<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
CHECK ONE
__X___ Annual report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the fiscal year ended October 3, 1998.
or
______ Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from _________ to ________.
COMMISSION FILE NUMBER 0-7214
HECHINGER COMPANY
(Exact name of Registrant as specified in its charter)
DELAWARE 52-1001530
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation)
1801 MCCORMICK DRIVE, LARGO, MARYLAND 20774
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (301) 341-1000
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
None.
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
5-1/2% CONVERTIBLE SUBORDINATED DEBENTURES DUE 2012
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
--- ---
Indicate by check mark if the disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ X ]
State the aggregate market value of the voting stock held by non-affiliates of
the registrant. (No voting stock is held by non-affiliates subsequent to
September 25, 1997.)
--- $ 0 ---
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of January 8, 1999.
10 shares of Common Stock, $.01 par value
DOCUMENTS INCORPORATED BY REFERENCE
None.
<PAGE> 2
PART I
ITEM 1. BUSINESS.
Hechinger Company, a Delaware corporation (together with its direct and indirect
subsidiaries, the "Company" or the "Registrant") is a leading retailer of
products and services for the care, repair, remodeling and maintenance of the
home and garden. At October 3, 1998, the Company operated 244 stores, primarily
under the Hechinger ("Hechinger"), Home Quarters Warehouse ("Home Quarters") and
Builders Square ("Builders Square") names. The 133 Builders Square stores are
located primarily in the Southern, Southeastern, Northern and Midwestern parts
of the United States. The 62 Hechinger stores are primarily located in the
Mid-Atlantic region; and the 46 Home Quarters stores are primarily located in
the Southeastern, Northeastern and Midwestern parts of the United States. The
remaining three stores are being converted to Hechinger or Home Quarters stores.
The following table sets forth the number of stores operated by the Company at
fiscal year-end and the aggregate amount of square feet of store space under
roof for the specified periods:
<TABLE>
<CAPTION> STORE
NUMBER SQUARE FOOTAGE
OF STORES (IN THOUSANDS)
- ------------------------------------------------------------------------------------
<S> <C> <C>
As of January 28, 1995 133 10,842
1995 openings 10 1,134
1995 closings (25) (2,081)
----- -------
As of February 3, 1996 118 9,895
1996 openings 2 185
1996 closings (3) (190)
----- -------
As of February 2, 1997 117 9,890
1997 purchase of Builders Square stores 161 16,048
1997 openings 0 0
1997 closings (7) (796)
----- -------
As of September 27, 1997 271 25,142
1998 openings 0 0
1998 closings (27) (2,759)
----- -------
As of October 3, 1998 244 22,383
===== =======
</TABLE>
On September 25, 1997, Centers Holdings, Inc., a Delaware corporation, through a
wholly-owned subsidiary (collectively "Centers Holdings"), acquired the Company
through a merger transaction (the "Merger"). On September 25, 1997, Centers
Holdings also purchased BSQ Transferee Corp. ("BSQ"), a Delaware corporation,
which held substantially all of the assets and liabilities of the Builders
Square business of Kmart Corporation (together with its subsidiaries, "Kmart")
(the "Initial Purchase"). BSQ and the Company are affiliates as a result of
these transactions.
On September 26, 1997, the Company purchased certain assets of BSQ (the
"Purchase") for cash and the assumption of certain liabilities. The assets
purchased, which consisted primarily of inventory, and the liabilities assumed
were recorded at BSQ's carrying values, which were finalized during fiscal 1998
based on the final determination of the fair value of the assets and liabilities
acquired in the Initial Purchase. The principal assets of BSQ which were not
acquired by the Company included assets held for resale and certain real
property, buildings and fixtures. Also on September 26, 1997, as part of the
Purchase, BSQ and the Company entered into subleases which cover substantially
all of BSQ's leased operating facilities, and a lease which covers certain
operating facilities owned by BSQ.
<PAGE> 3
As a result of the Purchase, the Company's consolidated financial statements
include the operating results of Builders Square stores subsequent to September
26, 1997. Accordingly, the Company's historical operating results may not be
indicative of or comparable to its current or future operating results.
Pursuant to the terms of the Purchase, 10 Builders Square stores were subleased
under a master month-to-month rental agreement. Shortly after the Initial
Purchase and pursuant to its terms, BSQ began the process of putting 10 stores
and the remaining related lease obligations back to Kmart, as well as disposing
of two additional stores to third parties. BSQ is responsible for closing put
stores and liquidating the inventory, and delivering a "broom clean" store back
to Kmart. Accordingly, BSQ recorded a liability of approximately $10 million for
the costs related to the closing of these stores. The assets acquired and
liabilities assumed from BSQ pursuant to the Purchase included amounts related
to these stores.
In addition, pursuant to the terms of the Purchase, the Company acquired the
ability to put back to BSQ 15 of the acquired stores and any remaining related
lease obligations, which it did during 1998. In accordance with the terms of the
Purchase, BSQ purchased the inventory in these 15 stores from the Company at its
book value, approximating $50.4 million. As of October 3, 1998, BSQ was in the
process of putting back 14 of these stores and the remaining related lease
obligations to Kmart pursuant to the terms of the Initial Purchase, and
disposing of one store to a third party.
In 1997, the Company changed its fiscal year end to the Saturday closest to
September 30. Prior to this change, the Company's fiscal year ended on the
Saturday closest to January 31. The fiscal year ended October 3, 1998 was 53
weeks ("1998" or "the year") compared to the fiscal period ended September 27,
1997 which was 34 weeks ("1997"), compared to the fiscal year ended February 1,
1997 ("1996") which was 52 weeks, and the fiscal year ended February 3, 1996
("1995") which was 53 weeks.
PRODUCTS
The Company's stores offer for sale a large selection of lumber and building
materials, hardware and tools, paint, garden supplies, electrical and plumbing
supplies and other items related to the home improvement market.
The following table sets forth the percentage of reported sales accounted for by
merchandise category. These percentages may not necessarily be representative,
however, of future product mix due to, among other things, changes in selling
seasons due to unusual weather patterns and ongoing merchandising product line
reviews conducted by management.
<TABLE>
<CAPTION>
FISCAL PERIOD ENDED OCT. 3, 1998 SEPT. 27, 1997 FEB. 1, 1997 FEB. 3, 1996
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Lumber and building materials 26% 28% 29% 28%
Garden supplies and furniture 20 23 20 19
Plumbing supplies 19 17 18 16
Hardware and tools 13 11 12 13
Paint 8 8 8 8
Electrical supplies and small
appliances 7 7 7 10
Home decor, housewares, and other 7 6 6 6
--- --- --- ---
Total 100% 100% 100% 100%
=== === === ===
</TABLE>
Many of the items sold in the Company's stores are nationally advertised, brand
name products. The Company also offers some private label items such as garden
equipment and supplies, and paint. The Company may add private label items to
its merchandise in other areas where there are no major national brands or where
management deems it an effective way to meet price competition in a particular
product line.
By merging the merchandise acquisition function of Hechinger and Home Quarters
with Builders Square, the Company believes it has increased its purchasing power
with its suppliers. The Company also believes it has good relationships with its
suppliers and does not consider itself dependent upon any single
<PAGE> 4
source for its merchandise (See Notes to Consolidated Financial Statements and
Management's Discussion and Analysis of Financial Condition and Results of
Operations for further discussion).
MARKETING
The majority of the Company's sales are to individual consumers, with the
remainder being made to contractors and other businesses. Employees are trained
to help the do-it-yourself customer make his or her purchases and solve
technical problems related to home repair, maintenance and improvement work. The
Company offers its customers a liberal return policy.
The Company employs a multi-media marketing strategy featuring a weekly circular
that promotes key products and special prices. Additional selective marketing is
conducted via newspaper and radio advertisements, direct mail, and in-store
signage programs. The focus of the advertising is on the stores' wide selection
and values, featuring recognizable brand name products. The promotion of these
brand name products enables the Company to share advertising costs cooperatively
with its suppliers.
In August 1998, the Company substantially remodeled its Home Quarters stores in
the Tidewater, Virginia market including the conversion of the Builders Square
store in Virginia Beach, Virginia to the Home Quarters format. As part of the
remodel process, new product categories were added including a broad assortment
of home appliances and a convenience assortment of automotive supplies.
Additionally, the flooring department was significantly expanded.
Also in August 1998, the Company announced its plans to remodel 40 to 50 of its
stores to the Home Quarters format in the upcoming year and to change the name
of the remodeled stores to Home Quarters. Subsequent to October 3, 1998, the
Company converted its Austin and San Antonio, Texas stores to the new Home
Quarters format, including the addition of appliances, an automotive supplies
selection and expanded flooring departments.
The Company offers a private label credit card program pursuant to which credit
is extended to its customers by third party financial institutions. The Company
also accepts VISA, MasterCard, Discover and American Express in all of its
stores. For the fiscal year ended October 3, 1998, credit card sales accounted
for approximately half of the Company's total sales.
COMPETITION
The business of the Company is highly competitive. The Company competes in each
of its market areas with other major national and regional home center chains
(including The Home Depot and Lowe's), national chains of general merchandise
stores and local hardware stores, some of which have greater financial,
management and other resources than the Company or have been operating longer in
particular geographic areas than the Company.
The extent of the Company's competition varies by geographic area. Competitors
have entered many of the Company's existing markets and established competitors
are expanding in certain of these markets, which may, in each case, materially
adversely affect the Company's sales. In addition, the Company's strategy to
maintain competitive pricing in each of its markets may result in lower gross
margins as competition intensifies. There can be no assurance that the Company's
financial results and condition will not be impacted negatively and materially
by existing competition, by the further expansion of competitors into the
Company's markets or by the Company's expansion into competitors' markets (See
Management's Discussion and Analysis of Financial Condition and Results of
Operations for discussion of store closings in certain markets).
<PAGE> 5
SEASONALITY
The Company's business is seasonal and its annual results of operations depend
to a significant extent on the results of operations for the third and fourth
quarters of its fiscal year. The Company's revenues and operating income have
traditionally been higher during March through September than during October
through February.
EMPLOYEES
The Company currently has approximately 28,000 employees, approximately half of
whom are employed on a part-time basis. The Company believes its employee
relations are satisfactory.
ITEM 2. PROPERTIES.
The Home Quarters stores currently average approximately 98,000 square feet
under roof and an additional 33,000 square feet of outdoor selling and storage
space. The Hechinger stores currently average approximately 72,000 square feet
under roof and an additional 23,000 square feet of outdoor selling and storage
space. The Builders Square stores currently average approximately 99,000 square
feet under roof and an additional 24,000 square feet of outdoor selling and
storage space.
The Company currently owns 17 operating stores (including four subject to ground
leases) and leases the remaining units. The Company believes that all of its
facilities, both owned and leased, are in good condition. Expiration dates of
the leases range from 1999 to 2023. Almost all leases contain renewal clauses.
However, with respect to the properties covered by BSQ's subleases with Kmart
(which represents the majority of all Builders Square stores), BSQ's ability to
exercise renewal options available in Kmart's leases with third parties is
subject to various conditions. As a result, the Company's ability to exercise
renewal options under its sublease with BSQ with respect to such properties is
similarly conditioned (See Note 11 to the Consolidated Financial Statements).
Prior to 1998, the Company's stores were serviced, in part, from the 640,000
square foot central warehouse and distribution facility in Landover, Maryland.
The expanded geographic spread of the Company's stores resulting from the
Purchase required a new distribution strategy. As a result, the Company now
utilizes pool points throughout the country rather than the central distribution
center, which was sold subsequent to fiscal year-end.
The Company currently leases approximately 100,000 square feet of office space
in Largo, Maryland and owns a 61,000 square foot office building in Virginia
Beach, Virginia.
ITEM 3. LEGAL PROCEEDINGS.
On July 23, 1997, a purported class action complaint was filed in the Delaware
Chancery Court on behalf of all holders of the Company's common stock against
the Company and the former Company directors. The plaintiff has alleged that the
former officers and directors of the Company breached their fiduciary duties to
the holders of the common stock by, among other things, failing to take all
reasonable steps to assure the maximization of stockholder value including the
implementation of a bidding mechanism to foster a fair auction of the Company
and by entering into an agreement with Centers Holdings under which the
consideration offered by Centers Holdings to holders of the common stock was
"unfair and grossly inadequate." The Company believes that the plaintiff's
claims are without merit and intends to defend such action vigorously. No
significant activity occurred in 1998 with respect to this filing.
The Company and its subsidiaries are also parties to legal proceedings and
claims arising in the ordinary course of business. Although the outcome of such
proceedings and claims cannot be determined with certainty, based upon
evaluation by legal counsel, management believes that the outcome of such
proceedings and claims will not have a material adverse effect on the Company's
consolidated financial position, results of operations or liquidity.
<PAGE> 6
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
NONE.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS.
There is no established trading market for the Registrant's common stock. All of
the Registrant's common stock is owned by Centers Holdings.
ITEM 6. SELECTED FINANCIAL DATA.
The information called for by this item is contained in Exhibit 13 of this
report.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
OPERATIONS. On September 25, 1997, Centers Holdings, Inc., a Delaware
corporation, through a wholly-owned subsidiary (collectively "Centers
Holdings"), acquired the Company through a merger transaction (the "Merger"). On
September 25, 1997, Centers Holdings also purchased BSQ Transferee Corp.
("BSQ"), a Delaware corporation, which held substantially all of the assets and
liabilities of the Builders Square business of Kmart Corporation ("Kmart") (the
"Initial Purchase"). BSQ and the Company are affiliates as a result of these
transactions.
On September 26, 1997, the Company purchased certain assets of BSQ (the
"Purchase") for cash and the assumption of certain liabilities. The assets
purchased, which consisted primarily of inventory, and the liabilities assumed
were recorded at BSQ's carrying values, which were finalized during 1998 based
on the final determination of the fair value of the assets and liabilities
acquired in the Initial Purchase. The principal assets of BSQ which were not
acquired by the Company included assets held for resale, and certain real
property, buildings and fixtures. Also on September 26, 1997 as part of the
Purchase, BSQ and the Company entered into subleases which cover substantially
all of BSQ's leased operating facilities, and a lease which covers certain
operating facilities owned by BSQ.
As a result of the Purchase, the Company's consolidated financial statements
include the operating results of Builders Square stores subsequent to September
26, 1997. Accordingly, the Company's historical operating results may not be
indicative of or comparable to its current or future operating results.
In 1997, the Company changed its fiscal year end to the Saturday closest to
September 30. Prior to this change, the Company's fiscal year ended on the
Saturday closest to January 31. The fiscal year ended October 3, 1998 was 53
weeks ("1998" or "the year") compared to the fiscal period ended September 27,
1997 which was 34 weeks ("1997"), compared to the fiscal year ended February 1,
1997 ("1996") which was 52 weeks, and the fiscal year ended February 3, 1996
("1995") which was 53 weeks.
Pursuant to the terms of the Purchase, 10 Builders Square stores were subleased
under a master month-to-month rental agreement. Shortly after the Initial
Purchase and pursuant to its terms, BSQ began the process of putting 10 stores
and the remaining related lease obligations back to Kmart, as well as disposing
of two additional stores to third parties. BSQ is responsible for closing put
stores and liquidating the inventory, and delivering a "broom clean" store back
to Kmart. Accordingly, BSQ recorded a liability of approximately $10 million for
the costs related to the closing of these stores. The assets acquired and
liabilities assumed from BSQ pursuant to the Purchase included amounts related
to these stores.
In addition, pursuant to the terms of the Purchase, the Company acquired the
ability to put back to BSQ 15 of the acquired stores and any remaining related
lease obligations, which it did during 1998. In accordance with the terms of the
Purchase, BSQ purchased the inventory in these 15 stores from the Company at its
book value, approximating $50.4 million. As of October 3, 1998, BSQ was in the
process
<PAGE> 7
of putting back 14 of these stores and the remaining related lease obligations
to Kmart pursuant to the terms of the Initial Purchase, and disposing of one
store to a third party.
The following table sets forth the sales reported by the Company (in billions):
<TABLE>
<CAPTION>
Period 1998 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $3.44 $1.36 $2.20 $2.25
Comparable period net sales (decrease)/increase 76% (13%) (2%) (8%)
Comparable store sales (decrease) (15%) (12%) (3%) (8%)
</TABLE>
Sales for the 53-week period ended October 3, 1998 were $3.44 billion. The
increase in net sales for 1998 was due to the 53-week period in 1998 compared to
a 34-week period in 1997 and the increased number of stores resulting from the
acquisition of 161 Builders Square stores on September 26, 1997. The decrease in
comparable store sales for 1998 compared with the comparable period of 1997 was
due primarily to increased competition during 1998. Sales for the 34-week period
ended September 27, 1997 were $1.36 billion. The decrease in net sales and
comparable store sales for 1997 compared with the comparable period of 1996 was
due primarily to increased competition during 1997 as well as unseasonable
weather. The sales decrease for 1996 compared with 1995 was due primarily to the
increased competition during 1996 and less stores open during 1996 compared with
1995. Additionally, 1996 was a 52-week year compared with the previous year
which was a 53-week year. Competition is expected to continue to expand into the
Company's markets and could have a materially adverse impact on the Company's
sales.
The following table sets forth the number of stores operated by the Company:
<TABLE>
<CAPTION>
Period 1998 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
At beginning of period 271 117 118 133
Openings 0 0 2 10
Closings (27) (7) (3) (25)
Purchase of Builders Square stores 0 161 0 0
--- --- --- ---
At end of period 244 271 117 118
=== === === ===
</TABLE>
Other income, which consists primarily of interest income on funds available for
investment, was $5.6 million, $3.0 million, $2.8 million and $2.9 million in
1998, 1997, 1996 and 1995, respectively. The increase in 1998 was due to the
53-week period in 1998 compared to a 34-week period in 1997 as well as a gain
from the sale of a tax partnership.
As a percent of sales, cost of sales was 81.2% for 1998 compared to 81.7% for
the comparable period in 1997, and 82.8%, 79.3% and 79.8% of sales for 1997,
1996 and 1995, respectively. Distribution and buying and occupancy expenses,
which are primarily fixed costs, are included in cost of sales. As a percent of
sales, the 1998 results were largely influenced by an increase in buying and
occupancy expenses as a percentage of sales this year compared with the
corresponding period in the prior year. This was due to the decrease in
comparable store sales (primarily as a result of increased competition) and
therefore less leveraging of these fixed costs, as well as increases in
inventory shrink. Offsetting these costs was an overall improvement in the
merchandise gross margin resulting from the Company's vendor consolidation
program as well as a LIFO credit. As a percent of sales, the increase in 1997
was due primarily to increases in inventory shrink and LIFO charges, various
inventory valuation adjustments, and the impact of competitive pricing in
certain markets. As a percent of sales, the decrease in 1996 was due primarily
to improvement in the merchandise margin resulting from the Company's vendor
consolidation program and a LIFO credit in 1996 versus a LIFO charge in 1995,
offset by the impact of competitive pricing in certain markets. Cost of sales
included LIFO credits of $21.3 million and $1.0 million in 1998 and 1996,
respectively, and charges of $5.1 million and $2.6 million in 1997 and 1995,
respectively.
Selling, general and administrative expenses were 18.8% of sales for 1998
compared to 21.0% for the comparable period in 1997, and 20.3% of sales for 1997
and 20.1% for both 1996 and 1995. Pre-opening expenses of $1.9 million and $7.6
million are included in selling, general and administrative expenses for
<PAGE> 8
1996 and 1995, respectively, and were not significant thereafter. As a percent
of sales, the 1998 decrease in selling, general and administrative expenses was
due primarily to reductions in general and administrative overhead and
advertising expenses. The increase in 1997 was due primarily to less leverage
of selling, general and administrative expenses as a result of lower sales
levels in 1997 compared with 1996.
Interest expense, net of capitalized interest, was $67.1 million for 1998
compared to $46.6 million for the comparable period in 1997, and $32.7 million,
$40.2 million and $31.3 million for 1997, 1996 and 1995, respectively. The
increase in 1998 was due primarily to higher borrowings under the Company's
revolving credit facility compared with the corresponding periods in the prior
year as well as capital lease interest for certain of the newly acquired
Builders Square stores. The increases in 1997 (over the comparable period in
1996) and in 1996 were primarily due to the increased utilization of the
Company's revolving credit facility. Capitalized interest was $2.4 million for
1995 and was not significant thereafter.
In 1998, the Company incurred $27.5 million of merger related expenses primarily
associated with the elimination of duplicate overhead expenses including costs
connected with the integration of information technology systems related to
BSQ's operations. By eliminating these duplicate overhead costs, the Company
reduced its net annual general and administrative costs by approximately $40
million. In 1997, as a result of the Merger and change in control, the Company
incurred merger-related expenses of approximately $29.1 million, consisting
primarily of approximately $4.5 million of professional and advisory services
related to the Merger transaction, and approximately $24.6 million of
employee-related costs. The majority of these costs were included in accrued
liabilities as of September 27, 1997, and were paid by the Company in 1998.
Statement of Financial Accounting Standards No. 121 ("SFAS 121"), "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
of" was issued in 1995. The statement requires companies to review long-lived
assets and certain intangible assets in certain circumstances, and if the value
of the assets is impaired, to record an impairment loss.
In 1998, the Company determined that the estimated undiscounted future cash
flows for certain stores were less than the carrying amount of their respective
assets. Accordingly, the Company recorded an impairment loss of approximately
$8.5 million, adjusting the carrying value of the assets in these stores to
their estimated fair value.
In 1997, management of the Company made decisions to close and dispose of
certain properties, including a distribution facility. As a result, the Company
recorded an impairment loss of approximately $29.3 million, which reflects the
difference between the carrying value of the properties and the estimated sales
value, net of estimated costs to sell. The Company is actively pursuing the
disposal of these properties, and sold the distribution center after the end of
fiscal 1998. This amount also includes approximately $9.0 million related to the
write-off of the unamortized portion of leasehold acquisition costs of certain
closed stores, which management believes is not recoverable.
In 1995, the Company recorded aggregate impairment losses of approximately $30
million. As a result of the Company's decision to slow down its expansion plans
and not to pursue development of a number of real estate properties which had
been acquired for future store expansion, the Company decided to dispose of
these properties, and recorded an impairment loss related to these properties of
approximately $15 million. This non-cash charge reflected the difference between
the carrying value of the properties and the estimated sales value, net of
estimated costs to sell. The Company is actively pursuing the disposal of the
remaining properties. Also in 1995, the Company reviewed its property,
furniture, fixtures and equipment and evaluated how these assets would continue
to be used in its operations. Based on this evaluation, the Company recorded an
impairment loss related to certain property, furniture, fixtures and equipment
of approximately $15 million.
In 1994, the Company recorded a charge of $61.9 million primarily related to the
Company's decision to close 22 stores in certain markets. Disposition of the
closed stores is accomplished by subleasing or assigning the property to a new
occupant or reverting possession back to the landlord. The Company previously
expected that it would dispose of or sublease the remaining stores by January
1999. As a
<PAGE> 9
result of certain decisions made by management of the Company related to the
future disposition of its non-operating properties, in 1997 the Company revised
its estimate and recorded an additional store closing charge of $42.7 million
for the estimated continuing carrying costs for non-operating stores,
consisting primarily of rents and other related costs, resulting in an accrual
of $47.7 million as of September 27, 1997. Reductions to the accrual in 1998
represent the net operating costs of non-operating properties, along with lease
termination fees for certain non-operating properties. The Company believes
that the remaining accrual of $38.6 million as of October 3, 1998 is adequate
to cover future liabilities related to the carrying cost of the closed stores,
which the Company is actively marketing. (See Note 7 to the Consolidated
Financial Statements.)
In 1997, the Company entered into an agreement to sell seven Home Quarters
Warehouse stores in the Michigan market. Competition had continued to intensify
in this market, which adversely affected the performance of these stores. Based
on the performance and limited potential of these stores, management decided to
close them. For 1997, 1996 and 1995, these seven stores generated revenue of
$84 million, $151 million and $171 million, respectively, while generating
operating losses of approximately $8 million, $13 million and $7 million,
respectively. As a result, the Company recorded a store closing charge of $31.8
million related to the decision to close and sell these stores. The main
components of this charge were:
- - Estimated write-down to net realizable value of real estate
(approximately $13.6 million), and furniture, fixtures, equipment and
other assets (approximately $14.3 million) to be disposed of.
- - Estimated cash expenditures for operating costs for the stores during the
inventory liquidation period and for employee termination costs of
approximately $3.9 million.
As of September 27, 1997, assets held for sale included approximately $50.0
million related to these stores and approximately $3.0 million of accrued store
closing liabilities remained. The Company consummated the sale of these stores
in November 1997. As of October 3, 1998, these accrued liabilities had been
substantially discharged.
In 1995, the Company recorded a charge of $25 million related primarily to the
Company's decision to combine its Hechinger and Home Quarters operations under
one management team. By merging the management, purchasing and administrative
functions of its two operating subsidiaries, the Company believed it would be in
a better competitive position as it operated a more efficient organization and
increased purchasing power with its vendors. In addition, in 1996 the Company
reduced its annual general and administrative costs by approximately $16 million
primarily from the elimination of duplicate information systems and management
and administrative functions.
Management reviews the ongoing performance of, and future prospects for, its
stores and its markets in conjunction with its planning process. In situations
where remarketing leases and/or selling owned stores may potentially represent a
preferable use of Company resources, management is committed to investigating
those options in order to enhance store, market and Company results. The
financial statement impact of store closings, if any, is recorded when a
decision is finalized and the criteria for accrual have been met.
The effective income tax expense (benefit) rates were 2.8%, 0.6%, 0.0%, and
(3.7%) of the losses before income taxes for 1998, 1997, 1996, and 1995,
respectively. The effective tax rates for 1998, 1997 and 1996 differ from the
statutory rates as a result of increases in the valuation reserve on the
deferred tax assets resulting from each year's loss. The effective tax rate for
1995 differed from the statutory rate as a result of the effect of a valuation
allowance established on the Company's deferred tax asset generated from
operational consolidation and asset impairment charges recorded in 1995. As
described in Note 13 to the Consolidated Financial Statements, on September 25,
1997 Centers Holdings acquired the Company. This transaction constituted an
ownership change as defined under Section 382 of the Internal Revenue Code of
1986, as amended (the "Code"). This ownership change subjects the Company to a
$5.5 million annual limitation in future years in the use of certain items
reflected as deferred tax assets, including net operating loss carryforwards and
certain other tax attributes which were available on the date of the ownership
change. As a result, due to uncertainties regarding the realization in future
periods of the deferred tax assets, the Company has provided a valuation
allowance on a substantial portion of its gross
<PAGE> 10
deferred tax assets. As of October 3, 1998, the Company had net operating loss
carryforwards for Federal income tax purposes of approximately $80.7 million
(net of approximately $97.0 million which will not be utilized by the Company
pursuant to the Section 382 limitation), substantially all of which is subject
to the $5.5 million annual limitation resulting from the ownership change. The
Company's net operating loss carryforwards expire between 2009 and 2018. The
Company's alternative minimum tax credit carryforward of $3.6 million is
available indefinitely as it does not expire. (See Note 10 to the Consolidated
Financial Statements.)
ACCOUNTING PRONOUNCEMENT. In March 1998, the Accounting Standards Executive
Committee issued Statement of Position (SOP) 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use." This SOP provides
guidance on identifying the characteristics of internal-use software and
accounting for the costs associated with internal-use software. This SOP is
effective for financial statements for fiscal years beginning after December 5,
1998. The Company has not yet determined the impact of implementing this
pronouncement.
COMPREHENSIVE INCOME. On January 1, 1998, the Company adopted SFAS No. 130,
"Reporting Comprehensive Income." SFAS No. 130 establishes standards for
reporting and presentation of comprehensive income and its components in a full
set of financial statements. Comprehensive income of Hechinger Company
consists solely of net income and, accordingly, the adoption of SFAS No. 130
had no impact on the Company's financial statements. The Statement requires
only additional disclosures in the consolidated financial statements; it does
not affect the Company's financial position or results of operations.
LIQUIDITY AND CAPITAL RESOURCES. Net cash flows used in operations were $257.1
million and $59.1 million in 1998 and 1996, respectively. Net cash flows from
operations were $20.0 million and $47.1 million in 1997 and 1995, respectively.
The change between 1998 and 1997 was the result of a decrease in accounts
payable and accrued expenses, including the payment of accrued employee related
costs resulting from the Merger, increased merchandise inventory levels, largely
due to an expanded inventory selection supporting the Company's enhanced
merchandising plan partially offset by inventory decreases caused by the closing
of 27 stores, and the use of cash relating to store closings. The change
between 1997 and 1996 was the result of decreased inventory levels, due
primarily to the closing of the seven Michigan stores, and increases in
accounts payable and accrued expenses, partially offset by increased losses in
1997, net of non-cash store closing and merger-related items. The decrease
between 1996 and 1995 was due primarily to a decrease in accounts payable and
accrued expenses, increased losses in 1996 and the use of cash relating to
store closings and the Company's operational consolidation.
Net cash flows from investing activities were $39.4 million in 1998 compared to
net cash flows used in investing activities of $240.8 million, $19.9 million and
$29.7 million in 1997, 1996 and 1995, respectively. Net cash flows from
investing activities in 1998 was primarily due to receipt of $61.6 million in
proceeds relating to the sale of seven Home Quarters Warehouse stores in the
Michigan market and other assets held for sale. Additionally, the Company
surrendered certain corporate owned life insurance policies and received
proceeds for the cash surrender value, net of policy loans and other amounts
due, of $18.3 million. Offsetting these proceeds was a $17.9 million increase in
the purchase price of the Purchase primarily resulting from adjustments to
capital leases, as well as capital spending of $25 million primarily related to
the Company's remodeling and merchandise reset programs. The change between 1997
and 1996 was primarily due to the purchase of net assets from BSQ and the change
between 1996 and 1995 was primarily due to decreased level of capital spending
resulting from reductions to the Company's store expansion, relocation and
remodeling programs. These programs were largely financed from the Company's
marketable securities in 1995.
Net cash flows from financing activities in 1998 were $151.6 million and were
primarily the result of the net proceeds from the Company's senior secured
revolving credit facility and $55 million of capital contributed by the
Company's parent, partially offset by payments of $15.7 million to redeem a
portion of the 5-1/2% Convertible Subordinated Debentures. The 1997 net cash
flows were $271.3 million and were primarily the result of the net proceeds
from the Company's senior secured revolving credit facility, contributed
capital from the Company's parent, and a non-interest bearing advance from the
parent. Net cash flows were $79.9 million in 1996 and were funded primarily
from the Company's revolving credit facility. Net cash flows used in financing
activities were $7.9 million in 1995 and primarily resulted from cash dividends
paid to the Company's stockholders.
Cash and cash equivalents were $21.1 million, $87.2 million and $36.7 million at
October 3, 1998, September 27, 1997 and February 1, 1997, respectively.
<PAGE> 11
During the third and fourth quarters of 1998, the Company redeemed $30.7
million of the 5-1/2% Convertible Subordinated Debentures for cash of $15.7
million, including accrued interest to the date of redemption, which resulted
in the recognition of an extraordinary gain of $15.3 million (before and after
tax effect). These debenture purchases, together with purchases in prior years,
are sufficient to fulfill the scheduled mandatory sinking fund payments prior
to April 2004.
On September 26, 1997, Centers Holdings, BSQ, and the Company entered into a
senior secured revolving credit facility, which permitted borrowings of up to
$600 million (the "Credit Agreement"). The Credit Agreement replaced a $200
million revolving credit facility and all letter of credit facilities
outstanding. This facility is guaranteed by the Company, collateralized by
merchandise inventories and expires in September 2002. The amount available
under the facility fluctuated based on the Company's "Eligible Inventory"
balance (as defined in the agreement). The borrowings under the Credit Agreement
bore interest at a rate which fluctuated based on (i) the greatest of (a) Prime
Rate, (b) the Base CD Rate (as defined) plus 1.0%, or (c) the Federal Funds rate
plus 0.5%, plus an additional 0.0% to 0.5% based on the Interest Coverage Ratio
(as defined) or (ii) LIBOR plus an additional 1.5% to 2.0% based on the Interest
Coverage Ratio (as defined). The weighted average interest rate on the
outstanding borrowing was 7.78% at October 3, 1998.
As of October 3, 1998, the Company had outstanding borrowings of $372.0 million
under the Credit Agreement, and had issued and outstanding letters of credit of
$51.3 million under this facility. The available borrowing as of October 3, 1998
was approximately $177 million, and carried a commitment fee of 0.5% per year.
Subsequent to year-end, the Company borrowed significantly larger amounts under
the Credit Agreement. In order to provide additional availability for seasonal
purchases, remodeling and merchandise reset activity, as well as to provide
additional flexibility and address concerns with regard to quarterly EBITDA
requirements, the Company entered into an amendment of the Credit Agreement and
entered into a supplemental revolving facility in the amount of $50 million.
On December 31, 1998, the Company amended the Credit Agreement (the "Amended and
Restated Credit Agreement"), increasing the advance rate against "Eligible
Inventory" (the "borrowing base") for a period of time. The increased advance
rate begins to decrease in April 1999, until resuming the original advance rate
on June 21, 1999. The Amended and Restated Credit Agreement is guaranteed by the
Company, collateralized by merchandise inventories and expires in September
2002, and contains certain additional financial covenants and increased interest
rates. The borrowings under the Amended and Restated Credit Agreement bear
interest at a rate which fluctuates based on (i) the greatest of (a) Prime Rate,
(b) the Base CD Rate (as defined) plus 1.0%, or (c) the Federal Funds rate plus
0.5%; plus an additional 1.25% or (ii) LIBOR plus 2.75%. In addition, the
Company pays a fee at the rate of 0.5% per annum on any available borrowing.
Also on December 31, 1998, the Company concurrently entered into a short-term
secured revolving credit facility (the "Supplemental Agreement") which permits
borrowings of up to an additional $50 million. The Supplemental Agreement
expires on June 30, 1999 and provides funds during periods when there is
insufficient availability under the borrowing base of the Amended and Restated
Credit Agreement. Borrowings under the Supplemental Agreement bear interest at
the same rate and are generally under the same terms as the Amended and Restated
Credit Agreement.
In connection with the Supplemental Agreement, GEI II, the majority shareholder
of Centers Holdings, and Kmart agreed to repurchase from the lenders 20% and
80%, respectively, of the outstanding amounts of such supplemental credit, up to
the amount of $10 million and $40 million, respectively, in case of an event of
default, as defined. The Company agreed to pay GEI II and Kmart fees equal to
1.0% of their repurchase commitments under this agreement. Should the Company
borrow any amount under the Supplemental Agreement, Kmart's warrant to purchase
shares of the common stock of Centers Holdings increases from 210,000 to 245,000
shares, representing approximately 31.6% of the common stock of Centers Holdings
issued and outstanding after giving effect to the warrant.
The Amended and Restated Credit Agreement contains certain covenants which
restrict the Company's ability to, among other things, enter into additional
indebtedness, make acquisitions or sales of certain
<PAGE> 12
assets and declare and pay cash dividends. In addition, the Amended and
Restated Credit Agreement limits the annual amount of capital expenditures of
the Company and, beginning with the period ended December 31, 1998, requires
the Company to maintain minimum quarterly EBITDA (as defined) at increasing
levels.
In order to meet the amended quarterly EBITDA covenants, the Company must
improve its operating results in the second half of the current fiscal year as
compared to 1998 and has been taking steps to improve virtually every aspect of
its business operation, including but not limited to: management personnel,
store remodeling and merchandise reset programs, merchandise procurement and
distribution logistics, labor management and training, information systems, and
loss prevention. In the event the Company is unable to meet these covenants in
1999, it will be necessary to obtain a waiver from the lenders, amend the
Amended and Restated Credit Agreement, or arrange for alternative financing with
other lenders. There can be no assurance that the Company will be able to
consummate any such transaction, if necessary.
Under the terms of a sale and leaseback transaction completed in 1990, the
Company is restricted from taking certain actions that would result in its net
worth, less goodwill, falling below $175 million. Under the terms of certain
sale and leaseback transactions completed in 1992, the Company is required to
maintain a minimum net worth of $200 million as disclosed in its annual audited
financial statements. Under the 1992 transactions, in the event this minimum
net worth is not maintained, which could occur at the end of 1999, or in future
periods, the Company could be required to repurchase properties aggregating
approximately $42 million. In this event, the Company would be required to
utilize borrowing available under the Amended and Restated Credit Agreement, if
any, and/or arrange third-party financing for the properties subject to capital
expenditure and other limitations. There can be no assurance that the Company
will be able to consummate any such transaction, if necessary.
The Company anticipates that capital expenditures for fiscal 1999 will be
approximately $35 million, including the planned remodeling of approximately 40
to 50 of its stores to the Home Quarters format, enhancements to its
distribution facilities and upgrades to its information systems infrastructure.
Management believes that cash and cash equivalents, cash generated from
operations and its available credit facility will be adequate to meet the
Company's working capital needs and planned capital expenditures for fiscal
1999.
IMPACT OF INFLATION AND CHANGING PRICES. The Company does not measure precisely
the effect of inflation on its operations; however, it does not believe
inflation has had a material effect on sales or results of operations.
YEAR 2000. The Year 2000 issue is a universal concern resulting from many
computer programs being written using two digits rather than four to define the
applicable year. Any computer program that has date sensitive software may
recognize a date using "00" as the year 1900 rather than the year 2000. This
could result in a temporary inability to process transactions or engage in
normal business activities.
STATE OF READINESS
The Company, on a coordinated basis and with the assistance of outside
consultants, has developed a Year 2000 readiness program which has four primary
phases: (1) Inventory Analysis and Assessment, (2) Remediation, (3) Testing and
Implementation, and (4) External Agent Management. The current status for each
phase is as follows:
- - INVENTORY ANALYSIS AND ASSESSMENT. This phase was completed in the
fourth quarter of fiscal 1998.
- - REMEDIATION. This phase is underway and approximately 50% complete. The
remaining effort is scheduled for completion in April 1999.
- - TESTING AND IMPLEMENTATION. Testing design and execution has begun, with
a scheduled completion date of June 1999.
- - EXTERNAL AGENT MANAGEMENT. External agents include merchandisers,
software vendors, telecommunications / data communications providers,
EDI, and critical suppliers (utilities, contractors, benefit providers,
insurers, facilities, etc.). The Company has initiated formal
communications with its
<PAGE> 13
significant suppliers to determine the extent to which each supplier is
Year 2000 compliant and the potential impact on the Company if the
supplier fails to correct their Year 2000 issues. The Company is still in
the process of verifying application readiness of its vendors, assigning
levels of criticality to external agents, and developing contingency
plans related to vendors whose failure to address their Year 2000 issues
could impact the Company. Failure of the Company's significant vendors to
correct their Year 2000 issues could significantly reduce the Company's
inventory levels and sales and affect the Company's ability to serve its
customers.
The Company has not encountered any significant difficulties with any of the
project phases to date. Additionally, the Company is in the process of
developing contingency plans for those business functions which might be
affected by the Year 2000 problem and expects to have a plan by March 1999.
YEAR 2000 COSTS
The Company incurred approximately $1.1 million during 1998 for the phases
completed and in process to date. The Company estimates it will incur an
additional $10 million of internal and external costs as the Company completes
the remediation, testing and implementation, external agent management, and
contingency plans in fiscal year 1999 and the end of calendar 1999. The Company
expects Year 2000 costs to be funded from cash generated from operations and
available credit facility.
YEAR 2000 RISKS
Failure to identify and successfully remediate the Company's internal systems,
as well as infrastructure failures, such as loss of electric power, loss of
telecommunication services, delays or cancellations of shipping or
transportation, shut-downs of significant manufacturers or suppliers, or
computer errors by vendors and major bank errors, could significantly reduce the
Company's ability to sell its inventory and serve its customers. With respect to
the Company's internal systems, the most reasonable worst case scenario for the
Company with respect to the Year 2000 problem would be a major disruption in its
distribution and merchandising operations with respect to customers and
suppliers. With respect to external parties, the most reasonable worst case
scenario with respect to the Year 2000 problem is the failure of a supplier to
be Year 2000 compliant such that the Company's supply of needed inventory would
be interrupted temporarily. These scenarios are part of the contingency plans
currently under development.
The foregoing discussion regarding Year 2000 project timing, effectiveness,
implementation, and costs are based on management's current evaluation using
available information. Factors that might cause material changes include, but
are not limited to, the availability of key Company Year 2000 personnel and
external consultants, the readiness of third parties, and the Company's ability
to respond to unforeseen Year 2000 complications.
FORWARD-LOOKING STATEMENTS. Forward-looking statements in this Form 10-K are
made pursuant to the safe harbor provision of the Private Securities Litigation
Reform Act of 1995. There are various factors that could cause results to differ
materially and adversely from those anticipated by some statements made herein.
Investors are cautioned that all forward looking statements involve risks and
uncertainty. Factors that could cause actual results to differ materially and
adversely include, but are not limited to the following: the strength and extent
of new and existing competition; the Company's ability to maintain competitive
pricing in its markets; the Company's ability to maintain adequate levels of
vendor support; the success of the Company's customer service programs; the
Company's ability to attract, train and retain experienced, quality management
and employees; the Company's ability to assimilate Builders Square's operations
into its own; general economic conditions; housing turnover; interest rates;
weather; disposal of excess real estate; the Company's ability to make its
computer systems Year 2000 compliant, as well as Year 2000 issues facing its
vendors, lenders and others with whom the Company engages in substantial
business; the Company's ability to maintain compliance with its debt agreements;
and other factors described from time to time in the Company's Securities and
Exchange Commission filings.
<PAGE> 14
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Company has not entered into any transactions using derivative financial
instruments or derivative commodity instruments and believes that its exposure
to market risk associated with other financial instruments is not material.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The information called for by this item is contained in Exhibit 13 of this
report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
On October 14, 1997, the Company filed a Current Report on Form 8-K which
reported that the Company had changed its independent accountants. Ernst &
Young LLP was previously the Registrant's independent accounting firm. On
October 7, 1997, Ernst & Young LLP's engagement by the Registrant as its
independent accounting firm was terminated and KPMG LLP, the independent
accounting firm of Centers Holdings, was engaged by the Registrant as
independent accounting firm. The decision to change accountants was approved
and ratified by the Board of Directors of the Registrant at a meeting of the
Board on October 8, 1997.
In connection with the audits of the two fiscal years ended February 1, 1997 and
the subsequent interim period through October 7, 1997, there were no
disagreements with Ernst & Young LLP on any matter of accounting principles or
practices, financial statement disclosure, or auditing scope and procedures,
which disagreement if not resolved to their satisfaction would have caused them
to make reference in connection with their opinion to the subject matter of the
disagreement.
The audit reports of Ernst & Young LLP on the consolidated financial statements
of the Registrant as of and for the fiscal years ended February 1, 1997 and
February 3, 1996 did not contain any adverse opinion or disclaimer of opinion,
nor were they qualified. The audit reports were modified for the Registrant's
adoption of SFAS 121 in the fiscal year ended February 3, 1996.
<PAGE> 15
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The following table sets forth certain information regarding the Company's
directors and executive officers as of January 1999:
<TABLE>
<CAPTION>
YEAR FIRST
JOINED
NAME AND AGE POSITION WITH THE COMPANY THE COMPANY
- ------------ ------------------------- -----------
<S> <C> <C> <C>
Anthony R. Petrillo (59) Chairman of the Board and Director since March 1998. 1997
President, Chief Executive Officer and Director from
September 1997 to March 1998. Prior thereto, Consultant
to Thrifty PayLess, Inc. since May 1995 and prior thereto,
Chairman, Chief Executive Officer and President of
Kash n' Karry Food Stores, Inc. since August 1994 and
prior thereto, Consultant.
Mark S. Schwartz (38) President and Chief Executive Officer since March 1998 1998
Prior thereto, President & Director General of Supercenters
Mexico operations for Wal-mart Stores, Inc. since October
1996. Prior thereto, Senior Vice President of Supercenters
Stores for Wal-mart since January 1995. Prior thereto, Vice
President of Supercenters Stores for Wal-mart.
Mark R. Adams (37) Executive Vice President, Chief Financial Officer, General 1988
Counsel, Treasurer and Secretary since April 1998. Prior
thereto, Executive Vice President, General Counsel,
Treasurer and Secretary since September 1997. Prior
thereto, Senior Vice President, General Counsel, Treasurer
and Secretary since March 1995 and prior thereto, served
in various capacities as an Officer of the Company.
Clifford C. Smith, Jr. (39) Executive Vice President - Merchandising and Marketing 1998
since February 1998. Prior thereto, Consultant to the
Company since October 1997. Prior thereto, Senior Vice
President - Marketing/Merchandising for Kash 'n Karry Food
Stores, Inc. since March 1996. Prior thereto, Senior Vice
President - Marketing/Merchandising - Perishables for
Kash 'n Karry Food Stores, Inc. since April 1995. Prior
thereto, Director - Deli/Bakery/Food Service for the Harris
Teeter division of Ruddick Corporation.
Donald T. Stallings (43) Executive Vice President - Store Operations since 1998
October 1998. Prior thereto, Vice President - Operations
- Southwest Region for Lowe's since June 1996. Prior
thereto, District Manager for Lowe's since March 1994.
Prior thereto, District Manager for Payless Cashways.
Leonard I. Green (65) Director since September 1997. Executive officer and an equity
owner of Leonard Green & Partners, L.P. ("LGP"), a merchant
banking firm that manages GEI, since the formation of LGP
and GEI in 1994 by the principals of Leonard Green & Associates, L.P.
("LGA"). Mr. Green has also been, individually or through a
corporation, a partner in LGA, a merchant banking firm, since its
inception in 1989. Prior to forming LGA, Mr. Green had been a partner
</TABLE>
<PAGE> 16
<TABLE>
<S> <C> <C>
of Gibbons, Green, van Amerongen for more than five years.
Also a Director of Rite Aid Corporation, Carr-Gottstein Foods Co.,
and Communications & Power Industries, Inc.
Gregory J. Annick (34) Director since September 1997. Executive officer and
an equity owner, through a trust, of LGP, a merchant
banking firm that manages GEI, since the formation of GEI in
1994 by the principals of LGA. Joined LGA as an associate
in 1989, became a principal in 1993, and through a
corporation became a partner of LGA in 1994. From 1988
to 1989, an associate with the merchant banking firm of
Gibbons, Green, van Amerongen. Also a director of Carr-
Gottstein Foods Co., Communications & Power Industries,
Inc., and Leslie's Poolmart, Inc.
John G. Danhakl (42) Director since September 1997. Executive officer and an equity
owner of LGP, a merchant banking firm that manages GEI,
since 1995. Previously a Managing Director at Donaldson,
Lufkin & Jenrette Securities Corporation ("DLJ") and had been
with DLJ since 1990. Prior thereto a Vice President at Drexel
Burnham Lambert Incorporated. Also a director of Big 5 Corp.,
Communications & Power Industries, Inc., Leslie's Poolmart, Inc.,
Twinlab Corporation, and The Arden Group, Inc.
Jonathan D. Sokoloff (41) Director since September 1997. Executive officer and an equity
owner of LGP, a merchant banking firm that manages GEI,
since the formation of LGP and GEI in 1994 by the principals of
LGA. Joined LGA as a partner in 1990. Prior thereto a
Managing Director at Drexel Burnham Lambert Incorporated.
Also a director of Gart Sports Company, Twinlab Corporation
and Carr-Gottstein Foods Co.
Martin L. Grass (44) Director since September 1997. Chairman of the Board
and Chief Executive Officer of Rite Aid Corporation
since 1995. Prior thereto President and Chief Operating
Officer of Rite Aid Corporation since April 1989. Also a
director of Tessco Technologies, Inc. and Mercantile Safe
Deposit & Trust Company.
Martin E. Welch III (50) Director since April 1998. Senior Vice President and Chief
Financial Officer of Kmart since December 1995. Prior
thereto, Senior Vice President, Chief Financial Officer of
Federal-Mogul Corporation.
</TABLE>
There is no family relationship between any of the foregoing persons.
ITEM 11. EXECUTIVE COMPENSATION.
The Summary Compensation Table sets forth individual compensation information
paid by or on behalf of the Company and its subsidiaries to the Chief Executive
Officer and the most highly paid executive officers (the "Named Executive
Officers"), for services rendered in all capacities during the fiscal year ended
October 3, 1998 ("1998"), fiscal period ended September 27, 1997 ("1997") and
fiscal years ended February 1, 1997 ("1996") and February 3, 1996 ("1995").
<PAGE> 17
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
--------------------------------------------------------------------------------------------
LONG-TERM COMPENSATION
ANNUAL COMPENSATION AWARDS PAYOUTS
----------------------------------------- ---------------------------- -------------
SECURITIES
OTHER ANNUAL RESTRICTED UNDERLYING PERFORMANCE ALL OTHER
NAME AND SALARY BONUS COMPENSATION STOCK OPTIONS SHARES COMPENSATION
PRINCIPAL AWARDS
POSITION YEAR ($) ($) ($) (1) ($) (#) (2) ($) ($) (3)
- ---------------------- ------- ---------- ------- ------------ ---------- ------------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Anthony R. Petrillo 1998 $923,076 $0 $0 $0 9,500 $0 $0
Chairman of the
Board
Mark S. Schwartz 1998 259,615 50,000 5,400 0 13,000 0 165,176
President &
Chief Executive
Officer(5)
Mark R. Adams 1998 226,923 0 13,085 0 7,000 0 0
Executive Vice 1997(4) 101,346 65,000 8,239 0 12,000 0 2,540
President, Chief 1996 155,000 0 12,600 0 6,641 0 4,858
Financial Officer, 1995 137,337 22,700 7,419 0 2,875 0 775
General Counsel
Treasurer and
Secretary
Clifford C. Smith, Jr. 1998 153,846 0 0 0 5,000 0 89,526
Executive Vice
President -
Merchandising and
Marketing (5)
Martin R. Bocola 1998 310,181 183,600 3,037 0 5,000 0 0
Former Executive
Vice President (6)
Harold R. Hall 1998 150,000 0 13,085 0 0 0 486,346
Former Executive 1997(4) 145,154 94,100 8,239 0 14,267 0 21,040
Vice President 1996 220,654 0 12,600 0 14,267 0 4,750
and Chief
Financial Officer (6) 1995 216,250 11,000 969 0 7,500 0 1,985
</TABLE>
Except as shown above, none of the Named Executive Officers identified above was
employed by the Company prior to September 25, 1997.
- ----------------------------------
(1) These amounts represent automobile allowances.
(2) Option grants made in fiscal year 1998 are options for the common stock of
Centers Holdings. Previous option grants were made with respect to the common
stock of Hechinger Company under the 1991 Stock Incentive Plan.
(3) These amounts represent the following: For Mr. Schwartz, a relocation
allowance; for Mr. Smith, the amount of $35,000 in consulting fees he earned
previous to being employed by the Company and a relocation allowance of $54,526;
and for Mr. Hall, for 1998, a severance payment of $425,343 (see Severance
Agreements, to follow) plus certain accrued benefits and a relocation allowance
of $7,580; for 1997, a relocation allowance of $18,500.
The 1997, 1996, and 1995 amounts for Messrs. Adams and Hall also include
contributions by the Company to the Company Profit Sharing and 401(k) Plans.
Company contributions to the Profit Sharing Plan are in such amounts as may be
determined by the Board up to the maximum amount allowable under the Internal
Revenue Code of 1986, as amended (the "Code"). Company contributions to the
401(k) Plan represent a match of up to 50% of a participant's first 6% of pay
contributed subject to the maximum amount allowable under the Code. Company
contributions become 100% vested in both plans after a participant completes
prescribed Plan Service and in certain other circumstances.
<PAGE> 18
(4) Represents compensation information related to the 34-week period ended
September 27, 1997.
(5) Mr. Schwartz and Mr. Smith joined the Company in April 1998 and February
1998, respectively.
(6) Mr. Bocola and Mr. Hall are no longer employees of the Company as of
December 1998 and April 1998, respectively.
- --------------------------------------------------
All stock options granted to the Named Executive Officers for the four previous
fiscal years are disclosed in the Summary Compensation Table. The table below
restates the options granted to the Named Executive Officers in the last fiscal
period, and provides other information regarding such grants, including an
estimate of the Grant Date Present Value.
Stock Options granted during the last fiscal period were granted by Centers
Holdings, Inc., the indirect parent company of the Registrant, in its common
stock, par value $.01 per share ("Centers Holdings Common Stock"), pursuant to
its 1997 Management Equity Plan (the "1997 Plan"). The 1997 Plan provides for
the issuance of incentive stock options, non-qualified stock options, and
restricted stock to key employees of Centers Holdings and its subsidiaries at
the discretion of Centers Holdings' Board of Directors. An aggregate of up to
65,000 shares of Centers Holdings Common Stock may be subject to awards under
the 1997 Plan. As of January 9, 1999, incentive stock options to purchase 54,300
shares of Centers Holdings Common Stock have been granted under the 1997 Plan,
and are further subject to Management Stock Option and Stockholders Agreements.
The Management Stock Option and Stockholders Agreement gives Centers Holdings a
right of first refusal and repurchase rights under certain circumstances, as
well as the option, upon a Change in Control or an Asset Sale, as defined
therein, to accelerate the vesting of options, to cash out options, or to cause
an acquiring party to assume options. The Company has not granted any stock
appreciation rights.
<TABLE>
<CAPTION>
OPTION GRANTS IN LAST FISCAL PERIOD
- -------------------------------------------------------------------------------------------------------------------
INDIVIDUAL GRANTS
-------------------------------------------------------
NUMBER OF GRANT DATE VALUE
SECURITIES PERCENT OF TOTAL EXERCISE OR ----------------
UNDERLYING OPTIONS GRANTED BASE PRICE GRANT DATE
OPTIONS GRANTED TO EMPLOYEES IN PER SHARE EXPIRATION PRESENT VALUE
NAME (#) FISCAL PERIOD ($/SH.) DATE ($)(3)
- ---------------------- ------------------ ------------------- ----------- ---------- ----------------
<S> <C> <C> <C> <C> <C>
Anthony R. Petrillo 9,500(1,2) 20.5% $51.02 9/27/07 $331,550
Mark S. Schwartz 13,000(1) 28.0% 51.02 9/27/07 355,160
Mark R. Adams 7,000(1) 15.1% 51.02 9/27/07 191,240
Clifford C. Smith, Jr. 5,000(1) 10.8% 51.02 9/27/07 129,550
Martin R. Bocola 5,000(1) 10.8% 51.02 9/27/07 129,550
Harold R. Hall 0 0.0% N/A N/A N/A
</TABLE>
- --------------------------------------------------
(1) The options to purchase these shares of Centers Holdings Common Stock were
granted as of September 27, 1997 at an exercise price equal to its fair market
value as of that date. The options generally vest proportionately over a four-
or five-year period, and are subject to certain terms and conditions (see
above).
(2) Mr. Petrillo's options were fully vested at the grant date.
(3) Computed using a modified Black-Scholes model.
- --------------------------------------------------
,
<PAGE> 19
The following sets forth certain information on options exercised during the
last fiscal period and unrealized value for both exercisable and unexercisable
options at fiscal year end.
<TABLE>
<CAPTION>
AGGREGATED OPTION EXERCISES IN LAST FISCAL PERIOD AND FISCAL PERIOD-END OPTION VALUES
- --------------------------------------------------------------------------------------------------------------------
NUMBER OF SECURITIES VALUE OF UNEXERCISED
SHARES UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
ACQUIRED OPTIONS AT FISCAL PERIOD END AT FISCAL PERIOD END(1)
ON VALUE ---------------------------- ---------------------------------
EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
NAME (#) (2) ($) (#) (#) ($) ($)
- -------------------------- --------- -------- ----------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Anthony R. Petrillo 0 $0 9,500 0 $0 $0
Mark S. Schwartz 0 0 3,250 9,750 0 0
Mark R. Adams 0 0 1,750 5,250 0 0
Clifford C. Smith, Jr. 0 0 1,000 4,000 0 0
Martin R. Bocola 0 0 1,000 4,000 0 0
Harold R. Hall 0 0 0 0 0 0
</TABLE>
- --------------------------------------------------
(1) Market value of stock at fiscal year end less exercise price, before
payment of applicable income taxes.
(2) None.
- --------------------------------------------------
SEVERANCE AGREEMENTS
Under the terms of the Severance Agreements dated April 10, 1997 entered into by
the Company and certain executive officers thereof, each of Messrs. Hall and
Adams would receive a benefit equal to one and one half times the sum of his
annual salary and the average of his last three annual bonuses if the executive
was terminated for reasons other than cause, death, disability or retirement or
by such executive for "good reason" within two years following a change in
control of the Company. Each executive would also be eligible for additional
benefits for eighteen months in the event of such termination. These additional
benefits would include existing medical, dental and life insurance (provided the
executive paid the premiums due under such plans); merchandise discounts;
outplacement services; monthly auto allowances up to an annual cost of $13,200;
and payment of excise taxes incurred in connection with the payments received.
The Severance Agreements contain confidentiality requirements applicable to the
executives during and after their employment with the Company. Pursuant to the
terms of the Severance Agreements, Mr. Hall received approximately $425,343 in
the aggregate (excluding excise taxes) during 1998.
EMPLOYMENT AGREEMENTS
Mr. Schwartz and Mr. Smith entered into three-year employment agreements with
the Company on April 1, 1998 and February 1, 1998, respectively. The agreements
generally provide for payment of salary during the full term of the agreement,
but may be terminated early by mutual consent, "for cause" as specified therein,
or under certain other circumstances. In addition, the agreements provide for
bonuses consistent with the Company's bonus policy in effect from year to year,
as well as for the stock option grants disclosed above. These agreements contain
confidentiality requirements applicable to the executives during and after their
employment with the Company.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Compensation Committee for the fiscal year ended October 3,
1998 were Gregory J. Annick, Jonathan D. Sokoloff, and Anthony R. Petrillo.
Neither Mr. Annick nor Mr. Sokoloff are or were officers or employees of the
Company or any of its subsidiaries, while Mr. Petrillo has been Chairman of the
Board since March 1998 and was President and Chief Executive Officer from
September 1997 to March 1998. None of the members of the Compensation Committee
had any other relationships which would require disclosure.
<PAGE> 20
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The Company's outstanding capital stock is indirectly wholly-owned by Centers
Holdings. The following table sets forth the ownership of Centers Holdings
Common Stock as of January 8,1999 by any person known by the Company to be the
beneficial owner of more than 5% of the Centers Holdings Common Stock (for whom
an address is also provided), the Company's directors and executive officers
named in the Summary Compensation Table above, and all executive officers and
directors of the Company as a group.
<TABLE>
<CAPTION>
NAME AND ADDRESS(1)
OF BENEFICIAL OWNER NUMBER OF SHARES PERCENT OF CLASS
- ---------------------------------------------- ---------------- ----------------
<S> <C> <C>
Green Equity Investors II, L.P. (2) 490,000 92.6%
Kmart (2) (3) 210,000 28.4%
Anthony R. Petrillo (4) 9,500 1.8%
Mark S. Schwartz (4) 3,250 0.6%
Mark R. Adams (4) 1,750 0.3%
Clifford C. Smith, Jr. (4) 1,000 0.2%
Martin R. Bocola (4) 1,000 0.2%
Leonard I. Green (5) (5)
Jonathan D. Sokoloff (5) (5)
John G. Danhakl (5) (5)
Gregory J. Annick (5) (5)
Martin E. Welch III 0 0
Martin L. Grass (6) 39,200 7.4
All Executive Officers and Directors
as a Group (7) 529,200 100.0%
</TABLE>
- --------------------------------------------------
(1) The address for Green Equity Investors II, L.P. ("GEI II") and Messrs.
Green, Sokoloff, Danhakl and Annick is 11111 Santa Monica Boulevard, Suite 2000,
Los Angeles, California 90025. The address for Kmart and Mr. Welch is 3100 West
Big Beaver Road, Troy, Michigan, 48084. The address for all others is 1800
McCormick Drive, Largo, Maryland, 20774.
(2) Pursuant to the Securityholders Agreement (as defined below), each of GEI II
and Kmart has agreed to vote for the directors designated by the other. (See
Securityholders Agreement, below.)
(3) Represents 210,000 shares of Centers Holdings Common Stock that Kmart has
the right to acquire pursuant to a currently-exercisable warrant received in
conjunction with the Initial Purchase. As of January 9, 1999, Kmart had not
exercised the warrant. For purposes of calculating Kmart's ownership
percentages, the shares for which the warrant is exercisable are deemed to be
outstanding, but are not so deemed in calculating the ownership percentages of
any of the other stockholders. The number of shares represented by this warrant
may be increased to 245,000 if the Company borrows under the Supplemental
Agreement (See Note 5 to the Consolidated Financial Statements).
(4) Represents shares of Centers Holdings Common Stock that Company officers and
directors have the right to acquire pursuant to a currently-exercisable warrant
received under the 1997 Plan. As of January 9, 1999, none of the officers and
directors had exercised any options. For purposes of calculating each officer's
and director's ownership percentages, the shares for which the option is
exercisable are deemed to be outstanding, but are not so deemed in calculating
the ownership percentages of any of the other stockholders.
(5) GEI II is a Delaware limited partnership managed by Leonard Green &
Partners, L.P. ("LGP"), which is an affiliate of the general partner of GEI II.
Each of Messrs. Green, Sokoloff, Danhakl and Annick, either directly (whether
through ownership interest or position) or through one or more intermediaries,
may be deemed to control LGP and such general partner and thus may be deemed to
be beneficial owners of the shares of Centers Holdings Common Stock owned by GEI
II.
(6) All of these shares are owned by Square Builders, LLC, a Maryland limited
liability company, the managing member of which is Mr. Grass and the other
member of which is Mr. Grass's father.
(7) Includes the shares identified in note (5) above.
- --------------------------------------------------
<PAGE> 21
SECURITYHOLDERS AGREEMENT
In connection with the Initial Purchase, GEI II, Kmart and Centers Holdings
entered into a Securityholders Agreement (the "Securityholders Agreement")
which, among other things, provides that (i) the Board of Directors of Centers
Holdings (the "Centers Holdings Board") will consist of six members, (ii) GEI II
and Kmart will each vote any shares of Centers Holdings Common Stock they own
(a) in the case of GEI II, in favor of one nominee selected by Kmart and (b) in
the case of Kmart five nominees selected by GEI II (six if GEI II elects to
expand the Centers Holdings Board to seven members). The Securityholders
Agreement also provides that, so long as certain minimum ownership requirements
by Kmart or its transferee are met, the affirmative vote of Kmart's nominees on
the Centers Holdings Board will generally be required to approve transactions
not in the ordinary course of business. In addition, the Securityholders
Agreement provides for certain share transfer restrictions and grants Kmart
"tag-along" rights in connection with certain sales of Centers Holdings Common
Stock by GEI II. In addition, the Securityholders Agreement grants GEI II and
Kmart certain demand and "piggyback" registration rights. The voting, transfer
and tag-along provisions of the Securityholders Agreement will terminate
generally if the Centers Holdings Common Stock is listed or admitted to trading
on a national securities exchange or quoted on The NASDAQ Stock Market's
National Market or traded in the over-the-counter market.
COMPLIANCE WITH SECTION 16 OF THE SECURITIES EXCHANGE ACT OF 1934
Not applicable subsequent to September 24, 1997.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The majority of the Builders Square stores are leased or subleased by the
Company from BSQ pursuant to a lease and sublease. The lease and sublease each
provide for an initial lease term of six years, with two five-year options. In
addition, the Company may decline to renew the lease and/or sublease on up to 40
stores. At October 3, 1998, minimum fixed rental commitments under the lease and
sublease agreements to BSQ for the next year were approximately $89.3 million.
The approximate amount of rent paid under these agreements in 1998 was $111.7
million.
The majority of the facilities subleased by the Company from BSQ are in turn
subleased by BSQ from Kmart pursuant to subleases as modified by the Consent and
Undertaking Agreement (the "Consent Agreement"). The Consent Agreement provides
in general for certain standardized terms for the subleased properties, to the
extent permitted by and not violative of the underlying leases between Kmart and
its lessors. All of the subsidiaries of Centers Holdings, including the Company
and each of its subsidiaries, have unconditionally guaranteed the payment and
performance of the subleases.
Pursuant to the terms of the Purchase, 10 Builders Square stores were subleased
under a master month-to-month rental agreement. Shortly after the Initial
Purchase and pursuant to its terms, BSQ began the process of putting 10 stores
and the remaining related lease obligations back to Kmart, as well as disposing
of two additional stores to third parties. BSQ is responsible for closing put
stores and liquidating the inventory, and delivering a "broom clean" store back
to Kmart. Accordingly, BSQ recorded a liability of approximately $10 million for
the costs related to the closing of these stores. The assets acquired and
liabilities assumed from BSQ pursuant to the Purchase included amounts related
to these stores.
In addition, pursuant to the terms of the Purchase, the Company acquired the
ability to put back to BSQ 15 of the acquired stores and any remaining related
lease obligations, which it did during 1998. In accordance with the terms of the
Purchase, BSQ purchased the inventory in these 15 stores from the Company at its
book value, approximating $50.4 million. As of October 3, 1998, BSQ was in the
process of putting back 14 of these stores and the remaining related lease
obligations to Kmart pursuant to the terms of the Initial Purchase, and
disposing of one store to a third party. As of October 3, 1998, BSQ owes the
Company approximately $12.6 million in connection with BSQ's purchase and
liquidation of this inventory.
During the year, the Company paid certain amounts on behalf of BSQ Transferee,
primarily related to taxes prorated as of the date of the Initial Purchase. As a
result of these payments, which have been
<PAGE> 22
partially offset by the adjustments related to the final determination of the
fair value of the assets and liabilities acquired in the Purchase, BSQ also
owes the Company approximately $20.2 million.
As of October 3, 1998, the Company owes its immediate parent company, BSQ
Aquisition, Inc. approximately $14.3 million of an initial $23.8 million
non-interest-bearing advance provided at September 27, 1997.
In connection with the $50 million Supplemental Credit Agreement dated December
31, 1998, GEI II, the majority shareholder of Centers Holdings, and Kmart
agreed to repurchase from the Lenders 20% and 80%, respectively, of the
outstanding amounts of such supplemental credit, up to the amount of $10
million and $40 million, respectively, in case of an Event of Default, as
defined. The Company agreed to pay GEI II and Kmart fees equal to 1.0% of their
repurchase commitments under this agreement. Should the Company borrow any
amount under the Supplemental Agreement, Kmart's warrant to purchase shares of
the common stock of Centers Holdings increases from 210,000 to 245,000 shares,
representing approximately 31.6% of the common stock of Centers Holdings issued
and outstanding after giving effect to the warrant.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) The following documents are filed as a part of this Report:
1. Financial Statements. The following Consolidated Financial Statements of
Hechinger Company and subsidiaries are hereby incorporated by reference from
Exhibit 13 of this report.
Financial Highlights
Quarterly Results
Consolidated Statements of Operations - Year ended October 3, 1998,
thirty-four week period ended September 27, 1997, and years ended
February 1, 1997 and February 3, 1996.
Consolidated Balance Sheets - As of October 3, 1998, September 27,
1997, and February 1, 1997.
Consolidated Statements of Cash Flows - Year ended October 3, 1998,
thirty-four week period ended September 27, 1997, and years ended
February 1, 1997 and February 3, 1996.
Consolidated Statements of Stockholders' Equity - Year ended October
3, 1998, thirty-four week period ended September 27, 1997, and years
ended February 1, 1997 and February 3, 1996.
Notes to Consolidated Financial Statements
Independent Auditors' Reports
<PAGE> 23
2. Financial Statement Schedules. Schedules have been omitted because the
information required to be set forth therein is included in the Consolidated
Financial Statements or Notes thereto.
3. Exhibits.
Exhibit Number Document
3(a) Certificate of Incorporation, as amended (incorporated by reference to
Exhibit 4.1 to Registration Statement on Form S-8, File No. 33-27134), as
amended by the merger agreement incorporated by reference as Exhibit 10(f)
herewith.
3(b) Hechinger Company Restated By-Laws.
4(a) Indenture, dated as of March 15, 1987, between the Company and First
Union National Bank of North Carolina, relating to 5-1/2% Convertible
Subordinated Debentures due 2011 (incorporated by reference to Exhibit 4(d) to
Registration Statement on Form S-3, File No. 33-12649); as amended by
Supplemental Indenture dated January 31, 1997 between the Company and First
Union National Bank of North Carolina (incorporated by reference to Exhibit
4(a) to the Company's Annual Report on Form 10-K for the fiscal year ended
February 1, 1997).
4(b) Indenture, dated as of October 1, 1992, between the Company and First
Union National Bank of North Carolina, and the Prospectus Supplement dated
November 12, 1992 relating to 9.45% Senior Debentures due 2012 (incorporated by
reference to Exhibit 4 to Registration Statement on Form S-3, File No.
33-52960); as amended by Supplemental Indenture dated January 31, 1997 between
the Company and First Union National Bank of North Carolina (incorporated by
reference to Exhibit 4(b) to the Company's Annual Report on Form 10-K for the
fiscal year ended February 1, 1997).
4(c) Indenture, dated as of October 1, 1992, between the Company and First
Union National Bank of North Carolina, and the Prospectus Supplement dated
October 21, 1993 relating to 6.95% Senior Notes due 2003 (incorporated by
reference to Exhibit 4 to Registration Statement on Form S-3, File No.
33-52960); as amended by Supplemental Indenture dated January 31, 1997 between
the Company and First Union National Bank of North Carolina (incorporated by
reference to Exhibit 4(b) to the Company's Annual Report on Form 10-K for the
fiscal year ended February 1, 1997).
10(a) Form of Severance Agreement for Named Executive Officers.
10(b) Bill of Sale, Assignment and Assumption Agreement dated as of September
26, 1997 by and between BSQ Transferee Corp. and Hechinger Investment Company of
Delaware, Inc. (incorporated by reference to Exhibit 2 to the Company's Current
Report on Form 8-K dated October 14, 1997).
10(c) Agreement and Plan of Merger, dated as of July 17, 1997, by and among
Hechinger Acquisition, Inc., BSQ Acquisition, Inc. and Hechinger Company
(incorporated by reference to Exhibit 2A to the Company's Current Report on Form
8-K dated October 8, 1997), as amended by First Amendment, dated as of August
27, 1997, to the Agreement and Plan of Merger, dated as of July 17, 1997, by and
among Hechinger Acquisition, Inc., BSQ Acquisition, Inc. and Hechinger Company
(incorporated by reference to Exhibit 2B to the Company's Current Report on Form
8-K dated October 8, 1997).
10(d) Credit Agreement, dated as of September 26, 1997, as amended and restated
as of December 31, 1998, among Hechinger Investment Company of Delaware, Inc.,
as Borrower, Centers Holdings, Inc., BSQ Acquisition, Inc., BSQ Transferee
Corp., Hechinger Company, Hechinger Stores Company and Hechinger Stores East
Coast Company, The Lenders Party Thereto, The Chase Manhattan Bank, as
Administrative Agent, Collateral Agent, Issuing Bank and Swingline Lender,
BankAmerica Business Credit, Inc., as Documentation Agent and Borrowing Base
Audit Agent, and Citicorp USA, Inc., as Syndication Agent with Chase Securities
Inc., as Arranger and Sole Book Manager.
10(e) Credit Agreement, dated as of December 31, 1998, among Hechinger
Investment Company of Delaware, Inc., as Borrower, Centers Holdings, Inc., BSQ
Acquisition, Inc., BSQ Transferee Corp.,
<PAGE> 24
Hechinger Company, Hechinger Stores Company and Hechinger Stores East Coast
Company, The Lenders Party thereto, and The Chase Manhattan Bank, as
Administrative Agent, Collateral Agent, Borrowing Base Audit Agent, Issuing
Bank and Swingline Lender, and Chase Securities Inc., as Arranger.
10(f) Form of Executive Employment Agreement.
13 Annual Report for the fiscal year ended October 3, 1998.
18 Letter regarding change in accounting principle.
21 Subsidiaries of the Registrant.
27 Financial Data Schedule.
(b) Reports on Form 8-K.
None.
<PAGE> 25
SIGNATURES
- --------------------------------------------------------------------------------
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
HECHINGER COMPANY
-----------------
(Registrant)
Date: January 13, 1999 By /S/
-------------------------------------
Mark S. Schwartz
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ----------------------------------------- ------------------------------------- ----------------
<S> <C> <C>
/S/ President and Chief Executive Officer January 13, 1999
- -----------------------------------------
Mark S. Schwartz
/S/ Executive Vice President, Chief January 13, 1999
- ----------------------------------------- Financial Officer (Principal Financial
Mark R. Adams and Accounting Officer), General
Counsel, Treasurer, and Secretary
/S/ Director January 13, 1999
- -----------------------------------------
Anthony R. Petrillo
/S/ Director January 13, 1999
- -----------------------------------------
Leonard I. Green
/S/ Director January 13, 1999
- -----------------------------------------
Gregory J. Annick
/S/ Director January 13, 1999
- -----------------------------------------
John G. Danhakl
/S/ Director January 13, 1999
- -----------------------------------------
Jonathan D. Sokoloff
- ----------------------------------------- Director January 13, 1999
Martin L. Grass
- ----------------------------------------- Director January 13, 1999
Martin E. Welch III
</TABLE>
<PAGE> 26
HECHINGER COMPANY AND SUBSIDIARIES
ANNUAL REPORT ON FORM 10-K
FISCAL YEAR ENDED OCTOBER 3, 1998
INDEX TO SCHEDULES AND EXHIBITS
EXHIBIT NUMBER DESCRIPTION
- --------------------------------------------------------------------------------
3(b) Hechinger Company Restated By-Laws.
Exhibit 10
10(a) Form of Severance Agreement for Named Executive Officers.
10(d) Credit Agreement, dated as of September 26, 1997, as amended and restated
as of December 31, 1998, among Hechinger Investment Company of Delaware, Inc.,
as Borrower, Centers Holdings, Inc., BSQ Acquisition, Inc., BSQ Transferee
Corp., Hechinger Company, Hechinger Stores Company and Hechinger Stores East
Coast Company, The Lenders Party Thereto, The Chase Manhattan Bank, as
Administrative Agent, Collateral Agent, Issuing Bank and Swingline Lender,
BankAmerica Business Credit, Inc., as Documentation Agent and Borrowing Base
Audit Agent, and Citicorp USA, Inc., as Syndication Agent with Chase Securities
Inc., as Arranger and Sole Book Manager.
10(e) Credit Agreement, dated as of December 31, 1998, among Hechinger
Investment Company of Delaware, Inc., as Borrower, Centers Holdings, Inc., BSQ
Acquisition, Inc., BSQ Transferee Corp., Hechinger Company, Hechinger Stores
Company and Hechinger Stores East Coast Company, The Lenders Party Hereto, and
The Chase Manhattan Bank, as Administrative Agent, Collateral Agent, Borrowing
Base Audit Agent, Issuing Bank and Swingline Lender, and Chase Securities Inc.,
as Arranger.
10(f) Form of Executive Employment Agreement.
Exhibit 13 Annual Report for the fiscal year ended October 3, 1998.
Exhibit 18 Letter regarding change in accounting principle.
Exhibit 21 Subsidiaries of the Registrant.
Exhibit 27 Financial Data Schedule.
<PAGE> 1
EXHIBIT 3(b)
....................................
HECHINGER COMPANY
RESTATED BYLAWS
....................................
<PAGE> 2
RESTATED BYLAWS
OF
HECHINGER COMPANY
-----------------
(hereinafter called the "Corporation")
ARTICLE I
OFFICES
Section 1. Registered Office. The registered office of the Corporation
shall be in the City of Dover, County of Kent, State of Delaware.
Section 2. Other Offices. The Corporation may also have offices at such
other places both within and without the State of Delaware as the Board of
Directors may from time to time determine.
ARTICLE II
MEETINGS OF STOCKHOLDERS
------------------------
Section 1. Place of Meetings. Meetings of the stockholders for the
election of directors or for any other purpose shall be held at such time and
place, either within or without the State of Delaware, as shall be designated
from time to time by the Board of Directors and stated in the notice of the
meeting or in a duly executed waiver of notice thereof.
Section 2. Annual Meetings. The Annual Meetings of Stockholders shall be
held on such date and at such time as shall be designated from time to time by
the Board of Directors and stated in the notice of the meeting, at which
meetings the stockholders shall elect by a plurality vote a Board of Directors,
and transact such other business as may properly be brought before the meeting.
Section 3. Special Meetings. Special meetings of the stockholders may be
called by the Board of Directors, the Chairman of the Board, the President, or
by the holders of shares entitled to cast not less than 10% of the votes at the
meeting. Upon request in writing to the Chairman of the Board, the President,
any Vice President or the Secretary by any person (other than the board)
entitled to call a special meeting of stockholders, the officer forthwith shall
cause notice to be given to the stockholders entitled to vote that a meeting
will be held at a time requested by the person or persons calling the meeting,
not less than thirty-five (35) nor more than sixty (60) days after the receipt
of the request. If the notice is not given within 20 days after receipt of the
request, the persons entitled to call the meeting may give the notice.
Section 4. Notice of Meetings. Written notice of the place, date, and
time of all meetings of the stockholders shall be given not less than ten (10)
nor more than sixty (60) days before the date on which the meeting is to be
held, to each stockholder entitled to
-1-
<PAGE> 3
vote at such meeting, except as otherwise provided herein or as required from
time to time by the Delaware General Corporation Law or the Certificate of
Incorporation.
Section 5. Quorum; Adjournment. At any meeting of the stockholders, the
holders of a majority of all of the shares of the stock entitled to vote at the
meeting, present in person or by proxy, shall constitute a quorum for all
purposes, unless or except to the extent that the presence of a larger number
may be required by law or the Certificate of Incorporation. If a quorum shall
fail to attend any meeting, the chairman of the meeting or the holders of a
majority of the shares of stock entitled to vote who are present, in person or
by proxy, may adjourn the meeting to another place, date, or time without notice
other than announcement at the meeting, until a quorum shall be present or
represented.
When a meeting is adjourned to another place, date or time, written
notice need not be given of the adjourned meeting if the place, date and time
thereof are announced at the meeting at which the adjournment is taken;
provided, however, that if the date of any adjourned meeting is more than thirty
(30) days after the date for which the meeting was originally noticed, or if a
new record date is fixed for the adjourned meeting, written notice of the place,
date, and time of the adjourned meeting shall be given in conformity herewith.
At any adjourned meeting, any business may be transacted which might have been
transacted at the original meeting.
Section 6. Proxies and Voting. At any meeting of the stockholders, every
stockholder entitled to vote may vote in person or by proxy authorized by an
instrument in writing filed in accordance with the procedure established for the
meeting.
Each stockholder shall have one vote for every share of stock entitled to
vote which is registered in his name on the record date for the meeting, except
as otherwise provided herein or required by law or the Certificate of
Incorporation.
All voting, including on the election of directors but excepting where
otherwise provided herein or required by law or the Certificate of
Incorporation, may be by a voice vote; provided, however, that upon demand
therefor by a stockholder entitled to vote or such stockholder's proxy, a stock
vote shall be taken. Every stock vote shall be taken by ballots, each of which
shall state the name of the stockholder or proxy voting and such other
information as may be required under the procedure established for the meeting.
Every vote taken by ballots shall be counted by an inspector or inspectors
appointed by the chairman of the meeting.
All elections shall be determined by a plurality of the votes cast, and
except as otherwise required by law or the Certificate of Incorporation, all
other matters shall be determined by a majority of the votes cast.
Section 7. Stock List. A complete list of stockholders entitled to vote
at any meeting of stockholders, arranged in alphabetical order for each class of
stock and showing the address of each such stockholder and the number of shares
registered in such stockholder's name, shall be open to the examination of any
such stockholder, for any purpose germane to the meeting, during ordinary
business hours for a period of at least
-2-
<PAGE> 4
ten (10) days prior to the meeting, either at a place within the city where the
meeting is to be held, which place shall be specified in the notice of the
meeting, or if not so specified, at the place where the meeting is to be held.
The stock list shall also be kept at the place of the meeting during the
whole time thereof and shall be open to the examination of any such stockholder
who is present. This list shall presumptively determine the identity of the
stockholders entitled to vote at the meeting and the number of shares held by
each of them.
Section 8. Actions by Stockholders. Unless otherwise provided in the
Certificate of Incorporation, any action required to be taken at any annual or
special meeting of stockholders of the Corporation, or any action which may be
taken at any annual or special meeting of such stockholders, may be taken
without a meeting, without prior notice and without a vote, if a consent in
writing, setting forth the action so taken, shall be signed by the holders of
outstanding stock having not less than the minimum number of votes that would be
necessary to authorize or take such action at a meeting at which all shares
entitled to vote thereon were present and voted. Prompt notice of the taking of
the corporate action without a meeting by less than unanimous written consent
shall be given to those stockholders who have not consented in writing.
ARTICLE III
BOARD OF DIRECTORS
------------------
Section 1. Duties and Powers. The business of the Corporation shall be
managed by or under the direction of the Board of Directors which may exercise
all such powers of the Corporation and do all such lawful acts and things as are
not by law or by the Certificate of Incorporation or by these Bylaws directed or
required to be exercised or done by the stockholders.
Section 2. Number and Term of Office. The Board of Directors shall
consist of one (1) or more members. The number of directors shall be fixed and
may be changed from time to time by resolution duly adopted by the Board of
Directors or the stockholders, except as otherwise provided by law or the
Certificate of Incorporation. Except as provided in Section 3 of this Article,
directors shall be elected by the holders of record of a plurality of the votes
cast at Annual Meetings of Stockholders, and each director so elected shall hold
office until the next Annual Meeting and until his or her successor is duly
elected and qualified, or until his or her earlier resignation or removal. Any
director may resign at any time upon written notice to the Corporation.
Directors need not be stockholders.
Section 3. Vacancies. Vacancies and newly created directorships resulting
from any increase in the authorized number of directors may be filled by a
majority of the directors then in office, although less than a quorum, or by a
sole remaining director or by the stockholders entitled to vote at any Annual or
Special Meeting held in accordance with Article II, and the directors so chosen
shall hold office until the next Annual or Special Meeting duly called for that
purpose and until their successors are duly elected and qualified, or until
their earlier resignation or removal.
-3-
<PAGE> 5
Section 4. Meetings. The Board of Directors of the Corporation may hold
meetings, both regular and special, either within or without the State of
Delaware. The first meeting of each newly-elected Board of Directors shall be
held immediately following the Annual Meeting of Stockholders and no notice of
such meeting shall be necessary to be given the newly-elected directors in order
legally to constitute the meeting, provided a quorum shall be present. Regular
meetings of the Board of Directors may be held without notice at such time and
at such place as may from time to time be determined by the Board of Directors.
Special meetings of the Board of Directors may be called by the Chairman of the
Board, the President or a majority of the directors then in office. Notice
thereof stating the place, date and hour of the meeting shall be given to each
director either by mail not less than forty-eight (48) hours before the date of
the meeting, by telephone or telegram on twenty-four (24) hours' notice, or on
such shorter notice as the person or persons calling such meeting may deem
necessary or appropriate in the circumstances. Meetings may be held at any time
without notice if all the directors are present or if all those not present
waive such notice in accordance with Section 2 of Article VI of these Bylaws.
Section 5. Quorum. Except as may be otherwise specifically provided by
law, the Certificate of Incorporation or these Bylaws, at all meetings of the
Board of Directors, a majority of the directors then in office shall constitute
a quorum for the transaction of business and the act of a majority of the
directors present at any meeting at which there is a quorum shall be the act of
the Board of Directors. If a quorum shall not be present at any meeting of the
Board of Directors, the directors present thereat may adjourn the meeting from
time to time, without notice other than announcement at the meeting, until a
quorum shall be present.
Section 6. Actions of Board Without a Meeting. Unless otherwise provided
by the Certificate of Incorporation or these Bylaws, any action required or
permitted to be taken at any meeting of the Board of Directors or of any
committee thereof may be taken without a meeting if all members of the Board of
Directors or committee, as the case may be, consent thereto in writing, and the
writing or writings are filed with the minutes of proceedings of the Board of
Directors or committee.
Section 7. Meetings by Means of Conference Telephone. Unless otherwise
provided by the Certificate of Incorporation or these Bylaws, members of the
Board of Directors of the Corporation, or any committee designated by the Board
of Directors, may participate in a meeting of the Board of Directors or such
committee by means of a conference telephone or similar communications equipment
by means of which all persons participating in the meeting can hear each other,
and participation in a meeting pursuant to this Section 7 shall constitute
presence in person at such meeting.
Section 8. Committees. The Board of Directors may, by resolution passed
by a majority of the directors then in office, designate one or more committees,
each committee to consist of one or more of the directors of the Corporation.
The Board of Directors may designate one or more directors as alternate members
of any committee, who may replace any absent or disqualified member at any
meeting of any such committee. In the absence or disqualification of a member of
a committee, and in the absence of a designation by the
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Board of Directors of an alternate member to replace the absent or disqualified
member, the member or members thereof present at any meeting and not
disqualified from voting, whether or not such members constitute a quorum, may
unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any such absent or disqualified member. Any committee,
to the extent allowed by law and provided in the Bylaw or resolution
establishing such committee, shall have and may exercise all the powers and
authority of the Board of Directors in the management of the business and
affairs of the Corporation, and may authorize the seal of the Corporation to be
affixed to all papers which may require it. Each committee shall keep regular
minutes and report to the Board of Directors when required.
Section 9. Compensation. Unless otherwise restricted by the Certificate
of Incorporation or these Bylaws, the Board of Directors shall have the
authority to fix the compensation of directors. The directors may be paid their
expenses, if any, of attendance at each meeting of the Board of Directors and
may be paid a fixed sum for attendance at each meeting of the Board of Directors
or a stated salary as director. No such payment shall preclude any director from
serving the Corporation in any other capacity and receiving compensation
therefor. Members of special or standing committees may be allowed like
compensation for attending committee meetings.
Section 10. Removal. Unless otherwise restricted by the Certificate of
Incorporation or Bylaws, any director or the entire Board of Directors may be
removed, with or without cause, by the holders of a majority of shares entitled
to vote at an election of directors.
ARTICLE IV
OFFICERS
--------
Section 1. General. The officers of the Corporation shall be appointed by
the Board of Directors and shall consist of a Chairman of the Board or a
President, or both, a Secretary and a Treasurer (or a position with the duties
and responsibilities of a Treasurer). The Board of Directors may also appoint
one or more vice presidents, assistant secretaries or assistant treasurers, and
such other officers as the Board of Directors, in its discretion, shall deem
necessary or appropriate from time to time. Any number of offices may be held by
the same person, unless the Certificate of Incorporation or these Bylaws
otherwise provide.
Section 2. Election; Term of Office. The Board of Directors at its first
meeting held after each Annual Meeting of Stockholders shall elect a Chairman of
the Board or a President, or both, a Secretary and a Treasurer (or a position
with the duties and responsibilities of a Treasurer), and may also elect at that
meeting or any other meeting, such other officers and agents as it shall deem
necessary or appropriate. Each officer of the Corporation shall exercise such
powers and perform such duties as shall be determined from time to time by the
Board of Directors together with the powers and duties customarily exercised by
such officer; and each officer of the Corporation shall hold office until such
officer's successor is elected and qualified or until such officer's earlier
resignation or removal. Any officer may resign at any time upon written notice
to the
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Corporation. The Board of Directors may at any time, with or without cause, by
the affirmative vote of a majority of directors then in office, remove any
officer.
Section 3. Chairman of the Board. The Chairman of the Board, if there
shall be such an officer, shall be the chief executive officer of the
Corporation. The Chairman of the Board shall preside at all meetings of the
stockholders and the Board of Directors and shall have such other duties and
powers as may be prescribed by the Board of Directors from time to time.
Section 4. President. The President shall be the chief operating officer
of the Corporation, shall have general and active management of the business of
the Corporation and shall see that all orders and resolutions of the Board of
Directors are carried into effect. The President shall have and exercise such
further powers and duties as may be specifically delegated to or vested in the
President from time to time by these Bylaws or the Board of Directors. In the
absence of the Chairman of the Board or in the event of his inability or refusal
to act, or if the Board has not designated a Chairman, the President shall
perform the duties of the Chairman of the Board, and when so acting, shall have
all of the powers and be subject to all of the restrictions upon the Chairman of
the Board.
Section 5. Vice President. In the absence of the President or in the
event of his inability or refusal to act, the Vice President (or in the event
there be more than one vice president, the vice presidents in the order
designated by the directors, or in the absence of any designation, then in the
order of their election) shall perform the duties of the President, and when so
acting, shall have all the powers of and be subject to all the restrictions upon
the President. The vice presidents shall perform such other duties and have such
other powers as the Board of Directors or the President may from time to time
prescribe.
Section 6. Secretary. The Secretary shall attend all meetings of the
Board of Directors and all meetings of stockholders and record all the
proceedings thereat in a book or books to be kept for that purpose; the
Secretary shall also perform like duties for the standing committees when
required. The Secretary shall give, or cause to be given, notice of all meetings
of the stockholders and special meetings of the Board of Directors, and shall
perform such other duties as may be prescribed by the Board of Directors or the
President. If the Secretary shall be unable or shall refuse to cause to be given
notice of all meetings of the stockholders and special meetings of the Board of
Directors, and if there be no Assistant Secretary, then either the Board of
Directors or the President may choose another officer to cause such notice to be
given. The Secretary shall have custody of the seal of the Corporation and the
Secretary or any Assistant Secretary, if there be one, shall have authority to
affix the same to any instrument requiring it and when so affixed, it may be
attested by the signature of the Secretary or by the signature of any such
Assistant Secretary. The Board of Directors may give general authority to any
other officer to affix the seal of the Corporation and to attest the affixing by
his or her signature. The Secretary shall see that all books, reports,
statements, certificates and other documents and records required by law to be
kept or filed are properly kept or filed, as the case may be.
Section 7. Assistant Secretaries. Except as may be otherwise provided in
these Bylaws, Assistant Secretaries, if there be any, shall perform such duties
and have such
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<PAGE> 8
powers as from time to time may be assigned to them by the Board of Directors,
the President, or the Secretary, and shall have the authority to perform all
functions of the Secretary, and when so acting, shall have all the powers of and
be subject to all the restrictions upon the Secretary.
Section 8. Treasurer. The Treasurer shall be the Chief Financial Officer,
shall have the custody of the corporate funds and securities, shall keep
complete and accurate accounts of all receipts and disbursements of the
Corporation, and shall deposit all monies and other valuable effects of the
Corporation in its name and to its credit in such banks and other depositories
as may be designated from time to time by the Board of Directors. The Treasurer
shall disburse the funds of the Corporation, taking proper vouchers and receipts
for such disbursements, and shall render to the Board of Directors, at its
regular meetings, or when the Board of Directors so requires, an account of all
his or her transactions as Treasurer and of the financial condition of the
Corporation. The Treasurer shall, when and if required by the Board of
Directors, give and file with the Corporation a bond, in such form and amount
and with such surety or sureties as shall be satisfactory to the Board of
Directors, for the faithful performance of his or her duties as Treasurer. The
Treasurer shall have such other powers and perform such other duties as the
Board of Directors or the President shall from time to time prescribe.
Section 9. Assistant Treasurers. Except as may be otherwise provided in
these Bylaws, Assistant Treasurers, if there be any, shall perform such duties
and have such powers as from time to time may be assigned to them by the Board
of Directors, the President, or the Treasurer, and shall have the authority to
perform all functions of the Treasurer, and when so acting, shall have all the
powers of and be subject to all the restrictions upon the Treasurer.
Section 10. Other Officers. Such other officers as the Board of Directors
may choose shall perform such duties and have such powers as from time to time
may be assigned to them by the Board of Directors. The Board of Directors may
delegate to any other officer of the Corporation the power to choose such other
officers and to prescribe their respective duties and powers.
ARTICLE V
STOCK
-----
Section 1. Form of Certificates. Every holder of stock in the Corporation
shall be entitled to have a certificate signed, in the name of the Corporation
(i) by the Chairman of the Board or the President or a Vice President and (ii)
by the Treasurer or an Assistant Treasurer, or the Secretary or an Assistant
Secretary of the Corporation, certifying the number of shares owned by such
holder in the Corporation.
Section 2. Signatures. Any or all the signatures on the certificate may
be a facsimile. In case any officer, transfer agent or registrar who has signed
or whose facsimile signature has been placed upon a certificate shall have
ceased to be such officer, transfer agent or registrar before such certificate
is issued, it may be issued by the Corporation with the same effect as if such
person were such officer, transfer agent or
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<PAGE> 9
registrar at the date of issue.
Section 3. Lost Certificates. The Board of Directors may direct a new
certificate to be issued in place of any certificate theretofore issued by the
Corporation alleged to have been lost, stolen or destroyed, upon the making of
an affidavit of that fact by the person claiming the certificate of stock to be
lost, stolen or destroyed. When authorizing such issue of a new certificate, the
Board of Directors may, in its discretion and as a condition precedent to the
issuance thereof, require the owner of such lost, stolen or destroyed
certificate, or such owner's legal representative, to advertise the same in such
manner as the Board of Directors shall require and/or to give the Corporation a
bond in such sum as it may direct as indemnity against any claim that may be
made against the Corporation with respect to the certificate alleged to have
been lost, stolen or destroyed.
Section 4. Transfers. Stock of the Corporation shall be transferable in
the manner prescribed by law and in these Bylaws. Transfers of stock shall be
made on the books of the Corporation only by the person named in the certificate
or by such person's attorney lawfully constituted in writing and upon the
surrender of the certificate therefor, which shall be cancelled before a new
certificate shall be issued.
Section 5. Record Date. In order that the Corporation may determine the
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock, or for the purpose of
any other lawful action, the Board of Directors may fix, in advance, a record
date, which shall not be more than sixty (60) days nor less than ten (10) days
before the date of such meeting, nor more than sixty (60) days prior to any
other action. A determination of stockholders of record entitled to notice of or
to vote at a meeting of stockholders shall apply to any adjournment of the
meeting; provided, however, that the Board of Directors may fix a new record
date for the adjourned meeting.
Section 6. Beneficial Owners. The Corporation shall be entitled to
recognize the exclusive right of a person registered on its books as the owner
of shares to receive dividends, and to vote as such owner, and to hold liable
for calls and assessments a person registered on its books as the owner of
shares, and shall not be bound to recognize any equitable or other claim to or
interest in such share or shares on the part of any other person, whether or not
it shall have express or other notice thereof, except as otherwise provided by
law.
Section 7. Voting Securities Owned by the Corporation. Powers of
attorney, proxies, waivers of notice of meeting, consents and other instruments
relating to securities owned by the Corporation may be executed in the name of
and on behalf of the Corporation by the Chairman of the Board, the President,
any Vice President or the Secretary and any such officer may, in the name of and
on behalf of the Corporation, take all such action as any such officer may deem
advisable to vote in person or by proxy at any meeting of security holders of
any corporation in which the Corporation may own securities and at any such
meeting shall possess and may exercise any and all rights and power incident to
the ownership of such securities and which, as the owner thereof, the
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<PAGE> 10
Corporation might have exercised and possessed if present. The Board of
Directors may, by resolution, from time to time confer like powers upon any
other person or persons.
ARTICLE VI
NOTICES
-------
Section 1. Notices. Whenever written notice is required by law, the
Certificate of Incorporation or these Bylaws, to be given to any director,
member of a committee or stockholder, such notice may be given by mail,
addressed to such director, member of a committee or stockholder, at such
person's address as it appears on the records of the Corporation, with postage
thereon prepaid, and such notice shall be deemed to be given at the time when
the same shall be deposited in the United States mail. Written notice may also
be given personally or by telegram, telex or cable and such notice shall be
deemed to be given at the time of receipt thereof if given personally or at the
time of transmission thereof if given by telegram, telex or cable.
Section 2. Waiver of Notice. Whenever any notice is required by law, the
Certificate of Incorporation or these Bylaws to be given to any director, member
or a committee or stockholder, a waiver thereof in writing, signed by the person
or persons entitled to such notice, whether before or after the time stated
therein, shall be deemed equivalent to notice.
ARTICLE VII
GENERAL PROVISIONS
------------------
Section 1. Dividends. Dividends upon the capital stock of the
Corporation, subject to the provisions of the Certificate of Incorporation, if
any, may be declared by the Board of Directors at any regular or special meeting
or by any Committee of the Board of Directors having such authority at any
meeting thereof, and may be paid in cash, in property, in shares of the capital
stock or in any combination thereof. Before payment of any dividend, there may
be set aside out of any funds of the Corporation available for dividends such
sum or sums as the Board of Directors from time to time, in its absolute
discretion, deems proper as a reserve or reserves to meet contingencies, or for
equalizing dividends, or for repairing or maintaining any property of the
Corporation, or for any proper purpose, and the Board of Directors may modify or
abolish any such reserve.
Section 2. Disbursements. All notes, checks, drafts and orders for the
payment of money issued by the Corporation shall be signed in the name of the
Corporation by such officers or such other persons as the Board of Directors may
from time to time designate.
Section 3. Corporation Seal. The corporate seal, if the Corporation shall
have a corporate seal, shall have inscribed thereon the name of the Corporation,
the year of its organization and the words "Corporate Seal, Delaware". The seal
may be used by causing it or a facsimile thereof to be impressed or affixed or
reproduced or otherwise.
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ARTICLE VIII
DIRECTORS' LIABILITY AND INDEMNIFICATION
----------------------------------------
Section 1. Directors' Liability. A director of the Corporation shall not
be personally liable to the Corporation or its stockholders for monetary damages
for breach of fiduciary duty as a director, except for liability (i) for any
breach of the director's duty of loyalty to the Corporation or its stockholders,
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) under Section 174 of the
Delaware General Corporation Law, or (iv) for any transaction from which the
director derived an improper personal benefit. If the Delaware General
Corporation Law is amended to authorize corporate action further eliminating or
limiting the personal liability of directors, then the liability of a director
of the Corporation shall be eliminated or limited to the fullest extent
permitted by the Delaware General Corporation Law, as so amended. Any repeal or
modification of this provision shall not adversely affect any right or
protection of a director of the Corporation existing at the time of such repeal
or modification.
This Section 1 is also contained in Article SEVENTH of the Corporation's
Certificate of Incorporation, and accordingly, may be altered, amended or
repealed only to the extent and at the time such Certificate Article is
altered, amended or repealed.
Section 2. Right to Indemnification. Each person who was or is made a
party to or is threatened to be made a party to or is involuntarily involved in
any action, suit or proceeding, whether civil, criminal, administrative or
investigative (a "Proceeding"), by reason of the fact that he or she is or was a
director or officer of the Corporation, or is or was serving (during his or her
tenure as director and/or officer) at the request of the Corporation as a
director, officer, employee or agent of another corporation or of a partnership,
joint venture, trust or other enterprise, whether the basis of such Proceeding
is an alleged action or inaction in an official capacity as a director or
officer or in any other capacity while serving as a director or officer, shall
be indemnified and held harmless by the Corporation to the fullest extent
authorized by the Delaware General Corporation Law (or other applicable law), as
the same exists or may hereafter be amended, against all expense, liability and
loss (including attorneys' fees, judgments, fines, ERISA excise taxes or
penalties and amounts paid or to be paid in settlement) reasonably incurred or
suffered by such person in connection with such Proceeding. Such director or
officer shall have the right to be paid by the Corporation for expenses incurred
in defending any such Proceeding in advance of its final disposition; provided,
however, that, if the Delaware General Corporation Law (or other applicable law)
requires, the payment of such expenses in advance of the final disposition of
any such Proceeding shall be made only upon receipt by the Corporation of an
undertaking by or on behalf of such director or officer to repay all amounts so
advanced if it should be determined ultimately that he or she is not entitled to
be indemnified under this Article or otherwise.
Section 3. Right of Claimant to Bring Suit. If a claim under Section 2 of
this Article is not paid in full by the Corporation within ninety (90) days
after a written claim has been received by the Corporation, the claimant may at
any time thereafter bring suit against the Corporation to recover the unpaid
amount of the claim, together with interest thereon, and, if successful in whole
or in part, the claimant shall also be entitled to be paid the expense of
prosecuting such claim, including reasonable attorneys' fees incurred in
connection therewith. It shall be a defense to any such action (other than an
action
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<PAGE> 12
brought to enforce a claim for expenses incurred in defending any Proceeding in
advance of its final disposition where the required undertaking, if any is
required, has been tendered to the Corporation) that the claimant has not met
the standards of conduct which make it permissible under the Delaware General
Corporation Law (or other applicable law) for the Corporation to indemnify the
claimant for the amount claimed, but the burden of proving such defense shall be
on the Corporation. Neither the failure of the Corporation (or of its full Board
of Directors, its directors who are not parties to the Proceeding with respect
to which indemnification is claimed, its stockholders, or independent legal
counsel) to have made a determination prior to the commencement of such action
that indemnification of the claimant is proper in the circumstances because he
or she has met the applicable standard of conduct set forth in the Delaware
General Corporation Law (or other applicable law), nor an actual determination
by any such person or persons that such claimant has not met such applicable
standard of conduct, shall be a defense to such action or create a presumption
that the claimant has not met the applicable standard of conduct.
Section 4. Non-Exclusivity of Rights. The rights conferred by this
Article shall not be exclusive of any other right which any director, officer,
representative, employee or other agent may have or hereafter acquire under the
Delaware General Corporation Law or any other statute, or any provision
contained in the Corporation's Certificate of Incorporation or Bylaws, or any
agreement, or pursuant to a vote of stockholders or disinterested directors, or
otherwise.
Section 5. Insurance and Trust Fund. In furtherance and not in limitation
of the powers conferred by statute:
(1) the Corporation may purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee or agent of the
Corporation, or is serving at the request of the Corporation as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, against any liability asserted against him and
incurred by him in any such capacity, or arising out of his status as such,
whether or not the Corporation would have the power to indemnify him against
such liability under the provisions of law; and
(2) the Corporation may create a trust fund, grant a security
interest and/or use other means (including, without limitation, letters of
credit, surety bonds and/or other similar arrangements), as well as enter into
contracts providing indemnification to the fullest extent permitted by law and
including as part thereof provisions with respect to any or all of the
foregoing, to ensure the payment of such amount as may become necessary to
effect indemnification as provided therein, or elsewhere.
Section 6. Indemnification of Employees and Agents of the Corporation.
The Corporation may, to the extent authorized from time to time by the Board of
Directors, grant rights to indemnification, including the right to be paid by
the Corporation the expenses incurred in defending any Proceeding in advance of
its final disposition, to any employee or agent of the Corporation to the
fullest extent of the provisions of this Article VIII or otherwise with respect
to the indemnification and advancement of expenses of
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directors and officers of the Corporation.
Section 7. Amendment. Any repeal or modification of this Article VIII
shall not change the rights of an officer or director to indemnification with
respect to any action or omission occurring prior to such repeal or
modification.
ARTICLE IX
AMENDMENTS
----------
Except as otherwise specifically stated within an Article to be altered,
amended or repealed, these Bylaws may be altered, amended or repealed and new
Bylaws may be adopted at any meeting of the Board of Directors or of the
stockholders, provided notice of the proposed change was given in the notice of
the meeting.
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<PAGE> 14
THIS IS TO CERTIFY:
That I am the duly elected, qualified and acting Secretary of Hechinger
Company and that the foregoing Restated Bylaws were adopted as the Bylaws of
said corporation as of the 25th day of September, 1997, by the Sole Stockholder
of said corporation.
Dated as of September __, 1997.
--------------------------------
Mark R. Adams, Secretary
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<PAGE> 15
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I OFFICES......................................................... 1
Section 1. Registered Office............................ 1
Section 2. Other Offices................................ 1
ARTICLE II MEETINGS OF STOCKHOLDERS....................................... 1
Section 1. Place of Meetings............................ 1
Section 2. Annual Meetings.............................. 1
Section 3. Special Meetings............................. 1
Section 4. Notice of Meetings........................... 2
Section 5. Quorum; Adjournment.......................... 2
Section 6. Proxies and Voting........................... 2
Section 7. Stock List................................... 3
Section 8. Actions by Stockholders...................... 3
ARTICLE III BOARD OF DIRECTORS............................................ 3
Section 1. Duties and Powers............................ 3
Section 2. Number and Term of Office.................... 3
Section 3. Vacancies.................................... 4
Section 4. Meetings..................................... 4
Section 5. Quorum....................................... 4
Section 6. Actions of Board Without a Meeting........... 4
Section 7. Meetings by Means of Conference Telephone.... 4
Section 8. Committees................................... 5
</TABLE>
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<PAGE> 16
<TABLE>
<CAPTION>
Page
----
<S> <C>
Section 9. Compensation................................. 5
Section 10. Removal..................................... 5
ARTICLE IV OFFICERS....................................................... 5
Section 1. General...................................... 5
Section 2. Election; Term of Office..................... 6
Section 3. Chairman of the Board........................ 6
Section 4. President.................................... 6
Section 5. Vice President............................... 6
Section 6. Secretary.................................... 6
Section 7. Assistant Secretaries........................ 7
Section 8. Treasurer.................................... 7
Section 9. Assistant Treasurers......................... 7
Section 10. Other Officers.............................. 7
ARTICLE V STOCK........................................................... 8
Section 1. Form of Certificates......................... 8
Section 2. Signatures................................... 8
Section 3. Lost Certificates............................ 8
Section 4. Transfers.................................... 8
Section 5. Record Date.................................. 8
Section 6. Beneficial Owners............................ 9
Section 7. Voting Securities Owned by the Corporation... 9
ARTICLE VI NOTICES........................................................ 9
Section 1. Notices...................................... 9
</TABLE>
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<PAGE> 17
<TABLE>
<CAPTION>
Page
----
<S> <C>
Section 2. Waiver of Notice............................. 9
ARTICLE VII GENERAL PROVISIONS............................................ 10
Section 1. Dividends.................................... 10
Section 2. Disbursements................................ 10
Section 3. Corporation Seal............................. 10
ARTICLE VIII DIRECTORS' LIABILITY AND INDEMNIFICATION..................... 10
Section 1. Directors' Liability......................... 10
Section 2. Right to Indemnification..................... 11
Section 3. Right of Claimant to Bring Suit.............. 11
Section 4. Non-Exclusivity of Rights.................... 12
Section 5. Insurance and Trust Fund..................... 12
Section 6. Indemnification of Employees and Agents of
the Corporation................................ 12
Section 7. Amendment.................................... 12
ARTICLE IX AMENDMENTS..................................................... 12
</TABLE>
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<PAGE> 1
EXHIBIT 10(a)
SEVERANCE AGREEMENT
AGREEMENT, made this __ day of _______, 1997 by and between ____________
(the "Executive") and HECHINGER COMPANY, a Delaware corporation (the
"Company").
WHEREAS the parties hereto intend that the Executive's rights to
severance compensation be governed by the terms of this Agreement rather than
the terms of the Severance Agreement between the Executive and the Company dated
April, 1996 and the Company's Severance Policy outlined in the Company's 1996
Employee Handbook, any supplements or successors thereto or any severance policy
substituted for such policy (together, the "Severance Arrangements");
WHEREAS the Executive is aware of the existence of the Severance
Arrangements and the value of the benefits provided for in the Severance
Arrangements;
WHEREAS in consideration for the arrangements provided for in this
Agreement, the Executive knowingly and voluntarily waives his rights, including
his rights to any benefits, under the Severance Arrangements; and
WHEREAS the parties hereto also intend that, in addition to the severance
compensation provided for in this Agreement, the Executive shall be entitled to
receive any other compensation or benefits payable to the Executive under the
terms of any other compensation or benefit programs or arrangements maintained
by the Company other than the Severance Arrangements;
NOW, THEREFORE, in consideration of the foregoing and the respective
agreements hereinafter set forth, the parties hereto, intending to be legally
bound hereby, agree as follows:
1. Termination. Subject to the provisions of Paragraph 3 hereof, upon
the termination of the employment of the Executive, the Executive shall be
entitled to the benefits provided in Paragraph 2(c) hereof unless
<PAGE> 2
such termination is (i) due to his death, retirement or Disability (as defined
herein), (ii) by the Company for Cause, or (iii) by the Executive.
(a) Death. The Executive's employment with the Company shall
terminate upon the Executive's death.
(b) Disability. The Executive's employment may be terminated for
"Disability," which term shall mean permanent and total disability within the
meaning of Section 22(e)(3) of the Internal Revenue Code of 1986, as amended
(the "Code") (without regard to the furnishing of proof to the Secretary of the
Treasury).
(c) Cause. Termination by the Company of the employment of the
Executive for "Cause" shall mean (i) nonfeasance, which shall mean only the
willful and continued failure by the Executive to substantially perform the
Executive's duties with the Company (other than either any such failure
resulting from the Executive's incapacity due to physical or mental illness),
after a written demand for substantial performance is delivered to the Executive
by the Board, which demand specifically identifies the manner in which the Board
believes that the Executive has not substantially performed the Executive's
duties, or (ii) malfeasance, which shall mean only the willful engaging by the
Executive in conduct that is demonstrably and materially injurious to the
Company, monetarily or otherwise. For purposes of this Paragraph, no act, or
failure to act, on the Executive's part shall be deemed "willful" unless done,
or omitted to be done, by the Executive not in good faith and without reasonable
belief that the Executive's act or failure to act, was in the best interest of
the Company.
(d) Notice of Termination. Any purported termination of the
Executive's employment by the Company shall be communicated by written Notice of
Termination to the Executive in accordance with Paragraph 11 hereof. For
purposes of the Agreement, a "Notice of Termination" shall mean a notice that
shall indicate the specific termination provision in the Agreement relied upon,
if any, and shall set forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of the Executive's employment under
the provision so indicated.
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<PAGE> 3
(e) Date of Termination. Except as otherwise determined pursuant to
Paragraph 2(a), the "Date of Termination" for purposes of determining the
Executive's right to compensation hereunder shall mean the date set forth in the
Notice of Termination which date, in the event the Executive's employment is
terminated by the Company other than for Cause, shall be no less than fifteen
(15) days after Notice of Termination is given, unless such Notice of
Termination provides for a different period that is mutually agreed to, in
writing, by the Company and the Executive. Nothing in this Paragraph shall be
deemed to diminish the Company's right to cause the Executive to cease
performing his duties and responsibilities as an executive and employee of the
Company at any time.
2. Compensation Upon Termination. Upon termination of the Executive's
employment, and in lieu of any other severance benefit otherwise payable to the
Executive under the terms of the Severance Arrangements, the Executive shall be
entitled to the following benefits:
(a) If the Executive's employment is terminated by his death or
Disability, or if the Executive retires in accordance with the Company's
retirement policies, the Date of Termination shall be deemed to be the date of
such death or termination for Disability, pursuant to Paragraph 1 hereof, or
date of retirement. In such event, the Company shall pay the Executive his base
salary, through the Date of Termination or retirement (and any bonus which
otherwise would have been paid prior to the Date of Termination or retirement,
as the case may be). Thereafter, the Executive or, in the event of his death,
his estate shall receive those benefits to which he or his estate may be
entitled under the relevant Company benefit and retirement plans or
arrangements.
(b) If the Executive's employment shall be terminated by the Company
for Cause or by the Executive, and is not due to the Executive's death or
Disability, the Company shall pay him his full base salary through the Date of
Termination at the rate in effect at the time Notice of Termination is or
properly should have been given, and the Company shall have no further
obligations to the Executive under this Agreement.
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<PAGE> 4
(c) If the Executive's employment shall be terminated by the
Company, other than for any of those reasons specified in clauses (i), (ii) and
(iii) of paragraph 1 of this letter, then he shall be entitled, in addition to
his full base salary through the Date of Termination at the rate in effect at
the time the Notice of Termination is or properly should have been given (and
any bonus which otherwise would have been paid prior to the Date of
Termination), to the benefits provided below:
(i) The Company shall pay the Executive his full base salary at the
rate in effect at the time Notice of Termination is given or properly should
have been given, for a period (the "Payment Period") of twelve months from the
Date of Termination (such payment, the "Basic Severance Benefit"); provided,
however, that in the event that the Executive executes a general release
substantially in the form attached hereto as Exhibit A, then in consideration of
the execution of such general release, the Company shall extend the Payment
Period for an additional two months (such additional two-month period, the
"Additional Severance Benefit"). Such payments shall be made on the same
schedule as the Executive's base salary was paid. During the Payment Period the
Executive will not accrue vacation time. The Executive will be paid for any
unused, accrued vacation time existing at the Date of Termination at the time of
the first payment of benefits under this Agreement.
(ii) The Company also shall pay to the Executive a sum equal to the
average of the last three annual bonuses (or such lesser number if the Executive
has received a lesser number of bonuses) paid by the Company to the Executive.
Such payment may be made as a lump sum or on a pro rata basis over the Payment
Period, at the Company's discretion.
(iii) During the Payment Period, the Company shall arrange to
provide the Executive with coverage under the medical, dental and life insurance
programs in which the Executive was enrolled immediately prior to the Date of
Termination (or substantially similar programs), so long as the Executive
continues to pay any employee premiums due under such programs. At the end of
the Payment Period, the Executive will have the right to extend his medical and
dental coverage under the provisions of COBRA. Benefits under the Company's
Profit
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<PAGE> 5
Sharing Plan, 401(k) Plan and Stock Incentive Plans will be governed by the
terms of those Plans.
(iv) The Executive shall be entitled to a merchandise discount
through the Payment Period in accordance with Company policy for employee
merchandise discounts as may be in effect from time to time during that Period.
The Executive also shall receive, through the Payment Period, a monthly
automobile allowance in an amount equal to the allowance such Executive received
immediately prior to the Date of Termination. The Company shall make available
to the Executive during the Payment Period those outplacement services that the
Company is then providing to terminated employees generally.
(v) The Company also shall pay to the Executive all reasonable legal
fees and expenses incurred by him in seeking to obtain or enforce any right or
benefit to which the Executive is entitled under the Agreement, provided that
the Executive prevails in any legal proceeding connected therewith. Such
payments shall be made, following the conclusion of such legal proceeding,
within five (5) days after the Executive delivers to the Company a written
request for payment accompanied by such evidence of fees and expenses incurred
as the Company reasonably may require.
3. Compensation Upon Termination Following a Change in Control. In the
event of the termination of the Executive's employment by the Company within two
years following a Change in Control (as defined herein), in lieu of any other
severance benefit otherwise payable to the Executive under the terms of the
Severance Arrangements and in lieu of any payments pursuant to Paragraph 2
hereof, the Executive shall be entitled to the benefits set forth below unless
such termination is (i) due to his death, retirement or Disability, (ii) by the
Company for Cause, or (iii) by the Executive without Good Reason (as defined
herein).
(a) The Company shall pay to the Executive a lump sum payment equal to
1.5 multiplied by the sum of (i) the Executive's annual full base salary at the
rate in effect at the time Notice of Termination is given or properly should
have been given, and (ii) the average of the last three annual bonuses (or such
lesser number if
5
<PAGE> 6
the Executive has received a lesser number of bonuses) paid by the Company to
the Executive.
(b) For a period of eighteen months from the Date of Termination (the
"Coverage Period"), the Company shall arrange to provide the Executive with
coverage under the medical, dental and life insurance programs in which the
Executive was enrolled immediately prior to the Date of Termination (or
substantially similar programs), so long as the Executive continues to pay any
employee premiums due under such programs (which premiums shall not be at a rate
or in an amount greater than the rate or amount of employee premiums due
immediately prior to the Date of Termination). At the end of the Coverage
Period, the Executive will have the right to extend his medical and dental
coverage under the provisions of COBRA. Benefits under the Company's Profit
Sharing Plan, 401(k) Plan and Stock Incentive Plans will be governed by the
terms of those Plans.
(c) The Executive shall be entitled to a merchandise discount through
the Coverage Period in accordance with Company policy for employee merchandise
discounts as may be in effect from time to time during that Coverage Period. The
Executive also shall receive, through the Coverage Period, a monthly automobile
allowance in an amount equal to the allowance such Executive received
immediately prior to the Date of Termination. The Company shall make available
to the Executive during the Coverage Period those outplacement services that the
Company is then providing to terminated employees generally.
(d) The Company also shall pay to the Executive all reasonable legal
fees and expenses incurred by him in seeking to obtain or enforce any right or
benefit to which the Executive is entitled under the Agreement, provided that
the Executive prevails in any legal proceeding connected therewith. Such
payments shall be made, following the conclusion of such legal proceeding,
within five (5) days after the Executive delivers to the Company a written
request for payment accompanied by such evidence of fees and expenses incurred
as the Company reasonably may require.
(e) In the event that all or any portion of the payments and benefits
pursuant to the Agreement
6
<PAGE> 7
become subject to the Excise Tax (as defined below) (such payments and benefits
that are subject to the Excise Tax are for purposes of this Paragraph 3(e)
referred to as the "Parachute Severance Payments"), the Company shall pay to the
Executive an additional amount (the "Gross-Up Payment") such that the net
benefit provided to the Executive with respect to the Parachute Severance
Payments, after deduction of the Excise Tax imposed with respect to the
Parachute Severance Payments (but not any federal, state or local income taxes)
and any Excise Tax (but not any federal, state, or local income taxes) imposed
on the payment provided for by this Paragraph 3(e), shall be equal to the
Parachute Severance Payments.
For purposes of determining whether any part of the benefits provided
under the Agreement will be subject to the Excise Tax and the amount of such
Excise Tax, (i) no portion of the Total Benefits (as defined below) the receipt
or enjoyment of which the Executive shall have effectively waived in writing
shall be taken into account, (ii) any other payments or benefits received or to
be received by the Executive in connection with a Change in Control or the
Executive's termination of employment (pursuant to the terms of any plan,
arrangement or agreement with the Company, any Person whose actions result in a
Change in Control or any Person affiliated with the Company or such Person)
shall be treated as "parachute payments" within the meaning of section
28OG(b)(2) of the Code, and all "excess parachute payments" within the meaning
of section 28OG(b)(1) of the Code shall be treated as subject to the Excise Tax,
unless in the opinion of tax counsel reasonably selected by the Company's
independent auditors (which were, immediately prior to the Change in Control,
the Company's independent auditors), such other payments or benefits (in whole
or in part) do not constitute parachute payments, including by reason of section
28OG(b)(4)(A) of the Code, or such excess parachute payments (in whole or in
part) represent reasonable compensation for services actually rendered, within
the meaning of section 28OG(b)(4)(B) of the Code, in excess of the Base Amount
allocable to such reasonable compensation, or are otherwise not subject to the
Excise Tax, (iii) the amount of benefits under this Agreement that shall be
treated as subject to the Excise Tax (and therefore as Parachute Severance
Payments) shall be equal to the lesser of (A) the portion of the benefits under
the Agreement treated as a parachute payment within the
7
<PAGE> 8
meaning of section 28OG(b)(2) of the Code or (B) the amount of excess parachute
payments within the meaning of section 28OG(b)(1) of the Code (after applying
clause (i) above), and (iv) the value of any noncash benefits or any deferred
payment or benefit shall be determined by the Company's independent auditors in
accordance with the principles of sections 28OG(d)(3) and (4) of the Code.
In the event that the Excise Tax is subsequently determined to be less
than the amount taken into account hereunder at the time of termination of the
Executive's employment, the Executive shall repay to the Company, at the time
that the amount of such reduction in Excise Tax is finally determined, the
portion (if any) of the Gross-Up Payment attributable to such reduction
(determined in accordance with the foregoing provisions of this Paragraph 3(e))
plus interest on the amount of such repayment at the rate provided in section
1274(b)(2)(B) of the Code.
In the event that the Excise Tax attributable to the benefits under the
Agreement is determined to exceed the amount taken into account hereunder at the
time of the termination of the Executive's employment (including by reason of
any payment the existence or amount of which cannot be determined at the time of
the Gross-Up Payment), the Company shall make an additional Gross-Up Payment in
respect of such excess (plus any interest, penalties or additions, but not any
federal, state, or local income taxes, payable by the Executive with respect to
such excess) at the time that the amount of such excess is finally determined.
The Company shall provide the Executive with its calculation of the amounts
referred to in this Paragraph 3(e), and such supporting materials as are
reasonably necessary for the Executive to evaluate the Company's calculations.
The Executive and the Company shall each reasonably cooperate with the other in
connection with any administrative or judicial proceedings concerning the
existence or amount of liability for Excise Tax with respect to the payments and
benefits pursuant to the Agreement.
Notwithstanding the foregoing provisions of this Paragraph 3(e), in the
event that any payment or benefit received or to be received by the Executive in
connection with a Change in Control or the termination of
8
<PAGE> 9
the Executive's employment (whether pursuant to the terms of the Agreement or
any other plan, arrangement or agreement with the Company, any Person whose
actions result in a Change in Control or any Person affiliated with the Company
or such Person) (all such payments and benefits, including payments and benefits
pursuant to the Agreement, being hereinafter called "Total Benefits") would be
subject (in whole or part), to the Excise Tax, then the amount of benefits
payable pursuant to the Agreement and the corresponding Gross-Up Payment shall
be reduced to the extent necessary so that no portion of such benefits is
subject to the Excise Tax if (A) the net amount of the Total Benefits, as so
reduced, (and after deduction of the net amount of federal, state and local
income tax on such reduced Total Benefits) is greater than (B) the excess of (i)
the net amount of such Total Benefits, without reduction (but after deduction of
federal, state and local income tax on such Total Benefits), over (ii) the
amount of Excise Tax to which the Executive would be subject in respect of such
Total Benefits.
(f) For purposes of this Paragraph 3, the following terms shall have the
meanings set forth below:
(i) "Base Amount" shall have the meaning prescribed by Section
280G(b)(3) of the Code.
(ii) "Beneficial Owner" shall have the meaning prescribed by Rule
13d-3 under the Exchange Act.
(iii) "Change in Control" shall mean a change in control of the
Company, which shall be deemed to have occurred only if (A) any Person (as
hereinafter defined) is or becomes the Beneficial Owner, directly or indirectly,
of securities of the Company representing twenty percent (20%) or more of the
combined voting power of the Company's then outstanding securities at a time at
which the members of the H Group (as hereinafter defined) are collectively the
Beneficial Owners of Company securities representing a percentage of the
combined voting power of the Company's then outstanding securities which is less
than the percentage of such voting power owned by such Person or (B) during any
period of two consecutive years (not including any period prior to the execution
of this Agreement), individuals who at the beginning of such period constitute
the Board and any new director (other than a director designated by a Person who
has entered into an agreement with the Company to effect a transac-
9
<PAGE> 10
tion described in clause (A) of this paragraph) whose election by the Board or
nomination for election by the Company's stockholders was approved by a vote of
at least two-thirds (2/3) of the directors then still in office who either were
directors at the beginning of the period or whose election or nomination for
election was previously so approved, cease for any reason to constitute a
majority thereof. The term "Person," as used in this Paragraph 3, shall not
include (i) a trustee or other fiduciary holding securities under an employee
benefit plan of the Company, (ii) the H Group or (iii) a corporation owned,
directly or indirectly, by the stockholders of the Company in Substantially the
same proportions as their ownership of stock of the Company.
(iv) "Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended.
(v) "Excise Tax" means any excise tax imposed under Section 4999 of
the Code.
(vi) "Good Reason" for termination by the Executive of the
Executive's employment with the Company shall mean the occurrence (without the
Executive's express written consent) of any one of the following acts by the
Company, or failures by the Company to act, unless, in the case of any act or
failure to act described in paragraphs (A), (B), (C) or (D) below, such act or
failure to act is corrected within ten (10) days after the Executive has
notified the Board of the occurrence of any such act or failure to act:
(A) the assignment to the Executive of any duties substantially
inconsistent with the Executive's status in the position and title the
Executive held immediately prior to the Change in Control or a
substantial adverse alteration in the nature or status of the Executive's
responsibilities from those in effect immediately prior to the Change in
Control;
(B) a reduction by the Company in the Executive's annual base
salary or a material reduction in the amount of bonus that the Executive
has the opportunity to earn, as in effect on the date hereof or as the
same may be increased from time to time;
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<PAGE> 11
(C) the failure of the Company to obtain a satisfactory agreement
from any successor to assume and agree to perform this Agreement; or
(D) any adverse change in the moral or ethical standards under which
the business is conducted.
The Executive's right to terminate his employment for Good Reason shall
not be affected by the Executive's incapacity due to physical or mental illness.
The Executive's continued employment shall not constitute consent to, or a
waiver of rights with respect to, any act or failure to act constituting Good
Reason hereunder.
(vii) "Gross-Up Payment" shall have the meaning set forth in
Paragraph 3(e) hereof.
(viii) "H Group" shall mean John W. Hechinger, Sr. Richard England,
their respective heirs and members of their respective families, and Persons
controlled by John W. Hechinger, Sr., Richard England, their respective heirs
and members of their respective families.
(ix) "Person" shall have the same meaning as it does in Section
13(d) and 14(d) of the Exchange Act.
(x) "Total Payments" shall mean those payments so described in
Paragraph 3(e) hereof.
4. Withholding. Any payments provided for under this Agreement shall be
paid net of any applicable withholding required under federal, state or local
law and any additional withholding to which the Executive has agreed.
5. Confidential Information. The Executive acknowledges that as an
executive of the Company, he has had, and may continue to have, access to
confidential information which relates to the business of the Company. The
Executive accordingly agrees that he will not, without the prior written consent
of the Chief Executive Officer of the Company or any other executive officer
that the Board may, in its discretion, designate (a) use for his benefit or
disclose to any person any information
11
<PAGE> 12
obtained or developed by him while in the employ of the Company with respect to
any aspect of the Company's business including, without limitation, information
with respect to any trade secrets, customers, credit relationships, suppliers,
sources of supply, employees (including information relating to their
compensation and career paths) financial affairs, computer systems (including
software programs and data), marketing strategies and/or plans, the volume of
business generated, gross and net profits or advertising and promotion plans or
methods of design, distribution, procurement or production, of the Company, or
any of its subsidiaries or affiliates or any other confidential matter
("Confidential Information"), except information that at the time is available
to others in the business or generally known to the public other than as a
result of disclosure by him not permitted hereunder, or lawfully acquired from a
third party who is not obligated to the Company or any of its subsidiaries to
maintain such information in confidence or (b) take with him upon leaving the
Company's employ, any document or paper relating to any Confidential Information
or any property of the Company (or any of its subsidiaries or affiliates).
6. Specific Performance. The Executive acknowledges that a violation on
his part of any of the covenants contained in Paragraph 5 hereof would cause
immeasurable and irreparable damage to the Company. The Executive accordingly
agrees and hereby grants his consent that, without limiting the remedies
available to the Company, any actual or threatened violation of such covenants
may be enforced by injunctive relief or by other equitable remedies issued or
ordered by any court of competent jurisdiction.
7. Employment. Nothing in this Agreement shall be construed as
conferring upon the Executive any right to continued employment with the Company
nor shall it interfere in any way with the right of the Company to terminate the
Executive's employment at any time.
8. Successors; Binding Agreement. This Agreement and all rights of the
Executive hereunder shall inure to the benefit of, and shall be enforceable by,
the Executive's personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. If the Executive should
die while any amounts remain payable to him hereunder, all such amounts
12
<PAGE> 13
shall be paid to the Executive's designee or, if there be no such designee, to
the Executive's estate.
The Company shall require any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or substantially all of the
business and/or assets of the Company to assume expressly and agree to perform
the Agreement in the same manner and to the same extent that the Company would
be required to perform it if no such succession had taken place.
9. Term. This Agreement shall commence on the date hereof and shall
continue in effect through December 31, 1999; provided, however, that commencing
on January 1, 1998 and each January 1 thereafter, the term of this Agreement
shall automatically be extended for one additional year unless, not later than
September 30 of the preceding year, the Company or the Executive shall have
given notice not to extend this Agreement.
10. Mitigation. The Executive shall be under no obligation to mitigate
the amount of any payment provided for herein by seeking other employment or
otherwise nor shall such amount be offset by any compensation which the
Executive may receive from future employment or otherwise.
11. Notice. All notices of termination and other communications provided
for in the Agreement shall be in writing and shall be deemed to have been duly
given when delivered by hand or mailed by United States registered mail, return
receipt requested, addressed as follows:
If to the Executive:
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If to the Company:
Hechinger Company
1801 McCormick Drive
Largo, Maryland 20774
Attention: Senior Vice President,
Treasurer and Secretary
or to such other address as any party may have furnished to the other party in
writing in accordance herewith.
12. Miscellaneous. No provision of the Agreement may be waived, modified
or discharged unless such waiver, modification or discharge is agreed to in
writing and signed by (a) the Executive and (b) the Chief Executive Officer of
the Company or such officer as may be specifically designated by the Board. No
waiver by any party hereto at any time of any breach by the other party hereto
of, or compliance with, any condition or provision of the Agreement to be
performed by such other party shall be deemed a waiver of similar or dissimilar
provisions or conditions at the same or at any prior or subsequent time. The
validity, interpretation, construction and performance of the Agreement shall be
governed by the laws of the State of Delaware, without giving effect to its
conflict of law rules.
13. Validity. The invalidity or unenforceability of any provision of the
Agreement shall not affect the validity or enforceability of any other provision
of the Agreement, which shall otherwise remain in full force and effect.
14. Counterparts. The Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together shall constitute one and the same instrument.
15. Entire Agreement. The Agreement and Exhibit A hereto, if executed,
set forth the entire agreement and understanding of the parties hereto in
respect of the subject matter contained herein, and supersedes all prior
agreements (including, without limitation, the Severance Agreement between the
Executive and the Company dated April, 1996), promises, covenants, arrangements,
communications, representations or warranties, whether oral or written, by any
officer, employee
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<PAGE> 15
or representative of either party in respect of said subject matter; provided,
however, that nothing in this Agreement shall replace or reduce any compensation
or benefits payable to the Executive under the terms of any compensation or
benefit program or arrangement maintained by the Company other than the
Severance Arrangements.
IN WITNESS WHEREOF, the parties hereto have executed the Agreement as of
the day and year first above written.
-----------------------------------
HECHINGER COMPANY
By:
-------------------------------
15
<PAGE> 16
EXHIBIT A
FORMS OF GENERAL RELEASE
[Letterhead of Hechinger]
__________ , 199_
- -----------------------------
- -----------------------------
- -----------------------------
Dear Mr./Ms. ______:
As you have been advised, your employment by [Hechinger](the "Company")
terminated effective [DATE]. In order to assist you in your transition, the
Company is willing to provide you with an additional severance payment, which
the Company is offering to make in its sole discretion. This additional
severance payment will be provided subject to the terms contained in this
letter, and the terms of the Severance Agreement (the "Severance Agreement") to
which this General Release is an Exhibit. If you wish to receive the additional
severance payment, please sign the last page of this letter and return the
signed letter to the Company.
1. Upon execution of this letter in accordance with the terms hereof, the
Company agrees to pay you, after payment of the Basic Severance Benefit, as
defined in Paragraph 2(c)(i) of the Severance Agreement, the Additional
Severance Benefit, as defined in Paragraph 2(c)(i) of the Severance Agreement
and in accordance with the terms of that Agreement and this letter
2. In consideration of the payment of the Additional Severance Benefit,
you voluntarily, knowingly and willingly release and forever discharge the
Company, its parents, subsidiaries and affiliates, together with their
respective officers, directors, partners, shareholders, employees and agents,
and each of their predecessors, successors and assigns, from any and all
charges, complaints, claims, promises, agreements, controversies, causes of
action and demands of any nature whatsoever which against them you or your
executors, adminis-
16
<PAGE> 17
trators, successors or assigns ever had, now have or hereafter can, shall or may
have by reason of any matter, cause or thing whatsoever arising to the time you
sign this agreement. This release includes, but is not limited to, any rights or
claims relating in any way to your employment relationship with the Company, or
the termination thereof, or under any statute, including the federal Age
Discrimination in Employment Act, Title VII of the Civil Rights Act, the
Americans with Disabilities Act, or any other federal, state or local law. In
addition, you agree that (i) you will not, in any context, make disparaging
remarks about the Company, its affiliates and subsidiaries, its officers,
directors, employees and owners and agents, or the Company's products, services
and facilities, and (ii) absent a binding court order or similar decree, you
will not voluntarily cooperate with, or facilitate, litigation or other legal
actions against the Company, its affiliates and subsidiaries, its officers,
directors, employees, owners and agents.
3. The Company advises you to consult with an attorney of your choosing
prior to signing this agreement. You understand and agree that you have the
right and have been given the opportunity to review this agreement and,
specifically, the release in paragraph 2, with an attorney of your choice should
you so desire. You also understand and agree that the Company is under no
obligation to offer you the Additional Severance Benefit, and that you are under
no obligation to consent to the release set forth in paragraph 2 and that you
have entered into this agreement freely and voluntarily.
4. You have at least twenty-one days to consider the terms of this
agreement, although you may sign and return it sooner if you wish. Furthermore,
once you have signed this agreement, you have seven additional days from the
date you sign it to revoke your consent. The agreement will not become effective
until seven days after the date you have signed it.
5. The Company's offer to you of this agreement and the payment set forth
herein is not intended to, and shall not be construed as, any admission of
liability by the Company to you or of any improper conduct on the Company's
part, all of which the Company specifically denies.
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<PAGE> 18
6. The terms described in this letter and the Severance Agreement
constitute the entire agreement between us and may not be altered or modified
other than in a writing signed by you and the Company. The agreement will be
governed by the law of Delaware, without reference to its choice of law rules.
If the above sets forth our agreement as you understand it and consent to
it, please so signify by executing the enclosed copy of this letter and return
it to the undersigned.
Very truly yours,
---------------------------
Agreed to and Accepted:
- ----------------------------
Dated: , 1997
---------------
18
<PAGE> 1
EXHIBIT 10(d)
Annex I
CONFORMED
COPY
================================================================================
CREDIT AGREEMENT
dated as of
September 26, 1997,
as amended and restated as of December 31, 1998,
among
HECHINGER INVESTMENT COMPANY OF DELAWARE, INC.,
as Borrower,
CENTERS HOLDINGS, INC.,
BSQ ACQUISITION, INC.,
BSQ TRANSFEREE CORP.,
HECHINGER COMPANY,
HECHINGER STORES COMPANY,
HECHINGER STORES EAST COAST COMPANY,
The LENDERS Party Hereto,
THE CHASE MANHATTAN BANK,
as Administrative Agent, Collateral Agent, Issuing Bank and Swingline Lender,
BANKAMERICA BUSINESS CREDIT, INC.,
as Documentation Agent and Borrowing Base Audit Agent
and
CITICORP USA, INC.,
as Syndication Agent
---------------------------
CHASE SECURITIES INC.,
as Arranger and Sole Book Manager
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
ARTICLE I
Definitions
<S> <C> <C>
SECTION 1.01. Defined Terms.................................................................1
SECTION 1.02. Classification of Loans and Borrowings.......................................17
SECTION 1.03. Terms Generally..............................................................17
SECTION 1.04. Accounting Terms; GAAP.......................................................17
ARTICLE II
The Credits
SECTION 2.01. Commitments..................................................................17
SECTION 2.02. Loans and Borrowings.........................................................17
SECTION 2.03. Requests for Borrowings......................................................18
SECTION 2.04. Swingline Loans..............................................................18
SECTION 2.05. Letters of Credit............................................................19
SECTION 2.06. Funding of Borrowings........................................................22
SECTION 2.07. Interest Elections...........................................................22
SECTION 2.08. Termination and Reduction of Commitments.....................................23
SECTION 2.09. Repayment of Loans; Evidence of Debt.........................................23
SECTION 2.10. Prepayment of Loans..........................................................24
SECTION 2.11. Fees.........................................................................25
SECTION 2.12. Interest.....................................................................26
SECTION 2.13. Alternate Rate of Interest...................................................27
SECTION 2.14. Increased Costs..............................................................27
SECTION 2.15. Break Funding Payments.......................................................28
SECTION 2.16. Taxes........................................................................28
SECTION 2.17. Payments Generally; Pro Rata Treatment; Sharing of Setoffs...................29
SECTION 2.18. Mitigation Obligations; Replacement of Lenders...............................30
ARTICLE III
Representations and Warranties
SECTION 3.01. Organization; Powers.........................................................30
SECTION 3.02. Authorization; Enforceability................................................30
SECTION 3.03. Governmental Approvals; No Conflicts.........................................31
SECTION 3.04. Financial Condition; No Material Adverse Change..............................31
SECTION 3.05. Properties...................................................................31
SECTION 3.06. Litigation and Environmental Matters.........................................31
SECTION 3.07. Compliance with Laws and Agreements..........................................32
SECTION 3.08. Investment and Holding Company Status........................................32
SECTION 3.09. Taxes........................................................................32
SECTION 3.10. ERISA........................................................................32
SECTION 3.11. Disclosure...................................................................32
</TABLE>
<PAGE> 3
Contents, p.
<TABLE>
<S> <C> <C>
SECTION 3.12. Subsidiaries.................................................................32
SECTION 3.13. Insurance....................................................................32
SECTION 3.14. Labor Matters................................................................32
SECTION 3.15. Solvency.....................................................................33
SECTION 3.16. Security Documents...........................................................33
SECTION 3.17. Federal Reserve Regulations..................................................33
SECTION 3.18. Year 2000 Compliance.........................................................33
ARTICLE IV
Conditions
SECTION 4.01. Restatement Closing Date.....................................................34
SECTION 4.02. Each Credit Event............................................................36
ARTICLE V
Affirmative Covenants
SECTION 5.01. Financial Statements and Other Information...................................36
SECTION 5.02. Notices of Material Events...................................................38
SECTION 5.03. Information Regarding Collateral.............................................38
SECTION 5.04. Existence; Conduct of Business...............................................38
SECTION 5.05. Payment of Obligations.......................................................38
SECTION 5.06. Maintenance of Properties....................................................39
SECTION 5.07. Insurance....................................................................39
SECTION 5.08. Casualty and Condemnation....................................................39
SECTION 5.09. Books and Records; Inspection and Audit Rights...............................39
SECTION 5.10. Compliance with Laws.........................................................40
SECTION 5.11. Use of Proceeds and Letters of Credit........................................40
SECTION 5.12. Additional Borrower Subsidiaries.............................................40
SECTION 5.13. Further Assurances...........................................................40
SECTION 5.14. Cash Management Procedures...................................................40
SECTION 5.15. Delivery of Business Plan....................................................41
SECTION 5.16. Independent Financial Advisor................................................41
ARTICLE VI
Negative Covenants
SECTION 6.01. Indebtedness; Certain Equity Securities......................................41
SECTION 6.02. Liens........................................................................42
SECTION 6.03. Fundamental Changes..........................................................43
SECTION 6.04. Investments, Loans, Advances, Guarantees and Acquisitions....................44
SECTION 6.05. Asset Sales..................................................................45
SECTION 6.06. Hedging Agreements...........................................................46
SECTION 6.07. Restricted Payments; Certain Payments of Indebtedness........................46
SECTION 6.08. Transactions with Affiliates.................................................46
SECTION 6.09. Restrictive Agreements.......................................................46
SECTION 6.10. Amendment of Material Documents..............................................47
SECTION 6.11. Capital Expenditures.........................................................47
SECTION 6.12. Minimum Consolidated EBITDA..................................................47
SECTION 6.13. Additional Subsidiaries......................................................47
</TABLE>
ARTICLE VII Events of Default
<PAGE> 4
Contents, p.4
ARTICLE VIII
The Administrative Agent, the Collateral Agent,
the Documentation Agent, the Borrowing Base
Audit Agent and the Syndication Agent
ARTICLE IX Miscellaneous
<TABLE>
<S> <C> <C>
SECTION 9.01. Notices......................................................................51
SECTION 9.02. Waivers; Amendments..........................................................52
SECTION 9.03. Expenses; Indemnity; Damage Waiver...........................................52
SECTION 9.04. Successors and Assigns.......................................................53
SECTION 9.05. Survival.....................................................................54
SECTION 9.06. Counterparts; Integration; Effectiveness.....................................55
SECTION 9.07. Severability.................................................................55
SECTION 9.08. Right of Setoff..............................................................55
SECTION 9.09. Governing Law; Jurisdiction; Consent to Service of Process...................55
SECTION 9.10. WAIVER OF JURY TRIAL.........................................................55
SECTION 9.11. Headings.....................................................................56
SECTION 9.12. Confidentiality..............................................................56
SECTION 9.13. Interest Rate Limitation.....................................................56
SCHEDULES:
Schedule 2.01 -- Commitments
Schedule 3.03(c) -- Defaults
Schedule 3.04(c) -- Material Adverse Change (Hechinger and Hechinger Entities)
Schedule 3.04(f) -- Material Adverse Change (Builders Square)
Schedule 3.05 -- Properties
Schedule 3.06 -- Disclosed Matters
Schedule 3.12 -- Subsidiaries
Schedule 3.13 -- Insurance
Schedule 6.01 -- Existing Indebtedness
Schedule 6.02 -- Existing Liens
Schedule 6.03(e) -- Real and Personal Property (BSQ Newco)
Schedule 6.03(f) -- Real and Personal Property (Hechinger)
Schedule 6.03(g) -- Real and Personal Property (Hechinger Stores)
Schedule 6.03(h) -- Real and Personal Property (Hechinger East Coast)
Schedule 6.04 -- Investments
Schedule 6.05 -- Asset Sales
Schedule 6.08 -- Affiliate Transactions
Schedule 6.09 -- Existing Restrictions
EXHIBITS:
Exhibit A -- Form of Assignment and Acceptance
Exhibit B -- Form of Opinion of Counsel for the Transaction Parties and GEI II
Exhibit C-1 -- Form of Opinion of New York Counsel for the Transaction Parties
Exhibit C-2 -- Form of Opinion of Counsel for Kmart
Exhibit D -- Form of Parent Guarantee Agreement
</TABLE>
<PAGE> 5
Exhibit E -- Form of Subsidiary Guarantee Agreement
Exhibit F -- Form of Indemnity, Subrogation and
Contribution Agreement
Exhibit G -- Form of Pledge Agreement
Exhibit H -- Form of Security Agreement
Exhibit I -- Form of Borrowing Base Certificate
Exhibit J -- Form of Intercreditor Agreement
CREDIT AGREEMENT dated as of September 26,
1997, as amended and restated as of December 31,
1998, among HECHINGER INVESTMENT COMPANY OF
DELAWARE, INC., as Borrower, CENTERS HOLDINGS, INC.,
BSQ ACQUISITION, INC., BSQ TRANSFEREE CORP.,
HECHINGER COMPANY, HECHINGER STORES COMPANY,
HECHINGER STORES EAST COAST COMPANY, the LENDERS
party hereto, THE CHASE MANHATTAN BANK, as
Administrative Agent, Collateral Agent, Issuing Bank
and Swingline Lender, BANKAMERICA BUSINESS CREDIT,
INC., as Documentation Agent and Borrowing Base
Audit Agent, and CITICORP USA, INC., as Syndication
Agent.
The Borrower, Centers Holdings, Inc., BSQ Acquisition, Inc., BSQ
Transferee Corp., Hechinger Company, Hechinger Stores Company, Hechinger Stores
East Coast Company, the Lenders party thereto, The Chase Manhattan Bank,
BankAmerica Business Credit, Inc. and Citicorp USA, Inc. are parties to a Credit
Agreement dated as of September 26, 1997 (as in effect immediately before the
Restatement Closing Date, the "Original Credit Agreement"), pursuant to which
(a) the Swingline Lender committed to make Swingline Loans to the Borrower, at
any time and from time to time prior to the Maturity Date, in an aggregate
principal amount at any time outstanding not in excess of $25,000,000, (b) such
Lenders committed to make Revolving Loans to the Borrower, at any time and from
time to time prior to the Maturity Date, in an aggregate principal amount at any
time outstanding not in excess of $600,000,000 minus the sum of (i) the
aggregate principal amount of Swingline Loans outstanding at such time and (ii)
the LC Exposure at such time, and (c) the Issuing Bank committed to issue
Letters of Credit, in an aggregate face amount at any time outstanding not in
excess of $125,000,000. The Letters of Credit and the proceeds of the Revolving
Loans and Swingline Loans shall be used solely for the purposes set forth in
Section 5.11.
The Borrower has requested that the Original Credit Agreement be amended
and restated in order to, among other changes, permit the Supplemental Facility
Lenders to make, pursuant to the Supplemental Credit Agreement and subject to
the conditions set forth therein, Supplemental Revolving Loans to the Borrower,
at any time and from time to time prior to the Supplemental Facility Termination
Date, in an aggregate amount at any time outstanding not in excess of
$50,000,000 (including the amount of accrued and unpaid interest thereon and
fees and expenses in connection therewith).
The parties to the Original Credit Agreement are willing to amend and
restate the Original Credit Agreement in the form hereof for such purposes, and
the Lenders and the Swingline Lender are willing to extend credit to the
Borrower and the Issuing Bank is willing to issue Letters of Credit for the
account of the Borrower, in each case on the terms and subject to the conditions
set forth herein. Accordingly, the parties hereto agree as follows:
<PAGE> 6
2
ARTICLE I
Definitions
SECTION 1.01. Defined Terms. As used in this Agreement, the following
terms have the meanings specified below:
"ABR", when used in reference to any Loan or Borrowing, refers to whether
such Loan, or the Loans comprising such Borrowing, are bearing interest at a
rate determined by reference to the Alternate Base Rate.
"Account" shall mean any right to payment for goods sold or leased or for
services rendered, whether or not earned by performance.
"Account Debtor" shall mean, with respect to any Account, the obligor
with respect to such Account.
"Additional Financing Transactions" means (a) the execution, delivery and
performance by each Loan Party of the Loan Documents to which it is to be a
party, the borrowing of Loans, the use of the proceeds thereof and the issuance
of Letters of Credit hereunder and (b) the execution, delivery and performance
by each Loan Party of the Supplemental Loan Documents to which it is to be a
party.
"Adjusted LIBO Rate" means, with respect to any Eurodollar Borrowing for
any Interest Period, an interest rate per annum (rounded upwards, if necessary,
to the next 1/16 of 1%) equal to (a) the LIBO Rate for such Interest Period
multiplied by (b) the Statutory Reserve Rate.
"Administrative Agent" means Chase, in its capacity as administrative
agent for the Lenders hereunder.
"Administrative Questionnaire" means an Administrative Questionnaire in a
form supplied by the Administrative Agent.
"Advance Rate Percentage" means (a) 70.0% during the period from and
including the Restatement Closing Date to and including April 29, 1999, (b)
68.5% during the period from and including April 30, 1999, to and including May
30, 1999, (c) 67.0% during the period from and including May 31, 1999, to and
including June 20, 1999, and (d) 65% from and after June 21, 1999.
"Advance Rate Reduction Amount" means, with respect to an Advance Rate
Reduction Date, the amount by which the aggregate Total Exposures exceeds the
Borrowing Base on such Advance Rate Reduction Date after giving effect to the
reduction in the Borrowing Base resulting from the reduction in the Advance Rate
Percentage on such date.
"Advance Rate Reduction Dates" shall mean April 30, 1999, May 31, 1999,
and June 21, 1999.
"Affiliate" means, with respect to a specified Person, another Person
that directly, or indirectly through one or more intermediaries, Controls or is
Controlled by or is under common Control with the Person specified.
"Agents" has the meaning assigned to such term in Article VIII.
"Alternate Base Rate" means, for any day, a rate per annum equal to the
greatest of (a) the Prime Rate in effect on such day, (b) the Base CD Rate in
effect on such day plus 1% and (c) the Federal Funds Effective Rate in effect on
such day plus 1/2 of 1%. Any change in the Alternate Base Rate due to a change
in the Prime Rate, the Base CD Rate or the Federal Funds Effective Rate shall be
effective
<PAGE> 7
3
from and including the effective date of such change in the Prime
Rate, the Base CD Rate or the Federal Funds Effective Rate, respectively.
"Applicable Percentage" means, with respect to any Lender, the percentage
of the total Revolving Commitments represented by such Lender's Revolving
Commitment. If the Revolving Commitments have terminated or expired, the
Applicable Percentages shall be determined based upon the Revolving Commitments
most recently in effect, giving effect to any assignments.
"Applicable Rate" means, for any day with respect to any ABR Loan, 1.25%,
or any Eurodollar Loan, 2.75%.
"Assessment Rate" means, for any day, the annual assessment rate in
effect on such day that is payable by a member of the Bank Insurance Fund
classified as "well-capitalized" and within supervisory subgroup "B" (or a
comparable successor risk classification) within the meaning of 12 C.F.R. Part
327 (or any successor provision) to the Federal Deposit Insurance Corporation
for insurance by such Corporation of time deposits made in dollars at the
offices of such member in the United States, provided that if, as a result of
any change in any law, rule or regulation, it is no longer possible to determine
the Assessment Rate as aforesaid, then the Assessment Rate shall be such annual
rate as shall be determined by the Administrative Agent to be representative of
the cost of such insurance to the Lenders.
"Assignment and Acceptance" means an assignment and acceptance entered
into by a Lender and an assignee (with the consent of any party whose consent is
required by Section 9.04), and accepted by the Administrative Agent, in the form
of Exhibit A or any other form approved by the Administrative Agent.
"BABC" means BankAmerica Business Credit, Inc., a Delaware corporation.
"Base CD Rate" means the sum of (a) the Three-Month Secondary CD Rate
multiplied by the Statutory Reserve Rate plus (b) the Assessment Rate.
"Board" means the Board of Governors of the Federal Reserve System of the
United States of America.
"Borrower" means Hechinger Investment Company of Delaware, Inc., a
Delaware corporation and a direct wholly owned subsidiary of Hechinger Stores.
"Borrower Subsidiary" means any subsidiary of the Borrower.
"Borrowing" means (a) Loans of the same Class and Type, made, converted
or continued on the same date and, in the case of Eurodollar Loans, as to which
a single Interest Period is in effect or (b) a Swingline Loan.
"Borrowing Base" means, at any time, an amount equal to the Advance Rate
Percentage of Eligible Inventory Minus Reserves minus the sum of (a) Gift
Certificate Liability and (b) Special Order Deposit Liability, in each case as
in effect at such time. The Borrowing Base shall be calculated weekly in
accordance with Section 5.01(g). The Borrowing Base at any time in effect shall
be determined at such time in the Borrowing Base Audit Agent's and the
Collateral Agent's reasonable judgment by reference to the Borrowing Base
Certificate most recently delivered hereunder, it being understood that the
information contained in such Borrowing Base Certificate shall not be conclusive
in calculating the Borrowing Base and, after consultation with the Borrower, the
Collateral Agent shall be entitled to adjust the amounts and other criteria
contained therein to the extent that the Borrowing Base Audit Agent and the
Collateral Agent believe in their reasonable judgment that such adjustment is
appropriate to cause the Borrowing Base to
<PAGE> 8
4
reflect the standards set forth in the definitions of the terms "Eligible
Inventory" and "Eligible Inventory Minus Reserves".
"Borrowing Base Audit Agent" means BABC, in its capacity as borrowing
base audit agent under this Agreement.
"Borrowing Base Certificate" has the meaning assigned to such term in
Section 5.01(g).
"Borrowing Request" means a request by the Borrower for a Borrowing in
accordance with Section 2.03.
"BSQ Acqco" means BSQ Acquisition, Inc., a Delaware corporation and a
wholly owned subsidiary of Holdings.
"BSQ Acqco/Holdings Note" means the promissory note issued on September
25, 1997, by BSQ Acqco to Holdings in the principal amount of $8,000,000.
"BSQ Newco/Builders Square Note" means the promissory note issued on
September 25, 1997, by BSQ Newco to Builders Square in the principal amount of
$10,700,000.
"BSQ Newco" means BSQ Transferee Corp., a Delaware corporation and a
wholly owned subsidiary of BSQ Acqco.
"BSQ Newco Asset Acquisition" means the acquisition by the Borrower on
the Effective Date of the Acquired BSQ Newco Assets (as such term is defined in
the Original Credit Agreement) in exchange for (a) the payment by the Borrower
to BSQ Newco of $243,000,000 in cash, (b) the assumption of the existing
Indebtedness of BSQ Newco and (c) the issuance by the Borrower to BSQ Newco of
the BSQ Newco Note.
"BSQ Newco Note" means the promissory note issued on the Effective Date
by the Borrower to BSQ Newco in the principal amount of $0 in connection with
the BSQ Newco Asset Acquisition.
"Builders Square" means Builders Square, Inc., a Delaware corporation.
"Business Day" means any day that is not a Saturday, Sunday or other day
on which commercial banks in New York City are authorized or required by law to
remain closed, provided that, when used in connection with a Eurodollar Loan,
the term "Business Day" shall also exclude any day on which banks are not open
for dealings in dollar deposits in the London interbank market.
"Capital Expenditures" means, for any period, (a) the additions to
property, plant and equipment and other capital expenditures of the Holdings
Group that are (or would be) set forth in a consolidated statement of cash flows
of the Holdings Group for such period prepared in accordance with GAAP and (b)
Capital Lease Obligations incurred by the Holdings Group during such period;
provided, however, the term "Capital Expenditures" shall not include (i) any
such expenditure made with (or in the amount of) the proceeds of insurance,
condemnation awards (or payment in lieu thereof) or indemnity payments received
from third parties for purposes of replacing or repairing the assets in respect
of which such proceeds, awards or payments were received, so long as such
expenditures are made within 18 months of the occurrence of the damage to or
loss of the assets being repaired or replaced and (ii) any such expenditures
made during such period for the acquisition of real estate (and fixtures
relating to such real estate) through a tax-free exchange pursuant to Section
1031 of the Internal Revenue Code.
<PAGE> 9
5
"Capital Lease Obligations" of any Person means the obligations of such
Person to pay rent or other amounts under any lease of (or other arrangement
conveying the right to use) real or personal property, or a combination thereof,
which obligations are required to be classified and accounted for as capital
leases on a balance sheet of such Person under GAAP, and the amount of such
obligations shall be the capitalized amount thereof determined in accordance
with GAAP.
"CERCLA" means the Comprehensive Environmental Response, Compensation,
and Liability Act, 42 U.S.C. Section 9601 et seq.
"Change in Control" means, at any time, (a) the failure by GEI II to own,
directly or indirectly, beneficially or of record, shares representing in excess
of 50% of the aggregate ordinary voting power represented by the issued and
outstanding capital stock of Holdings; (b) the failure of LG&P (or any Affiliate
thereof) to act as the sole general partner of GEI II; (c) occupation of a
majority of the seats (other than vacant seats) on the board of directors of
Holdings by Persons who were neither (i) nominated by the board of directors of
Holdings nor (ii) appointed by directors so nominated; (d) the acquisition of
direct or indirect Control of Holdings by any Person or group other than LG&P
(or another limited partnership fund for which LG&P or any Affiliate thereof
acts as the sole general partner) provided that such Control by LG&P may be
subject to the rights of Builders Square under the Securityholders Agreement
dated September 25, 1997, by and among GEI II, Builders Square and Holdings; (e)
failure by Holdings to own directly or indirectly 100% of the outstanding
capital stock of BSQ Acqco free and clear of all Liens (other than Liens under
the Loan Documents); (f) failure by BSQ Acqco to own directly or indirectly 100%
of the outstanding stock of BSQ Newco and Hechinger free and clear of all Liens
(other than Liens under the Loan Documents); (g) failure by Hechinger to own
directly or indirectly 100% of the outstanding capital stock of Hechinger Stores
free and clear of all Liens (other than Liens under the Loan Documents); (h)
failure by Hechinger Stores to own directly or indirectly 100% of the
outstanding capital stock of the Borrower free and clear of all Liens (other
than Liens under the Loan Documents); or (i) the occurrence of any change of
control (or similar event, however denominated) with respect to any Transaction
Party under any indenture or agreement in respect of Indebtedness with respect
to which any member of the Holdings Group is an obligor.
"Change in Law" means (a) the adoption of any law, rule or regulation
after the date of this Agreement, (b) any change in any law, rule or regulation
or in the interpretation or application thereof by any Governmental Authority
after the date of this Agreement or (c) compliance by any Lender or the Issuing
Bank (or, for purposes of Section 2.14(b), by any lending office of such Lender
or by such Lender's or the Issuing Bank's holding company, if any) with any
request, guideline or directive (whether or not having the force of law) of any
Governmental Authority made or issued after the date of this Agreement.
"Chase" means The Chase Manhattan Bank, a New York banking corporation.
"Citicorp USA" means Citicorp USA, Inc., a Delaware corporation.
"Class", when used in reference to any Loan or Borrowing, refers to
whether such Loan, or the Loans comprising such Borrowing, are Revolving Loans.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time.
"Collateral" means any and all "Collateral", as defined in any applicable
Security Document.
"Collateral Agent" means Chase, in its capacity as collateral agent under
the Security Documents.
<PAGE> 10
6
"Commitments" means the Revolving Commitments.
"Company Owned Life Insurance Program" means (a) the Confederation Life
Insurance Company whole life insurance policies (as assigned to Pacific Mutual
Life Insurance Company) naming Hechinger as beneficiary and certain employees of
Hechinger as insureds and (b) the General American Life Insurance Company whole
life insurance policies naming Hechinger as beneficiary and certain employees of
Hechinger as insureds.
"Commercial Letter of Credit" means any Letter of Credit issued for the
purpose of providing the primary payment mechanism in connection with the
purchase of any materials, goods or services by the Borrower or any Borrower
Subsidiary in the ordinary course of business of the Borrower or such Borrower
Subsidiary.
"Consolidated EBITDA" means, for any period, Consolidated Net Income for
such period, plus, without duplication and to the extent deducted from revenues
in determining Consolidated Net Income, the sum of (a) the aggregate amount of
Consolidated Interest Expense for such period, (b) the aggregate amount of
letter of credit fees paid during such period, (c) the aggregate amount of
income tax expense for such period, (d) all amounts attributable to depreciation
and amortization (including the amortization of the write-up of assets effected
in connection with the Transactions) for such period and (e) all extraordinary
and non-cash charges (including the amount of any deduction to net income as a
result of any grant to, or repurchase from, directors, officers or employees of
Holdings, BSQ Newco, the Borrower or any Borrower Subsidiary, of stock, stock
equivalents or stock options of Holdings, and all non-cash losses) during such
period and (f) any non-recurring costs specified on Schedule 6.13, and minus,
without duplication and to the extent added to revenues in determining
Consolidated Net Income for such period, all extraordinary and non-cash gains
during such period, all as determined on a consolidated basis with respect to
the Holdings Group in accordance with GAAP.
"Consolidated Interest Expense" means, for any period, the interest
expense, both expensed and capitalized (including amortization of debt issuance
costs, original issue discount, interest paid in kind and the interest component
in respect of Capital Lease Obligations), accrued or paid by the Holdings Group
during such period, determined on a consolidated basis in accordance with GAAP.
"Consolidated Net Income" means, for any period, net income or loss of
the Holdings Group for such period determined on a consolidated basis in
accordance with GAAP, provided that there shall be excluded (a) the income of
any Person in which any other Person (other than any member of the Holdings
Group or any director holding qualifying shares in compliance with applicable
law) has a joint interest, except to the extent of the amount of dividends or
other distributions actually paid to any member of the Holdings Group by such
Person during such period and (b) the income (or loss) of any Person accrued
prior to the date it becomes a Subsidiary or is merged into or consolidated with
any member of the Holdings Group or the date that Person's assets are acquired
by any member of the Holdings Group.
"Control" means the possession, directly or indirectly, of the power to
direct or cause the direction of the management or policies of a Person, whether
through the ability to exercise voting power, by contract or otherwise. The
terms "Controlling" and "Controlled" have meanings correlative thereto.
"December 1998 Bank Presentation" means the confidential written
presentation regarding the Holdings Group, dated December 23, 1998, prepared by
Holdings for the Lenders.
"Default" means any event or condition that constitutes an Event of
Default or that upon notice, lapse of time or both would, unless cured or
waived, become an Event of Default.
<PAGE> 11
7
"Disclosed Matters" means the actions, suits and proceedings and the
environmental matters disclosed in Schedule 3.06.
"Discontinued Inventory and Aged Goods Reserve" means, at any time, with
respect to Inventory recorded on the Borrower's SMO Report, (a) an amount equal
to the value of all such Inventory purchased prior to August 20, 1994, plus (b)
an amount equal to 25% of Eligible Inventory purchased on or after August 20,
1994, that has been designated as "discontinued" or that will be removed from
the Borrower's current merchandise assortment by the Borrower on a basis
consistent with the current and historical accounting practice of the Borrower
and of Hechinger under the perpetual weighted average cost ledger system
associated with such SMO Report.
"Documentation Agent" means BABC, in its capacity as documentation agent
for the Lenders.
"dollars" or "$" refers to lawful money of the United States of America.
"Effective Date" means September 26, 1997.
"Eligible Inventory Minus Reserves" means, at any time, (a) Eligible
Inventory at such time minus (b) the sum of (i) the Shrink Reserve at such time,
(ii) Discontinued Inventory and Aged Goods Reserve at such time, (iii) the
Excess Inventory, Slow-moving and Markdown Reserve at such time and (iv) any
modifications to the reserves specified in clause (i), (ii) or (iii) above or
any additional reserves deemed necessary at such time by the Borrowing Base
Audit Agent and the Collateral Agent based upon the results of periodic audits
or appraisals of the Inventory, provided that such reserves are consistent with
the customary practices of lenders in similar transactions.
"Eligible Inventory" means, at any time, an amount equal to the aggregate
Inventory Value at such time of all Inventory of the Borrower that consists of
finished goods available for sale to customers and is not ineligible for
inclusion in the calculation of the Borrowing Base pursuant to any of clauses
(a) through (i) below or otherwise deemed by the Borrowing Base Audit Agent in
good faith to be ineligible for inclusion in the calculation of the Borrowing
Base. Without limiting the foregoing, in order for Inventory to qualify as
Eligible Inventory, no person other than the Borrower shall have any direct or
indirect ownership interest or title to such Inventory. Standards of eligibility
may be fixed from time to time solely by the Borrowing Base Audit Agent and the
Collateral Agent in the exercise of their reasonable judgment. Unless otherwise
from time to time approved in writing by the Borrowing Base Audit Agent and the
Collateral Agent, Inventory shall be deemed not to constitute Eligible Inventory
if:
(a) such Inventory is not owned solely by the Borrower, or is
leased or on consignment or the Borrower does not have good and valid
title thereto;
(b) such Inventory (including any portion thereof in transit from
vendors) is not located at property that is owned or leased by the
Borrower and is therefore not in the possession or under the control of
the Borrower (including timber reload facilities, flow-through centers or
publicly held warehouses) unless a landlord waiver, satisfactory to the
Borrowing Base Audit Agent, is in effect with respect to such property;
(c) such Inventory is located at pool points operated by third
parties;
(d) such Inventory (exclusive of Inventory that has been
designated as "discontinued" or that will be removed from the Borrower's
current merchandise assortment pursuant to the standards described in
"Discontinued Inventory and Aged Goods Reserve") represents (i) goods
damaged, defective or otherwise unmerchantable, (ii) goods that do not
conform in all material
<PAGE> 12
8
respects to the representations and warranties contained in this
Agreement or any of the Security Documents, (iii) goods that were
returned or rejected by the Borrower's customers or (iv) goods to be
returned to the vendor;
(e) such Inventory is subject to a layaway purchase by any
customer;
(f) such Inventory (i) is not located in the United States of
America (excluding territories and possessions thereof) or (ii) is
located in Puerto Rico;
(g) such Inventory is not subject to a perfected first-priority
security interest in favor of the Collateral Agent for the benefit of the
Secured Parties;
(h) such Inventory consists of perishable items, including live
plants but excluding bulbs, seeds and artificial plants; or
(i) such Inventory is located at a store at which the Borrower has
been conducting a going-out- of-business or similar sale for 60 days or
more or title has transferred to a third party for the purpose of
conducting a going-out-of-business or similar sale.
"Environmental Laws" means all laws, rules, regulations, codes,
ordinances, orders, decrees, judgments, injunctions, notices or binding
agreements issued, promulgated or entered into by or with any Governmental
Authority, relating in any way to the environment, preservation or reclamation
of natural resources, handling, treatment, storage, disposal, Release or
threatened Release of any Hazardous Material or to health and safety matters.
"Environmental Liability" means any liability, contingent or
otherwise (including any liability for damages, natural resource damage, costs
of environmental remediation, administrative oversight costs, fines, penalties
or indemnities), of any member of the Holdings Group directly or indirectly
resulting from or based upon (a) violation of any Environmental Law, (b) the
generation, use, handling, transportation, storage, treatment or disposal of any
Hazardous Materials, (c) exposure to any Hazardous Materials, (d) the release or
threatened release of any Hazardous Materials into the environment or (e) any
contract, agreement or other consensual arrangement pursuant to which liability
is assumed or imposed with respect to any of the foregoing.
"ERISA" means the Employee Retirement Income Security Act of 1974,
as amended from time to time.
"ERISA Affiliate" means any trade or business (whether or not
incorporated) that, together with the Borrower, is treated as a single employer
under Section 414(b) or (c) of the Code or, solely for purposes of Section 302
of ERISA and Section 412 of the Code, is treated as a single employer under
Section 414 of the Code.
"ERISA Event" means (a) any "reportable event", as defined in
Section 4043 of ERISA or the regulations issued thereunder with respect to a
Plan (other than an event for which the 30-day notice period is waived); (b) the
existence with respect to any Plan of an "accumulated funding deficiency" (as
defined in Section 412 of the Code or Section 302 of ERISA), whether or not
waived; (c) the filing pursuant to Section 412(d) of the Code or Section 303(d)
of ERISA of an application for a waiver of the minimum funding standard with
respect to any Plan; (d) the incurrence by the Borrower or any of its ERISA
Affiliates of any liability under Title IV of ERISA with respect to the
termination of any Plan; (e) the receipt by the Borrower or any ERISA Affiliate
from the PBGC or a plan administrator of any notice relating to an intention to
terminate any Plan or Plans or to appoint a trustee to administer any Plan; (f)
the incurrence by the Borrower or any of its ERISA Affiliates of any liability
with respect to the withdrawal or partial withdrawal from any Plan or
Multiemployer Plan; or (g) the receipt by the Borrower
<PAGE> 13
9
or any ERISA Affiliate of any notice, or the receipt by any Multiemployer Plan
from the Borrower or any ERISA Affiliate of any notice, concerning the
imposition of Withdrawal Liability or a determination that a Multiemployer Plan
is, or is expected to be, insolvent or in reorganization, within the meaning of
Title IV of ERISA.
"Eurodollar", when used in reference to any Loan or Borrowing,
refers to whether such Loan, or the Loans comprising such Borrowing, are bearing
interest at a rate determined by reference to the Adjusted LIBO Rate.
"Event of Default" has the meaning assigned to such term in
Article VII.
"Excess Inventory, Slow-moving and Markdown Reserve" means, at any
time, a reserve established pursuant to GAAP to reflect the difference between
(a) the weighted average cost of Borrower's Eligible Inventory determined on a
basis consistent with the Borrower's historical accounting practices and (b) the
net realizable value of the Borrower's Eligible Inventory, assuming for purposes
of establishing such reserve that the Borrower uses a first-in, first-out method
of accounting for its Inventory, provided that such reserve shall not be less
than (i) prior to June 30, 1999, $10,000,000 or (ii) such other greater or
lesser amount determined in the Borrowing Base Audit Agent's and the Collateral
Agent's reasonable discretion to reflect excess, slow-moving or "marked-down"
inventory.
"Excluded Taxes" means, with respect to the Agents, any Lender,
the Issuing Bank or any other recipient of any payment to be made by or on
account of any obligation of the Borrower hereunder, (a) income or franchise
taxes imposed on (or measured by) its net income by the United States of
America, or by the jurisdiction under the laws of which such recipient is
organized or in which its principal office is located or, in the case of any
Lender, in which its applicable lending office is located, (b) any branch
profits taxes imposed by the United States of America or any similar tax imposed
by any other jurisdiction in which the Borrower is located and (c) in the case
of a Foreign Lender (other than an assignee pursuant to a request by the
Borrower under Section 2.18(b)), any withholding tax that is imposed on amounts
payable to such Foreign Lender at the time such Foreign Lender becomes a party
to this Agreement (or designates a new lending office) or is attributable to
such Foreign Lender's failure to comply with Section 2.16(e), except to the
extent that such Foreign Lender (or its assignor, if any) was entitled, at the
time of designation of a new lending office (or assignment), to receive
additional amounts from the Borrower with respect to such withholding tax
pursuant to Section 2.16(a).
"Existing Hechinger Public Debt" means, collectively, (a) the
9.45% Senior Debentures Due 2012 of Hechinger in an aggregate principal amount
of $100,000,000, issued under the Indenture dated as of October 1, 1992, between
Hechinger and First Union National Bank of North Carolina, as trustee, (b) the
6.95% Senior Notes Due 2003 of Hechinger in an aggregate principal amount of
$100,000,000, issued under the Indenture dated as of October 1, 1992, between
Hechinger and First Union National Bank of North Carolina, as trustee, and (c)
the 5.5% Convertible Subordinated Debentures Due 2012 of Hechinger in an
aggregate principal amount of $132,000,000, issued under the Indenture dated as
of March 15, 1987, between Hechinger and First Union National Bank of North
Carolina, as trustee.
"Existing Letters of Credit" means all the letters of credit that
(a) were issued under the Existing Credit Agreements (as such term is defined in
the Original Credit Agreement) and (b) were outstanding on the Effective Date.
"Federal Funds Effective Rate" means, for any day, the weighted
average (rounded upwards, if necessary, to the next 1/100 of 1%) of the rates on
overnight Federal funds transactions with members of the Federal Reserve System
arranged by Federal funds brokers, as published on the next succeeding Business
Day by the Federal Reserve Bank of New York, or, if such rate is not so
published for any day that is a Business Day, the average (rounded upwards, if
necessary, to the next 1/100 of 1%) of the
<PAGE> 14
10
quotations for such day for such transactions received by the Administrative
Agent from three Federal funds brokers of recognized standing selected by it.
"Financial Officer" means, with respect to any Transaction Party,
the chief financial officer or treasurer of such Transaction Party.
"Foreign Lender" means any Lender that is organized under the laws
of a jurisdiction other than that in which the Borrower is located. For purposes
of this definition, the United States of America, each State thereof and the
District of Columbia shall be deemed to constitute a single jurisdiction.
"Foreign Subsidiary" means any Subsidiary that is organized under
the laws of a jurisdiction other than the United States of America or any State
thereof or the District of Columbia.
"Fronting Fee" has the meaning assigned to such term in Section
2.11(b).
"GAAP" means generally accepted accounting principles in the
United States of America.
"GEI II" means Green Equity Investors II, L.P., an investment fund
controlled by an Affiliate of LG&P.
"Gift Certificate Liability" means, at any time, the aggregate
face value at such time of outstanding gift certificates of the Borrower
entitling the holder thereof to use all or a portion of the certificate to pay
all or a portion of the purchase price for any Inventory.
"GOB Prepayment Event" means any Prepayment Event resulting from
the sale, transfer or other disposition of inventory located at any store where
the Borrower is conducting a going-out-of-business or similar sale in connection
with the closing of such store.
"Governmental Authority" means the government of the United States
of America, any other nation or any political subdivision thereof, whether state
or local, and any agency, authority, instrumentality, regulatory body, court,
central bank or other entity exercising executive, legislative, judicial,
taxing, regulatory or administrative powers or functions of or pertaining to
government.
"Guarantee" of or by any Person (the "guarantor") means any
obligation, contingent or otherwise, of the guarantor guaranteeing or having the
economic effect of guaranteeing any Indebtedness or other obligation of any
other Person (the "primary obligor") in any manner, whether directly or
indirectly, and including any obligation of the guarantor, direct or indirect,
(a) to purchase or pay (or advance or supply funds for the purchase or payment
of) such Indebtedness or other obligation or to purchase (or to advance or
supply funds for the purchase of) any security for the payment thereof, (b) to
purchase or lease property, securities or services for the purpose of assuring
the owner of such Indebtedness or other obligation of the payment thereof, (c)
to maintain working capital, equity capital or any other financial statement
condition or liquidity of the primary obligor so as to enable the primary
obligor to pay such Indebtedness or other obligation or (d) as an account party
in respect of any letter of credit or letter of guaranty issued to support such
Indebtedness or obligation, provided that the term "Guarantee" shall not include
endorsements for collection or deposit in the ordinary course of business.
"Guarantee Agreements" means, collectively, the Parent Guarantee
Agreement and the Subsidiary Guarantee Agreement.
"Hazardous Materials" means all explosive or radioactive
substances or wastes and all hazardous or toxic substances, wastes or other
pollutants, including petroleum or petroleum distillates,
<PAGE> 15
11
asbestos or asbestos containing materials, polychlorinated biphenyls, radon gas,
infectious or medical wastes and all other substances or wastes of any nature
regulated pursuant to any Environmental Law, including any material listed as a
hazardous substance under Section 101(14) of CERCLA.
"Hechinger" means Hechinger Company, a Delaware corporation and a
wholly owned subsidiary of BSQ Acqco.
"Hechinger Acqco" means Hechinger Acquisition, Inc., a Delaware
corporation and a wholly owned subsidiary of BSQ Acqco, which merged with and
into Hechinger pursuant to the Hechinger Merger on the "Effective Date" (as such
term is defined in the Hechinger Stores Credit Agreement), with Hechinger as the
surviving corporation.
"Hechinger Asset Acquisition" means the acquisition by the
Borrower on the Second Credit Event Date of the Acquired Hechinger Assets (as
such term is defined in the Original Credit Agreement) in exchange for (i) the
assumption of existing Indebtedness of Hechinger Stores and Hechinger East
Coast, (ii) the assumption by the Borrower of reimbursement obligations in
respect of Existing Letters of Credit issued under the Hechinger Stores Credit
Agreement, (iii) the satisfaction of certain intercompany Indebtedness of
Hechinger Stores and Hechinger East Coast to the Borrower in the principal
amounts of $150,000,000 and $2,500,000, respectively, and (iv) the issuance by
the Borrower to Hechinger East Coast of the Hechinger East Coast Note.
"Hechinger East Coast" means Hechinger Stores East Coast Company,
a Delaware corporation and a wholly owned subsidiary of Hechinger Stores.
"Hechinger/East Coast Note" means the promissory note issued on
September 29, 1997, by the Borrower to Hechinger East Coast in the principal
amount of $47,500,000.
"Hechinger Entities" means Hechinger Stores and Hechinger East
Coast.
"Hechinger Merger Agreement" means the Agreement and Plan of
Merger dated as of July 17, 1997, among Hechinger Acqco, BSQ Acqco and
Hechinger.
"Hechinger Stores" means Hechinger Stores Company, a Delaware
corporation and a wholly owned subsidiary of Hechinger.
"Hechinger Stores Credit Agreement" means the credit agreement
dated as of September 25, 1997, among Hechinger Stores, Holdings, BSQ Acqco,
Hechinger, Hechinger East Coast, the lenders party thereto, Chase, as
administrative agent and collateral agent, BABC, as documentation agent and
borrowing base audit agent, and Citicorp USA, as syndication agent.
"Hedging Agreement" means any interest rate protection agreement,
foreign currency exchange agreement, commodity price protection agreement or
other interest or currency exchange rate or commodity price hedging arrangement.
"Holdings" means Centers Holdings, Inc., a Delaware corporation.
"Holdings Group" means, collectively, Holdings and the
Subsidiaries, including BSQ Acqco, BSQ Newco, Hechinger, Hechinger Stores and
the Borrower.
"Indebtedness" of any Person means, without duplication, (a) all
obligations of such Person for borrowed money or with respect to deposits or
advances of any kind, (b) all obligations of such Person evidenced by bonds,
debentures, notes or similar instruments, (c) all obligations of such Person
<PAGE> 16
12
upon which interest charges are customarily paid, (d) all obligations of such
Person under conditional sale or other title retention agreements relating to
property acquired by such Person, (e) all obligations of such Person in respect
of the deferred purchase price of property or services (excluding current
accounts payable incurred in the ordinary course of business), (f) all
Indebtedness of others secured by (or for which the holder of such Indebtedness
has an existing right, contingent or otherwise, to be secured by) any Lien on
property owned or acquired by such Person, whether or not the Indebtedness
secured thereby has been assumed, (g) all Guarantees by such Person of
Indebtedness of others, (h) all Capital Lease Obligations of such Person, (i)
all obligations, contingent or otherwise, of such Person as an account party in
respect of letters of credit and letters of guaranty and (j) all obligations,
contingent or otherwise, of such Person in respect of bankers' acceptances. The
Indebtedness of any Person shall include the Indebtedness of any other entity
(including any partnership in which such Person is a general partner) to the
extent such Person is liable therefor as a result of such Person's ownership
interest in or other relationship with such entity, except to the extent the
terms of such Indebtedness provide that such Person is not liable therefor.
"Indemnified Taxes" means Taxes other than Excluded Taxes.
"Indemnity, Subrogation and Contribution Agreement" means the
Indemnity, Subrogation and Contribution Agreement, substantially in the form of
Exhibit F, among the Borrower, the Subsidiary Loan Parties and the Agents.
"Information Memorandum" means the Confidential Information
Memorandum dated August 1997, relating to the Borrower and the Transactions
(other than the Additional Financing Transactions).
"Intercreditor Agreement" means the Intercreditor Agreement,
substantially in the form of Exhibit J, among the Borrower, Holdings, the other
Subsidiary Loan Parties, GEI II, Kmart, the Agents and Chase, as administrative
agent, as collateral agent and as borrowing base audit agent on behalf of the
Supplemental Facility Lenders.
"Interest Coverage Ratio" means, for any period, the ratio of
Consolidated EBITDA for such period to Consolidated Interest Expense for such
period.
"Interest Election Request" means a request by the Borrower to
convert or continue a Borrowing in accordance with Section 2.07.
"Interest Payment Date" means (a) with respect to any ABR Loan
(other than a Swingline Loan), the last day of each calendar month, (b) with
respect to any Eurodollar Loan, the last day of the Interest Period applicable
to the Borrowing of which such Loan is a part and in the case of a Eurodollar
Borrowing with an Interest Period of more than one month's duration, each day
prior to the last day of such Interest Period that occurs at intervals of one
month's duration after the first day of such interest period, and (c) with
respect to any Swingline Loan, the day that such Loan is required to be repaid.
"Interest Period" means, with respect to any Eurodollar Borrowing,
the period commencing on the date of such Borrowing and ending on the
numerically corresponding day in the calendar month that is one, two or three
months thereafter, as the Borrower may elect, provided that (a) if any Interest
Period would end on a day other than a Business Day, such Interest Period shall
be extended to the next succeeding Business Day unless such next succeeding
Business Day would fall in the next calendar month, in which case such Interest
Period shall end on the next preceding Business Day and (b) any Interest Period
that commences on the last Business Day of a calendar month (or on a day for
which there is no numerically corresponding day in the last calendar month of
such Interest Period) shall end on the last Business Day of the last calendar
month of such Interest Period. For purposes hereof, the date of a Borrowing
initially shall be the date on which such Borrowing is made and thereafter shall
be the effective date of the most recent conversion or continuation of such
Borrowing.
<PAGE> 17
13
"Inventory" has the meaning assigned to such term in the Security
Agreement.
"Inventory Value" means, at any time, with respect to Inventory
recorded on the Borrower's SMO Report, the recorded inventory value of such
Inventory on such Report at such time.
"Issuing Bank" means Chase, in its capacity as the issuer of
Letters of Credit hereunder, and its successors in such capacity as provided in
Section 2.05(i). The Issuing Bank may, in its discretion, arrange for one or
more Letters of Credit to be issued by Affiliates of the Issuing Bank, in which
case the term "Issuing Bank" shall include any such Affiliate with respect to
Letters of Credit issued by such Affiliate.
"Kmart" means Kmart Corporation, a Michigan corporation.
"LC Availability Period" means the period from and including the
Effective Date to but excluding the earlier of (a) the date that is five
Business Days prior to the Maturity Date and (b) the date of termination of the
Revolving Commitments.
"LC Disbursement" means a payment made by the Issuing Bank
pursuant to a Letter of Credit.
"LC Exposure" means, at any time, the sum of (a) the aggregate
undrawn amount of all outstanding Letters of Credit at such time plus (b) the
aggregate amount of all LC Disbursements that have not yet been reimbursed by or
on behalf of the Borrower at such time. The LC Exposure of any Revolving Lender
at any time shall be its Applicable Percentage of the total LC Exposure at such
time.
"Lenders" means the Revolving Lenders.
"Letter of Credit" means any letter of credit issued or deemed to
have been issued pursuant to this Agreement, including each Existing Letter of
Credit.
"LG&P" means Leonard Green & Partners, L.P., a Delaware limited
partnership.
"LIBO Rate" means, with respect to any Eurodollar Borrowing for
any Interest Period, the rate appearing on Page 3750 of the Dow Jones Markets
service (or on any successor or substitute page of such service, or any
successor to or substitute for such service, providing rate quotations
comparable to those currently provided on such page of such service, as
determined by the Administrative Agent from time to time for purposes of
providing quotations of interest rates applicable to dollar deposits in the
London interbank market) at approximately 11:00 a.m., London time, two Business
Days prior to the commencement of such Interest Period, as the rate for dollar
deposits with a maturity comparable to such Interest Period. In the event that
such rate is not available at such time for any reason, then the "LIBO Rate"
with respect to such Eurodollar Borrowing for such Interest Period shall be the
rate at which dollar deposits of $5,000,000 and for a maturity comparable to
such Interest Period are offered by the principal London office of the
Administrative Agent in immediately available funds in the London interbank
market at approximately 11:00 a.m., London time, two Business Days prior to the
commencement of such Interest Period.
"Lien" means, with respect to any asset, (a) any mortgage, deed of
trust, lien, pledge, hypothecation, encumbrance, charge or security interest in,
on or of such asset, (b) the interest of a vendor or a lessor under any
conditional sale agreement, capital lease or title retention agreement (or any
financing lease having substantially the same economic effect as any of the
foregoing) relating to such asset and
<PAGE> 18
14
(c) in the case of securities, any purchase option, call or similar right of a
third party with respect to such securities.
"Loan Documents" means this Agreement, the Letters of Credit, the
Guarantee Agreements, the Indemnity, Subrogation and Contribution Agreement and
the Security Documents.
"Loan Parties" means the Transaction Parties and the Subsidiary
Loan Parties.
"Loans" means the Revolving Loans.
"Management Agreement" means the Management Services Agreement
dated September 25, 1997, between LG&P, the Borrower and the Subsidiaries.
"Margin Stock" has the meaning assigned to such term in Regulation
U.
"Material Adverse Effect" means a material adverse effect on (a)
the business, operations, property, assets, prospects or condition, financial or
otherwise, of Holdings, the Borrower and the Subsidiaries taken as a whole or
(b) the validity or enforceability of this Agreement or any of the other Loan
Documents or any of the material rights or remedies of the Administrative Agent,
the Collateral Agent or the Lenders hereunder or thereunder.
"Material Indebtedness" means Indebtedness (other than the Loans
and Letters of Credit), or obligations in respect of one or more Hedging
Agreements, of any one or more of Holdings, the Borrower and the Subsidiaries in
an aggregate principal amount exceeding $5,000,000. For purposes of determining
the amount of Material Indebtedness at any time, the "principal amount" of the
obligations of Holdings, the Borrower or any Subsidiary in respect of any
Hedging Agreement at such time shall be the maximum aggregate amount (giving
effect to any netting agreements) that Holdings, the Borrower or such Subsidiary
would be required to pay if such Hedging Agreement were terminated at such time.
"Maturity Date" means September 26, 2002.
"Moody's" means Moody's Investors Service, Inc.
"Multiemployer Plan" means a multiemployer plan as defined in
Section 4001(a)(3) of ERISA.
"Net Proceeds" means, with respect to any event, (a) the cash
proceeds received in respect of such event, including (i) any cash received in
respect of any non-cash proceeds, but only as and when received, (ii) in the
case of a casualty, insurance proceeds, and (iii) in the case of a condemnation
or similar event, condemnation awards and similar payments, in each case net of
(b) the sum of (i) all reasonable fees and out-of-pocket expenses (including
appraisals, and legal, title and recording tax expenses and commissions) paid by
any Transaction Party or Subsidiary to third parties (other than Affiliates) in
connection with such event, (ii) in the case of a sale or other disposition of
an asset (including pursuant to a casualty or condemnation), the amount of all
payments required to be made by the Transaction Parties and the Subsidiaries as
a result of such event to repay Indebtedness (other than Loans and Supplemental
Revolving Loans) secured by such asset or otherwise subject to mandatory
prepayment as a result of such event, and (iii) the amount of all taxes
(including sales and value added taxes and including taxes payable in connection
with the transfer of funds to the Borrower or any of its Subsidiaries in
connection with a prepayment pursuant to this Agreement) paid (or reasonably
estimated to be payable) by the Transaction Parties and the Subsidiaries, and
the amount of any reserves (whether or not contained in an escrow or other
similar arrangements) established by the Transaction Parties and the
Subsidiaries to fund contingent liabilities reasonably estimated to be payable,
in each case during the year that such event
<PAGE> 19
15
occurred or the next succeeding year and that are directly attributable to such
event (as determined reasonably and in good faith by the chief financial officer
of Holdings).
"Obligations" has the meaning assigned to such term in the
Security Agreement.
"Original Credit Agreement" has the meaning assigned to such term
in the introductory paragraphs of this Agreement.
"Other Taxes" means any and all current or future stamp or
documentary taxes or any other excise or property taxes, charges or similar
levies arising from any payment made under any Loan Document or from the
execution, delivery or enforcement of, or otherwise with respect to, any Loan
Document.
"Parent Guarantee Agreement" means the Guarantee Agreement,
substantially in the form of Exhibit D, made by the Transaction Parties (other
than the Borrower) and each of the Subsidiaries of Hechinger listed on Schedule
I thereto in favor of the Agents for the benefit of the Secured Parties.
"PBGC" means the Pension Benefit Guaranty Corporation referred to
and defined in ERISA and any successor entity performing similar functions.
"Perfection Certificate" means a certificate in the form of Annex
1 to the Security Agreement or any other form approved by the Collateral Agent.
"Permitted Acquisition" means any acquisition of assets from, or
shares or other equity interests in, any Person if (a) immediately after giving
effect thereto, no Default or Event of Default shall have occurred and be
continuing or would result therefrom, (b) such acquisition shall not have been
preceded by an unsolicited tender offer for such Person by the Borrower or any
of its Affiliates, (c) all transactions related thereto shall be consummated in
accordance with applicable laws, (d) in the case of any acquisition of shares or
other equity interests in any Person, such acquisition is an acquisition of 100%
of the shares or other equity interests of such Person (or is an acquisition of
at least 90% of the outstanding shares of each class of the stock of such
Person, provided that such person shall be merged with the acquiror pursuant to
Section 253 of the Delaware General Corporation Law (or an analogous short-form
merger provision of another state of the United States) within 30 days of such
acquisition), (e) all actions required to be taken, if any, with respect to any
acquired or newly formed Subsidiary under subsection 5.12 shall have been taken,
(f) such assets, shares or other equity interests pertain to a line of business
related to the businesses of the Borrower and its Subsidiaries as of the
Effective Date, (g) after giving effect to such acquisition, the Borrower shall
be in compliance, on a pro forma basis, with all the covenants set forth in this
Agreement and (h) neither the Borrower nor any of its subsidiaries shall assume
or otherwise become liable for any Indebtedness in connection with such
acquisition (except for Indebtedness permitted by Section 6.01).
"Permitted Encumbrances" means:
(a) Liens imposed by law for taxes that are not yet due or are
being contested in compliance with Section 5.05;
(b) carriers', warehousemen's, mechanics', materialmen's,
repairmen's and other like Liens imposed by law, arising in the ordinary
course of business and securing obligations that are not overdue by more
than 60 days or are being contested in compliance with Section 5.05;
(c) pledges and deposits made in the ordinary course of business
in compliance with workers' compensation, unemployment insurance and
other social security laws or regulations;
<PAGE> 20
16
(d) deposits to secure the performance of bids, trade contracts,
leases, statutory obligations, surety and appeal bonds, performance bonds
and other obligations of a like nature, in each case in the ordinary
course of business;
(e) judgment liens in respect of judgments that do not constitute
an Event of Default under clause (k) of Article VII; and
(f) easements, zoning restrictions, rights-of-way and similar
encumbrances on real property imposed by law or arising in the ordinary
course of business that do not secure any monetary obligations and do not
materially detract from the value of the affected property or interfere
with the ordinary conduct of business of the Borrower or any Borrower
Subsidiary,
provided that the term "Permitted Encumbrances" shall not include any Lien
securing Indebtedness.
"Permitted Investments" means:
(a) direct obligations of, or obligations the principal of and
interest on which are unconditionally guaranteed by, the United States of
America (or by any agency thereof to the extent such obligations are
backed by the full faith and credit of the United States of America), in
each case maturing within one year from the date of acquisition thereof;
(b) investments in commercial paper maturing within 270 days from
the date of acquisition thereof and having, at such date of acquisition,
the highest credit rating obtainable from S&P or from Moody's;
(c) investments in certificates of deposit, banker's acceptances
and time deposits maturing within 180 days from the date of acquisition
thereof issued or guaranteed by or placed with, and money market deposit
accounts issued or offered by, any domestic office of any commercial bank
organized under the laws of the United States of America or any State
thereof that has a combined capital and surplus and undivided profits of
not less than $500,000,000; and
(d) fully collateralized repurchase agreements with a term of not
more than 30 days for securities described in clause (a) above (without
regard to the limitation on maturity contained in such clause) and
entered into with a financial institution satisfying the criteria
described in clause (c) above.
"Person" means any natural person, corporation, limited liability
company, trust, joint venture, association, company, partnership, Governmental
Authority or other entity.
"Plan" means any employee pension benefit plan (other than a
Multiemployer Plan) subject to the provisions of Title IV of ERISA or Section
412 of the Code or Section 302 of ERISA, and in respect of which the Borrower or
any ERISA Affiliate is (or, if such plan were terminated, would under Section
4069 of ERISA be deemed to be) an "employer" as defined in Section 3(5) of
ERISA.
"Pledge Agreement" means the Pledge Agreement, substantially in
the form of Exhibit G, among the Transaction Parties, the other Subsidiaries
party thereto and the Collateral Agent for the benefit of the Secured Parties.
<PAGE> 21
17
"Prepayment Event" means any of the following events so long as
such event occurs prior to the Supplemental Facility Termination Date:
(a) any sale, transfer or other disposition (including pursuant to
a sale and leaseback transaction) of any property or asset of a
Transaction Party or any Subsidiary, other than any sale, transfer or
other disposition permitted by Section 6.05(a), (c), or (f);
(b) any casualty or other insured damage to, or any taking under
power of eminent domain or by condemnation or similar proceeding of, any
property or asset of a Transaction Party or any Subsidiary;
(c) the issuance by a Transaction Party or any Subsidiary of any
equity securities, other than any such issuance of equity securities to
the Borrower or a Subsidiary; or
(d) the incurrence by a Transaction Party or any Subsidiary of any
Indebtedness of the type described in clause (a), (b) or (c) of the
definition of the term "Indebtedness", other than Indebtedness permitted
by Section 6.01(a)(i) through (x) and Section 6.01(a)(xii).
"Prime Rate" means the rate of interest per annum publicly
announced from time to time by Chase as its prime rate in effect at its
principal office in New York City; each change in the Prime Rate shall be
effective from and including the date such change is publicly announced as being
effective.
"Real Estate Prepayment Event" means any Prepayment Event
resulting from the sale, transfer or other disposition (including due to
casualty or condemnation) of real estate and fixtures relating to such real
estate.
"Receivables Purchase Agreements" means (a) the Business Revolving
Charge Program Agreement dated April 3, 1992, as amended, by and among
Hechinger, Home Quarters Warehouse, Inc. and General Electric Capital
Corporation and (b) the GE Capital Program Agreement, dated April 12, 1996, by
and between General Electric Capital Corporation and Builders Square.
"Register" has the meaning set forth in Section 9.04(c).
"Regulation U" means Regulation U of the Board as from time to
time in effect and all official rulings and interpretations thereunder or
thereof.
"Regulation X" means Regulation X of the Board as from time to
time in effect and all official rulings and interpretations thereunder or
thereof.
"Related Parties" means, with respect to any specified Person,
such Person's Affiliates and the respective directors, officers, employees,
agents and advisors of such Person and such Person's Affiliates.
"Release" has the meaning set forth in Section 101(22) of CERCLA.
"Required Lenders" means, at any time, Lenders having Total
Exposures and unused Revolving Commitments representing more than 50% of the sum
of the Total Exposures and unused Revolving Commitments at such time.
"Restatement Closing Date" means the date on which the conditions
specified in Section 4.01 are satisfied (or waived in accordance with Section
9.02).
<PAGE> 22
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"Restricted Payment" means any dividend or other distribution
(whether in cash, securities or other property) with respect to any shares of
any class of capital stock of any Transaction Party or any Subsidiary, or any
payment (whether in cash, securities or other property), including any sinking
fund or similar deposit, on account of the purchase, redemption, retirement,
acquisition, cancelation or termination of any such shares of capital stock of a
member of any Transaction Party or any Subsidiary or any option, warrant or
other right to acquire any such shares of capital stock of any Transaction Party
or any Subsidiary.
"Revolving Availability Period" means the period from and
including the Effective Date to but excluding the earlier of the Maturity Date
and the date of termination of the Revolving Commitments.
"Revolving Commitment" means, with respect to each Lender, the
commitment of such Lender to make Revolving Loans and to acquire participations
in Letters of Credit and Swingline Loans hereunder, expressed as an amount
representing the maximum aggregate amount of such Lender's Total Exposure
hereunder, as such commitment may be (a) reduced from time to time pursuant to
Section 2.08 and (b) reduced or increased from time to time pursuant to
assignments by or to such Lender pursuant to Section 9.04. The initial amount of
each Lender's Revolving Commitment is set forth on Schedule 2.01, or in the
Assignment and Acceptance pursuant to which such Lender shall have assumed its
Revolving Commitment, as applicable (and the initial aggregate amount of the
Lenders' Revolving Commitments is $600,000,000).
"Revolving Lenders" means the Persons listed on Schedule 2.01 as
having Revolving Commitments and any other Person that shall have become a party
hereto and have Revolving Commitments pursuant to an Assignment and Acceptance,
other than any such Person that ceases to have a Revolving Commitment pursuant
to an Assignment and Acceptance. Unless the context otherwise requires, the term
"Revolving Lenders" includes the Swingline Lender.
"Revolving Loans" means Loans made by the Lenders to the Borrower
pursuant to Section 2.01.
"S&P" means Standard & Poor's.
"Second Credit Event Date" means October 3, 1997.
"Secured Parties" has the meaning assigned to such term in the
Security Agreement.
"Security Agreement" means the Security Agreement, substantially
in the form of Exhibit H, among the Transaction Parties, the other Subsidiary
Loan Parties and the Collateral Agent for the benefit of the Secured Parties.
"Security Documents" means the Security Agreement, the Pledge
Agreement and each other security agreement or other instrument or document
executed and delivered pursuant to Section 5.12 or 5.13 to secure any of the
Obligations.
"Shrink" means Inventory identified by the Borrower as lost,
misplaced or stolen Inventory.
"Shrink Reserve" means, at any time, an amount equal to accruals
for Shrink recorded by the Borrower at such time, which accruals have been
determined on a basis consistent with the current and historical accounting
practice of the Borrower of accruing for Shrink as a percentage of Inventory
Value (which percentage will equal the average of the percentage that Shrink
represents of total Inventory Value
<PAGE> 23
19
based on the results of the two most recent semi-annual physical inventories
conducted with respect to such Inventory), provided that such reserve shall not
be less than 4% of the Inventory Value recorded on the Borrower's SMO Report or
such other greater or lesser amount determined in the Borrowing Base Audit
Agent's and the Collateral Agent's reasonable discretion to reflect Shrink.
"SMO Report" means the Statement of Merchandising Operations
Report issued in connection with the Borrower's perpetual weighted average cost
ledger system.
"Special Order Deposit Liability" (a) means, at any time, with
respect to Inventory recorded on the Borrower's SMO Report, the excess at such
time of (i) the aggregate amount of deposits with respect to special order
merchandise over (ii) the corresponding decrease recorded in Eligible Inventory
and (b) shall be calculated in accordance with Schedule A to Exhibit I.
"Specified Event of Default" means (a) any Event of Default
described in paragraph (a), (b), (h) or (i) of Article VII, (b) pursuant to
Article VII, the termination by the Administrative Agent of the Commitments and
the declaration by the Administrative Agent that the Loans then outstanding are
immediately due and payable in whole, (c) any "Event of Default" described in
paragraph (a), (b), (h) or (i) of Article VII of the Supplemental Credit
Agreement or (d) pursuant to Article VII of the Supplemental Credit Agreement,
the termination of the Supplemental Facility and the declaration that the
Supplemental Revolving Loans then outstanding are immediately due and payable in
whole.
"Standby Letter of Credit" means any Letter of Credit other than a
Commercial Letter of Credit.
"Statutory Reserve Rate" means a fraction (expressed as a
decimal), the numerator of which is the number one and the denominator of which
is the number one minus the aggregate of the maximum reserve percentages
(including any marginal, special, emergency or supplemental reserves) expressed
as a decimal established by the Board to which the Administrative Agent is
subject (a) with respect to the Base CD Rate, for new negotiable nonpersonal
time deposits in dollars of over $100,000 with maturities approximately equal to
three months and (b) with respect to the Adjusted LIBO Rate, for eurocurrency
funding (currently referred to as "Eurocurrency Liabilities" in Regulation D of
the Board). Such reserve percentages shall include those imposed pursuant to
such Regulation D. Eurodollar Loans shall be deemed to constitute eurocurrency
funding and to be subject to such reserve requirements without benefit of or
credit for proration, exemptions or offsets that may be available from time to
time to any Lender under such Regulation D or any comparable regulation. The
Statutory Reserve Rate shall be adjusted automatically on and as of the
effective date of any change in any reserve percentage.
"subsidiary" means, with respect to any Person (the "parent") at
any date, any corporation, limited liability company, partnership, association
or other entity the accounts of which would be consolidated with those of the
parent in the parent's consolidated financial statements if such financial
statements were prepared in accordance with GAAP as of such date, as well as any
other corporation, limited liability company, partnership, association or other
entity (a) of which securities or other ownership interests representing more
than 50% of the equity or more than 50% of the ordinary voting power or, in the
case of a partnership, more than 50% of the general partnership interests are,
as of such date, owned, controlled or held, or (b) that is, as of such date,
otherwise Controlled, by the parent or one or more subsidiaries of the parent or
by the parent and one or more subsidiaries of the parent.
"Subsidiary" means any subsidiary of Holdings.
"Subsidiary Guarantee Agreement" means the Guarantee Agreement,
substantially in the form of Exhibit E, made by the Borrower Subsidiaries in
favor of the Agents for the benefit of the Secured Parties.
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20
"Subsidiary Loan Party" means any Subsidiary that is not a Foreign
Subsidiary.
"Supplemental Credit Agreement" means the Credit Agreement dated
as of the date hereof among the Borrower, the other Transaction Parties, the
lenders from time to time party thereto and Chase, as administrative agent and
as collateral agent on behalf of such lenders.
"Supplemental Facility" means the revolving credit facility in an
aggregate principal amount of $50,000,000 made available to the Borrower by the
Supplemental Facility Lenders pursuant to the Supplemental Credit Agreement.
"Supplemental Facility Lenders" means the lenders from time to
time party to the Supplemental Credit Agreement.
"Supplemental Facility Termination Date" means June 30, 1999.
"Supplemental Loan Documents" means the Supplemental Credit
Agreement and the related "Loan Documents" (as such term is defined in the
Supplemental Credit Agreement).
"Supplemental Revolving Borrowings" means a "Revolving Borrowing"
(as such term is defined in the Supplemental Credit Agreement).
"Supplemental Revolving Commitments" means "Revolving Commitments"
(as such term is defined in the Supplemental Credit Agreement).
"Supplemental Revolving Loans" means a "Revolving Loan" (as such
term is defined in the Supplemental Credit Agreement).
"Supplemental Swingline Loans" means a "Swingline Loan" (as such
term is defined in the Supplemental Credit Agreement).
"Swingline Exposure" means, at any time, the aggregate principal
amount of all Swingline Loans outstanding at such time. The Swingline Exposure
of any Revolving Lender at any time shall be its Applicable Percentage of the
total Swingline Exposure at such time.
"Swingline Lender" means Chase, in its capacity as lender of
Swingline Loans hereunder.
"Swingline Loan" means a Loan made pursuant to Section 2.04.
"Syndication Agent" means Citicorp USA, in its capacity as
syndication agent for the Lenders hereunder.
"Taxes" means any and all current or future taxes, levies,
imposts, duties, deductions, charges or withholdings imposed by any Governmental
Authority.
"Three-Month Secondary CD Rate" means, for any day, the secondary
market rate for three-month certificates of deposit reported as being in effect
on such day (or, if such day is not a Business Day, the next preceding Business
Day) by the Board through the public information telephone line of the Federal
Reserve Bank of New York (which rate will, under the current practices of the
Board, be published in Federal Reserve Statistical Release H.15(519) during the
week following such day) or, if such rate is not so reported on such day or such
next preceding Business Day, the average of the secondary market quotations for
three-month certificates of deposit of major money center banks in New York City
received
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21
at approximately 10:00 a.m., New York City time, on such day (or, if such day is
not a Business Day, on the next preceding Business Day) by the Administrative
Agent from three negotiable certificate of deposit dealers of recognized
standing selected by it.
"Total Exposure" means, with respect to any Lender at any time,
the sum of the outstanding principal amount of such Lender's Revolving Loans and
its LC Exposure and Swingline Exposure at such time.
"Transaction Parties" means Holdings, BSQ Acqco, BSQ Newco,
Hechinger, Hechinger Stores, Hechinger East Coast and the Borrower.
"Transactions" means the Acquisitions (as such term is defined in
the Original Credit Agreement), the Financing Transactions (as such term is
defined in the Original Credit Agreement) and the Additional Financing
Transactions.
"Type", when used in reference to any Loan or Borrowing, refers to
whether the rate of interest on such Loan, or on the Loans comprising such
Borrowing, is determined by reference to the Adjusted LIBO Rate or the Alternate
Base Rate.
"Withdrawal Liability" means liability to a Multiemployer Plan as
a result of a complete or partial withdrawal from such Multiemployer Plan, as
such terms are defined in Part I of Subtitle E of Title IV of ERISA.
SECTION 1.02. Classification of Loans and Borrowings. For purposes
of this Agreement, Loans may be classified and referred to by Class (e.g., a
"Revolving Loan") or by Type (e.g., a "Eurodollar Loan") or by Class and Type
(e.g., a "Eurodollar Revolving Loan"). Borrowings also may be classified and
referred to by Class (e.g., a "Revolving Borrowing") or by Type (e.g., a
"Eurodollar Borrowing") or by Class and Type (e.g., a "Eurodollar Revolving
Borrowing").
SECTION 1.03. Terms Generally. The definitions of terms herein
shall apply equally to the singular and plural forms of the terms defined.
Whenever the context may require, any pronoun shall include the corresponding
masculine, feminine and neuter forms. The words "include", "includes" and
"including" shall be deemed to be followed by the phrase "without limitation".
The word "will" shall be construed to have the same meaning and effect as the
word "shall". Unless the context requires otherwise (a) any definition of or
reference to any agreement, instrument or other document herein shall be
construed as referring to such agreement, instrument or other document as from
time to time amended, supplemented or otherwise modified (subject to any
restrictions on such amendments, supplements or modifications set forth herein),
(b) any reference herein to any Person shall be construed to include such
Person's successors and assigns, (c) the words "herein", "hereof" and
"hereunder", and words of similar import, shall be construed to refer to this
Agreement in its entirety and not to any particular provision hereof, (d) all
references herein to Articles, Sections, Exhibits and Schedules shall be
construed to refer to Articles and Sections of, and Exhibits and Schedules to,
this Agreement and (e) the words "asset" and "property" shall be construed to
have the same meaning and effect and to refer to any and all tangible and
intangible assets and properties, including cash, securities, accounts and
contract rights.
SECTION 1.04. Accounting Terms; GAAP. Except as otherwise
expressly provided herein, all terms of an accounting or financial nature shall
be construed in accordance with GAAP, as in effect from time to time, provided
that, if the Borrower notifies the Administrative Agent that the Borrower
requests an amendment to any provision hereof to eliminate the effect of any
change occurring after the date hereof in GAAP or in the application thereof on
the
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22
operation of such provision (or if the Administrative Agent notifies the
Borrower that the Required Lenders request an amendment to any provision hereof
for such purpose), regardless of whether any such notice is given before or
after such change in GAAP or in the application thereof, then such provision
shall be interpreted on the basis of GAAP as in effect and applied immediately
before such change shall have become effective until such notice shall have been
withdrawn or such provision amended in accordance herewith.
ARTICLE II
The Credits
SECTION 2.01. Commitments. Subject to the terms and conditions set
forth herein, each Lender agrees to make Revolving Loans to the Borrower from
time to time during the Revolving Availability Period in an aggregate principal
amount that will not result in such Lender's Total Exposure exceeding the lesser
of (a) such Lender's Revolving Commitment and (b) such Lender's Applicable
Percentage of the Borrowing Base in effect at such time. Within the foregoing
limits and subject to the terms and conditions set forth herein, the Borrower
may borrow, prepay and reborrow Revolving Loans.
SECTION 2.02. Loans and Borrowings. (a) Each Loan (other than a
Swingline Loan) shall be made as part of a Borrowing consisting of Loans of the
same Class and Type made by the Lenders ratably in accordance with their
respective Commitments of the applicable Class. The failure of any Lender to
make any Loan required to be made by it shall not relieve any other Lender of
its obligations hereunder, provided that the Commitments of the Lenders are
several and no Lender shall be responsible for any other Lender's failure to
make Loans as required.
(b) Subject to Section 2.13, each Revolving Borrowing shall be
comprised entirely of ABR Loans or Eurodollar Loans as the Borrower may request
in accordance herewith. Each Swingline Loan shall be an ABR Loan. Each Lender at
its option may make any Eurodollar Loan by causing any domestic or foreign
branch or Affiliate of such Lender to make such Loan, provided that any exercise
of such option shall not affect the obligation of the Borrower to repay such
Loan in accordance with the terms of this Agreement.
(c) At the commencement of each Interest Period for any Eurodollar
Borrowing, such Borrowing shall be in an aggregate amount that is an integral
multiple of $1,000,000 and not less than $5,000,000. At the time that each ABR
Borrowing is made, such Borrowing shall be in an aggregate amount that is an
integral multiple of $1,000,000 and not less than $5,000,000, provided that an
ABR Borrowing may be in an aggregate amount that is equal to the entire unused
balance of the total Revolving Commitments or that is required to finance the
reimbursement of an LC Disbursement as contemplated by Section 2.05(e). Each
Swingline Loan shall be in an amount that is an integral multiple of $100,000
and not less than $1,000,000. Borrowings of more than one Type and Class may be
outstanding at the same time, provided that there shall not at any time be more
than a total of 12 Eurodollar Borrowings outstanding.
(d) Notwithstanding any other provision of this Agreement, the
Borrower shall not be entitled to request, or to elect to convert or continue,
any Borrowing if the Interest Period requested with respect thereto would end
after the Maturity Date.
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SECTION 2.03. Requests for Borrowings. To request a Revolving
Borrowing, the Borrower shall notify the Administrative Agent of such request
by telephone (a) in the case of a Eurodollar Borrowing, not later than 11:00
a.m., New York City time, three Business Days before the date of the proposed
Borrowing or (b) in the case of an ABR Borrowing, not later than 11:00 a.m.,
New York City time, one Business Day before the date of the proposed Borrowing,
provided that any such notice of an ABR Revolving Borrowing to finance the
reimbursement of an LC Disbursement as contemplated by Section 2.05(e) may be
given not later than 10:00 a.m., New York City time, on the date of the
proposed Borrowing. Each such telephonic Borrowing Request shall be irrevocable
and shall be confirmed promptly by hand delivery or telecopy to the
Administrative Agent of a written Borrowing Request in a form approved by the
Administrative Agent and signed by the Borrower. Each such telephonic and
written Borrowing Request shall specify the following information in compliance
with Section 2.02:
(i) the aggregate amount of such Borrowing;
(ii) the date of such Borrowing, which shall be a Business Day;
(iii) subject to the second sentence of Section 2.02(b), whether
such Borrowing is to be an ABR Borrowing or a Eurodollar Borrowing;
(iv) in the case of a Eurodollar Borrowing, the initial Interest
Period to be applicable thereto, which shall be a period contemplated by
the definition of the term "Interest Period"; and
(v) the location and number of the Borrower's account to which
funds are to be disbursed, which shall comply with the requirements of
Section 2.06.
If no election as to the Type of Borrowing is specified, then the requested
Borrowing shall be an ABR Borrowing. If no Interest Period is specified with
respect to any requested Eurodollar Borrowing, then the Borrower shall be
deemed to have selected an Interest Period of one month's duration. Promptly
following receipt of a Borrowing Request in accordance with this Section, the
Administrative Agent shall advise each Lender of the details thereof and of the
amount of such Lender's Loan to be made as part of the requested Borrowing.
SECTION 2.04. Swingline Loans. (a) Subject to the terms and
conditions set forth herein, the Swingline Lender agrees to make Swingline
Loans to the Borrower from time to time during the Revolving Availability
Period, in an aggregate principal amount at any time outstanding that will not
result in (i) the aggregate principal amount of outstanding Swingline Loans
exceeding $25,000,000 or (ii) the sum of the Total Exposures exceeding the
lesser of (A) the total Revolving Commitments and (B) the Borrowing Base in
effect at such time, provided that the Swingline Lender shall not be required
to make a Swingline Loan to refinance an outstanding Swingline Loan. Within the
foregoing limits and subject to the terms and conditions set forth herein, the
Borrower may borrow, prepay and reborrow Swingline Loans.
(b) To request a Swingline Loan, the Borrower shall notify the
Administrative Agent of such request by telephone (confirmed by telecopy), not
later than 12:00 noon, New York City time, on the day of a proposed Swingline
Loan. Each such notice shall be irrevocable and shall specify the requested
date (which shall be a Business Day) and amount of the requested Swingline
Loan. The Administrative Agent will promptly advise the Swingline Lender of any
such notice received from the Borrower. The Swingline Lender shall make each
Swingline Loan available to the Borrower by means of a credit to the general
deposit account of the Borrower with the Swingline Lender (or, in the case of a
Swingline Loan made to finance the reimbursement of an LC Disbursement as
provided in Section 2.05(e), by remittance to the Issuing Bank) by 3:00 p.m.,
New York City time, on the requested date of such Swingline Loan.
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(c) The Swingline Lender may by written notice given to the
Administrative Agent not later than 10:00 a.m., New York City time, on any
Business Day require the Revolving Lenders to acquire participations on such
Business Day in all or a portion of the Swingline Loans outstanding. Such
notice shall specify the aggregate amount of Swingline Loans in which Revolving
Lenders will participate. Promptly upon receipt of such notice, the
Administrative Agent will give notice thereof to each Revolving Lender,
specifying in such notice such Revolving Lender's Applicable Percentage of such
Swingline Loan or Loans. Each Revolving Lender hereby absolutely and
unconditionally agrees, upon receipt of notice as provided above, to pay to the
Administrative Agent, for the account of the Swingline Lender, such Revolving
Lender's Applicable Percentage of such Swingline Loan or Loans. Each Revolving
Lender acknowledges and agrees that its obligation to acquire participations in
Swingline Loans pursuant to this paragraph is absolute and unconditional and
shall not be affected by any circumstance whatsoever, including the occurrence
and continuance of a Default or reduction or termination of the Commitments,
and that each such payment shall be made without any offset, abatement,
withholding or reduction whatsoever. Each Revolving Lender shall comply with
its obligation under this paragraph by wire transfer of immediately available
funds, in the same manner as provided in Section 2.06 with respect to Loans
made by such Revolving Lender (and Section 2.06 shall apply, mutatis mutandis,
to the payment obligations of the Revolving Lenders), and the Administrative
Agent shall promptly pay to the Swingline Lender the amounts so received by it
from the Revolving Lenders. The Administrative Agent shall notify the Borrower
of any participations in any Swingline Loan acquired pursuant to this
paragraph, and thereafter payments in respect of such Swingline Loan shall be
made to the Administrative Agent and not to the Swingline Lender. Any amounts
received by the Swingline Lender from the Borrower (or other party on behalf of
the Borrower) in respect of a Swingline Loan after receipt by the Swingline
Lender of the proceeds of a sale of participations therein shall be promptly
remitted to the Administrative Agent; any such amounts received by the
Administrative Agent shall be promptly remitted by the Administrative Agent to
the Revolving Lenders that shall have made their payments pursuant to this
paragraph and to the Swingline Lender, as their interests may appear. The
purchase of participations in a Swingline Loan pursuant to this paragraph shall
not relieve the Borrower of any default in the payment thereof.
SECTION 2.05. Letters of Credit. (a) General. Subject to the terms
and conditions set forth herein, (i) each of the Existing Letters of Credit
shall, without any further action on the part of the Issuing Bank or any other
Person, be deemed for all purposes to have been issued by the Issuing Bank on
the Effective Date as a Letter of Credit hereunder and (ii) the Borrower may
request the issuance of additional Letters of Credit for its own account, in a
form reasonably acceptable to the Administrative Agent and the Issuing Bank, at
any time and from time to time during the LC Availability Period. In the event
of any inconsistency between the terms and conditions of this Agreement and the
terms and conditions of any form of letter of credit application or other
agreement submitted by the Borrower to, or entered into by the Borrower with,
the Issuing Bank relating to any Letter of Credit, the terms and conditions of
this Agreement shall control.
(b) Notice of Issuance, Amendment, Renewal, Extension; Certain
Conditions. To request the issuance of a Letter of Credit (or the amendment,
renewal or extension of an outstanding Letter of Credit), the Borrower shall
hand deliver or telecopy (or transmit by electronic communication, if
arrangements for doing so have been approved by the Issuing Bank) to the
Issuing Bank and the Administrative Agent (reasonably in advance of the
requested date of issuance, amendment, renewal or extension) a notice
requesting the issuance of a Letter of Credit, or identifying the Letter of
Credit to be amended, renewed or extended, and specifying the date of issuance,
amendment, renewal or extension (which shall be a Business Day), the date on
which such Letter of Credit is to expire (which shall comply with paragraph (c)
of this Section), the amount of such Letter of Credit, the name and address of
the beneficiary thereof and such other information as shall be necessary to
prepare, amend, renew or extend such Letter of Credit. If requested by the
Issuing Bank, the Borrower also shall submit a letter of credit application on
the Issuing Bank's standard form in connection with any request for a Letter of
Credit. A
<PAGE> 29
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Letter of Credit shall be issued, amended, renewed or extended only if (and
upon issuance, amendment, renewal or extension of each Letter of Credit the
Borrower shall be deemed to represent and warrant that), afte giving effect to
such issuance, amendment, renewal or extension (i) the LC Exposure shall not
exceed $125,000,000 and (ii) the aggregate Total Exposures shall not exceed
the lesser of (A) the aggregate Revolving Commitments and (B) the Borrowing
Base in effect at such time.
(c) Expiration Date. Each Letter of Credit shall expire at or
prior to the close of business on the earlier of (i) the date one year after
the date of the issuance of such Letter of Credit (or, in the case of any
renewal or extension thereof, one year after such renewal or extension)
and (ii) the date that is five Business Days prior to the Maturity Date,
provided that each Letter of Credit may, upon the request of the Borrower,
include a provision whereby such Letter of Credit shall be renewed
automatically for additional consecutive periods of 12 months or less (but not
beyond the date that is five Business Days prior to the Maturity Date) unless
the Issuing Bank notifies the beneficiary thereof at least 30 days prior to
the then-applicable expiration date that such Letter of Credit will not be
renewed.
(d) Participations. By the issuance (or, in the case of the
Existing Letters of Credit, deemed issuance) of a Letter of Credit (or a
amendment to a Letter of Credit increasing the amount thereof) and
without any further action on the part of the Issuing Bank or the
Lenders, the Issuing Bank hereby grants to each Revolving Lender, and each
Revolving Lender hereby acquires from the Issuing Bank, a participation in
such Letter of Credit equal to such Revolving Lender's Applicable Percentage
of the aggregate amount available to be drawn unde such Letter of Credit. In
consideration and in furtherance of the foregoing, each Revolving Lender hereby
absolutely and unconditionally agrees to pay to the Administrative Agent, for
the account of the Issuin Bank, such Revolving Lender's Applicable Percentage
of each LC Disbursement made by the Issuing Bank and not reimbursed by the
Borrower on the date due as provided in paragraph (e) of this Section, or of
any reimbursement payment required to be refunded to the Borrower for any
reason. Each Revolving Lender acknowledges and agrees that its obligatio to
acquire participations pursuant to this paragraph in respect of Letters of
Credit is absolute and unconditional and shall not be affecte by any
circumstance whatsoever, including any amendment, renewal or extension of any
Letter of Credit or the occurrence and continuance of a Default or reduction or
termination of the Commitments, and that each such payment shall be made
without any offset, abatement, withholding or reduction whatsoever.
(e) Reimbursement. If the Issuing Bank shall make any LC
Disbursement in respect of a Letter of Credit, the Borrower shall reimburse
such LC Disbursement by paying to the Administrative Agent an amount
equal to such LC Disbursement not later than 12:00 noon, New York City time, on
the date that such LC Disbursement is made, if the Borrowe shall have received
notice of such LC Disbursement prior to 10:00 a.m., New York City time, on suc
date, or, if such notice has not been received by the Borrower prior to such
time on such date, then not later than 12:00 noon, New York City time, on
(i) the Business Day that the Borrower receives such notice, if such notice
is received prior to 10:00 a.m., New York City time, on the day of receipt, or
(ii) the Business Da immediately following the day that the Borrower receives
such notice, if such notice is not received prior to such time on the day of
receipt, provided that the Borrower may, subject to the conditions to
borrowing set forth herein, request in accordance with Section 2.03 or 2.04
that such payment be financed with an ABR Revolving Borrowing or Swingline
Loan in an equivalent amount and, to the extent so financed, the Borrower's
obligation to make such payment shall be discharged and replaced by the
resulting ABR Revolving Borrowing or Swingline Loan. If the Borrower fails to
make such payment when due, the Administrative Agent shall notify each
Revolving Lender of the applicable LC Disbursement, the payment then due from
the Borrower in respect thereof and such Revolving Lender's Applicable
Percentage thereof. Promptly following receipt of such notice, each Revolving
Lender shall pay to the Administrative Agent its Applicable Percentage of the
payment then due from the Borrower, in the same manner as provided in Section
2.06 with respect to Loans made by such Revolving Lender (and Section 2.06
shall apply, mutatis mutandis, to the payment obligations of the Revolving
Lenders), and the Administrative Agent shall promptly pay to the Issuing
<PAGE> 30
26
Bank the amounts so received by it from the Revolving Lenders. Promptly
following receipt by the Administrative Agent of any payment from the Borrower
pursuant to this paragraph, the Administrative Agent shall distribute such
payment to the Issuing Bank or, to the extent that Revolving Lenders have made
payments pursuant to this paragraph to reimburse the Issuing Bank, then to such
Revolving Lenders and the Issuing Bank as their interests may appear. Any
payment made by a Revolving Lender pursuant to this paragraph to reimburse the
Issuing Bank for any LC Disbursement (other than the funding of ABR Revolving
Loans or a Swingline Loan as contemplated above) shall not constitute a Loan
and shall not relieve the Borrower of its obligation to reimburse such LC
Disbursement.
(f) Obligations Absolute. The Borrower's obligation to reimburse LC
Disbursements as provided in paragraph (e) of this Section shall be absolute,
unconditional and irrevocable, and shall be performed strictly in accordance
with the terms of this Agreement under any and all circumstances whatsoever and
irrespective of (i) any lack of validity or enforceability of any Letter of
Credit or this Agreement, or any term or provision therein, (ii) any draft or
other document presented under a Letter of Credit proving to be forged,
fraudulent or invalid in any respect or any statement therein being untrue or
inaccurate in any respect, (iii) payment by the Issuing Bank under a Letter of
Credit against presentation of a draft or other document that does not comply
with the terms of such Letter of Credit, or (iv) any other event or
circumstance whatsoever, whether or not similar to any of the foregoing, that
might, but for the provisions of this Section, constitute a legal or equitable
discharge of, or provide a right of setoff against, the Borrower's obligations
hereunder. None of the Administrative Agent, the Lenders, the Issuing Bank or
any of their Related Parties shall have any liability or responsibility by
reason of or in connection with the issuance or transfer of any Letter of
Credit or any payment or failure to make any payment thereunder (irrespective
of any of the circumstances referred to in the preceding sentence), or any
error, omission, interruption, loss or delay in transmission or delivery of any
draft, notice or other communication under or relating to any Letter of Credit
(including any document required to make a drawing thereunder), any error in
interpretation of technical terms or any consequence arising from causes beyond
the control of the Issuing Bank, provided that the foregoing shall not be
construed to excuse the Issuing Bank from liability to the Borrower to the
extent of any direct damages (as opposed to consequential damages, claims in
respect of which are hereby waived by the Borrower to the extent permitted by
applicable law) suffered by the Borrower that are caused by the Issuing Bank's
failure to exercise care when determining whether drafts and other documents
presented under a Letter of Credit comply with the terms thereof. The parties
hereto expressly agree that, in the absence of gross negligence or wilful
misconduct on the part of the Issuing Bank (as finally determined by a court of
competent jurisdiction), the Issuing Bank shall be deemed to have exercised
care in each such determination. In furtherance of the foregoing and without
limiting the generality thereof, the parties agree that, with respect to
documents presented that appear on their face to be in compliance with the
terms of a Letter of Credit, the Issuing Bank may, in its sole discretion,
either accept and make payment upon such documents without responsibility for
further investigation, regardless of any notice or information to the contrary,
or refuse to accept and make payment upon such documents if such documents are
not in strict compliance with the terms of such Letter of Credit.
(g) Disbursement Procedures. The Issuing Bank shall, promptly following
its receipt thereof, examine all documents purporting to represent a demand for
payment under a Letter of Credit. The Issuing Bank shall promptly notify the
Administrative Agent and the Borrower by telephone (confirmed by telecopy) of
such demand for payment and whether the Issuing Bank has made or will make an
LC Disbursement thereunder, provided that any failure to give or delay in
giving such notice shall not relieve the Borrower of its obligation to
reimburse the Issuing Bank and the Lenders with respect to any such LC
Disbursement.
(h) Interim Interest. If the Issuing Bank shall make any LC
Disbursement, then, unless the Borrower shall reimburse such LC Disbursement in
full on the date such LC Disbursement is made, the unpaid amount thereof shall
bear interest, for each day from and including the date such LC Disbursement is
made to but excluding the date that the Borrower reimburses such LC
Disbursement, at the rate per
<PAGE> 31
27
annum then applicable to ABR Revolving Loans, provided that, if the Borrower
fails to reimburse such LC Disbursement when due pursuant to paragraph (e) of
this Section, then Section 2.12(c) shall apply. Interest accrued pursuant to
this paragraph shall be for the account of the Issuing Bank, except that
interest accrued on and after the date of payment by any Revolving Lender
pursuant to paragraph (e) of this Section to reimburse the Issuing Bank shall
be for the account of such Revolving Lender to the extent of such payment.
(i) Replacement of the Issuing Bank. The Issuing Bank may be replaced
at any time by written agreement among the Borrower, the Administrative Agent,
the replaced Issuing Bank and the successor Issuing Bank. The Administrative
Agent shall notify the Lenders of any such replacement of the Issuing Bank. At
the time any such replacement shall become effective, the Borrower shall pay
all unpaid fees accrued for the account of the replaced Issuing Bank pursuant
to Section 2.11(b). From and after the effective date of any such replacement,
(i) the successor Issuing Bank shall have all the rights and obligations of the
Issuing Bank under this Agreement with respect to Letters of Credit to be
issued thereafter and (ii) references herein to the term "Issuing Bank" shall
be deemed to refer to such successor or to any previous Issuing Bank, or to
such successor and all previous Issuing Banks, as the context shall require.
After the replacement of an Issuing Bank hereunder, the replaced Issuing Bank
shall remain a party hereto and shall continue to have all the rights and
obligations of an Issuing Bank under this Agreement with respect to Letters of
Credit issued by it prior to such replacement, but shall not be required to
issue additional Letters of Credit.
(j) Cash Collateralization. If any Event of Default shall occur and be
continuing, on the Business Day that the Borrower receives notice from the
Administrative Agent or the Required Lenders (or, if the maturity of the Loans
has been accelerated, Revolving Lenders with LC Exposure representing greater
than 50% of the total LC Exposure) demanding the deposit of cash collateral
pursuant to this paragraph, the Borrower shall deposit in an account with the
Collateral Agent, in the name of the Collateral Agent and for the benefit of
the Revolving Lenders, an amount in cash equal to 105% of the LC Exposure as of
such date plus any accrued and unpaid interest thereon, provided that the
obligation to deposit such cash collateral shall become effective immediately,
and such deposit shall become immediately due and payable, without demand or
other notice of any kind, upon the occurrence of any Event of Default with
respect to the Borrower described in clause (h) or (i) of Article VII. Each
such deposit shall be held by the Collateral Agent as collateral for the
payment and performance of the obligations of the Borrower under this
Agreement. The Collateral Agent shall have exclusive dominion and control,
including the exclusive right of withdrawal, over such account. Other than any
interest earned on the investment of such deposits, which investments shall be
made at the option and sole discretion of the Collateral Agent at the request
of the Borrower and at the Borrower's risk and expense, such deposits shall not
bear interest. Interest or profits, if any, on such investments shall
accumulate in such account. Moneys in such account shall be applied by the
Collateral Agent to reimburse the Issuing Bank for LC Disbursements for which
it has not been reimbursed and, to the extent not so applied, shall be held for
the satisfaction of the reimbursement obligations of the Borrower for the LC
Exposure at such time or, if the maturity of the Loans has been accelerated
(but subject to the consent of Revolving Lenders with LC Exposure representing
greater than 50% of the total LC Exposure), be applied to satisfy other
obligations of the Borrower under this Agreement. If the Borrower is required
to provide an amount of cash collateral hereunder as a result of the occurrence
of an Event of Default, such amount (to the extent not applied as aforesaid)
shall be returned to the Borrower within three Business Days after all Events
of Default have been cured or waived.
SECTION 2.06. Funding of Borrowings. (a) Each Lender shall make each
Loan to be made by it hereunder on the proposed date thereof by wire transfer
of immediately available funds by 12:00 noon, New York City time, to the
account of the Administrative Agent most recently designated by the
Administrative Agent for such purpose by notice to the Lenders, provided that
Swingline Loans shall be made as provided in Section 2.04. The Administrative
Agent will make such Loans available to the Borrower by promptly crediting the
amounts so received, in
<PAGE> 32
28
like funds, to an account of the Borrower maintained with the Administrative
Agent in New York City and designated by the Borrower in the applicable
Borrowing Request, provided that ABR Revolving Loans made to finance the
reimbursement of an LC Disbursement as provided in Section 2.05(e) shall be
remitted by the Administrative Agent to the Issuing Bank.
(b) Unless the Administrative Agent shall have received notice from a
Lender prior to the proposed date of any Borrowing that such Lender will not
make available to the Administrative Agent such Lender's share of such
Borrowing, the Administrative Agent may assume that such Lender has made such
share available on such date in accordance with paragraph (a) of this Section
and may, in reliance upon such assumption, make available to the Borrower a
corresponding amount. In such event, if a Lender has not in fact made its share
of the applicable Borrowing available to the Administrative Agent, then the
applicable Lender and the Borrower severally agree to pay to the Administrative
Agent forthwith on demand such corresponding amount with interest thereon, for
each day from and including the date such amount is made available to the
Borrower to but excluding the date of payment to the Administrative Agent, at
(i) in the case of such Lender, the greater of the Federal Funds Effective Rate
and a rate determined by the Administrative Agent in accordance with banking
industry rules on interbank compensation or (ii) in the case of the Borrower,
the interest rate applicable to ABR Loans. If such Lender pays such amount to
the Administrative Agent, then such amount shall constitute such Lender's Loan
included in such Borrowing.
SECTION 2.07. Interest Elections. (a) Each Revolving Borrowing
initially shall be of the Type specified in the applicable Borrowing Request
and, in the case of a Eurodollar Borrowing, shall have an initial Interest
Period as specified in such Borrowing Request. Thereafter, the Borrower may
elect to convert such Borrowing to a different Type or to continue such
Borrowing and, in the case of a Eurodollar Borrowing, may elect Interest
Periods therefor, all as provided in this Section. The Borrower may elect
different options with respect to different portions of the affected Borrowing,
in which case each such portion shall be allocated ratably among the Lenders
holding the Loans comprising such Borrowing, and the Loans comprising each such
portion shall be considered a separate Borrowing. This Section shall not apply
to Swingline Borrowings, which may not be converted or continued.
(b) To make an election pursuant to this Section, the Borrower shall
notify the Administrative Agent of such election by telephone by the time that
a Borrowing Request would be required under Section 2.03 if the Borrower were
requesting a Revolving Borrowing of the Type resulting from such election to be
made on the effective date of such election. Each such telephonic Interest
Election Request shall be irrevocable and shall be confirmed promptly by hand
delivery or telecopy to the Administrative Agent of a written Interest Election
Request in a form approved by the Administrative Agent and signed by the
Borrower.
(c) Each telephonic and written Interest Election Request shall specify
the following information in compliance with Section 2.02:
(i) the Borrowing to which such Interest Election Request applies
and, if different options are being elected with respect to different
portions thereof, the portions thereof to be allocated to each resulting
Borrowing (in which case the information to be specified pursuant to
clauses (iii) and (iv) below shall be specified for each resulting
Borrowing);
(ii) the effective date of the election made pursuant to such Interest
Election Request, which shall be a Business Day;
(iii) whether the resulting Borrowing is to be an ABR Borrowing or a
Eurodollar Borrowing; and
<PAGE> 33
29
(iv) if the resulting Borrowing is a Eurodollar Borrowing, the
Interest Period to be applicable thereto after giving effect to such
election, which shall be a period contemplated by the definition of the
term "Interest Period".
If any such Interest Election Request requests a Eurodollar Borrowing but does
not specify an Interest Period, then the Borrower shall be deemed to have
selected an Interest Period of one month's duration.
(d) Promptly following receipt of an Interest Election Request, the
Administrative Agent shall advise each Lender of the details thereof and of
such Lender's portion of each resulting Borrowing.
(e) If the Borrower fails to deliver a timely Interest Election Request
with respect to a Eurodollar Borrowing prior to the end of the Interest Period
applicable thereto, then, unless such Borrowing is repaid as provided herein,
at the end of such Interest Period such Borrowing shall be converted to an ABR
Borrowing. Notwithstanding any contrary provision hereof, if an Event of
Default has occurred and is continuing and the Administrative Agent, at the
request of the Required Lenders, so notifies the Borrower, then, so long as an
Event of Default is continuing (i) no outstanding Borrowing may be converted to
or continued as a Eurodollar Borrowing and (ii) unless repaid, each Eurodollar
Borrowing shall be converted to an ABR Borrowing at the end of the Interest
Period applicable thereto.
SECTION 2.08. Termination and Reduction of Commitments. (a) Unless
previously terminated, the Revolving Commitments shall terminate on the
Maturity Date.
(b) The Borrower may at any time after the Supplemental Facility
Termination Date terminate, or from time to time reduce, the Revolving
Commitments, provided that (i) each reduction of the Revolving Commitments
shall be in an amount that is an integral multiple of $1,000,000 and not less
than $5,000,000 and (ii) the Borrower shall not terminate or reduce the
Revolving Commitments if and to the extent that, after giving effect to any
concurrent prepayment of the Revolving Loans in accordance with Section 2.10,
the sum of the Total Exposures would exceed the total Revolving Commitments.
(c) The Borrower shall notify the Administrative Agent of any election
to terminate or reduce the Commitments under paragraph (b) of this Section at
least three Business Days prior to the effective date of such termination or
reduction, specifying such election and the effective date thereof. Promptly
following receipt of any notice, the Administrative Agent shall advise the
Lenders of the contents thereof. Each notice delivered by the Borrower pursuant
to this Section shall be irrevocable, provided that a notice of termination of
the Revolving Commitments delivered by the Borrower may state that such notice
is conditioned upon the effectiveness of other credit facilities, in which case
such notice may be revoked by the Borrower (by notice to the Administrative
Agent on or prior to the specified effective date) if such condition is not
satisfied. Any termination or reduction of the Commitments of any Class shall
be permanent. Each reduction of the Revolving Commitments shall be made ratably
among the Lenders in accordance with their respective Revolving Commitments.
SECTION 2.09. Repayment of Loans; Evidence of Debt. (a) The Borrower
hereby unconditionally promises to pay (i) to the Administrative Agent for the
account of each Lender the then unpaid principal amount of each Revolving Loan
of such Lender on the Maturity Date and (ii) to the Swingline Lender the then
unpaid principal amount of each Swingline Loan on the earlier of the Maturity
Date and the first date after such Swingline Loan is made that is the 15th or
last day of a calendar month and is at least two Business Days after such
Swingline Loan is made, provided that on each date that a Revolving Borrowing
is made, the Borrower shall repay all Swingline Loans then outstanding.
<PAGE> 34
30
(b) Each Lender shall maintain in accordance with its usual practice an
account or accounts evidencing the indebtedness of the Borrower to such Lender
resulting from each Loan made by such Lender, including the amounts of
principal and interest payable and paid to such Lender from time to time
hereunder.
(c) The Administrative Agent shall maintain accounts in which it shall
record (i) the amount of each Loan made hereunder, the Class and Type thereof
and the Interest Period applicable thereto, (ii) the amount of any principal or
interest due and payable or to become due and payable from the Borrower to each
Lender hereunder and (iii) the amount of any sum received by the Administrative
Agent hereunder for the account of the Lenders and each Lender's share thereof.
(d) The entries made in the accounts maintained pursuant to paragraph
(b) or (c) of this Section shall be prima facie evidence of the existence and
amounts of the obligations recorded therein, provided that the failure of any
Lender or the Administrative Agent to maintain such accounts or any error
therein shall not in any manner affect the obligation of the Borrower to repay
the Loans in accordance with the terms of this Agreement.
(e) Any Lender may request that Loans of any Class made by it be
evidenced by a promissory note. In such event, the Borrower shall prepare,
execute and deliver to such Lender a promissory note payable to the order of
such Lender (or, if requested by such Lender, to such Lender and its registered
assigns) and in a form approved by the Administrative Agent. Thereafter, the
Loans evidenced by such promissory note and interest thereon shall at all times
(including after assignment pursuant to Section 9.04) be represented by one or
more promissory notes in such form payable to the order of the payee named
therein (or, if such promissory note is a registered note, to such payee and
its registered assigns).
SECTION 2.10. Prepayment of Loans. (a) The Borrower shall have the
right at any time and from time to time to prepay any Borrowing in whole or in
part, subject to the requirements of this Section.
(b) Subject to Section 2.10(g), in the event of any termination of all
the Revolving Commitments, the Borrower shall repay or prepay all outstanding
Revolving Borrowings and all outstanding Swingline Loans on the date of such
termination. In the event of any partial reduction of the Revolving
Commitments, then (i) at or prior to the effective date of such reduction or
termination, the Administrative Agent shall notify the Borrower and the Lenders
of (A) the amount of any reduction in the Revolving Commitments and (B) the
aggregate Total Exposure after giving effect to such reduction and (ii) if the
aggregate Total Exposure would exceed the aggregate Revolving Commitments after
giving effect to such reduction or termination, then the Borrower shall, on the
date of such reduction or termination, prepay Revolving Borrowings or Swingline
Loans (or a combination thereof) in an amount sufficient to eliminate such
excess.
(c) If on any date the aggregate Total Exposure exceeds the Borrowing
Base in effect on such date, the Borrower shall on such date apply an amount
equal to such excess, first, to prepay the then-outstanding Revolving
Borrowings (if any) and Swingline Loans (if any) and, second, to the extent of
any remaining excess (after the prepayment of Revolving Borrowings and
Swingline Loans), to cash-collateralize outstanding Letters of Credit by
depositing, in an account with the Collateral Agent, in the name of the
Collateral Agent and for the benefit of the Lenders, an amount in cash equal to
such remaining excess. The provisions of the second, third, fourth and fifth
sentences of Section 2.05(j) shall be applicable to any amounts so deposited.
(d) Subject to Section 2.10(g), prior to any optional or mandatory
prepayment of Borrowings hereunder, the Borrower shall select the Borrowing or
Borrowings to be prepaid and shall
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specify such selection in the notice of such prepayment pursuant to paragraph
(e) of this Section, provided that each prepayment of Borrowings shall be
applied to prepay ABR Borrowings before any other Borrowings.
(e) The Borrower shall notify the Administrative Agent (and, in the
case of prepayment of a Swingline Loan, the Swingline Lender) by telephone
(confirmed by telecopy) of any prepayment hereunder (i) in the case of
prepayment of a Eurodollar Borrowing, not later than 11:00 a.m., New York City
time, three Business Days before the date of prepayment, (ii) in the case of
prepayment of an ABR Borrowing, not later than 11:00 a.m., New York City time,
one Business Day before the date of prepayment or (iii) in the case of
prepayment of a Swingline Loan, not later than 12:00 noon, New York City time,
on the date of prepayment. Each such notice shall be irrevocable and shall
specify the prepayment date, the principal amount of each Borrowing or portion
thereof to be prepaid and, in the case of a mandatory prepayment, a reasonably
detailed calculation of the amount of such prepayment, provided that, if a
notice of optional prepayment is given in connection with a conditional notice
of termination of the Revolving Commitments as contemplated by Section 2.08,
then such notice of prepayment may be revoked if such notice of termination is
revoked in accordance with Section 2.08. Promptly following receipt of any such
notice (other than a notice relating solely to Swingline Loans), the
Administrative Agent shall advise the Lenders of the contents thereof. Each
partial prepayment of any Borrowing shall be in an amount that would be
permitted in the case of an advance of a Borrowing of the same Type as provided
in Section 2.02, except as necessary to apply fully the required amount of a
mandatory prepayment. Subject to Section 2.10(g), each prepayment of a
Borrowing shall be applied ratably to the Loans included in the prepaid
Borrowing. Prepayments shall be accompanied by accrued interest to the extent
required by Section 2.12.
(f) In the event and on each occasion that any Net Proceeds are
received by or on behalf of a Transaction Party or any Subsidiary in respect of
any Prepayment Event on or prior to the Supplemental Facility Termination Date,
the Borrower shall, immediately after such Net Proceeds are received, prepay
Revolving Borrowings and Swingline Loans and Supplemental Revolving Borrowings
and Supplemental Swingline Loans in an aggregate principal amount equal to such
Net Proceeds and in the priority provided for in Section 2.10(g), provided that
if a Specified Event of Default has occurred and is continuing under this
Agreement or the Supplemental Credit Agreement, such Net Proceeds shall be
applied to prepay Revolving Borrowings and Swingline Loans until the aggregate
Total Exposures of the Revolving Lenders is zero and then to prepay
Supplemental Revolving Borrowings and Supplemental Swingline Loans.
(g) Notwithstanding any provisions to the contrary in the Loan
Documents or the Supplemental Loan Documents (and unless the "Specified
Lenders" (as such term is defined in the Intercreditor Agreement) shall
otherwise agree), (i) on or prior to the Supplemental Facility Termination Date
and (ii) so long as no Specified Event of Default has occurred and is
continuing under this Agreement or under the Supplemental Credit Agreement, any
amount to be applied by the Borrower to the voluntary or mandatory prepayment
of Revolving Borrowings and Swingline Loans, or to the voluntary or mandatory
prepayment of Supplemental Revolving Borrowings and Supplemental Swingline
Loans, instead shall be applied to the prepayment of Revolving Borrowings,
Swingline Loans, Supplemental Revolving Borrowings and Supplemental Swingline
Loans in the following order of priority:
(A) first, to prepay any outstanding Revolving Borrowings and interest
or principal. All dividends, Swingline Loans, ratably among the Lenders
entitled thereto, until the Borrowing Base is not less than the aggregate
Total Exposure of the Lenders,
(B) second, to prepay any outstanding Supplemental Revolving Borrowings
and Supplemental Swingline Loans, ratably among the Supplemental Facility
Lenders entitled thereto, and
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(C) third, to prepay any outstanding Revolving Borrowings and
Swingline Loans, ratably among the Lenders entitled thereto.
(h) Any Net Proceeds from a Prepayment Event available to be applied
pursuant to Section 2.10(f) or (g) to prepay Supplemental Revolving Borrowings
and Supplemental Swingline Loans, whether or not any Supplemental Revolving
Borrowings or Supplemental Swingline Loans are actually outstanding and
prepaid, shall result in the permanent reduction of the Supplemental Revolving
Commitments in the amount of such Net Proceeds, provided that (i) all Net
Proceeds from GOB Prepayment Events and (ii) up to an aggregate amount of
$25,000,000 of Net Proceeds from Real Estate Prepayment Events, in each case
available to be applied pursuant to Section 2.10(f) and (g) during the term of
this Agreement to prepay Supplemental Revolving Borrowings and Supplemental
Swingline Loans, (i) shall not result in corresponding permanent reductions of
the Supplemental Revolving Commitments and (ii) to the extent any such
prepayments are actually made, may be reborrowed by the Borrower, subject to
the terms and conditions of the Supplemental Credit Agreement.
(i) This Section 2.10 shall be subject to the terms and conditions of
the Intercreditor Agreement.
(j) Unless the Specified Lenders shall otherwise agree, any
Supplemental Revolving Loans and Supplemental Swingline Loans made by the
Supplemental Facility Lenders in response to a "Borrowing Notice" deemed
delivered to the "Administrative Agent" (as such terms are defined in the
Supplemental Credit Agreement) on an Advance Rate Reduction Date pursuant to
Section 2.10(j) of the Supplemental Credit Agreement shall be used by the
Borrower on such date to fund the mandatory prepayment of Revolving Loans and
Swingline Loans in an aggregate principal amount equal to the Advance Rate
Reduction Amount as required by Section 2.10(c) and 2.10(g)(ii)(A).
SECTION 2.11. Fees. (a) The Borrower agrees to pay to the
Administrative Agent for the account of each Lender a commitment fee, which
shall continue to accrue at the rate of .50% per annum on the average daily
unused amount of the Revolving Commitment of such Lender during the period from
and including October 1, 1998, to but excluding the date on which such
Commitment terminates. Accrued commitment fees shall be payable in arrears on
the last day of March, June, September and December of each year and on the
date on which the Revolving Commitments, terminate, commencing on the first
such date to occur after the date hereof. All commitment fees shall be computed
on the basis of a year of 360 days and shall be payable for the actual number
of days elapsed (including the first day but excluding the last day). For
purposes of computing commitment fees with respect to Revolving Commitments, a
Revolving Commitment of a Lender shall be deemed to be used to the extent of
the outstanding Revolving Loans and LC Exposure of such Lender (and the
Swingline Exposure of such Lender shall be disregarded for such purpose).
(b) The Borrower agrees to pay to the Administrative Agent for the
account of each Lender a participation fee with respect to its participations
in Letters of Credit, which shall continue to accrue at a rate equal to (i) in
the case of the portion of such Lender's LC Exposure that is attributable to
Standby Letters of Credit, the excess of (A) the same Applicable Rate as
interest on Eurodollar Revolving Loans on the average daily amount of such
portion of such Lender's LC Exposure (excluding any portion thereof
attributable to unreimbursed LC Disbursements) over (B) the Fronting Fee, in
each case during the period from and including October 1, 1998, to but
excluding the later of the date on which such Lender's Revolving Commitment
terminates and the date on which such Lender ceases to have any such LC
Exposure, and (ii) in the case of the portion of such Lender's LC Exposure that
is attributable to Commercial Letters of Credit, the excess of (A) one-half of
the same Applicable Rate as interest on Eurodollar Revolving Loans on the
average daily amount of such portion of such Lender's LC Exposure (excluding
any portion thereof attributable to unreimbursed LC Disbursements) over (B) the
Fronting Fee,
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in each case during the period from and including October 1, 1998, to but
excluding the later of the date on which such Lender's Revolving Commitment
terminates and the date on which such Lender ceases to have any such LC
Exposure. The Borrower also agrees to pay to the Issuing Bank a fronting fee
(the "Fronting Fee"), which shall continue to accrue at the rate of 1/4 of 1%
per annum on the average daily amount of the LC Exposure (excluding any portion
thereof attributable to unreimbursed LC Disbursements) during the period from
and including October 1, 1998, to but excluding the later of the date of
termination of the Revolving Commitments and the date on which there ceases to
be any LC Exposure, as well as the Issuing Bank's standard fees with respect to
the issuance, amendment, renewal or extension of any Letter of Credit or
processing of drawings thereunder. Participation fees and fronting fees accrued
through and including the last day of March, June, September and December of
each year shall be payable on the third Business Day following such last day,
commencing on the first such date to occur after the Effective Date, provided
that all such fees shall be payable on the date on which the Revolving
Commitments terminate and any such fees accruing after the date on which the
Revolving Commitments terminate shall be payable on demand. Any other fees
payable to the Issuing Bank pursuant to this paragraph shall be payable within
10 days after demand. All participation fees and fronting fees shall be
computed on the basis of a year of 360 days and shall be payable for the actual
number of days elapsed (including the first day but excluding the last day).
(c) The Borrower agrees to pay to the Administrative Agent, for its own
account, fees payable in the amounts and at the times separately agreed upon
between the Borrower and the Administrative Agent.
(d) All fees payable hereunder shall be paid on the dates due, in
immediately available funds, to the Administrative Agent (or to the Issuing
Bank, in the case of fees payable to it) for distribution, in the case of
commitment fees and participation fees, to the Lenders entitled thereto. Fees
paid shall not be refundable under any circumstances.
SECTION 2.12. Interest. (a) The Loans comprising each ABR Borrowing
(including each Swingline Loan) shall bear interest at the Alternate Base Rate
plus the Applicable Rate.
(b) The Loans comprising each Eurodollar Borrowing shall bear interest
at the Adjusted LIBO Rate for the Interest Period in effect for such Borrowing
plus the Applicable Rate.
(c) Notwithstanding the foregoing, if any principal of or interest on
any Loan or any fee or other amount payable by the Borrower hereunder is not
paid when due, whether at stated maturity, upon acceleration or otherwise, such
overdue amount shall bear interest, after as well as before judgment, at a rate
per annum equal to (i) in the case of overdue principal of any Loan, 2% plus
the rate (including margin) otherwise applicable to such Loan as provided in
the preceding paragraphs of this Section or (ii) in the case of any other
amount, 2% plus the rate (including margin) applicable to ABR Revolving Loans
as provided in paragraph (a) of this Section.
(d) Accrued interest on each Loan shall be payable in arrears on each
Interest Payment Date for such Loan and, in the case of Revolving Loans, upon
termination of the Revolving Commitments, provided that (A) interest accrued
pursuant to paragraph (c) of this Section shall be payable on demand, (B) in
the event of any repayment or prepayment of any Loan (other than a prepayment
of an ABR Revolving Loan prior to the end of the Revolving Availability
Period), accrued interest on the principal amount repaid or prepaid shall be
payable on the date of such repayment or prepayment and (C) in the event of any
conversion of any Eurodollar Loan prior to the end of the current Interest
Period therefor, accrued interest on such Loan shall be payable on the
effective date of such conversion.
<PAGE> 38
34
(e) All interest hereunder shall be computed on the basis of a year of
360 days, except that interest computed by reference to the Alternate Base Rate
at times when the Alternate Base Rate is based on the Prime Rate shall be
computed on the basis of a year of 365 days (or 366 days in a leap year), and
in each case shall be payable for the actual number of days elapsed (including
the first day but excluding the last day). The applicable Alternate Base Rate
or Adjusted LIBO Rate shall be determined by the Administrative Agent, and such
determination shall be conclusive absent manifest error.
SECTION 2.13. Alternate Rate of Interest. If prior to the commencement
of any Interest Period for a Eurodollar Borrowing:
(a) the Administrative Agent determines (which determination shall be
conclusive absent manifest error) that adequate and reasonable means do not
exist for ascertaining the Adjusted LIBO Rate for such Interest Period; or
(b) the Administrative Agent is advised by the Required Lenders that
the Adjusted LIBO Rate for such Interest Period will not adequately and
fairly reflect the cost to such Lenders (or Lender) of making or maintaining
their Loans (or its Loan) included in such Borrowing for such Interest
Period;
then the Administrative Agent shall give notice thereof to the Borrower and
the Lenders by telephone or telecopy as promptly as practicable thereafter and,
until the Administrative Agent notifies the Borrower and the Lenders that the
circumstances giving rise to such notice no longer exist, (i) any Interest
Election Request that requests the conversion of any Borrowing to, or
continuation of any Borrowing as, a Eurodollar Borrowing shall be ineffective
and (ii) if any Borrowing Request requests a Eurodollar Borrowing, such
Borrowing shall be made as an ABR Borrowing.
SECTION 2.14. Increased Costs. (a) If any Change in Law shall:
(i) impose, modify or deem applicable any reserve, special deposit or
similar requirement against assets of, deposits with or for the account of,
or credit extended by, any Lender or any holding company of any Lender
(except any such reserve requirement reflected in the Adjusted LIBO Rate)
or the Issuing Bank; or
(ii) impose on any Lender or the Issuing Bank or the London interbank
market any other condition affecting this Agreement or Eurodollar Loans
made by such Lender or any Letter of Credit or participation therein;
and the result of any of the foregoing shall be to increase the cost to such
Lender of making or maintaining any Eurodollar Loan (or of maintaining its
obligation to make any such Loan) or to increase the cost to such Lender or the
Issuing Bank of participating in, issuing or maintaining any Letter of Credit
or to reduce the amount of any sum received or receivable by such Lender or the
Issuing Bank hereunder (whether of principal, interest or otherwise), then the
Borrower will pay to such Lender or the Issuing Bank, as the case may be, such
additional amount or amounts as will compensate such Lender or the Issuing
Bank, as the case may be, for such additional costs incurred or reduction
suffered.
(b) If any Lender or the Issuing Bank determines that any Change in Law
regarding capital requirements has or would have the effect of reducing the
rate of return on such Lender's or the Issuing Bank's capital or on the capital
of such Lender's or the Issuing Bank's holding company, if any, as a
consequence of this Agreement or the Loans made by, or participations in
Letters of Credit held by, such Lender, or the Letters of Credit issued by the
Issuing Bank, to a level below that which such Lender or the Issuing Bank or
such Lender's or the Issuing Bank's holding company could have achieved but for
such
<PAGE> 39
35
Change in Law (taking into consideration such Lender's or the Issuing Bank's
policies and the policies of such Lender's or the Issuing Bank's holding
company with respect to capital adequacy), then from time to time the Borrower
will pay to such Lender or the Issuing Bank, as the case may be, such
additional amount or amounts as will compensate such Lender or the Issuing Bank
or such Lender's or the Issuing Bank's holding company for any such reduction
suffered.
(c) A certificate of a Lender or the Issuing Bank setting forth the
amount or amounts necessary to compensate such Lender or the Issuing Bank or
its holding company, as the case may be, as specified in paragraph (a) or (b)
of this Section shall be delivered to the Borrower and shall be conclusive
absent manifest error. The Borrower shall pay such Lender or the Issuing Bank,
as the case may be, the amount shown as due on any such certificate within 10
days after receipt thereof.
(d) Failure or delay on the part of any Lender or the Issuing Bank to
demand compensation pursuant to this Section shall not constitute a waiver of
such Lender's or the Issuing Bank's right to demand such compensation, provided
that the Borrower shall not be required to compensate a Lender or the Issuing
Bank pursuant to this Section for any increased costs or reductions incurred
more than 90 days prior to the date that such Lender or the Issuing Bank, as
the case may be, notifies the Borrower of the Change in Law giving rise to such
increased costs or reductions and of such Lender's or the Issuing Bank's
intention to claim compensation therefor, and provided further that, if the
Change in Law giving rise to such increased costs or reductions is retroactive,
then the 90-day period referred to above shall be extended to include the
period of retroactive effect thereof.
SECTION 2.15. Break Funding Payments. In the event of (a) the payment
of any principal of any Eurodollar Loan other than on the last day of an
Interest Period applicable thereto (including as a result of an Event of
Default), (b) the conversion of any Eurodollar Loan other than on the last day
of the Interest Period applicable thereto, (c) the failure to borrow, convert,
continue or prepay any Revolving Loan on the date specified in any notice
delivered pursuant hereto (regardless of whether such notice may be revoked
under Section 2.10(e) and is revoked in accordance therewith), or (d) the
assignment of any Eurodollar Loan other than on the last day of the Interest
Period applicable thereto as a result of a request by the Borrower pursuant to
Section 2.18, then, in any such event, the Borrower shall compensate each
Lender for the loss, cost and expense attributable to such event. In the case
of a Eurodollar Loan, such loss, cost or expense to any Lender shall be deemed
to include an amount determined by such Lender to be the excess, if any, of (i)
the amount of interest that would have accrued on the principal amount of such
Loan had such event not occurred, at the Adjusted LIBO Rate that would have
been applicable to such Loan, for the period from the date of such event to the
last day of the then current Interest Period therefor (or, in the case of a
failure to borrow, convert or continue, for the period that would have been the
Interest Period for such Loan), over (ii) the amount of interest that would
accrue on such principal amount for such period at the interest rate that such
Lender would bid were it to bid, at the commencement of such period, for dollar
deposits of a comparable amount and period from other banks in the Eurodollar
market. A certificate of any Lender setting forth any amount or amounts that
such Lender is entitled to receive pursuant to this Section shall be delivered
to the Borrower and shall be conclusive absent manifest error. The Borrower
shall pay such Lender the amount shown as due on any such certificate within 10
days after receipt thereof.
SECTION 2.16. Taxes. (a) Any and all payments by or on account of any
obligation of the Borrower hereunder or under any other Loan Document shall be
made free and clear of and without deduction for any Indemnified Taxes or Other
Taxes, provided that if the Borrower shall be required to deduct any
Indemnified Taxes or Other Taxes from such payments, then (i) the sum payable
shall be increased as necessary so that after making all required deductions
(including deductions applicable to additional sums payable under this Section)
the Administrative Agent, Lender or Issuing Bank (as the case may be) receives
an amount equal to the sum it would have received had no such
<PAGE> 40
36
deductions been made, (ii) the Borrower shall make such deductions and (iii)
the Borrower shall pay the full amount deducted to the relevant Governmental
Authority in accordance with applicable law.
(b) In addition, the Borrower shall pay any Other Taxes to the relevant
Governmental Authority in accordance with applicable law.
(c) The Borrower shall indemnify the Administrative Agent, each Lender
and the Issuing Bank, within 10 days after written demand therefor, for the
full amount of any Indemnified Taxes or Other Taxes paid by the Administrative
Agent, such Lender or the Issuing Bank, as the case may be, on or with respect
to any payment by or on account of any obligation of the Borrower hereunder or
under any other Loan Document (including Indemnified Taxes or Other Taxes
imposed or asserted on or attributable to amounts payable under this Section)
and any penalties, interest and reasonable expenses arising therefrom or with
respect thereto, whether or not such Indemnified Taxes or Other Taxes were
correctly or legally imposed or asserted by the relevant Governmental
Authority. A certificate as to the amount of such payment or liability
delivered to the Borrower by a Lender or the Issuing Bank, or by the
Administrative Agent on its own behalf or on behalf of a Lender or the Issuing
Bank, shall be conclusive absent manifest error.
(d) As soon as practicable after any payment of Indemnified Taxes or
Other Taxes by the Borrower to a Governmental Authority, the Borrower shall
deliver to the Administrative Agent the original or a certified copy of a
receipt issued by such Governmental Authority evidencing such payment, a copy
of the return reporting such payment or other evidence of such payment
reasonably satisfactory to the Administrative Agent.
(e) Any Foreign Lender shall deliver to the Borrower and the
Administrative Agent two copies of either United States Internal Revenue
Service Form 1001 or Form 4224, or, in the case of a Foreign Lender's claiming
exemption from U.S. Federal withholding tax under Section 871(h) or 881(c) of
the Code with respect to payments of "portfolio interest", a Form W-8, or any
subsequent versions thereof or successors thereto (and, if such Foreign Lender
delivers a Form W-8, a certificate representing that such Foreign Lender is not
a bank for purposes of Section 881(c) of the Code, is not a 10-percent
shareholder (within the meaning of Section 871(h)(3)(B) of the Code) of the
Borrower and is not a controlled foreign corporation related to the Borrower
(within the meaning of Section 864(d)(4) of the Code)), properly completed and
duly executed by such Foreign Lender claiming complete exemption from or
reduced rate of, U.S. Federal withholding tax on payments by the Borrower under
this Agreement and the other Loan Documents. Such forms shall be delivered by
each Foreign Lender on or before the date it becomes a party to this Agreement
(or, in the case of a Transferee that is a participation holder, on or before
the date such participation holder becomes a Transferee hereunder) and on or
before the date, if any, such Foreign Lender changes its applicable lending
office by designating a different lending office (a "New Lending Office"). In
addition, each Foreign Lender shall deliver such forms promptly upon the
obsolescence or invalidity of any form previously delivered by such Foreign
Lender. Notwithstanding any other provision of this Section 2.16(e), a Foreign
Lender shall not be required to deliver any form pursuant to this 2.16(e) that
such Foreign Lender is not legally able to deliver.
(f) The Borrower shall not be required to indemnify any Foreign Lender
or to pay any additional amounts to any Foreign Lender in respect of U.S.
Federal withholding tax pursuant to paragraph (a) or (c) above to the extent
that the obligation to pay such additional amounts would not have arisen but
for a failure by such Foreign Lender to comply with the provisions of paragraph
(e) above. Should a Lender become subject to Taxes because of its failure to
deliver a form required hereunder, Borrower shall, at Lender's expense, take
such steps as such Lender shall reasonably request to assist such Lender to
recover such Taxes.
<PAGE> 41
37
SECTION 2.17. Payments Generally; Pro Rata Treatment; Sharing of
Setoffs. (a) The Borrower shall make each payment required to be made by it
hereunder or under any other Loan Document (whether of principal, interest,
fees or reimbursement of LC Disbursements, or of amounts payable under Section
2.14, 2.15 or 2.16, or otherwise) prior to 12:00 noon, New York City time, on
the date when due, in immediately available funds, without setoff or
counterclaim. Any amounts received after such time on any date may, in the
discretion of the Administrative Agent, be deemed to have been received on the
next succeeding Business Day for purposes of calculating interest thereon. All
such payments shall be made to the Administrative Agent at its offices at 270
Park Avenue, New York, New York, except payments to be made directly to the
Issuing Bank or Swingline Lender as expressly provided herein and except that
payments pursuant to Sections 2.14, 2.15, 2.16 and 9.03 shall be made directly
to the Persons entitled thereto and payments pursuant to other Loan Documents
shall be made to the Persons specified therein. The Administrative Agent shall
distribute any such payments received by it for the account of any other Person
to the appropriate recipient promptly following receipt thereof. If any payment
under any Loan Document shall be due on a day that is not a Business Day, the
date for payment shall be extended to the next succeeding Business Day, and, in
the case of any payment accruing interest, interest thereon shall be payable
for the period of such extension. All payments under each Loan Document shall
be made in dollars.
(b) If at any time insufficient funds are received by and
available to the Administrative Agent to pay fully all amounts of principal,
unreimbursed LC Disbursements, interest and fees then due hereunder, such funds
shall be applied (i) first, towards payment of interest and fees then due
hereunder, ratably among the parties entitled thereto in accordance with the
amounts of interest and fees then due to such parties, and (ii) second, towards
payment of principal and unreimbursed LC Disbursements then due hereunder,
ratably among the parties entitled thereto in accordance with the amounts of
principal and unreimbursed LC Disbursements then due to such parties.
(c) If any Lender shall, by exercising any right of setoff or
counterclaim or otherwise, obtain payment in respect of any principal of or
interest on any of its Revolving Loans or participations in LC Disbursements or
Swingline Loans resulting in such Lender receiving payment of a greater
proportion of the aggregate amount of its Revolving Loans and participations in
LC Disbursements and Swingline Loans and accrued interest thereon than the
proportion received by any other Lender, then the Lender receiving such greater
proportion shall purchase (for cash at face value) participations in the
Revolving Loans and participations in LC Disbursements and Swingline Loans of
other Lenders to the extent necessary so that the benefit of all such payments
shall be shared by the Lenders ratably in accordance with the aggregate amount
of principal of and accrued interest on their respective Revolving Loans and
participations in LC Disbursements and Swingline Loans, provided that (i) if
any such participations are purchased and all or any portion of the payment
giving rise thereto is recovered, such participations shall be rescinded and
the purchase price restored to the extent of such recovery, without interest,
and (ii) the provisions of this paragraph shall not be construed to apply to
any payment made by the Borrower pursuant to and in accordance with the express
terms of this Agreement or any payment obtained by a Lender as consideration
for the assignment of or sale of a participation in any of its Loans or
participations in LC Disbursements to any assignee or participant, other than
to the Borrower or any Borrower Subsidiary or Affiliate thereof (as to which
the provisions of this paragraph shall apply). The Borrower consents to the
foregoing and agrees, to the extent it may effectively do so under applicable
law, that any Lender acquiring a participation pursuant to the foregoing
arrangements may exercise against the Borrower rights of setoff and
counterclaim with respect to such participation as fully as if such Lender were
a direct creditor of the Borrower in the amount of such participation.
(d) Unless the Administrative Agent shall have received notice
from the Borrower prior to the date on which any payment is due to the
Administrative Agent for the account of the Lenders or the Issuing Bank
hereunder that the Borrower will not make such payment, the Administrative
Agent may
<PAGE> 42
38
assume that the Borrower has made such payment on such date in accordance
herewith and may, in reliance upon such assumption, distribute to the Lenders
or the Issuing Bank, as the case may be, the amount due. In such event, if the
Borrower has not in fact made such payment, then each of the Lenders or the
Issuing Bank, as the case may be, severally agrees to repay to the
Administrative Agent forthwith on demand the amount so distributed to such
Lender or Issuing Bank with interest thereon, for each day from and including
the date such amount is distributed to it to but excluding the date of payment
to the Administrative Agent, at the greater of the Federal Funds Effective Rate
and a rate determined by the Administrative Agent in accordance with banking
industry rules on interbank compensation.
(e) If any Lender shall fail to make any payment required to be
made by it pursuant to Section 2.04(c), 2.05(d) or (e), 2.06(b), 2.17(d) or
9.03(c), then the Administrative Agent may, in its discretion (notwithstanding
any contrary provision hereof), apply any amounts thereafter received by the
Administrative Agent for the account of such Lender to satisfy such Lender's
obligations under such Sections until all such unsatisfied obligations are
fully paid.
SECTION 2.18. Mitigation Obligations; Replacement of Lenders. (a)
If any Lender requests compensation under Section 2.14, or if the Borrower is
required to pay any additional amount to any Lender or any Governmental
Authority for the account of any Lender pursuant to Section 2.16, then such
Lender shall use reasonable efforts to designate a different lending office for
funding or booking its Loans hereunder or to assign its rights and obligations
hereunder to another of its offices, branches or affiliates, if, in the
judgment of such Lender, such designation or assignment (i) would eliminate or
reduce amounts payable pursuant to Section 2.14 or 2.16, as the case may be, in
the future and (ii) would not subject such Lender to any unreimbursed cost or
expense and would not otherwise be disadvantageous to such Lender. The Borrower
hereby agrees to pay all reasonable and documented costs and expenses incurred
by any Lender in connection with any such designation or assignment; provided,
however, that the Borrower shall not be liable for such costs and expenses of a
Lender requesting compensation if (i) such Lender becomes a party to this
Agreement on a date after the Effective Date and (ii) the relevant Change in
Law occurs on a date prior to the date such Lender becomes a party hereto.
(b) If any Lender requests compensation under Section 2.14, or if
the Borrower is required to pay any additional amount to any Lender or any
Governmental Authority for the account of any Lender pursuant to Section 2.16,
or if any Lender defaults in its obligation to fund Loans hereunder, then the
Borrower may, at its sole expense and effort, upon notice to such Lender and
the Administrative Agent, require such Lender to assign and delegate, without
recourse (in accordance with and subject to the restrictions contained in
Section 9.04), all its interests, rights and obligations under this Agreement
to an assignee that shall assume such obligations (which assignee may be
another Lender, if a Lender accepts such assignment), provided that (i) the
Borrower shall have received the prior written consent of the Administrative
Agent, the Issuing Bank and Swingline Lender, which consent shall not
unreasonably be withheld, (ii) such Lender shall have received payment of an
amount equal to the outstanding principal of its Revolving Loans and
participations in LC Disbursements and Swingline Loans, accrued interest
thereon, accrued fees and all other amounts payable to it hereunder, from the
assignee (to the extent of such outstanding principal and accrued interest and
fees) or the Borrower (in the case of all other amounts) and (iii) in the case
of any such assignment resulting from a claim for compensation under Section
2.14 or payments required to be made pursuant to Section 2.16, such assignment
will result in a reduction in such compensation or payments. A Lender shall not
be required to make any such assignment and delegation if, prior thereto, as a
result of a waiver by such Lender or otherwise, the circumstances entitling the
Borrower to require such assignment and delegation cease to apply.
<PAGE> 43
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ARTICLE III
Representations and Warranties
Each Transaction Party represents and warrants to the Lenders
that:
SECTION 3.01. Organization; Powers. Each member of the Holdings
Group is duly organized, validly existing and in good standing under the laws
of the jurisdiction of its organization, has all requisite power and authority
to carry on its business as now conducted and, except where the failure to do
so, individually or in the aggregate, could not reasonably be expected to
result in a Material Adverse Effect, is qualified to do business in, and is in
good standing in, every jurisdiction where such qualification is required.
SECTION 3.02. Authorization; Enforceability. The Transactions to
be entered into by each Loan Party are within such Loan Party's corporate
powers and have been duly authorized by all necessary corporate and, if
required, stockholder action. This Agreement has been duly executed and
delivered by each Loan Party that is a party hereto and constitutes, and each
other Loan Document to which any Loan Party is to be a party, when executed and
delivered by such Loan Party, will constitute, a legal, valid and binding
obligation of such Loan Party (as the case may be), enforceable in accordance
with its terms, subject to applicable bankruptcy, insolvency, reorganization,
moratorium or other laws affecting creditors' rights generally and subject to
general principles of equity, regardless of whether considered in a proceeding
in equity or at law.
SECTION 3.03. Governmental Approvals; No Conflicts. The
Transactions (a) do not require any consent or approval of, registration or
filing with, or any other action by, any Governmental Authority, except such as
have been obtained or made and are in full force and effect and except filings
necessary to perfect Liens created under the Loan Documents, (b) will not
violate any applicable law or regulation or the charter, by-laws or other
organizational documents of any member of the Holdings Group or any order of
any Governmental Authority, (c) except as set forth in Schedule 3.03(c), will
not violate or result in a default under any indenture, agreement or other
instrument binding upon any member of the Holdings Group or its assets, or give
rise to a right thereunder to require any payment to be made by any member of
the Holdings Group, and (d) will not result in the creation or imposition of
any Lien on any asset of any member of the Holdings Group, except Liens created
under the Loan Documents.
SECTION 3.04. Financial Condition; No Material Adverse Change. (a)
Hechinger has heretofore furnished to the Lenders its consolidated balance
sheet and statements of income, stockholders' equity and cash flows (i) as of
and for each of the fiscal years in the three year period ended February 1,
1997, reported on by Ernst & Young LLP, independent public accountants, and
(ii) as of and for the two fiscal quarters and the portion of the fiscal year
ended August 2, 1997, certified by its chief financial officer. Such financial
statements present fairly, in all material respects, the financial position and
results of operations and cash flows of Hechinger and its consolidated
subsidiaries as of such dates and for such periods in accordance with GAAP,
subject to year-end audit adjustments and the absence of footnotes in the case
of the statements referred to in clause (ii) above.
(b) Holdings has heretofore furnished to the Lenders its
consolidated balance sheet and statements of income, stockholders' equity and
cash flows as of and for each of the fiscal years in the three year period
ended October 3, 1998, certified by its chief financial officer. Such financial
statements present fairly, in all material respects, the financial position and
results of operations and cash flows of Holdings and its consolidated
subsidiaries as of such dates and for such periods in accordance with GAAP,
subject to year-end audit adjustments and the absence of footnotes.
<PAGE> 44
40
(c) Except as disclosed in Schedule 3.04(c) or in the December
1998 Bank Presentation,since February 1, 1997, there has been no material
adverse change in the business, assets, operations, material agreements,
prospects or condition, financial or otherwise, of Hechinger and the Hechinger
Entities, taken as a whole.
(d) The Borrower has heretofore furnished to the Lenders Builders
Square's unaudited balance sheet and statements of income, stockholders' equity
and cash flows (i) as of and for each of the fiscal years in the three year
period ended January 26, 1997, and (ii) as of and for the two fiscal quarters
and the portion of the fiscal year ended July 26, 1997. Such financial
statements present fairly, in all material respects, the financial position and
results of operations and cash flows of Builders Square as of such dates and
for such periods in accordance with GAAP, subject to year-end audit
adjustments.
(e) Each of Holdings and the Borrower has heretofore furnished to
the Lenders its pro forma consolidated balance sheet as of the Restatement
Closing Date, prepared giving effect to the Additional Financing Transactions
as if the Additional Financing Transactions had occurred on such date. Each
such pro forma consolidated balance sheet (i) was prepared in good faith based
on assumptions that were, at the time of preparation of such pro forma
financial statements, and are, as of the date hereof, believed by Holdings and
the Borrower to be reasonable), (ii) was based on the best information
available to Holdings and the Borrower after due inquiry at the date thereof,
(iii) accurately reflects all adjustments necessary to give effect to the
Additional Financing Transactions and (iv) presents fairly, in all material
respects, the pro forma financial position of each of Holdings and its
consolidated subsidiaries and of the Borrower and its consolidated subsidiaries
as of the Restatement Closing Date, as if the Additional Financing Transactions
had occurred on such date.
(f) Except as disclosed in Schedule 3.04(f) or in the December
1998 Bank Presentation, since January 26, 1997, there has been no material
adverse change in the business, assets, operations, material agreements,
prospects or condition, financial or otherwise, of Builders Square.
(g) Except as disclosed in the financial statements referred to
above or the notes thereto or in the Information Memorandum or the December
1998 Bank Presentation and except for the Disclosed Matters, after giving
effect to the Transactions, no member of the Holdings Group has, as of the
Restatement Closing Date, any material contingent liabilities, unusual
long-term commitments or unrealized losses.
(h) Except as disclosed in the December 1998 Bank Presentation,
since October 3, 1998, there has been no material adverse change in the
business, assets, operations, material agreements, prospects or condition,
financial or otherwise, of the Holdings Group, taken as a whole, or of the
Borrower and the Borrower Subsidiaries, taken as a whole.
<PAGE> 45
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SECTION 3.05. Properties. (a) Except as disclosed in Schedule
3.05, each member of the Holdings Group has good title to, or valid leasehold
interests in, all its real and personal property material to its business,
except for minor defects in title that do not interfere with its ability to
conduct its business as currently conducted or to utilize such properties for
their intended purposes.
(b) Each member of the Holdings Group owns, or is licensed to use,
all trademarks, trade names, copyrights, patents and other intellectual
property material to its business, and the use thereof by the Holdings Group
does not infringe upon the rights of any other Person, except for any such
infringements that, individually or in the aggregate, could not reasonably be
expected to result in a Material Adverse Effect.
(c) Schedule 3.05 sets forth the address (including county) of
each real property that is owned or leased by the Holdings Group as of the
Restatement Closing Date.
SECTION 3.06. Litigation and Environmental Matters. (a) There are
no actions, suits or proceedings by or before any arbitrator or Governmental
Authority pending against or, to the knowledge of any Transaction Party,
threatened against or affecting any member of the Holdings Group (i) as to
which there is a reasonable possibility of an adverse determination and that,
if adversely determined, could reasonably be expected, individually or in the
aggregate, to result in a Material Adverse Effect (other than the Disclosed
Matters) or (ii) that involve any of the Loan Documents or the Transactions.
<PAGE> 46
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(b) Except for the Disclosed Matters and except with respect to
any other matters that, individually or in the aggregate, could not reasonably
be expected to result in a Material Adverse Effect, no member of the Holdings
Group (i) has failed to comply with any Environmental Law or to obtain,
maintain or comply with any permit, license or other approval required under
any Environmental Law, (ii) has become subject to any Environmental Liability,
(iii) has received notice of any claim with respect to any Environmental
Liability or (iv) knows of any basis for any Environmental Liability.
(c) Since the date of this Agreement, there has been no change in
the status of the Disclosed Matters that, individually or in the aggregate, has
resulted in, or could reasonably be expected to result in, a Material Adverse
Effect.
SECTION 3.07. Compliance with Laws and Agreements. Each member of
the Holdings Group is in compliance with all laws, regulations and orders of
any Governmental Authority applicable to it or its property and all indentures,
agreements and other instruments binding upon it or its property, except where
the failure to do so, individually or in the aggregate, could not reasonably be
expected to result in a Material Adverse Effect. No Default has occurred and is
continuing.
SECTION 3.08. Investment and Holding Company Status. No member of
the Holdings Group is (a) an "investment company" as defined in, or subject to
regulation under, the Investment Company Act of 1940 or (b) a "holding company"
as defined in, or subject to regulation under, the Public Utility Holding
Company Act of 1935.
SECTION 3.09. Taxes. Each member of the Holdings Group has timely
filed or caused to be filed all Tax returns and reports required to have been
filed and has paid or caused to be paid all Taxes required to have been paid by
it, except (a) Taxes that are being contested in good faith by appropriate
proceedings and for which such member, as applicable, has set aside on its
books adequate reserves or (b) to the extent that the failure to do so could
not reasonably be expected to result in a Material Adverse Effect.
SECTION 3.10. ERISA. No ERISA Event has occurred or is reasonably
expected to occur that, when taken together with all other such ERISA Events
for which liability is reasonably expected to occur, could reasonably be
expected to result in a Material Adverse Effect. The present value of all
accumulated benefit obligations under each Plan (based on the assumptions used
for purposes of Statement of Financial Accounting Standards No. 87) did not, as
of the date of the most recent financial statements reflecting such amounts,
exceed by more than $500,000 the fair market value of the assets of such Plan,
and the present value of all accumulated benefit obligations of all underfunded
Plans (based on the assumptions used for purposes of Statement of Financial
Accounting Standards No. 87) did not, as of the date of the most recent
financial statements reflecting such amounts, exceed by more than $1,000,000
the fair market value of the assets of all such underfunded Plans.
SECTION 3.11. Disclosure. The Transaction Parties have disclosed
to the Lenders all agreements, instruments and corporate or other restrictions
to which any member of the Holdings Group is subject, and all other matters
known to any of them, that, individually or in the aggregate, could reasonably
be expected to result in a Material Adverse Effect. None of the Information
Memorandum, the December 1998 Bank Presentation or any of the other reports,
financial statements, certificates or other information furnished by or on
behalf of any Loan Party to the Administrative Agent or any Lender in
connection with the negotiation of this Agreement or any other Loan Document or
delivered hereunder or thereunder (as modified or supplemented by other
information so furnished) contains any material misstatement of fact or omits
to state any material fact necessary to make the statements therein, in the
light of the circumstances under which they were made, not misleading, provided
that, with respect to projected financial information, the members of the
Holdings Group
<PAGE> 47
43
represent only that such information was prepared in good faith based upon
assumptions believed to be reasonable at the time.
SECTION 3.12. Subsidiaries. Holdings does not have any
subsidiaries other than the Borrower and the other Subsidiaries. Schedule 3.12
sets forth the name of, and the ownership interest of Holdings in, each
Subsidiary of Holdings and identifies each Subsidiary that is a Subsidiary Loan
Party, in each case as of the Restatement Closing Date.
SECTION 3.13. Insurance. Schedule 3.13 sets forth a description of
all insurance maintained by or on behalf of Holdings and the Subsidiaries as of
the Restatement Closing Date. As of the Restatement Closing Date, all premiums
in respect of such insurance that are due and payable have been paid.
SECTION 3.14. Labor Matters. As of the Restatement Closing Date,
there are no strikes, lockouts or slowdowns against any member of the Holdings
Group pending or, to the knowledge of the Transaction Parties, threatened. The
hours worked by and payments made to employees of the Holdings Group have not
been in violation of the Fair Labor Standards Act or any other applicable
Federal, state, local or foreign law dealing with such matters. All payments
due from any member of the Holdings Group, or for which any claim may be made
against any member of the Holdings Group, on account of wages and employee
health and welfare insurance and other benefits, have been paid or accrued as a
liability on the books of such member. The consummation of the Transactions
will not give rise to any right of termination or right of renegotiation on the
part of any union under any collective bargaining agreement to which any member
of the Holdings Group is bound.
SECTION 3.15. Solvency. Immediately after the consummation of the
Additional Financing Transactions and immediately following the making of each
Loan made on the Restatement Closing Date, the making of each "Loan" (as such
term is defined in the Supplemental Credit Agreement) made on the Restatement
Closing Date and after giving effect to the application of the proceeds of such
Loans, (a) the fair value of the assets of each Transaction Party on a
consolidated basis with its subsidiaries, at a fair valuation, will exceed its
debts and liabilities, subordinated, contingent or otherwise; (b) the present
fair saleable value of the property of each Transaction Party on a consolidated
basis with its subsidiaries will be greater than the amount that will be
required to pay the probable liability of its debts and other liabilities,
subordinated, contingent or otherwise, as such debts and other liabilities
become absolute and matured; (c) each Transaction Party on a consolidated basis
with its subsidiaries will be able to pay its debts and liabilities,
subordinated, contingent or otherwise, as such debts and liabilities become
absolute and matured; and (d) each Transaction Party on a consolidated basis
with its subsidiaries will not have unreasonably small capital with which to
conduct the business in which it is engaged as such business is now conducted
and is proposed to be conducted following the Restatement Closing Date.
SECTION 3.16. Security Documents. (a) The Pledge Agreement is
effective to create in favor of the Collateral Agent, for the ratable benefit
of the Secured Parties, a legal, valid and enforceable security interest in the
Collateral (as defined in the Pledge Agreement) and, when the Collateral is
delivered to the Collateral Agent, the Pledge Agreement shall constitute a
fully perfected first priority Lien on, and security interest in, all right,
title and interest of the pledgor thereunder in such Collateral, in each case
prior and superior in right to any other person.
(b) The Security Agreement is effective to create in favor of the
Collateral Agent, for the ratable benefit of the Secured Parties, a legal,
valid and enforceable security interest in the Collateral (as defined in the
Security Agreement) and, when financing statements in appropriate form are
filed in the offices specified on Schedule 6 to the Perfection Certificate, the
Security Agreement shall constitute a fully perfected Lien on, and security
interest in, all right, title and interest of the grantors thereunder in such
<PAGE> 48
44
Collateral (other than the Intellectual Property (as defined in the Security
Agreement), in each case prior and superior in right to any other person, other
than with respect to Liens expressly permitted by Section 6.02.
(c) When the Security Agreement is filed in the United States
Patent and Trademark Office and the United States Copyright Office, the
Security Agreement shall constitute a fully perfected Lien on, and security
interest in, all right, title and interest of the Loan Parties in the
Intellectual Property (as defined in the Security Agreement) in which a
security interest may be perfected by filing, recording or registering a
security agreement, financing statement or analogous document in the United
States Patent and Trademark Office or the United States Copyright Office, as
applicable, in each case prior and superior in right to any other person (it
being understood that subsequent recordings in the United States Patent and
Trademark Office and the United States Copyright Office may be necessary to
perfect a lien on registered trademarks, trademark applications and copyrights
acquired by the Loan Parties after the date hereof).
SECTION 3.17. Federal Reserve Regulations. (a) No member of the
Holdings Group is engaged principally, or as one of its important activities,
in the business of extending credit for the purpose of buying or carrying
Margin Stock.
(b) No part of the proceeds of any Loan or any Letter of Credit
will be used, whether directly or indirectly, and whether immediately,
incidentally or ultimately, (i) to buy or carry Margin Stock or to extend
credit to others for the purpose of buying or carrying Margin Stock or to
refund indebtedness originally incurred for such purpose or (ii) for any
purpose that entails a violation of, or that is inconsistent with, the
provisions of the Regulations of the Board, including Regulation U or X.
(c) Less than 25% of the assets of Holdings Group on a
consolidated basis consist of Margin Stock.
SECTION 3.18. Year 2000 Compliance. To the best knowledge of any
Transaction Party, any reprogramming required to permit the proper functioning,
in and following the year 2000, of (a) the computer systems of each member of
the Holdings Group and (b) equipment containing embedded microchips and the
testing of all such systems and equipment, as so reprogrammed, will be
completed in all material respects by June 30, 1999. To the best knowledge of
any Transaction Party, the cost to the Holdings Group of such reprogramming and
testing and of the reasonably foreseeable consequences of year 2000 to any
member of the Holdings Group (including reprogramming errors and the failure of
others' systems or equipment) will not result in a Default or a Material
Adverse Effect.
ARTICLE IV
Conditions
SECTION 4.01. Restatement Closing Date. This amendment and
restatement shall not become effective until the date (the "Restatement Closing
Date") on which each of the following conditions is satisfied (or waived in
accordance with Section 9.02):
(a) The Agents (or their counsel) shall have received from each
party hereto other than the Revolving Lenders either (i) a counterpart
of this Agreement signed on behalf of such party or (ii) written evidence
satisfactory to the Agents (which may include telecopy transmission of a
signed signature page of this Agreement) that such party has signed a
counterpart of this Agreement.
<PAGE> 49
45
(b) The Agents shall have received a favorable written opinion
(addressed to each Agent and the Lenders and dated the Restatement
Closing Date) of each of (i) Irell & Manella LLP, counsel for the
Transaction Parties and for GEI II, substantially in the form of Exhibit B,
(ii) Kramer, Levin, Naftalis & Frankel, New York counsel for the Transaction
Parties, substantially in the form of Exhibit C-1, and (iii) Skadden, Arps,
Slate, Meagher & Flom LLP, counsel for Kmart, substantially in the form of
Exhibit C-2, and, in the case of each such opinion required by this
paragraph, covering such other matters relating to the Loan Parties, the
Loan Documents or the Transactions as the Required Lenders shall reasonably
request. The Transaction Parties, GEI II and Kmart hereby request such
counsel to deliver such opinions.
(c) The Agents shall have received such documents and certificates
as the Agents or their counsel may reasonably request relating to the
organization, existence and good standing of each Loan Party, the
authorization of the Transactions and any other legal matters relating to
the Loan Parties, the Loan Documents or the Transactions, all in form and
substance satisfactory to the Agents and their counsel.
(d) The Agents shall have received a certificate, dated the
Restatement Closing Date and signed by the President, a Vice President or a
Financial Officer of the Borrower, confirming compliance with the conditions
set forth in paragraphs (a) and (b) of Section 4.02.
(e) The Agents shall have received all fees and other amounts due
and payable on or prior to the Restatement Closing Date, including, to the
extent invoiced, reimbursement or payment of all reasonable and documented
out-of-pocket expenses required to be reimbursed or paid by any Loan Party
hereunder or under any other Loan Document.
(f) To the extent not already received on the Effective Date, the
Agents shall have received counterparts of the Pledge Agreement signed on
behalf of the Borrower and each other Loan Party, together with stock
certificates representing all the outstanding shares of capital stock of
each member of the Holdings Group owned by or on behalf of any Loan Party as
of the Restatement Closing Date after giving effect to the Transactions
(except that stock certificates representing shares of common stock of a
Foreign Subsidiary may be limited to 65% of the outstanding shares of common
stock of such Foreign Subsidiary), promissory notes evidencing all
intercompany Indebtedness owed to any Loan Party by any member of the
Holdings Group as of the Restatement Closing Date after giving effect to the
Transactions and stock powers and instruments of transfer, endorsed in
blank, with respect to such stock certificates and promissory notes.
(g) To the extent not already received on the Effective Date, the
Agents shall have received counterparts of the Security Agreement (including
any amendments thereto reasonably requested by the Agents) signed on behalf
of the Transaction Parties and each other Loan Party, together with the
following:
(i) all documents and instruments, including Uniform
Commercial Code financing statements, required by law or
reasonably requested by the Agents to be filed, registered or
recorded to create or perfect the Liens intended to be created
under the Security Agreement; and
(ii) a completed Perfection Certificate dated the
Restatement Closing Date and signed by an executive officer or
Financial Officer of Holdings, together with all attachments
contemplated thereby.
(h) To the extent not already received on the Effective Date, the
Agents shall have received (i) counterparts of the Guarantee Agreements
signed on behalf of each party thereto other
<PAGE> 50
46
than the Agents and (ii) counterparts of the Indemnity, Subrogation and
Contribution Agreement signed on behalf of the Borrower and each Subsidiary
Loan Party.
(i) The Lenders shall be satisfied with (i) the Supplemental Loan
Documents and any waivers or amendments thereto, (ii) the corporate and
capital structure of the Loan Parties after giving effect to the Additional
Financing Transactions and (iii) all legal, tax and accounting matters
relating to the Additional Financing Transactions.
(j) After giving effect to the Additional Financing Transactions
and the other transactions contemplated hereby, the Holdings Group shall
have outstanding no indebtedness or preferred stock other than (i)
Indebtedness created under the Loan Documents or the Supplemental Loan
Documents, (ii) the Existing Hechinger Public Debt, (iii) the BSQ Acqco/
Holdings Note, (iv) the BSQ Newco/Builders Square Note, (v) the BSQ Newco
Note, (vi) the Hechinger/East Coast Note and (vii) Indebtedness set forth on
Schedule 6.01. The terms and conditions of all indebtedness that will remain
outstanding after the Restatement Closing Date shall be satisfactory in all
respects to the Lenders.
(k) The Lenders shall be satisfied with the sufficiency of amounts
available under this Agreement and the Supplemental Credit Agreement to meet
the ongoing working capital requirements of the Borrower and the Borrower
Subsidiaries following the Additional Financing Transactions and the
consummation of the other transactions contemplated hereby.
(l) The Lenders shall have received a pro forma consolidated
balance sheet of each of (i) Holdings and its subsidiaries and (ii) the
Borrower and its subsidiaries as of the date hereof, reflecting all pro
forma adjustments as if the Additional Financing Transactions had been
consummated on such date, and such pro forma consolidated balance sheets
shall be consistent in all material respects with the forecasts and other
information previously provided to the Lenders.
(m) The Agents shall have received a certificate, in form and
substance reasonably satisfactory to the Lenders, from the chief financial
officer of Holdings (i) with respect to the solvency of Hechinger and its
subsidiaries on a consolidated basis as of the Restatement Closing Date,
(ii) the Borrower and the Borrower Subsidiaries on a consolidated basis as
of the Restatement Closing Date and (iii) Holdings and the Subsidiaries on a
consolidated basis as of the Restatement Closing Date.
(n) The Agents shall have received a Borrowing Base Certificate
dated the Restatement Closing Date, relating to the calendar week ended on
December 18, 1998, and executed by a Financial Officer of the Borrower.
(o) The Lenders shall be satisfied that substantially all the
inventory, accounts receivable and equipment of Builders Square and
Hechinger and their respective subsidiaries are held by the Borrower and the
Borrower Subsidiaries.
(p) The Lenders shall have received audits, in form and substance
satisfactory to the Agents, from Alco Capital Group Inc., the Administrative
Agent's asset-based evaluation group, and the Borrowing Base Audit Agent, in
each case of the accounts receivable and inventory of the Borrower and the
Borrower Subsidiaries after giving effect to the Transactions.
(q) The Lenders shall be satisfied with the management of
Holdings, the Borrower and the other Subsidiaries.
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47
(r) The Supplemental Credit Agreement and each other Supplemental
Loan Document shall have been executed and delivered to the
Administrative Agent by each party thereto and the Additional Financing
Transactions shall have been consummated in accordance with applicable
law, the applicable Loan Documents and Supplemental Loan Documents and
the related agreements and documentation.
(s) The Lenders shall be satisfied with the capitalization,
structure and equity ownership of Holdings and the Borrower.
(t) The consummation of the Additional Financing Transactions and
the other transactions contemplated hereby shall not (a) violate any
applicable law, statute, rule or regulation or (b) conflict with, or
result in a default or event of default under, any material agreement of
any member of the Holdings Group (including the Existing Hechinger Public
Indebtedness), and the Lenders shall have received one or more legal
opinions to such effect, satisfactory to the Agents, from counsel to the
Transaction Parties satisfactory to the Agents.
(u) There shall be no litigation or administrative proceeding that
could reasonably be expected to have a Material Adverse Effect or to
adversely affect the ability of the parties to consummate the Additional
Financing Transactions.
(v) The Lenders shall be reasonably satisfied in all respects with
the tax position and the contingent tax and other liabilities of
Holdings, its Affiliates and the Subsidiaries, and with the plans of
Holdings with respect thereto.
(w) The Lenders shall have received a detailed business plan and
financial projections of the Borrower and its subsidiaries for fiscal
years 1999 through 2001, in form and substance reasonably satisfactory to
the Agents.
(x) The Agents (or their counsel) shall have received such
documents as they may require that are sufficient to approve the
amendment and restatement of the Original Credit Facility by the
Revolving Lenders under Section 9.02 thereof.
The Administrative Agent shall notify the Borrower and the Lenders of the
Restatement Closing Date, and such notice shall be conclusive and binding.
Notwithstanding the foregoing, the obligations of the Lenders to make Loans and
of the Issuing Bank to issue Letters of Credit hereunder shall not become
effective unless each of the foregoing conditions is satisfied (or waived
pursuant to Section 9.02) at or prior to 12:00 noon, New York City time, on
January 4, 1999, (and, in the event such conditions are not so satisfied or
waived, this Agreement shall terminate at such time).
SECTION 4.02. Each Credit Event. The obligation of each Lender to
make a Loan on the occasion of any Borrowing, and of the Issuing Bank to issue,
amend, renew or extend any Letter of Credit, is subject to the satisfaction of
the following conditions:
(a) The representations and warranties of each Loan Party set
forth in the Loan Documents shall be true and correct in all material
respects on and as of the date of such Borrowing or the date of issuance,
amendment, renewal or extension of such Letter of Credit, as applicable,
as though made on and as of such date, other than any such
representations or warranties that by their terms refer to a date other
than the date of such Borrowing, issuance, amendment, renewal or
extension, in which case such representations and warranties shall be
true and correct as of such other date.
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(b) At the time of and immediately after giving effect to such
Borrowing or the issuance, amendment, renewal or extension of such Letter
of Credit, as applicable, no Default shall have occurred and be
continuing.
Each Borrowing and each issuance, amendment, renewal or extension of a Letter of
Credit shall be deemed to constitute a representation and warranty by each
Transaction Party on the date thereof as to the matters specified in paragraphs
(a) and (b) of this Section.
ARTICLE V
Affirmative Covenants
Until the Commitments have expired or been terminated and the
principal of and interest on each Loan and all fees payable hereunder shall have
been paid in full and all Letters of Credit shall have expired or terminated and
all LC Disbursements shall have been reimbursed, each Transaction Party
covenants and agrees with the Lenders that:
SECTION 5.01. Financial Statements and Other Information. The
Transaction Parties will furnish to each Agent and each Lender:
(a) commencing with the fiscal year of Holdings ending October 3,
1998, within 90 days after the end of each fiscal year of Holdings, its
consolidated and consolidating balance sheet and related statements of
operations, stockholders' equity and cash flows as of the end of and for
such year, setting forth in each case in comparative form the figures for
the previous fiscal year, all audited (in the case of such consolidated
statements) and reported on by independent public accountants of
recognized national standing (without a "going concern" or like
qualification or exception and without any qualification or exception as
to the scope of such audit) to the effect that such consolidated
financial statements present fairly in all material respects the
financial condition and results of operations of Holdings and its
consolidated Subsidiaries on a consolidated basis in accordance with GAAP
consistently applied;
(b) (a) commencing with the fiscal year of Holdings ending October
3, 1998, within 45 days after the end of each of the first three fiscal
quarters of each fiscal year of Holdings, its consolidated and
consolidating balance sheet and related statements of operations,
stockholders' equity and cash flows as of the end of and for such fiscal
quarter and the then elapsed portion of the fiscal year, setting forth in
each case in comparative form the figures for the corresponding period or
periods of (or, in the case of the balance sheet, as of the end of) the
previous fiscal year, all certified by one of its Financial Officers as
presenting fairly in all material respects the financial condition and
results of operations of Holdings and its consolidated Subsidiaries on a
consolidated basis in accordance with GAAP consistently applied, subject
to normal year-end audit adjustments, purchase accounting adjustments and
the absence of footnotes;
(c) (a) commencing with the fiscal year of Holdings ending October
3, 1998, within 30 days (or 45 days in the case of the first two fiscal
quarters following the Effective Date) after the end of each of the first
two fiscal months of each fiscal quarter of Holdings, its consolidated
balance sheet and related statements of operations, stockholders' equity
and cash flows as of the end of and for such fiscal month and the then
elapsed portion of the fiscal year, all certified by one of its Financial
Officers as presenting in all material respects the financial condition
and results of operations of Holdings and its consolidated Subsidiaries
on a consolidated basis in accordance
<PAGE> 53
49
with GAAP consistently applied, subject to normal year-end audit
adjustments, purchase accounting adjustments and the absence of
footnotes;
(d) concurrently with any delivery of financial statements under
clause (a) or (b) above, a certificate of a Financial Officer of Holdings
(i) certifying as to whether a Default has occurred and, if a Default has
occurred, specifying the details thereof and any action taken or proposed
to be taken with respect thereto, (ii) setting forth reasonably detailed
calculations demonstrating compliance with Section 6.11 and Section 6.12
and (iii) stating whether any change in GAAP or in the application
thereof has occurred since the date of Holdings's audited financial
statements referred to in Section 3.04 and, if any such change has
occurred, specifying the effect of such change on the financial
statements accompanying such certificate;
(e) concurrently with any delivery of financial statements under
clause (a) above, a certificate of the accounting firm that reported on
such financial statements stating whether they obtained knowledge during
the course of their examination of such financial statements of any
Default (which certificate may be limited to the extent required by
accounting rules or guidelines);
(f) within 30 days following the commencement of each fiscal year
of Holdings, a detailed consolidated budget for such fiscal year
(including a projected consolidated balance sheet and related statements
of projected operations and cash flow as of the end of and for such
fiscal year) and, promptly when available, any significant revisions of
such budget;
(g) within four Business Days after the end of each calendar week,
a certificate in the form of Exhibit I (a "Borrowing Base Certificate")
showing the Borrowing Base as of the close of business on the last day of
such week, each such Certificate to be certified as complete and correct
on behalf of the Borrower by a Financial Officer of the Borrower;
(h) promptly after the same become publicly available, copies of
all periodic and other reports, proxy statements and other materials
filed by any member of the Holdings Group with the Securities and
Exchange Commission, or any Governmental Authority succeeding to any or
all of the functions of said Commission, or with any national securities
exchange, as the case may be;
(i) promptly upon receipt thereof, copies of all reports submitted
to the Borrower by independent certified public accountants in connection
with each annual, interim or special audit of the books of the Borrower
or any of its Subsidiaries made by such accountants, including any
management letter commenting on the Borrower's internal controls
submitted by such accountants to management in connection with their
annual audit;
(j) promptly following any request therefor, such other
information regarding the operations, business affairs and financial
condition of any member of the Holdings Group, or compliance with the
terms of any Loan Document, as the Agents or any Lender may reasonably
request; and
(k) commencing on January 14, 1999, and biweekly thereafter on the
first day of each applicable calendar week, a detailed projection of
Holdings's sources and uses of cash for the next 90 days, prepared in
good faith by Holdings's management, including projected borrowings
hereunder and under the Supplemental Facility and Holdings's projected
consolidated cash balance as of the end of each day during such 90 day
period, and, promptly when available, any significant revisions to such
projections.
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50
SECTION 5.02. Notices of Material Events. The Transaction Parties
will furnish to each Agent and each Lender prompt written notice of the
following:
(a) the occurrence of any Default;
(b) the filing or commencement of any action, suit or proceeding
by or before any arbitrator or Governmental Authority against or
affecting any member of the Holdings Group or any Affiliate thereof that,
if adversely determined, could reasonably be expected to result in a
Material Adverse Effect;
(c) the occurrence of any ERISA Event that, alone or together with
any other ERISA Events that have occurred, could reasonably be expected
to result in a Material Adverse Effect; and
(d) any other development that results in, or could reasonably be
expected to result in, a Material Adverse Effect.
Each notice delivered under this Section shall be accompanied by a statement of
a Financial Officer or other executive officer of Holdings and the Borrower
setting forth the details of the event or development requiring such notice and
any action taken or proposed to be taken with respect thereto.
SECTION 5.03. Information Regarding Collateral. (a) The
Transaction Parties will furnish to the Agents prompt written notice of any
change (i) in any Loan Party's corporate name or in any trade name used to
identify it in the conduct of its business or in the ownership of its
properties, (ii) in the location of any Loan Party's chief executive office, its
principal place of business, any office in which it maintains books or records
relating to Collateral owned by it or any office or facility at which Collateral
owned by it is located (including the establishment of any such new office or
facility), (iii) in any Loan Party's identity or corporate structure or (iv) in
any Loan Party's Federal Taxpayer Identification Number. The Transaction Parties
agree not to effect or permit any change referred to in the preceding sentence
unless all filings have been made under the Uniform Commercial Code or otherwise
that are required in order for the Agents to continue at all times following
such change to have a valid, legal and perfected security interest in all the
Collateral. The Transaction Parties also agree promptly to notify the Agents if
any material portion of the Collateral is damaged or destroyed.
(b) Each year, at the time of delivery of annual financial
statements with respect to the preceding fiscal year pursuant to clause (a) of
Section 5.01, Holdings shall deliver to the Agents a certificate of a Financial
Officer of Holdings setting forth the information required pursuant to Section 2
of the Perfection Certificate or confirming that there has been no change in
such information since the date of the Perfection Certificate delivered on the
Effective Date or the date of the most recent certificate delivered pursuant to
this Section.
SECTION 5.04. Existence; Conduct of Business. Each Transaction
Party will, and will cause each of the Subsidiaries to, do or cause to be done
all things necessary to preserve, renew and keep in full force and effect its
legal existence and the rights, licenses, permits, privileges, franchises,
patents, copyrights, trademarks and trade names material to the conduct of its
business, provided that the foregoing shall not prohibit any merger,
consolidation, liquidation or dissolution permitted under Section 6.03.
SECTION 5.05. Payment of Obligations. Each Transaction Party will,
and will cause each of the Subsidiaries to, pay its Indebtedness and other
obliga-
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51
tions, including Tax liabilities, before the same shall become delinquent or in
default, except where (a) the validity or amount thereof is being contested in
good faith by appropriate proceedings, (b) such Transaction Party or such
Subsidiary has set aside on its books adequate reserves with respect thereto in
accordance with GAAP, (c) such contest effectively suspends collection of the
contested obligation and the enforcement of any Lien securing such obligation
and (d) the failure to make payment pending such contest could not reasonably be
expected to result in a Material Adverse Effect.
SECTION 5.06. Maintenance of Properties. Each Transaction Party
will, and will cause each of the Subsidiaries to, keep and maintain all property
material to the conduct of its business in good working order and condition,
ordinary wear and tear excepted.
SECTION 5.07. Insurance. (a) Each Transaction Party shall (i)
maintain insurance with financially sound and reputable insurers with an A.M.
Best rating of A- or better (or, to the extent consistent with prudent business
practice, a program of self-insurance approved by the Administrative Agent) on
such of its property and in at least such amounts and against at least such
risks as is customary with companies in the same or similar businesses operating
in the same or similar locations, including public liability insurance against
claims for personal injury or death occurring upon, in or about or in connection
with the use of any properties owned, occupied or controlled by it (including
the insurance required pursuant to the Security Documents); (ii) maintain such
other insurance as may be required by law; and (iii) furnish to the
Administrative Agent, upon written request, full information as to the insurance
carried.
(b) Fire and extended coverage policies maintained with respect to
any Collateral shall be endorsed or otherwise amended to include (i) a
non-contributing mortgage clause (regarding improvements to real property) and
lenders' loss payable clause (regarding personal property), in form and
substance satisfactory to the Administrative Agent, which endorsements or
amendments shall provide that, from and after the Effective Date, if the insurer
shall have received written notice from the Administrative Agent or the
Borrowing Base Audit Agent of the occurrence of an Event of Default, the insurer
shall pay all proceeds otherwise payable to the Borrower or the other Loan
Parties under the policies directly to the Administrative Agent or the
Collateral Agent, (ii) a provision to the effect that none of the Borrower, the
Administrative Agent or any other party shall be a coinsurer and (iii) such
other provisions as the Administrative Agent may reasonably require from time to
time to protect the interests of the Lenders. Commercial general liability
policies shall be endorsed to name the Administrative Agent as an additional
insured. Business interruption policies shall name the Administrative Agent as a
loss payee and shall be endorsed or amended to include (i) a provision that,
from and after the Effective Date, if the insurer shall have received written
notice from the Administrative Agent or the Collateral Agent of the occurrence
of an Event of Default, the insurer shall pay all proceeds otherwise payable to
the Borrower or the other Loan Parties under the policies directly to the
Administrative Agent or the Collateral Agent, (ii) a provision to the effect
that none of the Borrower, the Administrative Agent or any other party shall be
a co-insurer and (iii) such other provisions as the Administrative Agent may
reasonably require from time to time to protect the interests of the Lenders.
Each such policy referred to in this paragraph also shall provide that it shall
not be canceled, modified or not renewed (i) by reason of nonpayment of premium
except upon not less than 10 days' prior written notice thereof by the insurer
to the Administrative Agent (giving the Administrative Agent the right to cure
defaults in the payment of premiums) or (ii) for any other reason except upon
not less than 30 days' prior written notice thereof by the insurer to the
Administrative Agent. The Borrower shall deliver to the Administrative Agent,
prior to the cancelation, modification or nonrenewal of any such policy of
insurance, a copy of a renewal or replacement policy (or other evidence of
renewal of a policy previously delivered to the Administrative Agent) together
with evidence satisfactory to the Administrative Agent of payment of the premium
therefor.
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SECTION 5.08. Casualty and Condemnation. Each Transaction Party
will furnish to the Agents and the Lenders prompt written notice of any casualty
or other insured damage to any material portion of any Collateral or the
commencement of any action or proceeding for the taking of any material portion
of the Collateral or any part thereof or interest therein under power of eminent
domain or by condemnation or similar proceeding.
SECTION 5.09. Books and Records; Inspection and Audit Rights. (a)
Each Transaction Party will, and will cause each of the Subsidiaries to, keep
proper books of record and account in which full, true and correct entries are
made of all dealings and transactions in relation to its business and
activities. Each Transaction Party will, and will cause each of the Subsidiaries
to, permit any representatives designated by any Agent or any Lender, upon
reasonable prior notice, to visit and inspect its properties, to examine and
make extracts from its books and records, and to discuss its affairs, finances
and condition with its officers and independent accountants, all at such
reasonable times and as often as reasonably requested.
(b) Each Transaction Party will, and will cause each of the
Subsidiaries to, from time to time upon the request of the Borrowing Base Audit
Agent, the Collateral Agent or the Required Lenders through the Administrative
Agent, permit the Borrowing Base Audit Agent, the Collateral Agent or the
Lenders or professionals (including investment bankers, consultants,
accountants, lawyers and appraisers) retained by the Borrowing Base Audit Agent,
the Collateral Agent, the Administrative Agent or the Lenders to conduct
evaluations and appraisals of (i) the Borrower's practices in the computation of
the Borrowing Base and (ii) the assets included in the Borrowing Base and
related financial information such as, but not limited to, sales, gross margins,
payables, accruals and reserves (it being understood and agreed to that, in the
absence of a Default, the Borrowing Base Audit Agent or the Collateral Agent
will conduct such evaluations and appraisals each quarter), and pay the
reasonable and documented fees and expenses of the Borrowing Base Audit Agent,
the Collateral Agent, the Lenders or such professionals with respect to such
evaluations and appraisals. The Borrower hereby agrees that Alco Capital Group,
Inc. will update its inventory audit report, which is to be delivered to the
Lenders on or before the Restatement Closing Date pursuant to Section 4.01(p),
as of each of March 31, 1999, and June 30, 1999, and that such updated reports
shall be delivered to the Lenders immediately upon their completion.
(c) Each Transaction Party will, and will cause each of the
Subsidiaries to, in connection with any evaluation and appraisal relating to the
computation of the Borrowing Base, maintain such additional reserves (for
purposes of computing the Borrowing Base) in respect of Eligible Inventory and
in respect of Eligible Inventory Minus Reserves and make such other adjustments
to its parameters for including Inventory in the Borrowing Base as the Borrowing
Base Audit Agent and the Collateral Agent or the Required Lenders through the
Administrative Agent shall require based upon the results of such evaluation and
appraisal.
(d) Each Transaction Party will, and will cause each of the
Subsidiaries to, from time to time upon request of the Borrowing Base Audit
Agent, the Collateral Agent or the Required Lenders through the Administrative
Agent, permit its agents or representatives to conduct reviews to determine the
net recovery value of inventory, and pay the reasonable and documented fees and
expenses of such agents or representatives with respect to such reviews.
(e) Not less frequently than each fiscal quarter, Holdings shall
conduct a conference call with the Lenders to update them on the financial
performance and results of operations of the Holdings Group and other related
topics.
(f) Not later than January 29, 1999, Holdings shall host at the
offices of the Administrative Agent in New York, New York a bank meeting to
which each of the Lenders shall be invited to attend.
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SECTION 5.10. Compliance with Laws. Each Transaction Party will,
and will cause each of the Subsidiaries to, comply with all laws, rules,
regulations and orders of any Governmental Authority applicable to it or its
property, except where the failure to do so, individually or in the aggregate,
could not reasonably be expected to result in a Material Adverse Effect.
SECTION 5.11. Use of Proceeds and Letters of Credit. The proceeds
of Loans made hereunder and Letters of Credit issued hereunder will be used only
(a) to finance the working capital needs of the Borrower and the Borrower
Subsidiaries, including the purchase of inventory and equipment, in each case in
the ordinary course of business and (b) to finance capital expenditures of the
Borrower and the Borrower Subsidiaries (it being understood that in no event
will any such proceeds be used to fund any Permitted Acquisition). No part of
the proceeds of any Loan will be used, whether directly or indirectly, for any
purpose that entails a violation of any of the Regulations of the Board,
including Regulations U and X.
SECTION 5.12. Additional Borrower Subsidiaries. If any additional
Borrower Subsidiary is formed or acquired after the Effective Date, Holdings and
the Borrower will notify the Agents and the Lenders thereof and (a) if such
Borrower Subsidiary is a Subsidiary Loan Party, Holdings and the Borrower will
cause such Borrower Subsidiary to become a party to the Subsidiary Guarantee
Agreement, the Indemnity, Subrogation and Contribution Agreement and each
applicable Security Document in the manner provided therein within three
Business Days after such Borrower Subsidiary is formed or acquired and promptly
take such actions to create and perfect Liens on such Borrower Subsidiary's
assets to secure the Obligations as any Agent or the Required Lenders shall
reasonably request and (b) if any shares of capital stock or Indebtedness of
such Borrower Subsidiary are owned by or on behalf of any Loan Party, Holdings
and the Borrower will cause such shares and promissory notes evidencing such
Indebtedness to be pledged pursuant to the Pledge Agreement within three
Business Days after such Borrower Subsidiary is formed or acquired (except that,
if such Borrower Subsidiary is a Foreign Subsidiary, shares of common stock of
such Borrower Subsidiary to be pledged pursuant to the Pledge Agreement may be
limited to 65% of the outstanding shares of common stock of such Borrower
Subsidiary).
SECTION 5.13. Further Assurances. (a) Each Transaction Party will,
and will cause each Subsidiary Loan Party to, execute any and all further
documents, financing statements, agreements and instruments, and take all such
further actions (including the filing and recording of financing statements and
other documents), that may be required under any applicable law, or which any
Agent or the Required Lenders may reasonably request, to effectuate the
transactions contemplated by the Loan Documents or to grant, preserve, protect
or perfect the Liens created or intended to be created by the Security Documents
or the validity or priority of any such Lien, all at the expense of the Loan
Parties. The Transaction Parties also agree to provide to the Agents, from time
to time upon request, evidence reasonably satisfactory to the Agents as to the
perfection and priority of the Liens created or intended to be created by the
Security Documents.
(b) If any material assets (other than real property and personal
property that is not of the type encumbered or to be encumbered by the Lien of
the Security Agreement on the Effective Date) are acquired by the Holdings Group
or any Subsidiary Loan Party after the Effective Date (other than assets
constituting Collateral under the Security Agreement that become subject to the
Lien of the Security Agreement upon acquisition thereof), the Transaction
Parties will notify the Agents and the Lenders thereof, and, if requested by any
Agent or the Required Lenders, the Transaction Parties will cause such assets to
be subjected to a Lien securing the Obligations and will take, and cause the
Subsidiary Loan Parties to take, such actions as shall be necessary or
reasonably requested by any Agent to grant and perfect such Liens, including
actions described in paragraph (a) of this Section, all at the expense of the
Loan Parties.
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SECTION 5.14. Cash Management Procedures. As promptly as
practicable, the Holdings Group will establish and maintain (i) the cash
management procedures set forth in the Security Agreement and (ii) the lockbox
arrangements set forth in the Security Agreement (in no event later than 30 days
after the Restatement Closing Date).
SECTION 5.15. Delivery of Business Plan. As promptly as
practicable and in any event on or before March 31, 1999, the Borrower will, in
consultation with the independent financial advisor retained pursuant to Section
5.16, develop and deliver to the Lenders a business plan, satisfactory in form
and substance to the Administrative Agent, with respect to (a) the
two-fiscal-quarter period ending on June 30, 1999, (b) the four-fiscal-quarter
period ending on December 31, 1999, and (c) the period from October 4, 1998, to
September 30, 2002, provided that if the Borrower delivers a business plan
pursuant to this Section 5.15, the failure of such plan to be satisfactory in
form and substance to the Administrative Agent shall not be a Default or an
Event of Default.
SECTION 5.16. Independent Financial Advisor. Promptly following
the Effective Date, the Transaction Parties shall retain an independent
financial consultant reasonably satisfactory to the Administrative Agent, to act
as an independent financial consultant to the Holdings Group and to provide each
of the Holdings Group, the Lenders, the Agents, GEI II and Kmart with monthly
reports (containing such information as is customary for such reports and such
other information as the Administrative Agent shall reasonably request) on the
financial condition and ongoing results of operations of the Holdings Group and
the Borrower.
ARTICLE VI
Negative Covenants
Until the Commitments have expired or terminated and the principal
of and interest on each Loan and all fees payable hereunder have been paid in
full and all Letters of Credit have expired or terminated and all LC
Disbursements shall have been reimbursed, each Transaction Party covenants and
agrees with the Lenders that:
SECTION 6.01. Indebtedness; Certain Equity Securities. (a) The
Transaction Parties will not, and will not permit any Subsidiary to, create,
incur, assume or permit to exist any Indebtedness, except:
(i) Indebtedness created under the Loan Documents and, prior to
the Supplemental Facility Termination Date, the Supplemental Loan
Documents;
(ii) Indebtedness existing on September 26, 1997, and set forth in
Schedule 6.01 and extensions, renewals and replacements of any such
Indebtedness that do not increase the outstanding principal amount
thereof or result in an earlier maturity date or decreased weighted
average life thereof, provided that the material terms of such
extensions, renewals and replacements are at least as favorable to the
Lenders as those of such Indebtedness;
(iii) Indebtedness of (a) any Loan Party that is not a Foreign
Subsidiary to any other Loan Party that is not a Foreign Subsidiary
(other than the Borrower or the Borrower Subsidiaries) and (b) the
Borrower to any Borrower Subsidiary and of any Borrower Subsidiary to the
Borrower or any other Borrower Subsidiary, provided that Indebtedness of
any Borrower Subsidiary that is not a Loan Party to the Borrower or any
Subsidiary Loan Party shall be subject to Section 6.04;
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(iv) Guarantees by any Subsidiary Loan Party of Indebtedness of
any Borrower Subsidiary and by any Borrower Subsidiary of Indebtedness of
the Borrower or any other such Borrower Subsidiary, provided that
Guarantees by the Borrower or any Subsidiary Loan Party of Indebtedness
of any Borrower Subsidiary that is not a Loan Party shall be subject to
Section 6.04;
(v) Indebtedness of the Borrower, Hechinger, Hechinger East
Coast, BSQ Newco, Hechinger Stores or any Borrower Subsidiary incurred to
finance the acquisition, construction or improvement of any fixed or
capital assets, including Capital Lease Obligations and any Indebtedness
assumed in connection with the acquisition of any such assets or secured
by a Lien on any such assets prior to the acquisition thereof, and
extensions, renewals and replacements of any such Indebtedness that do
not increase the outstanding principal amount thereof or result in an
earlier maturity date or decreased weighted average life thereof,
provided that (A) such Indebtedness is incurred prior to or within 90
days after such acquisition or the completion of such construction or
improvement and (B) the aggregate principal amount of Indebtedness
permitted by this clause (v) shall not exceed $15,000,000 at any time
outstanding;
(vi) Indebtedness of any Person that becomes a Borrower
Subsidiary after the date hereof, provided that (A) such Indebtedness
exists at the time such Person becomes a Borrower Subsidiary and is not
created in contemplation of or in connection with such Person becoming a
Borrower Subsidiary and (B) the aggregate principal amount of
Indebtedness permitted by this clause (vi) shall not exceed $5,000,000 at
any time outstanding;
(vii) the BSQ Newco Note, BSQ Acqco/Holdings Note and BSQ
Newco/Builders Square Note;
(viii) Indebtedness under Hedging Agreements entered into in
accordance with Section 6.06;
(ix) intentionally omitted;
(x) Indebtedness incurred in connection with the Receivables
Purchase Agreements;
(xi) Indebtedness incurred in connection with the Company Owned
Life Insurance Program, provided that the aggregate principal amount of
Indebtedness permitted by this clause (xi) shall not exceed $45,000,000
at any time outstanding;
(xii) the Existing Hechinger Public Indebtedness; and
(xiii) other unsecured Indebtedness in an aggregate principal
amount not exceeding $10,000,000 at any time outstanding, provided that
the aggregate principal amount of Indebtedness of the Borrower
Subsidiaries permitted by this clause (xiii) shall not exceed $2,000,000
at any time outstanding.
(b) Subject to the provisions of Section 6.07, none of the
Transaction Parties will, nor will they permit any Subsidiary to, issue any
preferred stock (except for preferred stock (i) all dividends in respect of
which are to be paid (and all other payments in respect of which are to be made)
in additional shares of such preferred stock, in lieu of cash, until the date
that is at least 360 days following the Maturity Date, (ii) that is not subject
to redemption other than redemption at the option of the Transaction Party
issuing such preferred stock and (iii) all payments in respect of which are
expressly subordinated to the Obligations) or be or become liable in respect of
any obligation (contingent or otherwise) to purchase, redeem, retire, acquire or
make any other payment in respect of (i) any shares of capital stock of any
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member of the Holdings Group or (ii) any option, warrant or other right to
acquire any such shares of capital stock.
SECTION 6.02. Liens. The Transaction Parties will not, and will
not permit any Subsidiary to, create, incur, assume or permit to exist any Lien
on any property or asset now owned or hereafter acquired by it, or assign or
sell any income or revenues (including accounts receivable) or rights in respect
of any thereof, except:
(a) Liens created under the Loan Documents and, prior to the
Supplemental Facility Termination Date, the Supplemental Loan Documents;
(b) Permitted Encumbrances;
(c) any Lien on any property or asset of any Loan Party existing
on September 26, 1997, and set forth in Schedule 6.02, provided that (i)
such Lien shall not apply to any other property or asset of any Loan
Party and (ii) such Lien shall secure only those obligations that it
secures on September 26, 1997, and extensions, renewals and replacements
thereof that do not increase the outstanding principal amount thereof;
(d) any Lien existing on any property or asset prior to the
acquisition thereof by the Borrower or any Borrower Subsidiary or
existing on any property or asset of any Person that becomes a Borrower
Subsidiary after the date hereof prior to the time such Person becomes a
Borrower Subsidiary, provided that (i) such Lien is not created in
contemplation of or in connection with such acquisition or such Person
becoming a Borrower Subsidiary, as the case may be, (ii) such Lien shall
not apply to any other property or assets of the Borrower or any Borrower
Subsidiary and (iii) such Lien shall secure only those obligations that
it secures on the date of such acquisition or the date such Person
becomes a Borrower Subsidiary, as the case may be and extensions,
renewals and replacements thereof that do not increase the outstanding
principal amount thereof;
(e) Liens on fixed or capital assets acquired, constructed or
improved by the Borrower, Hechinger, Hechinger East Coast, BSQ Newco,
Hechinger Stores or any Borrower Subsidiary, provided that (i) such
security interests secure Indebtedness permitted by clause (v) of Section
6.01(a), (ii) such security interests and the Indebtedness secured
thereby are incurred prior to or within 90 days after such acquisition or
the completion of such construction or improvement, (iii) the
Indebtedness secured thereby does not exceed 100% of the cost of
acquiring, constructing or improving such fixed or capital assets and
(iv) such security interests shall not apply to any other property or
assets of the Borrower, Hechinger, Hechinger East Coast, BSQ Newco,
Hechinger Stores or any Borrower Subsidiary;
(f) the Warrant;
(g) leases and subleases on real property of any of the
Transaction Parties or any Subsidiary, provided that either (i) such
lease or sublease is entered into in the ordinary course of such Person's
business or (ii) such real property is not being used by such Person in
the ordinary course of its business or is being used in a manner not
inconsistent with the granting of such lease or sublease;
(h) Liens on account receivables created in connection with the
Receivables Purchase Agreements;
(i) Liens created in connection with the loans under the Company
Owned Life Insurance Program;
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(j) Liens listed on Schedule 6.02; and
(k) the Lien of The Massachusetts Mutual Life Insurance Company on
the Holdings Group's real property located at 4500 Wisconsin Avenue NW,
Washington, DC (Store #3152), provided that (i) such Lien shall not apply
to any other property or asset of any Loan Party and (ii) such Lien shall
secure only those obligations owed to The Massachusetts Mutual Life
Insurance Company that existed on September 26, 1997 (and extensions,
renewals and replacements thereof that do not increase the outstanding
principal amount thereof), and that were secured on such date by the Lien
of The Massachusetts Mutual Life Insurance Company on the Holdings
Group's real property located at 3500 Pennsy Drive, Landover, MD.
SECTION 6.03. Fundamental Changes. (a) The Transaction Parties
will not and will not permit any Subsidiary to, merge into or consolidate with
any other Person, or permit any other Person to merge into or consolidate with
it, or liquidate or dissolve, except that, if at the time thereof and
immediately after giving effect thereto no Default shall have occurred and be
continuing, (i) any Subsidiary may merge into the Borrower in a transaction in
which the Borrower is the surviving corporation, (ii) any Subsidiary may merge
into any Subsidiary Loan Party in a transaction in which the surviving entity is
a Subsidiary Loan Party, (iii) any Subsidiary that is not a Loan Party may merge
into any Subsidiary that is not a Loan Party and (iv) any Borrower Subsidiary
may liquidate or dissolve if the Borrower determines in good faith that such
liquidation or dissolution is in the best interests of the Borrower and is not
materially disadvantageous to the Lenders, provided that any such merger
involving a Person that is not a wholly owned Subsidiary immediately prior to
such merger shall not be permitted unless also permitted by Section 6.04.
(b) The Borrower will not, and will not permit any of the Borrower
Subsidiaries to, engage to any material extent in any business other than
businesses of the type conducted by the Borrower and such Borrower Subsidiaries
on the date of execution of this Agreement and businesses reasonably related
thereto.
(c) Holdings will not, and will not permit any of the Subsidiaries
to, engage in any business or activity other than the ownership of all the
outstanding shares of capital stock of BSQ Acqco and activities incidental
thereto. Holdings will not own or acquire any assets (other than shares of
capital stock of BSQ Acqco, the BSQ Acqco/Holdings Note, cash and Permitted
Investments) or incur any liabilities (other than liabilities under the Loan
Documents and Supplemental Loan Documents, liabilities imposed by law, including
tax liabilities, and other liabilities incidental to its existence and permitted
business and activities, including intercompany Indebtedness permitted under
Section 6.01(a)(iii)).
(d) BSQ Acqco will not engage in any business or activity other
than the ownership of all the outstanding shares of capital stock of BSQ Newco
and Hechinger and activities incidental thereto. BSQ Acqco will not own or
acquire any assets (other than shares of capital stock of BSQ Newco and
Hechinger, cash and Permitted Investments) or incur any liabilities (other than
liabilities under the Loan Documents, the Supplemental Loan Documents and the
BSQ Acqco/Holdings Note, liabilities imposed by law, including tax liabilities,
and other liabilities incidental to its existence and permitted business and
activities, including intercompany indebtedness permitted under Section
6.01(a)(iii)).
(e) BSQ Newco will not engage in any business or activity other
than being the obligee under the BSQ Newco Note and the obligor under the BSQ
Newco/Builders Square Note and activities incidental thereto and the ownership
of the real and personal property set forth in Schedule 6.03(e) and the
activities incidental thereto. BSQ Newco will not own or acquire any assets
(other than the assets described in the first sentence hereof, cash and
Permitted Investments) or incur any liabilities (other than liabilities under
the Loan Documents, the Supplemental Loan Documents and the BSQ Newco/Builders
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Square Note, liabilities imposed by law, including tax liabilities, and other
liabilities incidental to its existence and permitted business and activities,
including intercompany indebtedness permitted under Section 6.01(a)(iii)).
(f) Hechinger will not engage in any business or activity other
than the ownership of all the outstanding shares of capital stock of Hechinger
Stores, being the obligee under the Existing Hechinger Public Debt and
activities incidental thereto and the ownership of the real and personal
property set forth in Schedule 6.03(f) and the activities incidental thereto.
Hechinger will not own or acquire any assets (other than the assets described in
the first sentence hereof, cash and Permitted Investments) or incur any
liabilities (other than liabilities under the Loan Documents and Supplemental
Loan Documents, the Existing Hechinger Public Debt, liabilities imposed by law,
including tax liabilities, and other liabilities incidental to its existence and
permitted business and activities, including intercompany indebtedness permitted
under Section 6.01(a)(iii)).
(g) Hechinger Stores will not engage in any business or activity
other than the ownership of all the outstanding shares of capital stock of the
Borrower and Hechinger East Coast and activities incidental thereto and the
ownership of the real and personal property set forth in Schedule 6.03(g) and
the activities incidental thereto. Hechinger Stores will not own or acquire any
assets (other than the assets described in the first sentence hereof, cash and
Permitted Investments) or incur any liabilities (other than liabilities under
the Loan Documents and the Supplemental Loan Documents, liabilities imposed by
law, including tax liabilities, and other liabilities incidental to its
existence and permitted business and activities including intercompany
indebtedness permitted under Section 6.01(a)(iii)).
(h) Hechinger East Coast will not engage in any business or
activity other than activities incidental thereto and the ownership of the real
and personal property set forth in Schedule 6.03(h) and the activities
incidental thereto. Hechinger East Coast will not own or acquire any assets
(other than the assets described in the first sentence hereof, cash and
Permitted Investments) or incur any liabilities (other than liabilities under
the Loan Documents and the Supplemental Loan Documents, liabilities imposed by
law, including tax liabilities, and other liabilities incidental to its
existence and permitted business and activities, including intercompany
indebtedness permitted under Section 6.01(a)(iii)).
SECTION 6.04. Investments, Loans, Advances, Guarantees and
Acquisitions. The Transaction Parties will not, and will not permit any of the
Subsidiaries to, purchase, hold or acquire (including pursuant to any merger
with any Person that was not a wholly owned Subsidiary prior to such merger) any
capital stock, evidences of indebtedness or other securities (including any
option, warrant or other right to acquire any of the foregoing) of, make or
permit to exist any loans or advances to, Guarantee any obligations of, or make
or permit to exist any investment or any other interest in, any other Person, or
purchase or otherwise acquire (in one transaction or a series of transactions)
any assets of any other Person constituting a business unit, except:
(a) intentionally omitted;
(b) Permitted Acquisitions, provided that the sum of (i) the
consideration paid in connection with all Permitted Acquisitions and (ii)
the consideration paid in connection with all acquisitions pursuant to
Section 6.04(c) shall not exceed $15,000,000 in the aggregate during the
term of this Agreement;
(c) the acquisition of shares or other equity interests in any
Person in transactions not constituting Permitted Acquisitions, provided
that (i) the criteria set forth in clauses (a), (b), (c), (f), (g) and
(h) of the definition of the term "Permitted Acquisition" shall have been
satisfied in connection with such acquisition, (ii) the consideration
paid in connection with all acquisitions
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59
pursuant to this clause (c) shall not exceed $7,500,000 during the term
of this Agreement and (iii) the sum of (A) the consideration paid in
connection with all Permitted Acquisitions and (B) the consideration paid
in connection with all acquisitions pursuant to this clause (c) shall not
exceed $15,000,000 in the aggregate during the term of this Agreement;
(d) Permitted Investments;
(e) investments existing on September 26, 1997, and set forth on
Schedule 6.04, to the extent such investments would not be permitted
under any other clause of this Section;
(f) investments by the Transaction Parties in the capital stock of
the Subsidiaries, provided that (i) any such shares of capital stock
shall be pledged pursuant to the Pledge Agreement (subject to the
limitations applicable to common stock of a Foreign Subsidiary referred
to in Section 5.12) and (ii) the amount of investments by the Transaction
Parties in Subsidiaries that are not Loan Parties shall not exceed
$2,000,000 in the aggregate at any time outstanding;
(g) loans or advances made by (i) any Loan Party that is not a
Foreign Subsidiary to any other Loan Party that is not a Foreign
Subsidiary (other than the Borrower or the Borrower Subsidiaries) and
(ii) the Transaction Parties to any Borrower Subsidiary and made by any
Borrower Subsidiary to the Borrower or any other Borrower Subsidiary,
provided that (i) any such loans and advances made by a Loan Party shall
be evidenced by a promissory note pledged pursuant to the Pledge
Agreement and (ii) the amount of all such loans and advances by Loan
Parties to Subsidiaries that are not Loan Parties shall not exceed
$2,000,000 in the aggregate at any time outstanding;
(h) Guarantees constituting Indebtedness permitted by Section
6.01, provided that the amount of Indebtedness that is (i) outstanding
with respect to Subsidiaries that are not Loan Parties and (ii)
Guaranteed by any Loan Party shall not exceed $2,000,000 in the aggregate
at any time outstanding;
(i) investments received in connection with the bankruptcy or
reorganization of, or settlement of delinquent accounts and disputes
with, customers and suppliers, in each case in the ordinary course of
business;
(j) Hedging Agreements permitted under Section 6.06;
(k) loans or advances to employees (i) for the purpose of travel,
entertainment or relocation in the ordinary course of business in an
aggregate amount not to exceed $2,000,000 at any time outstanding and
(ii) for the purpose of enabling such employees to buy stock of Holdings
in an aggregate amount not exceeding $3,000,000 during the term of this
Agreement, provided that loans or advances made under this sub-clause
(ii) shall be collateralized by the stock purchased with the proceeds of
such loans or advances; and
(l) other investments in an aggregate amount not to exceed
$5,000,000 at any time outstanding.
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SECTION 6.05. Asset Sales. The Transaction Parties will not, and
will not permit any of the Subsidiaries to, sell, transfer, lease or otherwise
dispose of any asset, including any capital stock, nor will the Transaction
Parties permit any of the Subsidiaries to issue any additional shares of its
capital stock or other ownership interest in such Subsidiary, except:
(a) sales of inventory, used or surplus equipment and Permitted
Investments in the ordinary course of business;
(b) sales of inventory located at any store where the Borrower is
conducting a going-out-of-business or similar sale in connection with
the closing of such store;
(c) sales, transfers and dispositions to the Borrower or a
Borrower Subsidiary, provided that any such sales, transfers or
dispositions involving a Borrower Subsidiary that is not a Loan Party
shall be made in compliance with Section 6.08;
(d) sales of assets listed on Schedule 6.05;
(e) sales of real estate (it being understood that "real estate"
as such term is used in this Section 6.05 shall not include real estate
that is leased by a Transaction Party from a third party unless such
lease is a Capital Lease Obligation of a member of the Holdings Group)
and fixtures relating to such real estate, provided that the aggregate
fair market value of all real estate and fixtures sold in reliance upon
this clause (e) (other than the sale of the Holdings Group's real
property located at 3500 Pennsy Drive, Landover, MD) shall not exceed
$25,000,000 in the aggregate during the term of this Agreement;
(f) sales of accounts receivables in connection with the
Receivables Purchase Agreements; and
(g) sales, transfers and dispositions of assets (other than
capital stock of a Subsidiary) that are not permitted by any other clause
of this Section, provided that the aggregate fair market value of all
assets sold, transferred or otherwise disposed of in reliance upon this
clause (g) shall not exceed $10,000,000 in the aggregate during the term
of this Agreement,
provided that all sales, transfers, leases and other dispositions permitted
hereby (other than sales, transfers and other disposition permitted under clause
(b) and (c)) shall be made for fair value and (other than sales, transfers and
other dispositions permitted under clause (c)) solely for cash consideration.
SECTION 6.06. Hedging Agreements. The Transaction Parties will
not, and will not permit any of the Subsidiaries to, enter into any Hedging
Agreement, other than Hedging Agreements entered into in the ordinary course of
business to hedge or mitigate risks to which the Borrower or any Borrower
Subsidiary is exposed in the conduct of its business or the management of its
liabilities.
SECTION 6.07. Restricted Payments; Certain Payments of
Indebtedness. (a) The Transaction Parties will not, and will not permit any
Subsidiary to, declare or make, or agree to pay or make, directly or indirectly,
any Restricted Payment, except (i) the Transaction Parties may declare and pay
dividends with respect to their capital stock payable solely in additional
shares of their common stock, (ii) the Borrower Subsidiaries may declare and pay
dividends ratably with respect to their capital stock and the Subsidiaries other
than the Borrower may declare and pay dividends ratably with respect to their
capital stock, (iii) the Borrower may make Restricted Payments pursuant to and
in accordance with stock option plans or other benefit plans for management or
employees of the Borrower and the Borrower Subsidiaries in an amount not
exceeding
<PAGE> 65
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during any fiscal year of Holdings (A) $2,000,000 plus (B) the amount by which
(x) the product of $2,000,000 and the number of complete fiscal years during the
period from and after the Effective Date to but excluding the date of such
Restricted Payment exceeds (y) the amount of all such Restricted Payments made
during such fiscal years plus (C) the aggregate cash consideration received by
the Borrower during the period from and after the Effective Date to but
excluding the date of such Restricted Payment from the sale or issuance of
common stock to management or employees of the Borrower to the extent such cash
consideration was not previously taken into account in connection with any
Restricted Payment under this clause (iii), provided all such Restricted
Payments made under this clause (iii) shall not exceed $8,000,000 in the
aggregate plus any amounts permitted under subclause (iii) (C) during the term
of this Agreement, (iv) the Borrower and Hechinger Stores may pay dividends or
make loans to Hechinger to the extent necessary to enable Hechinger to redeem or
purchase any portion of the Existing Hechinger Public Debt to the extent that
the Borrower or Hechinger Stores would have been permitted to redeem or
repurchase such Existing Hechinger Public Debt pursuant to clause (b)(iii) below
and (v) any of the Transaction Parties or Subsidiaries may pay dividends to
enable payment of fees and other amounts owing under any of the transactions
specified in Schedule 6.08.
(b) The Transaction Parties will not, and will not permit any
Subsidiary to, make or agree to pay or make, directly or indirectly, any payment
or other distribution (whether in cash securities or other property) of or in
respect of principal of or interest on any Indebtedness, or any payment or other
distribution (whether in cash, securities or other property), including any
sinking fund or similar deposit, on account of the purchase, redemption,
retirement, acquisition, cancelation or termination of any Indebtedness, except:
(i) payment of regularly scheduled interest and principal payments
as and when due in respect of any Indebtedness;
(ii) refinancings of Indebtedness to the extent permitted by
Section 6.01; and
(iii) after the Second Credit Event Date, redemptions or
repurchases of any portion of the Existing Hechinger Public Debt,
provided that (A) at the time of such redemption or repurchase and after
giving effect thereto, (1) no Default or Event of Default has occurred
and is continuing and (2) the Borrowing Base exceeds the aggregate Total
Exposures by at least $125,000,000 and (B) all such redemptions or
repurchases under this clause (iii) do not exceed in the aggregate
$200,000,000 during the term of this Agreement.
SECTION 6.08. Transactions with Affiliates. The Transaction
Parties will not, and will not permit any Subsidiary to, sell, lease or
otherwise transfer any property or assets to, or purchase, lease or otherwise
acquire any property or assets from, or otherwise engage in any other
transactions with, any of its Affiliates, except (a) transactions in the
ordinary course of business that do not involve Holdings and are at prices and
on terms and conditions not less favorable to the Borrower or such Subsidiary
than could be obtained on an arm's-length basis from unrelated third parties,
(b) transactions between or among the Subsidiary Loan Parties not involving any
other Affiliate, (c) payments by the Borrower and the Borrower Subsidiaries to
Holdings as common parent (and to any intermediate Subsidiary Loan Party that is
treated as a common parent) in respect of Taxes attributable to the Borrower and
the Borrower Subsidiaries, but not in excess of the amount in respect of Taxes
that the Borrower and the Borrower Subsidiaries would pay in a separate company
return, (d) any Restricted Payment permitted by Section 6.07, (e) any
transactions listed on Schedule 6.08 and (f) the Holdings Group may pay fees
specified in the Management Agreement.
SECTION 6.09. Restrictive Agreements. The Transaction Parties will
not and will not permit any Subsidiary to, directly or indirectly, enter into,
incur or permit to exist any agreement or other arrangement that prohibits,
restricts or imposes any condition upon (a) the ability of the Transaction
Parties or any Subsidiary to create, incur or permit to exist any Lien upon
<PAGE> 66
62
any of its property or assets or (b) the ability of any Subsidiary to pay
dividends or other distributions with respect to any shares of its capital stock
or to make or repay loans or advances to the Borrower or any other Subsidiary or
to Guarantee Indebtedness of the Borrower or any other Subsidiary, provided that
(i) the foregoing shall not apply to restrictions and conditions imposed by law
or by any Loan Document or Supplemental Loan Document (but only to the extent
such restriction or condition also is imposed by a Loan Document), (ii) the
foregoing shall not apply to restrictions and conditions existing on September
26, 1997, identified on Schedule 6.09 (but shall apply to any extension or
renewal of, or any amendment or modification expanding the scope of, any such
restriction or condition), (iii) the foregoing shall not apply to customary
restrictions and conditions contained in agreements relating to the sale of a
Subsidiary pending such sale, provided such restrictions and conditions apply
only to the Subsidiary that is to be sold and such sale is permitted hereunder,
(iv) clause (a) of the foregoing shall not apply to restrictions or conditions
imposed by any agreement relating to secured Indebtedness permitted by this
Agreement if such restrictions or conditions apply only to the property or
assets securing such Indebtedness and (v) clause (a) of the foregoing shall not
apply to customary provisions in leases restricting the assignment or subleasing
thereof.
SECTION 6.10. Amendment of Material Documents. The Transaction
Parties will not, and will not permit any Subsidiary to, amend, modify or waive
any of its rights under (a) its certificate of incorporation, by-laws or other
organizational documents, (b) the Management Agreement, (c) the Builders Square
Purchase Agreement (as such term is defined in the Original Credit Agreement),
(d) the Hechinger Merger Agreement, (e) the BSQ Newco Note, (f) the BSQ
Acqco/Holdings Note, (g) the BSQ Newco/Builders Square Note, (h) Existing
Hechinger Public Debt, (i) the Hechinger/East Coast Note, (j) the Supplemental
Credit Agreement or (k) the Receivables Purchase Agreements, in each case to the
extent that such amendment, modification or waiver would be adverse to the
interests of the Lenders.
SECTION 6.11. Capital Expenditures. (a) The Transaction Parties
will not permit the aggregate amount of Capital Expenditures made by the
Borrower and the Borrower Subsidiaries (i) during the fiscal quarter ending on
the Saturday closest to December 31, 1998, to exceed $13,500,000, (ii) during
the two- fiscal-quarter period ending on the Saturday closest to March 31, 1999,
to exceed $22,000,000, and (iii) during the three-fiscal-quarter period ending
on the Saturday closest to June 30, 1999, to exceed $30,000,000.
(b) The Transaction Parties will not permit the aggregate amount
of Capital Expenditures made by the Borrower and the Borrower Subsidiaries in
any fiscal year to exceed the amount set forth below opposite such year:
<TABLE>
<CAPTION>
Fiscal Year Amount
----------- ------
<S> <C>
1999 $35,000,000
2000 $35,000,000
2001 $35,000,000
2002 $35,000,000
</TABLE>
Notwithstanding anything to the contrary, no Transaction Party (other than the
Borrower) shall be permitted to make any Capital Expenditures, except for any
Capital Expenditures made by BSQ Newco, Hechinger, Hechinger Stores and
Hechinger East Coast pursuant to Section 6.03(e), (f), (g) and (h).
SECTION 6.12. Minimum Consolidated EBITDA. (a) The Transaction
Parties will not permit Consolidated EBITDA (i) for the fiscal quarter ending on
the Saturday closest to December 31, 1998, to be less than $(32,000,000), (ii)
for the fiscal quarter ending on the Saturday closest to March 31, 1999, to be
less than $(4,000,000), (iii) for
<PAGE> 67
63
the two-fiscal-quarter period ending on the Saturday closest to June 30, 1999,
to be less than $46,000,000, (iv) for the three-fiscal-quarter period ending on
the Saturday closest to September 30, 1999, to be less than $60,000,000, and (v)
for the four-fiscal-quarter period ending on the Saturday closest to December
31, 1999, to be less than $65,000,000.
(b) The Transaction Parties will not permit Consolidated EBITDA
for any four-fiscal-quarter period ending during any period set forth below to
be less than the amount set forth below opposite such period:
<TABLE>
<CAPTION>
Period Amount
------ ------
<S> <C>
The fiscal quarter ending on the Saturday closest to
March 31, 2000 $70,000,000
The fiscal quarter ending on the Saturday closest to
June 30, 2000 $75,000,000
The fiscal quarter ending on the Saturday closest to
September 30, 2000 $75,000,000
The fiscal quarter ending on the Saturday closest to
December 31, 2000 $80,000,000
The fiscal quarter ending on the Saturday closest to
March 31, 2001 $85,000,000
The fiscal quarter ending on the Saturday closest to
June 30, 2001 and thereafter $90,000,000
</TABLE>
SECTION 6.13. Additional Subsidiaries. The Transaction Parties
will not, and will not permit any Subsidiary to, create any additional
Subsidiary, unless such Subsidiary is a Borrower Subsidiary.
ARTICLE VII
Events of Default
If any of the following events ("Events of Default") shall occur:
(a) the Borrower shall fail to pay any principal of any Loan or
any reimbursement obligation in respect of any LC Disbursement when and
as the same shall become due and payable, whether at the due date thereof
or at a date fixed for prepayment thereof or otherwise;
(b) the Borrower shall fail to pay any interest on any Loan or any
fee or any other amount (other than an amount referred to in clause (a)
of this Article) payable under this Agreement or any other Loan Document,
when and as the same shall become due and payable, and such failure shall
continue unremedied for a period of three Business Days;
(c) any representation or warranty made or deemed made by or on
behalf of any member of the Holdings Group in or in connection with any
Loan Document or any amendment or modification
<PAGE> 68
64
thereof or waiver thereunder, or in any report, certificate, financial
statement or other document furnished pursuant to or in connection with
any Loan Document or any amendment or modification thereof or waiver
thereunder, shall prove to have been incorrect in any material respect
when made or deemed made;
(d) the Transaction Parties shall fail to observe or perform any
covenant, condition or agreement contained in Section 5.01(g), 5.02, 5.04
(with respect to the existence of the Transaction Parties), 5.11, 5.15 or
5.16 or in Article VI; provided, however, if such failure arises from a
non-consensual Lien created without the knowledge of, action by or
consent of any Transaction Party in violation of Section 6.02, such
failure shall not constitute an Event of Default unless such failure
shall remain unremedied for 10 days after knowledge thereof by a member
of senior management of Holdings or Borrower;
(e) any Loan Party shall fail to observe or perform any covenant,
condition or agreement contained in any Loan Document (other than those
specified in clause (a), (b) or (d) of this Article), and such failure
shall continue unremedied for a period of 30 days after notice thereof
from any Agent to the Borrower (which notice will be given at the request
of any Lender);
(f) any member of the Holdings Group shall fail to make any
payment (whether of principal or interest and regardless of amount) in
respect of any Material Indebtedness, when and as the same shall become
due and payable (after giving effect to the expiration of any grace or
cure period set forth therein);
(g) any event or condition occurs that results in any Material
Indebtedness becoming due prior to its scheduled maturity or that enables
or permits (with or without the giving of notice, the lapse of time or
both) the holder or holders of any Material Indebtedness or any trustee
or agent on its or their behalf to cause any Material Indebtedness to
become due, or to require the prepayment, repurchase, redemption or
defeasance thereof, prior to its scheduled maturity, provided that this
clause (g) shall not apply to secured Indebtedness that becomes due as a
result of the voluntary sale or transfer of the property or assets
securing such Indebtedness;
(h) an involuntary proceeding shall be commenced or an involuntary
petition shall be filed seeking (i) liquidation, reorganization or other
relief in respect of any member of the Holdings Group or its debts, or of
a substantial part of its assets, under any Federal, state or foreign
bankruptcy, insolvency, receivership or similar law now or hereafter in
effect or (ii) the appointment of a receiver, trustee, custodian,
sequestrator, conservator or similar official for any member of the
Holdings Group or for a substantial part of its assets, and, in any such
case, such proceeding or petition shall continue undismissed for 60 days
or an order or decree approving or ordering any of the foregoing shall be
entered;
(i) any member of the Holdings Group shall (i) voluntarily
commence any proceeding or file any petition seeking liquidation,
reorganization or other relief under any Federal, state or foreign
bankruptcy, insolvency, receivership or similar law now or hereafter in
effect, (ii) consent to the institution of, or fail to contest in a
timely and appropriate manner, any proceeding or petition described in
clause (h) of this Article, (iii) apply for or consent to the appointment
of a receiver, trustee, custodian, sequestrator, conservator or similar
official for any member of the Holdings Group or for a substantial part
of its assets, (iv) file an answer admitting the material allegations of
a petition filed against it in any such proceeding, (v) make a general
assignment for the benefit of creditors or (vi) take any action for the
purpose of effecting any of the foregoing;
(j) any member of the Holdings Group shall become unable, admit in
writing its inability or fail generally to pay its debts as they become
due;
<PAGE> 69
65
(k) one or more judgments for the payment of money in an aggregate
amount in excess of $5,000,000 shall be rendered against any member of
the Holdings Group or any combination thereof and the same shall remain
undischarged for a period of 30 consecutive days during which execution
shall not be effectively stayed, or any action shall be legally taken by
a judgment creditor to attach or levy upon any assets of any member of
the Holdings Group to enforce any such judgment;
(l) an ERISA Event shall have occurred that, in the opinion of the
Required Lenders, when taken together with all other ERISA Events that
have occurred, could reasonably be expected to result in liability of
Holdings Group Subsidiaries in an aggregate amount exceeding $5,000,000;
(m) any Lien purported to be created under any Security Document
shall cease to be, or shall be asserted by any Loan Party not to be, a
valid and perfected Lien on any Collateral, with the priority required by
the applicable Security Document, except (i) as a result of the sale or
other disposition of the applicable Collateral in a transaction permitted
under the Loan Documents or (ii) as a result of the Collateral Agent's
failure to maintain possession of any stock certificates, promissory
notes or other instruments delivered to it under the Pledge Agreement; or
(n) a Change in Control shall occur;
then, and in every such event (other than an event with respect to the
Transaction Parties described in clause (h) or (i) of this Article), and at any
time thereafter during the continuance of such event, the Administrative Agent
may, and at the request of the Required Lenders shall, by notice to the
Borrower, take either or both of the following actions, at the same or different
times: (i) terminate the Commitments, and thereupon the Commitments shall
terminate immediately, and (ii) declare the Loans then outstanding to be due and
payable in whole (or in part, in which case any principal not so declared to be
due and payable may thereafter be declared to be due and payable), and thereupon
the principal of the Loans so declared to be due and payable, together with
accrued interest thereon and all fees and other obligations of the Borrower
accrued hereunder, shall become due and payable immediately, without
presentment, demand, protest or other notice of any kind, all of which are
hereby waived by the Borrower; and in case of any event with respect to the
Transaction Parties described in clause (h) or (i) of this Article, the
Commitments shall automatically terminate and the principal of the Loans then
outstanding, together with accrued interest thereon and all fees and other
obligations of the Borrower accrued hereunder, shall automatically become due
and payable, without presentment, demand, protest or other notice of any kind,
all of which are hereby waived by the Borrower.
ARTICLE VIII
The Administrative Agent, the Collateral Agent,
the Documentation Agent, the Borrowing Base
Audit Agent and the Syndication Agent
Each of the Lenders and the Issuing Bank hereby (a) irrevocably appoints
Chase as the Administrative Agent and the Collateral Agent, BABC as the
Documentation Agent and the Borrowing Base Audit Agent and Citicorp USA as the
Syndication Agent (collectively, the "Agents") and (b) authorizes each Agent to
take such actions on its behalf and to exercise such powers as are delegated to
such Agent by the terms of the Loan Documents, together with such actions and
powers as are reasonably incidental thereto.
<PAGE> 70
66
Each Agent hereunder shall have the same rights and powers in its
capacity as a Lender as any other Lender and may exercise the same as though it
were not an Agent, and such Agent and its Affiliates may accept deposits from,
lend money to and generally engage in any kind of business with any Transaction
Party or any Subsidiary or other Affiliate thereof as if it were not an Agent
hereunder.
The Agents shall not have any duties or obligations except those
expressly set forth in the Loan Documents. Without limiting the generality of
the foregoing, (a) no Agent shall be subject to any fiduciary or other implied
duties, regardless of whether a Default has occurred and is continuing, (b) no
Agent shall have any duty to take any discretionary action or exercise any
discretionary powers, except discretionary rights and powers expressly
contemplated by the Loan Documents that such Agent is required to exercise in
writing by the Required Lenders (or such other number or percentage of the
Lenders as shall be necessary under the circumstances as provided in Section
9.02), and (c) except as expressly set forth in the Loan Documents, no Agent
shall have any duty to disclose, and shall not be liable for the failure to
disclose, any information relating to any Transaction Party or any of the
Subsidiaries that is communicated to or obtained by such Agent or any of its
Affiliates in any capacity. No Agent shall be liable for any action taken or not
taken by it with the consent or at the request of the Required Lenders (or such
other number or percentage of the Lenders as shall be necessary under the
circumstances as provided in Section 9.02) or in the absence of such Agent's own
gross negligence or wilful misconduct. No Agent shall be deemed to have
knowledge of any Default unless and until written notice thereof is given to
such Agent by any Transaction Party or a Lender, and no Agent shall be
responsible for or have any duty to ascertain or inquire into (i) any statement,
warranty or representation made in or in connection with any Loan Document, (ii)
the contents of any certificate, report or other document delivered thereunder
or in connection therewith, (iii) the performance or observance of any of the
covenants, agreements or other terms or conditions set forth in any Loan
Document, (iv) the validity, enforceability, effectiveness or genuineness of any
Loan Document or any other agreement, instrument or document or (v) the
satisfaction of any condition set forth in Article IV or elsewhere in any Loan
Document, other than to confirm receipt of items expressly required to be
delivered to such Agent.
Each Agent shall be entitled to rely upon, and shall not incur any
liability for relying upon, any notice, request, certificate, consent,
statement, instrument, document or other writing believed by it to be genuine
and to have been signed or sent by the proper Person. Each Agent also may rely
upon any statement made to it orally or by telephone and believed by it to be
made by the proper Person, and shall not incur any liability for relying
thereon. Each Agent may consult with legal counsel (who may be counsel for the
Borrower), independent accountants and other experts selected by it, and shall
not be liable for any action taken or not taken by it in accordance with the
advice of any such counsel, accountants or experts.
Each Agent may perform any and all its duties and exercise its rights and
powers by or through any one or more sub-agents appointed by such Agent. Each
Agent and any such sub-agent may perform any and all its duties and exercise its
rights and powers through their respective Related Parties. The exculpatory
provisions of the preceding paragraphs shall apply to any such sub-agent and to
the Related Parties of each Agent and any such sub-agent, and shall apply to
their respective activities in connection with the syndication of the credit
facilities provided for herein as well as activities as an Agent.
Subject to the appointment and acceptance of a successor to the
Administrative Agent as provided in this paragraph, the Administrative Agent may
resign at any time by notifying the Lenders, the Issuing Bank and the
Transaction Parties. Upon any such resignation, the Required Lenders shall have
the right, in consultation with the Transaction Parties, to appoint a successor.
If no successor shall have been so appointed by the Required Lenders and shall
have accepted such appointment within 30 days after the retiring Administrative
Agent gives notice of its resignation, then the retiring Administrative Agent
may, on behalf of the Lenders and the Issuing Bank, appoint a successor
Administrative Agent that shall be a bank with an office in New York, New York,
or an Affiliate of any such bank. Upon the acceptance of its
<PAGE> 71
67
appointment as Administrative Agent hereunder by a successor, such successor
shall succeed to and become vested with all the rights, powers, privileges and
duties of the retiring Administrative Agent, and the retiring Administrative
Agent shall be discharged from its duties and obligations hereunder. The fees
payable by the Borrower to a successor Administrative Agent shall be the same as
those payable to its predecessor unless otherwise agreed upon between the
Borrower and such successor. After the Administrative Agent's resignation
hereunder, the provisions of this Article and Section 9.03 shall continue in
effect for the benefit of such retiring Administrative Agent, its subagents and
their respective Related Parties in respect of any actions taken or omitted to
be taken by any of them while it was acting as Administrative Agent.
Subject to the appointment and acceptance of a successor to the
Collateral Agent as provided in this paragraph, the Collateral Agent may resign
at any time by notifying the Lenders, the Issuing Bank and the Transaction
Parties. Upon any such resignation, the Required Lenders shall have the right,
in consultation with the Transaction Parties, to appoint a successor. If no
successor shall have been so appointed by the Required Lenders and shall have
accepted such appointment within 30 days after the retiring Collateral Agent
gives notice of its resignation, then the retiring Collateral Agent may, on
behalf of the Lenders and the Issuing Bank, appoint a successor Collateral Agent
that shall be a bank or an Affiliate of a bank. Upon the acceptance of its
appointment as Collateral Agent hereunder by a successor, such successor shall
succeed to and become vested with all the rights, powers, privileges and duties
of the retiring Collateral Agent, and the retiring Collateral Agent shall be
discharged from its duties and obligations hereunder. The fees payable by the
Borrower to a successor Collateral Agent shall be the same as those payable to
its predecessor unless otherwise agreed upon between the Borrower and such
successor. After the Collateral Agent's resignation hereunder, the provisions of
this Article and Section 9.03 shall continue in effect for the benefit of such
retiring Collateral Agent, its sub-agents and their respective Related Parties
in respect of any actions taken or omitted to be taken by any of them while it
was acting as Collateral Agent.
Subject to the appointment and acceptance of a successor to the Borrowing
Base Audit Agent as provided in this paragraph, the Borrowing Base Audit Agent
may resign at any time by notifying the Lenders, the Issuing Bank and the
Transaction Parties. Upon any such resignation, the Required Lenders shall have
the right, in consultation with the Transaction Parties, to appoint a successor.
If no successor shall have been so appointed by the Required Lenders and shall
have accepted such appointment within 30 days after the retiring Borrowing Base
Audit Agent gives notice of its resignation, then the retiring Borrowing Base
Audit Agent may, on behalf of the Lenders and the Issuing Bank, appoint a
successor Borrowing Base Audit Agent that shall be a bank or an Affiliate of a
bank. Upon the acceptance of its appointment as Borrowing Base Audit Agent
hereunder by a successor, such successor shall succeed to and become vested with
all the rights, powers, privileges and duties of the retiring Borrowing Base
Audit Agent, and the retiring Borrowing Base Audit Agent shall be discharged
from its duties and obligations hereunder. The fees payable by the Borrower to a
successor Borrowing Base Audit Agent shall be the same as those payable to its
predecessor unless otherwise agreed upon between the Borrower and such
successor. After the Borrowing Base Audit Agent's resignation hereunder, the
provisions of this Article and Section 9.03 shall continue in effect for the
benefit of such retiring Borrowing Base Audit Agent, its sub-agents and their
respective Related Parties in respect of any actions taken or omitted to be
taken by any of them while it was acting as Borrowing Base Audit Agent.
Each Lender acknowledges that it has, independently and without reliance
upon any Agent or any other Lender and based on such documents and information
as it has deemed appropriate, made its own credit analysis and decision to enter
into this Agreement. Each Lender also acknowledges that it will, independently
and without reliance upon the either Agent or any other Lender and based on such
documents and information as it shall from time to time deem appropriate,
continue to make its own decisions in taking or not taking action under or based
upon this Agreement, any other Loan Document or related agreement or any
document furnished hereunder or thereunder.
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ARTICLE IX
Miscellaneous
SECTION 9.01. Notices. Except in the case of notices and other
communications expressly permitted to be given by telephone, all notices and
other communications provided for herein shall be in writing and shall be
delivered by hand or overnight courier service, mailed by certified or
registered mail or sent by telecopy, as follows:
(a) if to any Transaction Party, to it at Hechinger Investment
Company of Delaware, Inc., 1801 McCormick Drive, Largo, MD 20774,
Attention of Mark R. Adams, Sr. Vice President, Treasurer and Secretary,
(Telecopy No. (301) 925-3945) with a copy to Centers Holdings, Inc.,
11111 Santa Monica Blvd., Suite 2000, Los Angeles, CA 90025, Attention of
Gregory J. Annick (Telecopy No. (310) 954-0404);
(b) if to the Administrative Agent or the Collateral Agent, to The
Chase Manhattan Bank, Loan and Agency Services Group, One Chase Manhattan
Plaza, 8th Floor, New York, New York 10081, Attention of Jesse Huff
(Telecopy No. (212) 552-7500), with a copy to The Chase Manhattan Bank,
270 Park Avenue, New York 10017, Attention of John Huber (Telecopy No.
(212) 270-4584);
(c) if to the Documentation Agent or the Borrowing Base Audit
Agent, to BankAmerica Business Credit, Inc., 10124 Old Grove Road, San
Diego, CA 92131, Attention of Thomas Montgomery, Esq. (Telecopy No. (619)
549-7518);
(d) if to the Syndication Agent, to Citicorp USA, Inc., 725 South
Figueroa Street, Los Angeles, CA 90017, Attention of Susan Swerdloff
(Telecopy No. (213) 239-1899);
(e) if to the Issuing Bank, to The Chase Manhattan Bank, Loan and
Agency Services Group, One Chase Manhattan Plaza, 8th Floor, New York,
New York 10081, Attention of Jesse Huff (Telecopy No.(212) 552-7500) with
a copy to The Chase Manhattan Bank, 270 Park Avenue, New York, New York
10017, Attention of John Huber (Telecopy No. (212) 270-4584);
(f) if to the Swingline Lender, to The Chase Manhattan Bank, Loan
and Agency Services Group, One Chase Manhattan, 8th Floor, New York, New
York 10081, Attention of Jesse Huff (Telecopy No. (212) 552-7500) with a
copy to The Chase Manhattan Bank, 270 Park Avenue, New York, New York
10017, Attention of John Huber (Telecopy No. (212) 270-4584); and
(g) if to any other Lender, to it at its address (or telecopy
number) set forth in its Administrative Questionnaire.
Any party hereto may change its address or telecopy number for notices and other
communications hereunder by notice to the other parties hereto. All notices and
other communications given to any party hereto in accordance with the provisions
of this Agreement shall be deemed to have been given on the date of receipt.
SECTION 9.02. Waivers; Amendments. (a) No failure or delay by the
Administrative Agent, the Issuing Bank or any Lender in exercising any right or
power hereunder or under any other Loan Document shall operate as a waiver
thereof, nor shall any single or partial exercise of any such right or power, or
any abandonment or discontinuance of steps to enforce such a right or power,
preclude any other or further exercise thereof or the exercise of any other
right or power. The rights and remedies of the Agents, the Issuing Bank and the
Lenders hereunder and under the other Loan Documents are cumulative and are not
exclusive of any rights or remedies that they would otherwise have. No waiver of
any
<PAGE> 73
69
provision of any Loan Document or consent to any departure by any Loan Party
therefrom shall in any event be effective unless the same shall be permitted by
paragraph (b) of this Section, and then such waiver or consent shall be
effective only in the specific instance and for the purpose for which given.
Without limiting the generality of the foregoing, the making of a Loan or
issuance of a Letter of Credit shall not be construed as a waiver of any
Default, regardless of whether the Agents, any Lender or the Issuing Bank may
have had notice or knowledge of such Default at the time.
(b) Neither this Agreement nor any other Loan Document nor any
provision hereof or thereof may be waived, amended or modified except, in the
case of this Agreement, pursuant to an agreement or agreements in writing
entered into by the Transaction Parties and the Required Lenders or, in the case
of any other Loan Document, pursuant to an agreement or agreements in writing
entered into by the Agents and the Loan Party or Loan Parties that are parties
thereto, in each case with the consent of the Required Lenders, provided that no
such agreement shall (i) increase the Commitment of any Lender without the
written consent of such Lender, (ii) reduce the principal amount of any Loan or
LC Disbursement or reduce the rate of interest thereon, or reduce any fees
payable hereunder, without the written consent of each Lender affected thereby,
(iii) postpone the scheduled date of payment of the principal amount of any Loan
or LC Disbursement, or any interest thereon, or any fees payable hereunder, or
reduce the amount of, waive or excuse any such payment, or postpone the
scheduled date of expiration of the Revolving Commitment, without the written
consent of each Lender affected thereby, (iv) change Section 2.17(b) or (c) in a
manner that would alter the pro rata sharing of payments required thereby,
without the written consent of each Lender, (v) change any of the provisions of
this Section or the definition of the term "Required Lenders" or any other
provision of any Loan Document specifying the number or percentage of Lenders
required to waive, amend or modify any rights thereunder or make any
determination or grant any consent thereunder, without the written consent of
each Lender, (vi) release any member of the Holdings Group or any Subsidiary
Loan Party from its Guarantee under the applicable Guarantee Agreement (except
as expressly provided in such Guarantee Agreement), or limit its liability in
respect of such Guarantee, without the written consent of each Lender, (vii)
release all or any substantial part of the Collateral from the Liens of the
Security Documents, without the written consent of each Lender or (viii) change
the definition of the term "Borrowing Base" without the written consent of
Lenders having Total Exposures and unused Revolving Commitments representing at
least 67% of the sum of the Total Exposures and unused Revolving Commitments at
such time, and provided further that no such agreement shall amend, modify or
otherwise affect the rights or duties of the Agents, the Issuing Bank or the
Swingline Lender without the prior written consent of the Agents, the Issuing
Bank or the Swingline Lender, as the case may be.
SECTION 9.03. Expenses; Indemnity; Damage Waiver. (a) The
Transaction Parties shall pay (i) all reasonable and documented out-of-pocket
expenses incurred by the Agents and their Affiliates, including the reasonable
and documented fees, charges and disbursements of counsel for the Agents,
outside consultants for the Agents and internally allocated charges with respect
to the Administrative Agent's collateral examination group, in connection with
the syndication of the credit facilities provided for herein, the preparation
and administration of the Loan Documents or any amendments, modifications or
waivers of the provisions thereof (whether or not the transactions contemplated
hereby or thereby shall be consummated), (ii) all reasonable and documented
out-of-pocket expenses incurred by the Issuing Bank in connection with the
issuance, amendment, renewal or extension of any Letter of Credit or any demand
for payment thereunder and (iii) all reasonable and documented out-of-pocket
expenses incurred by the Agents, the Issuing Bank or any Lender, including the
reasonable and documented fees, charges and disbursements of any counsel and any
outside consultants for the Agents, the Issuing Bank or any Lender and the
internally allocated charges with respect to the Administrative Agent's
collateral examination group, in connection with the enforcement or protection
of its rights in connection with the Loan Documents, including its rights under
this Section, or in connection with the Loans made or Letters of Credit issued
hereunder, including all such out-of-pocket expenses incurred during any
workout, restructuring or negotiations in respect of such Loans or Letters of
Credit.
(b) The Transaction Parties shall, jointly and severally,
indemnify the Agents, the Issuing Bank and each Lender, and each Related Party
of any of the foregoing Persons (each such Person being called an
<PAGE> 74
70
"Indemnitee") against, and hold each Indemnitee harmless from, any and all
losses, claims, damages, liabilities and related expenses, including the
reasonable and documented fees, charges and disbursements of any counsel for any
Indemnitee, incurred by or asserted against any Indemnitee arising out of, in
connection with, or as a result of (i) the execution or delivery of any Loan
Document or any other agreement or instrument contemplated hereby, the
performance by the parties to the Loan Documents of their respective obligations
thereunder or the consummation of the Transactions or any other transactions
contemplated hereby, (ii) any Loan or Letter of Credit or the use of the
proceeds therefrom (including any refusal by the Issuing Bank to honor a demand
for payment under a Letter of Credit if the documents presented in connection
with such demand do not strictly comply with the terms of such Letter of
Credit), (iii) any actual or alleged presence or release of Hazardous Materials
on or from any property currently or formerly owned or operated by any
Transaction Party or any of the Subsidiaries, or any Environmental Liability
related in any way to any Transaction Party or any of the Subsidiaries, or (iv)
any actual or prospective claim, litigation, investigation or proceeding
relating to any of the foregoing, whether based on contract, tort or any other
theory and regardless of whether any Indemnitee is a party thereto, provided
that such indemnity shall not, as to any Indemnitee, be available to the extent
that such losses, claims, damages, liabilities or related expenses resulted from
the gross negligence or wilful misconduct of such Indemnitee or any Affiliate of
such Indemnitee (or of any officer, director, employee, advisor or agent of such
Indemnitee or any such Indemnitee's Affiliates).
(c) To the extent that any Loan Party fails to pay any amount
required to be paid by it to the Agents, the Issuing Bank or the Swingline
Lender under paragraph (a) or (b) of this Section, each Lender severally agrees
to pay to the Agents, the Issuing Bank or the Swingline Lender, as the case may
be, such Lender's pro rata share (determined as of the time that the applicable
unreimbursed expense or indemnity payment is sought) of such unpaid amount,
provided that the unreimbursed expense or indemnified loss, claim, damage,
liability or related expense, as the case may be, was incurred by or asserted
against the Agents, the Issuing Bank or the Swingline Lender in its capacity as
such. For purposes hereof, a Lender's "pro rata share" shall be determined based
upon its share of the sum of the Total Exposures and unused Revolving
Commitments at the time.
(d) To the extent permitted by applicable law, no Transaction
Party shall assert, and each hereby waives, any claim against any Indemnitee, on
any theory of liability, for special, indirect, consequential or punitive
damages (as opposed to direct or actual damages) arising out of, in connection
with, or as a result of, this Agreement or any agreement or instrument
contemplated hereby, the Transactions, any Loan or Letter of Credit or the use
of the proceeds thereof.
(e) All amounts due under this Section shall be payable promptly
after written demand therefor.
SECTION 9.04. Successors and Assigns. (a) The provisions of this
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns permitted hereby (including any
Affiliate of the Issuing Bank that issues any Letter of Credit), except that no
Transaction Party may assign or otherwise transfer any of its rights or
obligations hereunder without the prior written consent of each Lender (and any
such attempted assignment or transfer without such consent shall be null and
void). Nothing in this Agreement, expressed or implied, shall be construed to
confer upon any Person (other than the parties hereto, their respective
successors and assigns permitted hereby (including any Affiliate of the Issuing
Bank that issues any Letter of Credit) and, to the extent expressly contemplated
hereby, the Related Parties of each of the Agents, the Issuing Bank and the
Lenders) any legal or equitable right, remedy or claim under or by reason of
this Agreement.
(b) Any Lender may assign to one or more assignees all or a
portion of its rights and obligations under this Agreement (including all or a
portion of its Commitment and the Loans at the time owing to it), provided that
(i) except in the case of an assignment to a Lender or an Affiliate of a Lender,
each of the Borrower and the Agents, the Issuing Bank and the Swingline Lender
must give their prior written consent to such assignment (which consent shall
not be unreasonably withheld), (ii) except in the case of an assignment to a
Lender or an Affiliate of a Lender or an assignment of the entire remaining
amount of the assigning Lender's Revolving
<PAGE> 75
71
Commitment or Loans, the amount of the Revolving Commitment or Loans of the
assigning Lender subject to each such assignment (determined as of the date the
Assignment and Acceptance with respect to such assignment is delivered to the
Administrative Agent) shall not be less than $5,000,000 unless each of the
Borrower and the Administrative Agent otherwise consent, (iii) each partial
assignment shall be made as an assignment of a proportionate part of all the
assigning Lender's rights and obligations under this Agreement, (iv) the parties
to each assignment shall execute and deliver to the Administrative Agent an
Assignment and Acceptance, together with a processing and recordation fee of
$3,500, and (v) the assignee, if it shall not be a Lender, shall deliver to the
Administrative Agent an Administrative Questionnaire, and provided further that
any consent of the Borrower otherwise required under this paragraph shall not be
required if an Event of Default under clause (h) or (i) of Article VII has
occurred and is continuing. Subject to acceptance and recording thereof pursuant
to paragraph (d) of this Section, from and after the effective date specified in
each Assignment and Acceptance the assignee thereunder shall be a party hereto
and, to the extent of the interest assigned by such Assignment and Acceptance,
have the rights and obligations of a Lender under this Agreement, and the
assigning Lender thereunder shall, to the extent of the interest assigned by
such Assignment and Acceptance, be released from its obligations under this
Agreement (and, in the case of an Assignment and Acceptance covering all of the
assigning Lender's rights and obligations under this Agreement, such Lender
shall cease to be a party hereto but shall continue to be entitled to the
benefits of Sections 2.15, 2.16, 2.17 and 9.03). Any assignment or transfer by a
Lender of rights or obligations under this Agreement that does not comply with
this paragraph shall be treated for purposes of this Agreement as a sale by such
Lender of a participation in such rights and obligations in accordance with
paragraph (e) of this Section.
(c) The Administrative Agent, acting for this purpose as an agent
of the Borrower, shall maintain at one of its offices in The City of New York a
copy of each Assignment and Acceptance delivered to it and a register for the
recordation of the names and addresses of the Lenders, and the Commitment of,
and principal amount of the Loans and LC Disbursements owing to, each Lender
pursuant to the terms hereof from time to time (the "Register"). The entries in
the Register shall be conclusive, and the Transaction Parties, the
Administrative Agent, the Issuing Bank and the Lenders may treat each Person
whose name is recorded in the Register pursuant to the terms hereof as a Lender
hereunder for all purposes of this Agreement, notwithstanding notice to the
contrary. The Register shall be available for inspection by the Borrower, the
Issuing Bank and any Lender, at any reasonable time and from time to time upon
reasonable prior notice.
(d) Upon its receipt of a duly completed Assignment and Acceptance
executed by an assigning Lender and an assignee, the assignee's completed
Administrative Questionnaire (unless the assignee shall already be a Lender
hereunder), the processing and recordation fee referred to in paragraph (b) of
this Section and any written consent to such assignment required by paragraph
(b) of this Section, the Administrative Agent shall accept such Assignment and
Acceptance and record the information contained therein in the Register. No
assignment shall be effective for purposes of this Agreement unless it has been
recorded in the Register as provided in this paragraph.
(e) Any Lender may, without the consent of the Borrower, the
Agents, the Issuing Bank or the Swingline Lender, sell participations to one or
more banks or other entities (a "Participant") in all or a portion of such
Lender's rights and obligations under this Agreement (including all or a portion
of its Commitment and the Loans owing to it), provided that (i) such Lender's
obligations under this Agreement shall remain unchanged, (ii) such Lender shall
remain solely responsible to the other parties hereto for the performance of
such obligations and (iii) the Transaction Parties, the Agents, the Issuing Bank
and the other Lenders shall continue to deal solely and directly with such
Lender in connection with such Lender's rights and obligations under this
Agreement. Any agreement or instrument pursuant to which a Lender sells such a
participation shall provide that such Lender shall retain the sole right to
enforce the Loan Documents and to approve any amendment, modification or waiver
of any provision of the Loan Documents, provided that such agreement or
instrument may provide that such Lender will not, without the consent of the
Participant, agree to any amendment, modification or waiver described in the
first proviso to Section 9.02(b) that affects such Participant. Subject to
paragraph (f) of this Section, the Borrower agrees that each Participant shall
be entitled
<PAGE> 76
72
to the benefits of Sections 2.14, 2.15 and 2.16 to the same extent as if it were
a Lender and had acquired its interest by assignment pursuant to paragraph (b)
of this Section. To the extent permitted by law, each Participant also shall be
entitled to the benefits of Section 9.08 as though it were a Lender, provided
such Participant agrees to be subject to Section 2.17(c) as though it were a
Lender.
(f) A Participant shall not be entitled to receive any greater
payment under Section 2.14 or 2.16 than the applicable Lender would have been
entitled to receive with respect to the participation sold to such Participant,
unless the sale of the participation to such Participant is made with the
Borrower's prior written consent. A Participant that would be a Foreign Lender
if it were a Lender shall not be entitled to the benefits of Section 2.16 unless
(i) the Borrower is notified of the participation sold to such Participant and
such Participant agrees, for the benefit of the Borrower, to comply with Section
2.16(e) as though it were a Lender and (ii) such Participant is eligible for
exemption from the withholding tax referred to therein, following compliance
with Section 2.16(e).
(g) Any Lender may at any time pledge or assign a security
interest in all or any portion of its rights under this Agreement to secure
obligations of such Lender, including any pledge or assignment to secure
obligations to a Federal Reserve Bank, and this Section shall not apply to any
such pledge or assignment of a security interest, provided that no such pledge
or assignment of a security interest shall release a Lender from any of its
obligations hereunder or substitute any such pledgee or assignee for such Lender
as a party hereto.
SECTION 9.05. Survival. All covenants, agreements, representations
and warranties made by the Loan Parties in the Loan Documents and in the
certificates or other instruments delivered in connection with or pursuant to
this Agreement or any other Loan Document shall be considered to have been
relied upon by the other parties hereto and shall survive the execution and
delivery of the Loan Documents and the making of any Loans and issuance of any
Letters of Credit, regardless of any investigation made by any such other party
or on its behalf and notwithstanding that the Agents, the Issuing Bank or any
Lender may have had notice or knowledge of any Default or incorrect
representation or warranty at the time any credit is extended hereunder, and
shall continue in full force and effect as long as the principal of or any
accrued interest on any Loan or any fee or any other amount payable under this
Agreement is outstanding and unpaid or any Letter of Credit is outstanding and
so long as the Commitments have not expired or terminated. The provisions of
Sections 2.14, 2.15, 2.16 and 9.03 and Article VIII shall survive and remain in
full force and effect regardless of the consummation of the transactions
contemplated hereby, the repayment of the Loans, the expiration or termination
of the Letters of Credit and the Commitments or the termination of this
Agreement or any provision hereof.
SECTION 9.06. Counterparts; Integration; Effectiveness. This
Agreement may be executed in counterparts (and by different parties hereto on
different counterparts), each of which shall constitute an original, but all of
which when taken together shall constitute a single contract. This Agreement,
the other Loan Document and any separate letter agreements with respect to fees
payable to the Agents constitute the entire contract among the parties relating
to the subject matter hereof and supersede any and all previous agreements and
understandings, oral or written, relating to the subject matter hereof. Except
as provided in Section 4.01, this Agreement shall become effective when it shall
have been executed by the Agents and when the Administrative Agent shall have
received counterparts hereof that, when taken together, bear the signatures of
each of the other parties hereto, and thereafter shall be binding upon and inure
to the benefit of the parties hereto and their respective successors and
assigns. Delivery of an executed counterpart of a signature page of this
Agreement by telecopy shall be effective as delivery of a manually executed
counterpart of this Agreement.
SECTION 9.07. Severability. Any provision of this Agreement held
to be invalid, illegal or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such invalidity, illegality or
unenforceability without affecting the validity, legality and enforceability of
the
<PAGE> 77
73
remaining provisions hereof; and the invalidity of a particular provision in
a particular jurisdiction shall not invalidate such provision in any other
jurisdiction.
SECTION 9.08. Right of Setoff. If an Event of Default shall have
occurred and be continuing, each Lender and each of its Affiliates is hereby
authorized at any time and from time to time, to the fullest extent permitted by
law, to set off and apply any and all deposits (general or special, time or
demand, provisional or final) at any time held and other obligations at any time
owing by such Lender or Affiliate to or for the credit or the account of the
Borrower against any of and all the obligations of the Borrower now or hereafter
existing under this Agreement held by such Lender, irrespective of whether or
not such Lender shall have made any demand under this Agreement and although
such obligations may be unmatured. The rights of each Lender under this Section
are in addition to other rights and remedies (including other rights of setoff)
that such Lender may have.
SECTION 9.09. Governing Law; Jurisdiction; Consent to Service of
Process. (a) THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH, THE LAW OF THE STATE OF NEW YORK.
(b) Each Transaction Party hereby irrevocably and unconditionally
submits, for itself and its property, to the nonexclusive jurisdiction of the
Supreme Court of the State of New York sitting in New York County and of the
United States District Court of the Southern District of New York, and any
appellate court from any thereof, in any action or proceeding arising out of or
relating to any Loan Document, or for recognition or enforcement of any
judgment, and each of the parties hereto hereby irrevocably and unconditionally
agrees that all claims in respect of any such action or proceeding may be heard
and determined in such New York State or, to the extent permitted by law, in
such Federal court. Each of the parties hereto agrees that a final judgment in
any such action or proceeding shall be conclusive and may be enforced in other
jurisdictions by suit on the judgment or in any other manner provided by law.
Nothing in this Agreement or any other Loan Document shall affect any right that
the Agents, the Issuing Bank or any Lender may otherwise have to bring any
action or proceeding relating to this Agreement or any other Loan Document
against any Transaction Party or their properties in the courts of any
jurisdiction.
(c) Each Transaction Party hereby irrevocably and unconditionally
waives, to the fullest extent it may legally and effectively do so, any
objection that it may now or hereafter have to the laying of venue of any suit,
action or proceeding arising out of or relating to this Agreement or any other
Loan Document in any court referred to in paragraph (b) of this Section other
than a court referred to in the last sentence of such paragraph (b) that is not
referred to elsewhere in such paragraph (b). Each of the parties hereto hereby
irrevocably waives, to the fullest extent permitted by law, the defense of an
inconvenient forum to the maintenance of such action or proceeding in any such
court.
(d) Each party to this Agreement irrevocably consents to service
of process in the manner provided for notices in Section 9.01. Nothing in this
Agreement or any other Loan Document will affect the right of any party to this
Agreement to serve process in any other manner permitted by law.
SECTION 9.10. WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY
WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE
TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF
OR RELATING TO THIS AGREEMENT, ANY OTHER LOAN DOCUMENT OR THE TRANSACTIONS
CONTEMPLATED HEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH
PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY
OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD
NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B)
ACKNOWLEDGES THAT IT
<PAGE> 78
74
AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY,
AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.
SECTION 9.11. Headings. Article and Section headings and the Table
of Contents used herein are for convenience of reference only, are not part of
this Agreement and shall not affect the construction of, or be taken into
consideration in interpreting, this Agreement.
SECTION 9.12. Confidentiality. Each of the Agents, the Issuing
Bank and the Lenders agrees to maintain the confidentiality of the Information
(as defined below), except that Information may be disclosed (a) to its and its
Affiliates' directors, officers, employees and agents, including accountants,
legal counsel and other advisors (it being understood that the Persons to whom
such disclosure is made will be informed of the confidential nature of such
Information and instructed to keep such Information confidential), (b) to the
extent requested by any regulatory authority, (c) to the extent required by
applicable laws or regulations or by any subpoena or similar legal process, (d)
to any other party to this Agreement, (e) in connection with the exercise of any
remedies hereunder or any suit, action or proceeding relating to this Agreement
or any other Loan Document or the enforcement of rights hereunder or thereunder,
(f) subject to an agreement containing provisions substantially the same as
those of this Section, to any assignee of or Participant in, or any prospective
assignee of or Participant in, any of its rights or obligations under this
Agreement, (g) with the consent of the Borrower or (h) to the extent such
Information (i) becomes publicly available other than as a result of a breach of
this Section or (ii) becomes available to the Agents, the Issuing Bank or any
Lender on a nonconfidential basis from a source other than the Holdings. For the
purposes of this Section, the term "Information" means all information received
from the Holdings Group relating to the or its business, other than any such
information that is available to the Agents, the Issuing Bank or any Lender on a
nonconfidential basis prior to disclosure by the Holdings Group, provided that,
in the case of information received from the Holdings Group after the date
hereof, such information is clearly identified at the time of delivery as
confidential. Any Person required to maintain the confidentiality of Information
as provided in this Section shall be considered to have complied with its
obligation to do so if such Person has exercised the same degree of care to
maintain the confidentiality of such Information as such Person would accord to
its own confidential information.
SECTION 9.13. Interest Rate Limitation. Notwithstanding anything
herein to the contrary, if at any time the interest rate applicable to any Loan,
together with all fees, charges and other amounts that are treated as interest
on such Loan under applicable law (collectively the "Charges"), shall exceed the
maximum lawful rate (the "Maximum Rate") that may be contracted for, charged,
taken, received or reserved by the Lender holding such Loan in accordance with
applicable law, the rate of interest payable in respect of such Loan hereunder,
together with all Charges payable in respect thereof, shall be limited to the
Maximum Rate and, to the extent lawful, the interest and Charges that would have
been payable in respect of such Loan but were not payable as a result of the
operation of this Section shall be cumulated and the interest and Charges
payable to such Lender in respect of other Loans or periods shall be increased
(but not above the Maximum Rate therefor) until such cumulated amount, together
with interest thereon at the Federal Funds Effective Rate to the date of
repayment, shall have been received by such Lender.
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75
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be duly executed by their respective authorized officers as of the day and
year first above written.
HECHINGER INVESTMENT COMPANY OF DELAWARE, INC.,
as Borrower,
by
/s/ Mark R. Adams
---------------------------------------
Name: Mark R. Adams
Title: Executive Vice President
CENTERS HOLDINGS, INC.,
by
/s/ Mark R. Adams
---------------------------------------
Name: Mark R. Adams
Title: Executive Vice President
BSQ ACQUISITION, INC.,
by
/s/ Mark R. Adams
---------------------------------------
Name: Mark R. Adams
Title: Executive Vice President
BSQ TRANSFEREE CORP.,
by
/s/ Mark R. Adams
---------------------------------------
Name: Mark R. Adams
Title: Executive Vice President
HECHINGER COMPANY,
by
/s/ Mark R. Adams
---------------------------------------
Name: Mark R. Adams
Title: Executive Vice President
HECHINGER STORES COMPANY,
by
/s/ Mark R. Adams
---------------------------------------
Name: Mark R. Adams
Title Executive Vice President
<PAGE> 80
76
HECHINGER STORES EAST COAST COMPANY,
by
/s/ Mark R. Adams
---------------------------------------
Name: Mark R. Adams
Title: Executive Vice President
THE CHASE MANHATTAN BANK, individually and as
Administrative Agent and Collateral Agent,
by
/s/ Craig T. Moore
---------------------------------------
Name: Craig T. Moore
Title: Managing Director
BANKAMERICA BUSINESS CREDIT, INC.,
individually and as Documentation Agent
and as Borrowing Base Audit Agent,
by
/s/ Gary D. Whitaker
---------------------------------------
Name: Gary D. Whitaker
Title: Vice President
CITICORP USA, INC., individually and as
Syndication Agent,
by
/s/ Timothy L. Freeman
---------------------------------------
Name: Timothy L. Freeman
Title: Vice President
<PAGE> 81
EXHIBIT H
CONFORMED COPY
SECURITY AGREEMENT dated as of September 26,
1997, as amended and restated as of December 31, 1998
(as amended, supplemented or otherwise modified from
time to time, the "Security Agreement"), among HECHINGER
INVESTMENT COMPANY OF DELAWARE, INC., a Delaware
corporation (the "Borrower"), CENTERS HOLDINGS, INC., a
Delaware corporation ("Holdings"), BSQ ACQUISITION,
INC., a Delaware corporation ("BSQ Acqco"), BSQ
TRANSFEREE CORP., a Delaware corporation ("BSQ Newco"),
HECHINGER COMPANY, a Delaware corporation ("Hechinger"),
HECHINGER STORES COMPANY, a Delaware corporation
("Hechinger Stores"), HECHINGER STORES EAST COAST
COMPANY, a Delaware corporation ("Hechinger Stores East
Coast"), each other Subsidiary of Holdings listed on
Schedule I hereto (each of Holdings, BSQ Acqco, BSQ
Newco, Hechinger, Hechinger Stores, Hechinger Stores
East Coast and each such other Subsidiary, individually,
a "Guarantor" and, collectively, the "Guarantors"; the
Guarantors and the Borrower are referred to collectively
herein as the "Grantors") and THE CHASE MANHATTAN BANK,
a New York banking corporation ("Chase"), as collateral
agent (in such capacity, the "Collateral Agent") for the
Secured Parties (as defined herein).
Reference is made to (a) the Credit Agreement dated as of September 26,
1997, as amended and restated as of December 31, 1998 (as amended, supplemented
or otherwise modified from time to time, the "Credit Agreement"), among (i) the
Borrower, (ii) Holdings, BSQ Acqco, BSQ Newco, Hechinger, Hechinger Stores,
Hechinger Stores East Coast (collectively, the "Parent Guarantors"), (iii) the
lenders from time to time party thereto (the "Lenders"), (iv) Chase, as issuing
bank (in such capacity, the "Issuing Bank"), as administrative agent for the
Lenders (in such capacity, the "Administrative Agent"), as Collateral Agent and
as swingline lender, (v) BankAmerica Business Credit, Inc., a Delaware
corporation ("BABC"), as documentation agent (in such capacity, the
"Documentation Agent") and as borrowing base audit agent (in such capacity, the
"Borrowing Base Audit Agent") for the Lenders and (vi) CITICORP USA, INC., a
Delaware corporation, as syndication agent for the Lenders (in such capacity,
the "Syndication Agent" and, together with the Administrative Agent, the
Documentation Agent, the Borrowing Base Audit Agent and the Collateral Agent,
the "Agents"), (b) the Parent Guarantee Agreement dated as of September 26, 1997
(as amended, supplemented or otherwise modified from time to time, the "Parent
Guarantee Agreement"), among Holdings, BSQ Acqco, BSQ Newco, Hechinger,
Hechinger Stores and the Agents, (c) the Subsidiary Guarantee Agreement dated as
of September 26, 1997 (as amended, supplemented or otherwise modified from time
to time, the "Subsidiary Guarantee Agreement" and, together with the Parent
Guarantee Agreement, the "Guarantee Agreements") among the Guarantors listed on
schedule I hereto and the Agents, (d) the Credit Agreement dated as of December
31, 1998 (as amended, supplemented or otherwise modified from time to time, the
"Supplemental Credit Agreement"), among the Borrower, the Parent Guarantors, the
lenders from time to time party thereto (the "Supplemental Lenders"), and Chase,
as administrative agent and collateral agent thereunder (solely in its capacity
as an agent under the Supplemental Credit Agreement, the "Junior Supplemental
Agent") and (e) the Intercreditor Agreement dated as of December 31, 1998 (as
amended, supplemented or otherwise modified from time to time, the
"Intercreditor Agreement"), among the Borrower, Holdings, the Subsidiary Loan
Parties, the Agents, the Junior Supplemental Agent, Green Equity Investors II,
L.P. and Kmart Corporation.
The Lenders have agreed to make Loans to the Borrower, and the Issuing
Bank has agreed to issue Letters of Credit for the account of the Borrower,
pursuant to, and upon the terms and subject to the conditions specified in, the
Credit Agreement. Each of the Guarantors has agreed to guarantee, among other
things, all the obligations of the Borrower under the Credit Agreement. The
obligations of the Lenders to make Loans and of the Issuing Bank to issue
Letters of Credit are conditioned upon,
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among other things, the execution and delivery by the Grantors of an agreement
in the form hereof to secure (a) the due and punctual payment by the Borrower of
(i) the principal of and premium, if any, and interest (including interest
accruing during the pendency of any bankruptcy, insolvency, receivership or
other similar proceeding, regardless of whether such interest is allowed or
allowable as a claim in such proceeding) on the Loans, when and as due, whether
at maturity, by acceleration, upon one or more dates set for prepayment or
otherwise, (ii) each payment required to be made by the Borrower under the
Credit Agreement in respect of any Letter of Credit, when and as due, including
payments in respect of reimbursement of disbursements, interest thereon and
obligations to provide cash collateral and (iii) all other monetary obligations,
including fees, costs, expenses and indemnities, whether primary, secondary,
direct, contingent, fixed or otherwise (including monetary obligations incurred
during the pendency of any bankruptcy, insolvency, receivership or other similar
proceeding, regardless of whether such monetary obligations are allowed or
allowable as a claim in such proceeding), of the Borrower to the Secured Parties
under the Credit Agreement and the other Loan Documents, (b) the due and
punctual performance of all covenants, agreements, obligations and liabilities
of the Borrower under or pursuant to the Credit Agreement and the other Loan
Documents and (c) the due and punctual payment and performance of all the
covenants, agreements, obligations and liabilities of each Loan Party under or
pursuant to this Agreement and the other Loan Documents (all the monetary and
other obligations described in the preceding clauses (a) through (c) being
collectively called the "Obligations").
Accordingly, the Grantors and the Collateral Agent, on behalf of itself
and each Secured Party (and each of their respective successors or assigns),
hereby agree as follows:
ARTICLE I
Definitions
-----------
SECTION 1.01. Definition of Terms Used Herein. Unless the context
otherwise requires, all capitalized terms used but not defined herein shall have
the meanings set forth in the Credit Agreement and all references to the Uniform
Commercial Code shall mean the Uniform Commercial Code in effect in the State of
New York as of the date hereof. .
SECTION 1.02. Definition of Certain Terms Used Herein. As used herein,
the following terms shall have the following meanings:
"Account Debtor" shall mean any person who is or who may become obligated
to any Grantor under, with respect to or on account of an Account.
"Accounts" shall mean any and all right, title and interest of any
Grantor to payment for goods and services sold or leased, including any such
right evidenced by chattel paper, whether due or to become due, whether or not
it has been earned by performance, and whether now or hereafter acquired or
arising in the future, including accounts receivable from Affiliates of the
Grantors.
"Accounts Receivable" shall mean all Accounts and all right, title and
interest in any returned goods, together with all rights, titles, securities and
guarantees with respect thereto, including any rights to stoppage in transit,
replevin, reclamation and resales, and all related security interests, liens and
pledges, whether voluntary or involuntary, in each case whether now existing or
owned or hereafter arising or acquired.
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"Collateral" shall mean all (a) Accounts Receivable, (b) Documents, (c)
Equipment, (d) General Intangibles, (e) Inventory, (f) cash and cash accounts
(including the Collection Deposit Accounts), (g) Investment Property and (h)
Proceeds.
"Collection Deposit Account" shall mean a deposit account of a Grantor
maintained for the benefit of the Secured Parties with the Collateral Agent or
with a Sub-Agent pursuant to a Depository Agreement.
"Commodity Account" shall mean an account maintained by a Commodity
Intermediary in which a Commodity Contract is carried out for a Commodity
Customer.
"Commodity Contract" shall mean a commodity futures contract, an option
on a commodity futures contract, a commodity option or any other contract that,
in each case, is (a) traded on or subject to the rules of a board of trade that
has been designated as a contract market for such a contract pursuant to the
federal commodities laws or (b) traded on a foreign commodity board of trade,
exchange or market, and is carried on the books of a Commodity Intermediary for
a Commodity Customer.
"Commodity Customer" shall mean a person for whom a Commodity
Intermediary carries a Commodity Contract on its books.
"Commodity Intermediary" shall mean (a) a person who is registered as a
futures commission merchant under the federal commodities laws or (b) a person
who in the ordinary course of its business provides clearance or settlement
services for a board of trade that has been designated as a contract market
pursuant to federal commodities laws.
"Concentration Account" shall mean the cash collateral account
established at the office of The Chase Manhattan Bank located at 270 Park
Avenue, New York, NY 10017, in the name of the Collateral Agent, Account No.
323-515355.
"Copyright License" shall mean any written agreement, now or hereafter in
effect, granting any right to any third party under any Copyright now or
hereafter owned by any Grantor or which such Grantor otherwise has the right to
license, or granting any right to such Grantor under any Copyright now or
hereafter owned by any third party, and all rights of such Grantor under any
such agreement.
"Copyrights" shall mean all of the following now owned or hereafter
acquired by any Grantor: (a) all copyright rights in any work subject to the
copyright laws of the United States or any other country, whether as author,
assignee, transferee or otherwise, and (b) all registrations and applications
for registration of any such copyright in the United States or any other
country, including registrations, recordings, supplemental registrations and
pending applications for registration in the United States Copyright Office,
including those listed on Schedule II.
"Credit Agreement" shall have the meaning assigned to such term in the
preliminary statement of this Agreement.
"Depository Agreement" shall mean a Depository Agreement substantially in
the form of Annex 1 hereto among the Borrower, the Collateral Agent and a
Sub-Agent.
"Depository System" shall have the meaning assigned to such term in
Section 5.01.
"Documents" shall mean all instruments, files, records, ledger sheets and
documents covering or relating to any of the Collateral.
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"Entitlement Holder" shall mean a person identified in the records of a
Securities Intermediary as the person having a Security Entitlement against the
Securities Intermediary. If a person acquires a Security Entitlement by virtue
of Section 8-501(b)(2) or (3) of the Uniform Commercial Code, such person is the
Entitlement Holder.
"Equipment" shall mean all equipment, furniture and furnishings, and all
tangible personal property similar to any of the foregoing, including tools,
parts and supplies of every kind and description, and all improvements,
accessions or appurtenances thereto, that are now or hereafter owned by any
Grantor. The term "Equipment" shall include Fixtures.
"Financial Asset" shall mean (a) a Security, (b) an obligation of a
person (or a share, participation or other interest in a person or in property
or an enterprise of a person), that is, or is of a type, dealt with in or traded
on financial markets, or which is recognized in any area in which it is issued
or dealt in as a medium for investment or (c) any property that is held by a
Securities Intermediary for another person in a Securities Account if the
Securities Intermediary has expressly agreed with the other person that the
property is to be treated as a Financial Asset under Article 8 of the Uniform
Commercial Code. As the context requires, the term Financial Asset shall mean
either the interest itself or the means by which a person's claim to it is
evidenced, including a certificated or uncertificated security, a certificate
representing a Security or a Security Entitlement.
"Fixtures" shall mean all items of Equipment, whether now owned or
hereafter acquired, of any Grantor that become so related to particular real
estate that an interest in them arises under any real estate law applicable
thereto.
"General Fund Account" shall mean the general fund account established at
the office of The Chase Manhattan located at 270 Park Avenue, New York, NY
10017, in the name of the Borrower, Account No. 323-071287.
"General Intangibles" shall mean all choses in action and causes of
action and all other assignable intangible personal property of any Grantor of
every kind and nature (other than Accounts Receivable) now owned or hereafter
acquired by any Grantor, including all rights and interests in partnerships,
limited partnerships, limited liability companies and other unincorporated
entities, corporate or other business records, indemnification claims, contract
rights (including rights under leases, whether entered into as lessor or lessee,
Hedging Agreements and other agreements), Intellectual Property, goodwill,
registrations, franchises, tax refund claims and any letter of credit,
guarantee, claim, security interest or other security held by or granted to any
Grantor to secure payment by an Account Debtor of any of the Accounts
Receivable.
"Intellectual Property" shall mean all intellectual and similar property
of any Grantor of every kind and nature now owned or hereafter acquired by any
Grantor, including inventions, designs, Patents, Copyrights, Licenses,
Trademarks, trade secrets, confidential or proprietary technical and business
information, know-how, show-how or other data or information, software and
databases and all embodiments or fixations thereof and related documentation,
registrations and franchises, and all additions, improvements and accessions to,
and books and records describing or used in connection with, any of the
foregoing.
"Inventory" shall mean all goods of any Grantor, whether now owned or
hereafter acquired, held for sale or lease, or furnished or to be furnished by
any Grantor under contracts of service, or consumed in any Grantor's business,
including raw materials, intermediates, work in process, packaging materials,
<PAGE> 85
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finished goods, semi-finished inventory, scrap inventory, manufacturing supplies
and spare parts, and all such goods that have been returned to or repossessed by
or on behalf of any Grantor.
"Investment Property" shall mean all Securities (whether certificated or
uncertificated), Security Entitlements, Securities Accounts, Commodity Contracts
and Commodity Accounts of any Grantor, whether now owned or hereafter acquired
by any Grantor.
"License" shall mean any Patent License, Trademark License, Copyright
License or other license or sublicense to which any Grantor is a party,
including those listed on Schedule III (other than those license agreements in
existence on the date hereof and listed on Schedule III and those license
agreements entered into after the date hereof that by their terms prohibit
assignment or a grant of a security interest by such Grantor as licensee
thereunder).
"Obligations" shall have the meaning assigned to such term in the
preliminary statement of this Agreement.
"Original Security Agreement" means the Security Agreement dated as of
September 26, 1997 (as in effect immediately before the Restatement Closing
Date), among the Grantors and the Collateral Agent.
"Overdraft" means, at any time, the amount by which the aggregate amount
debited from any deposit, concentration, operating or disbursement account
(including any Collection Deposit Account, the Concentration Account and the
General Fund Account) maintained by the Borrower or any other Grantor with any
Lender or any Affiliate of any Lender, as a result of processing of payment
orders issued by the Borrower or such Grantor or otherwise, exceeds the
aggregate funds on deposit in such account.
"Patent License" shall mean any written agreement, now or hereafter in
effect, granting to any third party any right to make, use or sell any invention
on which a Patent, now or hereafter owned by any Grantor or which any Grantor
otherwise has the right to license, is in existence, or granting to any Grantor
any right to make, use or sell any invention on which a Patent, now or hereafter
owned by any third party, is in existence, and all rights of any Grantor under
any such agreement.
"Patents" shall mean all of the following now owned or hereafter acquired
by any Grantor: (a) all letters patent of the United States or any other
country, all registrations and recordings thereof, and all applications for
letters patent of the United States or any other country, including
registrations, recordings and pending applications in the United States Patent
and Trademark Office or any similar offices in any other country, including
those listed on Schedule IV, and (b) all reissues, continuations, divisions,
continuations-in-part, renewals or extensions thereof, and the inventions
disclosed or claimed therein, including the right to make, use and/or sell the
inventions disclosed or claimed therein.
"Perfection Certificate" shall mean a certificate substantially in the
form of Annex 2 hereto, completed and supplemented with the schedules and
attachments contemplated thereby, and duly executed by a Financial Officer and
the chief legal officer of the Borrower.
"Proceeds" shall mean any consideration received from the sale, exchange,
license, lease or other disposition of any asset or property that constitutes
Collateral, any value received as a consequence of the possession of any
Collateral and any payment received from any insurer or other person or entity
as a result of the destruction, loss, theft, damage or other involuntary
conversion of whatever nature of any asset or property which constitutes
Collateral, and shall include (a) all cash and negotiable instruments received
by or held on behalf of the Collateral Agent, (b) any claim of any Grantor
against any third party for (and the right to sue and recover for and the rights
to damages or profits due or
<PAGE> 86
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accrued arising out of or in connection with) (i) past, present or future
infringement of any Patent now or hereafter owned by any Grantor, or licensed
under a Patent License, (ii) past, present or future infringement or dilution of
any Trademark now or hereafter owned by any Grantor or licensed under a
Trademark License or injury to the goodwill associated with or symbolized by any
Trademark now or hereafter owned by any Grantor, (iii) past, present or future
breach of any License and (iv) past, present or future infringement of any
Copyright now or hereafter owned by any Grantor or licensed under a Copyright
License and (c) any and all other amounts from time to time paid or payable
under or in connection with any of the Collateral.
"Secured Parties" shall mean (a) the Lenders, (b) the Administrative
Agent, (c) the Collateral Agent, (d) the Documentation Agent, (e) the Borrowing
Base Audit Agent, (f) the Syndication Agent, (g) the Issuing Bank, (h) the
beneficiaries of each indemnification obligation undertaken by any Grantor under
any Loan Document and (i) the successors and assigns of each of the foregoing.
"Securities" shall mean any obligations of an issuer or any shares,
participations or other interests in an issuer or in property or an enterprise
of an issuer that (a) are represented by a certificate representing a security
in bearer or registered form, or the transfer of which may be registered upon
books maintained for that purpose by or on behalf of the issuer, (b) are one of
a class or series or by its terms is divisible into a class or series of shares,
participations, interests or obligations and (c)(i) are, or are of a type, dealt
with or traded on securities exchanges or securities markets or (ii) are a
medium for investment and by their terms expressly provide that they are a
security governed by Article 8 of the Uniform Commercial Code.
"Securities Account" shall mean an account to which a Financial Asset is
or may be credited in accordance with an agreement under which the person
maintaining the account undertakes to treat the person for whom the account is
maintained as entitled to exercise rights that comprise the Financial Asset.
"Securities Intermediary" shall mean (a) a clearing corporation or (b) a
person, including a bank or broker, that in the ordinary course of its business
maintains Securities Accounts for others and is acting in that capacity.
"Security Entitlements" shall mean the rights and property interests of
an Entitlement Holder with respect to a Financial Asset.
"Security Interest" shall have the meaning assigned to such term in
Section 2.01.
"Sub-Agent" shall mean a financial institution which shall have delivered
to the Collateral Agent an executed Depository Agreement.
"Trademark License" shall mean any written agreement, now or hereafter in
effect, granting to any third party any right to use any Trademark now or
hereafter owned by any Grantor or which any Grantor otherwise has the right to
license, or granting to any Grantor any right to use any Trademark now or
hereafter owned by any third party, and all rights of any Grantor under any such
agreement.
"Trademarks" shall mean all of the following now owned or hereafter
acquired by any Grantor: (a) all trademarks, service marks, trade names,
corporate names, company names, business names, fictitious business names, trade
styles, trade dress, logos, other source or business identifiers, designs and
general intangibles of like nature, now existing or hereafter adopted or
acquired, all registrations and recordings thereof, and all registration and
recording applications filed in connection therewith, including registrations
and registration applications in the United States Patent and Trademark Office,
any State of
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the United States or any similar offices in any other country or any political
subdivision thereof, and all extensions or renewals thereof, including those
listed on Schedule V, (b) all goodwill associated therewith or symbolized
thereby and (c) all other assets, rights and interests that uniquely reflect or
embody such goodwill.
SECTION 1.03. Rules of Interpretation. The rules of interpretation
specified in Section 1.03 of the Credit Agreement shall be applicable to this
Agreement.
ARTICLE II
Security Interest
-----------------
SECTION 2.01. Security Interest. (a) As security for the payment or
performance, as the case may be, in full of the Obligations, each Grantor hereby
bargains, sells, conveys, assigns, sets over, mortgages, pledges, hypothecates
and transfers to the Collateral Agent, its successors and assigns, for the
ratable benefit of the Secured Parties, and hereby grants to the Collateral
Agent, its successors and assigns, for the ratable benefit of the Secured
Parties, a security interest in, all of such Grantor's right, title and interest
in, to and under the Collateral (the "Security Interest"); provided, however,
that, notwithstanding anything to the contrary contained herein or in any other
Loan Document, the portion of the Obligations attributable to the Loans
(together with interest thereon in accordance with the Credit Agreement) made by
the Lenders the proceeds of which are used by the Borrower to repay the
obligations under the Hechinger Stores Credit Agreement shall be secured only by
so much of the Collateral as shall have secured the obligations to the creditors
under the Hechinger Stores Credit Agreement (the "Hechinger Replacement Loan").
Without limiting the foregoing, the Collateral Agent is hereby authorized to
file one or more financing statements (including fixture filings), continuation
statements, filings with the United States Patent and Trademark Office or United
States Copyright Office (or any successor office or any similar office in any
other country) or other documents for the purpose of perfecting, confirming,
continuing, enforcing or protecting the Security Interest granted by each
Grantor, without the signature of any Grantor, and naming any Grantor or the
Grantors as debtors and the Collateral Agent as secured party.
(b) Solely for the avoidance of doubt, the parties hereto hereby confirm
their understanding that (i) the phrase "so much of the Collateral as shall have
secured the obligations to the creditors under the Hechinger Stores Credit
Agreement" in paragraph (a) above and in the Original Security Agreement means a
portion of the Collateral that has a value equal to the value of the Collateral
that secured the obligations to the creditors under the Hechinger Stores Credit
Agreement and (ii) for the purposes of paragraph (a) above and the Original
Security Agreement, the principal amount of any Loans that were prepaid by the
Borrower under the Credit Agreement after the Effective Date shall be deemed to
have reduced, on a dollar-for-dollar basis, the portion of the Obligations
attributable to the Hechinger Replacement Loan.
SECTION 2.02. No Assumption of Liability. The Security Interest is
granted as security only and shall not subject the Collateral Agent or any other
Secured Party to, or in any way alter or modify, any obligation or liability of
any Grantor with respect to or arising out of the Collateral.
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ARTICLE III
Representations and Warranties
------------------------------
The Grantors jointly and severally represent and warrant to the
Collateral Agent and the Secured Parties that:
SECTION 3.01. Title and Authority. Each Grantor has good and valid rights
in and title to the Collateral with respect to which it has purported to grant a
Security Interest hereunder and has full power and authority to grant to the
Collateral Agent the Security Interest in such Collateral pursuant hereto and to
execute, deliver and perform its obligations in accordance with the terms of
this Agreement, without the consent or approval of any other person other than
any consent or approval which has been obtained.
SECTION 3.02. Filings. (a) The Perfection Certificate has been duly
prepared, completed and executed and the information set forth therein is
correct and complete. Fully executed Uniform Commercial Code financing
statements (including fixture filings, as applicable) or other appropriate
filings, recordings or registrations containing a description of the Collateral
have been delivered to the Collateral Agent for filing in each governmental,
municipal or other office specified in Schedule 6 to the Perfection Certificate,
which are all the filings, recordings and registrations (other than filings
required to be made in the United States Patent and Trademark Office and the
United States Copyright Office in order to perfect the Security Interest in
Collateral consisting of United States Patents, Trademarks and Copyrights) that
are necessary to publish notice of and protect the validity of and to establish
a legal, valid and perfected security interest in favor of the Collateral Agent
(for the ratable benefit of the Secured Parties) in respect of all Collateral in
which the Security Interest may be perfected by filing, recording or
registration in the United States (or any political subdivision thereof) and its
territories and possessions, and no further or subsequent filing, refiling,
recording, rerecording, registration or reregistration is necessary in any such
jurisdiction, except as provided under applicable law with respect to the filing
of continuation statements.
(b) Each Grantor represents and warrants that fully executed security
agreements in the form hereof and containing a description of all Collateral
consisting of Intellectual Property with respect to United States Patents and
United States registered Trademarks (and Trademarks for which United States
registration applications are pending) and United States registered Copyrights
have been delivered to the Collateral Agent for recording by the United States
Patent and Trademark Office and the United States Copyright Office pursuant to
35 U.S.C. ss. 261, 15 U.S.C. ss. 1060 or 17 U.S.C. ss. 205 and the regulations
thereunder, as applicable, and otherwise as may be required pursuant to the laws
of any other necessary jurisdiction, to protect the validity of and to establish
a legal, valid and perfected security interest in favor of the Collateral Agent
(for the ratable benefit of the Secured Parties) in respect of all Collateral
consisting of Patents, Trademarks and Copyrights in which a security interest
may be perfected by filing, recording or registration in the United States (or
any political subdivision thereof) and its territories and possessions, or in
any other necessary jurisdiction, and no further or subsequent filing, refiling,
recording, rerecording, registration or reregistration is necessary (other than
such actions as are necessary to perfect the Security Interest with respect to
any Collateral consisting of Patents, Trademarks and Copyrights (or registration
or application for registration thereof) acquired or developed after the date
hereof).
SECTION 3.03. Validity of Security Interest. The Security Interest
constitutes (a) a legal and valid security interest in all the Collateral
securing the payment and performance of the Obligations, (b) subject to the
filings described in Section 3.02 above, a perfected security interest in all
Collateral in which a security interest may be perfected by filing, recording or
registering a financing statement or analogous document in the United States (or
any political subdivision thereof) and its territories and
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possessions pursuant to the Uniform Commercial Code or other applicable law in
such jurisdictions and (c) a security interest that shall be perfected in all
Collateral in which a security interest may be perfected upon the receipt and
recording of this Agreement with the United States Patent and Trademark Office
and the United States Copyright Office, as applicable, within the three month
period (commencing as of the date hereof) pursuant to 35 U.S.C. ss. 261 or 15
U.S.C. ss. 1060 or the one month period (commencing as of the date hereof)
pursuant to 17 U.S.C. ss. 205 and otherwise as may be required pursuant to the
laws of any other necessary jurisdiction. The Security Interest is and shall be
prior to any other Lien on any of the Collateral, other than Liens expressly
permitted to be prior to the Security Interest pursuant to Section 6.02 of the
Credit Agreement.
SECTION 3.04. Absence of Other Liens. The Collateral is owned by the
Grantors free and clear of any Lien, except for Liens expressly permitted
pursuant to Section 6.02 of the Credit Agreement. The Grantor has not filed or
consented to the filing of (a) any financing statement or analogous document
under the Uniform Commercial Code or any other applicable laws covering any
Collateral, (b) any assignment in which any Grantor assigns any Collateral or
any security agreement or similar instrument covering any Collateral with the
United States Patent and Trademark Office or the United States Copyright Office
or (c) any assignment in which any Grantor assigns any Collateral or any
security agreement or similar instrument covering any Collateral with any
foreign governmental, municipal or other office, which financing statement or
analogous document, assignment, security agreement or similar instrument is
still in effect, except, in each case, for Liens expressly permitted pursuant to
Section 6.02 of the Credit Agreement.
ARTICLE IV
Covenants
---------
SECTION 4.01. Change of Name; Location of Collateral; Records; Place of
Business. (a) Each Grantor agrees promptly to notify the Collateral Agent in
writing of any change (i) in its corporate name or in any trade name used to
identify it in the conduct of its business or in the ownership of its
properties, (ii) in the location of its chief executive office, its principal
place of business, any office in which it maintains books or records relating to
Collateral owned by it or any office or facility at which Collateral owned by it
is located (including the establishment of any such new office or facility),
(iii) in its identity or corporate structure or (iv) in its Federal Taxpayer
Identification Number. Each Grantor agrees not to effect or permit any change
referred to in the preceding sentence unless all filings have been made under
the Uniform Commercial Code or otherwise that are required in order for the
Collateral Agent to continue at all times following such change to have a valid,
legal and perfected first priority security interest in all the Collateral. Each
Grantor agrees promptly to notify the Collateral Agent if any material portion
of the Collateral owned or held by such Grantor is damaged or destroyed.
(b) Each Grantor agrees to maintain, at its own cost and expense, such
complete and accurate records with respect to the Collateral owned by it as is
consistent with its current practices and in accordance with such prudent and
standard practices used in industries that are the same as or similar to those
in which such Grantor is engaged, but in any event to include complete
accounting records indicating all payments and proceeds received with respect to
any part of the Collateral, and, at such time or times as the Collateral Agent
may reasonably request, promptly to prepare and deliver to the Collateral Agent
a duly certified schedule or schedules in form and detail satisfactory to the
Collateral Agent showing the identity, amount and location of any and all
Collateral.
SECTION 4.02. Periodic Certification. Each year, at the time of delivery
of annual financial statements with respect to the preceding fiscal year
pursuant to Section 5.01 of the Credit Agreement, the Borrower shall deliver to
the Collateral Agent a certificate executed by a Financial Officer and the chief
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legal officer of the Borrower (a) setting forth the information required
pursuant to Section 2 of the Perfection Certificate or confirming that there has
been no change in such information since the date of such certificate or the
date of the most recent certificate delivered pursuant to Section 4.02 and (b)
certifying that all Uniform Commercial Code financing statements (including
fixture filings, as applicable) or other appropriate filings, recordings or
registrations, including all refilings, rerecordings and reregistrations,
containing a description of the Collateral have been filed of record in each
governmental, municipal or other appropriate office in each jurisdiction
identified pursuant to clause (a) above to the extent necessary to protect and
perfect the Security Interest for a period of not less than 18 months after the
date of such certificate (except as noted therein with respect to any
continuation statements to be filed within such period and except for any
fixture filings not filed as of the Effective Date). Each certificate delivered
pursuant to this Section 4.02 shall identify in the format of Schedule II, III,
IV or V, as applicable, all Intellectual Property of any Grantor in existence on
the date thereof and not then listed on such Schedules or previously so
identified to the Collateral Agent.
SECTION 4.03. Protection of Security. Each Grantor shall, at its own cost
and expense, take any and all actions necessary to defend title to the
Collateral against all persons and to defend the Security Interest of the
Collateral Agent in the Collateral and the priority thereof against any Lien not
expressly permitted pursuant to Section 6.02 of the Credit Agreement.
SECTION 4.04. Further Assurances. Each Grantor agrees, at its own
expense, to execute, acknowledge, deliver and cause to be duly filed all such
further instruments and documents and take all such actions as the Collateral
Agent may from time to time request to better assure, preserve, protect and
perfect the Security Interest and the rights and remedies created hereby,
including the payment of any fees and taxes required in connection with the
execution and delivery of this Agreement, the granting of the Security Interest
and the filing of any financing statements (including fixture filings) or other
documents in connection herewith or therewith. If any amount payable under or in
connection with any of the Collateral shall be or become evidenced by any
promissory note or other instrument, such note or instrument shall be
immediately pledged and delivered to the Collateral Agent, duly endorsed in a
manner satisfactory to the Collateral Agent.
Without limiting the generality of the foregoing, each Grantor hereby
authorizes the Collateral Agent, with prompt notice thereof to the Grantors, to
supplement this Agreement by supplementing Schedule II, III, IV or V hereto or
adding additional schedules hereto to specifically identify any asset or item
that may constitute Copyrights, Licenses, Patents or Trademarks; provided,
however, that any Grantor shall have the right, exercisable within 10 days after
it has been notified by the Collateral Agent of the specific identification of
such Collateral, to advise the Collateral Agent in writing of any inaccuracy of
the representations and warranties made by such Grantor hereunder with respect
to such Collateral. Each Grantor agrees that it will use its best efforts to
take such action as shall be necessary in order that all representations and
warranties hereunder shall be true and correct with respect to such Collateral
within 30 days after the date it has been notified by the Collateral Agent of
the specific identification of such Collateral.
SECTION 4.05. Inspection and Verification. Following an Event of Default
and during the continuance thereof or otherwise in accordance with the Credit
Agreement, the Collateral Agent and such persons as the Collateral Agent may
reasonably designate shall have the right, at the Grantors' own cost and
expense, to inspect the Collateral, all records related thereto (and to make
extracts and copies from such records) and the premises upon which any of the
Collateral is located, to discuss the Grantors' affairs with the officers of the
Grantors and their independent accountants and to verify under reasonable
procedures the validity, amount, quality, quantity, value, condition and status
of, or any other matter relating to, the Collateral, including, in the case of
Accounts or Collateral in the possession of any third person, by contacting
Account Debtors or the third person possessing such Collateral for the purpose
of
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making such a verification. The Collateral Agent shall have the absolute right
to share any information it gains from such inspection or verification with any
Secured Party (it being understood that any such information shall be deemed to
be "Information" subject to the provisions of Section 9.12 of the Credit
Agreement).
SECTION 4.06. Taxes; Encumbrances. At its option, on five days' prior
notice to the Borrower, the Collateral Agent may discharge past due taxes,
assessments, charges, fees, Liens, security interests or other encumbrances at
any time levied or placed on the Collateral and not permitted pursuant to
Section 6.02 of the Credit Agreement, and may pay for the maintenance and
preservation of the Collateral to the extent any Grantor fails to do so as
required by the Credit Agreement or this Agreement, and each Grantor jointly and
severally agrees to reimburse the Collateral Agent on demand for any payment
made or any expense incurred by the Collateral Agent pursuant to the foregoing
authorization; provided, however, that nothing in this Section 4.06 shall be
interpreted as excusing any Grantor from the performance of, or imposing any
obligation on the Collateral Agent or any Secured Party to cure or perform, any
covenants or other promises of any Grantor with respect to taxes, assessments,
charges, fees, liens, security interests or other encumbrances and maintenance
as set forth herein or in the other Loan Documents.
SECTION 4.07. Assignment of Security Interest. If at any time any Grantor
shall take a security interest in any property of an Account Debtor or any other
person to secure payment and performance of an Account, such Grantor shall
promptly assign such security interest to the Collateral Agent. Such assignment
need not be filed of public record unless necessary to continue the perfected
status of the security interest against creditors of and transferees from the
Account Debtor or other person granting the security interest.
SECTION 4.08. Continuing Obligations of the Grantors. Each Grantor shall
remain liable to observe and perform all the conditions and obligations to be
observed and performed by it under each contract, agreement or instrument
relating to the Collateral, all in accordance with the terms and conditions
thereof, and each Grantor jointly and severally agrees to indemnify and hold
harmless the Collateral Agent and the Secured Parties from and against any and
all liability for such performance.
SECTION 4.09. Use and Disposition of Collateral. None of the Grantors
shall make or permit to be made an assignment, pledge or hypothecation of the
Collateral or shall grant any other Lien in respect of the Collateral, except as
expressly permitted by Section 6.02 of the Credit Agreement. Except as expressly
permitted in the Credit Agreement, none of the Grantors shall make or permit to
be made any transfer of the Collateral and each Grantor shall remain at all
times in possession of the Collateral owned by it, except that (a) Inventory may
be sold in the ordinary course of business and (b) unless and until the
Collateral Agent shall notify the Grantors that an Event of Default shall have
occurred and be continuing and that during the continuance thereof the Grantors
shall not sell, convey, lease, assign, transfer or otherwise dispose of any
Collateral (which notice may be given by telephone if promptly confirmed in
writing), the Grantors may use and dispose of the Collateral in any lawful
manner not inconsistent with the provisions of this Agreement, the Credit
Agreement or any other Loan Document. Without limiting the generality of the
foregoing, each Grantor agrees that it shall not permit any Inventory to be in
the possession or control of any warehouseman, bailee, agent or processor at any
time unless such warehouseman, bailee, agent or processor shall have been
notified of the Security Interest and shall have agreed in writing to hold the
Inventory subject to the Security Interest and the instructions of the
Collateral Agent and to waive and release any Lien held by it with respect to
such Inventory, whether arising by operation of law or otherwise.
SECTION 4.10. Limitation on Modification of Accounts. None of the
Grantors will, without the Collateral Agent's prior written consent, grant any
extension of the time of payment of any of the
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Accounts Receivable, compromise, compound or settle the same for less than the
full amount thereof, release, wholly or partly, any person liable for the
payment thereof or allow any credit or discount whatsoever thereon, other than
extensions, credits, discounts, compromises or settlements granted or made in
the ordinary course of business and consistent with its current practices and in
accordance with such prudent and standard practices used in industries that are
the same as or similar to those in which such Grantor is engaged.
SECTION 4.11. Insurance. (a) The Grantors shall (i) maintain or shall
cause to be maintained insurance with financially sound and reputable insurers
with an A.M. Best rating of A- or better (or, to the extent consistent with
prudent business practice, a program of self-insurance approved by the
Administrative Agent) on such of its property and in at least such amounts and
against at least such risks as is customary with companies in the same or
similar businesses operating in the same or similar locations, including public
liability insurance against claims for personal injury or death occurring upon,
in or about or in connection with the use of any properties owned, occupied or
controlled by it; (ii) maintain such other insurance as may be required by law;
and (iii) furnish to the Collateral Agent, upon written request, full
information as to the insurance carried.
(b) Fire and extended coverage policies maintained with respect to
any Collateral shall be endorsed or otherwise amended to include (i) a
non-contributing mortgage clause (regarding improvements to real property) and
lenders' loss payable clause (regarding personal property), in form and
substance satisfactory to the Collateral Agent, which endorsements or amendments
shall provide that, from and after the Effective Date, if the insurer shall have
received written notice from the Administrative Agent or the Collateral Agent of
the occurrence of an Event of Default, the insurer shall pay all proceeds
otherwise payable to the Borrower or the other Loan Parties under the policies
directly to the Administrative Agent or the Collateral Agent, (ii) a provision
to the effect that neither the Grantor, the Collateral Agent nor any other party
shall be a coinsurer and (iii) such other provisions as the Collateral Agent may
reasonably require from time to time to protect the interests of the Lenders.
Commercial general liability policies shall be endorsed to name the Collateral
Agent as an additional insured. Business interruption policies shall name the
Collateral Agent as loss payee and shall be endorsed or amended to include (i) a
provision that, from and after the Effective Date, if the insurer shall have
received written notice from the Administrative Agent or the Collateral Agent of
the occurrence of an Event of Default, the insurer shall pay all proceeds
otherwise payable to the Borrower or the other Loan Parties under the policies
directly to the Administrative Agent or the Collateral Agent, (ii) a provision
to the effect that none of the Borrower, the Administrative Agent or any other
party shall be a co-insurer and (iii) such other provisions as the
administrative Agent may reasonably require from time to time to protect the
interests of the Lenders. Each such policy referred to in this paragraph also
shall provide that it shall not be canceled, modified or not renewed (i) by
reason of nonpayment of premium except upon not less than 10 days' prior written
notice thereof by the insurer to the Collateral Agent (giving the Collateral
Agent the right to cure defaults in the payment of premiums) or (ii) for any
other reason except upon not less than 30 days' prior written notice thereof by
the insurer to the Collateral Agent. Such Grantor shall deliver to the
Collateral Agent, prior to the cancelation, modification or nonrenewal of any
such policy of insurance, a copy of a renewal or replacement policy (or other
evidence of renewal of a policy previously delivered to the Collateral Agent)
together with evidence satisfactory to the Collateral Agent of payment of the
premium therefor.
(c) Each Grantor irrevocably makes, constitutes and appoints the
Collateral Agent (and all officers, employees or agents designated by the
Collateral Agent) as such Grantor's true and lawful agent (and attorney-in-fact)
for the purpose, during the continuance of an Event of Default, of making,
settling and adjusting claims in respect of Collateral under policies of
insurance, endorsing the name of such Grantor on any check, draft, instrument or
other item of payment for the proceeds of such policies of insurance and for
making all determinations and decisions with respect thereto. In the event that
any Grantor at any time or times shall fail to obtain or maintain any of the
policies of insurance required
<PAGE> 93
13
hereby or to pay any premium in whole or part relating thereto, the Collateral
Agent may, without waiving or releasing any obligation or liability of the
Grantors hereunder or any Event of Default, in its sole discretion, obtain and
maintain such policies of insurance and pay such premium and take any other
actions with respect thereto as the Collateral Agent deems advisable. All sums
disbursed by the Collateral Agent in connection with this Section 4.11,
including reasonable attorneys' fees, court costs, expenses and other charges
relating thereto, shall be payable, upon demand, by the Grantors to the
Collateral Agent and shall be additional Obligations secured hereby.
SECTION 4.12. Intentionally Omitted.
SECTION 4.13. Legend. Subject to the rights and liens of the parties to
the Receivables Purchase Agreements, each Grantor shall legend, in form and
manner satisfactory to the Collateral Agent, its Accounts Receivable and its
books, records and documents evidencing or pertaining thereto with an
appropriate reference to the fact that such Accounts Receivable have been
assigned to the Collateral Agent for the benefit of the Secured Parties and that
the Collateral Agent has a security interest therein.
SECTION 4.14. Covenants Regarding Patent, Trademark and Copyright
Collateral. (a) Each Grantor agrees that it will not, nor will it permit any of
its licensees to, do any act, or omit to do any act, whereby any Patent that is
material to the conduct of such Grantor's business may become invalidated or
dedicated to the public, and agrees that it shall continue to mark any products
covered by a Patent with the relevant patent number as necessary and sufficient
to establish and preserve its maximum rights under applicable patent laws.
(b) Each Grantor (either itself or through its licensees or its
sublicensees) will, for each Trademark material to the conduct of such Grantor's
business, (i) maintain such Trademark in full force free from any claim of
abandonment or invalidity for non-use, (ii) maintain the quality of products and
services offered under such Trademark, (iii) display such Trademark with notice
of Federal or foreign registration to the extent necessary and sufficient to
establish and preserve its maximum rights under applicable law and (iv) not
knowingly use or knowingly permit the use of such Trademark in violation of any
third party rights.
(c) Each Grantor (either itself or through licensees) will, for each work
covered by a material Copyright, continue to publish, reproduce, display, adopt
and distribute the work with appropriate copyright notice as necessary and
sufficient to establish and preserve its maximum rights under applicable
copyright laws.
(d) Each Grantor shall notify the Collateral Agent immediately if it
knows or has reason to know that any Patent, Trademark or Copyright material to
the conduct of its business may become abandoned, lost or dedicated to the
public, or of any adverse determination or development (including the
institution of, or any such determination or development in, any proceeding in
the United States Patent and Trademark Office, United States Copyright Office or
any court or similar office of any country) regarding such Grantor's ownership
of any Patent, Trademark or Copyright, its right to register the same, or to
keep and maintain the same.
(e) In no event shall any Grantor, either itself or through any agent,
employee, licensee or designee, file an application for any Patent, Trademark or
Copyright (or for the registration of any Trademark or Copyright) with the
United States Patent and Trademark Office, United States Copyright Office or any
office or agency in any political subdivision of the United States or in any
other country or any political subdivision thereof, unless it promptly informs
the Collateral Agent, and, upon request of the Collateral Agent, executes and
delivers any and all agreements, instruments, documents and papers as
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the Collateral Agent may request to evidence the Collateral Agent's security
interest in such Patent, Trademark or Copyright, and each Grantor hereby
appoints the Collateral Agent as its attorney-in-fact to execute and file such
writings for the foregoing purposes, all acts of such attorney being hereby
ratified and confirmed; such power, being coupled with an interest, is
irrevocable.
(f) Each Grantor will take all necessary steps that are consistent with
the practice in any proceeding before the United States Patent and Trademark
Office, United States Copyright Office or any office or agency in any political
subdivision of the United States or in any other country or any political
subdivision thereof, to maintain and pursue each material application relating
to the Patents, Trademarks and/or Copyrights (and to obtain the relevant grant
or registration) and to maintain each issued Patent and each registration of the
Trademarks and Copyrights that is material to the conduct of any Grantor's
business, including timely filings of applications for renewal, affidavits of
use, affidavits of incontestability and payment of maintenance fees, and, if
consistent with good business judgment, to initiate opposition, interference and
cancellation proceedings against third parties.
(g) In the event that any Grantor has reason to believe that any
Collateral consisting of a Patent, Trademark or Copyright material to the
conduct of any Grantor's business has been or is about to be infringed,
misappropriated or diluted by a third party, such Grantor promptly shall notify
the Collateral Agent and shall, if consistent with good business judgment,
promptly sue for infringement, misappropriation or dilution and to recover any
and all damages for such infringement, misappropriation or dilution, and take
such other actions as are appropriate under the circumstances to protect such
Collateral.
(h) Upon and during the continuance of an Event of Default, each Grantor
shall use its best efforts to obtain all requisite consents or approvals by the
licensor of each Copyright License, Patent License or Trademark License to
effect the assignment of all of such Grantor's right, title and interest
thereunder to the Collateral Agent or its designee.
ARTICLE V
Collections
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SECTION 5.01. Depository System. (a) To the extent not already
established, within 30 days after the Restatement Closing Date, the Grantors
shall establish, subject to the control of the Collateral Agent pursuant to the
Depository Agreements, for the ratable benefit of the Collateral Agent and the
other Secured Parties, a system of deposit accounts (the "Depository System")
with one or more financial institutions that are reasonably satisfactory to the
Collateral Agent into which the Proceeds of all Accounts Receivable and
Inventory shall be deposited and forwarded to the Collateral Agent in accordance
with the Depository Agreements. To the extent any Grantor's deposit accounts are
not part of the Depository System within 30 days after the Restatement Closing
Date, such Grantor shall move such deposit accounts to a financial institution
designated by the Administrative Agent and such Grantor will use best efforts to
cause such financial institution to enter into a Depository Agreement.
(b) All Proceeds of Inventory and Accounts Receivable that have been
received on any Business Day through the Depository System will be transferred
into the Concentration Account on such Business Day to the extent required by
the applicable Depository Agreement. All Proceeds stemming from the sale of a
substantial portion of the Collateral (other than Proceeds of Accounts) that
have been received by a Grantor on any Business Day will be transferred into the
Concentration Account on such Business Day. All Proceeds received on any
Business Day by the Collateral Agent pursuant to Section 5.02 will be
transferred into the Concentration Account on such Business Day.
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15
(c) The Concentration Account is, and shall remain, under the sole
dominion and control of the Collateral Agent. Each Grantor acknowledges and
agrees that (i) such Grantor has no right of withdrawal from the Concentration
Account, (ii) the funds on deposit in the Concentration Account shall continue
to be collateral security for all of the Obligations and (iii) upon the
occurrence and during the continuance of an Event of Default, at the Collateral
Agent's election, the funds on deposit in the Concentration Account shall be
applied as provided in Section 6.02. So long as (y) no Event of Default has
occurred and is continuing, and (z) no Reduced Availability Event (as defined
below) has occurred and is continuing, the Collateral Agent shall promptly remit
any funds on deposit in the Concentration Account to the General Fund Account
and the Borrower shall have the right, at any time and from time to time, to
withdraw such amounts from the General Fund Account as it shall deem to be
necessary or desirable.
(d) Effective upon notice to the Grantors from the Collateral Agent (i)
after the occurrence and during the continuance of an Event of Default or (ii)
in the event that the total Borrowing Base (which shall be determined using an
Advance Rate Percentage equal to 65%) does not exceed the sum of the Total
Exposures by at least $30,000,000 ("Reduced Availability Event") (which notice
may be given by telephone if promptly confirmed in writing), the Concentration
Account will, without any further action on the part of any Grantor, the
Collateral Agent or any Sub-Agent, convert into a closed account under the
exclusive dominion and control of the Collateral Agent in which funds are held
subject to the rights of the Collateral Agent hereunder. Each Grantor
irrevocably authorizes the Collateral Agent to notify each Sub-Agent (i) of the
occurrence of an Event of Default or a Reduced Availability Event and (ii) of
the matters referred to in this paragraph (d). Following the occurrence of an
Event of Default or a Reduced Availability Event, the Collateral Agent may
instruct each Sub-Agent to transfer immediately all funds held in each deposit
account to the Concentration Account.
SECTION 5.02. Collections. (a) Subject to the rights and liens of the
parties to the Receivables Purchase Agreements, each Grantor agrees (i) to
notify and direct promptly each Account Debtor and every other person obligated
to make payments on Accounts Receivable or in respect of any Inventory to make
all such payments directly to the Depository System established in accordance
with Section 5.01, (ii) to use all reasonable efforts to cause each Account
Debtor and every other person identified in clause (i) above to make all
payments with respect to Accounts Receivable and Inventory directly to such
Depository System and (iii) promptly to deposit all payments received by it on
account of Accounts Receivable and Inventory, whether in the form of cash,
checks, credit card payments, notes, drafts, bills of exchange, money orders or
otherwise, in the Depository System in precisely the form in which received (but
with any endorsements of such Grantor necessary for deposit or collection), and
until they are so deposited such payments shall be held by such Grantor for the
benefit of the Collateral Agent.
(b) Without the prior written consent of the Collateral Agent, no Grantor
shall, in a manner adverse to the Lenders, change the general instructions given
to Account Debtors in respect of payment on Accounts to be deposited in the
Depository System. Until the Collateral Agent shall have advised the Grantors to
the contrary, each Grantor shall, and the Collateral Agent hereby authorizes
each Grantor to, enforce and collect all amounts owing on the Inventory and
Accounts Receivable, for the benefit and on behalf of the Collateral Agent and
the other Secured Parties; provided, however, that such privilege may at the
option of the Collateral Agent be terminated upon the occurrence and during the
continuance of any Event of Default or Reduced Availability Event.
SECTION 5.03. Power of Attorney. Each Grantor irrevocably makes,
constitutes and appoints the Collateral Agent (and all officers, employees or
agents designated by the Collateral Agent) as such Grantor's true and lawful
agent and attorney-in-fact, and in such capacity the Collateral Agent shall have
the right, with power of substitution for each Grantor and in each Grantor's
name or otherwise, for the use and benefit of the Collateral Agent and the
Secured Parties, upon the occurrence and during the
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continuance of an Event of Default or Reduced Availability Event (a) to receive,
endorse, assign and/or deliver any and all notes, acceptances, checks, drafts,
money orders or other evidences of payment relating to the Collateral or any
part thereof; (b) to demand, collect, receive payment of, give receipt for and
give discharges and releases of all or any of the Collateral; (c) to sign the
name of any Grantor on any invoice or bill of lading relating to any of the
Collateral; (d) to send verifications of Accounts Receivable to any Account
Debtor; (e) to commence and prosecute any and all suits, actions or proceedings
at law or in equity in any court of competent jurisdiction to collect or
otherwise realize on all or any of the Collateral or to enforce any rights in
respect of any Collateral; (f) to settle, compromise, compound, adjust or defend
any actions, suits or proceedings relating to all or any of the Collateral; (g)
to notify, or to require any Grantor to notify, Account Debtors to make payment
directly to the Collateral Agent; and (h) to use, sell, assign, transfer,
pledge, make any agreement with respect to or otherwise deal with all or any of
the Collateral, and to do all other acts and things necessary to carry out the
purposes of this Agreement, as fully and completely as though the Collateral
Agent were the absolute owner of the Collateral for all purposes; provided,
however, that nothing herein contained shall be construed as requiring or
obligating the Collateral Agent or any Secured Party to make any commitment or
to make any inquiry as to the nature or sufficiency of any payment received by
the Collateral Agent or any Secured Party, or to present or file any claim or
notice, or to take any action with respect to the Collateral or any part thereof
or the moneys due or to become due in respect thereof or any property covered
thereby, and no action taken or omitted to be taken by the Collateral Agent or
any Secured Party with respect to the Collateral or any part thereof shall give
rise to any defense, counterclaim or offset in favor of any Grantor or to any
claim or action against the Collateral Agent or any Secured Party. It is
understood and agreed that the appointment of the Collateral Agent as the agent
and attorney-in-fact of the Grantors for the purposes set forth above is coupled
with an interest and is irrevocable. The provisions of this Section shall in no
event relieve any Grantor of any of its obligations hereunder or under any other
Loan Document with respect to the Collateral or any part thereof or impose any
obligation on the Collateral Agent or any Secured Party to proceed in any
particular manner with respect to the Collateral or any part thereof, or in any
way limit the exercise by the Collateral Agent or any Secured Party of any other
or further right which it may have on the date of this Agreement or hereafter,
whether hereunder, under any other Loan Document, by law or otherwise.
ARTICLE VI
Remedies
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SECTION 6.01. Remedies upon Default. Upon the occurrence and during the
continuance of an Event of Default, each Grantor agrees to deliver each item of
Collateral to the Collateral Agent on demand, and it is agreed that the
Collateral Agent shall have the right to take any of or all the following
actions at the same or different times: (a) with respect to any Collateral
consisting of Intellectual Property, on demand, to cause the Security Interest
to become an assignment, transfer and conveyance of any of or all such
Collateral by the applicable Grantors to the Collateral Agent, or to license or
sublicense, whether general, special or otherwise, and whether on an exclusive
or non-exclusive basis, any such Collateral throughout the world on such terms
and conditions and in such manner as the Collateral Agent shall determine (other
than in violation of any then-existing licensing arrangements to the extent that
waivers cannot be obtained), and (b) with or without legal process and with or
without prior notice or demand for performance, to take possession of the
Collateral and without liability for trespass to enter any premises where the
Collateral may be located for the purpose of taking possession of or removing
the Collateral and, generally, to exercise any and all rights afforded to a
secured party under the Uniform Commercial Code or other applicable law. Without
limiting the generality of the foregoing, each Grantor agrees that the
Collateral Agent shall have the right, subject to the mandatory requirements of
applicable law, to sell or otherwise dispose of all or any part of the
Collateral, at public or private sale or at any broker's board or on any
securities exchange, for cash, upon credit or for future delivery as the
Collateral Agent shall deem appropriate. The Collateral Agent shall be
authorized at any such sale (if it deems it advisable to do so) to restrict the
prospective bidders or purchasers to persons who will represent and agree that
they are purchasing the Collateral for their own account for investment and not
with a view to the distribution or sale thereof, and upon consummation of any
such sale the Collateral Agent shall have the right to assign, transfer and
deliver to the purchaser or purchasers thereof the Collateral so sold. Each such
purchaser at any such sale shall hold the property sold absolutely, free from
any claim or right on the part of any Grantor, and each Grantor hereby waives
(to the extent permitted by law) all rights of redemption, stay and appraisal
which such Grantor now has or may at any time in the future have under any rule
of law or statute now existing or hereafter enacted.
The Collateral Agent shall give the Grantors 10 days' written notice
(which each Grantor agrees is reasonable notice within the meaning of Section
9-504(3) of the Uniform Commercial Code as in effect in the State of New York or
its equivalent in other jurisdictions) of the Collateral Agent's intention to
make any sale of Collateral. Such notice, in the case of a public sale, shall
state the time and place for such sale and, in the case of a sale at a broker's
board or on a securities exchange, shall state the board or exchange at which
such sale is to be made and the day on which the Collateral, or portion thereof,
will first be offered for sale at such board or exchange. Any such public sale
shall be held at such time or times within ordinary business hours and at such
place or places as the Collateral Agent may fix and state in the notice (if any)
of such sale. At any such sale, the Collateral, or portion thereof, to be sold
may be sold in one lot as an entirety or in separate parcels, as the Collateral
Agent may (in its sole and absolute discretion) determine. The Collateral Agent
shall not be obligated to make any sale of any Collateral if it shall determine
not to do so, regardless of the fact that notice of sale of such Collateral
shall have been given. The Collateral Agent may, without notice or publication,
adjourn any public or private sale or cause the same to be adjourned from time
to time by announcement at the time and place fixed for sale, and such sale may,
without further notice, be made at the time and place to which the same was so
adjourned. In case any sale of all or any part of the Collateral is made on
credit or for future delivery, the Collateral so sold may be retained by the
Collateral Agent until the sale price is paid by the purchaser or purchasers
thereof, but the Collateral Agent shall not incur any liability in case any such
purchaser or purchasers shall fail to take up and pay for the Collateral so sold
and, in case of any such failure, such Collateral may be sold again upon like
notice. At any public (or, to the extent permitted by law, private) sale made
pursuant to this Section, any Secured Party may bid for or purchase, free (to
the extent permitted by law) from any right of redemption, stay, valuation or
appraisal on the part of any Grantor (all said rights being also hereby waived
and released to the extent permitted by law), the Collateral or any part thereof
offered for sale and may make payment on account thereof by using any claim then
due
1
<PAGE> 98
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and payable to such Secured Party from any Grantor as a credit against the
purchase price, and such Secured Party may, upon compliance with the terms of
sale, hold, retain and dispose of such property without further accountability
to any Grantor therefor. For purposes hereof, a written agreement to purchase
the Collateral or any portion thereof shall be treated as a sale thereof; the
Collateral Agent shall be free to carry out such sale pursuant to such agreement
and no Grantor shall be entitled to the return of the Collateral or any portion
thereof subject thereto, notwithstanding the fact that after the Collateral
Agent shall have entered into such an agreement all Events of Default shall have
been remedied and the Obligations paid in full. As an alternative to exercising
the power of sale herein conferred upon it, the Collateral Agent may proceed by
a suit or suits at law or in equity to foreclose this Agreement and to sell the
Collateral or any portion thereof pursuant to a judgment or decree of a court or
courts having competent jurisdiction or pursuant to a proceeding by a
court-appointed receiver.
SECTION 6.02. Application of Proceeds. The Collateral Agent shall apply
the proceeds of any collection or sale of the Collateral, as well as any
Collateral consisting of cash, as follows:
FIRST, to the payment of all costs and expenses incurred by the
Administrative Agent or the Collateral Agent (in its capacity as such
hereunder or under any other Loan Document) in connection with such
collection or sale or otherwise in connection with this Agreement or any
of the Obligations, including all court costs and the reasonable and
documented fees and expenses of its agents and legal counsel, the
repayment of all advances made by the Collateral Agent hereunder or under
any other Loan Document on behalf of any Grantor and any other reasonable
and documented costs or expenses incurred in connection with the exercise
of any right or remedy hereunder or under any other Loan Document;
SECOND, to the payment in full of the Obligations (the amounts so
applied to be distributed among the Secured Parties pro rata in
accordance with the amounts of the Obligations owed to them on the date
of any such distribution); and
THIRD, to the Grantors, their successors or assigns, or as a court
of competent jurisdiction may otherwise direct.
The Collateral Agent shall have absolute discretion as to the time of
application of any such proceeds, moneys or balances in accordance with this
Agreement. Upon any sale of the Collateral by the Collateral Agent (including
pursuant to a power of sale granted by statute or under a judicial proceeding),
the receipt of the Collateral Agent or of the officer making the sale shall be a
sufficient discharge to the purchaser or purchasers of the Collateral so sold
and such purchaser or purchasers shall not be obligated to see to the
application of any part of the purchase money paid over to the Collateral Agent
or such officer or be answerable in any way for the misapplication thereof.
SECTION 6.03. Grant of License to Use Intellectual Property. For the
purpose of enabling the Collateral Agent to exercise rights and remedies under
this Article at such time as the Collateral Agent shall be lawfully entitled to
exercise such rights and remedies, each Grantor hereby grants to the Collateral
Agent an irrevocable, non-exclusive license (exercisable without payment of
royalty or other compensation to the Grantors) to use, license or sub-license
any of the Collateral consisting of Intellectual Property now owned or hereafter
acquired by such Grantor, and wherever the same may be located, and including in
such license reasonable access to all media in which any of the licensed items
may be recorded or stored and to all computer software and programs used for the
compilation or printout thereof. The use of such license by the Collateral Agent
shall be exercised, at the option of the Collateral Agent, upon the occurrence
and during the continuation of an Event of Default, provided that any license,
sub-license or other transaction entered into by the Collateral Agent in
accordance herewith shall be binding upon the Grantors notwithstanding any
subsequent cure of an Event of Default.
<PAGE> 99
19
ARTICLE VII
Miscellaneous
-------------
SECTION 7.01. Notices. All communications and notices hereunder shall
(except as otherwise expressly permitted herein) be in writing and given as
provided in Section 9.01 of the Credit Agreement. All communications and notices
hereunder to any Guarantor shall be given to it at its address or telecopy
number set forth on Schedule I, with a copy to the Borrower.
SECTION 7.02. Security Interest Absolute. All rights of the Collateral
Agent hereunder, the Security Interest and all obligations of the Grantors
hereunder shall be absolute and unconditional irrespective of (a) any lack of
validity or enforceability of the Credit Agreement, any other Loan Document, any
agreement with respect to any of the Obligations or any other agreement or
instrument relating to any of the foregoing, (b) any change in the time, manner
or place of payment of, or in any other term of, all or any of the Obligations,
or any other amendment or waiver of or any consent to any departure from the
Credit Agreement, any other Loan Document or any other agreement or instrument,
(c) any exchange, release or non-perfection of any Lien on other collateral, or
any release or amendment or waiver of or consent under or departure from any
guarantee, securing or guaranteeing all or any of the Obligations, or (d) any
other circumstance that might otherwise constitute a defense available to, or a
discharge of, any Grantor in respect of the Obligations or this Agreement.
SECTION 7.03. Survival of Agreement. All covenants, agreements,
representations and warranties made by any Grantor herein and in the
certificates or other instruments prepared or delivered in connection with or
pursuant to this Agreement shall be considered to have been relied upon by the
Secured Parties and shall survive the making by the Lenders of the Loans, and
the execution and delivery to the Lenders of any notes evidencing such Loans,
regardless of any investigation made by the Lenders or on their behalf, and
shall continue in full force and effect until this Agreement shall terminate.
SECTION 7.04. Binding Effect; Several Agreement. This Agreement shall
become effective as to any Grantor when a counterpart hereof executed on behalf
of such Grantor shall have been delivered to the Collateral Agent and a
counterpart hereof shall have been executed on behalf of the Collateral Agent,
and thereafter shall be binding upon such Grantor and the Collateral Agent and
their respective successors and assigns, and shall inure to the benefit of such
Grantor, the Collateral Agent and the other Secured Parties and their respective
successors and assigns, except that no Grantor shall have the right to assign or
transfer its rights or obligations hereunder or any interest herein or in the
Collateral (and any such assignment or transfer shall be void) except as
expressly contemplated by this Agreement or the Credit Agreement. This Agreement
shall be construed as a separate agreement with respect to each Grantor and may
be amended, modified, supplemented, waived or released with respect to any
Grantor without the approval of any other Grantor and without affecting the
obligations of any other Grantor hereunder.
SECTION 7.05. Successors and Assigns. Whenever in this Agreement any of
the parties hereto is referred to, such reference shall be deemed to include the
successors and assigns of such party; and all covenants, promises and agreements
by or on behalf of any Grantor or the Collateral Agent that are contained in
this Agreement shall bind and inure to the benefit of their respective
successors and assigns.
<PAGE> 100
20
SECTION 7.06. Overdrafts. Each Grantor agrees to pay any such Grantor's
Overdrafts. Any such amounts payable as provided hereunder shall be additional
Obligations secured hereby and by the other Security Documents.
SECTION 7.07. Collateral Agent's Fees and Expenses; Indemnification. (a)
Each Grantor jointly and severally agrees to pay upon demand to the Collateral
Agent the amount of any and all reasonable and documented expenses, including
the reasonable and documented fees, disbursements and other charges of its
counsel and of any experts or agents, which the Collateral Agent may incur in
connection with (i) the administration of this Agreement, (ii) the custody or
preservation of, or the sale of, collection from or other realization upon any
of the Collateral, (iii) the exercise, enforcement or protection of any of the
rights of the Collateral Agent hereunder or (iv) the failure of any Grantor to
perform or observe any of the provisions hereof.
(b) Without limitation of its indemnification obligations under the other
Loan Documents, each Grantor jointly and severally agrees to indemnify the
Collateral Agent and the other Indemnitees against, and hold each of them
harmless from, any and all losses, claims, damages, liabilities and related
expenses, including reasonable and documented fees, disbursements and other
charges of counsel, incurred by or asserted against any of them arising out of,
in any way connected with, or as a result of, the execution, delivery or
performance of this Agreement or any claim, litigation, investigation or
proceeding relating hereto or to the Collateral, whether or not any Indemnitee
is a party thereto; provided that such indemnity shall not, as to any
Indemnitee, be available to the extent that such losses, claims, damages,
liabilities or related expenses are determined by a court of competent
jurisdiction by final and nonappealable judgment to have resulted from the gross
negligence or willful misconduct of such Indemnitee.
(c) Any such amounts payable as provided hereunder shall be additional
Obligations secured hereby and by the other Security Documents. The provisions
of this Section 7.06 shall remain operative and in full force and effect
regardless of the termination of this Agreement or any other Loan Document, the
consummation of the transactions contemplated hereby, the repayment of any of
the Loans, the invalidity or unenforceability of any term or provision of this
Agreement or any other Loan Document, or any investigation made by or on behalf
of the Collateral Agent or any Lender. All amounts due under this Section 7.07
shall be payable on written demand therefor.
SECTION 7.08. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
SECTION 7.09. Waivers; Amendment. (a) No failure or delay of the
Collateral Agent in exercising any power or right hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise of any such right or
power, or any abandonment or discontinuance of steps to enforce such a right or
power, preclude any other or further exercise thereof or the exercise of any
other right or power. The rights and remedies of the Collateral Agent hereunder
and of the Agents, the Issuing Bank and the Lenders under the other Loan
Documents are cumulative and are not exclusive of any rights or remedies that
they would otherwise have. No waiver of any provisions of this Agreement or any
other Loan Document or consent to any departure by any Grantor therefrom shall
in any event be effective unless the same shall be permitted by paragraph (b)
below, and then such waiver or consent shall be effective only in the specific
instance and for the purpose for which given. No notice to or demand on any
Grantor in any case shall entitle such Grantor or any other Grantor to any other
or further notice or demand in similar or other circumstances.
<PAGE> 101
21
(b) Neither this Agreement nor any provision hereof may be waived,
amended or modified except pursuant to an agreement or agreements in writing
entered into by the Collateral Agent and the Grantor or Grantors with respect to
which such waiver, amendment or modification is to apply, subject to any consent
required in accordance with Section 9.02 of the Credit Agreement.
SECTION 7.10. WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES, TO
THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL
BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF,
UNDER OR IN CONNECTION WITH THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS.
EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY
OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD
NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B)
ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER
INTO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS, AS APPLICABLE, BY, AMONG OTHER
THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 7.10.
SECTION 7.11. Severability. In the event any one or more of the
provisions contained in this Agreement should be held invalid, illegal or
unenforceable in any respect, the validity, legality and enforceability of the
remaining provisions contained herein shall not in any way be affected or
impaired thereby (it being understood that the invalidity of a particular
provision in a particular jurisdiction shall not in and of itself affect the
validity of such provision in any other jurisdiction). The parties shall
endeavor in good-faith negotiations to replace the invalid, illegal or
unenforceable provisions with valid provisions the economic effect of which
comes as close as possible to that of the invalid, illegal or unenforceable
provisions.
SECTION 7.12. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall constitute an original but all of which when
taken together shall constitute but one contract (subject to Section 7.04), and
shall become effective as provided in Section 7.04. Delivery of an executed
signature page to this Agreement by facsimile transmission shall be effective as
delivery of a manually executed counterpart hereof.
SECTION 7.13. Headings. Article and Section headings used herein are for
the purpose of reference only, are not part of this Agreement and are not to
affect the construction of, or to be taken into consideration in interpreting,
this Agreement.
SECTION 7.14. Jurisdiction; Consent to Service of Process. (a) Each
Grantor hereby irrevocably and unconditionally submits, for itself and its
property, to the nonexclusive jurisdiction of any New York State court or
Federal court of the United States of America sitting in New York City, and any
appellate court from any thereof, in any action or proceeding arising out of or
relating to this Agreement or the other Loan Documents, or for recognition or
enforcement of any judgment, and each of the parties hereto hereby irrevocably
and unconditionally agrees that all claims in respect of any such action or
proceeding may be heard and determined in such New York State or, to the extent
permitted by law, in such Federal court. Each of the parties hereto agrees that
a final judgment in any such action or proceeding shall be conclusive and may be
enforced in other jurisdictions by suit on the judgment or in any other manner
provided by law. Nothing in this Agreement shall affect any right that the
Agents, the Issuing Bank or any Lender may otherwise have to bring any action or
proceeding relating to this Agreement or the other Loan Documents against any
Grantor or its properties in the courts of any jurisdiction.
(b) Each Grantor hereby irrevocably and unconditionally waives, to the
fullest extent it may legally and effectively do so, any objection which it may
now or hereafter have to the laying of venue of any suit, action or proceeding
arising out of or relating to this Agreement or the other Loan Documents
<PAGE> 102
22
in any New York State or Federal court. Each of the parties hereto hereby
irrevocably waives, to the fullest extent permitted by law, the defense of an
inconvenient forum to the maintenance of such action or proceeding in any such
court.
(c) Each party to this Agreement irrevocably consents to service of
process in the manner provided for notices in Section 7.01. Nothing in this
Agreement will affect the right of any party to this Agreement to serve process
in any other manner permitted by law.
SECTION 7.15. Termination. (a) This Agreement and the Security Interest
shall terminate when all the Obligations have been indefeasibly paid in full,
the Lenders have no further commitment to lend, the L/C Exposure has been
reduced to zero and the Issuing Bank has no further commitment to issue Letters
of Credit under the Credit Agreement, at which time the Collateral Agent shall
execute and deliver to the Grantors, at the Grantors' expense, all Uniform
Commercial Code termination statements and similar documents that the Grantors
shall reasonably request to evidence such termination. Any execution and
delivery of termination statements or documents pursuant to this Section 7.15
shall be without recourse to or warranty by the Collateral Agent. A Guarantor
shall automatically be released from its obligations hereunder and the Security
Interest in the Collateral of such Guarantor shall be automatically released in
the event that all the capital stock of such Guarantor shall be sold,
transferred or otherwise disposed of to a person that is not an Affiliate of the
Borrower in accordance with the terms of the Credit Agreement; provided that the
Required Lenders shall have consented to such sale, transfer or other
disposition (to the extent required by the Credit Agreement) and the terms of
such consent did not provide otherwise.
(b) The Security Interest in any Fixtures relating to particular real
estate that is sold, transferred, leased or otherwise disposed of by any
Transaction Party in accordance with Section 6.05 or Section 6.06 of the Credit
Agreement shall terminate automatically upon such sale, transfer, lease or other
disposition.
SECTION 7.16. Additional Grantors. Pursuant to Section 5.12 of the Credit
Agreement, each Borrower Subsidiary that was not in existence or not a Borrower
Subsidiary on the date of the Credit Agreement is required to enter into this
Agreement as a Grantor upon becoming a Borrower Subsidiary. Upon execution and
delivery by the Collateral Agent and a Borrower Subsidiary of an instrument in
the form of Annex 3 hereto, such Borrower Subsidiary shall become a Grantor
hereunder with the same force and effect as if originally named as a Grantor
herein. The execution and delivery of any such instrument shall not require the
consent of any Grantor hereunder. The rights and obligations of each Grantor
hereunder shall remain in full force and effect notwithstanding the addition of
any new Grantor as a party to this Agreement.
SECTION 7.17. Intercreditor Agreement. The Agents, on behalf of the
Secured Parties, acknowledge that all the security interests granted pursuant to
this Security Agreement are subject to the provisions of the Intercreditor
Agreement. Notwithstanding anything to the contrary contained herein, the
rights, duties and obligations of the Agents hereunder are subject to the
provisions of the Intercreditor Agreement.
<PAGE> 103
23
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
as of the day and year first above written.
HECHINGER INVESTMENT COMPANY OF
DELAWARE, INC.,
by
/s/ Mark R. Adams
-------------------------------------
Name: Mark R. Adams
Title: Executive Vice President
CENTERS HOLDINGS, INC.,
by
/s/ Mark R. Adams
-------------------------------------
Name: Mark R. Adams
Title: Executive Vice President
BSQ ACQUISITION, INC.,
by
/s/ Mark R. Adams
-------------------------------------
Name: Mark R. Adams
Title: Executive Vice President
BSQ TRANSFEREE CORP.,
by
/s/ Mark R. Adams
-------------------------------------
Name: Mark R. Adams
Title: Executive Vice President
HECHINGER COMPANY,
by
/s/ Mark R. Adams
-------------------------------------
Name: Mark R. Adams
Title: Executive Vice President
HECHINGER STORES COMPANY,
by
/s/ Mark R. Adams
-------------------------------------
Name: Mark R. Adams
Title: Executive Vice President
<PAGE> 104
24
HECHINGER STORES EAST COAST COMPANY,
by
/s/ Mark R. Adams
-------------------------------------
Name: Mark R. Adams
Title: Executive Vice President
<PAGE> 105
25
EACH OF THE GUARANTORS LISTED ON
SCHEDULE I HERETO,
by
/s/ Mark R. Adams
-------------------------------------
Name: Mark R. Adams
Title: Authorized Officer
<PAGE> 106
THE CHASE MANHATTAN BANK,
as Collateral Agent,
by
/s/ Craig T. Moore
---------------------------------------
Name: Craig T. Moore
Title: Managing Director
<PAGE> 107
SCHEDULE I
GUARANTORS
<PAGE> 108
SCHEDULE II
COPYRIGHTS
<PAGE> 109
SCHEDULE III
LICENSES
<PAGE> 110
SCHEDULE IV
PATENTS
<PAGE> 111
SCHEDULE V
TRADEMARKS
<PAGE> 112
Annex 1 to the
Security Agreement
DEPOSITORY AGREEMENT dated as of [ ], among
[Name of Grantor], a [ ] corporation (the "Grantor"),
THE CHASE MANHATTAN BANK, a New York banking corporation
("Chase"), as collateral agent (in such capacity, the
"Collateral Agent") for the Secured Parties (such term,
and each other capitalized term used but not defined
herein, having the meaning given it in the Security
Agreement referred to below) and [ ], a
[ ] banking corporation (the "Sub-Agent").
A. The Grantor and the Collateral Agent are parties to a Security
Agreement dated as of September 26, 1997, as amended and restated as of December
31, 1998 (as amended, supplemented or otherwise modified from time to time, the
"Security Agreement"). Pursuant to the terms of the Security Agreement, the
Grantor has granted to the Collateral Agent, for the ratable benefit of the
Secured Parties, a security interest in its Accounts Receivable and other
Collateral (including Inventory, cash, cash accounts and Proceeds) to secure the
payment and performance of the Obligations and has irrevocably appointed the
Collateral Agent as its agent to collect amounts due in respect of Accounts
Receivable and Inventory.
B. The Sub-Agent has agreed to act as collection sub-agent of the
Collateral Agent to receive and forward payments with respect to the Accounts
Receivable and Inventory on the terms and subject to the conditions set forth
herein.
NOW, THEREFORE, the parties hereto agree as follows:
1. The Collateral Agent hereby appoints the Sub-Agent as its collection
sub-agent under the Security Agreement and authorizes the Sub-Agent, on the
terms and subject to the conditions set forth herein, to receive payments in
respect of Collateral consisting of Accounts Receivable and Inventory.
2. The Sub-Agent has established and shall maintain deposit account
number [] (including all subaccounts thereof) for the benefit of the Collateral
Agent (such account being called the "Collection Deposit Account"). [Subject to
the Sub-Agent's Terms for Deposit Services attached hereto as Exhibit A, to the
extent that the terms thereof relate to procedures or fees and to the extent not
inconsistent with the terms hereof,] all payments received by the Sub-Agent in
Account Number [ ] and [ ] or any replacements in
respect thereof (the "Accounts") shall be promptly deposited in the Collection
Deposit Account and shall not be commingled with other funds. All funds at any
time on deposit in the Collection Deposit Account shall be held by the Sub-Agent
for application in accordance with the terms of this Agreement. The Sub-Agent
agrees to give the Collateral Agent prompt notice if the Collection Deposit
Account shall become subject to any writ, judgment, warrant of attachment,
execution or similar process. As security for the payment and performance of the
Obligations, the Grantor hereby confirms and pledges, assigns and transfers to
the Collateral Agent, and hereby creates and grants to the Collateral Agent, a
security interest in the Collection Deposit Account, all property and assets
held therein and all Proceeds thereof.
3. Effective upon notice to the Grantors and the Sub-Agent from the
Collateral Agent (i) after the occurrence and during the continuance of any
Event of Default or (ii) after the occurrence and during the continuance of a
Reduced Availability Event, the Collection Deposit Account shall be under the
sole
<PAGE> 113
dominion and control of the Collateral Agent, who shall possess all right, title
and interest in all of the items from time to time in the Collection Deposit
Account and their Proceeds. Effective upon such notice, the Sub-Agent shall be
the Collateral Agent's agent for the purpose of holding and collecting such
items and their Proceeds, and neither the Grantor nor any person or entity
claiming by, through or under the Grantor shall have any right, title or
interest in, or control over the use of, or any right to withdraw any amount
from, the Collection Deposit Account, except that the Collateral Agent shall
have the right to withdraw amounts from the Collection Deposit Account.
Effective upon such notice, the Sub-Agent shall be entitled to rely on, and
shall act in accordance with, all instructions given to it by the Collateral
Agent with respect to the Collection Deposit Account. Effective upon such
notice, the Collateral Agent shall have the sole power to agree with the
Sub-Agent as to specifications for Account services.
4. Upon receipt of written, telecopy or telephonic notice (which, in
the case of telephonic notice, shall be promptly confirmed in writing or by
telecopy) from the Collateral Agent, the Sub-Agent shall, if so directed in such
notice (subject to the Sub-Agent's right to request that the Collateral Agent
furnish, in form satisfactory to the Sub-Agent, signature cards and/or other
appropriate documentation), promptly transmit or deliver to the Collateral Agent
at the office specified in paragraph 12 hereof (or such other office as the
Collateral Agent shall specify) (a) all funds, if any, then on deposit in, or
otherwise to the credit of, the Collection Deposit Account (provided that funds
on deposit that are subject to collection may be transmitted promptly upon
availability for withdrawal), (b) all checks, drafts and other instruments for
the payment of money received in the Accounts and in the possession of the
Sub-Agent, without depositing such checks, drafts or other instruments in the
Collection Deposit Account or any other account and (c) any checks, drafts and
other instruments for the payment of money received in the Accounts by the
Sub-Agent after such notice, in whatever form received, provided that the
Sub-Agent may retain a reasonable reserve in a separate deposit account with the
Sub-Agent in respect of unpaid fees and amounts which may be subject to
collection.
5. The Sub-Agent is hereby instructed and authorized to transfer by
wire transfer or Automated Clearing House ("ACH") from the Collection Deposit
Account all funds that are from time to time deposited or otherwise credited to
such account (after such funds become available to the Sub-Agent, either through
the Federal Reserve System or other clearing mechanism used by the Sub-Agent's
branch), to such account as the Collateral Agent may from time to time direct,
provided that, unless the Collateral Agent otherwise instructs, no such transfer
shall be required if such transfer would result in the transfer of an amount
less than $1,000. Unless otherwise directed by the Collateral Agent, such funds
shall be transferred on each business day by wire transfer or ACH and shall be
identified as follows:
The Chase Manhattan Bank
ABA Number
For credit to The Chase Manhattan Bank
New York, NY [ ]
Account Number
Re: Hechinger Investment Company of Delaware, Inc.
Cash Collateral Account
These transfer instructions and authorizations may not be amended,
altered or revoked by the Grantor without the prior written consent of the
Collateral Agent. The Collateral Agent, however, shall have the right to amend
or revoke these transfer instructions and authorizations at any time without the
consent of the Grantor.
6. The Sub-Agent shall furnish the Collateral Agent with monthly
statements setting forth the amounts deposited in the Collection Deposit Account
and all transfers and withdrawals therefrom, and shall furnish such other
information at such times as shall be reasonably requested by the Collateral
Agent.
7. The fees for the services of the Sub-Agent shall be mutually agreed
upon between the Grantor and the Sub-Agent and shall be the obligation of the
Grantor; provided, however, that, notwithstanding the terms of any agreement
under which the Collection Deposit Account shall have been
<PAGE> 114
4
established with the Sub-Agent, the Grantor and the Sub-Agent agree not to
terminate such Collection Deposit Account for any reason (including the failure
of the Grantor to pay such fees) for so long as this Agreement shall remain in
effect (it being understood that the foregoing shall not be construed to
prohibit the resignation of the Sub-Agent in accordance with paragraph 9 below).
Neither the Collateral Agent nor the Secured Parties shall have any liability
for the payment of any such fees. The Sub-Agent may perform any of its duties
hereunder by or through its agents, officers or employees.
8. The Sub-Agent hereby represents and warrants that (a) it is a
banking corporation duly organized, validly existing and in good standing under
the laws of [] and has full corporate power and authority under such laws to
execute, deliver and perform its obligations under this Agreement and (b) the
execution, delivery and performance of this Agreement by the Sub-Agent have been
duly and effectively authorized by all necessary corporate action and this
Agreement has been duly executed and delivered by the Sub-Agent and constitutes
a valid and binding obligation of the Sub-Agent enforceable in accordance with
its terms.
9. The Sub-Agent may resign at any time as Sub-Agent hereunder by
delivery to the Collateral Agent of written notice of resignation not less than
thirty days prior to the effective date of such resignation. The Sub-Agent may
be removed by the Collateral Agent at any time, with or without cause, by
written, telecopy or telephonic notice (which, in the case of telephonic notice,
shall be promptly confirmed in writing or by telecopy) of removal delivered to
the Sub-Agent. Upon receipt of such notice of removal, or delivery of such
notice of resignation, the Sub-Agent shall (subject to the Sub-Agent's right to
request that the Collateral Agent furnish, in form satisfactory to the
Sub-Agent, signature cards and/or other appropriate documentation), promptly
transmit or deliver to the Collateral Agent at the office specified in paragraph
12 (or such other office as the Collateral Agent shall specify) (a) all funds,
if any, then on deposit in, or otherwise to the credit of, the Collection
Deposit Account (provided that funds on deposit that are subject to collection
may be transmitted promptly upon availability for withdrawal), (b) all checks,
drafts and other instruments for the payment of money received in the Accounts
and in the possession of the Sub-Agent, without depositing such checks, drafts
or other instruments in the Collection Deposit Account or any other account and
(c) any checks, drafts and other instruments for the payment of money received
in the Accounts by the Sub-Agent after such notice, in whatever form received.
10. The Grantor consents to the appointment of the Sub-Agent and agrees
that the Sub-Agent shall incur no liability to the Grantor as a result of any
action taken pursuant to an instruction given by the Collateral Agent in
accordance with the provisions of this Agreement. The Grantor agrees to
indemnify and defend the Sub-Agent against any loss, liability, claim or expense
(including reasonable attorneys' fees) arising from the Sub-Agent's entry into
this Agreement and actions taken hereunder, except to the extent resulting from
the Sub-Agent's gross negligence or willful misconduct.
11. The term of this Agreement shall extend from the date hereof until
the earlier of (a) the date on which the Sub-Agent has been notified in writing
by the Collateral Agent that the Sub-Agent has no further duties under this
Agreement and (b) the date of termination specified in the notice of removal
given by the Collateral Agent, or notice of resignation given by the Sub-Agent,
as the case may be, pursuant to paragraph 9. The obligations of the Sub-Agent
contained in the last sentence of paragraph 9 and in paragraph 15, and the
obligations of the Grantor contained in paragraphs 7 and 10, shall survive the
termination of this Agreement.
12. All notices and communications hereunder shall be in writing and
shall be delivered by hand or by courier service, mailed by certified or
registered mail or sent by telecopy (except where telephonic instructions or
notices are authorized herein) and shall be effective on the day on which
received (a) in the case of the Collateral Agent, to The Chase Manhattan Bank,
[ ], Attention of [ ], and
<PAGE> 115
5
(b) in the case of the Sub-Agent, addressed to [ ], Attention
of [ ]. For purposes of this Agreement, any officer of the Collateral
Agent shall be authorized to act, and to give instructions and notices, on
behalf of the Collateral Agent hereunder.
13. The Sub-Agent will not assign or transfer any of its rights or
obligations hereunder (other than to the Collateral Agent) without the prior
written consent of the other parties hereto, and any such attempted assignment
or transfer shall be void.
14. Except as provided in paragraph 5 above, this Agreement may be
amended only by a written instrument executed by the Collateral Agent, the
Sub-Agent and the Grantor, acting by their duly authorized representative
officers.
15. Except as otherwise provided in the Credit Agreement with respect
to rights of set off available to the Sub-Agent in its capacity as a Lender (if
and so long as the Sub-Agent is a Lender thereunder), the Sub-Agent hereby
irrevocably waives any right to set off against, or otherwise deduct from, any
funds held in the Collection Deposit Account and all items (and Proceeds
thereof) that come into its possession in connection with the Collection Deposit
Account any indebtedness or other claim owed by the Grantor or any affiliate
thereof to the Sub-Agent; provided, however, that this paragraph shall not limit
the ability of the Sub-Agent to, and the Sub-Agent may, (a) exercise any right
to set off against, or otherwise deduct from, any such funds to the extent
necessary for the Sub-Agent to collect any fees owed to it by the Grantor in
connection with the Collection Deposit Account, (b) charge back and net against
the Collection Deposit Account any returned or dishonored items or other
adjustments in accordance with the Sub-Agent's usual practices and (c) (i)
establish the reserves contemplated in paragraph 4 in respect of unpaid fees and
amounts which may be subject to collection and (ii) transfer funds in respect of
such reserves from the Collection Deposit Account to the separate deposit
account with the Sub-Agent as contemplated in paragraph 4.
16. This Agreement shall inure to the benefit of and be binding upon
the Collateral Agent, the Sub-Agent, the Grantor and their respective permitted
successors and assigns.
17. This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original but all of which together shall constitute one
and the same instrument. Delivery of an executed signature page to this
Agreement by facsimile transmission shall be effective as delivery of a manually
executed counterpart hereof.
18. EXCEPT TO THE EXTENT THE LAWS OF THE STATE OF [ ] GOVERN THE
COLLECTION DEPOSIT ACCOUNT, THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED
IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
19. The Sub-Agent shall be an independent contractor. This Agreement
does not give rise to any partnership, joint venture or fiduciary relationship.
20. In the event any one or more of the provisions contained in this
Agreement should be held invalid, illegal or unenforceable in any respect, the
validity, legality and enforceability of the remaining provisions contained
herein shall not in any way be affected or impaired thereby (it being understood
that the invalidity of a particular provision in a particular jurisdiction shall
not in and of itself affect the validity of such provision in any other
jurisdiction). The parties shall endeavor in good-faith negotiations to replace
the invalid, illegal or unenforceable provisions with valid provisions the
economic effect of which comes as close as possible to that of the invalid,
illegal or unenforceable provisions.
<PAGE> 116
6
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized officers as of the day and year first above
written.
[Name of Grantor],
by
---------------------------------
Name:
Title:
THE CHASE MANHATTAN BANK, as
Collateral Agent,
by
---------------------------------
Name:
Title:
[Sub-Agent],
by
---------------------------------
Name:
Title:
<PAGE> 117
Annex 2 to the
Security Agreement
[Form Of]
PERFECTION CERTIFICATE
Reference is made to (a) the Credit Agreement dated as of September 26,
1997, as amended and restated as of December 31, 1998 (as amended, supplemented
or otherwise modified from time to time, the "Credit Agreement"), among
Hechinger Investment Company of Delaware, Inc., a Delaware corporation (the
"Borrower"), Centers Holdings, Inc., a Delaware corporation, BSQ Acquisition,
Inc., a Delaware corporation, BSQ Transferee Corp., a Delaware corporation,
Hechinger Company, a Delaware corporation, Hechinger Stores Company, a Delaware
corporation, Hechinger Stores East Coast Company, a Delaware corporation, the
lenders from time to time party thereto (the "Lenders"), The Chase Manhattan
Bank, as administrative agent for the Lenders (in such capacity, the
"Administrative Agent"), and as collateral agent (in such capacity, the
"Collateral Agent") for the Lenders, BankAmerica Business Credit, Inc., as
documentation agent for the Lenders (in such capacity, the "Documentation
Agent"), and as borrowing base audit agent for the Lenders (in such capacity,
the "Borrowing Base Audit Agent"), Citicorp USA, Inc., as syndication agent for
the Lenders (in such capacity, the "Syndication Agent", and together with the
Administrative Agent, the Documentation Agent, the Borrowing Base Audit Agent
and the Collateral Agent, the "Agents") and The Chase Manhattan Bank, as issuing
bank (in such capacity, the "Issuing Bank") and as swingline lender, (b) the
Parent Guarantee Agreement dated as of September 26, 1997 (as amended,
supplemented or otherwise modified from time to time, the "Parent Guarantee
Agreement") among the Guarantors (as defined therein) and the Agents and (c) the
Subsidiary Guarantee Agreement dated as of September 26, 1997 (as amended,
supplemented or otherwise modified from time to time, the "Subsidiary Guarantee
Agreement" and, collectively with the Parent Guarantee Agreement, the "Guarantee
Agreements"), among the Subsidiary Guarantors (as defined therein) and the
Agents.
The undersigned, a Financial Officer and a Legal Officer, respectively,
of the Borrower, hereby certify to the Agents and each other Secured Party as
follows:
1. Names. (a) The exact corporate name of each Grantor, as such name
appears in its respective certificate of incorporation, is as follows:
(b) Set forth below is each other corporate name each Grantor has had in
the past five years, together with the date of the relevant change:
(c) Except as set forth in Schedule 1 hereto, no Grantor has changed its
identity or corporate structure in any way within the past five years. Changes
in identity or corporate structure would include mergers, consolidations and
acquisitions, as well as any change in the form, nature or jurisdiction of
corporate organization. If any such change has occurred, include in Schedule 1
the information required by Sections 1 and 2 of this certificate as to each
acquiree or constituent party to a merger or consolidation.
(d) The following is a list of all other names (including trade names or
similar appellations) used by each Grantor or any of its divisions or other
business units in connection with the conduct of its business or the ownership
of its properties at any time during the past five years:
(e) Set forth below is the Federal Taxpayer Identification Number of each
Grantor:
<PAGE> 118
2
2. Current Locations. (a) The chief executive office of each Grantor is
located at the address set forth opposite its name below:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Grantor Mailing Address County State
</TABLE>
(b) Set forth below opposite the name of each Grantor are all locations
where such Grantor maintains any books or records relating to any Accounts
Receivable (with each location at which chattel paper, if any, is kept being
indicated by an "*"):
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Grantor Mailing Address County State
</TABLE>
(c) Set forth below opposite the name of each Grantor are all the places
of business of such Grantor not identified in paragraph (a) or (b) above:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Grantor Mailing Address County State
</TABLE>
(d) Set forth below opposite the name of each Grantor are all the
locations where such Grantor maintains any Collateral not identified above:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Grantor Mailing Address County State
</TABLE>
(e) Set forth below opposite the name of each Grantor are the names and
addresses of all persons other than such Grantor that have possession of any of
the Collateral of such Grantor:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Grantor Mailing Address County State
</TABLE>
3. Unusual Transactions. All Accounts Receivable have been originated by
the Grantors and all Inventory has been acquired by the Grantors in the ordinary
course of business.
4. File Search Reports. Attached hereto as Schedule 4(A) are true copies
of file search reports from the Uniform Commercial Code filing offices where
filings described in Section 3.16 of the Credit Agreement are to be made.
Attached hereto as Schedule 4(B) is a true copy of each financing statement or
other filing identified in such file search reports.
5. UCC Filings. Duly signed financing statements on Form UCC-1 in
substantially the form of Schedule 5 hereto have been prepared for filing in the
Uniform Commercial Code filing office in each jurisdiction where a Grantor has
Collateral as identified in Section 2 hereof.
6. Schedule of Filings. Attached hereto as Schedule 6 is a schedule
setting forth, with respect to the filings described in Section 5 above, each
filing and the filing office in which such filing is to be made.
<PAGE> 119
3
7. Filing Fees. All filing fees and taxes payable in connection with the
filings described in Section 5 above have been paid.
8. Stock Ownership. Attached hereto as Schedule 8 is a true and correct
list of all the duly authorized, issued and outstanding stock of each Subsidiary
and the record and beneficial owners of such stock. Also set forth on Schedule 8
is each equity Investment of the Borrower and each Subsidiary that represents
50% or less of the equity of the entity in which such investment was made.
9. Notes. Attached hereto as Schedule 9 is a true and correct list of all
notes held by the Borrower and each Subsidiary and all intercompany notes
between the Borrower and each Subsidiary of the Borrower and between each
Subsidiary of the Borrower and each other such Subsidiary.
10. Advances. Attached hereto as Schedule 10 is (a) a true and correct
list of all advances made by the Borrower to any Subsidiary of the Borrower or
made by any Subsidiary of the Borrower to the Borrower or any other Subsidiary
of the Borrower, which advances will be on and after the date hereof evidenced
by one or more intercompany notes pledged to the Collateral Agent under the
Pledge Agreement, and (b) a true and correct list of all unpaid intercompany
transfers of goods sold and delivered by or to the Borrower or any Subsidiary of
the Borrower.
11. Mortgage Filings. Attached hereto as Schedule 11 is a schedule
setting forth, with respect to each Mortgaged Property, (i) the exact corporate
name of the corporation that owns such property as such name appears in its
certificate of incorporation, (ii) if different from the name identified
pursuant to clause (i), the exact name of the current record owner of such
property reflected in the records of the filing office for such property
identified pursuant to the following clause and (iii) the filing office in which
a Mortgage with respect to such property must be filed or recorded in order for
the Collateral Agent to obtain a perfected security interest therein.
IN WITNESS WHEREOF, the undersigned have duly executed this certificate
on this [ ] day of [ ].
HECHINGER INVESTMENT COMPANY OF
DELAWARE, INC.,
by
-------------------------------
Name:
Title:[Financial Officer]
by
-------------------------------
Name:
Title: [Legal Officer]
<PAGE> 120
Annex 3 to the
Security Agreement
SUPPLEMENT NO. __ dated as of
, to the Security Agreement dated as
of September 26, 1997, as amended and restated
as of December 31, 1998, among HECHINGER INVESTMENT
COMPANY OF DELAWARE, INC., a Delaware corporation (the
"Borrower"), CENTERS HOLDINGS, INC., a Delaware
corporation ("Holdings"), BSQ ACQUISITION, INC., a
Delaware corporation ("BSQ Acqco"), BSQ TRANSFEREE
CORP., a Delaware corporation ("BSQ Newco"), HECHINGER
COMPANY, a Delaware corporation ("Hechinger"), HECHINGER
STORES COMPANY, a Delaware corporation ("Hechinger
Stores"), HECHINGER STORES EAST COAST COMPANY, a
Delaware corporation ("Hechinger Stores East Coast""),
each other Subsidiary of Holdings listed on Schedule I
thereto (each of Holdings, BSQ Acqco, BSQ Newco,
Hechinger, Hechinger Stores and each such other
Subsidiary individually a "Guarantor" and collectively,
the "Guarantors"; the Guarantors and the Borrower are
referred to collectively herein as the "Grantors") and
THE CHASE MANHATTAN BANK, a New York banking corporation
("Chase"), as collateral agent (in such capacity, the
"Collateral Agent") for the Secured Parties (as defined
herein).
A. Reference is made to (a) the Credit Agreement dated as of September
26, 1997, as amended and restated as of December 31, 1998 (as amended,
supplemented or otherwise modified from time to time, the "Credit Agreement"),
among (i) the Borrower, (ii) Holdings, BSQ Acqco, BSQ Newco, Hechinger,
Hechinger Stores, Hechinger Stores East Coast (collectively, the "Parent
Guarantors"), (iii) the lenders from time to time party thereto (the "Lenders"),
(iv) Chase, as issuing bank (in such capacity, the "Issuing Bank"), as
administrative agent for the Lenders (in such capacity, the "Administrative
Agent"), as Collateral Agent and as swingline lender, (v) BankAmerica Business
Credit, Inc., a Delaware corporation ("BABC"), as documentation agent (in such
capacity, the "Documentation Agent") and as borrowing base audit agent (in such
capacity, the "Borrowing Base Audit Agent") for the Lenders and (vi) CITICORP
USA, INC., a Delaware corporation, as syndication agent for the Lenders (in such
capacity, the "Syndication Agent" and, together with the Administrative Agent,
the Documentation Agent, the Borrowing Base Audit Agent and the Collateral
Agent, the "Agents"), (b) the Parent Guarantee Agreement dated as of September
26, 1997 (as amended, supplemented or otherwise modified from time to time, the
"Parent Guarantee Agreement"), among Holdings, BSQ Acqco, BSQ Newco, Hechinger,
Hechinger Stores and the Agents, (c) the Subsidiary Guarantee Agreement dated as
of September 26, 1997 (as amended, supplemented or otherwise modified from time
to time, the "Subsidiary Guarantee Agreement" and, together with the Parent
Guarantee Agreement, the "Guarantee Agreements") among the Guarantors listed on
schedule I hereto and the Agents, (d) the Credit Agreement dated as of December
31, 1998 (as amended, supplemented or otherwise modified from time to time, the
"Supplemental Credit Agreement"), among the Borrower, the Parent Guarantors, the
lenders from time to time party thereto (the "Supplemental Lenders"), and Chase,
as administrative agent and collateral agent thereunder (solely in its capacity
as an agent under the Supplemental Credit Agreement, the "Senior Supplemental
Agent") and (e) the Intercreditor Agreement dated as of December 31, 1998 (as
amended, supplemented or otherwise modified from time to time, the
"Intercreditor Agreement"), among the Borrower, Holdings, the Subsidiary Loan
Parties, the Agents, the Senior Supplemental Agent, Green Equity Investors II,
L.P. and Kmart Corporation.
B. Capitalized terms used herein and not otherwise defined herein shall
have the meanings assigned to such terms in the Security Agreement and the
Credit Agreement.
C. The Grantors have entered into the Security Agreement in order to
induce the Lenders to make Loans and the Issuing Bank to issue Letters of
Credit. Section 7.16 of Security Agreement provides that additional Borrower
Subsidiaries may become Grantors under the Security Agreement by execution and
delivery of an instrument in the form of this Supplement. The undersigned
Borrower Subsidiary (the "New Grantor") is executing this Supplement in
accordance with the requirements of the Credit Agreement to become a Grantor
under the Security Agreement in order to induce the Lenders to make additional
Loans
<PAGE> 121
the Issuing Bank to issue additional Letters of Credit and as consideration
for Loans previously made and Letters of Credit previously issued.
Accordingly, the Collateral Agent and the New Grantor agree as follows:
SECTION 1. In accordance with Section 7.16 of the Security Agreement, the
New Grantor by its signature below becomes a Grantor under the Security
Agreement with the same force and effect as if originally named therein as a
Grantor and the New Grantor hereby (a) agrees to all the terms and provisions of
the Security Agreement applicable to it as a Grantor thereunder and (b)
represents and warrants that the representations and warranties made by it as a
Grantor thereunder are true and correct on and as of the date hereof. In
furtherance of the foregoing, the New Grantor, as security for the payment and
performance in full of the Obligations (as defined in the Security Agreement),
does hereby create and grant to the Collateral Agent, its successors and
assigns, for the benefit of the Secured Parties, their successors and assigns, a
security interest in and lien on all of the New Grantor's right, title and
interest in and to the Collateral (as defined in the Security Agreement) of the
New Grantor. Each reference to a "Grantor" in the Security Agreement shall be
deemed to include the New Grantor. The Security Agreement is hereby incorporated
herein by reference.
SECTION 2. The New Grantor represents and warrants to the Collateral
Agent and the other Secured Parties that this Supplement has been duly
authorized, executed and delivered by it and constitutes its legal, valid and
binding obligation, enforceable against it in accordance with its terms.
SECTION 3. This Supplement may be executed in counterparts (and by
different parties hereto on different counterparts), each of which shall
constitute an original, but all of which when taken together shall constitute a
single contract. This Supplement shall become effective when the Collateral
Agent shall have received counterparts of this Supplement that, when taken
together, bear the signatures of the New Grantor and the Collateral Agent.
Delivery of an executed signature page to this Supplement by facsimile
transmission shall be as effective as delivery of a manually signed counterpart
of this Supplement.
SECTION 4. The New Grantor hereby represents and warrants that (a) set
forth on Schedule I attached hereto is a true and correct schedule of the
location of any and all Collateral of the New Grantor and (b) set forth under
its signature hereto, is the true and correct location of the chief executive
office of the New Grantor.
SECTION 5. Except as expressly supplemented hereby, the Security
Agreement shall remain in full force and effect.
SECTION 6. THIS SUPPLEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
SECTION 7. In case any one or more of the provisions contained in this
Supplement should be held invalid, illegal or unenforceable in any respect, the
validity, legality and enforceability of the remaining provisions contained
herein and in the Security Agreement shall not in any way be affected or
impaired thereby (it being understood that the invalidity of a particular
provision in a particular jurisdiction shall not in and of itself affect the
validity of such provision in any other jurisdiction). The parties hereto shall
endeavor in good-faith negotiations to replace the invalid, illegal or
unenforceable provisions with valid provisions the economic effect of which
comes as close as possible to that of the invalid, illegal or unenforceable
provisions.
SECTION 8. All communications and notices hereunder shall be in writing
and given as provided in Section 7.01 of the Security Agreement. All
communications and notices hereunder to the New Grantor shall be given to it at
the address set forth under its signature below.
<PAGE> 122
3
SECTION 9. The New Grantor agrees to reimburse the Collateral Agent for
its reasonable and documented out-of-pocket expenses in connection with this
Supplement, including the reasonable and documented fees, other charges and
disbursements of counsel for the Collateral Agent.
<PAGE> 123
4
IN WITNESS WHEREOF, the New Grantor and the Collateral Agent have duly
executed this Supplement to the Security Agreement as of the day and year first
above written.
[Name Of New Grantor],
by
--------------------------------
Name:
Title:
Address:
THE CHASE MANHATTAN BANK, as
Collateral Agent,
by
--------------------------------
Name:
Title:
<PAGE> 124
SCHEDULE I
to Supplement No.___ to the
Security Agreement
LOCATION OF COLLATERAL
----------------------
Description Location
- ----------- --------
<PAGE> 1
EXHIBIT 10(e)
CONFORMED COPY
================================================================================
CREDIT AGREEMENT
dated as of
December 31, 1998,
among
HECHINGER INVESTMENT COMPANY OF DELAWARE, INC.,
as Borrower,
CENTERS HOLDINGS, INC.,
BSQ ACQUISITION, INC.,
BSQ TRANSFEREE CORP.,
HECHINGER COMPANY,
HECHINGER STORES COMPANY,
HECHINGER STORES EAST COAST COMPANY,
The LENDERS Party Hereto
and
THE CHASE MANHATTAN BANK,
as Administrative Agent, Collateral Agent, Borrowing Base Audit Agent,
Issuing Bank and Swingline Lender,
---------------------------
CHASE SECURITIES INC.,
as Arranger and Sole Book Manager
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I Definitions.............................................1
SECTION 1.01. Defined Terms........................................................................1
SECTION 1.02. Classification of Loans and Borrowings..............................................18
SECTION 1.03. Terms Generally.....................................................................18
SECTION 1.04. Accounting Terms; GAAP..............................................................18
ARTICLE II The Credits...........................................18
SECTION 2.01. Commitments.........................................................................18
SECTION 2.02. Loans and Borrowings................................................................18
SECTION 2.03. Requests for Borrowings.............................................................19
SECTION 2.04. Swingline Loans.....................................................................19
SECTION 2.05. Letters of Credit...................................................................20
SECTION 2.06. Funding of Borrowings...............................................................23
SECTION 2.07. Interest Elections..................................................................23
SECTION 2.08. Termination and Reduction of Commitments............................................24
SECTION 2.09. Repayment of Loans; Evidence of Debt................................................24
SECTION 2.10. Prepayment of Loans.................................................................25
SECTION 2.11. Fees................................................................................27
SECTION 2.12. Interest............................................................................27
SECTION 2.13. Alternate Rate of Interest..........................................................28
SECTION 2.14. Increased Costs.....................................................................28
SECTION 2.15. Break Funding Payments..............................................................29
SECTION 2.16. Taxes...............................................................................29
SECTION 2.17. Payments Generally; Pro Rata Treatment; Sharing of Setoffs..........................30
SECTION 2.18. Mitigation Obligations; Replacement of Lenders......................................31
ARTICLE III Representations and Warranties.......................32
SECTION 3.01. Organization; Powers................................................................32
SECTION 3.02. Authorization; Enforceability.......................................................32
SECTION 3.03. Governmental Approvals; No Conflicts................................................32
SECTION 3.04. Financial Condition; No Material Adverse Change.....................................32
SECTION 3.05. Properties..........................................................................33
SECTION 3.06. Litigation and Environmental Matters................................................33
SECTION 3.07. Compliance with Laws and Agreements.................................................34
SECTION 3.08. Investment and Holding Company Status...............................................34
SECTION 3.09. Taxes...............................................................................34
SECTION 3.10. ERISA...............................................................................34
SECTION 3.11. Disclosure..........................................................................34
SECTION 3.12. Subsidiaries........................................................................34
SECTION 3.13. Insurance...........................................................................34
SECTION 3.14. Labor Matters.......................................................................35
SECTION 3.15. Solvency............................................................................35
SECTION 3.16. Security Documents..................................................................35
SECTION 3.17. Federal Reserve Regulations..........................................................35
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
ARTICLE IV Conditions............................................36
SECTION 4.01. Effective Date.......................................................................36
SECTION 4.02. Each Credit Event...................................................................38
ARTICLE V Affirmative Covenants.................................39
SECTION 5.01. Financial Statements and Other Information..........................................39
SECTION 5.02. Notices of Material Events..........................................................40
SECTION 5.03. Information Regarding Collateral....................................................40
SECTION 5.04. Existence; Conduct of Business......................................................41
SECTION 5.05. Payment of Obligations..............................................................41
SECTION 5.06. Maintenance of Properties...........................................................41
SECTION 5.07. Insurance...........................................................................41
SECTION 5.08. Casualty and Condemnation...........................................................42
SECTION 5.09. Books and Records; Inspection and Audit Rights......................................42
SECTION 5.10. Compliance with Laws................................................................42
SECTION 5.11. Use of Proceeds and Letters of Credit...............................................42
SECTION 5.12. Additional Borrower Subsidiaries....................................................43
SECTION 5.13. Further Assurances..................................................................43
SECTION 5.14. Cash Management Procedures..........................................................43
SECTION 5.15. Delivery of Business Plan...........................................................43
SECTION 5.16. Independent Financial Advisor.......................................................43
ARTICLE VI Negative Covenants....................................44
SECTION 6.01. Indebtedness; Certain Equity Securities.............................................44
SECTION 6.02. Liens...............................................................................45
SECTION 6.03. Fundamental Changes.................................................................46
SECTION 6.04. Investments, Loans, Advances, Guarantees and Acquisitions...........................47
SECTION 6.05. Asset Sales.........................................................................48
SECTION 6.06. Hedging Agreements..................................................................49
SECTION 6.07. Restricted Payments; Certain Payments of Indebtedness...............................49
SECTION 6.08. Transactions with Affiliates........................................................49
SECTION 6.09. Restrictive Agreements..............................................................50
SECTION 6.10. Amendment of Material Documents.....................................................50
SECTION 6.11. Capital Expenditures................................................................50
SECTION 6.12. Minimum Consolidated EBITDA.........................................................50
SECTION 6.13. Additional Subsidiaries.............................................................51
ARTICLE VII Events of Default....................................51
ARTICLE VIII The Administrative Agent, the Collateral Agent and the Borrowing Base Audit Agent...53
ARTICLE IX Miscellaneous.........................................54
SECTION 9.01. Notices.............................................................................54
SECTION 9.02. Waivers; Amendments.................................................................55
SECTION 9.03. Expenses; Indemnity; Damage Waiver..................................................56
SECTION 9.04. Successors and Assigns..............................................................57
SECTION 9.05. Survival............................................................................58
SECTION 9.06. Counterparts; Integration; Effectiveness............................................58
SECTION 9.07. Severability........................................................................58
SECTION 9.08. Right of Setoff.....................................................................58
</TABLE>
<PAGE> 4
<TABLE>
<S> <C>
SECTION 9.09. Governing Law; Jurisdiction; Consent to Service of Process..........................59
SECTION 9.10. WAIVER OF JURY TRIAL................................................................59
SECTION 9.11. Headings............................................................................59
SECTION 9.12. Confidentiality.....................................................................59
SECTION 9.13. Interest Rate Limitation............................................................60
</TABLE>
<PAGE> 5
Contents, p.5
SCHEDULES:
Schedule 2.01 -- Commitments
Schedule 3.03(c) -- Defaults
Schedule 3.04(c) -- Material Adverse Change (Hechinger and Hechinger Entities)
Schedule 3.04(f)-- Material Adverse Change (Builders Square)
Schedule 3.05 -- Properties
Schedule 3.06 -- Disclosed Matters
Schedule 3.12 -- Subsidiaries
Schedule 3.13 -- Insurance
Schedule 6.01 -- Existing Indebtedness
Schedule 6.02 -- Existing Liens
Schedule 6.03(e) -- Real and Personal Property (BSQ Newco)
Schedule 6.03(f) -- Real and Personal Property (Hechinger)
Schedule 6.03(g) -- Real and Personal Property (Hechinger Stores)
Schedule 6.03(h) -- Real and Personal Property (Hechinger East Coast)
Schedule 6.04 -- Investments
Schedule 6.05 -- Asset Sales
Schedule 6.08 -- Affiliate Transactions
Schedule 6.09 -- Existing Restrictions
Schedule 6.13 -- Non-recurring Costs
EXHIBITS:
Exhibit A -- Form of Assignment and Acceptance
Exhibit B -- Form of Opinion of Counsel for the Transaction Parties and
GEI II
Exhibit C-1 -- Form of Opinion of New York Counsel for the Transaction Parties
Exhibit C-2 -- Form of Opinion of Counsel for Kmart
Exhibit D -- Form of Parent Guarantee Agreement
Exhibit E -- Form of Subsidiary Guarantee Agreement
Exhibit F -- Form of Indemnity, Subrogation and Contribution Agreement
Exhibit G -- Form of Pledge Agreement
Exhibit H -- Form of Security Agreement
Exhibit I -- Form of Borrowing Base Certificate
Exhibit J -- Form of Intercreditor Agreement
Exhibit K-- Form of GEI II Credit Enhancement Agreement
Exhibit L-- Form of Kmart Credit Enhancement Agreement
<PAGE> 6
CREDIT AGREEMENT dated as of
December 31, 1998, among HECHINGER
INVESTMENT COMPANY OF DELAWARE, INC., as
Borrower, CENTERS HOLDINGS, INC., BSQ
ACQUISITION, INC., BSQ TRANSFEREE CORP.,
HECHINGER COMPANY, HECHINGER STORES COMPANY,
HECHINGER STORES EAST COAST COMPANY, the
LENDERS party hereto and THE CHASE MANHATTAN
BANK, as Administrative Agent, Collateral
Agent, Borrowing Base Audit Agent, Issuing
Bank and Swingline Lender.
The Borrower, Centers Holdings, Inc., BSQ Acquisition, Inc., BSQ
Transferee Corp., Hechinger Company, Hechinger Stores Company, Hechinger Stores
East Coast Company, the lenders party thereto (the "Existing Lenders"), The
Chase Manhattan Bank, BankAmerica Business Credit, Inc. and Citicorp USA, Inc.
are parties to a Credit Agreement dated as of September 26, 1997 (the "Existing
Credit Agreement"), as amended and restated as of December 31, 1998 (as amended,
supplemented or otherwise modified from time to time, the "Amended Existing
Credit Agreement"), pursuant to which the Existing Lenders have committed to
make revolving loans to the Borrower and to participate in letters of credit
issued on behalf of the Borrower, at any time and from time to time prior to
September 26, 2002 (the "Existing Facility Maturity Date"), in an aggregate
principal amount at any time outstanding not in excess of $600,000,000 (the
"Existing Facility").
The Borrower has requested that, in addition to the Existing
Facility, the Lenders party hereto make available to the Borrower, pursuant to
this Agreement and subject to the conditions set forth herein, Revolving Loans,
Swingline Loans and Letters of Credit, at any time and from time to time prior
to June 30, 1999, in an aggregate amount at any time outstanding not in excess
of $50,000,000 (including the amount of accrued and unpaid interest thereon and
related fees and expenses). The Letters of Credit and the proceeds of the
Revolving Loans and Swingline Loans shall be used solely for the purposes set
forth in Section 5.11.
The Lenders and the Swingline Lender are willing to extend credit to
the Borrower and the Issuing Bank is willing to issue Letters of Credit for the
account of the Borrower, in each case on the terms and subject to the conditions
set forth herein. Accordingly, the parties hereto agree as follows:
ARTICLE I
Definitions
SECTION 1.01. Defined Terms. As used in this Agreement, the
following terms have the meanings specified below:
"ABR", when used in reference to any Loan or Borrowing, refers to
whether such Loan, or the Loans comprising such Borrowing, are bearing interest
at a rate determined by reference to the Alternate Base Rate.
"Account" shall mean any right to payment for goods sold or leased
or for services rendered, whether or not earned by performance.
"Account Debtor" shall mean, with respect to any Account, the
obligor with respect to such Account.
<PAGE> 7
"Additional Financing Transactions" means (a) the execution,
delivery and performance by each Loan Party of the Loan Documents to which it is
to be a party, the borrowing of Loans, the use of the proceeds thereof and the
issuance of Letters of Credit hereunder and (b) the execution, delivery and
performance by each Loan Party of the Existing Loan Documents to which it is to
be a party.
"Adjusted LIBO Rate" means, with respect to any Eurodollar Borrowing
for any Interest Period, an interest rate per annum (rounded upwards, if
necessary, to the next 1/16 of 1%) equal to (a) the LIBO Rate for such Interest
Period multiplied by (b) the Statutory Reserve Rate.
"Administrative Agent" means Chase, in its capacity as
administrative agent for the Lenders hereunder.
"Administrative Questionnaire" means an Administrative Questionnaire
in a form supplied by the Administrative Agent.
"Advance Rate Percentage" means (a) 75.0% during the period from and
including the Effective Date to and including April 29, 1999, (b) 73.5% during
the period from and including April 30, 1999, to and including May 30, 1999, (c)
72.0% during the period from and including May 31, 1999, to and including June
20, 1999, (d) 70.0% during the period from and including June 21, 1999, to and
including June 29, 1999, and (e) 0.0% from and after June 30, 1999.
"Advance Rate Reduction Amount" means, with respect to an Advance
Rate Reduction Date, the amount by which the aggregate "Total Exposures" exceeds
the "Borrowing Base" after giving effect to the reduction in the "Borrowing
Base" resulting from the reduction in the "Advance Rate Percentage" on such date
(as such terms are defined in the Amended Existing Credit Agreement).
"Advance Rate Reduction Dates" shall mean April 30, 1999, May 31,
1999, and June 21, 1999.
"Advance Rate Reduction Event" means the obligation of the Borrower
on an Advance Rate Reduction Date to make a mandatory prepayment of the Existing
Facility equal to the applicable Advance Rate Reduction Amount as required by
Section 2.10(c) of the Existing Credit Agreement.
"Affiliate" means, with respect to a specified Person, another
Person that directly, or indirectly through one or more intermediaries, Controls
or is Controlled by or is under common Control with the Person specified.
"Agents" has the meaning assigned to such term in Article VIII.
"Alternate Base Rate" means, for any day, a rate per annum equal to
the greatest of (a) the Prime Rate in effect on such day, (b) the Base CD Rate
in effect on such day plus 1% and (c) the Federal Funds Effective Rate in effect
on such day plus 1/2 of 1%. Any change in the Alternate Base Rate due to a
change in the Prime Rate, the Base CD Rate or the Federal Funds Effective Rate
shall be effective from and including the effective date of such change in the
Prime Rate, the Base CD Rate or the Federal Funds Effective Rate, respectively.
"Amended Existing Credit Agreement" has the meaning assigned to such
term in the introductory paragraphs of this Agreement.
"Applicable Percentage" means, with respect to any Lender, the
percentage of the total Revolving Commitments represented by such Lender's
Revolving Commitment. If the Revolving Commitments have terminated or expired,
the Applicable Percentages shall be determined based upon the Revolving
Commitments most recently in effect, giving effect to any assignments.
"Applicable Rate" means, for any day with respect to any ABR Loan,
1.25%, or any Eurodollar Loan, 2.75%.
<PAGE> 8
3
"Assessment Rate" means, for any day, the annual assessment rate in
effect on such day that is payable by a member of the Bank Insurance Fund
classified as "well-capitalized" and within supervisory subgroup "B" (or a
comparable successor risk classification) within the meaning of 12 C.F.R. Part
327 (or any successor provision) to the Federal Deposit Insurance Corporation
for insurance by such Corporation of time deposits made in dollars at the
offices of such member in the United States, provided that if, as a result of
any change in any law, rule or regulation, it is no longer possible to determine
the Assessment Rate as aforesaid, then the Assessment Rate shall be such annual
rate as shall be determined by the Administrative Agent to be representative of
the cost of such insurance to the Lenders.
"Assignment and Acceptance" means an assignment and acceptance
entered into by a Lender and an assignee (with the consent of any party whose
consent is required by Section 9.04), and accepted by the Administrative Agent,
in the form of Exhibit A or any other form approved by the Administrative Agent.
"BABC" means BankAmerica Business Credit, Inc., a Delaware
corporation.
"Base CD Rate" means the sum of (a) the Three-Month Secondary CD
Rate multiplied by the Statutory Reserve Rate plus (b) the Assessment Rate.
"Board" means the Board of Governors of the Federal Reserve System
of the United States of America.
"Borrower" means Hechinger Investment Company of Delaware, Inc., a
Delaware corporation and a direct wholly owned subsidiary of Hechinger Stores.
"Borrower Subsidiary" means any subsidiary of the Borrower.
"Borrowing" means (a) Loans of the same Class and Type, made,
converted or continued on the same date and, in the case of Eurodollar Loans, as
to which a single Interest Period is in effect or (b) a Swingline Loan.
"Borrowing Base" means, at any time, (a) an amount equal to the
Advance Rate Percentage of Eligible Inventory Minus Reserves minus the sum of
(i) Gift Certificate Liability and (ii) Special Order Deposit Liability, in each
case as in effect at such time, minus (b) the aggregate "Total Exposure" of the
Existing Lenders (as such term is defined in the Amended Existing Credit
Agreement) in effect at such time. The Borrowing Base shall be calculated weekly
in accordance with Section 5.01(g). The Borrowing Base at any time in effect
shall be determined at such time in the Borrowing Base Audit Agent's and the
Collateral Agent's reasonable judgment by reference to the Borrowing Base
Certificate most recently delivered hereunder, it being understood that the
information contained in such Borrowing Base Certificate shall not be conclusive
in calculating the Borrowing Base and, after consultation with the Borrower, the
Collateral Agent shall be entitled to adjust the amounts and other criteria
contained therein to the extent that the Borrowing Base Audit Agent and the
Collateral Agent believe in their reasonable judgment that such adjustment is
appropriate to cause the Borrowing Base to reflect the standards set forth in
the definitions of the terms "Eligible Inventory" and "Eligible Inventory Minus
Reserves".
"Borrowing Base Audit Agent" means Chase, in its capacity as
borrowing base audit agent under this Agreement.
"Borrowing Base Certificate" has the meaning assigned to such term
in Section 5.01(g).
"Borrowing Request" means a request by the Borrower for a Borrowing
in accordance with Section 2.03.
<PAGE> 9
4
"BSQ Acqco" means BSQ Acquisition, Inc., a Delaware corporation and
a wholly owned subsidiary of Holdings.
"BSQ Acqco/Holdings Note" means the promissory note issued on
September 25, 1997, by BSQ Acqco to Holdings in the principal amount of
$8,000,000.
"BSQ Newco/Builders Square Note" means the promissory note issued on
September 25, 1997, by BSQ Newco to Builders Square in the principal amount of
$10,700,000.
"BSQ Newco" means BSQ Transferee Corp., a Delaware corporation and a
wholly owned subsidiary of BSQ Acqco.
"BSQ Newco Asset Acquisition" means the acquisition by the Borrower
on September 26, 1997, of the Acquired BSQ Newco Assets (as such term is defined
in the Existing Credit Agreement) in exchange for (a) the payment by the
Borrower to BSQ Newco of $243,000,000 in cash, (b) the assumption of the
existing Indebtedness of BSQ Newco and (c) the issuance by the Borrower to BSQ
Newco of the BSQ Newco Note.
"BSQ Newco Note" means the promissory note issued on September 26,
1997, by the Borrower to BSQ Newco in the principal amount of $0 in connection
with the BSQ Newco Asset Acquisition.
"Builders Square" means Builders Square, Inc., a Delaware
corporation.
"Business Day" means any day that is not a Saturday, Sunday or other
day on which commercial banks in New York City are authorized or required by law
to remain closed, provided that, when used in connection with a Eurodollar Loan,
the term "Business Day" shall also exclude any day on which banks are not open
for dealings in dollar deposits in the London interbank market.
"Capital Expenditures" means, for any period, (a) the additions to
property, plant and equipment and other capital expenditures of the Holdings
Group that are (or would be) set forth in a consolidated statement of cash flows
of the Holdings Group for such period prepared in accordance with GAAP and (b)
Capital Lease Obligations incurred by the Holdings Group during such period;
provided, however, the term "Capital Expenditures" shall not include (i) any
such expenditure made with (or in the amount of) the proceeds of insurance,
condemnation awards (or payment in lieu thereof) or indemnity payments received
from third parties for purposes of replacing or repairing the assets in respect
of which such proceeds, awards or payments were received, so long as such
expenditures are made within 18 months of the occurrence of the damage to or
loss of the assets being repaired or replaced and (ii) any such expenditures
made during such period for the acquisition of real estate (and fixtures
relating to such real estate) through a tax-free exchange pursuant to Section
1031 of the Internal Revenue Code.
"Capital Lease Obligations" of any Person means the obligations of
such Person to pay rent or other amounts under any lease of (or other
arrangement conveying the right to use) real or personal property, or a
combination thereof, which obligations are required to be classified and
accounted for as capital leases on a balance sheet of such Person under GAAP,
and the amount of such obligations shall be the capitalized amount thereof
determined in accordance with GAAP.
"CERCLA" means the Comprehensive Environmental Response,
Compensation, and Liability Act, 42 U.S.C. Section 9601 et seq.
<PAGE> 10
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"Change in Control" means, at any time, (a) the failure by GEI II to
own, directly or indirectly, beneficially or of record, shares representing in
excess of 50% of the aggregate ordinary voting power represented by the issued
and outstanding capital stock of Holdings; (b) the failure of LG&P (or any
Affiliate thereof) to act as the sole general partner of GEI II; (c) occupation
of a majority of the seats (other than vacant seats) on the board of directors
of Holdings by Persons who were neither (i) nominated by the board of directors
of Holdings nor (ii) appointed by directors so nominated; (d) the acquisition of
direct or indirect Control of Holdings by any Person or group other than LG&P
(or another limited partnership fund for which LG&P or any Affiliate thereof
acts as the sole general partner) provided that such Control by LG&P may be
subject to the rights of Builders Square under the Securityholders Agreement
dated September 25, 1997, by and among GEI II, Builders Square and Holdings; (e)
failure by Holdings to own directly or indirectly 100% of the outstanding
capital stock of BSQ Acqco free and clear of all Liens (other than Liens under
the Loan Documents); (f) failure by BSQ Acqco to own directly or indirectly 100%
of the outstanding stock of BSQ Newco and Hechinger free and clear of all Liens
(other than Liens under the Loan Documents); (g) failure by Hechinger to own
directly or indirectly 100% of the outstanding capital stock of Hechinger Stores
free and clear of all Liens (other than Liens under the Loan Documents); (h)
failure by Hechinger Stores to own directly or indirectly 100% of the
outstanding capital stock of the Borrower free and clear of all Liens (other
than Liens under the Loan Documents); or (i) the occurrence of any change of
control (or similar event, however denominated) with respect to any Transaction
Party under any indenture or agreement in respect of Indebtedness with respect
to which any member of the Holdings Group is an obligor.
"Change in Law" means (a) the adoption of any law, rule or
regulation after the date of this Agreement, (b) any change in any law, rule or
regulation or in the interpretation or application thereof by any Governmental
Authority after the date of this Agreement or (c) compliance by any Lender or
the Issuing Bank (or, for purposes of Section 2.14(b), by any lending office of
such Lender or by such Lender's or the Issuing Bank's holding company, if any)
with any request, guideline or directive (whether or not having the force of
law) of any Governmental Authority made or issued after the date of this
Agreement.
"Chase" means The Chase Manhattan Bank, a New York banking
corporation.
"Citicorp USA" means Citicorp USA, Inc., a Delaware corporation.
"Class", when used in reference to any Loan or Borrowing, refers to
whether such Loan, or the Loans comprising such Borrowing, are Revolving Loans.
"Code" means the Internal Revenue Code of 1986, as amended from time
to time.
"Collateral" means any and all "Collateral", as defined in any
applicable Security Document.
"Collateral Agent" means Chase, in its capacity as collateral agent
under the Security Documents.
"Commitments" means the Revolving Commitments.
"Company Owned Life Insurance Program" means (a) the Confederation
Life Insurance Company whole life insurance policies (as assigned to Pacific
Mutual Life Insurance Company) naming Hechinger as beneficiary and certain
employees of Hechinger as insureds and (b) the General American Life Insurance
Company whole life insurance policies naming Hechinger as beneficiary and
certain employees of Hechinger as insureds.
"Commercial Letter of Credit" means any Letter of Credit issued for
the purpose of providing the primary payment mechanism in connection with the
purchase of any materials, goods or
<PAGE> 11
6
services by the Borrower or any Borrower Subsidiary in the ordinary course of
business of the Borrower or such Borrower Subsidiary.
"Consolidated EBITDA" means, for any period, Consolidated Net Income
for such period, plus, without duplication and to the extent deducted from
revenues in determining Consolidated Net Income, the sum of (a) the aggregate
amount of Consolidated Interest Expense for such period, (b) the aggregate
amount of letter of credit fees paid during such period, (c) the aggregate
amount of income tax expense for such period, (d) all amounts attributable to
depreciation and amortization (including the amortization of the write-up of
assets effected in connection with the Transactions) for such period and (e) all
extraordinary and non-cash charges (including the amount of any deduction to net
income as a result of any grant to, or repurchase from, directors, officers or
employees of Holdings, BSQ Newco, the Borrower or any Borrower Subsidiary, of
stock, stock equivalents or stock options of Holdings, and all non-cash losses)
during such period and (f) any non-recurring costs specified on Schedule 6.13,
and minus, without duplication and to the extent added to revenues in
determining Consolidated Net Income for such period, all extraordinary and
non-cash gains during such period, all as determined on a consolidated basis
with respect to the Holdings Group in accordance with GAAP.
"Consolidated Interest Expense" means, for any period, the interest
expense, both expensed and capitalized (including amortization of debt issuance
costs, original issue discount, interest paid in kind and the interest component
in respect of Capital Lease Obligations), accrued or paid by the Holdings Group
during such period, determined on a consolidated basis in accordance with GAAP.
"Consolidated Net Income" means, for any period, net income or loss
of the Holdings Group for such period determined on a consolidated basis in
accordance with GAAP, provided that there shall be excluded (a) the income of
any Person in which any other Person (other than any member of the Holdings
Group or any director holding qualifying shares in compliance with applicable
law) has a joint interest, except to the extent of the amount of dividends or
other distributions actually paid to any member of the Holdings Group by such
Person during such period and (b) the income (or loss) of any Person accrued
prior to the date it becomes a Subsidiary or is merged into or consolidated with
any member of the Holdings Group or the date that Person's assets are acquired
by any member of the Holdings Group.
"Control" means the possession, directly or indirectly, of the power
to direct or cause the direction of the management or policies of a Person,
whether through the ability to exercise voting power, by contract or otherwise.
The terms "Controlling" and "Controlled" have meanings correlative thereto.
"Credit Enhancement Agreements" means collectively the GEI II Credit
Enhancement Agreement and the Kmart Credit Enhancement Agreement.
"December 1998 Bank Presentation" means the confidential written
presentation regarding the Holdings Group, dated December 23, 1998, prepared by
Holdings for the Lenders.
"Default" means any event or condition that constitutes an Event of
Default or that upon notice, lapse of time or both would, unless cured or
waived, become an Event of Default.
"Disclosed Matters" means the actions, suits and proceedings and the
environmental matters disclosed in Schedule 3.06.
"Discontinued Inventory and Aged Goods Reserve" means, at any time,
with respect to Inventory recorded on the Borrower's SMO Report, (a) an amount
equal to the value of all such Inventory purchased prior to August 20, 1994,
plus (b) an amount equal to 25% of Eligible Inventory purchased on or after
August 20, 1994, that has been designated as "discontinued" or that will be
removed from the Borrower's current merchandise assortment by the Borrower on a
basis consistent with the current and
<PAGE> 12
7
historical accounting practice of the Borrower and of Hechinger under the
perpetual weighted average cost ledger system associated with such SMO Report.
"dollars" or "$" refers to lawful money of the United States of
America.
"Effective Date" means the date on which the conditions specified in
Section 4.01 are satisfied (or waived in accordance with Section 9.02).
"Eligible Inventory Minus Reserves" means, at any time, (a) Eligible
Inventory at such time minus (b) the sum of (i) the Shrink Reserve at such time,
(ii) Discontinued Inventory and Aged Goods Reserve at such time, (iii) the
Excess Inventory, Slow-moving and Markdown Reserve at such time and (iv) any
modifications to the reserves specified in clause (i), (ii) or (iii) above or
any additional reserves deemed necessary at such time by the Borrowing Base
Audit Agent and the Collateral Agent based upon the results of periodic audits
or appraisals of the Inventory, provided that such reserves are
consistent with the customary practices of lenders in similar transactions.
"Eligible Inventory" means, at any time, an amount equal to the
aggregate Inventory Value at such time of all Inventory of the Borrower that
consists of finished goods available for sale to customers and is not ineligible
for inclusion in the calculation of the Borrowing Base pursuant to any of
clauses (a) through (i) below or otherwise deemed by the Borrowing Base Audit
Agent in good faith to be ineligible for inclusion in the calculation of the
Borrowing Base. Without limiting the foregoing, in order for Inventory to
qualify as Eligible Inventory, no person other than the Borrower shall have any
direct or indirect ownership interest or title to such Inventory. Standards of
eligibility may be fixed from time to time solely by the Borrowing Base Audit
Agent and the Collateral Agent in the exercise of their reasonable judgment.
Unless otherwise from time to time approved in writing by the Borrowing Base
Audit Agent and the Collateral Agent, Inventory shall be deemed not to
constitute Eligible Inventory if:
(a) such Inventory is not owned solely by the Borrower, or is leased
or on consignment or the Borrower does not have good and valid title
thereto;
(b) such Inventory (including any portion thereof in transit from
vendors) is not located at property that is owned or leased by the
Borrower and is therefore not in the possession or under the control of
the Borrower (including timber reload facilities, flow-through centers or
publicly held warehouses) unless a landlord waiver, satisfactory to the
Borrowing Base Audit Agent, is in effect with respect to such property;
(c) such Inventory is located at pool points operated by third
parties;
(d) such Inventory (exclusive of Inventory that has been designated
as "discontinued" or that will be removed from the Borrower's current
merchandise assortment pursuant to the standards described in
"Discontinued Inventory and Aged Goods Reserve") represents (i) goods
damaged, defective or otherwise unmerchantable, (ii) goods that do not
conform in all material respects to the representations and warranties
contained in this Agreement or any of the Security Documents, (iii) goods
that were returned or rejected by the Borrower's customers or (iv) goods
to be returned to the vendor;
(e) such Inventory is subject to a layaway purchase by any customer;
(f) such Inventory (i) is not located in the United States of
America (excluding territories and possessions thereof) or (ii) is located
in Puerto Rico;
<PAGE> 13
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(g) such Inventory is not subject to a perfected second-priority
security interest in favor of the Collateral Agent for the benefit of the
Secured Parties;
(h) such Inventory consists of perishable items, including live
plants but excluding bulbs, seeds and artificial plants; or
(i) such Inventory is located at a store at which the Borrower has
been conducting a going-out-of-business or similar sale for 60 days or
title has transferred to a third party for the purpose of conducting a
going-out-of-business or similar sale.
"Environmental Laws" means all laws, rules, regulations, codes,
ordinances, orders, decrees, judgments, injunctions, notices or binding
agreements issued, promulgated or entered into by or with any Governmental
Authority, relating in any way to the environment, preservation or reclamation
of natural resources, handling, treatment, storage, disposal, Release or
threatened Release of any Hazardous Material or to health and safety matters.
"Environmental Liability" means any liability, contingent or
otherwise (including any liability for damages, natural resource damage, costs
of environmental remediation, administrative oversight costs, fines, penalties
or indemnities), of any member of the Holdings Group directly or indirectly
resulting from or based upon (a) violation of any Environmental Law, (b) the
generation, use, handling, transportation, storage, treatment or disposal of any
Hazardous Materials, (c) exposure to any Hazardous Materials, (d) the release or
threatened release of any Hazardous Materials into the environment or (e) any
contract, agreement or other consensual arrangement pursuant to which liability
is assumed or imposed with respect to any of the foregoing.
"ERISA" means the Employee Retirement Income Security Act of 1974,
as amended from time to time.
"ERISA Affiliate" means any trade or business (whether or not
incorporated) that, together with the Borrower, is treated as a single employer
under Section 414(b) or (c) of the Code or, solely for purposes of Section 302
of ERISA and Section 412 of the Code, is treated as a single employer
under Section 414 of the Code.
"ERISA Event" means (a) any "reportable event", as defined in
Section 4043 of ERISA or the regulations issued thereunder with respect to a
Plan (other than an event for which the 30-day notice period is waived); (b) the
existence with respect to any Plan of an "accumulated funding deficiency" (as
defined in Section 412 of the Code or Section 302 of ERISA), whether or not
waived; (c) the filing pursuant to Section 412(d) of the Code or Section 303(d)
of ERISA of an application for a waiver of the minimum funding standard with
respect to any Plan; (d) the incurrence by the Borrower or any of its ERISA
Affiliates of any liability under Title IV of ERISA with respect to the
termination of any Plan; (e) the receipt by the Borrower or any ERISA Affiliate
from the PBGC or a plan administrator of any notice relating to an intention to
terminate any Plan or Plans or to appoint a trustee to administer any Plan; (f)
the incurrence by the Borrower or any of its ERISA Affiliates of any liability
with respect to the withdrawal or partial withdrawal from any Plan or
Multiemployer Plan; or (g) the receipt by the Borrower or any ERISA Affiliate of
any notice, or the receipt by any Multiemployer Plan from the Borrower or any
ERISA Affiliate of any notice, concerning the imposition of Withdrawal Liability
or a determination that a Multiemployer Plan is, or is expected to be, insolvent
or in reorganization, within the meaning of Title IV of ERISA.
"Eurodollar", when used in reference to any Loan or Borrowing,
refers to whether such Loan, or the Loans comprising such Borrowing, are bearing
interest at a rate determined by reference to the Adjusted LIBO Rate.
<PAGE> 14
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"Event of Default" has the meaning assigned to such term in Article
VII.
"Excess Inventory, Slow-moving and Markdown Reserve" means, at any
time, a reserve established pursuant to GAAP to reflect the difference between
the weighted average cost of the Borrower's Eligible Inventory, determined on a
basis consistent with the Borrower's historical accounting practices, and the
net realizable value of the Borrower's Eligible Inventory, assuming for purposes
of establishing such reserve that the Borrower uses a first-in, first-out method
of accounting for its Inventory, provided that such reserve shall not be less
than $10,000,000 or such other greater or lesser amount determined in the
Borrowing Base Audit Agent's and the Collateral Agent's reasonable discretion to
reflect excess, slow-moving or "marked-down" inventory.
"Excluded Taxes" means, with respect to the Agents, any Lender, the
Issuing Bank or any other recipient of any payment to be made by or on account
of any obligation of the Borrower hereunder, (a) income or franchise taxes
imposed on (or measured by) its net income by the United States of America, or
by the jurisdiction under the laws of which such recipient is organized or in
which its principal office is located or, in the case of any Lender, in which
its applicable lending office is located, (b) any branch profits taxes imposed
by the United States of America or any similar tax imposed by any other
jurisdiction in which the Borrower is located and (c) in the case of a Foreign
Lender (other than an assignee pursuant to a request by the Borrower under
Section 2.18(b)), any withholding tax that is imposed on amounts payable to such
Foreign Lender at the time such Foreign Lender becomes a party to this Agreement
(or designates a new lending office) or is attributable to such Foreign Lender's
failure to comply with Section 2.16(e), except to the extent that such Foreign
Lender (or its assignor, if any) was entitled, at the time of designation of a
new lending office (or assignment), to receive additional amounts from the
Borrower with respect to such withholding tax pursuant to Section 2.16(a).
"Existing Credit Agreement" has the meaning assigned to such term in
the introductory paragraphs of this Agreement.
"Existing Facility" has the meaning assigned to such term in the
introductory paragraphs of this Agreement.
"Existing Facility Maturity Date" has the meaning assigned to such
term in the introductory paragraphs of this Agreement.
"Existing Hechinger Public Debt" means, collectively, (a) the 9.45%
Senior Debentures Due 2012 of Hechinger in an aggregate principal amount of
$100,000,000, issued under the Indenture dated as of October 1, 1992, between
Hechinger and First Union National Bank of North Carolina, as trustee, (b) the
6.95% Senior Notes Due 2003 of Hechinger in an aggregate principal amount of
$100,000,000, issued under the Indenture dated as of October 1, 1992, between
Hechinger and First Union National Bank of North Carolina, as trustee, and (c)
the 5.5% Convertible Subordinated Debentures Due 2012 of Hechinger in an
aggregate principal amount of $132,000,000, issued under the Indenture dated as
of March 15, 1987, between Hechinger and First Union National Bank of North
Carolina, as trustee.
"Existing Lenders" has the meaning assigned to such term in the
introductory paragraphs of this Agreement.
"Existing Loan Documents" means the Amended Existing Credit
Agreement and the related "Loan Documents" (as such term is defined in the
Amended Existing Credit Agreement).
"Existing Revolving Borrowings" means a "Revolving Borrowing" (as
such term is defined in the Amended Existing Credit Agreement).
<PAGE> 15
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"Existing Revolving Commitments" means "Revolving Commitments" (as
such term is defined in the Amended Existing Credit Agreement).
"Existing Revolving Loans" means a "Revolving Loan" (as such term is
defined in the Amended Existing Credit Agreement).
"Existing Swingline Loans" means "Swingline Loans" (as such term is
defined in the Amended Existing Credit Agreement).
"Federal Funds Effective Rate" means, for any day, the weighted
average (rounded upwards, if necessary, to the next 1/100 of 1%) of the rates on
overnight Federal funds transactions with members of the Federal Reserve System
arranged by Federal funds brokers, as published on the next succeeding Business
Day by the Federal Reserve Bank of New York, or, if such rate is not so
published for any day that is a Business Day, the average (rounded upwards, if
necessary, to the next 1/100 of 1%) of the quotations for such day for such
transactions received by the Administrative Agent from three Federal funds
brokers of recognized standing selected by it.
"Financial Officer" means, with respect to any Transaction Party,
the chief financial officer or treasurer of such Transaction Party.
"Foreign Lender" means any Lender that is organized under the laws
of a jurisdiction other than that in which the Borrower is located. For purposes
of this definition, the United States of America, each State thereof and the
District of Columbia shall be deemed to constitute a single jurisdiction.
"Foreign Subsidiary" means any Subsidiary that is organized under
the laws of a jurisdiction other than the United States of America or any State
thereof or the District of Columbia.
"Fronting Fee" has the meaning assigned to such term in Section
2.11(b).
"GAAP" means generally accepted accounting principles in the United
States of America.
"GEI II" means Green Equity Investors II, L.P., an investment fund
controlled by an Affiliate of LG&P.
"GEI II Credit Enhancement Agreement" means the Loan Purchase
Agreement, substantially in the form of Exhibit K, among GEI II, the Borrower,
the Lenders and the Administrative Agent, on behalf of the Lenders.
"Gift Certificate Liability" means, at any time, the aggregate face
value at such time of outstanding gift certificates of the Borrower entitling
the holder thereof to use all or a portion of the certificate to pay all or a
portion of the purchase price for any Inventory.
"GOB Prepayment Event" means any Prepayment Event resulting from the
sale, transfer or other disposition of inventory located at any store where the
Borrower is conducting a going-out-of-business or similar sale in connection
with the closing of such store.
"Governmental Authority" means the government of the United States
of America, any other nation or any political subdivision thereof, whether state
or local, and any agency, authority, instrumentality, regulatory body, court,
central bank or other entity exercising executive, legislative, judicial,
taxing, regulatory or administrative powers or functions of or pertaining to
government.
<PAGE> 16
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"Guarantee" of or by any Person (the "guarantor") means any
obligation, contingent or otherwise, of the guarantor guaranteeing or having the
economic effect of guaranteeing any Indebtedness or other obligation of any
other Person (the "primary obligor") in any manner, whether directly or
indirectly, and including any obligation of the guarantor, direct or indirect,
(a) to purchase or pay (or advance or supply funds for the purchase or payment
of) such Indebtedness or other obligation or to purchase (or to advance or
supply funds for the purchase of) any security for the payment thereof, (b) to
purchase or lease property, securities or services for the purpose of assuring
the owner of such Indebtedness or other obligation of the payment thereof, (c)
to maintain working capital, equity capital or any other financial statement
condition or liquidity of the primary obligor so as to enable the primary
obligor to pay such Indebtedness or other obligation or (d) as an account party
in respect of any letter of credit or letter of guaranty issued to support such
Indebtedness or obligation, provided that the term "Guarantee" shall not include
endorsements for collection or deposit in the ordinary course of business.
"Guarantee Agreements" means, collectively, the Parent Guarantee
Agreement and the Subsidiary Guarantee Agreement.
"Hazardous Materials" means all explosive or radioactive substances
or wastes and all hazardous or toxic substances, wastes or other pollutants,
including petroleum or petroleum distillates, asbestos or asbestos containing
materials, polychlorinated biphenyls, radon gas, infectious or medical wastes
and all other substances or wastes of any nature regulated pursuant to any
Environmental Law, including any material listed as a hazardous substance under
Section 101(14) of CERCLA.
"Hechinger" means Hechinger Company, a Delaware corporation and a
wholly owned subsidiary of BSQ Acqco.
"Hechinger Acqco" means Hechinger Acquisition, Inc., a Delaware
corporation and a wholly owned subsidiary of BSQ Acqco, which merged with and
into Hechinger pursuant to the Hechinger Merger on the "Effective Date" (as such
term is defined in the Hechinger Stores Credit Agreement), with Hechinger as the
surviving corporation.
"Hechinger Asset Acquisition" means the acquisition by the Borrower
on October 3, 1997, of the Acquired Hechinger Assets (as such term is defined in
the Existing Credit Agreement) in exchange for (i) the assumption of existing
Indebtedness of Hechinger Stores and Hechinger East Coast, (ii) the assumption
by the Borrower of reimbursement obligations in respect of Existing Letters of
Credit (as such term is defined in the Amended Existing Credit Agreement) issued
under the Hechinger Stores Credit Agreement, (iii) the satisfaction of certain
intercompany Indebtedness of Hechinger Stores and Hechinger East Coast to the
Borrower in the principal amounts of $150,000,000 and $2,500,000, respectively,
and (iv) the issuance by the Borrower to Hechinger East Coast of the Hechinger
East Coast Note.
"Hechinger East Coast" means Hechinger Stores East Coast Company, a
Delaware corporation and a wholly owned subsidiary of Hechinger Stores.
"Hechinger/East Coast Note" means the promissory note issued on
September 29, 1997, by the Borrower to Hechinger East Coast in the principal
amount of $47,500,000.
"Hechinger Entities" means Hechinger Stores and Hechinger East
Coast.
"Hechinger Merger Agreement" means the Agreement and Plan of Merger
dated as of July 17, 1997, among Hechinger Acqco, BSQ Acqco and Hechinger.
<PAGE> 17
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"Hechinger Stores" means Hechinger Stores Company, a Delaware
corporation and a wholly owned subsidiary of Hechinger.
"Hechinger Stores Credit Agreement" means the credit agreement dated
as of September 25, 1997, among Hechinger Stores, Holdings, BSQ Acqco,
Hechinger, Hechinger East Coast, the lenders party thereto, Chase, as
administrative agent and collateral agent, BABC, as documentation agent and
borrowing base audit agent, and Citicorp USA, as syndication agent.
"Hedging Agreement" means any interest rate protection agreement,
foreign currency exchange agreement, commodity price protection agreement or
other interest or currency exchange rate or commodity price hedging arrangement.
"Holdings" means Centers Holdings, Inc., a Delaware corporation.
"Holdings Group" means, collectively, Holdings and the Subsidiaries,
including BSQ Acqco, BSQ Newco, Hechinger, Hechinger Stores and the Borrower.
"Indebtedness" of any Person means, without duplication, (a) all
obligations of such Person for borrowed money or with respect to deposits or
advances of any kind, (b) all obligations of such Person evidenced by bonds,
debentures, notes or similar instruments, (c) all obligations of such Person
upon which interest charges are customarily paid, (d) all obligations of such
Person under conditional sale or other title retention agreements relating to
property acquired by such Person, (e) all obligations of such Person in respect
of the deferred purchase price of property or services (excluding current
accounts payable incurred in the ordinary course of business), (f) all
Indebtedness of others secured by (or for which the holder of such Indebtedness
has an existing right, contingent or otherwise, to be secured by) any Lien on
property owned or acquired by such Person, whether or not the Indebtedness
secured thereby has been assumed, (g) all Guarantees by such Person of
Indebtedness of others, (h) all Capital Lease Obligations of such Person, (i)
all obligations, contingent or otherwise, of such Person as an account party in
respect of letters of credit and letters of guaranty and (j) all obligations,
contingent or otherwise, of such Person in respect of bankers' acceptances. The
Indebtedness of any Person shall include the Indebtedness of any other entity
(including any partnership in which such Person is a general partner) to the
extent such Person is liable therefor as a result of such Person's ownership
interest in or other relationship with such entity, except to the extent the
terms of such Indebtedness provide that such Person is not liable therefor.
"Indemnified Taxes" means Taxes other than Excluded Taxes.
"Indemnity, Subrogation and Contribution Agreement" means the
Indemnity, Subrogation and Contribution Agreement, substantially in the form of
Exhibit F, among the Borrower, the Subsidiary Loan Parties and the Agents.
"Information Memorandum" means the Confidential Information
Memorandum dated August 1997, relating to the Borrower and the Transactions
(other than the Additional Financing Transactions).
"Intercreditor Agreement" means the Intercreditor Agreement,
substantially in the form of Exhibit J, among the Borrower, Holdings, the other
Subsidiary Loan Parties, GEI II, Kmart, the Administrative Agent, Chase, as
administrative agent and as collateral agent on behalf of the Existing Lenders,
and BABC and Citicorp USA, each solely in its capacity as an agent under the
Existing Credit Agreement.
"Interest Coverage Ratio" means, for any period, the ratio of
Consolidated EBITDA for such period to Consolidated Interest Expense for such
period.
<PAGE> 18
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"Interest Election Request" means a request by the Borrower to
convert or continue a Borrowing in accordance with Section 2.07.
"Interest Payment Date" means (a) with respect to any ABR Loan
(other than a Swingline Loan), the last day of each calendar month, (b) with
respect to any Eurodollar Loan, the last day of the Interest Period applicable
to the Borrowing of which such Loan is a part and, in the case of a Eurodollar
Borrowing with an Interest Period of more than one month's duration, each day
prior to the last day of such Interest Period that occurs at intervals of one
month's duration after the first day of such Interest Period, and (c) with
respect to any Swingline Loan, the day that such Loan is required to be repaid.
"Interest Period" means, with respect to any Eurodollar Borrowing,
the period commencing on the date of such Borrowing and ending on the
numerically corresponding day in the calendar month that is one, two or three
months thereafter, as the Borrower may elect, provided that (a) if any Interest
Period would end on a day other than a Business Day, such Interest Period shall
be extended to the next succeeding Business Day unless such next succeeding
Business Day would fall in the next calendar month, in which case such Interest
Period shall end on the next preceding Business Day and (b) any Interest Period
that commences on the last Business Day of a calendar month (or on a day for
which there is no numerically corresponding day in the last calendar month of
such Interest Period) shall end on the last Business Day of the last calendar
month of such Interest Period. For purposes hereof, the date of a Borrowing
initially shall be the date on which such Borrowing is made and thereafter shall
be the effective date of the most recent conversion or continuation of such
Borrowing.
"Inventory" has the meaning assigned to such term in the Security
Agreement.
"Inventory Value" means, at any time, with respect to Inventory
recorded on the Borrower's SMO Report, the recorded inventory value of such
Inventory on such Report at such time.
"Issuing Bank" means Chase, in its capacity as the issuer of Letters
of Credit hereunder, and its successors in such capacity as provided in Section
2.05(i). The Issuing Bank may, in its discretion, arrange for one or more
Letters of Credit to be issued by Affiliates of the Issuing Bank, in which case
the term "Issuing Bank" shall include any such Affiliate with respect to Letters
of Credit issued by such Affiliate.
"Kmart" means Kmart Corporation, a Michigan corporation.
"Kmart Credit Enhancement Agreement" means the Loan Purchase
Agreement, substantially in the form of Exhibit L, among Kmart, the Borrower,
the Lenders and the Administrative Agent, on behalf of the Lenders.
"LC Availability Period" means the period from and including the
Effective Date to but excluding the earlier of (a) the date that is five
Business Days prior to the Maturity Date and (b) the date of termination of the
Revolving Commitments.
"LC Disbursement" means a payment made by the Issuing Bank pursuant
to a Letter of Credit.
"LC Exposure" means, at any time, the sum of (a) the aggregate
undrawn amount of all outstanding Letters of Credit at such time plus (b) the
aggregate amount of all LC Disbursements that have not yet been reimbursed by or
on behalf of the Borrower at such time. The LC Exposure of any Revolving Lender
at any time shall be its Applicable Percentage of the total LC Exposure at such
time.
<PAGE> 19
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"Lenders" means the Revolving Lenders.
"Letter of Credit" means any letter of credit issued pursuant to
this Agreement.
"LG&P" means Leonard Green & Partners, L.P., a Delaware limited
partnership.
"LIBO Rate" means, with respect to any Eurodollar Borrowing for any
Interest Period, the rate appearing on Page 3750 of the Dow Jones Markets
service (or on any successor or substitute page of such service, or any
successor to or substitute for such service, providing rate quotations
comparable to those currently provided on such page of such service, as
determined by the Administrative Agent from time to time for purposes of
providing quotations of interest rates applicable to dollar deposits in the
London interbank market) at approximately 11:00 a.m., London time, two Business
Days prior to the commencement of such Interest Period, as the rate for dollar
deposits with a maturity comparable to such Interest Period. In the event that
such rate is not available at such time for any reason, then the "LIBO Rate"
with respect to such Eurodollar Borrowing for such Interest Period shall be the
rate at which dollar deposits of $5,000,000 and for a maturity comparable to
such Interest Period are offered by the principal London office of the
Administrative Agent in immediately available funds in the London interbank
market at approximately 11:00 a.m., London time, two Business Days prior to the
commencement of such Interest Period.
"Lien" means, with respect to any asset, (a) any mortgage, deed of
trust, lien, pledge, hypothecation, encumbrance, charge or security interest in,
on or of such asset, (b) the interest of a vendor or a lessor under any
conditional sale agreement, capital lease or title retention agreement (or any
financing lease having substantially the same economic effect as any of the
foregoing) relating to such asset and (c) in the case of securities, any
purchase option, call or similar right of a third party with respect to such
securities.
"Loan Documents" means this Agreement, the Letters of Credit, the
Guarantee Agreements, the Indemnity, Subrogation and Contribution Agreement, the
Security Documents and the Credit Enhancement Agreements.
"Loan Parties" means the Transaction Parties and the Subsidiary Loan
Parties.
"Loans" means the Revolving Loans.
"Management Agreement" means the Management Services Agreement dated
September 25, 1997, between LG&P, the Borrower and the Subsidiaries.
"Margin Stock" has the meaning assigned to such term in Regulation
U.
"Material Adverse Effect" means a material adverse effect on (a) the
business, operations, property, assets, prospects or condition, financial or
otherwise, of Holdings, the Borrower and the Subsidiaries taken as a whole or
(b) the validity or enforceability of this Agreement or any of the other Loan
Documents or any of the material rights or remedies of the Administrative Agent,
the Collateral Agent or the Lenders hereunder or thereunder.
"Material Indebtedness" means Indebtedness (other than the Loans and
Letters of Credit), or obligations in respect of one or more Hedging Agreements,
of any one or more of Holdings, the Borrower and the Subsidiaries in an
aggregate principal amount exceeding $5,000,000. For purposes of determining the
amount of Material Indebtedness at any time, the "principal amount" of the
obligations of Holdings, the Borrower or any Subsidiary in respect of any
Hedging Agreement at such time shall be the
<PAGE> 20
15
maximum aggregate amount (giving effect to any netting agreements) that
Holdings, the Borrower or such Subsidiary would be required to pay if such
Hedging Agreement were terminated at such time.
"Maturity Date" means June 30, 1999.
"Moody's" means Moody's Investors Service, Inc.
"Multiemployer Plan" means a multiemployer plan as defined in
Section 4001(a)(3) of ERISA.
"Net Proceeds" means, with respect to any event, (a) the cash
proceeds received in respect of such event, including (i) any cash received in
respect of any non-cash proceeds, but only as and when received, (ii) in the
case of a casualty, insurance proceeds, and (iii) in the case of a condemnation
or similar event, condemnation awards and similar payments, in each case net of
(b) the sum of (i) all reasonable fees and out-of-pocket expenses (including
appraisals, and legal, title and recording tax expenses and commissions) paid by
any Transaction Party or Subsidiary to third parties (other than Affiliates) in
connection with such event, (ii) in the case of a sale or other disposition of
an asset (including pursuant to a casualty or condemnation), the amount of all
payments required to be made by the Transaction Parties and the Subsidiaries as
a result of such event to repay Indebtedness (other than Loans and Existing
Revolving Loans) secured by such asset or otherwise subject to mandatory
prepayment as a result of such event, and (iii) the amount of all taxes
(including sales and value added taxes and including taxes payable in connection
with the transfer of funds to the Borrower or any of its Subsidiaries in
connection with a prepayment pursuant to this Agreement) paid (or reasonably
estimated to be payable) by the Transaction Parties and the Subsidiaries, and
the amount of any reserves (whether or not contained in an escrow or other
similar arrangements) established by the Transaction Parties and the
Subsidiaries to fund contingent liabilities reasonably estimated to be payable,
in each case during the year that such event occurred or the next succeeding
year and that are directly attributable to such event (as determined reasonably
and in good faith by the chief financial officer of Holdings).
"Obligations" has the meaning assigned to such term in the Security
Agreement.
"Other Taxes" means any and all current or future stamp or
documentary taxes or any other excise or property taxes, charges or similar
levies arising from any payment made under any Loan Document or from the
execution, delivery or enforcement of, or otherwise with respect to, any Loan
Document.
"Parent Guarantee Agreement" means the Guarantee Agreement,
substantially in the form of Exhibit D, made by the Transaction Parties (other
than the Borrower) and each of the Subsidiaries of Hechinger listed on Schedule
I thereto in favor of the Agents for the benefit of the Secured Parties.
"PBGC" means the Pension Benefit Guaranty Corporation referred to
and defined in ERISA and any successor entity performing similar functions.
"Perfection Certificate" means a certificate in the form of Annex 1
to the Security Agreement or any other form approved by the Collateral Agent.
"Permitted Acquisition" means any acquisition of assets from, or
shares or other equity interests in, any Person if (a) immediately after giving
effect thereto, no Default or Event of Default shall have occurred and be
continuing or would result therefrom, (b) such acquisition shall not have been
preceded by an unsolicited tender offer for such Person by the Borrower or any
of its Affiliates, (c) all transactions related thereto shall be consummated in
accordance with applicable laws, (d) in the case of any acquisition of shares or
other equity interests in any Person, such acquisition is an acquisition of 100%
of the shares or other equity interests of such Person (or is an acquisition of
at least 90% of the outstanding
<PAGE> 21
16
shares of each class of the stock of such Person, provided that such person
shall be merged with the acquiror pursuant to Section 253 of the Delaware
General Corporation Law (or an analogous short-form merger provision of another
state of the United States) within 30 days of such acquisition), (e) all actions
required to be taken, if any, with respect to any acquired or newly formed
Subsidiary under subsection 5.12 shall have been taken, (f) such assets, shares
or other equity interests pertain to a line of business related to the
businesses of the Borrower and its Subsidiaries as of the Effective Date, (g)
after giving effect to such acquisition, the Borrower shall be in compliance, on
a pro forma basis, with all the covenants set forth in this Agreement and (h)
neither the Borrower nor any of its subsidiaries shall assume or otherwise
become liable for any Indebtedness in connection with such acquisition (except
for Indebtedness permitted by Section 6.01).
"Permitted Encumbrances" means:
(a) Liens imposed by law for taxes that are not yet due or are being
contested in compliance with Section 5.05;
(b) carriers', warehousemen's, mechanics', materialmen's,
repairmen's and other like Liens imposed by law, arising in the ordinary
course of business and securing obligations that are not overdue by more
than 60 days or are being contested in compliance with Section 5.05;
(c) pledges and deposits made in the ordinary course of business in
compliance with workers' compensation, unemployment insurance and other
social security laws or regulations;
(d) deposits to secure the performance of bids, trade contracts,
leases, statutory obligations, surety and appeal bonds, performance bonds
and other obligations of a like nature, in each case in the ordinary
course of business;
(e) judgment liens in respect of judgments that do not constitute an
Event of Default under clause (k) of Article VII; and
(f) easements, zoning restrictions, rights-of-way and similar
encumbrances on real property imposed by law or arising in the ordinary
course of business that do not secure any monetary obligations and do not
materially detract from the value of the affected property or interfere
with the ordinary conduct of business of the Borrower or any Borrower
Subsidiary,
provided that the term "Permitted Encumbrances" shall not include any Lien
securing Indebtedness.
"Permitted Investments" means:
(a) direct obligations of, or obligations the principal of and
interest on which are unconditionally guaranteed by, the United States of
America (or by any agency thereof to the extent such obligations are
backed by the full faith and credit of the United States of America), in
each case maturing within one year from the date of acquisition thereof;
(b) investments in commercial paper maturing within 270 days from
the date of acquisition thereof and having, at such date of acquisition,
the highest credit rating obtainable from S&P or from Moody's;
(c) investments in certificates of deposit, banker's acceptances and
time deposits maturing within 180 days from the date of acquisition
thereof issued or guaranteed by or placed with, and money market deposit
accounts issued or offered by, any domestic office of any commercial bank
organized under the laws of the United States of America or any State
thereof that has a combined capital and surplus and undivided profits of
not less than $500,000,000; and
<PAGE> 22
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(d) fully collateralized repurchase agreements with a term of not
more than 30 days for securities described in clause (a) above (without
regard to the limitation on maturity contained in such clause) and entered
into with a financial institution satisfying the criteria described in
clause (c) above.
"Person" means any natural person, corporation, limited liability
company, trust, joint venture, association, company, partnership, Governmental
Authority or other entity.
"Plan" means any employee pension benefit plan (other than a
Multiemployer Plan) subject to the provisions of Title IV of ERISA or Section
412 of the Code or Section 302 of ERISA, and in respect of which the Borrower or
any ERISA Affiliate is (or, if such plan were terminated, would under Section
4069 of ERISA be deemed to be) an "employer" as defined in Section 3(5) of
ERISA.
"Pledge Agreement" means the Pledge Agreement, substantially in the
form of Exhibit G, among the Transaction Parties, the other Subsidiaries party
thereto and the Collateral Agent for the benefit of the Secured Parties.
"Prepayment Event" means any of the following events so long as such
event occurs prior to the Maturity Date:
(a) any sale, transfer or other disposition (including pursuant to a
sale and leaseback transaction) of any property or asset of a Transaction
Party or any Subsidiary, other than any sale, transfer or other
disposition permitted by Section 6.05(a), (c), or (f);
(b) any casualty or other insured damage to, or any taking under
power of eminent domain or by condemnation or similar proceeding of, any
property or asset of a Transaction Party or any Subsidiary;
(c) the issuance by a Transaction Party or any Subsidiary of any
equity securities, other than any such issuance of equity securities to
the Borrower or a Subsidiary; or
(d) the incurrence by a Transaction Party or any Subsidiary of any
Indebtedness of the type described in clause (a), (b) or (c) of the
definition of the term "Indebtedness", other than Indebtedness permitted
by Section 6.01(a)(i) through (x) and Section 6.01(a)(xii).
"Prime Rate" means the rate of interest per annum publicly announced
from time to time by Chase as its prime rate in effect at its principal office
in New York City; each change in the Prime Rate shall be effective from and
including the date such change is publicly announced as being effective.
"Real Estate Prepayment Event" means any Prepayment Event resulting
from the sale, transfer or other disposition (including due to casualty or
condemnation) of real estate and fixtures relating to such real estate.
"Receivables Purchase Agreements" means (a) the Business Revolving
Charge Program Agreement dated April 3, 1992, as amended, by and among
Hechinger, Home Quarters Warehouse, Inc. and General Electric Capital
Corporation and (b) the GE Capital Program Agreement, dated April 12, 1996, by
and between General Electric Capital Corporation and Builders Square.
"Register" has the meaning set forth in Section 9.04(c).
<PAGE> 23
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"Regulation U" means Regulation U of the Board as from time to time
in effect and all official rulings and interpretations thereunder or thereof.
"Regulation X" means Regulation X of the Board as from time to time
in effect and all official rulings and interpretations thereunder or thereof.
"Related Parties" means, with respect to any specified Person, such
Person's Affiliates and the respective directors, officers, employees, agents
and advisors of such Person and such Person's Affiliates.
"Release" has the meaning set forth in Section 101(22) of CERCLA.
"Required Lenders" means, at any time, Lenders having Total
Exposures and unused Revolving Commitments representing more than 50% of the sum
of the Total Exposures and unused Revolving Commitments at such time.
"Restricted Payment" means any dividend or other distribution
(whether in cash, securities or other property) with respect to any shares of
any class of capital stock of any Transaction Party or any Subsidiary, or any
payment (whether in cash, securities or other property), including any sinking
fund or similar deposit, on account of the purchase, redemption, retirement,
acquisition, cancelation or termination of any such shares of capital stock of a
member of any Transaction Party or any Subsidiary or any option, warrant or
other right to acquire any such shares of capital stock of any Transaction Party
or any Subsidiary.
"Revolving Availability Period" means the period from and including
the Effective Date to but excluding the earlier of the Maturity Date and the
date of termination of the Revolving Commitments.
"Revolving Commitment" means, with respect to each Lender, the
commitment of such Lender to make Revolving Loans and to acquire participations
in Letters of Credit and Swingline Loans hereunder, expressed as an amount
representing the maximum aggregate amount of such Lender's Total Exposure
hereunder, as such commitment may be (a) reduced from time to time pursuant to
Section 2.08 and (b) reduced or increased from time to time pursuant to
assignments by or to such Lender pursuant to Section 9.04. The initial amount of
each Lender's Revolving Commitment is set forth on Schedule 2.01, or in the
Assignment and Acceptance pursuant to which such Lender shall have assumed its
Revolving Commitment, as applicable (and the initial aggregate amount of the
Lenders' Revolving Commitments is $50,000,000).
"Revolving Lenders" means the Persons listed on Schedule 2.01 as
having Revolving Commitments and any other Person that shall have become a party
hereto and have Revolving Commitments pursuant to an Assignment and Acceptance,
other than any such Person that ceases to have a Revolving Commitment pursuant
to an Assignment and Acceptance. Unless the context otherwise requires, the term
"Revolving Lenders" includes the Swingline Lender.
"Revolving Loans" means Loans made by the Lenders to the Borrower
pursuant to Section 2.01.
"S&P" means Standard & Poor's.
"Secured Parties" has the meaning assigned to such term in the
Security Agreement.
<PAGE> 24
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"Security Agreement" means the Security Agreement, substantially in
the form of Exhibit H, among the Transaction Parties, the other Subsidiary Loan
Parties and the Collateral Agent for the benefit of the Secured Parties.
"Security Documents" means the Security Agreement, the Pledge
Agreement and each other security agreement or other instrument or document
executed and delivered pursuant to Section 5.12 or 5.13 to secure any of the
Obligations.
"Shrink" means Inventory identified by the Borrower as lost,
misplaced or stolen Inventory.
"Shrink Reserve" means, at any time, an amount equal to accruals for
Shrink recorded by the Borrower at such time, which accruals have been
determined on a basis consistent with the current and historical accounting
practice of the Borrower of accruing for Shrink as a percentage of Inventory
Value (which percentage will equal the average of the percentage that Shrink
represents of total Inventory Value based on the results of the two most recent
semi-annual physical inventories conducted with respect to such Inventory),
provided that such reserve shall not be less than 4% of the Inventory Value
recorded on the Borrower's SMO Report or such other greater or lesser amount
determined in the Borrowing Base Audit Agent's and the Collateral Agent's
reasonable discretion to reflect Shrink.
"SMO Report" means the Statement of Merchandising Operations Report
issued in connection with the Borrower's perpetual weighted average cost ledger
system.
"Special Order Deposit Liability" (a) means, at any time, with
respect to Inventory recorded on the Borrower's SMO Report, the excess at such
time of (i) the aggregate amount of deposits with respect to special order
merchandise over (ii) the corresponding decrease recorded in Eligible Inventory
and (b) shall be calculated in accordance with Schedule A to Exhibit I.
"Specified Event of Default" means (a) any Event of Default
described in paragraph (a), (b), (h) or (i) of Article VII, (b) pursuant to
Article VII, the termination by the Administrative Agent of the Commitments and
the declaration by the Administrative Agent that the Loans then outstanding are
immediately due and payable in whole, (c) any "Event of Default" described in
paragraph (a), (b), (h) or (i) of Article VII of the Amended Existing Credit
Agreement or (d) pursuant to Article VII of the Amended Existing Credit
Agreement, the termination of the Existing Facility and the declaration that the
Existing Revolving Loans then outstanding are immediately due and payable in
whole.
"Standby Letter of Credit" means any Letter of Credit other than a
Commercial Letter of Credit.
"Statutory Reserve Rate" means a fraction (expressed as a decimal),
the numerator of which is the number one and the denominator of which is the
number one minus the aggregate of the maximum reserve percentages (including any
marginal, special, emergency or supplemental reserves) expressed as a decimal
established by the Board to which the Administrative Agent is subject (a) with
respect to the Base CD Rate, for new negotiable nonpersonal time deposits in
dollars of over $100,000 with maturities approximately equal to three months and
(b) with respect to the Adjusted LIBO Rate, for eurocurrency funding (currently
referred to as "Eurocurrency Liabilities" in Regulation D of the Board). Such
reserve percentages shall include those imposed pursuant to such Regulation D.
Eurodollar Loans shall be deemed to constitute eurocurrency funding and to be
subject to such reserve requirements without benefit of or credit for proration,
exemptions or offsets that may be available from time to time to any Lender
under such Regulation D or any comparable regulation. The Statutory Reserve Rate
shall be adjusted automatically on and as of the effective date of any change in
any reserve percentage.
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"subsidiary" means, with respect to any Person (the "parent") at any
date, any corporation, limited liability company, partnership, association or
other entity the accounts of which would be consolidated with those of the
parent in the parent's consolidated financial statements if such financial
statements were prepared in accordance with GAAP as of such date, as well as any
other corporation, limited liability company, partnership, association or other
entity (a) of which securities or other ownership interests representing more
than 50% of the equity or more than 50% of the ordinary voting power or, in the
case of a partnership, more than 50% of the general partnership interests are,
as of such date, owned, controlled or held, or (b) that is, as of such date,
otherwise Controlled, by the parent or one or more subsidiaries of the parent or
by the parent and one or more subsidiaries of the parent.
"Subsidiary" means any subsidiary of Holdings.
"Subsidiary Guarantee Agreement" means the Guarantee Agreement,
substantially in the form of Exhibit E, made by the Borrower Subsidiaries in
favor of the Agents for the benefit of the Secured Parties.
"Subsidiary Loan Party" means any Subsidiary that is not a Foreign
Subsidiary.
"Swingline Exposure" means, at any time, the aggregate principal
amount of all Swingline Loans outstanding at such time. The Swingline Exposure
of any Revolving Lender at any time shall be its Applicable Percentage of the
total Swingline Exposure at such time.
"Swingline Lender" means Chase, in its capacity as lender of
Swingline Loans hereunder.
"Swingline Loan" means a Loan made pursuant to Section 2.04.
"Taxes" means any and all current or future taxes, levies, imposts,
duties, deductions, charges or withholdings imposed by any Governmental
Authority.
"Three-Month Secondary CD Rate" means, for any day, the secondary
market rate for three-month certificates of deposit reported as being in effect
on such day (or, if such day is not a Business Day, the next preceding Business
Day) by the Board through the public information telephone line of the Federal
Reserve Bank of New York (which rate will, under the current practices of the
Board, be published in Federal Reserve Statistical Release H.15(519) during the
week following such day) or, if such rate is not so reported on such day or such
next preceding Business Day, the average of the secondary market quotations for
three-month certificates of deposit of major money center banks in New York City
received at approximately 10:00 a.m., New York City time, on such day (or, if
such day is not a Business Day, on the next preceding Business Day) by the
Administrative Agent from three negotiable certificate of deposit dealers of
recognized standing selected by it.
"Total Exposure" means, with respect to any Lender at any time, the
sum of (a) the outstanding principal amount of such Lender's Revolving Loans at
such time, (b) its LC Exposure and Swingline Exposure at such time and (c) the
aggregate amount of accrued and unpaid interest and fees and expenses due
pursuant to this Agreement in respect of such Revolving Loans, LC Exposure and
Swingline Exposure at such time.
"Transaction Parties" means Holdings, BSQ Acqco, BSQ Newco,
Hechinger, Hechinger Stores, Hechinger East Coast and the Borrower.
"Transactions" means the Acquisitions (as such term is defined in
the Existing Credit Agreement), the Financing Transactions (as such term is
defined in the Existing Credit Agreement) and the Additional Financing
Transactions.
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"Type", when used in reference to any Loan or Borrowing, refers to
whether the rate of interest on such Loan, or on the Loans comprising such
Borrowing, is determined by reference to the Adjusted LIBO Rate or the Alternate
Base Rate.
"Withdrawal Liability" means liability to a Multiemployer Plan as a
result of a complete or partial withdrawal from such Multiemployer Plan, as such
terms are defined in Part I of Subtitle E of Title IV of ERISA.
SECTION 1.02. Classification of Loans and Borrowings. For purposes
of this Agreement, Loans may be classified and referred to by Class (e.g., a
"Revolving Loan") or by Type (e.g., a "Eurodollar Loan") or by Class and Type
(e.g., a "Eurodollar Revolving Loan"). Borrowings also may be classified and
referred to by Class (e.g., a "Revolving Borrowing") or by Type (e.g., a
"Eurodollar Borrowing") or by Class and Type (e.g., a "Eurodollar Revolving
Borrowing").
SECTION 1.03. Terms Generally. The definitions of terms herein shall
apply equally to the singular and plural forms of the terms defined. Whenever
the context may require, any pronoun shall include the corresponding masculine,
feminine and neuter forms. The words "include", "includes" and "including" shall
be deemed to be followed by the phrase "without limitation". The word "will"
shall be construed to have the same meaning and effect as the word "shall".
Unless the context requires otherwise (a) any definition of or reference to any
agreement, instrument or other document herein shall be construed as referring
to such agreement, instrument or other document as from time to time amended,
supplemented or otherwise modified (subject to any restrictions on such
amendments, supplements or modifications set forth herein), (b) any reference
herein to any Person shall be construed to include such Person's successors and
assigns, (c) the words "herein", "hereof" and "hereunder", and words of similar
import, shall be construed to refer to this Agreement in its entirety and not to
any particular provision hereof, (d) all references herein to Articles,
Sections, Exhibits and Schedules shall be construed to refer to Articles and
Sections of, and Exhibits and Schedules to, this Agreement and (e) the words
"asset" and "property" shall be construed to have the same meaning and effect
and to refer to any and all tangible and intangible assets and properties,
including cash, securities, accounts and contract rights.
SECTION 1.04. Accounting Terms; GAAP. Except as otherwise expressly
provided herein, all terms of an accounting or financial nature shall be
construed in accordance with GAAP, as in effect from time to time, provided
that, if the Borrower notifies the Administrative Agent that the Borrower
requests an amendment to any provision hereof to eliminate the effect of any
change occurring after the date hereof in GAAP or in the application thereof on
the operation of such provision (or if the Administrative Agent notifies the
Borrower that the Required Lenders request an amendment to any provision hereof
for such purpose), regardless of whether any such notice is given before or
after such change in GAAP or in the application thereof, then such provision
shall be interpreted on the basis of GAAP as in effect and applied immediately
before such change shall have become effective until such notice shall have been
withdrawn or such provision amended in accordance herewith.
<PAGE> 27
22
ARTICLE II
The Credits
SECTION 2.01. Commitments. Subject to the terms and conditions set
forth herein, each Lender agrees to make Revolving Loans to the Borrower from
time to time during the Revolving Availability Period in an aggregate principal
amount that will not result in such Lender's Total Exposure exceeding the lesser
of (a) such Lender's Revolving Commitment and (b) such Lender's Applicable
Percentage of the Borrowing Base in effect at such time. Within the foregoing
limits and subject to the terms and conditions set forth herein, the Borrower
may borrow, prepay and reborrow Revolving Loans.
SECTION 2.02. Loans and Borrowings. (a) Each Loan (other than a
Swingline Loan) shall be made as part of a Borrowing consisting of Loans of the
same Class and Type made by the Lenders ratably in accordance with their
respective Commitments of the applicable Class. The failure of any Lender to
make any Loan required to be made by it shall not relieve any other Lender of
its obligations hereunder, provided that the Commitments of the Lenders are
several and no Lender shall be responsible for any other Lender's failure to
make Loans as required.
(b) Subject to Section 2.13, each Revolving Borrowing shall be
comprised entirely of ABR Loans or Eurodollar Loans as the Borrower may request
in accordance herewith. Each Swingline Loan shall be an ABR Loan. Each Lender at
its option may make any Eurodollar Loan by causing any domestic or foreign
branch or Affiliate of such Lender to make such Loan, provided that any exercise
of such option shall not affect the obligation of the Borrower to repay such
Loan in accordance with the terms of this Agreement.
(c) At the commencement of each Interest Period for any Eurodollar
Borrowing, such Borrowing shall be in an aggregate amount that is an integral
multiple of $1,000,000 and not less than $5,000,000. At the time that each ABR
Borrowing is made, such Borrowing shall be in an aggregate amount that is an
integral multiple of $1,000,000 and not less than $5,000,000, provided that an
ABR Borrowing may be in an aggregate amount that is equal to the entire unused
balance of the total Revolving Commitments or that is required to finance the
reimbursement of an LC Disbursement as contemplated by Section 2.05(e). Each
Swingline Loan shall be in an amount that is an integral multiple of $100,000
and not less than $1,000,000. Borrowings of more than one Type and Class may be
outstanding at the same time, provided that there shall not at any time be more
than a total of 12 Eurodollar Borrowings outstanding.
(d) Notwithstanding any other provision of this Agreement, the
Borrower shall not be entitled to request, or to elect to convert or continue,
any Borrowing if the Interest Period requested with respect thereto would end
after the Maturity Date.
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SECTION 2.03. Requests for Borrowings. To request a Revolving
Borrowing, the Borrower shall notify the Administrative Agent of such request by
telephone (a) in the case of a Eurodollar Borrowing, not later than 11:00 a.m.,
New York City time, three Business Days before the date of the proposed
Borrowing or (b) in the case of an ABR Borrowing, not later than 11:00 a.m., New
York City time, one Business Day before the date of the proposed Borrowing,
provided that any such notice of an ABR Revolving Borrowing to finance the
reimbursement of an LC Disbursement as contemplated by Section 2.05(e) may be
given not later than 10:00 a.m., New York City time, on the date of the proposed
Borrowing. Each such telephonic Borrowing Request shall be irrevocable and shall
be confirmed promptly by hand delivery or telecopy to the Administrative Agent
of a written Borrowing Request in a form approved by the Administrative Agent
and signed by the Borrower. Each such telephonic and written Borrowing Request
shall specify the following information in compliance with Section 2.02:
(i) the aggregate amount of such Borrowing;
(ii) the date of such Borrowing, which shall be a Business Day;
(iii) subject to the second sentence of Section 2.02(b), whether
such Borrowing is to be an ABR Borrowing or a Eurodollar Borrowing;
(iv) in the case of a Eurodollar Borrowing, the initial Interest
Period to be applicable thereto, which shall be a period contemplated by
the definition of the term "Interest Period"; and
(v) the location and number of the Borrower's account to which funds
are to be disbursed, which shall comply with the requirements of Section
2.06.
If no election as to the Type of Borrowing is specified, then the requested
Borrowing shall be an ABR Borrowing. If no Interest Period is specified with
respect to any requested Eurodollar Borrowing, then the Borrower shall be deemed
to have selected an Interest Period of one month's duration. Promptly following
receipt of a Borrowing Request in accordance with this Section or Section
2.10(j), the Administrative Agent shall advise each Lender of the details
thereof and of the amount of such Lender's Loan to be made as part of the
requested Borrowing.
SECTION 2.04. Swingline Loans. (a) Subject to the terms and
conditions set forth herein, the Swingline Lender agrees to make Swingline Loans
to the Borrower from time to time during the Revolving Availability Period, in
an aggregate principal amount at any time outstanding that will not result in
(i) the aggregate principal amount of outstanding Swingline Loans exceeding
$10,000,000 or (ii) the sum of the Total Exposures exceeding the lesser of (A)
the total Revolving Commitments and (B) the Borrowing Base in effect at such
time, provided that the Swingline Lender shall not be required to make a
Swingline Loan to refinance an outstanding Swingline Loan. Within the foregoing
limits and subject to the terms and conditions set forth herein, the Borrower
may borrow, prepay and reborrow Swingline Loans.
(b) To request a Swingline Loan, the Borrower shall notify the
Administrative Agent of such request by telephone (confirmed by telecopy), not
later than 12:00 noon, New York City time, on the day of a proposed Swingline
Loan. Each such notice shall be irrevocable and shall specify the requested date
(which shall be a Business Day) and amount of the requested Swingline Loan. The
Administrative Agent will promptly advise the Swingline Lender of any such
notice received from the Borrower. The Swingline Lender shall make each
Swingline Loan available to the Borrower by means of a credit to the general
deposit account of the Borrower with the Swingline Lender (or, in the case of a
Swingline Loan made to finance the reimbursement of an LC Disbursement as
provided in Section 2.05(e), by remittance to the Issuing Bank) by 3:00 p.m.,
New York City time, on the requested date of such Swingline Loan.
<PAGE> 29
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(c) The Swingline Lender may by written notice given to the
Administrative Agent not later than 10:00 a.m., New York City time, on any
Business Day require the Revolving Lenders to acquire participations on such
Business Day in all or a portion of the Swingline Loans outstanding. Such notice
shall specify the aggregate amount of Swingline Loans in which Revolving Lenders
will participate. Promptly upon receipt of such notice, the Administrative Agent
will give notice thereof to each Revolving Lender, specifying in such notice
such Revolving Lender's Applicable Percentage of such Swingline Loan or Loans.
Each Revolving Lender hereby absolutely and unconditionally agrees, upon receipt
of notice as provided above, to pay to the Administrative Agent, for the account
of the Swingline Lender, such Revolving Lender's Applicable Percentage of such
Swingline Loan or Loans. Each Revolving Lender acknowledges and agrees that its
obligation to acquire participations in Swingline Loans pursuant to this
paragraph is absolute and unconditional and shall not be affected by any
circumstance whatsoever, including the occurrence and continuance of a Default
or reduction or termination of the Commitments, and that each such payment shall
be made without any offset, abatement, withholding or reduction whatsoever. Each
Revolving Lender shall comply with its obligation under this paragraph by wire
transfer of immediately available funds, in the same manner as provided in
Section 2.06 with respect to Loans made by such Revolving Lender (and Section
2.06 shall apply, mutatis mutandis, to the payment obligations of the Revolving
Lenders), and the Administrative Agent shall promptly pay to the Swingline
Lender the amounts so received by it from the Revolving Lenders. The
Administrative Agent shall notify the Borrower of any participations in any
Swingline Loan acquired pursuant to this paragraph, and thereafter payments in
respect of such Swingline Loan shall be made to the Administrative Agent and not
to the Swingline Lender. Any amounts received by the Swingline Lender from the
Borrower (or other party on behalf of the Borrower) in respect of a Swingline
Loan after receipt by the Swingline Lender of the proceeds of a sale of
participations therein shall be promptly remitted to the Administrative Agent;
any such amounts received by the Administrative Agent shall be promptly remitted
by the Administrative Agent to the Revolving Lenders that shall have made their
payments pursuant to this paragraph and to the Swingline Lender, as their
interests may appear. The purchase of participations in a Swingline Loan
pursuant to this paragraph shall not relieve the Borrower of any default in the
payment thereof.
SECTION 2.05. Letters of Credit. (a) General. Subject to the terms
and conditions set forth herein, the Borrower may request the issuance of
Letters of Credit for its own account, in a form reasonably acceptable to the
Administrative Agent and the Issuing Bank, at any time and from time to time
during the LC Availability Period. In the event of any inconsistency between the
terms and conditions of this Agreement and the terms and conditions of any form
of letter of credit application or other agreement submitted by the Borrower to,
or entered into by the Borrower with, the Issuing Bank relating to any Letter of
Credit, the terms and conditions of this Agreement shall control.
(b) Notice of Issuance, Amendment, Renewal, Extension; Certain
Conditions. To request the issuance of a Letter of Credit (or the amendment,
renewal or extension of an outstanding Letter of Credit), the Borrower shall
hand deliver or telecopy (or transmit by electronic communication, if
arrangements for doing so have been approved by the Issuing Bank) to the Issuing
Bank and the Administrative Agent (reasonably in advance of the requested date
of issuance, amendment, renewal or extension) a notice requesting the issuance
of a Letter of Credit, or identifying the Letter of Credit to be amended,
renewed or extended, and specifying the date of issuance, amendment, renewal or
extension (which shall be a Business Day), the date on which such Letter of
Credit is to expire (which shall comply with paragraph (c) of this Section), the
amount of such Letter of Credit, the name and address of the beneficiary thereof
and such other information as shall be necessary to prepare, amend, renew or
extend such Letter of Credit. If requested by the Issuing Bank, the Borrower
also shall submit a letter of credit application on the Issuing Bank's standard
form in connection with any request for a Letter of Credit. A Letter of Credit
shall be issued, amended, renewed or extended only if (and upon issuance,
amendment, renewal or extension of each Letter of Credit the Borrower shall be
deemed to represent and warrant that),
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after giving effect to such issuance, amendment, renewal or extension (i) the LC
Exposure shall not exceed $0 and (ii) the aggregate Total Exposures shall not
exceed the lesser of (A) the aggregate Revolving Commitments and (B) the
Borrowing Base in effect at such time.
(c) Expiration Date. Each Letter of Credit shall expire at or prior
to the close of business on the earlier of (i) the date one year after the date
of the issuance of such Letter of Credit (or, in the case of any renewal or
extension thereof, one year after such renewal or extension) and (ii) the date
that is five Business Days prior to the Maturity Date, provided that each Letter
of Credit may, upon the request of the Borrower, include a provision whereby
such Letter of Credit shall be renewed automatically for additional consecutive
periods of 12 months or less (but not beyond the date that is five Business Days
prior to the Maturity Date) unless the Issuing Bank notifies the beneficiary
thereof at least 30 days prior to the then-applicable expiration date that such
Letter of Credit will not be renewed.
(d) Participations. By the issuance of a Letter of Credit (or an
amendment to a Letter of Credit increasing the amount thereof) and without any
further action on the part of the Issuing Bank or the Lenders, the Issuing Bank
hereby grants to each Revolving Lender, and each Revolving Lender hereby
acquires from the Issuing Bank, a participation in such Letter of Credit equal
to such Revolving Lender's Applicable Percentage of the aggregate amount
available to be drawn under such Letter of Credit. In consideration and in
furtherance of the foregoing, each Revolving Lender hereby absolutely and
unconditionally agrees to pay to the Administrative Agent, for the account of
the Issuing Bank, such Revolving Lender's Applicable Percentage of each LC
Disbursement made by the Issuing Bank and not reimbursed by the Borrower on the
date due as provided in paragraph (e) of this Section, or of any reimbursement
payment required to be refunded to the Borrower for any reason. Each Revolving
Lender acknowledges and agrees that its obligation to acquire participations
pursuant to this paragraph in respect of Letters of Credit is absolute and
unconditional and shall not be affected by any circumstance whatsoever,
including any amendment, renewal or extension of any Letter of Credit or the
occurrence and continuance of a Default or reduction or termination of the
Commitments, and that each such payment shall be made without any offset,
abatement, withholding or reduction whatsoever.
(e) Reimbursement. If the Issuing Bank shall make any LC
Disbursement in respect of a Letter of Credit, the Borrower shall reimburse such
LC Disbursement by paying to the Administrative Agent an amount equal to such LC
Disbursement not later than 12:00 noon, New York City time, on the date that
such LC Disbursement is made, if the Borrower shall have received notice of such
LC Disbursement prior to 10:00 a.m., New York City time, on such date, or, if
such notice has not been received by the Borrower prior to such time on such
date, then not later than 12:00 noon, New York City time, on (i) the Business
Day that the Borrower receives such notice, if such notice is received prior to
10:00 a.m., New York City time, on the day of receipt, or (ii) the Business Day
immediately following the day that the Borrower receives such notice, if such
notice is not received prior to such time on the day of receipt, provided that
the Borrower may, subject to the conditions to borrowing set forth herein,
request in accordance with Section 2.03 or 2.04 that such payment be financed
with an ABR Revolving Borrowing or Swingline Loan in an equivalent amount and,
to the extent so financed, the Borrower's obligation to make such payment shall
be discharged and replaced by the resulting ABR Revolving Borrowing or Swingline
Loan. If the Borrower fails to make such payment when due, the Administrative
Agent shall notify each Revolving Lender of the applicable LC Disbursement, the
payment then due from the Borrower in respect thereof and such Revolving
Lender's Applicable Percentage thereof. Promptly following receipt of such
notice, each Revolving Lender shall pay to the Administrative Agent its
Applicable Percentage of the payment then due from the Borrower, in the same
manner as provided in Section 2.06 with respect to Loans made by such Revolving
Lender (and Section 2.06 shall apply, mutatis mutandis, to the payment
obligations of the Revolving Lenders), and the Administrative Agent shall
promptly pay to the Issuing Bank the amounts so received by it from the
Revolving Lenders. Promptly following receipt by the Administrative Agent of any
payment from the Borrower pursuant to this paragraph, the Administrative Agent
shall distribute such payment to the Issuing Bank or, to the extent that
Revolving Lenders have
<PAGE> 31
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made payments pursuant to this paragraph to reimburse the Issuing Bank, then to
such Revolving Lenders and the Issuing Bank as their interests may appear. Any
payment made by a Revolving Lender pursuant to this paragraph to reimburse the
Issuing Bank for any LC Disbursement (other than the funding of ABR Revolving
Loans or a Swingline Loan as contemplated above) shall not constitute a Loan and
shall not relieve the Borrower of its obligation to reimburse such LC
Disbursement.
(f) Obligations Absolute. The Borrower's obligation to reimburse LC
Disbursements as provided in paragraph (e) of this Section shall be absolute,
unconditional and irrevocable, and shall be performed strictly in accordance
with the terms of this Agreement under any and all circumstances whatsoever and
irrespective of (i) any lack of validity or enforceability of any Letter of
Credit or this Agreement, or any term or provision therein, (ii) any draft or
other document presented under a Letter of Credit proving to be forged,
fraudulent or invalid in any respect or any statement therein being untrue or
inaccurate in any respect, (iii) payment by the Issuing Bank under a Letter of
Credit against presentation of a draft or other document that does not comply
with the terms of such Letter of Credit, or (iv) any other event or circumstance
whatsoever, whether or not similar to any of the foregoing, that might, but for
the provisions of this Section, constitute a legal or equitable discharge of, or
provide a right of setoff against, the Borrower's obligations hereunder. None of
the Administrative Agent, the Lenders, the Issuing Bank or any of their Related
Parties shall have any liability or responsibility by reason of or in connection
with the issuance or transfer of any Letter of Credit or any payment or failure
to make any payment thereunder (irrespective of any of the circumstances
referred to in the preceding sentence), or any error, omission, interruption,
loss or delay in transmission or delivery of any draft, notice or other
communication under or relating to any Letter of Credit (including any document
required to make a drawing thereunder), any error in interpretation of technical
terms or any consequence arising from causes beyond the control of the Issuing
Bank, provided that the foregoing shall not be construed to excuse the Issuing
Bank from liability to the Borrower to the extent of any direct damages (as
opposed to consequential damages, claims in respect of which are hereby waived
by the Borrower to the extent permitted by applicable law) suffered by the
Borrower that are caused by the Issuing Bank's failure to exercise care when
determining whether drafts and other documents presented under a Letter of
Credit comply with the terms thereof. The parties hereto expressly agree that,
in the absence of gross negligence or wilful misconduct on the part of the
Issuing Bank (as finally determined by a court of competent jurisdiction), the
Issuing Bank shall be deemed to have exercised care in each such determination.
In furtherance of the foregoing and without limiting the generality thereof, the
parties agree that, with respect to documents presented that appear on their
face to be in compliance with the terms of a Letter of Credit, the Issuing Bank
may, in its sole discretion, either accept and make payment upon such documents
without responsibility for further investigation, regardless of any notice or
information to the contrary, or refuse to accept and make payment upon such
documents if such documents are not in strict compliance with the terms of such
Letter of Credit.
(g) Disbursement Procedures. The Issuing Bank shall, promptly
following its receipt thereof, examine all documents purporting to represent a
demand for payment under a Letter of Credit. The Issuing Bank shall promptly
notify the Administrative Agent and the Borrower by telephone (confirmed by
telecopy) of such demand for payment and whether the Issuing Bank has made or
will make an LC Disbursement thereunder, provided that any failure to give or
delay in giving such notice shall not relieve the Borrower of its obligation to
reimburse the Issuing Bank and the Lenders with respect to any such LC
Disbursement.
(h) Interim Interest. If the Issuing Bank shall make any LC
Disbursement, then, unless the Borrower shall reimburse such LC Disbursement in
full on the date such LC Disbursement is made, the unpaid amount thereof shall
bear interest, for each day from and including the date such LC Disbursement is
made to but excluding the date that the Borrower reimburses such LC
Disbursement, at the rate per annum then applicable to ABR Revolving Loans,
provided that, if the Borrower fails to reimburse such LC Disbursement when due
pursuant to paragraph (e) of this Section, then Section 2.12(c) shall apply.
Interest accrued pursuant to this paragraph shall be for the account of the
Issuing Bank, except that interest accrued
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on and after the date of payment by any Revolving Lender pursuant to paragraph
(e) of this Section to reimburse the Issuing Bank shall be for the account of
such Revolving Lender to the extent of such payment.
(i) Replacement of the Issuing Bank. The Issuing Bank may be
replaced at any time by written agreement among the Borrower, the Administrative
Agent, the replaced Issuing Bank and the successor Issuing Bank. The
Administrative Agent shall notify the Lenders of any such replacement of the
Issuing Bank. At the time any such replacement shall become effective, the
Borrower shall pay all unpaid fees accrued for the account of the replaced
Issuing Bank pursuant to Section 2.11(b). From and after the effective date of
any such replacement, (i) the successor Issuing Bank shall have all the rights
and obligations of the Issuing Bank under this Agreement with respect to Letters
of Credit to be issued thereafter and (ii) references herein to the term
"Issuing Bank" shall be deemed to refer to such successor or to any previous
Issuing Bank, or to such successor and all previous Issuing Banks, as the
context shall require. After the replacement of an Issuing Bank hereunder, the
replaced Issuing Bank shall remain a party hereto and shall continue to have all
the rights and obligations of an Issuing Bank under this Agreement with respect
to Letters of Credit issued by it prior to such replacement, but shall not be
required to issue additional Letters of Credit.
(j) Cash Collateralization. If any Event of Default shall occur and
be continuing, on the Business Day that the Borrower receives notice from the
Administrative Agent or the Required Lenders (or, if the maturity of the Loans
has been accelerated, Revolving Lenders with LC Exposure representing greater
than 50% of the total LC Exposure) demanding the deposit of cash collateral
pursuant to this paragraph, the Borrower shall deposit in an account with the
Collateral Agent, in the name of the Collateral Agent and for the benefit of the
Revolving Lenders, an amount in cash equal to 105% of the LC Exposure as of such
date plus any accrued and unpaid interest thereon, provided that the obligation
to deposit such cash collateral shall become effective immediately, and such
deposit shall become immediately due and payable, without demand or other notice
of any kind, upon the occurrence of any Event of Default with respect to the
Borrower described in clause (h) or (i) of Article VII. Each such deposit shall
be held by the Collateral Agent as collateral for the payment and performance of
the obligations of the Borrower under this Agreement. The Collateral Agent shall
have exclusive dominion and control, including the exclusive right of
withdrawal, over such account. Other than any interest earned on the investment
of such deposits, which investments shall be made at the option and sole
discretion of the Collateral Agent at the request of the Borrower and at the
Borrower's risk and expense, such deposits shall not bear interest. Interest or
profits, if any, on such investments shall accumulate in such account. Moneys in
such account shall be applied by the Collateral Agent to reimburse the Issuing
Bank for LC Disbursements for which it has not been reimbursed and, to the
extent not so applied, shall be held for the satisfaction of the reimbursement
obligations of the Borrower for the LC Exposure at such time or, if the maturity
of the Loans has been accelerated (but subject to the consent of Revolving
Lenders with LC Exposure representing greater than 50% of the total LC
Exposure), be applied to satisfy other obligations of the Borrower under this
Agreement. If the Borrower is required to provide an amount of cash collateral
hereunder as a result of the occurrence of an Event of Default, such amount (to
the extent not applied as aforesaid) shall be returned to the Borrower within
three Business Days after all Events of Default have been cured or waived.
SECTION 2.06. Funding of Borrowings. (a) Each Lender shall make each
Loan to be made by it hereunder on the proposed date thereof by wire transfer of
immediately available funds by 12:00 noon, New York City time, to the account of
the Administrative Agent most recently designated by the Administrative Agent
for such purpose by notice to the Lenders, provided that Swingline Loans shall
be made as provided in Section 2.04. The Administrative Agent will make such
Loans available to the Borrower by promptly crediting the amounts so received,
in like funds, to an account of the Borrower maintained with the Administrative
Agent in New York City and designated by the Borrower in the applicable
Borrowing Request, provided that (i) ABR Revolving Loans made to finance the
reimbursement of an LC Disbursement as provided in Section 2.05(e) shall be
remitted
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by the Administrative Agent to the Issuing Bank and (ii) ABR Revolving Loans
made on an Advance Rate Reduction Date to finance the mandatory prepayment of
any applicable Advance Rate Reduction Amount as required by Section 2.10(j)
shall be remitted by the Administrative Agent to the "Administrative Agent" for
the Existing Facility (as such term is defined in the Amended Existing Credit
Agreement).
(b) Unless the Administrative Agent shall have received notice from
a Lender prior to the proposed date of any Borrowing that such Lender will not
make available to the Administrative Agent such Lender's share of such
Borrowing, the Administrative Agent may assume that such Lender has made such
share available on such date in accordance with paragraph (a) of this Section
and may, in reliance upon such assumption, make available to the Borrower a
corresponding amount. In such event, if a Lender has not in fact made its share
of the applicable Borrowing available to the Administrative Agent, then the
applicable Lender and the Borrower severally agree to pay to the Administrative
Agent forthwith on demand such corresponding amount with interest thereon, for
each day from and including the date such amount is made available to the
Borrower to but excluding the date of payment to the Administrative Agent, at
(i) in the case of such Lender, the greater of the Federal Funds Effective Rate
and a rate determined by the Administrative Agent in accordance with banking
industry rules on interbank compensation or (ii) in the case of the Borrower,
the interest rate applicable to ABR Loans. If such Lender pays such amount to
the Administrative Agent, then such amount shall constitute such Lender's Loan
included in such Borrowing.
SECTION 2.07. Interest Elections. (a) Each Revolving Borrowing
initially shall be of the Type specified in the applicable Borrowing Request
and, in the case of a Eurodollar Borrowing, shall have an initial Interest
Period as specified in such Borrowing Request. Thereafter, the Borrower may
elect to convert such Borrowing to a different Type or to continue such
Borrowing and, in the case of a Eurodollar Borrowing, may elect Interest Periods
therefor, all as provided in this Section. The Borrower may elect different
options with respect to different portions of the affected Borrowing, in which
case each such portion shall be allocated ratably among the Lenders holding the
Loans comprising such Borrowing, and the Loans comprising each such portion
shall be considered a separate Borrowing. This Section shall not apply to
Swingline Borrowings, which may not be converted or continued.
(b) To make an election pursuant to this Section, the Borrower shall
notify the Administrative Agent of such election by telephone by the time that a
Borrowing Request would be required under Section 2.03 if the Borrower were
requesting a Revolving Borrowing of the Type resulting from such election to be
made on the effective date of such election. Each such telephonic Interest
Election Request shall be irrevocable and shall be confirmed promptly by hand
delivery or telecopy to the Administrative Agent of a written Interest Election
Request in a form approved by the Administrative Agent and signed by the
Borrower.
(c) Each telephonic and written Interest Election Request shall
specify the following information in compliance with Section 2.02:
(i) the Borrowing to which such Interest Election Request applies
and, if different options are being elected with respect to different
portions thereof, the portions thereof to be allocated to each resulting
Borrowing (in which case the information to be specified pursuant to
clauses (iii) and (iv) below shall be specified for each resulting
Borrowing);
(ii) the effective date of the election made pursuant to such
Interest Election Request, which shall be a Business Day;
(iii) whether the resulting Borrowing is to be an ABR Borrowing or a
Eurodollar Borrowing; and
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(iv) if the resulting Borrowing is a Eurodollar Borrowing, the
Interest Period to be applicable thereto after giving effect to such
election, which shall be a period contemplated by the definition of the
term "Interest Period".
If any such Interest Election Request requests a Eurodollar Borrowing but does
not specify an Interest Period, then the Borrower shall be deemed to have
selected an Interest Period of one month's duration.
(d) Promptly following receipt of an Interest Election Request, the
Administrative Agent shall advise each Lender of the details thereof and of such
Lender's portion of each resulting Borrowing.
(e) If the Borrower fails to deliver a timely Interest Election
Request with respect to a Eurodollar Borrowing prior to the end of the Interest
Period applicable thereto, then, unless such Borrowing is repaid as provided
herein, at the end of such Interest Period such Borrowing shall be converted to
an ABR Borrowing. Notwithstanding any contrary provision hereof, if an Event of
Default has occurred and is continuing and the Administrative Agent, at the
request of the Required Lenders, so notifies the Borrower, then, so long as an
Event of Default is continuing (i) no outstanding Borrowing may be converted to
or continued as a Eurodollar Borrowing and (ii) unless repaid, each Eurodollar
Borrowing shall be converted to an ABR Borrowing at the end of the Interest
Period applicable thereto.
SECTION 2.08. Termination and Reduction of Commitments. (a) Unless
previously terminated, the Revolving Commitments shall terminate on the Maturity
Date.
(b) The Borrower may at any time terminate, or from time to time
reduce, the Revolving Commitments, provided that (i) each reduction of the
Revolving Commitments shall be in an amount that is an integral multiple of
$1,000,000 and not less than $5,000,000 and (ii) the Borrower shall not
terminate or reduce the Revolving Commitments if and to the extent that, after
giving effect to any concurrent prepayment of the Revolving Loans in accordance
with Section 2.10, the sum of the Total Exposures would exceed the total
Revolving Commitments, provided that the Borrower may not terminate or reduce
pursuant to this Section 2.08(b) the Revolving Commitments prior to the date on
which the Existing Revolving Commitments terminate in their entirety.
(c) The Borrower shall notify the Administrative Agent of any
election to terminate or reduce the Commitments under paragraph (b) of this
Section at least three Business Days prior to the effective date of such
termination or reduction, specifying such election and the effective date
thereof. Promptly following receipt of any notice, the Administrative Agent
shall advise the Lenders of the contents thereof. Each notice delivered by the
Borrower pursuant to this Section shall be irrevocable, provided that a notice
of termination of the Revolving Commitments delivered by the Borrower may state
that such notice is conditioned upon the effectiveness of other credit
facilities, in which case such notice may be revoked by the Borrower (by notice
to the Administrative Agent on or prior to the specified effective date) if such
condition is not satisfied. Any termination or reduction of the Commitments of
any Class shall be permanent. Each reduction of the Revolving Commitments shall
be made ratably among the Lenders in accordance with their respective Revolving
Commitments.
SECTION 2.09. Repayment of Loans; Evidence of Debt. (a) The Borrower
hereby unconditionally promises to pay (i) to the Administrative Agent for the
account of each Lender the then unpaid principal amount of each Revolving Loan
of such Lender on the Maturity Date and (ii) to the Swingline Lender the then
unpaid principal amount of each Swingline Loan on the earlier of the Maturity
Date and the first date after such Swingline Loan is made that is the 15th or
last day of a calendar month and is at least two Business Days after such
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Swingline Loan is made, provided that on each date that a Revolving Borrowing is
made, the Borrower shall repay all Swingline Loans then outstanding.
(b) Each Lender shall maintain in accordance with its usual practice
an account or accounts evidencing the indebtedness of the Borrower to such
Lender resulting from each Loan made by such Lender, including the amounts of
principal and interest payable and paid to such Lender from time to time
hereunder.
(c) The Administrative Agent shall maintain accounts in which it
shall record (i) the amount of each Loan made hereunder, the Class and Type
thereof and the Interest Period applicable thereto, (ii) the amount of any
principal or interest due and payable or to become due and payable from the
Borrower to each Lender hereunder and (iii) the amount of any sum received by
the Administrative Agent hereunder for the account of the Lenders and each
Lender's share thereof.
(d) The entries made in the accounts maintained pursuant to
paragraph (b) or (c) of this Section shall be prima facie evidence of the
existence and amounts of the obligations recorded therein, provided that the
failure of any Lender or the Administrative Agent to maintain such accounts or
any error therein shall not in any manner affect the obligation of the Borrower
to repay the Loans in accordance with the terms of this Agreement.
(e) Any Lender may request that Loans of any Class made by it be
evidenced by a promissory note. In such event, the Borrower shall prepare,
execute and deliver to such Lender a promissory note payable to the order of
such Lender (or, if requested by such Lender, to such Lender and its registered
assigns) and in a form approved by the Administrative Agent. Thereafter, the
Loans evidenced by such promissory note and interest thereon shall at all times
(including after assignment pursuant to Section 9.04) be represented by one or
more promissory notes in such form payable to the order of the payee named
therein (or, if such promissory note is a registered note, to such payee and its
registered assigns).
SECTION 2.10. Prepayment of Loans. (a) The Borrower shall have the
right at any time and from time to time to prepay any Borrowing in whole or in
part, subject to the requirements of this Section.
(b) Subject to Section 2.10(g), in the event of any termination of
all the Revolving Commitments, the Borrower shall repay or prepay all
outstanding Revolving Borrowings and all outstanding Swingline Loans on the date
of such termination. In the event of any partial reduction of the Revolving
Commitments, then (i) at or prior to the effective date of such reduction or
termination, the Administrative Agent shall notify the Borrower and the Lenders
of (A) the amount of any reduction in the Revolving Commitments and (B) the
aggregate Total Exposure after giving effect to such reduction and (ii) if the
aggregate Total Exposure would exceed the aggregate Revolving Commitments after
giving effect to such reduction or termination, then the Borrower shall, on the
date of such reduction or termination, prepay Revolving Borrowings or Swingline
Loans (or a combination thereof) in an amount sufficient to eliminate such
excess.
(c) Subject to Section 2.10(g), if on any date the aggregate Total
Exposure exceeds the Borrowing Base in effect on such date, the Borrower shall
on such date apply an amount equal to such excess, first, to prepay the
then-outstanding Revolving Borrowings (if any) and Swingline Loans (if any) and,
second, to the extent of any remaining excess (after the prepayment of Revolving
Borrowings and Swingline Loans), to cash-collateralize outstanding Letters of
Credit by depositing, in an account with the Collateral Agent, in the name of
the Collateral Agent and for the benefit of the Lenders, an amount in cash equal
to such remaining excess. The provisions of the second, third, fourth and fifth
sentences of Section 2.05(j) shall be applicable to any amounts so deposited.
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(d) Subject to Section 2.10(g), prior to any optional or mandatory
prepayment of Borrowings hereunder, the Borrower shall select the Borrowing or
Borrowings to be prepaid and shall specify such selection in the notice of such
prepayment pursuant to paragraph (e) of this Section, provided that each
prepayment of Borrowings shall be applied to prepay ABR Borrowings before any
other Borrowings.
(e) The Borrower shall notify the Administrative Agent (and, in the
case of prepayment of a Swingline Loan, the Swingline Lender) by telephone
(confirmed by telecopy) of any prepayment hereunder (i) in the case of
prepayment of a Eurodollar Borrowing, not later than 11:00 a.m., New York City
time, three Business Days before the date of prepayment, (ii) in the case of
prepayment of an ABR Borrowing, not later than 11:00 a.m., New York City time,
one Business Day before the date of prepayment or (iii) in the case of
prepayment of a Swingline Loan, not later than 12:00 noon, New York City time,
on the date of prepayment. Each such notice shall be irrevocable and shall
specify the prepayment date, the principal amount of each Borrowing or portion
thereof to be prepaid and, in the case of a mandatory prepayment, a reasonably
detailed calculation of the amount of such prepayment, provided that, if a
notice of optional prepayment is given in connection with a conditional notice
of termination of the Revolving Commitments as contemplated by Section 2.08,
then such notice of prepayment may be revoked if such notice of termination is
revoked in accordance with Section 2.08. Promptly following receipt of any such
notice (other than a notice relating solely to Swingline Loans), the
Administrative Agent shall advise the Lenders of the contents thereof. Each
partial prepayment of any Borrowing shall be in an amount that would be
permitted in the case of an advance of a Borrowing of the same Type as provided
in Section 2.02, except as necessary to apply fully the required amount of a
mandatory prepayment. Subject to Section 2.10(g), each prepayment of a Borrowing
shall be applied ratably to the Loans included in the prepaid Borrowing.
Prepayments shall be accompanied by accrued interest to the extent required by
Section 2.12.
(f) In the event and on each occasion that any Net Proceeds are
received by or on behalf of a Transaction Party or any Subsidiary in respect of
any Prepayment Event on or prior to the Maturity Date, the Borrower shall,
immediately after such Net Proceeds are received, prepay Revolving Borrowings
and Swingline Loans and Existing Revolving Borrowings and Existing Swingline
Loans in an aggregate principal amount equal to such Net Proceeds and in the
priority provided for in Section 2.10(g), provided that if a Specified Event of
Default has occurred and is continuing under this Agreement or the Amended
Existing Credit Agreement, such Net Proceeds shall be applied first to prepay
Existing Revolving Borrowings and Existing Swingline Loans until the aggregate
"Total Exposures" of the Existing Lenders (as such term is defined in the
Amended Existing Credit Agreement) is zero and then to prepay Revolving
Borrowings and Swingline Loans.
(g) Notwithstanding any provisions to the contrary in the Loan
Documents or the Existing Loan Documents (and unless the "Specified Lenders" (as
such term is defined in the Intercreditor Agreement) shall otherwise agree), (i)
on or prior to the Maturity Date and (ii) so long as no Specified Event of
Default has occurred and is continuing under this Agreement or under the Amended
Existing Credit Agreement, any amount to be applied by the Borrower to the
voluntary or mandatory prepayment of Revolving Borrowings and Swingline Loans,
or to the voluntary or mandatory prepayment of Existing Revolving Borrowings and
Existing Swingline Loans, instead shall be applied to the prepayment of
Revolving Borrowings, Swingline Loans, Existing Revolving Borrowings and
Existing Swingline Loans in the following order of priority:
(A) first, to prepay any outstanding Existing Revolving Borrowings
and Existing Swingline Loans, ratably among the Existing Lenders entitled
thereto, until the "Borrowing Base" is not less than the aggregate "Total
Exposure" of the Existing Lenders (as such terms are defined in the
Amended Existing Credit Agreement),
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(B) second, to prepay any outstanding Revolving Borrowings and
Swingline Loans, ratably among the Lenders entitled thereto, and
(C) third, to prepay any outstanding Existing Revolving Borrowings
and Existing Swingline Loans, ratably among the Existing Lenders entitled
thereto.
(h) Any Net Proceeds from a Prepayment Event available to be applied
pursuant to Section 2.10(f) or (g) to prepay Revolving Borrowings and Swingline
Loans, whether or not any Revolving Borrowings or Swingline Loans are actually
outstanding and prepaid, shall result in the permanent reduction of the
Revolving Commitments in the amount of such Net Proceeds, provided that (i) all
Net Proceeds from GOB Prepayment Events and (ii) up to an aggregate amount of
$25,000,000 of Net Proceeds from Real Estate Prepayment Events, in each case
available to be applied pursuant to Section 2.10(f) and (g) during the term of
this Agreement to prepay Revolving Borrowings and Swingline Loans, (i) shall not
result in corresponding permanent reductions of the Revolving Commitments and
(ii) to the extent any such prepayments are actually made, may be reborrowed by
the Borrower, subject to the terms and conditions hereof.
(i) This Section 2.10 shall be subject to the terms and conditions
of the Intercreditor Agreement.
(j) Unless the Specified Lenders shall otherwise agree, in the event
of an Advance Rate Reduction Event, the Borrower shall be deemed to deliver to
the Administrative Agent a Borrowing Request for an ABR Borrowing on the
applicable Advance Rate Reduction Date in the aggregate amount of the applicable
Advance Rate Reduction Amount. Such Borrowing Notice shall be deemed delivered
prior to 11:00 a.m. on the Business Day immediately preceding the applicable
Advance Rate Reduction Date and otherwise shall be deemed to comply with the
requirements of Section 2.03. The parties hereto hereby agree that any Loans
made by the Lenders in response to such Borrowing Request shall be subject to
the other terms and conditions of this Agreement and shall be used by the
Borrower on the applicable Advance Rate Reduction Date to fund the mandatory
prepayment of Existing Revolving Loans and Existing Swingline Loans in an
aggregate amount equal to the Advance Rate Reduction Amount as required by
Section 2.10(g)(ii)(A) hereof and Section 2.10(c) and 2.10(g)(ii)(A) of the
Amended Existing Credit Agreement.
SECTION 2.11. Fees. (a) The Borrower agrees to pay to the
Administrative Agent for the account of each Lender a commitment fee, which
shall accrue at the rate of 0.50% per annum on the average daily unused amount
of the Revolving Commitment of such Lender during the period from and including
the date of this Agreement to but excluding the date on which such Commitment
terminates. Accrued commitment fees shall be payable in arrears on the last day
of March, June, September and December of each year and on the date on which the
Revolving Commitments, terminate, commencing on the first such date to occur
after the date hereof. All commitment fees shall be computed on the basis of a
year of 360 days and shall be payable for the actual number of days elapsed
(including the first day but excluding the last day). For purposes of computing
commitment fees with respect to Revolving Commitments, a Revolving Commitment of
a Lender shall be deemed to be used to the extent of the outstanding Revolving
Loans and LC Exposure of such Lender (and the Swingline Exposure of such Lender
shall be disregarded for such purpose).
(b) The Borrower agrees to pay to the Administrative Agent for the
account of each Lender a participation fee with respect to its participations in
Letters of Credit, which shall accrue at a rate equal to (i) in the case of the
portion of such Lender's LC Exposure that is attributable to Standby Letters of
Credit, the excess of (A) the same Applicable Rate as interest on Eurodollar
Revolving Loans on the average daily amount of such portion of such Lender's LC
Exposure (excluding any portion thereof
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attributable to unreimbursed LC Disbursements) over (B) the Fronting Fee, in
each case during the period from and including the date of this Agreement to but
excluding the later of the date on which such Lender's Revolving Commitment
terminates and the date on which such Lender ceases to have any such LC
Exposure, and (ii) in the case of the portion of such Lender's LC Exposure that
is attributable to Commercial Letters of Credit, the excess of (A) one-half of
the same Applicable Rate as interest on Eurodollar Revolving Loans on the
average daily amount of such portion of such Lender's LC Exposure (excluding any
portion thereof attributable to unreimbursed LC Disbursements) over (B) the
Fronting Fee, in each case during the period from and including the date of this
Agreement to but excluding the later of the date on which such Lender's
Revolving Commitment terminates and the date on which such Lender ceases to have
any such LC Exposure. The Borrower also agrees to pay to the Issuing Bank a
fronting fee (the "Fronting Fee"), which shall accrue at the rate of 1/4 of 1%
per annum on the average daily amount of the LC Exposure (excluding any portion
thereof attributable to unreimbursed LC Disbursements) during the period from
and including the date of this Agreement to but excluding the later of the date
of termination of the Revolving Commitments and the date on which there ceases
to be any LC Exposure, as well as the Issuing Bank's standard fees with respect
to the issuance, amendment, renewal or extension of any Letter of Credit or
processing of drawings thereunder. Participation fees and fronting fees accrued
through and including the last day of March, June, September and December of
each year shall be payable on the third Business Day following such last day,
commencing on the first such date to occur after the Effective Date, provided
that all such fees shall be payable on the date on which the Revolving
Commitments terminate and any such fees accruing after the date on which the
Revolving Commitments terminate shall be payable on demand. Any other fees
payable to the Issuing Bank pursuant to this paragraph shall be payable within
10 days after demand. All participation fees and fronting fees shall be computed
on the basis of a year of 360 days and shall be payable for the actual number of
days elapsed (including the first day but excluding the last day).
(c) The Borrower agrees to pay to the Administrative Agent, for its
own account, fees payable in the amounts and at the times separately agreed upon
between the Borrower and the Administrative Agent.
(d) All fees payable hereunder shall be paid on the dates due, in
immediately available funds, to the Administrative Agent (or to the Issuing
Bank, in the case of fees payable to it) for distribution, in the case of
commitment fees and participation fees, to the Lenders entitled thereto. Fees
paid shall not be refundable under any circumstances.
SECTION 2.12. Interest. (a) The Loans comprising each ABR Borrowing
(including each Swingline Loan) shall bear interest at the Alternate Base Rate
plus the Applicable Rate.
(b) The Loans comprising each Eurodollar Borrowing shall bear
interest at the Adjusted LIBO Rate for the Interest Period in effect for such
Borrowing plus the Applicable Rate.
(c) Notwithstanding the foregoing, if any principal of or interest
on any Loan or any fee or other amount payable by the Borrower hereunder is not
paid when due, whether at stated maturity, upon acceleration or otherwise, such
overdue amount shall bear interest, after as well as before judgment, at a rate
per annum equal to (i) in the case of overdue principal of any Loan, 2% plus the
rate (including margin) otherwise applicable to such Loan as provided in the
preceding paragraphs of this Section or (ii) in the case of any other amount, 2%
plus the rate (including margin) applicable to ABR Revolving Loans as provided
in paragraph (a) of this Section.
(d) Accrued interest on each Loan shall be payable in arrears on
each Interest Payment Date for such Loan and, in the case of Revolving Loans,
upon termination of the Revolving Commitments, provided that (A) interest
accrued pursuant to paragraph (c) of this Section shall be payable on demand,
(B) in the event of any repayment or prepayment of any Loan (other than a
prepayment of an ABR
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Revolving Loan prior to the end of the Revolving Availability Period), accrued
interest on the principal amount repaid or prepaid shall be payable on the date
of such repayment or prepayment and (C) in the event of any conversion of any
Eurodollar Loan prior to the end of the current Interest Period therefor,
accrued interest on such Loan shall be payable on the effective date of such
conversion.
(e) All interest hereunder shall be computed on the basis of a year
of 360 days, except that interest computed by reference to the Alternate Base
Rate at times when the Alternate Base Rate is based on the Prime Rate shall be
computed on the basis of a year of 365 days (or 366 days in a leap year), and in
each case shall be payable for the actual number of days elapsed (including the
first day but excluding the last day). The applicable Alternate Base Rate or
Adjusted LIBO Rate shall be determined by the Administrative Agent, and such
determination shall be conclusive absent manifest error.
SECTION 2.13. Alternate Rate of Interest. If prior to the
commencement of any Interest Period for a Eurodollar Borrowing:
(a) the Administrative Agent determines (which determination shall
be conclusive absent manifest error) that adequate and reasonable means do
not exist for ascertaining the Adjusted LIBO Rate for such Interest
Period; or
(b) the Administrative Agent is advised by the Required Lenders that
the Adjusted LIBO Rate for such Interest Period will not adequately and
fairly reflect the cost to such Lenders (or Lender) of making or
maintaining their Loans (or its Loan) included in such Borrowing for such
Interest Period;
then the Administrative Agent shall give notice thereof to the Borrower and the
Lenders by telephone or telecopy as promptly as practicable thereafter and,
until the Administrative Agent notifies the Borrower and the Lenders that the
circumstances giving rise to such notice no longer exist, (i) any Interest
Election Request that requests the conversion of any Borrowing to, or
continuation of any Borrowing as, a Eurodollar Borrowing shall be ineffective
and (ii) if any Borrowing Request requests a Eurodollar Borrowing, such
Borrowing shall be made as an ABR Borrowing.
SECTION 2.14. Increased Costs. (a) If any Change in Law shall:
(i) impose, modify or deem applicable any reserve, special deposit
or similar requirement against assets of, deposits with or for the account
of, or credit extended by, any Lender or any holding company of any Lender
(except any such reserve requirement reflected in the Adjusted LIBO Rate)
or the Issuing Bank; or
(ii) impose on any Lender or the Issuing Bank or the London
interbank market any other condition affecting this Agreement or
Eurodollar Loans made by such Lender or any Letter of Credit or
participation therein;
and the result of any of the foregoing shall be to increase the cost to such
Lender of making or maintaining any Eurodollar Loan (or of maintaining its
obligation to make any such Loan) or to increase the cost to such Lender or the
Issuing Bank of participating in, issuing or maintaining any Letter of Credit or
to reduce the amount of any sum received or receivable by such Lender or the
Issuing Bank hereunder (whether of principal, interest or otherwise), then the
Borrower will pay to such Lender or the Issuing Bank, as the case may be, such
additional amount or amounts as will compensate such Lender or the Issuing Bank,
as the case may be, for such additional costs incurred or reduction suffered.
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(b) If any Lender or the Issuing Bank determines that any Change in
Law regarding capital requirements has or would have the effect of reducing the
rate of return on such Lender's or the Issuing Bank's capital or on the capital
of such Lender's or the Issuing Bank's holding company, if any, as a consequence
of this Agreement or the Loans made by, or participations in Letters of Credit
held by, such Lender, or the Letters of Credit issued by the Issuing Bank, to a
level below that which such Lender or the Issuing Bank or such Lender's or the
Issuing Bank's holding company could have achieved but for such Change in Law
(taking into consideration such Lender's or the Issuing Bank's policies and the
policies of such Lender's or the Issuing Bank's holding company with respect to
capital adequacy), then from time to time the Borrower will pay to such Lender
or the Issuing Bank, as the case may be, such additional amount or amounts as
will compensate such Lender or the Issuing Bank or such Lender's or the Issuing
Bank's holding company for any such reduction suffered.
(c) A certificate of a Lender or the Issuing Bank setting forth the
amount or amounts necessary to compensate such Lender or the Issuing Bank or its
holding company, as the case may be, as specified in paragraph (a) or (b) of
this Section shall be delivered to the Borrower and shall be conclusive absent
manifest error. The Borrower shall pay such Lender or the Issuing Bank, as the
case may be, the amount shown as due on any such certificate within 10 days
after receipt thereof.
(d) Failure or delay on the part of any Lender or the Issuing Bank
to demand compensation pursuant to this Section shall not constitute a waiver of
such Lender's or the Issuing Bank's right to demand such compensation, provided
that the Borrower shall not be required to compensate a Lender or the Issuing
Bank pursuant to this Section for any increased costs or reductions incurred
more than 90 days prior to the date that such Lender or the Issuing Bank, as the
case may be, notifies the Borrower of the Change in Law giving rise to such
increased costs or reductions and of such Lender's or the Issuing Bank's
intention to claim compensation therefor, and provided further that, if the
Change in Law giving rise to such increased costs or reductions is retroactive,
then the 90-day period referred to above shall be extended to include the period
of retroactive effect thereof.
SECTION 2.15. Break Funding Payments. In the event of (a) the
payment of any principal of any Eurodollar Loan other than on the last day of an
Interest Period applicable thereto (including as a result of an Event of
Default), (b) the conversion of any Eurodollar Loan other than on the last day
of the Interest Period applicable thereto, (c) the failure to borrow, convert,
continue or prepay any Revolving Loan on the date specified in any notice
delivered pursuant hereto (regardless of whether such notice may be revoked
under Section 2.10(e) and is revoked in accordance therewith), or (d) the
assignment of any Eurodollar Loan other than on the last day of the Interest
Period applicable thereto as a result of a request by the Borrower pursuant to
Section 2.18, then, in any such event, the Borrower shall compensate each Lender
for the loss, cost and expense attributable to such event. In the case of a
Eurodollar Loan, such loss, cost or expense to any Lender shall be deemed to
include an amount determined by such Lender to be the excess, if any, of (i) the
amount of interest that would have accrued on the principal amount of such Loan
had such event not occurred, at the Adjusted LIBO Rate that would have been
applicable to such Loan, for the period from the date of such event to the last
day of the then current Interest Period therefor (or, in the case of a failure
to borrow, convert or continue, for the period that would have been the Interest
Period for such Loan), over (ii) the amount of interest that would accrue on
such principal amount for such period at the interest rate that such Lender
would bid were it to bid, at the commencement of such period, for dollar
deposits of a comparable amount and period from other banks in the Eurodollar
market. A certificate of any Lender setting forth any amount or amounts that
such Lender is entitled to receive pursuant to this Section shall be delivered
to the Borrower and shall be conclusive absent manifest error. The Borrower
shall pay such Lender the amount shown as due on any such certificate within 10
days after receipt thereof.
SECTION 2.16. Taxes. (a) Any and all payments by or on account of
any obligation of the Borrower hereunder or under any other Loan Document shall
be made free
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and clear of and without deduction for any Indemnified Taxes or Other Taxes,
provided that if the Borrower shall be required to deduct any Indemnified Taxes
or Other Taxes from such payments, then (i) the sum payable shall be increased
as necessary so that after making all required deductions (including deductions
applicable to additional sums payable under this Section) the Administrative
Agent, Lender or Issuing Bank (as the case may be) receives an amount equal to
the sum it would have received had no such deductions been made, (ii) the
Borrower shall make such deductions and (iii) the Borrower shall pay the full
amount deducted to the relevant Governmental Authority in accordance with
applicable law.
(b) In addition, the Borrower shall pay any Other Taxes to the
relevant Governmental Authority in accordance with applicable law.
(c) The Borrower shall indemnify the Administrative Agent, each
Lender and the Issuing Bank, within 10 days after written demand therefor, for
the full amount of any Indemnified Taxes or Other Taxes paid by the
Administrative Agent, such Lender or the Issuing Bank, as the case may be, on or
with respect to any payment by or on account of any obligation of the Borrower
hereunder or under any other Loan Document (including Indemnified Taxes or Other
Taxes imposed or asserted on or attributable to amounts payable under this
Section) and any penalties, interest and reasonable expenses arising therefrom
or with respect thereto, whether or not such Indemnified Taxes or Other Taxes
were correctly or legally imposed or asserted by the relevant Governmental
Authority. A certificate as to the amount of such payment or liability delivered
to the Borrower by a Lender or the Issuing Bank, or by the Administrative Agent
on its own behalf or on behalf of a Lender or the Issuing Bank, shall be
conclusive absent manifest error.
(d) As soon as practicable after any payment of Indemnified Taxes or
Other Taxes by the Borrower to a Governmental Authority, the Borrower shall
deliver to the Administrative Agent the original or a certified copy of a
receipt issued by such Governmental Authority evidencing such payment, a copy of
the return reporting such payment or other evidence of such payment reasonably
satisfactory to the Administrative Agent.
(e) Any Foreign Lender shall deliver to the Borrower and the
Administrative Agent two copies of either United States Internal Revenue Service
Form 1001 or Form 4224, or, in the case of a Foreign Lender's claiming exemption
from U.S. Federal withholding tax under Section 871(h) or 881(c) of the Code
with respect to payments of "portfolio interest", a Form W-8, or any subsequent
versions thereof or successors thereto (and, if such Foreign Lender delivers a
Form W-8, a certificate representing that such Foreign Lender is not a bank for
purposes of Section 881(c) of the Code, is not a 10-percent shareholder (within
the meaning of Section 871(h)(3)(B) of the Code) of the Borrower and is not a
controlled foreign corporation related to the Borrower (within the meaning of
Section 864(d)(4) of the Code)), properly completed and duly executed by such
Foreign Lender claiming complete exemption from or reduced rate of, U.S. Federal
withholding tax on payments by the Borrower under this Agreement and the other
Loan Documents. Such forms shall be delivered by each Foreign Lender on or
before the date it becomes a party to this Agreement (or, in the case of a
Transferee that is a participation holder, on or before the date such
participation holder becomes a Transferee hereunder) and on or before the date,
if any, such Foreign Lender changes its applicable lending office by designating
a different lending office (a "New Lending Office"). In addition, each Foreign
Lender shall deliver such forms promptly upon the obsolescence or invalidity of
any form previously delivered by such Foreign Lender. Notwithstanding any other
provision of this Section 2.16(e), a Foreign Lender shall not be required to
deliver any form pursuant to this 2.16(e) that such Foreign Lender is not
legally able to deliver.
(f) The Borrower shall not be required to indemnify any Foreign
Lender or to pay any additional amounts to any Foreign Lender in respect of U.S.
Federal withholding tax pursuant to paragraph (a) or (c) above to the extent
that the obligation to pay such additional amounts would not have arisen but for
a failure by such Foreign Lender to comply with the provisions of paragraph (e)
above. Should a
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Lender become subject to Taxes because of its failure to deliver a form required
hereunder, Borrower shall, at Lender's expense, take such steps as such Lender
shall reasonably request to assist such Lender to recover such Taxes.
SECTION 2.17. Payments Generally; Pro Rata Treatment; Sharing of
Setoffs. (a) The Borrower shall make each payment required to be made by it
hereunder or under any other Loan Document (whether of principal, interest, fees
or reimbursement of LC Disbursements, or of amounts payable under Section 2.14,
2.15 or 2.16, or otherwise) prior to 12:00 noon, New York City time, on the date
when due, in immediately available funds, without setoff or counterclaim. Any
amounts received after such time on any date may, in the discretion of the
Administrative Agent, be deemed to have been received on the next succeeding
Business Day for purposes of calculating interest thereon. All such payments
shall be made to the Administrative Agent at its offices at 270 Park Avenue, New
York, New York, except payments to be made directly to the Issuing Bank or
Swingline Lender as expressly provided herein and except that payments pursuant
to Sections 2.14, 2.15, 2.16 and 9.03 shall be made directly to the Persons
entitled thereto and payments pursuant to other Loan Documents shall be made to
the Persons specified therein. The Administrative Agent shall distribute any
such payments received by it for the account of any other Person to the
appropriate recipient promptly following receipt thereof. If any payment under
any Loan Document shall be due on a day that is not a Business Day, the date for
payment shall be extended to the next succeeding Business Day, and, in the case
of any payment accruing interest, interest thereon shall be payable for the
period of such extension. All payments under each Loan Document shall be made in
dollars.
(b) If at any time insufficient funds are received by and available
to the Administrative Agent to pay fully all amounts of principal, unreimbursed
LC Disbursements, interest and fees then due hereunder, such funds shall be
applied (i) first, towards payment of interest and fees then due hereunder,
ratably among the parties entitled thereto in accordance with the amounts of
interest and fees then due to such parties, and (ii) second, towards payment of
principal and unreimbursed LC Disbursements then due hereunder, ratably among
the parties entitled thereto in accordance with the amounts of principal and
unreimbursed LC Disbursements then due to such parties.
(c) If any Lender shall, by exercising any right of setoff or
counterclaim or otherwise, obtain payment in respect of any principal of or
interest on any of its Revolving Loans or participations in LC Disbursements or
Swingline Loans resulting in such Lender receiving payment of a greater
proportion of the aggregate amount of its Revolving Loans and participations in
LC Disbursements and Swingline Loans and accrued interest thereon than the
proportion received by any other Lender, then the Lender receiving such greater
proportion shall purchase (for cash at face value) participations in the
Revolving Loans and participations in LC Disbursements and Swingline Loans of
other Lenders to the extent necessary so that the benefit of all such payments
shall be shared by the Lenders ratably in accordance with the aggregate amount
of principal of and accrued interest on their respective Revolving Loans and
participations in LC Disbursements and Swingline Loans, provided that (i) if any
such participations are purchased and all or any portion of the payment giving
rise thereto is recovered, such participations shall be rescinded and the
purchase price restored to the extent of such recovery, without interest, and
(ii) the provisions of this paragraph shall not be construed to apply to any
payment made by the Borrower pursuant to and in accordance with the express
terms of this Agreement or any payment obtained by a Lender as consideration for
the assignment of or sale of a participation in any of its Loans or
participations in LC Disbursements to any assignee or participant, other than to
the Borrower or any Borrower Subsidiary or Affiliate thereof (as to which the
provisions of this paragraph shall apply). The Borrower consents to the
foregoing and agrees, to the extent it may effectively do so under applicable
law, that any Lender acquiring a participation pursuant to the foregoing
arrangements may exercise against the Borrower rights of setoff and counterclaim
with respect to such participation as fully as if such Lender were a direct
creditor of the Borrower in the amount of such participation.
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(d) Unless the Administrative Agent shall have received notice from
the Borrower prior to the date on which any payment is due to the Administrative
Agent for the account of the Lenders or the Issuing Bank hereunder that the
Borrower will not make such payment, the Administrative Agent may assume that
the Borrower has made such payment on such date in accordance herewith and may,
in reliance upon such assumption, distribute to the Lenders or the Issuing Bank,
as the case may be, the amount due. In such event, if the Borrower has not in
fact made such payment, then each of the Lenders or the Issuing Bank, as the
case may be, severally agrees to repay to the Administrative Agent forthwith on
demand the amount so distributed to such Lender or Issuing Bank with interest
thereon, for each day from and including the date such amount is distributed to
it to but excluding the date of payment to the Administrative Agent, at the
greater of the Federal Funds Effective Rate and a rate determined by the
Administrative Agent in accordance with banking industry rules on interbank
compensation.
(e) If any Lender shall fail to make any payment required to be made
by it pursuant to Section 2.04(c), 2.05(d) or (e), 2.06(b), 2.17(d) or 9.03(c),
then the Administrative Agent may, in its discretion (notwithstanding any
contrary provision hereof), apply any amounts thereafter received by the
Administrative Agent for the account of such Lender to satisfy such Lender's
obligations under such Sections until all such unsatisfied obligations are fully
paid.
SECTION 2.18. Mitigation Obligations; Replacement of Lenders. (a) If
any Lender requests compensation under Section 2.14, or if the Borrower is
required to pay any additional amount to any Lender or any Governmental
Authority for the account of any Lender pursuant to Section 2.16, then such
Lender shall use reasonable efforts to designate a different lending office for
funding or booking its Loans hereunder or to assign its rights and obligations
hereunder to another of its offices, branches or affiliates, if, in the judgment
of such Lender, such designation or assignment (i) would eliminate or reduce
amounts payable pursuant to Section 2.14 or 2.16, as the case may be, in the
future and (ii) would not subject such Lender to any unreimbursed cost or
expense and would not otherwise be disadvantageous to such Lender. The Borrower
hereby agrees to pay all reasonable and documented costs and expenses incurred
by any Lender in connection with any such designation or assignment; provided,
however, that the Borrower shall not be liable for such costs and expenses of a
Lender requesting compensation if (i) such Lender becomes a party to this
Agreement on a date after the Effective Date and (ii) the relevant Change in Law
occurs on a date prior to the date such Lender becomes a party hereto.
(b) If any Lender requests compensation under Section 2.14, or if
the Borrower is required to pay any additional amount to any Lender or any
Governmental Authority for the account of any Lender pursuant to Section 2.16,
or if any Lender defaults in its obligation to fund Loans hereunder, then the
Borrower may, at its sole expense and effort, upon notice to such Lender and the
Administrative Agent, require such Lender to assign and delegate, without
recourse (in accordance with and subject to the restrictions contained in
Section 9.04), all its interests, rights and obligations under this Agreement to
an assignee that shall assume such obligations (which assignee may be another
Lender, if a Lender accepts such assignment), provided that (i) the Borrower
shall have received the prior written consent of the Administrative Agent, the
Issuing Bank and Swingline Lender, which consent shall not unreasonably be
withheld, (ii) such Lender shall have received payment of an amount equal to the
outstanding principal of its Revolving Loans and participations in LC
Disbursements and Swingline Loans, accrued interest thereon, accrued fees and
all other amounts payable to it hereunder, from the assignee (to the extent of
such outstanding principal and accrued interest and fees) or the Borrower (in
the case of all other amounts) and (iii) in the case of any such assignment
resulting from a claim for compensation under Section 2.14 or payments required
to be made pursuant to Section 2.16, such assignment will result in a reduction
in such compensation or payments. A Lender shall not be required to make any
such assignment and delegation if, prior thereto, as a result of a waiver by
such Lender or otherwise, the circumstances entitling the Borrower to require
such assignment and delegation cease to apply.
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39
ARTICLE III
Representations and Warranties
Each Transaction Party represents and warrants to the Lenders that:
SECTION 3.01. Organization; Powers. Each member of the Holdings
Group is duly organized, validly existing and in good standing under the laws of
the jurisdiction of its organization, has all requisite power and authority to
carry on its business as now conducted and, except where the failure to do so,
individually or in the aggregate, could not reasonably be expected to result in
a Material Adverse Effect, is qualified to do business in, and is in good
standing in, every jurisdiction where such qualification is required.
SECTION 3.02. Authorization; Enforceability. The Transactions to be
entered into by each Loan Party are within such Loan Party's corporate powers
and have been duly authorized by all necessary corporate and, if required,
stockholder action. This Agreement has been duly executed and delivered by each
Loan Party that is a party hereto and constitutes, and each other Loan Document
to which any Loan Party is to be a party, when executed and delivered by such
Loan Party, will constitute, a legal, valid and binding obligation of such Loan
Party (as the case may be), enforceable in accordance with its terms, subject to
applicable bankruptcy, insolvency, reorganization, moratorium or other laws
affecting creditors' rights generally and subject to general principles of
equity, regardless of whether considered in a proceeding in equity or at law.
SECTION 3.03. Governmental Approvals; No Conflicts. The Transactions
(a) do not require any consent or approval of, registration or filing with, or
any other action by, any Governmental Authority, except such as have been
obtained or made and are in full force and effect and except filings necessary
to perfect Liens created under the Loan Documents, (b) will not violate any
applicable law or regulation or the charter, by-laws or other organizational
documents of any member of the Holdings Group or any order of any Governmental
Authority, (c) except as set forth in Schedule 3.03(c), will not violate or
result in a default under any indenture, agreement or other instrument binding
upon any member of the Holdings Group or its assets, or give rise to a right
thereunder to require any payment to be made by any member of the Holdings
Group, and (d) will not result in the creation or imposition of any Lien on any
asset of any member of the Holdings Group, except Liens created under the Loan
Documents.
SECTION 3.04. Financial Condition; No Material Adverse Change. (a)
Hechinger has heretofore furnished to the Lenders its consolidated balance sheet
and statements of income, stockholders' equity and cash flows (i) as of and for
each of the fiscal years in the three year period ended February 1, 1997,
reported on by Ernst & Young LLP, independent public accountants, and (ii) as of
and for the two fiscal quarters and the portion of the fiscal year ended August
2, 1997, certified by its chief financial officer. Such financial statements
present fairly, in all material respects, the financial position and results of
operations and cash flows of Hechinger and its consolidated subsidiaries as of
such dates and for such periods in accordance with GAAP, subject to year-end
audit adjustments and the absence of footnotes in the case of the statements
referred to in clause (ii) above.
(b) Holdings has heretofore furnished to the Lenders its
consolidated balance sheet and statements of income, stockholders' equity and
cash flows as of and for each of the fiscal years in the three year period ended
October 3, 1998, certified by its chief financial officer. Such financial
statements present fairly, in all material respects, the financial position and
results of operations and cash flows of
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Holdings and its consolidated subsidiaries as of such dates and for such periods
in accordance with GAAP, subject to year-end audit adjustments and the absence
of footnotes.
(c) Except as disclosed in Schedule 3.04(c) or in the December 1998
Bank Presentation, since February 1, 1997, there has been no material adverse
change in the business, assets, operations, material agreements, prospects or
condition, financial or otherwise, of Hechinger and the Hechinger Entities,
taken as a whole.
(d) The Borrower has heretofore furnished to the Lenders Builders
Square's unaudited balance sheet and statements of income, stockholders' equity
and cash flows (i) as of and for each of the fiscal years in the three year
period ended January 26, 1997, and (ii) as of and for the two fiscal quarters
and the portion of the fiscal year ended July 26, 1997. Such financial
statements present fairly, in all material respects, the financial position and
results of operations and cash flows of Builders Square as of such dates and for
such periods in accordance with GAAP, subject to year-end audit adjustments.
(e) Each of Holdings and the Borrower has heretofore furnished to
the Lenders its pro forma consolidated balance sheet as of the Effective Date,
prepared giving effect to the Additional Financing Transactions as if the
Additional Financing Transactions had occurred on such date. Each such pro forma
consolidated balance sheet (i) was prepared in good faith based on assumptions
that were, at the time of preparation of such pro forma financial statements,
and are, as of the date hereof, believed by Holdings and the Borrower to be
reasonable), (ii) was based on the best information available to Holdings and
the Borrower after due inquiry at the date thereof, (iii) accurately reflects
all adjustments necessary to give effect to the Additional Financing
Transactions and (iv) presents fairly, in all material respects, the pro forma
financial position of each of Holdings and its consolidated subsidiaries and of
the Borrower and its consolidated subsidiaries as of the Effective Date, as if
the Additional Financing Transactions had occurred on such date.
(f) Except as disclosed in Schedule 3.04(f) or in the December 1998
Bank Presentation, since January 26, 1997, there has been no material adverse
change in the business, assets, operations, material agreements, prospects or
condition, financial or otherwise, of Builders Square.
(g) Except as disclosed in the financial statements referred to
above or the notes thereto or in the Information Memorandum or the December 1998
Bank Presentation and except for the Disclosed Matters, after giving effect to
the Transactions, no member of the Holdings Group has, as of the Effective Date,
any material contingent liabilities, unusual long-term commitments or unrealized
losses.
(h) Except as disclosed in the December 1998 Bank Presentation,
since October 3, 1998, there has been no material adverse change in the
business, assets, operations, material agreements, prospects or condition,
financial or otherwise, of the Holdings Group, taken as a whole, or of the
Borrower and the Borrower Subsidiaries, taken as a whole.
SECTION 3.05. Properties. (a) Except as disclosed in Schedule 3.05,
each member of the Holdings Group has good title to, or valid leasehold
interests in, all its real and personal property material to its business,
except for minor defects in title that do not interfere with its ability to
conduct its business as currently conducted or to utilize such properties for
their intended purposes.
(b) Each member of the Holdings Group owns, or is licensed to use,
all trademarks, trade names, copyrights, patents and other intellectual property
material to its business, and the use thereof by the Holdings Group does not
infringe upon the rights of any other Person, except for any such infringements
that, individually or in the aggregate, could not reasonably be expected to
result in a Material Adverse Effect.
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(c) Schedule 3.05 sets forth the address (including county) of each
real property that is owned or leased by the Holdings Group as of the Effective
Date.
SECTION 3.06. Litigation and Environmental Matters. (a) There are no
actions, suits or proceedings by or before any arbitrator or Governmental
Authority pending against or, to the knowledge of any Transaction Party,
threatened against or affecting any member of the Holdings Group (i) as to which
there is a reasonable possibility of an adverse determination and that, if
adversely determined, could reasonably be expected, individually or in the
aggregate, to result in a Material Adverse Effect (other than the Disclosed
Matters) or (ii) that involve any of the Loan Documents or the Transactions.
(b) Except for the Disclosed Matters and except with respect to any
other matters that, individually or in the aggregate, could not reasonably be
expected to result in a Material Adverse Effect, no member of the Holdings Group
(i) has failed to comply with any Environmental Law or to obtain, maintain or
comply with any permit, license or other approval required under any
Environmental Law, (ii) has become subject to any Environmental Liability, (iii)
has received notice of any claim with respect to any Environmental Liability or
(iv) knows of any basis for any Environmental Liability.
(c) Since the date of this Agreement, there has been no change in
the status of the Disclosed Matters that, individually or in the aggregate, has
resulted in, or could reasonably be expected to result in, a Material Adverse
Effect.
SECTION 3.07. Compliance with Laws and Agreements. Each member of
the Holdings Group is in compliance with all laws, regulations and orders of any
Governmental Authority applicable to it or its property and all indentures,
agreements and other instruments binding upon it or its property, except where
the failure to do so, individually or in the aggregate, could not reasonably be
expected to result in a Material Adverse Effect. No Default has occurred and is
continuing.
SECTION 3.08. Investment and Holding Company Status. No member of
the Holdings Group is (a) an "investment company" as defined in, or subject to
regulation under, the Investment Company Act of 1940 or (b) a "holding company"
as defined in, or subject to regulation under, the Public Utility Holding
Company Act of 1935.
SECTION 3.09. Taxes. Each member of the Holdings Group has timely
filed or caused to be filed all Tax returns and reports required to have been
filed and has paid or caused to be paid all Taxes required to have been paid by
it, except (a) Taxes that are being contested in good faith by appropriate
proceedings and for which such member, as applicable, has set aside on its books
adequate reserves or (b) to the extent that the failure to do so could not
reasonably be expected to result in a Material Adverse Effect.
SECTION 3.10. ERISA. No ERISA Event has occurred or is reasonably
expected to occur that, when taken together with all other such ERISA Events for
which liability is reasonably expected to occur, could reasonably be expected to
result in a Material Adverse Effect. The present value of all accumulated
benefit obligations under each Plan (based on the assumptions used for purposes
of Statement of Financial Accounting Standards No. 87) did not, as of the date
of the most recent financial statements reflecting such amounts, exceed by more
than $500,000 the fair market value of the assets of such Plan, and the present
value of all accumulated benefit obligations of all underfunded Plans (based on
the assumptions used for purposes of Statement of Financial Accounting Standards
No. 87) did not, as of the date of the most recent financial statements
reflecting such amounts, exceed by more than $1,000,000 the fair market value of
the assets of all such underfunded Plans.
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SECTION 3.11. Disclosure. The Transaction Parties have disclosed to
the Lenders all agreements, instruments and corporate or other restrictions to
which any member of the Holdings Group is subject, and all other matters known
to any of them, that, individually or in the aggregate, could reasonably be
expected to result in a Material Adverse Effect. None of the Information
Memorandum, the December 1998 Bank Presentation or any of the other reports,
financial statements, certificates or other information furnished by or on
behalf of any Loan Party to the Administrative Agent or any Lender in connection
with the negotiation of this Agreement or any other Loan Document or the
Existing Loan Documents or delivered hereunder or thereunder (as modified or
supplemented by other information so furnished) contains any material
misstatement of fact or omits to state any material fact necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, provided that, with respect to projected financial
information, the members of the Holdings Group represent only that such
information was prepared in good faith based upon assumptions believed to be
reasonable at the time.
SECTION 3.12. Subsidiaries. Holdings does not have any subsidiaries
other than the Borrower and the other Subsidiaries. Schedule 3.12 sets forth the
name of, and the ownership interest of Holdings in, each Subsidiary of Holdings
and identifies each Subsidiary that is a Subsidiary Loan Party, in each case as
of the Effective Date.
SECTION 3.13. Insurance. Schedule 3.13 sets forth a description of
all insurance maintained by or on behalf of Holdings and the Subsidiaries as of
the Effective Date. As of the Effective Date, all premiums in respect of such
insurance that are due and payable have been paid.
SECTION 3.14. Labor Matters. As of the Effective Date, there are no
strikes, lockouts or slowdowns against any member of the Holdings Group pending
or, to the knowledge of the Transaction Parties, threatened. The hours worked by
and payments made to employees of the Holdings Group have not been in violation
of the Fair Labor Standards Act or any other applicable Federal, state, local or
foreign law dealing with such matters. All payments due from any member of the
Holdings Group, or for which any claim may be made against any member of the
Holdings Group, on account of wages and employee health and welfare insurance
and other benefits, have been paid or accrued as a liability on the books of
such member. The consummation of the Transactions will not give rise to any
right of termination or right of renegotiation on the part of any union under
any collective bargaining agreement to which any member of the Holdings Group is
bound.
SECTION 3.15. Solvency. Immediately after the consummation of the
Additional Financing Transactions and immediately following the making of each
Loan made on the Effective Date, the making of each "Loan" (as such term is
defined in the Amended Existing Credit Agreement) made on the Effective Date and
after giving effect to the application of the proceeds of such Loans, (a) the
fair value of the assets of each Transaction Party on a consolidated basis with
its subsidiaries, at a fair valuation, will exceed its debts and liabilities,
subordinated, contingent or otherwise; (b) the present fair saleable value of
the property of each Transaction Party on a consolidated basis with its
subsidiaries will be greater than the amount that will be required to pay the
probable liability of its debts and other liabilities, subordinated, contingent
or otherwise, as such debts and other liabilities become absolute and matured;
(c) each Transaction Party on a consolidated basis with its subsidiaries will be
able to pay its debts and liabilities, subordinated, contingent or otherwise, as
such debts and liabilities become absolute and matured; and (d) each Transaction
Party on a consolidated basis with its subsidiaries will not have unreasonably
small capital with which to conduct the business in which it is engaged as such
business is now conducted and is proposed to be conducted following the
Effective Date.
SECTION 3.16. Security Documents. (a) The Pledge Agreement is
effective to create in favor of the Collateral Agent, for the ratable benefit of
the
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Secured Parties, a legal, valid and enforceable security interest in the
Collateral (as defined in the Pledge Agreement) and, when the Collateral is
delivered to the Collateral Agent, the Pledge Agreement shall constitute a fully
perfected second-priority Lien on, and security interest in, all right, title
and interest of the pledgor thereunder in such Collateral, in each case prior
and superior in right to any other person (other than the Collateral Agent in
its capacity as Collateral Agent for the Amended Existing Credit Agreement).
(b) The Security Agreement is effective to create in favor of the
Collateral Agent, for the ratable benefit of the Secured Parties, a legal, valid
and enforceable security interest in the Collateral (as defined in the Security
Agreement) and, when financing statements in appropriate form are filed in the
offices specified on Schedule 6 to the Perfection Certificate, the Security
Agreement shall constitute a fully perfected Lien on, and security interest in,
all right, title and interest of the grantors thereunder in such Collateral
(other than the Intellectual Property (as defined in the Security Agreement), in
each case prior and superior in right to any other person (other than the
Collateral Agent in its capacity as Collateral Agent for the Amended Existing
Credit Agreement), other than with respect to Liens expressly permitted by
Section 6.02.
(c) When the Security Agreement is filed in the United States Patent
and Trademark Office and the United States Copyright Office, the Security
Agreement shall constitute a fully perfected Lien on, and security interest in,
all right, title and interest of the Loan Parties in the Intellectual Property
(as defined in the Security Agreement) in which a security interest may be
perfected by filing, recording or registering a security agreement, financing
statement or analogous document in the United States Patent and Trademark Office
or the United States Copyright Office, as applicable, in each case prior and
superior in right to any other person (other than the Collateral Agent in its
capacity as Collateral Agent for the Amended Existing Credit Agreement), it
being understood that subsequent recordings in the United States Patent and
Trademark Office and the United States Copyright Office may be necessary to
perfect a lien on registered trademarks, trademark applications and copyrights
acquired by the Loan Parties after the date hereof.
SECTION 3.17. Federal Reserve Regulations. (a) No member of the
Holdings Group is engaged principally, or as one of its important activities, in
the business of extending credit for the purpose of buying or carrying Margin
Stock.
(b) No part of the proceeds of any Loan or any Letter of Credit will
be used, whether directly or indirectly, and whether immediately, incidentally
or ultimately, (i) to buy or carry Margin Stock or to extend credit to others
for the purpose of buying or carrying Margin Stock or to refund indebtedness
originally incurred for such purpose or (ii) for any purpose that entails a
violation of, or that is inconsistent with, the provisions of the Regulations of
the Board, including Regulation U or X.
(c) Less than 25% of the assets of Holdings Group on a consolidated
basis consist of Margin Stock.
SECTION 3.18. Year 2000 Compliance. To the best knowledge of any
Transaction Party, any reprogramming required to permit the proper functioning,
in and following the year 2000, of (a) the computer systems of each member of
the Holdings Group and (b) equipment containing embedded microchips and the
testing of all such systems and equipment, as so reprogrammed, will be completed
in all material respects by June 30, 1999. To the best knowledge of any
Transaction Party, the cost to the Holdings Group of such reprogramming and
testing and of the reasonably foreseeable consequences of year 2000 to any
member of the Holdings Group (including reprogramming errors and the failure of
others' systems or equipment) will not result in a Default or a Material Adverse
Effect.
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ARTICLE IV
Conditions
SECTION 4.01. Effective Date. This Agreement shall not become
effective until the date (the "Effective Date") on which each of the following
conditions is satisfied (or waived in accordance with Section 9.02):
(a) The Agents (or their counsel) shall have received from each
party hereto either (i) a counterpart of this Agreement signed on behalf
of such party or (ii) written evidence satisfactory to the Agents (which
may include telecopy transmission of a signed signature page of this
Agreement) that such party has signed a counterpart of this Agreement.
(b) The Agents shall have received a favorable written opinion
(addressed to each Agent and the Lenders and dated the Effective Date) of
each of (i) Irell & Manella LLP, counsel for the Transaction Parties and
for GEI II, substantially in the form of Exhibit B, (ii) Kramer, Levin,
Naftalis & Frankel, New York counsel for the Transaction Parties,
substantially in the form of Exhibit C-1, and (iii) Skadden, Arps, Slate,
Meagher & Flom LLP, counsel for Kmart, substantially in the form of
Exhibit C-2, and, in the case of each such opinion required by this
paragraph, covering such other matters relating to the Loan Parties, the
Loan Documents or the Transactions as the Required Lenders shall
reasonably request. The Transaction Parties, GEI II and Kmart hereby
request such counsel to deliver such opinions.
(c) The Agents shall have received such documents and certificates
as the Agents or their counsel may reasonably request relating to the
organization, existence and good standing of each Loan Party, the
authorization of the Transactions and any other legal matters relating to
the Loan Parties, the Loan Documents or the Transactions, all in form and
substance satisfactory to the Agents and their counsel.
(d) The Agents shall have received a certificate, dated the
Effective Date and signed by the President, a Vice President or a
Financial Officer of the Borrower, confirming compliance with the
conditions set forth in paragraphs (a), (b) and (c) of Section 4.02.
(e) The Agents shall have received all fees and other amounts due
and payable on or prior to the Effective Date, including, to the extent
invoiced, reimbursement or payment of all reasonable and documented
out-of-pocket expenses required to be reimbursed or paid by any Loan Party
hereunder or under any other Loan Document.
(f) The Agents shall have received counterparts of the Pledge
Agreement signed on behalf of the Borrower and each other Loan Party.
(g) The Agents shall have received counterparts of the Security
Agreement (including any amendments thereto reasonably requested by the
Agents) signed on behalf of the Transaction Parties and each other Loan
Party, together with the following:
(i) all documents and instruments, including Uniform
Commercial Code financing statements, required by law or reasonably
requested by the Agents to be filed, registered or recorded to
create or perfect the Liens intended to be created under the
Security Agreement; and
<PAGE> 50
45
(ii) a completed Perfection Certificate dated the Effective
Date and signed by an executive officer or Financial Officer of
Holdings, together with all attachments contemplated thereby.
(h) The Agents shall have received (i) counterparts of the Guarantee
Agreements signed on behalf of each party thereto other than the Agents
and (ii) counterparts of the Indemnity, Subrogation and Contribution
Agreement signed on behalf of the Borrower and each Subsidiary Loan Party.
(i) The Lenders shall be satisfied with (i) the Existing Loan
Documents and any waivers or amendments thereto, (ii) the corporate and
capital structure of the Loan Parties after giving effect to the
Additional Financing Transactions and (iii) all legal, tax and accounting
matters relating to the Additional Financing Transactions.
(j) After giving effect to the Additional Financing Transactions and
the other transactions contemplated hereby, the Holdings Group shall have
outstanding no indebtedness or preferred stock other than (i) Indebtedness
created under the Loan Documents or the Existing Loan Documents, (ii) the
Existing Hechinger Public Debt, (iii) the BSQ Acqco/ Holdings Note, (iv)
the BSQ Newco/Builders Square Note, (v) the BSQ Newco Note, (vi) the
Hechinger/East Coast Note and (vii) Indebtedness set forth on Schedule
6.01. The terms and conditions of all indebtedness that will remain
outstanding after the Effective Date shall be satisfactory in all respects
to the Lenders.
(k) The Lenders shall be satisfied with the sufficiency of amounts
available under this Agreement and the Amended Existing Credit Agreement
to meet the ongoing working capital requirements of the Borrower and the
Borrower Subsidiaries following the Additional Financing Transactions and
the consummation of the other transactions contemplated hereby.
(l) The Lenders shall have received a pro forma consolidated balance
sheet of each of (i) Holdings and its subsidiaries and (ii) the Borrower
and its subsidiaries as of the date hereof, reflecting all pro forma
adjustments as if the Additional Financing Transactions had been
consummated on such date, and such pro forma consolidated balance sheets
shall be consistent in all material respects with the forecasts and other
information previously provided to the Lenders.
(m) The Agents shall have received a certificate, in form and
substance reasonably satisfactory to the Lenders, from the chief financial
officer of Holdings (i) with respect to the solvency of Hechinger and its
subsidiaries on a consolidated basis as of the Effective Date, (ii) the
Borrower and the Borrower Subsidiaries on a consolidated basis as of the
Effective Date and (iii) Holdings and the Subsidiaries on a consolidated
basis as of the Effective Date.
(n) The Agents shall have received a Borrowing Base Certificate
dated the Effective Date, relating to the calendar week ended on December
18, 1998, and executed by a Financial Officer of the Borrower.
(o) The Lenders shall be satisfied that substantially all the
inventory, accounts receivable and equipment of Builders Square and
Hechinger and their respective subsidiaries are held by the Borrower and
the Borrower Subsidiaries.
(p) The Lenders shall have received audits, in form and substance
satisfactory to the Agents, from Alco Capital Group Inc., the
Administrative Agent's asset-based evaluation group, and BABC, the
Borrowing Base Audit Agent under the Amended Existing Credit Agreement, in
<PAGE> 51
46
each case of the accounts receivable and inventory of the Borrower and the
Borrower Subsidiaries after giving effect to the Transactions.
(q) The Lenders shall be satisfied with the management of Holdings,
the Borrower and the other Subsidiaries.
(r) The Amended Existing Credit Agreement shall have been executed
and delivered to the Administrative Agent by each party thereto and the
Additional Financing Transactions shall have been consummated in
accordance with applicable law, the applicable Loan Documents and Existing
Loan Documents and the related agreements and documentation.
(s) The Lenders shall be satisfied with the capitalization,
structure and equity ownership of Holdings and the Borrower.
(t) The consummation of the Additional Financing Transactions and
the other transactions contemplated hereby shall not (a) violate any
applicable law, statute, rule or regulation or (b) conflict with, or
result in a default or event of default under, any material agreement of
any member of the Holdings Group (including the Existing Hechinger Public
Indebtedness), and the Lenders shall have received one or more legal
opinions to such effect, satisfactory to the Agents, from counsel to the
Transaction Parties satisfactory to the Agents.
(u) There shall be no litigation or administrative proceeding that
could reasonably be expected to have a Material Adverse Effect or to
adversely affect the ability of the parties to consummate the Additional
Financing Transactions.
(v) The Lenders shall be reasonably satisfied in all respects with
the tax position and the contingent tax and other liabilities of Holdings,
its Affiliates and the Subsidiaries, and with the plans of Holdings with
respect thereto.
(w) The Lenders shall have received a detailed business plan and
financial projections of the Borrower and its subsidiaries for fiscal
years 1999 through 2001, in form and substance reasonably satisfactory to
the Agents.
(x) The Agents (or their counsel) shall have received such documents
as they may require that are sufficient to approve the amendment and
restatement of the Existing Facility by the Existing Revolving Lenders
under Section 9.02 thereof.
(y) The Agents shall have received counterparts of (i) the GEI II
Credit Enhancement Agreement, signed on behalf of GEI II and the Borrower,
and (ii) the Kmart Credit Enhancement Agreement, signed on behalf of
Kmart and the Borrower.
The Administrative Agent shall notify the Borrower and the Lenders of the
Effective Date, and such notice shall be conclusive and binding. Notwithstanding
the foregoing, the obligations of the Lenders to make Loans and of the Issuing
Bank to issue Letters of Credit hereunder shall not become effective unless each
of the foregoing conditions is satisfied (or waived pursuant to Section 9.02) at
or prior to 12:00 noon, New York City time, on January 4, 1999 (and, in the
event such conditions are not so satisfied or waived, this Agreement shall
terminate at such time).
<PAGE> 52
47
SECTION 4.02. Each Credit Event. The obligation of each Lender to
make a Loan on the occasion of any Borrowing, and of the Issuing Bank to issue,
amend, renew or extend any Letter of Credit, is subject to the satisfaction of
the following conditions:
(a) The representations and warranties of each Loan Party set forth
in the Loan Documents shall be true and correct in all material respects
on and as of the date of such Borrowing or the date of issuance,
amendment, renewal or extension of such Letter of Credit, as applicable,
as though made on and as of such date, other than any such representations
or warranties that by their terms refer to a date other than the date of
such Borrowing, issuance, amendment, renewal or extension, in which case
such representations and warranties shall be true and correct as of such
other date.
(b) At the time of and immediately after giving effect to such
Borrowing or the issuance, amendment, renewal or extension of such Letter
of Credit, as applicable, no Default shall have occurred and be
continuing.
(c) At the time of and immediately after giving effect to such
Borrowing, the Existing Lenders' "Total Exposure" (as such term is defined
in the Amended Existing Credit Agreement) shall not be less than the
lesser of (i) the Existing Revolving Commitments at such time and (ii) the
Borrowing Base (as such term is defined in the Amended Existing Credit
Agreement) in effect at such time.
(d) At the time of such Borrowing, no "Purchaser Bankruptcy Event of
Default" as such term is defined in the Credit Enhancement Agreements)
shall have occurred.
Each Borrowing and each issuance, amendment, renewal or extension of a Letter of
Credit shall be deemed to constitute a representation and warranty by each
Transaction Party on the date thereof as to the matters specified in paragraphs
(a) and (b) of this Section.
ARTICLE V
Affirmative Covenants
Until the Commitments have expired or been terminated and the
principal of and interest on each Loan and all fees payable hereunder shall have
been paid in full and all Letters of Credit shall have expired or terminated and
all LC Disbursements shall have been reimbursed, each Transaction Party
covenants and agrees with the Lenders that:
<PAGE> 53
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SECTION 5.01. Financial Statements and Other Information. The
Transaction Parties will furnish to each Agent and each Lender:
(a) commencing with the fiscal year of Holdings ending October 3,
1998, within 90 days after the end of each fiscal year of Holdings, its
consolidated and consolidating balance sheet and related statements of
operations, stockholders' equity and cash flows as of the end of and for
such year, setting forth in each case in comparative form the figures for
the previous fiscal year, all audited (in the case of such consolidated
statements) and reported on by independent public accountants of
recognized national standing (without a "going concern" or like
qualification or exception and without any qualification or exception as
to the scope of such audit) to the effect that such consolidated financial
statements present fairly in all material respects the financial condition
and results of operations of Holdings and its consolidated Subsidiaries on
a consolidated basis in accordance with GAAP consistently applied;
(b) (a) commencing with the fiscal year of Holdings ending October
3, 1998, within 45 days after the end of each of the first three fiscal
quarters of each fiscal year of Holdings, its consolidated and
consolidating balance sheet and related statements of operations,
stockholders' equity and cash flows as of the end of and for such fiscal
quarter and the then elapsed portion of the fiscal year, setting forth in
each case in comparative form the figures for the corresponding period or
periods of (or, in the case of the balance sheet, as of the end of) the
previous fiscal year, all certified by one of its Financial Officers as
presenting fairly in all material respects the financial condition and
results of operations of Holdings and its consolidated Subsidiaries on a
consolidated basis in accordance with GAAP consistently applied, subject
to normal year-end audit adjustments, purchase accounting adjustments and
the absence of footnotes;
(c) (a) commencing with the fiscal year of Holdings ending October
3, 1998, within 30 days after the end of each of the first two fiscal
months of each fiscal quarter of Holdings, its consolidated balance sheet
and related statements of operations, stockholders' equity and cash flows
as of the end of and for such fiscal month and the then elapsed portion of
the fiscal year, all certified by one of its Financial Officers as
presenting in all material respects the financial condition and results of
operations of Holdings and its consolidated Subsidiaries on a consolidated
basis in accordance with GAAP consistently applied, subject to normal
year-end audit adjustments, purchase accounting adjustments and the
absence of footnotes;
(d) concurrently with any delivery of financial statements under
clause (a) or (b) above, a certificate of a Financial Officer of Holdings
(i) certifying as to whether a Default has occurred and, if a Default has
occurred, specifying the details thereof and any action taken or proposed
to be taken with respect thereto, (ii) setting forth reasonably detailed
calculations demonstrating compliance with Section 6.11 and Section 6.12
and (iii) stating whether any change in GAAP or in the application thereof
has occurred since the date of Holdings's audited financial statements
referred to in Section 3.04 and, if any such change has occurred,
specifying the effect of such change on the financial statements
accompanying such certificate;
(e) concurrently with any delivery of financial statements under
clause (a) above, a certificate of the accounting firm that reported on
such financial statements stating whether they obtained knowledge during
the course of their examination of such financial statements of any
Default (which certificate may be limited to the extent required by
accounting rules or guidelines);
(f) within 30 days following the commencement of each fiscal year of
Holdings, a detailed consolidated budget for such fiscal year (including a
projected consolidated balance sheet and related statements of projected
operations and cash flow as of the end of and for such fiscal year) and,
promptly when available, any significant revisions of such budget;
<PAGE> 54
49
(g) within four Business Days after the end of each calendar week, a
certificate in the form of Exhibit I (a "Borrowing Base Certificate")
showing the Borrowing Base as of the close of business on the last day of
such week, each such Certificate to be certified as complete and correct
on behalf of the Borrower by a Financial Officer of the Borrower;
(h) promptly after the same become publicly available, copies of all
periodic and other reports, proxy statements and other materials filed by
any member of the Holdings Group with the Securities and Exchange
Commission, or any Governmental Authority succeeding to any or all of the
functions of said Commission, or with any national securities exchange, as
the case may be;
(i) promptly upon receipt thereof, copies of all reports submitted
to the Borrower by independent certified public accountants in connection
with each annual, interim or special audit of the books of the Borrower or
any of its Subsidiaries made by such accountants, including any management
letter commenting on the Borrower's internal controls submitted by such
accountants to management in connection with their annual audit;
(j) promptly following any request therefor, such other information
regarding the operations, business affairs and financial condition of any
member of the Holdings Group, or compliance with the terms of any Loan
Document, as the Agents or any Lender may reasonably request; and
(k) commencing on January 14, 1999, and biweekly thereafter on the
first day of each applicable calendar week, a detailed projection of
Holdings's sources and uses of cash for the next 90 days, prepared in good
faith by Holdings's management, including projected borrowings hereunder
and under the Existing Facility and Holdings's projected consolidated cash
balance as of the end of each day during such 90-day period, and, promptly
when available, any significant revisions to such projections.
SECTION 5.02. Notices of Material Events. The Transaction Parties
will furnish to each Agent and each Lender prompt written notice of the
following:
(a) the occurrence of any Default;
(b) the filing or commencement of any action, suit or proceeding by
or before any arbitrator or Governmental Authority against or affecting
any member of the Holdings Group or any Affiliate thereof that, if
adversely determined, could reasonably be expected to result in a Material
Adverse Effect;
(c) the occurrence of any ERISA Event that, alone or together with
any other ERISA Events that have occurred, could reasonably be expected to
result in a Material Adverse Effect; and
(d) any other development that results in, or could reasonably be
expected to result in, a Material Adverse Effect.
Each notice delivered under this Section shall be accompanied by a statement of
a Financial Officer or other executive officer of Holdings and the Borrower
setting forth the details of the event or development requiring such notice and
any action taken or proposed to be taken with respect thereto.
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SECTION 5.03. Information Regarding Collateral. (a) The Transaction
Parties will furnish to the Agents prompt written notice of any change (i) in
any Loan Party's corporate name or in any trade name used to identify it in the
conduct of its business or in the ownership of its properties, (ii) in the
location of any Loan Party's chief executive office, its principal place of
business, any office in which it maintains books or records relating to
Collateral owned by it or any office or facility at which Collateral owned by it
is located (including the establishment of any such new office or facility),
(iii) in any Loan Party's identity or corporate structure or (iv) in any Loan
Party's Federal Taxpayer Identification Number. The Transaction Parties agree
not to effect or permit any change referred to in the preceding sentence unless
all filings have been made under the Uniform Commercial Code or otherwise that
are required in order for the Agents to continue at all times following such
change to have a valid, legal and perfected security interest in all the
Collateral. The Transaction Parties also agree promptly to notify the Agents if
any material portion of the Collateral is damaged or destroyed.
(b) Each year, at the time of delivery of annual financial
statements with respect to the preceding fiscal year pursuant to clause (a) of
Section 5.01, Holdings shall deliver to the Agents a certificate of a Financial
Officer of Holdings setting forth the information required pursuant to Section 2
of the Perfection Certificate or confirming that there has been no change in
such information since the date of the Perfection Certificate delivered on the
Effective Date or the date of the most recent certificate delivered pursuant to
this Section.
SECTION 5.04. Existence; Conduct of Business. Each Transaction Party
will, and will cause each of the Subsidiaries to, do or cause to be done all
things necessary to preserve, renew and keep in full force and effect its legal
existence and the rights, licenses, permits, privileges, franchises, patents,
copyrights, trademarks and trade names material to the conduct of its business,
provided that the foregoing shall not prohibit any merger, consolidation,
liquidation or dissolution permitted under Section 6.03.
SECTION 5.05. Payment of Obligations. Each Transaction Party will,
and will cause each of the Subsidiaries to, pay its Indebtedness and other
obligations, including Tax liabilities, before the same shall become delinquent
or in default, except where (a) the validity or amount thereof is being
contested in good faith by appropriate proceedings, (b) such Transaction Party
or such Subsidiary has set aside on its books adequate reserves with respect
thereto in accordance with GAAP, (c) such contest effectively suspends
collection of the contested obligation and the enforcement of any Lien securing
such obligation and (d) the failure to make payment pending such contest could
not reasonably be expected to result in a Material Adverse Effect.
SECTION 5.06. Maintenance of Properties. Each Transaction Party
will, and will cause each of the Subsidiaries to, keep and maintain all property
material to the conduct of its business in good working order and condition,
ordinary wear and tear excepted.
SECTION 5.07. Insurance. (a) Each Transaction Party shall (i)
maintain insurance with financially sound and reputable insurers with an A.M.
Best rating of A- or better (or, to the extent consistent with prudent business
practice, a program of self-insurance approved by the Administrative Agent) on
such of its property and in at least such amounts and against at least such
risks as is customary with companies in the same or similar businesses operating
in the same or similar locations, including public liability insurance against
claims for personal injury or death occurring upon, in or about or in connection
with the use of any properties owned, occupied or controlled by it (including
the insurance required pursuant to the Security Documents); (ii) maintain such
other insurance as may be required by law; and (iii) furnish to the
Administrative Agent, upon written request, full information as to the insurance
carried.
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(b) Fire and extended coverage policies maintained with respect to
any Collateral shall be endorsed or otherwise amended to include (i) a
non-contributing mortgage clause (regarding improvements to real property) and
lenders' loss payable clause (regarding personal property), in form and
substance satisfactory to the Administrative Agent, which endorsements or
amendments shall provide that, from and after the Effective Date, if the insurer
shall have received written notice from the Administrative Agent or the
Borrowing Base Audit Agent of the occurrence of an Event of Default, the insurer
shall pay all proceeds otherwise payable to the Borrower or the other Loan
Parties under the policies directly to the Administrative Agent or the
Collateral Agent, (ii) a provision to the effect that none of the Borrower, the
Administrative Agent or any other party shall be a coinsurer and (iii) such
other provisions as the Administrative Agent may reasonably require from time to
time to protect the interests of the Lenders. Commercial general liability
policies shall be endorsed to name the Administrative Agent as an additional
insured. Business interruption policies shall name the Administrative Agent as a
loss payee and shall be endorsed or amended to include (i) a provision that,
from and after the Effective Date, if the insurer shall have received written
notice from the Administrative Agent or the Collateral Agent of the occurrence
of an Event of Default, the insurer shall pay all proceeds otherwise payable to
the Borrower or the other Loan Parties under the policies directly to the
Administrative Agent or the Collateral Agent, (ii) a provision to the effect
that none of the Borrower, the Administrative Agent or any other party shall be
a co-insurer and (iii) such other provisions as the Administrative Agent may
reasonably require from time to time to protect the interests of the Lenders.
Each such policy referred to in this paragraph also shall provide that it shall
not be canceled, modified or not renewed (i) by reason of nonpayment of premium
except upon not less than 10 days' prior written notice thereof by the insurer
to the Administrative Agent (giving the Administrative Agent the right to cure
defaults in the payment of premiums) or (ii) for any other reason except upon
not less than 30 days' prior written notice thereof by the insurer to the
Administrative Agent. The Borrower shall deliver to the Administrative Agent,
prior to the cancelation, modification or nonrenewal of any such policy of
insurance, a copy of a renewal or replacement policy (or other evidence of
renewal of a policy previously delivered to the Administrative Agent) together
with evidence satisfactory to the Administrative Agent of payment of the premium
therefor.
SECTION 5.08. Casualty and Condemnation. Each Transaction Party will
furnish to the Agents and the Lenders prompt written notice of any casualty or
other insured damage to any material portion of any Collateral or the
commencement of any action or proceeding for the taking of any material portion
of the Collateral or any part thereof or interest therein under power of eminent
domain or by condemnation or similar proceeding.
SECTION 5.09. Books and Records; Inspection and Audit Rights. (a)
Each Transaction Party will, and will cause each of the Subsidiaries to, keep
proper books of record and account in which full, true and correct entries are
made of all dealings and transactions in relation to its business and
activities. Each Transaction Party will, and will cause each of the Subsidiaries
to, permit any representatives designated by any Agent or any Lender, upon
reasonable prior notice, to visit and inspect its properties, to examine and
make extracts from its books and records, and to discuss its affairs, finances
and condition with its officers and independent accountants, all at such
reasonable times and as often as reasonably requested.
(b) Each Transaction Party will, and will cause each of the
Subsidiaries to, from time to time upon the request of the Borrowing Base Audit
Agent, the Collateral Agent or the Required Lenders through the Administrative
Agent, permit the Borrowing Base Audit Agent, the Collateral Agent or the
Lenders or professionals (including investment bankers, consultants,
accountants, lawyers and appraisers) retained by the Borrowing Base Audit Agent,
the Collateral Agent, the Administrative Agent or the Lenders to conduct
evaluations and appraisals of (i) the Borrower's practices in the computation of
the Borrowing Base and (ii) the assets included in the Borrowing Base and
related financial information such as, but not limited to, sales, gross margins,
payables, accruals and reserves (it being understood and agreed
<PAGE> 57
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to that, in the absence of a Default, the Borrowing Base Audit Agent or the
Collateral Agent will conduct such evaluations and appraisals each quarter), and
pay the reasonable and documented fees and expenses of the Borrowing Base Audit
Agent, the Collateral Agent, the Lenders or such professionals with respect to
such evaluations and appraisals. The Borrower hereby agrees that Alco Capital
Group, Inc. will update its inventory audit report, which is to be delivered to
the Lenders on or before the Effective Date pursuant to Section 4.01(p), as of
each of March 31, 1999, and June 30, 1999, and that such updated reports shall
be delivered to the Lenders immediately upon their completion.
(c) Each Transaction Party will, and will cause each of the
Subsidiaries to, in connection with any evaluation and appraisal relating to the
computation of the Borrowing Base, maintain such additional reserves (for
purposes of computing the Borrowing Base) in respect of Eligible Inventory and
in respect of Eligible Inventory Minus Reserves and make such other adjustments
to its parameters for including Inventory in the Borrowing Base as the Borrowing
Base Audit Agent and the Collateral Agent or the Required Lenders through the
Administrative Agent shall require based upon the results of such evaluation and
appraisal.
(d) Each Transaction Party will, and will cause each of the
Subsidiaries to, from time to time upon request of the Borrowing Base Audit
Agent, the Collateral Agent or the Required Lenders through the Administrative
Agent, permit its agents or representatives to conduct reviews to determine the
net recovery value of inventory, and pay the reasonable and documented fees and
expenses of such agents or representatives with respect to such reviews.
(e) Not less frequently than each fiscal quarter, Holdings shall
conduct a conference call with the Lenders to update them on the financial
performance and results of operations of the Holdings Group and other related
topics.
(f) Not later than January 29, 1999, Holdings shall host at the
offices of the Administrative Agent in New York, New York a bank meeting to
which each of the Lenders shall be invited to attend.
SECTION 5.10. Compliance with Laws. Each Transaction Party will, and
will cause each of the Subsidiaries to, comply with all laws, rules, regulations
and orders of any Governmental Authority applicable to it or its property,
except where the failure to do so, individually or in the aggregate, could not
reasonably be expected to result in a Material Adverse Effect.
SECTION 5.11. Use of Proceeds and Letters of Credit. The proceeds of
Loans made hereunder and Letters of Credit issued hereunder will be used only
(a) to finance the working capital needs of the Borrower and the Borrower
Subsidiaries, including the purchase of inventory and equipment, in each case in
the ordinary course of business and (b) to finance capital expenditures of the
Borrower and the Borrower Subsidiaries (it being understood that in no event
will any such proceeds be used to fund any Permitted Acquisition). No part of
the proceeds of any Loan will be used, whether directly or indirectly, for any
purpose that entails a violation of any of the Regulations of the Board,
including Regulations U and X.
SECTION 5.12. Additional Borrower Subsidiaries. If any additional
Borrower Subsidiary is formed or acquired after the Effective Date, Holdings and
the Borrower will notify the Agents and the Lenders thereof and (a) if such
Borrower Subsidiary is a Subsidiary Loan Party, Holdings and the Borrower will
cause such Borrower Subsidiary to become a party to the Subsidiary Guarantee
Agreement, the Indemnity, Subrogation and Contribution Agreement and each
applicable Security Document in the manner provided therein within three
Business Days after such Borrower Subsidiary is formed or acquired and promptly
take such actions to create and perfect Liens on such Borrower Subsidiary's
assets to secure the Obligations as any Agent or the Required Lenders shall
reasonably request and (b) if any shares of capital stock or Indebtedness of
such Borrower
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Subsidiary are owned by or on behalf of any Loan Party, Holdings and the
Borrower will cause such shares and promissory notes evidencing such
Indebtedness to be pledged pursuant to the Pledge Agreement within three
Business Days after such Borrower Subsidiary is formed or acquired (except that,
if such Borrower Subsidiary is a Foreign Subsidiary, shares of common stock of
such Borrower Subsidiary to be pledged pursuant to the Pledge Agreement may be
limited to 65% of the outstanding shares of common stock of such Borrower
Subsidiary).
SECTION 5.13. Further Assurances. (a) Each Transaction Party will,
and will cause each Subsidiary Loan Party to, execute any and all further
documents, financing statements, agreements and instruments, and take all such
further actions (including the filing and recording of financing statements and
other documents), that may be required under any applicable law, or which any
Agent or the Required Lenders may reasonably request, to effectuate the
transactions contemplated by the Loan Documents or to grant, preserve, protect
or perfect the Liens created or intended to be created by the Security Documents
or the validity or priority of any such Lien, all at the expense of the Loan
Parties. The Transaction Parties also agree to provide to the Agents, from time
to time upon request, evidence reasonably satisfactory to the Agents as to the
perfection and priority of the Liens created or intended to be created by the
Security Documents.
(b) If any material assets (other than real property and personal
property that is not of the type encumbered or to be encumbered by the Lien of
the Security Agreement on the Effective Date) are acquired by the Holdings Group
or any Subsidiary Loan Party after the Effective Date (other than assets
constituting Collateral under the Security Agreement that become subject to the
Lien of the Security Agreement upon acquisition thereof), the Transaction
Parties will notify the Agents and the Lenders thereof, and, if requested by any
Agent or the Required Lenders, the Transaction Parties will cause such assets to
be subjected to a Lien securing the Obligations and will take, and cause the
Subsidiary Loan Parties to take, such actions as shall be necessary or
reasonably requested by any Agent to grant and perfect such Liens, including
actions described in paragraph (a) of this Section, all at the expense of the
Loan Parties.
SECTION 5.14. Cash Management Procedures. As promptly as
practicable, the Holdings Group will establish and maintain (i) the cash
management procedures set forth in the Security Agreement and (ii) the lockbox
arrangements set forth in the Security Agreement (in no event later than 30 days
after the Effective Date).
SECTION 5.15. Delivery of Business Plan. As promptly as practicable
and in any event on or before March 31, 1999, the Borrower will, in consultation
with the independent financial advisor retained pursuant to Section 5.16,
develop and deliver to the Lenders a business plan, satisfactory in form and
substance to the Administrative Agent, with respect to (a) the
two-fiscal-quarter period ending on June 30, 1999, (b) the four-fiscal-quarter
period ending on December 31, 1999, and (c) the period from October 4, 1998, to
September 30, 2002, provided that if the Borrower delivers a business plan
pursuant to this Section 5.15, the failure of such plan to be satisfactory in
form and substance to the Administrative Agent shall not be a Default or an
Event of Default.
SECTION 5.16. Independent Financial Advisor. Promptly following the
Effective Date, the Transaction Parties shall retain an independent financial
consultant reasonably satisfactory to the Administrative Agent, to act as an
independent financial consultant to the Holdings Group and to provide each of
the Holdings Group, the Lenders, the Agents, GEI II and Kmart with monthly
reports (containing such information as is customary for such reports and such
other information as the Administrative Agent shall reasonably request) on the
financial condition and ongoing results of operations of the Holdings Group and
the Borrower.
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ARTICLE VI
Negative Covenants
Until the Commitments have expired or terminated and the principal
of and interest on each Loan and all fees payable hereunder have been paid in
full and all Letters of Credit have expired or terminated and all LC
Disbursements shall have been reimbursed, each Transaction Party covenants and
agrees with the Lenders that:
SECTION 6.01. Indebtedness; Certain Equity Securities. (a) The
Transaction Parties will not, and will not permit any Subsidiary to, create,
incur, assume or permit to exist any Indebtedness, except:
(i) Indebtedness created under the Loan Documents and the Existing
Loan Documents;
(ii) Indebtedness existing on September 26, 1997, and set forth in
Schedule 6.01 and extensions, renewals and replacements of any such
Indebtedness that do not increase the outstanding principal amount thereof
or result in an earlier maturity date or decreased weighted average life
thereof, provided that the material terms of such extensions, renewals and
replacements are at least as favorable to the Lenders as those of such
Indebtedness;
(iii) Indebtedness of (a) any Loan Party that is not a Foreign
Subsidiary to any other Loan Party that is not a Foreign Subsidiary (other
than the Borrower or the Borrower Subsidiaries) and (b) the Borrower to
any Borrower Subsidiary and of any Borrower Subsidiary to the Borrower or
any other Borrower Subsidiary, provided that Indebtedness of any Borrower
Subsidiary that is not a Loan Party to the Borrower or any Subsidiary Loan
Party shall be subject to Section 6.04;
(iv) Guarantees by any Subsidiary Loan Party of Indebtedness of any
Borrower Subsidiary and by any Borrower Subsidiary of Indebtedness of the
Borrower or any other such Borrower Subsidiary, provided that Guarantees
by the Borrower or any Subsidiary Loan Party of Indebtedness of any
Borrower Subsidiary that is not a Loan Party shall be subject to Section
6.04;
(v) Indebtedness of the Borrower, Hechinger, Hechinger East Coast,
BSQ Newco, Hechinger Stores or any Borrower Subsidiary incurred to finance
the acquisition, construction or improvement of any fixed or capital
assets, including Capital Lease Obligations and any Indebtedness assumed
in connection with the acquisition of any such assets or secured by a Lien
on any such assets prior to the acquisition thereof, and extensions,
renewals and replacements of any such Indebtedness that do not increase
the outstanding principal amount thereof or result in an earlier maturity
date or decreased weighted average life thereof, provided that (A) such
Indebtedness is incurred prior to or within 90 days after such acquisition
or the completion of such construction or improvement and (B) the
aggregate principal amount of Indebtedness permitted by this clause (v)
shall not exceed $15,000,000 at any time outstanding;
(vi) Indebtedness of any Person that becomes a Borrower Subsidiary
after the date hereof, provided that (A) such Indebtedness exists at the
time such Person becomes a Borrower Subsidiary and is not created in
contemplation of or in connection with such Person becoming a Borrower
Subsidiary and (B) the aggregate principal amount of Indebtedness
permitted by this clause (vi) shall not exceed $5,000,000 at any time
outstanding;
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(vii) the BSQ Newco Note, BSQ Acqco/Holdings Note and BSQ
Newco/Builders Square Note;
(viii) Indebtedness under Hedging Agreements entered into in
accordance with Section 6.06;
(ix) intentionally omitted;
(x) Indebtedness incurred in connection with the Receivables
Purchase Agreements;
(xi) Indebtedness incurred in connection with the Company Owned
Life Insurance Program, provided that the aggregate principal amount of
Indebtedness permitted by this clause (xi) shall not exceed $45,000,000 at
any time outstanding;
(xii) the Existing Hechinger Public Indebtedness; and
(xiii) other unsecured Indebtedness in an aggregate principal amount
not exceeding $10,000,000 at any time outstanding, provided that the
aggregate principal amount of Indebtedness of the Borrower Subsidiaries
permitted by this clause (xiii) shall not exceed $2,000,000 at any time
outstanding.
(b) Subject to the provisions of Section 6.07, none of the
Transaction Parties will, nor will they permit any Subsidiary to, issue any
preferred stock (except for preferred stock (i) all dividends in respect of
which are to be paid (and all other payments in respect of which are to be made)
in additional shares of such preferred stock, in lieu of cash, until the date
that is at least 360 days following the Existing Facility Maturity Date, (ii)
that is not subject to redemption other than redemption at the option of the
Transaction Party issuing such preferred stock and (iii) all payments in respect
of which are expressly subordinated to the Obligations) or be or become liable
in respect of any obligation (contingent or otherwise) to purchase, redeem,
retire, acquire or make any other payment in respect of (i) any shares of
capital stock of any member of the Holdings Group or (ii) any option, warrant or
other right to acquire any such shares of capital stock.
SECTION 6.02. Liens. The Transaction Parties will not, and will not
permit any Subsidiary to, create, incur, assume or permit to exist any Lien on
any property or asset now owned or hereafter acquired by it, or assign or sell
any income or revenues (including accounts receivable) or rights in respect of
any thereof, except:
(a) Liens created under the Loan Documents and the Existing Loan
Documents;
(b) Permitted Encumbrances;
(c) any Lien on any property or asset of any Loan Party existing
on September 26, 1997, and set forth in Schedule 6.02, provided that (i)
such Lien shall not apply to any other property or asset of any Loan Party
and (ii) such Lien shall secure only those obligations that it secures on
September 26, 1997, and extensions, renewals and replacements thereof that
do not increase the outstanding principal amount thereof;
(d) any Lien existing on any property or asset prior to the
acquisition thereof by the Borrower or any Borrower Subsidiary or existing
on any property or asset of any Person that becomes a Borrower Subsidiary
after the date hereof prior to the time such Person becomes a Borrower
Subsidiary, provided that (i) such Lien is not created in contemplation of
or in connection with such acquisition or such Person becoming a Borrower
Subsidiary, as the case may be, (ii) such Lien shall not apply to any
other property or assets of the Borrower or any
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Borrower Subsidiary and (iii) such Lien shall secure only those
obligations that it secures on the date of such acquisition or the date
such Person becomes a Borrower Subsidiary, as the case may be and
extensions, renewals and replacements thereof that do not increase the
outstanding principal amount thereof;
(e) Liens on fixed or capital assets acquired, constructed or
improved by the Borrower, Hechinger, Hechinger East Coast, BSQ Newco,
Hechinger Stores or any Borrower Subsidiary, provided that (i) such
security interests secure Indebtedness permitted by clause (v) of Section
6.01(a), (ii) such security interests and the Indebtedness secured thereby
are incurred prior to or within 90 days after such acquisition or the
completion of such construction or improvement, (iii) the Indebtedness
secured thereby does not exceed 100% of the cost of acquiring,
constructing or improving such fixed or capital assets and (iv) such
security interests shall not apply to any other property or assets of the
Borrower, Hechinger, Hechinger East Coast, BSQ Newco, Hechinger Stores or
any Borrower Subsidiary;
(f) the Warrant;
(g) leases and subleases on real property of any of the Transaction
Parties or any Subsidiary, provided that either (i) such lease or sublease
is entered into in the ordinary course of such Person's business or (ii)
such real property is not being used by such Person in the ordinary course
of its business or is being used in a manner not inconsistent with the
granting of such lease or sublease;
(h) Liens on account receivables created in connection with the
Receivables Purchase Agreements;
(i) Liens created in connection with the loans under the Company
Owned Life Insurance Program;
(j) Liens listed on Schedule 6.02; and
(k) the Lien of the Massachusetts Mutual Life Insurance Company on
the Holdings Group's real property located at 4500 Wisconsin Avenue NW,
Washington, DC (store #3152), provided that (i) such Lien shall not apply
to any other property or asset of any Loan Party and (ii) such Lien shall
secure only those obligations owed to the Massachusetts Mutual Life
Insurance Company that existed on September 26, 1997 (and extensions,
renewals and replacements thereof that do not increase the outstanding
principal amount thereof), and that were secured on such date by the Lien
of the Massachusetts Mutual Life Insurance Company on the Holdings Group's
real property located at 3500 Pennsy Drive, Landover, MD.
SECTION 6.03. Fundamental Changes. (a) The Transaction Parties will
not and will not permit any Subsidiary to, merge into or consolidate with any
other Person, or permit any other Person to merge into or consolidate with it,
or liquidate or dissolve, except that, if at the time thereof and immediately
after giving effect thereto no Default shall have occurred and be continuing,
(i) any Subsidiary may merge into the Borrower in a transaction in which the
Borrower is the surviving corporation, (ii) any Subsidiary may merge into any
Subsidiary Loan Party in a transaction in which the surviving entity is a
Subsidiary Loan Party, (iii) any Subsidiary that is not a Loan Party may merge
into any Subsidiary that is not a Loan Party and (iv) any Borrower Subsidiary
may liquidate or dissolve if the Borrower determines in good faith that such
liquidation or dissolution is in the best interests of the Borrower and is not
materially disadvantageous to the Lenders, provided that any such merger
involving a Person that is not a wholly owned Subsidiary immediately prior to
such merger shall not be permitted unless also permitted by Section 6.04.
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(b) The Borrower will not, and will not permit any of the Borrower
Subsidiaries to, engage to any material extent in any business other than
businesses of the type conducted by the Borrower and such Borrower Subsidiaries
on the date of execution of this Agreement and businesses reasonably related
thereto.
(c) Holdings will not, and will not permit any of the Subsidiaries
to, engage in any business or activity other than the ownership of all the
outstanding shares of capital stock of BSQ Acqco and activities incidental
thereto. Holdings will not own or acquire any assets (other than shares of
capital stock of BSQ Acqco, the BSQ Acqco/Holdings Note, cash and Permitted
Investments) or incur any liabilities (other than liabilities under the Loan
Documents and Existing Loan Documents, liabilities imposed by law, including tax
liabilities, and other liabilities incidental to its existence and permitted
business and activities, including intercompany Indebtedness permitted under
Section 6.01(a)(iii)).
(d) BSQ Acqco will not engage in any business or activity other than
the ownership of all the outstanding shares of capital stock of BSQ Newco and
Hechinger and activities incidental thereto. BSQ Acqco will not own or acquire
any assets (other than shares of capital stock of BSQ Newco and Hechinger, cash
and Permitted Investments) or incur any liabilities (other than liabilities
under the Loan Documents, the Existing Loan Documents and the BSQ Acqco/Holdings
Note, liabilities imposed by law, including tax liabilities, and other
liabilities incidental to its existence and permitted business and activities,
including intercompany indebtedness permitted under Section 6.01(a)(iii)).
(e) BSQ Newco will not engage in any business or activity other than
being the obligee under the BSQ Newco Note and the obligor under the BSQ
Newco/Builders Square Note and activities incidental thereto and the ownership
of the real and personal property set forth in Schedule 6.03(e) and the
activities incidental thereto. BSQ Newco will not own or acquire any assets
(other than the assets described in the first sentence hereof, cash and
Permitted Investments) or incur any liabilities (other than liabilities under
the Loan Documents, the Existing Loan Documents and the BSQ Newco/Builders
Square Note, liabilities imposed by law, including tax liabilities, and other
liabilities incidental to its existence and permitted business and activities,
including intercompany indebtedness permitted under Section 6.01(a)(iii)).
(f) Hechinger will not engage in any business or activity other than
the ownership of all the outstanding shares of capital stock of Hechinger
Stores, being the obligee under the Existing Hechinger Public Debt and
activities incidental thereto and the ownership of the real and personal
property set forth in Schedule 6.03(f) and the activities incidental thereto.
Hechinger will not own or acquire any assets (other than the assets described in
the first sentence hereof, cash and Permitted Investments) or incur any
liabilities (other than liabilities under the Loan Documents and Existing Loan
Documents, the Existing Hechinger Public Debt, liabilities imposed by law,
including tax liabilities, and other liabilities incidental to its existence and
permitted business and activities, including intercompany indebtedness permitted
under Section 6.01(a)(iii)).
(g) Hechinger Stores will not engage in any business or activity
other than the ownership of all the outstanding shares of capital stock of the
Borrower and Hechinger East Coast and activities incidental thereto and the
ownership of the real and personal property set forth in Schedule 6.03(g) and
the activities incidental thereto. Hechinger Stores will not own or acquire any
assets (other than the assets described in the first sentence hereof, cash and
Permitted Investments) or incur any liabilities (other than liabilities under
the Loan Documents and the Existing Loan Documents, liabilities imposed by law,
including tax liabilities, and other liabilities incidental to its existence and
permitted business and activities including intercompany indebtedness permitted
under Section 6.01(a)(iii)).
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(h) Hechinger East Coast will not engage in any business or activity
other than activities incidental thereto and the ownership of the real and
personal property set forth in Schedule 6.03(h) and the activities incidental
thereto. Hechinger East Coast will not own or acquire any assets (other than the
assets described in the first sentence hereof, cash and Permitted Investments)
or incur any liabilities (other than liabilities under the Loan Documents and
the Existing Loan Documents, liabilities imposed by law, including tax
liabilities, and other liabilities incidental to its existence and permitted
business and activities, including intercompany indebtedness permitted under
Section 6.01(a)(iii)).
SECTION 6.04. Investments, Loans, Advances, Guarantees and
Acquisitions. The Transaction Parties will not, and will not permit any of the
Subsidiaries to, purchase, hold or acquire (including pursuant to any merger
with any Person that was not a wholly owned Subsidiary prior to such merger) any
capital stock, evidences of indebtedness or other securities (including any
option, warrant or other right to acquire any of the foregoing) of, make or
permit to exist any loans or advances to, Guarantee any obligations of, or make
or permit to exist any investment or any other interest in, any other Person, or
purchase or otherwise acquire (in one transaction or a series of transactions)
any assets of any other Person constituting a business unit, except:
(a) intentionally omitted;
(b) Permitted Acquisitions, provided that the sum of (i) the
consideration paid in connection with all Permitted Acquisitions and (ii)
the consideration paid in connection with all acquisitions pursuant to
Section 6.04(c) shall not exceed $15,000,000 in the aggregate during the
period commencing on the "Effective Date" (as such term is defined in the
Amended Existing Credit Agreement) and ending on the date this Article VI
is no longer applicable by its terms;
(c) the acquisition of shares or other equity interests in any
Person in transactions not constituting Permitted Acquisitions, provided
that (i) the criteria set forth in clauses (a), (b), (c), (f), (g) and (h)
of the definition of the term "Permitted Acquisition" shall have been
satisfied in connection with such acquisition, (ii) the consideration paid
in connection with all acquisitions pursuant to this clause (c) shall not
exceed $7,500,000 during the term of this Agreement and (iii) the sum of
(A) the consideration paid in connection with all Permitted Acquisitions
and (B) the consideration paid in connection with all acquisitions
pursuant to this clause (c) shall not exceed $15,000,000 in the aggregate
during the period commencing on the "Effective Date" (as such term is
defined in the Amended Existing Credit Agreement) and ending on the date
this Article VI is no longer applicable by its terms;
(d) Permitted Investments;
(e) investments existing on September 26, 1997, and set forth on
Schedule 6.04, to the extent such investments would not be permitted under
any other clause of this Section;
(f) investments by the Transaction Parties in the capital stock of
the Subsidiaries, provided that (i) any such shares of capital stock shall
be pledged pursuant to the Pledge Agreement (subject to the limitations
applicable to common stock of a Foreign Subsidiary referred to in Section
5.12) and (ii) the amount of investments by the Transaction Parties in
Subsidiaries that are not Loan Parties shall not exceed $2,000,000 in the
aggregate at any time outstanding;
(g) loans or advances made by (i) any Loan Party that is not a
Foreign Subsidiary to any other Loan Party that is not a Foreign
Subsidiary (other than the Borrower or the Borrower Subsidiaries) and (ii)
the Transaction Parties to any Borrower Subsidiary and made by any
Borrower Subsidiary to the Borrower or any other Borrower Subsidiary,
provided that (i) any such
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loans and advances made by a Loan Party shall be evidenced by a promissory
note pledged pursuant to the Pledge Agreement and (ii) the amount of all
such loans and advances by Loan Parties to Subsidiaries that are not Loan
Parties shall not exceed $2,000,000 in the aggregate at any time
outstanding;
(h) Guarantees constituting Indebtedness permitted by Section 6.01,
provided that the amount of Indebtedness that is (i) outstanding with
respect to Subsidiaries that are not Loan Parties and (ii) Guaranteed by
any Loan Party shall not exceed $2,000,000 in the aggregate at any time
outstanding;
(i) investments received in connection with the bankruptcy or
reorganization of, or settlement of delinquent accounts and disputes with,
customers and suppliers, in each case in the ordinary course of business;
(j) Hedging Agreements permitted under Section 6.06;
(k) loans or advances to employees (i) for the purpose of travel,
entertainment or relocation in the ordinary course of business in an
aggregate amount not to exceed $2,000,000 at any time outstanding and (ii)
for the purpose of enabling such employees to buy stock of Holdings in an
aggregate amount not exceeding $3,000,000 during the period commencing on
the "Effective Date" (as such term is defined in the Amended Existing
Credit Agreement) and ending on the date this Article VI is no longer
applicable by its terms, provided that loans or advances made under this
subclause (ii) shall be collateralized by the stock purchased with the
proceeds of such loans or advances; and
(l) other investments in an aggregate amount not to exceed
$5,000,000 at any time outstanding.
SECTION 6.05. Asset Sales. The Transaction Parties will not, and
will not permit any of the Subsidiaries to, sell, transfer, lease or otherwise
dispose of any asset, including any capital stock, nor will the Transaction
Parties permit any of the Subsidiaries to issue any additional shares of its
capital stock or other ownership interest in such Subsidiary, except:
(a) sales of inventory, used or surplus equipment and Permitted
Investments in the ordinary course of business;
(b) sales of inventory located at any store where the Borrower is
conducting a going-out-of-business or similar sale in connection with the
closing of such store;
(c) sales, transfers and dispositions to the Borrower or a Borrower
Subsidiary, provided that any such sales, transfers or dispositions
involving a Borrower Subsidiary that is not a Loan Party shall be made in
compliance with Section 6.08;
(d) sales of assets listed on Schedule 6.05;
(e) sales of real estate (it being understood that "real estate" as
such term is used in this Section 6.05 shall not include real estate that
is leased by a Transaction Party from a third party unless such lease is a
Capital Lease Obligation of a member of the Holdings Group) and fixtures
relating to such real estate, provided that the aggregate fair market
value of all real estate and fixtures sold in reliance upon this clause
(e) (other than the sale of the Holdings Group's real property located at
3500 Pennsy Drive, Landover, MD) shall not exceed $25,000,000 in the
aggregate during the term of this Agreement;
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(f) sales of accounts receivables in connection with the Receivables
Purchase Agreements; and
(g) sales, transfers and dispositions of assets (other than capital
stock of a Subsidiary) that are not permitted by any other clause of this
Section, provided that the aggregate fair market value of all assets sold,
transferred or otherwise disposed of in reliance upon this clause (g)
shall not exceed $10,000,000 in the aggregate during the period commencing
on the "Effective Date" (as such term is defined in the Amended Existing
Credit Agreement) and ending on the date this Article VI is no longer
applicable by its terms,
provided that all sales, transfers, leases and other dispositions permitted
hereby (other than sales, transfers and other disposition permitted under clause
(b) and (c)) shall be made for fair value and (other than sales, transfers and
other dispositions permitted under clause (c)) solely for cash consideration.
SECTION 6.06. Hedging Agreements. The Transaction Parties will not,
and will not permit any of the Subsidiaries to, enter into any Hedging
Agreement, other than Hedging Agreements entered into in the ordinary course of
business to hedge or mitigate risks to which the Borrower or any Borrower
Subsidiary is exposed in the conduct of its business or the management of its
liabilities.
SECTION 6.07. Restricted Payments; Certain Payments of Indebtedness.
(a) The Transaction Parties will not, and will not permit any Subsidiary to,
declare or make, or agree to pay or make, directly or indirectly, any Restricted
Payment, except (i) the Transaction Parties may declare and pay dividends with
respect to their capital stock payable solely in additional shares of their
common stock, (ii) the Borrower Subsidiaries may declare and pay dividends
ratably with respect to their capital stock and the Subsidiaries other than the
Borrower may declare and pay dividends ratably with respect to their capital
stock, (iii) the Borrower may make Restricted Payments pursuant to and in
accordance with stock option plans or other benefit plans for management or
employees of the Borrower and the Borrower Subsidiaries in an amount not
exceeding during any fiscal year of Holdings (A) $2,000,000 plus (B) the amount
by which (x) the product of $2,000,000 and the number of complete fiscal years
during the period from and after September 26, 1997, to but excluding the date
of such Restricted Payment exceeds (y) the amount of all such Restricted
Payments made during such fiscal years plus (C) the aggregate cash consideration
received by the Borrower during the period from and after September 26, 1997, to
but excluding the date of such Restricted Payment from the sale or issuance of
common stock to management or employees of the Borrower to the extent such cash
consideration was not previously taken into account in connection with any
Restricted Payment under this clause (iii), provided all such Restricted
Payments made under this clause (iii) shall not exceed $8,000,000 in the
aggregate plus any amounts permitted under sub-clause (iii) (C) during the term
of this Agreement, (iv) the Borrower and Hechinger Stores may pay dividends or
make loans to Hechinger to the extent necessary to enable Hechinger to redeem or
purchase any portion of the Existing Hechinger Public Debt to the extent that
the Borrower or Hechinger Stores would have been permitted to redeem or
repurchase such Existing Hechinger Public Debt pursuant to clause (b) (iii)
below and (v) any of the Transaction Parties or Subsidiaries may pay dividends
to enable payment of fees and other amounts owing under any of the transactions
specified in Schedule 6.08.
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(b) The Transaction Parties will not, and will not permit any
Subsidiary to, make or agree to pay or make, directly or indirectly, any payment
or other distribution (whether in cash securities or other property) of or in
respect of principal of or interest on any Indebtedness, or any payment or other
distribution (whether in cash, securities or other property), including any
sinking fund or similar deposit, on account of the purchase, redemption,
retirement, acquisition, cancelation or termination of any Indebtedness, except:
(i) payment of regularly scheduled interest and principal payments
as and when due in respect of any Indebtedness;
(ii) refinancings of Indebtedness to the extent permitted by Section
6.01; and
(iii) after October 3, 1997, redemptions or repurchases of any
portion of the Existing Hechinger Public Debt, provided that (A) at the
time of such redemption or repurchase and after giving effect thereto, (1)
no Default or Event of Default has occurred and is continuing and (2) the
Borrowing Base exceeds the aggregate Total Exposures by at least
$125,000,000 and (B) all such redemptions or repurchases under this clause
(iii) do not exceed in the aggregate $200,000,000 during the period
commencing on the "Effective Date" (as such term is defined in the Amended
Existing Credit Agreement) and ending on the date this Article VI is no
longer applicable by its terms.
SECTION 6.08. Transactions with Affiliates. The Transaction Parties
will not, and will not permit any Subsidiary to, sell, lease or otherwise
transfer any property or assets to, or purchase, lease or otherwise acquire any
property or assets from, or otherwise engage in any other transactions with, any
of its Affiliates, except (a) transactions in the ordinary course of business
that do not involve Holdings and are at prices and on terms and conditions not
less favorable to the Borrower or such Subsidiary than could be obtained on an
arm's-length basis from unrelated third parties, (b) transactions between or
among the Subsidiary Loan Parties not involving any other Affiliate, (c)
payments by the Borrower and the Borrower Subsidiaries to Holdings as common
parent (and to any intermediate Subsidiary Loan Party that is treated as a
common parent) in respect of Taxes attributable to the Borrower and the Borrower
Subsidiaries, but not in excess of the amount in respect of Taxes that the
Borrower and the Borrower Subsidiaries would pay in a separate company return,
(d) any Restricted Payment permitted by Section 6.07, (e) any transactions
listed on Schedule 6.08 and (f) the Holdings Group may pay fees specified in the
Management Agreement.
SECTION 6.09. Restrictive Agreements. The Transaction Parties will
not and will not permit any Subsidiary to, directly or indirectly, enter into,
incur or permit to exist any agreement or other arrangement that prohibits,
restricts or imposes any condition upon (a) the ability of the Transaction
Parties or any Subsidiary to create, incur or permit to exist any Lien upon any
of its property or assets or (b) the ability of any Subsidiary to pay dividends
or other distributions with respect to any shares of its capital stock or to
make or repay loans or advances to the Borrower or any other Subsidiary or to
Guarantee Indebtedness of the Borrower or any other Subsidiary, provided that
(i) the foregoing shall not apply to restrictions and conditions imposed by law
or by any Loan Document or Existing Loan Document (but only to the extent such
restriction or condition also is imposed by a Loan Document), (ii) the foregoing
shall not apply to restrictions and conditions existing on September 26, 1997,
identified on Schedule 6.09 (but shall apply to any extension or renewal of, or
any amendment or modification expanding the scope of, any such restriction or
condition), (iii) the foregoing shall not apply to customary restrictions and
conditions contained in agreements relating to the sale of a Subsidiary pending
such sale, provided such restrictions and conditions apply only to the
Subsidiary that is to be sold and such sale is permitted hereunder, (iv) clause
(a) of the foregoing shall not apply to restrictions or conditions imposed by
any agreement relating to secured Indebtedness permitted by this Agreement if
such restrictions or conditions apply only to the property or assets securing
such Indebtedness and (v) clause (a)
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of the foregoing shall not apply to customary provisions in leases restricting
the assignment or subleasing thereof.
SECTION 6.10. Amendment of Material Documents. The Transaction
Parties will not, and will not permit any Subsidiary to, amend, modify or waive
any of its rights under (a) its certificate of incorporation, by-laws or other
organizational documents, (b) the Management Agreement, (c) the Builders Square
Purchase Agreement (as such term is defined in the Existing Credit Agreement),
(d) the Hechinger Merger Agreement, (e) the BSQ Newco Note, (f) the BSQ
Acqco/Holdings Note, (g) the BSQ Newco/Builders Square Note, (h) Existing
Hechinger Public Debt, (i) the Hechinger/East Coast Note, (j) the Amended
Existing Credit Agreement or (k) the Receivables Purchase Agreements, in each
case to the extent that such amendment, modification or waiver would be adverse
to the interests of the Lenders.
SECTION 6.11. Capital Expenditures. (a) The Transaction Parties will
not permit the aggregate amount of Capital Expenditures made by the Borrower and
the Borrower Subsidiaries (i) during the fiscal quarter ending on the Saturday
closest to December 31, 1998, to exceed $13,500,000, (ii) during the
two-fiscal-quarter period ending on the Saturday closest to March 31, 1999, to
exceed $22,000,000, and (iii) during the three-fiscal-quarter period ending on
the Saturday closest to June 30, 1999, to exceed $30,000,000.
(b) The Transaction Parties will not permit the aggregate amount of
Capital Expenditures made by the Borrower and the Borrower Subsidiaries in any
fiscal year to exceed the amount set forth below opposite such year:
<TABLE>
<CAPTION>
Fiscal Year Amount
----------- ------
<S> <C>
1999 $35,000,000
2000 $35,000,000
2001 $35,000,000
2002 $35,000,000
</TABLE>
Notwithstanding anything to the contrary, no Transaction Party (other than the
Borrower) shall be permitted to make any Capital Expenditures, except for any
Capital Expenditures made by BSQ Newco, Hechinger, Hechinger Stores and
Hechinger East Coast pursuant to Section 6.03(e), (f), (g) and (h).
SECTION 6.12. Minimum Consolidated EBITDA. (a) The Transaction
Parties will not permit Consolidated EBITDA (i) for the fiscal quarter ending on
the Saturday closest to December 31, 1998, to be less than $(32,000,000), (ii)
for the fiscal quarter ending on the Saturday closest to March 31, 1999, to be
less than $(4,000,000), (iii) for the two-fiscal-quarter period ending on the
Saturday closest to June 30, 1999, to be less than $46,000,000, (iv) for the
three-fiscal-quarter period ending on the Saturday closest to September 30,
1999, to be less than $60,000,000, and (v) for the four-fiscal-quarter period
ending on the Saturday closest to December 31, 1999, to be less than
$65,000,000.
<PAGE> 68
63
(b) The Transaction Parties will not permit Consolidated EBITDA for
any four-fiscal-quarter period ending during any period set forth below to be
less than the amount set forth below opposite such period:
<TABLE>
<CAPTION>
Period Amount
------ ------
<S> <C>
The fiscal quarter ending on the Saturday closest to
March 31, 2000 $70,000,000
The fiscal quarter ending on the Saturday
closest to June 30, 2000 $75,000,000
The fiscal quarter ending on the Saturday
closest to September 30, 2000 $75,000,000
The fiscal quarter ending on the Saturday
closest to December 31, 2000 $80,000,000
The fiscal quarter ending on the Saturday
closest to March 31, 2001 $85,000,000
The fiscal quarter ending on the Saturday
closest to June 30, 2001 and thereafter $90,000,000
</TABLE>
SECTION 6.13. Additional Subsidiaries. The Transaction Parties will
not, and will not permit any Subsidiary to, create any additional Subsidiary,
unless such Subsidiary is a Borrower Subsidiary.
ARTICLE VII
Events of Default
If any of the following events ("Events of Default") shall occur:
(a) the Borrower shall fail to pay any principal of any Loan or any
reimbursement obligation in respect of any LC Disbursement when and as the
same shall become due and payable, whether at the due date thereof or at a
date fixed for prepayment thereof or otherwise;
(b) the Borrower shall fail to pay any interest on any Loan or any
fee or any other amount (other than an amount referred to in clause (a) of
this Article) payable under this Agreement or any other Loan Document,
when and as the same shall become due and payable, and such failure shall
continue unremedied for a period of three Business Days;
(c) any representation or warranty made or deemed made by or on
behalf of any member of the Holdings Group in or in connection with any
Loan Document or any amendment or modification thereof or waiver
thereunder, or in any report, certificate, financial statement or other
document furnished pursuant to or in connection with any Loan Document or
any amendment or modification thereof or waiver thereunder, shall prove to
have been incorrect in any material respect when made or deemed made;
<PAGE> 69
64
(d) the Transaction Parties shall fail to observe or perform any
covenant, condition or agreement contained in Section 5.01(g), 5.02, 5.04
(with respect to the existence of the Transaction Parties), 5.11, 5.15 or
5.16 or in Article VI; provided, however, if such failure arises from a
non-consensual Lien created without the knowledge of, action by or consent
of any Transaction Party in violation of Section 6.02, such failure shall
not constitute an Event of Default unless such failure shall remain
unremedied for 10 days after knowledge thereof by a member of senior
management of Holdings or Borrower;
(e) any Loan Party shall fail to observe or perform any covenant,
condition or agreement contained in any Loan Document (other than those
specified in clause (a), (b) or (d) of this Article), and such failure
shall continue unremedied for a period of 30 days after notice thereof
from any Agent to the Borrower (which notice will be given at the request
of any Lender);
(f) any member of the Holdings Group shall fail to make any payment
(whether of principal or interest and regardless of amount) in respect of
any Material Indebtedness, when and as the same shall become due and
payable (after giving effect to the expiration of any grace or cure period
set forth therein);
(g) any event or condition occurs that results in any Material
Indebtedness becoming due prior to its scheduled maturity or that enables
or permits (with or without the giving of notice, the lapse of time or
both) the holder or holders of any Material Indebtedness or any trustee or
agent on its or their behalf to cause any Material Indebtedness to become
due, or to require the prepayment, repurchase, redemption or defeasance
thereof, prior to its scheduled maturity, provided that this clause (g)
shall not apply to secured Indebtedness that becomes due as a result of
the voluntary sale or transfer of the property or assets securing such
Indebtedness;
(h) an involuntary proceeding shall be commenced or an involuntary
petition shall be filed seeking (i) liquidation, reorganization or other
relief in respect of any member of the Holdings Group or its debts, or of
a substantial part of its assets, under any Federal, state or foreign
bankruptcy, insolvency, receivership or similar law now or hereafter in
effect or (ii) the appointment of a receiver, trustee, custodian,
sequestrator, conservator or similar official for any member of the
Holdings Group or for a substantial part of its assets, and, in any such
case, such proceeding or petition shall continue undismissed for 60 days
or an order or decree approving or ordering any of the foregoing shall be
entered;
(i) any member of the Holdings Group shall (i) voluntarily commence
any proceeding or file any petition seeking liquidation, reorganization or
other relief under any Federal, state or foreign bankruptcy, insolvency,
receivership or similar law now or hereafter in effect, (ii) consent to
the institution of, or fail to contest in a timely and appropriate manner,
any proceeding or petition described in clause (h) of this Article, (iii)
apply for or consent to the appointment of a receiver, trustee, custodian,
sequestrator, conservator or similar official for any member of the
Holdings Group or for a substantial part of its assets, (iv) file an
answer admitting the material allegations of a petition filed against it
in any such proceeding, (v) make a general assignment for the benefit of
creditors or (vi) take any action for the purpose of effecting any of the
foregoing;
(j) any member of the Holdings Group shall become unable, admit in
writing its inability or fail generally to pay its debts as they become
due;
(k) one or more judgments for the payment of money in an aggregate
amount in excess of $5,000,000 shall be rendered against any member of the
Holdings Group or any combination thereof and the same shall remain
undischarged for a period of 30 consecutive days during which execution
shall not be effectively stayed, or any action shall be legally taken by a
judgment
<PAGE> 70
65
creditor to attach or levy upon any assets of any member of the Holdings
Group to enforce any such judgment;
(l) an ERISA Event shall have occurred that, in the opinion of the
Required Lenders, when taken together with all other ERISA Events that
have occurred, could reasonably be expected to result in liability of
Holdings Group Subsidiaries in an aggregate amount exceeding $5,000,000;
(m) any Lien purported to be created under any Security Document
shall cease to be, or shall be asserted by any Loan Party not to be, a
valid and perfected Lien on any Collateral, with the priority required by
the applicable Security Document, except (i) as a result of the sale or
other disposition of the applicable Collateral in a transaction permitted
under the Loan Documents or (ii) as a result of the Collateral Agent's
failure to maintain possession of any stock certificates, promissory notes
or other instruments delivered to it under the Pledge Agreement; or
(n) a Change in Control shall occur;
then, and in every such event (other than an event with respect to the
Transaction Parties described in clause (h) or (i) of this Article), and at any
time thereafter during the continuance of such event, the Administrative Agent
may, and at the request of the Required Lenders shall, by notice to the
Borrower, take either or both of the following actions, at the same or different
times: (i) terminate the Commitments, and thereupon the Commitments shall
terminate immediately, and (ii) declare the Loans then outstanding to be due and
payable in whole (or in part, in which case any principal not so declared to be
due and payable may thereafter be declared to be due and payable), and thereupon
the principal of the Loans so declared to be due and payable, together with
accrued interest thereon and all fees and other obligations of the Borrower
accrued hereunder, shall become due and payable immediately, without
presentment, demand, protest or other notice of any kind, all of which are
hereby waived by the Borrower; and in case of any event with respect to the
Transaction Parties described in clause (h) or (i) of this Article, the
Commitments shall automatically terminate and the principal of the Loans then
outstanding, together with accrued interest thereon and all fees and other
obligations of the Borrower accrued hereunder, shall automatically become due
and payable, without presentment, demand, protest or other notice of any kind,
all of which are hereby waived by the Borrower.
ARTICLE VIII
The Administrative Agent, the Collateral Agent
and the Borrowing Base Audit Agent
Each of the Lenders and the Issuing Bank hereby (a) irrevocably
appoints Chase as the Administrative Agent, the Collateral Agent and the
Borrowing Base Audit Agent (collectively, the "Agents") and (b) authorizes each
Agent to take such actions on its behalf and to exercise such powers as are
delegated to such Agent by the terms of the Loan Documents, together with such
actions and powers as are reasonably incidental thereto.
Each Agent hereunder shall have the same rights and powers in its
capacity as a Lender as any other Lender and may exercise the same as though it
were not an Agent, and such Agent and its Affiliates may accept deposits from,
lend money to and generally engage in any kind of business with any Transaction
Party or any Subsidiary or other Affiliate thereof as if it were not an Agent
hereunder.
<PAGE> 71
66
The Agents shall not have any duties or obligations except those
expressly set forth in the Loan Documents. Without limiting the generality of
the foregoing, (a) no Agent shall be subject to any fiduciary or other implied
duties, regardless of whether a Default has occurred and is continuing, (b) no
Agent shall have any duty to take any discretionary action or exercise any
discretionary powers, except discretionary rights and powers expressly
contemplated by the Loan Documents that such Agent is required to exercise in
writing by the Required Lenders (or such other number or percentage of the
Lenders as shall be necessary under the circumstances as provided in Section
9.02), and (c) except as expressly set forth in the Loan Documents, no Agent
shall have any duty to disclose, and shall not be liable for the failure to
disclose, any information relating to any Transaction Party or any of the
Subsidiaries that is communicated to or obtained by such Agent or any of its
Affiliates in any capacity. No Agent shall be liable for any action taken or not
taken by it with the consent or at the request of the Required Lenders (or such
other number or percentage of the Lenders as shall be necessary under the
circumstances as provided in Section 9.02) or in the absence of such Agent's own
gross negligence or wilful misconduct. No Agent shall be deemed to have
knowledge of any Default unless and until written notice thereof is given to
such Agent by any Transaction Party or a Lender, and no Agent shall be
responsible for or have any duty to ascertain or inquire into (i) any statement,
warranty or representation made in or in connection with any Loan Document, (ii)
the contents of any certificate, report or other document delivered thereunder
or in connection therewith, (iii) the performance or observance of any of the
covenants, agreements or other terms or conditions set forth in any Loan
Document, (iv) the validity, enforceability, effectiveness or genuineness of any
Loan Document or any other agreement, instrument or document or (v) the
satisfaction of any condition set forth in Article IV or elsewhere in any Loan
Document, other than to confirm receipt of items expressly required to be
delivered to such Agent.
Each Agent shall be entitled to rely upon, and shall not incur any
liability for relying upon, any notice, request, certificate, consent,
statement, instrument, document or other writing believed by it to be genuine
and to have been signed or sent by the proper Person. Each Agent also may rely
upon any statement made to it orally or by telephone and believed by it to be
made by the proper Person, and shall not incur any liability for relying
thereon. Each Agent may consult with legal counsel (who may be counsel for the
Borrower), independent accountants and other experts selected by it, and shall
not be liable for any action taken or not taken by it in accordance with the
advice of any such counsel, accountants or experts.
Each Agent may perform any and all its duties and exercise its
rights and powers by or through any one or more sub-agents appointed by such
Agent. Each Agent and any such sub-agent may perform any and all its duties and
exercise its rights and powers through their respective Related Parties. The
exculpatory provisions of the preceding paragraphs shall apply to any such
sub-agent and to the Related Parties of each Agent and any such sub-agent, and
shall apply to their respective activities in connection with the syndication of
the credit facilities provided for herein as well as activities as an Agent.
Subject to the appointment and acceptance of a successor to the
Administrative Agent as provided in this paragraph, the Administrative Agent may
resign at any time by notifying the Lenders, the Issuing Bank and the
Transaction Parties. Upon any such resignation, the Required Lenders shall have
the right, in consultation with the Transaction Parties, to appoint a successor.
If no successor shall have been so appointed by the Required Lenders and shall
have accepted such appointment within 30 days after the retiring Administrative
Agent gives notice of its resignation, then the retiring Administrative Agent
may, on behalf of the Lenders and the Issuing Bank, appoint a successor
Administrative Agent that shall be a bank with an office in New York, New York,
or an Affiliate of any such bank. Upon the acceptance of its appointment as
Administrative Agent hereunder by a successor, such successor shall succeed to
and become vested with all the rights, powers, privileges and duties of the
retiring Administrative Agent, and the retiring Administrative Agent shall be
discharged from its duties and obligations hereunder. The fees payable by the
Borrower to a successor Administrative Agent shall be the same as those payable
to its predecessor unless otherwise agreed upon between the Borrower and such
successor. After the
<PAGE> 72
67
Administrative Agent's resignation hereunder, the provisions of this Article and
Section 9.03 shall continue in effect for the benefit of such retiring
Administrative Agent, its sub-agents and their respective Related Parties in
respect of any actions taken or omitted to be taken by any of them while it was
acting as Administrative Agent.
Subject to the appointment and acceptance of a successor to the
Collateral Agent as provided in this paragraph, the Collateral Agent may resign
at any time by notifying the Lenders, the Issuing Bank and the Transaction
Parties. Upon any such resignation, the Required Lenders shall have the right,
in consultation with the Transaction Parties, to appoint a successor. If no
successor shall have been so appointed by the Required Lenders and shall have
accepted such appointment within 30 days after the retiring Collateral Agent
gives notice of its resignation, then the retiring Collateral Agent may, on
behalf of the Lenders and the Issuing Bank, appoint a successor Collateral Agent
that shall be a bank or an Affiliate of a bank. Upon the acceptance of its
appointment as Collateral Agent hereunder by a successor, such successor shall
succeed to and become vested with all the rights, powers, privileges and duties
of the retiring Collateral Agent, and the retiring Collateral Agent shall be
discharged from its duties and obligations hereunder. The fees payable by the
Borrower to a successor Collateral Agent shall be the same as those payable to
its predecessor unless otherwise agreed upon between the Borrower and such
successor. After the Collateral Agent's resignation hereunder, the provisions of
this Article and Section 9.03 shall continue in effect for the benefit of such
retiring Collateral Agent, its sub-agents and their respective Related Parties
in respect of any actions taken or omitted to be taken by any of them while it
was acting as Collateral Agent.
Subject to the appointment and acceptance of a successor to the
Borrowing Base Audit Agent as provided in this paragraph, the Borrowing Base
Audit Agent may resign at any time by notifying the Lenders, the Issuing Bank
and the Transaction Parties. Upon any such resignation, the Required Lenders
shall have the right, in consultation with the Transaction Parties, to appoint a
successor. If no successor shall have been so appointed by the Required Lenders
and shall have accepted such appointment within 30 days after the retiring
Borrowing Base Audit Agent gives notice of its resignation, then the retiring
Borrowing Base Audit Agent may, on behalf of the Lenders and the Issuing Bank,
appoint a successor Borrowing Base Audit Agent that shall be a bank or an
Affiliate of a bank. Upon the acceptance of its appointment as Borrowing Base
Audit Agent hereunder by a successor, such successor shall succeed to and become
vested with all the rights, powers, privileges and duties of the retiring
Borrowing Base Audit Agent, and the retiring Borrowing Base Audit Agent shall be
discharged from its duties and obligations hereunder. The fees payable by the
Borrower to a successor Borrowing Base Audit Agent shall be the same as those
payable to its predecessor unless otherwise agreed upon between the Borrower and
such successor. After the Borrowing Base Audit Agent's resignation hereunder,
the provisions of this Article and Section 9.03 shall continue in effect for the
benefit of such retiring Borrowing Base Audit Agent, its sub-agents and their
respective Related Parties in respect of any actions taken or omitted to be
taken by any of them while it was acting as Borrowing Base Audit Agent.
Each Lender acknowledges that it has, independently and without
reliance upon any Agent or any other Lender and based on such documents and
information as it has deemed appropriate, made its own credit analysis and
decision to enter into this Agreement. Each Lender also acknowledges that it
will, independently and without reliance upon the either Agent or any other
Lender and based on such documents and information as it shall from time to time
deem appropriate, continue to make its own decisions in taking or not taking
action under or based upon this Agreement, any other Loan Document or related
agreement or any document furnished hereunder or thereunder.
<PAGE> 73
68
ARTICLE IX
Miscellaneous
SECTION 9.01. Notices. Except in the case of notices and other
communications expressly permitted to be given by telephone, all notices and
other communications provided for herein shall be in writing and shall be
delivered by hand or overnight courier service, mailed by certified or
registered mail or sent by telecopy, as follows:
(a) if to any Transaction Party, to it at Hechinger Investment
Company of Delaware, Inc., 1801 McCormick Drive, Largo, MD 20774,
Attention of Mark R. Adams, Sr. Vice President, Treasurer and Secretary,
(Telecopy No. (301) 925-3945) with a copy to Centers Holdings, Inc., 11111
Santa Monica Blvd., Suite 2000, Los Angeles, CA 90025, Attention of
Gregory J. Annick (Telecopy No. (310) 954-0404);
(b) if to the Administrative Agent, the Collateral Agent or the
Borrowing Base Audit Agent, to The Chase Manhattan Bank, Loan and Agency
Services Group, One Chase Manhattan Plaza, 8th Floor, New York, New York
10081, Attention of Jesse Huff (Telecopy No. (212) 552-7500), with a copy
to The Chase Manhattan Bank, 270 Park Avenue, New York 10017, Attention of
John Huber (Telecopy No. (212) 270-4584);
(c) if to the Issuing Bank, to The Chase Manhattan Bank, Loan and
Agency Services Group, One Chase Manhattan Plaza, 8th Floor, New York, New
York 10081, Attention of Jesse Huff (Telecopy No.(212) 552-7500) with a
copy to The Chase Manhattan Bank, 270 Park Avenue, New York, New York
10017, Attention of John Huber (Telecopy No. (212) 270-4584);
(d) if to the Swingline Lender, to The Chase Manhattan Bank, Loan
and Agency Services Group, One Chase Manhattan, 8th Floor, New York, New
York 10081, Attention of Jesse Huff (Telecopy No. (212) 552-7500) with a
copy to The Chase Manhattan Bank, 270 Park Avenue, New York, New York
10017, Attention of John Huber (Telecopy No. (212) 270-4584); and
(e) if to any other Lender, to it at its address (or telecopy
number) set forth in its Administrative Questionnaire.
Any party hereto may change its address or telecopy number for notices and other
communications hereunder by notice to the other parties hereto. All notices and
other communications given to any party hereto in accordance with the provisions
of this Agreement shall be deemed to have been given on the date of receipt.
SECTION 9.02. Waivers; Amendments. (a) No failure or delay by the
Administrative Agent, the Issuing Bank or any Lender in exercising any right or
power hereunder or under any other Loan Document shall operate as a waiver
thereof, nor shall any single or partial exercise of any such right or power, or
any abandonment or discontinuance of steps to enforce such a right or power,
preclude any other or further exercise thereof or the exercise of any other
right or power. The rights and remedies of the Agents, the Issuing Bank and the
Lenders hereunder and under the other Loan Documents are cumulative and are not
exclusive of any rights or remedies that they would otherwise have. No waiver of
any provision of any Loan Document or consent to any departure by any Loan Party
therefrom shall in any event be effective unless the same shall be permitted by
paragraph (b) of this Section, and then such waiver or consent shall be
effective only in the specific instance and for the purpose for which given.
Without limiting the generality of the foregoing, the making of a Loan or
issuance of a Letter of Credit shall not be construed as a waiver of any
Default, regardless of whether the Agents, any Lender or the Issuing Bank may
have had notice or knowledge of such Default at the time.
<PAGE> 74
69
(b) Neither this Agreement nor any other Loan Document nor any
provision hereof or thereof may be waived, amended or modified except, in the
case of this Agreement, pursuant to an agreement or agreements in writing
entered into by the Transaction Parties and the Required Lenders or, in the case
of any other Loan Document, pursuant to an agreement or agreements in writing
entered into by the Agents and the Loan Party or Loan Parties that are parties
thereto, in each case with the consent of the Required Lenders, provided that no
such agreement shall (i) increase the Commitment of any Lender without the
written consent of such Lender, (ii) reduce the principal amount of any Loan or
LC Disbursement or reduce the rate of interest thereon, or reduce any fees
payable hereunder, without the written consent of each Lender affected thereby,
(iii) postpone the scheduled date of payment of the principal amount of any Loan
or LC Disbursement, or any interest thereon, or any fees payable hereunder, or
reduce the amount of, waive or excuse any such payment, or postpone the
scheduled date of expiration of the Revolving Commitment, without the written
consent of each Lender affected thereby, (iv) change Section 2.17(b) or (c) in a
manner that would alter the pro rata sharing of payments required thereby,
without the written consent of each Lender, (v) change any of the provisions of
this Section or the definition of the term "Required Lenders" or any other
provision of any Loan Document specifying the number or percentage of Lenders
required to waive, amend or modify any rights thereunder or make any
determination or grant any consent thereunder, without the written consent of
each Lender, (vi) release any member of the Holdings Group or any Subsidiary
Loan Party from its Guarantee under the applicable Guarantee Agreement (except
as expressly provided in such Guarantee Agreement), or limit its liability in
respect of such Guarantee, without the written consent of each Lender, (vii)
release all or any substantial part of the Collateral from the Liens of the
Security Documents, without the written consent of each Lender or (viii) change
the definition of the term "Borrowing Base" without the written consent of
Lenders having Total Exposures and unused Revolving Commitments representing at
least 67% of the sum of the Total Exposures and unused Revolving Commitments at
such time, and provided further that no such agreement shall amend, modify or
otherwise affect the rights or duties of the Agents, the Issuing Bank or the
Swingline Lender without the prior written consent of the Agents, the Issuing
Bank or the Swingline Lender, as the case may be.
SECTION 9.03. Expenses; Indemnity; Damage Waiver. (a) The
Transaction Parties shall pay (i) all reasonable and documented out-of-pocket
expenses incurred by the Agents and their Affiliates, including the reasonable
and documented fees, charges and disbursements of counsel for the Agents,
outside consultants for the Agents and internally allocated charges with respect
to the Administrative Agent's collateral examination group, in connection with
the syndication of the credit facilities provided for herein, the preparation
and administration of the Loan Documents or any amendments, modifications or
waivers of the provisions thereof (whether or not the transactions contemplated
hereby or thereby shall be consummated), (ii) all reasonable and documented
out-of-pocket expenses incurred by the Issuing Bank in connection with the
issuance, amendment, renewal or extension of any Letter of Credit or any demand
for payment thereunder and (iii) all reasonable and documented out-of-pocket
expenses incurred by the Agents, the Issuing Bank or any Lender, including the
reasonable and documented fees, charges and disbursements of any counsel and any
outside consultants for the Agents, the Issuing Bank or any Lender and the
internally allocated charges with respect to the Administrative Agent's
collateral examination group, in connection with the enforcement or protection
of its rights in connection with the Loan Documents, including its rights under
this Section, or in connection with the Loans made or Letters of Credit issued
hereunder, including all such out-of-pocket expenses incurred during any
workout, restructuring or negotiations in respect of such Loans or Letters of
Credit.
(b) The Transaction Parties shall, jointly and severally, indemnify
the Agents, the Issuing Bank and each Lender, and each Related Party of any of
the foregoing Persons (each such Person being called an "Indemnitee") against,
and hold each Indemnitee harmless from, any and all losses, claims, damages,
liabilities and related expenses, including the reasonable and documented fees,
charges and disbursements of any counsel for any Indemnitee, incurred by or
asserted against any Indemnitee arising out of, in connection with, or as a
result of (i) the execution or delivery of any Loan Document or any other
agreement or instrument contemplated hereby, the performance by the parties to
the Loan Documents of their respective obligations thereunder or the
consummation of the Transactions or any other transactions contemplated hereby,
(ii) any
<PAGE> 75
70
Loan or Letter of Credit or the use of the proceeds therefrom (including any
refusal by the Issuing Bank to honor a demand for payment under a Letter of
Credit if the documents presented in connection with such demand do not strictly
comply with the terms of such Letter of Credit), (iii) any actual or alleged
presence or release of Hazardous Materials on or from any property currently or
formerly owned or operated by any Transaction Party or any of the Subsidiaries,
or any Environmental Liability related in any way to any Transaction Party or
any of the Subsidiaries, or (iv) any actual or prospective claim, litigation,
investigation or proceeding relating to any of the foregoing, whether based on
contract, tort or any other theory and regardless of whether any Indemnitee is a
party thereto, provided that such indemnity shall not, as to any Indemnitee, be
available to the extent that such losses, claims, damages, liabilities or
related expenses resulted from the gross negligence or wilful misconduct of such
Indemnitee or any Affiliate of such Indemnitee (or of any officer, director,
employee, advisor or agent of such Indemnitee or any such Indemnitee's
Affiliates).
(c) To the extent that any Loan Party fails to pay any amount
required to be paid by it to the Agents, the Issuing Bank or the Swingline
Lender under paragraph (a) or (b) of this Section, each Lender severally agrees
to pay to the Agents, the Issuing Bank or the Swingline Lender, as the case may
be, such Lender's pro rata share (determined as of the time that the applicable
unreimbursed expense or indemnity payment is sought) of such unpaid amount,
provided that the unreimbursed expense or indemnified loss, claim, damage,
liability or related expense, as the case may be, was incurred by or asserted
against the Agents, the Issuing Bank or the Swingline Lender in its capacity as
such. For purposes hereof, a Lender's "pro rata share" shall be determined based
upon its share of the sum of the Total Exposures and unused Revolving
Commitments at the time.
(d) To the extent permitted by applicable law, no Transaction Party
shall assert, and each hereby waives, any claim against any Indemnitee, on any
theory of liability, for special, indirect, consequential or punitive damages
(as opposed to direct or actual damages) arising out of, in connection with, or
as a result of, this Agreement or any agreement or instrument contemplated
hereby, the Transactions, any Loan or Letter of Credit or the use of the
proceeds thereof.
(e) All amounts due under this Section shall be payable promptly
after written demand therefor.
SECTION 9.04. Successors and Assigns. (a) The provisions of this
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns permitted hereby (including any
Affiliate of the Issuing Bank that issues any Letter of Credit), except that no
Transaction Party may assign or otherwise transfer any of its rights or
obligations hereunder without the prior written consent of each Lender (and any
such attempted assignment or transfer without such consent shall be null and
void). Nothing in this Agreement, expressed or implied, shall be construed to
confer upon any Person (other than the parties hereto, their respective
successors and assigns permitted hereby (including any Affiliate of the Issuing
Bank that issues any Letter of Credit) and, to the extent expressly contemplated
hereby, the Related Parties of each of the Agents, the Issuing Bank and the
Lenders) any legal or equitable right, remedy or claim under or by reason of
this Agreement.
(b) Any Lender may assign to one or more assignees all or a portion
of its rights and obligations under this Agreement (including all or a portion
of its Commitment and the Loans at the time owing to it), provided that (i)
except in the case of an assignment to a Lender or an Affiliate of a Lender,
each of the Borrower and the Agents, the Issuing Bank and the Swingline Lender
must give their prior written consent to such assignment (which consent shall
not be unreasonably withheld), (ii) except in the case of an assignment to a
Lender or an Affiliate of a Lender or an assignment of the entire remaining
amount of the assigning Lender's Revolving Commitment or Loans, the amount of
the Revolving Commitment or Loans of the assigning Lender subject to each such
assignment (determined as of the date the Assignment and Acceptance with respect
to such assignment is delivered to the Administrative Agent) shall not be less
than $5,000,000 unless each of the Borrower and the Administrative Agent
otherwise consent, (iii) each partial assignment shall be made as an
<PAGE> 76
71
assignment of a proportionate part of all the assigning Lender's rights and
obligations under this Agreement, (iv) the parties to each assignment shall
execute and deliver to the Administrative Agent an Assignment and Acceptance,
together with a processing and recordation fee of $3,500, and (v) the assignee,
if it shall not be a Lender, shall deliver to the Administrative Agent an
Administrative Questionnaire, and provided further that any consent of the
Borrower otherwise required under this paragraph shall not be required if an
Event of Default under clause (h) or (i) of Article VII has occurred and is
continuing. Subject to acceptance and recording thereof pursuant to paragraph
(d) of this Section, from and after the effective date specified in each
Assignment and Acceptance the assignee thereunder shall be a party hereto and,
to the extent of the interest assigned by such Assignment and Acceptance, have
the rights and obligations of a Lender under this Agreement, and the assigning
Lender thereunder shall, to the extent of the interest assigned by such
Assignment and Acceptance, be released from its obligations under this Agreement
(and, in the case of an Assignment and Acceptance covering all of the assigning
Lender's rights and obligations under this Agreement, such Lender shall cease to
be a party hereto but shall continue to be entitled to the benefits of Sections
2.15, 2.16, 2.17 and 9.03). Any assignment or transfer by a Lender of rights or
obligations under this Agreement that does not comply with this paragraph shall
be treated for purposes of this Agreement as a sale by such Lender of a
participation in such rights and obligations in accordance with paragraph (e) of
this Section.
(c) The Administrative Agent, acting for this purpose as an agent of
the Borrower, shall maintain at one of its offices in The City of New York a
copy of each Assignment and Acceptance delivered to it and a register for the
recordation of the names and addresses of the Lenders, and the Commitment of,
and principal amount of the Loans and LC Disbursements owing to, each Lender
pursuant to the terms hereof from time to time (the "Register"). The entries in
the Register shall be conclusive, and the Transaction Parties, the
Administrative Agent, the Issuing Bank and the Lenders may treat each Person
whose name is recorded in the Register pursuant to the terms hereof as a Lender
hereunder for all purposes of this Agreement, notwithstanding notice to the
contrary. The Register shall be available for inspection by the Borrower, the
Issuing Bank and any Lender, at any reasonable time and from time to time upon
reasonable prior notice.
(d) Upon its receipt of a duly completed Assignment and Acceptance
executed by an assigning Lender and an assignee, the assignee's completed
Administrative Questionnaire (unless the assignee shall already be a Lender
hereunder), the processing and recordation fee referred to in paragraph (b) of
this Section and any written consent to such assignment required by paragraph
(b) of this Section, the Administrative Agent shall accept such Assignment and
Acceptance and record the information contained therein in the Register. No
assignment shall be effective for purposes of this Agreement unless it has been
recorded in the Register as provided in this paragraph.
(e) Any Lender may, without the consent of the Borrower, the Agents,
the Issuing Bank or the Swingline Lender, sell participations to one or more
banks or other entities (a "Participant") in all or a portion of such Lender's
rights and obligations under this Agreement (including all or a portion of its
Commitment and the Loans owing to it), provided that (i) such Lender's
obligations under this Agreement shall remain unchanged, (ii) such Lender shall
remain solely responsible to the other parties hereto for the performance of
such obligations and (iii) the Transaction Parties, the Agents, the Issuing Bank
and the other Lenders shall continue to deal solely and directly with such
Lender in connection with such Lender's rights and obligations under this
Agreement. Any agreement or instrument pursuant to which a Lender sells such a
participation shall provide that such Lender shall retain the sole right to
enforce the Loan Documents and to approve any amendment, modification or waiver
of any provision of the Loan Documents, provided that such agreement or
instrument may provide that such Lender will not, without the consent of the
Participant, agree to any amendment, modification or waiver described in the
first proviso to Section 9.02(b) that affects such Participant. Subject to
paragraph (f) of this Section, the Borrower agrees that each Participant shall
be entitled to the benefits of Sections 2.14, 2.15 and 2.16 to the same extent
as if it were a Lender and had acquired its interest by assignment pursuant to
paragraph (b) of this Section. To the extent permitted by law, each Participant
also shall be entitled to the benefits of Section 9.08 as though it were a
Lender, provided such Participant agrees to be subject to Section 2.17(c) as
though it were a Lender.
<PAGE> 77
72
(f) A Participant shall not be entitled to receive any greater
payment under Section 2.14 or 2.16 than the applicable Lender would have been
entitled to receive with respect to the participation sold to such Participant,
unless the sale of the participation to such Participant is made with the
Borrower's prior written consent. A Participant that would be a Foreign Lender
if it were a Lender shall not be entitled to the benefits of Section 2.16 unless
(i) the Borrower is notified of the participation sold to such Participant and
such Participant agrees, for the benefit of the Borrower, to comply with Section
2.16(e) as though it were a Lender and (ii) such Participant is eligible for
exemption from the withholding tax referred to therein, following compliance
with Section 2.16(e).
(g) Any Lender may at any time pledge or assign a security interest
in all or any portion of its rights under this Agreement to secure obligations
of such Lender, including any pledge or assignment to secure obligations to a
Federal Reserve Bank, and this Section shall not apply to any such pledge or
assignment of a security interest, provided that no such pledge or assignment of
a security interest shall release a Lender from any of its obligations hereunder
or substitute any such pledgee or assignee for such Lender as a party hereto.
SECTION 9.05. Survival. All covenants, agreements, representations
and warranties made by the Loan Parties in the Loan Documents and in the
certificates or other instruments delivered in connection with or pursuant to
this Agreement or any other Loan Document shall be considered to have been
relied upon by the other parties hereto and shall survive the execution and
delivery of the Loan Documents and the making of any Loans and issuance of any
Letters of Credit, regardless of any investigation made by any such other party
or on its behalf and notwithstanding that the Agents, the Issuing Bank or any
Lender may have had notice or knowledge of any Default or incorrect
representation or warranty at the time any credit is extended hereunder, and
shall continue in full force and effect as long as the principal of or any
accrued interest on any Loan or any fee or any other amount payable under this
Agreement is outstanding and unpaid or any Letter of Credit is outstanding and
so long as the Commitments have not expired or terminated. The provisions of
Sections 2.14, 2.15, 2.16 and 9.03 and Article VIII shall survive and remain in
full force and effect regardless of the consummation of the transactions
contemplated hereby, the repayment of the Loans, the expiration or termination
of the Letters of Credit and the Commitments or the termination of this
Agreement or any provision hereof.
SECTION 9.06. Counterparts; Integration; Effectiveness. This
Agreement may be executed in counterparts (and by different parties hereto on
different counterparts), each of which shall constitute an original, but all of
which when taken together shall constitute a single contract. This Agreement,
the other Loan Document and any separate letter agreements with respect to fees
payable to the Agents constitute the entire contract among the parties relating
to the subject matter hereof and supersede any and all previous agreements and
understandings, oral or written, relating to the subject matter hereof. Except
as provided in Section 4.01, this Agreement shall become effective when it shall
have been executed by the Agents and when the Administrative Agent shall have
received counterparts hereof that, when taken together, bear the signatures of
each of the other parties hereto, and thereafter shall be binding upon and inure
to the benefit of the parties hereto and their respective successors and
assigns. Delivery of an executed counterpart of a signature page of this
Agreement by telecopy shall be effective as delivery of a manually executed
counterpart of this Agreement.
SECTION 9.07. Severability. Any provision of this Agreement held to
be invalid, illegal or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such invalidity, illegality or
unenforceability without affecting the validity, legality and enforceability of
the remaining provisions hereof; and the invalidity of a particular provision in
a particular jurisdiction shall not invalidate such provision in any other
jurisdiction.
SECTION 9.08. Right of Setoff. If an Event of Default shall have
occurred and be continuing, each Lender and each of its Affiliates is hereby
authorized at any time and
<PAGE> 78
73
from time to time, to the fullest extent permitted by law, to set off and apply
any and all deposits (general or special, time or demand, provisional or final)
at any time held and other obligations at any time owing by such Lender or
Affiliate to or for the credit or the account of the Borrower against any of and
all the obligations of the Borrower now or hereafter existing under this
Agreement held by such Lender, irrespective of whether or not such Lender shall
have made any demand under this Agreement and although such obligations may be
unmatured. The rights of each Lender under this Section are in addition to other
rights and remedies (including other rights of setoff) that such Lender may
have.
SECTION 9.09. Governing Law; Jurisdiction; Consent to Service of
Process. (a) THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH, THE LAW OF THE STATE OF NEW YORK.
(b) Each Transaction Party hereby irrevocably and unconditionally
submits, for itself and its property, to the nonexclusive jurisdiction of the
Supreme Court of the State of New York sitting in New York County and of the
United States District Court of the Southern District of New York, and any
appellate court from any thereof, in any action or proceeding arising out of or
relating to any Loan Document, or for recognition or enforcement of any
judgment, and each of the parties hereto hereby irrevocably and unconditionally
agrees that all claims in respect of any such action or proceeding may be heard
and determined in such New York State or, to the extent permitted by law, in
such Federal court. Each of the parties hereto agrees that a final judgment in
any such action or proceeding shall be conclusive and may be enforced in other
jurisdictions by suit on the judgment or in any other manner provided by law.
Nothing in this Agreement or any other Loan Document shall affect any right that
the Agents, the Issuing Bank or any Lender may otherwise have to bring any
action or proceeding relating to this Agreement or any other Loan Document
against any Transaction Party or their proper ties in the courts of any
jurisdiction.
(c) Each Transaction Party hereby irrevocably and unconditionally
waives, to the fullest extent it may legally and effectively do so, any
objection that it may now or hereafter have to the laying of venue of any suit,
action or proceeding arising out of or relating to this Agreement or any other
Loan Document in any court referred to in paragraph (b) of this Section other
than a court referred to in the last sentence of such paragraph (b) that is not
referred to elsewhere in such paragraph (b). Each of the parties hereto hereby
irrevocably waives, to the fullest extent permitted by law, the defense of an
inconvenient forum to the maintenance of such action or proceeding in any such
court.
(d) Each party to this Agreement irrevocably consents to service of
process in the manner provided for notices in Section 9.01. Nothing in this
Agreement or any other Loan Document will affect the right of any party to this
Agreement to serve process in any other manner permitted by law.
SECTION 9.10. WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES,
TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A
TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR
RELATING TO THIS AGREEMENT, ANY OTHER LOAN DOCUMENT OR THE TRANSACTIONS
CONTEMPLATED HEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH
PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY
OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD
NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B)
ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER
INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND
CERTIFICATIONS IN THIS SECTION.
<PAGE> 79
74
SECTION 9.11. Headings. Article and Section headings and the Table
of Contents used herein are for convenience of reference only, are not part of
this Agreement and shall not affect the construction of, or be taken into
consideration in interpreting, this Agreement.
SECTION 9.12. Confidentiality. Each of the Agents, the Issuing Bank
and the Lenders agrees to maintain the confidentiality of the Information (as
defined below), except that Information may be disclosed (a) to its and its
Affiliates' directors, officers, employees and agents, including accountants,
legal counsel and other advisors (it being understood that the Persons to whom
such disclosure is made will be informed of the confidential nature of such
Information and instructed to keep such Information confidential), (b) to the
extent requested by any regulatory authority, (c) to the extent required by
applicable laws or regulations or by any subpoena or similar legal process, (d)
to any other party to this Agreement, (e) in connection with the exercise of any
remedies hereunder or any suit, action or proceeding relating to this Agreement
or any other Loan Document or the enforcement of rights hereunder or thereunder,
(f) subject to an agreement containing provisions substantially the same as
those of this Section, to any assignee of or Participant in, or any prospective
assignee of or Participant in, any of its rights or obligations under this
Agreement, (g) with the consent of the Borrower or (h) to the extent such
Information (i) becomes publicly available other than as a result of a breach of
this Section or (ii) becomes available to the Agents, the Issuing Bank or any
Lender on a nonconfidential basis from a source other than the Holdings. For the
purposes of this Section, the term "Information" means all information received
from the Holdings Group relating to the or its business, other than any such
information that is available to the Agents, the Issuing Bank or any Lender on a
nonconfidential basis prior to disclosure by the Holdings Group, provided that,
in the case of information received from the Holdings Group after the date
hereof, such information is clearly identified at the time of delivery as
confidential. Any Person required to maintain the confidentiality of Information
as provided in this Section shall be considered to have complied with its
obligation to do so if such Person has exercised the same degree of care to
maintain the confidentiality of such Information as such Person would accord to
its own confidential information.
SECTION 9.13. Interest Rate Limitation. Notwithstanding anything
herein to the contrary, if at any time the interest rate applicable to any Loan,
together with all fees, charges and other amounts that are treated as interest
on such Loan under applicable law (collectively the "Charges"), shall exceed the
maximum lawful rate (the "Maximum Rate") that may be contracted for, charged,
taken, received or reserved by the Lender holding such Loan in accordance with
applicable law, the rate of interest payable in respect of such Loan hereunder,
together with all Charges payable in respect thereof, shall be limited to the
Maximum Rate and, to the extent lawful, the interest and Charges that would have
been payable in respect of such Loan but were not payable as a result of the
operation of this Section shall be cumulated and the interest and Charges
payable to such Lender in respect of other Loans or periods shall be increased
(but not above the Maximum Rate therefor) until such cumulated amount, together
with interest thereon at the Federal Funds Effective Rate to the date of
repayment, shall have been received by such Lender.
<PAGE> 80
75
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed by their respective authorized officers as of the day and year
first above written.
HECHINGER INVESTMENT COMPANY OF
DELAWARE, INC., as Borrower,
by
/s/ Mark R. Adams
---------------------------------
Name: Mark Adams
Title: Executive Vice President
CENTERS HOLDINGS, INC.,
by
/s/ Mark R. Adams
---------------------------------
Name: Mark Adams
Title: Executive Vice President
BSQ ACQUISITION, INC.,
by
/s/ Mark R. Adams
---------------------------------
Name: Mark Adams
Title: Executive Vice President
BSQ TRANSFEREE CORP.,
by
/s/ Mark R. Adams
---------------------------------
Name: Mark Adams
Title: Executive Vice President
HECHINGER COMPANY,
by
/s/ Mark R. Adams
---------------------------------
Name: Mark Adams
Title: Executive Vice President
HECHINGER STORES COMPANY,
by
/s/ Mark R. Adams
---------------------------------
Name: Mark Adams
Title: Executive Vice President
<PAGE> 81
HECHINGER STORES EAST COAST COMPANY,
by
/s/ Mark R. Adams
---------------------------------
Name: Mark Adams
Title: Executive Vice President
THE CHASE MANHATTAN BANK, individually
and as Administrative Agent, Collateral
Agent and Borrowing Base Audit Agent,
by
/s/ Craig T. Moore
---------------------------------
Name: Craig T. Moore
Title: Managing Director
<PAGE> 82
EXHIBIT A
[Form of]
ASSIGNMENT AND ACCEPTANCE
Reference is made to the Credit Agreement dated as of December 31, 1998,
as amended, supplemented or otherwise modified from time to time (the "Credit
Agreement"), among Hechinger Investment Company of Delaware, Inc., a Delaware
corporation (the "Borrower"), Centers Holdings, Inc., a Delaware corporation,
BSQ Acquisition, Inc., a Delaware corporation, BSQ Transferee Corp., a Delaware
corporation, Hechinger Company, a Delaware corporation, Hechinger Stores
Company, a Delaware corporation, Hechinger Stores East Coast Company, a Delaware
corporation, the lenders listed on Schedule 2.01 thereto (the "Lenders"), The
Chase Manhattan Bank, as administrative agent for the Lenders (in such capacity,
the "Administrative Agent"), as collateral agent, as borrowing base audit agent,
as issuing bank (in such capacity, the "Issuing Bank") and as swingline lender
(in such capacity, the "Swingline Lender"). Terms defined in the Credit
Agreement are used herein with the same meanings.
1. The Assignor hereby sells and assigns, without recourse, to the
Assignee, and the Assignee hereby purchases and assumes, without recourse, from
the Assignor, effective as of the Effective Date set forth below (but not prior
to the registration of the information contained herein in the Register pursuant
to Section 9.04(d) of the Credit Agreement), the interests set forth below (the
"Assigned Interest") in the Assignor's rights and obligations under the Credit
Agreement and the other Loan Documents, including, without limitation, the
amounts and percentages set forth below of (i) the Commitments of the Assignor
on the Effective Date, (ii) the Loans owing to the Assignor which are
outstanding on the Effective Date and (iii) participations in Letters of Credit
which are outstanding on the Effective Date. Each of the Assignor and the
Assignee hereby makes and agrees to be bound by all the representations,
warranties and agreements set forth in Section 9.04(b) of the Credit Agreement,
a copy of which has been received by each such party. From and after the
Effective Date (i) the Assignee shall be a party to and be bound by the
provisions of the Credit Agreement and, to the extent of the interests assigned
by this Assignment and Acceptance, have the rights and obligations of a Lender
thereunder and under the Loan Documents and (ii) the Assignor shall, to the
extent of the interests assigned by this Assignment and Acceptance, relinquish
its rights and be released from its obligations under the Credit Agreement.
2. This Assignment and Acceptance is being delivered to the
Administrative Agent together with (i) if the Assignee is organized under the
laws of a jurisdiction outside the United States, the forms specified in Section
2.16(e) of the Credit Agreement, duly completed and executed by such Assignee,
(ii) if the Assignee is not already a Lender under the Credit Agreement, an
Administrative Questionnaire and (iii) a processing and recordation fee of
$3,500.
3. This Assignment and Acceptance shall be governed by, and construed in
accordance with, the laws of the State of New York.
Date of Assignment:
Legal Name of Assignor:
<PAGE> 83
Legal Name of Assignee:
Assignee's Address for Notices:
Effective Date of Assignment
(may not be fewer than 5 Business
Days after the Date of Assignment):
<PAGE> 84
3
<TABLE>
<CAPTION>
Percentage Assigned of Applicable
Facility/Commitment (set forth, to at
least 8 decimals, as a percentage of
the Facility and the aggregate
Commitments of all Lenders
Principal Amount Assigned thereunder) --------------
------------------------- -----------
Facility/Commitment
- -------------------
<S> <C> <C>
Revolving Credit $ %
</TABLE>
<TABLE>
<S> <C>
The terms set forth above are
hereby agreed to: Accepted */
_________________, as Assignor THE CHASE MANHATTAN BANK,
as Administrative Agent, Issuing Bank and
Swingline Lender
by: by:
--------------------------- ------------------------------
Name: Name:
Title: Title:
_________________, as Assignee
by:
---------------------------
HECHINGER INVESTMENT COMPANY OF
DELAWARE, INC.,
by:
------------------------------
Name:
Title:
</TABLE>
- --------------
*/ To be completed to the extent consents are required under Section
9.04(b) of the Credit Agreement.
<PAGE> 85
4
<PAGE> 86
EXHIBIT D
CONFORMED COPY
PARENT GUARANTEE AGREEMENT dated as of December 31,
1998, among CENTERS HOLDINGS, INC., a Delaware corporation
("Holdings"), BSQ ACQUISITION, INC., a Delaware corporation
("BSQ Acqco"), BSQ TRANSFEREE CORP., a Delaware corporation
("BSQ Newco"), HECHINGER COMPANY, a Delaware corporation
("Hechinger"), HECHINGER STORES COMPANY, a Delaware
corporation ("Hechinger Stores"), HECHINGER STORES EAST
COAST COMPANY, a Delaware corporation ("Hechinger Stores
East Coast"), each other Subsidiary of Holdings listed on
Schedule I hereto (each such other Subsidiary,
individually, a Subsidiary Guarantor and, collectively, the
"Subsidiary Guarantors"; Holdings, BSQ Acqco, BSQ Newco,
Hechinger and the Subsidiary Guarantors are referred to
collectively herein as, the "Guarantors"), THE CHASE
MANHATTAN BANK, a New York banking corporation ("Chase"),
as administrative agent (in such capacity, the
"Administrative Agent") and as collateral agent (in such
capacity, the "Collateral Agent" and, in its capacity as
both Administrative Agent and Collateral Agent, the
"Agent") for the Secured Parties (as defined in the Credit
Agreement referred to below).
Reference is made to (a) the Credit Agreement dated as of December 31,
1998 (as amended, supplemented or otherwise modified from time to time, the
"Credit Agreement"), among (i) Hechinger Investment Company of Delaware, Inc., a
Delaware corporation (the "Borrower"), (ii) Holdings, BSQ Acqco, BSQ Newco,
Hechinger, Hechinger Stores, Hechinger Stores East Coast (collectively, the
"Parent Guarantors"), (iii) the lenders from time to time party thereto (the
"Lenders") and (iv) the Agent, (b) the Credit Agreement dated as of September
26, 1997, as amended and restated as of December 31, 1998 (as amended,
supplemented or otherwise modified from time to time, the "Existing Credit
Agreement"), among the Borrower, the Parent Guarantors, the lenders from time to
time party thereto (the "Existing Lenders"), Chase, as administrative agent,
collateral agent, issuing bank and swingline lender thereunder, BANKAMERICA
BUSINESS CREDIT, INC., a Delaware corporation ("BABC"), as documentation agent
and as borrowing base audit agent thereunder, and CITICORP USA, INC., a Delaware
corporation ("Citicorp USA" and, together with Chase and BABC, each solely in
its capacity as an agent under the Existing Credit Agreement, the "Senior
Agents"), as syndication agent thereunder and (c) the Intercreditor Agreement
dated as of December 31, 1998 (as amended, supplemented or otherwise modified
from time to time, the "Intercreditor Agreement"), among the Borrower, Holdings,
the Subsidiary Loan Parties, the Senior Agents, the Agent, Green Equity
Investors II, L.P. and Kmart Corporation. Capitalized terms used herein and not
defined herein shall have the meanings assigned to such terms in the Credit
Agreement.
The Lenders have agreed to make Loans to the Borrower, and the Issuing
Bank has agreed to issue Letters of Credit for the account of the Borrower,
pursuant to, and upon the terms and subject to the conditions specified in, the
Credit Agreement. As the direct and indirect owners of all the issued and
outstanding capital stock of the Borrower (or, in the case of BSQ Newco and
Hechinger Stores East Coast, as a wholly owned subsidiary of an indirect owner
of all such stock), each Guarantor acknowledges that it will derive substantial
benefit from the making of Loans by the Lenders and the issuance of Letters of
Credit by the Issuing Bank. The obligations of the Lenders to make Loans and of
the Issuing Bank to issue Letters of Credit are conditioned on, among other
things, the execution and delivery by the Guarantors of a Parent Guarantee
Agreement in the form hereof. As consideration therefor and in order to induce
the Lenders to make Loans and the Issuing Bank to issue Letters of Credit, each
Guarantor is willing to execute this Agreement.
<PAGE> 87
Accordingly, the parties hereto agree as follows:
SECTION 1. Guarantee. Each Guarantor unconditionally guarantees (the
"Guarantee"), jointly with the other Guarantors and severally, as a primary
obligor and not merely as a surety, (a) the due and punctual payment by the
Borrower of (i) the principal of and premium, if any, and interest (including
interest accruing during the pendency of any bankruptcy, insolvency,
receivership or other similar proceeding, regardless of whether such interest is
allowed or allowable as a claim in such proceeding) on the Loans, when and as
due, whether at maturity, by acceleration, upon one or more dates set for
prepayment or otherwise, (ii) each payment required to be made by the Borrower
under the Credit Agreement in respect of any Letter of Credit, when and as due,
including payments in respect of reimbursement of disbursements, interest
thereon and obligations to provide cash collateral, and (iii) all other monetary
obligations, including fees, costs, expenses and indemnities, whether primary,
secondary, direct, contingent, fixed or otherwise (including monetary
obligations incurred during the pendency of any bankruptcy, insolvency,
receivership or other similar proceeding, regardless of whether such monetary
obligations are allowed or allowable as a claim in such proceeding), of the
Borrower to the Secured Parties under the Credit Agreement and the other Loan
Documents, (b) the due and punctual performance of all covenants, agreements,
obligations and liabilities of the Borrower under or pursuant to the Credit
Agreement and the other Loan Documents and (c) the due and punctual payment and
performance of all the covenants, agreements, obligations and liabilities of
each Loan Party under or pursuant to this Agreement and the other Loan Documents
(all the monetary and other obligations described in the preceding clauses (a)
through (c) being collectively called the "Obligations"). Each Guarantor further
agrees that the Obligations may be extended or renewed, in whole or in part,
without notice to or further assent from it, and that it will remain bound upon
the Guarantee notwithstanding any extension or renewal of any Obligation.
SECTION 2. Obligations Not Waived. To the fullest extent permitted by
applicable law, each Guarantor waives presentment to, demand of payment from and
protest to the Borrower of any of the Obligations, and also waives notice of
acceptance of the Guarantee and notice of protest for nonpayment. To the fullest
extent permitted by applicable law, the obligations of each Guarantor hereunder
shall not be affected by (a) the failure of any Agent or any other Secured Party
to assert any claim or demand or to enforce or exercise any right or remedy
against the Borrower or any other guarantor of the Obligations under the
provisions of the Credit Agreement, any other Loan Document or otherwise, (b)
any rescission, waiver, amendment or modification of, or any release from any of
the terms or provisions of, this Agreement, any other Loan Document, any
Guarantee or any other agreement, including with respect to any other guarantor
of the Obligations under this Agreement, or (c) the failure to perfect any
security interest in, or the release of, any of the security held by or on
behalf of the Collateral Agent or any other Secured Party.
SECTION 3. Security. Each Guarantor authorizes the Collateral Agent and
each of the other Secured Parties to (a) take and hold security for the payment
of the Guarantee and the Obligations and exchange, enforce, waive and release
any such security, (b) apply such security and direct the order or manner of
sale thereof as they in their sole discretion may determine and (c) release or
substitute any one or more endorsees, other guarantors or other obligors.
SECTION 4. Guarantee of Payment. Each Guarantor further agrees that the
Guarantee constitutes a guarantee of payment when due and not of collection, and
waives any right to require that any resort be had by the Collateral Agent or
any other Secured Party to any of the security held for payment of the
Obligations or to any balance of any deposit account or credit on the books of
the Collateral Agent or any other Secured Party in favor of the Borrower or any
other person.
SECTION 5. No Discharge or Diminishment of Guarantee. The obligations of
each Guarantor hereunder shall not be subject to any reduction, limitation,
impairment or termination for any reason (other than the indefeasible payment in
full in cash of the Obligations), including any claim of waiver, release,
surrender, alteration or compromise of any of the Obligations, and shall not be
subject to any defense or set-off, counterclaim, recoupment or termination
whatsoever by reason of the invalidity, illegality or unenforceability of the
Obligations or otherwise. Without limiting the generality of the foregoing, the
obligations of each Guarantor hereunder shall not be discharged or impaired or
otherwise affected by the
<PAGE> 88
3
failure of any Agent or any other Secured Party to assert any claim or demand or
to enforce any remedy under the Credit Agreement, any other Loan Document or any
other agreement, by any waiver or modification of any provision of any thereof,
by any default, failure or delay, wilful or otherwise, in the performance of the
Obligations, or by any other act or omission that may or might in any manner or
to any extent vary the risk of any Guarantor or that would otherwise operate as
a discharge of any Guarantor as a matter of law or equity (other than the
indefeasible payment in full in cash of all the Obligations).
SECTION 6. Defenses of Borrower Waived. To the fullest extent permitted
by applicable law, each Guarantor waives any defense based on or arising out of
any defense of the Borrower or the unenforceability of the Obligations or any
part thereof from any cause, or the cessation from any cause of the liability of
the Borrower, other than the indefeasible payment in full in cash of all the
Obligations. The Collateral Agent and the other Secured Parties may, at their
election, foreclose on any security held by one or more of them by one or more
judicial or nonjudicial sales, accept an assignment of any such security in lieu
of foreclosure, compromise or adjust any part of the Obligations, make any other
accommodation with the Borrower or any other guarantor or exercise any other
right or remedy available to them against the Borrower or any other guarantor,
without affecting or impairing in any way the liability of any Guarantor
hereunder except to the extent that all the Obligations have been indefeasibly
paid in full in cash. Pursuant to applicable law, each Guarantor waives any
defense arising out of any such election even though such election operates,
pursuant to applicable law, to impair or to extinguish any right of
reimbursement or subrogation or other right or remedy of such Guarantor against
the Borrower or any other guarantor, as the case may be, or any security.
SECTION 7. Agreement to Pay; Subordination. In furtherance of the
foregoing and not in limitation of any other right that the Agents or any other
Secured Party has at law or in equity against any Guarantor by virtue hereof,
upon the failure of the Borrower or any other Loan Party to pay any Obligation
when and as the same shall become due, whether at maturity, by acceleration,
after notice of prepayment or otherwise, each Guarantor hereby promises to and
will forthwith pay, or cause to be paid, to the Collateral Agent or such other
Secured Party as designated thereby in cash the amount of such unpaid
Obligations. Upon payment by any Guarantor of any sums to the Collateral Agent
or any Secured Party as provided above, all rights of such Guarantor against the
Borrower arising as a result thereof by way of right of subrogation,
contribution, reimbursement, indemnity or otherwise shall in all respects be
subordinate and junior in right of payment to the prior indefeasible payment in
full in cash of all the Obligations. In addition, any indebtedness of the
Borrower now or hereafter held by any Guarantor is hereby subordinated in right
of payment to the prior payment in full of the Obligations. If any amount shall
erroneously be paid to any Guarantor on account of (a) such subrogation,
contribution, reimbursement, indemnity or similar right or (b) any such
indebtedness of the Borrower, such amount shall be held in trust for the benefit
of the Secured Parties and shall forthwith be paid to the Collateral Agent to be
credited against the payment of the Obligations, whether matured or unmatured,
in accordance with the terms of the Loan Documents.
SECTION 8. Information. Each Guarantor assumes all responsibility for
being and keeping itself informed of the Borrower's financial condition and
assets, and of all other circumstances bearing upon the risk of nonpayment of
the Obligations and the nature, scope and extent of the risks that such
Guarantor assumes and incurs hereunder, and agrees that none of the Agents or
the other Secured Parties will have any duty to advise any of the Guarantors of
information known to it or any of them regarding such circumstances or risks.
SECTION 9. Termination. The Guarantee (a) shall terminate when all the
Obligations have been indefeasibly paid in full and the Lenders have no further
commitment to lend under the Credit Agreement, the LC Exposure has been reduced
to zero and the Issuing Bank has no further obligation to issue Letters of
Credit under the Credit Agreement and (b) shall continue to be effective or be
reinstated, as the case may be, if at any time payment, or any part thereof, of
any Obligation is rescinded or must otherwise be restored
<PAGE> 89
4
by any Secured Party or any Guarantor upon the bankruptcy or reorganization of
the Borrower, any Guarantor or otherwise.
SECTION 10. Binding Effect; Several Agreement; Assignments. Whenever in
this Agreement any of the parties hereto is referred to, such reference shall be
deemed to include the successors and assigns of such party, and all covenants,
promises and agreements by or on behalf of the Guarantors that are contained in
this Agreement shall bind and inure to the benefit of each party hereto and
their respective successors and assigns. This Agreement shall become effective
as to any Guarantor when a counterpart hereof executed on behalf of such
Guarantor shall have been delivered to the Collateral Agent, and a counterpart
hereof shall have been executed on behalf of the Collateral Agent, and
thereafter shall be binding upon such Guarantor and the Collateral Agent and
their respective successors and assigns, and shall inure to the benefit of such
Guarantor, the Collateral Agent and the other Secured Parties, and their
respective successors and assigns, except that no Guarantor shall have the right
to assign its rights or obligations hereunder or any interest herein (and any
such attempted assignment shall be void).
SECTION 11. Waivers; Amendment. (a) No failure or delay of any Agent in
exercising any power or right hereunder shall operate as a waiver thereof, nor
shall any single or partial exercise of any such right or power, or any
abandonment or discontinuance of steps to enforce such a right or power,
preclude any other or further exercise thereof or the exercise of any other
right or power. The rights and remedies of the Agents hereunder and of the other
Secured Parties under the other Loan Documents are cumulative and are not
exclusive of any rights or remedies that they would otherwise have. No waiver of
any provision of this Agreement or consent to any departure by any Guarantor
therefrom shall in any event be effective unless the same shall be permitted by
paragraph (b) below, and then such waiver or consent shall be effective only in
the specific instance and for the purpose for which given. No notice or demand
on any Guarantor in any case shall entitle such Guarantor to any other or
further notice or demand in similar or other circumstances.
(b) Neither this Agreement nor any provision hereof may be waived,
amended or modified except pursuant to a written agreement entered into between
the Guarantors with respect to which such waiver, amendment or modification
relates and each of the Agents, with the prior written consent of the Required
Lenders (except as otherwise provided in the Credit Agreement).
SECTION 12. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
SECTION 13. Notices. All communications and notices hereunder shall be in
writing and given as provided in Section 9.01 of the Credit Agreement. All
communications and notices hereunder to any Guarantor shall be given to it in
care of the Borrower.
SECTION 14. Survival of Agreement; Severability. (a) All covenants,
agreements, representations and warranties made by the Guarantors herein and in
the certificates or other instruments prepared or delivered in connection with
or pursuant to this Agreement or any other Loan Document shall be considered to
have been relied upon by the Agents and the other Secured Parties and shall
survive the making by the Lenders of the Loans and the issuance of the Letters
of Credit by the Issuing Bank regardless of any investigation made by the
Secured Parties or on their behalf, and shall continue in full force and effect
as long as the principal of or any accrued interest on any Loan or any other fee
or amount payable under this Agreement or any other Loan Document is outstanding
and unpaid or the LC Exposure does not equal zero and as long as the Commitments
have not been terminated.
(b) In the event any one or more of the provisions contained in this
Agreement or in any other Loan Document should be held invalid, illegal or
unenforceable in any respect, the validity, legality and
<PAGE> 90
5
enforceability of the remaining provisions contained herein and therein shall
not in any way be affected or impaired thereby (it being understood that the
invalidity of a particular provision in a particular jurisdiction shall not in
and of itself affect the validity of such provision in any other jurisdiction).
The parties shall endeavor in good-faith negotiations to replace the invalid,
illegal or unenforceable provisions with valid provisions the economic effect of
which comes as close as possible to that of the invalid, illegal or
unenforceable provisions.
SECTION 15. Counterparts. This Agreement may be executed in counterparts,
each of which shall constitute an original, but all of which when taken together
shall constitute a single contract, and shall become effective as provided in
Section 10. Delivery of an executed signature page to this Agreement by
facsimile transmission shall be as effective as delivery of a manually executed
counterpart of this Agreement.
SECTION 16. Rules of Interpretation. The rules of interpretation
specified in Section 1.03 of the Credit Agreement shall be applicable to this
Agreement.
SECTION 17. Intercreditor Agreement. The Agent, on behalf of the Secured
Parties, acknowledges that the Guarantee of each Guarantor made pursuant to this
Parent Guarantee Agreement is subject to the provisions of the Intercreditor
Agreement, including the provisions therein subordinating such Guarantees to
certain other obligations of the Guarantors. Notwithstanding anything to the
contrary contained herein, the rights, duties and obligations of the Agent are
subject to the provisions of the Intecreditor Agreement.
<PAGE> 91
6
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
as of the day and year first above written.
CENTERS HOLDINGS, INC.,
by
/s/ Mark R. Adams
-----------------------------------
Name: Mark R. Adams
Title: Executive Vice President
BSQ ACQUISITION, INC.,
by
/s/ Mark R. Adams
-----------------------------------
Name: Mark R. Adams
Title: Executive Vice President
BSQ TRANSFEREE CORP.,
by
/s/ Mark R. Adams
-----------------------------------
Name: Mark R. Adams
Title: Executive Vice President
HECHINGER COMPANY,
by
/s/ Mark R. Adams
-----------------------------------
Name: Mark R. Adams
Title: Executive Vice President
HECHINGER STORES COMPANY,
by
/s/ Mark R. Adams
-----------------------------------
Name: Mark R. Adams
Title: Executive Vice President
HECHINGER STORES EAST COAST COMPANY,
by
/s/ Mark R. Adams
-----------------------------------
Name: Mark R. Adams
Title: Executive Vice President
<PAGE> 92
7
THE SUBSIDIARY GUARANTORS LISTED ON
SCHEDULE I HERETO,
by
/s/ Mark R. Adams
-----------------------------------
Name: Mark R. Adams
Title: Authorized Officer
<PAGE> 93
THE CHASE MANHATTAN BANK, as
Administrative Agent and as Collateral Agent,
by
/s/ Craig T. Moore
----------------------------------------
Name: Craig T. Moore
Title: Managing Director
<PAGE> 94
Schedule I to the
Parent Guarantee Agreement
SUBSIDIARY GUARANTORS
Name Address
---- -------
<PAGE> 95
EXHIBIT E
CONFORMED COPY
SUBSIDIARY GUARANTEE AGREEMENT dated as of December
31, 1998, among (a) each of the subsidiaries listed on
Schedule I hereto (each such subsidiary, individually, a
"Subsidiary Guarantor" and, collectively, the "Subsidiary
Guarantors") of HECHINGER INVESTMENT COMPANY OF DELAWARE,
INC., a Delaware corporation (the "Borrower"), (b) THE
CHASE MANHATTAN BANK, a New York banking corporation
("Chase"), as administrative agent (in such capacity, the
"Administrative Agent") and as collateral agent (in such
capacity, the "Collateral Agent" and, in its capacity as
both Administrative Agent and Collateral Agent, the
"Agent") for the Secured Parties (as defined in the Credit
Agreement referred to below).
Reference is made to (a) the Credit Agreement dated as of December 31,
1998 (as amended, supplemented or otherwise modified from time to time, the
"Credit Agreement"), among (i) the Borrower, (ii) CENTERS HOLDINGS, INC., a
Delaware corporation, BSQ ACQUISITION, INC., a Delaware corporation, BSQ
TRANSFEREE CORP., a Delaware corporation, HECHINGER COMPANY, a Delaware
corporation, HECHINGER STORES COMPANY, a Delaware corporation, HECHINGER STORES
EAST COAST COMPANY, a Delaware corporation (collectively, the "Parent
Guarantors"), the lenders from time to time party thereto (the "Lenders"), and
(iv) the Agent, (b) the Credit Agreement dated as of September 26, 1997, as
amended and restated as of December 31, 1998 (as amended, supplemented or
otherwise modified from time to time, the "Existing Credit Agreement"), among
the Borrower, the Parent Guarantors, the lenders from time to time party thereto
(the "Existing Lenders"), Chase, as administrative agent, collateral agent,
issuing bank and swingline lender thereunder, BANKAMERICA BUSINESS CREDIT, INC.,
a Delaware corporation ("BABC"), as documentation agent and as borrowing base
audit agent thereunder, and CITICORP USA, INC., a Delaware corporation
("Citicorp USA" and, together with Chase and BABC, each solely in its capacity
as an agent under the Existing Credit Agreement, the "Senior Agents"), as
syndication agent thereunder and (c) the Intercreditor Agreement dated as of
December 31, 1998 (as amended, supplemented or otherwise modified from time to
time, the "Intercreditor Agreement"), among the Borrower, Holdings, the
Subsidiary Loan Parties, the Senior Agents, the Agent, Green Equity Investors
II, L.P. and Kmart Corporation. Capitalized terms used herein and not defined
herein shall have the meanings assigned to such terms in the Credit Agreement.
The Lenders have agreed to make Loans to the Borrower, and the Issuing
Bank has agreed to issue Letters of Credit for the account of the Borrower,
pursuant to, and upon the terms and subject to the conditions specified in, the
Credit Agreement. Each of the Subsidiary Guarantors is a Borrower Subsidiary and
acknowledges that it will derive substantial benefit from the making of the
Loans by the Lenders, and the issuance of the Letters of Credit by the Issuing
Bank. The obligations of the Lenders to make Loans and of the Issuing Bank to
issue Letters of Credit are conditioned on, among other things, the execution
and delivery by the Subsidiary Guarantors of a Subsidiary Guarantee Agreement in
the form hereof. As consideration therefor and in order to induce the Lenders to
make Loans and the Issuing Bank to issue Letters of Credit, the Subsidiary
Guarantors are willing to execute this Agreement.
<PAGE> 96
Accordingly, the parties hereto agree as follows:
SECTION 1. Guarantee. Each Subsidiary Guarantor unconditionally
guarantees (the "Guarantee"), jointly with the other Subsidiary Guarantors and
severally, as a primary obligor and not merely as a surety, (a) the due and
punctual payment by the Borrower of (i) the principal of and premium, if any,
and interest (including interest accruing during the pendency of any bankruptcy,
insolvency, receivership or other similar proceeding, regardless of whether such
interest is allowed or allowable as a claim in such proceeding) on the Loans,
when and as due, whether at maturity, by acceleration, upon one or more dates
set for prepayment or otherwise, (ii) each payment required to be made by the
Borrower under the Credit Agreement in respect of any Letter of Credit, when and
as due, including payments in respect of reimbursement of disbursements,
interest thereon and obligations to provide cash collateral, and (iii) all other
monetary obligations, including fees, costs, expenses and indemnities, whether
primary, secondary, direct, contingent, fixed or otherwise (including monetary
obligations incurred during the pendency of any bankruptcy, insolvency,
receivership or other similar proceeding, regardless of whether such monetary
obligations are allowed or allowable as a claim in such proceeding), of the
Borrower to the Secured Parties under the Credit Agreement and the other Loan
Documents, (b) the due and punctual performance of all covenants, agreements,
obligations and liabilities of the Borrower under or pursuant to the Credit
Agreement and the other Loan Documents and (c) the due and punctual payment and
performance of all the covenants, agreements, obligations and liabilities of
each Loan Party under or pursuant to this Agreement and the other Loan Documents
(all the monetary and other obligations described in the preceding clauses (a)
through (c) being collectively called the "Obligations"). Each Subsidiary
Guarantor further agrees that the Obligations may be extended or renewed, in
whole or in part, without notice to or further assent from it, and that it will
remain bound upon the Guarantee notwithstanding any extension or renewal of any
Obligation.
Anything contained in this Agreement to the contrary notwithstanding, the
obligations of each Subsidiary Guarantor hereunder shall be limited to a maximum
aggregate amount equal to the greatest amount that would not render such
Subsidiary Guarantor's obligations hereunder subject to avoidance as a
fraudulent transfer or conveyance under Section 548 of Title 11 of the United
States Code or any provisions of applicable state law (collectively, the
"Fraudulent Transfer Laws"), in each case after giving effect to all other
liabilities of such Subsidiary Guarantor, contingent or otherwise, that are
relevant under the Fraudulent Transfer Laws (specifically excluding, however,
any liabilities of such Subsidiary Guarantor (a) in respect of intercompany
indebtedness to the Borrower or Affiliates of the Borrower to the extent that
such indebtedness would be discharged in an amount equal to the amount paid by
such Subsidiary Guarantor hereunder and (b) under any guarantee of senior
unsecured indebtedness or Indebtedness subordinated in right of payment to the
Obligations, which guarantee contains a limitation as to maximum amount similar
to that set forth in this paragraph, pursuant to which the liability of such
Subsidiary Guarantor hereunder is included in the liabilities taken into account
in determining such maximum amount) and after giving effect as assets to the
value (as determined under the applicable provisions of the Fraudulent Transfer
Laws) of any rights to subrogation, contribution, reimbursement, indemnity or
similar rights of such Subsidiary Guarantor pursuant to (i) applicable law or
(ii) any agreement providing for an equitable allocation among such Subsidiary
Guarantor and other Affiliates of the Borrower of obligations arising under
Guarantees by such parties (including the Indemnity, Subrogation and
Contribution Agreement).
SECTION 2. Obligations Not Waived. To the fullest extent permitted by
applicable law, each Subsidiary Guarantor waives presentment to, demand of
payment from and protest to the Borrower of any of the Obligations, and also
waives notice of acceptance of the Guarantee
<PAGE> 97
3
and notice of protest for nonpayment. To the fullest extent permitted by
applicable law, the obligations of each Subsidiary Guarantor hereunder shall not
be affected by (a) the failure of any Agent or any other Secured Party to assert
any claim or demand or to enforce or exercise any right or remedy against the
Borrower or any other Subsidiary Guarantor under the provisions of the Credit
Agreement, any other Loan Document or otherwise, (b) any rescission, waiver,
amendment or modification of, or any release from any of the terms or provisions
of, this Agreement, any other Loan Document, any Guarantee or any other
agreement, including with respect to any other Subsidiary Guarantor under this
Agreement, or (c) the failure to perfect any security interest in, or the
release of, any of the security held by or on behalf of the Collateral Agent or
any other Secured Party.
SECTION 3. Security. Each of the Subsidiary Guarantors authorizes the
Collateral Agent and each of the other Secured Parties to (a) take and hold
security for the payment of the Guarantee and the Obligations and exchange,
enforce, waive and release any such security, (b) apply such security and direct
the order or manner of sale thereof as they in their sole discretion may
determine and (c) release or substitute any one or more endorsees, other
Subsidiary Guarantors or other obligors.
SECTION 4. Guarantee of Payment. Each Subsidiary Guarantor further agrees
that the Guarantee constitutes a guarantee of payment when due and not of
collection, and waives any right to require that any resort be had by the
Collateral Agent or any other Secured Party to any of the security held for
payment of the Obligations or to any balance of any deposit account or credit on
the books of the Collateral Agent or any other Secured Party in favor of the
Borrower or any other person.
SECTION 5. No Discharge or Diminishment of Guarantee. The obligations of
each Subsidiary Guarantor hereunder shall not be subject to any reduction,
limitation, impairment or termination for any reason (other than the
indefeasible payment in full in cash of the Obligations), including any claim of
waiver, release, surrender, alteration or compromise of any of the Obligations,
and shall not be subject to any defense or set-off, counterclaim, recoupment or
termination whatsoever by reason of the invalidity, illegality or
unenforceability of the Obligations or otherwise. Without limiting the
generality of the foregoing, the obligations of each Subsidiary Guarantor
hereunder shall not be discharged or impaired or otherwise affected by the
failure of any Agent or any other Secured Party to assert any claim or demand or
to enforce any remedy under the Credit Agreement, any other Loan Document or any
other agreement, by any waiver or modification of any provision of any thereof,
by any default, failure or delay, wilful or otherwise, in the performance of the
Obligations, or by any other act or omission that may or might in any manner or
to any extent vary the risk of any Subsidiary Guarantor or that would otherwise
operate as a discharge of any Subsidiary Guarantor as a matter of law or equity
(other than the indefeasible payment in full in cash of all the Obligations).
SECTION 6. Defenses of Borrower Waived. To the fullest extent permitted
by applicable law, each of the Subsidiary Guarantors waives any defense based on
or arising out of any defense of the Borrower or the unenforceability of the
Obligations or any part thereof from any cause, or the cessation from any cause
of the liability of the Borrower, other than the indefeasible payment in full in
cash of all the Obligations. The Collateral Agent and the other
<PAGE> 98
4
Secured Parties may, at their election, foreclose on any security held by one or
more of them by one or more judicial or nonjudicial sales, accept an assignment
of any such security in lieu of foreclosure, compromise or adjust any part of
the Obligations, make any other accommodation with the Borrower or any other
Subsidiary Guarantor or exercise any other right or remedy available to them
against the Borrower or any other Subsidiary Guarantor, without affecting or
impairing in any way the liability of any Subsidiary Guarantor hereunder except
to the extent that all the Obligations have been indefeasibly paid in full in
cash. Pursuant to applicable law, each of the Subsidiary Guarantors waives any
defense arising out of any such election even though such election operates,
pursuant to applicable law, to impair or to extinguish any right of
reimbursement or subrogation or other right or remedy of such Subsidiary
Guarantor against the Borrower or any other Subsidiary Guarantor or Subsidiary
Guarantors, as the case may be, or any security.
SECTION 7. Agreement to Pay; Subordination. In furtherance of the
foregoing and not in limitation of any other right that the Agents or any other
Secured Party has at law or in equity against any Subsidiary Guarantor by virtue
hereof, upon the failure of the Borrower or any other Loan Party to pay any
Obligation when and as the same shall become due, whether at maturity, by
acceleration, after notice of prepayment or otherwise, each Subsidiary Guarantor
hereby promises to and will forthwith pay, or cause to be paid, to the
Collateral Agent or such other Secured Party as designated thereby in cash the
amount of such unpaid Obligations. Upon payment by any Subsidiary Guarantor of
any sums to the Collateral Agent or any Secured Party as provided above, all
rights of such Subsidiary Guarantor against the Borrower arising as a result
thereof by way of right of subrogation, contribution, reimbursement, indemnity
or otherwise shall in all respects be subordinate and junior in right of payment
to the prior indefeasible payment in full in cash of all the Obligations. In
addition, any indebtedness of the Borrower now or hereafter held by any
Subsidiary Guarantor is hereby subordinated in right of payment to the prior
payment in full of the Obligations. If any amount shall erroneously be paid to
any Subsidiary Guarantor on account of (a) such subrogation, contribution,
reimbursement, indemnity or similar right or (b) any such indebtedness of the
Borrower, such amount shall be held in trust for the benefit of the Secured
Parties and shall forthwith be paid to the Collateral Agent to be credited
against the payment of the Obligations, whether matured or unmatured, in
accordance with the terms of the Loan Documents.
SECTION 8. Information. Each of the Subsidiary Guarantors assumes all
responsibility for being and keeping itself informed of the Borrower's financial
condition and assets, and of all other circumstances bearing upon the risk of
nonpayment of the Obligations and the nature, scope and extent of the risks that
such Subsidiary Guarantor assumes and incurs hereunder, and agrees that none of
the Agents or the other Secured Parties will have any duty to advise any of the
Subsidiary Guarantors of information known to it or any of them regarding such
circumstances or risks.
SECTION 9. Representations and Warranties. Each of the Subsidiary
Guarantors represents and warrants as to itself that all representations and
warranties relating to it contained in the Credit Agreement are true and
correct.
<PAGE> 99
5
SECTION 10. Termination. The Guarantees (a) shall terminate when all the
Obligations have been indefeasibly paid in full and the Lenders have no further
commitment to lend under the Credit Agreement, the LC Exposure has been reduced
to zero and the Issuing Bank has no further obligation to issue Letters of
Credit under the Credit Agreement and (b) shall continue to be effective or be
reinstated, as the case may be, if at any time payment, or any part thereof, of
any Obligation is rescinded or must otherwise be restored by any Secured Party
or any Subsidiary Guarantor upon the bankruptcy or reorganization of the
Borrower, any Subsidiary Guarantor or otherwise.
SECTION 11. Binding Effect; Several Agreement; Assignments. Whenever in
this Agreement any of the parties hereto is referred to, such reference shall be
deemed to include the successors and assigns of such party, and all covenants,
promises and agreements by or on behalf of the Subsidiary Guarantors that are
contained in this Agreement shall bind and inure to the benefit of each party
hereto and their respective successors and assigns. This Agreement shall become
effective as to any Subsidiary Guarantor when a counterpart hereof executed on
behalf of such Subsidiary Guarantor shall have been delivered to the Collateral
Agent, and a counterpart hereof shall have been executed on behalf of the
Collateral Agent, and thereafter shall be binding upon such Subsidiary Guarantor
and the Collateral Agent and their respective successors and assigns, and shall
inure to the benefit of such Subsidiary Guarantor, the Collateral Agent and the
other Secured Parties, and their respective successors and assigns, except that
no Subsidiary Guarantor shall have the right to assign its rights or obligations
hereunder or any interest herein (and any such attempted assignment shall be
void). If all of the capital stock of a Subsidiary Guarantor is sold,
transferred or otherwise disposed of pursuant to a transaction permitted by
Section 6.05 of the Credit Agreement, such Subsidiary Guarantor shall be
released from its obligations under this Agreement without further action. This
Agreement shall be construed as a separate agreement with respect to each
Subsidiary Guarantor and may be amended, modified, supplemented, waived or
released with respect to any Subsidiary Guarantor without the approval of any
other Subsidiary Guarantor and without affecting the obligations of any other
Subsidiary Guarantor hereunder.
SECTION 12. Waivers; Amendment. (a) No failure or delay of any Agent in
exercising any power or right hereunder shall operate as a waiver thereof, nor
shall any single or partial exercise of any such right or power, or any
abandonment or discontinuance of steps to enforce such a right or power,
preclude any other or further exercise thereof or the exercise of any other
right or power. The rights and remedies of the Agents hereunder and of the other
Secured Parties under the other Loan Documents are cumulative and are not
exclusive of any rights or remedies that they would otherwise have. No waiver of
any provision of this Agreement or consent to any departure by any Subsidiary
Guarantor therefrom shall in any event be effective unless the same shall be
permitted by paragraph (b) below, and then such waiver or consent shall be
effective only in the specific instance and for the purpose for which given. No
notice or demand on any Subsidiary Guarantor in any case shall entitle such
Subsidiary Guarantor to any other or further notice or demand in similar or
other circumstances.
(b) Neither this Agreement nor any provision hereof may be waived,
amended or modified except pursuant to a written agreement entered into between
the Subsidiary Guarantors with respect to which such waiver, amendment or
modification relates and each of the Agents,
<PAGE> 100
6
with the prior written consent of the Required Lenders (except as otherwise
provided in the Credit Agreement).
SECTION 13. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
SECTION 14. Notices. All communications and notices hereunder shall be in
writing and given as provided in Section 9.01 of the Credit Agreement. All
communications and notices hereunder to each Subsidiary Guarantor shall be given
to it in care of the Borrower.
SECTION 15. Survival of Agreement; Severability. (a) All covenants,
agreements, representations and warranties made by the Subsidiary Guarantors
herein and in the certificates or other instruments prepared or delivered in
connection with or pursuant to this Agreement or any other Loan Document shall
be considered to have been relied upon by the Agents and the other Secured
Parties and shall survive the making by the Lenders of the Loans and the
issuance of the Letters of Credit by the Issuing Bank regardless of any
investigation made by the Secured Parties or on their behalf, and shall continue
in full force and effect as long as the principal of or any accrued interest on
any Loan or any other fee or amount payable under this Agreement or any other
Loan Document is outstanding and unpaid or the LC Exposure does not equal zero
and as long as the Commitments have not been terminated.
(b) In the event any one or more of the provisions contained in this
Agreement or in any other Loan Document should be held invalid, illegal or
unenforceable in any respect, the validity, legality and enforceability of the
remaining provisions contained herein and therein shall not in any way be
affected or impaired thereby (it being understood that the invalidity of a
particular provision in a particular jurisdiction shall not in and of itself
affect the validity of such provision in any other jurisdiction). The parties
shall endeavor in good-faith negotiations to replace the invalid, illegal or
unenforceable provisions with valid provisions the economic effect of which
comes as close as possible to that of the invalid, illegal or unenforceable
provisions.
SECTION 16. Counterparts. This Agreement may be executed in counterparts,
each of which shall constitute an original, but all of which when taken together
shall constitute a single contract, and shall become effective as provided in
Section 11. Delivery of an executed signature page to this Agreement by
facsimile transmission shall be as effective as delivery of a manually executed
counterpart of this Agreement.
SECTION 17. Rules of Interpretation. The rules of interpretation
specified in Section 1.03 of the Credit Agreement shall be applicable to this
Agreement.
SECTION 18. Jurisdiction; Consent to Service of Process. (a) Each
Subsidiary Guarantor hereby irrevocably and unconditionally submits, for itself
and its property, to the nonexclusive jurisdiction of the Supreme Court of the
State of New York sitting in New York County and of the United States District
Court of the Southern District of New York, and any appellate court from any
thereof, in any action or proceeding arising out of or relating to this
Agreement or any other Loan Document, or for recognition or enforcement of any
judgment, and
<PAGE> 101
7
each of the parties hereto hereby irrevocably and unconditionally agrees that
all claims in respect of any such action or proceeding may be heard and
determined in such New York State or, to the extent permitted by law, in such
Federal court. Each of the parties hereto agrees that a final judgment in any
such action or proceeding shall be conclusive and may be enforced in other
jurisdictions by suit on the judgment or in any other manner provided by law.
Nothing in this Agreement or any other Loan Document shall affect any right that
the Collateral Agent or any other Secured Party may otherwise have to bring any
action or proceeding relating to this Agreement or any other Loan Document
against any Subsidiary Guarantor or its properties in the courts of any
jurisdiction.
(b) Each Subsidiary Guarantor irrevocably and unconditionally waives, to
the fullest extent it may legally and effectively do so, any objection that it
may now or hereafter have to the laying of venue of any suit, action or
proceeding arising out of or relating to this Agreement or any other Loan
Document in any court referred to in paragraph (a) of this Section. Each of the
parties hereto hereby irrevocably waives, to the fullest extent permitted by
law, the defense of an inconvenient forum to the maintenance of such action or
proceeding in any such court.
(c) Each party to this Agreement irrevocably consents to service of
process in the manner provided for notices in Section 14. Nothing in this
Agreement or any other Loan Document will affect the right of any party to this
Agreement to serve process in any other manner permitted by law.
SECTION 19. WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES, TO THE
FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY
JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING
TO THIS AGREEMENT, ANY OTHER LOAN DOCUMENT OR THE TRANSACTIONS CONTEMPLATED
HEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY HERETO
(A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS
REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE
EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES
THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS
AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS
SECTION 19.
SECTION 20. Additional Subsidiary Guarantors. Pursuant to Section 5.12 of
the Credit Agreement, each Subsidiary that was not in existence on the date of
the Credit Agreement is required to enter into this Agreement as a Subsidiary
Guarantor upon becoming a Subsidiary. Upon execution and delivery after the date
hereof by the Collateral Agent and such a Subsidiary of an instrument in the
form of Annex 1, such Subsidiary shall become a Subsidiary Guarantor hereunder
with the same force and effect as if originally named as a Subsidiary Guarantor
herein. The execution and delivery of any instrument adding an additional
Subsidiary Guarantor as a party to this Agreement shall not require the consent
of any other Subsidiary Guarantor
<PAGE> 102
8
hereunder. The rights and obligations of each Subsidiary Guarantor hereunder
shall remain in full force and effect notwithstanding the addition of any new
Subsidiary Guarantor as a party to this Agreement.
SECTION 21. Right of Set-off. If an Event of Default shall have occurred
and be continuing, each Secured Party is hereby authorized at any time and from
time to time, to the fullest extent permitted by law, to set off and apply any
and all deposits (general or special, time or demand, provisional or final) at
any time held and other Indebtedness at any time owing by such Secured Party to
or for the credit or the account of any Subsidiary Guarantor against any or all
the obligations of such Subsidiary Guarantor now or hereafter existing under
this Agreement and the other Loan Documents held by such Secured Party,
irrespective of whether or not such Secured Party shall have made any demand
under this Agreement or any other Loan Document and although such obligations
may be unmatured. The rights of each Secured Party under this Section 21 are in
addition to other rights and remedies (including other rights of set-off) that
such Secured Party may have.
Section 22. Intercreditor Agreement. The Agent, on behalf of the Secured
Parties, acknowledges that the Guarantee of each Subsidiary Guarantor made
pursuant to this Subsidiary Guarantee Agreement is subject to the provisions of
the Intercreditor Agreement, including the provisions therein subordinating such
Guarantees to certain other obligations of the Subsidiary Guarantors.
Notwithstanding anything to the contrary contained herein, the rights, duties
and obligations of the Agent are subject to the provisions of the Intercreditor
Agreement.
<PAGE> 103
9
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
as of the day and year first above written.
EACH OF THE BORROWER SUBSIDIARIES
LISTED ON SCHEDULE I HERETO,
by
/s/ Mark R. Adams
--------------------------
Name: Mark R. Adams
Title: Authorized Officer
THE CHASE MANHATTAN BANK, as
Administrative Agent and as Collateral Agent,
by
/s/ Craig T. Moore
--------------------------
Name: Craig T. Moore
Title: Managing Director
<PAGE> 104
SCHEDULE I TO THE
Subsidiary Guarantee AGREEMENT
Subsidiary Guarantor Address
-------------------- -------
<PAGE> 105
Annex 1 to the
Subsidiary Guarantee Agreement
SUPPLEMENT NO. dated as of , to the
Subsidiary Guarantee Agreement dated as of December 31,
1998, among (a) each of the subsidiaries listed on Schedule
I thereto (each such subsidiary, individually, a
"Subsidiary Guarantor" and, collectively, the "Subsidiary
Guarantors") of HECHINGER INVESTMENT COMPANY OF DELAWARE,
INC., a Delaware corporation (the "Borrower"), (b) THE
CHASE MANHATTAN BANK, a New York banking corporation
("Chase"), as administrative agent (in such capacity, the
"Administrative Agent") for the Secured Parties (as defined
in the Credit Agreement referred to below), and as
collateral agent (in such capacity, the "Collateral Agent"
and, in its capacity as both Administrative Agent and
Collateral Agent, the "Agent") for the Secured Parties (as
defined in the Credit Agreement referred to below).
A. Reference is made to (a) the Credit Agreement dated as of December 31,
1998 (as amended, supplemented or otherwise modified from time to time, the
"Credit Agreement"), among (i) the Borrower, (ii) CENTERS HOLDINGS, INC., a
Delaware corporation, BSQ ACQUISITION, INC., a Delaware corporation, BSQ
TRANSFEREE CORP., a Delaware corporation, HECHINGER COMPANY, a Delaware
corporation, HECHINGER STORES COMPANY, a Delaware corporation, HECHINGER STORES
EAST COAST COMPANY, a Delaware corporation (collectively, the "Parent
Guarantors"), the lenders from time to time party thereto (the "Lenders"), and
(iv) the Agent, (b) the Credit Agreement dated as of September 26, 1997, as
amended and restated as of December 31, 1998 (as amended, supplemented or
otherwise modified from time to time, the "Existing Credit Agreement"), among
the Borrower, the Parent Guarantors, the lenders from time to time party thereto
(the "Existing Lenders"), Chase, as administrative agent, collateral agent,
issuing bank and swingline lender thereunder, BANKAMERICA BUSINESS CREDIT, INC.,
a Delaware corporation ("BABC"), as documentation agent and as borrowing base
audit agent thereunder, and CITICORP USA, INC., a Delaware corporation
("Citicorp USA" and, together with Chase and BABC, each solely in its capacity
as an agent under the Existing Credit Agreement, the "Senior Agents"), as
syndication agent thereunder and (c) the Intercreditor Agreement dated as of
December 31, 1998 (as amended, supplemented or otherwise modified from time to
time, the "Intercreditor Agreement"), among the Borrower, Holdings, the
Subsidiary Loan Parties, the Senior Agents, the Agent, Green Equity Investors
II, L.P. and Kmart Corporation. Capitalized terms used herein and not defined
herein shall have the meanings assigned to such terms in the Credit Agreement.
B. Capitalized terms used herein and not otherwise defined herein shall
have the meanings assigned to such terms in the Subsidiary Guarantee Agreement
and the Credit Agreement.
C. The Subsidiary Guarantors have entered into the Subsidiary Guarantee
Agreement in order to induce the Lenders to make Loans and the Issuing Bank to
issue Letters of Credit. Pursuant to Section 5.12 of the Credit Agreement, each
Borrower Subsidiary that was not in
<PAGE> 106
2
existence or not a Borrower Subsidiary on the date of the Credit Agreement is
required to enter into the Subsidiary Guarantee Agreement as a Subsidiary
Guarantor upon becoming a Borrower Subsidiary. Section 20 of the Subsidiary
Guarantee Agreement provides that additional Borrower Subsidiaries of may become
Subsidiary Guarantors under the Subsidiary Guarantee Agreement by execution and
delivery of an instrument in the form of this Supplement. The undersigned
Subsidiary (the "New Subsidiary Guarantor") is executing this Supplement in
accordance with the requirements of the Credit Agreement to become a Subsidiary
Guarantor under the Subsidiary Guarantee Agreement in order to induce the
Lenders to make additional Loans and the Issuing Bank to issue additional
Letters of Credit and as consideration for Loans previously made and Letters of
Credit previously issued.
Accordingly, the Collateral Agent and the New Subsidiary Guarantor agree
as follows:
SECTION 1. In accordance with Section 20 of the Subsidiary Guarantee
Agreement, the New Subsidiary Guarantor by its signature below becomes a
Subsidiary Guarantor under the Subsidiary Guarantee Agreement with the same
force and effect as if originally named therein as a Subsidiary Guarantor and
the New Subsidiary Guarantor hereby (a) agrees to all the terms and provisions
of the Subsidiary Guarantee Agreement applicable to it as a Subsidiary Guarantor
thereunder and (b) represents and warrants that the representations and
warranties made by it as a Subsidiary Guarantor thereunder are true and correct
on and as of the date hereof. Each reference to a "Subsidiary Guarantor" in the
Subsidiary Guarantee Agreement shall be deemed to include the New Subsidiary
Guarantor. The Subsidiary Guarantee Agreement is hereby incorporated herein by
reference.
SECTION 2. The New Subsidiary Guarantor represents and warrants to the
Collateral Agent and the other Secured Parties that this Supplement has been
duly authorized, executed and delivered by it and constitutes its legal, valid
and binding obligation, enforceable against it in accordance with its terms.
SECTION 3. This Supplement may be executed in counterparts, each of which
shall constitute an original, but all of which when taken together shall
constitute a single contract. This Supplement shall become effective when the
Collateral Agent shall have received counterparts of this Supplement that, when
taken together, bear the signatures of the New Subsidiary Guarantor and the
Collateral Agent. Delivery of an executed signature page to this Supplement by
facsimile transmission shall be as effective as delivery of a manually executed
counterpart of this Supplement.
SECTION 4. Except as expressly supplemented hereby, the Subsidiary
Guarantee Agreement shall remain in full force and effect.
SECTION 5. THIS SUPPLEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
SECTION 6. In case any one or more of the provisions contained in this
Supplement should be held invalid, illegal or unenforceable in any respect, the
validity, legality and enforceability of the remaining provisions contained
herein and in the Subsidiary Guarantee Agreement shall not in any way be
affected or impaired thereby (it being understood that the invalidity of a
particular provision hereof in a particular jurisdiction shall not in and of
itself affect the validity of such provision in any other jurisdiction). The
parties hereto shall endeavor
<PAGE> 107
3
in good-faith negotiations to replace the invalid, illegal or unenforceable
provisions with valid provisions the economic effect of which comes as close as
possible to that of the invalid, illegal or unenforceable provisions.
SECTION 7. All communications and notices hereunder shall be in writing
and given as provided in Section 14 of the Subsidiary Guarantee Agreement. All
communications and notices hereunder to the New Subsidiary Guarantor shall be
given to it at the address set forth under its signature below, with a copy to
the Borrower.
SECTION 8. The New Subsidiary Guarantor agrees to reimburse the
Collateral Agent for its reasonable and documented out-of-pocket expenses in
connection with this Supplement, including the reasonable and documented fees,
disbursements and other charges of counsel for the Collateral Agent.
<PAGE> 108
4
IN WITNESS WHEREOF, the New Subsidiary Guarantor and the Collateral Agent
have duly executed this Supplement to the Subsidiary Guarantee Agreement as of
the day and year first above written.
[Name Of New Subsidiary Guarantor],
by
------------------------------------
Name:
Title:
Address:
----------------------------
----------------------------------------
----------------------------------------
THE CHASE MANHATTAN BANK, as
Administrative Agent and as Collateral
Agent,
by
------------------------------------
Name:
Title:
<PAGE> 109
EXHIBIT F
CONFORMED COPY
INDEMNITY, SUBROGATION and CONTRIBUTION
AGREEMENT dated as of December 31, 1998 among
HECHINGER INVESTMENT COMPANY OF DELAWARE, INC., a
Delaware corporation (the "Borrower"), each
subsidiary of the Borrower listed on Schedule I
hereto (the "Guarantors"), THE CHASE MANHATTAN BANK,
a New York banking corporation ("Chase"), as
administrative agent (in such capacity, the
"Administrative Agent") and as collateral agent (in
such capacity, the "Collateral Agent" and, in its
capacity as both Administrative Agent and Collateral
Agent, the "Agent") for the Secured Parties (as
defined in the Credit Agreement referred to below).
Reference is made to (a) the Credit Agreement dated as of December 31,
1998 (as amended, supplemented or otherwise modified from time to time, the
"Credit Agreement"), among (i) the Borrower, (ii) CENTERS HOLDINGS, INC., a
Delaware corporation, BSQ ACQUISITION, INC., a Delaware corporation, BSQ
TRANSFEREE CORP., a Delaware corporation, HECHINGER COMPANY, a Delaware
corporation, HECHINGER STORES COMPANY, a Delaware corporation, HECHINGER STORES
EAST COAST COMPANY, a Delaware corporation (collectively, the "Parent
Guarantors"), (iii) the lenders from time to time party thereto (the
"Lenders"), and (iv) the Agent, (b) the Credit Agreement dated as of September
26, 1997, as amended and restated as of December 31, 1998 (as amended,
supplemented or otherwise modified from time to time, the "Existing Credit
Agreement"), among the Borrower, the Parent Guarantors, the lenders from time
to time party thereto (the "Existing Lenders"), Chase, as administrative
agent, collateral agent, issuing bank and swingline lender thereunder,
BANKAMERICA BUSINESS CREDIT, INC., a Delaware corporation ("BABC"), as
documentation agent and as borrowing base audit agent thereunder, and CITICORP
USA, INC., a Delaware corporation ("Citicorp USA" and, together with Chase and
BABC, each solely in its capacity as an agent under the Existing Credit
Agreement, the "Senior Agents"), as syndication agent thereunder, (c) the
Subsidiary Guarantee Agreement dated as of December 31, 1998 between the
Guarantors and the Agents (as amended, supplemented or otherwise modified from
time to time, the "Guarantee Agreement") and (d) the Intercreditor Agreement
dated as of December 31, 1998 (as amended, supplemented or otherwise modified
from time to time, the "Intercreditor Agreement"), among the Borrower,
Holdings, the Subsidiary Loan Parties, the Senior Agents, the Agent, Green
Equity Investors II, L.P. and Kmart Corporation. Capitalized terms used herein
and not defined herein shall have the meanings assigned to such terms in the
Credit Agreement.
The Lenders have agreed to make Loans to the Borrower, and the Issuing
Bank has agreed to issue Letters of Credit for the account of the Borrower,
pursuant to, and upon the terms and subject to the conditions specified in, the
Credit Agreement. The Guarantors have guaranteed such Loans and the other
Obligations (as defined in the Guarantee Agreement) of the Borrower under the
Credit Agreement pursuant to the Guarantee Agreement; certain Guarantors have
granted Liens on and security interests in certain of their assets to secure
such guarantees. The obligations of the Lenders to make Loans and of the
Issuing Bank to issue Letters of Credit are conditioned on, among other things,
the execution and delivery by the Borrower and the Guarantors of an agreement
in the form hereof.
<PAGE> 110
Accordingly, the Borrower, each Guarantor and the Agents agree as
follows:
SECTION 1. Indemnity and Subrogation. In addition to all such rights
of indemnity and subrogation as the Guarantors may have under applicable law
(but subject to Section 3), the Borrower agrees that (a) in the event a payment
shall be made by any Guarantor under the Guarantee Agreement, the Borrower
shall indemnify such Guarantor for the full amount of such payment and such
Guarantor shall be subrogated to the rights of the Person to whom such payment
shall have been made to the extent of such payment and (b) in the event any
assets of any Guarantor shall be sold pursuant to any Security Document to
satisfy a claim of any Secured Party, the Borrower shall indemnify such
Guarantor in an amount equal to the greater of (i) the book value of the assets
so sold and (ii) the fair market value of the assets so sold.
SECTION 2. Contribution and Subrogation. Each Guarantor (a
"Contributing Guarantor") agrees (subject to Section 3) that, in the event a
payment shall be made by any other Guarantor under the Guarantee Agreement or
assets of any other Guarantor shall be sold pursuant to any Security Document
to satisfy a claim of any Secured Party and such other Guarantor (the "Claiming
Guarantor") shall not have been fully indemnified by the Borrower as provided
in Section 1, the Contributing Guarantor shall indemnify the Claiming Guarantor
in an amount equal to the amount of such payment or the greater of (a) the book
value of the assets so sold and (b) the fair market value of such assets, as
the case may be, in each case multiplied by a fraction of which the numerator
shall be the net worth of the Contributing Guarantor on the date hereof and the
denominator shall be the aggregate net worth of all the Guarantors on the date
hereof (or, in the case of any Guarantor becoming a party hereto pursuant to
Section 12, the date of the Supplement hereto executed and delivered by such
Guarantor). Any Contributing Guarantor making any payment to a Claiming
Guarantor pursuant to this Section 2 shall be subrogated to the rights of such
Claiming Guarantor under Section 1 to the extent of such payment.
SECTION 3. Subordination. Notwithstanding any provision of this
Agreement to the contrary, all rights of the Guarantors under Sections 1 and 2
and all other rights of indemnity, contribution or subrogation under applicable
law or otherwise shall be fully subordinated to the indefeasible payment in
full in cash of the Obligations. No failure on the part of the Borrower or any
Guarantor to make the payments required by Sections 1 and 2 (or any other
payments required under applicable law or otherwise) shall in any respect limit
the obligations and liabilities of any Guarantor with respect to its
obligations hereunder, and each Guarantor shall remain liable for the full
amount of the obligations of such Guarantor hereunder.
SECTION 4. Termination. This Agreement shall survive and be in full
force and effect so long as any Obligation is outstanding and has not been
indefeasibly paid in full in cash, and so long as the LC Exposure has not been
reduced to zero or any of the Commitments under the Credit Agreement have not
been terminated, and shall continue to be effective or be reinstated, as the
case may be, if at any time payment, or any part thereof, of any Obligation is
rescinded or must otherwise be restored by any Secured Party or any Guarantor
upon the bankruptcy or reorganization of the Borrower, any Guarantor or
otherwise.
SECTION 5. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
SECTION 6. No Waiver; Amendment. (a) No failure on the part of any
Agent or any Guarantor to exercise, and no delay in exercising, any right,
power or remedy hereunder shall operate as a waiver thereof, nor shall any
single or partial exercise of any such right, power or remedy by the Agents or
any Guarantor preclude any other or further exercise thereof or the exercise of
any other right, power or remedy. All remedies hereunder are cumulative and
are not exclusive of any other remedies provided by law. None of the Agents or
any of the Guarantors shall be deemed to have waived any rights hereunder
unless such waiver shall be in writing and signed by such parties.
(b) Neither this Agreement nor any provision hereof may be waived,
amended or modified except pursuant to a written agreement entered into between
the Borrower, the Guarantors and each of the Agents, with the prior written
consent of the Required Lenders (except as otherwise provided in the Credit
Agreement).
<PAGE> 111
3
SECTION 7. Notices. All communications and notices hereunder shall
be in writing and given as provided in the Guarantee Agreement and addressed as
specified therein.
SECTION 8. Binding Agreement; Assignments. Whenever in this
Agreement any of the parties hereto is referred to, such reference shall be
deemed to include the successors and assigns of such party, and all covenants,
promises and agreements by or on behalf of the parties that are contained in
this Agreement shall bind and inure to the benefit of their respective
successors and assigns. Neither the Borrower nor any Guarantor may assign or
transfer any of its rights or obligations hereunder (and any such attempted
assignment or transfer shall be void) without the prior written consent of the
Required Lenders. Notwithstanding the foregoing, at the time any Guarantor is
released from its obligations under the Guarantee Agreement in accordance with
such Guarantee Agreement and the Credit Agreement, such Guarantor will cease to
have any rights or obligations under this Agreement.
SECTION 9. Survival of Agreement; Severability. (a) All covenants
and agreements made by the Borrower and each Guarantor herein and in the
certificates or other instruments prepared or delivered in connection with this
Agreement or the other Loan Documents shall be considered to have been relied
upon by the Agents, the other Secured Parties and each Guarantor and shall
survive the making by the Lenders of the Loans and the issuance of the Letters
of Credit by the Issuing Bank, and shall continue in full force and effect as
long as the principal of or any accrued interest on any Loans or any other fee
or amount payable under the Credit Agreement or this Agreement or under any of
the other Loan Documents is outstanding and unpaid or the LC Exposure does not
equal zero and as long as the Commitments have not been terminated.
(b) In case any one or more of the provisions contained in this
Agreement should be held invalid, illegal or unenforceable in any respect, no
party hereto shall be required to comply with such provision for so long as
such provision is held to be invalid, illegal or unenforceable, but the
validity, legality and enforceability of the remaining provisions contained
herein shall not in any way be affected or impaired thereby. The parties shall
endeavor in good-faith negotiations to replace the invalid, illegal or
unenforceable provisions with valid provisions the economic effect of which
comes as close as possible to that of the invalid, illegal or unenforceable
provisions.
SECTION 10. Counterparts. This Agreement may be executed in
counterparts (and by different parties hereto on different counterparts), each
of which shall constitute an original, but all of which when taken together
shall constitute a single contract. This Agreement shall be effective with
respect to any Guarantor when a counterpart bearing the signature of such
Guarantor shall have been delivered to the Collateral Agent. Delivery of an
executed signature page to this Agreement by facsimile transmission shall be as
effective as delivery of a manually signed counterpart of this Agreement.
SECTION 11. Rules of Interpretation. The rules of interpretation
specified in Section 1.03 of the Credit Agreement shall be applicable to this
Agreement.
<PAGE> 112
4
SECTION 12. Additional Guarantors. Pursuant to Section 5.12 of the
Credit Agreement, each Borrower Subsidiary that was not in existence or not
such a Borrower Subsidiary on the date of the Credit Agreement is required to
enter into the Guarantee Agreement as a Guarantor upon becoming such a Borrower
Subsidiary. Upon execution and delivery, after the date hereof, by the
Collateral Agent and such a Borrower Subsidiary of an instrument in the form of
Annex 1 hereto, such Borrower Subsidiary shall become a Guarantor hereunder
with the same force and effect as if originally named as a Guarantor hereunder.
The execution and delivery of any instrument adding an additional Guarantor as
a party to this Agreement shall not require the consent of any Guarantor
hereunder. The rights and obligations of each Guarantor hereunder shall remain
in full force and effect notwithstanding the addition of any new Guarantor as a
party to this Agreement.
SECTION 13. Intercreditor Agreement. The Agent, on behalf of the
Secured Parties, and the Guarantors acknowledge that all such rights of
indemnity and subrogation that the Guarantors may have pursuant to this
Indemnity, Subrogation and Contribution Agreement are subject to the provisions
of the Intercreditor Agreement, including the provisions therein subordinating
such rights to certain other obligations of the Guarantors. Notwithstanding
anything to the contrary contained herein, the rights, duties and obligations
of the Agent are subject to the provisions of the Intercreditor Agreement.
<PAGE> 113
5
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their duly authorized officers as of the date first appearing
above.
HECHINGER INVESTMENT COMPANY OF DELAWARE,
INC.,
by
/s/ Mark R. Adams
--------------------------------------------
Name: Mark R. Adams
Title: Executive Vice President
EACH OF THE BORROWER SUBSIDIARIES LISTED ON
SCHEDULE I HERETO, as a Guarantor,
by
/s/ Mark R. Adams
--------------------------------------------
Name: Mark R. Adams
Title: Authorized Officer
THE CHASE MANHATTAN BANK, as
Administrative Agent and as Collateral Agent,
by
/s/ Craig T. Moore
------------------------
Name: Craig T. Moore
Title: Managing Director
<PAGE> 114
SCHEDULE I
to the Indemnity Subrogation
and Contribution Agreement
Guarantors
Name Address
<PAGE> 115
Annex 1 to
the Indemnity, Subrogation and
Contribution Agreement
SUPPLEMENT NO. dated as of [ ], to the
Indemnity, Subrogation and Contribution Agreement
dated as of December 31, 1998 (as the same may be
amended, supplemented or otherwise modified from time
to time, the "Indemnity, Subrogation and Contribution
Agreement"), among HECHINGER INVESTMENT COMPANY OF
DELAWARE, INC., a Delaware corporation (the
"Borrower"), each Borrower Subsidiary listed on
Schedule I thereto (the "Guarantors"), THE CHASE
MANHATTAN BANK, a New York banking corporation
("Chase"), as administrative agent (in such capacity,
the "Administrative Agent") and as collateral agent
(in such capacity, the "Collateral Agent" and, in its
capacity as both Administrative Agent and Collateral
Agent, the "Agent") for the Secured Parties (as
defined in the Credit Agreement referred to below).
A. Reference is made to (a) the Credit Agreement dated as of December
31, 1998 (as amended, supplemented or otherwise modified from time to time, the
"Credit Agreement"), among (i) the Borrower, (ii) CENTERS HOLDINGS, INC., a
Delaware corporation, BSQ ACQUISITION, INC., a Delaware corporation, BSQ
TRANSFEREE CORP., a Delaware corporation, HECHINGER COMPANY, a Delaware
corporation, HECHINGER STORES COMPANY, a Delaware corporation, HECHINGER STORES
EAST COAST COMPANY, a Delaware corporation (collectively, the "Parent
Guarantors"), (iii) the lenders from time to time party thereto (the
"Lenders"), and (iv) the Agent, (b) the Credit Agreement dated as of September
26, 1997, as amended and restated as of December 31, 1998 (as amended,
supplemented or otherwise modified from time to time, the "Existing Credit
Agreement"), among the Borrower, the Parent Guarantors, the lenders from time
to time party thereto (the "Existing Lenders"), Chase, as administrative
agent, collateral agent, issuing bank and swingline lender thereunder,
BANKAMERICA BUSINESS CREDIT, INC., a Delaware corporation ("BABC"), as
documentation agent and as borrowing base audit agent thereunder, and CITICORP
USA, INC., a Delaware corporation ("Citicorp USA" and, together with Chase and
BABC, each solely in its capacity as an agent under the Existing Credit
Agreement, the "Senior Agents"), as syndication agent thereunder, (c) the
Subsidiary Guarantee Agreement dated as of December 31, 1998 between the
Guarantors and the Agents (as amended, supplemented or otherwise modified from
time to time, the "Guarantee Agreement") and (d) the Intercreditor Agreement
dated as of December 31, 1998 (as amended, supplemented or otherwise modified
from time to time, the "Intercreditor Agreement"), among the Borrower,
Holdings, the Subsidiary Loan Parties, the Senior Agents, the Agent, Green
Equity Investors II, L.P. and Kmart Corporation. Capitalized terms used herein
and not defined herein shall have the meanings assigned to such terms in the
Credit Agreement.
B. Capitalized terms used herein and not otherwise defined herein
shall have the meanings assigned to such terms in the Indemnity, Subrogation
and Contribution Agreement and the Credit Agreement.
C. The Borrower and the Guarantors have entered into the Indemnity,
Subrogation and Contribution Agreement in order to induce the Lenders to make
Loans and the Issuing Bank to issue Letters of Credit. Pursuant to Section 5.12
of the Credit Agreement, each Borrower Subsidiary that was not in existence or
not such a Borrower Subsidiary on the date of the Credit Agreement is required
to enter into the Guarantee Agreement as a Guarantor upon becoming a Borrower
Subsidiary. Section 12 of the Indemnity, Subrogation and Contribution
Agreement provides that additional Borrower Subsidiaries may become Guarantors
under the Indemnity, Subrogation and Contribution Agreement by execution and
delivery of an instrument in the form of this Supplement. The undersigned
Borrower Subsidiary (the "New Guarantor") is executing this Supplement in
accordance with the requirements of the Credit Agreement to become a Guarantor
under the Indemnity, Subrogation and Contribution Agreement in order to induce
the Lenders to make additional Loans and the Issuing Bank to issue additional
Letters of Credit and as consideration for Loans previously made and Letters of
Credit previously issued.
<PAGE> 116
Accordingly, the Collateral Agent and the New Guarantor agree as
follows:
SECTION 1. In accordance with Section 12 of the Indemnity,
Subrogation and Contribution Agreement, the New Guarantor by its signature
below becomes a Guarantor under the Indemnity, Subrogation and Contribution
Agreement with the same force and effect as if originally named therein as a
Guarantor and the New Guarantor hereby agrees to all the terms and provisions
of the Indemnity, Subrogation and Contribution Agreement applicable to it as a
Guarantor thereunder. Each reference to a "Guarantor" in the Indemnity,
Subrogation and Contribution Agreement shall be deemed to include the New
Guarantor. The Indemnity, Subrogation and Contribution Agreement is hereby
incorporated herein by reference.
SECTION 2. The New Guarantor represents and warrants to the
Collateral Agent and the other Secured Parties that this Supplement has been
duly authorized, executed and delivered by it and constitutes its legal, valid
and binding obligation, enforceable against it in accordance with its terms.
SECTION 3. This Supplement may be executed in counterparts (and by
different parties hereto on different counterparts), each of which shall
constitute an original, but all of which when taken together shall constitute a
single contract. This Supplement shall become effective when the Collateral
Agent shall have received counterparts of this Supplement that, when taken
together, bear the signatures of the New Guarantor and the Collateral Agent.
Delivery of an executed signature page to this Supplement by facsimile
transmission shall be as effective as delivery of a manually signed counterpart
of this Supplement.
SECTION 4. Except as expressly supplemented hereby, the Indemnity,
Subrogation and Contribution Agreement shall remain in full force and effect.
SECTION 5. THIS SUPPLEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
SECTION 6. In case any one or more of the provisions contained in
this Supplement should be held invalid, illegal or unenforceable in any
respect, neither party hereto shall be required to comply with such provision
for so long as such provision is held to be invalid, illegal or unenforceable,
but the validity, legality and enforceability of the remaining provisions
contained herein and in the Indemnity, Subrogation and Contribution Agreement
shall not in any way be affected or impaired. The parties hereto shall
endeavor in good-faith negotiations to replace the invalid, illegal or
unenforceable provisions with valid provisions the economic effect of which
comes as close as possible to that of the invalid, illegal or unenforceable
provisions.
SECTION 7. All communications and notices hereunder shall be in
writing and given as provided in Section 7 of the Indemnity, Subrogation and
Contribution Agreement. All communications and notices hereunder to the New
Guarantor shall be given to it at the address set forth under its signature.
SECTION 8. The New Guarantor agrees to reimburse the Collateral Agent
for its reasonable and documented out-of-pocket expenses in connection with
this Supplement, including the reasonable and documented fees, other charges
and disbursements of counsel for the Collateral Agent.
IN WITNESS WHEREOF, the New Guarantor and the Collateral Agent have
duly executed this Supplement to the Indemnity, Subrogation and Contribution
Agreement as of the day and year first above written.
[Name Of New Guarantor],
by
-------------------------
Name:
Title:
Address:
<PAGE> 117
THE CHASE MANHATTAN BANK, as Administrative
and as Collateral Agent,
by
--------------------------------------------
Name:
Title:
<PAGE> 118
SCHEDULE I
to Supplement No.___ to the Indemnity
Subrogation and Contribution Agreement
Guarantors
Name Address
<PAGE> 119
EXHIBIT G
CONFORMED COPY
PLEDGE AGREEMENT dated as of December 31, 1998, among
HECHINGER INVESTMENT COMPANY OF DELAWARE, INC., a
Delaware corporation (the "Borrower"), CENTERS
HOLDINGS, INC., a Delaware corporation ("Holdings"),
BSQ ACQUISITION, INC., a Delaware corporation ("BSQ
Acqco"), BSQ TRANSFEREE CORP., a Delaware corporation
("BSQ Newco"), HECHINGER COMPANY, a Delaware
corporation ("Hechinger"), HECHINGER STORES COMPANY,
a Delaware corporation ("Hechinger Stores"),
HECHINGER STORES EAST COAST COMPANY, a Delaware
corporation ("Hechinger Stores East Coast"), each
other Subsidiary of Holdings listed on Schedule I
hereto (each such other Subsidiary, individually, a
"Subsidiary Pledgor" and, collectively, the
"Subsidiary Pledgors"; the Borrower, Holdings, BSQ
Acqco, BSQ Newco, Hechinger, Hechinger Stores,
Hechinger Stores East Coast and the Subsidiary
Pledgors are referred to collectively herein as the
"Pledgors") and THE CHASE MANHATTAN BANK, a New York
banking corporation ("Chase"), as collateral agent
(in such capacity, the "Collateral Agent") for the
Secured Parties (as defined in the Credit Agreement
referred to below).
Reference is made to (a) the Credit Agreement dated as of December 31,
1998 (as amended, supplemented or otherwise modified from time to time, the
"Credit Agreement"), among (i) the Borrower, (ii) Holdings, BSQ Acqco, BSQ
Newco, Hechinger, Hechinger Stores, Hechinger Stores East Coast (collectively,
the "Parent Guarantors"), (iii) the lenders from time to time party thereto
(the "Lenders") and (iv) the Agent, (b) the Credit Agreement dated as of
September 26, 1997, as amended and restated as of December 31, 1998 (as
amended, supplemented or otherwise modified from time to time, the "Existing
Credit Agreement"), among the Borrower, the Parent Guarantors, the lenders from
time to time party thereto (the "Existing Lenders"), Chase, as administrative
agent, collateral agent (in such capacity, the "Senior Collateral Agent"),
issuing bank and swingline lender thereunder, BANKAMERICA BUSINESS CREDIT,
INC., a Delaware corporation ("BABC"), as documentation agent and as borrowing
base audit agent thereunder, and CITICORP USA, INC., a Delaware corporation
("Citicorp USA" and, together with Chase and BABC, each solely in its capacity
as an agent under the Existing Credit Agreement, the "Senior Agents"), as
syndication agent thereunder, (c) the Parent Guarantee Agreement dated as of
December 31, 1998 (as amended, supplemented or otherwise modified from time to
time), among the Parent Guarantors and the Agent, (d) the Subsidiary Guarantee
Agreement dated as of December 31, 1998 (as amended, supplemented or otherwise
modified from time to time), among the Subsidiary Pledgors and the Agent and
(e) the Intercreditor Agreement dated as of December 31, 1998 (as amended,
supplemented or otherwise modified from time to time, the "Intercreditor
Agreement"), among the Borrower, Holdings, the Subsidiary Loan Parties, the
Senior Agents, the Collateral Agent, Green Equity Investors II, L.P. and Kmart
Corporation. Capitalized terms used herein and not defined herein shall have
the meanings assigned to such terms in the Credit Agreement.
The Lenders have agreed to make Loans to the Borrower, and the Issuing
Bank has agreed to issue Letters of Credit for the account of the Borrower,
pursuant to, and upon the terms and subject to the conditions specified in, the
Credit Agreement. Holdings, BSQ Acqco, BSQ Newco, Hechinger, Hechinger Stores
and the Subsidiary Guarantors have agreed to guarantee, among other things, all
the obligations of the Borrower under the Credit Agreement. The obligations of
the Lenders to make Loans and of the Issuing Bank to issue Letters of Credit
are conditioned upon, among other things, the execution and delivery by the
Pledgors of a Pledge Agreement in the form hereof to secure (a) the due and
punctual payment by the Borrower of (i) the principal of and premium, if any,
and interest (including interest accruing during the pendency of any
bankruptcy, insolvency, receivership or other similar proceeding, regardless of
whether such interest is allowed or allowable as a claim in such proceeding) on
the Loans,
<PAGE> 120
2
when and as due, whether at maturity, by acceleration, upon one or more dates
set for prepayment or otherwise, (ii) each payment required to be made by the
Borrower under the Credit Agreement in respect of any Letter of Credit, when
and as due, including payments in respect of reimbursement of disbursements,
interest thereon and obligations to provide cash collateral, and (iii) all
other monetary obligations, including fees, costs, expenses and indemnities,
whether primary, secondary, direct, contingent, fixed or otherwise (including
monetary obligations incurred during the pendency of any bankruptcy,
insolvency, receivership or other similar proceeding, regardless of whether
such monetary obligations are allowed or allowable as a claim in such
proceeding), of the Borrower to the Secured Parties under the Credit Agreement
and the other Loan Documents, (b) the due and punctual performance of all
covenants, agreements, obligations and liabilities of the Borrower under or
pursuant to the Credit Agreement and the other Loan Documents and (c) the due
and punctual payment and performance of all the covenants, agreements,
obligations and liabilities of each Loan Party under or pursuant to this
Agreement and the other Loan Documents (all the monetary and other obligations
described in the preceding clauses (a) through (c) being collectively called
the "Obligations").
Accordingly, the Pledgors and the Collateral Agent, on behalf of
itself and each Secured Party (and each of their respective successors or
assigns), hereby agree as follows:
SECTION 1. Pledge. As security for the payment and performance, as
the case may be, in full of the Obligations, each Pledgor hereby transfers,
grants, bargains, sells, conveys, hypothecates, pledges, sets over and delivers
unto the Collateral Agent, its successors and assigns, and hereby grants to the
Collateral Agent, its successors and assigns, for the ratable benefit of the
Secured Parties, a security interest in all of the Pledgor's right, title and
interest in, to and under (a) the shares of capital stock or other equity
interest (including any equity interest in any joint venture listed on Schedule
III hereto (the "Joint Ventures")) owned by it and listed on Schedule II hereto
and any shares of capital stock or other equity interest of or any Subsidiary
or Joint Ventures obtained in the future by the Pledgor and the certificates
representing all such shares or equity interest (the "Pledged Stock"), provided
that the Pledged Stock shall not include (i) more than 65% of the issued and
outstanding shares of stock of any Foreign Subsidiary or (ii) to the extent
that applicable law requires that a Subsidiary of the Pledgor issue directors'
qualifying shares, such qualifying shares; (b)(i) the debt securities listed
opposite the name of the Pledgor on Schedule II hereto, (ii) any debt
securities in the future issued to the Pledgor and (iii) the promissory notes
and any other instruments evidencing such debt securities (the "Pledged Debt
Securities"); (c) all other property that may be delivered to and held by the
Collateral Agent pursuant to the terms hereof; (d) subject to Section 5, all
payments of principal or interest, dividends, cash, instruments and other
property from time to time received, receivable or otherwise distributed, in
respect of, in exchange for or upon the conversion of the securities referred
to in clauses (a) and (b) above; (e) subject to Section 5, all rights and
privileges of the Pledgor with respect to the securities and other property
referred to in clauses (a), (b), (c) and (d) above; and (f) all proceeds of any
of the foregoing (the items referred to in clauses (a) through (f) above being
collectively referred to as the "Collateral"). Upon delivery to the Collateral
Agent, (a) any stock certificates, notes or other securities now or hereafter
included in the Collateral (the "Pledged Securities") shall be accompanied by
stock powers duly executed in blank or other instruments of transfer
satisfactory to the Collateral Agent and by such other instruments and
documents as the Collateral Agent may reasonably request and (b) all other
property comprising part of the Collateral shall be accompanied by proper
instruments of assignment duly executed by the applicable Pledgor and such
other instruments or documents as the Collateral Agent may reasonably request.
Each delivery of Pledged Securities shall be accompanied by a schedule
describing the securities theretofore and then being pledged hereunder, which
schedule shall be attached hereto as Schedule II and made a part hereof. Each
schedule so delivered shall supersede any prior schedules so delivered.
TO HAVE AND TO HOLD the Collateral, together with all right, title,
interest, powers, privileges and preferences pertaining or incidental thereto,
unto the Collateral Agent, its successors and assigns, for
<PAGE> 121
3
the ratable benefit of the Secured Parties, forever; subject, however, to the
terms, covenants and conditions hereinafter set forth.
SECTION 2. Delivery of the Collateral. (a) Each Pledgor agrees
promptly to deliver or cause to be delivered to the Collateral Agent any and
all Pledged Securities, and any and all certificates or other instruments or
documents representing the Collateral.
(b) Each Pledgor will cause any Indebtedness for borrowed money owed
to the Pledgor by any person to be evidenced by a duly executed promissory note
that is pledged and delivered to the Collateral Agent pursuant to the terms
thereof.
SECTION 3. Representations, Warranties and Covenants. Each Pledgor
hereby represents, warrants and covenants, as to itself and the Collateral
pledged by it hereunder, to and with the Collateral Agent that:
(a) the Pledged Stock represents that percentage as set forth
on Schedule II of the issued and outstanding shares of each class of
the capital stock or other equity interest of the issuer with respect
thereto;
(b) except for the security interest granted hereunder and the
first-priority Lien granted to the Senior Collateral Agent for the
benefit of the Existing Lenders, the Pledgor (i) is and will at all
times continue to be the direct owner, beneficially and of record, of
the Pledged Securities indicated on Schedule II, (ii) holds the same
free and clear of all Liens, (iii) will make no assignment, pledge,
hypothecation or transfer of, or create or permit to exist any
security interest in or other Lien on, the Collateral, other than
pursuant hereto, and (iv) subject to Section 5, will cause any and all
Collateral, whether for value paid by the Pledgor or otherwise, to be
forthwith deposited with the Collateral Agent and pledged or assigned
hereunder;
(c) the Pledgor (i) has the power and authority to pledge the
Collateral in the manner hereby done or contemplated and (ii) will
defend its title or interest thereto or therein against any and all
Liens (other than the Lien created by this Agreement), however
arising, of all persons whomsoever;
(d) no consent of any other person (including stockholders or
creditors of any Pledgor) and no consent or approval of any
Governmental Authority or any securities exchange was or is necessary
to the validity of the pledge effected hereby;
(e) by virtue of the execution and delivery by the Pledgors of
this Agreement, when the Pledged Securities, certificates or other
documents representing or evidencing the Collateral are delivered to
the Collateral Agent in accordance with this Agreement, the Collateral
Agent will obtain a valid and perfected first lien upon and security
interest in such Pledged Securities as security for the payment and
performance of the Obligations;
(f) the pledge effected hereby is effective to vest in the
Collateral Agent, on behalf of the Secured Parties, the rights of the
Collateral Agent in the Collateral as set forth herein;
(g) all the Pledged Stock has been duly authorized and validly
issued and is fully paid and nonassessable;
(h) all information set forth herein relating to the Pledged
Stock is accurate and complete in all material respects as of the date
hereof; and
<PAGE> 122
4
(i) the pledge of the Pledged Stock pursuant to this Agreement
does not violate Regulation G, T, U or X or any successor thereto as
of the date hereof.
SECTION 4. Registration in Nominee Name; Denominations. The
Collateral Agent, on behalf of the Secured Parties, shall have the right (in
its sole and absolute discretion) to hold the Pledged Securities in its own
name as pledgee, the name of its nominee (as pledgee or as sub-agent) or the
name of the Pledgors, endorsed or assigned in blank or in favor of the
Collateral Agent. Each Pledgor will promptly give to the Collateral Agent
copies of any notices or other communications received by it with respect to
Pledged Securities registered in the name of such Pledgor. Following an Event
of Default, the Collateral Agent shall have the right to exchange the
certificates representing Pledged Securities for certificates of smaller or
larger denominations for any purpose consistent with this Agreement.
SECTION 5. Voting Rights; Dividends and Interest, etc. (a) Unless
and until an Event of Default shall have occurred and be continuing:
(i) Each Pledgor shall be entitled to exercise any and all
voting and/or other consensual rights and powers inuring to an owner
of Pledged Securities or any part thereof for any purpose consistent
with the terms of this Agreement, the Credit Agreement and the other
Loan Documents; provided, however, that such Pledgor will not be
entitled to exercise any such right if the result thereof could
materially and adversely affect the rights inuring to a holder of the
Pledged Securities or the rights and remedies of any of the Secured
Parties under this Agreement or the Credit Agreement or any other Loan
Document or the ability of the Secured Parties to exercise the same.
(ii) The Collateral Agent shall execute and deliver to each
Pledgor, or cause to be executed and delivered to each Pledgor, all
such proxies, powers of attorney and other instruments as such Pledgor
may reasonably request for the purpose of enabling such Pledgor to
exercise the voting and/or consensual rights and powers it is entitled
to exercise pursuant to subparagraph (i) above and to receive the cash
dividends it is entitled to receive pursuant to subparagraph (iii)
below.
(iii) Each Pledgor shall be entitled to receive and retain any
and all cash dividends, interest and principal paid on the Pledged
Securities to the extent and only to the extent that such cash
dividends, interest and principal are permitted by, and otherwise paid
in accordance with, the terms and conditions of the Credit Agreement,
the other Loan Documents and applicable laws. All noncash dividends,
interest and principal, and all dividends, interest and principal paid
or payable in cash or otherwise in connection with a partial or total
liquidation or dissolution, return of capital, capital surplus or
paid-in surplus, and all other distributions (other than distributions
referred to in the preceding sentence) made on or in respect of the
Pledged Securities, whether paid or payable in cash or otherwise,
whether resulting from a subdivision, combination or reclassification
of the outstanding capital stock of the issuer of any Pledged
Securities or received in exchange for Pledged Securities or any part
thereof, or in redemption thereof, or as a result of any merger,
consolidation, acquisition or other exchange of assets to which such
issuer may be a party or otherwise, shall be and become part of the
Collateral, and, if received by any Pledgor, shall not be commingled
by such Pledgor with any of its other funds or property but shall be
held separate and apart therefrom, shall be held in trust for the
benefit of the Collateral Agent and shall be forthwith delivered to
the Collateral Agent in the same form as so received (with any
necessary endorsement).
(b) Upon the occurrence and during the continuance of an Event of
Default, all rights of any Pledgor to dividends, interest or principal that
such Pledgor is authorized to receive pursuant to paragraph (a)(iii) above
shall cease, and all such rights shall thereupon become vested in the
Collateral Agent, which shall have the sole and exclusive right and authority
to receive and retain such dividends,
<PAGE> 123
5
interest or principal. All dividends, interest or principal received by the
Pledgor contrary to the provisions of this Section 5 shall be held in trust for
the benefit of the Collateral Agent, shall be segregated from other property or
funds of such Pledgor and shall be forthwith delivered to the Collateral Agent
upon demand in the same form as so received (with any necessary endorsement).
Any and all money and other property paid over to or received by the Collateral
Agent pursuant to the provisions of this paragraph (b) shall be retained by the
Collateral Agent in an account to be established by the Collateral Agent upon
receipt of such money or other property and shall be applied in accordance with
the provisions of Section 7. After all Events of Default have been cured or
waived, the Collateral Agent shall, within five Business Days after all such
Events of Default have been cured or waived, repay to each Pledgor all cash
dividends, interest or principal (without interest), that such Pledgor would
otherwise be permitted to retain pursuant to the terms of paragraph (a)(iii)
above and which remain in such account.
(c) Upon the occurrence and during the continuance of an Event of
Default, all rights of any Pledgor to exercise the voting and consensual rights
and powers it is entitled to exercise pursuant to paragraph (a)(i) of this
Section 5, and the obligations of the Collateral Agent under paragraph (a)(ii)
of this Section 5, shall cease, and all such rights shall thereupon become
vested in the Collateral Agent, which shall have the sole and exclusive right
and authority to exercise such voting and consensual rights and powers,
provided that, unless otherwise directed by the Required Lenders, the
Collateral Agent shall have the right from time to time following and during
the continuance of an Event of Default to permit the Pledgors to exercise such
rights. After all Events of Default have been cured or waived, such Pledgor
will have the right to exercise the voting and consensual rights and powers
that it would otherwise be entitled to exercise pursuant to the terms of
paragraph (a)(i) above.
SECTION 6. Remedies upon Default. Upon the occurrence and during the
continuance of an Event of Default, subject to applicable regulatory and legal
requirements, the Collateral Agent may sell the Collateral, or any part
thereof, at public or private sale or at any broker's board or on any
securities exchange, for cash, upon credit or for future delivery as the
Collateral Agent shall deem appropriate. The Collateral Agent shall be
authorized at any such sale (if it deems it advisable to do so) to restrict the
prospective bidders or purchasers to persons who will represent and agree that
they are purchasing the Collateral for their own account for investment and not
with a view to the distribution or sale thereof, and upon consummation of any
such sale the Collateral Agent shall have the right to assign, transfer and
deliver to the purchaser or purchasers thereof the Collateral so sold. Each
such purchaser at any such sale shall hold the property sold absolutely free
from any claim or right on the part of any Pledgor, and, to the extent
permitted by applicable law, the Pledgors hereby waive all rights of
redemption, stay, valuation and appraisal any Pledgor now has or may at any
time in the future have under any rule of law or statute now existing or
hereafter enacted.
The Collateral Agent shall give a Pledgor 10 days' prior written
notice (which each Pledgor agrees is reasonable notice within the meaning of
Section 9-504(3) of the Uniform Commercial Code as in effect in the State of
New York or its equivalent in other jurisdictions) of the Collateral Agent's
intention to make any sale of such Pledgor's Collateral. Such notice, in the
case of a public sale, shall state the time and place for such sale and, in the
case of a sale at a broker's board or on a securities exchange, shall state the
board or exchange at which such sale is to be made and the day on which the
Collateral, or portion thereof, will first be offered for sale at such board or
exchange. Any such public sale shall be held at such time or times within
ordinary business hours and at such place or places as the Collateral Agent may
fix and state in the notice of such sale. At any such sale, the Collateral, or
portion thereof, to be sold may be sold in one lot as an entirety or in
separate parcels, as the Collateral Agent may (in its sole and absolute
discretion) determine. The Collateral Agent shall not be obligated to make any
sale of any Collateral if it shall determine not to do so, regardless of the
fact that notice of sale of such Collateral shall have been given. The
Collateral Agent may, without notice or publication, adjourn any public or
private sale or cause the same to be adjourned from time to time by
announcement at the time and place fixed for sale, and such sale may, without
further notice, be made at the time and place to which the same was so
adjourned. In case any
<PAGE> 124
6
sale of all or any part of the Collateral is made on credit or for future
delivery, the Collateral so sold may be retained by the Collateral Agent until
the sale price is paid in full by the purchaser or purchasers thereof, but the
Collateral Agent shall not incur any liability in case any such purchaser or
purchasers shall fail to take up and pay for the Collateral so sold and, in
case of any such failure, such Collateral may be sold again upon like notice.
At any public (or, to the extent permitted by applicable law, private) sale
made pursuant to this Section 6, any Secured Party may bid for or purchase,
free from any right of redemption, stay or appraisal on the part of any Pledgor
(all said rights being also hereby waived and released), the Collateral or any
part thereof offered for sale and may make payment on account thereof by using
any claim then due and payable to it from such Pledgor as a credit against the
purchase price, and it may, upon compliance with the terms of sale, hold,
retain and dispose of such property without further accountability to such
Pledgor therefor. For purposes hereof, (a) a written agreement to purchase the
Collateral or any portion thereof shall be treated as a sale thereof, (b) the
Collateral Agent shall be free to carry out such sale pursuant to such
agreement and (c) such Pledgor shall not be entitled to the return of the
Collateral or any portion thereof subject thereto, notwithstanding the fact
that after the Collateral Agent shall have entered into such an agreement all
Events of Default shall have been remedied and the Obligations paid in full.
As an alternative to exercising the power of sale herein conferred upon it, the
Collateral Agent may proceed by a suit or suits at law or in equity to
foreclose upon the Collateral and to sell the Collateral or any portion thereof
pursuant to a judgment or decree of a court or courts having competent
jurisdiction or pursuant to a proceeding by a court-appointed receiver. Any
sale pursuant to the provisions of this Section 6 shall be deemed to conform to
the commercially reasonable standards as provided in Section 9-504(3) of the
Uniform Commercial Code as in effect in the State of New York or its equivalent
in other jurisdictions.
SECTION 7. Application of Proceeds of Sale. The proceeds of any sale
of Collateral pursuant to Section 6, as well as any Collateral consisting of
cash, shall be applied by the Collateral Agent as follows:
FIRST, to the payment of all costs and expenses incurred by
the Collateral Agent in connection with such sale or otherwise in
connection with this Agreement, any other Loan Document or any of the
Obligations, including all court costs and the reasonable and
documented fees and expenses of its agents and legal counsel, the
repayment of all advances made by the Collateral Agent hereunder or
under any other Loan Document on behalf of any Pledgor and any other
reasonable and documented costs or expenses incurred in connection
with the exercise of any right or remedy hereunder or under any other
Loan Document;
SECOND, to the payment in full of the Obligations (the amounts
so applied to be distributed among the Secured Parties pro rata in
accordance with the amounts of the Obligations owed to them on the
date of any such distribution); and
THIRD, to the Pledgors, their successors or assigns, or as a
court of competent jurisdiction may otherwise direct.
The Collateral Agent shall have absolute discretion as to the time of
application of any such proceeds, moneys or balances in accordance with this
Agreement. Upon any sale of the Collateral by the Collateral Agent (including
pursuant to a power of sale granted by statute or under a judicial proceeding),
the receipt of the purchase money by the Collateral Agent or of the officer
making the sale shall be a sufficient discharge to the purchaser or purchasers
of the Collateral so sold and such purchaser or purchasers shall not be
obligated to see to the application of any part of the purchase money paid over
to the Collateral Agent or such officer or be answerable in any way for the
misapplication thereof.
SECTION 8. Reimbursement of Collateral Agent. (a) Each Pledgor
agrees to pay upon demand to the Collateral Agent the amount of any and all
reasonable and documented expenses, including the reasonable and documented
fees, other charges and disbursements of its counsel and of any experts or
agents, that the Collateral Agent may incur in connection with (i) the
administration of this Agreement,
<PAGE> 125
7
(ii) the custody or preservation of, or the sale of, collection from, or other
realization upon, any of the Collateral, (iii) the exercise or enforcement of
any of the rights of the Collateral Agent hereunder or (iv) the failure by such
Pledgor to perform or observe any of the provisions hereof.
(b) Without limitation of its indemnification obligations under the
other Loan Documents, each Pledgor agrees to indemnify the Collateral Agent and
the Indemnitees (as defined in Section 9.03 of the Credit Agreement) against,
and hold each Indemnitee harmless from, any and all losses, claims, damages,
liabilities and related expenses, including reasonable and documented counsel
fees, other charges and disbursements, incurred by or asserted against any
Indemnitee arising out of, in any way connected with, or as a result of (i) the
execution or delivery of this Agreement or any other Loan Document or any
agreement or instrument contemplated hereby or thereby, the performance by the
parties hereto of their respective obligations thereunder or the consummation
of the Transactions and the other transactions contemplated thereby or (ii) any
claim, litigation, investigation or proceeding relating to any of the
foregoing, whether or not any Indemnitee is a party thereto, provided that such
indemnity shall not, as to any Indemnitee, be available to the extent that such
losses, claims, damages, liabilities or related expenses resulted from the
gross negligence or wilful misconduct of such Indemnitee or any Affiliate of
such Indemnitee (or of any officer, director, employee, advisor or agent of
such Indemnitee or any of such Indemnitee's Affiliates).
(c) Any amounts payable as provided hereunder shall be additional
Obligations secured hereby and by the other Security Documents. The provisions
of this Section 8 shall remain operative and in full force and effect
regardless of the termination of this Agreement, the consummation of the
transactions contemplated hereby, the repayment of any of the Obligations, the
invalidity or unenforceability of any term or provision of this Agreement or
any other Loan Document or any investigation made by or on behalf of the
Collateral Agent or any other Secured Party. All amounts due under this
Section 8 shall be payable on written demand therefor and shall bear interest
at the rate specified in Section 2.12 of the Credit Agreement.
SECTION 9. Collateral Agent Appointed Attorney-in-Fact. Each Pledgor
hereby appoints the Collateral Agent the attorney-in-fact of such Pledgor for
the purpose of carrying out the provisions of this Agreement and taking any
action and executing any instrument that the Collateral Agent may deem
necessary or advisable to accomplish the purposes hereof, which appointment is
irrevocable and coupled with an interest. Without limiting the generality of
the foregoing, the Collateral Agent shall have the right, upon the occurrence
and during the continuance of an Event of Default, with full power of
substitution either in the Collateral Agent's name or in the name of such
Pledgor, to ask for, demand, sue for, collect, receive and give acquittance for
any and all moneys due or to become due under and by virtue of any Collateral,
to endorse checks, drafts, orders and other instruments for the payment of
money payable to the Pledgor representing any interest or dividend or other
distribution payable in respect of the Collateral or any part thereof or on
account thereof and to give full discharge for the same, to settle, compromise,
prosecute or defend any action, claim or proceeding with respect thereto, and
to sell, assign, endorse, pledge, transfer and to make any agreement
respecting, or otherwise deal with, the same; provided, however, that nothing
herein contained shall be construed as requiring or obligating the Collateral
Agent to make any commitment or to make any inquiry as to the nature or
sufficiency of any payment received by the Collateral Agent, or to present or
file any claim or notice, or to take any action with respect to the Collateral
or any part thereof or the moneys due or to become due in respect thereof or
any property covered thereby. The Collateral Agent and the other Secured
Parties shall be accountable only for amounts actually received as a result of
the exercise of the powers granted to them herein, and neither they nor their
officers, directors, employees or agents shall be responsible to any Pledgor
for any act or failure to act hereunder, except for their own gross negligence
or wilful misconduct.
SECTION 10. Waivers; Amendment. (a) No failure or delay of the
Collateral Agent in exercising any power or right hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise of any such right or
power, or any abandonment or discontinuance of steps to enforce such a right
<PAGE> 126
8
or power, preclude any other or further exercise thereof or the exercise of any
other right or power. The rights and remedies of the Collateral Agent
hereunder and of the other Secured Parties under the other Loan Documents are
cumulative and are not exclusive of any rights or remedies that they would
otherwise have. No waiver of any provisions of this Agreement or consent to
any departure by any Pledgor therefrom shall in any event be effective unless
the same shall be permitted by paragraph (b) below, and then such waiver or
consent shall be effective only in the specific instance and for the purpose
for which given. No notice or demand on any Pledgor in any case shall entitle
such Pledgor to any other or further notice or demand in similar or other
circumstances.
(b) Neither this Agreement nor any provision hereof may be waived,
amended or modified except pursuant to a written agreement entered into between
the Collateral Agent and the Pledgor or Pledgors with respect to which such
waiver, amendment or modification is to apply, subject to any consent required
in accordance with Section 9.02 of the Credit Agreement.
SECTION 11. Securities Act, etc. In view of the position of the
Pledgors in relation to the Pledged Securities, or because of other current or
future circumstances, a question may arise under the Securities Act of 1933, as
now or hereafter in effect, or any similar statute hereafter enacted analogous
in purpose or effect (such Act and any such similar statute as from time to
time in effect being called the "Federal Securities Laws") with respect to any
disposition of the Pledged Securities permitted hereunder. Each Pledgor
understands that compliance with the Federal Securities Laws might very
strictly limit the course of conduct of the Collateral Agent if the Collateral
Agent were to attempt to dispose of all or any part of the Pledged Securities,
and might also limit the extent to which or the manner in which any subsequent
transferee of any Pledged Securities could dispose of the same. Similarly,
there may be other legal restrictions or limitations affecting the Collateral
Agent in any attempt to dispose of all or part of the Pledged Securities under
applicable Blue Sky or other state securities laws or similar laws analogous in
purpose or effect. Each Pledgor recognizes that in light of such restrictions
and limitations the Collateral Agent may, with respect to any sale of the
Pledged Securities, limit the purchasers to those who will agree, among other
things, to acquire such Pledged Securities for their own account, for
investment, and not with a view to the distribution or resale thereof. Each
Pledgor acknowledges and agrees that in light of such restrictions and
limitations, the Collateral Agent, in its sole and absolute discretion, (a) may
proceed to make such a sale whether or not a registration statement for the
purpose of registering such Pledged Securities or part thereof shall have been
filed under the Federal Securities Laws and (b) may approach and negotiate with
a single potential purchaser to effect such sale. Each Pledgor acknowledges
and agrees that any such sale might result in prices and other terms less
favorable to the seller than if such sale were a public sale without such
restrictions. In the event of any such sale, the Collateral Agent shall incur
no responsibility or liability for selling all or any part of the Pledged
Securities at a price that the Collateral Agent, in its sole and absolute
discretion, may in good faith deem reasonable under the circumstances,
notwithstanding the possibility that a substantially higher price might have
been realized if the sale were deferred until after registration as aforesaid
or if more than a single purchaser were approached. The provisions of this
Section 11 will apply notwithstanding the existence of a public or private
market upon which the quotations or sales prices may exceed substantially the
price at which the Collateral Agent sells.
SECTION 12. Registration, etc. Each Pledgor agrees that, upon the
occurrence and during the continuance of an Event of Default hereunder, if for
any reason the Collateral Agent desires to sell any of the Pledged Securities
of the Borrower at a public sale, it will, at any time and from time to time,
upon the written request of the Collateral Agent, use its best efforts to take
or to cause the issuer of such Pledged Securities to take such action and
prepare, distribute and/or file such documents, as are required or advisable in
the reasonable opinion of counsel for the Collateral Agent to permit the public
sale of such Pledged Securities. Each Pledgor further agrees to indemnify,
defend and hold harmless the Collateral Agent, each other Secured Party, any
underwriter and their respective officers, directors, affiliates and
controlling persons from and against all loss, liability, expenses, costs of
counsel (including reasonable and documented fees and expenses to the
Collateral Agent of legal counsel), and claims (including the
<PAGE> 127
9
reasonable and documented costs of investigation) that they may incur insofar
as such loss, liability, expense or claim arises out of or is based upon any
alleged untrue statement of a material fact contained in any prospectus (or any
amendment or supplement thereto) or in any notification or offering circular,
or arises out of or is based upon any alleged omission to state a material fact
required to be stated therein or necessary to make the statements in any
thereof not misleading, except insofar as the same may have been caused by any
untrue statement or omission based upon information furnished in writing to
such Pledgor or the issuer of such Pledged Securities by the Collateral Agent
or any other Secured Party expressly for use therein. Each Pledgor further
agrees, upon such written request referred to above, to use its best efforts to
qualify, file or register, or cause the issuer of such Pledged Securities to
qualify, file or register, any of the Pledged Securities under the Blue Sky or
other securities laws of such states as may be requested by the Collateral
Agent and keep effective, or cause to be kept effective, all such
qualifications, filings or registrations. Each Pledgor will bear all costs and
expenses of carrying out its obligations under this Section 12. Each Pledgor
acknowledges that there is no adequate remedy at law for failure by it to
comply with the provisions of this Section 12 and that such failure would not
be adequately compensable in damages, and therefore agrees that its agreements
contained in this Section 12 may be specifically enforced.
SECTION 13. Security Interest Absolute. All rights of the Collateral
Agent hereunder, the grant of a security interest in the Collateral and all
obligations of each Pledgor hereunder, shall be absolute and unconditional
irrespective of (a) any lack of validity or enforceability of the Credit
Agreement, any other Loan Document, any agreement with respect to any of the
Obligations or any other agreement or instrument relating to any of the
foregoing, (b) any change in the time, manner or place of payment of, or in any
other term of, all or any of the Obligations, or any other amendment or waiver
of or any consent to any departure from the Credit Agreement, any other Loan
Document or any other agreement or instrument relating to any of the foregoing,
(c) any exchange, release or nonperfection of any other collateral, or any
release or amendment or waiver of or consent to or departure from any guaranty,
for all or any of the Obligations or (d) any other circumstance that might
otherwise constitute a defense available to, or a discharge of, any Pledgor in
respect of the Obligations or in respect of this Agreement (other than the
indefeasible payment in full of all the Obligations).
SECTION 14. Termination or Release. (a) This Agreement and the
security interests granted hereby shall terminate when all the Obligations have
been indefeasibly paid in full in cash and the Lenders have no further
commitment to lend under the Credit Agreement, the LC Exposure has been reduced
to zero and the Issuing Bank has no further obligation to issue Letters of
Credit under the Credit Agreement.
(b) Upon any sale or other transfer by any Pledgor of any Collateral
that is permitted under the Credit Agreement to any person that is not a
Pledgor, or, upon the effectiveness of any written consent to the release of
the security interest granted hereby in any Collateral pursuant to Section
9.02(b) of the Credit Agreement, the security interest in such Collateral shall
be automatically released.
(c) In connection with any termination or release pursuant to
paragraph (a) or (b) above, the Collateral Agent shall execute and deliver to
any Pledgor, at such Pledgor's expense, all documents that such Pledgor shall
reasonably request to evidence such termination or release. Any execution and
delivery of documents pursuant to this Section 14 shall be without recourse to
or warranty by the Collateral Agent.
SECTION 15. Notices. All communications and notices hereunder shall
be in writing and given as provided in Section 9.01 of the Credit Agreement.
All communications and notices hereunder to any Subsidiary Pledgor shall be
given to it in care of the Borrower.
SECTION 16. Further Assurances. Each Pledgor agrees to do such
further acts and things, and to execute and deliver such additional
conveyances, assignments, agreements and instruments, as the Collateral Agent
may at any time reasonably request in connection with the administration and
<PAGE> 128
10
enforcement of this Agreement or with respect to the Collateral or any part
thereof or in order better to assure and confirm unto the Collateral Agent its
rights and remedies hereunder.
SECTION 17. Binding Effect; Several Agreement; Assignments. Whenever
in this Agreement any of the parties hereto is referred to, such reference
shall be deemed to include the successors and assigns of such party, and all
covenants, promises and agreements by or on behalf of any Pledgor that are
contained in this Agreement shall bind and inure to the benefit of its
successors and assigns. This Agreement shall become effective as to any Pledgor
when a counterpart hereof executed on behalf of such Pledgor shall have been
delivered to the Collateral Agent and a counterpart hereof shall have been
executed on behalf of the Collateral Agent, and thereafter shall be binding
upon such Pledgor and the Collateral Agent and their respective successors and
assigns, and shall inure to the benefit of such Pledgor, the Collateral Agent
and the other Secured Parties, and their respective successors and assigns,
except that no Pledgor shall have the right to assign its rights hereunder or
any interest herein or in the Collateral (and any such attempted assignment
shall be void), except as expressly contemplated by this Agreement or the other
Loan Documents. If all the capital stock of a Pledgor is sold, transferred or
otherwise disposed of to a person that is not an Affiliate of the Borrower
pursuant to a transaction permitted by Section 6.05 of the Credit Agreement,
such Pledgor shall be released from its obligations under this Agreement
without further action. This Agreement shall be construed as a separate
agreement with respect to each Pledgor and may be amended, modified,
supplemented, waived or released with respect to any Pledgor without the
approval of any other Pledgor and without affecting the obligations of any
other Pledgor hereunder.
SECTION 18. Survival of Agreement; Severability. (a) All covenants,
agreements, representations and warranties made by each Pledgor herein and in
the certificates or other instruments prepared or delivered in connection with
or pursuant to this Agreement or any other Loan Document shall be considered to
have been relied upon by the Collateral Agent and the other Secured Parties and
shall survive the making by the Lenders of the Loans and the issuance of the
Letters of Credit by the Issuing Bank, regardless of any investigation made by
the Secured Parties or on their behalf, and shall continue in full force and
effect as long as the principal of or any accrued interest on any Loan or any
other fee or amount payable under this Agreement or any other Loan Document is
outstanding and unpaid or the LC Exposure does not equal zero and as long as
the Commitments have not been terminated.
(b) In the event any one or more of the provisions contained in this
Agreement should be held invalid, illegal or unenforceable in any respect, the
validity, legality and enforceability of the remaining provisions contained
herein shall not in any way be affected or impaired thereby (it being
understood that the invalidity of a particular provision in a particular
jurisdiction shall not in and of itself affect the validity of such provision
in any other jurisdiction). The parties shall endeavor in good-faith
negotiations to replace the invalid, illegal or unenforceable provisions with
valid provisions the economic effect of which comes as close as possible to
that of the invalid, illegal or unenforceable provisions.
SECTION 19. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
SECTION 20. Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall constitute an original, but all of
which, when taken together, shall constitute a single contract, and shall
become effective as provided in Section 17. Delivery of an executed
counterpart of a signature page to this Agreement by facsimile transmission
shall be as effective as delivery of a manually executed counterpart of this
Agreement.
SECTION 21. Rules of Interpretation. The rules of interpretation
specified in Section 1.03 of the Credit Agreement shall be applicable to this
Agreement. Section headings used herein are for convenience of reference only,
are not part of this Agreement and are not to affect the construction of, or to
be taken into consideration in interpreting this Agreement.
<PAGE> 129
11
SECTION 22. Jurisdiction; Consent to Service of Process. (a) Each
Pledgor hereby irrevocably and unconditionally submits, for itself and its
property, to the nonexclusive jurisdiction of the Supreme Court of the State of
New York sitting in New York County and of the United States District Court of
the Southern District of New York, and any appellate court from any thereof, in
any action or proceeding arising out of or relating to this Agreement or any
other Loan Document, or for recognition or enforcement of any judgment, and
each of the parties hereto hereby irrevocably and unconditionally agrees that
all claims in respect of any such action or proceeding may be heard and
determined in such New York State or, to the extent permitted by law, in such
Federal court. Each of the parties hereto agrees that a final judgment in any
such action or proceeding shall be conclusive and may be enforced in other
jurisdictions by suit on the judgment or in any other manner provided by law.
Nothing in this Agreement or any other Loan Document shall affect any right
that the Collateral Agent or any other Secured Party may otherwise have to
bring any action or proceeding relating to this Agreement or any other Loan
Document against any Pledgor or its properties in the courts of any
jurisdiction.
(b) Each Pledgor irrevocably and unconditionally waives, to the
fullest extent it may legally and effectively do so, any objection that it may
now or hereafter have to the laying of venue of any suit, action or proceeding
arising out of or relating to this Agreement or any other Loan Document in any
court referred to in paragraph (a) of this Section other than a court referred
to in the last sentence of paragraph (a) that is not referred to elsewhere in
paragraph (a). Each of the parties hereto hereby irrevocably waives, to the
fullest extent permitted by law, the defense of an inconvenient forum to the
maintenance of such action or proceeding in any such court.
(c) Each party to this Agreement irrevocably consents to service of
process in the manner provided for notices in Section 15. Nothing in this
Agreement or any other Loan Document will affect the right of any party to this
Agreement to serve process in any other manner permitted by law.
SECTION 23. WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES, TO
THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A
TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR
RELATING TO THIS AGREEMENT, ANY OTHER LOAN DOCUMENT OR THE TRANSACTIONS
CONTEMPLATED HEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY).
EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF
ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY
WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND
(B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO
ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND
CERTIFICATIONS IN THIS SECTION 23.
<PAGE> 130
12
SECTION 24. Additional Pledgors. Pursuant to Section 5.12 of the
Credit Agreement, each Borrower Subsidiary that was not in existence or not a
Borrower Subsidiary on the date of the Credit Agreement is required to enter in
this Agreement as a Subsidiary Pledgor upon becoming a Borrower Subsidiary.
Upon execution and delivery by the Collateral Agent and a Borrower Subsidiary
of an instrument in the form of Annex 1, such Borrower Subsidiary shall become
a Subsidiary Pledgor hereunder with the same force and effect as if originally
named as a Subsidiary Pledgor herein. The execution and delivery of such
instrument shall not require the consent of any Pledgor hereunder. The rights
and obligations of each Pledgor hereunder shall remain in full force and effect
notwithstanding the addition of any new Subsidiary Pledgor as a party to this
Agreement.
SECTION 25. Intercreditor Agreement. The Collateral Agent, on behalf
of the Secured Parties, acknowledges that the pledge of each Pledgor made
pursuant to this Pledge Agreement is subject to the provisions of the
Intercreditor Agreement, including the provisions therein subordinating such
pledges to certain other obligations of the Pledgors. Notwithstanding anything
to the contrary contained herein, the rights, duties and obligations of the
Collateral Agent are subject to the provisions of the Intercreditor Agreement.
<PAGE> 131
13
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.
HECHINGER INVESTMENT COMPANY OF DELAWARE, INC.,
by
/s/ Mark R. Adams
-------------------------------------
Name: Mark R. Adams
Title: Executive Vice President
CENTERS HOLDINGS, INC.,
by
/s/ Mark R. Adams
--------------------------------------
Name: Mark R. Adams
Title: Executive Vice President
BSQ ACQUISITION, INC.,
by
/s/ Mark R. Adams
--------------------------------------
Name: Mark R. Adams
Title: Executive Vice President
BSQ TRANSFEREE CORP.,
by
/s/ Mark R. Adams
--------------------------------------
Name: Mark R. Adams
Title: Executive Vice President
HECHINGER COMPANY,
by
/s/ Mark R. Adams
--------------------------------------
Name: Mark R. Adams
Title: Executive Vice President
HECHINGER STORES COMPANY,
by
/s/ Mark R. Adams
--------------------------------------
Name: Mark R. Adams
Title: Executive Vice President
HECHINGER STORES EAST COAST COMPANY,
by
/s/ Mark R. Adams
--------------------------------------
Name: Mark R. Adams
<PAGE> 132
14
Title: Executive Vice President
THE SUBSIDIARY PLEDGORS LISTED ON SCHEDULE I
HERETO,
by
/s/ Mark R. Adams
---------------------------------------------
Name: Mark R. Adams
Title: Authorized Officer
<PAGE> 133
15
THE CHASE MANHATTAN BANK, as Collateral Agent,
by
/s/ Craig T. Moore
---------------------------------------------
Name: Craig T. Moore
Title: Managing Director
<PAGE> 134
Schedule I to the
Pledge Agreement
SUBSIDIARY PLEDGORS
Name Address
<PAGE> 135
Schedule II to the
Pledge Agreement
CAPITAL STOCK
<TABLE>
<S> <C> <C> <C> <C>
Number of Registered Owner Number and Percentage
Issuer Certificate ------ Class of Shares of Shares
------ ----------- --------------- ---------
</TABLE>
DEBT SECURITIES
Issuer Principal Amount Date of Note Maturity Date
<PAGE> 136
Schedule III to the
Pledge Agreement
JOINT VENTURES
Name Description
<PAGE> 137
Annex 1 to the
Pledge Agreement
SUPPLEMENT NO. dated as of , to the
PLEDGE AGREEMENT dated as of December 31, 1998, among
HECHINGER INVESTMENT COMPANY OF DELAWARE, INC., a
Delaware corporation (the "Borrower"), CENTERS
HOLDINGS, INC., a Delaware corporation ("Holdings"),
BSQ ACQUISITION, INC., a Delaware corporation ("BSQ
Acqco"), BSQ TRANSFEREE CORP., a Delaware corporation
("BSQ Newco"), HECHINGER COMPANY, a Delaware
corporation ("Hechinger"), HECHINGER STORES COMPANY,
a Delaware corporation ("Hechinger Stores"),
HECHINGER STORES EAST COAST COMPANY, a Delaware
corporation ("Hechinger Stores East Coast"), each
other Subsidiary of Holdings listed on Schedule I
thereto (each such other Subsidiary, individually, a
"Subsidiary Pledgor" and, collectively, the
"Subsidiary Pledgors"; the Borrower, Holdings, BSQ
Acqco, BSQ Newco, Hechinger, Hechinger Stores,
Hechinger Stores East Coast and the Subsidiary
Pledgors are referred to collectively herein as the
"Pledgors") and THE CHASE MANHATTAN BANK, a New York
banking corporation ("Chase"), as collateral agent
(in such capacity, the "Collateral Agent") for the
Secured Parties (as defined in the Credit Agreement
referred to below).
A. Reference is made to (a) the Credit Agreement dated as of December
31, 1998 (as amended, supplemented or otherwise modified from time to time, the
"Credit Agreement"), among (i) the Borrower, (ii) Holdings, BSQ Acqco, BSQ
Newco, Hechinger, Hechinger Stores, Hechinger Stores East Coast (collectively,
the "Parent Guarantors"), (iii) the lenders from time to time party thereto
(the "Lenders") and (iv) the Agent, (b) the Credit Agreement dated as of
September 26, 1997, as amended and restated as of December 31, 1998 (as
amended, supplemented or otherwise modified from time to time, the "Existing
Credit Agreement"), among the Borrower, the Parent Guarantors, the lenders from
time to time party thereto (the "Existing Lenders"), Chase, as administrative
agent, collateral agent (in such capacity, the "Senior Collateral Agent"),
issuing bank and swingline lender thereunder, BANKAMERICA BUSINESS CREDIT,
INC., a Delaware corporation ("BABC"), as documentation agent and as borrowing
base audit agent thereunder, and CITICORP USA, INC., a Delaware corporation
("Citicorp USA" and, together with Chase and BABC, each solely in its capacity
as an agent under the Existing Credit Agreement, the "Senior Agents"), as
syndication agent thereunder, (c) the Parent Guarantee Agreement dated as of
December 31, 1998 (as amended, supplemented or otherwise modified from time to
time), among the Parent Guarantors and the Agent, (d) the Subsidiary Guarantee
Agreement dated as of December 31, 1998 (as amended, supplemented or otherwise
modified from time to time), among the Subsidiary Pledgors and the Agent and
(e) the Intercreditor Agreement dated as of December 31, 1998 (as amended,
supplemented or otherwise modified from time to time, the "Intercreditor
Agreement"), among the Borrower, Holdings, the Subsidiary Loan Parties, the
Senior Agents, the Collateral Agent, Green Equity Investors II, L.P. and Kmart
Corporation.
B. Capitalized terms used herein and not otherwise defined herein
shall have the meanings assigned to such terms in the Credit Agreement.
C. The Pledgors have entered into the Pledge Agreement in order to
induce the Lenders to make Loans and the Issuing Bank to issue Letters of
Credit. Pursuant to Section 5.12 of the Credit Agreement, each Borrower
Subsidiary that was not in existence or not a Borrower Subsidiary on the date
of the Credit Agreement is required to enter into the Pledge Agreement as a
Subsidiary Pledgor upon becoming a Subsidiary. Section 24 of the Pledge
Agreement provides that such Borrower Subsidiaries may become Subsidiary
Pledgors under the Pledge Agreement by execution and delivery of an instrument
in the form of this Supplement. The undersigned Borrower Subsidiary (the "New
Pledgor") is executing this Supplement in accordance with the requirements of
the Credit Agreement to become a Subsidiary Pledgor under the Pledge Agreement
in order to induce the Lenders to make additional Loans and the Issuing Bank to
issue
<PAGE> 138
additional Letters of Credit and as consideration for Loans previously made and
Letters of Credit previously issued.
Accordingly, the Collateral Agent and the New Pledgor agree as
follows:
SECTION 1. In accordance with Section 24 of the Pledge Agreement, the
New Pledgor by its signature below becomes a Pledgor under the Pledge Agreement
with the same force and effect as if originally named therein as a Pledgor and
the New Pledgor hereby (a) agrees to all the terms and provisions of the Pledge
Agreement applicable to it as a Pledgor thereunder and (b) represents and
warrants that the representations and warranties made by it as a Pledgor
thereunder are true and correct on and as of the date hereof. In furtherance
of the foregoing, the New Pledgor, as security for the payment and performance
in full of the Obligations (as defined in the Pledge Agreement), does hereby
create and grant to the Collateral Agent, its successors and assigns, for the
benefit of the Secured Parties, their successors and assigns, a security
interest in and lien on all the New Pledgor's right, title and interest in and
to the Collateral (as defined in the Pledge Agreement) of the New Pledgor.
Each reference to a "Subsidiary Pledgor" or a "Pledgor" in the Pledge Agreement
shall be deemed to include the New Pledgor. The Pledge Agreement is hereby
incorporated herein by reference.
SECTION 2. The New Pledgor represents and warrants to the Collateral
Agent and the other Secured Parties that this Supplement has been duly
authorized, executed and delivered by it and constitutes its legal, valid and
binding obligation, enforceable against it in accordance with its terms.
SECTION 3. This Supplement may be executed in counterparts, each of
which shall constitute an original, but all of which when taken together shall
constitute a single contract. This Supplement shall become effective when the
Collateral Agent shall have received counterparts of this Supplement that, when
taken together, bear the signatures of the New Pledgor and the Collateral
Agent. Delivery of an executed signature page to this Supplement by facsimile
transmission shall be as effective as delivery of a manually signed counterpart
of this Supplement.
SECTION 4. The New Pledgor hereby represents and warrants that set
forth on Schedule I attached hereto is a true and correct schedule of all its
Pledged Securities.
SECTION 5. Except as expressly supplemented hereby, the Pledge
Agreement shall remain in full force and effect.
SECTION 6. THIS SUPPLEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
SECTION 7. In case any one or more of the provisions contained in
this Supplement should be held invalid, illegal or unenforceable in any
respect, neither party hereto shall be required to comply with such provision
for so long as such provision is held to be invalid, illegal or unenforceable,
but the validity, legality and enforceability of the remaining provisions
contained herein and in the Pledge Agreement shall not in any way be affected
or impaired. The parties hereto shall endeavor in good-faith negotiations to
replace the invalid, illegal or unenforceable provisions with valid provisions
the economic effect of which comes as close as possible to that of the invalid,
illegal or unenforceable provisions.
SECTION 8. All communications and notices hereunder shall be in
writing and given as provided in Section 15 of the Pledge Agreement. All
communications and notices hereunder to the New Pledgor shall be given to it
[at the address set forth under its signature hereto][in care of the Borrower].
<PAGE> 139
4
SECTION 9. The New Pledgor agrees to reimburse the Collateral Agent
for its reasonable and documented out-of-pocket expenses in connection with
this Supplement, including the reasonable and documented fees, other charges
and disbursements of counsel for the Collateral Agent.
IN WITNESS WHEREOF, the New Pledgor and the Collateral Agent have duly
executed this Supplement to the Pledge Agreement as of the day and year first
above written.
[Name of New Pledgor],
by
---------------------------------
Name:
Title:
Address:
THE CHASE MANHATTAN BANK, as Collateral
Agent,
by
---------------------------------
Name:
Title:
<PAGE> 140
Schedule I to
Supplement No.
to the Pledge Agreement
Pledged Securities of the New Pledgor
CAPITAL STOCK
<TABLE>
<S> <C> <C> <C> <C>
Number of Registered Owner Number and Percentage
Issuer Certificate ------ Class of Shares of Shares
------ ----------- --------------- ---------
</TABLE>
DEBT SECURITIES
Issuer Principal Amount Date of Note Maturity Date
<PAGE> 141
EXHIBIT H
CONFORMED COPY
SECURITY AGREEMENT dated as of December 31, 1998
among HECHINGER INVESTMENT COMPANY OF DELAWARE, INC., a
Delaware corporation (the "Borrower"), CENTERS HOLDINGS, INC.,
a Delaware corporation ("Holdings"), BSQ ACQUISITION, INC., a
Delaware corporation ("BSQ Acqco"), BSQ TRANSFEREE CORP., a
Delaware corporation ("BSQ Newco"), HECHINGER COMPANY, a
Delaware corporation ("Hechinger"), HECHINGER STORES COMPANY,
a Delaware corporation ("Hechinger Stores"), HECHINGER STORES
EAST COAST COMPANY, a Delaware corporation ("Hechinger Stores
East Coast"), each other Subsidiary of Holdings listed on
Schedule I hereto (each of Holdings, BSQ Acqco, BSQ Newco,
Hechinger, Hechinger Stores, Hechinger Stores East Coast and
each such other Subsidiary, individually, a "Guarantor" and,
collectively, the "Guarantors"; the Guarantors and the
Borrower are referred to collectively herein as the
"Grantors") and THE CHASE MANHATTAN BANK, a New York banking
corporation ("Chase"), as administrative agent (in such
capacity, the "Administrative Agent") and as collateral agent
(in such capacity, the "Collateral Agent" and, in its capacity
as both Administrative Agent and Collateral Agent, the
"Agent") for the Secured Parties (as defined herein).
Reference is made to (a) the Credit Agreement dated as of December 31,
1998, (as amended, supplemented or otherwise modified from time to time, the
"Credit Agreement"), among (i) the Borrower, (ii) Holdings, BSQ Acqco, BSQ
Newco, Hechinger, Hechinger Stores, Hechinger Stores East Coast (collectively,
the "Parent Guarantors"), (iii) the lenders from time to time party thereto
(the "Lenders") and (iv) the Agent, (b) the Parent Guarantee Agreement dated as
of December 31, 1998 (as amended, supplemented or otherwise modified from time
to time), among the Parent Guarantors and the Agent, (c) the Subsidiary
Guarantee Agreement dated as of December 31, 1998 (as amended, supplemented or
otherwise modified from time to time), among the Guarantors listed on schedule
I hereto and the Agent, (d) the Credit Agreement dated as of September 26,
1997, as amended and restated as of December 31, 1998 (as amended, supplemented
or otherwise modified from time to time, the "Existing Credit Agreement"),
among the Borrower, the Parent Guarantors, the lenders from time to time party
thereto (the "Existing Lenders"), Chase, as administrative agent, collateral
agent, issuing bank and swingline lender thereunder, BANKAMERICA BUSINESS
CREDIT, INC., a Delaware corporation ("BABC"), as documentation agent and as
borrowing base audit agent thereunder, and CITICORP USA, INC., a Delaware
corporation ("Citicorp USA" and, together with Chase and BABC, each solely in
its capacity as an agent under the Existing Credit Agreement, the "Senior
Agents"), as syndication agent thereunder, and (e) the Intercreditor Agreement
dated as of December 31, 1998 (as amended, supplemented or otherwise modified
from time to time, the "Intercreditor Agreement"), among the Borrower,
Holdings, the Subsidiary Loan Parties, the Senior Agents, the Agent, Green
Equity Investors II, L.P. and Kmart Corporation.
The Lenders have agreed to make Loans to the Borrower, and the Issuing
Bank has agreed to issue Letters of Credit for the account of the Borrower,
pursuant to, and upon the terms and subject to the conditions specified in, the
Credit Agreement. Each of the Guarantors has agreed to guarantee, among other
things, all the obligations of the Borrower under the Credit Agreement. The
obligations of the Lenders to make Loans and of the Issuing Bank to issue
Letters of Credit are conditioned upon, among other things, the execution and
delivery by the Grantors of an agreement in the form hereof to secure (a) the
due and punctual payment by the Borrower of (i) the principal of and premium,
if any, and interest (including interest accruing during the pendency of any
bankruptcy, insolvency, receivership or other similar proceeding, regardless of
whether such interest is allowed or allowable as a claim in such proceeding) on
the Loans, when and as due, whether at maturity, by acceleration, upon one or
more dates set for prepayment or otherwise, (ii) each payment required to be
made by the Borrower under the Credit Agreement in respect of any Letter of
Credit, when and as due, including payments in respect of reimbursement of
disbursements, interest thereon and obligations to provide cash collateral and
(iii) all other monetary obligations, including fees, costs, expenses and
<PAGE> 142
2
indemnities, whether primary, secondary, direct, contingent, fixed or otherwise
(including monetary obligations incurred during the pendency of any bankruptcy,
insolvency, receivership or other similar proceeding, regardless of whether
such monetary obligations are allowed or allowable as a claim in such
proceeding), of the Borrower to the Secured Parties under the Credit Agreement
and the other Loan Documents, (b) the due and punctual performance of all
covenants, agreements, obligations and liabilities of the Borrower under or
pursuant to the Credit Agreement and the other Loan Documents and (c) the due
and punctual payment and performance of all the covenants, agreements,
obligations and liabilities of each Loan Party under or pursuant to this
Agreement and the other Loan Documents (all the monetary and other obligations
described in the preceding clauses (a) through (c) being collectively called
the "Obligations").
Accordingly, the Grantors and the Collateral Agent, on behalf of
itself and each Secured Party (and each of their respective successors or
assigns), hereby agree as follows:
ARTICLE I
Definitions
SECTION 1.01. Definition of Terms Used Herein. Unless the context
otherwise requires, all capitalized terms used but not defined herein shall
have the meanings set forth in the Credit Agreement and all references to the
Uniform Commercial Code shall mean the Uniform Commercial Code in effect in the
State of New York as of the date hereof.
SECTION 1.02. Definition of Certain Terms Used Herein. As used herein,
the following terms shall have the following meanings:
"Account Debtor" shall mean any person who is or who may become
obligated to any Grantor under, with respect to or on account of an Account.
"Accounts" shall mean any and all right, title and interest of any
Grantor to payment for goods and services sold or leased, including any such
right evidenced by chattel paper, whether due or to become due, whether or not
it has been earned by performance, and whether now or hereafter acquired or
arising in the future, including accounts receivable from Affiliates of the
Grantors.
"Accounts Receivable" shall mean all Accounts and all right, title and
interest in any returned goods, together with all rights, titles, securities
and guarantees with respect thereto, including any rights to stoppage in
transit, replevin, reclamation and resales, and all related security interests,
liens and pledges, whether voluntary or involuntary, in each case whether now
existing or owned or hereafter arising or acquired.
"Collateral" shall mean all (a) Accounts Receivable, (b) Documents,
(c) Equipment, (d) General Intangibles, (e) Inventory, (f) cash and cash
accounts (including each of the Collection Deposit Accounts), (g) Investment
Property and (h) Proceeds.
"Collection Deposit Account" shall mean any deposit account of a
Grantor maintained for the benefit of the Secured Parties with the Collateral
Agent or with a Sub-Agent pursuant to a Depository Agreement.
"Commodity Account" shall mean an account maintained by a Commodity
Intermediary in which a Commodity Contract is carried out for a Commodity
Customer.
<PAGE> 143
3
"Commodity Contract" shall mean a commodity futures contract, an
option on a commodity futures contract, a commodity option or any other
contract that, in each case, is (a) traded on or subject to the rules of a
board of trade that has been designated as a contract market for such a
contract pursuant to the federal commodities laws or (b) traded on a foreign
commodity board of trade, exchange or market, and is carried on the books of a
Commodity Intermediary for a Commodity Customer.
"Commodity Customer" shall mean a person for whom a Commodity
Intermediary carries a Commodity Contract on its books.
"Commodity Intermediary" shall mean (a) a person who is registered as
a futures commission merchant under the federal commodities laws or (b) a
person who in the ordinary course of its business provides clearance or
settlement services for a board of trade that has been designated as a contract
market pursuant to federal commodities laws.
"Concentration Account" shall mean the cash collateral account
established at the office of The Chase Manhattan Bank located at 270 Park
Avenue, New York, NY 10017, in the name of the Collateral Agent, Account No.
323-515355.
"Copyright License" shall mean any written agreement, now or
hereafter in effect, granting any right to any third party under any Copyright
now or hereafter owned by any Grantor or which such Grantor otherwise has the
right to license, or granting any right to such Grantor under any Copyright now
or hereafter owned by any third party, and all rights of such Grantor under any
such agreement.
"Copyrights" shall mean all of the following now owned or hereafter
acquired by any Grantor: (a) all copyright rights in any work subject to the
copyright laws of the United States or any other country, whether as author,
assignee, transferee or otherwise, and (b) all registrations and applications
for registration of any such copyright in the United States or any other
country, including registrations, recordings, supplemental registrations and
pending applications for registration in the United States Copyright Office,
including those listed on Schedule II.
"Credit Agreement" shall have the meaning assigned to such term in the
preliminary statement of this Agreement.
"Depository Agreement" shall mean a Depository Agreement substantially
in the form of Annex 1 hereto among the Borrower, the Collateral Agent and a
Sub-Agent.
"Depository System" shall have the meaning assigned to such term in
Section 5.01.
"Documents" shall mean all instruments, files, records, ledger sheets
and documents covering or relating to any of the Collateral.
"Entitlement Holder" shall mean a person identified in the records of
a Securities Intermediary as the person having a Security Entitlement against
the Securities Intermediary. If a person acquires a Security Entitlement by
virtue of Section 8-501(b)(2) or (3) of the Uniform Commercial Code, such
person is the Entitlement Holder.
"Equipment" shall mean all equipment, furniture and furnishings, and
all tangible personal property similar to any of the foregoing, including
tools, parts and supplies of every kind and description, and all improvements,
accessions or appurtenances thereto, that are now or hereafter owned by any
Grantor. The term "Equipment" shall include Fixtures.
<PAGE> 144
4
"Existing Credit Agreement" shall have the meaning assigned to such
term in the preliminary statement of this Agreement.
"Financial Asset" shall mean (a) a Security, (b) an obligation of a
person or a share, participation or other interest in a person or in property
or an enterprise of a person, which is, or is of a type, dealt with in or
traded on financial markets, or which is recognized in any area in which it is
issued or dealt in as a medium for investment or (c) any property that is held
by a Securities Intermediary for another person in a Securities Account if the
Securities Intermediary has expressly agreed with the other person that the
property is to be treated as a Financial Asset under Article 8 of the Uniform
Commercial Code. As the context requires, the term Financial Asset shall mean
either the interest itself or the means by which a person's claim to it is
evidenced, including a certificated or uncertificated security, a certificate
representing a Security or a Security Entitlement.
"Fixtures" shall mean all items of Equipment, whether now owned or
hereafter acquired, of any Grantor that become so related to particular real
estate that an interest in them arises under any real estate law applicable
thereto.
"General Fund Account" shall mean the general fund account established
at the office of The Chase Manhattan located at 270 Park Avenue, New York, NY
10017, in the name of the Borrower, Account No. 323-071287.
"General Intangibles" shall mean all choses in action and causes of
action and all other assignable intangible personal property of any Grantor of
every kind and nature (other than Accounts Receivable) now owned or hereafter
acquired by any Grantor, including all rights and interests in partnerships,
limited partnerships, limited liability companies and other unincorporated
entities, corporate or other business records, indemnification claims, contract
rights (including rights under leases, whether entered into as lessor or
lessee, Hedging Agreements and other agreements), Intellectual Property,
goodwill, registrations, franchises, tax refund claims and any letter of
credit, guarantee, claim, security interest or other security held by or
granted to any Grantor to secure payment by an Account Debtor of any of the
Accounts Receivable.
"Intellectual Property" shall mean all intellectual and similar
property of any Grantor of every kind and nature now owned or hereafter
acquired by any Grantor, including inventions, designs, Patents, Copyrights,
Licenses, Trademarks, trade secrets, confidential or proprietary technical and
business information, know-how, show-how or other data or information, software
and databases and all embodiments or fixations thereof and related
documentation, registrations and franchises, and all additions, improvements
and accessions to, and books and records describing or used in connection with,
any of the foregoing.
"Inventory" shall mean all goods of any Grantor, whether now owned or
hereafter acquired, held for sale or lease, or furnished or to be furnished by
any Grantor under contracts of service, or consumed in any Grantor's business,
including raw materials, intermediates, work in process, packaging materials,
finished goods, semi-finished inventory, scrap inventory, manufacturing
supplies and spare parts, and all such goods that have been returned to or
repossessed by or on behalf of any Grantor.
"Investment Property" shall mean all Securities (whether certificated
or uncertificated), Security Entitlements, Securities Accounts, Commodity
Contracts and Commodity Accounts of any Grantor, whether now owned or hereafter
acquired by any Grantor.
"License" shall mean any Patent License, Trademark License, Copyright
License or other license or sublicense to which any Grantor is a party,
including those listed on Schedule III (other than those
<PAGE> 145
5
license agreements in existence on the date hereof and listed on Schedule III
and those license agreements entered into after the date hereof that by their
terms prohibit assignment or a grant of a security interest by such Grantor as
licensee thereunder).
"Obligations" shall have the meaning assigned to such term in the
preliminary statement of this Agreement.
"Overdraft" means, at any time, the amount by which the aggregate
amount debited from any deposit, concentration, operating or disbursement
account (including any Collection Deposit Account, the Concentration Account
and the General Fund Account) maintained by the Borrower or any other Grantor
with any Lender or any Affiliate of any Lender, as a result of processing of
payment orders issued by the Borrower or such Grantor or otherwise, exceeds the
aggregate funds on deposit in such account.
"Patent License" shall mean any written agreement, now or hereafter in
effect, granting to any third party any right to make, use or sell any
invention on which a Patent, now or hereafter owned by any Grantor or which any
Grantor otherwise has the right to license, is in existence, or granting to any
Grantor any right to make, use or sell any invention on which a Patent, now or
hereafter owned by any third party, is in existence, and all rights of any
Grantor under any such agreement.
"Patents" shall mean all of the following now owned or hereafter
acquired by any Grantor: (a) all letters patent of the United States or any
other country, all registrations and recordings thereof, and all applications
for letters patent of the United States or any other country, including
registrations, recordings and pending applications in the United States Patent
and Trademark Office or any similar offices in any other country, including
those listed on Schedule IV, and (b) all reissues, continuations, divisions,
continuations-in-part, renewals or extensions thereof, and the inventions
disclosed or claimed therein, including the right to make, use and/or sell the
inventions disclosed or claimed therein.
"Perfection Certificate" shall mean a certificate substantially in the
form of Annex 2 hereto, completed and supplemented with the schedules and
attachments contemplated thereby, and duly executed by a Financial Officer and
the chief legal officer of the Borrower.
"Proceeds" shall mean any consideration received from the sale,
exchange, license, lease or other disposition of any asset or property that
constitutes Collateral, any value received as a consequence of the possession
of any Collateral and any payment received from any insurer or other person or
entity as a result of the destruction, loss, theft, damage or other involuntary
conversion of whatever nature of any asset or property which constitutes
Collateral, and shall include (a) all cash and negotiable instruments received
by or held on behalf of the Collateral Agent, (b) any claim of any Grantor
against any third party for (and the right to sue and recover for and the
rights to damages or profits due or accrued arising out of or in connection
with) (i) past, present or future infringement of any Patent now or hereafter
owned by any Grantor, or licensed under a Patent License, (ii) past, present or
future infringement or dilution of any Trademark now or hereafter owned by any
Grantor or licensed under a Trademark License or injury to the goodwill
associated with or symbolized by any Trademark now or hereafter owned by any
Grantor, (iii) past, present or future breach of any License and (iv) past,
present or future infringement of any Copyright now or hereafter owned by any
Grantor or licensed under a Copyright License and (c) any and all other amounts
from time to time paid or payable under or in connection with any of the
Collateral.
"Secured Parties" shall mean (a) the Lenders, (b) the Administrative
Agent, (c) the Collateral Agent, (d) the Documentation Agent, (e) the Borrowing
Base Audit Agent, (f) the Syndication Agent, (g) the Issuing Bank, (h) the
beneficiaries of each indemnification obligation undertaken by any Grantor
under any Loan Document and (i) the successors and assigns of each of the
foregoing.
<PAGE> 146
6
"Securities" shall mean any obligations of an issuer or any shares,
participations or other interests in an issuer or in property or an enterprise
of an issuer which (a) are represented by a certificate representing a security
in bearer or registered form, or the transfer of which may be registered upon
books maintained for that purpose by or on behalf of the issuer, (b) are one of
a class or series or by its terms is divisible into a class or series of
shares, participations, interests or obligations and (c)(i) are, or are of a
type, dealt with or traded on securities exchanges or securities markets or
(ii) are a medium for investment and by their terms expressly provide that they
are a security governed by Article 8 of the Uniform Commercial Code.
"Securities Account" shall mean an account to which a Financial Asset
is or may be credited in accordance with an agreement under which the person
maintaining the account undertakes to treat the person for whom the account is
maintained as entitled to exercise rights that comprise the Financial Asset.
"Securities Intermediary" shall mean (a) a clearing corporation or (b)
a person, including a bank or broker, that in the ordinary course of its
business maintains Securities Accounts for others and is acting in that
capacity.
"Security Entitlements" shall mean the rights and property interests
of an Entitlement Holder with respect to a Financial Asset.
"Security Interest" shall have the meaning assigned to such term in
Section 2.01.
"Sub-Agent" shall mean a financial institution which shall have
delivered to the Collateral Agent an executed Depository Agreement.
"Trademark License" shall mean any written agreement, now or hereafter
in effect, granting to any third party any right to use any Trademark now or
hereafter owned by any Grantor or which any Grantor otherwise has the right to
license, or granting to any Grantor any right to use any Trademark now or
hereafter owned by any third party, and all rights of any Grantor under any
such agreement.
"Trademarks" shall mean all of the following now owned or hereafter
acquired by any Grantor: (a) all trademarks, service marks, trade names,
corporate names, company names, business names, fictitious business names,
trade styles, trade dress, logos, other source or business identifiers, designs
and general intangibles of like nature, now existing or hereafter adopted or
acquired, all registrations and recordings thereof, and all registration and
recording applications filed in connection therewith, including registrations
and registration applications in the United States Patent and Trademark Office,
any State of the United States or any similar offices in any other country or
any political subdivision thereof, and all extensions or renewals thereof,
including those listed on Schedule V, (b) all goodwill associated therewith or
symbolized thereby and (c) all other assets, rights and interests that uniquely
reflect or embody such goodwill.
SECTION 1.03. Rules of Interpretation. The rules of interpretation
specified in Section 1.03 of the Credit Agreement shall be applicable to this
Agreement.
<PAGE> 147
7
ARTICLE II
Security Interest
SECTION 2.01. Security Interest. As security for the payment or
performance, as the case may be, in full of the Obligations, each Grantor
hereby bargains, sells, conveys, assigns, sets over, mortgages, pledges,
hypothecates and transfers to the Collateral Agent, its successors and assigns,
for the ratable benefit of the Secured Parties, and hereby grants to the
Collateral Agent, its successors and assigns, for the ratable benefit of the
Secured Parties, a security interest in, all of such Grantor's right, title and
interest in, to and under the Collateral (the "Security Interest"). Without
limiting the foregoing, the Collateral Agent is hereby authorized to file one
or more financing statements (including fixture filings), continuation
statements, filings with the United States Patent and Trademark Office or
United States Copyright Office (or any successor office or any similar office
in any other country) or other documents for the purpose of perfecting,
confirming, continuing, enforcing or protecting the Security Interest granted
by each Grantor, without the signature of any Grantor, and naming any Grantor
or the Grantors as debtors and the Collateral Agent as secured party.
SECTION 2.02. No Assumption of Liability. The Security Interest is
granted as security only and shall not subject the Collateral Agent or any
other Secured Party to, or in any way alter or modify, any obligation or
liability of any Grantor with respect to or arising out of the Collateral.
ARTICLE III
Representations and Warranties
The Grantors jointly and severally represent and warrant to the
Collateral Agent and the Secured Parties that:
SECTION 3.01. Title and Authority. Each Grantor has good and valid
rights in and title to the Collateral with respect to which it has purported to
grant a Security Interest hereunder and has full power and authority to grant
to the Collateral Agent the Security Interest in such Collateral pursuant
hereto and to execute, deliver and perform its obligations in accordance with
the terms of this Agreement, without the consent or approval of any other
person other than any consent or approval which has been obtained.
SECTION 3.02. Filings. (a) The Perfection Certificate has been duly
prepared, completed and executed and the information set forth therein is
correct and complete. Fully executed Uniform Commercial Code financing
statements (including fixture filings, as applicable) or other appropriate
filings, recordings or registrations containing a description of the Collateral
have been delivered to the Collateral Agent for filing in each governmental,
municipal or other office specified in Schedule 6 to the Perfection
Certificate, which are all the filings, recordings and registrations (other
than filings required to be made in the United States Patent and Trademark
Office and the United States Copyright Office in order to perfect the Security
Interest in Collateral consisting of United States Patents, Trademarks and
Copyrights) that are necessary to publish notice of and protect the validity of
and to establish a legal, valid and perfected security interest in favor of the
Collateral Agent (for the ratable benefit of the Secured Parties) in respect of
all Collateral in which the Security Interest may be perfected by filing,
recording or registration in the United States (or any political subdivision
thereof) and its territories and possessions, and no further or subsequent
filing, refiling, recording, rerecording, registration or reregistration is
necessary in any such jurisdiction, except as provided under applicable law
with respect to the filing of continuation statements.
<PAGE> 148
8
(b) Each Grantor represents and warrants that fully executed security
agreements in the form hereof and containing a description of all Collateral
consisting of Intellectual Property with respect to United States Patents and
United States registered Trademarks (and Trademarks for which United States
registration applications are pending) and United States registered Copyrights
have been delivered to the Collateral Agent for recording by the United States
Patent and Trademark Office and the United States Copyright Office pursuant to
35 U.S.C. Section 261, 15 U.S.C. Section 1060 or 17 U.S.C. Section 205 and the
regulations thereunder, as applicable, and otherwise as may be required
pursuant to the laws of any other necessary jurisdiction, to protect the
validity of and to establish a legal, valid and perfected security interest in
favor of the Collateral Agent (for the ratable benefit of the Secured Parties)
in respect of all Collateral consisting of Patents, Trademarks and Copyrights
in which a security interest may be perfected by filing, recording or
registration in the United States (or any political subdivision thereof) and
its territories and possessions, or in any other necessary jurisdiction, and no
further or subsequent filing, refiling, recording, rerecording, registration or
reregistration is necessary (other than such actions as are necessary to
perfect the Security Interest with respect to any Collateral consisting of
Patents, Trademarks and Copyrights (or registration or application for
registration thereof) acquired or developed after the date hereof).
SECTION 3.03. Validity of Security Interest. The Security Interest
constitutes (a) a legal and valid security interest in all the Collateral
securing the payment and performance of the Obligations, (b) subject to the
filings described in Section 3.02 above, a perfected security interest in all
Collateral in which a security interest may be perfected by filing, recording
or registering a financing statement or analogous document in the United States
(or any political subdivision thereof) and its territories and possessions
pursuant to the Uniform Commercial Code or other applicable law in such
jurisdictions and (c) a security interest that shall be perfected in all
Collateral in which a security interest may be perfected upon the receipt and
recording of this Agreement with the United States Patent and Trademark Office
and the United States Copyright Office, as applicable, within the three month
period (commencing as of the date hereof) pursuant to 35 U.S.C. Section 261 or
15 U.S.C. Section 1060 or the one month period (commencing as of the date
hereof) pursuant to 17 U.S.C. Section 205 and otherwise as may be required
pursuant to the laws of any other necessary jurisdiction. The Security
Interest is and shall be prior to any other Lien on any of the Collateral,
other than Liens expressly permitted to be prior to the Security Interest
pursuant to Section 6.02 of the Credit Agreement.
SECTION 3.04. Absence of Other Liens. The Collateral is owned by the
Grantors free and clear of any Lien, except for Liens expressly permitted
pursuant to Section 6.02 of the Credit Agreement. The Grantor has not filed or
consented to the filing of (a) any financing statement or analogous document
under the Uniform Commercial Code or any other applicable laws covering any
Collateral, (b) any assignment in which any Grantor assigns any Collateral or
any security agreement or similar instrument covering any Collateral with the
United States Patent and Trademark Office or the United States Copyright Office
or (c) any assignment in which any Grantor assigns any Collateral or any
security agreement or similar instrument covering any Collateral with any
foreign governmental, municipal or other office, which financing statement or
analogous document, assignment, security agreement or similar instrument is
still in effect, except, in each case, for Liens expressly permitted pursuant
to Section 6.02 of the Credit Agreement.
<PAGE> 149
9
ARTICLE IV
Covenants
SECTION 4.01. Change of Name; Location of Collateral; Records; Place
of Business. (a) Each Grantor agrees promptly to notify the Collateral Agent
in writing of any change (i) in its corporate name or in any trade name used to
identify it in the conduct of its business or in the ownership of its
properties, (ii) in the location of its chief executive office, its principal
place of business, any office in which it maintains books or records relating
to Collateral owned by it or any office or facility at which Collateral owned
by it is located (including the establishment of any such new office or
facility), (iii) in its identity or corporate structure or (iv) in its Federal
Taxpayer Identification Number. Each Grantor agrees not to effect or permit
any change referred to in the preceding sentence unless all filings have been
made under the Uniform Commercial Code or otherwise that are required in order
for the Collateral Agent to continue at all times following such change to have
a valid, legal and perfected first priority security interest in all the
Collateral. Each Grantor agrees promptly to notify the Collateral Agent if any
material portion of the Collateral owned or held by such Grantor is damaged or
destroyed.
(b) Each Grantor agrees to maintain, at its own cost and expense,
such complete and accurate records with respect to the Collateral owned by it
as is consistent with its current practices and in accordance with such prudent
and standard practices used in industries that are the same as or similar to
those in which such Grantor is engaged, but in any event to include complete
accounting records indicating all payments and proceeds received with respect
to any part of the Collateral, and, at such time or times as the Collateral
Agent may reasonably request, promptly to prepare and deliver to the Collateral
Agent a duly certified schedule or schedules in form and detail satisfactory to
the Collateral Agent showing the identity, amount and location of any and all
Collateral.
SECTION 4.02. Periodic Certification. Each year, at the time of
delivery of annual financial statements with respect to the preceding fiscal
year pursuant to Section 5.01 of the Credit Agreement, the Borrower shall
deliver to the Collateral Agent a certificate executed by a Financial Officer
and the chief legal officer of the Borrower (a) setting forth the information
required pursuant to Section 2 of the Perfection Certificate or confirming that
there has been no change in such information since the date of such certificate
or the date of the most recent certificate delivered pursuant to Section 4.02
and (b) certifying that all Uniform Commercial Code financing statements
(including fixture filings, as applicable) or other appropriate filings,
recordings or registrations, including all refilings, rerecordings and
reregistrations, containing a description of the Collateral have been filed of
record in each governmental, municipal or other appropriate office in each
jurisdiction identified pursuant to clause (a) above to the extent necessary to
protect and perfect the Security Interest for a period of not less than 18
months after the date of such certificate (except as noted therein with respect
to any continuation statements to be filed within such period and except for
any fixture filings not filed as of the Effective Date). Each certificate
delivered pursuant to this Section 4.02 shall identify in the format of
Schedule II, III, IV or V, as applicable, all Intellectual Property of any
Grantor in existence on the date thereof and not then listed on such Schedules
or previously so identified to the Collateral Agent.
SECTION 4.03. Protection of Security. Each Grantor shall, at its own
cost and expense, take any and all actions necessary to defend title to the
Collateral against all persons and to defend the Security Interest of the
Collateral Agent in the Collateral and the priority thereof against any Lien
not expressly permitted pursuant to Section 6.02 of the Credit Agreement.
SECTION 4.04. Further Assurances. Each Grantor agrees, at its own
expense, to execute, acknowledge, deliver and cause to be duly filed all such
further instruments and documents and take all such actions as the Collateral
Agent may from time to time request to better assure, preserve, protect and
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perfect the Security Interest and the rights and remedies created hereby,
including the payment of any fees and taxes required in connection with the
execution and delivery of this Agreement, the granting of the Security Interest
and the filing of any financing statements (including fixture filings) or other
documents in connection herewith or therewith. If any amount payable under or
in connection with any of the Collateral shall be or become evidenced by any
promissory note or other instrument, such note or instrument shall be
immediately pledged and delivered to the Collateral Agent, duly endorsed in a
manner satisfactory to the Collateral Agent.
Without limiting the generality of the foregoing, each Grantor hereby
authorizes the Collateral Agent, with prompt notice thereof to the Grantors, to
supplement this Agreement by supplementing Schedule II, III, IV or V hereto or
adding additional schedules hereto to specifically identify any asset or item
that may constitute Copyrights, Licenses, Patents or Trademarks; provided,
however, that any Grantor shall have the right, exercisable within 10 days
after it has been notified by the Collateral Agent of the specific
identification of such Collateral, to advise the Collateral Agent in writing of
any inaccuracy of the representations and warranties made by such Grantor
hereunder with respect to such Collateral. Each Grantor agrees that it will
use its best efforts to take such action as shall be necessary in order that
all representations and warranties hereunder shall be true and correct with
respect to such Collateral within 30 days after the date it has been notified
by the Collateral Agent of the specific identification of such Collateral.
SECTION 4.05. Inspection and Verification. Following an Event of
Default and during the continuance thereof or otherwise in accordance with the
Credit Agreement, the Collateral Agent and such persons as the Collateral Agent
may reasonably designate shall have the right, at the Grantors' own cost and
expense, to inspect the Collateral, all records related thereto (and to make
extracts and copies from such records) and the premises upon which any of the
Collateral is located, to discuss the Grantors' affairs with the officers of
the Grantors and their independent accountants and to verify under reasonable
procedures the validity, amount, quality, quantity, value, condition and status
of, or any other matter relating to, the Collateral, including, in the case of
Accounts or Collateral in the possession of any third person, by contacting
Account Debtors or the third person possessing such Collateral for the purpose
of making such a verification. The Collateral Agent shall have the absolute
right to share any information it gains from such inspection or verification
with any Secured Party (it being understood that any such information shall be
deemed to be "Information" subject to the provisions of Section 9.12).
SECTION 4.06. Taxes; Encumbrances. At its option, on five days'
prior notice to the Borrower, the Collateral Agent may discharge past due
taxes, assessments, charges, fees, Liens, security interests or other
encumbrances at any time levied or placed on the Collateral and not permitted
pursuant to Section 6.02 of the Credit Agreement, and may pay for the
maintenance and preservation of the Collateral to the extent any Grantor fails
to do so as required by the Credit Agreement or this Agreement, and each
Grantor jointly and severally agrees to reimburse the Collateral Agent on
demand for any payment made or any expense incurred by the Collateral Agent
pursuant to the foregoing authorization; provided, however, that nothing in
this Section 4.06 shall be interpreted as excusing any Grantor from the
performance of, or imposing any obligation on the Collateral Agent or any
Secured Party to cure or perform, any covenants or other promises of any
Grantor with respect to taxes, assessments, charges, fees, liens, security
interests or other encumbrances and maintenance as set forth herein or in the
other Loan Documents.
SECTION 4.07. Assignment of Security Interest. If at any time any
Grantor shall take a security interest in any property of an Account Debtor or
any other person to secure payment and performance of an Account, such Grantor
shall promptly assign such security interest to the Collateral Agent. Such
assignment need not be filed of public record unless necessary to continue the
perfected status of the security interest against creditors of and transferees
from the Account Debtor or other person granting the security interest.
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SECTION 4.08. Continuing Obligations of the Grantors. Each Grantor
shall remain liable to observe and perform all the conditions and obligations
to be observed and performed by it under each contract, agreement or instrument
relating to the Collateral, all in accordance with the terms and conditions
thereof, and each Grantor jointly and severally agrees to indemnify and hold
harmless the Collateral Agent and the Secured Parties from and against any and
all liability for such performance.
SECTION 4.09. Use and Disposition of Collateral. None of the
Grantors shall make or permit to be made an assignment, pledge or hypothecation
of the Collateral or shall grant any other Lien in respect of the Collateral,
except as expressly permitted by Section 6.02 of the Credit Agreement. Except
as expressly permitted in the Credit Agreement, none of the Grantors shall make
or permit to be made any transfer of the Collateral and each Grantor shall
remain at all times in possession of the Collateral owned by it, except that
(a) Inventory may be sold in the ordinary course of business and (b) unless and
until the Collateral Agent shall notify the Grantors that an Event of Default
shall have occurred and be continuing and that during the continuance thereof
the Grantors shall not sell, convey, lease, assign, transfer or otherwise
dispose of any Collateral (which notice may be given by telephone if promptly
confirmed in writing), the Grantors may use and dispose of the Collateral in
any lawful manner not inconsistent with the provisions of this Agreement, the
Credit Agreement or any other Loan Document. Without limiting the generality
of the foregoing, each Grantor agrees that it shall not permit any Inventory to
be in the possession or control of any warehouseman, bailee, agent or processor
at any time unless such warehouseman, bailee, agent or processor shall have
been notified of the Security Interest and shall have agreed in writing to hold
the Inventory subject to the Security Interest and the instructions of the
Collateral Agent and to waive and release any Lien held by it with respect to
such Inventory, whether arising by operation of law or otherwise.
SECTION 4.10. Limitation on Modification of Accounts. None of the
Grantors will, without the Collateral Agent's prior written consent, grant any
extension of the time of payment of any of the Accounts Receivable, compromise,
compound or settle the same for less than the full amount thereof, release,
wholly or partly, any person liable for the payment thereof or allow any credit
or discount whatsoever thereon, other than extensions, credits, discounts,
compromises or settlements granted or made in the ordinary course of business
and consistent with its current practices and in accordance with such prudent
and standard practices used in industries that are the same as or similar to
those in which such Grantor is engaged.
SECTION 4.11. Insurance. (a) The Grantors shall (i) maintain or
shall cause to be maintained insurance with financially sound and reputable
insurers with an A.M. Best rating of A- or better (or, to the extent consistent
with prudent business practice, a program of self-insurance approved by the
Administrative Agent) on such of its property and in at least such amounts and
against at least such risks as is customary with companies in the same or
similar businesses operating in the same or similar locations, including public
liability insurance against claims for personal injury or death occurring upon,
in or about or in connection with the use of any properties owned, occupied or
controlled by it; (ii) maintain such other insurance as may be required by law;
and (iii) furnish to the Collateral Agent, upon written request, full
information as to the insurance carried.
(b) Fire and extended coverage policies maintained with
respect to any Collateral shall be endorsed or otherwise amended to include (i)
a non-contributing mortgage clause (regarding improvements to real property)
and lenders' loss payable clause (regarding personal property), in form and
substance satisfactory to the Collateral Agent, which endorsements or
amendments shall provide that, from and after the Effective Date, if the
insurer shall have received written notice from the Administrative Agent or the
Collateral Agent of the occurrence of an Event of Default, the insurer shall
pay all proceeds otherwise payable to the Borrower or the other Loan Parties
under the policies directly to the
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Administrative Agent or the Collateral Agent, (ii) a provision to the effect
that neither the Grantor, the Collateral Agent nor any other party shall be a
coinsurer and (iii) such other provisions as the Collateral Agent may
reasonably require from time to time to protect the interests of the Lenders.
Commercial general liability policies shall be endorsed to name the Collateral
Agent as an additional insured. Business interruption policies shall name the
Collateral Agent as loss payee and shall be endorsed or amended to include (i)
a provision that, from and after the Effective Date, if the insurer shall have
received written notice from the Administrative Agent or the Collateral Agent
of the occurrence of an Event of Default, the insurer shall pay all proceeds
otherwise payable to the Borrower or the other Loan Parties under the policies
directly to the Administrative Agent or the Collateral Agent, (ii) a provision
to the effect that none of the Borrower, the Administrative Agent or any other
party shall be a co-insurer and (iii) such other provisions as the
administrative Agent may reasonably require from time to time to protect the
interests of the Lenders. Each such policy referred to in this paragraph also
shall provide that it shall not be canceled, modified or not renewed (i) by
reason of nonpayment of premium except upon not less than 10 days' prior
written notice thereof by the insurer to the Collateral Agent (giving the
Collateral Agent the right to cure defaults in the payment of premiums) or (ii)
for any other reason except upon not less than 30 days' prior written notice
thereof by the insurer to the Collateral Agent. Such Grantor shall deliver to
the Collateral Agent, prior to the cancelation, modification or nonrenewal of
any such policy of insurance, a copy of a renewal or replacement policy (or
other evidence of renewal of a policy previously delivered to the Collateral
Agent) together with evidence satisfactory to the Collateral Agent of payment
of the premium therefor.
(c) Each Grantor irrevocably makes, constitutes and appoints
the Collateral Agent (and all officers, employees or agents designated by the
Collateral Agent) as such Grantor's true and lawful agent (and
attorney-in-fact) for the purpose, during the continuance of an Event of
Default, of making, settling and adjusting claims in respect of Collateral
under policies of insurance, endorsing the name of such Grantor on any check,
draft, instrument or other item of payment for the proceeds of such policies of
insurance and for making all determinations and decisions with respect thereto.
In the event that any Grantor at any time or times shall fail to obtain or
maintain any of the policies of insurance required hereby or to pay any premium
in whole or part relating thereto, the Collateral Agent may, without waiving or
releasing any obligation or liability of the Grantors hereunder or any Event of
Default, in its sole discretion, obtain and maintain such policies of insurance
and pay such premium and take any other actions with respect thereto as the
Collateral Agent deems advisable. All sums disbursed by the Collateral Agent
in connection with this Section 4.11, including reasonable attorneys' fees,
court costs, expenses and other charges relating thereto, shall be payable,
upon demand, by the Grantors to the Collateral Agent and shall be additional
Obligations secured hereby.
SECTION 4.12. Intentionally Omitted.
SECTION 4.13. Legend. Subject to the rights and liens of the parties
to the Receivables Purchase Agreements, each Grantor shall legend, in form and
manner satisfactory to the Collateral Agent, its Accounts Receivable and its
books, records and documents evidencing or pertaining thereto with an
appropriate reference to the fact that such Accounts Receivable have been
assigned to the Collateral Agent for the benefit of the Secured Parties and
that the Collateral Agent has a security interest therein.
SECTION 4.14. Covenants Regarding Patent, Trademark and Copyright
Collateral. (a) Each Grantor agrees that it will not, nor will it permit any
of its licensees to, do any act, or omit to do any act, whereby any Patent that
is material to the conduct of such Grantor's business may become invalidated or
dedicated to the public, and agrees that it shall continue to mark any products
covered by a Patent with the relevant patent number as necessary and sufficient
to establish and preserve its maximum rights under applicable patent laws.
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(b) Each Grantor (either itself or through its licensees or its
sublicensees) will, for each Trademark material to the conduct of such
Grantor's business, (i) maintain such Trademark in full force free from any
claim of abandonment or invalidity for non-use, (ii) maintain the quality of
products and services offered under such Trademark, (iii) display such
Trademark with notice of Federal or foreign registration to the extent
necessary and sufficient to establish and preserve its maximum rights under
applicable law and (iv) not knowingly use or knowingly permit the use of such
Trademark in violation of any third party rights.
(c) Each Grantor (either itself or through licensees) will, for each
work covered by a material Copyright, continue to publish, reproduce, display,
adopt and distribute the work with appropriate copyright notice as necessary
and sufficient to establish and preserve its maximum rights under applicable
copyright laws.
(d) Each Grantor shall notify the Collateral Agent immediately if it
knows or has reason to know that any Patent, Trademark or Copyright material to
the conduct of its business may become abandoned, lost or dedicated to the
public, or of any adverse determination or development (including the
institution of, or any such determination or development in, any proceeding in
the United States Patent and Trademark Office, United States Copyright Office
or any court or similar office of any country) regarding such Grantor's
ownership of any Patent, Trademark or Copyright, its right to register the
same, or to keep and maintain the same.
(e) In no event shall any Grantor, either itself or through any
agent, employee, licensee or designee, file an application for any Patent,
Trademark or Copyright (or for the registration of any Trademark or Copyright)
with the United States Patent and Trademark Office, United States Copyright
Office or any office or agency in any political subdivision of the United
States or in any other country or any political subdivision thereof, unless it
promptly informs the Collateral Agent, and, upon request of the Collateral
Agent, executes and delivers any and all agreements, instruments, documents and
papers as the Collateral Agent may request to evidence the Collateral Agent's
security interest in such Patent, Trademark or Copyright, and each Grantor
hereby appoints the Collateral Agent as its attorney-in-fact to execute and
file such writings for the foregoing purposes, all acts of such attorney being
hereby ratified and confirmed; such power, being coupled with an interest, is
irrevocable.
(f) Each Grantor will take all necessary steps that are consistent
with the practice in any proceeding before the United States Patent and
Trademark Office, United States Copyright Office or any office or agency in any
political subdivision of the United States or in any other country or any
political subdivision thereof, to maintain and pursue each material application
relating to the Patents, Trademarks and/or Copyrights (and to obtain the
relevant grant or registration) and to maintain each issued Patent and each
registration of the Trademarks and Copyrights that is material to the conduct
of any Grantor's business, including timely filings of applications for
renewal, affidavits of use, affidavits of incontestability and payment of
maintenance fees, and, if consistent with good business judgment, to initiate
opposition, interference and cancelation proceedings against third parties.
(g) In the event that any Grantor has reason to believe that any
Collateral consisting of a Patent, Trademark or Copyright material to the
conduct of any Grantor's business has been or is about to be infringed,
misappropriated or diluted by a third party, such Grantor promptly shall notify
the Collateral Agent and shall, if consistent with good business judgment,
promptly sue for infringement, misappropriation or dilution and to recover any
and all damages for such infringement, misappropriation or dilution, and take
such other actions as are appropriate under the circumstances to protect such
Collateral.
(h) Upon and during the continuance of an Event of Default, each
Grantor shall use its best efforts to obtain all requisite consents or
approvals by the licensor of each Copyright License, Patent
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License or Trademark License to effect the assignment of all of such Grantor's
right, title and interest thereunder to the Collateral Agent or its designee.
ARTICLE V
Collections
SECTION 5.01. Depository System. (a) To the extent not already
established, within 30 days after the Restatement Closing Date, the Grantors
shall establish, subject to the control of the Collateral Agent pursuant to the
Depository Agreements, for the ratable benefit of the Collateral Agent and the
other Secured Parties, a system of deposit accounts (the "Depository System")
with one or more financial institutions that are reasonably satisfactory to the
Collateral Agent into which the Proceeds of all Accounts Receivable and
Inventory shall be deposited and forwarded to the Collateral Agent in
accordance with the Depository Agreements. To the extent any Grantor's deposit
accounts are not part of the Depository System within 30 days after the
Restatement Closing Date, such Grantor shall move such deposit accounts to a
financial institution designated by the Administrative Agent and such Grantor
will use best efforts to cause such financial institution to enter into a
Depository Agreement.
(b) All Proceeds of Inventory and Accounts Receivable that have been
received on any Business Day through the Depository System will be transferred
into the Concentration Account on such Business Day to the extent required by
the applicable Depository Agreement. All Proceeds stemming from the sale of a
substantial portion of the Collateral (other than Proceeds of Accounts) that
have been received by a Grantor on any Business Day will be transferred into
the Concentration Account on such Business Day. All Proceeds received on any
Business Day by the Collateral Agent pursuant to Section 5.02 will be
transferred into the Concentration Account on such Business Day.
(c) The Concentration Account is, and shall remain, under the sole
dominion and control of the Collateral Agent. Each Grantor acknowledges and
agrees that (i) such Grantor has no right of withdrawal from the Concentration
Account, (ii) the funds on deposit in the Concentration Account shall continue
to be collateral security for all of the Obligations and (iii) upon the
occurrence and during the continuance of an Event of Default, at the Collateral
Agent's election, the funds on deposit in the Concentration Account shall be
applied as provided in Section 6.02 of this Agreement. So long as no Event of
Default has occurred and is continuing, the Collateral Agent shall promptly
remit any funds on deposit in the Concentration Account to the General Fund
Account and the Borrower shall have the right, at any time and from time to
time, to withdraw such amounts from the General Fund Account as it shall deem
to be necessary or desirable.
(d) Effective upon notice to the Grantors from the Collateral Agent
after the occurrence and during the continuance of an Event of Default (which
notice may be given by telephone if promptly confirmed in writing), the
Concentration Account will, without any further action on the part of any
Grantor, the Collateral Agent or any Sub-Agent, convert into a closed account
under the exclusive dominion and control of the Collateral Agent in which funds
are held subject to the rights of the Collateral Agent hereunder. Each Grantor
irrevocably authorizes the Collateral Agent to notify each Sub-Agent (i) of the
occurrence of an Event of Default and (ii) of the matters referred to in this
paragraph (d). Following the occurrence of an Event of Default, the Collateral
Agent may instruct each Sub-Agent to transfer immediately all funds held in
each deposit account to the Concentration Account.
SECTION 5.02. Collections. (a) Subject to the rights and liens of
the parties to the Receivables Purchase Agreements, each Grantor agrees (i) to
notify and direct promptly each Account Debtor and every other person obligated
to make payments on Accounts Receivable or in respect of any Inventory to make
all such payments directly to the Depository System established in accordance
with Section 5.01,
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(ii) to use all reasonable efforts to cause each Account Debtor and every other
person identified in clause (i) above to make all payments with respect to
Accounts Receivable and Inventory directly to such Depository System and (iii)
promptly to deposit all payments received by it on account of Accounts
Receivable and Inventory, whether in the form of cash, checks, credit card
payments, notes, drafts, bills of exchange, money orders or otherwise, in the
Depository System in precisely the form in which received (but with any
endorsements of such Grantor necessary for deposit or collection), and until
they are so deposited such payments shall be held by such Grantor for the
benefit of the Collateral Agent.
(b) Without the prior written consent of the Collateral Agent, no
Grantor shall, in a manner adverse to the Lenders, change the general
instructions given to Account Debtors in respect of payment on Accounts to be
deposited in the Depository System. Until the Collateral Agent shall have
advised the Grantors to the contrary, each Grantor shall, and the Collateral
Agent hereby authorizes each Grantor to, enforce and collect all amounts owing
on the Inventory and Accounts Receivable, for the benefit and on behalf of the
Collateral Agent and the other Secured Parties; provided, however, that such
privilege may at the option of the Collateral Agent be terminated upon the
occurrence and during the continuance of any Event of Default.
SECTION 5.03. Power of Attorney. Each Grantor irrevocably makes,
constitutes and appoints the Collateral Agent (and all officers, employees or
agents designated by the Collateral Agent) as such Grantor's true and lawful
agent and attorney-in-fact, and in such capacity the Collateral Agent shall
have the right, with power of substitution for each Grantor and in each
Grantor's name or otherwise, for the use and benefit of the Collateral Agent
and the Secured Parties, upon the occurrence and during the continuance of an
Event of Default (a) to receive, endorse, assign and/or deliver any and all
notes, acceptances, checks, drafts, money orders or other evidences of payment
relating to the Collateral or any part thereof; (b) to demand, collect, receive
payment of, give receipt for and give discharges and releases of all or any of
the Collateral; (c) to sign the name of any Grantor on any invoice or bill of
lading relating to any of the Collateral; (d) to send verifications of Accounts
Receivable to any Account Debtor; (e) to commence and prosecute any and all
suits, actions or proceedings at law or in equity in any court of competent
jurisdiction to collect or otherwise realize on all or any of the Collateral or
to enforce any rights in respect of any Collateral; (f) to settle, compromise,
compound, adjust or defend any actions, suits or proceedings relating to all or
any of the Collateral; (g) to notify, or to require any Grantor to notify,
Account Debtors to make payment directly to the Collateral Agent; and (h) to
use, sell, assign, transfer, pledge, make any agreement with respect to or
otherwise deal with all or any of the Collateral, and to do all other acts and
things necessary to carry out the purposes of this Agreement, as fully and
completely as though the Collateral Agent were the absolute owner of the
Collateral for all purposes; provided, however, that nothing herein contained
shall be construed as requiring or obligating the Collateral Agent or any
Secured Party to make any commitment or to make any inquiry as to the nature or
sufficiency of any payment received by the Collateral Agent or any Secured
Party, or to present or file any claim or notice, or to take any action with
respect to the Collateral or any part thereof or the moneys due or to become
due in respect thereof or any property covered thereby, and no action taken or
omitted to be taken by the Collateral Agent or any Secured Party with respect
to the Collateral or any part thereof shall give rise to any defense,
counterclaim or offset in favor of any Grantor or to any claim or action
against the Collateral Agent or any Secured Party. It is understood and agreed
that the appointment of the Collateral Agent as the agent and attorney-in-fact
of the Grantors for the purposes set forth above is coupled with an interest
and is irrevocable. The provisions of this Section shall in no event relieve
any Grantor of any of its obligations hereunder or under any other Loan
Document with respect to the Collateral or any part thereof or impose any
obligation on the Collateral Agent or any Secured Party to proceed in any
particular manner with respect to the Collateral or any part thereof, or in any
way limit the exercise by the Collateral Agent or any Secured Party of any
other or further right which it may have on the date of this Agreement or
hereafter, whether hereunder, under any other Loan Document, by law or
otherwise.
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ARTICLE VI
Remedies
SECTION 6.01. Remedies upon Default. Upon the occurrence and during
the continuance of an Event of Default, each Grantor agrees to deliver each
item of Collateral to the Collateral Agent on demand, and it is agreed that the
Collateral Agent shall have the right to take any of or all the following
actions at the same or different times: (a) with respect to any Collateral
consisting of Intellectual Property, on demand, to cause the Security Interest
to become an assignment, transfer and conveyance of any of or all such
Collateral by the applicable Grantors to the Collateral Agent, or to license or
sublicense, whether general, special or otherwise, and whether on an exclusive
or non-exclusive basis, any such Collateral throughout the world on such terms
and conditions and in such manner as the Collateral Agent shall determine
(other than in violation of any then-existing licensing arrangements to the
extent that waivers cannot be obtained), and (b) with or without legal process
and with or without prior notice or demand for performance, to take possession
of the Collateral and without liability for trespass to enter any premises
where the Collateral may be located for the purpose of taking possession of or
removing the Collateral and, generally, to exercise any and all rights afforded
to a secured party under the Uniform Commercial Code or other applicable law.
Without limiting the generality of the foregoing, each Grantor agrees that the
Collateral Agent shall have the right, subject to the mandatory requirements of
applicable law, to sell or otherwise dispose of all or any part of the
Collateral, at public or private sale or at any broker's board or on any
securities exchange, for cash, upon credit or for future delivery as the
Collateral Agent shall deem appropriate. The Collateral Agent shall be
authorized at any such sale (if it deems it advisable to do so) to restrict the
prospective bidders or purchasers to persons who will represent and agree that
they are purchasing the Collateral for their own account for investment and not
with a view to the distribution or sale thereof, and upon consummation of any
such sale the Collateral Agent shall have the right to assign, transfer and
deliver to the purchaser or purchasers thereof the Collateral so sold. Each
such purchaser at any such sale shall hold the property sold absolutely, free
from any claim or right on the part of any Grantor, and each Grantor hereby
waives (to the extent permitted by law) all rights of redemption, stay and
appraisal which such Grantor now has or may at any time in the future have
under any rule of law or statute now existing or hereafter enacted.
The Collateral Agent shall give the Grantors 10 days' written notice
(which each Grantor agrees is reasonable notice within the meaning of Section
9-504(3) of the Uniform Commercial Code as in effect in the State of New York
or its equivalent in other jurisdictions) of the Collateral Agent's intention
to make any sale of Collateral. Such notice, in the case of a public sale,
shall state the time and place for such sale and, in the case of a sale at a
broker's board or on a securities exchange, shall state the board or exchange
at which such sale is to be made and the day on which the Collateral, or
portion thereof, will first be offered for sale at such board or exchange. Any
such public sale shall be held at such time or times within ordinary business
hours and at such place or places as the Collateral Agent may fix and state in
the notice (if any) of such sale. At any such sale, the Collateral, or portion
thereof, to be sold may be sold in one lot as an entirety or in separate
parcels, as the Collateral Agent may (in its sole and absolute discretion)
determine. The Collateral Agent shall not be obligated to make any sale of any
Collateral if it shall determine not to do so, regardless of the fact that
notice of sale of such Collateral shall have been given. The Collateral Agent
may, without notice or publication, adjourn any public or private sale or cause
the same to be adjourned from time to time by announcement at the time and
place fixed for sale, and such sale may, without further notice, be made at the
time and place to which the same was so adjourned. In case any sale of all or
any part of the Collateral is made on credit or for future delivery, the
Collateral so sold may be retained by the Collateral Agent until the sale price
is paid by the purchaser or purchasers thereof, but the Collateral Agent shall
not incur any liability in case any such purchaser or purchasers shall fail to
take up and pay for the Collateral so sold and, in case of any such failure,
such Collateral may be sold
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again upon like notice. At any public (or, to the extent permitted by law,
private) sale made pursuant to this Section, any Secured Party may bid for or
purchase, free (to the extent permitted by law) from any right of redemption,
stay, valuation or appraisal on the part of any Grantor (all said rights being
also hereby waived and released to the extent permitted by law), the Collateral
or any part thereof offered for sale and may make payment on account thereof by
using any claim then due and payable to such Secured Party from any Grantor as
a credit against the purchase price, and such Secured Party may, upon
compliance with the terms of sale, hold, retain and dispose of such property
without further accountability to any Grantor therefor. For purposes hereof, a
written agreement to purchase the Collateral or any portion thereof shall be
treated as a sale thereof; the Collateral Agent shall be free to carry out such
sale pursuant to such agreement and no Grantor shall be entitled to the return
of the Collateral or any portion thereof subject thereto, notwithstanding the
fact that after the Collateral Agent shall have entered into such an agreement
all Events of Default shall have been remedied and the Obligations paid in
full. As an alternative to exercising the power of sale herein conferred upon
it, the Collateral Agent may proceed by a suit or suits at law or in equity to
foreclose this Agreement and to sell the Collateral or any portion thereof
pursuant to a judgment or decree of a court or courts having competent
jurisdiction or pursuant to a proceeding by a court-appointed receiver.
SECTION 6.02. Application of Proceeds. The Collateral Agent shall
apply the proceeds of any collection or sale of the Collateral, as well as any
Collateral consisting of cash, as follows:
FIRST, to the payment of all costs and expenses incurred by
the Administrative Agent or the Collateral Agent (in its capacity as
such hereunder or under any other Loan Document) in connection with
such collection or sale or otherwise in connection with this Agreement
or any of the Obligations, including all court costs and the
reasonable and documented fees and expenses of its agents and legal
counsel, the repayment of all advances made by the Collateral Agent
hereunder or under any other Loan Document on behalf of any Grantor
and any other reasonable and documented costs or expenses incurred in
connection with the exercise of any right or remedy hereunder or under
any other Loan Document;
SECOND, to the payment in full of the Obligations (the amounts
so applied to be distributed among the Secured Parties pro rata in
accordance with the amounts of the Obligations owed to them on the
date of any such distribution); and
THIRD, to the Grantors, their successors or assigns, or as a
court of competent jurisdiction may otherwise direct.
The Collateral Agent shall have absolute discretion as to the time of
application of any such proceeds, moneys or balances in accordance with this
Agreement. Upon any sale of the Collateral by the Collateral Agent (including
pursuant to a power of sale granted by statute or under a judicial proceeding),
the receipt of the Collateral Agent or of the officer making the sale shall be
a sufficient discharge to the purchaser or purchasers of the Collateral so sold
and such purchaser or purchasers shall not be obligated to see to the
application of any part of the purchase money paid over to the Collateral Agent
or such officer or be answerable in any way for the misapplication thereof.
SECTION 6.03. Grant of License to Use Intellectual Property. For the
purpose of enabling the Collateral Agent to exercise rights and remedies under
this Article at such time as the Collateral Agent shall be lawfully entitled to
exercise such rights and remedies, each Grantor hereby grants to the Collateral
Agent an irrevocable, non-exclusive license (exercisable without payment of
royalty or other compensation to the Grantors) to use, license or sub-license
any of the Collateral consisting of Intellectual Property now owned or
hereafter acquired by such Grantor, and wherever the same may be located, and
including in such license reasonable access to all media in which any of the
licensed items may be recorded or stored and to
<PAGE> 158
18
all computer software and programs used for the compilation or printout
thereof. The use of such license by the Collateral Agent shall be exercised,
at the option of the Collateral Agent, upon the occurrence and during the
continuation of an Event of Default, provided that any license, sub-license or
other transaction entered into by the Collateral Agent in accordance herewith
shall be binding upon the Grantors notwithstanding any subsequent cure of an
Event of Default.
ARTICLE VII
Miscellaneous
SECTION 7.01. Notices. All communications and notices hereunder
shall (except as otherwise expressly permitted herein) be in writing and given
as provided in Section 9.01 of the Credit Agreement. All communications and
notices hereunder to any Guarantor shall be given to it at its address or
telecopy number set forth on Schedule I, with a copy to the Borrower.
SECTION 7.02. Security Interest Absolute. All rights of the
Collateral Agent hereunder, the Security Interest and all obligations of the
Grantors hereunder shall be absolute and unconditional irrespective of (a) any
lack of validity or enforceability of the Credit Agreement, any other Loan
Document, any agreement with respect to any of the Obligations or any other
agreement or instrument relating to any of the foregoing, (b) any change in the
time, manner or place of payment of, or in any other term of, all or any of the
Obligations, or any other amendment or waiver of or any consent to any
departure from the Credit Agreement, any other Loan Document or any other
agreement or instrument, (c) any exchange, release or non-perfection of any
Lien on other collateral, or any release or amendment or waiver of or consent
under or departure from any guarantee, securing or guaranteeing all or any of
the Obligations, or (d) any other circumstance that might otherwise constitute
a defense available to, or a discharge of, any Grantor in respect of the
Obligations or this Agreement.
SECTION 7.03. Survival of Agreement. All covenants, agreements,
representations and warranties made by any Grantor herein and in the
certificates or other instruments prepared or delivered in connection with or
pursuant to this Agreement shall be considered to have been relied upon by the
Secured Parties and shall survive the making by the Lenders of the Loans, and
the execution and delivery to the Lenders of any notes evidencing such Loans,
regardless of any investigation made by the Lenders or on their behalf, and
shall continue in full force and effect until this Agreement shall terminate.
SECTION 7.04. Binding Effect; Several Agreement. This Agreement
shall become effective as to any Grantor when a counterpart hereof executed on
behalf of such Grantor shall have been delivered to the Collateral Agent and a
counterpart hereof shall have been executed on behalf of the Collateral Agent,
and thereafter shall be binding upon such Grantor and the Collateral Agent and
their respective successors and assigns, and shall inure to the benefit of such
Grantor, the Collateral Agent and the other Secured Parties and their
respective successors and assigns, except that no Grantor shall have the right
to assign or transfer its rights or obligations hereunder or any interest
herein or in the Collateral (and any such assignment or transfer shall be void)
except as expressly contemplated by this Agreement or the Credit Agreement.
This Agreement shall be construed as a separate agreement with respect to each
Grantor and may be amended, modified, supplemented, waived or released with
respect to any Grantor without the approval of any other Grantor and without
affecting the obligations of any other Grantor hereunder.
SECTION 7.05. Successors and Assigns. Whenever in this Agreement any
of the parties hereto is referred to, such reference shall be deemed to include
the successors and assigns of such party; and all covenants, promises and
agreements by or on behalf of any Grantor or the Collateral Agent that are
contained in this Agreement shall bind and inure to the benefit of their
respective successors and assigns.
<PAGE> 159
19
SECTION 7.06. Overdrafts. Each Grantor agrees to pay any such
Grantor's Overdrafts. Any such amounts payable as provided hereunder shall be
additional Obligations secured hereby and by the other Security Documents.
SECTION 7.07. Collateral Agent's Fees and Expenses; Indemnification.
(a) Each Grantor jointly and severally agrees to pay upon demand to the
Collateral Agent the amount of any and all reasonable and documented expenses,
including the reasonable and documented fees, disbursements and other charges
of its counsel and of any experts or agents, which the Collateral Agent may
incur in connection with (i) the administration of this Agreement, (ii) the
custody or preservation of, or the sale of, collection from or other
realization upon any of the Collateral, (iii) the exercise, enforcement or
protection of any of the rights of the Collateral Agent hereunder or (iv) the
failure of any Grantor to perform or observe any of the provisions hereof.
(b) Without limitation of its indemnification obligations under the
other Loan Documents, each Grantor jointly and severally agrees to indemnify
the Collateral Agent and the other Indemnitees against, and hold each of them
harmless from, any and all losses, claims, damages, liabilities and related
expenses, including reasonable and documented fees, disbursements and other
charges of counsel, incurred by or asserted against any of them arising out of,
in any way connected with, or as a result of, the execution, delivery or
performance of this Agreement or any claim, litigation, investigation or
proceeding relating hereto or to the Collateral, whether or not any Indemnitee
is a party thereto; provided that such indemnity shall not, as to any
Indemnitee, be available to the extent that such losses, claims, damages,
liabilities or related expenses are determined by a court of competent
jurisdiction by final and nonappealable judgment to have resulted from the
gross negligence or willful misconduct of such Indemnitee.
(c) Any such amounts payable as provided hereunder shall be
additional Obligations secured hereby and by the other Security Documents. The
provisions of this Section 7.06 shall remain operative and in full force and
effect regardless of the termination of this Agreement or any other Loan
Document, the consummation of the transactions contemplated hereby, the
repayment of any of the Loans, the invalidity or unenforceability of any term
or provision of this Agreement or any other Loan Document, or any investigation
made by or on behalf of the Collateral Agent or any Lender. All amounts due
under this Section 7.07 shall be payable on written demand therefor.
SECTION 7.08. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY,
AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
SECTION 7.09. Waivers; Amendment. (a) No failure or delay of the
Collateral Agent in exercising any power or right hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise of any such right or
power, or any abandonment or discontinuance of steps to enforce such a right or
power, preclude any other or further exercise thereof or the exercise of any
other right or power. The rights and remedies of the Collateral Agent
hereunder and of the Agents, the Issuing Bank and the Lenders under the other
Loan Documents are cumulative and are not exclusive of any rights or remedies
that they would otherwise have. No waiver of any provisions of this Agreement
or any other Loan Document or consent to any departure by any Grantor therefrom
shall in any event be effective unless the same shall be permitted by paragraph
(b) below, and then such waiver or consent shall be effective only in the
specific instance and for the purpose for which given. No notice to or demand
on any Grantor in any case shall entitle such Grantor or any other Grantor to
any other or further notice or demand in similar or other circumstances.
(b) Neither this Agreement nor any provision hereof may be waived,
amended or modified except pursuant to an agreement or agreements in writing
entered into by the Collateral Agent and the Grantor or
<PAGE> 160
20
Grantors with respect to which such waiver, amendment or modification is to
apply, subject to any consent required in accordance with Section 9.02 of the
Credit Agreement.
SECTION 7.10. WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES,
TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A
TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT
OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT OR ANY OF THE OTHER LOAN
DOCUMENTS. EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR
ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH
OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE
FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE
BEEN INDUCED TO ENTER INTO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS, AS
APPLICABLE, BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN
THIS SECTION 7.10.
SECTION 7.11. Severability. In the event any one or more of the
provisions contained in this Agreement should be held invalid, illegal or
unenforceable in any respect, the validity, legality and enforceability of the
remaining provisions contained herein shall not in any way be affected or
impaired thereby (it being understood that the invalidity of a particular
provision in a particular jurisdiction shall not in and of itself affect the
validity of such provision in any other jurisdiction). The parties shall
endeavor in good-faith negotiations to replace the invalid, illegal or
unenforceable provisions with valid provisions the economic effect of which
comes as close as possible to that of the invalid, illegal or unenforceable
provisions.
SECTION 7.12. Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall constitute an original but all of which
when taken together shall constitute but one contract (subject to Section
7.04), and shall become effective as provided in Section 7.04. Delivery of an
executed signature page to this Agreement by facsimile transmission shall be
effective as delivery of a manually executed counterpart hereof.
SECTION 7.13. Headings. Article and Section headings used herein are
for the purpose of reference only, are not part of this Agreement and are not
to affect the construction of, or to be taken into consideration in
interpreting, this Agreement.
SECTION 7.14. Jurisdiction; Consent to Service of Process. (a) Each
Grantor hereby irrevocably and unconditionally submits, for itself and its
property, to the nonexclusive jurisdiction of any New York State court or
Federal court of the United States of America sitting in New York City, and any
appellate court from any thereof, in any action or proceeding arising out of or
relating to this Agreement or the other Loan Documents, or for recognition or
enforcement of any judgment, and each of the parties hereto hereby irrevocably
and unconditionally agrees that all claims in respect of any such action or
proceeding may be heard and determined in such New York State or, to the extent
permitted by law, in such Federal court. Each of the parties hereto agrees
that a final judgment in any such action or proceeding shall be conclusive and
may be enforced in other jurisdictions by suit on the judgment or in any other
manner provided by law. Nothing in this Agreement shall affect any right that
the Agents, the Issuing Bank or any Lender may otherwise have to bring any
action or proceeding relating to this Agreement or the other Loan Documents
against any Grantor or its properties in the courts of any jurisdiction.
(b) Each Grantor hereby irrevocably and unconditionally waives, to
the fullest extent it may legally and effectively do so, any objection which it
may now or hereafter have to the laying of venue of any suit, action or
proceeding arising out of or relating to this Agreement or the other Loan
Documents in any New York State or Federal court. Each of the parties hereto
hereby irrevocably waives, to the fullest
<PAGE> 161
21
extent permitted by law, the defense of an inconvenient forum to the
maintenance of such action or proceeding in any such court.
(c) Each party to this Agreement irrevocably consents to service of
process in the manner provided for notices in Section 7.01. Nothing in this
Agreement will affect the right of any party to this Agreement to serve process
in any other manner permitted by law.
SECTION 7.15. Termination. (a) This Agreement and the Security
Interest shall terminate when all the Obligations have been indefeasibly paid
in full, the Lenders have no further commitment to lend, the L/C Exposure has
been reduced to zero and the Issuing Bank has no further commitment to issue
Letters of Credit under the Credit Agreement, at which time the Collateral
Agent shall execute and deliver to the Grantors, at the Grantors' expense, all
Uniform Commercial Code termination statements and similar documents that the
Grantors shall reasonably request to evidence such termination. Any execution
and delivery of termination statements or documents pursuant to this Section
7.15 shall be without recourse to or warranty by the Collateral Agent. A
Guarantor shall automatically be released from its obligations hereunder and
the Security Interest in the Collateral of such Guarantor shall be
automatically released in the event that all the capital stock of such
Guarantor shall be sold, transferred or otherwise disposed of to a person that
is not an Affiliate of the Borrower in accordance with the terms of the Credit
Agreement; provided that the Required Lenders shall have consented to such
sale, transfer or other disposition (to the extent required by the Credit
Agreement) and the terms of such consent did not provide otherwise.
(b) The Security Interest in any Fixtures relating to particular real
estate that is sold, transferred, leased or otherwise disposed of by any
Transaction Party in accordance with Section 6.05 or Section 6.06 of the Credit
Agreement shall terminate automatically upon such sale, transfer, lease or
other disposition.
SECTION 7.16. Additional Grantors. Pursuant to Section 5.12 of the
Credit Agreement, each Borrower Subsidiary that was not in existence or not a
Borrower Subsidiary on the date of the Credit Agreement is required to enter
into this Agreement as a Grantor upon becoming a Borrower Subsidiary. Upon
execution and delivery by the Collateral Agent and a Borrower Subsidiary of an
instrument in the form of Annex 3 hereto, such Borrower Subsidiary shall become
a Grantor hereunder with the same force and effect as if originally named as a
Grantor herein. The execution and delivery of any such instrument shall not
require the consent of any Grantor hereunder. The rights and obligations of
each Grantor hereunder shall remain in full force and effect notwithstanding
the addition of any new Grantor as a party to this Agreement.
SECTION 7.17. Intercreditor Agreement. The Agent, on behalf of the
Secured Parties, acknowledges that all the security interests granted pursuant
to this Security Agreement are subject to the provisions of the Intercreditor
Agreement, including the provisions therein subordinating such security
interests to certain other obligations of the Grantors. Notwithstanding
anything to the contrary contained herein, the rights, duties and obligations
of the Agent hereunder are subject to the provisions of the Intercreditor
Agreement.
<PAGE> 162
22
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.
HECHINGER INVESTMENT COMPANY OF DELAWARE, INC.,
by
/s/ Mark R. Adams
------------------------------------------
Name: Mark R. Adams
Title: Executive Vice President
CENTERS HOLDINGS, INC.,
by
/s/ Mark R. Adams
------------------------------------------
Name: Mark R. Adams
Title: Executive Vice President
BSQ ACQUISITION, INC.,
by
/s/ Mark R. Adams
------------------------------------------
Name: Mark R. Adams
Title: Executive Vice President
BSQ TRANSFEREE CORP.,
by
/s/ Mark R. Adams
----------------------------------------
Name: Mark R. Adams
Title: Executive Vice President
HECHINGER COMPANY,
by
/s/ Mark R. Adams
------------------------------------------
Name: Mark R. Adams
Title: Executive Vice President
HECHINGER STORES COMPANY,
by
/s/ Mark R. Adams
------------------------------------------
Name: Mark R. Adams
Title: Executive Vice President
<PAGE> 163
23
HECHINGER STORES EAST COAST COMPANY,
by
/s/ Mark R. Adams
-------------------------------------------
Name: Mark R. Adams
Title: Executive Vice President
EACH OF THE GUARANTORS LISTED ON SCHEDULE I HERETO,
by
/s/ Mark R. Adams
------------------------------------------
Name: Mark R. Adams
Title: Authorized Officer
<PAGE> 164
THE CHASE MANHATTAN BANK, as
Administrative Agent and as Collateral Agent,
by
/s/ Craig T. Moore
------------------
Name: Craig T. Moore
Title: Managing Director
<PAGE> 165
SCHEDULE I
GUARANTORS
<PAGE> 166
SCHEDULE II
COPYRIGHTS
<PAGE> 167
SCHEDULE III
LICENSES
<PAGE> 168
SCHEDULE IV
PATENTS
<PAGE> 169
SCHEDULE V
TRADEMARKS
<PAGE> 170
Annex 1 to the
Security Agreement
DEPOSITORY AGREEMENT dated as of [ ], among
[Name of Grantor], a [ ] corporation (the "Grantor"), THE
CHASE MANHATTAN BANK, a New York banking corporation
("Chase"), as administrative agent (in such capacity, the
"Administrative Agent") for the Secured Parties (such term,
and each other capitalized term used but not defined herein,
having the meaning given it in the Security Agreement referred
to below) and as collateral agent (in such capacity, the
"Collateral Agent") and [ ], a [
] banking corporation (the "Sub-Agent").
A. The Grantor and the Collateral Agent are parties to (a) a Security
Agreement dated as of December [ ], 1998 (as amended, supplemented or
otherwise modified from time to time, the "Security Agreement"), (b) an
Existing Security Agreement dated as of September 26, 1997, as amended and
restated as of December [ ], 1998 (as amended, supplemented or otherwise
modified from time to time, the "Existing Security Agreement"), (c) a
Depository Agreement dated as of [ ], with the Sub-Agent and (d)
the Intercreditor Agreement dated as of December [ ], 1998, attached hereto
as Exhibit A. Pursuant to the terms of the Security Agreement, the Grantor has
granted to the Collateral Agent, for the ratable benefit of the Secured
Parties, a security interest in its Accounts Receivable and other Collateral
(including Inventory, cash, cash accounts and Proceeds) to secure the payment
and performance of the Obligations and has irrevocably appointed the Collateral
Agent as its agent to collect amounts due in respect of Accounts Receivable and
Inventory.
B. The Sub-Agent has agreed to act as collection sub-agent of the
Collateral Agent to receive and forward payments with respect to the Accounts
Receivable and Inventory on the terms and subject to the conditions set forth
herein.
NOW, THEREFORE, the parties hereto agree as follows:
1. The Collateral Agent hereby appoints the Sub-Agent as its
collection sub-agent under the Security Agreement and authorizes the Sub-Agent,
on the terms and subject to the conditions set forth herein, to receive
payments in respect of Collateral consisting of Accounts Receivable and
Inventory.
2. The Sub-Agent has established and shall maintain deposit account
number [ ] (including all subaccounts thereof) for the benefit of the Collateral
Agent (such account being called the "Collection Deposit Account"). [Subject to
the Sub-Agent's Terms for Deposit Services attached hereto as Exhibit A, to the
extent that the terms thereof relate to procedures or fees and to the extent
not inconsistent with the terms hereof,] all payments received by the Sub-Agent
in Account Number [ ] and [ ] or any replacements in
respect thereof (the "Accounts") shall be promptly deposited in the Collection
Deposit Account and shall not be commingled with other funds. All funds at any
time on deposit in the Collection Deposit Account shall be held by the
Sub-Agent for application in accordance with the terms of this Agreement. The
Sub-Agent agrees to give the Collateral Agent prompt notice if the Collection
Deposit Account shall become subject to any writ, judgment, warrant of
attachment, execution or similar process. As security for the payment and
performance of the Obligations, the Grantor hereby confirms and pledges,
assigns and transfers to the Collateral Agent, and hereby creates and grants to
the Collateral Agent, a security interest in the Collection Deposit Account,
all property and assets held therein and all Proceeds thereof.
<PAGE> 171
3. Effective upon notice to the Grantors and the Sub-Agent from the
Collateral Agent after the occurrence and during the continuance of any Event
of Default, the Collection Deposit Account shall be under the sole dominion and
control of the Collateral Agent, who shall possess all right, title and
interest in all of the items from time to time in the Collection Deposit
Account and their Proceeds. Effective upon such notice, the Sub-Agent shall be
the Collateral Agent's agent for the purpose of holding and collecting such
items and their Proceeds, and neither the Grantor nor any person or entity
claiming by, through or under the Grantor shall have any right, title or
interest in, or control over the use of, or any right to withdraw any amount
from, the Collection Deposit Account, except that the Collateral Agent shall
have the right to withdraw amounts from the Collection Deposit Account.
Effective upon such notice, the Sub-Agent shall be entitled to rely on, and
shall act in accordance with, all instructions given to it by the Collateral
Agent with respect to the Collection Deposit Account. Effective upon such
notice, the Collateral Agent shall have the sole power to agree with the
Sub-Agent as to specifications for Account services.
4. Upon receipt of written, telecopy or telephonic notice (which, in
the case of telephonic notice, shall be promptly confirmed in writing or by
telecopy) from the Collateral Agent, the Sub-Agent shall, if so directed in
such notice (subject to the Sub-Agent's right to request that the Collateral
Agent furnish, in form satisfactory to the Sub-Agent, signature cards and/or
other appropriate documentation), promptly transmit or deliver to the
Collateral Agent at the office specified in paragraph 12 hereof (or such other
office as the Collateral Agent shall specify) (a) all funds, if any, then on
deposit in, or otherwise to the credit of, the Collection Deposit Account
(provided that funds on deposit that are subject to collection may be
transmitted promptly upon availability for withdrawal), (b) all checks, drafts
and other instruments for the payment of money received in the Accounts and in
the possession of the Sub-Agent, without depositing such checks, drafts or
other instruments in the Collection Deposit Account or any other account and
(c) any checks, drafts and other instruments for the payment of money received
in the Accounts by the Sub-Agent after such notice, in whatever form received,
provided that the Sub-Agent may retain a reasonable reserve in a separate
deposit account with the Sub-Agent in respect of unpaid fees and amounts which
may be subject to collection.
5. The Sub-Agent is hereby instructed and authorized to transfer by
wire transfer or Automated Clearing House ("ACH") from the Collection Deposit
Account all funds that are from time to time deposited or otherwise credited to
such account (after such funds become available to the Sub-Agent, either
through the Federal Reserve System or other clearing mechanism used by the
Sub-Agent's branch), to such account as the Collateral Agent may from time to
time direct, provided that, unless the Collateral Agent otherwise instructs, no
such transfer shall be required if such transfer would result in the transfer
of an amount less than $1,000. Unless otherwise directed by the Collateral
Agent, such funds shall be transferred on each business day by wire transfer or
ACH and shall be identified as follows:
The Chase Manhattan Bank
ABA Number
For credit to The Chase Manhattan Bank
New York, NY [ ]
Account Number
Re: Hechinger Investment Company of Delaware, Inc.
Cash Collateral Account
These transfer instructions and authorizations may not be amended,
altered or revoked by the Grantor without the prior written consent of the
Collateral Agent. The Collateral Agent, however, shall have the right to amend
or revoke these transfer instructions and authorizations at any time without
the consent of the Grantor.
6. The Sub-Agent shall furnish the Collateral Agent with monthly
statements setting forth the amounts deposited in the Collection Deposit
Account and all transfers and withdrawals therefrom, and shall furnish such
other information at such times as shall be reasonably requested by the
Collateral Agent.
7. The fees for the services of the Sub-Agent shall be mutually
agreed upon between the Grantor and the Sub-Agent and shall be the obligation
of the Grantor; provided, however, that, notwithstanding the
<PAGE> 172
3
terms of any agreement under which the Collection Deposit Account shall have
been established with the Sub-Agent, the Grantor and the Sub-Agent agree not to
terminate such Collection Deposit Account for any reason (including the failure
of the Grantor to pay such fees) for so long as this Agreement shall remain in
effect (it being understood that the foregoing shall not be construed to
prohibit the resignation of the Sub-Agent in accordance with paragraph 9
below). Neither the Collateral Agent nor the Secured Parties shall have any
liability for the payment of any such fees. The Sub-Agent may perform any of
its duties hereunder by or through its agents, officers or employees.
8. The Sub-Agent hereby represents and warrants that (a) it is a
banking corporation duly organized, validly existing and in good standing under
the laws of [ ] and has full corporate power and authority under such laws to
execute, deliver and perform its obligations under this Agreement and (b) the
execution, delivery and performance of this Agreement by the Sub-Agent have
been duly and effectively authorized by all necessary corporate action and this
Agreement has been duly executed and delivered by the Sub-Agent and constitutes
a valid and binding obligation of the Sub-Agent enforceable in accordance with
its terms.
9. The Sub-Agent may resign at any time as Sub-Agent hereunder by
delivery to the Collateral Agent of written notice of resignation not less than
thirty days prior to the effective date of such resignation. The Sub-Agent may
be removed by the Collateral Agent at any time, with or without cause, by
written, telecopy or telephonic notice (which, in the case of telephonic
notice, shall be promptly confirmed in writing or by telecopy) of removal
delivered to the Sub-Agent. Upon receipt of such notice of removal, or
delivery of such notice of resignation, the Sub-Agent shall (subject to the
Sub-Agent's right to request that the Collateral Agent furnish, in form
satisfactory to the Sub-Agent, signature cards and/or other appropriate
documentation), promptly transmit or deliver to the Collateral Agent at the
office specified in paragraph 12 (or such other office as the Collateral Agent
shall specify) (a) all funds, if any, then on deposit in, or otherwise to the
credit of, the Collection Deposit Account (provided that funds on deposit that
are subject to collection may be transmitted promptly upon availability for
withdrawal), (b) all checks, drafts and other instruments for the payment of
money received in the Accounts and in the possession of the Sub-Agent, without
depositing such checks, drafts or other instruments in the Collection Deposit
Account or any other account and (c) any checks, drafts and other instruments
for the payment of money received in the Accounts by the Sub-Agent after such
notice, in whatever form received.
10. The Grantor consents to the appointment of the Sub-Agent and
agrees that the Sub-Agent shall incur no liability to the Grantor as a result
of any action taken pursuant to an instruction given by the Collateral Agent in
accordance with the provisions of this Agreement. The Grantor agrees to
indemnify and defend the Sub-Agent against any loss, liability, claim or
expense (including reasonable attorneys' fees) arising from the Sub-Agent's
entry into this Agreement and actions taken hereunder, except to the extent
resulting from the Sub-Agent's gross negligence or willful misconduct.
11. The term of this Agreement shall extend from the date hereof
until the earlier of (a) the date on which the Sub-Agent has been notified in
writing by the Collateral Agent that the Sub-Agent has no further duties under
this Agreement and (b) the date of termination specified in the notice of
removal given by the Collateral Agent, or notice of resignation given by the
Sub-Agent, as the case may be, pursuant to paragraph 9. The obligations of the
Sub-Agent contained in the last sentence of paragraph 9 and in paragraph 15,
and the obligations of the Grantor contained in paragraphs 7 and 10, shall
survive the termination of this Agreement.
12. All notices and communications hereunder shall be in writing and
shall be delivered by hand or by courier service, mailed by certified or
registered mail or sent by telecopy (except where telephonic instructions or
notices are authorized herein) and shall be effective on the day on which
received (a) in the case of the Collateral Agent, to The Chase Manhattan Bank,
[ ], Attention of [ ], and (b) in the
<PAGE> 173
4
case of the Sub-Agent, addressed to [ ], Attention of [ ]. For purposes of this
Agreement, any officer of the Collateral Agent shall be authorized to act, and
to give instructions and notices, on behalf of the Collateral Agent hereunder.
13. The Sub-Agent will not assign or transfer any of its rights or
obligations hereunder (other than to the Collateral Agent) without the prior
written consent of the other parties hereto, and any such attempted assignment
or transfer shall be void.
14. Except as provided in paragraph 5 above, this Agreement may be
amended only by a written instrument executed by the Collateral Agent, the
Sub-Agent and the Grantor, acting by their duly authorized representative
officers.
15. Except as otherwise provided in the Credit Agreement with respect
to rights of set off available to the Sub-Agent in its capacity as a Lender (if
and so long as the Sub-Agent is a Lender thereunder), the Sub-Agent hereby
irrevocably waives any right to set off against, or otherwise deduct from, any
funds held in the Collection Deposit Account and all items (and Proceeds
thereof) that come into its possession in connection with the Collection
Deposit Account any indebtedness or other claim owed by the Grantor or any
affiliate thereof to the Sub-Agent; provided, however, that this paragraph
shall not limit the ability of the Sub-Agent to, and the Sub-Agent may, (a)
exercise any right to set off against, or otherwise deduct from, any such funds
to the extent necessary for the Sub-Agent to collect any fees owed to it by the
Grantor in connection with the Collection Deposit Account, (b) charge back and
net against the Collection Deposit Account any returned or dishonored items or
other adjustments in accordance with the Sub-Agent's usual practices and (c)
(i) establish the reserves contemplated in paragraph 4 in respect of unpaid
fees and amounts which may be subject to collection and (ii) transfer funds in
respect of such reserves from the Collection Deposit Account to the separate
deposit account with the Sub-Agent as contemplated in paragraph 4.
16. This Agreement shall inure to the benefit of and be binding upon
the Collateral Agent, the Sub-Agent, the Grantor and their respective permitted
successors and assigns.
17. This Agreement may be executed in two or more counterparts, each
of which shall be deemed an original but all of which together shall constitute
one and the same instrument. Delivery of an executed signature page to this
Agreement by facsimile transmission shall be effective as delivery of a
manually executed counterpart hereof.
18. EXCEPT TO THE EXTENT THE LAWS OF THE STATE OF [ ] GOVERN
THE COLLECTION DEPOSIT ACCOUNT, THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
19. The Sub-Agent shall be an independent contractor. This Agreement
does not give rise to any partnership, joint venture or fiduciary relationship.
<PAGE> 174
5
20. In the event any one or more of the provisions contained in
this Agreement should be held invalid, illegal or unenforceable in any respect,
the validity, legality and enforceability of the remaining provisions contained
herein shall not in any way be affected or impaired thereby (it being
understood that the invalidity of a particular provision in a particular
jurisdiction shall not in and of itself affect the validity of such provision
in any other jurisdiction). The parties shall endeavor in good-faith
negotiations to replace the invalid, illegal or unenforceable provisions with
valid provisions the economic effect of which comes as close as possible to
that of the invalid, illegal or unenforceable provisions.
21. The Sub-Agent acknowledges that all the security interests
granted pursuant to the Security Agreement are subject to the Intercreditor
Agreement attached hereto as Exhibit A. Notwithstanding anything to the
contrary contained herein, the rights, duties and obligations of the Sub-Agent
are subject to the provisions of the Intercreditor Agent.
<PAGE> 175
6
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their duly authorized officers as of the day and year first
above written.
[Name of Grantor],
by
-------------------------
Name:
Title:
THE CHASE MANHATTAN BANK, as
Administrative Agent and as Collateral Agent,
by
-------------------------
Name:
Title:
[Sub-Agent],
by
-------------------------
Name:
Title:
<PAGE> 176
Annex 2 to the
Security Agreement
[Form Of]
PERFECTION CERTIFICATE
Reference is made to (a) the Credit Agreement dated as of December
[ ], 1998 (as amended, supplemented or otherwise modified from time to time, the
"Credit Agreement"), among Hechinger Investment Company of Delaware, Inc., a
Delaware corporation (the "Borrower"), Centers Holdings, Inc., a Delaware
corporation, BSQ Acquisition, Inc., a Delaware corporation, BSQ Transferee
Corp., a Delaware corporation, Hechinger Company, a Delaware corporation,
Hechinger Stores Company, a Delaware corporation, Hechinger Stores East Coast
Company, a Delaware corporation, the lenders from time to time party thereto
(the "Lenders"), The Chase Manhattan Bank, as administrative agent for the
Lenders (in such capacity, the "Administrative Agent"), and as collateral agent
(in such capacity, the "Collateral Agent" and, together with the Administrative
Agent, the "Agents") for the Lenders, (b) the Parent Guarantee Agreement dated
as of December [ ], 1998 (as amended, supplemented or otherwise modified from
time to time), among the Guarantors (as defined therein) and the Agents and (c)
the Subsidiary Guarantee Agreement dated as of December [ ], 1998 (as
amended, supplemented or otherwise modified from time to time), among the
Subsidiary Guarantors (as defined therein) and the Agents. All capitalized
terms used but not defined herein shall have the meanings set forth in the
Credit Agreement.
The undersigned, a Financial Officer and a Legal Officer,
respectively, of the Borrower, hereby certify to the Agents and each other
Secured Party as follows:
1. Names. (a) The exact corporate name of each Grantor, as such name
appears in its respective certificate of incorporation, is as follows:
(b) Set forth below is each other corporate name each Grantor has had
in the past five years, together with the date of the relevant change:
(c) Except as set forth in Schedule 1 hereto, no Grantor has changed
its identity or corporate structure in any way within the past five years.
Changes in identity or corporate structure would include mergers,
consolidations and acquisitions, as well as any change in the form, nature or
jurisdiction of corporate organization. If any such change has occurred,
include in Schedule 1 the information required by Sections 1 and 2 of this
certificate as to each acquiree or constituent party to a merger or
consolidation.
(d) The following is a list of all other names (including trade names
or similar appellations) used by each Grantor or any of its divisions or other
business units in connection with the conduct of its business or the ownership
of its properties at any time during the past five years:
(e) Set forth below is the Federal Taxpayer Identification Number of
each Grantor:
<PAGE> 177
2
2. Current Locations. (a) The chief executive office of each Grantor
is located at the address set forth opposite its name below:
Grantor Mailing Address County State
(b) Set forth below opposite the name of each Grantor are all
locations where such Grantor maintains any books or records relating to any
Accounts Receivable (with each location at which chattel paper, if any, is kept
being indicated by an "*"):
Grantor Mailing Address County State
(c) Set forth below opposite the name of each Grantor are all the
places of business of such Grantor not identified in paragraph (a) or (b)
above:
Grantor Mailing Address County State
(d) Set forth below opposite the name of each Grantor are all the
locations where such Grantor maintains any Collateral not identified above:
Grantor Mailing Address County State
(e) Set forth below opposite the name of each Grantor are the names
and addresses of all persons other than such Grantor that have possession of
any of the Collateral of such Grantor:
Grantor Mailing Address County State
3. Unusual Transactions. All Accounts Receivable have been
originated by the Grantors and all Inventory has been acquired by the Grantors
in the ordinary course of business.
4. File Search Reports. Attached hereto as Schedule 4(A) are true
copies of file search reports from the Uniform Commercial Code filing offices
where filings described in Section 3.16 of the Credit Agreement are to be made.
Attached hereto as Schedule 4(B) is a true copy of each financing statement or
other filing identified in such file search reports.
5. UCC Filings. Duly signed financing statements on Form UCC-1 in
substantially the form of Schedule 5 hereto have been prepared for filing in
the Uniform Commercial Code filing office in each jurisdiction where a Grantor
has Collateral as identified in Section 2 hereof.
6. Schedule of Filings. Attached hereto as Schedule 6 is a schedule
setting forth, with respect to the filings described in Section 5 above, each
filing and the filing office in which such filing is to be made.
<PAGE> 178
3
7. Filing Fees. All filing fees and taxes payable in connection with
the filings described in Section 5 above have been paid.
8. Stock Ownership. Attached hereto as Schedule 8 is a true and
correct list of all the duly authorized, issued and outstanding stock of each
Subsidiary and the record and beneficial owners of such stock. Also set forth
on Schedule 8 is each equity Investment of the Borrower and each Subsidiary
that represents 50% or less of the equity of the entity in which such
investment was made.
9. Notes. Attached hereto as Schedule 9 is a true and correct list
of all notes held by the Borrower and each Subsidiary and all intercompany
notes between the Borrower and each Subsidiary of the Borrower and between each
Subsidiary of the Borrower and each other such Subsidiary.
10. Advances. Attached hereto as Schedule 10 is (a) a true and
correct list of all advances made by the Borrower to any Subsidiary of the
Borrower or made by any Subsidiary of the Borrower to the Borrower or any other
Subsidiary of the Borrower, which advances will be on and after the date hereof
evidenced by one or more intercompany notes pledged to the Collateral Agent
under the Pledge Agreement, and (b) a true and correct list of all unpaid
intercompany transfers of goods sold and delivered by or to the Borrower or any
Subsidiary of the Borrower.
11. Mortgage Filings. Attached hereto as Schedule 11 is a schedule
setting forth, with respect to each Mortgaged Property, (i) the exact corporate
name of the corporation that owns such property as such name appears in its
certificate of incorporation, (ii) if different from the name identified
pursuant to clause (i), the exact name of the current record owner of such
property reflected in the records of the filing office for such property
identified pursuant to the following clause and (iii) the filing office in
which a Mortgage with respect to such property must be filed or recorded in
order for the Collateral Agent to obtain a perfected security interest therein.
IN WITNESS WHEREOF, the undersigned have duly executed this
certificate on this [ ] day of [ ].
HECHINGER INVESTMENT COMPANY OF DELAWARE, INC.,
by
-------------------------------------
Name:
Title:[Financial Officer]
by
-------------------------------------
Name:
Title: [Legal Officer]
<PAGE> 179
Annex 3 to the
Security Agreement
SUPPLEMENT NO. __ dated as of , to
the Security Agreement dated as of December 31, 1998, among
HECHINGER INVESTMENT COMPANY OF DELAWARE, INC., a Delaware
corporation (the "Borrower"), CENTERS HOLDINGS, INC., a Delaware
corporation ("Holdings"), BSQ ACQUISITION, INC., a Delaware
corporation ("BSQ Acqco"), BSQ TRANSFEREE CORP., a Delaware
corporation ("BSQ Newco"), HECHINGER COMPANY, a Delaware
corporation ("Hechinger"), HECHINGER STORES COMPANY, a Delaware
corporation ("Hechinger Stores"), HECHINGER STORES EAST COAST
COMPANY, a Delaware corporation ("Hechinger Stores East Coast"),
each other Subsidiary of Holdings listed on Schedule I thereto
(each of Holdings, BSQ Acqco, BSQ Newco, Hechinger, Hechinger
Stores and each such other Subsidiary individually a "Guarantor"
and collectively, the "Guarantors"; the Guarantors and the
Borrower are referred to collectively herein as the "Grantors")
and THE CHASE MANHATTAN BANK, a New York banking corporation
("Chase"), as administrative agent (in such capacity, the
"Administrative Agent") and as collateral agent (in such
capacity, the "Collateral Agent" and, in its capacity as both
Administrative Agent and Collateral Agent, the "Agent") for the
Secured Parties (as defined herein).
A. Reference is made to (a) the Credit Agreement dated as of
December 31, 1998 (as amended, supplemented or otherwise modified from time to
time, the "Credit Agreement"), among (i) the Borrower, (ii) Holdings, BSQ
Acqco, BSQ Newco, Hechinger, Hechinger Stores, Hechinger Stores East Coast
(collectively, the "Parent Guarantors"), (iii) the lenders from time to time
party thereto (the "Lenders") and (iv) the Agent, (b) the Parent Guarantee
Agreement dated as of December 31, 1998 (as amended, supplemented or otherwise
modified from time to time), among the Parent Guarantors and the Agent, (c) the
Subsidiary Guarantee Agreement dated as of December 31, 1998 (as amended,
supplemented or otherwise modified from time to time), among the Guarantors
listed on schedule I hereto and the Agent, (d) the Credit Agreement dated as of
September 26, 1997, as amended and restated as of December 31, 1998 (as
amended, supplemented or otherwise modified from time to time, the "Existing
Credit Agreement"), among the Borrower, the Parent Guarantors, the lenders from
time to time party thereto (the "Existing Lenders"), Chase, as administrative
agent, collateral agent, issuing bank and swingline lender thereunder,
BANKAMERICA BUSINESS CREDIT, INC., a Delaware corporation ("BABC"), as
documentation agent and as borrowing base audit agent thereunder, and CITICORP
USA, INC., a Delaware corporation ("Citicorp USA" and, together with Chase and
BABC, each solely in its capacity as an agent under the Existing Credit
Agreement, the "Senior Agents"), as syndication agent thereunder, and (e) the
Intercreditor Agreement dated as of December 31, 1998 (as amended, supplemented
or otherwise modified from time to time, the "Intercreditor Agreement"), among
the Borrower, Holdings, the Subsidiary Loan Parties, the Senior Agents, the
Agent, Green Equity Investors II, L.P. and Kmart Corporation.
B. Capitalized terms used herein and not otherwise defined herein
shall have the meanings assigned to such terms in the Security Agreement and
the Credit Agreement.
C. The Grantors have entered into the Security Agreement in order to
induce the Lenders to make Loans and the Issuing Bank to issue Letters of
Credit. Section 7.16 of the Security Agreement provides that additional
Borrower Subsidiaries may become Grantors under the Security Agreement by
execution and delivery of an instrument in the form of this Supplement. The
undersigned Borrower Subsidiary (the "New Grantor") is executing this
Supplement in accordance with the requirements of the Credit Agreement to
become a Grantor under the Security Agreement in order to induce the Lenders to
make additional Loans and the Issuing Bank to issue additional Letters of
Credit and as consideration for Loans previously made and Letters of Credit
previously issued.
Accordingly, the Agent and the New Grantor agree as follows:
<PAGE> 180
2
SECTION 1. In accordance with Section 7.16 of the Security Agreement,
the New Grantor by its signature below becomes a Grantor under the Security
Agreement with the same force and effect as if originally named therein as a
Grantor and the New Grantor hereby (a) agrees to all the terms and provisions
of the Security Agreement applicable to it as a Grantor thereunder and (b)
represents and warrants that the representations and warranties made by it as a
Grantor thereunder are true and correct on and as of the date hereof. In
furtherance of the foregoing, the New Grantor, as security for the payment and
performance in full of the Obligations (as defined in the Security Agreement),
does hereby create and grant to the Collateral Agent, its successors and
assigns, for the benefit of the Secured Parties, their successors and assigns,
a security interest in and lien on all of the New Grantor's right, title and
interest in and to the Collateral (as defined in the Security Agreement) of the
New Grantor. Each reference to a "Grantor" in the Security Agreement shall be
deemed to include the New Grantor. The Security Agreement is hereby
incorporated herein by reference.
SECTION 2. The New Grantor represents and warrants to the Collateral
Agent and the other Secured Parties that this Supplement has been duly
authorized, executed and delivered by it and constitutes its legal, valid and
binding obligation, enforceable against it in accordance with its terms.
SECTION 3. This Supplement may be executed in counterparts (and by
different parties hereto on different counterparts), each of which shall
constitute an original, but all of which when taken together shall constitute a
single contract. This Supplement shall become effective when the Collateral
Agent shall have received counterparts of this Supplement that, when taken
together, bear the signatures of the New Grantor and the Collateral Agent.
Delivery of an executed signature page to this Supplement by facsimile
transmission shall be as effective as delivery of a manually signed counterpart
of this Supplement.
SECTION 4. The New Grantor hereby represents and warrants that (a) set
forth on Schedule I attached hereto is a true and correct schedule of the
location of any and all Collateral of the New Grantor and (b) set forth under
its signature hereto, is the true and correct location of the chief executive
office of the New Grantor.
SECTION 5. Except as expressly supplemented hereby, the Security
Agreement shall remain in full force and effect.
SECTION 6. THIS SUPPLEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
SECTION 7. In case any one or more of the provisions contained in this
Supplement should be held invalid, illegal or unenforceable in any respect, the
validity, legality and enforceability of the remaining provisions contained
herein and in the Security Agreement shall not in any way be affected or
impaired thereby (it being understood that the invalidity of a particular
provision in a particular jurisdiction shall not in and of itself affect the
validity of such provision in any other jurisdiction). The parties hereto
shall endeavor in good-faith negotiations to replace the invalid, illegal or
unenforceable provisions with valid provisions the economic effect of which
comes as close as possible to that of the invalid, illegal or unenforceable
provisions.
SECTION 8. All communications and notices hereunder shall be in
writing and given as provided in Section 7.01 of the Security Agreement. All
communications and notices hereunder to the New Grantor shall be given to it at
the address set forth under its signature below.
SECTION 9. The New Grantor agrees to reimburse the Collateral Agent
for its reasonable and documented out-of-pocket expenses in connection with
this Supplement, including the reasonable and documented fees, other charges
and disbursements of counsel for the Collateral Agent.
<PAGE> 181
3
IN WITNESS WHEREOF, the New Grantor and the Agent have duly executed
this Supplement to the Security Agreement as of the day and year first above
written.
[Name Of New Grantor],
by
--------------------------------------------
Name:
Title:
Address:
THE CHASE MANHATTAN BANK, as Administrative
Agent and as Collateral Agent,
by
--------------------------------------------
Name:
Title:
<PAGE> 182
SCHEDULE I
to Supplement No.___ to the
Security Agreement
LOCATION OF COLLATERAL
Description Location
<PAGE> 183
EXHIBIT I
CENTERS HOLDINGS, INC.
FORM OF BORROWING BASE CERTIFICATE
As of the period ended:
------------------
<TABLE>
<S> <C>
- ------------------------------------------------------------------------------------------------------------- ------------------
Inventory Value per SMO Report ________________
- ------------------------------------------------------------------------------------------------------------- ------------------
Add back: negative inventory balance (at cost) included in SMO Report as result of special orders ________________
- ------------------------------------------------------------------------------------------------------------- ------------------
Sub-total ________________
- ------------------------------------------------------------------------------------------------------------- ------------------
Less ineligibles:
- ------------------------------------------------------------------------------------------------------------- ------------------
Consigned inventory ________________
- ------------------------------------------------------------------------------------------------------------- ------------------
Inventory located at third parties (locations not owned or leased with no landlord waiver) ________________
- ------------------------------------------------------------------------------------------------------------- ------------------
Inventory located at pool-points operated by third parties ________________
- ------------------------------------------------------------------------------------------------------------- ------------------
Damaged and defective store inventory ________________
- ------------------------------------------------------------------------------------------------------------- ------------------
Goods returned or rejected by customers ________________
- ------------------------------------------------------------------------------------------------------------- ------------------
Goods to be returned to vendors ________________
- ------------------------------------------------------------------------------------------------------------- ------------------
Inventory subject to layaway purchase agreements ________________
- ------------------------------------------------------------------------------------------------------------- ------------------
Inventory not located in United States or located in Puerto Rico ________________
- ------------------------------------------------------------------------------------------------------------- ------------------
Live plants and other perishable items ________________
- ------------------------------------------------------------------------------------------------------------- ------------------
GOB or similar inventory ________________
- ------------------------------------------------------------------------------------------------------------- ------------------
Not solely owned or without good and valid title ________________
- ------------------------------------------------------------------------------------------------------------- ------------------
No perfected first priority lien ________________
- ------------------------------------------------------------------------------------------------------------- ------------------
Other (in order to comply with terms of Credit Agreement) ________________
- ------------------------------------------------------------------------------------------------------------- ------------------
Total ineligibles ________________
- ------------------------------------------------------------------------------------------------------------- ------------------
Eligible Inventory ________________
- ------------------------------------------------------------------------------------------------------------- ------------------
Less reserves:
- ------------------------------------------------------------------------------------------------------------- ------------------
Shrink Reserve ________________
- ------------------------------------------------------------------------------------------------------------- ------------------
Discontinued Inventory and Aged Goods Reserve ________________
- ------------------------------------------------------------------------------------------------------------- ------------------
Excess Inventory, Slow-Moving, and Markdown Reserve ________________
- ------------------------------------------------------------------------------------------------------------- ------------------
Other (in order to comply with terms of Credit Agreement) ________________
- ------------------------------------------------------------------------------------------------------------- ------------------
Total reserves ________________
- ------------------------------------------------------------------------------------------------------------- ------------------
</TABLE>
<PAGE> 184
<TABLE>
<S> <C>
- ------------------------------------------------------------------------------------------------------------- ------------------
Eligible Inventory Minus Reserves ________________
- ------------------------------------------------------------------------------------------------------------- ------------------
Advance rate ________________
- ------------------------------------------------------------------------------------------------------------- ------------------
Available inventory prior to Gift Certificate and Special Order Deposit Liabilities ________________
- ------------------------------------------------------------------------------------------------------------- ------------------
Less:
- ------------------------------------------------------------------------------------------------------------- ------------------
Gift Certificate Liability ________________
- ------------------------------------------------------------------------------------------------------------- ------------------
Special Order Deposit Liability - calculated per Schedule A to Exhibit I ________________
- ------------------------------------------------------------------------------------------------------------- ------------------
Borrowing Base ________________
- ------------------------------------------------------------------------------------------------------------- ------------------
</TABLE>
Pursuant to the Credit Agreement dated December __, 1998, the undersigned
certifies that the information provided in this certificate to BankAmerica
Business Credit, Inc. as Borrowing Base Audit Agent, is complete and accurate
based on the accounting records of Centers Holdings, Inc.
- -------------------------------
Title:
<PAGE> 185
EXHIBIT J
CONFORMED COPY
INTERCREDITOR AGREEMENT dated as
of December 31, 1998, among (a) HECHINGER
INVESTMENT COMPANY OF DELAWARE, INC., as
Borrower (such term and each other term not
defined in this introductory statement
having the meaning assigned thereto in
Article I), (b) CENTERS HOLDINGS, INC., BSQ
ACQUISITION, INC., BSQ TRANSFEREE CORP.,
HECHINGER COMPANY, HECHINGER STORES COMPANY,
HECHINGER STORES EAST COAST COMPANY, the
other Holdings Subsidiary Guarantors and the
Subsidiary Guarantors, as Guarantors, (c)
THE CHASE MANHATTAN BANK, as Senior Agent
for the Senior Lenders and as Junior Agent
for the Junior Lenders, (d) BANKAMERICA
BUSINESS CREDIT, INC., and CITICORP USA,
INC., each as an Additional Agent, and (e)
GREEN EQUITY INVESTORS II, L.P. and KMART
CORPORATION, each as a CE Party.
The parties hereto have entered into this Agreement providing for
the subordination of the Junior Obligations to the Senior Obligations and for
certain rights and obligations with respect to the Collateral in order (a) to
induce each of the Senior Lenders to, among other things, (i) approve certain
amendments to the Senior Credit Agreement, (ii) approve the incurrence by the
Borrower and the Guarantors of Indebtedness pursuant to the Junior Credit
Agreement and the other Junior Loan Documents and the granting of the Junior
Security Interest and (iii) continue to extend credit to the Borrower pursuant
to the Senior Credit Agreement and (b) to induce each of the Junior Lenders to,
among other things, extend credit to the Borrower pursuant to the Junior Credit
Agreement. In extending credit to the Borrower and in entering into this
Agreement, each of the Senior Secured Parties and each of the Junior Secured
Parties is mutually relying on the undertakings of each of the Junior Secured
Parties and each of the Senior Secured Parties, respectively, as set forth
herein.
Each Grantor acknowledges that it will derive substantial economic
benefit from the making of loans to, and the issuance of letters of credit on
behalf of, the Borrower pursuant to the Senior Credit Agreement and the Junior
Credit Agreement. As consideration therefor and in order to induce the Senior
Lenders and the Junior Lenders to make loans and the Issuing Bank to issue
letters of credit pursuant to the Senior Credit Agreement and the Junior Credit
Agreement, each Grantor is willing to execute this Agreement.
Accordingly, the parties hereto agree as follows:
ARTICLE I
Definitions
SECTION 1.01. Defined Terms. (a) Capitalized terms used but not
otherwise defined herein shall have the meanings assigned to them in the Senior
Loan Documents or, if not defined in the Senior Loan Documents or the context
otherwise requires, in the Junior Loan Documents.
<PAGE> 186
(b) As used in this Agreement, the following terms have the meanings
specified below:
"Additional Agents" means collectively BankAmerica Business Credit,
Inc., as documentation agent and as borrowing base audit agent for the Senior
Lenders under the Senior Credit Agreement, and Citicorp USA, Inc., as
syndication agent for the Senior Lenders under the Senior Credit Agreement.
"Bankruptcy Code" shall have the meaning assigned to such term in
Section 4.01(g).
"Borrower" means Hechinger Investment Company of Delaware, Inc., a
Delaware corporation.
"CE Agreements" means collectively the GEI II Credit Enhancement
Agreement and the Kmart Credit Enhancement Agreement.
"CE Parties" means collectively Kmart and GEI II.
"Chase" means The Chase Manhattan Bank, a New York banking
corporation.
"Collateral" means the Security Agreement Collateral and the Pledge
Agreement Collateral unless expressly provided otherwise.
"Designated Event of Default" means (a) any Event of Default
described in paragraphs (a) or (b) of Article VII of the Senior Credit
Agreement, (b) pursuant to Article VII of the Senior Credit Agreement, the
termination by the Senior Administrative Agent of the Commitments and the
declaration by the Senior Administrative Agent that the Senior Revolving Loans
outstanding are immediately due and payable in whole, (c) any Event of Default
described in paragraphs (a) or (b) of Article VII of the Junior Credit Agreement
or (d) pursuant to Article VII of the Junior Credit Agreement, the termination
of the Supplemental Facility (as described in the Senior Credit Agreement) and
the declaration that the Junior Revolving Loans then outstanding are immediately
due and payable in whole.
"Event of Default Blockage Period" has the meaning assigned to such
term in Section 2.03.
"GEI II" means Green Equity Investors II, L.P., an investment fund
controlled by an Affiliate of LG&P.
"GEI II Credit Enhancement Agreement" means the Loan Purchase
Agreement dated as of December 31, 1998, among GEI II, the Borrower, the Junior
Lenders and the Junior Administrative Agent on behalf of the Junior Lenders.
"Grantors" means the Borrower and the Guarantors.
"Guarantors" means the Holdings Guarantors and the Subsidiary
Guarantors.
"Holdings Guarantors" means Centers Holdings, Inc., a Delaware
corporation ("Holdings"), BSQ Acquisition, Inc., a Delaware corporation, BSQ
Transferee Corp., a Delaware corporation, Hechinger Company, a Delaware
corporation, Hechinger Stores Company, a Delaware corporation, Hechinger Stores
East Coast Company, a Delaware corporation, and each other Subsidiary of
Holdings listed on Schedule I to the Senior Parent Guarantee Agreement (each
such Subsidiary, individually, a "Holdings Subsidiary Guarantor" and,
collectively, the "Holdings Subsidiary Guarantors").
"Junior Administrative Agent" means Chase solely in its capacity as
administrative agent for the Junior Lenders under the Junior Credit Agreement
and the other Junior Loan Documents to which Chase (and its successors and
permitted assigns) is a party in its capacity as administrative agent for the
Junior Lenders.
<PAGE> 187
3
"Junior Agent" means collectively the Junior Administrative Agent
and Junior Collateral Agent.
"Junior Borrower Obligations" means the Loans, LC Disbursements,
other monetary obligations and other obligations of the Borrower arising under
the Junior Credit Agreement or any other Junior Loan Document.
"Junior Collateral Agent" means Chase solely in its capacity as
collateral agent for the Junior Lenders under the Junior Credit Agreement and
the other Junior Loan Documents to which Chase (and its successors and permitted
assigns) is a party in its capacity as collateral agent for the Junior Lenders.
"Junior Credit Agreement" means the Credit Agreement dated as of
December 31, 1998, among the Borrower, the Holdings Guarantors party thereto,
the several lenders from time to time parties thereto (in such capacity, the
"Junior Lenders"), the Junior Agent and Chase, as issuing bank and swingline
lender, as the same may be amended, supplemented or otherwise modified from time
to time.
"Junior Creditors" means the Junior Lenders and the other holders of
Junior Borrower Obligations.
"Junior Guarantee Agreements" means the Junior Parent Guarantee
Agreement and the Junior Subsidiary Guarantee Agreement.
"Junior Guarantor Obligations" means, with respect to a particular
Guarantor, the guarantees, other monetary obligations and other obligations of
such Guarantor arising under the Junior Credit Agreement, the Junior Guarantee
Agreements, the Junior Security Documents or any other Junior Loan Document.
"Junior Holder" means any beneficiary of Junior Guarantor
Obligations.
"Junior Lenders" has the meaning assigned to such term in the
definition of the term Junior Credit Agreement.
"Junior Loan Documents" means the "Loan Documents" (as such term is
defined in the Junior Credit Agreement).
"Junior Obligations" means the Junior Borrower Obligations and the
Guarantors' Junior Guarantor Obligations.
"Junior Parent Guarantee Agreement" means the Parent Guarantee
Agreement dated as of December 31, 1998, among the Borrower, the Holdings
Guarantors and the Junior Agent, as the same may be amended, supplemented or
otherwise modified from time to time.
"Junior Pledge Agreement" means the Pledge Agreement dated as of
December 31, 1998, among the Borrower, the Holdings Guarantors party thereto,
the Subsidiary Guarantors party thereto and the Junior Collateral Agent, as the
same may be amended, supplemented or otherwise modified from time to time.
"Junior Revolving Borrowing" means a "Revolving Borrowing" (as such
term is defined in the Junior Credit Agreement).
<PAGE> 188
4
"Junior Revolving Commitment" means, with respect to each Junior
Lender, its "Revolving Commitment" (as such term is defined in the Junior Credit
Agreement).
"Junior Revolving Loan" means a "Revolving Loan" (as such term is
defined in the Junior Credit Agreement).
"Junior Secured Parties" means the Junior Lenders, the Junior Agent,
the beneficiaries of each indemnification obligation undertaken by any Grantor
under the Junior Credit Agreement, the Junior Guarantee Agreements, the Junior
Security Documents or any other Junior Loan Document, and the successors and
assigns of each of the foregoing.
"Junior Security Agreement" means the Security Agreement dated as of
December 31, 1998, among the Borrower, the Holdings Guarantors party thereto,
the Subsidiary Guarantors party thereto and the Junior Collateral Agent, as the
same may be amended, supplemented or otherwise modified from time to time.
"Junior Security Documents" means the Junior Security Agreement, the
Junior Pledge Agreement and any other documents given after the date hereof for
the purpose of providing collateral security or credit support for the loans
made pursuant to the Junior Credit Agreement.
"Junior Security Interest" means the second-priority security
interest in the Collateral granted pursuant to the Junior Security Documents by
the Grantors to the Junior Collateral Agent, for the ratable benefit of the
Junior Secured Parties, to secure the payment and performance of the Junior
Obligations.
"Junior Subsidiary Guarantee Agreement" means the Subsidiary
Guarantee Agreement dated as of December 31, 1998, among the Borrower, the
Subsidiary Guarantors and the Junior Agent, as the same may be amended,
supplemented or otherwise modified from time to time.
"Kmart" means Kmart Corporation, a Michigan corporation.
"Kmart Credit Enhancement Agreement" means the Loan Purchase
Agreement dated as of December 31, 1998, among Kmart, the Borrower, the Junior
Lenders and the Junior Administrative Agent on behalf of the Junior Lenders.
"LG&P" means Leonard Green & Partners, L.P., a Delaware limited
partnership.
"Participating Creditors" means the Senior Agent, the Additional
Agents, the Senior Creditors, the Senior Holders, the Junior Agent, the Junior
Creditors, the Junior Holders and each CE Party.
"Pledge Agreement Collateral" means the "Collateral" (as such term
is defined in the Senior Pledge Agreement).
"Secured Parties" means Senior Secured Parties and the Junior
Secured Parties.
"Security Agreement Collateral" means the "Collateral" (as such term
is defined in the Senior Security Agreement).
"Senior Administrative Agent" means Chase solely in its capacity as
administrative agent for the Senior Lenders under the Senior Credit Agreement
and the other Senior Loan Documents to which Chase is a party in its capacity as
administrative agent for the Senior Lenders.
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"Senior Agent" means collectively the Senior Administrative Agent
and the Senior Collateral Agent.
"Senior Borrower Obligations" means the Loans, LC Disbursements,
other monetary obligations and other obligations of the Borrower arising under
the Senior Credit Agreement or any other Senior Loan Document.
"Senior Collateral Agent" means Chase solely in its capacity as
collateral agent for the Senior Lenders under the Senior Credit Agreement and
the other Senior Loan Documents to which Chase is a party in its capacity as
collateral agent for the Senior Lenders.
"Senior Credit Agreement" means the Credit Agreement dated as of
September 26, 1997, as amended and restated as of December 31, 1998, among the
Borrower, the Holdings Guarantors party thereto, the several lenders from time
to time parties thereto (in such capacity, the "Senior Lenders"), the Senior
Agent and Chase, as issuing bank and swingline lender, and the Additional
Agents, as the same may be amended, supplemented or otherwise modified from time
to time.
"Senior Creditors" means the Senior Lenders and the other holders of
Senior Borrower Obligations.
"Senior Guarantee Agreements" means the Senior Parent Guarantee
Agreement and the Senior Subsidiary Guarantee Agreement.
"Senior Guarantor Obligations" means, with respect to a particular
Guarantor, the guarantees, other monetary obligations and other obligations of
such Guarantor arising under the Senior Credit Agreement, the Senior Guarantee
Agreements, the Senior Security Documents or any other Senior Loan Document.
"Senior Holder" means any beneficiary of Senior Guarantor
Obligations.
"Senior Lenders" means the "Lenders" (as such term is defined in the
Senior Credit Agreement).
"Senior Loan Documents" means the "Loan Documents" (as such term is
defined in the Senior Credit Agreement).
"Senior Obligations" means the Senior Borrower Obligations and the
Guarantors' Senior Guarantor Obligations.
"Senior Parent Guarantee Agreement" means the Parent Guarantee
Agreement dated as of September 26, 1997, among the Borrower, the Holdings
Guarantors, the Senior Agent and the Additional Agents, as the same may be
amended, supplemented or otherwise modified from time to time.
"Senior Pledge Agreement" means the Pledge Agreement dated as of
September 26, 1997, among the Borrower, the Holdings Guarantors party thereto,
the Subsidiary Guarantors party thereto and the Senior Collateral Agent, as the
same may be amended, supplemented or otherwise modified from time to time.
"Senior Revolving Borrowing" means a "Revolving Borrowing" (as such
term is defined in the Senior Credit Agreement).
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"Senior Revolving Loan" means a "Revolving Loan" (as such term is
defined in the Senior Credit Agreement).
"Senior Secured Parties" means the Senior Lenders, the Senior Agent,
the Additional Agents, the beneficiaries of each indemnification obligation
undertaken by any Grantor under the Senior Credit Agreement, the Senior Parent
Guarantee Agreement, the Senior Subsidiary Guarantee Agreement, the Senior
Security Documents or any other Senior Loan Document, and the successors and
assigns of each of the foregoing.
"Senior Security Agreement" means the Security Agreement dated as of
September 26, 1997, as amended and restated as of December 31, 1998, among the
Borrower, the Holdings Guarantors party thereto, the Subsidiary Guarantors party
thereto and the Senior Collateral Agent, as the same may be amended,
supplemented or otherwise modified from time to time.
"Senior Security Documents" means the Senior Security Agreement, the
Senior Pledge Agreement and any other documents given after the date hereof for
the purpose of providing collateral security or credit support for the loans
made and letters of credit issued pursuant to the Senior Credit Agreement.
"Senior Security Interest" means the first-priority security
interests in the Collateral granted pursuant to the Senior Security Agreement by
the Grantors to the Senior Collateral Agent, for the ratable benefit of the
Senior Secured Parties to secure the payment and performance of the Senior
Obligations.
"Senior Subsidiary Guarantee Agreement" means the Subsidiary
Guarantee Agreement dated as of September 26, 1997, among the Borrower, the
Subsidiary Guarantors, the Senior Agent and the Additional Agents, as the same
may be amended, supplemented or otherwise modified from time to time.
"Senior Swingline Loan" means the "Swingline Loan" (as such term is
defined in the Senior Credit Agreement).
"Specified Event of Default" means (a) any Event of Default
described in paragraphs (a), (b), (h) or (i) of Article VII of the Senior Credit
Agreement, (b) pursuant to Article VII of the Senior Credit Agreement, the
termination by the Senior Administrative Agent of the Commitments and the
declaration by the Senior Administrative Agent that the Senior Revolving Loans
then outstanding are immediately due and payable in whole, (c) any Event of
Default described in paragraphs (a), (b), (h) or (i) of Article VII of the
Junior Credit Agreement or (d) pursuant to Article VII of the Junior Credit
Agreement, the termination of the Supplemental Facility (as defined in the
Senior Credit Agreement) and the declaration that the Junior Revolving Loans
then outstanding are immediately due and payable in whole.
"Specified Lenders" has the meaning assigned to such term in Section
5.06(c)(iii).
"Subsidiary Guarantors" means each Subsidiary of the Borrower listed
on Schedule I to the Senior Subsidiary Guarantee Agreement.
SECTION 1.02. Terms Generally. The definitions of terms herein shall
apply equally to the singular and plural forms of the terms defined. Whenever
the context may require, any pronoun shall include the corresponding masculine,
feminine and neuter forms. The words "include", "includes" and "including" shall
be deemed to be followed by the phrase "without limitation". The word "will"
shall be construed to have the same meaning and effect as the word "shall".
Unless the context requires
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otherwise (a) any definition of or reference to any agreement, instrument or
other document herein shall be construed as referring to such agreement,
instrument or other document as from time to time amended, supplemented or
otherwise modified (subject to any restrictions on such amendments, supplements
or modifications set forth herein), (b) any reference herein to any Person shall
be construed to include such Person's successors and assigns, (c) the words
"herein", "hereof" and "hereunder", and words of similar import, shall be
construed to refer to this Agreement in its entirety and not to any particular
provision hereof, (d) all references herein to Articles, Sections, Exhibits and
Schedules shall be construed to refer to Articles and Sections of, and Exhibits
and Schedules to, this Agreement and (e) the words "asset" and "property" shall
be construed to have the same meaning and effect and to refer to any and all
tangible and intangible assets and properties, including cash, securities,
accounts and contract rights.
ARTICLE II
Subordination of Junior Borrower Obligations
SECTION 2.01. Agreement To Subordinate. The Borrower agrees, and
each Junior Creditor by becoming a party to the Junior Credit Agreement or any
other Junior Loan Document or accepting the benefits of the Junior Borrower
Obligations arising thereunder agrees, that the Junior Borrower Obligations are
expressly subordinated in right of payment, to the extent and in the manner
provided in this Article II, to the prior payment in full in cash of all Senior
Borrower Obligations, and that such subordination is for the benefit of and
enforceable by the Senior Creditors.
SECTION 2.02. Liquidation, Dissolution, Bankruptcy. Upon any payment
or distribution of the assets of the Borrower to creditors of the Borrower upon
a total or partial liquidation or a total or partial dissolution of the Borrower
or in a bankruptcy, reorganization, insolvency, receivership or similar
proceeding relating to the Borrower and its property:
(a) holders of Senior Borrower Obligations shall be entitled to
receive payment in full in cash of such Senior Borrower Obligations or
provisions satisfactory to the holders of such Senior Borrower Obligations
shall be made for such payment before any Junior Creditor shall be
entitled to receive any payment of principal or interest with respect to
any Junior Borrower Obligations; and
(b) until the Senior Borrower Obligations are paid in full in cash
any distribution to which a Junior Creditor would be entitled but for this
Article II shall be made to holders of Senior Borrower Obligations as
their interests may appear, except that a Junior Creditor may receive
interest that may continue to accrue and be added to the principal amount
of such Junior Obligations.
SECTION 2.03. Designated Event of Default in Respect of the Senior
Obligations. (a) Upon the occurrence and during the continuance of a Designated
Event of Default, the Borrower may not pay principal of or interest on its
Junior Borrower Obligations or acquire or redeem Junior Borrower Obligations for
cash, property or securities (other than interest that is added to the principal
amount of such Junior Borrower Obligations) unless and until such Designated
Event of Default shall have been cured, waived or rescinded in writing or shall
have ceased to exist or such Senior Borrower Obligations shall have been
discharged in accordance with their terms or the holders of such Senior Borrower
Obligations shall have waived in writing the benefit of this sentence, after
which the Borrower shall resume making any and all required payments in respect
of its Junior Obligations including any missed
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payments (such period during which such payments and acquisitions and
redemptions are prohibited being hereinafter referred to as a "Designated Event
of Default Blockage Period"). The Borrower agrees to give each Junior Creditor
prompt written notice of the occurrence of a Designated Event of Default
Blockage Period, provided that the failure to furnish such notice shall not in
any way limit or adversely affect the rights of the holders of Senior Borrower
Obligations with respect to such Designated Event of Default Blockage Period or
otherwise.
SECTION 2.04. When Distribution Must Be Paid Over. If any payment or
distribution is made to Junior Creditors that pursuant to this Article II should
not have been made to them, such Junior Creditors shall hold such payment or
distribution in trust for holders of Senior Borrower Obligations and pay it over
to them as their interests may appear.
SECTION 2.05. Subrogation. Subject to the prior payment in full in
cash of all Senior Borrower Obligations and until the Junior Obligations of the
Borrower are paid in full, Junior Creditors shall be subrogated to the rights of
holders of Senior Borrower Obligations to receive the payments or distributions
applicable to such Senior Borrower Obligations. Any payment or distribution made
under this Article II to holders of Senior Borrower Obligations that otherwise
would have been made to Junior Creditors except for the provisions of this
Article II shall, as between the Borrower, its creditors (other than the holders
of such Senior Borrower Obligations) and Junior Creditors, be deemed to be a
payment by the Borrower to or on account of such Senior Borrower Obligations,
and no payments or distributions to Junior Creditors of cash, property or
securities by virtue of the subrogation herein provided shall, as between the
Borrower, its creditors (other than the holders of such Senior Borrower
Obligations) and Junior Creditors, be deemed to be a payment to or on account of
the Junior Borrower Obligations, it being understood that the provisions of this
Article II are and are intended solely for the purpose of defining the relative
rights of Junior Creditors on the one hand and the holders of Senior Borrower
Obligations on the other.
SECTION 2.06. Relative Rights. This Article II defines the relative
rights of Junior Creditors and holders of Senior Borrower Obligations. Nothing
herein shall:
(a) impair, as between the Borrower and Junior Creditors, the
obligations of the Borrower, which are absolute and unconditional, to pay
principal of and interest on the Junior Borrower Obligations in accordance
with their terms (provided, however, that this provision is not intended
to limit the restrictions on payments on such Junior Borrower Obligations
set forth in Section 2.03); or
(b) prevent any Junior Creditor or the Junior Agent from exercising
its available remedies upon an Event of Default under the Junior Credit
Agreement, subject to the rights of holders of Senior Borrower Obligations
to receive distributions otherwise payable to Junior Creditors (provided,
however, that this provision is not intended to limit the provisions of
Section 4.02).
SECTION 2.07. Subordination May Not Be Impaired by the Borrower. No
right of a holder of Senior Borrower Obligations to enforce the subordination of
the Junior Borrower Obligations shall be impaired by any act or failure to act
by the Borrower or by its failure to comply with the terms and conditions of the
Junior Credit Agreement or the other Junior Loan Documents.
SECTION 2.08. Reinstatement. If, at any time, all or part of any
payment previously made by the Borrower or any other Person with respect to
Senior
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Borrower Obligations is rescinded for any reason whatsoever (including the
insolvency, bankruptcy or reorganization of the Borrower or such other Person),
the subordination provisions set forth in this Article II shall continue to be
effective or be reinstated, as the case may be, all as though such payment had
not been made.
SECTION 2.09. Non-Impairment. Each Junior Creditor agrees (and
consents) that, without notice to or assent by it, and without affecting the
liabilities and obligations of the Borrower and the rights and benefits of the
holders of the Senior Borrower Obligations set forth in this Article II:
(a) the obligations and liabilities of the Borrower and any other
party or parties for or upon the Senior Borrower Obligations may, from
time to time, be increased (but not above $600,000,000 in aggregate
principal amount), renewed, refinanced, extended, modified, amended,
restated, compromised, supplemented, terminated, waived or released;
(b) the holders of Senior Borrower Obligations, and any
representative or representatives acting on behalf thereof, including the
Senior Agent, may exercise or refrain from exercising any right, remedy or
power granted by or in connection with any agreements relating to such
Senior Borrower Obligations; and
(c) any balance or balances of funds at any time outstanding to the
credit of the Borrower with any holder of Senior Borrower Obligations may,
from time to time, in whole or in part, be surrendered or released, all as
the holders of any Senior Borrower Obligations, or any representative or
representatives acting on behalf thereof, including any Senior Agent, may
deem advisable, and all without impairing, abridging, diminishing,
releasing or affecting the subordination of the Junior Borrower
Obligations to such Senior Obligations.
SECTION 2.10. No Modification. The provisions of this Article II and
the definitions used herein are for the benefit of the holders from time to time
of Senior Borrower Obligations and, so long as any such Senior Obligations or
any commitments with respect thereto remain outstanding, such provisions and
definitions may not be modified, rescinded or canceled in whole or in part,
provided that the provisions of this Article II and such definitions may be
modified, amended or supplemented in accordance with Section 5.04, provided the
prior written consent has been obtained of (i) the holders of more than 50% of
the principal amount of such Senior Obligations (taken together as one class),
(ii) Senior Lenders holding more than 50% of the Senior Loans and commitments
outstanding under the Senior Credit Agreement and (iii) the Senior
Administrative Agent.
SECTION 2.11. Waivers; Reliance by Holders of Senior Obligations. To
the extent permitted by applicable law, the Borrower and each Junior Creditor
hereby waive (a) notice of acceptance hereof by the holders of the Senior
Borrower Obligations and (b) all diligence in the collection or protection of or
realization upon such Senior Borrower Obligations. Each of the Junior Creditors
by accepting the Junior Borrower Obligations acknowledges and agrees that the
subordination provisions in this Article II are, and are intended to be, an
inducement and a consideration to each holder of any Senior Borrower
Obligations, whether such Senior Borrower Obligations were created or acquired
before or after the issuance of the Junior Borrower Obligations, to acquire and
continue to hold, or to continue to hold, such Senior Borrower Obligations and
such holder of Senior Borrower Obligations shall be deemed conclusively to have
relied on such subordination provisions in acquiring and continuing to hold, or
in continuing to hold, such Senior Borrower Obligations.
SECTION 2.12. Enforcement of Rights. The Borrower and Junior
Creditors hereby expressly agree that the holders of Senior Obligations may
enforce
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any and all rights derived herein by suit, either in equity or at law, for
specific performance of any agreement contained in this Article II or for
judgment at law and any other relief whatsoever appropriate to such action or
procedure.
SECTION 2.13. Proofs of Claim. If, while any Senior Borrower
Obligation is outstanding, any Specified Event of Default occurs and is
continuing, the Junior Creditors shall, to the extent permitted by applicable
law, duly and promptly take such action as the Senior Agent may reasonably
request to collect any payment hereunder to which the holders of Senior Borrower
Obligations may be entitled hereunder and to file appropriate claims or proofs
of claim in respect thereof. Upon the failure of any Junior Creditor to take any
such action, the Senior Agent is hereby irrevocably authorized and empowered (in
its own name or otherwise and to the extent permitted by applicable law), but
shall have no obligation, to file claims and proofs of claim with respect
thereof and each Junior Creditor hereby appoints the Senior Agent as
attorney-in-fact for such Junior Creditor to take any and all such actions;
provided, however, that the Senior Agent shall only be permitted to file such
proofs of claim upon notice to such Junior Creditor and to the extent that such
Junior Creditor has failed to make such filings by the date that is ten (10)
days prior to the last date on which such Junior Creditor is permitted to make
such filings as a matter of law under the Bankruptcy Code.
SECTION 2.14. Rights of Junior Agent. (a) Notwithstanding Section
2.03, the Junior Agent may continue to make payments on the Junior Borrower
Obligations and shall not be charged with knowledge of the existence of facts
that would prohibit the making of any such payments unless, not less than two
Business Days prior to the date of such payment, the Junior Agent receives
notice satisfactory to it that payments may not be made under this Article II.
Only the Borrower or the Senior Agent may give such a notice to the Junior
Agent.
(b) The Junior Agent in its individual or any other capacity may
hold Senior Borrower Obligations with the same rights it would have if it were
not the Junior Agent. The Junior Agent shall be entitled to all the rights set
forth in this Article II with respect to any such Senior Borrower Obligations
that may at any time be held by it, to the same extent as any other holder of
such Senior Obligations, and nothing in the Junior Credit Agreement or this
Agreement shall deprive the Junior Agent of its rights as such holder. Nothing
in this Article II shall apply to claims of, or payments to, the Junior Agent
under or pursuant to Article VIII of the Junior Credit Agreement.
SECTION 2.15. Distribution or Notice to Senior Agent. Whenever a
distribution is to be made or a notice given to the holders of Senior Borrower
Obligations, the distribution may be made to the Senior Administrative Agent and
the notice given to the Senior Agent.
SECTION 2.16. Article II Not To Prevent Events of Default or Limit
Right To Accelerate. The failure to make a payment pursuant to the Junior
Borrower Obligations by reason of any provision in this Article II shall not be
construed as preventing the occurrence of a default under the Junior Credit
Agreement or any other Junior Loan Document. Nothing in this Article II shall
have any effect on the right of the Junior Creditors or the Junior Agent to
accelerate the maturity of such Junior Borrower Obligations.
SECTION 2.17. Junior Agent To Effectuate Subordination. Each Junior
Creditor by accepting Junior Borrower Obligations authorizes and directs the
Junior Agent on its behalf to take such action as may be necessary or
appropriate to acknowledge or effectuate the subordination between the Junior
Creditors and the holders of Senior Borrower Obligations as provided in this
Article II and appoints the Junior Agent as attorney-in-fact for any and all
such purposes.
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SECTION 2.18. Junior Agent Not Fiduciary for Holders of Senior
Obligations. The Junior Agent shall not be deemed to owe any fiduciary duty to
the holders of Senior Borrower Obligations and shall not be liable to any such
holders if it shall mistakenly pay over or distribute to a Junior Creditor or
the Borrower or any other Person, money or assets to which any holders of Senior
Borrower Obligations shall be entitled by virtue of this Article II or
otherwise.
SECTION 2.19. Junior Agent's Compensation Not Prejudiced. Nothing in
this Article II shall apply to amounts due to the Junior Agent pursuant to the
Junior Credit Agreement or any other Junior Loan Document.
ARTICLE III
Subordination of Junior Guarantor Obligations
Each of the Guarantors agrees, and each Junior Holder by becoming a
party to the Junior Credit Agreement or any other Junior Loan Document or
accepting the benefits of the Junior Guarantor Obligations arising thereunder
agrees, that the obligations of each Guarantor to the Junior Holders pursuant to
the Junior Guarantee Agreements are expressly subordinate and subject in right
of payment to the prior payment in full of all Senior Guarantor Obligations of
such Guarantor, to the same extent as and in the manner provided in Article II
hereof with respect to the subordination of the Junior Borrower Obligations to
the prior payment in full of all Senior Borrower Obligations, and that such
subordination is for the benefit of and enforceable by the Senior Holders. For
purposes of this Article III, each Guarantor shall have the same rights and be
subject to the same duties and obligations as the Borrower pursuant to said
Article II. For purposes of this Article III, Senior Borrower Obligations shall
have the meaning set forth in Article I but substituting such Guarantor, as the
case may be, for the Borrower and shall include any guarantee by such Guarantor,
as the case may be, of Senior Borrower Obligations. It is further understood and
agreed that during any Designated Event of Default Blockage Period no payments
in respect of any Junior Obligations may be made by any Guarantor.
ARTICLE IV
Rights in Collateral
SECTION 4.01. Perfection and Priority of Security Interests. (a) Any
and all security interests, assignments, pledges and other liens, charges or
encumbrances now existing or hereafter created or arising in favor of the Junior
Secured Parties with respect to the Collateral are expressly junior in priority,
operation and effect to any and all security interests, assignments, pledges and
other secured claims, liens, charges or encumbrances now existing or hereafter
created or arising in favor of the Senior Collateral Agent for the benefit of
the Senior Secured Parties with respect to the Collateral, notwithstanding
anything to the contrary contained in any agreement or filing to which the
Junior Agent or any Junior Secured Party may now or hereafter be a party, and
irrespective of the time, order or method of attachment or perfection of any
financing statements or other security interests, assignments, pledges and other
liens, charges or encumbrances or any defect or deficiency or alleged defect or
deficiency in any of the foregoing.
(b) The Junior Agent, on behalf of itself and the other Junior
Secured Parties, acknowledges that the Senior Obligations represent indebtedness
that is revolving in nature and that the
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amount thereof that may be outstanding at any time or from time to time may be
increased or reduced and subsequently reborrowed, and that the terms of the
Senior Obligations may be modified, extended, amended, restated, compromised,
supplemented, terminated, waived or released from time to time, and the
aggregate amount of the Senior Obligations may be increased, renewed, replaced
or refinanced, all without notice to or consent by the Junior Secured Parties
and without affecting the provisions hereof, provided that no such modification,
extension or amendment shall be effective for purposes of this Agreement if it
increases the principal amount of the loans outstanding under the Senior Credit
Agreement to an amount in excess of $600,000,000. The lien priorities provided
in this Section 4.01 shall not be altered or otherwise affected by any
amendment, modification, supplement, extension, increase, replacement, renewal,
restatement or refinancing of either the Senior Obligations or the Junior
Obligations, or any portion thereof, nor by any action that the Senior Secured
Parties or the Junior Secured Parties may take or fail to take in respect of the
Collateral.
(c) For purposes of perfecting the Junior Security Interest in the
Collateral and the proceeds thereof, the Grantors and the Senior Agent hereby
acknowledge that each Grantor will file such UCC-1 financing statements covering
the Collateral as it shall deem appropriate, naming the Borrower (or one or more
Guarantors) as debtor, and the Junior Agents, on behalf of the Junior Secured
Parties, as secured party. Each of the Junior Agent and the Junior Secured
Parties agrees that all UCC-1 Financing Statements filed by or on behalf of
Junior Secured Parties shall be in form satisfactory to the Senior Agent and
shall contain the following notation: "The interest of the Secured Party in the
collateral described herein is junior and subordinate to the interests of The
Chase Manhattan Bank and its successors and assigns, as agent, and the Lenders
party to that certain Credit Agreement dated as of September 26, 1997, as
amended and restated as of December 31, 1998 (as amended, supplemented or
otherwise modified from time to time) with Hechinger Investment Company of
Delaware, Inc. pursuant to that certain Intercreditor Agreement dated as of
December 31, 1998 (as amended, supplemented or otherwise modified from time to
time)."
(d) It is acknowledged that (i) pursuant to the Junior Security
Agreement, the Grantors have granted to the Junior Agent for the benefit of the
Junior Secured Parties a second-priority security interest in the Collection
Deposit Accounts, (ii) the Collection Deposit Accounts are maintained with the
Senior Collateral Agent or with a Sub-Agent under the dominion and control of
the Senior Collateral Agent in accordance with the terms of the Depository
Agreements and (iii) pursuant to the Senior Security Agreement, the Grantors
have granted to the Senior Collateral Agent for the benefit of the Senior
Secured Parties a first-priority security interest in the Collection Deposit
Accounts. Subject to the provisions of this Article IV, the Senior Collateral
Agent shall maintain sole dominion and control over the Collection Deposit
Accounts for the benefit of the Junior Secured Parties in addition to the Senior
Secured Parties. Notwithstanding any provision to the contrary in this Section
4.01(d), the Senior Collateral Agent shall continue to have a first-priority
security interest in the Collection Deposit Accounts for the benefit of the
Senior Secured Parties. Notwithstanding anything to the contrary in this
Agreement, under no circumstances shall the Senior Collateral Agent have, or be
deemed to have, any fiduciary duty or any other duty (other than as expressly
set forth in paragraph (f) below) to any Junior Secured Party or the Junior
Agent with respect to actions it takes or is permitted to take hereunder with
respect to the Collection Accounts.
(e) It is acknowledged that (i) pursuant to the Junior Pledge
Agreement, the Borrower, the Holdings Guarantors party thereto and the
Subsidiary Guarantors party thereto have granted to the Junior Agent for the
benefit of the Junior Secured Parties a second-priority security interest in the
Pledge Agreement Collateral, (ii) to the extent necessary to perfect a security
interest under the Uniform Commercial Code, the Pledge Agreement Collateral is
in the possession of the Senior Collateral Agreement in accordance with the
terms of the Senior Pledge Agreement and (iii) the Borrower, the Holdings
Guarantors party to the Senior Pledge Agreement and the Subsidiary Guarantors
party to the Senior Pledge Agreement have granted to the Senior Collateral Agent
for the benefit of the Senior
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Secured Parties a first-priority security interest in the Pledge Agreement
Collateral. Subject to the provisions of this Article IV, the Senior Collateral
Agent shall maintain possession, to the extent reasonably possible, of the
Pledge Agreement Collateral for the benefit of the Junior Secured Parties in
addition to the Senior Secured Parties. Notwithstanding any provision to the
contrary in this Section 4.01(e), the Senior Collateral Agent shall continue to
have a first-priority security interest in the Pledge Agreement Collateral for
the benefit of the Senior Secured Parties. Notwithstanding anything to the
contrary in this Agreement, under no circumstances shall the Senior Collateral
Agent have, or be deemed to have, any fiduciary duty or any other duty (other
than as expressly set forth in paragraph (f) below) to any Junior Secured Party
or the Junior Agent with respect to actions it takes or is permitted to take
hereunder with respect to the Pledge Agreement Collateral.
(f) The Junior Agent, on behalf of itself and the other Junior
Secured Parties, acknowledges and agrees with the Senior Secured Parties that
the arrangements described in paragraphs (a), (b), (c), (d) and (e) above are
solely for the purpose of providing the Junior Secured Parties with a perfected
Junior Security Interest in the Collateral and shall in no way be construed as
imposing any duties or other obligations on the Senior Agent other than to
transfer to the Junior Secured Parties (or as a court of competent jurisdiction
may otherwise direct) the proceeds, if any, that remain following a sale,
transfer or other disposition of the Collateral by the Senior Collateral Agent
on behalf of the Senior Secured Parties and the payment and satisfaction in full
of any and all Senior Obligations or, if the Senior Collateral Agent shall still
be in possession of all or any part of the Collateral after such payment and
satisfaction in full, the Collateral or such part thereof remaining, without
representation or warranty on the part of the Senior Agent or the Senior Secured
Parties. In furtherance of the foregoing, the Junior Secured Parties acknowledge
and agree with the Senior Secured Parties that, at all times until the Senior
Obligations shall have been paid and satisfied in full, the Senior Collateral
Agent shall be entitled to (i) maintain control over the Collection Deposit
Accounts in accordance with the Senior Security Agreement and the Depository
Agreements, (ii) maintain control over the Pledge Agreement Collateral in
accordance with the Senior Pledge Agreement and (iii) sell, transfer or
otherwise dispose of or deal with the Collateral as provided in the Senior
Security Documents without regard to the security interest of the Junior Secured
Parties therein, or any rights to which the Junior Secured Parties would
otherwise be entitled as a result of such security interest, the only obligation
of the Senior Agent to the Junior Secured Parties in respect thereof being to
promptly deliver to the Junior Agent (unless otherwise directed in writing by
the Junior Agent or by a court of competent jurisdiction) any proceeds remaining
from such sale, transfer or other disposition of the Collateral after such
payment and satisfaction in full of the Senior Obligations or, if the Senior
Agent shall still be in possession of all or any part of the Collateral after
such payment and satisfaction in full, the Collateral or such part thereof
remaining, without representation or warranty on the part of the Senior Agent or
the Senior Secured Parties, provided that nothing contained in this sentence
shall be construed to give rise to, nor shall the Junior Agent or the Junior
Secured Parties have, any claims whatsoever against the Senior Agent or any
Senior Secured Party on account of any act or omission to act in connection with
the exercise of any right or remedy of the Senior Agent with respect to the
Collateral (other than with respect to any claims that may arise as a result of
the failure of the Senior Agent, after the payment and satisfaction in full of
the Senior Obligations, to deliver any remaining Collateral or proceeds to the
Junior Agent or the Junior Secured Parties). The Junior Agent, on behalf of
itself and the other Junior Secured Parties, agrees that, without the prior
written consent of the Senior Agent, it shall not, and shall not attempt to,
exercise any rights of enforcement with respect to (A) the Senior Security
Interest in the Collateral or (B) the Junior Security Interest in the
Collateral, whether pursuant to the Junior Security Documents or otherwise,
until the payment and satisfaction in full of the Senior Obligations.
(g) The Junior Agent, on behalf of itself and the other Junior
Secured Parties, agrees that in the event a proceeding under Title 11 of the
U.S. Code (the "Bankruptcy Code") or any other Federal, state or foreign
bankruptcy, insolvency, receivership or similar law shall be commenced by or
against any Grantor, the Junior Agent or such Junior Secured Party shall not
file any objection or in any
<PAGE> 198
14
other manner attempt to prevent the court conducting such proceeding from (and
shall be deemed to have consented to such proceeding) (i) authorizing such
Grantor under Section 364 of the Bankruptcy Code (or the analogous provision of
such other law) to incur secured indebtedness and priority administration
indebtedness to the Senior Secured Parties (or any of them) for loans that may
be made by the Senior Secured Parties (or any of them) to such Grantor after the
commencement and/or termination of such proceedings, and to secure the repayment
and performance of such post-petition indebtedness (and interest thereon and
costs and expenses in connection therewith) by granting to the Senior Secured
Parties (or any of them) a first-priority security interest in and a
first-priority lien on all the Collateral, (ii) pursuant to Section 364 of the
Bankruptcy Code (or the analogous provision of such other law), granting the
Senior Secured Parties (or any of them) a first-priority security interest in
and a first-priority lien on all the Collateral, (iii) authorizing such Grantor
under the Bankruptcy Code to grant the Senior Secured Parties (or any of them)
adequate protection, whether in the form of cash payments, accrued interest or
otherwise, in connection with the use of cash collateral or in connection with
the transactions contemplated by clauses (i) and (ii) hereof.
SECTION 4.02. No Interference; Right to Instruct Agent; Payment
Over; Reinstatement; Permitted Actions. (a) The Junior Agent, on behalf of
itself and the other Junior Secured Parties, agrees that (i) it will not take or
cause to be taken any action, the purpose or effect of which is, or could be, to
make any Junior Security Interest pari passu with, or to give any Junior Secured
Party any preference or priority relative to, the Senior Security Interest or
the Senior Secured Parties with respect to the Collateral or any part thereof,
(ii) it will not interfere, hinder or delay, in any manner, whether by judicial
proceedings or otherwise, any sale, transfer or other disposition of the
Collateral by the Senior Collateral Agent or any other Senior Secured Party,
(iii) it has no right to (A) direct the Senior Collateral Agent or any other
Senior Secured Party to exercise any right, remedy or power with respect to the
Collateral or (B) consent to the exercise by the Senior Collateral Agent or any
other Senior Secured Party of any right, remedy or power with respect to the
Collateral, (iv) it will not institute any suit or assert in any suit,
bankruptcy, insolvency or other proceeding any claim against the Senior
Collateral Agent or any other Senior Secured Party seeking damages from or other
relief by way of specific performance, instructions or otherwise, with respect
to, and neither the Senior Collateral Agent nor any other Senior Secured Party
shall be liable for, any action taken or omitted to be taken by the Agent or the
Senior Secured Parties with respect to the Collateral, (v) it will not commence
judicial or nonjudicial foreclosure proceedings with respect to, seek to have a
trustee, receiver, liquidator or similar official appointed for or over, attempt
any action to take possession of, exercise any right, remedy or power with
respect to, or otherwise take any action to enforce its interest in or realize
upon, the Collateral (other than filing a proof of claim) until all the Senior
Obligations shall have been paid and satisfied in full, (vi) it will not seek,
and hereby waives any right, to have the Collateral or any part thereof
marshaled upon any foreclosure or other disposition of the Collateral, (vii) it
will not attempt, directly or indirectly, whether by judicial proceedings or
otherwise, to challenge the enforceability of any provision of this Agreement.
(b) The Junior Agent, on behalf of itself and the other Junior
Secured Parties, hereby agrees that, in the event of a sale, transfer or other
disposition of Collateral in accordance with the provisions of the Senior Credit
Agreement or any Senior Security Document or pursuant to any judicial or
nonjudicial foreclosure proceedings with respect to the Collateral undertaken by
or on behalf of the Senior Collateral Agent or any other Senior Secured Party,
any security interest or lien of the Junior Secured Parties in such Collateral
shall terminate and be released automatically and without further action to the
extent that the lien of the Senior Collateral Agent for the benefit of the
Senior Secured Parties in such Collateral is released. The Junior Agent further
agrees to execute all necessary instruments and documents to evidence such
termination and release. Notwithstanding the foregoing, the Junior Agent shall
not be deemed to release or terminate the security interest or lien of the
Junior Secured Parties to
<PAGE> 199
15
the extent that any proceeds of the sale, transfer or disposition of Collateral
are in excess of the amount necessary to pay in full all the Senior Obligations.
(c) The Junior Agent, on behalf of itself and the other Junior
Secured Parties, hereby agrees that if any Junior Secured Party shall obtain
possession of any of the Collateral (other than cash proceeds deposited with the
Junior Agent to pay principal or interest in respect of the Junior Obligations
at a time when the Senior Agent has not informed the Junior Agent of the
occurrence of a Specified Event of Default), or shall realize any payment in
respect of the Collateral, or shall realize any payment or receive any
distribution that pursuant to Article II or Article III should not have been
made to it, in each case prior to the time when the Senior Obligations have been
paid in full, then it shall hold such Collateral, payment or distribution in
trust for the Senior Secured Parties and transfer such Collateral, payment or
distribution, as the case may be, to the Senior Agent. If, at any time, all or
part of any payment with respect to the Senior Obligations previously made is
rescinded for any reason whatsoever (including, without limitation, the
insolvency, bankruptcy or reorganization of the Borrower or such other Person),
the Junior Agent and the Junior Secured Parties shall promptly turn any
Collateral then held by any of them over to the Senior Agent, and the provisions
set forth in this Agreement (including without limitation, the subordination
provisions set forth herein) shall continue to be effective or be reinstated, as
the case may be, as if such payment had not been made, until the payment and
satisfaction in full of the Senior Obligations.
ARTICLE V
Miscellaneous
SECTION 5.01. Notices. All notices and other communications provided
for herein shall be in writing and shall be delivered by hand or overnight
courier service, mailed by certified or registered mail or sent by telecopy, as
follows:
(a) to any party to the Senior Credit Agreement, as provided in the
Senior Credit Agreement;
(b) to any party to the Junior Credit Agreement, as provided in the
Junior Credit Agreement;
(c) to any party to both the Senior Credit Agreement and the Junior
Credit Agreement, as provided in either the Senior Credit Agreement or the
Junior Credit Agreement;
(d) to GEI II, 11111 Santa Monica Blvd., Suite 2000, Los Angeles, CA
90025, Attention of Gregory J. Annick (Telecopy No. (310) 954-0404); and
(e) to Kmart, 3100 West Big Beaver Road, Troy, MI 48084-3136,
Attention of Michael J. Viola (Telecopy No. (248) 643-5393)
Any party hereto may change its address or telecopy number for notices and other
communications hereunder by notice to the other parties hereto. All notices and
other communications given to any party hereto in accordance with the provisions
of this Agreement shall be deemed to have been given on the date of receipt.
SECTION 5.02. Status of Agreement. This Agreement shall constitute a
Loan Document for all purposes under each of the Senior Credit Agreement and the
Junior Credit Agreement.
<PAGE> 200
16
SECTION 5.03. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY,
AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
SECTION 5.04. WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES,
TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A
TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR
RELATING TO THIS AGREEMENT, ANY OTHER SENIOR LOAN DOCUMENT, JUNIOR LOAN DOCUMENT
OR THE TRANSACTIONS CONTEMPLATED HEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY
OTHER THEORY). EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR
ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH
OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING
WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN
INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS
AND CERTIFICATIONS IN THIS SECTION.
SECTION 5.05. Further Assurances. Each of the parties hereto agrees
to execute such further documentation and take such further action as shall be
reasonably necessary to fully effectuate the provisions of this Agreement.
SECTION 5.06. Modification of Agreement. (a) No modification or
amendment of any provision of this Agreement shall in any event be effective
unless the same shall be in writing and signed by the Required Lenders (as
defined in the Senior Credit Agreement), the Required Lenders (as defined in the
Junior Credit Agreement) and each of the CE Parties; provided, however, that (i)
no such modification or amendment shall adversely affect any of the Senior
Agent's and Junior Agent's rights, immunities or rights to indemnification
hereunder or under any Senior Loan Document or Junior Loan Document or expand
its duties hereunder, without the prior written consent of such Senior Agent or
Junior Agent, as the case may be, and (ii) no such modification or amendment
shall modify any provision hereof that is intended to provide for the
subordination of the Junior Obligations to the Senior Obligations without the
prior written consent of all Participating Creditors.
(b) No waiver of any provision of this Agreement and no consent to
any departure by any party hereto from the provisions hereof shall be effective
unless such waiver or consent shall be set forth in a written instrument
executed by the party against which it is sought to be enforced, and then such
waiver or consent shall be effective only in the specific instance and for the
purpose for which given. No notice to or demand on any party hereto in any case
shall entitle such party to any other or further notice or demand in the same,
similar or other circumstances.
(c) The parties hereto agree that neither Section 2.10 of the Senior
Credit Agreement nor Section 2.10 of the Junior Credit Agreement shall be
modified or amended without the written consent of (i) Senior Lenders having
"Total Exposures" and unused "Revolving Commitments" representing more than 50%
of the sum of the aggregate "Total Exposures" and aggregate unused "Revolving
Commitments" at such time (as such terms are defined in the Senior Credit
Agreement), (ii) Junior Lenders having "Total Exposures" and unused "Revolving
Commitments" representing more than 50% of the sum of the aggregate Total
Exposure and aggregate unused Revolving Commitments at such time (as such terms
are defined in the Junior Credit Agreement) and (iii) each of the CE Parties
(collectively, the "Specified Lenders").
<PAGE> 201
17
SECTION 5.07. Successors and Assigns. (a) This Agreement shall be
binding on and inure to the benefit of the parties hereto, including the Senior
Agent, the Junior Agent, each of the Senior Creditors, the Junior Creditors and
their respective successors and permitted assigns (including any assignee of any
Senior Lender in accordance with the Senior Credit Agreement, any Junior Lender
in accordance with the Junior Credit Agreement and each of the CE Parties in
accordance with the CE Agreements); provided, however, that, except as provided
in the next sentence, no Participating Creditor may assign its rights or
obligations hereunder. The rights and obligations of any Senior Creditors and
Junior Creditors under this Agreement shall be assigned automatically (without
the need for the execution of any document or any other action) to, and the term
"Senior Creditor" or "Junior Creditor" as used in this Agreement shall include,
any assignee, transferee or successor of such Senior Creditors or Junior
Creditors under the Senior Credit Agreement or the Junior Credit Agreement, as
the case may be, in accordance with the terms of and upon the effectiveness of
an assignment pursuant to the Senior Credit Agreement or the Junior Credit
Agreement, as the case may be, and any such assignee, transferee or successor
shall automatically become a party to this Agreement. If required by any party
to this Agreement, such assignee, transferee or successor shall execute and
deliver to the other parties to this Agreement a written confirmation of its
assumption of the obligations of the assignor or transferor hereunder. Each of
the Senior Creditors and the Junior Creditors agrees that it shall deliver a
complete copy of this Agreement to any potential assignee, transferee or
successor of such Senior Creditor or Junior Creditor prior to the execution of
any such assignment or transfer. Any Senior Lender or Junior Lender may, without
the consent of the other Participating Creditors, sell one or more
participations in its Loans, the Swingline Loans or Letters of Credit, as the
case may be, held by it or issued pursuant to the terms and conditions of the
Senior Credit Agreement or Junior Credit Agreement, as the case may be;
provided, however, that (except as otherwise specified herein) each of the
Senior Creditors and the Junior Creditors shall remain liable to each other for
the full performance of their obligations hereunder with the same effect as
though no such participation had been sold and as though any and all amounts,
payments or security received by a participant with whom it dealt in respect of
the loan participation were received by such party and shall continue to deal
solely and directly with each other with respect to their respective rights and
obligations under this Agreement.
SECTION 5.08. Severability. In case any one or more of the
provisions contained in this Agreement should be invalid, illegal or
unenforceable in any respect, the validity, legality and enforceability of the
remaining provisions contained herein shall not in any way be affected or
impaired thereby.
SECTION 5.09. Counterparts. This Agreement may be executed in more
than one counterpart, each of which shall constitute an original but all of
which, when taken together, shall constitute but one instrument. Delivery of an
executed signature page to this Agreement by facsimile transmission shall be
effective as delivery of a manually executed counterpart hereof.
SECTION 5.10. Headings. The section headings of this Agreement are
for purposes of reference only and shall not limit or otherwise affect the
meaning or construction of any provisions hereof.
SECTION 5.11. Termination. This Agreement shall terminate
automatically upon the indefeasible payment in full in cash of the outstanding
Senior Obligations or the outstanding Junior Obligations; provided, however,
that Section 4.02(c), Section 5.02, Section 5.03 and this Section 5.11 shall
survive, and remain operative and in full force and effect, regardless of the
termination of this Agreement.
<PAGE> 202
18
SECTION 5.12. Complete Agreement. This Agreement constitutes the
entire agreement between the parties hereto with respect to the subject matter
hereof and supersedes all prior representations, negotiations, writings,
memoranda and agreements. To the extent any provision of this Agreement
conflicts with any other Senior Loan Document or Junior Loan Document, the
provisions of this Agreement shall be controlling.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and delivered by their respective duly authorized officers, all
as of the day and year first above written.
HECHINGER INVESTMENT COMPANY OF
DELAWARE, INC.,
by
/s/ Mark R. Adams
---------------------------
Name: Mark R. Adams
Title: Executive Vice President
CENTERS HOLDINGS, INC.,
by
/s/ Mark R. Adams
---------------------------
Name: Mark R. Adams
Title: Executive Vice President
BSQ ACQUISITION, INC.,
by
/s/ Mark R. Adams
---------------------------
Name: Mark R. Adams
Title: Executive Vice President
BSQ TRANSFEREE CORP.,
by
/s/ Mark R. Adams
---------------------------
Name: Mark R. Adams
Title: Executive Vice President
HECHINGER COMPANY,
by
/s/ Mark R. Adams
---------------------------
Name: Mark R. Adams
Title: Executive Vice President
<PAGE> 203
HECHINGER STORES COMPANY,
by
/s/ Mark R. Adams
---------------------------
Name: Mark R. Adams
Title: Executive Vice President
HECHINGER STORES EAST COAST
COMPANY,
by
/s/ Mark R. Adams
---------------------------
Name: Mark R. Adams
Title: Executive Vice President
THE SUBSIDIARY GUARANTORS
LISTED ON SCHEDULE I HERETO,
by
/s/ Mark R. Adams
-----------------------------
Name: Mark R. Adams
Title: Authorized Officer
THE CHASE MANHATTAN BANK, as Senior
Agent,
by
/s/ Craig T. Moore
---------------------------
Name: Craig T. Moore
Title: Managing Director
BANKAMERICA BUSINESS CREDIT, INC.,
as an Additional Agent,
by
/s/ Daniel J. Ujfalvsky
---------------------------
Name: Daniel J. Ujfalvsky
Title: Senior Vice President
<PAGE> 204
CITICORP USA, INC., as an Additional Agent,
by
/s/ Michael M. Leyland
---------------------------
Name: Michael M. Leyland
Title: Attorney-In-Fact
THE CHASE MANHATTAN BANK, as Junior
Agent,
by
/s/ Craig T. Moore
---------------------------
Name: Craig T. Moore
Title: Managing Director
GREEN EQUITY INVESTORS II, L.P.,
by GRAND AVENUE CAPITAL
PARTNERS, L.P., a Delaware
limited partnership, its general
partner,
by GRAND AVENUE CAPITAL
CORPORATION, a Delaware
corporation, its general partner
by
/s/ Gregory J. Annick
----------------------------
Name: Gregory J. Annick
Title: Vice President
KMART CORPORATION,
by
/s/ Michael J. Viola
----------------------------
Name: Michael J. Viola
Title: Vice President and Treasurer
<PAGE> 205
SCHEDULE I
to the Intercreditor Agreement
Subsidiary Guarantors
<PAGE> 206
EXHIBIT K
CONFORMED COPY
LOAN PURCHASE AGREEMENT dated as
of December 31, 1998, among GREEN EQUITY
INVESTORS II, L.P., a Delaware limited
partnership (the "Purchaser"), the lenders
listed on Schedule I hereto (the "Lenders")
and THE CHASE MANHATTAN BANK, as Agent (as
defined below).
Reference is made to the Credit Agreement dated as of December 31,
1998 (as amended, supplemented or otherwise modified from time to time, the
"Credit Agreement"), among Hechinger Investment Company of Delaware, Inc., a
Delaware corporation (the "Borrower"), Centers Holdings, Inc., BSQ Acquisition,
Inc., BSQ Transferee Corp., Hechinger Company, Hechinger Stores Company,
Hechinger Stores East Coast Company, the Lenders and The Chase Manhattan Bank,
as administrative agent (in such capacity, the "Agent") and as collateral agent
for the Lenders.
The Purchaser, desiring to provide credit support for the Loans,
wishes to grant the Agent the right, exercisable in the event the Loans are
accelerated, to put to the Purchaser in a single transaction a portion of the
Loans, together with a portion of the Lenders' other rights and obligations
under the Credit Agreement, representing up to 20% of the aggregate Total
Exposure (not to exceed in aggregate $10,000,000) (the "Purchase Transaction").
NOW, THEREFORE, the Purchaser, the Lenders and the Agent hereby
agree as follows:
SECTION 1. Defined Terms. (a) Capitalized terms used but not defined
herein shall have the meanings assigned to such terms in the Credit Agreement.
(b) As used in this Agreement, the following terms have the meanings
specified below:
"Acceleration Date" means the date on which there occurs a Specified
Event of Default.
"Approved Bank" means a commercial bank of recognized standing,
organized under the laws of the United States of America or a state thereof,
that has combined capital and surplus and undivided profits of not less than
$500,000,000 and that is rated (or the senior debt securities of the holding
company of such bank are rated) A or better by S&P or A2 by Moody's.
"Assigned Interests" means the Loans (the "Assigned Loans"),
together with the Lenders' other rights and obligations under the Credit
Agreement and the other Loan Documents, including interests in participations in
Swingline Loans and Letters of Credit, corresponding to the aggregate Total
Exposure being assigned to and assumed by the Purchaser in connection with the
Purchase Transaction.
"Available Guarantee Amount" means, as of any date, the lesser of
(a) 20% of the aggregate Total Exposures of all the Lenders (including the
Purchaser and Kmart) as of such date and (b) $10,000,000.
"Effective Date" means (a) the date specified by the Agent in the
Purchase Notice or (b) such other Business Day as the Agent, the Required
Lenders and the Purchaser shall mutually agree, provided that in the event of a
Purchaser Bankruptcy Event of Default, the Effective Date shall be the
applicable Acceleration Date without any action by any Person.
"Purchase Price" means, with respect to the Assigned Interests being
assigned to and assumed by the Purchaser in the Purchase Transaction, an amount
determined as of the Effective Date equal to the sum of (a) the aggregate
principal amount of the Assigned Loans that are a part of such Assigned
Interests, (b) the aggregate principal amount of any participations in Swingline
Loans that are a part of such Assigned Interests, (c) the aggregate principal
amount of any participations in unreimbursed
<PAGE> 207
LC Disbursements that are a part of such Assigned Interests, (d) all unpaid
interest accrued to but excluding the Effective Date in respect of such Assigned
Interests, (c) all unpaid fees accrued to but excluding the Effective Date in
respect of such Assigned Interests and (d) all expenses accrued through the
Effective Date and payable under the terms of the Credit Agreement in respect of
such Assigned Interests.
"Purchaser Bankruptcy Event of Default" means a Specified Event of
Default arising with respect to the Purchaser under paragraph (h) or (i) of
Article VII of the Credit Agreement or under paragraph (h) or (i) of Article VII
of the Amended Existing Credit Agreement.
"Purchase Notice" means the written notice given (or deemed given)
by the Agent pursuant to Section 2(b) notifying the Purchaser of the Agent's
exercise, on behalf of the Lenders, of the Lenders' right pursuant to Section 2
to require the Purchaser to purchase a portion of the Loans and the Lenders'
other rights and obligations under the Credit Agreement.
"Purchase Transaction" has the meaning assigned to such term in the
introductory paragraphs of this Agreement.
"Required Lenders" means, at any time, Lenders having Total
Exposures and unused Revolving Commitments representing more than 50% of the sum
of the Total Exposures and unused Revolving Commitments at such time.
"Specified Event of Default' means (a) any Event of Default
described in paragraph (a), (b), (h) or (i) of Article VII of the Credit
Agreement, (b) pursuant to Article VII of the Credit Agreement, the termination
by the Agent of the Commitments and the declaration by the Agent that the Loans
then outstanding are immediately due and payable in whole, (c) any "Event of
Default" described in paragraph (a), (b), (h) or (i) of Article VII of the
Amended Existing Credit Agreement or (d) pursuant to Article VII of the Amended
Existing Credit Agreement, the termination of the Existing Facility and the
declaration that the Existing Revolving Loans then outstanding are immediately
due and payable in whole, provided that for the purpose of this definition and
the definition of the term "Purchaser Bankruptcy Event of Default", the term
"Holdings Group" as used in paragraph (h) or (i) of Article VII of the Credit
Agreement and paragraph (h) or (i) of Article VII of the Amended Exiting Credit
Agreement also shall include the Purchaser.
"Termination Date" has the meaning assigned to such term in Section
6.
(c) The rules of interpretation specified in Section 1.03 of the
Credit Agreement shall be applicable to this Agreement.
SECTION 2. Unconditional Obligation to Purchase Loans. (a) The
Purchaser hereby agrees that (i) upon its receipt from the Agent of the Purchase
Notice as provided in Section 2(b), the Purchaser shall purchase from the
Lenders on the Effective Date Assigned Interests representing the aggregate
Total Exposure specified in the Purchase Notice or (ii) upon a Purchaser
Bankruptcy Event of Default, the Purchaser shall be automatically deemed to have
purchased from the Lenders on the Effective Date Assigned Interests representing
an aggregate Total Exposure equal to the Available Guarantee Amount, without
actual delivery of a Purchase Notice or other notice of any kind, all of which
are hereby irrevocably waived; provided, however, that in no event shall the
Purchaser be required in any Purchase Transaction to purchase Assigned Interests
representing an aggregate Total Exposure in excess of the Available Guarantee
Amount as determined as of the Effective Date. The Purchaser shall purchase such
Assigned Interests on a pro rata basis from all Lenders based on the Total
Exposure of each Lender as of the Effective Date. Except as provided in Section
6, (i) the Purchase Transaction shall be effected in a single transaction on a
single Effective Date and (ii) upon the consummation of the Purchase
Transaction, the Purchaser shall not be obligated pursuant to this Agreement to
purchase any additional Assigned Interests.
<PAGE> 208
3
(b) The Agent may, and at the request of the Required Lenders shall,
deliver the Purchase Notice to the Purchaser at any time on or after the
Acceleration Date. The Purchase Notice shall specify the following information:
(i) the Effective Date, which shall be a Business Day and may not be
less than 10 Business Days after the Purchaser receives the Purchase
Notice;
(ii) the portion of the Lenders' aggregate Total Exposures
represented by the Assigned Interests, both as a percentage (which may
not exceed 20%) and as an absolute amount (which may not exceed the
Available Guarantee Amount);
(iii) a description of the Assigned Interests, including the
aggregate principal amount of the Assigned Loans and the amount of
Swingline Exposure and LC Exposure to be assumed;
(iv) the calculation of the Purchase Price with respect to such
Assigned Interests; and
(v) the location and number of the Agent's account to which the
Purchase Price is to be paid.
A Purchase Notice delivered to the Purchaser not later than 12:00 noon, New York
City time, on a Business Day shall be deemed delivered on such Business Day and
otherwise the Purchase Notice shall be deemed delivered on the next succeeding
Business Day. The Agent promptly shall deliver a copy of the Purchase Notice to
the Lenders. Notwithstanding anything to the contrary set forth above, in the
event of a Purchaser Bankruptcy Event of Default, the Purchase Notice shall be
deemed to have been delivered to, and received by, the Purchaser as of the
applicable Acceleration Date without any action by any Person.
(c) The Purchaser hereby absolutely and unconditionally agrees, upon
receipt (or the deemed receipt) of the Purchase Notice as provided in paragraph
(b), to pay on the Effective Date to the Agent, for the account of the Lenders,
the Purchase Price for the Assigned Interests described in the Purchase Notice
and to assume all the obligations of the Lenders under the Loan Documents with
respect to such Assigned Interests. Upon receipt of the Purchase Price on the
Effective Date, the Lenders hereby absolutely and unconditionally agree to sell
and assign to the Purchaser the Assigned Interests described in the Purchase
Notice effective as of the Effective Date.
(d) From and after the Effective Date, the Purchaser shall be a
party to the Credit Agreement and, to the extent of the Assigned Interests, have
the rights and obligations of a Lender under the Credit Agreement, and each
Lender shall, to the extent of the Assigned Interests sold and assigned by it,
be released from its obligations under the Credit Agreement (and, if a Lender
shall have assigned to the Purchaser all the Lender's remaining rights and
obligations under the Credit Agreement, such Lender shall cease to be a party to
the Credit Agreement but shall continue to be entitled to the benefits of
Sections 2.15, 2.16, 2.17 and 9.03 of the Credit Agreement). As of the Effective
Date, each of the Lenders, the Purchaser and the Agent shall execute and deliver
such Assignment and Assumption Agreements in the form attached hereto as Exhibit
A as shall be necessary or desirable to evidence the assignment and assumption
of each Lender's Assigned Interests hereby.
(e) Each of the Borrower, the Agents, the Issuing Bank and the
Swingline Lender, by their acknowledgment of this Agreement, consents to the
assignments and purchases provided for in this Section 2 and agrees that the
Purchaser shall have all the rights of a Lender under the Credit Agreement with
respect to the Assigned Interests purchased by it pursuant to this Section 2.
The Agent hereby waives the recordation fee of $3,500 provided for in Section
9.04(b) of the Credit Agreement. Each assignment
<PAGE> 209
4
and assumption of an Assigned Interest effected in compliance with this
Agreement shall be deemed to comply with Section 9.04(b) of the Credit
Agreement.
(f) The Purchaser acknowledges and agrees that its obligations
pursuant to this Section 2 are absolute and unconditional and shall not be
affected by any circumstance whatsoever, including the existence of any Default
or Event of Default under the Credit Agreement or the acceleration of the Loans
by the Agent or the Required Lenders, and that payment of the Purchase Price
shall be made without offset, abatement, withholding or reduction whatsoever.
The purchase of Loans pursuant to this Section 2 shall not relieve the Borrower
of any default in the payment thereof.
(g) On the Effective Date, the Purchaser shall wire transfer to the
Agent the Purchase Price for the Assigned Interests to be purchased by the
Purchaser on the Effective Date, in immediately available funds, in the same
manner as provided in Section 2.06 of the Credit Agreement with respect to Loans
made by a Lender (and Section 2.06 is hereby incorporated herein and shall
apply, mutatis mutandis, to the payment obligations of the Purchaser), and the
Agent shall promptly apply all assumptions of interests and payments of amounts
received to reduce the interests of the Lenders and to purchase from the Lenders
the outstanding principal, accrued interest and other charges for the Assigned
Interests with respect to which the Purchase Notice is presented, each on a pro
rata basis.
(h) For all purposes of this Agreement, (i) Assigned Interests
purchased by the Purchaser pursuant to this Agreement may not be put by the
Agent or the Purchaser to Kmart pursuant to the Kmart Credit Enhancement
Agreement and (ii) Assigned Interests purchased by Kmart pursuant to the Kmart
Credit Enhancement Agreement may not be put by the Agent or Kmart to the
Purchaser pursuant to this Agreement. The Agent shall note on the Register these
restrictions on the Assigned Interests sold to the Purchaser pursuant hereto and
to Kmart pursuant to the Kmart Credit Enhancement Agreement. Each reference to
the Lenders in this Agreement shall be deemed to not include the Purchaser or
Kmart in their capacity as holders of such Assigned Interests except as
otherwise expressly provided herein.
(i) No Lender may require the Agent to take or refrain from taking
any action hereunder except as and to the extent expressly set forth in this
Agreement.
SECTION 3. Credit Support. The Purchaser shall obtain as account
party as of the date hereof and shall maintain until the Termination Date for
the benefit of the Agent and the Lenders a standby letter of credit from an
Approved Bank in the amount of $10,000,000. Such letter of credit shall be in
form and substance satisfactory to the Agent and shall provide that the Agent
may draw on such letter of credit in connection with the Purchase Transaction in
an amount up to the Purchase Price payable in connection with the Purchase
Transaction to the extent that the Purchaser fails to pay such Purchase Price on
the Effective Date.
SECTION 4. No Amendment or Waiver of the Loan Documents. None of the
Borrower, the Agent or any Lender shall approve any waiver, amendment or
modification of the Credit Agreement or any other Loan Document without the
written consent of the Purchaser. Without the consent of the Purchaser, the
Borrower shall not approve any amendment, waiver or modification of the Existing
Loan Documents, to the extent that such amendment, modification or waiver would
be adverse to the interests of the Purchaser.
SECTION 5. Information. (a) The Purchaser assumes all responsibility
for being and keeping itself informed of the Borrower's financial condition and
assets, and of all other circumstances bearing upon the risk of nonpayment of
the Loans and the nature, scope and extent of the risks that the Purchaser
assumes and incurs hereunder, and agrees that none of the Agent or the Lenders
will have any
<PAGE> 210
5
duty to advise the Purchaser of information known to it or any of
them regarding such circumstances or risks.
(b) The Borrower hereby agrees to (i) provide the Purchaser with
(A) copies of each report or other document provided by or on behalf of any
member of the Holdings Group to the Lenders under the Credit Agreement or the
"Lenders" under the Amended Existing Credit Agreement and (B) such other
information regarding the operations, business affairs and financial condition
of any member of the Holdings Group as the Purchaser may reasonably request and
(ii) provide the Purchaser with notice of, and permit the Purchaser to
participate in or attend, any conference call or bank meeting conducted by
Holdings pursuant to Section 5.09(e) or (f), respectively, of the Credit
Agreement.
SECTION 6. Termination; Reinstatement. This Agreement (a) shall
terminate as of the date (the "Termination Date") that is the earlier of (i)
the date on which the Purchase Price has been paid in full with respect to the
Purchase Transaction and (ii) the date on which (A) the aggregate principal
amount of all outstanding Loans has been paid in full, (B) the aggregate
principal amount of any participations in unreimbursed LC Disbursements has
been paid in full, (C) all accrued and unpaid interest and fees have been paid
in full, (D) all expenses reimbursable to the Lenders pursuant to Section 9.03
of the Credit Agreement have been paid in full, (E) the LC Exposure is zero and
(F) the Lenders have no further commitment to lend under the Credit Agreement
and (b) shall continue to be effective or be reinstated, as the case may be, if
at any time payment, or any part thereof, of the Purchase Price or an
Obligation is rescinded or must otherwise be restored by any Lender, Secured
Party or Guarantor upon the bankruptcy or reorganization of the Purchaser, the
Borrower, any Guarantor or otherwise. In the event that any such payment of an
Obligation is rescinded or must otherwise be restored, such amount shall be
deemed to have been outstanding on the Effective Date and included in the
Lenders' aggregate Total Exposures as of such date and, to the extent that
there would have been any unused Available Guarantee Amount on the Effective
Date after giving effect to the increase in the Lenders' aggregate Total
Exposure and to the Purchase Transaction, the Purchaser shall be required to
purchase additional Assigned Interests of the Lenders representing such
rescinded or restored payment (but not exceeding the amount of such unused
Available Guarantee Amount) on the same basis as provided in Section 2 hereof
with respect to the Purchase Transaction.
SECTION 7. Successors and Assigns. Subject to Section 2(h), this
Agreement shall be binding on and inure to the benefit of the Purchaser, the
Agent, each of the Lenders and their respective successors and permitted
assigns (including any assignee of any Lender in accordance with the Credit
Agreement); provided, however, that, except as provided in the next succeeding
sentence, no Lender may assign its rights or obligations hereunder. The rights
and obligations of any Lender under this Agreement shall be assigned
automatically (without the need for the execution of any document or any other
action) to, and, subject to Section 2(h), the term "Lender" as used in this
Agreement shall include, any assignee, transferee or successor of such Lender
under the Credit Agreement in accordance with the terms of and upon the
effectiveness of an assignment pursuant to Section 9.04 of the Credit
Agreement, and any such assignee, transferee or successor shall automatically
become a party to this Agreement. Each of the Lenders agrees that it shall
deliver a complete copy of this Agreement to any potential assignee, transferee
or successor of such Lender prior to the execution of any such assignment or
transfer. The Purchaser shall not have the right to assign its rights or
obligations hereunder or any interest herein (and any such attempted assignment
shall be void).
SECTION 8. Waivers; Amendment. (a) No failure or delay of the Agent
or a Lender in exercising any power or right hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise of any such right or
power, or any abandonment or discontinuance of steps to enforce such a right or
power, preclude any other or further exercise thereof or the exercise of any
other right or power. The rights and remedies of the Agent hereunder and of the
other Secured Parties under the other Loan
<PAGE> 211
6
Documents are cumulative and are not exclusive of any rights or remedies that
they would otherwise have. No waiver of any provision of this Agreement or
consent to any departure by the Purchaser therefrom shall in any event be
effective unless the same shall be permitted by paragraph (b) below, and then
such waiver or consent shall be effective only in the specific instance and for
the purpose for which given. No notice or demand on the Purchaser in any case
shall entitle the Purchaser to any other or further notice or demand in similar
or other circumstances.
(b) Neither this Agreement nor any provision hereof may be waived,
amended or modified except pursuant to a written agreement entered into between
the Purchaser and the Agent, with the prior written consent of the Required
Lenders (except as otherwise provided in the Credit Agreement).
SECTION 9. Governing Law. (A) THIS AGREEMENT SHALL BE GOVERNED BY,
AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
(B) EACH PARTY HERETO HEREBY AGREES WITH THE OTHER PARTIES HERETO
AS SET FORTH IN SECTION 9.10 OF THE CREDIT AGREEMENT AS IF SUCH SECTION WERE SET
FORTH IN FULL HEREIN.
SECTION 10. Notices. All communications and notices hereunder shall
be in writing and given as provided in Section 9.01 of the Credit Agreement,
except that notices to the Purchaser shall be given as provided in Section 5.01
of the Intercreditor Agreement.
SECTION 11. Survival of Agreement; Severability. (a) All covenants,
agreements, representations and warranties made by the Purchaser herein and in
the certificates or other instruments prepared or delivered in connection with
or pursuant to this Agreement shall be considered to have been relied upon by
the Agent and the Lenders and shall survive the making by the Lenders of the
Loans and the issuance of the Letters of Credit by the Issuing Bank regardless
of any investigation made by the Secured Parties on their behalf, and shall
continue in full force and effect until this Agreement terminates as provided
in Section 6.
(b) In the event any one or more of the provisions contained in
this Agreement or in any other Loan Document should be held invalid, illegal or
unenforceable in any respect, the validity, legality and enforceability of the
remaining provisions contained herein and therein shall not in any way be
affected or impaired thereby (it being understood that the invalidity of a
particular provision in a particular jurisdiction shall not in and of itself
affect the validity of such provision in any other jurisdiction). The parties
shall endeavor in good-faith negotiations to replace the invalid, illegal or
unenforceable provisions with valid provisions the economic effect of which
comes as close as possible to that of the invalid, illegal or unenforceable
provisions.
SECTION 12. Counterparts. This Agreement may be executed in
counterparts, each of which shall constitute an original, but all of which when
taken together shall constitute a single contract. This Agreement shall become
effective as to the Purchaser when a counterpart hereof executed on behalf of
the Purchaser shall have been delivered to the Agent, and a counterpart hereof
shall have been executed on behalf of the Agent. Delivery of an executed
signature page to this Agreement by facsimile transmission shall be effective
as delivery of a manually executed counterpart of this Agreement.
SECTION 13. Loan Document. This Agreement shall constitute a Loan
Document for all purposes.
<PAGE> 212
7
SECTION 14. Expenses; Indemnity; Intercreditor Agreement. The
Borrower hereby agrees with the other parties hereto as set forth in Section
9.03 of the Credit Agreement as if such Section were set forth in full herein
and the Purchaser shall be deemed to be a Lender and indemnitee thereunder.
<PAGE> 213
8
IN WITNESS WHEREOF, the parties hereto have caused this Purchase
Agreement to be duly executed by their duly authorized officers, all as of the
date and year first above written.
GREEN EQUITY INVESTORS II, L.P.,
by GRAND AVENUE CAPITAL PARTNERS,
L.P., a Delaware limited
partnership, its general partner
by GRAND AVENUE CAPITAL CORPORATION,
a Delaware corporation, its
general partner
by
/s/ Gregory J. Annick
---------------------------
Name: Gregory J. Annick
Title: Vice President
THE CHASE MANHATTAN BANK, as Agent,
by
/s/ Craig T. Moore
---------------------------
Name: Craig T. Moore
Title: Managing Director
<PAGE> 214
9
SIGNATURE PAGE TO
LOAN PURCHASE AGREEMENT
DATED AS OF DECEMBER 31, 1998
THE CHASE MANHATTAN BANK,
by/s/ Craig T. Moore
-------------------------
Name: Craig T. Moore
Title: Managing Director
<PAGE> 215
10
Acknowledged and Agreed to
as of December 31, 1998,
HECHINGER INVESTMENT COMPANY
OF DELAWARE, INC.,
by /s/ Mark R. Adams
----------------------------
Name: Mark R. Adams
Title: Executive Vice President
<PAGE> 216
SCHEDULE I
Lenders
The Chase Manhattan Bank
<PAGE> 217
EXHIBIT L
LOAN PURCHASE AGREEMENT dated as
of December 31, 1998, among KMART
CORPORATION, a Michigan corporation, (the
"Purchaser"), the lenders listed on Schedule
I hereto (the "Lenders") and THE CHASE
MANHATTAN BANK, as Agent (as defined below).
Reference is made to the Credit Agreement dated as of December 31,
1998 (as amended, supplemented or otherwise modified from time to time, the
"Credit Agreement"), among Hechinger Investment Company of Delaware, Inc., a
Delaware corporation (the "Borrower"), Centers Holdings, Inc., BSQ Acquisition,
Inc., BSQ Transferee Corp., Hechinger Company, Hechinger Stores Company,
Hechinger Stores East Coast Company, the Lenders and The Chase Manhattan Bank,
as administrative agent (in such capacity, the "Agent") and as collateral agent
for the Lenders.
The Purchaser, desiring to provide credit support for the Loans,
wishes to grant the Agent the right, exercisable in the event the Loans are
accelerated, to put to the Purchaser in a single transaction a portion of the
Loans, together with a portion of the Lenders' other rights and obligations
under the Credit Agreement, representing up to 80% of the aggregate Total
Exposure (not to exceed in aggregate $40,000,000) (the "Purchase Transaction").
NOW, THEREFORE, the Purchaser, the Lenders and the Agent hereby
agree as follows:
SECTION 1. Defined Terms. (a) Capitalized terms used but not defined
herein shall have the meanings assigned to such terms in the Credit Agreement.
(b) As used in this Agreement, the following terms have the meanings
specified below:
"Acceleration Date" means the date on which there occurs a Specified
Event of Default.
"Assigned Interests" means the Loans (the "Assigned Loans"),
together with the Lenders' other rights and obligations under the Credit
Agreement and the other Loan Documents, including interests in participations in
Swingline Loans and Letters of Credit, corresponding to the aggregate Total
Exposure being assigned to and assumed by the Purchaser in connection with the
Purchase Transaction.
"Available Guarantee Amount" means, as of any date, the lesser of
(a) 80% of the aggregate Total Exposures of all the Lenders (including the
Purchaser and GEI II) as of such date and (b) $40,000,000.
"Effective Date" means (a) the date specified by the Agent in the
Purchase Notice or (b) such other Business Day as the Agent, the Required
Lenders and the Purchaser shall mutually agree, provided that in the event of a
Purchaser Bankruptcy Event of Default, the Effective Date shall be the
applicable Acceleration Date without any action by any Person.
"Purchase Price" means, with respect to the Assigned Interests being
assigned to and assumed by the Purchaser in the Purchase Transaction, an amount
determined as of the Effective Date equal to the sum of (a) the aggregate
principal amount of the Assigned Loans that are a part of such Assigned
Interests, (b) the aggregate principal amount of any participations in Swingline
Loans that are a part of such Assigned Interests, (c) the aggregate principal
amount of any participations in unreimbursed LC Disbursements that are a part of
such Assigned Interests, (d) all unpaid interest accrued to but excluding the
Effective Date in respect of such Assigned Interests, (c) all unpaid fees
accrued to but excluding the Effective Date in respect of such Assigned
Interests and (d) all expenses accrued through the Effective Date and payable
under the terms of the Credit Agreement in respect of such Assigned Interests.
<PAGE> 218
"Purchaser Bankruptcy Event of Default" means a Specified Event of
Default arising with respect to the Purchaser under paragraph (h) or (i) of
Article VII of the Credit Agreement or under paragraph (h) or (i) of Article VII
of the Amended Existing Credit Agreement.
"Purchase Notice" means the written notice given (or deemed given)
by the Agent pursuant to Section 2(b) notifying the Purchaser of the Agent's
exercise, on behalf of the Lenders, of the Lenders' right pursuant to Section 2
to require the Purchaser to purchase a portion of the Loans and the Lenders'
other rights and obligations under the Credit Agreement.
"Purchase Transaction" has the meaning assigned to such term in the
introductory paragraphs of this Agreement.
"Required Lenders" means, at any time, Lenders having Total
Exposures and unused Revolving Commitments representing more than 50% of the sum
of the Total Exposures and unused Revolving Commitments at such time.
"Specified Event of Default' means (a) any Event of Default
described in paragraph (a), (b), (h) or (i) of Article VII of the Credit
Agreement, (b) pursuant to Article VII of the Credit Agreement, the termination
by the Agent of the Commitments and the declaration by the Agent that the Loans
then outstanding are immediately due and payable in whole, (c) any "Event of
Default" described in paragraph (a), (b), (h) or (i) of Article VII of the
Amended Existing Credit Agreement or (d) pursuant to Article VII of the Amended
Existing Credit Agreement, the termination of the Existing Facility and the
declaration that the Existing Revolving Loans then outstanding are immediately
due and payable in whole, provided that for the purpose of this definition and
the definition of the term "Purchaser Bankruptcy Event of Default", the term
"Holdings Group" as used in paragraph (h) or (i) of Article VII of the Credit
Agreement and paragraph (h) or (i) of Article VII of the Amended Exiting Credit
Agreement also shall include the Purchaser.
"Termination Date" has the meaning assigned to such term in Section
6.
(c) The rules of interpretation specified in Section 1.03 of the
Credit Agreement shall be applicable to this Agreement.
SECTION 2. Unconditional Obligation to Purchase Loans. (a) The
Purchaser hereby agrees that (i) upon its receipt from the Agent of the Purchase
Notice as provided in Section 2(b), the Purchaser shall purchase from the
Lenders on the Effective Date Assigned Interests representing the aggregate
Total Exposure specified in the Purchase Notice or (ii) upon a Purchaser
Bankruptcy Event of Default, the Purchaser shall be automatically deemed to have
purchased from the Lenders on the Effective Date Assigned Interests representing
an aggregate Total Exposure equal to the Available Guarantee Amount, without
actual delivery of a Purchase Notice or other notice of any kind, all of which
are hereby irrevocably waived; provided, however, that in no event shall the
Purchaser be required in any Purchase Transaction to purchase Assigned Interests
representing an aggregate Total Exposure in excess of the Available Guarantee
Amount as determined as of the Effective Date. The Purchaser shall purchase such
Assigned Interests on a pro rata basis from all Lenders based on the Total
Exposure of each Lender as of the Effective Date. Except as provided in Section
5, (i) the Purchase Transaction shall be effected in a single transaction on a
single Effective Date and (ii) upon the consummation of the Purchase
Transaction, the Purchaser shall not be obligated pursuant to this Agreement to
purchase any additional Assigned Interests.
(b) The Agent may, and at the request of the Required Lenders shall,
deliver the Purchase Notice to the Purchaser at any time on or after the
Acceleration Date. The Purchase Notice shall specify the following information:
(i) the Effective Date, which shall be a Business Day and may not be
less than 10 Business Days after the Purchaser receives the Purchase
Notice;
<PAGE> 219
3
(ii) the portion of the Lenders' aggregate Total Exposures
represented by the Assigned Interests, both as a percentage (which may not
exceed 80%) and as an absolute amount (which may not exceed the Available
Guarantee Amount);
(iii) a description of the Assigned Interests, including the
aggregate principal amount of the Assigned Loans and the amount of
Swingline Exposure and LC Exposure to be assumed;
(iv) the calculation of the Purchase Price with respect to such
Assigned Interests; and
(v) the location and number of the Agent's account to which the
Purchase Price is to be paid.
A Purchase Notice delivered to the Purchaser not later than 12:00 noon, New York
City time, on a Business Day shall be deemed delivered on such Business Day and
otherwise the Purchase Notice shall be deemed delivered on the next succeeding
Business Day. The Agent promptly shall deliver a copy of the Purchase Notice to
the Lenders. Notwithstanding anything to the contrary set forth above, in the
event of a Purchaser Bankruptcy Event of Default, the Purchase Notice shall be
deemed to have been delivered to, and received by, the Purchaser as of the
applicable Acceleration Date without any action by any Person.
(c) The Purchaser hereby absolutely and unconditionally agrees, upon
receipt (or the deemed receipt) of the Purchase Notice as provided in paragraph
(b), to pay on the Effective Date to the Agent, for the account of the Lenders,
the Purchase Price for the Assigned Interests described in the Purchase Notice
and to assume all the obligations of the Lenders under the Loan Documents with
respect to such Assigned Interests. Upon receipt of the Purchase Price on the
Effective Date, the Lenders hereby absolutely and unconditionally agree to sell
and assign to the Purchaser the Assigned Interests described in the Purchase
Notice effective as of the Effective Date.
(d) From and after the Effective Date, the Purchaser shall be a
party to the Credit Agreement and, to the extent of the Assigned Interests, have
the rights and obligations of a Lender under the Credit Agreement, and each
Lender shall, to the extent of the Assigned Interests sold and assigned by it,
be released from its obligations under the Credit Agreement (and, if a Lender
shall have assigned to the Purchaser all the Lender's remaining rights and
obligations under the Credit Agreement, such Lender shall cease to be a party to
the Credit Agreement but shall continue to be entitled to the benefits of
Sections 2.15, 2.16, 2.17 and 9.03 of the Credit Agreement). As of the Effective
Date, each of the Lenders, the Purchaser and the Agent shall execute and deliver
such Assignment and Assumption Agreements in the form attached hereto as Exhibit
A as shall be necessary or desirable to evidence the assignment and assumption
of each Lender's Assigned Interests hereby.
(e) Each of the Borrower, the Agents, the Issuing Bank and the
Swingline Lender, by their acknowledgment of this Agreement, consents to the
assignments and purchases provided for in this Section 2 and agrees that the
Purchaser shall have all the rights of a Lender under the Credit Agreement with
respect to the Assigned Interests purchased by it pursuant to this Section 2.
The Agent hereby waives the recordation fee of $3,500 provided for in Section
9.04(b) of the Credit Agreement. Each assignment and assumption of an Assigned
Interest effected in compliance with this Agreement shall be deemed to comply
with Section 9.04(b) of the Credit Agreement.
(f) The Purchaser acknowledges and agrees that its obligations
pursuant to this Section 2 are absolute and unconditional and shall not be
affected by any circumstance whatsoever, including the existence of any Default
or Event of Default under the Credit Agreement or the acceleration of the Loans
by the Agent or the Required Lenders, and that payment of the Purchase Price
shall be made without offset,
<PAGE> 220
4
abatement, withholding or reduction whatsoever. The purchase of Loans pursuant
to this Section 2 shall not relieve the Borrower of any default in the payment
thereof.
(g) On the Effective Date, the Purchaser shall wire transfer to the
Agent the Purchase Price for the Assigned Interests to be purchased by the
Purchaser on the Effective Date, in immediately available funds, in the same
manner as provided in Section 2.06 of the Credit Agreement with respect to Loans
made by a Lender (and Section 2.06 is hereby incorporated herein and shall
apply, mutatis mutandis, to the payment obligations of the Purchaser), and the
Agent shall promptly apply all assumptions of interests and payments of amounts
received to reduce the interests of the Lenders and to purchase from the Lenders
the outstanding principal, accrued interest and other charges for the Assigned
Interests with respect to which the Purchase Notice is presented, each on a pro
rata basis.
(h) For all purposes of this Agreement, (i) Assigned Interests
purchased by the Purchaser pursuant to this Agreement may not be put by the
Agent or the Purchaser to GEI II pursuant to the GEI II Credit Enhancement
Agreement and (ii) Assigned Interests purchased by GEI II pursuant to the GEI II
Credit Enhancement Agreement may not be put by the Agent or GEI II to the
Purchaser pursuant to this Agreement. The Agent shall note on the Register these
restrictions on the Assigned Interests sold to the Purchaser pursuant hereto and
to GEI II pursuant to the GEI II Credit Enhancement Agreement. Each reference to
the Lenders in this Agreement shall be deemed to not include the Purchaser or
GEI II in their capacity as holders of such Assigned Interests except as
otherwise expressly provided herein.
(i) No Lender may require the Agent to take or refrain from taking
any action hereunder except as and to the extent expressly set forth in this
Agreement.
SECTION 3. No Amendment or Waiver of the Loan Documents. None of the
Borrower, the Agent or any Lender shall approve any waiver, amendment or
modification of the Credit Agreement or any other Loan Document without the
written consent of the Purchaser. Without the consent of the Purchaser, the
Borrower shall not approve any amendment, waiver or modification of the Existing
Loan Documents, to the extent that such amendment, modification or waiver would
be adverse to the interests of the Purchaser.
SECTION 4. Information. (a) The Purchaser assumes all responsibility
for being and keeping itself informed of the Borrower's financial condition and
assets, and of all other circumstances bearing upon the risk of nonpayment of
the Loans and the nature, scope and extent of the risks that the Purchaser
assumes and incurs hereunder, and agrees that none of the Agent or the Lenders
will have any duty to advise the Purchaser of information known to it or any of
them regarding such circumstances or risks.
(b) The Borrower hereby agrees to (i) provide the Purchaser with (A)
copies of each report or other document provided by or on behalf of any member
of the Holdings Group to the Lenders under the Credit Agreement or the "Lenders"
under the Amended Existing Credit Agreement and (B) such other information
regarding the operations, business affairs and financial condition of any member
of the Holdings Group as the Purchaser may reasonably request and (ii) provide
the Purchaser with notice of, and permit the Purchaser to participate in or
attend, any conference call or bank meeting conducted by Holdings pursuant to
Section 5.09(e) or (f), respectively, of the Credit Agreement.
SECTION 5. Termination; Reinstatement. This Agreement (a) shall
terminate as of the date (the "Termination Date") that is the earlier of (i) the
date on which the Purchase Price has been paid in full with respect to the
Purchase Transaction and (ii) the date on which (A) the aggregate principal
amount of all outstanding Loans has been paid in full, (B) the aggregate
principal amount of any participations in unreimbursed LC Disbursements has been
paid in full, (C) all accrued and unpaid interest and fees have
<PAGE> 221
5
been paid in full, (D) all expenses reimbursable to the Lenders pursuant to
Section 9.03 of the Credit Agreement have been paid in full, (E) the LC Exposure
is zero and (F) the Lenders have no further commitment to lend under the Credit
Agreement and (b) shall continue to be effective or be reinstated, as the case
may be, if at any time payment, or any part thereof, of the Purchase Price or an
Obligation is rescinded or must otherwise be restored by any Lender, Secured
Party or Guarantor upon the bankruptcy or reorganization of the Purchaser, the
Borrower, any Guarantor or otherwise. In the event that any such payment of an
Obligation is rescinded or must otherwise be restored, such amount shall be
deemed to have been outstanding on the Effective Date and included in the
Lenders' aggregate Total Exposures as of such date and, to the extent that there
would have been any unused Available Guarantee Amount on the Effective Date
after giving effect to the increase in the Lenders' aggregate Total Exposure and
to the Purchase Transaction, the Purchaser shall be required to purchase
additional Assigned Interests of the Lenders representing such rescinded or
restored payment (but not exceeding the amount of such unused Available
Guarantee Amount) on the same basis as provided in Section 2 hereof with respect
to the Purchase Transaction.
SECTION 6. Successors and Assigns. Subject to Section 2(h), this
Agreement shall be binding on and inure to the benefit of the Purchaser, the
Agent, each of the Lenders and their respective successors and permitted assigns
(including any assignee of any Lender in accordance with the Credit Agreement);
provided, however, that, except as provided in the next succeeding sentence, no
Lender may assign its rights or obligations hereunder. The rights and
obligations of any Lender under this Agreement shall be assigned automatically
(without the need for the execution of any document or any other action) to,
and, subject to Section 2(h), the term "Lender" as used in this Agreement shall
include, any assignee, transferee or successor of such Lender under the Credit
Agreement in accordance with the terms of and upon the effectiveness of an
assignment pursuant to Section 9.04 of the Credit Agreement, and any such
assignee, transferee or successor shall automatically become a party to this
Agreement. Each of the Lenders agrees that it shall deliver a complete copy of
this Agreement to any potential assignee, transferee or successor of such Lender
prior to the execution of any such assignment or transfer. The Purchaser shall
not have the right to assign its rights or obligations hereunder or any interest
herein (and any such attempted assignment shall be void).
SECTION 7. Waivers; Amendment. (a) No failure or delay of the Agent
or a Lender in exercising any power or right hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise of any such right or power, or
any abandonment or discontinuance of steps to enforce such a right or power,
preclude any other or further exercise thereof or the exercise of any other
right or power. The rights and remedies of the Agent hereunder and of the other
Secured Parties under the other Loan Documents are cumulative and are not
exclusive of any rights or remedies that they would otherwise have. No waiver
of any provision of this Agreement or consent to any departure by the Purchaser
therefrom shall in any event be effective unless the same shall be permitted by
paragraph (b) below, and then such waiver or consent shall be effective only in
the specific instance and for the purpose for which given. No notice or
<PAGE> 222
6
demand on the Purchaser in any case shall entitle the Purchaser to any other
or further notice or demand in similar or other circumstances.
(b) Neither this Agreement nor any provision hereof may be waived,
amended or modified except pursuant to a written agreement entered into between
the Purchaser and the Agent, with the prior written consent of the Required
Lenders (except as otherwise provided in the Credit Agreement).
SECTION 8. GOVERNING LAW. (A) THIS AGREEMENT SHALL BE GOVERNED BY,
AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
(B) EACH PARTY HERETO HEREBY AGREES WITH THE OTHER PARTIES HERETO AS
SET FORTH IN SECTION 9.10 OF THE CREDIT AGREEMENT AS IF SUCH SECTION WERE SET
FORTH IN FULL HEREIN.
SECTION 9. Notices. All communications and notices hereunder shall
be in writing and given as provided in Section 9.01 of the Credit Agreement,
except that notices to the Purchaser shall be given as provided in Section 5.01
of the Intercreditor Agreement.
SECTION 10. Survival of Agreement; Severability. (a) All covenants,
agreements, representations and warranties made by the Purchaser herein and in
the certificates or other instruments prepared or delivered in connection with
or pursuant to this Agreement shall be considered to have been relied upon by
the Agent and the Lenders and shall survive the making by the Lenders of the
Loans and the issuance of the Letters of Credit by the Issuing Bank regardless
of any investigation made by the Secured Parties on their behalf, and shall
continue in full force and effect until this Agreement terminates as provided in
Section 5.
(b) In the event any one or more of the provisions contained in this
Agreement or in any other Loan Document should be held invalid, illegal or
unenforceable in any respect, the validity, legality and enforceability of the
remaining provisions contained herein and therein shall not in any way be
affected or impaired thereby (it being understood that the invalidity of a
particular provision in a particular jurisdiction shall not in and of itself
affect the validity of such provision in any other jurisdiction). The parties
shall endeavor in good-faith negotiations to replace the invalid, illegal or
unenforceable provisions with valid provisions the economic effect of which
comes as close as possible to that of the invalid, illegal or unenforceable
provisions.
SECTION 11. Counterparts. This Agreement may be executed in
counterparts, each of which shall constitute an original, but all of which when
taken together shall constitute a single contract. This Agreement shall become
effective as to the Purchaser when a counterpart hereof executed on behalf of
the Purchaser shall have been delivered to the Agent, and a counterpart hereof
shall have been executed on behalf of the Agent. Delivery of an executed
signature page to this Agreement by facsimile transmission shall be effective as
delivery of a manually executed counterpart of this Agreement.
SECTION 12. Loan Document. This Agreement shall constitute a Loan
Document for all purposes.
<PAGE> 223
7
SECTION 13. Expenses; Indemnity; Intercreditor Agreement. The
Borrower hereby agrees with the other parties hereto as set forth in Section
9.03 of the Credit Agreement as if such Section were set forth in full herein
and the Purchaser shall be deemed to be a Lender and indemnitee thereunder.
IN WITNESS WHEREOF, the parties hereto have caused this Purchase
Agreement to be duly executed by their duly authorized officers, all as of the
date and year first above written.
KMART CORPORATION,
by
---------------------------
Name:
Title:
THE CHASE MANHATTAN BANK, as Agent,
by
---------------------------
Name:
Title:
<PAGE> 224
8
SIGNATURE PAGE TO
LOAN PURCHASE AGREEMENT
DATED AS OF DECEMBER 31, 1998
THE CHASE MANHATTAN BANK,
by
-------------------
Name:
Title:
<PAGE> 225
9
Acknowledged and Agreed to
as of December 31, 1998,
HECHINGER INVESTMENT COMPANY
OF DELAWARE, INC.,
by
-----------------------------
Name:
Title:
<PAGE> 226
SCHEDULE I
Lenders
The Chase Manhattan Bank
<PAGE> 1
EXHIBIT 10(f)
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into as
of ________, between HECHINGER INVESTMENT COMPANY OF DELAWARE, INC. ("Hechinger"
or the "Company") and ___________ (the "Employee").
WHEREAS, the Company and the Employee desire to enter into this Agreement
to assure the Company of the services of the Employee for the benefit of the
Company and to set forth the respective rights and duties of the parties hereto;
WHEREAS, the Company is in the business of owning, operating and managing
stores that in the aggregate provide products and services for the care, repair,
remodeling and maintenance of the home or garden in the geographic region of the
United States ("Business");
NOW, THEREFORE, in consideration of the premises and the mutual
covenants, terms and conditions set forth herein, the Company and the Employee
agree as follows:
ARTICLE 1
Employment
----------
1.1 Employment and Title:
The Company hereby employs the Employee, and the Employee hereby
accepts such employment as the ______________ of the Company, upon the terms and
conditions set forth herein.
1.2 Services.
(a) During the Term of Employment, as set forth later in this
Agreement, the Employee agrees to perform diligently and in good faith such
duties and services of the Company under the direction of _______________
consistent with the position of __________. The Employee agrees to devote his
best efforts and all of his full business time, energies and abilities to the
services to be performed for the Company and for the exclusive benefit of the
Company, provided, that this clause shall not be construed to prevent the
Employee from personally, and for his own account, trading in stocks, bonds,
securities, real estate, or other forms of investment for his own benefit, so
long as any such activity does not interfere with the
<PAGE> 2
performance of his duties to the Company. The Company shall vest the Employee
with such authority as is generally concomitant with the position to which he is
appointed.
1.3 Location.
The principal place of employment and location of the Employee's
principal office and ordinary place of work shall be in Largo, Maryland;
provided, however, the Employee shall, when requested by his superiors, or may,
if he determines it to be reasonably necessary, temporarily perform services
outside said area as are reasonably required for the proper performance of his
duties under this Agreement.
1.4 Exclusivity.
The Employee shall not, without the prior written consent of the
Company, directly or indirectly, during the term of this Agreement render
services of a business, professional or commercial nature to any other person or
entity, whether for compensation or otherwise.
1.5 Representations.
Each party represents and warrants to the other that he/it has full
power and authority to enter into and perform this Agreement and that his/its
execution of and performance of this Agreement shall not constitute a default
under or breach of any of the terms of any agreement to which he/it is a party
or under which he/it is bound. Each party represents that no consent or approval
of any third party is required for his or its execution, delivery and
performance of this Agreement. The Employee further represents and warrants to
the Company that he is free to accept this employment, and that he has no other
obligations or commitments of any kind to any one which would in any way hinder
or interfere with this acceptance of, full performance of his obligations under,
or exercise of his best efforts with respect to, this Agreement.
ARTICLE 2
Term
----
2.1 Term.
The term of the Employee's employment hereunder (the "Term") shall
commence on _____________ the "Commencement Date") and shall continue until (but
not including) the
<PAGE> 3
third anniversary of the Commencement Date (the "Scheduled Termination Date")
unless earlier terminated pursuant to the provisions of this Agreement.
ARTICLE 3
Compensation
------------
3.1 Salary.
As compensation for the services to be rendered by the Employee, the
Company shall pay the Employee, during the Term of this Agreement, an annual
salary in the amount of _____________, less applicable state and federal
withholdings and other elected deductions, which salary shall accrue weekly
(prorated for periods less than a week) and shall be payable in bi-weekly
installments, in arrears.
3.2 Other Compensation.
During the Employee's Term, the Employee shall be entitled to
participate in such compensatory plan, contract or arrangement that is generally
available to the Company's officers from time to time, including, but not
limited to (a) the annual bonus consistent with the Company's then current
written bonus policy, except that the Employee's bonus for 1998 will not be
pro-rated and (b) the Centers Holdings Inc. Management Stock Incentive Plan
("Stock Option Plan") by receiving an option(s) to receive _______ shares of
Centers Holding Inc. common stock. The option(s) is evidenced by the Stock
Option Agreement executed, attached to and incorporated by reference in this
Agreement as Exhibit ___. The option(s) shall be subject to and in accordance
with the terms of the Stock Option Plan, as it may exist from time to time and
shall be subject to the terms of the Stock Option Agreement as executed,
attached to and incorporated by reference in this Agreement as Exhibit ___.
3.3 Benefits and Perquisites.
The Employee shall be entitled, during the employment Term, to the
same medical, hospital, dental, life and disability insurance coverage and
benefits, vacations, participation in the Hechinger 401(k) and Profit Plan, and
other perquisites, as are generally available to the Company's officers on the
Commencement Date or as otherwise agreed to and set forth in Exhibit ___ to this
Agreement. Such other perquisites include, without limitation, participation in
the Company's paid "time-off" program that provide up to twenty-four (24) days
<PAGE> 4
off per year with pay to be used for holidays, sick days, vacations, or other
absences; the Company's Executive Relocation Policy; and automobile allowance.
Notwithstanding the foregoing, the Employee shall not have less than fifteen
(15) days off per year under any such "time off" program.
3.4 Withholding.
Any and all amounts payable under this Agreement, including, without
limitation, amounts payable in the event of the termination hereof under
Sections 7.3 and 7.4 hereof, are subject to withholding for such federal, state
and local taxes as the company in its reasonable judgment determines to be
required pursuant to any applicable law, rule or regulation.
3.5 Annual Review.
No less frequently than annually, the Board of Directors of the
Company shall review the Employee's performance of his duties and services under
this Agreement, and may, commensurate with the employee's and the Company's
performance and subject to the approval of the Board of Directors of the
Company, increase, buy not decrease, the salary, stock options, other
compensation and benefits payable to the Employee under this Agreement during
the remaining Term.
ARTICLE 4
Working Facilities, Expenses and Insurance
------------------------------------------
4.1 Working, Facilities and Expenses.
The Employee shall be furnished with an office at the principal
office of the Company, or at such other location as may be agreed to by the
Employee and the Board of Directors of the Company, and other assistance
adequate for the performance of his duties hereunder. Subject to the Company's
then current policies, the Company shall reimburse the Employee for all the
Employee's reasonable expenses incurred while employed and performing his duties
under and in connection with the terms and conditions of the Agreement, subject
to the Employee's full appropriate documentation, including, without limitation,
receipts for all such expenses in the manner required pursuant to Company's
policies and procedures and the Internal Revenue Code.
<PAGE> 5
4.2 Insurance.
The Company may secure in its own name or otherwise, and at its own
expense, life, disability and other insurance covering the Employee or the
Employee and others, and the Employee shall not have any right, title or
interest in or to such insurance other than as expressly provided herein. The
employee agrees to assist the Company in procuring such insurance by submitting
to the usual and customary medical and other examinations to be conducted by
such physicians(s) as the Employee, the Company or such insurance company may
agree to and designate and by signing such applications and other written
instruments as may be required by the insurance companies to which application
is made for such insurance.
ARTICLE 5
Illness or Incapacity
---------------------
5.1 Right to Terminate.
If, during the Term of this Agreement, the Employee shall be unable
to perform in all material respects his duties hereunder for a period exceeding
one hundred twenty (120) consecutive calendar days, or a total of one hundred
eighty-six (186) non-consecutive calendar days, by reason of illness or
incapacity, this Agreement may be terminated by the Company at its election
pursuant to Section 7.2(b) hereof.
5.2 Right to Replace.
Subject to Article 5.1, if the Employee's illness or incapacity,
whether by physical or mental cause, renders him unable for a minimum period of
30 consecutive calendar days to carry out his duties and responsibilities as set
forth herein, the Company shall have the right to designate a person to
temporarily succeed the Employee in the capacity described in Article 1 hereof;
provided, however, that if the Employee returns to work from such illness or
incapacity within the six (6) month period following his inability due to
illness or incapacity, he shall be entitled to be reinstated in the capacity
described in Article 1 hereof with all duties and privileges attendant thereto.
<PAGE> 6
5.3 Rights Prior to Termination
Subject to offset by payments received under available disability
plans, the Employee shall be entitled to his full remuneration and benefits
hereunder during such illness or incapacity unless and until an election is made
by the Company to terminate this Agreement in accordance with the provisions of
this Article.
ARTICLE 6
Confidentiality
---------------
6.1 Confidentiality.
During the Term of this Agreement and at all times thereafter, the
Employee agrees to maintain the confidential nature of all trade secrets,
including, without limitation, development ideas, acquisition strategies and
plans, financial information, records, "know-how," methods of doing business,
customer, supplier and distributor lists and all other confidential information
of the Company. The Employee shall not be obligated to maintain the confidential
nature of information the disclosure of which is required by law or which
already is in the public domain. The Employee shall not use (other than in
connection with his employment), in any way whatsoever, such trade secrets
except as authorized in writing by the Company. The Employee shall, upon
terminating his employment, deliver to the Company any and all records, books,
documents or any other materials whatsoever (including all copies thereof)
containing such trade secrets, which shall be and remain the property of the
Company.
6.2 Ownership of Records.
All documents, papers, materials, notes, books, correspondence,
drawings and other written and graphical records relating to the Business of the
Company which the Employee shall prepare or use, or come into contact with,
shall be and remain the sole property of the Company. The Employee shall be
allowed to remove any of the above listed materials from the Company's premises
for a business purpose for use at Employee's home or elsewhere, unless
specifically prohibited by a written notice received from the Company.
<PAGE> 7
ARTICLE 7
Termination
-----------
7.1 Termination For Cause.
This Agreement and the employment of the Employee may be terminated
by the Company "For Cause" in any of the following circumstances:
(a) The Employee has committed any act or acts of fraud or
misappropriation that result in or are intended to result in this personal
enrichment at the expense of the Company;
(b) The Employee is in default in a material respect in the
performance of his obligations, services or duties hereunder, which shall
include, without limitation, the Employee's disregarding the instructions from
the Company's Chairman of the Board concerning the conduct of his duties
hereunder, the Employee's failure to achieve agreed upon performance objectives,
the Employee's acting in a manner materially inconsistent with the policies of
the Company or its affiliates, as promulgated from time to time in writing and
which are generally applicable to all employees and/or senior executives of the
Company, the Employee's acting in a manner materially inconsistent with the
customary standards of performance applicable to persons in similar positions in
the industry of providing, in the aggregate, products or services for the care,
repair, remodeling and maintenance of the home or garden in the United States,
or if the Employee has breached any other material provision of this Agreement;
provided that if, and only if, such default or breach is curable, the Employee
shall not be in default hereunder unless he shall have failed to cure such
default or breach within a reasonable period of time (depending upon the type of
default or breach) after receipt of written notice thereof by the Company to the
Employee;
(c) The Employee is grossly negligent, which causes substantial
damage or loss to the Company, or engages in willful misconduct in the
performance of his duties hereunder; or
(d) The Employee has engaged in illegal activities which,
individually, or in the aggregate, reflect substantially and materially
adversely upon, or have a substantially and materially adverse impact on, the
Company. A determination For Cause under this Section 7.1 shall be effective
upon the date set forth in a written notice of termination delivered to the
Employee.
<PAGE> 8
7.2 Termination Without Cause.
This Agreement and the employment of the Employee may be terminated
"Without Cause" as follow:
(a) By mutual agreement of the parties hereto;
(b) At the election of the Company at any time by its giving at
least thirty (30) days advance written notice to the Employee;
(c) At the election of the Employee by his giving written notice to
the Company in the event that the Company shall default in or breach the
performance of any of its obligations under this Agreement, or in the event that
the Company shall effect a material diminution or material adverse change in the
Employee's title, responsibilities or duties; provided, that if, and only if,
such default, breach, diminution or change is curable, the Employee may not
elect to give notice under this Section 7.2(c), unless the Company shall have
failed to cure such default, breach, diminution or change within fifteen (15)
days of written notice thereof provided by the Employee to the Company; or
(d) Upon the Employee's death.
A termination Without Cause under this Section 7.2 shall be effective
upon the date set forth in a written notice of termination delivered hereunder,
which shall be not less than thirty (30) days nor more than forty-five (45) days
after the giving of such notice, except for the termination pursuant to Section
7.2(d) hereof, which shall be automatically effective upon the occurrence of the
event described therein.
7.3 Effect of Termination For Cause.
If the Employee's employment is terminated For Cause:
(a) The Employee shall be entitled to accrued salary through the
date of termination;
(b) The Employee shall be entitled to reimbursement for expenses
accrued through the date of termination in accordance with the provisions of
Section 4.1 hereof; and
(c) Except as provided in Article 11 and the Stock Option Agreement,
this Agreement shall thereupon be of no further force and effect.
7.4 Effect of Termination Without Cause.
If the Employee's employment is terminated Without Cause:
<PAGE> 9
(a) The Employee shall be entitled to accrued salary through the
date of termination;
(b) The Employee shall be entitled to reimbursement for expenses
accrued through the date of termination in accordance with the provisions of
Section 4.1 hereof, and
(c) Subject to Section 7.5 and except in the case of a termination
Without Cause under Section 7.2(d), the Employee shall be entitled to receive
all amounts of salary as would have been payable under Section 3.1 hereof
through the Scheduled Termination Date, which amounts shall be paid as and when
the same would have been payable under the Agreement had it not been terminated;
(d) Subject to Section 7.5 and except in the case of a termination
Without Cause under Section 7.2(d), the Employee shall be entitled to received
all medical, hospital and dental coverage and benefits as would have been
payable under Section 3.3 hereof through the Scheduled Termination Date, which
amounts shall be paid as and when the same would have been payable under the
Agreement had it not been terminated, and if the Employee is not entitled to
participate in any such benefit plan under the terms thereof following the
termination, then the Company shall provide the Employee with substantially
identical coverage and benefits;
(e) Subject to Section 7.5, if the Employee is participating in a
Company bonus plan as of the date of termination, he shall be entitled to an
accrued bonus through the date of termination, computed on a per diem basis
based upon the bonus which would have otherwise been payable to the Employee for
the fiscal year during which the date of termination falls had the Agreement not
been terminated, computed on the same basis as in effect immediately prior to
the date of termination, which bonus shall be paid as and when the same would
have otherwise been payable under the bonus plan had the Agreement not been
terminated; and
(f) Except as provided in Article 11 and the Stock Option Agreement,
this Agreement shall be of no further force or effect.
7.5 Mitigation and Offset.
In the event of a termination of employment hereunder, the Employee
shall be under no obligation to seek alternative employment or other gainful
occupation during the period from the termination of this Agreement through the
Scheduled Termination Date (the "Unexpired Term") by the way of mitigation of
amounts payable to the Employee under this Article 7;
<PAGE> 10
provided, however, that if the Employee provides, directly or indirectly
(including through any personal service entity), any services (whether as
employee, consultant, independent contractor or otherwise) to any person or
business (a "Third Party") during the Unexpired Term, all amounts paid or
payable to the Employee by or on behalf of such Third Party in respect thereof
("Offset Amounts") shall reduce any amounts payable thereafter by the Company to
the Employee under Sections 7.4(c), (d) and (e) hereof on a dollar-for-dollar
basis. Upon the request of the Company, from time to time, the employee shall
certify in writing to the Company all Offset Amounts received or receivable by
him and shall provide the Company with true copies of all written agreements and
a summary of the terms of all oral agreement pursuant to which such Offset
Amounts are paid or payable to the Employee.
7.6 Full Settlement.
The payments provided for in Article 7 of this Agreement are in full
settlement of any claims the Employee may have against the Company arising out
of his termination, including, but not limited to, any claims for wrongful
discharge; provided, however, that nothing herein shall limit any rights or
obligations of the parties under any other agreement with the Company or any
pension, retirement, stock option, preferred compensation or other benefit plans
of the Company which are applicable to the Employee and which provide for
specified rights and obligations in the event of a termination of the Employee's
employment with the Company.
ARTICLE 8
Non-Competition and Non-Interference
------------------------------------
8.1 Non-competition.
The Employee agrees that during the Term hereof and for a period of
twelve months thereafter, the Employee will not, without the express written
consent of the Company, directly, indirectly or as an agent on behalf of or in
conjunction with any person, firm partnership, corporation or other entity, own,
manage, control, join, or participate in the ownership, management, operation,
or control of, or be financially interested in or advised, lend money to, or be
employed by or provide consulting services to, or be connected in any manner
with a Competitive Business. For purposes of this Agreement a Competitive
Business is (i) any business or enterprise whose primary business, in the
aggregate, is providing products or services
<PAGE> 11
for the care, repair, remodeling and maintenance of the home or garden; (ii)
that has generated gross annual revenues of at least One Hundred Million Dollars
($100,000,000) from the sale of such products or services in any of the three
fiscal years preceding the date of the Employee's participation; and (iii) which
owns or operates a facility in any location within twenty (20) miles of any
geographical location, in which the Company owns or operates a facility. For
purposes of this Agreement, the following entities or their respective
successors or assigns are deemed to be Competitive Business whether or not they
meet the preceding provisions:
If Employee is terminated without cause and/or not paid pursuant to
this Agreement, then Competitive Businesses shall be expressly defined as
____________.
Ownership of less than 2% of the stock in a publicly held company
that constitutes less than 2% of the net worth of Employee shall not be deemed a
violation of this Section 8.1.
8.2 Non-Interference.
The Employee agrees that during the Term hereof and for a period of
one year thereafter, the Employee will not, directly, indirectly or as an agent
on behalf of or in conjunction with any person, firm, partnership, corporation
or other entity, induce or entice any employee of the Company to leave such
employment or cause anyone else to do so.
8.3 Severability.
If any covenant or provision contained in Section 8.1 is determined
to be void or unenforceable in whole or in part, it shall not be deemed to
affect or impair the validity of any other covenant or provision.
ARTICLE 9
Remedies
--------
9.1 Equitable Remedies.
The Employee and the Company agree that the services to be rendered
by the Employee pursuant to this agreement, and the rights and interests granted
and the obligations to be performed by the Employee to the Company pursuant to
this Agreement, are of a special,
<PAGE> 12
unique, extraordinary and intellectual character, which gives them a peculiar
value, the loss of which cannot be reasonably or adequately compensated in
damages in any action at law, and that a breach by the Employee of any of the
terms of the Agreement will cause the Company great and irreparable injury and
damage. In the event of a breach or threatened breach of Article 6, Section 8.1
or Section 8.2, the Employee hereby expressly agrees that the Company shall be
entitled to the remedies of injunction, specific performance and other equitable
relief to prevent a breach of the Agreement, both pendente lite and permanently,
against the Employee, as such breach would cause irreparable injury to the
Company and a remedy at law would be inadequate and insufficient. Therefore, the
Company may, in addition to pursing its other remedies, obtain an injunction
from any court having jurisdiction in the matter restraining any further
violation. The Employee agrees that a bond in the amount of $5,000 shall be
adequate security for issuance of any temporary injunction. The Company shall
also be entitled to such damages as it can show it has sustained, directly or
indirectly, by reason of said breach.
9.2 Rights and Remedies Preserved.
Nothing in this Agreement except Section 7.6 and 10.11 shall limit
any right or remedy the Company or the Employee may have under this Agreement or
pursuant to law for any breach of this Agreement by the other party. Except as
set forth in Sections 7.6 and 10.11, the rights granted to the Company and The
Employee herein are cumulative and the election of one shall not constitute a
waiver of such party's right to assert all other legal remedies available under
the circumstances.
ARTICLE 10
Miscellaneous
-------------
10.1 No Waivers.
The failure of either party to enforce any provision of this
Agreement shall not be construed as a waiver of any such provision, nor prevent
such party thereafter from enforcing such provision or any other provision of
this Agreement.
<PAGE> 13
10.2 Notices.
Any notice to be given to the Company and the Employee under the
terms of this Agreement may be delivered personally, by Federal Express or by
registered or certified mail, postage prepaid, and shall be addressed as
follows:
If to the Company: Hechinger Co.
Mark R. Adams
Executive Vice President, CFO and
General Counsel
1801 McCormick Drive
Largo, MD 20774
If to the Employee:
Either party shall notify the other in writing of any change in address. Any
notice shall be deemed duly given (i) when personally delivered, or (ii) on the
third day after it is mailed by registered or certified mail, postage prepaid,
as provided herein.
10.3 Severability.
The provisions of this Agreement are severable and if any provision
of this Agreement shall be held to be invalid or otherwise unenforceable, in
whole or in part, the remainder of the provisions, or enforceable parts thereof,
shall not be affected thereby.
10.4 Successors and Assigns.
The rights and obligations of the Company under this Agreement shall
inure to the benefit of and be binding upon the successors and assigns of the
Company, including the survivor upon any merger, consolidation or combination of
the Company with any other entity. The Employee shall not have the right to
assign, delegate or otherwise transfer any duty or obligation to be performed by
him hereunder to any person or entity, nor to assign or transfer any rights
hereunder.
10.5 Entire Agreement.
With respect to the terms of Employee's employment, this Agreement
supersedes all prior agreements and understandings between the parties hereto,
oral or written, and may not
<PAGE> 14
be modified or terminated orally. No modification, termination or attempted
waiver shall be valid unless in writing, signed by the party against whom such
modification, termination or waiver is sought to be enforced. This Agreement was
the subject of negotiation by the parties hereto and their counsel. The parties
agree that no prior drafts of this Agreement shall be admissible as evidence
(whether in any arbitration or court of law) in any proceeding which involves
the interpretation of any provisions of this Agreement.
10.6 Governing Laws.
This Agreement shall be governed by and construed in accordance with
the internal laws of the State of Maryland without reference to the conflict of
law principles thereof.
10.7 Section Headings.
The section heading contained herein are for the purposes of
convenience only and are not intended to define or limit the contents of said
sections.
10.8 Further Assurances.
Each party hereto shall cooperate and shall take such further action
and shall execute and deliver such further documents as may be reasonably
requested by any other party in order to carry out the provisions and purposes
of this Agreement.
10.9 Gender.
Whenever the pronouns "he" or "his" are used herein they shall also
be deemed to mean "she" or "hers" or "it" or "its" whenever applicable. Words in
the singular shall be read and construed as though in the plural and words in
the plural shall be read and construed as though in the singular in all cases
where they would so apply.
10.10 Counterparts.
This Agreement may be executed in counterparts, all of which taken
together shall be deemed one original.
10.11 Arbitration.
The parties hereto agree that any dispute concerning or arising out
of the provisions of the Agreement shall be resolved by arbitration in
accordance with the rules of the American Arbitration Association. Such
arbitration shall be held in Washington, D.C. and the decision of the
arbitrator(s) shall be conclusive and binding on the parties and shall be
enforceable by either party in any court of competent jurisdiction. The
arbitrator may, in his or
<PAGE> 15
her discretion, award attorney's fees and costs to such party as he or she sees
fit in rendering his or her decision. Notwithstanding the foregoing, if any
dispute arises hereunder as to which the company desires to exercise any rights
or remedies under Section 9.1, either the Employee or the Company mat, in its
discretion, in lieu of submitting the matter to arbitration, bring an action
thereon in any court of competent jurisdiction. Said court may grant any and all
relief available in equity or at law. In such action, the prevailing party shall
be entitled to reasonable attorney's fees and costs as may be awarded by the
court.
ARTICLE 11
Survival
--------
11.1 Survival
The provisions of Article 6, 8, 9 and 10 and Sections 7.3, 7.4, 7.5
and 7.6 of this Agreement shall survive the termination of this Agreement
whether upon, or prior to, the Scheduled Termination Date hereof.
IN WITNESS WHEREOF, the parties hereto have executed this Employment
Agreement as of the date first above written
COMPANY NAME
By:
- ----------------------------- -----------------------------
Name:
---------------------------
Title:
- ----------------------------- ----------------------------
As to the Company
- ----------------------------- ---------------------------------
- -----------------------------
As to the Employee
<PAGE> 1
EXHIBIT 13
HECHINGER COMPANY
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
34 WEEKS YEAR ENDED
YEAR ENDED ENDED ----------------------------------------------------------
OCT. 3, 1998 SEPT. 27, 1997 FEB. 1, 1997 FEB. 3, 1996 JAN. 28, 1995 JAN. 29, 1994
- ------------------------------------------------------------------------------------------------------------------------------
(in thousands except per share data)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Net sales $ 3,443,634 $ 1,360,891 $ 2,199,067 $ 2,252,780 $ 2,449,554 $ 2,094,968
Gross profit 646,490 233,633 455,208 455,932 540,680 462,266
Interest expense 67,134 32,749 40,194 31,341 29,793 23,063
Income tax expense (benefit) 2,500 1,267 - (3,000) (5,545) 10,611
Net (loss)/earnings (92,905) (206,011) (25,076) (77,636) (9,911) 24,760
BALANCE SHEET DATA
Total assets $ 1,577,246 $ 1,668,399 $ 1,105,103 $ 1,150,421 $ 1,261,229 $ 1,229,242
Current portion of long-term debt and
capital lease obligations 28,875 32,382 3,657 3,806 3,453 3,068
Long-term debt and capital lease
obligations 373,173 429,784 394,478 399,530 403,377 407,873
Total stockholders' equity 238,718 276,468 374,256 399,039 481,273 493,867
</TABLE>
Note: All periods presented were 52 weeks except for the transition period
ended September 27, 1997, which was 34 weeks and the years ended October 3, 1998
and February 3, 1996, which were 53 weeks each. On September 26, 1997, the
Company purchased certain assets of Builders Square which resulted in
substantially more sales in 1998 and substantially more assets and liabilities
in 1997 and 1998. In 1998, the Company recorded a charge of $27.5 million
related to eliminating duplicate overhead functions related to Builders Square's
operations, a non-cash charge of $8.5 million related to SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to Be
Disposed of" and an extraordinary gain of $15.3 million on early retirement of a
portion of the Company's Convertible Subordinated Debentures. Also in 1998, the
Company recorded a cumulative effect of change in accounting principle of $7.3
million for a change in its method of applying the LIFO accounting method for
inventories of its Hechinger and Home Quarters stores to the retail method. In
1997, the Company recorded a charge of $74.5 million related to store closings,
a non-cash charge of $29.3 million related to SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed of", and a
charge of $29.1 million related to its acquisition by Centers Holdings, Inc. In
1996, the Company suspended dividend payments. In 1995, the Company recorded a
charge of $25 million related to its decision to combine its Hechinger and Home
Quarters operations under one management team and a non-cash charge of $30
million related to the adoption of SFAS No. 121, "Accounting for the Impairment
of Long-Lived Assets and Long-Lived Assets to Be Disposed of." In 1994, the
Company recorded a charge of $61.9 million primarily related to its decision to
close its stores in certain markets. (See Notes to Consolidated Financial
Statements and Management's Discussion and Analysis of Financial Condition and
Results of Operations).
<PAGE> 2
EXHIBIT 13
HECHINGER COMPANY
QUARTERLY RESULTS (UNAUDITED)
(in thousands)
The following table sets forth summarized unaudited quarterly results for the
fiscal periods ended October 3, 1998, September 27, 1997 and February 1, 1997:
<TABLE>
<CAPTION>
QUARTER ENDED JAN. 3, 1998 APRIL 4, 1998 JULY 4, 1998 OCT. 3, 1998
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $ 922,807 $ 744,481 $ 1,000,091 $ 776,254
Income tax expense - 1,250 625 625
Earnings/(loss) before extraordinary item and
cumulative effect of change in accounting
principle (40,417) (40,361) 10,148 (30,305)
Net earnings/(loss) (47,689) (a) (40,361) (b) 15,405 (c) (20,260) (d)
QUARTER ENDED MAY 3, 1997 AUG. 2, 1997 SEPT. 27, 1997
- ---------------------------------------------------------------------------------------------------------------
Net sales $ 507,981 $ 591,626 $ 261,284
Income tax expense - - 1,267
Net earnings/(loss) (13,544) (40,567) (e) (151,900) (f)
QUARTER ENDED MAY 4, 1996 AUG. 3, 1996 NOV. 2, 1996 FEB. 1, 1997
- --------------------------------------------------------------------------------------------------------------------------------
Net sales $ 561,317 $ 665,902 $ 533,276 $ 438,572
Income tax expense - - - -
Net earnings/(loss) (5,990) 12,215 (9,965) (21,337)
</TABLE>
Note: All quarters presented were 13 weeks except for the quarter ended January
3, 1998, which was 14 weeks, and the quarter ended September 27, 1997, which was
8 weeks. (See Notes to Consolidated Financial Statements and Management's
Discussion and Analysis of Financial Condition and Results of Operations).
(a) - Net loss for the first quarter of 1998 increased from amounts previously
reported by the Company by $8.1 million due primarily to the $7.3 million
cumulative effect of the change in accounting for inventories (See Note 1 to
Consolidated Financial Statements). The first quarter of 1998 included costs of
approximately $14 million related to eliminating duplicate overhead functions
related to Builders Square's operations.
(b) - Net loss for the second quarter of 1998 decreased from the amount
previously reported by the Company by $3.9 million, due primarily to the effect
of the change in accounting for inventories (See Note 1 to Consolidated
Financial Statements). The second quarter of 1998 included costs of
approximately $7.4 million related to eliminating duplicate overhead functions
related to Builders Square's operations.
(c) - Net earnings for the third quarter of 1998 decreased from the amounts
previously reported by the Company by $15 million, due primarily to the effect
of certain adjustments identified in the fourth quarter that related to the
third quarter, consisting primarily of the Company's early recognition of vendor
assistance funds. The third quarter of 1998 also included an extraordinary gain
of $5.3 million on early retirement of a portion of the Company's Convertible
Subordinated Debentures, and an increase of approximately $8 million in the
shrink reserve.
(d) - In the fourth quarter of 1998, the Company increased its shrink reserve by
approximately $27.1 million as a result of physical inventories taken during the
quarter, reduced its LIFO reserve by approximately $27 million due primarily to
inventory markdowns taken in the quarter, recorded a non-cash charge of $8.5
million related to SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and Long-Lived Assets to Be Disposed of", and realized an extraordinary
gain of $10 million on early retirement of a portion of the Company's
Convertible Subordinated Debentures.
(e) - In the second quarter of 1997, the Company recorded a charge of $31.8
million for the closing of seven stores in the Detroit market.
(f) - In the 8-week period ended September 27, 1997, the Company recorded a
charge of $42.7 million related to store closings, a non-cash charge of $29.3
million related to SFAS No. 121, a charge of $29.1 million related to costs
incurred in connection with its acquisition by Centers Holdings, Inc., and
inventory adjustments aggregating approximately $26 million resulting from
shrink, LIFO reserve charges, discontinued inventory and other inventory
valuation adjustments.
<PAGE> 3
EXHIBIT 13
HECHINGER COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands)
<TABLE>
<CAPTION>
OCT. 3, 1998 SEPT. 27, 1997 FEB. 1, 1997 FEB. 3, 1996
(53 WEEKS) (34 WEEKS) (52 WEEKS) (53 WEEKS)
----------------------------------------------------------------------
<S> <C> <C> <C> <C>
REVENUES
Net sales $3,443,634 $1,360,891 $2,199,067 $2,252,780
Other (principally interest) 5,603 3,030 2,757 2,869
----------------------------------------------------------------------
Total Revenues 3,449,237 1,363,921 2,201,824 2,255,649
COSTS AND EXPENSES
Cost of sales 2,797,144 1,127,258 1,743,859 1,796,848
Selling, general and administrative expenses 647,406 275,780 442,847 452,796
Interest expense 67,134 32,749 40,194 31,341
Merger related expenses 27,463 29,105 - -
Impairment of long-lived assets 8,525 29,284 - 30,300
Store closing and other charges - 74,489 - 25,000
----------------------------------------------------------------------
Total Costs and Expenses 3,547,672 1,568,665 2,226,900 2,336,285
----------------------------------------------------------------------
LOSS BEFORE INCOME TAXES, EXTRAORDINARY
ITEM AND CUMULATIVE EFFECT OF CHANGE
IN ACCOUNTING PRINCIPLE (98,435) (204,744) (25,076) (80,636)
INCOME TAX EXPENSE/(BENEFIT) 2,500 1,267 - (3,000)
----------------------------------------------------------------------
LOSS BEFORE EXTRAORDINARY ITEM AND
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING
PRINCIPLE (100,935) (206,011) (25,076) (77,636)
EXTRAORDINARY ITEM - GAIN ON EARLY
RETIREMENT OF DEBT, NET 15,302 - - -
CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE, NET (7,272) - - -
----------------------------------------------------------------------
NET LOSS ($92,905) ($206,011) ($25,076) ($77,636)
======================================================================
</TABLE>
See notes to consolidated financial statements.
<PAGE> 4
EXHIBIT 13
HECHINGER COMPANY
CONSOLIDATED BALANCE SHEETS
(in thousands except share data)
<TABLE>
<CAPTION>
OCT. 3, 1998 SEPT. 27, 1997 FEB. 1, 1997
-------------------------------------------------------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 21,116 $ 87,215 $ 36,727
Merchandise inventories 1,046,361 973,139 414,980
Due from affiliates, net 18,531 - -
Other current assets 67,313 77,324 66,637
-------------------------------------------------------
Total Current Assets 1,153,321 1,137,678 518,344
ASSETS HELD FOR SALE 15,724 76,671 9,400
PROPERTY, FURNITURE AND EQUIPMENT, NET 287,702 325,637 461,752
COST IN EXCESS OF NET ASSETS ACQUIRED, NET 49,265 50,967 52,066
LEASEHOLD ACQUISITION COSTS, NET 34,660 36,438 46,876
OTHER ASSETS 36,574 41,008 16,665
-------------------------------------------------------
TOTAL ASSETS $ 1,577,246 $ 1,668,399 $ 1,105,103
=======================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Revolving credit facility $ 372,000 $ 243,970 $ 84,814
Current portion of long-term debt and capital lease obligations 28,875 32,382 3,657
Due to affiliates - 34,324 -
Accounts payable and accrued expenses 495,323 562,987 207,468
Accrued costs for store closings 42,221 61,397 12,828
-------------------------------------------------------
Total Current Liabilities 938,419 935,060 308,767
LONG-TERM DEBT, LESS CURRENT PORTION 318,490 352,960 380,868
CAPITAL LEASE OBLIGATIONS, LESS CURRENT PORTION 54,683 76,824 13,610
DEFERRED RENT 26,936 27,087 27,602
STOCKHOLDERS' EQUITY
Common stock, $.01 par value; authorized 1,000; 1,000 and 0 shares
respectively; issued 10; 10 and 0 shares, respectively - - -
Class A common stock, $.10 par value; authorized 0; 0 and 50,000,000
shares, respectively; issued 0; 0 and 32,608,139 shares, respectively - - 3,261
Class B common stock, $.10 par value, authorized 0; 0 and 30,000,000
shares, respectively; issued 0; 0 and 9,716,371 shares, respectively - - 971
Additional paid-in capital 241,507 241,507 238,248
Contributed capital 163,213 108,058 -
Retained earnings (accumulated deficit) (166,002) (73,097) 132,914
Unearned compensation - - (253)
Less treasury stock at cost, 0; 0 and 97,265 Class A common shares,
respectively, and 0; 0 and 14,497 Class B common shares
respectively - - (885)
-------------------------------------------------------
Total Stockholders' Equity 238,718 276,468 374,256
-------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,577,246 $ 1,668,399 $ 1,105,103
=======================================================
</TABLE>
See notes to consolidated financial statements.
<PAGE> 5
EXHIBIT 13
HECHINGER COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
OCT. 3, 1998 SEPT. 27, 1997 FEB. 1, 1997 FEB. 3, 1996
(53 WEEKS) (34 WEEKS) (52 WEEKS) (53 WEEKS)
-------------------------------------------------------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES
Net loss $ (92,905) $ (206,011) $ (25,076) $ (77,636)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Store closing and other charges (25,399) 66,391 (28,507) (5,600)
Depreciation and amortization 50,307 35,617 54,459 58,216
Amortization of deferred debt issuance costs 4,483 5,421 2,439 319
LIFO charge (credit) (21,295) 5,100 (1,031) 2,579
Extraordinary gain on retirement of debt, net (15,302) - - -
Impairment of long-lived assets charges 8,525 29,284 - 30,300
Cumulative effect of change in accounting principle 7,272 - - -
Deferred income taxes - - 5,444 10,249
Other 132 (515) 823 (559)
CHANGES IN OPERATING ASSETS AND LIABILITIES
Merchandise inventories (55,219) 19,417 88 35,591
Other current assets (9,342) 9,489 (5,314) 2,363
Accounts payable and accrued expenses (64,360) 55,810 (62,394) (8,695)
Due from affiliates (43,335) - - -
Other (701) - - -
-------------------------------------------------------------
NET CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES (257,139) 20,003 (59,069) 47,127
-------------------------------------------------------------
CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES
Proceeds from sale of assets held for sale 61,648 - - -
Proceeds from surrender of corporate owned life insurance 18,304 - - -
Purchase of net assets from BSQ, net of cash acquired (17,918) (232,224) - -
Property, furniture, equipment and other assets:
Additions (25,078) (17,532) (41,002) (107,185)
Proceeds from disposals 365 8,926 21,107 8,577
Marketable securities:
Purchases - - - (192,101)
Proceeds from sales - - - 261,012
Other 2,073 - - -
-------------------------------------------------------------
NET CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES 39,394 (240,830) (19,895) (29,697)
-------------------------------------------------------------
CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES
Proceeds from revolving credit facility 664,125 562,876 467,441 -
Payments on revolving credit facility (536,095) (403,720) (382,627) -
Contributed capital 55,000 89,102 - -
Increase (decrease) in amounts due to affiliates (9,520) 23,800 - -
Payments on retirement of debt (15,702) - - -
Debt financing costs - (2,026) - -
Dividends paid to stockholders - - - (5,664)
Other (6,162) 1,283 (4,908) (2,233)
------ ------------------------------------------------------
NET CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES 151,646 271,315 79,906 (7,897)
-------------------------------------------------------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (66,099) 50,488 942 9,533
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 87,215 36,727 35,785 26,252
-------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 21,116 $ 87,215 $ 36,727 $ 35,785
=============================================================
SUPPLEMENTAL INFORMATION
Cash payments for income taxes $ 1,043 $ - $ 1,629 $ 3,428
Cash payments for interest, net of amount capitalized $ 65,536 $ 23,679 $ 37,566 $ 30,949
</TABLE>
See notes to consolidated financial statements.
<PAGE> 6
EXHIBIT 13
HECHINGER COMPANY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands except share data)
<TABLE>
<CAPTION>
CLASS A CLASS B ADDITIONAL
COMMON STOCK, COMMON COMMON PAID-IN CONTRIBUTED
PAR $.01 STOCK STOCK CAPITAL CAPITAL
----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE, JAN. 28, 1995 $ - $ 3,080 $ 1,152 $ 238,182 $ -
Restricted stock awards earned - - - - -
Exercise of stock options, including income tax benefit - - - 66 -
Conversions from Class B to Class A common stock - 9 (9) - -
Purchase of treasury stock - - - - -
Adjustment to fair value of marketable securities - - - - -
Cash dividends on common stock:
Class A - $0.16 per share - - - - -
Class B - $0.06 per share - - - - -
Net loss - - - - -
----------------------------------------------------------------------
BALANCE, FEB. 3, 1996 - 3,089 1,143 238,248 -
Restricted stock awards earned - - - - -
Conversions from Class B to Class A common stock - 172 (172) - -
Purchase of treasury stock - - - - -
Net loss - - - - -
----------------------------------------------------------------------
BALANCE, FEB. 1, 1997 - 3,261 971 238,248 -
Restricted stock awards earned - - - - -
Conversions from Class B to Class A common stock - 24 (24) - -
Capital contribution - - - - 108,058
Cancellation of Class A and Class B common stock and
issuance of common stock, par $.01, pursuant to Merger - (3,285) (947) 3,259 -
Net loss - - - - -
----------------------------------------------------------------------
BALANCE, SEPT. 27, 1997 - - - 241,507 108,058
Capital contribution - - - - 55,155
Net loss - - - - -
======================================================================
BALANCE, OCT. 3, 1998 $ - $ - $ - $ 241,507 $ 163,213
======================================================================
<CAPTION>
RETAINED
EARNINGS
(ACCUMULATED UNEARNED
DEFICIT) COMPENSATION TREASURY STOCK TOTAL
------------------------------------------------------------------
<S> <C> <C> <C> <C>
BALANCE, JAN. 28, 1995 $ 240,919 $ (1,553) $ (507) $ 481,273
Restricted stock awards earned - 794 - 794
Exercise of stock options, including income tax benefit - - 66 132
Conversions from Class B to Class A common stock - - - -
Purchase of treasury stock - - (231) (231)
Adjustment to fair value of marketable securities 371 - - 371
Cash dividends on common stock:
Class A - $0.16 per share (4,931) - - (4,931)
Class B - $0.06 per share (733) - - (733)
Net loss (77,636) - - (77,636)
------------------------------------------------- ---------------
BALANCE, FEB. 3, 1996 157,990 (759) (672) 399,039
Restricted stock awards earned - 506 - 506
Conversions from Class B to Class A common stock - - - -
Purchase of treasury stock - - (213) (213)
Net loss (25,076) - - (25,076)
------------------------------------------------- ---------------
BALANCE, FEB. 1, 1997 132,914 (253) (885) 374,256
Restricted stock awards earned - 165 - 165
Conversions from Class B to Class A common stock - - - -
Capital contribution - - - 108,058
Cancellation of Class A and Class B common stock and
issuance of common stock, par $.01, pursuant to Merger - 88 885 -
Net loss (206,011) - - (206,011)
------------------------------------------------- ---------------
BALANCE, SEPT. 27, 1997 (73,097) - - 276,468
Capital contribution - - - 55,155
Net loss (92,905) - - (92,905)
================================================= ===============
BALANCE, OCT. 3, 1998 $ (166,002) $ - $ - $ 238,718
================================================= ===============
</TABLE>
See notes to consolidated financial statements.
<PAGE> 7
EXHIBIT 13
HECHINGER COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Fiscal year ended October 3, 1998, 34 week period ended September 27, 1997
and fiscal years ended February 1, 1997 and February 3, 1996)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION. Hechinger Company, a Delaware corporation (together with
its direct and indirect subsidiaries, the "Company") is a leading specialty
retailer of products and services for the care, repair, remodeling and
maintenance of the home and garden. At October 3, 1998, the Company operated 244
stores, primarily under the Hechinger ("Hechinger"), Home Quarters Warehouse
("Home Quarters") and Builders Square ("Builders Square") names. The 133
Builders Square stores are located primarily in the Southern, Southeastern,
Northern and Midwestern parts of the United States. The 62 Hechinger stores are
primarily located in the Mid-Atlantic region; and the 46 Home Quarters stores
are primarily located in the Southeastern, Northeastern and Midwestern parts of
the United States. The other three stores are being converted to Hechinger or
Home Quarters stores.
The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiaries. All material intercompany transactions and
balances have been eliminated in consolidation. Certain amounts in the financial
statements for the 34-week period ended September 27, 1997 and the fiscal years
ended February 1, 1997 and February 3, 1996 have been reclassified to conform to
the presentation for the year ended October 3, 1998. The Company's business is
seasonal and its annual results of operations depend to a significant extent on
the results of operations during the spring and summer months.
FISCAL YEAR. In 1997, the Company changed its fiscal year end to the Saturday
closest to September 30. Prior to this change, the Company's fiscal year ended
on the Saturday closest to January 31. The fiscal year ended October 3, 1998 was
53 weeks ("1998" or "the year") compared to the fiscal period ended September
27, 1997 which was 34 weeks ("1997"), compared to the fiscal year ended February
1, 1997 ("1996") which was 52 weeks, and the fiscal year ended February 3, 1996
("1995") which was 53 weeks.
CHANGE IN ACCOUNTING PRINCIPLE. On September 26, 1997, in connection with the
purchase of certain assets and the assumption of certain liabilities from BSQ
Transferee Corp. (an affiliate), the Company purchased the inventory of 161
Builders Square stores. The inventory of Builders Square stores is stated at
lower of cost or market, with cost determined using the last-in, first-out
("LIFO") retail inventory method. The inventory of the Company's existing 110
Hechinger and Home Quarters stores was previously stated at lower of LIFO cost
or market. The Company believes it is preferable to utilize the same method of
accounting for all of its inventories. Using the retail inventory method is
also consistent with the accounting method used by a number of other retailers
and with the method adopted in fiscal 1998 for income tax purposes. As a result,
during the quarter ended October 3, 1998, and effective as of September 28,
1997, the Company changed its method of applying the LIFO accounting method for
inventories of its Hechinger and Home Quarters stores to the retail method.
The cumulative effect of this change on the amount of retained earnings as of
September 28, 1997 of approximately $7.3 million (before and after tax effect)
has been included in net loss for the year ended October 3, 1998. The current
year effect of this change was a decrease in 1998 loss before extraordinary
item and change in accounting principle of approximately $0.4 million. The net
effect of the current year and cumulative amounts was an increase in 1998 net
loss of approximately $6.9 million. Prior to adoption of the retail method, the
Company did not maintain certain data pertinent to the application of the retail
method, including but not limited to price changes and promotional markdowns. As
a result, the Company is unable to determine pro forma amounts as if the Company
had adopted this change for the periods ended September 27, 1997, February 1,
1997, and February 3, 1996.
<PAGE> 8
MERCHANDISE INVENTORIES. As of October 3, 1998, inventories are stated at lower
of cost or market, with cost determined using the LIFO retail inventory method
As of October 3, 1998, LIFO inventories approximated the value that would have
been reported under the FIFO method. As discussed above, in prior periods,
inventories of Hechinger and Home Quarters stores were stated at the lower of
LIFO cost or market. If inventories were valued under the first-in, first-out
method ("FIFO") method, which approximates replacement cost, inventories would
have been $25.6 million, and $20.5 million higher than reported at September 27,
1997 and February 1, 1997, respectively. Distribution, buying and occupancy
expenses are included in cost of sales.
PROPERTY, FURNITURE AND EQUIPMENT. Property, furniture and equipment are stated
at cost plus capitalized interest. Capitalized interest amounted to $2.4 million
for 1995 and was not significant thereafter. Plant and equipment under capital
leases are stated at the present value of minimum lease payments. Depreciation
is computed using the straight-line method over the estimated useful lives of
various classes of assets. Assets held under capital leases and leasehold
improvements are amortized on a straight-line basis over the shorter of the
lease terms or the estimated useful lives of the respective assets.
CASH EQUIVALENTS. For purposes of the statement of cash flows, the Company
considers all highly liquid investments with a maturity of three months or less
when purchased to be cash equivalents.
DEFERRED RENT. Deferred rent represents the difference between amounts paid and
amounts expensed for operating leases.
PRE-OPENING EXPENSES. Costs related to new store openings are expensed as
incurred and are included in selling, general and administrative expenses.
Pre-opening expenses amounted to $1.9 million and $7.6 million for 1996 and
1995, respectively, and were not significant thereafter.
ADVERTISING EXPENSES. The Company expenses advertising costs as they are
incurred. Advertising expenses, net of cooperative advertising credits received
from suppliers, amounted to $23.4 million, $22.1 million, $38.0 million, and
$39.7 million for 1998, 1997, 1996, and 1995, respectively.
INCOME TAXES. Following its acquisition on September 25, 1997 (see note 13), the
results of the Company's operations are included in the consolidated federal
income tax return of its ultimate parent, Centers Holdings, Inc. Income tax
expense for the periods subsequent to September 25, 1997 has been computed as if
the Company filed its own tax return.
The Company computes income taxes under the asset and liability method. Deferred
tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases and operating
loss and tax credit carryforwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment date.
NET LOSS PER COMMON SHARE. Net loss per common share information is not
presented in the consolidated financial statements because the Company is
currently closely held (see note 13) and because historical net loss per common
share would not be indicative of the Company's continuing capital structure.
ASSETS HELD FOR SALE. Assets held for sale are recorded at the lower of cost or
estimated net realizable value. Net realizable value is based on the estimated
fair value (measured primarily based on letters of intent or the approximate
appraised value) less estimated selling costs.
IMPAIRMENT OF LONG-LIVED ASSETS. The Company accounts for long-lived assets in
accordance with the provisions of SFAS No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, which it adopted
in 1995. This Statement requires that long-lived assets and certain identifiable
intangibles be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. To the extent that the future undiscounted net
<PAGE> 9
cash flows expected to be generated from an asset are less than the carrying
amount of the asset, an impairment loss is recognized based on the difference
between the asset's carrying amount and its estimated fair market value.
INTANGIBLES. Cost in excess of net assets acquired relates principally to the
purchase of Home Quarters. This cost is being amortized using the straight-line
method over a period of 40 years. Accumulated amortization related to cost in
excess of net assets acquired was $17.9 million, $16.2 million and $15.1 million
as of October 3, 1998, September 27, 1997, and February 1, 1997, respectively.
Leasehold acquisition costs relate to the purchase of lease rights to certain
stores. The costs for these leases are being amortized using the straight-line
method over the terms of the related leases, ranging up to 30 years. Accumulated
amortization related to leasehold acquisition costs was $15.5 million, $13.7
million, and $16.3 million as of October 3, 1998, September 27, 1997, and
February 1, 1997, respectively.
The Company considers recoverability of intangible assets in connection with its
review of impairment of long-lived assets (see note 4).
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 reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
COMPREHENSIVE INCOME. On January 1, 1998, the Company adopted SFAS No. 130,
Reporting Comprehensive Income. SFAS No. 130 establishes standards for reporting
and presentation of comprehensive income and its components in a full set of
financial statements. Comprehensive income of Hechinger Company consists solely
of net income and, accordingly, the adoption of SFAS No. 130 had no impact on
the Company's financial statements. The Statement requires only additional
disclosures in the consolidated financial statements; it does not affect the
Company's financial position or results of operations.
2. PURCHASE OF CERTAIN ASSETS OF BSQ.
On September 25, 1997, Centers Holdings, Inc., a Delaware corporation, through a
wholly-owned subsidiary (collectively "Centers Holdings"), acquired the Company
through a merger transaction (the "Merger") (see note 13). On September 25,
1997, Centers Holdings also purchased BSQ Transferee Corp. ("BSQ"), a Delaware
corporation, which held substantially all of the assets and liabilities of the
Builders Square business of Kmart Corporation (together with its subsidiaries,
"Kmart") (the "Initial Purchase"). BSQ and the Company are affiliates as a
result of these transactions.
On September 26, 1997, the Company purchased certain assets of BSQ (the
"Purchase") for cash and the assumption of certain liabilities. The assets
purchased, which consisted primarily of inventory, and the liabilities assumed
were recorded at BSQ's carrying values, which were finalized during fiscal 1998
based on the final determination of the fair value of the assets and liabilities
acquired in the Initial Purchase. The principal assets of BSQ which were not
acquired by the Company included assets held for resale and certain real
property, buildings and fixtures.
During 1998, certain adjustments to the purchase price of the Purchase were
made, relating primarily to the reduction in capital lease obligations from
putting certain stores back to BSQ (see below) and the final determination of
the fair value of certain assets purchased and liabilities assumed. The
aggregate effect of these adjustments was to increase the purchase price by
approximately $17.9 million.
<PAGE> 10
The adjusted purchase price of the net assets acquired from BSQ of approximately
$260.8 million has been allocated as follows (in millions):
<TABLE>
<S> <C>
Inventory $ 586.2
Other assets, including cash of approximately $10.7 35.7
Liabilities assumed (361.1)
-------
$ 260.8
=======
</TABLE>
Also on September 26, 1997, as part of the Purchase, BSQ and the Company entered
into subleases which cover substantially all of BSQ's leased operating
facilities, and a lease which covers certain operating facilities owned by BSQ
(see note 11).
As a result of the Purchase, the Company's consolidated financial statements
include the operating results of Builders Square stores subsequent to September
26, 1997. Accordingly, the Company's historical operating results may not be
indicative of or comparable to its current or future operating results.
Shown below is the Company's unaudited pro forma consolidated results of
operations for the periods ended September 27, 1997 and February 1, 1997, as
though the Purchase had occurred as of February 4, 1996 (in millions):
<TABLE>
<CAPTION>
34 Weeks Ended Year Ended
(in millions) Sept. 27, 1997 Feb. 1, 1997
- -------------------------------------------------------------------------------
<S> <C> <C>
Total Revenues $2,912.4 $4,607.9
Net Loss ($207.2) ($60.7)
</TABLE>
This method of combining historical financial statements for the preparation of
unaudited pro forma condensed consolidated financial information is for
presentation only. Actual statements of operations of the Company reflect the
operating results from the purchase date with no retroactive adjustments.
Operating results related to the assets acquired from BSQ were not significant
for the two days ended September 27, 1997. The unaudited pro forma condensed
consolidated financial information is provided for illustrative purposes only
and is not necessarily indicative of the consolidated results of operations that
would have been reported had the Purchase occurred on February 4, 1996, nor does
it represent a forecast of the consolidated results of operations for any future
period.
Pursuant to the terms of the Purchase, 10 Builders Square stores were subleased
under a master month-to-month rental agreement. Shortly after the Initial
Purchase and pursuant to its terms, BSQ began the process of putting 10 stores
and the remaining related lease obligations back to Kmart, as well as disposing
of two additional stores to third parties. BSQ is responsible for closing put
stores and liquidating the inventory, and delivering a "broom clean" store back
to Kmart. Accordingly, BSQ recorded a liability of approximately $10 million for
the costs related to the closing of these stores. The assets acquired and
liabilities assumed from BSQ pursuant to the Purchase included amounts related
to these stores.
In addition, pursuant to the terms of the Purchase, the Company acquired the
ability to put back to BSQ 15 of the acquired stores and any remaining related
lease obligations, which it did during 1998. In accordance with the terms of the
Purchase, BSQ purchased the inventory in these 15 stores from the Company at its
book value, approximating $50.4 million. As of October 3, 1998, BSQ was in the
process of putting back 14 of these stores and the remaining related lease
obligations to Kmart pursuant to the terms of the Initial Purchase, and
disposing of one store to a third party. As of October 3, 1998, the remaining
liability with respect to these stores is nominal.
As of October 3, 1998, BSQ owes the Company approximately $12.6 million in
connection with BSQ's purchase of this inventory. During the year, the Company
paid certain amounts on behalf of BSQ Transferee, primarily related to taxes
prorated as of the date of the Initial Purchase. As a result of these payments,
which have been partially offset by the adjustments related to the final
determination of the fair value of the assets and liabilities acquired in the
Purchase, BSQ also owes the Company approximately $20.2 million.
<PAGE> 11
In 1998, the Company eliminated duplicate overhead functions related to BSQ's
operations. Expenses related to these business consolidation costs, including
costs associated with integrating information technology systems, approximated
$27.5 million in 1998.
3. PROPERTY, FURNITURE AND EQUIPMENT.
The Company's investments in property, furniture and equipment consist of the
following:
<TABLE>
<CAPTION>
(in thousands) Oct. 3, 1998 Sept. 27, 1997 Feb. 1, 1997
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Land $ 47,538 $ 49,030 $ 99,091
Buildings 122,512 125,773 197,151
Leasehold improvements 117,149 121,471 120,944
Furniture, fixtures and equipment 241,718 233,691 245,061
Capital leases 24,762 24,762 24,762
--------- --------- ---------
553,679 554,727 687,009
Less accumulated depreciation and
amortization (265,977) (229,090) (225,257)
--------- --------- ---------
$ 287,702 $ 325,637 $ 461,752
========= ========= =========
</TABLE>
Accumulated amortization on capital leases was $19.1 million, $17.3 million and
$16.1 million as of October 3, 1998, September 27, 1997 and February 1, 1997,
respectively.
4. IMPAIRMENT OF LONG-LIVED ASSETS.
Management reviews long-lived assets and certain intangible assets for
impairment whenever events or changes in circumstances indicate the carrying
amount of such assets may not be recoverable. Recoverability of these assets is
determined by comparing the forecasted undiscounted net cash flows of the
operation to which the assets relate to the carrying amount, including
associated intangible assets, of such operation. If the operation is determined
to be unable to recover the carrying amount of its assets, then intangible
assets are written down first, followed by the other long-lived assets of the
operation, to fair value. Fair value is determined based on discounted cash
flows or appraised values, depending upon the nature of the assets.
In 1998, the Company determined that the estimated undiscounted future cash
flows for certain stores were less than the carrying amount of their respective
assets. Accordingly, the Company recorded an impairment loss of approximately
$8.5 million, adjusting the carrying value of the assets in these stores to
their estimated fair value.
In 1997, management of the Company made decisions to close and dispose of
certain properties, including a distribution facility which was sold subsequent
to October 3, 1998. As a result, the Company recorded an impairment loss of
approximately $29.3 million which reflects the difference between the carrying
value of the properties and the estimated sales value, net of estimated costs to
sell. This amount also included approximately $9.0 million related to the
write-off of the unamortized portion of leasehold acquisition costs of certain
closed stores, which management believes is not recoverable.
In 1995, the Company recorded aggregate impairment losses of approximately $30
million. As a result of the Company's decision to slow down its expansion plans
and not to pursue development of a number of real estate properties which had
been acquired for future store expansion, the Company decided to dispose of
these properties, and recorded an impairment loss related to these properties of
approximately $15 million. This non-cash charge reflected the difference between
the carrying value of the properties and the estimated sales value, net of
estimated costs to sell. Also in 1995, the Company reviewed its property,
furniture, fixtures and equipment and evaluated how these assets would continue
to be used in its
<PAGE> 12
operations. Based on this evaluation, the Company recorded an impairment loss
related to certain property, furniture, fixtures and equipment of approximately
$15 million.
5. REVOLVING CREDIT AGREEMENT.
On September 26, 1997, Centers Holdings, BSQ, and the Company entered into a
senior secured revolving credit facility, which permitted borrowings of up to
$600 million (the "Credit Agreement"). The Credit Agreement replaced a $200
million revolving credit facility and all letter of credit facilities
outstanding. This facility is guaranteed by the Company, collateralized by
merchandise inventories and expires in September 2002. The amount available
under the facility fluctuated based on the Company's "Eligible Inventory"
balance (as defined in the agreement). The borrowings under the Credit Agreement
bore interest at a rate which fluctuated based on (i) the greatest of (a) Prime
Rate, (b) the Base CD Rate (as defined) plus 1.0%, or (c) the Federal Funds rate
plus 0.5%, plus an additional 0.0% to 0.5% based on the Interest Coverage Ratio
(as defined) or (ii) LIBOR plus an additional 1.5% to 2.0% based on the Interest
Coverage Ratio (as defined). The weighted average interest rate on the
outstanding borrowing was 7.78% at October 3, 1998.
As of October 3, 1998, the Company had outstanding borrowings of $372.0 million
under the Credit Agreement, and had issued and outstanding letters of credit of
$51.3 million under this facility. The available borrowing as of October 3, 1998
was approximately $177 million, and carried a commitment fee of 0.5% per year.
Subsequent to year-end, in order to provide additional availability for seasonal
purchases, remodeling and merchandise reset activity, as well as to provide
additional flexibility and address concerns with regard to quarterly EBITDA
requirements, the Company entered into an amendment of the Credit Agreement and
entered into a supplemental revolving facility in the amount of $50 million.
On December 31, 1998, the Company amended the Credit Agreement (the "Amended and
Restated Credit Agreement"), increasing the advance rate against "Eligible
Inventory" (the "borrowing base") for a period of time. The increased advance
rate begins to decrease in April 1999, until resuming the original advance rate
on June 21, 1999. The Amended and Restated Credit Agreement is guaranteed by the
Company, collateralized by merchandise inventories and expires in September
2002, and contains certain additional financial covenants and increased interest
rates. The borrowings under the Amended and Restated Credit Agreement bear
interest at a rate which fluctuates based on (i) the greatest of (a) Prime Rate,
(b) the Base CD Rate (as defined) plus 1.0%, or (c) the Federal Funds rate plus
0.5%; plus an additional 1.25% or (ii) LIBOR plus 2.75%. In addition, the
Company pays a fee at the rate of 0.5% per annum on any available borrowing.
Also on December 31, 1998, the Company concurrently entered into a short-term
secured revolving credit facility (the "Supplemental Agreement") which permits
borrowings of up to an additional $50 million. The Supplemental Agreement
expires on June 30, 1999 and provides funds during periods when there is
insufficient availability under the borrowing base of the Amended and Restated
Credit Agreement. Borrowings under the Supplemental Agreement bear interest at
the same rate and are generally under the same terms as the Amended and Restated
Credit Agreement.
In connection with the Supplemental Agreement, GEI II, the majority shareholder
of Centers Holdings, and Kmart agreed to repurchase from the lenders 20% and
80%, respectively, of the outstanding amounts of such supplemental credit, up to
the amount of $10 million and $40 million, respectively, in case of an event of
default, as defined. The Company agreed to pay GEI II and Kmart fees equal to
1.0% of their repurchase commitments under this agreement. Should the Company
borrow any amount under the Supplemental Agreement, Kmart's warrant to purchase
shares of the common stock of Centers Holdings increases from 210,000 to 245,000
shares, representing approximately 31.6% of the common stock of Centers Holdings
issued and outstanding after giving effect to the warrant.
The Amended and Restated Credit Agreement contains certain covenants which
restrict the Company's ability to, among other things, enter into additional
indebtedness, make acquisitions or sales of certain assets and declare and pay
cash dividends. In addition, the Amended and Restated Credit Agreement limits
the
<PAGE> 13
annual amount of capital expenditures of the Company and, beginning with the
period ended December 31, 1998, requires the Company to maintain minimum
quarterly EBITDA (as defined) at increasing levels.
In order to meet the amended quarterly EBITDA covenants, the Company must
improve its operating results in the second half of the current fiscal year as
compared to 1998. In the event the Company is unable to meet these covenants in
1999, it will be necessary to obtain a waiver from the lenders, amend the
Amended and Restated Credit Agreement, or arrange for alternative financing with
other lenders. There can be no assurance that the Company will be able to
consummate any such transaction if necessary.
6. ACCOUNTS PAYABLE AND ACCRUED EXPENSES.
Accounts payable and accrued expenses consist of the following:
<TABLE>
<CAPTION>
(in thousands) Oct. 3, 1998 Sept. 27, 1997 Feb. 1, 1997
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Accounts payable $326,916 $359,614 $111,851
Accrued expenses and other 130,365 133,763 64,285
Accrued compensation and benefits 38,042 69,610 31,332
-------- -------- --------
$495,323 $562,987 $207,468
======== ======== ========
</TABLE>
7. STORE CLOSING AND OTHER CHARGES
In 1997, the Company entered into an agreement to sell seven Home Quarters
Warehouse stores in the Michigan market. As a result, the Company recorded a
charge of $31.8 million related to the decision to close and sell these stores
(the "Detroit Store Closing Charge"). The main components of this charge were:
- - Estimated write-down to net realizable value of real estate
(approximately $13.6 million), and furniture, fixtures, equipment and
other assets (approximately $14.3 million) to be disposed of.
- - Estimated cash expenditures for operating costs for the stores during the
inventory liquidation period and for employee termination costs of
approximately $3.9 million.
As of September 27, 1997, assets held for sale included approximately $50.0
million related to these stores, and approximately $3.0 million of accrued store
closing liabilities remained. The Company consummated the sale of these stores
in November 1997. As of October 3, 1998, these accrued liabilities had been
substantially discharged.
In 1994, the Company recorded a charge of $61.9 million primarily related to the
Company's decision to close 22 stores in certain markets (the "Store Closing
Charge"). The main components of this charge were costs related to the
write-down of inventories and furniture, fixtures, equipment and other assets to
be disposed of, carrying costs of the closed stores and employee termination
costs. Disposition of the closed stores is accomplished by subleasing or
assigning the property to a new occupant or reverting possession back to the
landlord. The Company previously expected that it would dispose of or sublease
the remaining stores by January 1999. As a result of certain decisions made by
management of the Company related to the future disposition of it's
non-operating properties, in 1997 the Company revised its estimate and recorded
an additional charge of $42.7 million for the estimated continuing carrying
costs for non-operating stores, consisting primarily of rents and other related
costs (together with the Store Closing Charge, the "Store Closing Charges"),
resulting in an accrual of $47.7 million as of September 27, 1997. Reductions to
the accrual in 1998 represent the net operating costs of non-operating
properties, along with lease termination fees for certain non-operating
properties. The Company believes that the remaining accrual of $38.6 million as
of October 3, 1998 is adequate to cover future liabilities related to the
carrying cost of the closed stores, which the Company is actively marketing.
In 1995, the Company recorded a charge of $25 million (the "HQ Merger Charge")
related primarily to the Company's decision to combine its Hechinger and Home
Quarters operations under one management team (the "HQ Merger"). The main
components of this charge were:
<PAGE> 14
- - Employee termination costs of approximately $13.6 million;
- - Approximately $7.7 million for costs primarily related to terminating the
Company's defined benefit pension plan as of December 31, 1995 to conform
the retirement plans of Hechinger and Home Quarters and costs related to
eliminating various computer systems; and
- - Estimated write-down to net realizable value of equipment and other assets
to be disposed of approximately $3.7 million.
As of February 1, 1997, all components of the HQ Merger Charge had been
completed except for employee termination costs which were estimated at $2.4
million. As of September 27, 1997, this liability had been substantially
discharged.
The Detroit Store Closing Charge, the HQ Merger Charge and the Store Closing
Charges are based on certain estimates and as a result, the actual amounts could
vary from these estimates.
Subsequent to year-end, the Company agreed to terminate the leases of four
Florida stores for which BSQ had secured favorable sales terms from a third
party. Management reviews the ongoing performance of, and future prospects for,
its stores and its markets in conjunction with its planning process. In
situations where remarketing leases and/or selling owned stores may potentially
represent a preferable use of Company resources, management is committed to
investigating those options in order to enhance store, market and Company
results. The financial statement impact of store closings, if any, is recorded
when a decision is finalized and the criteria for accrual have been met.
8. LONG-TERM DEBT.
Long-term debt consists of the following:
<TABLE>
<CAPTION>
(in thousands) Oct. 3, 1998 Sept. 27, 1997 Feb. 1, 1997
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
6.95% Senior Notes, due 2003 $100,000 $100,000 $100,000
9.45% Senior Debentures, due 2012 100,000 100,000 100,000
5 1/2% Convertible Subordinated Debentures 92,341 123,050 123,050
Mortgage loans 40,386 42,929 43,206
Other long-term debt 11,527 15,618 15,953
-------- -------- --------
344,254 381,597 382,209
Less current portion (25,764) (28,637) (1,341)
-------- -------- --------
$318,490 $352,960 $380,868
======== ======== ========
</TABLE>
Under the terms of the 6.95% Senior Notes and 9.45% Senior Debentures, the
Company is restricted, in certain circumstances, from pledging certain Company
assets and entering into sale and leaseback transactions. Prior to the Merger
(see note 13), the 5 1/2% Convertible Subordinated Debentures were convertible
into Class A common stock of the Company by the holders at any time at a
conversion price of $27.84 per share, subject to adjustments in certain events.
As a result of the Merger, these Debentures are thereafter entitled to convert
into cash of $2.375 per share, which represents the asset they would have
received had they converted just prior to the Merger. Accordingly, the portion
of the outstanding balance of the Debentures represented by this conversion
price, approximating $7.9 million and $10.7 million, has been included in the
current portion of long-term debt as of October 3, 1998 and September 27, 1997,
respectively. The Convertible Subordinated Debentures are redeemable by the
Company at any time. Mandatory sinking fund payments of $6.6 million or 5% of
the original $132 million aggregate principal amount of Convertible Subordinated
Debentures issued, were scheduled to be made annually commencing April 1, 1998
to and including April 1, 2011. During the third and fourth quarters of 1998,
the Company redeemed $30.7 million of the Convertible Subordinated Debentures
for cash of $15.7 million, including accrued interest to the date of redemption,
which resulted in the recognition of an extraordinary gain of $15.3 million
(before and after tax effect). These debenture purchases, together with
purchases in prior years, are sufficient to fulfill the scheduled mandatory
sinking fund payments prior to April 2004.
<PAGE> 15
The mortgage loans bear interest rates, on average, of approximately 10% and are
due in varying monthly and semi-annual installments of principal and interest
through 2016. These mortgages are collateralized by properties with a total net
book value of $26.1 million.
Other long-term debt consists primarily of a sale and leaseback transaction that
has been recorded as a financing transaction rather than as a sale. Other
long-term debt bears interest rates ranging between 4.57% and 11.38%, is due in
varying principal and interest installments through 2008 and is collateralized
by properties with a total net book value of $7.8 million. During 1998, the
Company assigned one of its leases for a sale and leaseback property, thereby
extinguishing the associated asset and liability.
Aggregate principal maturities of all long-term debt are as follows:
<TABLE>
<CAPTION>
Fiscal year (in thousands)
- ------------------------------------------------------------------------
<S> <C>
1999 $ 25,764
2000 1,454
2001 1,730
2002 1,881
2003 2,043
Thereafter 311,382
--------
$344,254
========
</TABLE>
9. ESTIMATED FAIR VALUES OF FINANCIAL INSTRUMENTS.
The following methods and assumptions were used by the Company in estimating the
fair values of the financial instruments:
Cash and cash equivalents, due to/from affiliates, and accounts payable and
accrued expenses: The carrying amounts reported in the balance sheet for these
items approximates fair value.
Long-term debt: The estimated fair values of the Company's long-term debt that
is traded publicly are based on quoted and third party estimates of market
prices. The estimated fair values of the privately held debt are calculated
using a discounted cash flow analysis, based on the Company's current
incremental borrowing rates for similar types of borrowing arrangements.
The carrying amounts and estimated fair values of the Company's long-term debt
is as follows:
<TABLE>
<CAPTION>
October 3, 1998 September 27, 1997 February 1, 1997
----------------------- ----------------------- -----------------------
Carrying Estimated Carrying Estimated Carrying Estimated
(in thousands) Values Fair Values Values Fair Values Values Fair Values
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Long-term debt:
Publicly traded debt $284,464 $181,700 $312,386 $196,017 $323,050 $164,452
Privately held debt 34,026 26,263 40,574 34,359 57,818 35,984
-------- --------- -------- --------- -------- --------
Total long-term debt,
excluding current portion $318,490 $207,963 $352,960 $230,376 $380,868 $200,436
======== ======== ======== ======== ======== ========
</TABLE>
10. INCOME TAXES.
The income tax expense/(benefits) are summarized as follows:
<TABLE>
<CAPTION>
(in thousands)
Period ended Oct. 3, 1998 Sept. 27, 1997 Feb. 1, 1997 Feb. 3, 1996
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Current $ 2,500 $ 1,267 $(5,444) $(13,249)
Deferred - - 5,444 10,249
------- ------- ------- --------
$ 2,500 $ 1,267 $ - $ (3,000)
======= ======= ======= ========
</TABLE>
<PAGE> 16
Current amounts shown above for 1998 and 1997 consist of state income tax
expense.
Significant components of the Company's deferred tax liabilities and assets are
as follows:
<TABLE>
<CAPTION>
(in thousands) Oct. 3, 1998 Sept. 27, 1997 Feb. 1, 1997
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Deferred tax liabilities:
Deferred gain $ 14,110 $ - $ -
Inventories - 361 9,816
Capitalized leases 3,848 2,598 -
Note payable 18,178 23,169 -
Corporate-owned life insurance - 3,150 -
Other 1,251 368 3,342
-------- -------- --------
Total deferred tax liabilities 37,387 29,646 13,158
-------- -------- --------
Deferred tax assets:
Accrued costs for store closings 15,845 21,986 -
Inventories 12,582 - -
Other accrued expenses 25,229 20,190 10,168
Depreciation and amortization 17,891 6,866 2,742
Alternative minimum tax and other
tax credit carryforwards 3,633 3,633 11,292
Accrued compensation and benefits 6,871 5,342 8,230
Capital lease obligations 23,179 26,888 -
Net operating loss carryforward 32,274 28,612 18,303
Other 8,133 7,390 5,230
-------- -------- --------
Total gross deferred tax assets 145,637 120,907 55,965
Valuation allowance 104,617 87,628 39,174
-------- -------- --------
41,020 33,279 16,791
-------- -------- --------
Net deferred tax assets $ 3,633 $ 3,633 $ 3,633
======== ======== ========
</TABLE>
The valuation allowance for deferred taxes as of October 3, 1998 was $104.6
million. The net change in the total valuation allowance for the periods ended
October 3, 1998, September 27, 1997 and February 1, 1997 were increases of $17.0
million, $48.5 million and $11.3 million, respectively.
As described in note 13 of the consolidated financial statements, on September
25, 1997, Centers Holdings acquired the Company. This transaction constituted an
ownership change as defined under Section 382 of the Internal Revenue Code of
1986, as amended (the "Code"). This ownership change subjects the Company to a
$5.5 million annual limitation on the use of certain items reflected as deferred
tax assets above, including net operating loss carryforwards and certain other
tax attributes which were available on the date of the ownership change. As a
result, due to uncertainties regarding the realization in future periods of the
deferred tax assets, the Company has provided a valuation allowance on a
substantial portion of its gross deferred tax assets.
As of October 3, 1998, the Company had net operating loss carryforwards for
Federal income tax purposes of approximately $80.7 million (net of approximately
$97.0 million which will not be utilized by the Company pursuant to the Section
382 limitation), substantially all of which is subject to the $5.5 million
annual limitation resulting from the ownership change. The Company's net
operating loss carryforwards expire between 2009 and 2018. The Company's
alternative minimum tax credit carryforward of $3.6 million is available
indefinitely as it does not expire.
<PAGE> 17
Reconciliations of the Federal statutory rate to the Company's effective tax
rate are summarized as follows:
<TABLE>
<CAPTION>
Period ended Oct. 3, 1998 Sept. 27, 1997 Feb. 1, 1997 Feb. 3, 1996
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Statutory rate (35.0)% (35.0)% (35.0)% (35.0)%
Change in valuation allowance 35.5 31.9 39.5 34.6
Federal tax credits 0.0 0.0 (7.2) 0.0
Federal tax-exempt
investment income 0.0 0.0 0.0 (1.0)
Merger related costs 0.0 3.3 0.0 0.0
Amortization of goodwill 0.6 0.3 3.3 0.7
State taxes 1.8 0.4 0.0 0.0
Other (0.1) (0.3) (0.6) (3.0)
----- ----- ----- ------
2.8% 0.6% 0.0% (3.7)%
===== ===== ===== ======
</TABLE>
11. LEASE COMMITMENTS.
On September 26, 1997, the Company entered into a sublease with BSQ which covers
substantially all of BSQ's leased operating facilities, has a six-year term with
two five-year option periods, and has rental payments which are consistent with
the subleases between BSQ and Kmart, and BSQ and other landlords. However, with
respect to the properties covered by BSQ's subleases with Kmart, BSQ's ability
to exercise renewal options available in Kmart's leases with third parties is
subject to various conditions. As a result, the Company's ability to exercise
renewal options under its sublease with BSQ with respect to such properties is
similarly conditioned. On September 26, 1997, the Company also entered into a
lease with BSQ for certain operating facilities owned by BSQ. The term of the
lease is six years with two five-year option periods. The Company may elect to
exclude from renewal a total of 40 additional stores from the lease and sublease
with BSQ. The Company has guaranteed the payments and performance under BSQ's
subleases with Kmart. Pursuant to these transactions, the Company's lease
classification is consistent with that of BSQ, and accordingly, BSQ's capital
lease obligations were recorded as such by the Company.
Certain leases require excess rentals based on a percentage of sales, certain
increments in real estate taxes and rent increases as determined by formulas set
forth in the leases. In addition, the Company pays all other ownership and
operating costs related to the leased properties. Excluding the leases with BSQ
described above, most of the leases provide for renewals for various periods up
to 30 years.
Under the terms of a sale and leaseback transaction completed in 1990, the
Company is restricted from taking certain actions that would result in its net
worth, less goodwill, falling below $175 million. Under the terms of certain
sale and leaseback transactions completed in 1992, the Company is required to
maintain a minimum net worth of $200 million as disclosed in its annual audited
financial statements. Under the 1992 transactions, in the event this minimum net
worth is not maintained, the Company could be required to repurchase properties
aggregating approximately $42 million. In this event, the Company would be
required to utilize borrowing available under the Amended and Restated Credit
Agreement, if any, and/or arrange third-party financing for the properties,
subject to capital expenditure and other limitations. There can be no assurance
that the Company will be able to consummate any such transaction, if necessary.
At October 3, 1998, the minimum fixed rental commitments related to all
noncancelable leases together with the present value of the net minimum lease
payments for capital leases, including amounts related to non-operating
properties, were as follows:
<PAGE> 18
<TABLE>
<CAPTION>
Operating Leases Total Affiliate Non-Affiliate
(in thousands) (BSQ)
- ------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C>
Fiscal year
1999 $ 155,181 $ 81,166 $ 74,015
2000 154,579 80,741 73,838
2001 153,562 80,407 73,155
2002 152,562 80,009 72,553
2003 151,150 79,257 71,893
Thereafter 1,669,693 926,759 742,934
---------- ---------- -----------
Total minimum lease payments 2,436,727 1,328,339 1,108,388
Minimum sublease rentals due to the Company (111,176) - (111,176)
---------- ---------- -----------
Total minimum lease payments, net $2,325,551 $1,328,339 $ 997,212
========== ========== ===========
<CAPTION>
Capital Leases Total Affiliate Non-Affiliate
(in thousands) (BSQ)
- -----------------------------------------------------------------------------------------------------------
<C> <C> <C> <C>
Fiscal year
1999 $ 10,991 $ 8,117 $ 2,874
2000 10,590 7,740 2,850
2001 10,191 7,742 2,449
2002 10,058 7,654 2,404
2003 9,833 7,481 2,352
Thereafter 96,856 88,477 8,379
-------- -------- --------
Total minimum lease payments 148,519 127,211 21,308
Less executory costs and imputed interest (90,725) (81,766) (8,959)
-------- -------- --------
Present value of net minimum
lease payments (including
current portion of $3,111) $ 57,794 $ 45,445 $ 12,349
======== ======== ========
</TABLE>
Capital lease obligations bear imputed interest at rates ranging from 6.0% to
14.0%. Amortization of assets recorded under capital lease obligations is
included in depreciation and amortization expense.
Net rent expense was as follows:
<TABLE>
<CAPTION>
(in thousands)
Period ended October 3, 1998 Sept. 27, 1997 Feb. 1, 1997 Feb. 1, 1996
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Minimum operating lease rentals $148,860 $32,069 $49,983 $49,551
Excess rentals 1,295 621 1,534 1,914
-------- ------- ------- -------
Net rent expense $150,155 $32,690 $51,517 $51,465
======== ======= ======= =======
</TABLE>
The net rent expense amounts shown above are net of $22.6 million, $14.4
million, $20.6 million, and $16.6 million, respectively, related to sublease
rentals. The net rent expense does not include certain amounts charged to the
store closing accrual (see note 7). Disbursements to BSQ under the lease,
sublease and month-to month rentals (see note 2) were approximately $111.7
million during 1998.
12. CONTINGENCIES.
On July 23, 1997, a purported class action complaint was filed in the Delaware
Chancery Court on behalf of all holders of the Company's common stock against
the Company and the former Company directors. The plaintiff has alleged that the
former officers and directors of the Company breached their fiduciary duties to
the holders of the common stock by, among other things, failing to take all
reasonable steps to assure the maximization of stockholder value including the
implementation of a bidding mechanism to foster a fair auction of the Company
and by entering into an agreement with Centers Holdings under which the
consideration offered by Centers Holdings to holders of the common stock was
"unfair and grossly
<PAGE> 19
inadequate." The Company believes that the plaintiff's claims are without merit
and intends to defend such action vigorously. No significant activity occurred
with respect to this filing during 1998.
The Company and its subsidiaries are also parties to legal proceedings and
claims arising in the ordinary course of business. Although the outcome of such
proceedings and claims cannot be determined with certainty, based upon
evaluation by legal counsel, management believes that the outcome of such
proceedings and claims will not have a material adverse effect on the Company's
consolidated financial position, results of operations or liquidity.
13. CHANGE IN OWNERSHIP OF THE COMPANY.
On September 25, 1997, Centers Holdings acquired the Company through a merger
transaction. Pursuant to the Merger, each share of the issued and outstanding
Class A and Class B shares of common stock of the Company immediately prior to
the effective time of the Merger was converted into the right to receive $2.375
in cash, without interest. On September 25, 1997, all of the outstanding shares
of the Company were canceled in exchange for the payment by Centers Holdings of
approximately $100 million. Ten shares of common stock with a par value of $0.01
per share were issued to Centers Holdings. As a result of the Merger, the
Company became a wholly-owned subsidiary of Centers Holdings.
As a result of the Merger and change in control, the Company incurred expenses
of approximately $29.1 million in 1997, consisting primarily of approximately
$4.5 million of professional and advisory services related to the Merger
transaction, and approximately $24.6 million of employee-related costs, as
follows:
- - Pursuant to certain retirement agreements, including a nonqualified
supplemental retirement plan, the Company was required to fund trusts for
certain former key executives, resulting in expense of approximately $11.0
million.
- - Under the terms of individual severance agreements, costs of
approximately $13.6 million were incurred related to employees terminated
pursuant to the Merger.
The majority of these costs were included in accrued liabilities as of September
27, 1997 and were paid in 1998 by the Company.
14. STOCKHOLDERS' EQUITY.
Prior to the Merger, the Company had two classes of common stock, designated as
Class A and Class B. As a result of the Merger, all of the outstanding shares of
the Company were canceled. Ten shares of common stock with a par value of $0.01
per share were issued to Centers Holdings.
<PAGE> 20
Common Stock, par value $.01 per share, Class A and Class B common and treasury
shares outstanding and related changes were as follows:
<TABLE>
<CAPTION>
Issued Treasury
----------------------------------------------- ------------------------
Common
Stock, $.01 par Class A Class B Class A Class B
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, Jan. 28, 1995 - 30,797,512 11,518,729 (17,213) (14,497)
Exercise of stock options - 8,269 - 5,279 -
Conversions from Class B to Class A - 86,800 (86,800) - -
Purchase of treasury - - - (27,391) -
-------- ----------- ----------- --------- --------
Balance, Feb. 3, 1996 - 30,892,581 11,431,929 (39,325) (14,497)
Conversions from Class B to Class A - 1,715,558 (1,715,558) - -
Purchase of treasury - - - (57,940) -
-------- ----------- ----------- --------- --------
Balance, Feb. 1, 1997 - 32,608,139 9,716,371 (97,265) (14,497)
Conversions from Class B to Class A - 243,500 (243,500) - -
Purchase of treasury - - - - -
Cancellation of shares outstanding
and treasury stock - (32,851,639) (9,472,871) 97,265 14,497
Issuance of Common Stock, par $.01 10 - - - -
-------- ----------- ---------- --------- --------
Balance, Sept. 27, 1997 10 - - - -
-------- ----------- ---------- --------- --------
Balance, Oct. 3, 1998 10 - - - -
======== =========== ========== ========= ========
</TABLE>
Following the Merger, the Company's parent made an $89.1 million capital
contribution to the Company in cash. In addition, in 1997 the Company's parent
paid approximately $18.9 million of financing costs on behalf of the Company,
which were recorded as deferred financing costs and contributed capital in the
accompanying consolidated balance sheets. During 1998, the Company's parent paid
an additional nominal amount of such financing costs, and made capital
contributions in cash of $25 million during the second quarter and $30 million
during the fourth quarter.
Also following the Merger, the Company's parent provided a $23.8 million
non-interest-bearing advance to the Company, which is included in due to/from
affiliates in the accompanying consolidated balance sheets in the amount of
$14.3 million and $23.8 million at October 3, 1998 and September 27, 1997,
respectively, following the Company's repayment to the parent of $9.5 million
during 1998.
15. EMPLOYEE BENEFIT PLANS AND RETIREMENT AGREEMENTS.
Defined Benefit Plans.
As of December 31, 1995, the Company terminated its defined benefit pension
plan. In 1996, the Company completed distribution of the plan assets to all
qualified participants. The cost of the pension curtailment and benefit
settlement was accrued as a component of the 1995 HQ Merger Charge (see note 7).
Profit Sharing and 401(k) Plan.
As of September 27, 1997, the Company maintained a 401(k) plan and a profit
sharing plan for all Hechinger and Home Quarters qualified employees (the
"Hechinger Plan"). The 401(k) plan allowed for employee contributions of up to
16% of the employee's salary and a discretionary matching contribution of up to
50% from the Company on employee pretax contributions of up to 6%. The profit
sharing plan allowed for discretionary annual contributions as determined by the
Board of Directors. During 1998, the Hechinger Plan was replaced with a new
401(k) and profit sharing plan, in which eligible Builders Square associates
could participate. The new plan is substantially similar to the Hechinger Plan.
In addition to the above, the Company maintains certain other employee benefit
plans such as unfunded post retirement benefit plans, none of which have a
material impact on the Company's results of operations. Total expenses related
to all of the above plans amounted to $1.2 million, $2.2 million, $4.0 million,
and $3.8 million, for 1998, 1997, 1996, and 1995, respectively. In addition, as
a result of the Merger and change in
<PAGE> 21
control, the Company was required to fund trusts for certain key executives,
including a nonqualified supplemental retirement plan, resulting in expense of
approximately $11 million in 1997 (see note 13).
16. STOCK COMPENSATION PLANS.
1997 Management Stock Option and Stockholders Agreement.
In 1998, the Company's parent approved the 1997 Management Equity Plan (the
"1997 Plan"). The 1997 Plan provides for the issuance of incentive stock
options, non-qualified stock options, and restricted stock to key employees of
Centers Holdings and its subsidiaries at the discretion of Centers Holdings'
Board of Directors. An aggregate of up to 65,000 shares of Centers Holdings
Common Stock may be subject to awards under the 1997 Plan. As of October 3,
1998, incentive stock options to purchase 46,400 shares of Centers Holdings
Common Stock have been granted under the 1997 Plan, and are further subject to
management stock option and stockholders agreements. The management stock option
and stockholders agreement gives Centers Holdings a right of first refusal and
repurchase rights under certain circumstances, as well as the option, upon a
change in control or an asset sale, as defined therein, to accelerate the
vesting of options, to cash out options, or to cause an acquiring party to
assume options. Generally, options granted under the 1997 Plan vest ratably
over a four- or five-year period beginning September 27, 1997 and are
exercisable up to ten years after September 27, 1997, after which time they
expire.
1991 Incentive Plan.
In 1991, stockholders approved the Hechinger Company 1991 Stock Incentive Plan
(the "Incentive Plan"). The Incentive Plan authorized the issuance of Class A
common stock as incentive and nonqualified stock options, and as restricted
stock to eligible employees of the Company. In 1995, stockholders approved an
amendment to the Incentive Plan authorizing an increase in the number of shares
of the Company's stock authorized for issuance upon exercise of options.
Incentive stock options granted were at the fair market value on the date of the
grant. Nonqualified stock options were granted at a price not less than 40% of
the fair market value at the date of the grant. Generally, options granted under
the plan were exercisable beginning two years after the date of the grant and
over the succeeding eight years, after which time they expired. During the
period ended September 27, 1997 and each of the last two fiscal years ended
February 1, 1997, nonqualified options were granted. As a result of the Merger,
each holder of options issued that had exercise prices of less than $2.375 per
share ("In the Money Options") received payment in an amount equal to the
difference between (i) the product of (A) $2.375 and (B) the aggregate number of
shares of common stock issuable upon exercise of all In the Money Options held
by such holder and (ii) the aggregate exercise price payable upon such exercise.
No payments were made with respect to any option having a per share exercise
price equal to or greater than $2.375 and such options were terminated prior to
the closing of the Merger. The aggregate cash payments made by the Company
approximated $0.5 million.
A summary of shares issuable under stock options outstanding is as follows:
<TABLE>
<CAPTION>
October 3, 1998 September 27, 1997 February 1, 1997
--------------- ------------------ ------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
(shares in thousands) Shares Price Shares Price Shares Price
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Beginning balance 0 $ 0.00 5,049 $ 8.83 4,618 $ 10.01
Granted 46 51.02 771 1.81 779 3.88
Canceled ( 1) 51.02 (5,820) 7.90 (348) 13.41
Exercised 0 0.00 0 0.00 0 0.00
-- ----- ----- ----- ----- ------
Ending balance 45 $51.02 0 $ 0.00 5,049 $ 8.83
== ===== ===== ===== ===== ======
Weighted average fair value of
options granted during the period $34.16 $ 0.57 $ 1.97
===== ===== ======
</TABLE>
<PAGE> 22
At October 3, 1998, the exercise price and weighted average remaining
contractual life of outstanding options was $51.02 and 9.0 years, respectively.
At October 3, 1998, the number of options exercisable was 17,680, and the
weighted average exercise price of those options was $51.02.
In 1995, the Company awarded rights to earn 260,000 shares of Class A common
stock to certain key executives of the Company if certain performance goals were
met. Under the terms of the award, once the rights were earned, the stock would
vest over a two-year period. As a result of the Merger, these options became
fully vested and the Company paid the executives approximately $0.6 million for
the options.
Total charges to earnings for these plans amounted to $0.0 million, $0.7
million, $0.5 million, and $0.8 million for 1998, 1997, 1996, and 1995,
respectively.
Statement of Financial Accounting Standards No. 123 ("SFAS 123"), "Accounting
and Disclosure of Stock-Based Compensation" was issued in 1995. The statement
relates to the measurement of compensation of stock options issued to employees
and requires either the expense recognition based on the fair value method or
the continued application of APB 25, "Accounting for Stock Issued to Employees"
and disclosure of pro forma net income/loss as if the recognition and
measurement provisions of SFAS 123 had been adopted.
The Company accounts for its stock compensation arrangements under the
provisions of APB 25. The pro forma information regarding net loss has been
determined as if the Company had accounted for its employee stock options under
the fair value method of SFAS 123. The fair value for these options was
estimated at the date of grant using a Black-Scholes option pricing model with
the following weighted average assumptions, and for 1997 considering the Merger
transaction:
<TABLE>
<CAPTION>
1997 Plan 1991 Incentive Plan
---------------- ------------------------------------------------------
Period Ended Oct. 3, 1998 Sept. 27, 1997 Feb. 1, 1997 Feb. 3, 1996
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Risk-free interest rates 4.2% 6.1% 6.1% 6.4%
Dividend yields 0.0% 0.0% 0.0% 2.7%
Volatility factors of the expected market
price of common stock 0.8 .50 .50 .43
Expected life of the option in years 5 5 5 5
</TABLE>
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. In
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options because the
Company's employee stock options have characteristics significantly different
from those of traded options, and because changes in the subjective input
assumptions can materially affect the fair value estimate. The information shown
above for 1998 relates to the 1997 Plan. For purposes of pro forma disclosures,
the estimated fair value of the options is amortized to expense over the
options' vesting period. The Company's pro forma information is as follows:
<TABLE>
<CAPTION>
Period Ended Oct. 3, 1998 Sept. 27, 1997 Feb. 1, 1997 Feb. 3, 1996
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Pro forma net loss (in millions) $(93.5) $(206.8) $(27.1) $(78.9)
</TABLE>
<PAGE> 23
17. UNAUDITED COMPARATIVE TRANSITION PERIOD RESULTS.
The following table sets forth summarized unaudited transition period results
for comparable periods:
<TABLE>
<CAPTION>
Twelve Fiscal Months Ended
------------------------------------------------
Oct. 3, 1998 Sept. 27, 1997
(53 weeks) (51 weeks)
(in millions) (unaudited)
- -----------------------------------------------------------------------------
<S> <C> <C>
Net sales $3,443.6 $1,957.6
Gross margin 646.5 357.8
Income tax expense 2.5 0.0
Net loss (92.9) (229.7)
</TABLE>
<PAGE> 24
REPORT OF INDEPENDENT AUDITORS
BOARD OF DIRECTORS AND STOCKHOLDER
HECHINGER COMPANY
We have audited the accompanying consolidated balance sheets of Hechinger
Company and subsidiaries as of October 3, 1998 and September 27, 1997 and the
related consolidated statements of operations, stockholders' equity and cash
flows for the year ended October 3, 1998 and the 34 weeks ended September 27,
1997. 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 consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Hechinger Company and subsidiaries at October 3, 1998 and September 27, 1997 and
the results of their operations and their cash flows for the year ended October
3, 1998 and the 34 weeks ended September 27, 1997 in conformity with generally
accepted accounting principles.
As discussed in Note 1 to the consolidated financial statements, effective as of
September 28, 1997, the Company changed is method of applying the LIFO
accounting method for certain of its inventories to the retail method.
KPMG LLP
Washington, D.C.
January 8, 1999
<PAGE> 25
REPORT OF INDEPENDENT AUDITORS
BOARD OF DIRECTORS AND STOCKHOLDERS
HECHINGER COMPANY
We have audited the accompanying consolidated balance sheets of Hechinger
Company and subsidiaries as of February 1, 1997 and February 3, 1996 and the
related consolidated statements of operations, stockholders' equity and cash
flows for each of the three years in the period ended February 1, 1997. 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 Hechinger Company
and subsidiaries at February 1, 1997 and February 3, 1996 and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended February 1, 1997, in conformity with generally accepted
accounting principles.
As discussed in the notes to the consolidated financial statements, in the
fiscal year ended February 3, 1996, the Company adopted SFAS 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
of," and in the fiscal year ended January 28, 1995, the Company changed its
method of calculating LIFO inventories.
ERNST & YOUNG LLP
Washington, D.C.
February 27, 1997
<PAGE> 1
EXHIBIT 18
HECHINGER COMPANY
LETTER REGARDING CHANGE IN ACCOUNTING PRINCIPLE
Hechinger Company
1801 McCormick Drive
Largo, MD 20774
January 8, 1999
Ladies and Gentlemen:
We have audited the consolidated balance sheets of Hechinger Company and
subsidiaries (a wholly-owned subsidiary of Centers Holdings, Inc.) as of October
3, 1998 and September 27, 1997, and the related consolidated statements of
operations, stockholders' equity, and cash flows for the year ended October 3,
1998 and the 34 weeks ended September 27, 1997, and have reported thereon under
date of January 8, 1999.
The aforementioned consolidated financial statements and our audit report
thereon are included in the Company's annual report on Form 10-K for the year
ended October 3, 1998. As stated in Note 1 to the financial statements, during
the quarter ended October 3, 1998, the Company changed its method of applying
the LIFO accounting method for inventories of its Hechinger/Home Quarters stores
to the retail method. The Company believes it is preferable to utilize the same
method of accounting for all of its inventories. The inventory of the Company's
161 Builder's Square stores which was acquired September 26, 1997, and which
represented approximately 60% of consolidated inventories as of October 3, 1998
and September 27, 1997, is stated at the lower of LIFO cost or market, using the
retail inventory method (i.e. "retail LIFO"). The inventory of the Company's
existing 110 Hechinger/Home Quarters stores, which represented approximately 40%
of consolidated inventories as of October 3, 1998 and September 27, 1997, was
previously stated at the lower of LIFO cost or market (i.e. the retail inventory
method was not utilized). The Company believes that utilizing the retail method
of accounting for inventories is consistent with the accounting method utilized
by a number of retailers, including the Company's largest competitor. The
Company also desired to utilize the same accounting method for financial
reporting and income tax purposes. Effective for the year ended October 3, 1998,
the Company elected to use the retail LIFO method of accounting for inventories
of its Hechinger/Home Quarters stores for income tax purposes. In accordance
with your request, we have reviewed and discussed with Company officials the
circumstances and business judgment and planning upon which the decision to make
this change in the method of accounting was based.
With regard to the aforementioned accounting change, authoritative criteria have
not been established for evaluating the preferability of one acceptable method
of accounting over another acceptable method. However, for purposes of Hechinger
Company's compliance with the requirements of the Securities and Exchange
Commission, we are furnishing this letter.
Based on our review and discussion, with reliance on management's business
judgment and planning, we concur that the newly adopted method of accounting is
preferable in the Company's circumstances.
Very truly yours,
KPMG LLP
<PAGE> 1
EXHIBIT 21
HECHINGER COMPANY
SUBSIDIARIES OF THE REGISTRANT
<TABLE>
<CAPTION>
STATE OF
NAME INCORPORATION
- ---- -------------
<S> <C>
A) Hechinger Company (has 4 direct subsidiaries) Delaware
(1) Hechinger Stores Company (has 2 direct subsidiaries) Delaware
a. Hechinger Stores East Coast Company Delaware
b. Hechinger Investment Company of Delaware, Inc. (has 5 direct subsidiaries) Delaware
(1) Hechinger Royalty Company Delaware
(2) HIDS, Inc. Delaware
(3) HQ Southwest, LLC Delaware
(4) HQ Partners L.P. (1% owned by Hechinger Investment Company of Delaware, Inc.
as General Partner, and 99% owned by HQ Southwest, LLC as Limited Partner Delaware
(5) HQ MidAtlantic, LLC Delaware
(2) Hechinger International, Inc. Delaware
(3) Hechinger Property Company Delaware
(4) Hechinger Financial Holdings Company (has 9 direct subsidiaries) Delaware
(a) Hechinger Finance Inc. Delaware
(b) Pennsy, Inc. Delaware
(c) HS Square, Inc. Delaware
(d) Hechinger Towers Company Delaware
(e) PhilProp Holding Company Pennsylvania
(f) ManProp Holding Company Virginia
(g) BucksProp Holding Company Pennsylvania
(h) HProp, Inc. Delaware
(i) RemProp, Inc. Delaware
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-03-1998
<PERIOD-START> SEP-28-1997
<PERIOD-END> OCT-03-1998
<CASH> 21,116
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 1,046,361
<CURRENT-ASSETS> 1,153,321
<PP&E> 287,702<F1>
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,577,246
<CURRENT-LIABILITIES> 938,419
<BONDS> 318,490
0
0
<COMMON> 0
<OTHER-SE> 238,718
<TOTAL-LIABILITY-AND-EQUITY> 1,577,246
<SALES> 3,443,634
<TOTAL-REVENUES> 3,449,237
<CGS> 2,797,144
<TOTAL-COSTS> 3,444,550
<OTHER-EXPENSES> 35,988
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 67,134
<INCOME-PRETAX> (98,435)
<INCOME-TAX> 2,500
<INCOME-CONTINUING> (100,935)
<DISCONTINUED> 0
<EXTRAORDINARY> 15,302
<CHANGES> (7,272)
<NET-INCOME> (92,905)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F1> Property, furniture and equipment, net of accumulated depreciation
<FN>
</TABLE>
