because he has met
the applicable standard of conduct, nor a determination by the Company
(including its Board, independent legal counsel or stockholders) that the
Executive has not met such applicable standard of conduct, shall create a
presumption that the Executive has not met the applicable standard of conduct.
(c) Liability Insurance. The Company agrees to continue and
maintain a directors and officers' liability insurance policy covering the
Executive to the extent the Company provides such coverage for its other
executive officers.
17. Excise Tax Gross-Up.
If the Executive becomes entitled to one or more payments (with a
"payment" including, without limitation, the vesting of an option or other
non-cash benefit or property), whether pursuant to the terms of this Agreement
or any other plan, arrangement, or agreement with the Company or any affiliated
company (the "Total Payments"), which are or become subject to the tax imposed
by Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code")
(or any similar tax that may hereafter be imposed) (the "Excise Tax"), the
Company shall pay to the Executive at the time specified below an additional
amount (the "Gross-up Payment") (which shall include, without limitation,
reimbursement for any penalties and interest that may accrue in respect of such
Excise Tax) such that the net amount retained by the Executive, after reduction
for any Excise Tax (including any penalties or interest thereon) on the Total
Payments and any federal, state and local income or employment tax and Excise
Tax on the Gross-up Payment provided for by this Section 17, but before
reduction for any federal, state, or local income or employment tax on the Total
Payments, shall be equal to the sum of (a) the Total Payments, and (b) an amount
equal to the product of any deductions disallowed for federal, state, or local
income tax purposes because of the inclusion of the Gross-up Payment in the
Executive's
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<PAGE> 22
adjusted gross income multiplied by the highest applicable marginal rate of
federal, state, or local income taxation, respectively, for the calendar year in
which the Gross-up Payment is to be made. For purposes of determining whether
any of the Total Payments will be subject to the Excise Tax and the amount of
such Excise Tax:
(i) The Total Payments shall be treated as "parachute
payments" within the meaning of Section 280G(b)(2) of the
Code, and all "excess parachute payments" within the
meaning of Section 280G(b)(1) of the Code shall be treated
as subject to the Excise Tax, unless, and except to the
extent that, in the written opinion of independent
compensation consultants, counsel or auditors of
nationally recognized standing ("Independent Advisors")
selected by the Company and reasonably acceptable to the
Executive, the Total Payments (in whole or in part) do not
constitute parachute payments, or such excess parachute
payments (in whole or in part) represent reasonable
compensation for services actually rendered within the
meaning of Section 280G(b)(4) of the Code in excess of the
base amount within the meaning of Section 280G(b)(3) of
the Code or are otherwise not subject to the Excise Tax;
(ii) The amount of the Total Payments which shall be treated as
subject to the Excise Tax shall be equal to the lesser of
(A) the total amount of the Total Payments or (B) the
total amount of excess parachute payments within the
meaning of Section 280G(b)(1) of the Code (after applying
clause (i) above); and
(iii) The value of any non-cash benefits or any deferred payment
or benefit shall be determined by the Independent Advisors
in accordance with the principles of Sections 280G(d)(3)
and (4) of the Code.
For purposes of determining the amount of the Gross-up Payment,
the Executive shall be deemed (A) to pay federal income taxes at the highest
marginal rate of federal income taxation for the calendar year in which the
Gross-up Payment is to be made; (B) to pay any applicable state and local income
taxes at the highest marginal rate of taxation for the calendar year in which
the Gross-up Payment is to be made, net of the maximum reduction in federal
income taxes which could be obtained from deduction of such state and local
taxes if paid in such year (determined without regard to limitations on
deductions based upon the amount of the Executive's adjusted gross income); and
(C) to have otherwise allowable deductions for federal, state, and local income
tax purposes at least equal to those disallowed because of the inclusion of the
Gross-up Payment in the Executive's adjusted gross income. In the event that the
Excise Tax is subsequently determined to be less than the amount taken into
account hereunder at the time the Gross-up Payment is made, the Executive shall
repay to the Company at the time that the amount of such reduction in Excise Tax
is finally determined (but, if previously paid to the taxing authorities, not
prior to the time the amount of such reduction is refunded to the Executive or
otherwise realized as a benefit by the Executive) the portion of the Gross-up
Payment that would not have been paid if such Excise Tax had been applied in
initially calculating the Gross-up Payment, plus interest on the amount of such
repayment at the rate provided in Section 1274(b)(2)(B) of the Code. In the
event that the Excise Tax is determined to exceed the amount taken into account
hereunder at the time the Gross-up Payment is made (including by reason of any
payment the existence or amount of which cannot be determined at the time of the
Gross-up Payment), the Company shall make an additional Gross-up Payment in
respect of such excess
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<PAGE> 23
(plus any interest and penalties payable with respect to such excess) at the
time that the amount of such excess is finally determined.
The Gross-up Payment provided for above shall be paid on the 30th
day (or such earlier date as the Excise Tax becomes due and payable to the
taxing authorities) after it has been determined that the Total Payments (or any
portion thereof) are subject to the Excise Tax; provided, however, that if the
amount of such Gross-up Payment or portion thereof cannot be finally determined
on or before such day, the Company shall pay to the Executive on such day an
estimate, as determined by the Independent Advisors, of the minimum amount of
such payments and shall pay the remainder of such payments (together with
interest at the rate provided in Section 1274(b)(2)(B) of the Code), as soon as
the amount thereof can be determined. In the event that the amount of the
estimated payments exceeds the amount subsequently determined to have been due,
such excess shall constitute a loan by the Company to the Executive, payable on
the fifth day after demand by the Company (together with interest at the rate
provided in Section 1274(b)(2)(B) of the Code). If more than one Gross-up
Payment is made, the amount of each Gross-up Payment shall be computed so as not
to duplicate any prior Gross-up Payment. The Company shall have the right to
control all proceedings with the Internal Revenue Service that may arise in
connection with the determination and assessment of any Excise Tax and, at its
sole option, the Company may pursue or forego any and all administrative
appeals, proceedings, hearings, and conferences with any taxing authority in
respect of such Excise Tax (including any interest or penalties thereon);
provided, however, that the Company's control over any such proceedings shall be
limited to issues with respect to which a Gross-up Payment would be payable
hereunder, and the Executive shall be entitled to settle or contest any other
issue raised by the Internal Revenue Service or any other taxing authority. The
Executive shall cooperate with the Company in any proceedings relating to the
determination and assessment of any Excise Tax and shall not take any position
or action that would materially increase the amount of any Gross-Up Payment
hereunder.
18. Effect of Agreement on Other Benefits.
Except as specifically provided in this Agreement, the existence
of this Agreement shall not be interpreted to preclude, prohibit or restrict the
Executive's participation in any other employee benefit or other plans or
programs in which he currently participates.
19. Assignability: Binding Nature.
This Agreement shall be binding upon and inure to the benefit of
the Parties and their respective successors, heirs (in the case of the
Executive) and permitted assigns. No rights or obligations of the Company under
this Agreement may be assigned or transferred by the Company except that such
rights or obligations may be assigned or transferred in connection with the sale
or transfer of all or substantially all of the assets of the Company, provided
that the assignee or transferee is the successor to all or substantially all of
the assets of the Company and such assignee or transferee assumes the
liabilities, obligations and duties of the Company, as contained in this
Agreement, either contractually or as a matter of law. The Company further
agrees that, in the event of a sale or transfer of assets as described in the
preceding sentence, it shall take whatever action it legally can in order to
cause such assignee or transferee to expressly assume the liabilities,
obligations and duties of the Company hereunder. No rights or obligations of the
Executive under this Agreement may be assigned or transferred by the Executive
other than his rights to compensation and benefits, which may be transferred
only by will or operation of law, except as provided in Section 25 below.
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<PAGE> 24
20. Representation.
The Company represents and warrants that it is fully authorized
and empowered to enter into this Agreement and that the performance of its
obligations under this Agreement will not violate any agreement between it and
any other person, firm or organization.
21. Entire Agreement.
This Agreement contains the entire understanding and agreement
between the Parties concerning the subject matter hereof and, as of the
Effective Date, supersedes all prior agreements, understandings, discussions,
negotiations and undertakings, whether written or oral, between the Parties with
respect thereto, including, without limitation any prior change in control
agreement between the Parties or between the Executive and Melville Corporation.
22. Amendment or Waiver.
No provision in this Agreement may be amended unless such
amendment is agreed to in writing and signed by the Executive and an authorized
officer of the Company. Except as set forth herein, no delay or omission to
exercise any right, power or remedy accruing to any Party shall impair any such
right, power or remedy or shall be construed to be a waiver of or an
acquiescence to any breach hereof. No waiver by either Party of any breach by
the other Party of any condition or provision contained in this Agreement to be
performed by such other Party shall be deemed a waiver of a similar or
dissimilar condition or provision at the same or any prior or subsequent time.
Any waiver must be in writing and signed by the Executive or an authorized
officer of the Company, as the case may be.
23. Severability.
In the event that any provision or portion of this Agreement
shall be determined to be invalid or unenforceable for any reason, in whole or
in part, the remaining provisions of this Agreement shall be unaffected thereby
and shall remain in full force and effect to the fullest extent permitted by
law.
24. Survivorship.
The respective rights and obligations of the Parties hereunder
shall survive any termination of the Executive's employment to the extent
necessary to the intended preservation of such rights and obligations.
25. Beneficiaries/References.
The Executive shall be entitled, to the extent permitted under
any applicable law, to select and change a beneficiary or beneficiaries to
receive any compensation or benefit payable hereunder following the Executive's
death by giving the Company written notice thereof. In the event of the
Executive's death or a judicial determination of his incompetence, reference in
this Agreement to the Executive shall be deemed, where appropriate, to refer to
his beneficiary, estate or other legal representative.
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<PAGE> 25
26. Governing Law/Jurisdiction.
This Agreement shall be governed by and construed and interpreted
in accordance with the laws of New Jersey without reference to principles of
conflict of laws. Subject to Section 15, the Company and the Executive hereby
consent to the jurisdiction of any or all of the following courts for purposes
of resolving any dispute under this Agreement: (i) the United States District
Court for New Jersey or (ii) any of the courts of the State of New Jersey. The
Company and the Executive further agree that any service of process or notice
requirements in any such proceeding shall be satisfied if the rules of such
court relating thereto have been substantially satisfied. The Company and the
Executive hereby waive, to the fullest extent permitted by applicable law, any
objection which it or he may now or hereafter have to such jurisdiction and any
defense of inconvenient forum.
27. Notices.
Any notice given to a Party shall be in writing and shall be
deemed to have been given when delivered personally or sent by certified or
registered mail, postage prepaid, return receipt requested, duly addressed to
the Party concerned at the address indicated below or to such changed address as
such Party may subsequently give such notice of:
If to the Company: Linens 'n Things, Inc.
6 Brighton Road
Clifton, New Jersey 07015-5108
Attention: Secretary
If to the Executive: Steven Silverstein
6 Rivercrest Road
Riverdale, NY 10471
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<PAGE> 26
28. Headings.
The headings of the sections contained in this Agreement are for
convenience only and shall not be deemed to control or affect the meaning or
construction of any provision of this Agreement.
29. Counterparts.
This Agreement may be executed in two or more counterparts.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date first written above.
LINENS 'N THINGS, INC.
BRIAN D. SILVA
By:_______________________________
Name: Brian D. Silva
Title: Vice President, Human Resources
EXECUTIVE
STEVEN SILVERSTEIN
__________________________________
Steven Silverstein
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<PAGE> 1
Exhibit 10.9
LINENS 'N THINGS, INC.
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EMPLOYMENT AGREEMENT FOR HUGH SCULLIN
- --------------------------------------------------------------------------------
<PAGE> 2
LINENS 'N THINGS, INC.
- --------------------------------------------------------------------------------
EMPLOYMENT AGREEMENT FOR HUGH SCULLIN
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Page
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1. Definitions..................................................... 1
2. Term of Employment.............................................. 2
3. Position, Duties and Responsibilities........................... 2
4. Base Salary..................................................... 3
5. Annual Incentive Awards......................................... 3
6. Long-Term Stock Incentive Programs.............................. 3
7. Employee Benefit Programs....................................... 3
8. Disability...................................................... 4
9. Reimbursement of Business and Other Expenses.................... 5
10. Termination of Employment....................................... 5
11 Confidentiality; Cooperation with Regard to Litigation.......... 15
12. Non-competition................................................. 16
13. Non-solicitation of Employees................................... 17
14. Remedies........................................................ 17
15. Resolution of Disputes.......................................... 17
16. Indemnification................................................. 17
17. Excise Tax Gross-Up............................................. 18
18. Effect of Agreement on Other Benefits........................... 20
19. Assignability; Binding Nature................................... 20
20. Representation.................................................. 21
21. Entire Agreement................................................ 21
22. Amendment or Waiver............................................. 21
23. Severability.................................................... 21
24. Survivorship.................................................... 21
25. Beneficiaries/References........................................ 21
<PAGE> 3
Page
----
26. Governing Law/Jurisdiction...................................... 22
27. Notices......................................................... 22
28. Headings........................................................ 23
29. Counterparts.................................................... 23
<PAGE> 4
EMPLOYMENT AGREEMENT
AGREEMENT, made and entered into as of the 31st day of October, 1996 by
and between Linens 'n Things, Inc., a Delaware corporation (together with its
successors and assigns, the "Company"), and Hugh Scullin (the "Executive").
W I T N E S S E T H:
WHEREAS, the Company desires to employ the Executive pursuant to an
agreement embodying the terms of such employment (this "Agreement") and the
Executive desires to enter into this Agreement and to accept such employment,
subject to the terms and provisions of this Agreement;
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained herein and for other good and valuable consideration, the receipt of
which is mutually acknowledged, the Company and the Executive (individually a
"Party" and together the "Parties") agree as follows:
1 . Definitions.
(a) "Approved Early Retirement" shall have the meaning set
forth in Section 10(f) below.
(b) "Base Salary" shall have the meaning set forth in Section
4 below.
(c) "Board" shall have the meaning set forth in Section 3(a)
below.
(d) "Cause" shall have the meaning set forth in Section 10(b)
below.
(e) "Change in Control" shall have the meaning set forth in
Section 10(c) below.
(f) "Committee" shall have the meaning set forth in Section 4
below.
(g) "Confidential Information" shall have the meaning set
forth in Section 11(c) below.
(h) "Constructive Termination Without Cause" shall have the
meaning set forth in Section 10(c) below.
(i) "Effective Date" shall have the meaning set forth in
Section 2(a) below.
(j) "Normal Retirement" shall have the meaning set forth in
Section 10(f) below.
(k) "Original Term of Employment" shall have the meaning set
forth in Section 2(a) below.
(l) "Renewal Term" shall have the meaning set forth in Section
2(a) below.
(m) "Restriction Period" shall have the meaning set forth in
Section 12(b) below.
<PAGE> 5
(n) "Severance Period" shall have the meaning set forth in
Section 10(c)(ii) below, except as provided otherwise in
Section 10(e) below.
(o) "Subsidiary" shall have the meaning set forth in Section
11(d) below.
(p) "Term of Employment" shall have the meaning set forth in
Section 2(a) below.
(q) "Termination Without Cause" shall have the meaning set
forth in Section 10(c) below.
2. Term of Employment.
(a) The term of the Executive's employment under this Agreement
shall commence on the date on which shares of common stock of the Company are
first sold to the public pursuant to an initial public offering (the "Effective
Date") and end on the fourth anniversary of such date (the "Original Term of
Employment"), unless terminated earlier in accordance herewith. The Original
Term of Employment shall be automatically renewed for successive one-year terms
(the "Renewal Terms") unless at least 180 days prior to the expiration of the
Original Term of Employment or any Renewal Term, either Party notifies the other
Party in writing that he or it is electing to terminate this Agreement at the
expiration of the then current Term of Employment. "Term of Employment" shall
mean the Original Term of Employment and all Renewal Terms.
(b) Notwithstanding anything in this Agreement to the contrary,
at least one year prior to the expiration of the Original Term of Employment,
upon the written request of the Company or the Executive, the Parties shall meet
to discuss this Agreement and may agree in writing to modify any of the terms of
this Agreement.
3. Position, Duties and Responsibilities.
(a) Generally. Executive shall serve as a senior executive of the
Company. Executive shall have and perform such duties, responsibilities, and
authorities as shall be specified by the Company from time to time and as are
customary for a senior executive of a publicly held corporation of the size,
type, and nature of the Company as they may exist from time to time and as are
consistent with such position and status. Executive shall devote substantially
all of his business time and attention (except for periods of vacation or
absence due to illness), and his best efforts, abilities, experience, and talent
to his position and the businesses of the Company.
(b) Other Activities. Anything herein to the contrary
notwithstanding, nothing in this Agreement shall preclude the Executive from (i)
serving on the boards of directors of a reasonable number of other corporations
or the boards of a reasonable number of trade associations and/or charitable
organizations, (ii) engaging in charitable activities and community affairs, and
(iii) managing his personal investments and affairs, provided that such
activities do not materially interfere with the proper performance of his duties
and responsibilities under this Agreement.
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<PAGE> 6
4. Base Salary.
The Executive shall be paid an annualized salary, ("Base Salary")
payable in accordance with the regular payroll practices of the Company, of not
less than $210,000, subject to review for increase at the discretion of the
Compensation Committee (the "Committee") of the Company's Board of Directors
(the "Board").
5. Annual Incentive Awards.
The Executive shall participate in the Company's annual incentive
compensation plan with a target annual incentive award opportunity of no less
than 40% of Base Salary and a maximum annual incentive award opportunity of 80%
of Base Salary. Payment of annual incentive awards shall be made at the same
time that other senior-level executives receive their incentive awards.
6. Long-Term Incentive Programs.
The Executive shall be eligible to participate in the Company's
long-term incentive compensation programs (including stock options and stock
grants).
7. Employee Benefit Programs.
(a) General Benefits. During the Term of Employment, the
Executive shall be entitled to participate in such employee pension and welfare
benefit plans and programs of the Company as are made available to the Company's
senior-level executives or to its employees generally, as such plans or programs
may be in effect from time to time, including, without limitation, health,
medical, dental, long-term disability, travel accident and life insurance plans.
(b) Deferral of Compensation. The Company shall implement
deferral arrangements, reasonably acceptable to Executive and the Company,
permitting Executive to elect to defer receipt, pursuant to written deferral
election terms and forms (the "Deferral Election Forms"), of all or a specified
portion of (i) his annual Base Salary and annual incentive compensation under
Sections 4 and 5, (ii) long term incentive compensation under Section 6 and
(iii) shares acquired upon exercise of options to purchase Company common stock
that are acquired in an exercise in which Executive pays the exercise price by
the surrender of previously acquired shares, to the extent of the net additional
shares otherwise issuable to Executive in such exercise; provided, however, that
such deferrals shall not reduce Executive's total cash compensation in any
calendar year below the sum of (i) the FICA maximum taxable wage base plus (ii)
the amount needed, on an after-tax basis, to enable Executive to pay the 1.45%
medicare tax imposed on his wages in excess of such FICA maximum taxable wage
base.
In accordance with such duly executed Deferral Election Forms,
the Company shall credit to a bookkeeping account (the "Deferred Compensation
Account") maintained for Executive on the respective payment date or dates,
amounts equal to the compensation subject to deferral, such credits to be
denominated in cash if the compensation would have been paid in cash but for the
deferral or in shares if the compensation would have been paid in shares but for
the deferral. An amount of cash equal in value to all cash-denominated amounts
credited to Executive's account and a number of shares of Company common stock
equal to the number of shares credited to Executive's account pursuant to this
Section 7(b) shall be transferred as soon as practicable following such
crediting by the Company to, and shall be held and invested by, an independent
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<PAGE> 7
trustee selected by the Company and reasonably acceptable to Executive (a
"Trustee") pursuant to a "rabbi trust" established by the Company in connection
with such deferral arrangement and as to which the Trustee shall make
investments based on Executive's investment objectives (including possible
investment in publicly traded stocks and bonds, mutual funds, and insurance
vehicles). Thereafter, Executive's deferral accounts will be valued by reference
to the value of the assets of the "rabbi trust". The Company shall pay all costs
of administration or maintenance of the deferral arrangement, without deduction
or reimbursement from the assets of the "rabbi trust."
Except as otherwise provided under Section 10, in the event of
Executive's termination of employment with the Company or as otherwise
determined by the Committee in the event of hardship on the part of Executive,
upon such date(s) or event(s) set forth in the Deferral Election Forms
(including forms filed after deferral but before settlement in which Executive
may elect to further defer settlement), the Company shall promptly pay to
Executive cash equal to the value of the assets then credited to Executive's
deferral accounts, less applicable withholding taxes, and such distribution
shall be deemed to fully settle such accounts; provided, however, that the
Company may instead settle such accounts by directing the Trustee to distribute
Company common stock and/or other assets of the "rabbi trust." The Company and
Executive agree that compensation deferred pursuant to this Section 7(b) shall
be fully vested and nonforfeitable; however, Executive acknowledges that his
rights to the deferred compensation provided for in this Section 7(b) shall be
no greater than those of a general unsecured creditor of the Company, and that
such rights may not be pledged, collateralized, encumbered, hypothecated, or
liable for or subject to any lien, obligation, or liability of Executive, or be
assignable or transferable by Executive, otherwise than by will or the laws of
descent and distribution, provided that Executive may designate one or more
beneficiaries to receive any payment of such amounts in the event of his death.
8. Disability.
(a) During the Term of Employment, as well as during the
Severance Period, the Executive shall be entitled to disability coverage as
described in this Section 8(a). In the event the Executive becomes disabled, as
that term is defined under the Company's Long-Term Disability Plan, the
Executive shall be entitled to receive pursuant to the Company's Long-Term
Disability Plan or otherwise, and in place of his Base Salary, an amount equal
to 60% of his Base Salary, at the annual rate in effect on the commencement date
of his eligibility for the Company's long-term disability benefits
("Commencement Date") for a period beginning on the Commencement Date and ending
with the earlier to occur of (A) the Executive's attainment of age 65 or (B) the
Executive's commencement of retirement benefits from the Company in accordance
with Section 10(f) below. If (i) the Executive ceases to be disabled during the
Term of Employment (as determined in accordance with the terms of the Long-Term
Disability Plan), (ii) his position or another senior executive position is then
vacant and (iii) the Company requests in writing that he resume such position,
he may elect to resume such position by written notice to the Company within 15
days after the Company delivers its request. If he resumes such position, he
shall thereafter be entitled to his Base Salary at the annual rate in effect on
the Commencement Date and, for the year he resumes his position, a pro rata
annual incentive award. If he ceases to be disabled during the Term of
Employment and does not resume his position in accordance with the preceding
sentence, he shall be treated as if he voluntarily terminated his employment
pursuant to Section 10(d) as of the date the Executive ceases to be disabled. If
the Executive is not offered his position or another senior executive position
after he ceases to be disabled during the Term of Employment, he shall be
treated as if his employment was terminated Without Cause pursuant to Section
10(c) as of the date the Executive ceases to be disabled.
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<PAGE> 8
(b) The Executive shall be entitled to a pro rata annual
incentive award for the year in which the Commencement Date occurs based on 40%
of Base Salary paid to him during such year prior to the Commencement Date,
payable in a lump sum not later than 15 days after the Commencement Date. The
Executive shall not be entitled to any annual incentive award with respect to
the period following the Commencement Date. If the Executive recommences his
position in accordance with Section 8(a), he shall be entitled to a pro rata
annual incentive award for the year he resumes such position and shall
thereafter be entitled to annual incentive awards in accordance with Section 5
hereof.
(c) During the period the Executive is receiving disability
benefits pursuant to Section 8(a) above, he shall continue to be treated as an
employee for purposes of all employee benefits and entitlements in which he was
participating on the Commencement Date, including without limitation, the
benefits and entitlements referred to in Sections 6 and 7 above, except that the
Executive shall not be entitled to receive any annual salary increases or any
new long-term incentive plan grants following the Commencement Date.
9. Reimbursement of Business and Other Expenses.
The Executive is authorized to incur reasonable expenses in
carrying out his duties and responsibilities under this Agreement, and the
Company shall promptly reimburse him for all business expenses incurred in
connection therewith, subject to documentation in accordance with the Company's
policy.
10. Termination of Employment.
(a) Termination Due to Death. In the event the Executive's
employment with the Company is terminated due to his death, his estate or his
beneficiaries, as the case may be, shall be entitled to and their sole remedies
under this Agreement shall be:
(i) Base Salary through the date of death, which shall
be paid in a single lump sum not later than 15 days
following the Executive's death;
(ii) pro rata annual incentive award for the year in
which the Executive's death occurs assuming that
the Executive would have received an award equal to
40% of Base Salary for such year, which shall be
payable in a lump sum promptly (but in no event
later than 15 days) after his death;
(iii) elimination of all restrictions on any deferred
stock awards outstanding at the time of his death;
(iv) immediate vesting of all outstanding stock options
and the right to exercise such stock options for a
period of one year following death (or such longer
period as may be provided in stock options granted
to other similarly situated executive officers of
the Company) or for the remainder of the exercise
period, if less;
(v) immediate vesting of all outstanding long-term
incentive awards and a pro rata payment of such
awards based on target performance,
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<PAGE> 9
payable in a cash lump sum promptly (but in no
event later than 15 days) after his death;
(vi) the balance of any incentive awards earned as of
December 31 of the prior year (but not yet paid),
which shall be paid in a single lump sum not later
than 15 days following the Executive's death;
(vii) settlement of all deferred compensation
arrangements in accordance with the Executive's
duly executed Deferral Election Forms; and
(viii) other or additional benefits then due or earned in
accordance with applicable plans and programs of
the Company.
(b) Termination by the Company for Cause.
(i) "Cause" shall mean:
(A) the Executive's willful and material breach
of Sections 11, 12 or 13 of this Agreement;
(B) the Executive is convicted of a felony
involving moral turpitude; or
(C) the Executive engages in conduct that
constitutes willful gross neglect or willful
gross misconduct in carrying out his duties
under this Agreement, resulting, in either
case, in material harm to the financial
condition or reputation of the Company.
For purposes of this Agreement, an act or failure to act on Executive's part
shall be considered "willful" if it was done or omitted to be done by him not in
good faith, and shall not include any act or failure to act resulting from any
incapacity of Executive.
(ii) A termination for Cause shall not take effect
unless the provisions of this paragraph (ii) are
complied with. The Executive shall be given written
notice by the Company of its intention to terminate
him for Cause, such notice (A) to state in detail
the particular act or acts or failure or failures
to act that constitute the grounds on which the
proposed termination for Cause is based and (B) to
be given within 90 days of the Company's learning
of such act or acts or failure or failures to act.
The Executive shall have 20 days after the date
that such written notice has been given to him in
which to cure such conduct, to the extent such cure
is possible. If he fails to cure such conduct, the
Executive shall then be entitled to a hearing
before the Committee of the Board at which the
Executive is entitled to appear. Such hearing shall
be held within 25 days of such notice to the
Executive, provided he requests such hearing within
10 days of the written notice from the Company of
the intention to terminate him for Cause. If,
within five days following such hearing, the
Executive is furnished written notice by the Board
confirming that, in its judgment,
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<PAGE> 10
grounds for Cause on the basis of the original
notice exist, he shall thereupon be terminated for
Cause.
(iii) In the event the Company terminates the Executive's
employment for Cause, he shall be entitled to and
his sole remedies under this Agreement shall be:
(A) Base Salary through the date of the
termination of his employment for Cause,
which shall be paid in a single lump sum not
later than 15 days following the Executive's
termination of employment;
(B) any incentive awards earned as of December
31 of the prior year (but not yet paid),
which shall be paid in a single lump sum not
later than 15 days following the Executive's
termination of employment;
(C) settlement of all deferred compensation
arrangements in accordance with the
Executive's duly executed Deferral Election
Forms; and
(D) other or additional benefits then due or
earned in accordance with applicable plans
or programs of the Company.
(c) Termination Without Cause or Constructive Termination Without
Cause Prior to Change in Control. In the event the Executive's employment with
the Company is terminated without Cause (which termination shall be effective as
of the date specified by the Company in a written notice to the Executive),
other than due to death, or in the event there is a Constructive Termination
Without Cause (as defined below), in either case prior to a Change in Control
(as defined below) the Executive shall be entitled to and his sole remedies
under this Agreement shall be:
(i) Base Salary through the date of termination of the
Executive's employment, which shall be paid in a
single lump sum not later than 15 days following
the Executive's termination of employment;
(ii) Base Salary, at the annualized rate in effect on
the date of termination of the Executive's
employment (or in the event a reduction in Base
Salary is a basis for a Constructive Termination
Without Cause, then the Base Salary in effect
immediately prior to such reduction), for a period
of 12 months (the "Severance Period");
(iii) pro rata annual incentive award for the year in
which termination occurs equal to 40% of Base
Salary (determined in accordance with Section
10(c)(ii) above) for such year, payable in a lump
sum promptly (but in no event later than 15 days)
following termination;
(iv) the balance of any incentive awards earned as of
December 31 of the prior year (but not yet paid),
which shall be paid in a single lump
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<PAGE> 11
sum not later than 15 days following the
Executive's termination of employment;
(v) settlement of all deferred compensation
arrangements in accordance with the Executive's
duly executed Deferral Election Forms;
(vi) continued participation in all medical, health and
life insurance plans at the same benefit level at
which he was participating on the date of the
termination of his employment until the earlier of:
(A) the end of the Severance Period; or
(B) the date, or dates, he receives equivalent
coverage and benefits under the plans and
programs of a subsequent employer (such
coverage and benefits to be determined on a
coverage-by-coverage, or benefit-by-benefit,
basis); provided that (1) if the Executive
is precluded from continuing his
participation in any employee benefit plan
or program as provided in this clause (vi)
of this Section 10(c), he shall receive cash
payments equal on an after-tax basis to the
cost to him of obtaining the benefits
provided under the plan or program in which
he is unable to participate for the period
specified in this clause (vi) of this
Section 10(c), (2) such cost shall be deemed
to be the lowest reasonable cost that would
be incurred by the Executive in obtaining
such benefit himself on an individual basis,
and (3) payment of such amounts shall be
made quarterly in advance; and
(vii) other or additional benefits then due or earned in
accordance with applicable plans and programs of
the Company.
"Termination Without Cause" shall mean the Executive's employment
is terminated by the Company for any reason other than Cause (as defined in
Section 10(b)) or due to death.
"Constructive Termination Without Cause" shall mean a termination
of the Executive's employment at his initiative as provided in this Section
10(c) following the occurrence, without the Executive's written consent, of one
or more of the following events (except as a result of a prior termination):
(A) an assignment of any duties to Executive
which are inconsistent with his status as a
senior executive of the Company;
(B) a decrease in annual Base Salary or target
annual incentive award opportunity below 40%
of Base Salary;
(C) any other failure by the Company to perform
any material obligation under, or breach by
the Company of any material
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<PAGE> 12
provision of, this Agreement that is not
cured within 30 days; or
(D) any failure to secure the agreement of any
successor corporation or other entity to the
Company to fully assume the Company's
obligations under this Agreement.
In addition, following a Change in Control, "Constructive Termination Without
Cause" shall also mean a termination of the Executive's employment at his
initiative as provided in this Section 10(c) following the occurrence, without
the Executive's written consent, of a relocation of his principal place of
employment outside a 35-mile radius of his principal place of employment as in
effect immediately prior to such Change in Control.
A "Change in Control" shall be deemed to have occurred if:
(i) any Person (other than the Company, any trustee or
other fiduciary holding securities under any
employee benefit plan of the Company, or any
company owned, directly or indirectly, by the
stockholders of the Company immediately prior to
the occurrence with respect to which the evaluation
is being made in substantially the same proportions
as their ownership of the common stock of the
Company) becomes the Beneficial Owner (except that
a Person shall be deemed to be the Beneficial Owner
of all shares that any such Person has the right to
acquire pursuant to any agreement or arrangement or
upon exercise of conversion rights, warrants or
options or otherwise, without regard to the sixty
day period referred to in Rule 13d-3 under the
Exchange Act), directly or indirectly, of
securities of the Company or any Significant
Subsidiary (as defined below), representing 25% or
more of the combined voting power of the Company's
or such subsidiary's then outstanding securities;
provided, however, that such event shall not
constitute a Change in Control unless or until the
percentage of such securities owned beneficially,
directly or indirectly, by such Person is equal to
or more than all such securities owned
beneficially, directly or indirectly, by Melville
Corporation;
(ii) during any period of two consecutive years,
individuals who at the beginning of such period
constitute the Board, and any new director (other
than a director designated by a person who has
entered into an agreement with the Company to
effect a transaction described in clause (i),
(iii), or (iv) of this paragraph) whose election by
the Board or nomination for election by the
Company's stockholders was approved by a vote of at
least two- thirds of the directors then still in
office who either were directors at the beginning
of the two-year period or whose election or
nomination for election was previously so approved
but excluding for this purpose any such new
director whose initial assumption of office occurs
as a result of either an actual or threatened
election contest (as such terms are used in Rule
14a-11 of Regulation 14A promulgated under the
Exchange Act) or other actual or threatened
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<PAGE> 13
solicitation of proxies or consents by or on behalf
of an individual, corporation, partnership, group,
associate or other entity or Person other than the
Board, cease for any reason to constitute at least
a majority of the Board; provided, however, that
such event shall not constitute a Change in Control
unless or until the percentage of voting securities
of the Company owned beneficially, directly or
indirectly, by Melville Corporation is less than
50% of all such outstanding securities;
(iii) the consummation of a merger or consolidation of
the Company or any subsidiary owning directly or
indirectly all or substantially all of the
consolidated assets of the Company (a "Significant
Subsidiary") with any other entity, other than a
merger or consolidation which would result in the
voting securities of the Company or a Significant
Subsidiary outstanding immediately prior thereto
continuing to represent (either by remaining
outstanding or by being converted into voting
securities of the surviving or resulting entity)
more than 50% of the combined voting power of the
surviving or resulting entity outstanding
immediately after such merger or consolidation;
(iv) the stockholders of the Company approve a plan or
agreement for the sale or disposition of all or
substantially all of the consolidated assets of the
Company (other than such a sale or disposition
immediately after which such assets will be owned
directly or indirectly by the stockholders of the
Company in substantially the same proportions as
their ownership of the common stock of the Company
immediately prior to such sale or disposition) in
which case the Board shall determine the effective
date of the Change in Control resulting therefrom;
or
(v) any other event occurs which the Board determines,
in its discretion, would materially alter the
structure of the Company or its ownership.
For purposes of this definition:
(A) The term "Beneficial Owner" shall have the
meaning ascribed to such term in Rule 13d-3
under the Exchange Act (including any
successor to such Rule).
(B) The term "Exchange Act" means the Securities
Exchange Act of 1934, as amended from time
to time, or any successor act thereto.
(C) The term "Person" shall have the meaning
ascribed to such term in Section 3(a)(9) of
the Exchange Act and used in Sections 13(d)
and 14(d) thereof, including "group" as
defined in Section 13(d) thereof.
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<PAGE> 14
(d) Voluntary Termination. In the event of a termination of
employment by the Executive on his own initiative after delivery of 10 business
days advance written notice, other than a termination due to death, a
Constructive Termination Without Cause, or Approved Early Retirement or Normal
Retirement pursuant to Section 10(f) below, the Executive shall have the same
entitlements as provided in Section 10(b)(iii) above for a termination for
Cause, provided that at the Company's election, furnished in writing to the
Executive within 15 days following such notice of termination, the Company shall
in addition pay the Executive 140% of his Base Salary for a period of 12 months
following such termination in exchange for the Executive not engaging in
competition with the Company or any Subsidiary as set forth in Section 12(a)
below. Notwithstanding any implication to the contrary, the Executive shall not
have the right to terminate his employment with the Company during the Term of
Employment except in the event of a Constructive Termination Without Cause,
Approved Early Retirement, or Normal Retirement, and any voluntary termination
of employment during the Term of Employment in violation of this Agreement shall
be considered a material breach; provided, however, if the Company elects to pay
the Executive 140% of his Base Salary in accordance with this Section 10(d), the
Company shall waive any and all claims it may have against the Executive for any
breach of this Agreement relating to his voluntary termination of employment
unless the Executive is found by a court of competent jurisdiction not to be in
compliance with Section 12(a) below; provided further, however, that,
notwithstanding anything contained in the foregoing to the contrary, it is not
the intention of the Company to waive any claims it may have against any third
parties relating to a voluntary termination by the Executive in violation of
this Agreement.
(e) Termination Without Cause; Constructive Termination Without
Cause or Voluntary Termination Following Change in Control. In the event the
Executive's employment with the Company is terminated by the Company without
Cause (which termination shall be effective as of the date specified by the
Company in a written notice to the Executive), other than due to death, or in
the event there is a Constructive Termination Without Cause (as defined above),
in either case within two years following a Change in Control (as defined
above), the Executive shall be entitled to and his sole remedies under this
Agreement shall be:
(i) Base Salary through the date of termination of the
Executive's employment, which shall be paid in a
single lump sum not later than 15 days following
the Executive's termination of employment;
(ii) an amount equal to two times the Executive's Base
Salary, at the annualized rate in effect on the
date of termination of the Executive's employment
(or in the event a reduction in Base Salary is a
basis for a Constructive Termination Without Cause,
then the Base Salary in effect immediately prior to
such reduction), payable in a cash lump sum
promptly (but in no event later than 15 days)
following the Executive's termination of
employment;
(iii) an amount equal to 40% of such Base Salary
(determined in accordance with Section 10(e)(ii)
above) multiplied by two, payable in a cash lump
sum promptly (but in no event later than 15 days)
following the Executive's termination of
employment;
(iv) elimination of all restrictions on any deferred
stock awards outstanding at the time of termination
of employment;
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<PAGE> 15
(v) immediate vesting of all outstanding stock options
and the right to exercise such stock options during
the Severance Period or for the remainder of the
exercise period, if less;
(vi) immediate vesting of all outstanding long-term
incentive awards and a pro rata payment of such
awards based on target performance, payable in a
cash lump sum promptly (but in no event later than
15 days) following the Executive's termination of
employment;
(vii) the balance of any incentive awards earned as of
December 31 of the prior year (but not yet paid),
which shall be paid in a single lump sum not later
than 15 days following the Executive's termination
of employment;
(viii) settlement of all deferred compensation
arrangements in accordance with Executive's duly
executed Deferral Election Forms;
(ix) continued participation in all medical, health and
life insurance plans at the same benefit level at
which he was participating on the date of
termination of his employment until the earlier of:
(A) the end of the Severance Period; or
(B) the date, or dates, he receives equivalent
coverage and benefits under the plans and
programs of a subsequent employer (such
coverage and benefits to be determined on a
coverage-by-coverage, or benefit-by-benefit,
basis); provided that (1) if the Executive
is precluded from continuing his
participation in any employee benefit plan
or program as provided in this clause (ix)
of this Section 10(e), he shall receive cash
payments equal on an after-tax basis to the
cost to him of obtaining the benefits
provided under the plan or program in which
he is unable to participate for the period
specified in this clause (ix) of this
Section 10(e), (2) such cost shall be deemed
to be the lowest reasonable cost that would
be incurred by the Executive in obtaining
such benefit himself on an individual basis,
and (3) payment of such amounts shall be
made quarterly in advance; and
(x) other or additional benefits then due or earned in
accordance with applicable plans and programs of
the Company.
For purposes of any termination pursuant to this Section 10(e), the term
"Severance Period" shall mean the period of 24 months following the termination
of the Executive's employment.
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<PAGE> 16
(f) Approved Early Retirement or Normal Retirement. Upon the
Executive's Approved Early Retirement or Normal Retirement (each as defined
below), the Executive shall be entitled to and his sole remedies under this
Agreement shall be:
(i) Base Salary through the date of termination of the
Executive's employment, which shall be paid in a
single lump sum not later than 15 days following
the Executive's termination of employment;
(ii) pro rata annual incentive award for the year in
which termination occurs, based on performance
valuation at the end of such year and payable in a
cash lump sum promptly (but in no event later than
15 days) thereafter;
(iii) continued vesting (as if the Executive remained
employed by the Company) of any deferred stock
awards outstanding at the time of his termination
of employment;
(iv) continued vesting of all outstanding stock options
and the right to exercise such stock options for a
period of one year following the later of the date
the options are fully vested or the Executive's
termination of employment (or such longer period as
may be provided in stock options granted to other
similarly situated executive officers of the
Company) or for the remainder of the exercise
period, if less;
(v) continued vesting (as if the Executive remained
employed by the Company) of all outstanding
long-term incentive awards and payment of such
awards based on valuation at the end of the
performance period, payable in a cash lump sum
promptly (but in no event later than 15 days)
thereafter;
(vi) the balance of any incentive awards earned as of
December 31 of the prior year (but not yet paid),
which shall be paid in a single lump sum not later
than 15 days following the Executive's termination
of employment;
(vii) settlement of all deferred compensation
arrangements in accordance with the Executive's
duly executed Deferral Election Forms;
(viii) continued participation in all medical, health and
life insurance plans at the same benefit level at
which he was participating on the date of the
termination of his employment until the earlier of:
(A) the Executive's attainment of age 60; or
(B) the date, or dates, he receives
substantially equivalent coverage and
benefits under the plans and programs of a
subsequent employer (such coverage and
benefits to be determined on a
coverage-by-coverage, or benefit-by-
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<PAGE> 17
benefit, basis); provided that (1) if the
Executive is precluded from continuing his
participation in any employee benefit plan
or program as provided in this clause (viii)
of this Section 10(f), he shall receive cash
payments equal on an after-tax basis to the
cost to him of obtaining the benefits
provided under the plan or program in which
he is unable to participate for the period
specified in this clause (viii) of this
Section 10(f), (2) such cost shall be deemed
to be the lowest cost that would be incurred
by the Executive in obtaining such benefit
himself on an individual basis, and (3)
payment of such amounts shall be made
quarterly in advance; and
(ix) other or additional benefits then due or earned in
accordance with applicable plans and programs of
the Company.
"Approved Early Retirement" shall mean the Executive's voluntary
termination of employment with the Company at or after attaining age 55 but
prior to attaining age 60, if such termination is approved in advance by the
Committee.
"Normal Retirement" shall mean the Executive's voluntary
termination of employment with the Company at or after attaining age 60.
(g) No Mitigation; No Offset. In the event of any termination of
employment, the Executive shall be under no obligation to seek other employment;
amounts due the Executive under this Agreement shall not be offset by any
remuneration attributable to any subsequent employment that he may obtain.
(h) Nature of Payments. Any amounts due under this Section 10 are
in the nature of severance payments considered to be reasonable by the Company
and are not in the nature of a penalty.
(i) No Further Liability; Release. In the event of the
Executive's termination of employment, payment made and performance by the
Company in accordance with this Section 10 shall operate to fully discharge and
release the Company and its directors, officers, employees, subsidiaries,
affiliates, stockholders, successors, assigns, agents and representatives from
any further obligation or liability with respect to the Executive's rights under
this Agreement. Other than payment and performance under this Section 10, the
Company and its directors, officers, employees, subsidiaries, affiliates,
stockholders, successors, assigns, agents and representatives shall have no
further obligation or liability to the Executive or any other person under this
Agreement in the event of the Executive's termination of employment. The Company
shall have the right to condition the last payment of any severance or other
amounts pursuant to this Section 10 upon the delivery by the Executive to the
Company of a release in the form satisfactory to the Company releasing any and
all claims the Executive may have against the Company and its directors,
officers, employees, subsidiaries, affiliates, stockholders, successors,
assigns, agents and representatives arising out of this Agreement.
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<PAGE> 18
11. Confidentiality: Cooperation with Regard to Litigation.
(a) During the Term of Employment and thereafter, the Executive
shall not, without the prior written consent of the Company, disclose to anyone
(except in good faith in the ordinary course of business to a person who will be
advised by the Executive to keep such information confidential) or make use of
any Confidential Information except in the performance of his duties hereunder
or when required to do so by legal process, by any governmental agency having
supervisory authority over the business of the Company or by any administrative
or legislative body (including a committee thereof) that requires him to
divulge, disclose or make accessible such information. In the event that the
Executive is so ordered, he shall give prompt written notice to the Company in
order to allow the Company the opportunity to object to or otherwise resist such
order.
(b) During the Term of Employment and thereafter, Executive shall
not disclose the existence or contents of this Agreement beyond what is
disclosed in the proxy statement or documents filed with the government unless
and to the extent such disclosure is required by law, by a governmental agency,
or in a document required by law to be filed with a governmental agency or in
connection with enforcement of his rights under this Agreement. In the event
that disclosure is so required, the Executive shall give prompt written notice
to the Company in order to allow the Company the opportunity to object to or
otherwise resist such requirement. This restriction shall not apply to such
disclosure by him to members of his immediate family, his tax, legal or
financial advisors, any lender, or tax authorities, or to potential future
employers to the extent necessary, each of whom shall be advised not to disclose
such information.
(c) "Confidential Information" shall mean all information
concerning the business of the Company or any Subsidiary relating to any of
their products, product development, trade secrets, customers, suppliers,
finances, and business plans and strategies. Excluded from the definition of
Confidential Information is information (i) that is or becomes part of the
public domain, other than through the breach of this Agreement by the Executive
or (ii) regarding the Company's business or industry properly acquired by the
Executive in the course of his career as an executive in the Company's industry
and independent of the Executive's employment by the Company or Melville
Corporation. For this purpose, information known or available generally within
the trade or industry of the Company or any Subsidiary shall be deemed to be
known or available to the public.
(d) "Subsidiary" shall mean any corporation controlled directly
or indirectly by the Company.
(e) The Executive agrees to cooperate with the Company, during
the Term of Employment and thereafter (including following the Executive's
termination of employment for any reason), by making himself reasonably
available to testify on behalf of the Company or any Subsidiary in any action,
suit, or proceeding, whether civil, criminal, administrative, or investigative,
and to assist the Company, or any Subsidiary, in any such action, suit, or
proceeding, by providing information and meeting and consulting with the Board
or its representatives or counsel, or representatives or counsel to the Company,
or any Subsidiary as requested; provided, however that the same does not
materially interfere with his then current professional activities. The Company
agrees to reimburse the Executive, on an after-tax basis, for all expenses
actually incurred in connection with his provision of testimony or assistance.
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<PAGE> 19
12. Non-competition.
(a) During the Restriction Period (as defined in Section 12(b)
below), the Executive shall not engage in Competition with the Company or any
Subsidiary. "Competition" shall mean engaging in any activity, except as
provided below, for a Competitor of the Company or any Subsidiary, whether as an
employee, consultant, principal, agent, officer, director, partner, shareholder
(except as a less than one percent shareholder of a publicly traded company) or
otherwise. A "Competitor" shall mean (i) Bed Bath & Beyond, Inc., Strouds, Inc.,
Home Express Inc. and Home Place Inc. (and any successor or successors thereto);
(ii) any specialty retailer if 40% or more of its revenues (based on the most
recent quarterly or annual financial statements available) are derived from the
sale of home textiles or housewares; (iii) any corporation, other entity, or
start-up corporation or other entity engaged primarily or organized for the
purpose of engaging primarily in the sale of home textiles or housewares having
a total capitalization (equity and/or long-term debt) in excess of $30,000,000
or revenues (based on the most recent quarterly or annual financial statements
available) in excess of $25,000,000. If the Executive commences employment or
becomes a consultant, principal, agent, officer, director, partner, or
shareholder of any entity that is not a Competitor at the time the Executive
initially becomes employed or becomes a consultant, principal, agent, officer,
director, partner, or shareholder of the entity, future activities of such
entity shall not result in a violation of this provision unless (x) such
activities were contemplated by the Executive at the time the Executive
initially became employed or becomes a consultant, principal, agent, officer,
director, partner, or shareholder of the entity or (y) the Executive commences
directly or indirectly overseeing or managing the activities of an entity which
becomes a Competitor during the Restriction Period, which activities are
competitive with the activities of the Company or Subsidiary. The Executive
shall not be deemed indirectly overseeing or managing the activities of such
Competitor which are competitive with the activities of the Company or
Subsidiary so long as he does not regularly participate in discussions with
regard to the conduct of the competing business.
(b) For the purposes of this Section 12, "Restriction Period"
shall mean the period beginning with the Effective Date and ending with:
(i) in the case of a termination of the Executive's
employment without Cause or a Constructive
Termination Without Cause, the Restriction Period
shall terminate immediately upon the Executive's
termination of employment;
(ii) in the case of a termination of the Executive's
employment for Cause, the first anniversary of such
termination;
(iii) in the case of a voluntary termination of the
Executive's employment pursuant to Section 10(d)
above followed by the Company's election to pay the
Executive (and subject to the payment of) 140% of
his Base Salary, as provided in Section 10(d)
above, the first anniversary of such termination;
(iv) in the case of a voluntary termination of the
Executive's employment pursuant to Section 10(d)
above which is not followed by the Company's
election to pay the Executive such 140% of Base
Salary, the date of such termination; or
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<PAGE> 20
(v) in the case of Approved Early Retirement or Normal
Retirement pursuant to Section 10(f) above, the
remainder of the Term of Employment.
13. Non-solicitation of Employees.
During the period beginning with the Effective Date and ending
one year following the termination of the Executive's employment, the Executive
shall not induce employees of the Company or any Subsidiary to terminate their
employment; provided, however, that the foregoing shall not be construed to
prevent the Executive from engaging in generic nontargeted advertising for
employees generally. During such period, the Executive shall not hire, either
directly or through any employee, agent or representative, any employee of the
Company or any Subsidiary or any person who was employed by the Company or any
Subsidiary within 180 days of such hiring.
14. Remedies.
In addition to whatever other rights and remedies the Company may
have at equity or in law, if the Executive breaches any of the provisions
contained in Sections 11, 12 or 13 above, the Company (a) shall have the right
to immediately terminate all payments and benefits due under this Agreement and
(b) shall have the right to seek injunctive relief. The Executive acknowledges
that such a breach of Sections 11,12 or 13 would cause irreparable injury and
that money damages would not provide an adequate remedy for the Company;
provided, however, the foregoing shall not prevent the Executive from contesting
the issuance of any such injunction on the ground that no violation or
threatened violation of Section 11, 12 or 13 has occurred.
15. Resolution of Disputes.
Any controversy or claim arising out of or relating to this
Agreement or any breach or asserted breach hereof or questioning the validity
and binding effect hereof arising under or in connection with this Agreement,
other than seeking injunctive relief under Section 14, shall be resolved by
binding arbitration, to be held at an office closest to the Company's principal
offices in accordance with the rules and procedures of the American Arbitration
Association, except that disputes arising under or in connection with Sections
11, 12 and 13 above shall be submitted to the federal or state courts in the
State of New Jersey. Judgment upon the award rendered by the arbitrator(s) may
be entered in any court having jurisdiction thereof. Pending the resolution of
any arbitration or court proceeding, the Company shall continue payment of all
amounts and benefits due the Executive under this Agreement. All costs and
expenses of any arbitration or court proceeding (including fees and
disbursements of counsel) shall be borne by the respective party incurring such
costs and expenses, but the Company shall reimburse the Executive for such
reasonable costs and expenses in the event he substantially prevails in such
arbitration or court proceeding.
16. Indemnification.
(a) Company Indemnity. The Company agrees that if the Executive
is made a party, or is threatened to be made a party, to any action, suit or
proceeding, whether civil, criminal, administrative or investigative (a
"Proceeding"), by reason of the fact that he is or was a director, officer or
employee of the Company or any Subsidiary or is or was serving at the request of
the Company or any Subsidiary as a director, officer, member, employee or agent
of
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<PAGE> 21
another corporation, partnership, joint venture, trust or other enterprise,
including service with respect to employee benefit plans, whether or not the
basis of such Proceeding is the Executive's alleged action in an official
capacity while serving as a director, officer, member, employee or agent, the
Executive shall be indemnified and held harmless by the Company to the fullest
extent legally permitted or authorized by the Company's certificate of
incorporation or bylaws or resolutions of the Company's Board or, if greater, by
the laws of the State of Delaware against all cost, expense, liability and loss
(including, without limitation, attorney's fees, judgments, fines, ERISA excise
taxes or penalties and amounts paid or to be paid in settlement) reasonably
incurred or suffered by the Executive in connection therewith, and such
indemnification shall continue as to the Executive even if he has ceased to be a
director, member, officer, employee or agent of the Company or other entity and
shall inure to the benefit of the Executive's heirs, executors and
administrators. The Company shall advance to the Executive all reasonable costs
and expenses to be incurred by him in connection with a Proceeding within 20
days after receipt by the Company of a written request for such advance. Such
request shall include an undertaking by the Executive to repay the amount of
such advance if it shall ultimately be determined that he is not entitled to be
indemnified against such costs and expenses. The provisions of this Section
16(a) shall not be deemed exclusive of any other rights of indemnification to
which the Executive may be entitled or which may be granted to him, and it shall
be in addition to any rights of indemnification to which he may be entitled
under any policy of insurance.
(b) No Presumption Regarding Standard of Conduct. Neither the
failure of the Company (including its Board, independent legal counsel or
stockholders) to have made a determination prior to the commencement of any
proceeding concerning payment of amounts claimed by the Executive under Section
16(a) above that indemnification of the Executive is proper because he has met
the applicable standard of conduct, nor a determination by the Company
(including its Board, independent legal counsel or stockholders) that the
Executive has not met such applicable standard of conduct, shall create a
presumption that the Executive has not met the applicable standard of conduct.
(c) Liability Insurance. The Company agrees to continue and
maintain a directors and officers' liability insurance policy covering the
Executive to the extent the Company provides such coverage for its other
executive officers.
17. Excise Tax Gross-Up.
If the Executive becomes entitled to one or more payments (with a
"payment" including, without limitation, the vesting of an option or other
non-cash benefit or property), whether pursuant to the terms of this Agreement
or any other plan, arrangement, or agreement with the Company or any affiliated
company (the "Total Payments"), which are or become subject to the tax imposed
by Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code")
(or any similar tax that may hereafter be imposed) (the "Excise Tax"), the
Company shall pay to the Executive at the time specified below an additional
amount (the "Gross-up Payment") (which shall include, without limitation,
reimbursement for any penalties and interest that may accrue in respect of such
Excise Tax) such that the net amount retained by the Executive, after reduction
for any Excise Tax (including any penalties or interest thereon) on the Total
Payments and any federal, state and local income or employment tax and Excise
Tax on the Gross-up Payment provided for by this Section 17, but before
reduction for any federal, state, or local income or employment tax on the Total
Payments, shall be equal to the sum of (a) the Total Payments, and (b) an amount
equal to the product of any deductions disallowed for federal, state, or local
income tax purposes because of the inclusion of the Gross-up Payment in the
Executive's
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<PAGE> 22
adjusted gross income multiplied by the highest applicable marginal rate of
federal, state, or local income taxation, respectively, for the calendar year in
which the Gross-up Payment is to be made. For purposes of determining whether
any of the Total Payments will be subject to the Excise Tax and the amount of
such Excise Tax:
(i) The Total Payments shall be treated as "parachute
payments" within the meaning of Section 280G(b)(2) of the
Code, and all "excess parachute payments" within the
meaning of Section 280G(b)(1) of the Code shall be treated
as subject to the Excise Tax, unless, and except to the
extent that, in the written opinion of independent
compensation consultants, counsel or auditors of
nationally recognized standing ("Independent Advisors")
selected by the Company and reasonably acceptable to the
Executive, the Total Payments (in whole or in part) do not
constitute parachute payments, or such excess parachute
payments (in whole or in part) represent reasonable
compensation for services actually rendered within the
meaning of Section 280G(b)(4) of the Code in excess of the
base amount within the meaning of Section 280G(b)(3) of
the Code or are otherwise not subject to the Excise Tax;
(ii) The amount of the Total Payments which shall be treated as
subject to the Excise Tax shall be equal to the lesser of
(A) the total amount of the Total Payments or (B) the
total amount of excess parachute payments within the
meaning of Section 280G(b)(1) of the Code (after applying
clause (i) above); and
(iii) The value of any non-cash benefits or any deferred payment
or benefit shall be determined by the Independent Advisors
in accordance with the principles of Sections 280G(d)(3)
and (4) of the Code.
For purposes of determining the amount of the Gross-up Payment,
the Executive shall be deemed (A) to pay federal income taxes at the highest
marginal rate of federal income taxation for the calendar year in which the
Gross-up Payment is to be made; (B) to pay any applicable state and local income
taxes at the highest marginal rate of taxation for the calendar year in which
the Gross-up Payment is to be made, net of the maximum reduction in federal
income taxes which could be obtained from deduction of such state and local
taxes if paid in such year (determined without regard to limitations on
deductions based upon the amount of the Executive's adjusted gross income); and
(C) to have otherwise allowable deductions for federal, state, and local income
tax purposes at least equal to those disallowed because of the inclusion of the
Gross-up Payment in the Executive's adjusted gross income. In the event that the
Excise Tax is subsequently determined to be less than the amount taken into
account hereunder at the time the Gross-up Payment is made, the Executive shall
repay to the Company at the time that the amount of such reduction in Excise Tax
is finally determined (but, if previously paid to the taxing authorities, not
prior to the time the amount of such reduction is refunded to the Executive or
otherwise realized as a benefit by the Executive) the portion of the Gross-up
Payment that would not have been paid if such Excise Tax had been applied in
initially calculating the Gross-up Payment, plus interest on the amount of such
repayment at the rate provided in Section 1274(b)(2)(B) of the Code. In the
event that the Excise Tax is determined to exceed the amount taken into account
hereunder at the time the Gross-up Payment is made (including by reason of any
payment the existence or amount of which cannot be determined at the time of the
Gross-up Payment), the Company shall make an additional Gross-up Payment in
respect of such excess
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<PAGE> 23
(plus any interest and penalties payable with respect to such excess) at the
time that the amount of such excess is finally determined.
The Gross-up Payment provided for above shall be paid on the 30th
day (or such earlier date as the Excise Tax becomes due and payable to the
taxing authorities) after it has been determined that the Total Payments (or any
portion thereof) are subject to the Excise Tax; provided, however, that if the
amount of such Gross-up Payment or portion thereof cannot be finally determined
on or before such day, the Company shall pay to the Executive on such day an
estimate, as determined by the Independent Advisors, of the minimum amount of
such payments and shall pay the remainder of such payments (together with
interest at the rate provided in Section 1274(b)(2)(B) of the Code), as soon as
the amount thereof can be determined. In the event that the amount of the
estimated payments exceeds the amount subsequently determined to have been due,
such excess shall constitute a loan by the Company to the Executive, payable on
the fifth day after demand by the Company (together with interest at the rate
provided in Section 1274(b)(2)(B) of the Code). If more than one Gross-up
Payment is made, the amount of each Gross-up Payment shall be computed so as not
to duplicate any prior Gross-up Payment. The Company shall have the right to
control all proceedings with the Internal Revenue Service that may arise in
connection with the determination and assessment of any Excise Tax and, at its
sole option, the Company may pursue or forego any and all administrative
appeals, proceedings, hearings, and conferences with any taxing authority in
respect of such Excise Tax (including any interest or penalties thereon);
provided, however, that the Company's control over any such proceedings shall be
limited to issues with respect to which a Gross-up Payment would be payable
hereunder, and the Executive shall be entitled to settle or contest any other
issue raised by the Internal Revenue Service or any other taxing authority. The
Executive shall cooperate with the Company in any proceedings relating to the
determination and assessment of any Excise Tax and shall not take any position
or action that would materially increase the amount of any Gross-Up Payment
hereunder.
18. Effect of Agreement on Other Benefits.
Except as specifically provided in this Agreement, the existence
of this Agreement shall not be interpreted to preclude, prohibit or restrict the
Executive's participation in any other employee benefit or other plans or
programs in which he currently participates.
19. Assignability: Binding Nature.
This Agreement shall be binding upon and inure to the benefit of
the Parties and their respective successors, heirs (in the case of the
Executive) and permitted assigns. No rights or obligations of the Company under
this Agreement may be assigned or transferred by the Company except that such
rights or obligations may be assigned or transferred in connection with the sale
or transfer of all or substantially all of the assets of the Company, provided
that the assignee or transferee is the successor to all or substantially all of
the assets of the Company and such assignee or transferee assumes the
liabilities, obligations and duties of the Company, as contained in this
Agreement, either contractually or as a matter of law. The Company further
agrees that, in the event of a sale or transfer of assets as described in the
preceding sentence, it shall take whatever action it legally can in order to
cause such assignee or transferee to expressly assume the liabilities,
obligations and duties of the Company hereunder. No rights or obligations of the
Executive under this Agreement may be assigned or transferred by the Executive
other than his rights to compensation and benefits, which may be transferred
only by will or operation of law, except as provided in Section 25 below.
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<PAGE> 24
20. Representation.
The Company represents and warrants that it is fully authorized
and empowered to enter into this Agreement and that the performance of its
obligations under this Agreement will not violate any agreement between it and
any other person, firm or organization.
21. Entire Agreement.
This Agreement contains the entire understanding and agreement
between the Parties concerning the subject matter hereof and, as of the
Effective Date, supersedes all prior agreements, understandings, discussions,
negotiations and undertakings, whether written or oral, between the Parties with
respect thereto, including, without limitation any prior change in control
agreement between the Parties or between the Executive and Melville Corporation.
22. Amendment or Waiver.
No provision in this Agreement may be amended unless such
amendment is agreed to in writing and signed by the Executive and an authorized
officer of the Company. Except as set forth herein, no delay or omission to
exercise any right, power or remedy accruing to any Party shall impair any such
right, power or remedy or shall be construed to be a waiver of or an
acquiescence to any breach hereof. No waiver by either Party of any breach by
the other Party of any condition or provision contained in this Agreement to be
performed by such other Party shall be deemed a waiver of a similar or
dissimilar condition or provision at the same or any prior or subsequent time.
Any waiver must be in writing and signed by the Executive or an authorized
officer of the Company, as the case may be.
23. Severability.
In the event that any provision or portion of this Agreement
shall be determined to be invalid or unenforceable for any reason, in whole or
in part, the remaining provisions of this Agreement shall be unaffected thereby
and shall remain in full force and effect to the fullest extent permitted by
law.
24. Survivorship.
The respective rights and obligations of the Parties hereunder
shall survive any termination of the Executive's employment to the extent
necessary to the intended preservation of such rights and obligations.
25. Beneficiaries/References.
The Executive shall be entitled, to the extent permitted under
any applicable law, to select and change a beneficiary or beneficiaries to
receive any compensation or benefit payable hereunder following the Executive's
death by giving the Company written notice thereof. In the event of the
Executive's death or a judicial determination of his incompetence, reference in
this Agreement to the Executive shall be deemed, where appropriate, to refer to
his beneficiary, estate or other legal representative.
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<PAGE> 25
26. Governing Law/Jurisdiction.
This Agreement shall be governed by and construed and interpreted
in accordance with the laws of New Jersey without reference to principles of
conflict of laws. Subject to Section 15, the Company and the Executive hereby
consent to the jurisdiction of any or all of the following courts for purposes
of resolving any dispute under this Agreement: (i) the United States District
Court for New Jersey or (ii) any of the courts of the State of New Jersey. The
Company and the Executive further agree that any service of process or notice
requirements in any such proceeding shall be satisfied if the rules of such
court relating thereto have been substantially satisfied. The Company and the
Executive hereby waive, to the fullest extent permitted by applicable law, any
objection which it or he may now or hereafter have to such jurisdiction and any
defense of inconvenient forum.
27. Notices.
Any notice given to a Party shall be in writing and shall be
deemed to have been given when delivered personally or sent by certified or
registered mail, postage prepaid, return receipt requested, duly addressed to
the Party concerned at the address indicated below or to such changed address as
such Party may subsequently give such notice of:
If to the Company: Linens 'n Things, Inc.
6 Brighton Road
Clifton, New Jersey 07015-5108
Attention: Secretary
If to the Executive: Hugh Scullin
106 Orion Way
Neshanic Station, NJ 08853
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<PAGE> 26
28. Headings.
The headings of the sections contained in this Agreement are for
convenience only and shall not be deemed to control or affect the meaning or
construction of any provision of this Agreement.
29. Counterparts.
This Agreement may be executed in two or more counterparts.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date first written above.
LINENS 'N THINGS, INC.
By: BRIAN D. SILVA
______________________________
Name: Brian D. Silva
Title: Vice President, Human Resources
EXECUTIVE
HUGH SCULLIN
__________________________________
Hugh Scullin
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<PAGE> 1
Exhibit 23.1
Linens 'n Things, Inc.
6 Brighton Road
Clifton, New Jersey 07015
The Board of Directors
Linens 'n Things, Inc.:
Re: Registration Statement No. 333-27239
We consent to the use of our report included herein and to the reference to our
firm under the headings "Selected Financial and Operating Data" and "Experts"
in the Registration Statement.
/s/ KPMG PEAT MARWICK LLP
New York, New York
May 29, 1997
