<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 21, 1996
REGISTRATION NO. 33-39477
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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POST-EFFECTIVE AMENDMENT NO. 5
to
FORM S-2
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
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COTTER & COMPANY
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C>
Delaware 36-2099896
(State of Incorporation) (IRS Employer Identification No.)
</TABLE>
8600 West Bryn Mawr Avenue
Chicago, Illinois 60631-3505
(312) 695-5000
(address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
Kerry J. Kirby, Vice President and Chief Financial Officer
Cotter & Company
8600 West Bryn Mawr Avenue
Chicago, Illinois 60631-3505
(312) 695-5000
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Copies to:
<TABLE>
<S> <C>
Daniel T. Burns, Vice President and Secretary William K. Blomquist, Esq.
Cotter & Company Arnstein & Lehr
8600 West Bryn Mawr Avenue Suite 1200
Chicago, Illinois 60631-3505 120 S. Riverside Plaza
(312) 695-5000 Chicago, Illinois 60606
</TABLE>
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Approximate date of commencement of proposed sale to the public:
As soon as practicable after the effective date of this Post-Effective Amendment
to the
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. /X/
If the Registrant elects to deliver its latest annual report to security
holders, or a complete and legible facsimile thereof, pursuant to Item 11(a)(1)
of this Form, check the following box. / /
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<PAGE> 2
COTTER & COMPANY
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CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
CAPTION IN
ITEM IN FORM S-2 PROSPECTUS
------------------------------------------------- -------------------------------------
<C> <S> <C>
1. Forepart of the Registration Statement and
Outside Front Cover Page of Prospectus........... Forepart of Registration Statement
and Outside Front Cover Page of
Prospectus
2. Inside Front and Outside Back Cover Pages of
Prospectus....................................... Available Information; Reports to
Securities Holders; Documents
Incorporated by Reference
3. Summary Information, Risk Factors and Ratio of
Earnings to Fixed Charges........................ Summary; The Company; Description of
Common Stock
4. Use of Proceeds.................................. Use of Proceeds
5. Determination of Offering Price.................. Outside Front Cover Page of
Prospectus and Plan of Distribution
6. Dilution......................................... Not Applicable
7. Selling Security Holders......................... Not Applicable
8. Plan of Distribution............................. Plan of Distribution
9. Description of Securities to be Registered....... Description of Common Stock
10. Interests of Named Experts and Counsel........... Not Applicable
11. Information with Respect to the Registrant....... Summary; The Company; Dividends; Se-
lected Financial Data; Management's
Discussion and Analysis of
Financial Condition and Results of
Operations; Business; Distribution
of Patronage Dividends; Description
of Common Stock; Index to
Consolidated Financial Statements
12. Incorporation of Certain Information by
Reference........................................ Documents Incorporated By Reference
13. Disclosure of Commission Position on
Indemnification for Securities Act Liabilities... Not Applicable
</TABLE>
<PAGE> 3
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
PRELIMINARY PROSPECTUS DATED MARCH 21, 1996
PROSPECTUS
COTTER & COMPANY
10,660 SHARES CLASS A COMMON STOCK, $100 PAR VALUE
(IN UNITS OF TEN SHARES)
THE COMMON STOCK OFFERED HEREUNDER IS OFFERED EXCLUSIVELY TO
RETAILERS OF HARDWARE AND RELATED PRODUCTS,
IN CONNECTION WITH BECOMING MEMBERS OF THE COMPANY.
(SEE "PLAN OF DISTRIBUTION" HEREIN.)
THE COMMON STOCK OFFERED HEREUNDER IS LIMITED AS TO TRANSFERABILITY
BY ITS TERMS. THE COMPANY RETAINS AN AUTOMATIC LIEN AGAINST
SUCH COMMON STOCK, AND DIVIDENDS ACCRUING THEREON,
FOR ANY INDEBTEDNESS DUE THE COMPANY.
(SEE "DESCRIPTION OF COMMON STOCK" HEREIN.)
THERE IS NO EXISTING MARKET FOR THE COMMON STOCK OFFERED HEREUNDER AND
THERE IS NO EXPECTATION THAT ANY MARKET WILL DEVELOP.
------------------
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.
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<TABLE>
<CAPTION>
UNDERWRITING
UNIT OF 10 SHARES OF PRICE TO DISCOUNTS AND PROCEEDS TO
CLASS A COMMON STOCK PUBLIC COMMISSIONS COMPANY
<S> <C> <C> <C>
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Per Unit(1)........................ $1,000 See (2) Below $1,000(3)
Total.............................. $1,066,000 See (2) Below $1,066,000(3)
</TABLE>
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(1) The shares will be offered only in units of 10 shares and no shareholder may
purchase more than one such unit.
(2) There will be no underwriters. The subject stock will be sold directly by
the Company at par value.
(3) There is no firm commitment for the sale of the securities offered
hereunder; they will be sold from time to time by the Company. However,
assuming the sale of all securities offered hereunder, and before deduction
of approximately $50,000 for estimated expenses in connection with this
offering, the total proceeds will be as shown above.
------------------
THE DATE OF THIS PROSPECTUS IS APRIL , 1996.
<PAGE> 4
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports and other information with the Securities and Exchange
Commission (the "Commission"). Such reports and other information filed by the
Company with the Commission can be inspected and copied at the public reference
facilities maintained by the Commission at its principal office at 450 Fifth
Street, N.W., Washington, D.C. 20549 as well as the Regional Offices of the
Commission at Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511 and 7 World Trade Center, Suite 1300, New York, New York
10048. Copies of such material can be obtained from the Public Reference Section
of the Commission, Washington, D.C., 20549 at prescribed rates.
REPORTS TO SECURITY HOLDERS
Each year the Company distributes to its stockholder-Members an annual
report containing consolidated financial statements reported upon by a firm of
independent auditors. The Company may, from time to time, also furnish to its
stockholder-Members interim reports, as determined by management.
DOCUMENTS INCORPORATED BY REFERENCE
The Company's Annual Report on Form 10-K for the fiscal year ended December
30, 1995 filed pursuant to Section 15(d) of the Exchange Act is incorporated
herein by reference. All documents filed by the Company pursuant to Section
15(d) of the Exchange Act after the date of this Prospectus and prior to the
termination of the offer shall be deemed to be incorporated by reference into
this Prospectus and to be a part hereof from the date of filing such documents.
The Company will provide without charge to each person to whom a Prospectus is
delivered, upon written or oral request of such person, a copy of any and all of
the documents incorporated by reference in the Registration Statement (other
than exhibits to such documents unless such exhibits are specifically
incorporated by reference into the documents that the Registration Statement
incorporates). Requests for such copies should be directed to Kerry J. Kirby,
Vice President and Chief Financial Officer, Cotter & Company, 8600 West Bryn
Mawr Avenue, Chicago, IL 60631-3505, (312) 695-5000.
2
<PAGE> 5
SUMMARY
This Summary is qualified in its entirety by the detailed information and
the Company's consolidated financial statements (including the notes thereto)
appearing elsewhere in this Prospectus and in the documents incorporated herein
by reference.
Cotter & Company (the "Company"), located at 8600 West Bryn Mawr Avenue,
Chicago, Illinois, 60631-3505, telephone number (312) 695-5000, is a
Member-owned wholesaler of hardware and related merchandise. It is the largest
wholesaler of hardware and related merchandise in the United States. The Company
also manufactures paint and paint applicators. For reporting purposes, the
Company operates in a single industry as a Member-owned wholesaler cooperative.
The Company's Class A common stock being offered hereby is offered
exclusively to retailers of hardware and related merchandise, in connection with
becoming Members of the Company. The Class A common stock (which is the sole
voting stock) is offered only in ten (10) share units, and no party may acquire
more than one unit; thus control of the Company is equally distributed among the
stockholder-Members. Sales of Class A common stock are made for cash.
Membership entitles a Member to use certain Company trademarks and trade
names, including the federally registered collective membership trademark
indicating membership in "True Value(R) Hardware Stores". Membership also
entitles the Member to receive annual patronage dividends based upon the
Member's purchases from the Company. In accordance with the Company's By-Laws
and Retail Member Agreement (the "Agreement"), the annual patronage dividend is
paid to Members out of the gross margins from operations and other patronage
source income, after deduction for expenses, reserves and provisions authorized
by the Board of Directors.
The Class A common stock being offered hereby is limited as to
transferability in that the Company has a ninety (90) day right of first refusal
to repurchase, at book value, a Member's stock before such stock can otherwise
be disposed of. Additionally, the Company retains an automatic lien on the Class
A common stock, and dividends accruing thereon, for any indebtedness due the
Company. The Company is obligated to repurchase a Member's Class A common stock
and the Member is obligated to sell such stock, at book value, in accordance
with the terms and conditions set forth in the Company's By-Laws upon
termination of the Agreement. The Agreement may be terminated by either the
Company or the Member upon sixty (60) days written notice. Termination by the
Company requires approval by a two-thirds vote of the Board of Directors, except
in the following circumstances where the Company has the right to immediately
terminate the Agreement: the Member becomes insolvent, commits any act of
bankruptcy, files a voluntary petition in bankruptcy, is adjudicated as
bankrupt, or commits a breach of any obligation under the Agreement, which
breach is not cured within ten (10) days after written notice to the Member by
the Company.
There is no existing market for the Class A common stock offered hereunder
and there is no expectation that any market will develop.
The Company intends to use the proceeds of this offering primarily for
general working capital purposes, including the purchase of merchandise for
resale to Members.
3
<PAGE> 6
THE COMPANY
The Company was organized as a Delaware corporation in 1953. Upon its
organization, it succeeded to the business of Cotter & Company, an Illinois
corporation organized in 1948. The Company's principal executive offices are
located at 8600 West Bryn Mawr Avenue, Chicago, Illinois, 60631-3505. Its
telephone number is (312) 695-5000.
The Company is a Member-owned wholesaler of hardware and related
merchandise. It is the largest wholesaler of hardware and related merchandise in
the United States. The Company also manufactures paint and paint applicators.
For reporting purposes, the Company operates in a single industry as a
Member-owned wholesaler cooperative.
The Company serves approximately 5,600 True Value(R) Hardware Stores
throughout the United States. Primary concentrations of Members exist in
California (approximately 8%), Illinois and New York (approximately 6% each),
Pennsylvania and Texas (approximately 5% each) and Michigan, Ohio and Wisconsin
(approximately 4% each).
USE OF PROCEEDS
The proceeds to be received from this offering will be used by the Company
primarily for general working capital purposes, including the purchase of
merchandise for resale to Members and the maintenance of adequate inventory
levels. Until used as provided herein, the net proceeds of the sale of the Class
A common stock may be invested in short-term commercial paper, bank certificates
of deposit, government securities, repurchase agreements, or other similar
short-term investments.
The Company will use its best efforts to sell the Class A common stock
being offered hereunder but can give no assurances that all such Class A common
stock will be sold. As a result, the Company may not receive the entire amount
of estimated proceeds from the sale of said Class A common stock.
PLAN OF DISTRIBUTION
The Company's Class A common stock being offered hereby is offered
exclusively to retailers of hardware and related merchandise, in connection with
becoming Members of the Company. Each independent retailer who applies to become
a stockholder-Member must subscribe for ten (10) shares of the Company's Class A
common stock, $100 par value, having a total purchase price of $1,000. All sales
of the Class A common stock will be made for cash.
Sales of Class A common stock are primarily made through the Company's
registered securities agent(s) but only after the executive officers of the
Company approve the admission of a new Member. Neither the Company's executive
officers nor its agent(s) receive any special or separate compensation or
commission in connection with the admission of new Members and concomitant sales
of Class A common stock. Although the Company's retail support representatives
frequently are the Company's initial contact with potential new Members, they do
not, and are not empowered to, admit new Members to the Company.
4
<PAGE> 7
DIVIDENDS
Other than the payment of patronage dividends, including the redemption of
some nonqualified written notices of allocation, the Company has not paid
dividends on its Class A common stock or Class B common stock. The Board of
Directors does not plan to pay dividends on either class of stock. Dividends
(other than patronage dividends) on the Class A common stock (which is being
registered herein) and Class B common stock, subject to the provisions of the
Company's Certificate of Incorporation, may be declared out of gross margins of
the Company, other than gross margins from operations with or for Members and
other patronage source income, after deduction for expenses, reserves and
provisions authorized by the Board of Directors. Dividends may be paid in cash,
in property, or in shares of the common stock, subject to the provisions of the
Certificate of Incorporation. See "Distribution of Patronage Dividends" and
"Description of Common Stock".
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
FOR THE FISCAL YEARS
--------------------------------------------------------------
1995 1994 1993 1992 1991
---------- ---------- ---------- ---------- ----------
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Revenues.............................. $2,437,002 $2,574,445 $2,420,727 $2,356,468 $2,139,887
Gross margins......................... $ 202,068 $ 223,331 $ 217,921 $ 216,608 $ 197,745
Net margins........................... $ 59,037 $ 60,318 $ 57,023 $ 60,629 $ 59,425
Patronage dividends................... $ 60,140 $ 60,421 $ 54,440 $ 60,901 $ 60,339
Total assets.......................... $ 819,576 $ 868,785 $ 803,528 $ 833,372 $ 763,109
Long-term debt and obligations under
capital leases...................... $ 79,213 $ 75,756 $ 69,201 $ 72,749 $ 13,335
Promissory (subordinated) and
instalment notes payable............ $ 186,335 $ 199,099 $ 217,996 $ 235,695 $ 235,289
Redeemable Class A common stock....... $ 5,294 $ 6,370 $ 6,633 $ 6,857 $ 7,077
Redeemable Class B common stock....... $ 113,062 $ 116,663 $ 110,773 $ 108,982 $ 104,151
Book value per share of Class A common
stock and Class B common stock(a)... $ 102.68 $ 103.57 $ 103.85 $ 101.42 $ 102.50
</TABLE>
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(a) The book value per share of the Company's Class A common stock and Class B
common stock is the value, determined in accordance with generally accepted
accounting principles, of such shares as shown by the respective year-end
consolidated balance sheets of the Company, included elsewhere herein as
reported on by the Company's independent auditors, after eliminating
therefrom all value for goodwill, and other intangible assets and any
retained earnings specifically appropriated by the Company's Board of
Directors.
5
<PAGE> 8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
FISCAL YEAR 1995 COMPARED TO FISCAL YEAR 1994
In fiscal year 1995, Cotter & Company revenues were $2,437,002,000, a
decrease of 5.3% from fiscal year 1994. This decrease was attributable to the
phase-out of the V&S(R) Variety division and the sale of the General Power
Equipment manufacturing division. Comparable sales categories were flat with the
prior year due to the soft economy and unusual weather in the United States,
combined with the declining sales in Mexico. In addition, the Company expanded
the Pinpoint Pricing program which reduced the selling price of many core
hardware and related products.
Overall merchandise gross margins, as a percentage of revenues, decreased
for the fourth year in a row. This reduction in gross margin percentage was the
result of an expanded Pinpoint Pricing program and the withdrawal from the
resigned businesses of V&S(R) Variety division and General Power Equipment
manufacturing division.
Warehouse, general and administrative expenses decreased by $18,652,000 or
14.0% compared to the prior year. As a percentage of revenue, these expenses
were 4.7% in 1995 compared to 5.2% in 1994. The decrease in operating expenses
was attributable to continued efforts to reduce operating costs, an expense
recovery associated with prior years' favorable risk loss experience and
efficiencies derived from the resigned businesses.
Interest paid to Members decreased by $2,267,000 or 9.9% primarily due to a
lower average principal balance and a decrease in the average interest rate.
Other interest increased due to the increase in the Cotter & Company term
note program.
Net margins were $59,037,000 for the year ended December 30, 1995 compared
to $60,318,000 for the year ended December 31, 1994.
FISCAL YEAR 1994 COMPARED TO FISCAL YEAR 1993
In fiscal year 1994, the Company's revenues increased $153,718,000 from
last year. Total revenues grew to $2,574,445,000, an increase of 6.4%. The
improvement resulted from increased merchandise shipments to existing Members.
Classes of merchandise with the strongest percentage increases in fiscal
year 1994 were Lumber and Building Materials, up 11.9%; Farm and Garden
Supplies, up 8.9%; Hardware Goods, up 7.3%; Appliances and Housewares, up 7.0%;
and Variety and Related Goods, up 6.4%. The South Central region of the United
States showed the largest growth at 9.4%. Other regions showing strong growth
were the Southeast at 8.1%; the Northeast at 7.2%; and North Central at 7.1%.
Consolidated gross margins increased by $5,410,000 or 2.5% but as a
percentage of revenues decreased to 8.7% from 9.0% reflecting a change in the
Company's sales mix from warehouse to direct shipments, combined with the new
Pinpoint Pricing program and more promotionally oriented merchandising programs.
6
<PAGE> 9
Warehouse, general and administrative expenses remained comparable with the
previous year but expressed as a percentage of revenues decreased to 5.2% from
5.5% due to the Company's continuing efforts to reduce operating costs.
Interest paid to Members decreased by $1,564,000 or 6.4% primarily due to a
lower average interest rate.
Net margins were $60,318,000 for the year ended December 31, 1994 compared
to $57,023,000 for the year ended January 1, 1994. The fiscal year 1993 net
margins include a one-time gain on the sale of properties of $5,985,000 offset
by the related income tax of $2,162,000.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents in fiscal year 1995 increased $20,642,000 to
$22,473,000. This improvement was primarily due to improved cash flow from
operating activities, which was $106,640,000 for the year ended December 30,
1995 compared to $88,663,000 for the year ended December 31, 1994. This
improvement in cash flow from operating activities was the result of better
management of current assets. Inventories decreased by $69,436,000 during fiscal
year 1995. Much of this reduction can be attributed to the sale of the V&S(R)
Variety and General Power Equipment Manufacturing divisions. This was
accomplished with no reduction in the Company's ability to provide merchandise
to Members. This decrease in inventory was offset partially by a corresponding
decrease in accounts payable of $36,584,000 and short-term borrowings of
$6,672,000 from fiscal year 1994 to fiscal year 1995.
Cash flows of $19,265,000 used for investing activities were comparable to
the previous year. Financing activities required $66,733,000 for the year ended
December 30, 1995 compared to $70,025,000 a year earlier.
At December 30, 1995, net working capital decreased to $202,999,000 from
$221,054,000 at December 31, 1994. The current ratio of 1.47 for December 30,
1995 is comparable to last year.
The Company has various short-term lines of credit available under informal
agreements with lending banks, cancelable by either party under specific
circumstances, which amount to $63,000,000 at December 30, 1995. The Company
pays commitment fees for these lines. The borrowings under these agreements were
$2,657,000 at December 30, 1995 and $9,329,000 at December 31, 1994.
The Company's capital is primarily derived from redeemable Class A common
stock and retained earnings, together with promissory (subordinated) notes and
redeemable nonvoting Class B common stock issued in connection with the
company's annual patronage dividend. Funds derived from these capital resources
are usually sufficient to satisfy long-term capital needs.
Total capital expenditures, including those made under capital leases, were
$28,912,000 in fiscal year 1995 compared to $21,427,000 in fiscal year 1994 and
$13,382,000 in fiscal year 1993. These capital expenditures were principally
related to additional equipment and technological improvements at the regional
distribution centers and National Headquarters. Funding of capital expenditures
in fiscal year 1996 is anticipated to come from operations and external sources,
if necessary. On December 29, 1995, the Company finalized a private shelf
agreement for available borrowings of up to $50,000,000.
7
<PAGE> 10
BUSINESS
The Company is a Member-owned wholesaler of hardware and related
merchandise. It is the largest wholesaler of hardware and related merchandise in
the United States. The Company also manufactures paint and paint applicators.
For reporting purposes, the Company operates in a single industry as a
Member-owned wholesaler cooperative.
Membership entitles a Member to use certain Company trademarks and trade
names, including the federally registered collective membership trademark
indicating membership in "True Value(R) Hardware Stores". The "True Value(R)"
collective membership mark has a present expiration date of January 2, 2003.
The Company serves approximately 5,600 True Value(R) Hardware Stores
throughout the United States. Primary concentrations of Members exist in
California (approximately 8%), Illinois and New York (approximately 6% each),
Pennsylvania and Texas (approximately 5% each) and Michigan, Ohio and Wisconsin
(approximately 4% each).
The Company's total sales of merchandise to its U.S. Members were divided
among the following general classes of merchandise:
<TABLE>
<CAPTION>
FOR THE FISCAL YEARS
---------------------
1995 1994 1993
----- ----- -----
<S> <C> <C> <C>
Hardware Goods..................................... 22.3% 20.1% 20.0%
Electrical and Plumbing............................ 17.7% 15.8% 16.3%
Painting and Cleaning.............................. 13.3% 14.4% 14.9%
Farm and Garden.................................... 13.3% 12.5% 12.3%
Lumber and Building Materials...................... 12.7% 12.9% 12.3%
Appliances and Housewares.......................... 11.7% 10.4% 10.3%
Sporting Goods and Toys............................ 9.0% 13.9% 13.9%
</TABLE>
The Company serves its Members by purchasing products in quantity lots and
selling them to Members in smaller lots, passing along any savings to Members in
the form of lower prices and/or patronage dividends. The Company holds
conventions and meetings for its Members in order to keep them better informed
as to industry trends and the availability of new merchandise. The Company also
provides each of its Members with an illustrated price catalog showing the
products available from the Company. The Company's sales to its Members are
divided into three categories, as follows: (1) warehouse shipment sales
(approximately 48% of total sales); (2) direct shipment sales (approximately 42%
of total sales); and (3) relay sales (approximately 10% of total sales).
Warehouse shipment sales are sales of products purchased, warehoused, and resold
by the Company upon orders from the Members. Direct shipment sales are sales of
products purchased by the Company but delivered directly to Members from
manufacturers. Relay sales are sales of products purchased by the Company in
response to the requests of several Members for a product which is not normally
held in inventory and is not susceptible to direct shipment. Generally, the
Company will give notice to all Members of its intention to purchase products
for relay shipment and then purchases only so many of such products as the
Members order. When the product shipment arrives at the Company, it is not
warehoused; rather, the Company breaks up the shipment and "relays" the
appropriate quantities to the Members who placed orders.
The Company also manufactures paint and paint applicators. The principal
raw materials used by the Company are chemicals. All raw materials are purchased
from outside sources. The Company has been able to obtain adequate sources of
raw materials and other items used in production and no shortages of such
materials which will materially impact operations are currently anticipated.
8
<PAGE> 11
The Company annually sponsors two "markets" (one in the Spring and one in
the Fall). In fiscal year 1996, these markets will be held in St. Louis,
Missouri. Members are invited to the markets and generally place substantial
orders for delivery during the period prior to the next market. During such
markets, new merchandise and seasonal merchandise for the coming season is
displayed to attending Members.
As of February 24, 1996 and February 25, 1995, the Company had a backlog of
firm orders (including relay orders) of approximately $23,000,000 and
$21,000,000, respectively. It is anticipated that the entire backlog existing at
February 24, 1996 will be filled by April 30, 1996. The Company's backlog at any
given time is made up of two principal components: (i) normal resupply orders
and (ii) market orders for future delivery. Resupply orders are orders from
Members for merchandise to keep inventories at normal levels. Generally, such
orders are filled the day following receipt, except that relay orders for future
delivery (which are in the nature of resupply orders) are not intended to be
filled for several months. Market orders for future delivery are Member orders
for new or seasonal merchandise given at the Company's two markets, for delivery
during the several months subsequent to the markets. Thus, the Company will have
a relatively high backlog at the end of each market which will diminish in
subsequent months until the next market.
The retail hardware industry is characterized by intense competition.
Independent retail hardware businesses served by the Company continue to face
intense competition from chain stores, discount stores, home centers, and
warehouse operations. Increased operating expenses for the retail stores,
including increased costs due to longer open-store hours and higher rental costs
of retail space, have cut into operating margins and brought pressures for lower
merchandise costs, to which the Company has been responsive through a retail
oriented competitive pricing strategy on high turnover, price sensitive items
(Pinpoint Pricing program). The trueAdvantage program was introduced in 1995 to
promote higher retail standards in order to build consumer goodwill and create a
positive image for all True Value stores.
The Company competes with other Member-owned and non-member-owned
wholesalers as a source of supply and merchandising support for independent
retailers. Competitive factors considered by independent retailers in choosing a
source of supply include pricing, servicing capabilities, promotional support
and merchandise selection and quality. Increased operating expenses and
decreased margins have resulted in several non-member-owned wholesalers
withdrawing from business.
The Company, through a Canadian subsidiary, owns a majority equity interest
in Cotter Canada Hardware and Variety Cooperative, Inc., a Canadian wholesaler
of hardware, variety and related merchandise. This cooperative serves
approximately 430 True Value(R) and V&S(R) Stores, all located in Canada. The
cooperative has approximately 340 employees and generated less than 5% of the
Company's consolidated revenue in fiscal year 1995.
The Company operates several other subsidiaries, most of which are engaged
in businesses providing additional services to the Company's Members. In the
aggregate, these subsidiaries are not significant to the Company's results of
operations.
The Company employs approximately 3,500 persons in the United States on a
full-time basis. Due to the widespread geographical distribution of the
Company's operations, employee relations are governed by the practices
prevailing in the particular area and are generally dealt with locally.
Approximately 34% of the Company's hourly-wage employees are covered by
collective bargaining agreements which are generally effective for periods of
three or four years. In general, the Company considers its relationship with its
employees to be good.
9
<PAGE> 12
DISTRIBUTION OF PATRONAGE DIVIDENDS
The Company operates on a cooperative basis with respect to business done
with or for Members. All Members are entitled to receive patronage dividend
distributions from the Company on the basis of gross margins of merchandise
and/or services purchased by each Member. In accordance with the Company's
By-Laws and Retail Member Agreement; the annual patronage dividend is paid to
Members out of the gross margins from operations and other patronage source
income, after deduction for expenses, reserves and provisions authorized by the
Board of Directors.
Patronage dividends are usually paid to Members within 60 days after the
close of the Company's fiscal year; however, the Internal Revenue Code (the
"Code") permits distribution of patronage dividends as late as the 15th day of
the ninth month after the close of the Company's fiscal year, and the Company
may elect to distribute the annual patronage dividend at a later time than usual
in accordance with the provisions of the Code.
The Company's By-Laws provide for the payment of year-end patronage
dividends, after payment of at least 20% of such patronage dividends in cash, in
qualified written notices of allocation including (i) Class B nonvoting common
stock based on book value thereof, to a maximum of 2% of the Member's net
purchases of merchandise from the Company for the year (except in unusual
circumstances of individual hardships, in which case the Board of Directors
reserves the right to make payments in cash), (ii) promissory (subordinated)
notes, or (iii) other property. The Company may also issue nonqualified written
notices of allocation to its Members as part of its annual patronage dividend.
In determining the form of the annual patronage dividend, a Member's
required investment in Class B common stock of the Company had been limited by
the Board of Directors to an amount in the aggregate not exceeding an amount
(computed on the basis of par value thereof and to the nearest multiple of $100)
equal to (i) two percent (2%) of a Member's net purchases of direct shipment
sales from the Company and purchases of direct shipment sales of "Competitive
Edge Program Lumber" materials computed separately at one percent (1%), (ii)
four percent (4%) of a Member's net purchases of relay sales from the Company
and (iii) eight percent (8%) of a Member's net warehouse purchases from the
Company in the year of the highest total net purchases of the three preceding
years. In 1995, the Board of Directors adopted a plan to continue to adequately
capitalize the Company, as a result, effective with the 1996 patronage dividend,
these percentages may be changed. In that each Member has equal voting power
(voting rights being limited to Class A common stock), acquisition of Class B
common stock as patronage dividends generally results in the larger-volume
Members having greater common stock equity in the Company but a lesser
proportionate voting power per dollar of common stock owned than smaller-volume
Members.
PAYMENT OF PATRONAGE DIVIDENDS IN ACCORDANCE WITH THE INTERNAL REVENUE CODE
The Code specifically provides for the taxation of cooperatives (such as
the Company) and their patrons (such as the Company's Members) so as to ensure
that the business earnings of cooperatives are currently taxable either to the
cooperatives or to the patrons.
The shares of Class B common stock and the promissory (subordinated) notes
distributed by the Company to its Members as partial payment of the patronage
dividend are "written notices of allocation" within the meaning of that phrase
as used in the Code. In order that such written notices of allocation shall be
deducted from earnings in determining taxable income of the Company, it is
necessary that the Company pay 20% or more of the annual patronage dividend in
cash and that the Members consent to having the allocations (at their stated
dollar amount) treated as being constructively received by them and includable
in their gross
10
<PAGE> 13
income. These conditions being met, the shares of Class B common stock and the
promissory (subordinated) notes distributed in payment of patronage dividends
become "qualified written notices of allocation" as that phrase is used in the
Code. Section 1385(a) of the Code provides, in substance, that the amount of any
patronage dividend which is paid in money or in qualified written notices of
allocation shall be included in the gross income of the patron (Member) for the
taxable year in which it receives such money or such qualified written notices
of allocation.
Thus, every year each Member may receive, as part of the Member's patronage
dividend, non-cash "qualified written notices of allocation", which may include
Class B common stock or promissory (subordinated) notes, the stated dollar
amount of which must be recognized as gross income for the taxable year in which
received. The portion of the patronage dividend paid in cash (at least 20%) may
be insufficient, depending on the tax bracket in each Member's case, to provide
funds for the payment of income taxes for which the Member will be liable as a
result of the receipt of the entire patronage dividend, including cash, Class B
common stock and promissory (subordinated) notes.
In response to the provisions of the Code, the Company's By-Laws provide
for the treatment of the shares of Class B common stock, promissory
(subordinated) notes and such other notices as the Board of Directors may
determine, distributed in payment of patronage dividends as "qualified written
notices of allocation." The By-Laws provide in effect:
(i) for payment of patronage dividends partly in cash, partly in
qualified written notices of allocation (including the Class B common stock
and promissory (subordinated) notes as described above), other property or
in nonqualified written notices of allocation, and
(ii) that membership in the organization (i.e. the status of being a
Member of the Company) shall constitute consent by the Member to take the
qualified written notices of allocation or other property into account in
the Member's gross income as provided in Section 1385(a) of the Code.
Under the provisions of the Code, persons who become or became Members of
the Company or who retained their status as Members after adoption of the
By-Laws providing that membership in the organization constitutes consent, and
after receiving written notification and a copy of the By-Laws are deemed to
have consented to the tax treatment of the cash and the qualified written
notices of allocation in which the patronage dividends are paid, in accordance
with Section 1385(a) of the Code. Written notification of the adoption of the
By-Laws and its significance, and a copy of the By-Laws, were sent to each then
existing Member and have been, and will continue to be, delivered to each party
that became, or becomes a Member thereafter. Such consent is then effective
except as to patronage occurring after the distributee ceases to be a Member of
the organization or after the By-Laws of the organization cease to contain the
provision with respect to the above described consent.
Each year since 1978, the Company has paid its Members 30% of the annual
patronage dividend in cash in respect to patronage (excluding nonqualified
written notices of allocation) occurring in the preceding year. It is the
judgment of management that the payment of 30% or more of patronage dividends in
cash will not have a material adverse effect on the operations of the Company or
its ability to maintain adequate working capital for the normal requirements of
its business. However, the Company is obligated to distribute only 20% of the
annual patronage dividend (excluding nonqualified written notices of allocation)
in cash and it may distribute this lesser percentage in future years.
In order to avoid the administrative inconvenience and expense of issuing
separate certificates representing shares of Class B common stock and separate
promissory (subordinated) notes to each Member, the
11
<PAGE> 14
Company deposits a bulk certificate and a bulk promissory (subordinated) note
with Harris Trust and Savings Bank, Chicago, Illinois for safekeeping for and on
behalf of its Members and sends a written notice to each Member of these
deposits and the allocation thereof to such Member. Each Member is, and is shown
on the books of the Company as, the registered owner of his allocation of Class
B common stock and promissory (subordinated) notes. Upon written request to the
Company, a Member can obtain a certificate for all or any portion of his Class B
common stock and a note or notes for all or any portion of the amount allocated
to his account.
MANAGEMENT
The directors and principal executive officers of the Company are as
follows:
<TABLE>
<CAPTION>
NAME (AGE) OFFICE
---------- ------
<S> <C>
Karen M. Agnew (53)............................... Vice President and Assistant
Secretary
Joe W. Blagg (46)................................. Director
Daniel T. Burns (45).............................. Vice President and Secretary
Danny R. Burton (49).............................. Vice President
David W. Christmas (47)........................... Vice President
William M. Claypool, III (73)..................... Director
Samuel D. Costa, Jr. (54)......................... Director
Daniel A. Cotter (61)............................. President, Chief Executive Officer
and Director
Leonard C. Farr (74).............................. Director
William M. Halterman (48)......................... Director
Robert F. Johnson (52)............................ Vice President
Jerrald T. Kabelin (58)........................... Director
Kerry J. Kirby (49)............................... Vice President, Chief Financial
Officer and Treasurer
Charles L. Kremers (45)........................... Vice President
Robert J. Ladner (49)............................. Chairman of the Board and Director
John F. Lottes III (55)........................... Director
Lewis W. Moore (83)............................... Director
Kenneth M. Noble (38)............................. Director
Steven J. Porter (43)............................. Executive Vice President and Chief
Operating Officer
Richard L. Schaefer (66).......................... Director
John P. Semkus (49)............................... Vice President
George V. Sheffer (43)............................ Director
Dennis A. Swanson (56)............................ Director
John M. West, Jr. (43)............................ Director
</TABLE>
During the past five years, the principal occupation of each director of
the Company, other than Daniel A. Cotter, was the operation of retail hardware
stores.
12
<PAGE> 15
DESCRIPTION OF COMMON STOCK
DIVIDEND RIGHTS. Dividends (other than patronage dividends) upon the Class
A common stock (which is being registered herein) and Class B common stock,
subject to the provisions of the Company's Certificate of Incorporation, may be
declared out of gross margins of the Company, other than gross margins from
operations with or for Members and other patronage source income, after
deduction for expenses, reserves and provisions authorized by the Board of
Directors. Dividends may be paid in cash, in property, or in shares of the
common stock, subject to the provisions of the Certificate of Incorporation (See
"Dividends").
VOTING RIGHTS. The Class A common stock, which is the sole voting stock, is
offered only in ten (10) share units, and no party may acquire more than one
unit; thus control of the Company is equally distributed among all
stockholder-Members. The holders of Class A common stock have the exclusive
voting power upon all questions submitted to shareholders, being entitled to one
vote per share, with the right of "cumulative voting" in the election of
directors. Pursuant to the Certificate of Incorporation and By-Laws of the
Company, the Board of Directors consists of directors who are elected for
staggered three-year terms.
LIQUIDATION RIGHTS. Upon dissolution, liquidation or winding up of the
Company, voluntary or involuntary, the assets are to be divided among and
distributed ratably to the holders of shares of Class A common stock and Class B
common stock pro rata in accordance with their holdings and without preference
as between the classes.
PREEMPTIVE RIGHTS. Each shareholder has the right to purchase, and must
purchase when he becomes a shareholder-Member, ten (10) shares of Class A common
stock. No shares of Class A common stock shall be issued or sold except in such
units and under such circumstances as will assure that every holder of Class A
common stock shall own an identical number of said shares. No shares of Class B
common stock shall be issued or sold except to parties who are, at the time of
issuance, a holder of shares of Class A common stock.
REDEMPTION PROVISIONS. The Retail Member Agreement (the "Agreement") may be
terminated by either the Company or the Member on sixty (60) days' written
notice. Termination by the Company requires approval by a two-thirds vote of the
Board of Directors, except in the following circumstances where the Company has
the right to immediately terminate the Agreement: the Member becomes insolvent,
commits any act of bankruptcy, files a voluntary petition in bankruptcy, is
adjudicated as bankrupt, or commits a breach of any obligation under the
Agreement, which breach is not cured within ten (10) days after written notice
to the Member by the Company. In the event the Agreement is terminated, the
Company undertakes to purchase and the Member is required to sell all of his
Class A common stock and Class B common stock at a price equal to the book value
thereof. Payment for the Class A common stock will be in cash. Payment for the
Class B common stock will be a note payable in five equal annual installments
which bears interest at the same rate per annum as the Promissory (subordinated)
notes most recently issued as part of the Company's annual patronage dividend.
SHAREHOLDERS. As of February 24, 1996, there were 5,222 shareholders of
Class A common stock and 5,197 shareholders of Class B common stock.
OTHER RESTRICTIONS AND RIGHTS. (a) There are no conversion rights, sinking
fund provisions, or liability to further calls or assessment by the Company in
regard to the Class A common stock.
(b) The Company is given an automatic lien to secure the payment of any
indebtedness due the Company from any shareholder of record upon the Class A
common stock and Class B common stock shares of such shareholder and upon any
declared and unpaid dividends thereon.
13
<PAGE> 16
(c) There is no existing market for the Class A common stock being offered.
Whenever any shareholder may desire to dispose in any manner, by sale, gift or
otherwise, of all or any part of his shares of either class of common stock, and
whenever any shareholder dies or suffers any other event giving rise to
voluntary or involuntary transfer, by operation of law or otherwise, of all or
part of his said shares, the Company is given the option, exercisable within
ninety (90) days following the date upon which it receives written notice from
the shareholder, his heirs, executors, personal representatives or other party
in interest, as the case may be, of the intended disposition or of the death of
the shareholder or other event giving rise to voluntary or involuntary transfer
of the shares, to repurchase all shares referred to in the notice. The option
price in the case of either class of common stock is the book value thereof, as
of the date of the most recently audited consolidated financial statements of
the Company. Any disposition or attempted disposition or transfer, voluntary or
involuntary, of common stock of the Company is null and void and confers no
rights upon the transferee unless and until the Company has been given the
required notice and has failed to exercise its option to purchase within the
specified time. The above restrictions do not apply, in the case of a pledge by
a shareholder of any of his shares in a bona fide transaction as security for a
debt, until the pledge or lienholder forecloses the pledge or lien. The above
restrictions do not apply at all in the case of a Class B common stock
disposition to a person who prior thereto is the owner of shares of Class A
common stock of the Company.
LEGAL MATTERS
The legality of the issuance of the Class A common stock offered hereby
will be passed upon for the Company by Messrs. Arnstein & Lehr, Suite 1200, 120
South Riverside Plaza, Chicago, Illinois 60606.
14
<PAGE> 17
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS COVERED
BY REPORT OF INDEPENDENT AUDITORS
<TABLE>
<CAPTION>
PAGE(S)
-------
<S> <C>
Report of Independent Auditors...................................................... 17
Consolidated Balance Sheet at December 30, 1995 and December 31, 1994............... 18-19
Consolidated Statement of Operations for each of the three years in the period ended
December 30, 1995................................................................. 20
Consolidated Statement of Cash Flows for each of the three years in the period ended
December 30, 1995................................................................. 21
Consolidated Statement of Capital Stock and Retained Earnings for each of the three
years in the period ended December 30, 1995....................................... 22
Notes to Consolidated Financial Statements.......................................... 23-31
</TABLE>
15
<PAGE> 18
-------------------------------------
THIS PAGE INTENTIONALLY
LEFT BLANK
-------------------------------------
16
<PAGE> 19
REPORT OF INDEPENDENT AUDITORS
To the Members and the Board of Directors
Cotter & Company
We have audited the accompanying consolidated balance sheets of Cotter &
Company as of December 30, 1995 and December 31, 1994, and the related
consolidated statements of operations, cash flows and capital stock and retained
earnings for each of the three years in the period ended December 30, 1995.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with 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 financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Cotter &
Company at December 30, 1995 and December 31, 1994, and the consolidated results
of its operations and its cash flows for each of the three years in the period
ended December 30, 1995 in conformity with generally accepted accounting
principles.
ERNST & YOUNG LLP
Chicago, Illinois
February 12, 1996
17
<PAGE> 20
COTTER & COMPANY
------------------
CONSOLIDATED BALANCE SHEET
ASSETS
<TABLE>
<CAPTION>
DECEMBER 30, DECEMBER 31,
1995 1994
------------ ------------
(000'S OMITTED)
<S> <C> <C>
Current assets:
Cash and cash equivalents..................................... $ 22,473 $ 1,831
Accounts and notes receivable................................. 287,888 294,663
Inventories................................................... 315,311 384,747
Prepaid expenses.............................................. 11,180 7,861
------------ ------------
Total current assets............................. 636,852 689,102
Properties owned, less accumulated depreciation................. 165,683 164,261
Properties under capital leases, less accumulated
amortization.................................................. 5,393 4,691
Other assets.................................................... 11,648 10,731
------------ ------------
Total assets..................................... $819,576 $868,785
========== ==========
</TABLE>
See Notes to Consolidated Financial Statements.
18
<PAGE> 21
COTTER & COMPANY
------------------
CONSOLIDATED BALANCE SHEET
LIABILITIES AND CAPITALIZATION
<TABLE>
<CAPTION>
DECEMBER 30, DECEMBER 31,
1995 1994
------------ ------------
(000'S OMITTED)
<S> <C> <C>
Current liabilities:
Accounts payable.............................................. $297,884 $334,468
Accrued expenses.............................................. 53,363 45,304
Short-term borrowings......................................... 2,657 9,329
Current maturities of notes, long-term debt and lease
obligations................................................ 61,634 60,564
Patronage dividend payable in cash............................ 18,315 18,383
------------ ------------
Total current liabilities........................ 433,853 468,048
Long-term debt.................................................. 75,449 72,163
Obligations under capital leases................................ 3,764 3,593
Capitalization:
Promissory (subordinated) and instalment notes................ 186,335 199,099
Redeemable Class A common stock and partially paid
subscriptions
(Authorized 100,000 shares; issued and fully paid 52,710
and
63,350 shares)............................................. 5,294 6,370
Redeemable Class B nonvoting common stock and paid-in capital
(Authorized 2,000,000 shares; issued and fully paid
1,055,700 and 1,047,756 shares; issuable as partial payment
of patronage dividends, 62,005 and 104,275 shares)......... 113,062 116,663
Retained earnings............................................. 2,661 3,764
------------ ------------
307,352 325,896
Foreign currency translation adjustment....................... (842) (915)
------------ ------------
Total capitalization............................. 306,510 324,981
------------ ------------
Total liabilities and capitalization............. $819,576 $868,785
========== ==========
</TABLE>
See Notes to Consolidated Financial Statements.
19
<PAGE> 22
COTTER & COMPANY
------------------
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
----------------------------------------------
DECEMBER 30, DECEMBER 31, JANUARY 1,
1995 1994 1994
------------ ------------ ----------
(000'S OMITTED)
<S> <C> <C> <C>
Revenues........................................... $2,437,002 $2,574,445 $2,420,727
------------ ------------ ----------
Cost and expenses:
Cost of revenues................................. 2,234,934 2,351,114 2,202,806
Warehouse, general and administrative............ 114,107 132,759 132,674
Interest paid to Members......................... 20,627 22,894 24,458
Other interest expense........................... 9,298 7,493 7,429
Gain on sale of properties owned................. -- (692) (5,985)
Other income, net................................ (1,177) (604) (260)
Income tax expense............................... 176 1,163 2,582
------------ ------------ ----------
2,377,965 2,514,127 2,363,704
------------ ------------ ----------
Net margins........................................ $ 59,037 $ 60,318 $ 57,023
========== ========== =========
</TABLE>
See Notes to Consolidated Financial Statements.
20
<PAGE> 23
COTTER & COMPANY
------------------
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
------------------------------------------------
DECEMBER 30, DECEMBER 31, JANUARY 1,
1995 1994 1994
------------ ------------ ----------
(000'S OMITTED)
<S> <C> <C> <C>
Operating activities:
Net margins....................................... $ 59,037 $ 60,318 $ 57,023
Adjustments to reconcile net margins to cash and
cash equivalents from operating activities:
Depreciation and amortization.................. 20,706 21,613 21,566
Provision for losses on accounts and notes
receivable................................... 3,741 4,233 4,057
Changes in operating assets and liabilities:
Accounts and notes receivable.................. (13,921) (33,112) (38,605)
Inventories.................................... 69,436 (49,145) 183
Accounts payable............................... (36,584) 79,957 (45,070)
Accrued expenses............................... 7,552 6,022 (1,143)
Other adjustments, net......................... (3,327) (1,223) (2,679)
------------ ------------ ----------
Net cash and cash equivalents
provided
by (used for) operating
activities......................... 106,640 88,663 (4,668)
------------ ------------ ----------
Investing activities:
Additions to properties owned..................... (24,904) (21,427) (13,382)
Proceeds from sale of properties owned............ 5,022 2,174 13,999
Changes in other assets........................... 617 1,132 (3,850)
------------ ------------ ----------
Net cash and cash equivalents (used
for) investing activities.......... (19,265) (18,121) (3,233)
------------ ------------ ----------
Financing activities:
Payment of annual patronage dividend.............. (18,383) (16,614) (18,570)
Payment of notes, long-term debt and lease
obligations.................................... (43,106) (39,632) (32,730)
Proceeds from long-term borrowings................ 3,000 -- --
Increase (decrease) in short-term borrowings...... (6,672) (13,851) 23,059
Purchase of common stock.......................... (1,740) (216) (470)
Proceeds from sale of Class A common stock........ 168 288 323
------------ ------------ ----------
Net cash and cash equivalents (used
for) financing activities.......... (66,733) (70,025) (28,388)
------------ ------------ ----------
Net increase (decrease) in cash and cash
equivalents....................................... 20,642 517 (36,289)
------------ ------------ ----------
Cash and cash equivalents at beginning of year...... 1,831 1,314 37,603
------------ ------------ ----------
Cash and cash equivalents at end of year............ $ 22,473 $ 1,831 $ 1,314
========== ========== ========
</TABLE>
See Notes to Consolidated Financial Statements.
21
<PAGE> 24
COTTER & COMPANY
------------------
CONSOLIDATED STATEMENT OF CAPITAL STOCK AND RETAINED EARNINGS
FOR THE THREE YEARS ENDED DECEMBER 30, 1995
<TABLE>
<CAPTION>
COMMON STOCK, $100 PAR VALUE
--------------------------------------
CLASS B FOREIGN
CLASS A ---------------- CURRENCY
------------------- ISSUED AND RETAINED TRANSLATION
ISSUED SUBSCRIBED TO BE ISSUED EARNINGS ADJUSTMENT
------ ---------- ---------------- -------- -----------
(000'S OMITTED)
<S> <C> <C> <C> <C> <C>
Balances at January 2, 1993............. $6,808 $ 49 $108,982 $ 1,284 $(932)
Net margins........................... 57,023
Foreign currency translation
adjustment......................... 262
Patronage dividend.................... 7,686 (54,440)
Stock issued for paid-up
subscriptions...................... 312 (312)
Stock subscriptions................... 308
Stock purchased and retired........... (532) (5,895)
------ ------ -------- ------ ------
Balances at January 1, 1994............. 6,588 45 110,773 3,867 (670)
Net margins........................... 60,318
Foreign currency translation
adjustment......................... (245)
Patronage dividend.................... 10,829 (60,421)
Stock issued for paid-up
subscriptions...................... 275 (275)
Stock subscriptions................... 265
Stock purchased and retired........... (528) (4,939)
------ ------ -------- ------ ------
Balances at December 31, 1994........... 6,335 35 116,663 3,764 (915)
Net margins........................... 59,037
Foreign currency translation
adjustment......................... 73
Patronage dividend.................... 6,422 (60,140)
Stock issued for paid-up
subscriptions...................... 168 (168)
Stock subscriptions................... 156
Stock purchased and retired........... (1,232) (10,023)
------ ------ -------- ------ ------
Balances at December 30, 1995........... $5,271 $ 23 $113,062 $ 2,661 $(842)
====== ====== ======== ====== ======
</TABLE>
- ---------------
Subscribed Class A common stock amounts are net of unpaid amounts of $1,000
at December 30, 1995 and December 31, 1994, $14,000 at January 1, 1994 and
$27,000 at January 2, 1993 (for 240, 360, 590, and 760 shares subscribed,
respectively).
See Notes to Consolidated Financial Statements.
22
<PAGE> 25
COTTER & COMPANY
------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS AND ACCOUNTING POLICIES
Cotter & Company (the Company) is a Member-owned wholesaler of hardware and
related merchandise. The Company also manufactures paint and paint applicators.
The Company's goods and services are sold predominantly within the United
States, primarily to retailers of hardware and related lines, each of whom has
purchased ten shares of the Company's Class A common stock upon becoming a
Member. The Company operates in a single industry as a Member-owned wholesaler
cooperative. In accordance with the Company's By-laws, the annual patronage
dividend is paid to Members out of gross margins from operations and other
patronage source income, after deduction for expenses and provisions authorized
by the Board of Directors. The significant accounting policies of the Company
are summarized below.
Consolidation. The consolidated financial statements include the accounts
of the Company and all wholly-owned subsidiaries. The consolidated financial
statements also include the accounts of Cotter Canada Hardware and Variety
Cooperative, Inc., a Canadian Member-owned wholesaler of hardware, variety and
related merchandise, in which the Company has a majority equity interest.
On January 13, 1995, the Company agreed to the sale of certain inventory of
its V&S(R) Variety division to a national wholesaler who has also agreed to
supply the majority of the V&S(R) Stores. Also, on January 31, 1995, the Company
sold certain assets of its outdoor power equipment manufacturing division to a
nationally recognized company and secured a favorable supply agreement for such
equipment. These transactions did not have a material impact on the Company's
results of operation or financial position.
Capitalization. The Company's capital (Capitalization) is derived from
redeemable Class A voting common stock and retained earnings, together with
promissory (subordinated) notes and redeemable Class B nonvoting common stock
issued in connection with the Company's annual patronage dividend. The By-laws
provide for partially meeting the Company's capital requirements by payment of
the year-end patronage dividend, of which at least twenty percent must be paid
in cash, and the balance in five-year promissory (subordinated) notes and
redeemable $100 par value Class B common stock.
Membership may be terminated without cause by either the Company or the
Member upon sixty days' written notice. In the event membership is terminated,
the Company undertakes to purchase, and the Member is required to sell to the
Company, all of the Member's Class A common stock and Class B common stock at
book value. Payment for the Class A common stock will be in cash. Payment for
the Class B common stock will be a note payable in five equal annual instalments
bearing interest at the same rate per annum as the promissory (subordinated)
notes most recently issued as part of the Company's patronage dividend.
Cash equivalents. The Company classifies its temporary investments in
highly liquid debt instruments, with an original maturity of three months or
less, as cash equivalents.
Inventories. Inventories are stated at the lower of cost, determined on the
"first-in, first-out" basis, or market.
Properties. Properties are recorded at cost. Depreciation and amortization
are computed by using the straight-line method over the following estimated
useful lives: buildings and improvements--10 to 40 years;
23
<PAGE> 26
COTTER & COMPANY
------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
machinery and warehouse, office and computer equipment--5 to 10 years;
transportation equipment-- 3 to 7 years; and leasehold improvements--the life of
the lease without regard to options for renewal.
Retirement plans. The Company sponsors two noncontributory defined benefit
retirement plans covering substantially all of its employees. Company
contributions to union-sponsored defined contribution plans are based on
collectively bargained rates times hours worked. The Company's policy is to fund
annually all tax-qualified plans to the extent deductible for income tax
purposes.
Use of estimates. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
Reporting year. The Company's reporting year-end is the Saturday closest to
December 31.
2. INVENTORIES
Inventories consisted of:
<TABLE>
<CAPTION>
DECEMBER 30, 1995 DECEMBER 31, 1994
----------------- -----------------
(000'S OMITTED)
<S> <C> <C>
Manufacturing inventories:
Raw materials......................... $ 2,139 $ 12,986
Work-in-process and finished goods.... 19,407 60,094
-------- --------
21,546 73,080
Merchandise inventories................. 293,765 311,667
-------- --------
$ 315,311 $ 384,747
======== ========
</TABLE>
3. PROPERTIES
Properties owned or leased under capital leases consisted of:
<TABLE>
<CAPTION>
DECEMBER 30, 1995 DECEMBER 31, 1994
-------------------- --------------------
OWNED LEASED OWNED LEASED
-------- ------- -------- -------
(000'S OMITTED)
<S> <C> <C> <C> <C>
Buildings and improvements.................... $173,568 $ -- $168,311 $ --
Machinery and warehouse equipment............. 60,197 -- 79,953 --
Office and computer equipment................. 77,340 -- 62,868 --
Transportation equipment...................... 21,076 11,454 22,757 14,556
-------- -------- -------- --------
332,181 11,454 333,889 14,556
Less accumulated depreciation and
amortization................................ 178,793 6,061 181,920 9,865
-------- -------- -------- --------
153,388 5,393 151,969 4,691
Land.......................................... 12,295 -- 12,292 --
-------- -------- -------- --------
$165,683 $ 5,393 $164,261 $ 4,691
======== ======== ======== ========
</TABLE>
24
<PAGE> 27
COTTER & COMPANY
------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
4. LONG-TERM DEBT AND BORROWING ARRANGEMENTS
Long-term debt consisted of:
<TABLE>
<CAPTION>
DECEMBER 30, 1995 DECEMBER 31, 1994
----------------- -----------------
(000'S OMITTED)
<S> <C> <C>
Senior note at 8.60%..................... $49,000 $50,000
Term loans:
5.97%.................................. 3,000 --
Canadian prime (7.50% and 8.00%,
respectively)....................... 3,665 3,565
Variable (7.60% and 7.20%,
respectively)....................... 6,200 6,200
Redeemable (subordinated) term notes:
6.85%.................................. 3,328 --
6.97%.................................. 1,131 --
7.00%.................................. 4,363 4,346
7.05%.................................. 3,054 --
7.37%.................................. 1,491 1,512
7.61%.................................. 3,330 3,540
Industrial Revenue Bonds (5.28%):........ 4,000 4,000
----------------- -----------------
82,562 73,163
Less amounts due within one year......... 7,113 1,000
----------------- -----------------
$75,449 $72,163
============= =============
</TABLE>
Principal payments for the 8.60% senior note are due in incrementally
increasing amounts through maturity in 2007. Under the senior note agreement,
the Company is required to meet certain financial ratios and covenants.
Principal payments for the 5.97% term loan are due quarterly beginning in
1996 through maturity in 1999. Payments for the other two term loans are due in
1997 and 1999, respectively.
The redeemable (subordinated) term notes were issued in exchange for
promissory (subordinated) notes maturing on December 31, 1995 and 1994, that
were held by promissory (subordinated) note holders, who do not own the
Company's Class A common stock. The notes are due in 1996, 1997, 1998 and 1999.
On October 1, 1997, and every three-year period thereafter, the interest
rate on the 5.28% industrial revenue bonds will be adjusted based on a bond
index. These bonds may be redeemed at face value at either the option of the
Company or the bondholders at each interest reset date through maturity in 2003.
Total maturities of long-term debt for fiscal years 1996, 1997, 1998, 1999,
2000 and thereafter are $7,113,000, $12,234,000, $9,211,000, $14,004,000,
$4,000,000 and $36,000,000, respectively.
25
<PAGE> 28
COTTER & COMPANY
------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
In addition, the Company has various short-term lines of credit available
under informal agreements with lending banks, cancellable by either party under
specific circumstances, which amount to $63,000,000 at December 30, 1995. The
Company pays commitment fees for these lines. The borrowings under these
agreements were $2,657,000 at December 30, 1995 and were at a rate of 7.50%. All
of these borrowings were for the Canadian subsidiary. At December 31, 1994, the
Company had a weighted average interest rate on short-term borrowings of 6.63%
and included both U.S. and Canadian borrowings.
5. CAPITAL LEASES AND OTHER LEASE COMMITMENTS
The Company rents buildings and warehouse, office, computer and
transportation equipment under operating and capital leases. The following is a
schedule of future minimum lease payments under capital and operating leases,
together with the present value of the net minimum lease payments, as of
December 30, 1995:
<TABLE>
<CAPTION>
CAPITAL OPERATING
------- ---------
(000'S OMITTED)
<S> <C> <C>
Fiscal years
1996................................................. $ 1,984 $ 6,832
1997................................................. 1,409 9,067
1998................................................. 1,135 7,102
1999................................................. 800 5,669
2000................................................. 305 5,134
Thereafter........................................... 306 47,599
------- ---------
Net minimum lease payments............................. 5,939 $81,403
=======
Less amount representing interest...................... 314
-------
Present value of net minimum lease payments............ 5,625
Less amounts due within one year....................... 1,861
-------
$ 3,764
======
</TABLE>
Capitalized leases expire at various dates and generally provide for
purchase options but not renewals. Purchase options provide for purchase prices
at either fair market value or a stated value which is related to the lessor's
book value at expiration of the lease term.
26
<PAGE> 29
COTTER & COMPANY
------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Rent expense under operating leases was as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
--------------------------------------------
DECEMBER 30, DECEMBER 31, JANUARY 1,
1995 1994 1994
------------ ------------ ----------
(000'S OMITTED)
<S> <C> <C> <C>
Minimum rent.................................. $ 9,553 $8,487 $8,174
Contingent rent............................... 510 611 575
---------- ------- --- ------- -
$ 10,063 $9,098 $8,749
========== ========== ========
</TABLE>
6. CAPITALIZATION
Promissory (subordinated) and instalment notes consisted of:
<TABLE>
<CAPTION>
DECEMBER 30, DECEMBER 31,
1995 1994
------------ ------------
(000'S OMITTED)
<S> <C> <C>
Promissory (subordinated) notes -
Due on December 31, 1995--7.50%........................ $ -- $ 20,783
Due on December 31, 1995--10.00%....................... -- 35,355
Due on December 31, 1996--6.00%........................ 23,588 24,888
Due on December 31, 1996--9.50%........................ 27,029 28,436
Due on December 31, 1997--10.00%....................... 16,660 17,579
Due on December 31, 1997--7.87%........................ 15,616 16,793
Due on December 31, 1998--7.47%........................ 16,461 --
Due on December 31, 1998--8.00%........................ 27,048 28,512
Due on December 31, 1999--8.00%........................ 25,470 27,030
Due on December 31, 1999--8.20% (issued in 1995)....... 25,327 27,909
Due on December 31, 2000--6.50%........................ 23,996 25,628
Due on December 31, 2000--7.58% (to be issued)......... 32,047 --
Instalment notes at interest rates of 6.50% to 10.00%
with maturities through 1999........................ 5,753 4,010
---------- ----------
238,995 256,923
Less amounts due within one year......................... 52,660 57,824
---------- ----------
$186,335 $199,099
========== ==========
</TABLE>
The promissory notes are issued principally in payment of the annual
patronage dividend. Promissory notes are subordinated to indebtedness to banking
institutions, trade creditors and other indebtedness of the Company as specified
by its Board of Directors. Notes to be issued relate to the patronage dividend
which is distributed after the end of the year. Prior experience indicates that
the maturities of a significant portion of the notes due within one year are
extended, for a three year period, at interest rates substantially equivalent to
competitive market rates of comparable instruments. The Company anticipates that
this practice will continue.
27
<PAGE> 30
COTTER & COMPANY
------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Total maturities of promissory and instalment notes for fiscal years 1996,
1997, 1998, 1999, and 2000 are $52,660,000, $34,007,000, $44,772,000,
$51,514,000, and $56,042,000, respectively.
7. FAIR VALUE OF FINANCIAL INSTRUMENTS
Due to the uncertainty of the ultimate maturities of the promissory
(subordinated) notes, management believes it is impracticable to estimate their
fair value. The carrying amounts of the Company's other financial instruments
approximate fair value. Fair value was estimated using discounted cash flow
analyses, based on the Company's incremental borrowing rate for similar
borrowings.
8. INCOME TAXES
At December 30, 1995, the Company has alternative minimum tax credit
carryforwards of approximately $900,000 which do not expire. The carryforwards
are available to offset future federal tax liabilities.
Significant components of the Company's deferred tax assets and liabilities
as of December 30, 1995 resulted primarily from alternative minimum tax credit
carryforwards and temporary differences between income tax and financial
reporting for depreciation, vacation pay and contributions to fund retirement
plans.
Significant components of the provision (benefit) for income taxes are as
follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
--------------------------------------------
DECEMBER 30, DECEMBER 31, JANUARY 1,
1995 1994 1994
------------ ------------ ----------
(000'S OMITTED)
<S> <C> <C> <C>
Current:
Federal..................................... $ (363) $ 486 $ 343
State....................................... 379 462 22
Foreign..................................... 273 278 237
------------ ------------ ----------
Total current............................... 289 1,226 602
------------ ------------ ----------
Deferred:
Federal..................................... (145) (147) 1,582
State....................................... (26) (26) 317
Foreign..................................... 58 110 81
------------ ------------ ----------
Total deferred.............................. (113) (63) 1,980
------------ ------------ ----------
$ 176 $1,163 $2,582
========== ========== ========
</TABLE>
28
<PAGE> 31
COTTER & COMPANY
------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company operates as a nonexempt cooperative and is allowed a deduction
in determining its taxable income for amounts paid as patronage dividend based
on margins from business done with or for Members. The reconciliation of income
tax expense to income tax computed at the U.S. federal statutory tax rate of 35%
in fiscal year 1995, 1994 and 1993 is as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
------------------------------------------
DECEMBER 30, DECEMBER 31, JANUARY 1,
1995 1994 1994
------------ ------------ ----------
(000'S OMITTED)
<S> <C> <C> <C>
Tax at U.S. statutory rate.................. $ 20,725 $ 21,518 $ 20,862
Effects of:
Patronage dividend........................ (21,049) (21,147) (19,054)
State income taxes, net of federal tax
benefit................................ 229 283 220
Other, net................................ 271 509 554
-------- -------- ---------
$ 176 $ 1,163 $ 2,582
======== ======== =========
</TABLE>
9. CASH FLOW
The Company's noncash financing and investing activities in fiscal year
1995 include acquisition of transportation equipment by entering into capital
leases and the acquisition of property for resale. These transactions aggregate
$4,008,000. In addition, the annual patronage dividend and promissory
(subordinated) note renewals relating to noncash operating and financing
activities are as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
------------------------------------------
DECEMBER 30, DECEMBER 31, JANUARY 1,
1995 1994 1994
------------ ------------ ----------
(000'S OMITTED)
<S> <C> <C> <C>
Patronage dividend payable in cash......................... $ 18,315 $ 18,383 $ 16,614
Promissory (subordinated) notes............................ 23,536 23,213 20,852
Class B nonvoting common stock............................. (2,592) 5,900 2,086
Instalment notes........................................... 5,972 3,058 2,939
Member indebtedness........................................ 14,909 9,867 11,949
-------- -------- --------
$ 60,140 $ 60,421 $ 54,440
======== ======== ========
Note renewals.............................................. $ 23,974 $ 26,191 $ 27,187
======== ======== ========
</TABLE>
Cash paid for interest during fiscal years 1995, 1994 and 1993 totaled
$29,624,000, $30,583,000 and $32,056,000, respectively. Cash paid for income
taxes during fiscal years 1995, 1994 and 1993 totaled $1,012,000, $1,709,000 and
$1,387,000, respectively.
29
<PAGE> 32
COTTER & COMPANY
------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
10. RETIREMENT PLANS
The components of net pension cost for the Company administered pension
plans consisted of:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
----------------------------------------------
DECEMBER 30, DECEMBER 31, JANUARY 1,
1995 1994 1994
------------ ------------ ----------
(000'S OMITTED)
<S> <C> <C> <C>
Income:
Actual return (loss) on plan assets................. $ 25,564 $ (1,543) $ 7,486
Amortization of excess plan assets.................. 914 920 920
------------ ------------ ----------
26,478 (623) 8,406
------------ ------------ ----------
Expenses:
Service cost-benefits earned during year............ 4,152 4,765 4,556
Interest on projected benefit obligation............ 7,242 6,736 6,266
Deferral of excess (deficiency) of actual over
estimated return on plan assets.................. 18,021 (8,815) 1,042
------------ ------------ ----------
29,415 2,686 11,864
------------ ------------ ----------
Net pension cost...................................... $ 2,937 $ 3,309 $ 3,458
========== ========== =======
</TABLE>
The discount rate and the rate of increase in future compensation levels
used in determining the actuarial present value of the projected benefit
obligation were 7.25% and 4.50%, respectively, in 1995, 8.50% and 4.50%,
respectively, in fiscal year 1994 and 7.50% and 4.50%, respectively, in fiscal
year 1993. These changes in actuarial assumptions did not have a material impact
on net pension cost for fiscal year 1995 and the Company does not anticipate
that these changes will have a material impact on net pension cost in future
years. In fiscal years 1995, 1994 and 1993, the expected long-term rate of
return on assets was 9.50%. During 1995, the Company amended its pension plan.
This amendment had no material impact on the projected benefit obligation.
Plan assets are composed primarily of corporate equity and debt securities.
Benefits are based on years of service and the employee's compensation during
the last ten years of employment, offset by a percentage of
30
<PAGE> 33
COTTER & COMPANY
------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Social Security retirement benefits. Trusteed net assets and actuarially
computed benefit obligations for the Company administered pension plans are
presented below:
<TABLE>
<CAPTION>
DECEMBER 30, DECEMBER 31,
1995 1994
------------ ------------
(000'S OMITTED)
<S> <C> <C>
Assets:
Total plan assets at fair value................................. $104,396 $ 80,046
========== ==========
Obligations:
Accumulated benefit obligations:
Vested....................................................... $ 77,435 $ 53,055
Non-vested................................................... 10,830 7,683
Effect of projected compensation increases...................... 21,730 19,924
------------ ------------
Total projected benefit obligations............................. 109,995 80,662
------------ ------------
Net excess assets (liabilities):
Unrecognized:
Unamortized excess assets at original date................... 7,673 8,643
Net actuarial gain (loss).................................... (3,793) 565
Prior service costs.......................................... (4,017) (5,313)
Recognized accrued pension cost................................. (5,462) (4,511)
------------ ------------
Total net excess assets (liabilities)........................... (5,599) (616)
------------ ------------
Total obligations and net excess assets (liabilities)............. $104,396 $ 80,046
========== ==========
</TABLE>
The Company also participates in union-sponsored defined contribution
plans. Pension costs related to these plans were $720,000, $757,000, and
$702,000 for fiscal years 1995, 1994 and 1993, respectively.
31
<PAGE> 34
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
THIS PROSPECTUS DOES NOT CONTAIN ALL THE INFORMATION SET FORTH IN THE
REGISTRATION STATEMENT, AND THE EXHIBITS AND SCHEDULES RELATING THERETO, WHICH
THE COMPANY HAS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION, WASHINGTON,
D. C. UNDER THE SECURITIES ACT OF 1933 AND TO WHICH REFERENCE IS HEREBY MADE FOR
FURTHER INFORMATION WITH RESPECT TO THE COMPANY AND THE SECURITIES OFFERED
HEREBY.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ITEM PAGE
- ----------------------------------------- ---
<S> <C>
Available Information.................... 2
Reports to Security Holders.............. 2
Documents Incorporated by Reference...... 2
Summary.................................. 3
The Company.............................. 4
Use of Proceeds.......................... 4
Plan of Distribution..................... 4
Dividends................................ 5
Selected Financial Data.................. 5
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................. 6
Business................................. 8
Distribution of Patronage Dividends...... 10
Management............................... 12
Description of Common Stock.............. 13
Legal Matters............................ 14
Index to Consolidated Financial
Statements Covered by Report of
Independent Auditors................... 15
</TABLE>
NO DEALER, SALESMAN, OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFERING CONTAINED IN THIS PROSPECTUS, AND, IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
COTTER & COMPANY
10,660 SHARES
CLASS A COMMON STOCK
$100 PAR VALUE
(IN UNITS OF 10 SHARES)
------------------
PROSPECTUS
------------------
DATED APRIL , 1996
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 35
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following are the actual or estimated expenses in connection with the
issuance and distribution of the Common Stock being registered:
<TABLE>
<S> <C>
Registration Fee.................................................... $ --
Printing of Registration Statement and Prospectus................... 16,000
Accounting Fees and Expenses........................................ 9,000
Legal Fees.......................................................... 10,000
Fees and Expenses for Qualifying Securities under "Blue Sky" Laws of
Various States.................................................... 15,000
-------
Total............................................................... $50,000
=======
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's Certificate of Incorporation, as amended, provides that the
Company shall indemnify, in accordance with and to the full extent permitted by
the Delaware General Corporation Law, any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(including, without limitation, an action by or in the right of the Company), by
reason of the fact that such person is or was a director, officer, employee or
agent of the Company, or is or was serving at the request of the Company as a
director, officer, employee or agent of another Company, partnership, joint
venture, trust or other enterprise, against any liability or expense actually
and reasonably incurred by such person in respect thereof. Such indemnification
is not exclusive of any other right of such director, officer, or employee to
indemnification provided by law or otherwise.
Additionally, pursuant to Section 145(a)-(g) of the Delaware General
Corporation Law which empowers a corporation to indemnify its directors,
officers, employees and agents, the Board of Directors of the Company on July
23, 1973 adopted a By-Law (Article XII, Indemnification of Directors, Officers
and Employees--Exhibit 3-A to the Company's Form 10-K Annual Report for the year
ended January 1, 1994 and incorporated herein by reference) providing for such
indemnification. The following is a summary of the most significant provisions
of said By-Law:
As against third parties, the Company shall indemnify any director,
officer, employee or agent for any expenses (including attorneys' fees,
judgments, fines and amounts paid in settlement) actually and reasonably
incurred in defending any threatened, pending or completed suit or proceeding,
whether civil, criminal, administrative or investigative brought against such
person by reason of the fact that he was or is a director, officer, employee or
agent, if such person acted in good faith and in a manner he reasonably believed
to be in or not opposed to the best interest of the Company, and with respect to
any criminal action or proceeding if he had no reasonable cause to believe his
conduct unlawful.
In any action or suit by or in the right of the Company, the Company shall
indemnify any director, officer, employee or agent who is or was a party or
threatened to be made a party to such threatened, pending or completed action or
suit, for expenses (including attorney's fees and amounts paid in settlement)
reasonably and actually incurred in connection with the defense or settlement of
such suit or action, if such person acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interest of the Company,
except that no indemnification shall be made if such person has been adjudged to
be liable for
S-1
<PAGE> 36
negligence or misconduct in the performance of his duty to the Company unless
and only to the extent that the Court of Chancery of Delaware or the court where
the suit was brought finds that in view of all the circumstances of the case,
such person is entitled to indemnification.
Any indemnification, unless ordered by a court, shall be made by the
Company only as authorized in the specific case upon a determination that
indemnification is proper in the circumstances because the party to be
indemnified has met the applicable standard of conduct. Such determination shall
be made by the Board of Directors by a majority vote of a quorum, consisting of
directors who were not parties of such action, suit or proceeding, or if such a
quorum is not obtainable, or even if obtainable, if a quorum of disinterested
directors so directs, by independent legal counsel in a written opinion, or by
the stockholders.
Additionally, the shareholders of the Company have approved an amendment to
the Certificate of Incorporation to eliminate personal liability of directors to
the Company or its shareholders for monetary damages for breach of fiduciary
duty of care. The amendment provides that a director of the Company shall not be
liable to the Company or its stockholders for monetary damages for breach of
fiduciary duty as a director, except to the extent such exemption from liability
or limitation thereof is not permitted under the Delaware General Corporation
Law as the same exists or may hereafter be amended.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 is concerned, see Item 17 "Undertakings" below.
ITEM 16. EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
----- -----------
<S> <C>
4-A Article Fourth of the Certificate of Incorporation of the Company, setting
forth the designations and the powers, preferences and rights, and the
qualifications, limitations and restrictions of the Class A common stock and
Class B common stock of the Company. Article Twelfth of the Certificate of
Incorporation of the Company, setting forth certain limitations on the rights
of shareholders to bring an action against directors for breach of the duty of
care. Incorporated by reference--Exhibit 3-A to the Company's Form 10-K Annual
Report for the year ended January 1, 1994.
4-B Articles VI, VII, VIII, IX and XI of the By-Laws of the Company relating to:
certain qualifications, limitations and restrictions on the common stock of the
Company; the Member agreement between the Company and its shareholders; the
payment of patronage dividends; dividends; qualifying shares; and valuation of
Class B common stock of the Company issued as part of the annual patronage
dividend. Incorporated by reference--Exhibit 3-B to the Company's Form 10-K
Annual Report for the year ended January 1, 1994.
4-C Specimen certificate of Class A common stock. Incorporated by
reference--Exhibit 4-A to Registration Statement on Form S-2 (No. 2-82836).
4-D Specimen certificate of Class B common stock. Incorporated by
reference--Exhibit 4-B to Registration Statement on Form S-2 (No. 2-82836).
4-E Promissory (subordinated) note form effective for the year-ending December 31,
1986 and thereafter. Incorporated by reference--Exhibit 4-H to Registration
Statement on Form S-2 (No. 33-20960).
</TABLE>
S-2
<PAGE> 37
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
----- -----------
<S> <C>
4-F Instalment note form. Incorporated by reference--Exhibit 4-F to Registration
Statement on Form S-2 (No. 2-82836).
4-G Copy of Note Agreement with Prudential Insurance Company of America dated April
13, 1992 securing 8.60% Senior Notes in the principal sum of $50,000,000 with a
maturity date of April 1, 2007. Incorporated by reference--Exhibit 4-J to
Post-Effective Amendment No. 2 to Registration Statement on Form S-2 (No.
33-39477).
4-H Cotter & Company $50,000,000 Private Shelf Agreement with Prudential Insurance
Company of America dated December 29, 1995 incorporating amendment on existing
Note Agreement with Prudential Insurance Company of America securing 8.60%
Senior Notes in the principal sum of $50,000,000 with a maturity date of April
1, 2007.
4-I Trust Indenture between Cotter & Company and First Trust of Illinois (formerly
Bank of America). Incorporated by reference--Exhibit T3C to Cotter & Company
Form T-3 (No. 22-26210).
5 Opinion of Messrs. Arnstein & Lehr.
10-A Form of "Retail Member Agreement with Cotter & Company" between the Company and
its Members that offer primarily hardware and related items. Incorporated by
reference--Exhibit 10-C to Post-Effective Amendment No. 2 to Registration
Statement on Form S-2 (No. 33-39477).
10-B Current form of "Subscription to Shares of Cotter & Company". Incorporated by
reference--Exhibit 10-H to Registration Statement on Form S-2 (No. 2-82836).
10-C Cotter & Company Defined Lump Sum Pension Plan (As Amended and Restated
Effective As Of January 1, 1996).
10-D Cotter & Company Employees' Savings and Compensation Deferral Plan (As Amended
and Restated Effective April 1, 1994). Incorporated by reference--Exhibit 10-D
to Post-Effective Amendment No. 4 to Registration Statement on Form S-2
(33-39477).
10-E Cotter & Company Supplemental Retirement Plan between Cotter & Company and
selected executives of the Company (As Amended and Restated January 2, 1996
Effective As Of January 1, 1996).
10-F Annual Incentive Compensation Program and Long-Term Incentive Compensation
Program between Cotter & Company and selected executives of the Company.
Incorporated by reference--filed as Exhibits A and B to Exhibit 10-N to
Registration Statement on Form S-2 (No. 33-39477).
10-G Cotter & Company Long-Term Incentive Compensation Program for Executive
Management (Amended) dated November 7, 1994. Incorporated by reference--Exhibit
10-I to Post-Effective Amendment No. 4 to Registration Statement on Form S-2
(No. 33-39477).
10-H Employment Agreement between Cotter & Company and Daniel A. Cotter dated
October 15, 1984. Incorporated by reference--Exhibit 10-N to Post-Effective
Amendment No. 2 to Registration Statement on Form S-2 (No. 2-82836).
10-I Amendment No. 1 to Employment Agreement between Cotter & Company and Daniel A.
Cotter dated October 15, 1984 effective January 1, 1991. Incorporated by
reference--Exhibit 10-N to Registration Statement on Form S-2 (No. 33-39477).
</TABLE>
S-3
<PAGE> 38
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
----- -------------------------------------------------------------------------------
<S> <C>
10-J Contract between Daniel T. Burns and the Company.
10-K Contract between Kerry J. Kirby and the Company.
23-A Consent of Arnstein & Lehr is included in Exhibit 5 to this Registration
Statement.
23-B Consent of Independent Auditors (included on page S-6).
27 Financial Data Schedule.
</TABLE>
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:
(i) To include any Prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the Prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the Registration Statement.
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the Registration Statement
or any material change to such information in the Registration
Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new Registration Statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Company pursuant to the foregoing provisions described in Item 15, or otherwise,
the Company has been advised that in the opinion of the Securities and Exchange
Commission such indemnification 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 Company of expenses
incurred or paid by a director, officer or controlling person of the Company 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 Company will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question 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.
S-4
<PAGE> 39
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL OF THE
REQUIREMENTS FOR FILING ON FORM S-2 AND HAS DULY CAUSED THIS AMENDMENT TO
REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO
DULY AUTHORIZED, IN THE CITY OF CHICAGO, STATE OF ILLINOIS, ON THE 19TH DAY OF
MARCH 1996.
COTTER & COMPANY
By: /s/ DANIEL A. COTTER
---------------------------------------
Daniel A. Cotter
President, Chief Executive Officer
and Director
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
TO REGISTRATION STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------- --------------------------------------------- ---------------
<S> <C> <C>
/s/ DANIEL A. COTTER President, Chief Executive Officer and March 19, 1996
- --------------------------------------- Director
Daniel A. Cotter
/s/ STEVEN J. PORTER Executive Vice President and Chief Operating March 19, 1996
- --------------------------------------- Officer
Steven J. Porter
/s/ KERRY J. KIRBY Vice President, Treasurer and Chief Financial March 19, 1996
- --------------------------------------- Officer
Kerry J. Kirby
/s/ JERRALD T. KABELIN Chairman of the Board and Director March 19, 1996
- ---------------------------------------
Jerrald T. Kabelin
/s/ WILLIAM M. CLAYPOOL, III Director March 19, 1996
- ---------------------------------------
William M. Claypool, III
/s/ SAMUEL D. COSTA, JR. Director March 19, 1996
- ---------------------------------------
Samuel D. Costa, Jr.
/s/ LEONARD C. FARR Director March 19, 1996
- ---------------------------------------
Leonard C. Farr
/s/ WILLIAM M. HALTERMAN Director March 19, 1996
- ---------------------------------------
William M. Halterman
/s/ ROBERT J. LADNER Director March 19, 1996
- ---------------------------------------
Robert J. Ladner
/s/ LEWIS W. MOORE Director March 19, 1996
- ---------------------------------------
Lewis W. Moore
/s/ KENNETH M. NOBLE Director March 19, 1996
- ---------------------------------------
Kenneth M. Noble
/s/ RICHARD L. SCHAEFER Director March 19, 1996
- ---------------------------------------
Richard L. Schaefer
/s/ GEORGE V. SHEFFER Director March 19, 1996
- ---------------------------------------
George V. Sheffer
/s/ DENNIS A. SWANSON Director March 19, 1996
- ---------------------------------------
Dennis A. Swanson
/s/ ROBERT G. WATERS Director March 19, 1996
- ---------------------------------------
Robert G. Waters
/s/ JOHN M. WEST, JR. Director March 19, 1996
- ---------------------------------------
John M. West, Jr.
/s/ DONALD E. YEAGER Director March 19, 1996
- ---------------------------------------
Donald E. Yeager
</TABLE>
S-5
<PAGE> 40
CONSENT OF INDEPENDENT AUDITORS
We consent to the use of our report dated February 12, 1996, in
Post-Effective Amendment No. 5 to the Registration Statement (Form S-2 No.
33-39477) and related Prospectus of Cotter & Company for the registration of
10,660 shares of its Class A common stock. We also consent to the incorporation
by reference therein our report with respect to the consolidated financial
statements of Cotter & Company for each of the three years in the period ended
December 30, 1995 included in the Annual Report (Form 10-K) of Cotter & Company
for the year ended December 30, 1995, filed with the Securities and Exchange
Commission.
ERNST & YOUNG LLP
Chicago, Illinois
March 19, 1996
S-6
<PAGE> 41
INDEX TO EXHIBITS FILED
TO POST-EFFECTIVE AMENDMENT NO. 5 TO
REGISTRATION STATEMENT ON
FORM S-2 OF COTTER & COMPANY
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
- ------ ----------------------------------------------------------------------------------
<S> <C>
4-H Cotter & Company $50,000,000 Private Shelf Agreement with Prudential Insurance
Company of America dated December 29, 1995 incorporating amendment on existing
Note Agreement with Prudential Insurance Company of America securing 8.60% Senior
Notes in the principal sum of $50,000,000 with a maturity date of April 1, 2007.
5 Opinion of Messrs. Arnstein & Lehr.
10-C Cotter & Company Defined Lump Sum Pension Plan (As Amended and Restated Effective
as of January 1, 1996).
10-E Cotter & Company Supplemental Retirement Plan between Cotter & Company and
selected executives of the Company (As Amended and Restated January 2, 1996
Effective as of January 1, 1996).
10-J Contract between Daniel T. Burns and the Company.
10-K Contract between Kerry J. Kirby and the Company.
23-B Consent of Independent Auditors (included on page S-6).
27 Financial Data Schedule
</TABLE>
Exhibits incorporated by reference are listed on Pages S-2 through S-4 of
Post-Effective Amendment No. 5 to Registration Statement on Form S-2 of Cotter &
Company.
S-7
<PAGE> 1
EXHIBIT 4.H
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
COTTER & COMPANY
$50,000,000
PRIVATE SHELF AGREEMENT
DATED AS OF DECEMBER 29, 1995
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
COTTER & COMPANY
8600 West Bryn Mawr Avenue
Chicago, Illinois 60631
As of December 29, 1995
The Prudential Insurance Company
of America ("PRUDENTIAL")
Each Prudential Affiliate (as hereinafter
defined) which becomes bound by certain
provisions of this Agreement as hereinafter
provided (together with Prudential
the "PURCHASERS")
c/o Prudential Capital Group
Two Prudential Plaza
Suite 5600
Chicago, Illinois 60601
Ladies and Gentlemen:
The undersigned, COTTER & COMPANY, a Delaware corporation (herein called
the "COMPANY"), hereby agrees with you as set forth below. Reference is made
to paragraph 10 hereof for definitions of capitalized terms used herein and not
otherwise defined herein.
1. AUTHORIZATION OF ISSUE OF SHELF NOTES.
The Company will authorize the issue of its senior promissory notes (the
"SHELF NOTES") in the aggregate principal amount of $50,000,000, to be dated
the date of issue thereof, to mature, in the case of each Shelf Note so issued,
no more than 15 years after the date of original issuance thereof, to have an
average life, in the case of each Shelf Note so issued, of no more than 15
years after the date of original issuance thereof, to bear interest on the
unpaid balance thereof from the date thereof at the rate per annum, and to have
such other particular terms, as shall be set forth, in the case of each Shelf
Note so issued, in the Confirmation of Acceptance with respect to such Shelf
Note delivered pursuant to paragraph 2B(5), and to be substantially in the form
of Exhibit A attached hereto. The terms "NOTE", "NOTES", "SHELF NOTE" and
"SHELF NOTES" as used herein shall include each Shelf Note delivered pursuant
to any provision of this Agreement and each Shelf Note delivered in
substitution or exchange for any such Shelf Note pursuant to any such
provision. Notes which have (i) the same final maturity, (ii) the same
principal prepayment dates, (iii) the same principal prepayment amounts (as a
percentage of the original principal amount of each Note), (iv) the same
interest rate, (v) the same interest payment periods and (vi) the same date of
issuance (which, in the case of a Note issued in exchange for another Note,
shall be deemed for these purposes the date on which such Note's ultimate
predecessor Note was issued), are herein called a "SERIES" of Notes.
2. PURCHASE AND SALE OF NOTES.
2A. [INTENTIONALLY LEFT BLANK]
<PAGE> 3
2B. PURCHASE AND SALE OF SHELF NOTES.
2B(1). FACILITY. Prudential is willing to consider, in its sole
discretion and within limits which may be authorized for purchase by Prudential
and Prudential Affiliates from time to time, the purchase of Shelf Notes
pursuant to this Agreement. The willingness of Prudential to consider such
purchase of Shelf Notes is herein called the "FACILITY". At any time, the
aggregate principal amount of Shelf Notes stated in paragraph 1B, minus the
aggregate principal amount of Shelf Notes purchased and sold pursuant to this
Agreement prior to such time, minus the aggregate principal amount of Accepted
Notes (as hereinafter defined) which have not yet been purchased and sold
hereunder prior to such time, is herein called the "AVAILABLE FACILITY AMOUNT"
at such time. NOTWITHSTANDING THE WILLINGNESS OF PRUDENTIAL TO CONSIDER
PURCHASES OF SHELF NOTES, THIS AGREEMENT IS ENTERED INTO ON THE EXPRESS
UNDERSTANDING THAT NEITHER PRUDENTIAL NOR ANY PRUDENTIAL AFFILIATE SHALL BE
OBLIGATED TO MAKE OR ACCEPT OFFERS TO PURCHASE SHELF NOTES, OR TO QUOTE RATES,
SPREADS OR OTHER TERMS WITH RESPECT TO SPECIFIC PURCHASES OF SHELF NOTES, AND
THE FACILITY SHALL IN NO WAY BE CONSTRUED AS A COMMITMENT BY PRUDENTIAL OR ANY
PRUDENTIAL AFFILIATE.
2B(2). ISSUANCE PERIOD. Shelf Notes may be issued and sold pursuant to
this Agreement until the earlier of (i) the third anniversary of the date of
this Agreement (or if such anniversary date is not a Business Day, the Business
Day next preceding such anniversary) and (ii) the thirtieth day after
Prudential shall have given to the Company, or the Company shall have given to
Prudential, a written notice stating that it elects to terminate the issuance
and sale of Shelf Notes pursuant to this Agreement (or if such thirtieth day is
not a Business Day, the Business Day next preceding such thirtieth day). The
period during which Shelf Notes may be issued and sold pursuant to this
Agreement is herein called the "ISSUANCE PERIOD".
2B(3). REQUEST FOR PURCHASE. The Company may from time to time during the
Issuance Period make requests for purchases of Shelf Notes (each such request
being herein called a "REQUEST FOR PURCHASE"). Each Request for Purchase shall
be made to Prudential by telecopier or overnight delivery service, and shall
(i) specify the aggregate principal amount of Shelf Notes covered thereby,
which shall not be less than $5,000,000 and not be greater than the Available
Facility Amount at the time such Request for Purchase is made, (ii) specify the
principal amounts, final maturities, principal prepayment dates and amounts of
the Shelf Notes covered thereby, (iii) specify the use of proceeds of such
Shelf Notes, (iv) specify the proposed day for the closing of the purchase and
sale of such Shelf Notes, which shall be a Business Day during the Issuance
Period not less than 10 days and not more than 25 days after the making of such
Request for Purchase, (v) specify the number of the account and the name and
address of the depository institution to which the purchase prices of such
Shelf Notes are to be transferred on the Closing Day for such purchase and
sale, (vi) certify that the representations and warranties contained in
paragraph 8 are true on and as of the date of such Request for Purchase and
that there exists on the date of such Request for Purchase no Event of Default
or Default, and (vii) be substantially in the form of Exhibit B attached
hereto. Each Request for Purchase shall be in writing and shall be deemed made
when received by Prudential.
2B(4) RATE QUOTES. Not later than five Business Days after the Company
shall have given Prudential a Request for Purchase pursuant to paragraph 2B(3),
Prudential may, but shall be under no obligation to, provide to the Company by
telephone or telecopier, in each case between 9:30 A.M. and 1:30 P.M. New York
City local time (or such later time as Prudential may elect) interest rate
quotes for the several principal amounts, maturities and principal prepayment
schedules of Shelf Notes specified in such Request for Purchase. Each quote
2
<PAGE> 4
shall represent the interest rate per annum payable on the outstanding
principal balance of such Shelf Notes at which Prudential or a Prudential
Affiliate would be willing to purchase such Shelf Notes at 100% of the
principal amount thereof.
2B(5). ACCEPTANCE. Within the ACCEPTANCE WINDOW, the Company may, subject
to paragraph 2B(6), elect to accept such interest rate quotes as to not less
than $5,000,000 aggregate principal amount of the Shelf Notes specified in the
related Request for Purchase. Such election shall be made by an Authorized
Officer of the Company notifying Prudential by telephone or telecopier within
the Acceptance Window that the Company elects to accept such interest rate
quotes, specifying the Shelf Notes (each such Shelf Note being herein called an
"ACCEPTED NOTE") as to which such acceptance (herein called an "ACCEPTANCE")
relates. The day the Company notifies an Acceptance with respect to any
Accepted Notes is herein called the "ACCEPTANCE DAY" for such Accepted Notes.
Any interest rate quotes as to which Prudential does not receive an Acceptance
within the Acceptance Window shall expire, and no purchase or sale of Shelf
Notes hereunder shall be made based on such expired interest rate quotes.
Subject to paragraph 2B(6) and the other terms and conditions hereof, the
Company agrees to sell to Prudential or a Prudential Affiliate, and Prudential
agrees to purchase, or to cause the purchase by a Prudential Affiliate of, the
Accepted Notes at 100% of the principal amount of such Notes. As soon as
practicable following the Acceptance Day, the Company, Prudential and each
Prudential Affiliate which is to purchase any such Accepted Notes will execute
a confirmation of such Acceptance substantially in the form of Exhibit C
attached hereto (herein called a "CONFIRMATION OF ACCEPTANCE"). If the Company
should fail to execute and return to Prudential within three Business Days
following receipt thereof a Confirmation of Acceptance with respect to any
Accepted Notes, Prudential may at its election at any time prior to its receipt
thereof cancel the closing with respect to such Accepted Notes by so notifying
the Company in writing.
2B(6). MARKET DISRUPTION. Notwithstanding the provisions of paragraph
2B(5), if Prudential shall have provided interest rate quotes pursuant to
paragraph 2B(4) and thereafter prior to the time an Acceptance with respect to
such quotes shall have been notified to Prudential in accordance with paragraph
2B(5) the domestic market for U.S. Treasury securities or derivatives shall
have closed or there shall have occurred a general suspension, material
limitation, or significant disruption of trading in securities generally on the
New York Stock Exchange or in the domestic market for U.S. Treasury securities
or derivatives, then such interest rate quotes shall expire, and no purchase or
sale of Shelf Notes hereunder shall be made based on such expired interest rate
quotes. If the Company thereafter notifies Prudential of the Acceptance of any
such interest rate quotes, such Acceptance shall be ineffective for all
purposes of this Agreement, and Prudential shall promptly notify the Company
that the provisions of this paragraph 2B(6) are applicable with respect to such
Acceptance.
2B(7). FACILITY CLOSINGS. Not later than 11:30 A.M. (New York City local
time) on the Closing Day for any Accepted Notes, the Company will deliver to
each Purchaser listed in the Confirmation of Acceptance relating thereto at the
offices of the Prudential Capital Group, Two Prudential Plaza, Suite 5600,
Chicago, Illinois 60601, Attention: Law Department, the Accepted Notes to be
purchased by such Purchaser in the form of one or more Notes in authorized
denominations as such Purchaser may request for each Series of Accepted Notes
to be purchased on the Closing Day, dated the Closing Day and registered in
such Purchaser's name (or in the name of its nominee), against payment of the
purchase price thereof by transfer of immediately available funds for credit to
the Company's account specified in the Request for Purchase of such Notes. If
the Company fails to tender to any Purchaser the Accepted Notes to be purchased
by such Purchaser on the scheduled Closing Day for such Accepted Notes as
provided above in this paragraph 2B(7), or any of the conditions specified in
paragraph 3 shall not have been fulfilled by the time required on such
scheduled Closing Day, the Company shall, prior to 1:00 P.M., New York
3
<PAGE> 5
City local time, on such scheduled Closing Day notify Prudential (which
notification shall be deemed received by each Purchaser) in writing whether (i)
such closing is to be rescheduled (such rescheduled date to be a Business Day
during the Issuance Period not less than one Business Day and not more than 10
Business Days after such scheduled Closing Day (the "RESCHEDULED CLOSING DAY"))
and certify to Prudential (which certification shall be for the benefit of each
Purchaser) that the Company reasonably believes that it will be able to comply
with the conditions set forth in paragraph 3 on such Rescheduled Closing Day
and that the Company will pay the Delayed Delivery Fee in accordance with
paragraph 2B(8)(iii) or (ii) such closing is to be canceled. In the event that
the Company shall fail to give such notice referred to in the preceding
sentence, Prudential (on behalf of each Purchaser) may at its election, at any
time after 1:00 P.M., New York City local time, on such scheduled Closing Day,
notify the Company in writing that such closing is to be canceled.
Notwithstanding anything to the contrary appearing in this Agreement, the
Company may not elect to reschedule a closing with respect to any given
Accepted Notes on more than one occasion, unless Prudential shall have
otherwise consented in writing.
2B(8). FEES.
2B(8)(i). STRUCTURING FEE. In consideration for the time, effort and
expense involved in the preparation, negotiation and execution of this
Agreement and the amendment of the Existing Agreement, the Company agrees to
pay to Prudential on the date of the execution of this Agreement in immediately
available funds a fee (herein called the "STRUCTURING FEE") in the amount of
$25,000.
2B(8)(ii). ISSUANCE FEE. The Company will pay to Prudential in
immediately available funds a fee (herein called the "ISSUANCE FEE") on each
Closing Day in an amount equal to 0.10% of the aggregate principal amount of
Notes sold on such Closing Day; provided, however, that no Issuance Fee shall
be payable with respect to the first $25,000,000 in aggregate principal amount
of Notes issued under the Facility.
2B(8)(iii). DELAYED DELIVERY FEE. If the closing of the purchase and sale
of any Accepted Note is delayed for any reason beyond the original Closing Day
for such Accepted Note, the Company will pay to Prudential (a) on the
Cancellation Date or actual closing date of such purchase and sale and (b) if
earlier, the next Business Day following 90 days after the Acceptance Day for
such Accepted Note and on each Business Day following 90 days after the prior
payment hereunder, a fee (herein called the "DELAYED DELIVERY FEE") calculated
as follows:
(BEY - MMY) X DTS/360 X PA
where "BEY" means Bond Equivalent Yield, i.e., the bond equivalent yield per
annum of such Accepted Note; "MMY" means Money Market Yield, i.e., the yield
per annum on a commercial paper investment of the highest quality selected by
Prudential on the date Prudential receives notice of the delay in the closing
for such Accepted Note having a maturity date or dates the same as, or closest
to, the Rescheduled Closing Day or Rescheduled Closing Days (a new alternative
investment being selected by Prudential each time such closing is delayed);
"DTS" means Days to Settlement, i.e., the number of actual days elapsed from
and including the original Closing Day with respect to such Accepted Note (in
the case of the first such payment with respect to such Accepted Note) or from
and including the date of the next preceding payment (in the case of any
subsequent delayed delivery fee payment with respect to such Accepted Note) to
but excluding the date of such payment; and "PA" means Principal Amount, i.e.,
the principal amount of the Accepted Note for which such calculation is being
made. In no case shall the Delayed Delivery Fee be less than zero. Nothing
contained herein shall obligate any Purchaser to purchase any
4
<PAGE> 6
Accepted Note on any day other than the Closing Day for such Accepted Note, as
the same may be rescheduled from time to time in compliance with paragraph
2B(7).
2B(8)(iv). CANCELLATION FEE. If the Company at any time notifies
Prudential in writing that the Company is canceling the closing of the purchase
and sale of any Accepted Note, or if Prudential notifies the Company in writing
under the circumstances set forth in the last sentence of paragraph 2B(5) or
the penultimate sentence of paragraph 2B(7) that the closing of the purchase
and sale of such Accepted Note is to be canceled, or if the closing of the
purchase and sale of such Accepted Note is not consummated on or prior to the
last day of the Issuance Period (the date of any such notification, or the last
day of the Issuance Period, as the case may be, being herein called the
"CANCELLATION DATE"), the Company will pay to Prudential in immediately
available funds an amount (the "CANCELLATION FEE") calculated as follows:
PI X PA
where "PI" means Price Increase, i.e., the quotient (expressed in decimals)
obtained by dividing (a) the excess of the ask price (as reasonably determined
by Prudential) of the Hedge Treasury Note(s) on the Cancellation Date over the
bid price (as reasonably determined by Prudential) of the Hedge Treasury
Notes(s) on the Acceptance Day for such Accepted Note by (b) such bid price;
and "PA" has the meaning ascribed to it in paragraph 2B(8)(iii). The foregoing
bid and ask prices shall be as reported by Telerate Systems, Inc. (or, if such
data for any reason ceases to be available through Telerate Systems, Inc., any
publicly available source of similar market data). Each price shall be based
on a U.S. Treasury security having a par value of $100.00 and shall be rounded
to the second decimal place. In no case shall the Cancellation Fee be less
than zero.
3. CONDITIONS OF CLOSING. The obligation of any Purchaser to purchase and
pay for any Notes is subject to the satisfaction, on or before the Closing Day
for such Notes, of the following conditions:
3A. CERTAIN DOCUMENTS. Such Purchaser shall have received the following,
each dated the date of the applicable Closing Day:
(i) The Note(s) to be purchased by such Purchaser.
(ii) Certified copies of the resolutions of the Board of Directors
of the Company authorizing the execution and delivery of this Agreement
and the issuance of the Notes, and of all documents evidencing other
necessary corporate action and governmental approvals, if any, with
respect to this Agreement and the Notes.
(iii) A certificate of the Secretary or an Assistant Secretary
certifying the names and true signatures of the officers of the Company
authorized to sign this Agreement and the Notes and the other documents
to be delivered hereunder.
(iv) Certified copies of the Certificate of Incorporation and
By-laws of the Company.
(v) A favorable opinion of Daniel T. Burns, general counsel of the
Company (or such other counsel designated by the Company and acceptable
to the Purchaser(s)) satisfactory to such Purchaser and substantially in
the form of Exhibit D attached hereto and as to such other matters as
such Purchaser may
5
<PAGE> 7
reasonably request. The Company hereby directs each such counsel to
deliver such opinion, agrees that the issuance and sale of any Notes will
constitute a reconfirmation of such direction, and understands and agrees
that each Purchaser receiving such an opinion will and is hereby
authorized to rely on such opinion.
(vi) Good standing certificates for the Company from the Secretaries
of State of Delaware and Illinois dated of a recent date and such other
evidence of the status of the Company as such Purchaser may reasonably
request.
(vii) Additional documents or certificates with respect to legal
matters or corporate or other proceedings related to the transactions
contemplated hereby as may be reasonably requested by such Purchaser.
3B. OPINION OF PURCHASER'S SPECIAL COUNSEL. Such Purchaser shall have
received from Wiley S. Adams, Assistant General Counsel of Prudential or such
other counsel who is acting as special counsel for it in connection with this
transaction, a favorable opinion satisfactory to such Purchaser as to such
matters incident to the matters herein contemplated as it may reasonably
request.
3C. REPRESENTATIONS AND WARRANTIES; NO DEFAULT. The representations and
warranties contained in paragraph 8 shall be true on and as of such Closing
Day, except to the extent of changes caused by the transactions herein
contemplated; there shall exist on such Closing Day no Event of Default or
Default; and the Company shall have delivered to such Purchaser an Officer's
Certificate, dated such Closing Day, to both such effects.
3D. PURCHASE PERMITTED BY APPLICABLE LAWS. The purchase of and payment
for the Notes to be purchased by such Purchaser on the terms and conditions
herein provided (including the use of the proceeds of such Notes by the
Company) shall not violate any applicable law or governmental regulation
(including, without limitation, Section 5 of the Securities Act or Regulation
G, T or X of the Board of Governors of the Federal Reserve System) and shall
not subject such Purchaser to any tax, penalty, liability or other onerous
condition under or pursuant to any applicable law or governmental regulation,
and such Purchaser shall have received such certificates or other evidence as
it may request to establish compliance with this condition.
3E. PAYMENT OF FEES. The Company shall have paid to Prudential any fees
due it pursuant to or in connection with this Agreement, including any
Structuring Fee due pursuant to paragraph 2B(8)(i), any Issuance Fee due
pursuant to paragraph 2B(8)(ii) and any Delayed Delivery Fee due pursuant to
paragraph 2B(8)(iii).
4. PREPAYMENTS. Each Shelf Note shall be subject to required prepayment
as and to the extent provided in paragraph 4A. Each Shelf Note shall also be
subject to prepayment under the circumstances set forth in paragraph 4B. Any
prepayment made by the Company pursuant to any other provision of this
paragraph 4 shall not reduce or otherwise affect its obligation to make any
required prepayment as specified in paragraph 4A.
4A. REQUIRED PREPAYMENTS OF SHELF NOTES. Each Series of Shelf Notes shall
be subject to required prepayments, if any, set forth in the Notes of such
Series.
6
<PAGE> 8
4B. OPTIONAL PREPAYMENT WITH YIELD-MAINTENANCE AMOUNT. The Notes of each
Series shall be subject to prepayment, in whole at any time or from time to
time in part (in integral multiples of $100,000 and in a minimum amount of
$1,000,000), at the option of the Company, at 100% of the principal amount so
prepaid plus interest thereon to the prepayment date and the Yield-Maintenance
Amount, if any, with respect to each such Note. Any partial prepayment of a
Series of the Notes pursuant to this paragraph 4B shall be applied in
satisfaction of required payments of principal in inverse order of their
scheduled due dates.
4C. NOTICE OF OPTIONAL PREPAYMENT. The Company shall give the holder of
each Note of a Series to be prepaid pursuant to paragraph 4B irrevocable
written notice of such prepayment not less than 10 Business Days prior to the
prepayment date, specifying such prepayment date, the aggregate principal
amount of the Notes of such Series to be prepaid on such date, the principal
amount of the Notes of such Series held by such holder to be prepaid on that
date and that such prepayment is to be made pursuant to paragraph 4B. Notice
of prepayment having been given as aforesaid, the principal amount of the Notes
specified in such notice, together with interest thereon to the prepayment date
and together with the Yield-Maintenance Amount, if any, herein provided, shall
become due and payable on such prepayment date. The Company shall, on or
before the day on which it gives written notice of any prepayment pursuant to
paragraph 4B, give telephonic notice of the principal amount of the Notes to be
prepaid and the prepayment date to each Significant Holder which shall have
designated a recipient for such notices in the Purchaser Schedule attached
hereto or the applicable Confirmation of Acceptance or by notice in writing to
the Company.
4D. APPLICATION OF PREPAYMENTS. In the case of each prepayment of less
than the entire unpaid principal amount of all outstanding Notes of any Series
pursuant to paragraphs 4A or 4B, the amount to be prepaid shall be applied pro
rata to all outstanding Notes of such Series (including, for the purpose of
this paragraph 4D only, all Notes prepaid or otherwise retired or purchased or
otherwise acquired by the Company or any of its Subsidiaries or Affiliates
other than by prepayment pursuant to paragraph 4A or 4B) according to the
respective unpaid principal amounts thereof.
4E. NO ACQUISITION OF NOTES. The Company shall not, and shall not permit
any of its Subsidiaries or Affiliates to, prepay or otherwise retire in whole
or in part prior to their stated final maturity (other than by prepayment
pursuant to paragraphs 4A or 4B or upon acceleration of such final maturity
pursuant to paragraph 7A), or purchase or otherwise acquire, directly or
indirectly, Notes held by any holder. Any notes so prepaid or otherwise
retired or purchased or otherwise acquired by the Company or any of its
Subsidiaries or Affiliates shall not be deemed to be outstanding for any
purpose under this Agreement, except as provided in paragraph 4D.
5. AFFIRMATIVE COVENANTS. During the Issuance Period and so long
thereafter as any Note is outstanding and unpaid, the Company covenants as
follows:
5A. FINANCIAL STATEMENTS. The Company covenants that it will deliver to
each Significant Holder in duplicate:
(a) as soon as practicable and in any event within 60 days after the
end of each quarterly period (other than the last quarterly period) in
each fiscal year, consolidated statements of operations, capital stock
and retained earnings and cash flows of the Company and its Subsidiaries
for the period from the beginning of the current fiscal year to the end
of such quarterly period, and a consolidated balance
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sheet of the Company and its Subsidiaries as at the end of such quarterly
period, setting forth in each case in comparative form figures for the
corresponding period in the preceding fiscal year, all in reasonable
detail and satisfactory in form to the Required Holder(s) and certified
by an authorized financial officer of the Company, subject to changes
resulting from year-end adjustments;
(ii) as soon as practicable and in any event within 120 days after
the end of each fiscal year, consolidated statements of operations,
capital stock and retained earnings and cash flows of the Company and its
Subsidiaries for such year, and a consolidated balance sheet of the
Company and its Subsidiaries as at the end of such year, setting forth in
each case in comparative form corresponding consolidated figures from the
preceding annual audit, all in reasonable detail and satisfactory in
scope to the Required Holder(s) and, as to such consolidated statements,
certified by independent public accountants of recognized national
standing selected by the Company whose certificate shall be in scope and
substance satisfactory to the Required Holder(s) and, as to such
consolidated statements, certified by an authorized financial officer of
the Company; provided, however, that, in addition and not in limitation
of the foregoing, in the event that during any fiscal quarter of the
Company, the Company's sales or earnings constitute less than ninety
percent (90%) of the Company's sales or earnings on a consolidated basis,
the Company shall also deliver at the times specified above unaudited
quarterly and annual (as appropriate for the applicable period)
consolidating financial statements of the Company and its Subsidiaries
for the applicable period, certified by an authorized financial officer
of the Company;
(iii) promptly upon transmission thereof, copies of all such
financial statements, proxy statements, notices and reports as it shall
send to its stockholders and copies of all registration statements
(without exhibits) and all reports which it files with the Securities and
Exchange Commission (or any governmental body or agency succeeding to the
functions of the Securities and Exchange Commission); and
(iv) with reasonable promptness, such other financial data as such
Significant Holder may reasonably request.
Together with each delivery of financial statements required by clauses
(i) and (ii) above, the Company will deliver to each Significant Holder an
Officer's Certificate demonstrating (with computations in reasonable detail)
compliance by the Company and its Subsidiaries with the provisions of paragraph
6 and stating that there exists no Event of Default or Default, or, if any
Event of Default or Default exists, specifying the nature and period of
existence thereof and what action the Company proposes to take with respect
thereto. Together with each delivery of financial statements required by
clause (ii) above, the Company will deliver to each Significant Holder a
certificate of such accountants stating that, in making the audit necessary for
the certification of such financial statements, other than any consolidating
financial statements required to be delivered by such clause (ii), they have
obtained no knowledge of any Event of Default or Default, or, if they have
obtained knowledge of any Event of Default or Default, specifying the nature
and period of existence thereof. The Company also covenants that immediately
after any Responsible Officer obtains knowledge of an Event of Default or
Default, it will deliver to each Significant Holder an Officer's Certificate
specifying the nature and period of existence thereof and what action the
Company proposes to take with respect thereto. For purposes of this paragraph,
the Purchasers agree and acknowledge that the detail and form of the financial
statements delivered to the Purchasers prior to the closing date are
satisfactory to the Purchasers. So long as the Company continues its present
format and level of specificity with respect to
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future financial statements, then such future financial statements shall be
deemed to comply with the detail and form requirements of this paragraph 5A.
5B. INSPECTION OF PROPERTY. The Company covenants that it will permit any
Person (other than an employee of a competitor of the Company or a former
employee of the Company) designated by any Significant Holder in writing, at
such Significant Holder's expense, to visit and inspect any of the properties
of the Company and its Subsidiaries, to examine the corporate books and
financial records of the Company and its Subsidiaries and make copies thereof
or extracts therefrom and to discuss the affairs, finances and accounts of any
of such corporations with the principal officers of the Company and its
independent public accountants, all at such reasonable times and as often as
such Significant Holder may reasonably request.
5C. COVENANT TO SECURE NOTE EQUALLY. The Company covenants that, if it or
any Subsidiary shall create or assume any Lien upon any of its property or
assets, whether now owned or hereafter acquired, other than Liens permitted by
the provisions of paragraph 6B hereof (unless prior written consent to the
creation or assumption thereof shall have been obtained pursuant to paragraph
11C), it will make or cause to be made effective provision whereby the Notes
will be secured by such Lien equally and ratably with any and all other Debt
thereby secured so long as any such other Debt shall be so secured.
5D. MAINTENANCE OF INSURANCE. The Company covenants that it and each
Subsidiary will maintain, with financially sound and reputable insurers,
insurance in such amounts and against such liabilities and hazards as
customarily maintained by the Company in accordance with its practices,
policies, and procedures prior to the closing date. Together with each
delivery of financial statements under clause (ii) of paragraph 5A, the Company
will, upon the request of any Significant Holder, deliver an Officer's
Certificate specifying the details of such insurance in effect.
5E. COOPERATIVE STATUS. The Company covenants that it will at all times
maintain its status as a cooperative for purposes of Subchapter T of the Code;
provided, however, in the event that the Code or other applicable law is
modified after the date hereof and as a result of such modification the Company
is unable to satisfy its obligations under this paragraph, then the Required
Holders and the Company shall agree, or in good faith negotiate to agree, to
amend the covenants contained in this Agreement so that the application of such
covenants (following such modification of the Code or other applicable law and
the effect thereof on the Company) will be substantially the same as prior
thereto.
5F COMPLIANCE WITH LAWS. The Company covenants that it shall, and shall
cause each Subsidiary to, comply with all applicable laws, rules, regulations,
decrees and orders of all federal, state, local or foreign courts or
governmental agencies, authorities, instrumentalities or regulatory bodies the
noncompliance with which could be reasonably expected to result in a material
adverse effect on the business, assets, operations or condition (financial or
otherwise) of the Company and its Subsidiaries taken as a whole.
6. NEGATIVE COVENANTS.
6A. FIXED CHARGE COVERAGE. The Company will not permit the ratio of (a)
the sum of Consolidated Net Earnings, operating lease expense and interest
expense, to (b) the sum of interest expense and
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operating lease expense, to fall below 1.75 to 1.00, in each case determined at
the end of the most recently ended rolling four fiscal quarter period.
6B. LIEN, DEBT AND OTHER RESTRICTIONS. The Company covenants that it
will not and will not permit any Subsidiary to:
6B(1). LIENS. Create, assume or suffer to exist any Lien upon any of its
property or assets, whether now owned or hereafter acquired (whether or not
provision is made for the equal and ratable securing of the Note in accordance
with the provisions of paragraph 5C), except:
(i) Liens for taxes not yet due or which are being actively
contested in good faith by appropriate proceedings,
(ii) Liens incidental to the conduct of its business or the
ownership of its property and assets which were not incurred in
connection with the borrowing of money or the obtaining of advances or
credit,
(iii) Liens on property or assets of a Subsidiary to secure
obligations of such Subsidiary to the Company or another Subsidiary,
(iv) Liens in existence on April 13, 1992 described on Schedule 6B,
and
(v) other Liens (including Liens consisting of capitalized leases)
securing Funded Debt (other than Funded Debt that constitutes
Subordinated Debt); provided, however, that (a) such Funded Debt is
permitted by the provisions of paragraph 6B(2) and (b) the aggregate
amount of all Secured Funded Debt outstanding does not at any time exceed
an amount equal to fifteen percent (15%) of Consolidated Net Worth;
6B(2). DEBT. Create, incur, assume or suffer to exist any Debt, except:
(i) Senior Funded Debt in existence as of the date of the Existing
Agreement in such amounts outstanding as of the date of the Existing
Agreement, and a $10,000,000 unsecured line of credit available to Cotter
Canada Hardware and Variety Company, Inc.,
(ii) Funded Debt represented by the Notes,
(iii) Funded Debt of any Subsidiary to the Company or any other
Subsidiary,
(iv) Subordinated Debt;
(v) additional Senior Funded Debt of the Company, so long as the
aggregate principal amount of consolidated Senior Funded Debt does not
exceed at any time an amount equal to thirty-five percent (35%) of
Consolidated Capitalization; and
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(vi) Current Debt of the Company provided that commencing on
December 29, 1991 and at all times thereafter there shall have been a
period of at least forty-five (45) consecutive days within the twelve
month period immediately preceding the date of determination during which
the aggregate principal amount of Current Debt of the Company outstanding
as of the close of business on any day during such twelve month period
did not exceed an amount equal to the amount of Funded Debt which would
have been permitted as additional Funded Debt under clause (v) of this
paragraph 6B(2) as of the close of business on such day.
6B(3). SALE OF STOCK AND DEBT OF SUBSIDIARIES. Sell or otherwise dispose
of, or part with control of, any shares of stock or Debt of any Subsidiary,
except to the Company or another Subsidiary, and except that all shares of
stock and Debt of any Subsidiary at the time owned by or owed to the Company
and all Subsidiaries may be sold as an entirety for such consideration which
represents the fair value (as determined in good faith by the Board of
Directors of the Company) at the time of sale of the shares of stock and Debt
so sold, so long as:
(a) the sum of the following shall not constitute more than 10% of
the consolidated assets of the Company and its Subsidiaries: the assets
of the applicable Subsidiary when added together, without duplication,
with (x) the assets of any other Subsidiaries sold or otherwise disposed
of outside of the ordinary course of business during the most recent
36-month rolling period, plus (y) the assets of the Company and its
Subsidiaries sold, leased or otherwise disposed of outside of the
ordinary course of business during the most recent 36-month rolling
period (together with any assets then proposed to be sold); or
(b) the following shall not have in the aggregate contributed more
than 15% of Consolidated Net Earnings for any of the three fiscal years
then most recently ended: the applicable Subsidiary when added together,
without duplication, with (x) any other Subsidiaries sold or otherwise
disposed of outside of the ordinary course of business during the most
recent 36-month rolling period, plus (y) the assets of the Company and
its Subsidiaries sold, leased or otherwise disposed of outside of the
ordinary course of business during the most recent 36-month rolling
period (together with any assets then proposed to be sold);
and provided that, at the time of such sale, such Subsidiary shall not
own, directly or indirectly, any shares of stock or Debt of any other
Subsidiary (unless all of the shares of stock and Debt of such other Subsidiary
owned, directly or indirectly, by the Company and its Subsidiary are
simultaneously being sold as permitted by this paragraph 6B(3));
6B(4)(i) SALE OF ASSETS. Sell, lease or transfer or otherwise dispose of
any assets of the Company or any Subsidiary other than in the ordinary course
of business, unless all such assets sold, leased or otherwise disposed of
outside of the ordinary course of business during the most recent 36-month
rolling period when added together, without duplication, with (a) any shares of
stock or Debt of any Subsidiary sold or otherwise disposed of, or with respect
to which the Company or any Subsidiary has parted control of, except to the
Company or another Subsidiary, during the most recent 36-month rolling period
or (b) any assets then proposed to be sold outside of the ordinary course of
business, do not constitute more than 10% of the consolidated total assets of
the Company and have not contributed more than 15% of Consolidated Net Earnings
for any of the three fiscal years then most recently ended;
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6B(4)(ii) MERGER. Merge or consolidate with any other Person, except
that Subsidiaries may be merged into the Company or any other Subsidiary and
the Company may merge with another Person provided that the Company is the
surviving corporation and no Event of Default or Default shall exist either
immediately before or after such merger.
6B(5). RESTRICTIONS ON TRANSACTIONS WITH AFFILIATES AND STOCKHOLDERS.
Directly or indirectly, purchase, acquire or lease any property from, or sell,
transfer or lease any property (other than shares of stock of Company) to, or
otherwise deal with (i) any Affiliate or Substantial Stockholder, or (ii) any
corporation in which an Affiliate, Substantial Stockholder or the Company
(either directly or through Subsidiaries) owns 5% or more of the outstanding
voting stock, except that (a) any such Affiliate or Substantial Stockholder may
be a director, officer or employee of the Company or any Subsidiary and may be
paid reasonable compensation in connection therewith (b) the Company and its
Subsidiaries may perform or engage in any of the foregoing in the ordinary
course of business upon terms no less favorable to the Company or such
Subsidiary (as the case may be) than if no such relationship described in
clauses (i) and (ii) above existed and (c) the Company may sell to or purchase
from any such Person shares of the Company's stock subject to the provisions of
paragraph 6G.
6C. ISSUANCE OF STOCK BY SUBSIDIARIES. Permit any Subsidiary (either
directly, or indirectly by the issuance of rights or options for, or securities
convertible into, such shares) to issue, sell or otherwise dispose of any
shares of any class of its stock (other than directors' qualifying shares)
except to the Company or another Subsidiary; provided, however, Cotter Canada
Hardware and Variety Cooperative, Inc. may issue and sell shares of its stock
in the ordinary course of business consistent with its practices as of April
13, 1992.
6D. COMPLIANCE WITH ERISA. Engage in any transaction in connection with
which the Company or any Subsidiary could be subject to either a civil penalty
assessed pursuant to section 502(i) of ERISA or a tax imposed by section 4975
of the Code, terminate or withdraw from any Plan (other than a Multiemployer
Plan) in a manner, or take any other action with respect to any such Plan
(including, without limitation, a substantial cessation of operations within
the meaning of section 4062(f) of ERISA), which could result in any liability
of the Company or any Subsidiary to the PBGC, to a trust established pursuant
to section 4041(c)(3)(B)(ii) or (iii) or 4042(i) of ERISA, or to a trustee
appointed under section 4042(b) or (c) of ERISA, incur any liability to the
PBGC on account of a termination of a Plan under section 4064 of ERISA, fail to
make full payment when due of all amounts which, under the provisions of any
Plan, the Company or any Subsidiary is required to pay as contributions
thereto, or permit to exist any accumulated funding deficiency, whether or not
waived, with respect to any Plan (other than a Multiemployer Plan), if, in any
such case, such penalty or tax or such liability, or the failure to make such
payment, or the existence of such deficiency, as the case may be, could be
reasonably expected to have a material adverse effect on the Company and its
Subsidiaries taken as a whole.
6E. NO CHANGE IN SUBORDINATION TERMS, ETC. Amend, alter or otherwise
change any provision of any of the subordinated promissory notes now or
hereafter issued by the Company or take any other action (or refrain from
taking an action) which would have the effect of eliminating or altering in any
way the effect of the subordination language appearing in such subordinated
promissory notes or the rights of the holders of the Notes arising as a result
thereof.
6F. NATURE OF BUSINESS. Engage in the business of underwriting risks
for insurance purposes, or in any other aspect of insurance related business
other than in the ordinary course of business in accordance with its practices
as of the closing date; or purchase and sell real estate (other than on an
agency basis) for purposes
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other than those relating directly to its principal business except for
purchases and sales of store locations in the ordinary course of business which
in the aggregate for the Company and its Subsidiaries taken as a whole do not
exceed $10,000,000 during any rolling consecutive five year period.
6G. RESTRICTED INVESTMENTS. Make or permit a Subsidiary to make any
Investment except the Company and any Subsidiary may:
(i) make or permit to remain outstanding loans or advances to any
Subsidiary,
(ii) own, purchase or acquire stock, obligations or securities of a
Subsidiary or of a corporation which immediately after such purchase or
acquisition will be a Subsidiary,
(iii) acquire and own stock, obligations or securities received in
settlement of debts (created in the ordinary course of business) owing to
the Company or any Subsidiary,
(iv) own, purchase or acquire prime commercial paper, banker's
acceptances and certificates of deposit in United States and Canadian
commercial banks (having combined capital and surplus of not less than
U.S. $100,000,000) and repurchase agreements with respect to the
foregoing, in each case due within one year from the date of purchase and
payable in the United States in United States dollars, obligations of the
government of the United States or any agency thereof, and obligations
guaranteed by the government of the United States,
(v) make or permit to remain outstanding travel and other similar
advances to officers and employees in the ordinary course of business,
(vi) permit to remain outstanding Investments existing on April 13,
1992 described on Schedule 6G, and
(vii) to the extent applicable, make Investments permitted under
paragraph 6H below.
6H. RESTRICTED PAYMENTS. Pay or declare cash dividends, cash patronage
dividends or dividends on any class of its stock (other than dividends in kind)
or redeem, purchase or otherwise acquire, or make any redemptions, purchase, or
other acquisition of any of its stock or apply miscellaneous deductions in lieu
of patronage dividends, or make or permit any Subsidiary to make any Restricted
Investment except out of Consolidated Net Earnings Available for Restricted
Payments.
7. EVENTS OF DEFAULT.
7A. ACCELERATION. If any of the following events shall occur and be
continuing for any reason whatsoever (and whether such occurrence shall be
voluntary or involuntary or come about or be effected by operation of law or
otherwise):
(i) the Company defaults in the payment of any principal of or
Yield-Maintenance Amount payable with respect to any Note when the same
shall become due, either by the terms thereof or otherwise as herein
provided; or
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(ii) the Company defaults in the payment of any interest on any Note
for more than 10 days after the date due; or
(iii) the Company or any Subsidiary defaults (whether as primary
obligor or as guarantor or other surety) in any payment of principal of
or interest on any other obligation for money borrowed (or any
Capitalized Lease Obligation, any obligation under a conditional sale or
other title retention agreement, any obligation issued or assumed as full
or partial payment for property whether or not secured by a purchase
money mortgage or any obligation under notes payable or drafts accepted
representing extensions of credit) beyond any period of grace provided
with respect thereto, or the Company or any Subsidiary fails to perform
or observe any other agreement, term or condition contained in any
agreement under which any such obligation is created (or if any other
event thereunder or under any such agreement shall occur and be
continuing) and the effect of such failure or other event is to cause, or
to permit the holder or holders of such obligation (or a trustee on
behalf of such holder or holders) to cause, such obligation to become due
(or to be repurchased by the Company or any Subsidiary) prior to any
stated maturity, provided that the aggregate amount of all obligations as
to which such a payment default shall occur and be continuing or such a
failure or other event causing or permitting acceleration (or resale to
the Company or any Subsidiary) shall occur and be continuing exceeds
$3,000,000; or
(iv) any representation or warranty made by the Company herein or by
the Company or any of its officers in any writing furnished in connection
with or pursuant to this Agreement shall be false in any material respect
on the date as of which made; or
(v) the Company fails to perform or observe any agreement contained
in paragraph 6; or
(vi) the Company fails to perform or observe any other agreement,
term or condition contained herein and such failure shall not be remedied
within 30 days after any Responsible Officer obtains actual knowledge
thereof; or
(vii) the Company or any Subsidiary makes an assignment for the
benefit of creditors or is generally not paying its debts as such debts
become due; or
(viii) any decree or order for relief in respect of the Company or
any Subsidiary is entered under any bankruptcy, reorganization,
compromise, arrangement, insolvency, readjustment of debt, dissolution or
liquidation or similar law, whether now or hereafter in effect (herein
called the "Bankruptcy Law"), of any jurisdiction; or
(ix) the Company or any Subsidiary petitions or applies to any
tribunal for, or consents to, the appointment of, or taking possession
by, a trustee, receiver, custodian, liquidator or similar official of the
Company or any Subsidiary, or of any substantial part of the assets of
the Company or any Subsidiary, or commences a voluntary case under the
Bankruptcy Law of the United States or any proceedings (other than
proceedings for the voluntary liquidation and dissolution of a
Subsidiary) relating to the Company or any Subsidiary under the
Bankruptcy Law of any other jurisdiction; or
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(x) any such petition or application is filed, or any such
proceedings are commenced, against the Company or any Subsidiary and the
Company or such Subsidiary by any act indicates its approval thereof,
consent thereto or acquiescence therein, or an order, judgment or decree
is entered appointing any such trustee, receiver, custodian, liquidator
or similar official, or approving the petition in any such proceedings,
and such order, judgment or decree remains unstayed and in effect for
more than 30 days; or
(xi) any order, judgment or decree is entered in any proceedings
against the Company decreeing the dissolution of the Company and such
order, judgment or decree remains unstayed and in effect for more than 60
days; or
(xii) any order, judgment or decree is entered in any proceedings
against the Company or any Subsidiary decreeing a split-up of the Company
or such Subsidiary which requires the divestiture of assets representing
a substantial part, or the divestiture of the stock of a Subsidiary whose
assets represent a substantial part, of the consolidated assets of the
Company and its Subsidiaries (determined in accordance with generally
accepted accounting principles) or which requires the divestiture of
assets, or stock of a Subsidiary, which shall have contributed a
substantial part of the consolidated net income of the Company and its
Subsidiaries (determined in accordance with generally accepted accounting
principles) for any of the three fiscal years then most recently ended,
and such order, judgment or decree remains unstayed and in effect for
more than 60 days; or
(xiii) a final judgment in an amount in excess of $1,000,000 is
rendered against the Company or any Subsidiary and, within 60 days after
entry thereof, such judgment is not discharged or execution thereof
stayed pending appeal, or within 60 days after the expiration of any such
stay, such judgment is not discharged;
then (a) if such event is an Event of Default specified in clause (i) or
(ii) of this paragraph 7A, any holder of any Note may at its option during the
continuance of such Event of Default, by notice in writing to the Company,
declare all of the Notes held by such holder to be, and all of the Notes held
by such holder shall thereupon be and become, immediately due and payable at
par together with interest accrued thereon, without presentment, demand,
protest or notice of any kind, all of which are hereby waived by the Company,
(b) if such event is an Event of Default specified in clause (viii), (ix) or
(x) of this paragraph 7A with respect to the Company, all of the Notes at the
time outstanding shall automatically become immediately due and payable
together with interest accrued thereon and together with the Yield-Maintenance
Amount, if any, with respect to each Note, without presentment, demand, protest
or notice of any kind, all of which are hereby waived by the Company, and (c)
with respect to any event constituting an Event of Default, the Required
Holder(s) of the Notes of any Series may at its or their option during the
continuance of such Event of Default, by notice in writing to the Company,
declare all of the Notes of such Series to be, and all of the Notes of such
Series shall thereupon be and become, immediately due and payable together with
interest accrued thereon and together with the Yield-Maintenance Amount, if
any, with respect to each Note of such Series, without presentment, demand,
protest or notice of any kind, all of which are hereby waived by the Company.
7B. RESCISSION OF ACCELERATION. At any time after any or all of the Notes
of any Series shall have been declared immediately due and payable pursuant to
paragraph 7A, the Required Holder(s) of the
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Notes of such Series may, by notice in writing to the Company, rescind and
annul such declaration and its consequences if (i) the Company shall have paid
all overdue interest on the Notes of such Series, the principal of and
Yield-Maintenance Amount, if any, payable with respect to any Notes of such
Series which have become due otherwise than by reason of such declaration, and
interest on such overdue interest and overdue principal and Yield-Maintenance
Amount at the rate specified in the Notes of such Series, (ii) the Company
shall not have paid any amounts which have become due solely by reason of such
declaration, (iii) all Events of Default and Defaults, other than non-payment
of amounts which have become due solely by reason of such declaration, shall
have been cured or waived pursuant to paragraph 11C, and (iv) no judgment or
decree shall have been entered for the payment of any amounts due pursuant to
the Notes of such Series or this Agreement. No such rescission or annulment
shall extend to or affect any subsequent Event of Default or Default or impair
any right arising therefrom.
7C. NOTICE OF ACCELERATION OR RESCISSION. Whenever any Note shall be
declared immediately due and payable pursuant to paragraph 7A or any such
declaration shall be rescinded and annulled pursuant to paragraph 7B, the
Company shall forthwith give written notice thereof to the holder of each Note
of each Series at the time outstanding.
7D. OTHER REMEDIES. If any Event of Default or Default shall occur and be
continuing, the holder of any Note may proceed to protect and enforce its
rights under this Agreement and such Note by exercising such remedies as are
available to such holder in respect thereof under applicable law, either by
suit in equity or by action at law, or both, whether for specific performance
of any covenant or other agreement contained in this Agreement or in aid of the
exercise of any power granted in this Agreement. No remedy conferred in this
Agreement upon the holder of any Note is intended to be exclusive of any other
remedy, and each and every such remedy shall be cumulative and shall be in
addition to every other remedy conferred herein or now or hereafter existing at
law or in equity or by statute or otherwise.
8. REPRESENTATIONS, COVENANTS AND WARRANTIES. The Company represents,
covenants and warrants as follows (all references to "Subsidiary" and
"Subsidiaries" in this paragraph 8 shall be deemed omitted if the Company has
no Subsidiaries at the time the representations herein are made or repeated):
8A. ORGANIZATION; SUBSIDIARY PREFERRED STOCK. The Company is a
corporation duly organized and existing in good standing under the laws of the
State of Delaware, each Subsidiary is duly organized and existing in good
standing under the laws of the jurisdiction in which it is incorporated, and
the Company has and each Subsidiary has the corporate power to own its
respective property and to carry on its respective business as now being
conducted. No subsidiary has outstanding any shares of stock of a class which
has priority over any other class as to dividends or in liquidation.
8B. FINANCIAL STATEMENTS. The Company has furnished each Purchaser of any
Note with the following financial statements, identified by a principal
financial officer of the Company: (i) a consolidated balance sheet of the
Company and its Subsidiaries as at fiscal year end in each of the three fiscal
years of the Company most recently completed prior to the date as of which this
representation is made or repeated to such Purchaser (other than fiscal years
completed within 90 days prior to such date for which audited financial
statements have not been released) and consolidated statements of operations
and cash flows and a consolidated statement of capital stock and retained
earnings of the Company and its Subsidiaries for each such year, all reported
on by Ernst & Young (or any independent public accounting firm of recognized
national standing) and (ii) a consolidated balance sheet of the Company and its
Subsidiaries as at the end of the quarterly period (if any) most
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recently completed prior to such date and after the end of such fiscal year
(other than quarterly periods completed within 60 days prior to such date for
which financial statements have not been released) and the comparable quarterly
period in the preceding fiscal year and consolidated statements of operations
and cash flows and a consolidated statement of capital stock and retained
earnings for the periods from the beginning of the fiscal years in which such
quarterly periods are included to the end of such quarterly periods, prepared
by the Company. Such financial statements (including any related schedules
and/or notes) are true and correct in all material respects (subject, as to
interim statements, to changes resulting from audits and year-end adjustments),
have been prepared in accordance with generally accepted accounting principles
consistently followed throughout the periods involved and show all liabilities,
direct and contingent, of the Company and its Subsidiaries required to be shown
in accordance with such principles. The balance sheets fairly present the
condition of the Company and its Subsidiaries as at the dates thereof, and the
statements of operations, capital stock and retained earnings and cash flows
fairly present the results of the operations of the Company and its
Subsidiaries and their cash flows for the periods indicated. There has been no
material adverse change in the business, property or assets, condition
(financial or otherwise), operations or prospects of the Company and its
Subsidiaries taken as a whole since the end of the most recent fiscal year for
which such audited financial statements have been furnished.
8C. ACTIONS PENDING. There is no action, suit, investigation or
proceeding pending or, to the knowledge of the Company, threatened against the
Company or any of its Subsidiaries, or any properties or rights of the Company
or any of its Subsidiaries, by or before any court, arbitrator or
administrative or governmental body which could be reasonably expected to
result in any material adverse change in the business, property or assets,
condition (financial or otherwise) or operations of the Company and its
Subsidiaries taken as a whole or the ability of the Company to perform its
obligations under this Agreement.
8D. OUTSTANDING DEBT. Neither the Company nor any of its Subsidiaries has
outstanding any Debt except as permitted by paragraph 6B(2). There exists no
default under the provisions of any instrument evidencing Debt or the Company
or any of its Subsidiaries in an amount greater than $250,000 or of any
agreement relating thereto.
8E. TITLE TO PROPERTIES. The Company has and each of its Subsidiaries has
good and indefeasible title to its respective real properties (other than
properties which it leases) and good title to all of its other respective
properties and assets, including the properties and assets reflected in the
most recent audited balance sheet referred to in paragraph 8B (other than
properties and assets disposed of in the ordinary course of business), subject
to no Lien of any kind except Liens permitted by paragraph 6B(1). All leases
necessary in any material respect for the conduct of the respective businesses
of the Company and its Subsidiaries are valid and subsisting and are in full
force and effect.
8F. TAXES. The Company has and each of its Subsidiaries has filed all
federal, state and other income tax returns which, to the best knowledge of the
officers of the Company and its Subsidiaries, are required to be filed, and
each has paid all taxes as shown on such returns and on all assessments
received by it to the extent that such taxes have become due, except such taxes
(i) as are being contested in good faith by appropriate proceedings for which
adequate reserves have been established in accordance with generally accepted
accounting principles or (ii) the non-payment of which (a) could not be
reasonably expected to have a material adverse effect on the business,
condition (financial or otherwise) or operations of the Company and its
Subsidiaries taken as a whole and (b) does not result in the creation of any
Lien other than Liens permitted by paragraph 6B(i).
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8G. CONFLICTING AGREEMENTS AND OTHER MATTERS. Neither the Company nor any
of its Subsidiaries is a party to any contract or agreement or subject to any
charter or other corporate restriction which materially and adversely affects
its business, property or assets, condition (financial or otherwise) or
operations. Neither the execution nor delivery of this Agreement or the Notes,
nor the offering, issuance and sale of the Notes, nor fulfillment of nor
compliance with the terms and provisions hereof and of the Notes will conflict
with, or result in a breach of the terms, conditions or provisions of, or
constitute a default under, or result in any violation of, or result in the
creation of any Lien upon any of the properties or assets of the Company or any
of its Subsidiaries pursuant to, the charter or by-laws of the Company or any
of its Subsidiaries, any award of any arbitrator or any agreement (including
any agreement with stockholders), instrument, order, judgment, decree, statute,
law, rule or regulation to which the Company or any of its Subsidiaries is
subject. Neither the Company nor any of its Subsidiaries is a party to, or
otherwise subject to any provision contained in, any instrument evidencing
Indebtedness of the Company or such Subsidiary, any agreement relating thereto
or any other contract or agreement (including its charter) which limits the
amount of, or otherwise imposes restrictions on the incurring of, Debt of the
Company of the type to be evidenced by the Notes except as set forth in the
agreements listed in Schedule 8G attached hereto (as such Schedule 8G may have
been modified from time to time by written supplements thereto delivered by the
Company and accepted in writing by Prudential).
8H. OFFERING OF NOTES. Neither the Company nor any agent acting on its
behalf has, directly or indirectly, offered the Notes or any similar security
of the Company for sale to, or solicited any offers to buy the Notes or any
similar security of the Company from, or otherwise approached or negotiated
with respect thereto with, any Person other than institutional investors, and
neither the Company nor any agent acting on its behalf has taken or will take
any action which would subject the issuance or sale of the Notes to the
provisions of Section 5 of the Securities Act or to the provisions of any
securities or Blue Sky law of any applicable jurisdiction.
8I. USE OF PROCEEDS. None of the proceeds of the sale of any Notes will
be used, directly or indirectly, for the purpose, whether immediate, incidental
or ultimate, of purchasing or carrying any "margin stock" as defined in
Regulation G (12 CFR Part 207) of the Board of Governors of the Federal Reserve
System (herein called "MARGIN STOCK") or for the purpose of maintaining,
reducing or retiring any Indebtedness which was originally incurred to purchase
or carry any stock that is then currently a margin stock or for any other
purpose which might constitute the purchase of such Notes a "purpose credit"
within the meaning of such Regulation G, unless the Company shall have
delivered to the Purchaser which is purchasing such Notes, on the Closing Day
for such Notes, an opinion of counsel satisfactory to such Purchaser stating
that the purchase of such Notes does not constitute a violation of such
Regulation G. Neither the Company nor any agent acting on its behalf has taken
or will take any action which might cause this Agreement or the Notes to
violate Regulation G, Regulation T or any other regulation of the Board of
Governors of the Federal Reserve System or to violate the Exchange Act, in each
case as in effect now or as the same may hereafter be in effect.
8J. ERISA. No accumulated funding deficiency (as defined in section 302
of ERISA and section 412 of the Code), whether or not waived, exists with
respect to any Plan (other than a Multiemployer Plan). No liability to the
PBGC has been or is expected by the Company or any ERISA Affiliate to be
incurred with respect to any Plan (other than a Multiemployer Plan) by the
Company, any Subsidiary or any ERISA Affiliate which is or would be materially
adverse to the business, property or assets, condition (financial or otherwise)
or operations of the Company and its Subsidiaries taken as a whole. Neither
the Company, any Subsidiary nor any ERISA Affiliate has incurred or presently
expects to incur any withdrawal liability under Title IV of ERISA with respect
to any Multiemployer Plan which is or would be materially adverse to the
business, property or assets, condition (financial
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or otherwise) or operations of the Company and its Subsidiaries taken as a
whole. The execution and delivery of this Agreement and the issuance and sale
of the Notes will be exempt from or will not involve any transaction which is
subject to the prohibitions of section 406 of ERISA and will not involve any
transaction in connection with which a penalty could be imposed under section
502(i) of ERISA or a tax could be imposed pursuant to section 4975 of the Code.
The representation by the Company in the next preceding sentence is made in
reliance upon and subject to the accuracy of the representation of each
Purchaser in paragraph 9B as to the source of funds to be used by it to
purchase any Notes.
8K. GOVERNMENTAL CONSENT. Neither the nature of the Company or of any
Subsidiary, nor any of their respective businesses or properties, nor any
relationship between the Company or any Subsidiary and any other Person, nor
any circumstance in connection with the offering, issuance, sale or delivery of
the Notes is such as to require any authorization, consent, approval, exemption
or any action by or notice to or filing with any court or administrative or
governmental body (other than routine filings after the Closing Day for any
Notes with the Securities and Exchange Commission and/or state Blue Sky
authorities) in connection with the execution and delivery of this Agreement,
the offering, issuance, sale or delivery of the Notes or fulfillment of or
compliance with the terms and provisions hereof or of the Notes.
8L. ENVIRONMENTAL COMPLIANCE. The Company and its Subsidiaries and all of
their respective properties and facilities have complied at all times and in
all respects with all applicable foreign, federal, state, local and regional
statutes, laws, ordinances and judicial or administrative orders, judgments,
rulings and regulations relating to protection of the environment except, in
any such case, where failure to so comply could not reasonably be expected to
result in a material adverse effect on the business, condition (financial or
otherwise) or operations of the Company and its Subsidiaries taken as a whole
or the ability of the Company to perform its obligations under this Agreement.
8M. SECTION 144A. The Notes are not of the same class as securities, if
any, of the Company listed on a national securities exchange registered under
Section 6 of the Exchange Act or quoted in a U.S. automated inter-dealer
quotation system.
8N. DISCLOSURE. Neither this Agreement nor any other document,
certificate or statement furnished to any Purchaser by or on behalf of the
Company in connection herewith contains any untrue statement of a material fact
or omits to state a material fact necessary in order to make the statements
contained herein and therein not misleading. There is no fact peculiar to the
Company or any of its Subsidiaries which materially adversely affects or in the
future may (so far as the Company can now foresee) materially adversely affect
the business, property or assets, condition (financial or otherwise) or
operations of the Company or any of its Subsidiaries and which has not been set
forth in this Agreement.
8O. HOSTILE TENDER OFFERS. None of the proceeds of the sale of any Notes
will be used to finance a Hostile Tender Offer.
8P. PRIORITY OF NOTES. The Notes constitute "Superior Indebtedness" as
such term is defined in the Company's Promissory (subordinated) Notes, the form
of which is attached hereto as Exhibit E and the Subordinated Debt is
subordinated to the Indebtedness owing from time to time by the Company to the
holders of the Notes in connection with this Agreement and the Existing
Agreement.
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9. REPRESENTATIONS AND OF WARRANTIES THE PURCHASERS.
Each Purchaser represents and warrants as follows:
9A. NATURE OF PURCHASE. Each Purchaser represents that it is purchasing
the Note purchased by it for its own account or for one or more separate
accounts maintained by it, in each case for investment and not with a view to
the distribution thereof within the meaning of the Securities Act or with any
present intention of distributing or selling any of the Notes, provided that
the disposition of such Purchaser's property shall at all times be and remain
within its control.
9B. SOURCE OF FUNDS. The source of the funds being used by such Purchaser
to pay the purchase price of the Notes being purchased by such Purchaser
hereunder constitutes assets allocated to: (i) the "insurance company general
account" of such Purchaser (as such term is defined under Section V of the
United States Department of Labor's Prohibited Transaction Class Exemption
("PTCE") 95-60), and as of the date of the purchase of the Notes such Purchaser
satisfies all of the applicable requirements for relief under Sections I and IV
of PTCE 95-60 or (ii) a separate account maintained by such Purchaser in which
no employee benefit plan, other than employee benefit plans identified on a
list which has been furnished by such Purchaser to the Company, participates to
the extent of 10% or more. For the purpose of this paragraph 9B, the terms
"SEPARATE ACCOUNT" and "EMPLOYEE BENEFIT PLAN" shall have the respective
meanings specified in section 3 of ERISA.
9C. COMPANY REPRESENTATIONS. Each Purchaser acknowledges that it has
not received any representation or warranty (written or oral) from or by the
Company or any Subsidiary other than the representations and warranties
contained in this Agreement and in any document or certificate required to be
delivered pursuant to this Agreement, or from or by any Person purporting to
act on behalf of the Company or any Subsidiary. Each Purchaser acknowledges
and agrees that any representation or warranty not contained in this Agreement
or in any certificate, notice or other document required to be delivered by the
Company or any Subsidiary on or after the date of this Agreement and executed
by an authorized officer thereof shall not be deemed made by or on behalf of
the Company or any Subsidiary and shall not be relied on by such Purchaser, any
Transferee or any Person to which a participation in any Note may be sold. In
furtherance of, and not in limitation of, the foregoing, each Purchaser
acknowledges and agrees that no oral representation or warranty from or by any
director, officer or employee of the Company or any Subsidiary (other than the
President, Chief Executive Officer, Executive Vice President, Senior Vice
President, Vice President-Finance, Controller or Finance Manager of the
Company), or from or by any other Person, shall be deemed made by or on behalf
of the Company or any Subsidiary and that any such purported representations or
warranties are not authorized by the Company or any Subsidiary.
9D. PURCHASER INSPECTION. All documents, records and books of the
Company and each Subsidiary have been made available for inspection by each
Purchaser, their attorneys, accountants, other advisers and agents and each
such Purchaser and such other Persons have made such inspection thereof and of
the Company's and its Subsidiaries' facilities as such Persons have deemed
necessary or advisable in connection with the transactions to be effected by
this Agreement. Each Purchaser, its attorneys, accountants, other advisers and
agents have had the opportunity to confer with the directors, officers,
employees and members of the Company and its Subsidiaries and to ask questions
of, and receive answers from, such Persons concerning the affairs of the
Company and its Subsidiaries and the terms of the transactions to be effected
by this Agreement. All such questions asked have been answered to each
Purchaser's satisfaction. All information requested was furnished to such
Purchaser, its attorneys, accountants, other advisers and agents. At the
Purchasers' request the Company
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has not prepared an offering memorandum, circular or similar offering document
concerning the offer and the sale of the Notes.
9E. APPLICABLE STATE. All actions, communications, correspondence,
negotiations, meetings and other transactions between the Company (or any
Subsidiary) and the Purchasers, and any of the Company's or the Purchasers'
respective advisers and agents, which have taken place on or before the date
hereof with respect to the offer and sale of the Notes have taken place in the
State of Illinois, and the Notes will be purchased, sold and delivered in said
state.
9F. NO REGISTRATION. Each Purchaser understands that the Notes are not
being registered under the Securities Act on the ground that the issuance
thereof is exempt under Sections 4(2) and 4(6) thereof or Regulation D
thereunder. Each Purchaser understands that the Company's reliance on such
exemptions is predicated in part on the Purchasers' representations and
warranties in this Agreement. Each Purchaser acknowledges that the Company has
no obligation or present intention to register the resale of the Notes or to
permit their sale or transfer other than in strict compliance with the
Securities Act and the rules and regulations promulgated thereunder and,
further, that there is not now and may never be a public market for the Notes.
9G. TRANSFER RESTRICTIONS. No Purchaser shall sell or otherwise
transfer the Notes, or grant any participations therein, unless they are
registered under the Securities Act and applicable state securities laws or
unless an exemption from such registration is available. Each Purchaser
acknowledges and agrees that all Notes shall bear a legend referencing the
foregoing transfer restriction.
9H. ACCREDITED STATUS. Each Purchaser is an "accredited investor"
within the meaning of Rule 501(a) under the Securities Act.
9I. ORGANIZATION; ENFORCEABILITY. The Prudential Insurance Company of
America is a corporation validly existing under the laws of the State of New
Jersey. This Agreement and the purchase of the Notes by The Prudential
Insurance Company of America have been duly authorized by all requisite
corporate action. This Agreement is enforceable against the Purchasers in
accordance with its terms, except as the enforceability thereof may be limited
by (a) bankruptcy, insolvency, reorganization or other similar laws affecting
the enforcement of creditors' rights generally and (b) general principles of
equity (regardless of whether such enforceability is considered in a proceeding
in equity or at law).
10. DEFINITIONS; ACCOUNTING MATTERS. For the purpose of this Agreement,
the terms defined in paragraphs 10A and 10B (or within the text of any other
paragraph) shall have the respective meanings specified therein and all
accounting matters shall be subject to determination as provided in paragraph
10C.
10A. YIELD-MAINTENANCE TERMS.
"CALLED PRINCIPAL" shall mean, with respect to any Note, the principal of
such Note that is to be prepaid pursuant to paragraph 4B or is declared to be
immediately due and payable pursuant to paragraph 7A, as the context requires.
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"DISCOUNTED VALUE" shall mean, with respect to the Called Principal of any
Note, the amount obtained by discounting all Remaining Scheduled Payments with
respect to such Called Principal from their respective scheduled due dates to
the Settlement Date with respect to such Called Principal, in accordance with
accepted financial practice and at a discount factor (as converted to reflect
the periodic basis on which interest on such Note is payable, if payable other
than on a semi-annual basis) equal to the Reinvestment Yield with respect to
such Called Principal.
"REINVESTMENT YIELD" shall mean, with respect to the Called Principal of
any Note, the yield to maturity implied by (i) the yields reported, as of 10:00
A.M. (New York City local time) on the Business Day next preceding the
Settlement Date with respect to such Called Principal, on the display
designated as "Page 678" on the Telerate Service (or such other display as may
replace page 678 on the Telerate Service) for actively traded U.S. Treasury
securities having a maturity equal to the Remaining Average Life of such Called
Principal as of such Settlement Date, or if such yields shall not be reported
as of such time or the yields reported as of such time shall not be
ascertainable, (ii) the Treasury Constant Maturity Series yields reported, for
the latest day for which such yields shall have been so reported as of the
Business Day next preceding the Settlement Date with respect to such Called
Principal, in Federal Reserve Statistical Release H.15 (519) (or any comparable
successor publication) for actively traded U.S. Treasury securities having a
constant maturity equal to the Remaining Average Life of such Called Principal
as of such Settlement Date. Such implied yield shall be determined, if
necessary, by (a) converting U.S. Treasury bill quotations to bond-equivalent
yields in accordance with accepted financial practice and (b) interpolating
linearly between yields reported for various maturities.
"REMAINING AVERAGE LIFE" shall mean, with respect to the Called Principal
of any Note, the number of years (calculated to the nearest one-twelfth year)
obtained by dividing (i) such Called Principal into (ii) the sum of the
products obtained by multiplying (a) each Remaining Scheduled Payment of such
Called Principal (but not of interest thereon) by (b) the number of years
(calculated to the nearest one-twelfth year) which will elapse between the
Settlement Date with respect to such Called Principal and the scheduled due
date of such Remaining Scheduled Payment.
"REMAINING SCHEDULED PAYMENTS" shall mean, with respect to the Called
Principal of any Note, all payments of such Called Principal and interest
thereon that would be due on or after the Settlement Date with respect to such
Called Principal if no payment of such Called Principal were made prior to its
scheduled due date.
"SETTLEMENT DATE" shall mean, with respect to the Called Principal of any
Note, the date on which such Called Principal is to be prepaid pursuant to
paragraph 4B or is declared to be immediately due and payable pursuant to
paragraph 7A, as the context requires.
"YIELD-MAINTENANCE AMOUNT" shall mean, with respect to any Note, an amount
equal to the excess, if any, of the Discounted Value of the Called Principal of
such Note over the sum of (i) such Called Principal plus (ii) interest accrued
thereon as of (including interest due on) the Settlement Date with respect to
such Called Principal. The Yield-Maintenance Amount shall in no event be less
than zero.
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10B. OTHER TERMS.
"ACCEPTANCE" shall have the meaning specified in paragraph 2B(5).
"ACCEPTANCE DAY" shall have the meaning specified in paragraph 2B(5).
"ACCEPTANCE WINDOW" shall mean, with respect to any interest rate quote
made by Prudential pursuant to paragraph 2B(4), the time period designated by
Prudential during which the Company may elect to accept such interest rate
quote as to not less than $5,000,000 in aggregate principal amount of Shelf
Notes specified in the related Request for Purchase.
"ACCEPTED NOTE" shall have the meaning specified in paragraph 2B(5).
"AFFILIATE" shall mean any Person directly or indirectly controlling,
controlled by, or under direct or indirect common control with, the Company,
except a Subsidiary. A Person shall be deemed to control a corporation if such
Person possesses, directly or indirectly, the power to direct or cause the
direction of the management and policies of such corporation, whether through
the ownership of voting securities, by contract or otherwise.
"AUTHORIZED OFFICER" shall mean (i) in the case of the Company, its chief
executive officer, its chief financial officer, its chief operating officer or
any other officer of the Company designated as an "Authorized Officer" of the
Company for the purpose of this Agreement in an Officer's Certificate executed
by the Company's chief executive officer or chief financial officer and
delivered to Prudential, and (ii) in the case of Prudential, any of the
following officers of Prudential Capital Group (an affiliate of Prudential),
any managing director, senior vice president or vice president or any officer
of Prudential designated as its "Authorized Officer" for the purpose of this
Agreement in a certificate executed by one of its Authorized Officers. Any
action taken under this Agreement on behalf of the Company by any individual
who on or after the date of this Agreement shall have been an Authorized
Officer of the Company and whom Prudential in good faith believes to be an
Authorized Officer of the Company at the time of such action shall be binding
on the Company even though such individual shall have ceased to be an
Authorized Officer of the Company, and any action taken under this Agreement on
behalf of Prudential by any individual who on or after the date of this
Agreement shall have been an Authorized Officer of Prudential and whom the
Company in good faith believes to be an Authorized Officer of Prudential at the
time of such action shall be binding on Prudential even though such individual
shall have ceased to be an Authorized Officer of Prudential.
"AVAILABLE FACILITY AMOUNT" shall have the meaning specified in paragraph
2B(1).
"BANKRUPTCY LAW" shall have the meaning specified in clause (viii) of
paragraph 7A.
"BUSINESS DAY" shall mean any day other than (i) a Saturday or a Sunday,
(ii) a day on which commercial banks in New York City are required or
authorized to be closed and (iii) for purposes of paragraph 2B(3) hereof only,
a day on which The Prudential Insurance Company of America is not open for
business.
"CANCELLATION DATE" shall have the meaning specified in paragraph
2B(8)(iv).
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"CANCELLATION FEE" shall have the meaning specified in paragraph
2B(8)(iv).
"CAPITALIZED LEASE OBLIGATION" shall mean any rental obligation which,
under generally accepted accounting principles, is or will be required to be
capitalized on the books of the Company or any Subsidiary, taken at the amount
thereof accounted for as indebtedness (net of interest expenses) in accordance
with such principles.
"CLOSING DAY" shall mean, with respect to any Accepted Note, the Business
Day specified for the closing of the purchase and sale of such Accepted Note in
the Request for Purchase of such Accepted Note, provided that (i) if the
Company and the Purchaser which is obligated to purchase such Accepted Note
agree on an earlier Business Day for such closing, the "CLOSING DAY" for such
Accepted Note shall be such earlier Business Day, and (ii) if the closing of
the purchase and sale of such Accepted Note is rescheduled pursuant to
paragraph 2B(7), the Closing Day for such Accepted Note, for all purposes of
this Agreement except references to "original Closing Day" in paragraph
2B(8)(iii), shall mean the Rescheduled Closing Day with respect to such
Accepted Note.
"CODE" shall mean the Internal Revenue Code of 1986, as amended.
"CONFIDENTIAL INFORMATION" shall mean any written information delivered or
made available by or on behalf of the Company or any Subsidiary to a Purchaser
or a Transferee (as the case may be), including without limitation any
non-public information obtained pursuant to paragraph 5A or 5B, in connection
with or pursuant to this Agreement which is proprietary in nature and clearly
marked or labeled as being confidential information, but in no event shall
include information (i) which was publicly known or otherwise known to such
Purchaser or Transferee (as the case may be) at the time of disclosure (except
pursuant to disclosure in connection with this Agreement), (ii) which
subsequently becomes publicly known through no act or omission by such
Purchaser or Transferee (as the case may be), or (iii) which otherwise becomes
known to such Purchaser or Transferee, other than through disclosure by the
Company or from a Person obligated not to disclose under this Agreement.
"CONSOLIDATED CAPITALIZATION" shall mean, as of the time of any
determination, the sum of (i) Consolidated Net Worth and (ii) Funded Debt.
"CONSOLIDATED NET EARNINGS" shall mean with respect to any period:
(i) consolidated gross revenues of the Company and its Subsidiaries,
minus
(ii) all operating and non-operating expenses of the Company and its
Subsidiaries including all charges of a proper character (including
current and deferred taxes on income, provision for taxes on unremitted
foreign earnings which are included in gross revenues, and current
additions to reserves), but not including in gross revenues:
(a) any gains (net of expenses and taxes applicable thereto)
in excess of losses resulting from the sale, conversion or other
disposition of capital assets (i.e., assets other than current
assets);
(b) any gains resulting from the appraised write-up of assets;
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(c) any equity of the Company or any Subsidiary in the
unremitted earnings of any corporation which is not a Subsidiary;
(d) any earnings of any Person acquired by the Company or any
Subsidiary through purchase, merger or consolidation or otherwise
for any year prior to the year of acquisition; or
(e) any deferred credit representing the excess of equity in
any Subsidiary at the date of acquisition over the cost of the
investment in such Subsidiary; all determined in accordance with
generally accepted accounting principles.
"CONSOLIDATED NET EARNINGS AVAILABLE FOR RESTRICTED PAYMENTS" shall mean
an amount equal to (1) $25,000,000 plus 50% (or minus 100% in the case of a
deficit) of Consolidated Net Earnings for the period (taken as one accounting
period) commencing on December 29, 1991 and terminating at the end of the last
fiscal quarter preceding the date of any proposed Restricted Payment, minus (2)
the sum of (a) the aggregate amount of all cash dividends and other
distributions paid or declared by the Company on any class of its stock after
December 28, 1991, (b) 50% of the excess of the aggregate amount expended,
directly or indirectly, after December 28, 1991, for the redemption, purchase
or other acquisition of any shares of its stock, over the aggregate amount
received after December 28, 1991 as the net cash proceeds of the sale of any
shares of its stock until the year in which the Company subordinates succeeding
years' installment notes to the indebtedness evidenced by the Notes and this
Agreement and as a result thereof such installment notes constitute
Subordinated Debt hereunder, (c) the aggregate amount of all miscellaneous
deductions incurred by members and applied against declared patronage
dividends, and (d) the excess of the aggregate amount expended (at original
cost), directly or indirectly, after December 28, 1991 for Restricted
Investments, over the aggregate amount received after December 28, 1991 as the
net cash proceeds from the sale, liquidation or other return of capital
(excluding any interest, dividends or like payments) of, any such Restricted
Investment. For purposes of this definition, there shall not be included in
Restricted Payments or in any computation of Consolidated Net Earnings
Available For Restricted Payments: (x) dividends paid, or distributions made,
in stock or notes of the Company; (y) exchanges of stock of one or more classes
of the Company, except to the extent that cash or other value is involved in
such exchange or (z) so long as no Event of Default shall then be continuing or
would result from the making thereof, cash distributions made by the Company
from gains arising from the Company's disposition of capital assets.
"CONSOLIDATED NET WORTH" shall mean, as of any date of determination, the
sum of (i) the par value (or value stated on the books of the Company) of the
capital stock of all classes of the Company, plus (or minus in the case of a
surplus deficit) (ii) the amount of the consolidated surplus, whether capital
or earned, of the Company and its Subsidiaries, all determined in accordance
with generally accepted accounting principles.
"CONFIRMATION OF ACCEPTANCE" shall have the meaning specified in paragraph
2B(5).
"CURRENT DEBT" shall mean, with respect to any Person, all Indebtedness of
such Person for borrowed money which by its terms or by the terms of any
instrument or agreement relating thereto matures on demand or within one year
from the date of the creation thereof and is not directly or indirectly
renewable or extendible at the option of the debtor to a date more than one
year from the date of the creation thereof, provided that Indebtedness for
borrowed money outstanding under a revolving credit or similar agreement which
obligates the
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lender or lenders to extend credit over a period of more than one year shall
constitute Funded Debt and not Current Debt, even though such Indebtedness by
its terms matures on demand or within one year from the date of the creation
thereof.
"DEBT" shall mean Current Debt and Funded Debt.
"DELAYED DELIVERY FEE" shall have the meaning specified in paragraph
2B(8)(iii).
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended.
"ENVIRONMENTAL LAWS" shall mean all federal, state, local and foreign laws
relating to pollution or protection of the environment, including laws relating
to emissions, discharges, releases or threatened releases of pollutants,
contaminants, chemicals, or industrial, toxic or hazardous substances or wastes
into the environment (including without limitation ambient air, surface water,
ground water, or land), or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport, or handling of
pollutants, contaminants, chemicals, or industrial, toxic or hazardous
substances or wastes, and any and all regulations, codes, plans, orders,
decrees, judgments, injunctions, notices or demand letters issued, entered,
promulgated or approved thereunder.
"ERISA AFFILIATE" shall mean any corporation which is a member of the same
controlled group of corporations as the Company within the meaning of section
414(b) of the Code, or any trade or business which is under common control with
the Company within the meaning of section 414(c) of the Code.
"EVENT OF DEFAULT" shall mean any of the events specified in paragraph 7A,
provided that there has been satisfied any requirement in connection with such
event for the giving of notice, or the lapse of time, or the happening of any
further condition, event or act, and "DEFAULT" shall mean any of such events,
whether or not any such requirement has been satisfied.
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as amended.
"EXISTING AGREEMENT" shall mean that certain Note Agreement dated as of
April 13, 1992 between the Company and Prudential pursuant to which the Company
sold and Prudential purchased the Company's 8.60% senior note in the original
principal amount of $50,000,000 due April 1, 2007.
"FACILITY" shall have the meaning specified in paragraph 2B(1).
"FUNDED DEBT" shall mean and include, (i) any obligation payable more than
one year from the date of creation thereof which under generally accepted
accounting principles is shown on a balance sheet as a liability (including
Capitalized Lease Obligations but excluding reserves for deferred income taxes
and other reserves to the extent that such reserves do not constitute an
obligation); (ii) indebtedness payable more than one year from the date of
creation thereof which is secured by any lien on property owned by the Company
or any Subsidiary; and (iii) Guarantees.
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<PAGE> 28
"GUARANTEE" shall mean, with respect to any Person, any direct or indirect
liability, contingent or otherwise, of such Person with respect to any
indebtedness, lease, dividend or other obligation of another, including,
without limitation, any such obligation directly or indirectly guaranteed,
endorsed (other than for collection or deposit in the ordinary course of
business) or discounted or sold with recourse by such Person, or in respect of
which such Person is otherwise directly or indirectly liable, including,
without limitation, any such obligation in effect guaranteed by such Person
through any agreement (contingent or otherwise) to purchase, repurchase or
otherwise acquire such obligation or any security therefor, or to provide funds
for the payment or discharge of such obligation (whether in the form of loans,
advances, stock purchases, capital contributions or otherwise), or to maintain
the solvency or any balance sheet or other financial condition of the obligor
of such obligation, or to make payment for any products, materials or supplies
or for any transportation or services regardless of the non-delivery or
non-furnishing thereof, in any such case if the purpose or intent of such
agreement is to provide assurance that such obligation will be paid or
discharged, or that any agreements relating thereto will be complied with, or
that the holders of such obligation will be protected against loss in respect
thereof. The amount of any Guarantee shall be equal to the outstanding
principal amount of the obligation guaranteed or such lesser amount to which
the maximum exposure of the guarantor shall have been specifically limited.
"HEDGE TREASURY NOTE(S)" shall mean, with respect to any Accepted Note,
the United States Treasury Note or Notes whose duration (as reasonably
determined by Prudential) most closely matches the duration of such Accepted
Note.
"HOSTILE TENDER OFFER" shall mean, with respect to the use of proceeds of
any Note, any offer to purchase, or any purchase of, shares of capital stock of
any corporation or equity interests in any other entity, or securities
convertible into or representing the beneficial ownership of, or rights to
acquire, any such shares or equity interests, if such shares, equity interests,
securities or rights are of a class which is publicly traded on any securities
exchange or in any over-the-counter market, other than purchases of such
shares, equity interests, securities or rights representing less than 5% of the
equity interests or beneficial ownership of such corporation or other entity
for portfolio investment purposes, and such offer or purchase has not been duly
approved by the board of directors of such corporation or the equivalent
governing body of such other entity prior to the date on which the Company
makes the Request for Purchase of such Note.
"INCLUDING" shall mean, unless the context clearly requires otherwise,
"including without limitation".
"INDEBTEDNESS" shall mean, with respect to any Person, without
duplication, (i) all items (excluding items of contingency reserves or of
reserves for deferred income taxes) which in accordance with generally accepted
accounting principles would be included in determining total liabilities as
shown on the liability side of a balance sheet of such Person as of the date on
which Indebtedness is to be determined, (ii) all indebtedness secured by any
Lien on any property or asset owned or held by such Person subject thereto,
whether or not the indebtedness secured thereby shall have been assumed, and
(iii) all indebtedness of others with respect to which such Person has become
liable by way of Guarantee.
"INSTITUTIONAL INVESTOR" shall mean any insurance company, pension fund,
mutual fund, investment company, bank, savings bank, savings and loan
association, investment banking company, trust company, or any finance or
credit company, any portfolio or any investment fund managed by any of the
foregoing, or any
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<PAGE> 29
other institutional investor, and any nominee of the foregoing. The term
"Institutional Investor" shall not include any competitor of the Company or its
Subsidiaries or any labor union with which the Company then has a collective
bargaining agreement.
"INVESTMENTS" shall mean any loan or advance to, or ownership, purchase or
acquisition of any security (including stock) or obligations of, or any other
interest in, or any capital contribution made to, any Person.
"ISSUANCE PERIOD" shall have the meaning specified in paragraph 2B(2).
"LIEN" shall mean any mortgage, pledge, security interest, encumbrance,
lien (statutory or otherwise) or charge of any kind (including any agreement to
give any of the foregoing, any conditional sale or other title retention
agreement, any lease in the nature thereof, and the filing of or agreement to
give any financing statement under the Uniform Commercial Code of any
jurisdiction) or any other type of preferential arrangement for the purpose, or
having the effect, of protecting a creditor against loss or securing the
payment or performance of an obligation.
"MULTIEMPLOYER PLAN" shall mean any Plan which is a "multiemployer plan"
(as such term is defined in section 4001(a)(3) of ERISA.
"NOTES" shall have the meaning specified in paragraph 1.
"OFFICER'S CERTIFICATE" shall mean a certificate signed in the name of the
Company by an Authorized Officer of the Company.
"PERSON" shall mean and include an individual, a partnership, a joint
venture, a corporation, a trust, an unincorporated organization and a
government or any department or agency thereof.
"PLAN" shall mean any employee pension benefit plan (as such term is
defined in section 3 of ERISA) which is or has been established or maintained,
or to which contributions are or have been made, by the Company or any ERISA
Affiliate.
"PRUDENTIAL" shall mean The Prudential Insurance Company of America.
"PRUDENTIAL AFFILIATE" shall mean any corporation or other entity all of
the Voting Stock (or equivalent voting securities or interests) of which is
owned by Prudential either directly or through Prudential Affiliates.
"PURCHASERS" shall mean with respect to any Accepted Notes, Prudential
and/or the Prudential Affiliate(s), which are purchasing such Accepted Notes.
"REQUEST FOR PURCHASE" shall have the meaning specified in paragraph
2B(3).
"REQUIRED HOLDER(S)" shall mean the holder or holders of at least 50.1% of
the aggregate principal amount of the Notes or of a Series of Notes, as the
context may require, from time to time outstanding.
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<PAGE> 30
"RESCHEDULED CLOSING DAY" shall have the meaning specified in paragraph
2B(7).
"RESPONSIBLE OFFICER" shall mean the chief executive officer, chief
operating officer, chief financial officer or chief accounting officer of the
Company, general counsel of the Company or any other officer of the Company
involved principally in its financial administration or its controllership
function.
"RESTRICTED INVESTMENTS" shall mean any Investment prohibited by paragraph
6G.
"RESTRICTED PAYMENT" shall mean any payment or transaction which would be
prohibited by paragraph 6H if Consolidated Net Earnings Available for
Restricted Payments equalled zero.
"SECURED FUNDED DEBT" shall mean Funded Debt which is secured by any Lien.
"SECURITIES ACT" shall mean the Securities Act of 1933, as amended.
"SENIOR FUNDED DEBT" shall mean Funded Debt of the Company which is not
Subordinated Debt.
"SERIES" shall have the meaning specified in paragraph 1.
"SHELF NOTES" shall have the meaning specified in paragraph 1.
"SIGNIFICANT HOLDER" shall mean (i) Prudential, so long as Prudential or
any Prudential Affiliate shall hold (or be committed under this Agreement to
purchase) any Note, and (ii) any other holder of at least 10% of the aggregate
principal amount of the Notes from time to time outstanding.
"SUBORDINATED DEBT" shall mean any Indebtedness of the Company which
contains terms of subordination identical to or, in the reasonable
determination of the holders of the Notes no less favorable to such holders of
the Notes than, the terms of subordination set forth in Exhibit E hereto and,
which by virtue of such language and any necessary action of the Board of
Directors of the Company, is subordinated to the Indebtedness owing from time
to time by the Company to the holders of any Note issued in connection with
this Agreement or the Existing Agreement.
"SUBSIDIARY" shall mean any corporation all of the stock of every class of
which, except directors' qualifying shares, shall, at the time as of which any
determination is being made, be owned by the Company either directly or through
Subsidiaries. Notwithstanding the foregoing, for purposes of calculating the
financial covenants, Cotter Canada Hardware and Variety Cooperative, Inc. will
be deemed a Subsidiary of the Company if, in accordance with GAAP, it is
consolidated in the financial statements
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<PAGE> 31
of the Company required to be delivered pursuant to clauses (i) and (ii) of
paragraph 5A hereof.
"SUBSTANTIAL STOCKHOLDER" shall mean (i) any Person owning, beneficially
or of record, directly or indirectly, either individually or together with all
other Persons to whom such Person is related by blood, adoption or marriage,
stock of the Company (of any class having ordinary voting power for the
election of directors) aggregating five percent (5%) or more of such voting
power or (ii) any Person related by blood, adoption or marriage to any Person
described or coming within the provisions of clause (i) of this definition.
"STRUCTURING FEE" shall have the meaning specified in paragraph 2B(8)(i).
"TRANSFEREE" shall mean any direct or indirect transferee of all or any
part of any Note purchased by any Purchaser under this Agreement.
"VOTING STOCK" shall mean, with respect to any corporation, any shares of
stock of such corporation whose holders are entitled under ordinary
circumstances to vote for the election of directors of such corporation
(irrespective of whether at the time stock of any other class or classes shall
have or might have voting power by reason of the happening of any contingency).
10C. ACCOUNTING PRINCIPLES, TERMS AND DETERMINATIONS. All references in
this Agreement to "generally accepted accounting principles" shall be deemed to
refer to generally accepted accounting principles in effect in the United
States at the time of application thereof. Unless otherwise specified herein,
all accounting terms used herein shall be interpreted, all determinations with
respect to accounting matters hereunder shall be made, and all unaudited
financial statements and certificates and reports as to financial matters
required to be furnished hereunder shall be prepared, in accordance with
generally accepted accounting principles applied on a basis consistent with the
most recent audited financial statements delivered pursuant to clause (ii) of
paragraph 5A or, if no such statements have been so delivered, the most recent
audited financial statements referred to in clause (i) of paragraph 8B.
11. MISCELLANEOUS.
11A. NOTE PAYMENTS. The Company agrees that, so long as any Purchaser
shall hold any Note, it will make payments of principal of, interest on, and
any Yield-Maintenance Amount payable with respect to, such Note, which comply
with the terms of this Agreement, by wire transfer of immediately available
funds for credit (not later than 12:00 noon, New York City local time, on the
date due) (i) the account or accounts of such Purchaser specified in the
Confirmation of Acceptance with respect to such Note in the case of any Shelf
Note or (ii) such other account or accounts in the United States as such
Purchaser may from time to time designate in writing, notwithstanding any
contrary provision herein or in any Note with respect to the place of payment.
Each Purchaser agrees that, before disposing of any Note, it will make a
notation thereon (or on a schedule attached thereto) of all principal payments
previously made thereon and of the date to which interest thereon has been
paid. The Company agrees to afford the benefits of this paragraph 11A to any
Transferee which shall have made the same agreement as the Purchasers have made
in this paragraph 11A.
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11B. EXPENSES. The Company agrees, whether or not the transactions
contemplated hereby shall be consummated, to pay, and save Prudential, each
Purchaser and any Transferee harmless against liability for the payment of, all
out-of-pocket expenses arising in connection with such transactions, including
(i) all document production and duplication charges and the fees and expenses
of any special counsel engaged by the Purchasers or any Transferee in
connection with this Agreement (other than in connection with the preparation
of this Agreement and the documents related hereto in connection with the
original closing hereunder and the closing of any draw under the Facility), the
transactions contemplated hereby and any subsequent proposed modification of,
or proposed consent under, this Agreement, whether or not such proposed
modification shall be effected or proposed consent granted, and (ii) the costs
and expenses, including attorneys' fees, incurred by any Purchaser or any
Transferee in enforcing (or determining how to enforce) any rights under this
Agreement or the Notes or in responding to any subpoena or other legal process
or informal investigative demand issued in connection with this Agreement or
the transactions contemplated hereby or by reason of any Purchaser's or any
Transferee's having acquired any Note, including without limitation costs and
expenses incurred in any bankruptcy case. The obligations of the Company under
this paragraph 11B shall survive the transfer of any Note or portion thereof or
interest therein by any Purchaser or any Transferee and the payment of any
Note.
11C. CONSENT TO AMENDMENTS. This Agreement may be amended, and the
Company may take any action herein prohibited, or omit to perform any act
herein required to be performed by it, if the Company shall obtain the written
consent to such amendment, action or omission to act, of the Required Holder(s)
of the Notes of each Series except that, (i) with the written consent of the
holders of all Notes of a particular Series, and if an Event of Default shall
have occurred and be continuing, of the holders of all Notes of all Series, at
the time outstanding (and such written consents), the Notes of such Series may
be amended or the provisions thereof waived to change the maturity thereof, to
change or affect the principal thereof, or to change or affect the rate or time
of payment of interest on or any Yield-Maintenance Amount payable with respect
to the Notes of such Series, (ii) without the written consent of the holder or
holders of all Notes at the time outstanding, no amendment to or waiver of the
provisions of this Agreement shall change or affect the provisions of paragraph
7A or this paragraph 11C insofar as such provisions relate to proportions of
the principal amount of the Notes of any Series, or the rights of any
individual holder of Notes, required with respect to any declaration of Notes
to be due and payable or with respect to any consent, amendment, waiver or
declaration, (iii) with the written consent of Prudential (and without the
consent of any other holder of the Notes) the provisions of paragraph 2B may be
amended or waived (except insofar as any such amendment or waiver would affect
any rights or obligations with respect to the purchase and sale of Notes which
shall have become Accepted Notes prior to such amendment or waiver), and (iv)
with the written consent of all of the Purchasers which shall have become
obligated to purchase Accepted Notes of any Series (and not without the written
consent of all such Purchasers), any of the provisions of paragraphs 2B and 3
may be amended or waived insofar as such amendment or waiver would affect only
rights or obligations with respect to the purchase and sale of the Accepted
Notes of such Series or the terms and provisions of such Accepted Notes. Each
holder of any Note at the time or thereafter outstanding shall be bound by any
consent authorized by this paragraph 11C, whether or not such Note shall have
been marked to indicate such consent, but any Notes issued thereafter may bear
a notation referring to any such consent. No course of dealing between the
Company and the holder of any Note nor any delay in exercising any rights
hereunder or under any Note shall operate as a waiver of any rights of any
holder of such Note. As used herein and in the Notes, the term "THIS
AGREEMENT" and references thereto shall mean this Agreement as it may from time
to time be amended or supplemented.
11D. FORM, REGISTRATION, TRANSFER AND EXCHANGE OF NOTES; LOST NOTES. The
Notes are issuable as registered notes without coupons in denominations of at
least $100,000, except as may be necessary to
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<PAGE> 33
reflect any principal amount not evenly divisible by $100,000. The Company
shall keep at its principal office a register in which the Company shall
provide for the registration of Notes and of transfers of Notes. Upon
surrender for registration of transfer of any Note at the principal office of
the Company, the Company shall, at its expense, execute and deliver one or more
new Notes of like tenor and of a like aggregate principal amount, registered in
the name of such transferee or transferees. At the option of the holder of any
Note, such Note may be exchanged for other Notes of like tenor and of any
authorized denominations, of a like aggregate principal amount, upon surrender
of the Note to be exchanged at the principal office of the Company. Whenever
any Notes are so surrendered for exchange, the Company shall, at its expense,
execute and deliver the Notes which the holder making the exchange is entitled
to receive. Each prepayment of principal payable on each prepayment date upon
each new Note issued upon any such transfer or exchange shall be in the same
proportion to the unpaid principal amount of such new Note as the prepayment of
principal payable on such date on the Note surrendered for registration of
transfer or exchange bore to the unpaid principal amount of such Note. No
reference need be made in any such new Note to any prepayment or prepayments of
principal previously due and paid upon the Note surrendered for registration of
transfer or exchange. Every Note surrendered for registration of transfer or
exchange shall be duly endorsed, or be accompanied by a written instrument of
transfer duly executed, by the holder of such Note or such holder's attorney
duly authorized in writing. Any Note or Notes issued in exchange for any Note
or upon transfer thereof shall carry the rights to unpaid interest and interest
to accrue which were carried by the Note so exchanged or transferred, so that
neither gain nor loss of interest shall result from any such transfer or
exchange. Upon receipt of written notice from the holder of any Note of the
loss, theft, destruction or mutilation of such Note and, in the case of any
such loss, theft or destruction, upon receipt of such holder's unsecured
indemnity agreement, or in the case of any such mutilation upon surrender and
cancellation of such Note, the Company will make and deliver a new Note, of
like tenor, in lieu of the lost, stolen, destroyed or mutilated Note.
11E. PERSONS DEEMED OWNERS; PARTICIPATIONS. Prior to due presentment for
registration of transfer, the Company may treat the Person in whose name any
Note is registered as the owner and holder of such Note for the purpose of
receiving payment of principal of and interest on, and any Yield-Maintenance
Amount payable with respect to, such Note and for all other purposes
whatsoever, whether or not such Note shall be overdue, and the Company shall
not be affected by notice to the contrary. Subject to the preceding sentence,
the holder of any Note may from time to time grant participations in all or any
part of such Note to any Person on such terms and conditions as may be
determined by such holder in its sole and absolute discretion, provided that
any such participations shall be in a principal amount of at least $100,000.
.
11F. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ENTIRE AGREEMENT. All
representations and warranties contained herein or made in writing by or on
behalf of the Company in connection herewith shall survive the execution and
delivery of this Agreement and the Notes, the transfer by any Purchaser of any
Note or portion thereof or interest therein and the payment of any Note, and
may be relied upon by any Transferee, regardless of any investigation made at
any time by or on behalf of any Purchaser or any Transferee. Subject to the
preceding sentence, this Agreement and the Notes embody the entire agreement
and understanding between the parties hereto with respect to the subject matter
hereof and supersede all prior agreements and understandings relating to such
subject matter.
11G. SUCCESSORS AND ASSIGNS. All covenants and other agreements in this
Agreement contained by or on behalf of any of the parties hereto shall bind and
inure to the benefit of the respective
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successors and assigns of the parties hereto (including, without limitation,
any Transferee) whether so expressed or not.
11H. DISCLOSURE TO OTHER PERSONS. Each Purchaser (and each Transferee by
its acceptance of an interest in any Note) agrees to use its best efforts to
hold in confidence and not disclose any Confidential Information without the
prior written consent of the Company which consent shall not be unreasonably
denied; provided, however, that nothing contained herein shall prevent the
holder of any Note from delivering copies of any financial statements and other
documents delivered to such holder, and disclosing any other information
disclosed to such holder, by the Company or any Subsidiary in connection with
or pursuant to this Agreement to (i) such holder's directors, officers,
employees, agents and professional consultants, (ii) any other holder of any
Note, (iii) any Institutional Investor to which such holder offers to sell such
Note or any part thereof, (iv) any Institutional Investor to which such holder
sells or offers to sell a participation in all or any part of such Note, (v)
any Institutional Investor from which such holder offers to purchase any
security of the Company, (vi) any federal or state regulatory authority having
jurisdiction over such holder, (vii) the National Association of Insurance
Commissioners or any similar organization or (viii) any other Person to which
such delivery or disclosure may be necessary or appropriate (a) in compliance
with any law, rule, regulation or order applicable to such holder, (b) in
response to any subpoena or other legal process or informal investigative
demand, (c) in connection with any litigation to which such holder is a party
or (d) in order to protect such holder's investment; and provided further that
after notice to the Company the holders of the Notes shall be free to correct
any false or misleading information which may become public concerning their
relationship to the Company or any of its Subsidiaries.
11I. NOTICES. All written communications provided for hereunder (other
than communications provided for under paragraph 2) shall be sent by first
class mail or nationwide overnight delivery service (with charges prepaid) and
(i) if to any Purchaser, addressed as specified for such communications in the
Purchaser Schedule attached hereto (in the case of the Series A Notes) or the
Purchaser Schedule attached to the applicable Confirmation of Acceptance (in
the case of any Shelf Notes) or at such other address as any such Purchaser
shall have specified to the Company in writing, (ii) if to any other holder of
any Note, addressed to it at such address as it shall have specified in writing
to the Company or, if any such holder shall not have so specified an address,
then addressed to such holder in care of the last holder of such Note which
shall have so specified an address to the Company and (iii) if to the Company,
addressed to it at 8600 West Bryn Bawr Avenue, Chicago, Illinois, 60631,
Attention: Chief Financial Officer and Controller (with duplicate copies to
each), or at such other address in the United States as the Company shall have
specified to the holder of each Note in writing, provided, however, that any
such communication to the Company may also, at the option of the Person sending
such communication, be delivered by any other means either to the Company at
its address specified above or to any Authorized Officer of the Company. Any
communication to Prudential pursuant to paragraph 2 shall be made by the method
specified for such communication in paragraph 2, and shall be effective to
create any rights or obligations under this Agreement only if, in the case of a
telephone communication, an Authorized Officer of the party conveying the
information and of the party receiving the information are parties to the
telephone call, and in the case of a telecopier communication, the
communication is signed by an Authorized Officer of the party conveying the
information, addressed to the attention of an Authorized Officer of the party
receiving the information, and in fact received at the telecopier terminal the
number of which the party receiving the communication shall have specified in
writing to the party sending such information.
11J. PAYMENTS DUE ON NON-BUSINESS DAYS. Anything in this Agreement or the
Notes to the contrary notwithstanding, any payment of principal of or interest
on, or Yield-Maintenance Amount payable with
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<PAGE> 35
respect to, any Note that is due on a date other than a Business Day shall be
made on the next succeeding Business Day. If the date for any payment is
extended to the next succeeding Business Day by reason of the preceding
sentence, the period of such extension shall be included in the computation of
the interest payable on such Business Day.
11K. SEVERABILITY. Any provision of this Agreement which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
11L. DESCRIPTIVE HEADINGS. The descriptive headings of the several
paragraphs of this Agreement are inserted for convenience only and do not
constitute a part of this Agreement.
11M. SATISFACTION REQUIREMENT. If any agreement, certificate or other
writing, or any action taken or to be taken, is by the terms of this Agreement
required to be satisfactory to any Purchaser, to any holder of Notes or to the
Required Holder(s), the determination of such satisfaction shall be made by
such Purchaser, such holder or the Required Holder(s), as the case may be, in
the sole and exclusive judgment (exercised in good faith) of the Person or
Persons making such determination.
11N. GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED AND ENFORCED IN
ACCORDANCE WITH, AND THE RIGHTS OF THE PARTIES SHALL BE GOVERNED BY, THE
INTERNAL LAW OF THE STATE OF ILLINOIS.
11O. SEVERALTY OF OBLIGATIONS. The sales of Notes to the Purchasers are
to be several sales, and the obligations of Prudential and the Purchasers under
this Agreement are several obligations. No failure by Prudential or any
Purchaser to perform its obligations under this Agreement shall relieve any
other Purchaser or the Company of any of its obligations hereunder, and neither
Prudential nor any Purchaser shall be responsible for the obligations of, or
any action taken or omitted by, any other such Person hereunder.
11P. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
11Q. INDEPENDENCE OF COVENANTS. All covenants hereunder shall be given
independent effect so that if a particular action or condition is prohibited by
any one of such covenants, the fact that it would be permitted by an exception
to, or otherwise be in compliance within the limitations of, another covenant
shall not avoid (i) the occurrence of a Default or Event of Default if such
action is taken or such condition exists or (ii) in any way prejudice an
attempt by the holder of any Note to prohibit through equitable action or
otherwise the taking of any action by the Company or any Subsidiary which would
result in a Default or Event of Default.
11R. BINDING AGREEMENT. When this Agreement is executed and delivered by
the Company, and Prudential, it shall become a binding agreement between the
Company, and Prudential. This Agreement shall also inure to and each such
Purchaser shall be bound by this Agreement to the extent provided in such
Confirmation of Acceptance.
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<PAGE> 36
11S. AMENDMENT OF EXISTING AGREEMENT. Upon the execution of this
Agreement by Prudential, paragraphs 5 and 6 of the Existing Agreement are
hereby amended in their entirety so as to read as set forth, respectively, in
paragraphs 5 and 6 of this Agreement and defined terms and cross references
used in paragraphs 5 and 6 of the Existing Agreement, as amended hereby, shall
be deemed to have the respective meanings ascribed thereto in, and to refer to
paragraphs in, this Agreement; provided, however, that any reference to a
"Note" or "Notes" in the Existing Agreement, as amended hereby, shall mean the
notes issued under and pursuant to the Existing Agreement. No termination of
this Agreement in whole or in part or any modification hereof, shall affect the
continued applicability of this paragraph and the covenants referred to herein
to the Existing Agreement.
Very truly yours,
COTTER & COMPANY
By:____________________________
Kerry J. Kirby
Treasurer and Vice President -
Finance
The foregoing Agreement is
hereby accepted as of the
date first above written.
THE PRUDENTIAL INSURANCE COMPANY
OF AMERICA
By:_______________________
Vice President
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<PAGE> 37
PURCHASER SCHEDULE
COTTER & COMPANY
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
(1) Address for all notices relating to payments:
The Prudential Insurance Company of America
c/o Prudential Capital Group
Gateway Center Three
100 Mulberry Street
Newark, New Jersey 07102
Attention: Manager, Investment Operations Group
Telephone: (201) 802-5260
Telecopy: (201) 802-8055
(2) Address for all other communications and notices:
The Prudential Insurance Company of America
c/o Prudential Capital Group
Two Prudential Plaza
180 North Stetson Street
Suite 5600
Chicago, Illinois 60601-6716
Attention: Team X
Telecopy: (312) 540-4222
(3) Recipient of telephonic prepayment notices:
Manager, Investment Structure and Pricing
Telephone: (201) 802-6660
Telecopy: (201) 802-9425
(4) Tax identification No.: 22-1211670
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EXHIBIT A
[FORM OF SHELF NOTE]
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933.
THE SALE OR TRANSFER OF THIS NOTE IS SUBJECT TO CERTAIN RESTRICTIONS
CONTAINED IN PARAGRAPH 9G OF THE PRIVATE SHELF AGREEMENT DATED
AS OF DECEMBER 29, 1995 BETWEEN COTTER & COMPANY AND THE
PRUDENTIAL INSURANCE COMPANY OF AMERICA.
COTTER & COMPANY
SENIOR SERIES NOTE
No. ____
ORIGINAL PRINCIPAL AMOUNT:
ORIGINAL ISSUE DATE:
INTEREST RATE:
INTEREST PAYMENT DATES:
FINAL MATURITY DATE:
PRINCIPAL PREPAYMENT DATES AND AMOUNTS:
FOR VALUE RECEIVED, the undersigned, Cotter & Company (herein called the
"Company"), a corporation organized and existing under the laws of the State of
Delaware, hereby promises to pay to ___________________________, or registered
assigns, the principal sum of ___________________________ DOLLARS [on the Final
Maturity Date specified above] [, payable on the Principal Prepayment Dates and
in the amounts specified above, and on the Final Maturity Date specified above
in an amount equal to the unpaid balance of the principal hereof,] with
interest (computed on the basis of a 360-day year--30-day month) (a) on the
unpaid balance thereof at the Interest Rate per annum specified above, payable
on each Interest Payment Date specified above and on the Final Maturity Date
specified above, commencing with the Interest Payment Date next succeeding the
date hereof, until the principal hereof shall have become due and payable, and
(b) on any overdue payment (including any overdue prepayment) of principal, any
overdue payment of Yield Maintenance Amount and any overdue payment of
interest, payable on each Interest Payment Date as aforesaid (or, at the option
of the registered holder hereof, on demand), at a rate per annum from time to
time equal to the greater of (i) 2% over the Interest Rate specified above or
(ii) 2% over the rate of interest publicly announced by Morgan Guaranty Trust
Company of New York from time to time in New York City as its Prime Rate.
Payments of principal, Yield Maintenance Amount, if any, and interest
are to be made at the main office of Morgan Guaranty Trust Company of New York
in New York City or at such other place as the holder hereof shall designate to
the Company in writing, in lawful money of the United States of America.
A-1
<PAGE> 39
This Note is one of a series of Senior Notes (herein called the
"Notes") issued pursuant to a Private Shelf Agreement, dated as of December 29,
1995 (herein called the "Agreement"), between the Company, on the one hand, and
The Prudential Insurance Company of America and each Prudential Affiliate (as
defined in the Agreement) which becomes party thereto, on the other hand, and
is entitled to the benefits thereof.
This Note is subject to optional prepayment, in whole or from time to
time in part, on the terms specified in the Agreement.
This Note is a registered Note and, as provided in the Agreement, upon
surrender of this Note for registration of transfer, duly endorsed, or
accompanied by a written instrument of transfer duly executed, by the
registered holder hereof or such holder's attorney duly authorized in writing,
a new Note for the then outstanding principal amount will be issued to, and
registered in the name of, the transferee. Prior to due presentment for
registration of transfer, the Company may treat the person in whose name this
Note is registered as the owner hereof for the purpose of receiving payment and
for all other purposes, and the Company shall not be affected by any notice to
the contrary.
In case an Event of Default shall occur and be continuing, the
principal of this Note may be declared or otherwise become due and payable in
the manner and with the effect provided in the Agreement.
Capitalized terms used and not otherwise defined herein shall have the
meanings (if any) provided in the Agreement.
This Note is intended to be performed in the State of Illinois and
shall be construed and enforced in accordance with the internal laws and
decisions (as opposed to the conflicts of law provisions) of such State.
COTTER & COMPANY
By: _____________________________
Title: __________________________
A-2
<PAGE> 40
EXHIBIT B
[FORM OF REQUEST FOR PURCHASE]
COTTER & COMPANY
Reference is made to the Private Shelf Agreement (the "Agreement"),
dated as of December 29, 1995 between Cotter & Company (the "Company"), on the
one hand, and The Prudential Insurance Company of America ("Prudential") and
each Prudential Affiliate which becomes party thereto, on the other hand.
Capitalized terms used and not otherwise defined herein shall have the
respective meanings specified in the Agreement.
Pursuant to Paragraph 2B(3) of the Agreement, the Company hereby makes
the following Request for Purchase:
1. Aggregate principal amount of
the Notes covered hereby
(the "Notes") . . . . . . . . . . $
------------
2. Individual specifications of the Notes:
<TABLE>
<CAPTION>
Principal
Final Prepayment Interest
Principal Maturity Dates and Payment
Amount(1) Date Amounts Period
- --------- -------- ---------- --------
<S> <C> <C> <C>
Quarterly
</TABLE>
3. Use of proceeds of the Notes:
4. Proposed day for the closing of the purchase and sale of the Notes:
- --------------------
(1) Minimum principal amount of $5,000,000.
B-1
<PAGE> 41
5. The purchase price of the Notes is to be transferred to:
Name, Address
and ABA Routing Number of
Number of Bank Account
--------------- ---------
6. The Company certifies (a) that the representations and warranties
contained in paragraph 8 of the Agreement are true on and as of the
date of this Request for Purchase except to the extent of changes
caused by the transactions contemplated in the Agreement and (b)
that there exists on the date of this Request for Purchase no Event
of Default or Default.
Dated: COTTER & COMPANY
By:
------------------
Authorized Officer
B-2
<PAGE> 42
EXHIBIT C
[FORM OF CONFIRMATION OF ACCEPTANCE]
COTTER & COMPANY
Reference is made to the Private Shelf Agreement (the "Agreement"),
dated as of December 29, 1995 between Cotter & Company (the "Company"), on the
one hand, and The Prudential Insurance Company of America ("Prudential") and
each Prudential Affiliate which becomes party thereto, on the other hand. All
terms used herein that are defined in the Agreement have the respective
meanings specified in the Agreement.
Prudential or the Prudential Affiliate which is named below as a
Purchaser of Notes hereby confirms the representations as to such Notes set
forth in paragraph 9 of the Agreement, and agrees to be bound by the provisions
of paragraphs 2B(5) and 2B(7) of the Agreement relating to the purchase and
sale of such Notes and by the provisions of the penultimate sentence of
paragraph 11A of the Agreement.
Pursuant to paragraph 2B(5) of the Agreement, an Acceptance with
respect to the following Accepted Notes is hereby confirmed:
I. Accepted Notes: Aggregate principal
amount $_______________
(A) (a) Name of Purchaser:
(b) Principal amount:
(c) Final maturity date:
(d) Principal prepayment dates and amounts:
(e) Interest rate:
(f) Interest payment period: Quarterly
(g) Payment and notice instructions: As set forth on
attached Purchaser Schedule
(B) (a) Name of Purchaser:
(b) Principal amount:
(c) Final maturity date:
(d) Principal prepayment dates and amounts:
(e) Interest rate:
(f) Interest payment period: Quarterly
(g) Payment and notice instructions: As set forth on
attached Purchaser Schedule
[(C), (D)..... same information as above.]
C-1
<PAGE> 43
II. Closing Day:
Dated: COTTER & COMPANY
By: _________________________
Title: ______________________
[THE PRUDENTIAL INSURANCE
COMPANY OF AMERICA]
By: _________________________
Vice President
[PRUDENTIAL AFFILIATE]
By: _________________________
Vice President
C-2
<PAGE> 44
EXHIBIT D
[FORM OF OPINION OF COMPANY'S COUNSEL]
[Letterhead of Cotter & Company]
[Date of Closing]
[Name(s) and address(es) of
purchaser(s)]
Ladies and Gentlemen:
As Vice President and General Counsel of Cotter & Company (the
"Company"), I am familiar with the Private Shelf Agreement, dated as of
December 29, 1995 (the "Agreement") between the Company, on the one hand, and
The Prudential Insurance Company of America and each Prudential Affiliate which
becomes a party thereto, on the other hand, pursuant to which the Company has
issued to you today Senior Series ___ Notes of the Company in the aggregate
principal amount of $________ (the "Notes"). Capitalized terms used and not
otherwise defined herein shall have the meanings provided in the Agreement.
This letter is being delivered to you in satisfaction of the condition set
forth in paragraph 3A(v) of the Agreement and with the understanding that you
are purchasing the Notes in reliance on the opinions expressed herein.
In this connection, I have examined such certificates of public
officials, certificates of officers of the Company and copies certified to my
satisfaction of corporate documents and records of the Company and of other
papers, and have made such other investigations, as I have deemed relevant and
necessary as a basis for my opinion hereinafter set forth. I have relied upon
such certificates of public officials and of officers of the Company with
respect to the accuracy of material factual matters contained therein which
were not independently established. With respect to the opinion expressed in
paragraph 3 below, I have also relied upon the representation made by [each of]
you in paragraph 9A of the Agreement.
Based on the foregoing, it is my opinion that:
1. The Company is a corporation duly organized and validly existing in
good standing under the laws of the State of Delaware.
2. The Agreement and the Notes have been duly authorized by all
requisite corporate action and duly executed and delivered by authorized
officers of the Company, and are valid obligations of the Company, legally
binding upon and enforceable against the Company in accordance with their
respective terms, except as such enforceability may be limited by (a)
bankruptcy, insolvency, reorganization or other similar laws affecting the
enforcement of creditors' rights generally and (b) general principles of equity
(regardless of whether such
D-1
<PAGE> 45
enforceability is considered in a proceeding in equity or at law).
3. It is not necessary in connection with the offering, issuance, sale
and delivery of the Notes under the circumstances contemplated by the Agreement
to register the Notes under the Securities Act or to qualify an indenture in
respect of the Notes under the Trust Indenture Act of 1939, as amended.
4. The extension, arranging and obtaining of the credit represented by
the Notes do not result in any violation of regulation G, T or X of the Board
of Governors of the Federal Reserve System.
5. The execution and delivery of the Agreement and the Notes, the
offering, issuance and sale of the Notes and fulfillment of and
compliance with the respective provisions of the Agreement and the Notes do not
conflict with, or result in a breach of the terms, conditions or provisions of,
or constitute a default under, or result in any violation of, or result in the
creation of any Lien upon any of the properties or assets of the Company or any
of its Subsidiaries pursuant to, or require any authorization, consent,
approval, exemption, or other action by or notice to or filing with any court,
administrative or governmental body or other Person (other than routine filings
after the date hereof with the Securities and Exchange Commission and/or state
Blue Sky authorities) pursuant to, the charter or by-laws of the Company or any
of its Subsidiaries, any applicable law (including any securities or Blue Sky
law), statute, rule or regulation or (insofar as is known to me after having
made due inquiry with respect thereto) any agreement (including, without
limitation, any agreement listed in Schedule 8G to the Agreement), instrument,
order, judgment or decree to which the Company or any of its Subsidiaries is a
party or otherwise subject.
6. The Notes constitute "Superior Indebtedness" to the Company's
Promissory (subordinated) Notes, the form of which Promissory (subordinated)
Notes is attached to the Agreement as Exhibit E, and the indebtedness of the
Company's Promissory (subordinated) Notes is subordinate to the Notes.
I am qualified to practice law in the State of Illinois and do not purport
to express any opinion herein concerning any law other than the laws of the
State of Illinois of federal law of the United States.
Very truly yours,
D-2
<PAGE> 46
EXHIBIT E
FORM OF PROMISSORY (SUBORDINATED) NOTE
See Attached
<PAGE> 47
COTTER & COMPANY
____% PROMISSORY (SUBORDINATED) NOTE
VOID
<PAGE> 48
SCHEDULE 6G
EXISTING INVESTMENTS
None.
1
<PAGE> 49
SCHEDULE 8G
The Revolving Credit Facility Agreement between Cotter & Company and
Bank of America dated ________________, 1996, which contains identical terms as
set forth in Sections 6 and 8 hereof.
<PAGE> 1
Exhibit 5
[ARNSTEIN & LEHR LETTERHEAD]
March 19, 1996
Cotter & Company
8600 West Bryn Mawr Avenue
Chicago, Illinois 60631-3505
Re: Post Effective Amendment No. 5 to Registration
Statement on Form S-2 (No. 33-39477)
Gentlemen:
We refer to the Post Effective Amendment No. 5 to Registration
Statement on Form S-2 (No. 33-39477) being filed by Cotter & Company, a
Delaware corporation (hereinafter referred to as the "Company"), with the
Securities and Exchange Commission under the Securities Act of 1933, as
amended, pertaining to the registration of 10,660 shares of Class A Common
Stock, $100 par value.
The Class A Common Stock will be issued and sold directly by the
Company in 10 share units at the par value thereof, for an aggregate purchase
price of $1,000 per unit. Sales shall be made to retailers of hardware and
related merchandise, in connection with becoming members of the Company.
Based upon our examination, we are of the opinion that:
1. The Company is a corporation duly incorporated, validly existing
and in good standing under the laws of the State of Delaware.
2. The Company has an authorized capital consisting of 100,000 shares
of Class A Common Stock, $100 par value and 2,000,000 shares of
Class B Common Stock, $100 par value. As of February 24, 1996, there
were 52,220 Class A Common shares issued and outstanding and
1,111,143 Class B Common shares issued and outstanding. All of said
shares were legally issued, fully paid and non-assessable as of said
date.
3. The proposed offering of 10,660 shares of Class A Common Stock,
$100 par value, of the Company has been duly authorized and when
sold as contemplated will be legally issued and fully paid and
non-assessable.
<PAGE> 2
Cotter & Company
March 19, 1996
Page 2
We hereby consent to the use of this opinion as an exhibit to the
Registration Statement and the related Prospectus as counsel for the Company
who have passed upon the legalities of the securities registered hereunder.
Sincerely,
Arnstein & Lehr
<PAGE> 1
EXHIBIT 10-C
C E R T I F I C A T E
I, Daniel T. Burns, Secretary of COTTER & COMPANY, hereby certify
that the attached is a full, true and complete copy of the COTTER & COMPANY
DEFINED LUMP SUM PENSION PLAN, as in effect on the date hereof.
Dated this 12th day of March, 1996.
/s/ Daniel T. Burns
------------------------
Secretary as Aforesaid
(Corporate Seal)
<PAGE> 2
COTTER & COMPANY
DEFINED LUMP SUM PENSION PLAN
McDermott, Will & Emery
Chicago, Illinois
<PAGE> 3
COTTER & COMPANY
DEFINED LUMP SUM PENSION PLAN
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE I 1
ESTABLISHMENT OF THE PLAN 1
Purpose 1
Superseded Plans 1
ARTICLE II 2
DEFINITIONS 2
ARTICLE III 10
PARTICIPATION 10
Eligibility -- Employees Who Were Participants
on December 31, 1995 10
Eligibility -- Employees Who Were Not
Participants on December 31, 1995 10
Reemployment of Participants 10
Leased Employees 11
ARTICLE IV 13
ELIGIBILITY FOR RETIREMENT AND AMOUNT OF PENSIONS 13
Normal Retirement Date and Minimum Vesting
Requirements 13
Termination or Retirement Prior to January 1,
1996 13
Accrued Benefit and Normal Retirement Pension 14
Payment of Benefits Before Normal Retirement
Date 16
Survivor Benefit 17
Minimum Benefits 19
ARTICLE V 21
PAYMENT OF RETIREMENT PENSIONS 21
Payment in the Form of Joint and Survivor
Annuity 21
Election to Waive Joint and Survivor Annuity 21
Optional Forms of Payment 23
Designation of Beneficiary 24
Small Benefits Provision 25
One-Year Marriage Requirement 26
Method of Payment of Retirement Pensions 26
Minority, Disability, or Incompetency 27
Reemployment 27
Maximum Annual Benefit 29
</TABLE>
-i-
<PAGE> 4
<TABLE>
<S> <C>
Combined Limitation 32
Restrictions on Distributions 34
Other Distribution Restrictions 35
Written Explanation Regarding Rollovers 36
Distribution to Alternate Payees 36
ARTICLE VI 38
FUNDING 38
Employer Contributions 38
Qualification of Plan 38
Recovery of Contributions 38
Forfeitures 39
ARTICLE VII 40
THE COMMITTEE 40
Membership 40
Committee's General Powers, Rights and Duties 40
Manner of Action 41
Interested Committee Member 42
Resignation or Removal of Committee Members 42
Committee Expenses 43
Information Required by Committee 43
Uniform Rules 43
Review of Benefit Determinations 43
Committee's Decision Final 44
ARTICLE VIII 45
TRUST FUND AND TRUSTEE 45
Trust Fund 45
Trust Fund Applicable Only to Payment of
Benefits 45
Trustee Capacity 45
Resignation and Removal of Trustee 46
Taxes, Expenses and Compensation of Trustee 46
ARTICLE IX 48
TOP-HEAVY RESTRICTIONS 48
General 48
Definitions 48
Top-Heavy Determination 51
Vesting 51
Minimum Accrual 52
Limitation on Benefits 52
ARTICLE X 54
AMENDMENT AND TERMINATION OF THE PLAN 54
Amendment 54
Termination 54
Allocation and Distribution of Assets on
Termination 55
</TABLE>
-ii-
<PAGE> 5
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Limitations on Termination 55
Merger and Consolidation 55
ARTICLE XI 57
GENERAL PROVISIONS 57
Employment with Related Companies 57
Litigation by Participants 57
Absence of Guaranty 58
Non-Assignability 58
No Enlargement of Employment Rights 58
Applicable Law 58
Uniform Administration 59
Text to Control 59
Gender and Number 59
SUPPLEMENT A - MERGER OF NORTHERN WHOLESALE HARDWARE CO.
RETIREMENT PLAN WITH AND INTO PRIOR PLAN A-1
SUPPLEMENT B - ACTUARIAL ASSUMPTIONS B-1
SUPPLEMENT C - ACCRUAL PERCENTAGES C-1
</TABLE>
-iii-
<PAGE> 6
COTTER & COMPANY
DEFINED LUMP SUM PENSION PLAN
ARTICLE I
ESTABLISHMENT OF THE PLAN
Section 1.1. Purpose. This Plan (previously known as "Cotter & Company
Pension Plan") was established effective as of January 1, 1958, for the purpose
of providing retirement income ("pension" or "pension benefits") and certain
other benefits to those employees of Cotter & Company, a Delaware corporation,
who become eligible to participate in the Plan. The retirement income payable
under the Plan is intended to supplement the benefits that may be afforded to
Participants under the Federal Social Security Act and similar legislation.
Section 1.2. Superseded Plans. The provisions of the Plan, as adopted
with an effective date of January 1, 1958, have been amended and restated from
time to time. The Plan, as amended and restated in the form of this instrument,
has been adopted effective as of January 1, 1996 and is hereinafter sometimes
referred to as the "Plan" or "this Plan." The Plan is intended to be a
continuation in an amended and restated form of the Plan as it existed on
December 31, 1995, and, as set forth in this instrument, supersedes the Plan in
effect as of that date as to all persons who retire or otherwise separate from
service on or after January 1, 1996.
<PAGE> 7
ARTICLE II
DEFINITIONS
The terms defined in this ARTICLE II (except as in this Plan otherwise
expressly provided or unless the context otherwise requires) shall, for all
purposes of this Plan, have the respective meanings specified in this ARTICLE
II.
1. "Actuarial Equivalent" or "Actuarially Equivalent" means an
amount of equal value when computed on the basis of the actuarial assumptions
set forth in Supplement B of the Plan. Application of such assumptions to the
computation of benefits under the Plan shall be made uniformly and consistently
with respect to all Participants in similar circumstances.
2. "Administrator" for purposes of the Employee Retirement Income
Security Act of 1974, as from time to time amended, means the Committee.
3. The term "Age" means the number of anniversaries of his birth
which a person has attained.
4. "Annuity Starting Date" means the first day of the first period
for which an amount is payable as an annuity or in the case of a lump sum
payment the first date on which all events have occurred which entitle a
Participant to such benefit.
5. "Average Compensation" means the annual average of the
Compensation of an Employee during the three consecutive calendar years within
the ten calendar years immediately
-2-
<PAGE> 8
preceding the date of such Employee's termination of employment which yield the
highest average. For purposes of computing an Employee's Average Compensation,
if the date of such Employee's termination of employment shall occur within
(rather than at the end of) a Plan Year (a "terminal Plan Year"), such terminal
Plan Year shall be included as one of the aforementioned ten calendar years, and
the Employee shall be deemed to have received Compensation during such terminal
Plan Year equal to the annual rate of his Compensation during the terminal Plan
Year.
6. "Committee" means those individuals appointed by Cotter &
Company to be the Administrator of the Plan.
7. A Participant's "Compensation" for any calendar year means the
total cash compensation (including commissions, bonuses [other than sign-on
bonuses], overtime pay, sick pay, vacation pay and holiday pay) paid to him by
an Employer during that calendar year for personal services rendered to an
Employer as an Employee, plus elective deferrals under Code Sections 125 and
401(k) for that calendar year, but excluding severance pay, moving or relocation
allowances or bonuses, tuition reimbursements, auto or travel expense allowances
or bonuses, or any other extraordinary remuneration. During the period of any
Leave of Absence, an Employee shall be deemed to receive Compensation at the
annual rate of Compensation actually received by him during such period, or, if
no compensation is paid, the annual rate of Compensation immediately prior to
the commencement of such Leave of Absence.
-3-
<PAGE> 9
For each calendar year, the Compensation taken into account for all purposes of
the Plan shall not exceed $150,000, or such other amount as may be permitted
pursuant to Section 401(a)(17) of the Internal Revenue Code (the "Code") for
such calendar year.
8. The term "Disability Insurance Plan" shall mean any plan from
time to time in force, which provides for the payment of income benefits to
Employees of an Employer by reason of disability resulting from accident or
sickness.
9. "Employee" means a person in the employ of an Employer who is
not:
(A) in a job classification covered by a collective bargaining
agreement to which one of the following listed unions, or its
successors, is a party: Local No. 135, Miscellaneous Warehousemen's
Union, International Brotherhood of Teamsters; Local No. 206
Warehousemen's Union, International Brotherhood of Teamsters; Local
No. 223, Drivers and Clerical Employees Union, International
Brotherhood of Teamsters; Local No. 541, Building, Material,
Excavating, Heavy Haulers, Drivers, Helpers and Warehouse Union; or
(B) a participant, or eligible to become a participant, in any
other retirement or pension plan (except the Cotter & Company
Employees' Savings and Compensation Deferral Plan) intended to qualify
under Section 401(a) of the Code and which is established by an
Employer or to which an Employer makes any contribution.
A "Highly Compensated Employee" means an Employee who meets the definition of a
highly compensated employee under Section 414(q) of the Code and the regulations
thereunder.
10. "Employer" means Cotter & Company, a Delaware corporation
("Cotter"), and any subsidiary or affiliated corpo-
-4-
<PAGE> 10
ration of Cotter that adopts this Plan by resolution of its Board of Directors
with the consent of Cotter.
11. "Employment Continuity" means the period commencing with the
date on which an Employee first performs an Hour of Service for an Employer and
ending on the first day of the twelve-month period in which the Employee incurs
a One-Year Break in Service; provided, however, that if an Employee leaves the
employ of an Employer other than pursuant to a Leave of Absence and does not
return until after a One-Year Break in Service, his Employment Continuity upon
return to employment by an Employer shall be determined on the basis of the date
on which the Employee first performs an Hour of Service subsequent to his return
to the employ of an Employer. A former employee who terminates employment and is
reemployed by an Employer before incurring a One-Year Break in Service will not
be deemed to have terminated employment with an Employer. An "Employment Year"
means 365 days of Employment Continuity under this paragraph.
12. The term "Hour of Service" means:
(A) each hour for which an Employee is directly or indirectly
paid, or entitled to payment, by an Employer for the performance of the
duties of his employment, which hours of service shall be credited to
the Employee during the Employment Year or Plan Year in which the
duties are performed; and
(B) each hour up to a maximum of 501 hours for which an Employee
is directly or indirectly paid or entitled to payment by an Employer
for reasons other than the performance of the duties of his employment
(such as vacation, sickness or disability), which hours of service
shall be credited to the Employee
-5-
<PAGE> 11
during the Employment Year or Plan Year in which payment is made or
amounts payable to the Employee become due; and
(C) each hour for which back pay, irrespective of mitigation of
damages, has been either awarded or agreed to by an Employer, which
hours of service shall be credited to the Employee for the Employment
Year or Plan Year to which the award or agreement pertains rather than
the period in which the award, agreement or payment was made.
Hours of Service will be computed under the Plan in accordance with the
provisions of Sections 2530.200b-2(b) and 2530.200b-2(c) of the U.S. Department
of Labor regulations promulgated pursuant to the Employee Retirement Income
Security Act of 1974. For purposes of this definition only, the term "Employee"
shall be deemed to include any person who is in the employ of the Employer so
that Employees may be credited under the Plan with Hours of Service for
participation purposes for periods of employment during which they are not
"Employees" as that term is defined in paragraph 9 of this ARTICLE II.
13. "Leave of Absence" means a temporary absence from active
service with an Employer that, in the discretion of the Employer, may be granted
to an Employee because of temporary incapacity or other good cause. If an
Employee on a Leave of Absence does not return to employment with the Employer
within the period authorized by the Employer, the Employee's employment shall be
deemed to have terminated as of the first day following the period of the Leave
of Absence. A Participant shall automatically be entitled to a Leave of Absence
during any period of time for which he is eligible to receive a
-6-
<PAGE> 12
benefit under a Disability Insurance Plan (as that term is defined in paragraph
8 of this ARTICLE II). An Employee shall automatically be entitled to a Leave of
Absence during any period of time he is in the Armed Forces of the United
States, provided that he returns to employment within the period within which
his right to reemployment is protected by the Selective Service Act or any
similar law applicable to him.
14. "Named Fiduciary" for purposes of the Employee Retirement
Income Security Act of 1974, as from time to time amended, means the Committee
appointed pursuant to the provisions of ARTICLE VII.
15. "One-Year Break in Service" for an Employee means a
twelve-month period commencing on the date of an Employee's termination of
employment and on each anniversary thereof during which such Employee is not
employed (i.e., does not complete an Hour of Service) with an Employer. In the
case of a Maternity or Paternity Leave of Absence (as defined below), the
twelve-month periods beginning on the first day of such absence and on the first
anniversary of such absence shall not constitute One-Year Breaks in Service. For
purposes of this paragraph 15, "Maternity or Paternity Leave of Absence" means
an absence from work by reason of the Employee's pregnancy, birth of the
Employee's child, or placement of a child with the Employee in connection with
the adoption of such child, or an absence for the purpose of caring for such
child for a period immediately following such birth or placement.
-7-
<PAGE> 13
16. "Participant" means an Employee who meets the requirements for
participation in the Plan in the manner provided in ARTICLE III. A former
Employee entitled to receive a Pension under the Plan continues to be a
"Participant" until the date of his death.
17. "Plan" means the Plan as herein set forth and as it may from
time to time be amended.
18. "Plan Year" means the twelve-consecutive month period ending
December 31.
19. "Qualified Joint and Survivor Annuity" means:
(A) in the case of a 50% Qualified Joint and Survivor Annuity, an
annuity for the life of the Participant with a survivor annuity for the
life of his spouse which is one-half of the amount of the annuity
payable during the joint lives of the Participant and his spouse, and
which is the Actuarial Equivalent of a single annuity for the life of
the Participant in the amount specified by the relevant provision of
ARTICLE IV; and
(B) in the case of a 100% Qualified Joint and Survivor Annuity, an
annuity for the life of the Participant with a survivor annuity for the
life of his spouse which is equal to the amount of the annuity payable
during the joint lives of the Participant and his spouse, and which is
the Actuarial Equivalent of a single annuity for the life of the
Participant in the amount specified by the relevant provision of
ARTICLE IV.
20. The term "Retirement" when applied to a Participant means the
termination of the Participant's employment under circumstances that entitle him
to receive a retirement pension under this Plan.
-8-
<PAGE> 14
21. The term "Retirement Pension" in whatever form such retirement
pension may be paid shall mean the benefit payable to a Participant or his
beneficiary under this Plan as a consequence of the retirement of the
Participant.
22. "Trust" means the trust by means of which the Plan is funded
as described in ARTICLE VIII hereof.
23. A "Vested Interest" means an interest to which an Employee has
a nonforfeitable right.
24. A Participant shall be credited with a "Year of Service" (or
fraction thereof) for each year (as defined below) during his period of
Employment Continuity; provided, however, that:
(A) A Participant in the Plan as of December 31, 1995 shall be
credited with Years of Service earned before December 31, 1995 in
accordance with the provisions of the Plan then in effect;
(B) If a former Participant with no Vested Interest in the Plan
again becomes a Participant in this Plan, his Years of Service prior to
any One-Year Break in Service shall be taken into account only if the
number of consecutive One-Year Breaks in Service is less than the
greater of: (i) five, or (ii) the aggregate number of prior Years of
Service, and then only if the former Participant has completed a Year
of Service after such Break; and
(C) Years of Service prior to a One-Year Break in Service shall
not be taken into account unless the Participant completes one Year of
Service after such Break.
For purposes of this paragraph a "year" shall be calculated as the number of
days during a Participant's Employment Continuity divided by 365.25, rounded to
the nearest one-tenth of a year.
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ARTICLE III
PARTICIPATION
Section 3.1. Eligibility -- Employees Who Were Participants on
December 31, 1995. All Employees who were Participants in the Plan immediately
prior to January 1, 1996 shall automatically be Participants in this Plan.
Section 3.2. Eligibility -- Employees Who Were Not Participants on
December 31, 1995. Each Employee not covered under Section 3.1 shall become a
Participant in this Plan on the January 1 or July 1 coincident with or next
following the date the Employee has satisfied both of the following
requirements:
(A) The Employee has attained age 21; and
(B) The Employee has completed an Employment Year.
Section 3.3. Reemployment of Participants. In the case of a
Participant who is reemployed after a One-Year Break in Service without credit
for any Years of Service completed prior to the Employee's One-Year Break in
Service, his participation in the Plan shall be deemed to have terminated at the
beginning of the One-Year Break in Service, and he shall again become a
Participant on the date he completes an Employment Year with the Employer
following the date of his reemployment;
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provided, however, that in the case of an Employee who is credited with Years of
Service with respect to employment prior to his One-Year Break in Service in
accordance with the provisions of paragraph 24 of ARTICLE II, such an Employee
shall become a Participant on the date of his reemployment.
Section 3.4. Leased Employees. A leased employee (as defined
below) shall not be eligible to participate in the Plan. A leased employee means
any person who is not an Employee of an Employer but who has provided services
to an Employer of the type that have historically (within the business field of
the Employers) been provided by Employees on a substantially full-time basis for
a period of at least one year pursuant to an agreement between an Employer and a
leasing organization. The period during which a leased employee performs
services for an Employer shall be taken into account for purposes of determining
Employment Years under paragraph 11 of ARTICLE II and for purposes of
determining Years of Service under paragraph 24 of ARTICLE II of the Plan unless
(i) such leased employee is a participant in a money purchase pension plan
maintained by the leasing organization which provides a nonintegrated employer
contribution rate of at least ten percent (10%) of compensation, immediate
participation for all employees and full and immediate vesting and (ii) leased
employees do not constitute more than twenty percent (20%) of the Employer's
nonhighly compensated work force. No such period of employment shall be
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included in Years of Service for purposes of calculating the amount of a
Participant's benefits under the Plan.
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ARTICLE IV
ELIGIBILITY FOR RETIREMENT
AND AMOUNT OF PENSIONS
Section 4.1. Normal Retirement Date and Minimum Vesting
Requirements.
(A) The Normal Retirement Date for a Participant shall be the date
on which he attains age 65. A Participant may continue in employment after his
Normal Retirement Date. The Participant's right to his Accrued Benefit shall
become fully vested and nonforfeitable at his Normal Retirement Date.
(B) In the event that a Participant's employment is terminated for
any reason prior to reaching his Normal Retirement Date, the Participant shall
not be entitled to any pension benefit under this Plan unless he has completed
five Years of Service; but a Participant who has at least five Years of Service
is fully vested with respect to his Accrued Benefit under the Plan.
Section 4.2. Termination or Retirement Prior to January 1, 1996.
Any pension benefit that a Participant who terminated his employment or retired
prior to January 1, 1996 may be entitled to receive shall be governed by the
provisions of the Plan as in effect on the date of his termination of employment
or retirement. Any Participant who terminated employment or retired prior to
January 1, 1996 and who is reemployed on or after January 1, 1996 shall have his
benefits
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calculated in accordance with the Plan as in effect on the date of his
subsequent retirement or termination of employment but the amount of any
retirement benefit or termination benefit payable at such later date shall be
actuarially reduced by the amount of any retirement or termination benefits paid
previously under the Plan.
Section 4.3. Accrued Benefit and Normal Retirement Pension.
(A) Except as otherwise provided in paragraph (E), a Participant's
"Accrued Benefit" as of any date shall be calculated by:
(1) First, determining the Participant's "Defined Lump Sum", which
shall equal the sum of:
(a) The Participant's Average Compensation multiplied by his
Aggregate Lump Sum Percentage. The Participant's "Aggregate
Lump Sum Percentage" shall equal the sum of the Applicable
Percentages as specified in Supplement C of the Plan that are
earned by the Participant for each Year of Service (and
fraction thereof) and, in the case of a Participant who has
attained age 50 and completed 15 Years of Service as of
January 1, 1996, increased by adding twenty-five (25)
percentage points to such amount; and
(b) 50% of the Participant's Aggregate Lump Sum Percentage,
determined under (a) above, multiplied by the excess of the
Participant's Average Compensation over the Integration
Level. For this purpose, the "Integration Level" shall be 2/3
of the contribution and benefit base under Section 230 of the
Social Security Act (42 U.S.C. Section 430), as amended, as in
effect on the first day of the Plan Year for which a
determination is made for purposes of a
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retirement or other termination of employment occurring
during such year.
(2) Next, converting the Participant's Defined Lump Sum,
calculated under Paragraph (1) above, into an Actuarially Equivalent
single life annuity payable at the Participant's Normal Retirement Date
or, if the Participant retires after his Normal Retirement Date, the
age he retires after his Normal Retirement Date.
(B) A Participant's Normal Retirement Pension shall equal his
Accrued Benefit, as determined above, and shall be payable to the Participant on
a monthly basis for his lifetime, commencing on the first day of the month
coinciding with or immediately following his Normal Retirement Date or the date
his employment terminates, if later.
(C) A Participant shall not accrue benefits under this Plan with
respect to any period of employment while a participant, or eligible to become a
participant, in any plan described in subparagraph 9(B) of ARTICLE II.
(D) A Participant's Accrued Benefit payable on or after his Normal
Retirement Date shall be paid in the form, and subject to the conditions,
provided in ARTICLE V hereof.
(E) With respect to any Participant specified by the Chief
Executive Officer of Cotter pursuant to a supplement to the Plan, such
Participant's Defined Lump Sum shall not be less than an amount which is equal
to the sum of 22 percent of the Participant's Average Compensation for each Year
of Service up to age 55 and 28 percent of the Participant's Average Compensation
for each Year of Service after age 55, up to a
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maximum of 20 years of Service, limited to 500 percent, reduced by ninety-six
times the Participant's "Primary Social Security Benefit". The Participant's
Primary Social Security Benefit means the estimated monthly primary old-age
Social Security insurance benefit to which the Participant is or would be
entitled at his Normal Retirement Date or at his later retirement date based on
the provisions of the Social Security Act in effect on the date of retirement,
before any offsets for earned income. For purposes of estimating the Primary
Social Security Benefit, it shall be assumed that the Participant has no wages
covered by Social Security after retirement.
Section 4.4. Payment of Benefits Before Normal Retirement Date.
(A) A Participant whose employment has terminated after completing
five or more Years of Service shall be entitled to receive a retirement pension
(hereinafter called an "Immediate Pension"). A Participant's Immediate Pension
shall be calculated by converting the Participant's Defined Lump Sum, determined
in accordance with subparagraph 4.3(A)(1) above, into an Actuarially Equivalent
single life annuity payable immediately and, with the written consent of the
Participant, shall be payable to the Participant in accordance with ARTICLE V of
the Plan commencing on the first day of the month coinciding with or immediately
following the Participant's termination of employment.
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(B) A Participant may elect to defer receipt of his Immediate
Pension to a date not earlier than age 55, but not later than the first day of
the month coinciding with or immediately following the Participant's Normal
Retirement Date ("Early Retirement Pension"). If a Participant elects such a
deferral, the amount of his Early Retirement Pension, shall be equal to his
Normal Retirement Benefit reduced by 2/3 of one percent for each of the first 60
months and by 1/3 of one percent for each of the next 60 months by which payment
of his Early Retirement Pension precedes his Normal Retirement Date. In no
event, however, shall a Participant's Early Retirement Pension be less than his
Immediate Pension.
(C) An Immediate Pension or an Early Retirement Pension to which a
Participant is entitled shall be paid in the form, and subject to the
conditions, provided in ARTICLE V hereof.
Section 4.5. Survivor Benefit.
(A) Death while actively employed -
(1) In the case of a Participant with a Vested Interest who
dies while actively employed by the Employer and who has
a surviving spouse, a Survivor Benefit shall be provided
to the surviving spouse in accordance with the following
provisions. The Survivor Benefit shall be equal to the
Actuarial Equivalent of 55% of the Participant's Defined
Lump Sum (determined in accordance with the provisions of
subparagraph 4.3(A)(1) above).
(2) The Survivor Benefit shall be paid commencing as of the
first day of the month
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coinciding with or immediately following the
Participant's death. In lieu of immediate monthly
payments for life, the surviving spouse may elect to
receive the benefit immediately as a lump sum.
Alternatively, the surviving spouse may elect to defer
commencement of the Survivor Benefit until the first day
of any month coinciding with or immediately following the
date the Participant would have attained age 55 (or age
at death, if older), but not later than the first day of
the month coinciding with or next following the date that
would have been the Participant's Normal Retirement Date
(or age at death, if older.)
If a surviving spouse elects to defer commencement of the
Survivor Benefit, the benefit shall be converted to an
Actuarially Equivalent monthly annuity for the life of
the surviving spouse commencing on the date that would
have been the Participant's Normal Retirement Date. This
benefit will be reduced by 2/3 of one percent for each of
the first sixty months and 1/3 of one percent for each of
the next sixty months by which the benefit commencement
date precedes the date that would have been the
Participant's Normal Retirement Date. In no event,
however, shall this benefit be less than the benefit the
surviving spouse could have received as a monthly annuity
for life commencing on the first of the month coinciding
with or immediately following the Participant's death.
(B) Death after termination of employment but before commencement
of benefits -
(1) In the case of a Participant with a Vested Interest who
dies after having terminated employment with the Employer
but prior to the receipt of any payments under the Plan
and who has a surviving spouse, a Survivor Benefit shall
be provided to the surviving spouse in accordance with
the following provisions. The Survivor Benefit shall be
equal to 55% of the benefit the Participant would have
received if the Participant had
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<PAGE> 24
survived to age 55 (or age at date of death, if older)
and elected a 50% Joint and Survivor Annuity.
(2) The surviving spouse may elect to defer receipt of the
Survivor Benefit to any date that is not later than the
date that would have been the Participant's Normal
Retirement Date. In this case, the benefit shall be equal
to 55% of the benefit the Participant would have received
if the Participant had survived to the date at which the
surviving spouse elects to commence the Survivor Benefit
and elected a 50% Joint and Survivor Annuity.
Section 4.6. Minimum Benefits. Notwithstanding any provision of
this Plan to the contrary, a Participant's Accrued Benefit determined under
Section 4.3 above will be no less than the Participant's Accrued Benefit as of
December 31, 1995, determined under the terms of the Plan as then in effect (the
"Prior Plan"). The Participant's benefit payable at any age prior to his Normal
Retirement Date will be no less than the benefit the Participant could have
received under the Prior Plan, taking into account his Accrued Benefit under the
Prior Plan as of December 31, 1995, but considering Years of Service (for
purposes of vesting and early retirement reductions) earned subsequent to such
date and the Participant's age as of the commencement of benefits. Any lump sum
payment a Participant is entitled to receive pursuant to Section 5.3 shall be no
less than the Actuarial Equivalent of the Participant's Accrued Benefit as of
December 31, 1995. Further, for Participants eligible for immediate benefits
under the Prior Plan, the lump
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sum shall be no less than the Actuarial Equivalent of the immediate benefit
payable to the Participant based on the Prior Plan's terms.
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ARTICLE V
PAYMENT OF RETIREMENT PENSIONS
Section 5.1. Payment in the Form of Joint and Survivor Annuity.
Subject to the provisions of Sections 5.2 and 5.6, if a Participant has a spouse
at the time such Participant becomes entitled under the Plan to receive a Normal
Retirement Pension, an Immediate Pension or an Early Retirement Pension, such
pension benefit shall be paid from the Annuity Starting Date in the form of a
50% Qualified Joint and Survivor Annuity, which is the Actuarial Equivalent of a
single annuity for the life of the Participant. The Participant may elect,
without having to comply with the provisions of Section 5.2 below, to receive
his pension benefit in the form of a 100% Qualified Joint and Survivor Annuity,
which is the Actuarial Equivalent of a single annuity for the life of the
Participant. A Participant who has no spouse and who is entitled to receive a
pension under the Plan shall have it paid to him in the form of a single annuity
for the life of the Participant, unless he otherwise elects an optional form in
writing pursuant to Sections 5.2 and 5.3 below.
Section 5.2. Election to Waive Joint and Survivor Annuity.
(A) A Participant shall have the right, by written notice in
accordance with the procedures outlined in this Section, to waive the 50%
Qualified Joint and Survivor Annuity and
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receive his pension benefit as a single annuity for the life of the Participant
or in an optional form indicated in Section 5.3 below. Any election to waive the
50% Qualified Joint and Survivor Annuity must be made by the Participant in
writing during the election period (described in (B) below) and be consented to
by the Participant's spouse. Such spouse's consent must be in writing and must
acknowledge the effect of such election and be witnessed by a Plan
representative or a notary public. Such consent shall not be required if it is
established to the satisfaction of the Committee that the required consent
cannot be obtained because there is no spouse, the spouse cannot be located, or
because of other circumstances that may be prescribed by Treasury regulations.
The Participant may revoke this election in writing without the consent of the
spouse at any time during the election period. Any new election must comply with
the requirements of this paragraph. A former spouse's waiver shall not be
binding on a new spouse.
(B) The election period to waive the joint and survivor annuity
shall be the 90-day period ending on the Annuity Starting Date.
(C) With regard to the election, the Committee shall provide the
Participant within a reasonable period of time before the Annuity Starting Date
(and consistent with Treasury regulations), a written explanation in
nontechnical terms of:
(1) the terms and conditions of the 50% Qualified Joint and
Survivor Annuity, and
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(2) the Participant's right to make an election to waive the 50%
Qualified Joint and Survivor Annuity, and
(3) the right of the Participant's spouse to consent to any
election to waive the 50% Qualified Joint and Survivor Annuity, and
(4) the right of the Participant to revoke such election, and the
effect of such revocation.
Section 5.3. Optional Forms of Payment.
(A) In the event a Participant duly elects pursuant to Section 5.2
above to waive the 50% Qualified Joint and Survivor Annuity, or if a Participant
is not married, the Participant shall have the right to elect to receive payment
in one of the following optional forms:
(1) A monthly pension payable in equal installments for the life
of the Participant; provided, however, that in the event the
Participant dies within the ten-year period following his Annuity
Starting Date, monthly payments equal to those payable during the life
of the Participant shall be made to the Beneficiary or spouse of the
deceased Participant designated to receive such payments for the
remainder of said ten-year period.
(2) A lump sum payment equal to the Participant's Defined Lump
Sum, as determined under subparagraph 4.3(A)(1) above, which payment
shall be made as of the first day of the month following the date an
election to receive such lump sum payment is made pursuant to this
Section.
(3) A monthly pension payable in equal installments for the life
of a Participant.
(B) A Participant electing a lump sum payment under subparagraph
(A)(2) above must do so within the applicable election period, which shall be
the 90-day period following the date of such Participant's retirement or other
termination of
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employment. If a Participant fails to elect a lump sum payment within the
applicable election period, with his spouse's consent if required by Section
5.2, the Participant shall receive payment in accordance with the provisions of
this ARTICLE V without regard to subparagraph 5.3(A)(2) thereof.
(C) Each of the optional forms of payment shown in (A) above shall
be the Actuarial Equivalent of a single annuity for the life of the Participant
in the amount specified by the relevant provisions of ARTICLE IV.
Section 5.4. Designation of Beneficiary.
(A) The Beneficiary of a Participant's pension benefits payable
under the terms of this Plan shall be the Participant's spouse; provided,
however, that the Participant may designate a Beneficiary other than his spouse
for any benefits payable on account of the death of a Participant if: (i) the
spouse has waived the right to be the Participant's Beneficiary in accordance
with the waiver procedure outlined in Section 5.2(A) above, (ii) the Participant
has no spouse, or (iii) the spouse cannot be located.
(B) Such designation shall be made in the form prescribed by and
delivered to the Committee. The Participant shall have the right to change or
revoke any such designation from time to time by filing a new designation or
notice of revocation with the Committee; provided, however, that if the
Participant is a married person, the Participant's spouse shall
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be required to consent to any designation that designates a Beneficiary other
than the spouse (unless the consent of the spouse expressly permits designations
by the Participant without any requirement of further consent by the spouse).
(C) The term "Beneficiary" or "Beneficiaries" as used in this Plan
refers to the person or persons to whom the deceased Participant's interest
becomes distributable, as provided in the Plan.
Section 5.5. Small Benefits Provision. If the present value of a
Participant's Accrued Benefit does not exceed $3,500 as of the date of the
Participant's retirement or other termination of employment, the Trustee shall
pay such Actuarially Equivalent lump sum value to the Participant (or in the
event of his death, to his surviving spouse) in a lump sum. For purposes of this
Section 5.5, if the Actuarially Equivalent value of a Participant's entire
nonforfeitable Accrued Benefit under the Plan is zero, the Participant shall be
deemed to have received distribution of such nonforfeitable Accrued Benefit.
However, no such lump sum distribution may be made after the 90-day period
following the date of such Participant's retirement or other termination of
employment, unless the Participant and his spouse (or his surviving spouse)
consent in writing to such distribution. Payment of any lump sum shall be in
full satisfaction of all rights of the Participant or his Beneficiary under the
Plan.
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<PAGE> 31
Section 5.6. One-Year Marriage Requirement.
(A) Notwithstanding any contrary provision hereof, the Plan shall
not provide a 50% Qualified Joint and Survivor Annuity, a 100% Qualified Joint
and survivor Annuity, or a Survivor Benefit unless the Participant and his
spouse have been married throughout the one (1) year period ending on the
earlier of:
(1) the Participant's Annuity Starting Date, or
(2) the date of the Participant's death.
(B) For purposes of Paragraph (A) above, if:
(1) a Participant marries within one (1) year before his
Annuity Starting Date, and
(2) the Participant and his spouse in such marriage have been
married for at least a one (1) year period ending on or before the
date of the Participant's death,
then the Participant and his spouse shall be treated as having been married
throughout the one (1) year period ending on the Participant's Annuity Starting
Date.
(C) For purposes of this Plan, the term "spouse" shall in general
mean the individual to whom the Participant is married as of the relevant date
in question, or the individual designated as the Participant's spouse in a
"qualified domestic relations order," as defined in Section 11.4 of ARTICLE XI.
Section 5.7. Method of Payment of Retirement Pensions.
Retirement payments shall be paid monthly and, in the case of a single life
annuity (as distinguished from a joint
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and survivor annuity), the last payment shall be made as of the first day of the
month in which the death of the Participant occurs. In the case of a joint and
survivor annuity, the last payment shall be made as of the first day of the
month in which the death of the Participant or his spouse (whichever is the
later to die) occurs.
Section 5.8. Minority, Disability, or Incompetency. If any amount
becomes payable under this Plan to a minor or to a person under legal disability
or to a person not adjudicated incompetent but who, by reason of illness or
mental or physical disability, is in the opinion of the Committee unable
properly to manage his affairs, then such amount shall be paid by the Trustee in
such of the following ways as the Committee may deem best:
(A) To the legally appointed guardian or conservator of such minor
or other person; or
(B) To some relative or friend of such minor or other person;
without responsibility of the Committee or the Trustee to see
to the application of such payments.
Section 5.9. Reemployment.
(A) If a Participant either continues in employment after his
Normal Retirement Date or is reemployed by the Employer after his Normal
Retirement Date, the Participant's status as an Employee shall be deemed to have
terminated for the purposes of qualifying for a Normal Retirement Pension with
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respect to any calendar month including or following his Normal Retirement Date
during which the Participant receives payment from the Employer for any Hours of
Service performed on fewer than eight (8) or more days (or separate work shifts)
in such month.
(B) Subject to the provisions of Paragraph (A) of this Section
5.9, if a Participant who began receiving or became entitled to a retirement
pension on or before January 1, 1996 shall be reemployed by the Employer for any
period of time, his retirement pension shall be suspended beginning with the
first payment due on or after the date of such reemployment; provided, however,
that the amount of a Participant's Normal Retirement Pension which shall be
suspended in accordance with this Paragraph (B) shall not exceed a Participant's
"suspendible amount." The retirement pension payable upon subsequent retirement
to such reemployed Participant shall be determined in accordance with the
provisions of the Plan (but not less than the retirement pension to which he was
entitled immediately prior to his reemployment) as in effect at that date,
reduced by the Actuarial Equivalent of the retirement pension payments
previously received by him before his Normal Retirement Date. Notwithstanding
the foregoing, any Normal Retirement Pension to which a reemployed Participant
shall subsequently become entitled shall not be reduced in accordance with the
foregoing sentence. A
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Participant's "suspendible amount" is an amount per month equal to the monthly
pension payment.
(C) Subject to the provisions of Paragraph (A) of this Section
5.9, if a Participant who terminated his employment and began receiving a
retirement pension after January 1, 1996 shall be reemployed by the Employer,
his retirement pension shall not be suspended. Upon the Participant's subsequent
retirement, the retirement pension earned during his period of reemployment
shall be added to the retirement pension attributable to his prior period of
service.
(D) If a Participant incurs a One-Year Break in Service after
December 31, 1995 and is later reemployed by the Employer, the Participant's
Accrued Benefit upon his subsequent retirement or termination of employment
shall be the sum of the Accrued Benefits he earned during each of his separate
periods of employment with the Employer.
Section 5.10. Maximum Annual Benefit.
(A) Notwithstanding any other provisions of the Plan, in no event
shall a Participant with at least ten (10) years of participation hereunder
whose benefits begin at the Participant's Social Security Retirement Age receive
an Annual Retirement Benefit exceeding the lesser of:
(i) 100% of the Participant's Average Annual Compensation; or
(ii) Ninety Thousand Dollars ($90,000).
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(B) A Participant's "Social Security Retirement Age" shall mean
the age used as the retirement age for the Participant under Section 216(1) of
the Social Security Act, except that such section shall be applied without
regard to the age increase factor, and as if the early retirement age under
Section 216(1)(2) of such Act were sixty-two (62). "Annual Retirement Benefit"
shall mean a benefit payable annually in the form of a straight life annuity
(with no ancillary benefits), excluding any benefits attributable to Employee
contributions or rollover contributions, or the assets transferred from a
qualified plan that was not maintained by the Employer. Where a Participant's
retirement benefit is payable in another form, or if the Employees contribute to
the Plan or make rollover contributions (as defined in Sections 402(c),
403(a)(4), and 408(d)(3) of the Code), then the limitations described in
Paragraph (A) above shall be adjusted in accordance with regulations prescribed
by the Secretary of the Treasury pursuant to Section 415(b)(2)(B) of the Code.
For purposes of this Paragraph (B), any ancillary benefits that are not directly
related to retirement income benefits shall not be taken into account; and that
portion of any joint and survivor annuity that constitutes a qualified joint and
survivor annuity (as defined in Section 417(b) of the Code) shall not be taken
into account.
(C) Notwithstanding the foregoing limitations (except as otherwise
provided by subparagraph (D)(5) hereof), if a Participant herein has not at any
time participated in a de-
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<PAGE> 36
fined contribution plan maintained by the Employer, there shall be no limitation
on the annual benefit of a Participant herein if the total annual retirement
benefits payable to the Participant by all defined benefit plans of the Employer
do not exceed ten thousand ($10,000) dollars.
(D) The limitations of this Section 5.10 shall be subject to the
following adjustments where applicable:
(1) The Ninety Thousand Dollar ($90,000) limitation stated above
shall be increased to the maximum amount permitted under regulations
promulgated by the Secretary of the Treasury pursuant to Section 415(d)
of the Code. Any adjustments will be effective as of January 1 of the
calendar year and will be applicable to the limitation year coincident
with or ending within that calendar year.
(2) Where a Participant's benefits commence before the
Participant's Social Security Retirement Age, the Ninety Thousand
Dollar ($90,000) limitation, as adjusted under the provisions of (1)
above, shall be further adjusted to the Actuarial Equivalent
(determined in accordance with paragraph B-1 of Supplement B) of an
annual benefit of $90,000 beginning at the Social Security Retirement
Age. The adjustment provided for in the preceding sentence shall be
made in such manner as the Secretary of the Treasury may prescribe that
is consistent with the reduction for old age insurance benefits
commencing before the Social Security Retirement Age under the Social
Security Act.
(3) Where a Participant begins to receive his benefits after the
Participant's Social Security Retirement Age, the Ninety Thousand
Dollar ($90,000) limitation, as adjusted under the provisions of (1)
above, shall be increased to the Actuarial Equivalent (determined in
accordance with paragraph B-1 of Supplement B) of an annual benefit of
$90,000 beginning at the Social Security Retirement Age.
(4) Where a Participant retires with less than ten (10) years of
participation hereunder, the Ninety Thousand Dollar ($90,000)
limitation, as adjusted under the provisions of (1) above, shall be
reduced
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by a fraction, the numerator of which is the Participant's number of
years (or parts thereof) of participation in the Plan, and the
denominator of which is ten (10). In no event, however, shall this
limitation be reduced to an amount less than one-tenth (1/10) of the
applicable limitation determined without regard to this subparagraph
(D)(4).
(5) Where a Participant retires with less than ten (10) Years of
Service, the limitations described in Sections 415(b)(1)(B) and
415(b)(4) of the Code shall be adjusted by multiplying such amounts by
a fraction, the numerator of which is the Participant's number of Years
of Service (or part thereof), and the denominator of which is ten (10).
In no event, however, shall this limitation be reduced to an amount
less than one-tenth (1/10) of the applicable limitation determined
without regard to this subparagraph (D)(5).
Section 5.11. Combined Limitation.
(A) Notwithstanding any other provision of this Plan, and as
required by the Code, if any Participant is, or was, covered under a defined
benefit plan and a defined contribution plan maintained by the Employer, the sum
of the Participant's defined benefit plan fraction and defined contribution
plan fraction may not exceed 1.0 in any Plan Year.
(B) The defined benefit plan fraction is a fraction, the numerator
of which is the sum of the Participant's projected annual benefits under all
defined benefit plans (whether or not terminated) maintained by the Employer and
the denominator of which is the lesser of (i) 1.25 times the dollar limitation
of Section 415(b)(1)(A) of the Code in effect for the Plan Year or (ii) 1.4
times the Participant's average compensation for the three (3) consecutive years
that produces the highest aver-
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age. "Projected annual benefit" means the annual benefit to which the
Participant would be entitled under the terms of the Plan if the Participant
continued employment until normal retirement age (or actual age, if later) and
the Participant's compensation for the Plan Year and all other relevant factors
used to determine such benefit remained constant until normal retirement age (or
actual age, if later).
(C) The defined contribution plan fraction is a fraction, the
numerator of which is the sum of the annual additions to the Participant's
accounts under all defined contribution plans maintained by the Employer
(whether or not terminated) for the current and all prior Plan Years, and the
denominator of which is the sum of the lesser of the following amounts
determined for such year and for each prior year of service with the Employer:
(i) 1.25 times the dollar limitation in effect under Section 415(c)(1)(A) of the
Code for such year, or (ii) 1.4 times the amount which may be taken into account
under Section 415(c)(1)(B) of the Code.
(D) If the sum of the defined benefit plan fraction and the
defined contribution plan fraction shall exceed 1.0 in any Plan Year for any
Participant in this Plan, the Employer shall adjust the numerator of the defined
benefit plan fraction as set forth in the defined benefit plan so that the sum
of both fractions shall not exceed 1.0.
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Section 5.12. Restrictions on Distributions. Notwithstanding any
provisions of the Plan to the contrary, the annual benefit payable to any highly
compensated Participant (or former Participant) who is in the top 25 Highly
Compensated Employees (or former Employees) with the greatest Compensation for
the current or any prior Plan Year will be limited to the amount that would be
paid as a life annuity that is the Actuarial Equivalent of the accrued benefit
and any other benefits that such individual is entitled to receive under the
Plan and any payments that are considered a Social Security supplement; provided
that, the foregoing limitations shall not apply to such Highly Compensated
Employee (or former Employee) if
(A) After payment of all the benefits payable to such Participant
(or former Participant) under the Plan, the value of Plan assets equals
or exceeds 110 percent of the value of current liabilities (as defined
in Section 412(1)(7) of the Code and modified by Section
1.401(a)(4)-5(b)(3)(iv) of the Income Tax Regulations) determined as of
the same date;
(B) The value of the benefits payable to such Participant (or
former Participant) is less than one (1) percent of the value of
current liabilities before the date of distribution;
(C) The value of the benefits payable to such Participant (or
former Participant) is determined under Section 5.5 of the Plan;
(D) The Plan terminates and the benefit received by such
Participant is nondiscriminatory under Section 401(a)(4) of the Code;
or
(E) Such Participant has agreed to repay to the Plan amounts
distributed therefrom that are in excess of the foregoing restrictions
and that are necessary for the distribution of assets upon Plan
termination to satisfy Section 401(a)(4) of the Code, provided that
such agreement has been secured or collateral-
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ized in accordance with applicable governmental requirements.
Section 5.13. Other Distribution Restrictions. Notwithstanding any
contrary provisions of this Plan:
(A) The entire interest in the Plan of any Participant shall be
distributed to him over a period not extending beyond the life
expectancy of such Participant, or the life expectancies of such
Participant and his Beneficiary, commencing not later than April 1 of
the calendar year following the taxable year in which the Participant
attains age 70-1/2.
(B) If a Participant dies before distribution of his interest in
the Plan has commenced, any benefits payable to a Beneficiary on
account of the Participant's death shall be distributed within five
years after his death unless: (i) any portion of the Participant's
interest is payable to (or for the benefit of) his Beneficiary, (ii)
such portion is distributed over a period not extending beyond the life
expectancy of the Beneficiary, and (iii) such distribution begins not
later than one (1) year after the date of the Participant's death or
such later date as may be prescribed by regulation. If the Beneficiary
referred to in clause (B)(i) above is the surviving spouse of the
Participant, the date such distribution must commence shall be no later
than the date on which the Participant would have attained age 70-1/2.
(C) If a Participant dies after distribution of his interest in
the Plan has commenced, but before his entire interest has been
distributed to him, the remaining portion of his interest shall be
distributed to his Beneficiary at least as rapidly as the method of
distribution used for the Participant.
(D) Notwithstanding any contrary provisions of this Plan, the
foregoing provisions of Paragraphs (A) through (C) of this Section 5.13
shall apply to any distribution hereunder, and all distributions
hereunder shall be made in accordance with the regulations under
Section 401(a)(9) of the Code, including Section 1.401(a)(9)-2 of the
regulations. Any distribution required under the "incidental death
benefit requirements" of Section 401(a) of the Code shall be treated as
a distribution required by the foregoing
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provisions of Paragraphs (A) through (B) of this Section 5.13. Life
expectancy and joint and last survivor expectancy shall be computed
using the return multiples of Treasury Regulation Section 1.72-9.
Section 5.14. Written Explanation Regarding Rollovers. In the
event a Participant, Beneficiary or spouse is to receive a lump sum distribution
under the Plan, the Committee shall provide to the recipient a written
explanation of the provisions under which such distribution will not be subject
to tax if transferred to an eligible retirement plan within 60 days after the
date on which the recipient received the distribution, and, if applicable, the
provisions regarding capital gains treatment and ten-year income averaging for
lump sum distributions. For purposes of this Section 5.14, the term "eligible
retirement plan" shall have the same meaning as ascribed to that term by Section
402(c)(8)(B) of the Code. If payment of a Participant's benefits constitutes an
eligible rollover distribution under Section 402(c)(4) of the Code, then the
Participant may elect to have such distribution paid directly to an eligible
retirement plan. Each election by a Participant under this Section 5.14 shall be
made at such time and in such manner as the Committee shall determine, and shall
be effective only in accordance with such rules as shall be established from
time to time by the Committee.
Section 5.15. Distribution to Alternate Payees. The Committee may
direct that benefits be distributed to an alter-
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nate payee on the earliest date specified in a qualified domestic relations
order (as defined in Section 11.4), without regard to whether such distribution
is made or commences prior to the Participant's earliest retirement age (as
defined in Section 414(p)(4)(B) of the Code) or the earliest date that the
Participant could commence receiving benefits under the Plan.
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ARTICLE VI
FUNDING
Section 6.1. Employer Contributions. It is the intention of this
Plan that the Employer shall make contributions during each year to the Trust in
such amounts, computed at the rate of interest and on the basis of the mortality
and other tables then in use by the Committee, as an enrolled actuary selected
by the Committee shall determine to be necessary to provide the benefits
specified in the Plan under the funding method then in effect, which
contributions shall not be less than the minimum contributions required by the
Employee Retirement Income Security Act of 1974. Contributions by Participants
are neither required nor permitted.
Section 6.2. Qualification of Plan. All contributions made by an
Employer shall be deemed to be conditioned on qualification of the Plan under
Section 401 of the Internal Revenue Code of 1986 (the "Code") and upon the
deductibility of the contributions under Section 404 of the Code.
Section 6.3. Recovery of Contributions. Except as otherwise
provided in this ARTICLE VI, the assets of the Plan shall never inure to the
benefit of any Employer and shall be held for the exclusive purpose of providing
benefits under the Plan and defraying reasonable expenses of the Plan.
Notwithstanding the foregoing:
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(A) Any contribution that is disallowed as a deduction under
Section 404 of the Code shall upon written request of the Employer be
returned to the Employer within one year after the date the deduction
is disallowed;
(B) If a contribution or any portion thereof is made by the
Employer by a mistake of fact, the Trustee shall, upon written request
of the Employer, return the contribution or such portion to the
Employer within one year after the date of payment to the Trustee; and
(C) Earnings attributable to amounts to be returned to the
Employer pursuant to Paragraph (A) or (B) above shall not be returned,
and losses attributable to amounts to be returned pursuant to Paragraph
(A) or (B) shall reduce the amount to be so returned.
Section 6.4. Forfeitures. Any forfeitures of benefits or benefits
that are suspended under Plan shall be used to reduce the cost of the Plan
rather than to increase benefits thereunder.
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ARTICLE VII
THE COMMITTEE
Section 7.1. Membership. A Committee consisting of three or more
persons (who may but need not be employees of the employers) shall be appointed
by Cotter. The Secretary of Cotter shall certify to the Trustee under the Trust
from time to time the appointment to (and termination of) office of each member
of the Committee and the person who is selected as secretary of the Committee.
Section 7.2. Committee's General Powers, Rights and Duties. Except
as otherwise specifically provided and in addition to the powers, rights and
duties specifically given to the Committee elsewhere in the Plan and the Trust
agreement, the Committee shall have the following discretionary powers, rights
and duties:
(A) To select a secretary, if it believes it advisable, who may
but need not be a Committee member.
(B) To construe and interpret the provisions of the Plan and make
factual determinations thereunder, including the power to determine the
rights or eligibility of Employees or Participants and any other
persons, and the amounts of their benefits under the Plan, and to
remedy ambiguities, inconsistencies or omissions, and such
determinations shall be binding on all parties.
(C) To adopt such rules or procedures and regulations as in its
opinion may be necessary for the proper and efficient administration of
the Plan and as are consistent with the Plan and Trust agreement.
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<PAGE> 46
(D) To enforce the Plan in accordance with the terms of the Plan
and the Trust agreement and the rules and regulations adopted by the
Committee.
(E) To direct the Trustee as respects payments or distributions
from the Trust fund in accordance with the provisions of the Plan.
(F) To furnish the Employers with such information as may be
required by them for tax or other purposes in connection with the Plan.
(G) To employ agents, attorneys, accountants or other persons (who
also may be employed by the Employers) and to allocate or delegate to
them such powers, rights and duties as the Committee may consider
necessary or advisable to properly carry out administration of the
Plan, provided that such allocation or delegation, and the acceptance
thereof by such agents, attorneys, accountants or other persons, shall
be in writing.
Section 7.3. Manner of Action. During a period in which two or
more Committee members are acting, the following provisions apply where the
context admits:
(A) A Committee member by writing may delegate any or all of his
rights, powers, duties and discretions to any other member, with the
consent of the latter.
(B) The Committee members may act by meeting or by writing signed
without meeting, and may sign any document by signing one document or
concurrent documents.
(C) An action or a decision of a majority of the members of the
Committee as to a matter shall be as effective as if taken or made by
all members of the Committee.
(D) If, because of the number qualified to act, there is an even
division of opinion among the Committee members as to a matter, a
disinterested party selected by the Committee shall decide the matter
and his decision shall control.
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<PAGE> 47
(E) Except as otherwise provided by law, no member of the
Committee shall be liable or responsible for an act or omission of the
other Committee members in which the former has not concurred.
(F) The certificate of the secretary of the Committee or of a
majority of the Committee members that the Committee has taken or
authorized any action shall be conclusive in favor of any person
relying on the certificate.
Section 7.4. Interested Committee Member. If a member of the
Committee is also a Participant in the Plan, he may not decide or determine any
matter or question concerning distributions of any kind to be made to him or the
nature or mode of settlement of his benefits unless such decision or
determination could be made by him under the Plan if he were not serving on the
Committee.
Section 7.5. Resignation or Removal of Committee Members. A member
of the Committee may be removed by Cotter at any time by 10 days' prior written
notice to him and the other members of the Committee. A member of the Committee
may resign at any time by giving 10 days' prior written notice to Cotter and the
other members of the Committee. Cotter may fill any vacancy in the membership of
the Committee; provided, however, that if a vacancy reduces the membership of
the Committee to less than three, such vacancy shall be filled as soon as
practicable. Cotter shall give prompt written notice thereof to the other
members of the Committee. Until any such vacancy is
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filled, the remaining members may exercise all of the powers, rights and duties
conferred on the Committee.
Section 7.6. Committee Expenses. All costs, charges and expenses
reasonably incurred by the Committee will be paid by the Employers in such
proportions as Cotter may direct. No compensation will be paid to a Committee
member as such.
Section 7.7. Information Required by Committee. Each person
entitled to benefits under the Plan shall furnish the Committee with such
documents, evidence, data or information as the Committee considers necessary or
desirable for the purpose of administering the Plan. The Employers shall furnish
the Committee with such data and information as the Committee may deem necessary
or desirable to administer the Plan. The records of the Employers as to an
Employee's or Participant's period of employment, termination of employment and
the reason therefor, leave of absence, reemployment, and compensation will be
conclusive on all persons unless determined to the Commit- tee's satisfaction to
be incorrect.
Section 7.8. Uniform Rules. The Committee shall administer the
Plan on a reasonable and nondiscriminatory basis and shall apply uniform rules
to all persons similarly situated.
Section 7.9. Review of Benefit Determinations. The Committee will
provide notice in writing to any Participant or
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Beneficiary whose claim for benefits under the Plan is denied and the Committee
shall afford such Participant or Beneficiary a full and fair review of its
decision if so requested.
Section 7.10. Committee's Decision Final. Subject to applicable
law, any interpretation of the provisions of the Plan and any decisions on any
matter within the discretion of the Committee made in good faith shall be
binding on all persons. A misstatement or other mistake of fact shall be
corrected when it becomes known and the Committee shall make such adjustment on
account thereof as it considers equitable and practicable.
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<PAGE> 50
ARTICLE VIII
TRUST FUND AND TRUSTEE
Section 8.1. Trust Fund. The Employers have heretofore established
a fund, herein referred to as the "Trust fund", which comprises all of the
assets of the Plan and into which future contributions to finance this Plan
shall be made. The Trust fund shall be used to pay benefits as provided in this
Plan pursuant to authorization by the Committee; and such benefits shall be
payable only from the Trust fund.
Section 8.2. Trust Fund Applicable Only to Payment of Benefits.
The Trust fund will be used and applied only in accordance with the provisions
of the Plan and the Trust agreement entered into by the Employers and the
Trustee to provide the benefits thereof, and no part of the corpus or income of
the Trust fund will be used for, or diverted to, purposes other than for the
exclusive benefit of Participants under the Plan and other persons thereunder
entitled to benefits except to the extent provided in Sections 6.3 and 10.3 or
to pay reasonable expenses in the administration of the Plan.
Section 8.3. Trustee Capacity. The Trustee of the Trust fund may
be a bank, trust company or other corporation possessing trust powers under
applicable state and Federal law, or one or more individuals or any combination
thereof. When there are two or more Trustees, they are authorized to allocate
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specific responsibilities, obligations or duties among themselves by their
written agreement. An executed copy of such written agreement is to be delivered
to and retained by the Committee. In the event of more than one Trustee, any
action shall be taken at the direction of a majority of such Trustees.
Section 8.4. Resignation and Removal of Trustee. Any Trustee
may resign at any time by delivering to the Board of Directors of Cotter (the
"Board of Directors") a written notice of resignation, which notice may be
waived by the Board of Directors, to take effect at a date specified therein,
which shall not be less than thirty (30) days after the delivery thereof. The
Trustee may be removed by the Board of Directors with or without cause, by
tendering to the Trustee a written notice of removal to take effect at a date
specified therein. Upon such removal or resignation of a Trustee, the Board of
Directors shall either appoint a successor Trustee who shall have the same
powers and duties as those conferred upon the resigning or discharged Trustee,
or, if more than one Trustee is acting, determine that a successor shall not be
appointed and the number of Trustees shall be reduced by one.
Section 8.5. Taxes, Expenses and Compensation of Trustee. The
Trustee shall deduct from and charge against the Trust any taxes paid by it
which may be imposed upon the Trust, or the income thereof, or which the Trustee
is required to pay with respect to the interest of any Participant or Bene-
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ficiary therein. The Employers may pay the Trustee's reasonable expenses in
administering the Plan and a reasonable compensation for its services as Trustee
hereunder, at a rate to be agreed upon from time to time; provided, however,
that no full-time Employee shall receive any compensation for acting as Trustee
hereunder.
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ARTICLE IX
TOP-HEAVY RESTRICTIONS
Section 9.1. General. For any Plan Year with respect to which the
Plan is a "top-heavy plan," and for all subsequent Plan Years, the provisions of
this ARTICLE IX shall apply notwithstanding any contrary provisions of the Plan.
Section 9.2. Definitions.
(A) For purposes of this ARTICLE IX, the Plan will be a "top-heavy
plan" with respect to any Plan Year if the aggregate of the present value of
accrued benefits of "key employees" under the Plan exceeds sixty percent (60%)
of the aggregate of the present value of accrued benefits of all employees under
the Plan as of the relevant "determination date." The actuarial assumptions
specified in Paragraph 1 of ARTICLE II of the Plan shall be applied to all
benefits provided by the Plan in order to determine the present value of accrued
benefits under the Plan.
(B) "Affiliated Company" means (i) a member of a controlled group
of corporations of which the Employer is a member, or (ii) an unincorporated
trade or business that is under common control with the Employer, or (iii) a
member of an affiliated service group of which the Employer is a member, as
defined in Section 414(b), 414(c), and 414(m) of the Code, respectively. For
purposes hereof, a "controlled group of corporations" shall mean a controlled
group of corporations as
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defined in Section 1563(a) of the Code, determined without reference to Sections
1563(a)(4) and (e)(3)(C) of the Code, except that, with respect to the maximum
limitations on Plan benefits set forth in ARTICLE IV of the Plan, the phrase
"more than fifty (50%) percent" shall be substituted for the phrase "eighty
(80%) percent" wherever such phrase appears in Section 1563(a)(1) of the Code.
(C) "Key employee," for purposes of this ARTICLE IX, shall have
the same meaning as ascribed to that term by Section 416(i) of the Code and the
regulations promulgated pursuant thereto. Generally, this term shall include any
employee or former employee (and his beneficiaries) who, at any time during the
Plan Year or any of the preceding four (4) Plan Years, is:
(1) an officer of the Employer having Section 415 Compensation
greater than 50 percent of the dollar limitation in effect under Code
Section 415(b)(1)(A) for the calendar year in which the Plan Year ends
(including only the greater of three Employees or ten percent of the
total Employees of the Employer but not exceeding 50);
(2) one of the ten Employees who owns (or is considered as owning
within the meaning of Code Section 318) both more than a 1/2 percent
interest and the largest interests in the Employer and who has Section
415 Compensation in excess of the limitation in effect under Section
415(c)(1)(A) of the Code for the calendar year in which the Plan Year
ends;
(3) a "five percent owner" of the Employer; or
(4) a "one percent owner" of the Employer having Section 415
Compensation of more than $150,000.
(D) For purposes of this Section 9.2: (1) "five percent owner"
means any person who owns (or is considered as
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owning within the meaning of Code Section 318) more than five percent (5%) of
the outstanding stock of the Employer or stock possessing more than five percent
(5%) of the total combined voting power of all stock of the Employer; (2) "one
percent owner" means any person who owns (or is considered as owning within the
meaning of Code Section 318) more than one percent (1%) of the outstanding stock
of the Employer or stock possessing more than one percent (1%) of the total
combined voting power of all stock of the Employer; and (3) "Section 415
Compensation" means annual compensation as defined by Treasury Regulation
Section 1.415-2(d).
(E) The term "determination date" means, with respect to any Plan
Year, the last day of the preceding Plan Year.
(F) "Required Aggregation Group" means each plan of the Employer
or an Affiliated Company in which a key employee is a Participant, and each such
plan of the Employer or an Affiliated Company that enables any plan of the
Employer or an Affiliated Company in which a key employee is a Participant to
meet the nondiscrimination and participation requirements of Sections 401(a)(4)
and 410 of the Code, respectively.
(G) "Permissive Aggregation Group" means all plans of an Employer
or an Affiliated Company included in the Required Aggregation Group and any
other plan or plans of an Employer or an Affiliated Company designated by the
Employer as a part of the group but only if such plans, when considered as a
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group, would continue to satisfy the nondiscrimination and participation
requirements of Sections 401(a)(4) and 410 of the Code, respectively.
Section 9.3. Top-Heavy Determination.
(A) The determination of whether the Plan is a top- heavy plan
with respect to any Plan Year, and the computation of the top-heavy ratio, shall
be made in accordance with the provisions of Section 416(g) of the Code and the
regulations promulgated pursuant thereto. All qualified plans that are, along
with this Plan, members of either a Required Aggregation Group or a Permissive
Aggregation Group shall be aggregated with the Plan in testing whether the Plan
is top-heavy.
(B) The present value of an Employee's accrued benefit as of any
determination date shall be determined as if the Employee had terminated service
as of the valuation date used for computing Plan costs for minimum funding
purposes which is the most recent valuation date within a twelve-month period
ending on the determination date in question.
Section 9.4. Vesting. Commencing with the first Plan Year with
respect to which the Plan is a top-heavy plan, a Participant's accrued benefit
shall vest at the rate not less than the rate specified in the following
schedule:
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<PAGE> 57
<TABLE>
<CAPTION>
If His Completed Years of The Vested Percentage of His
Service in the Plan Are Accrued Benefit Shall Be
- ------------------------- ----------------------------
<S> <C>
Less than 2 years 00%
2 years but less than 3 years 20%
3 years but less than 4 years 40%
4 years but less than 5 years 60%
5 or more years 100%
</TABLE>
Section 9.5. Minimum Accrual. Commencing with the first Plan Year
with respect to which the Plan is a top-heavy plan, Participants shall accrue
benefits that shall not be less than the "Minimum Accrual." The Minimum Accrual,
expressed as a single life annuity commencing at the Participant's Normal
Retirement Date, is the product of the Participant's average compensation for
the five consecutive years when the Participant had the highest aggregate
compensation from the Employer and the lesser of (A) two percent (2%) for each
Year of Service completed when the Plan is a top-heavy plan, or (B) twenty
percent (20%). All benefits accrued under the Plan, whether or not attributable
to years for which the Plan is a top-heavy plan, shall be used to satisfy the
minimum accrual required by this Section 9.5.
Section 9.6. Limitation on Benefits. Commencing with the first
Plan Year with respect to which the Plan is a top-heavy plan, Section 5.11 of
ARTICLE V shall be read by substituting the number "1.00" for the number "1.25"
whenever it appears therein; provided, however, that such substitution
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shall not reduce any benefit accrued under the Plan prior to the Plan Year in
which this provision becomes applicable.
Notwithstanding the foregoing, the above paragraph shall not apply
in any Plan Year in which the Plan is not "super top-heavy" and in which non-key
employees receive an "extra minimum benefit." For purposes of this Section: (1)
the Plan will be "super top-heavy" with respect to any Plan Year if the
aggregate of the present value of accrued benefits of key employees under the
Plan exceeds ninety percent (90%) of the aggregate of the present value of
accrued benefits of all Employees under the plan as of the relevant
determination date; and (2) the "extra minimum benefit" is one percentage point
so that Section 9.5 hereof will be read by substituting "three percent (3%)" for
"two percent (2%)" and "thirty percent (30%)" for "twenty percent (20%)"
whenever they appear therein.
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ARTICLE X
AMENDMENT AND TERMINATION OF THE PLAN
Section 10.1. Amendment. Cotter shall have the right at any time
to amend the Plan or Trust in any respect, except that no such amendment shall
have the effect of reducing any accrued benefit (as defined in Section 411(d)(6)
of the Code) earned prior thereto or, except as otherwise provided in Section
6.3, make it possible for any portion of the assets of the Plan to be diverted
to purposes other than for the exclusive benefit of Participants or their
beneficiaries at any time prior to the satisfaction of all liabilities under the
Plan with respect to such Participants and their beneficiaries. Any action by
Cotter to amend the Plan or Trust shall be by resolution of its Board of
Directors, by resolution of a duly authorized committee of its Board of
Directors, or by a person or persons authorized by resolution of its Board of
Directors or such committee.
Section 10.2. Termination. This Plan is adopted in the expectation
that it will be continued indefinitely but the continuance of this Plan and the
payment of any contribution hereunder is not assumed as a contractual
obligation. Cotter, as authorized by its Board of Directors, reserves the right
to terminate this Plan at any time. In the event of a termination or partial
termination of this Plan, the rights of all affected Participants to the
benefits accrued to the date of such termi-
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nation or partial termination, to the extent funded as of such date, shall
become immediately and fully vested.
Section 10.3. Allocation and Distribution of Assets on
Termination. On termination of the Plan as respects all Employers, the Committee
will direct the allocation and distribution of the Trust fund to Participants,
retired or terminated Participants, and other persons entitled to benefits under
the Plan. After payment of any expenses of administration and liquidation, the
assets remaining in the Trust fund shall be allocated and distributed to such
Participants and other persons, to the extent of the sufficiency of such assets,
in accordance with the provisions of Section 4044 of ERISA. Distribution may be
made in cash or property or partly in each, provided property is distributed at
its fair market value as of the date of distribution as determined by the
Trustee.
Section 10.4. Limitations on Termination. In the event the Plan is
terminated, the benefit of any highly compensated Participant (or former
Participant) as defined in Section 414(q) of the Code shall be limited to a
benefit which is non-discriminatory under Section 401(a)(4) of the Code.
Section 10.5. Merger and Consolidation. If this Plan is merged or
consolidated with, or its liabilities transferred to any other retirement
plan, a Participant hereunder shall (if the Plan then terminates) receive a
benefit immedi-
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ately after the merger, consolidation, or transfer that is at least equal to the
benefit he would have been entitled to receive immediately before the merger,
consolidation, or transfer (if the Plan had then terminated).
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ARTICLE XI
GENERAL PROVISIONS
Section 11.1. Employment with Related Companies. A period of any
employee's employment with a controlled group member that is not an Employer
will be considered a period of employment for purposes of determining Employment
Years and Years of Service but no employee of a controlled group member shall be
eligible to participate in the Plan unless such controlled group member
becomes an Employer under the Plan and no period of such employee's employment
with such controlled group member shall be included in Years of Service for
purposes of calculating the amount of a Participant's benefits under the Plan. A
"controlled group member" means any corporation or other trade or business that
is under common control with an Employer within the meaning of Sections 414(b),
414(c) and 414(m) of the Code.
Section 11.2. Litigation by Participants. If a legal action begun
against the Employers, the Committee or the Trustee by or on behalf of any
person results adversely to that person or if a legal action arises because of
conflicting claims to a Participant's or other person's benefits, the cost to
the Trustee, the Employer or the Committee of defending the action will be
charged to the extent permitted by law to the sums, if any, that were involved
in the action or were payable to the person concerned.
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Section 11.3. Absence of Guaranty. Neither the Committee nor the
Employer in any way guarantees the Trust fund from loss or depreciation. The
liability of the Trustee or the Committee to make any payment under the Plan
will be limited to the assets held by the Trustee that are available for that
purpose.
Section 11.4. Non-Assignability. Pension benefits may not be
assigned or hypothecated, and to the extent permitted by law no such income
shall be subject to legal process or attachment for the payment of any claim
against any person entitled to receive the same; provided, however, that this
Section 11.4 shall not apply to a "qualified domestic relations order" as
defined in Section 414(p) of the Code. The Committee shall establish a written
procedure to determine the qualified status of domestic relations orders and to
administer distributions under such qualified order. Furthermore, to the extent
provided in a qualified domestic relations order, a former spouse of a
Participant shall be treated as the spouse or surviving spouse for all purposes
under the Plan.
Section 11.5. No Enlargement of Employment Rights. An Employer's
rights to discipline or discharge Employees shall not be affected by any of the
provisions of the Plan.
Section 11.6. Applicable Law. This Plan shall be construed and
enforced in accordance with the laws of the State
-58-
<PAGE> 64
of Illinois and all provisions of the Plan shall be administered in accordance
with the laws of said state, to the extent such state laws are not preempted by
the Employee Retirement Income Security Act of 1974, as amended.
Section 11.7. Uniform Administration. Whenever, in the
administration of the Plan, any action by the Board of Directors of Cotter, the
Committee, or any Employer is required with respect to eligibility or
classification of Employees, contributions or benefits or any other matters
under this Plan, such action shall be uniform in nature as applied to all
persons similarly situated, and no such action shall be taken that will
discriminate in favor of Employees who are officers, shareholders, persons whose
principal duties consist in supervising the work of other Employees, or Highly
Compensated Employees.
Section 11.8. Text to Control. The headings of ARTICLES and
Sections hereof are included solely for convenience of reference and if there by
any conflict between such headings and the text of this Plan, the text shall
control.
Section 11.9. Gender and Number. Where the context admits, words
in the masculine include the feminine and neuter genders, words in the neuter
include the masculine and feminine genders, the singular includes the plural and
the plural includes the singular.
-59-
<PAGE> 65
IN WITNESS WHEREOF, Cotter & Company has caused the foregoing Plan
to be executed and its corporate seal to be affixed and attested this ______ day
of ____________, 19__.
COTTER & COMPANY
By:_________________________________
President
ATTEST:
______________________________
Secretary
-60-
<PAGE> 66
SUPPLEMENT A
MERGER OF NORTHERN WHOLESALE HARDWARE CO. RETIREMENT PLAN
WITH AND INTO PRIOR PLAN
A-1. Merger. Effective as of January 1, 1990, the Northern Wholesale
Hardware Co. Retirement Plan ("Northern Plan") was amended, continued
and merged with the Cotter & Compa- ny Pension Plan (the "Prior Plan").
A-2. Participation. On January 1, 1990, each former participant in the
Northern Plan (a "Northern Participant") became a Participant in the
Prior Plan and will have benefits determined and paid in accordance
with this Plan.
A-3. Preservation of Accrued Benefit. Notwithstanding any provisions of the
Plan to the contrary, in no event shall a Northern Participant's
accrued benefit under the Prior Plan as in effect on January 1, 1990 be
less than the accrued benefit earned by such Northern Participant under
the Northern Plan as at December 31, 1989.
A-4. Years of Service. Each Northern Participant will be credited with the
Years of Service before January 1, 1990 that such Northern Participant
had earned under the Northern Plan as in effect on December 31, 1989
for participation, vesting and accrued benefit purposes.
A-5. Records. The Committee shall maintain such records as it deems
necessary and desirable to demonstrate the amount of each Northern
Participant's benefits and Years of Service under paragraphs A-3 and
A-4 above pursuant to applicable Internal Revenue Service regulations.
A-6. Effective Date. The effective date of this Supplement A is January 1,
1990.
A-1
<PAGE> 67
SUPPLEMENT B
ACTUARIAL ASSUMPTIONS
B-1. Lump Sum Distributions:
For purposes of determining "Actuarially Equivalent" lump sum
distributions under the Plan, the following actuarial assumptions are
used:
a. Rate of Interest: The rate in use during a Plan Year shall be the
annual rate of interest on 30-year Treasury securities for the
month of November immediately preceding such Plan Year as
specified by the Commissioner for such month in the Internal
Revenue Bulletin but not greater than 8.0%.
b. Mortality: The mortality table prescribed by the Secretary of the
Treasury, in revenue rulings, notices, or other guidance
pursuant to Section 807(d)(5)(A) of the Code that has been
published in the Internal Revenue Bulletin as of the date such
lump sum distribution is being determined.
B-2. Type of Annuity:
For purposes of determining "Actuarially Equivalent" benefits under the
Plan, the following factors shall be used in determining benefits that
are actuarially equivalent to the normal single annuity for the life of
the Participant form of benefit provided under the Plan:
a. 50 Percent Qualified Joint and Survivor Annuity. Ninety
percent, plus (or minus) four-tenths of one percent for each
full year that the Participant is younger (or older) than the
Participant's spouse; except that, if the Participant's age
at the Annuity Starting Date is less than 55 years,
"ninety-four percent" shall be substituted for "ninety
percent" in the next preceding clause.
b. 100 Percent Qualified Joint and Survivor Annuity. Eighty-one
percent, plus (or minus) seven- tenths of one percent for each
full year that the Participant is younger (or older) than the
Participant's spouse; except that, if the Participant's age
at the Annuity Starting Date is less than 55 years, "eighty
nine percent" shall
B-1
<PAGE> 68
be substituted for "eighty one percent" in the next preceding
clause.
c. Life and 10 Year Certain Annuity. Ninety-four percent; except
that, if the Participant's age at the Annuity Starting Date is
less than 55 years, the applicable percentage shall be nine-
ty-eight percent.
B-2
<PAGE> 69
SUPPLEMENT C
ACCRUAL PERCENTAGES
<TABLE>
<CAPTION>
Accrual Accrual
Age Percentage Age Percentage
--- ---------- --- ----------
<S> <C> <C> <C>
15 2.0% 40 5.5%
16 2.0% 41 5.5%
17 2.0% 42 6.0%
18 2.0% 43 6.0%
19 2.0% 44 6.5%
20 2.0% 45 6.5%
21 2.0% 46 7.0%
22 2.0% 47 7.5%
23 2.0% 48 8.0%
24 2.0% 49 8.5%
25 2.0% 50 9.0%
26 2.5% 51 9.5%
27 2.5% 52 10.0%
28 2.5% 53 10.5%
29 3.0% 54 11.0%
30 3.0% 55 11.5%
31 3.0% 56 11.5%
32 3.5% 57 11.5%
33 3.5% 58 11.5%
34 4.0% 59 11.5%
35 4.0% 60 11.5%
36 4.5% 61 12.0%
37 4.5% 62 12.0%
38 5.0% 63 12.0%
39 5.0% 64 12.0%
65+ 12.0%
</TABLE>
C-1
<PAGE> 1
EXHIBIT 10-E
COTTER & COMPANY
SUPPLEMENTAL RETIREMENT PLAN
(Amended Effective January 1, 1996)
<PAGE> 2
SUPPLEMENTAL RETIREMENT PLAN
AMENDED EFFECTIVE JANUARY 1, 1996
SECTION 1. ESTABLISHMENT AND PURPOSE
1.1 ESTABLISHMENT OF THE PLAN. Cotter & Company (the "Company") has
heretofore established an unfunded supplemental retirement plan, which is known
as the "COTTER & COMPANY SUPPLEMENTAL RETIREMENT PLAN" (the "Plan") and which
was originally effective January 1, 1988. This Amendment restates the
substantive provisions of the Plan effective January 1, 1996.
1.2 PURPOSE. The purpose of this Plan is to supplement the benefits from
the Company's Qualified Retirement Plan for selected executives of the Company
and its subsidiaries.
SECTION 2. DEFINITIONS
2.1 DEFINITIONS. Whenever used in this Plan, it is intended that the
following terms have the meanings set forth below:
(a) "ACTUARIAL EQUIVALENT" means the term as defined in the
Qualified Retirement Plan.
(b) "ADMINISTRATOR" means an individual or committee
appointed by the Chief Executive Officer and so identified to
Participants.
(c) "BOARD" means the Board of Directors of the Company.
(d) "CHIEF EXECUTIVE OFFICER" means the Chief Executive
Officer of the Company.
(e) "COMPANY" means Cotter & Company, a Delaware
corporation.
<PAGE> 3
(f) "FINAL AVERAGE COMPENSATION" means the highest annual
calendar year average of the sum of Participant's base salary,
bonus and any commissions earned (including any reduction therein
related to a Participant-elected deferral of such base salary,
commissions, or bonus to a later payment date, but excluding the
payment of any such deferred base salary or bonus in the year
received) paid during the three (3) consecutive calendar years in
the ten (10) calendar years of continuous employment immediately
preceding the date on which occurs the earliest of the
Participant's retirement (at Normal Retirement or on or after age
55 with 10 Years of Service), total and permanent disability, or
death.
(g) "NORMAL RETIREMENT DATE" means the date on which a
Participant has both attained age 62 and completed 10 years of
Service.
(h) "OFFICER" means an employee holding one or more of the
following positions: President, Executive Vice President, Vice
President, Treasurer, or Secretary.
(i) "PARTICIPANT" means an Officer or a management employee
of the Company or any subsidiary thereof who has been selected by
the Chief Executive Officer, as provided in Section 3.1 hereof.
(j) "PRIMARY SOCIAL SECURITY BENEFIT" means the estimated
monthly primary old-age Social Security insurance benefit to
which the Participant is or would be entitled at his Normal
Retirement Date or at his retirement if later, based on the
provisions of the Social Security Act in effect on the date of
retirement, before any offsets for earned income. For purposes
of estimating the Primary Social
-2-
<PAGE> 4
Security Benefit, it shall be assumed that the Participant has no
wages covered by Social Security after retirement or disability.
(k) "PRIOR EMPLOYMENT (AND FULL-TIME MILITARY SERVICE)
RETIREMENT BENEFITS" means any retirement benefits from previous
employers of the Participant (including previous full-time U.S.
Military Service) funded by other than the Participant's
contributions which the Participant has received or will be
eligible to receive at any future time. Any such benefits must
be reported to the Administrator in a form satisfactory to the
Administrator. The amount of such benefits shall be determined
on an actuarially equivalent lump sum basis in accordance with
such retirement plan.
(l) "QUALIFIED RETIREMENT PLAN" means any retirement plan
which is maintained by the Company and/or any subsidiary thereof
and which is a qualified plan under Section 401(a) of the
Internal Revenue Code, excluding the Cotter & Company Employee
Savings and Compensation Deferral Plan. The amount of the
benefits payable from such Qualified Retirement Plan shall be
determined on an actuarially equivalent lump sum basis in
accordance with such retirement plan.
(m) "SERVICE" shall have the same meaning in this Plan as
"Years of Service" in the Qualified Retirement Plan under which
the Participant is covered.
(n) "SURVIVING SPOUSE" means the spouse to whom a deceased
Participant has been lawfully married: (1) for a period of at
least one year ending on the date of the Participant's death; or,
(2) where such death occurs after benefit
-3-
<PAGE> 5
payments have commenced under the Plan, as of the commencement
date of those payments to the Participant.
2.2 GENDER AND NUMBER. Except when otherwise indicated by the context,
any masculine term used herein shall include the feminine, and the singular
shall include the plural.
SECTION 3. PARTICIPATION
3.1 SELECTION OF PARTICIPANTS. The Chief Executive Officer, in his
discretion, shall select persons to be Participants in the Plan from among
those Officers and management employees of the Company and its subsidiaries who
are Participants in a Qualified Retirement Plan.
SECTION 4. RETIREMENT BENEFITS
4.1 NORMAL RETIREMENT BENEFIT.
(a) ELIGIBILITY. A Participant shall be eligible to
receive a normal retirement benefit under the provisions of this
Plan upon termination of Service on or after his Normal
Retirement Date.
(b) AMOUNT. A "Defined Lump Sum" which shall be an amount
which is equal to the sum of twenty-two (22) percent of the
Participant's Final Average Compensation for each Year of Service
up to age fifty-five (55) and twenty-eight (28) percent of the
Participant's Final Average Compensation for each Year of Service
after age 55, up to a maximum of twenty (20) Years, limited to
five hundred (500) percent, reduced by the lump sum amounts that
the Participant is eligible to receive from the Qualified
Retirement Plan and from his Prior Employment (and Full-Time
Military Service) Retirement Benefits and the lump sum equivalent
of the Participant's Primary Social Security Benefit to which the
-4-
<PAGE> 6
Participant is entitled, whether or not received. For purposes
of calculating the lump sum equivalent of a Participant's Primary
Social Security Benefit, such lump sum equivalent will be
considered to be ninety-six (96) times the Primary Social
Security Benefit.
(c) PAYMENT AND DURATION. Such Participant's Defined Lump
Sum calculated in (b) above shall be converted into an Actuarial
Equivalent single life annuity unless, with the consent of the
Administrator, such amount is to be paid in a Defined Lump Sum.
Payment of monthly normal retirement benefits provided under this
Plan shall commence as of the first day of the calendar month
beginning on or after the date the Participant's Service
terminates pursuant to this Subsection 4.1 and shall continue to
be paid as of the first day of each month for the remainder of
the Participant's life. However, if such Participant is married,
except as provided in Section 6.1, such amount shall be paid in
the form of an Actuarial Equivalent joint and survivor annuity
with fifty (50) percent of such Participant's reduced monthly
lifetime amounts being payable to such Participant's Surviving
Spouse for the remainder of such Spouse's life.
4.2 EARLY RETIREMENT BENEFITS.
(a) ELIGIBILITY. A Participant shall be eligible to
receive vested early retirement benefits under the provisions of
this Plan upon termination of his Service prior to his Normal
Retirement Date but on or after his attaining age fifty-five (55)
and completing at least ten (10) Years of Service.
(b) AMOUNT. Upon termination of the Participant's Service,
pursuant to (a) above, the Participant shall be entitled to
receive a vested early retirement benefit. Such benefit
-5-
<PAGE> 7
shall be computed in the same manner as a normal retirement
benefit under Subsection 4.1(b), based on the Participant's Final
Average Compensation and Years of Service as of the date his
Service terminates.
(c) PAYMENT AND DURATION. Such Participant's Defined Lump
Sum calculated in 4.1(b) above shall be converted into an
Actuarial Equivalent single life annuity unless, with the consent
of the Administrator, such amount is to be paid in a Defined Lump
Sum. Payment of monthly vested benefits provided under this Plan
shall commence as of the first day of the calendar month
beginning on or after the date the Participant's Service
terminates pursuant to this Section 4.2 and shall continue to be
paid as of the first day of each month for the remainder of the
Participant's life. However, if such Participant is married,
except as provided in Section 6.1, such amount shall be paid in
the form of an Actuarial Equivalent joint and survivor annuity
with fifty (50) percent of such Participant's reduced monthly
lifetime amounts being payable to such Participant's Surviving
Spouse for the remainder of such Spouse's life.
4.3 DISABILITY INCOME BENEFIT.
(a) ELIGIBILITY. A Participant shall be eligible to
receive a disability income benefit under the provisions of this
Plan if the Participant is eligible to receive monthly long-term
disability benefits under the Company's long-term disability
plan.
(b) AMOUNT. The Participant shall be entitled to receive a
monthly disability income benefit equal to fifty (50) percent of
the Participant's Base Compensation (as defined in the Company's
long-term disability plan, as amended, but disregarding any
earnings limitations contained therein),
-6-
<PAGE> 8
reduced by (i) the amount of the monthly disability income
benefit payable under the Company's long-term disability plan and
(ii) the amount of any disability benefits payable under the
Social Security Act.
(c) COMMENCEMENT AND DURATION. Payment of monthly
disability income benefits under this Plan shall commence as of
the first date of the Participant's eligibility to receive
benefits as determined in 4.3(a) and shall continue to be paid as
of the first day of each month thereafter unless and until
long-term disability benefits are discontinued under the terms of
the Company's long-term disability plan.
4.4 DISABILITY RETIREMENT BENEFIT.
(a) ELIGIBILITY. A Participant shall be eligible to
receive a disability retirement benefit under the provisions of
this Plan if a total and permanent physical or mental incapacity
deprives the Participant of the ability to perform his duties as
an executive of the Company, provided the Participant has
completed at least fifteen (15) Years of Service. Determination
of a disability shall be at the Chief Executive Officer's sole
discretion, based on a review of medical documents and
evaluations which he deems appropriate.
(b) AMOUNT. Upon termination of the Participant's Service
pursuant to (a) above, the Participant shall be entitled to
receive a disability retirement benefit. Such benefit shall be
computed in the same manner as a normal retirement benefit under
Subsection 4.1(b), based on the Participant's Final Average
Compensation and Years of Service as of the date his Service
terminates but reduced further by the lump sum equivalent amount
of benefits, if any, payable under
-7-
<PAGE> 9
the Company's long term disability insurance program and under
Subsection 4.3(b) above.
(c) PAYMENT AND DURATION. Such Participant's Defined Lump
Sum calculated in (b) above shall be converted into an
Actuarially Equivalent single life annuity. Payment of monthly
disability retirement benefits provided under this Plan shall
commence as of the first date of the Participant's eligibility to
receive benefits as determined in 4.4(a) above and shall continue
to be paid as of the first day of each month for the remainder of
the Participant's life.
SECTION 5. DEATH BENEFIT
5.1 PAYMENTS TO SURVIVING SPOUSE.
(a) ELIGIBILITY. A Surviving Spouse shall be eligible to
receive a monthly death benefit under the provisions of this
Plan, upon the death, prior to the commencement of payments of
benefits, of a Participant eligible to receive a retirement
benefit under Subsection 4.1 or 4.2 hereof.
(b) AMOUNT. The monthly death benefit payable to an
eligible Surviving Spouse shall be equal to the Actuarial
Equivalent of fifty-five (55) percent of the Participant's
Defined Lump Sum determined in accordance with Subsection 4.1(b)
or 4.2(b), whichever is applicable.
(c) PAYMENT AND DURATION. Such Surviving Spouse's death
benefits shall be converted into an Actuarial Equivalent single
life annuity or, with the consent of the Administrator, in a
single lump sum. Payment of monthly death benefits provided
under this Plan shall commence as of the first day of the
calendar month beginning after the date of
-8-
<PAGE> 10
the Participant's death and shall continue to be paid monthly
thereafter as of the first day of each month for the remainder of
the Surviving Spouse's life unless paid in a single lump sum.
SECTION 6. OPTIONAL PAYMENT METHOD
6.1 MARRIED PARTICIPANT'S PAYMENT FORM ELECTION. A married Participant
who is eligible to receive any benefits provided under Section 4 hereof may,
prior to terminating Service, elect to have those benefits paid in the
alternative form of a joint and survivor annuity which will continue monthly
payments for life to his spouse equal to one hundred (100) percent of the
actuarially reduced monthly amount paid to him during his lifetime. The
benefits payable to the Participant and his spouse under this alternative form
shall be the Actuarial Equivalent to the value of the benefits that would have
otherwise been payable to him under Section 4 hereof. A Participant's election
under this Section 6 must be filed in writing with the Administrator at least
thirty (30) days prior to the date his monthly benefit payments are to commence
under Section 4.
SECTION 7. FINANCING OF BENEFITS
7.1 CONTRACTUAL OBLIGATION. Subject to the provisions of Section 8.4
hereof, it is intended that the Company is under a contractual obligation to
make the payments under this Plan while it is in effect. Benefits shall be
paid out of the general funds of the Company.
7.2 UNSECURED GENERAL CREDITOR. Neither the Participant nor the Surviving
Spouse shall have any interest whatsoever in any specific asset of the Company
and its subsidiaries on account of any benefits provided under this Plan. The
Participant's (or Surviving Spouse's) right to receive benefit payments under
this Plan shall be no greater
-9-
<PAGE> 11
than the right of any unsecured general creditor of the Company and its
subsidiaries.
7.3 FORFEITURE OF BENEFITS BECAUSE OF COMPETITION. Notwithstanding any
provisions in this Plan to the contrary, any Plan retirement benefits which are
otherwise due or payable to a Participant under this Section 4 will be
forfeited and discontinued if such Participant upon or after retirement enters
into, or becomes associated with, any business, as a shareholder, employee,
director, proprietor, consultant, partner or joint venturer, which is in direct
competition with the business of the Company and it subsidiaries, unless such
relationship is disclosed to, and approved by, the Chief Executive Officer of
the Company.
SECTION 8. MUTUAL AGREEMENTS
8.1 NO VESTING. There shall be no vesting of any amount under this Plan
and no obligations shall be owing or payable by the Company and its
subsidiaries under this Plan, except as provided in Sections 4, 5, 6 and 9
hereof, as applicable.
8.2 NO GUARANTEE. Nothing herein shall be construed as conferring upon
the Participant any greater rights to employment by the Company and its
subsidiaries than he would otherwise have.
8.3 LIABILITY. Neither the Company and any subsidiary thereof nor any
shareholder, director, Officer or other employee of the Company or any other
person shall be liable for any act or failure to act under the Plan, except for
gross negligence or fraud.
8.4 AMENDMENT OR TERMINATION OF THE PLAN. The Company reserves the right
to amend, modify, terminate, or discontinue the Plan at any time; and such
action shall be final, binding, and conclusive as to all
-10-
<PAGE> 12
parties, including any Participant, any Surviving Spouse thereof and all other
Company or subsidiary employees and persons; provided, however, that any such
Company action to terminate or discontinue the Plan or to change the monthly
payment amount or the time and manner of payment thereof as then provided in
the Plan shall not be effective and operative with respect to any Participant
or Surviving Spouse who already is vested or has commenced receipt of benefit
payments under Sections 4, 5, 6 or 9 hereof, as applicable, on the date of such
Company action or with respect to any Spouse to whom benefits under Section 6
hereof, as applicable, would be payable due to the subsequent death of any such
Participant then receiving benefit payments. Any action by the Company to
amend or terminate the Plan shall be by resolution of its Board of Directors,
by resolution of a duly authorized committee of its Board of Directors, or by a
person or persons authorized by resolution of its Board of Directors or such
committee.
8.5 ASSIGNMENT OF RIGHTS. In no event shall the Company make any payment
under this Plan to any assignee or creditor of the Participant or his Surviving
Spouse. Prior to the time of a payment hereunder, the Participant or Surviving
Spouse shall have no rights by way of anticipation or otherwise to assign or
otherwise dispose of any interest under this Plan.
8.6 APPLICABLE LAW. This Plan is intended to constitute a plan which is
unfunded and is maintained by the Company primarily for the purpose of
providing deferred compensation for a select group of management or highly
compensated employees and that except to the extent that ERISA applies to such
plan, the laws of Illinois will apply.
8.7 WITHHOLDING OF TAXES. The Company may withhold from any monthly
retirement benefit or monthly death benefit such sum as the Company may
reasonably estimate is necessary to cover any taxes for which the Company may
be liable and which may be assessed with regard
-11-
<PAGE> 13
to such monthly retirement or monthly death benefit payment. Upon discharge or
settlement of such tax liability, the Company shall distribute the balance of
any monthly retirement benefit or death benefit withheld, if any, to the
Participant from whom the amount was withheld. If such Participant is deceased
such amount shall be distributed to the beneficiary of the Participant from who
it was withheld.
8.8 OVERPAYMENT. If any monthly retirement payment shall be determined by
the Company to have been excessive or improper and the Participant or his
Surviving Spouse shall fail, upon Company request, to make repayment to the
Company of such overpayment, the Company shall deduct the amount of such
overpayment from future monthly retirement payments.
8.9 FACILITY OF PAYMENT. Whenever a Participant or a Surviving Spouse
entitled to a monthly retirement benefit or death benefit hereunder shall be
determined to be under a legal disability or otherwise incapacitated in any way
as so to be unable to manage his or her financial affairs, the following
provisions shall apply. The Company may direct that all or any portion of the
monthly retirement payments or death benefits to be made to such Participant
or Surviving Spouse shall be made to such person's spouse or any other person,
in any manner that the Company considers advisable, to be expended for his
benefit. The decision of the Company shall, in each case, be final and binding
upon all persons, and any payment made pursuant to this provision shall operate
as a complete discharge of the obligations of the Company under the Plan.
8.10 ACTION CONCLUSIVE. The Administrator has sole discretion
administering and interpreting all provisions of this Plan. Any action or
decision made by the Administrator with respect to eligibility for and payment
of supplemental retirement income benefits or death benefits to be made under
the Plan made by the Administrator in good
-12-
<PAGE> 14
faith will be binding and conclusive on the Participant, his or her Spouse or
his or her beneficiary.
8.11 SUCCESSORS. The plan shall be binding upon and inure to the benefit
of the Participant and the Company and any successor company of the Company by
way of merger, reorganization, acquisition, or sale by the Company of
substantially all of its assets.
SECTION 9. CHANGE IN CORPORATE STRUCTURE
In the event of the dissolution, merger, consolidation or reorganization
of the Company or the sale by the Company of all or substantially all of its
assets ("corporate reorganization") each Participant who is not already vested
under the Plan shall be vested and have a right to receive the benefit accrued
to the date of such corporate reorganization, calculated in accordance with
Subsection 4.1(b) based on such Participant's Final Average Compensation and
Years of Service as of the date of such corporate reorganization. Unless such
successor employer or purchaser of all or substantially all of the Company's
assets agrees to continue the Plan in accordance with its existing terms, the
benefits of all Participants in the Plan shall be payable in a Defined Lump Sum
at the time of such corporate reorganization.
Executed on this 2nd day of January, 1996.
Attest:
By: Daniel T. Burns By: Daniel Cotter
-------------------------------- ---------------------------
Title: Vice President Title: President
----------------------------- ------------------------
-13-
<PAGE> 1
EXHIBIT 10-J
EMPLOYMENT AGREEMENT
This Agreement is made and entered into between Cotter & Company
("Cotter") and Daniel T. Burns ("Employee") as of the 14 day of Nov, 1995.
1. POSITION
Cotter hereby employs Employee as an employee and officer during the term
of this Agreement and Employee hereby accepts such employment upon the terms
and conditions hereinafter set forth and agrees to devote his full time, energy
and talents exclusively to the benefit of Cotter in connection therewith.
2. DUTIES
The duties and responsibilities of the Employee shall include all of those
duties and responsibilities assigned to the position held by him, together with
such additional duties as may be assigned to him from time to time by the Chief
Executive Officer ("CEO") or the Board of Directors of Cotter.
3. TERM
The initial term of this Agreement shall begin on December 1, 1995 and
shall terminate on December 1, 1997, unless terminated earlier by reason of the
Employee's resignation, death, retirement or termination for cause pursuant to
Section 5.3 hereof. Provided the Employee is attending to and performing his
duties on a regular daily basis as of the last day of any term hereof, the
Agreement shall automatically be extended for an additional term of two (2)
years following the expiration of the term, unless either Cotter or the
Employee shall have delivered written notice to the other party hereto, not
less than sixty (60) days prior to such expiration, of its or his intention to
terminate the Agreement at the end of any term, in which case the Agreement
shall not be extended beyond December 1, 1997 or any two year term thereafter.
4. COMPENSATION
4.1 CASH AND BONUS. Employee shall receive at a minimum such annual
salary in effect with respect to Employee as of the date hereof. Such salary
shall be paid to Employee in accordance with Cotter's customary payroll
practices. Cotter shall cause Employee's salary hereunder to be reviewed once
during each of the calendar years this Agreement is in effect with respect to
the amount of such salary to be paid to Employee in each of those years.
Employee shall also continue to participate in Cotter's Management Incentive
Program ("MIP") and Long Term Incentive Compensation Program for Executive
Management ("LTICP"), or any substitute bonus program, designated by the CEO,
for so long as such programs are
<PAGE> 2
in effect during any term of this Agreement. In no event shall Employee's
salary, MIP, or LTICP eligibility percentages be reduced during the term of
this Agreement. Notwithstanding anything herein to the contrary, the payment of
salary hereunder shall be suspended during any period Employee is not working
and is receiving short or long-term disability, or any other income
continuation benefits under any Cotter benefit plan, and MIP and LTICP bonuses
shall only accrue during the first six months of any such period.
4.2 BENEFITS. During any term hereof, employee shall be entitled to
participate in Cotter's health, life insurance, disability, pension,
supplemental retirement, vacation and other benefit programs, whether financial
or quality of life in nature, to the same extent as other employees of Cotter
in comparable executive positions.
5. TERMINATION
5.1 VOLUNTARY. Employee may at any time terminate this Agreement upon
sixty (60) days written notice. In that event, the payment to Employee of
salary through the period of delivery of the notice and termination, together
with any accrued vacation pay, shall constitute payment in full for all
compensation, including MIP and LTICP payments Employee may have accrued and
which might otherwise be entitled to be paid for the calendar year in which
Employee terminates, due to Employee.
5.2 BY COMPANY, FOR DISABILITY (INCLUDING SUBSTANCE ABUSE). Cotter, at
its option, may dismiss Employee from its employment and terminate this
Agreement at any time after it shall have been determined by competent medical
authority that Employee has become physically or mentally incapacitated or has
become addicted to the use of alcohol or narcotics to such an extent that (s)he
is prevented by reason of such incapacity or addiction from properly performing
duties hereunder. The foregoing sentence shall not be construed to relieve
Cotter of any obligations it would otherwise have under the Americans with
Disabilities Act of 1990 or applicable state statutes. In the event of any such
termination of this Agreement, Employee shall be paid whatever portion of
salary, vacation and bonuses, if any, under the terms of the Agreement, as
shall have accrued to him to the date of termination, and the payment to
Employee of any such salary, vacation pay, and bonus pay shall constitute
payment in full for all compensation due to Employee.
5.3 BY COMPANY, FOR CAUSE, INCLUDING MISCONDUCT, FRAUD OR OTHER
DISHONESTY. Cotter, at its option, may dismiss Employee from its employment
and terminate this Agreement and all obligations hereunder at any time for
"Cause," which shall consist of the following:
(i) theft, fraud, or embezzlement, or conviction of any felony; or
-2-
<PAGE> 3
(ii) Employee's breach of any provision of this Agreement; or
(iii) Employee's breach of any fiduciary or other duty of
loyalty to Cotter (including divulging any information
or business material property of Cotter described in
Section 6.2), as determined by Cotter's CEO (after
Employee has been given the opportunity to explain to
the CEO his actions (or failure to act) concerning such
alleged breach).
In the event of a dismissal of Employee and termination of this
Agreement for Cause, payment to Employee of whatever portion of Employee's
salary and vacation which shall have accrued to the date of such termination
shall constitute payment in full for all compensation, including MIP and LTICP
payments Employee may have accrued and which might otherwise be entitled to be
paid for the calendar year in which Employee terminates, due to Employee.
5.4 BY COMPANY, WITHOUT CAUSE. In the event that Cotter determines
to terminate Employee's employment for other than the reasons specified in
Sections 5.2 and 5.3 hereof, the same shall not constitute a breach of this
Agreement. In such event, Cotter shall continue to pay to the Employee on
regular semi-monthly dates the salary which he would have earned under this
Agreement if his employment had continued for thirty (30) months from the date
of such termination. It is the intention of the parties that, by reason of the
foregoing provisions, Employee shall in all events receive his salary for a
period of two and one-half (2-1/2) years from the date of such termination, in
the event of termination of his employment by Cotter during the term of this
Agreement for any reason not specified in Sections 5.2 and 5.3. Such payment
shall be made to Employee, or his estate, subsequent to termination, regardless
of Employee's death of disability.
In addition to the foregoing, Cotter shall pay to Employee an amount equal to
the Employee's target level MIP bonus for the year in which such termination
occurs, and any amount payable under the terms of the LTICP. Upon mutual
agreement between Cotter and Employee, all amounts payable to Employee under
this section may be paid in a lump sum, discounted to the net present value
thereof at the date of payment, which agreement and payment shall be made
within 60 days of Employee's termination. In addition to the foregoing,
Employee shall continue to have available and accrue health and life insurance
benefits available in Section 4.2, through the original or any renewal term of
this Agreement, and Cotter shall provide and pay such benefits as if Employee
were continuously employed until the expiration of the term.
5.5 OUTPLACEMENT SERVICES. In the event that Cotter terminates
Employee's employment for other than the reasons specified in Section 5.2 and
5.3 hereof, Cotter shall make available at its expense the services of a
recognized outplacement agency
-3-
<PAGE> 4
selected by Cotter for the purpose of aiding Employee in seeking other
employment, in an amount equal to that of the customary executive outplacement
service package offered by such agency to executives with salaries and
positions comparable to Employee's.
6. NON-COMPETE COVENANT AND CONFIDENTIAL INFORMATION
6.1 NON-COMPETITION WITH COTTER UPON VOLUNTARY TERMINATION OF
EMPLOYMENT. As a further specific condition of his employment by Cotter
hereunder and in further consideration of such employment, the Employee agrees
that, for a period of one (1) year following any voluntary termination by the
Employee of his employment (and, with respect only to clause (c) below, in the
event of involuntary termination of such employment), he will not, in any State
or territory of the United States of America, the District of Columbia, Puerto
Rico or any foreign country in which Cotter has a member store at the time of
such termination of the Employee's employment (a) become associated, by way of
employment or any other type of arrangement, in any business activities of any
franchise, cooperative, or wholesale company with a core business in the
hardware industry, (b) become engaged in the conduct of a consulting or
advisory service for any business activity described in clause (a) above
carried on by any other person, firm or corporation, or (c) hire or engage the
services of any person who is or has been a salaried employee of Cotter at any
time during the two (2) years immediately preceding the date of such
termination.
6.2 NONDISCLOSURE. It is understood and agreed that the method and
system of business used and developed by Cotter involves manufacturing
processes, research and development, marketing programs, pricing procedures,
operational procedures, training procedures, long-range strategic plans,
retailers and customer information, lists of vendors to Cotter, and other
secret and confidential information and/or trade secrets of Cotter, and that
Employee, by virtue of his employment hereunder, necessarily has and will
become acquainted with all such information and trade secrets. Accordingly,
during the term of this Agreement and for a period of four years following the
expiration or early termination hereof for any reason Employee shall keep all
secret information and trade secrets strictly confidential and shall not (i)
disclose to a third party any such information or trade secrets or any facts
related thereto, (ii) permit any third party to have access to any such
information or trade secrets; or (iii) use any such information or trade
secrets for any purpose other than performing his duties hereunder.
6.3 REMEDIES. In the event of a breach or threatened breach of the
provisions of Section 6.2, Cotter shall be entitled to terminate this Agreement
and all obligations to Employee hereunder or in connection herewith pursuant to
Section 5.3 and to an injunction restraining Employee from so disclosing any
such trade secrets or confidential information. Nothing contained herein shall
be construed as prohibiting
-4-
<PAGE> 5
Cotter from pursuing any other remedies available to Cotter for such breach or
threatened breach, including the recovery of damages from Employee.
6.4 LIMITATION ON OUTSIDE BUSINESS ACTIVITIES. During any term
hereof, Employee shall devote his entire business time, attention and energies
in normal and, as required, extended work hours, to the business of Cotter and
shall not engage in any other business activity, whether or not such business
activity is pursued for gain or profit, except that Employee may devote a
reasonable portion of time during business hours to professional, civic,
community or charitable activities, and, with the approval of Cotter's CEO, to
other activities not expressly mentioned herein.
7. MISCELLANEOUS
7.1 AMENDMENTS. Any amendments or modifications to this Agreement
shall be in writing and shall be signed by both parties. Any increase in salary
granted to Employee by Cotter pursuant to the salary review provisions of
Section 4 shall not require the signatures of both parties, however, and this
Agreement shall be deemed to have been amended with respect to any such salary
increase by the CEO authorizing such increase and by Employee's continuing
thereafter to perform the services required hereunder.
7.2 ASSIGNMENT. This Agreement shall not be assignable by either
party, but will be binding upon any successor company or organization to
Cotter, including any company which Cotter merges with, or forms a business
combination with. Employee acknowledges that in the event of such an assignment
Cotter shall have no further obligations hereunder, but the Purchaser shall
assume all such obligations.
7.3 ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement between the parties with reference to the employment of Employee by
Cotter and the compensation to be paid to Employee for or with respect to such
employment. All agreements, contracts, understanding or arrangements which may
have been heretofore made or had with reference to the employment of Employee
by Cotter are hereby wholly abrogated, discharged and annulled, with the
exception of any existing rights of Employee under Cotter's employee benefit
plans now maintained by Cotter and in which Employee is a participant. Cotter
further agrees that any new or improved benefits provided generally to or made
generally available to Cotter's Employee employees will be provided or made
available on the same basis to Employee.
7.4 SURVIVAL. The parties' respective rights and obligations under
Section 4, 5, and 6 shall survive the expiration or early termination of this
Agreement.
7.5 SEVERABILITY. Cotter and the Employee recognize that the laws
and public policies of the various States of the United States and its
territories, the District
-5-
<PAGE> 6
of Columbia, Puerto Rico or any foreign country may differ as to the validity
and enforceability of certain provisions contained in agreements similar to this
Agreement. It is the intention of Cotter and the Employee that the provisions of
this Agreement shall be enforced to the fullest extent permissible under the
laws and public policies of the State of Illinois, but that the unenforceability
(or the modification to conform with such laws or public policies) of any
provision or provisions hereof shall not render unenforceable or impair the
validity of the remainder of this Agreement. Accordingly, if any provision of
this Agreement shall be determined by a court of competent jurisdiction to be
invalid or unenforceable, either in whole or in part, this Agreement shall be
deemed amended to delete or modify, as necessary, the offending provisions and
to alter the balance of this Agreement in order to render the same valid and
enforceable to the fullest extent permissible as aforesaid.
7.6 ARBITRATION. Any dispute over the provisions of this Agreement
shall be resolved through Arbitration at the American Arbitration Association
office in Chicago, or the office nearest to Employee's residence at the time a
claim is filed, pursuant to the applicable rules for arbitration of the
Association. The foregoing to the contrary notwithstanding, nothing contained
herein shall limit or restrict Cotter's right to seek equitable relief from any
court of competent jurisdiction in the event of any breach or threatened breach
of Sections 6.1 or 6.2 hereof
7.7 ADVICE OF COUNSEL. Employee has been advised to consult with his
own counsel with respect to this Agreement and acknowledges that he has done
so, is entering into this Agreement of his own free will, intending to be
legally bound hereby.
IN WITNESS WHEREOF, Cotter and Employee have executed this Agreement as
of the date first above written.
COTTER: EMPLOYEE
Cotter & Company
/s/ Daniel T. Burns
By /s/ Daniel A. Cotter -------------------
---------------------
Its President & CEO
-------------------
-6-
<PAGE> 1
EXHIBIT 10-K
EMPLOYMENT AGREEMENT
This Agreement is made and entered into between Cotter & Company
("Cotter") and Kerry J. Kirby ("Employee") as of the 16th day of November, 1995.
1. POSITION
Cotter hereby employs Employee as an employee and officer during the
term of this Agreement and Employee hereby accepts such employment upon the
terms and conditions hereinafter set forth and agrees to devote his full time,
energy and talents exclusively to the benefit of Cotter in connection therewith.
2. DUTIES
The duties and responsibilities of the Employee shall include all of
those duties and responsibilities assigned to the position held by him,
together with such additional duties as may be assigned to him from time to
time by the Chief Executive Officer ("CEO") or the Board of Directors of Cotter.
3. TERM
The initial term of this Agreement shall begin on December 1, 1995 and
shall terminate on December 1, 1997, unless terminated earlier by reason of the
Employee's resignation, death, retirement or termination for cause pursuant to
Section 5.3 hereof. Provided the Employee is attending to and performing his
duties on a regular daily basis as of the last day of any term hereof, the
Agreement shall automatically be extended for an additional term of two (2)
years following the expiration of the term, unless either Cotter or the
Employee shall have delivered written notice to the other party hereto, not
less than sixty (60) days prior to such expiration, of its or his intention to
terminate the Agreement at the end of any term, in which case the Agreement
shall not be extended beyond December 1, 1997 or any two year term thereafter.
4. COMPENSATION
4.1 CASH AND BONUS. Employee shall receive at a minimum such annual
salary in effect with respect to Employee as of the date hereof. Such salary
shall be paid to Employee in accordance with Cotter's customary payroll
practices. Cotter shall cause Employee's salary hereunder to be reviewed once
during each of the calendar years this Agreement is in effect with respect to
the amount of such salary to be paid to Employee in each of those years.
Employee shall also continue to participate in Cotter's Management Incentive
Program ("MIP") and Long Term Incentive Compensation Program for Executive
Management ("LTICP"), or any substitute bonus program, designated by the CEO,
for so long as such programs are
<PAGE> 2
in effect during any term of this Agreement. In no event shall Employee's
salary, MIP, or LTICP eligibility percentages be reduced during the term of
this Agreement. Notwithstanding anything herein to the contrary, the payment of
salary hereunder shall be suspended during any period Employee is not working
and is receiving short or long-term disability, or any other income
continuation benefits under any Cotter benefit plan, and MIP and LTICP bonuses
shall only accrue during the first six months of any such period.
4.2 BENEFITS. During any term hereof, employee shall be entitled to
participate in Cotter's health, life insurance, disability, pension,
supplemental retirement, vacation and other benefit programs, whether financial
or quality of life in nature, to the same extent as other employees of Cotter
in comparable executive positions.
5. TERMINATION
5.1 VOLUNTARY. Employee may at any time terminate this Agreement upon
sixty (60) days written notice. In that event, the payment to Employee of
salary through the period of delivery of the notice and termination, together
with any accrued vacation pay, shall constitute payment in full for all
compensation, including MIP and LTICP payments Employee may have accrued and
which might otherwise be entitled to be paid for the calendar year in which
Employee terminates, due to Employee.
5.2 BY COMPANY, FOR DISABILITY (INCLUDING SUBSTANCE ABUSE). Cotter,
at its option, may dismiss Employee from its employment and terminate this
Agreement at any time after it shall have been determined by competent medical
authority that Employee has become physically or mentally incapacitated or has
become addicted to the use of alcohol or narcotics to such an extent that (s)he
is prevented by reason of such incapacity or addiction from properly performing
duties hereunder. The foregoing sentence shall not be construed to relieve
Cotter of any obligations it would otherwise have under the Americans with
Disabilities Act of 1990 or applicable state statutes. In the event of any such
termination of this Agreement, Employee shall be paid whatever portion of
salary, vacation and bonuses, if any, under the terms of the Agreement, as
shall have accrued to him to the date of termination, and the payment to
Employee of any such salary, vacation pay, and bonus pay shall constitute
payment in full for all compensation due to Employee.
5.3 BY COMPANY, FOR CAUSE, INCLUDING MISCONDUCT, FRAUD OR OTHER
DISHONESTY. Cotter, at its option, may dismiss Employee from its employment
and terminate this Agreement and all obligations hereunder at any time for
"Cause," which shall consist of the following:
(i) theft, fraud, or embezzlement, or conviction of any
felony; or
- 2 -
<PAGE> 3
(ii) Employee's breach of any provision of this Agreement; or
(iii) Employee's breach of any fiduciary or other duty of loyalty
to Cotter (including divulging any information or business
material property of Cotter described in Section 6.2), as
determined by Cotter's CEO (after Employee has been given
the opportunity to explain to the CEO his actions (or
failure to act) concerning such alleged breach).
In the event of a dismissal of Employee and termination of this
Agreement for Cause, payment to Employee of whatever portion of Employee's
salary and vacation which shall have accrued to the date of such termination
shall constitute payment in full for all compensation, including MIP and LTICP
payments Employee may have accrued and which might otherwise be entitled to be
paid for the calendar year in which Employee terminates, due to Employee.
5.4 BY COMPANY, WITHOUT CAUSE. In the event that Cotter determines to
terminate the Employee's employment for other than the reasons specified in
Sections 5.2 and 5.3 hereof, the same shall not constitute a breach of this
Agreement. In such event, Cotter shall continue to pay to the Employee on the
regular dates for payment thereof the salary which he would have earned under
this Agreement if his employment had continued for twenty-four (24) months from
the date of such termination. It is the intention of the parties that, by
reason of the foregoing provisions, the Employee shall in all events receive
payments for a period of two (2) years from the date of such termination in the
event of termination of his employment by Cotter during the term of this
Agreement for any reason not specified in Sections 5.2 and 5.3. Such payment
shall be made to Employee, or his estate, subsequent to termination, regardless
of Employee's death or disability.
In addition to the foregoing, Cotter shall pay to Employee an amount equal to
the Employee's target level MIP bonus for the year in which such termination
occurs, and any amount payable under the terms of the LTICP. Upon mutual
agreement between Cotter and Employee, all amounts payable to Employee under
this section may be paid in a lump sum, discounted to the net present value
thereof at the date of payment, which agreement and payment shall be made
within 60 days of Employee's termination. In addition to the foregoing,
Employee shall continue to have available and accrue health and life insurance
benefits available in Section 4.2, through the original or any renewal term of
this Agreement, and Cotter shall provide and pay such benefits as if Employee
were continuously employed until the expiration of the term.
5.5 OUTPLACEMENT SERVICES. In the event that Cotter terminates
Employee's employment for other than the reasons specified in Section 5.2 and
5.3 hereof, Cotter shall make available at its expense the services of a
recognized outplacement agency
-3-
<PAGE> 4
selected by Cotter for the purpose of aiding Employee in seeking other
employment, in an amount equal to that of the customary executive outplacement
service package offered by such agency to executives with salaries and
positions comparable to Employee's.
6. NON-COMPETE COVENANT AND CONFIDENTIAL INFORMATION
6.1 NON-COMPETITION WITH COTTER UPON VOLUNTARY TERMINATION OF
EMPLOYMENT. As a further specific condition of his employment by Cotter
hereunder and in further consideration of such employment, the Employee agrees
that, for a period of one (1) year following any voluntary termination by the
Employee of his employment (and, with respect only to clause (c) below, in the
event of involuntary termination of such employment), he will not, in any
State or territory of the United States of America, the District of Columbia,
Puerto Rico or any foreign country in which Cotter has a member store at the
time of such termination of the Employee's employment (a) become associated, by
way of employment or any other type of arrangement, in any business activities
of any franchise, cooperative, or wholesale company with a core business in the
hardware industry, (b) become engaged in the conduct of a consulting or
advisory service for any business activity described in clause (a) above
carried on by any other person, firm or corporation, or (c) hire or engage the
services of any person who is or has been a salaried employee of Cotter at any
time during the two (2) years immediately preceding the date of such
termination.
6.2 NONDISCLOSURE. It is understood and agreed that the method and
system of business used and developed by Cotter involves manufacturing
processes, research and development, marketing programs, pricing procedures,
operational procedures, training procedures, long-range strategic plans,
retailers and customer information, lists of vendors to Cotter, and other
secret and confidential information and/or trade secrets of Cotter, and that
Employee, by virtue of his employment hereunder, necessarily has and will
become acquainted with all such information and trade secrets. Accordingly,
during the terms of this Agreement and for a period of four years following
the expiration or early termination hereof for any reason Employee shall keep
all secret information and trade secrets strictly confidential and shall not
(i) disclose to a third party any such information or trade secrets or any
facts related thereto, (ii) permit any third party to have access to any such
information or trade secrets; or (iii) use any such information or trade
secrets for any purpose other than performing his duties hereunder.
6.3 REMEDIES. In the event of a breach or threatened breach of the
provisions of Section 6.2, Cotter shall be entitled to terminate this Agreement
and all obligations to Employee hereunder or in connection herewith pursuant to
Section 5.3 and to an injunction restraining Employee from so disclosing any
such trade secrets or confidential information. Nothing contained herein shall
be construed as prohibiting
-4-
<PAGE> 5
Cotter from pursuing any other remedies available to Cotter for such breach or
threatened breach, including the recovery of damages from Employee.
6.4 LIMITATION ON OUTSIDE BUSINESS ACTIVITIES. During any term
hereof, Employee shall devote his entire business time, attention and energies
in normal and, as required, extended work hours, to the business of Cotter and
shall not engage in any other business activity, whether or not such business
activity is pursued for gain or profit, except that Employee may devote a
reasonable portion of time during business hours to professional, civic,
community or charitable activities, and, with the approval of Cotter's CEO, to
other activities not expressly mentioned herein.
7. MISCELLANEOUS
7.1 AMENDMENTS. Any amendments or modifications to this Agreement
shall be in writing and shall be signed by both parties. Any increase in salary
granted to Employee by Cotter pursuant to the salary review provisions of
Section 4 shall not require the signatures of both parties, however, and this
Agreement shall be deemed to have been amended with respect to any such salary
increase by the CEO authorizing such increase and by Employee's continuing
thereafter to perform the services hereunder.
7.2 ASSIGNMENT. This Agreement shall not be assignable by either
party, but will be binding upon any successor company or organization to Cotter,
including any company which Cotter merges with, or forms a business combination
with. Employee acknowledges that in the event of such an assignment Cotter shall
have no further obligations hereunder, but the Purchaser shall assume all such
obligations.
7.3 ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the parties with reference to the employment of Employee by Cotter and
the compensation to be paid to Employee for or with respect to such employment.
All agreements, contracts, understanding or arrangements which may have been
heretofore made or had with reference to the employment of Employee by Cotter
are hereby wholly abrogated, discharged and annulled, with the exception of any
existing rights of Employee under Cotter's employee benefit plans now maintained
by Cotter and in which Employee is a participant. Cotter further agrees that any
new or improved benefits provided generally to or made generally available to
Cotter's Employee employees will be provided or made available on the same basis
to Employee.
7.4 SURVIVAL. The parties' respective rights and obligations under
Section 4.5 and 6 shall survive the expiration or early termination of this
Agreement.
7.5 SEVERABILITY. Cotter and the Employee recognize that the laws and
public policies of the various States of the United States and its territories,
the District
- 5 -
<PAGE> 6
of Columbia, Puerto Rico or any foreign country may differ as to the validity
and enforceability of certain provisions contained in agreements similar to
this Agreement. It is the intention of Cotter and the Employee that the
provisions of this Agreement shall be enforced to the fullest extent
permissible under the laws and public policies of the State of Illinois, but
that the unenforceability (or the modification to conform with such laws or
public policies) of any provision or provisions hereof shall not render
unenforceable or impair the validity of the remainder of this Agreement.
Accordingly, if any provision of this Agreement shall be determined by a court
of competent jurisdiction to be invalid or unenforceable, either in whole or in
part, this Agreement shall be deemed amended to delete or modify, as necessary,
the offending provisions and to alter the balance of this Agreement in order to
render the same valid and enforceable to the fullest extent permissible as
aforesaid.
7.6 ARBITRATION. Any dispute over the provisions of this Agreement
shall be resolved through Arbitration at the American Arbitration Association
office in Chicago, or the office nearest to Employee's residence at the time a
claim is filed, pursuant to the applicable rules for arbitration of the
Association. The foregoing to the contrary notwithstanding, nothing contained
herein shall limit or restrict Cotter's right to seek equitable relief from any
court of competent jurisdiction in the event of any breach or threatened breach
of Sections 6.1 or 6.2 hereof.
7.7 ADVICE OF COUNSEL. Employee has been advised to consult with his
own counsel with respect to this Agreement and acknowledges that he has done
so, is entering into this Agreement of his own free will, intending to be
legally bound hereby.
IN WITNESS WHEREOF, Cotter and Employee have executed this Agreement as
of the date first above written.
COTTER: EMPLOYEE
Cotter & Company
/s/ KERRY J. KIRBY
----------------------
By /s/ Daniel A. Cotter Kerry J. Kirby
----------------------
Daniel A. Cotter
Its President & CEO
-----------------
- 6 -
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-30-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-30-1995
<CASH> 22,473
<SECURITIES> 0
<RECEIVABLES> 287,888
<ALLOWANCES> 0
<INVENTORY> 315,311
<CURRENT-ASSETS> 636,852
<PP&E> 355,930
<DEPRECIATION> 184,854
<TOTAL-ASSETS> 819,576
<CURRENT-LIABILITIES> 433,853
<BONDS> 79,213
0
0
<COMMON> 118,356
<OTHER-SE> 188,154
<TOTAL-LIABILITY-AND-EQUITY> 819,576
<SALES> 2,437,002
<TOTAL-REVENUES> 2,437,002
<CGS> 2,234,934
<TOTAL-COSTS> 2,234,934
<OTHER-EXPENSES> 112,930
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 29,925
<INCOME-PRETAX> 59,213
<INCOME-TAX> 176
<INCOME-CONTINUING> 59,037
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 59,037
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
