<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 28, 1999
REGISTRATION NO. 333-75699
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
AMES DEPARTMENT STORES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 5331 04-2269444
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
------------------------
2418 MAIN STREET
ROCKY HILL, CONNECTICUT 06067
(860) 257-2000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
ROLANDO DE AGUIAR,
EXECUTIVE VICE PRESIDENT AND
CHIEF FINANCIAL AND ADMINISTRATIVE OFFICER
AMES DEPARTMENT STORES, INC.
2418 MAIN STREET
ROCKY HILL, CONNECTICUT
(860) 257-2000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------
With a copy to:
<TABLE>
<S> <C>
STEPHEN H. COOPER, ESQ. ARNOLD B. PEINADO, III, ESQ.
WEIL, GOTSHAL & MANGES LLP MILBANK, TWEED, HADLEY & MCCLOY LLP
767 FIFTH AVENUE ONE CHASE MANHATTAN PLAZA
NEW YORK, NEW YORK 10153 NEW YORK, NEW YORK 10005
(212) 310-8000 (212) 530-5000
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
TITLE OF EACH CLASS OF PROPOSED MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED OFFERING PRICE (1) REGISTRATION FEE (2)
<S> <C> <C>
Common Stock, par value $.01 per share.......................... $165,000,000 $45,870
</TABLE>
(1) Estimated solely for the purpose of calculating the amount of the
registration fee pursuant to Rule 457(c) under the Securities Act of 1933.
(2) Of this amount, $41,700 has previously been paid.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(A), MAY
DETERMINE.
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- --------------------------------------------------------------------------------
<PAGE>
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN
OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED APRIL 28, 1999
PROSPECTUS
4,000,000 SHARES
[LOGO]
AMES DEPARTMENT STORES, INC.
COMMON STOCK
- -------------------------------------------------------------------------------
Ames Department Stores, Inc. is offering 4,000,000 shares of its common stock.
The common stock is traded on the NASDAQ Stock Market under the
symbol "AMES." On April 26, 1999, the last reported sale price
of the common stock was $35 31/32 per share.
INVESTING IN THE SHARES INVOLVES RISKS. RISK FACTORS BEGIN ON PAGE 6.
<TABLE>
<CAPTION>
PER SHARE TOTAL
--------- -------
<S> <C> <C>
Public Offering Price....................................................................... $ $
Underwriting Discount....................................................................... $ $
Proceeds to Ames............................................................................ $ $
</TABLE>
Ames has granted the underwriters a 30-day option to purchase up to 600,000
additional shares of common stock on the same terms and conditions as set forth
above solely to cover over-allotments.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS ACCURATE OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Lehman Brothers, on behalf of the underwriters, expects to deliver the shares on
or about May , 1999.
- --------------------------------------------------------------------------------
Book-Running Lead Manager Joint Lead Manager
LEHMAN BROTHERS NATIONSBANC MONTGOMERY
SECURITIES LLC
BEAR, STEARNS & CO. INC.
JOHNSON RICE & COMPANY L.L.C.
TUCKER ANTHONY CLEARY GULL
May , 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary............................. 1
Risk Factors................................... 6
Special Note Regarding Forward-Looking
Statements................................... 10
Recent Transactions............................ 11
Use of Proceeds................................ 13
Price Range of Common Stock.................... 14
Dividend Policy................................ 14
Capitalization................................. 15
Selected Historical Financial and Operating
Data......................................... 16
Unaudited Pro Forma Financial Data............. 17
<CAPTION>
PAGE
----
<S> <C>
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................... 19
Business....................................... 25
Management..................................... 32
Description of Capital Stock................... 35
U.S. Tax Considerations Applicable to Non-U.S.
Holders of the Common Stock.................. 38
Underwriting................................... 40
Legal Matters.................................. 41
Experts........................................ 42
Where You Can Find More Information............ 42
Index to Financial Statements.................. F-1
</TABLE>
ABOUT THIS PROSPECTUS
You should only rely on the information contained in this prospectus. We
have not authorized anyone to provide you with information different from that
contained in this prospectus. We are offering to sell, and seeking offers to
buy, shares of common stock only in jurisdictions where offers and sales are
permitted. The information contained in this prospectus is accurate only as of
the date of this prospectus, regardless of the time of delivery of this
prospectus or of any sale of common stock.
This preliminary prospectus is subject to completion prior to this
offering. Among other things, this preliminary prospectus describes our company
as we currently expect it to exist at the time of the offering.
See the section of this prospectus entitled "Risk Factors" for a discussion
of certain factors that you should consider before investing in the common stock
offered in this prospectus.
Unless otherwise indicated, all information in this prospectus assumes no
exercise of the underwriters' over-allotment option.
i
<PAGE>
PROSPECTUS SUMMARY
Because this is only a summary, it does not contain all of the information
that may be important to you. Before deciding to invest in our common stock, you
should read this entire prospectus as well as our most recent Annual Report on
Form 10-K, which is incorporated in this prospectus by reference. Our fiscal
year, similar to that of most other retailers, ends on the Saturday nearest
January 31. Our most recent completed fiscal year, which for convenience we
refer to as "fiscal 1998," ended January 30, 1999. Unless otherwise indicated,
retail industry data contained in this prospectus are derived from publicly
available sources, including industry trade journals and Commission filings,
which we have not independently verified. You should pay special attention to
the "Risk Factors" section of this prospectus beginning on page 6 to determine
whether an investment in our common stock is appropriate for you.
OUR COMPANY
Ames is the largest regional discount retailer in the United States. We
currently operate 453 stores in 19 contiguous states in the Northeast, Midwest
and Mid-Atlantic regions, as well as the District of Columbia. Our stores offer
a wide range of both brand name and other quality merchandise for the home and
family at prices below those of conventional department stores and specialty
retailers. Ames' stores are situated in rural communities, small cities and the
suburbs of larger metropolitan areas and are smaller and more customer friendly
than the stores of most competing "big box" retailers, including the national
discount department store chains. On December 31, 1998, we acquired Hills Stores
Company, which operated a chain of 155 discount department stores in twelve
states. For fiscal 1998, after giving effect to the Hills acquisition as if it
had occurred at the beginning of the fiscal year, we had pro forma net sales of
$4.1 billion. Over the past four years, Ames, on a stand-alone basis, achieved
annual net income per share growth of 26.0%.
Our customer base consists primarily of working women with families and
senior citizens. They have an average annual household income between $25,000
and $35,000 and their purchasing decisions are determined primarily by a desire
for low prices and shopping convenience. Our merchandise offerings, prices,
store design and focus on customer service are targeted to meet the needs of
these cost-conscious consumers, who we believe are generally underserved by
other large discount retailers. We reinforce our image and drive customer
traffic by employing a "high/low" pricing strategy that is supplemented by
weekly advertising circulars and recurring promotional programs. We believe that
our knowledge of and focus on our target customers have enabled us to develop a
distinct competitive advantage.
We have significantly increased our cash flow and enhanced our
profitability over the past few years through an intensive focus on cost
containment. At the same time, we have gradually increased our market
penetration through selective acquisitions and new store openings. With the
recent Hills acquisition, we have begun implementing a growth strategy to
enhance our revenues by acquiring groups of stores located primarily in our
existing markets and in areas that are contiguous with those markets. Consistent
with that strategy, we recently acquired from Caldor Corporation nine stores
that we are converting to Ames stores, as well as a state-of-the-art
distribution center.
The Hills acquisition will significantly increase our revenues and provide
us with substantial cost economies. This acquisition was particularly attractive
for us, since it permitted us to obtain 155 well-maintained stores in locations
complementary to our existing store base. The stores are situated primarily in
communities with similar demographics and a similar customer base to our
existing locations. The acquisition expanded our selling space by approximately
70%, substantially increased our presence in five states and enabled us to enter
five new states. It also enabled us to gain substantial economies of scale by
eliminating nearly all of Hills' administrative and buying functions. We believe
that these actions will produce annual cost savings in excess of $70.0 million,
of which approximately $60.0 million is expected to be realized in fiscal 1999
and the full benefit of which will be realized beginning in fiscal 2000.
We have begun a program to convert all but five of the acquired Hills
stores to Ames stores. The conversion process includes the liquidation of Hills'
existing inventory and a total redesign and remerchandising of the stores to
make them consistent with the Ames prototype. Upon completion of its conversion,
each store will have a grand opening under the Ames banner. We are implementing
the
1
<PAGE>
conversion process in three stages, each entailing approximately 50 stores. The
first stage was completed in late April 1999 and the entire conversion is
scheduled for completion by the end of September 1999.
OUR COMPETITIVE STRENGTHS
We believe that we have a number of strengths that enable us to grow and
operate profitably and provide us with a distinct advantage in an increasingly
competitive discount retailing environment.
o WE SERVE A CLEARLY DEFINED CUSTOMER BASE THAT IS UNDERSERVED BY OTHER
LARGE DISCOUNT RETAILERS. Our customer base is primarily comprised of
working women with families and, to a lesser extent, senior citizens with
average annual household income ranging from $25,000 to $35,000. We
believe our customer base is generally underserved by national discount
retailers who have gradually redirected their merchandise offerings to
reach a broader and more "upscale" customer profile. We believe our
customers' purchasing decisions are determined primarily by a desire for
low prices and shopping convenience, and our merchandising, prices, store
design and customer service are intended to meet the needs of these
cost-conscious shoppers.
o OUR MERCHANDISE OFFERINGS ARE TARGETED TO OUR DISTINCT CUSTOMER
BASE. Ames offers a wide-range of brand name and other quality products
for the home and family, including a broad selection of basic,
non-fashion apparel for women, children and men, as well as jewelry,
domestics, housewares, appliances, home entertainment items, health and
beauty aids, crafts, toys, sporting goods, hardware, patio furniture and
ready-to-assemble indoor furniture. Because of our primary focus on women
shoppers, our stores carry a broader selection of women's basic apparel,
including many items in "plus" sizes, and a more limited selection of
hardware, tools, automotive supplies and lawn and garden products than
those of other major discount retailers. In addition, for the substantial
number of our stores located in vacation areas, college towns and
ethnically-concentrated communities, we tailor our merchandise offerings
to the specific preferences and needs of our customers in those
locations.
o WE OFFER EXCEPTIONAL VALUES TO DRIVE CUSTOMER TRAFFIC. We employ a
"high/low" promotional pricing strategy to increase customer traffic by
periodically offering greater discounts on selected items or categories
of merchandise while maintaining our regular discount prices on all other
merchandise. We implement this strategy through the use of weekly full
color newspaper supplements, which in fiscal 1998 generated approximately
45% of our net sales. Our extensive use of promotional advertising
enables us to better control our margins and inventory levels by rapidly
increasing or decreasing the number and types of discounted items we
offer. Ames' "55Gold(Registered) Savings" program attracts older
customers by offering them a 10% discount on all merchandise every
Tuesday. Our "Special Buy" program offers our customers closeout and
end-of-run brand name and other quality items at price points
significantly below the original retail price. Generally, we do not
advertise these bargains, but they are readily identifiable through
special signs in our stores. As a result, our customers recognize that
they must regularly visit our stores to obtain these outstanding values.
o OUR STORE DESIGN PROVIDES A CONVENIENT SHOPPING EXPERIENCE. Ames stores
are designed to make the shopping experience simple, fast and convenient.
Our stores, which typically range in size from 38,000 to 70,000 square
feet of selling space, are significantly smaller than those of the major
national discount store chains, which range from 80,000 to as much as
160,000 square feet of selling space. The smaller size of our stores,
which is particularly suitable to our more narrowly focused merchandise
offerings, is preferred by older customers, as well as women with small
children, who prefer to walk shorter distances to find the items they are
seeking and complete their purchases quickly. The stores have bright and
informative signage, conveniently located customer service "call boxes"
and "soft" corners that offer a clearer view of the merchandise in such
key departments as domestics, furniture and appliances.
o THE EXPERTISE OF OUR MANAGEMENT TEAM CONTINUES TO DRIVE PROFITABILITY
GROWTH. Three key executives contribute greatly to our successful
merchandising, store growth and profitability expansion strategies. Since
joining Ames in 1994, Joseph R. Ettore, our President and Chief Executive
Officer, and Denis T. Lemire, our Executive Vice President and Chief
Operating Officer, have established a
2
<PAGE>
proven merchandising model based on their substantial retail industry
experience as well as a detailed knowledge of our target customers and
their needs. Rolando de Aguiar, our Executive Vice President and Chief
Financial and Administrative Officer, joined Ames in April 1998 and has
been instrumental to the implementation of our new growth strategy,
particularly the recent Hills and Caldor acquisitions. Since joining
Ames, Messrs. Ettore and Lemire have engineered a significant improvement
in Ames' operating performance, as evidenced by the following:
o An increase in same-store sales during each of the past three fiscal
years, culminating in 7.2% same-store growth in fiscal 1998.
o Growth in net income per share from $0.79 in fiscal 1994 to $1.99 in
fiscal 1998, excluding the effects of the Hills acquisition.
o A reduction of selling, general and administrative expenses as a
percentage of net sales from 26.5% in fiscal 1994 to 25.3% in fiscal
1998 (excluding Hills operations for the month of January 1999 and
other acquisition related costs and charges).
o The integration of 30 new stores and the renovation and remodeling
of 60 additional stores, representing in the aggregate over
five million square feet of selling space.
OUR GROWTH STRATEGY
Our growth strategy is to open and acquire stores in markets that have
similar demographic characteristics to our existing markets and thus provide us
increased access to our target customers. We plan to continue concentrating our
stores in adjacent geographic areas in order to enhance our name recognition,
increase our market penetration and gain economies of scale in corporate
management, advertising and distribution. We believe we can grow our revenue
base and improve our operating margins and profitability through a combination
of increased same-store sales and the acquisition of additional stores while
further leveraging the costs of our administrative, distribution and buying
infrastructure.
3
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered.................................... 4,000,000 shares
Common Stock outstanding after the offering............. 28,037,149 shares(a)
Use of proceeds......................................... For working capital and general corporate purposes and
to reduce outstanding borrowings under our bank credit
facility. See "Use of Proceeds."
NASDAQ Stock Market symbol.............................. AMES
</TABLE>
- ------------------
(a) Assumes no exercise of the over-allotment option by the underwriters and
excludes an aggregate of 520,251 shares of common stock issuable upon
exercise of currently outstanding stock options under our stock option
plans.
4
<PAGE>
SUMMARY HISTORICAL AND AS ADJUSTED FINANCIAL AND OPERATING DATA
Set forth below are summary historical financial, operating and other data.
The summary historical statement of operations data for the years ended
January 25, 1997, January 31, 1998 and January 30, 1999 and the summary
historical balance sheet data as of January 30, 1999 have been derived from the
audited consolidated financial statements of Ames. You should read this summary
in conjunction with the audited consolidated financial statements of Ames and
accompanying notes as well as with "Unaudited Pro Forma Financial Data" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this prospectus.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
--------------------------------------------------------
JANUARY 25, 1997 JANUARY 31, 1998 JANUARY 30, 1999
---------------- ---------------- ----------------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales................................................ $2,161.7 $2,233.1 $2,507.2
Cost of merchandise sold................................. 1,565.7 1,603.6 1,786.2
Gross profit............................................. 596.0 629.5 721.0
Selling, general and administrative expenses............. 564.4 581.7 660.6
Operating income......................................... 52.7 66.2 76.1
Net income............................................... 17.3(a) 34.5 33.8
Net income per common share:
Basic.................................................. 0.85 1.59 1.47
Diluted................................................ 0.79(a) 1.46 1.40
Adjusted net income per common share (b):
Basic.................................................. 2.09
Diluted................................................ 1.99
OTHER FINANCIAL DATA:
Gross margin............................................. 27.6% 28.2% 28.2%(c)
Selling, general and administrative expenses as a
percentage of net sales................................ 26.1% 26.1% 25.3%(c)
Same-store sales increase................................ 1.0% 2.1% 7.2%
Average sales per store.................................. $ 7.1 $ 7.5 $ 8.0(d)
Number of stores at end of period........................ 303 298 456
Total store square footage at end of period (000s)....... 18,487 17,600 31,500
</TABLE>
<TABLE>
<CAPTION>
AS OF JANUARY 30, 1999
-----------------------------
HISTORICAL AS ADJUSTED (E)
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(IN MILLIONS)
<S> <C> <C>
BALANCE SHEET DATA:
Cash................................................................................. $ 35.7 $ 319.9
Total assets......................................................................... 1,483.4 1,774.1
Total debt, including current maturities............................................. 305.5 460.6
Stockholders' equity................................................................. 324.0 459.6
</TABLE>
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(a) Includes an extraordinary loss, net of tax, of $1.4 million or $0.06 per
common share for the early extinguishment of debt.
(b) As adjusted to eliminate the results of operations of Hills for the month of
January 1999 and various other acquisition related costs and charges. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
(c) Data for the fiscal year ended January 30, 1999 exclude Hills operations for
the month of January 1999 and various other acquisition related costs and
charges. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
(d) Average sales per store excludes 155 Hills stores acquired in December 1998.
(e) As adjusted for the sale on April 27, 1999 of $200.0 million aggregate
principal amount of senior notes and the receipt and application of the net
proceeds therefrom and for the anticipated sale of the 4,000,000 shares of
common stock offered hereby and the receipt of the estimated net proceeds
therefrom, based on the closing price of Ames' common stock on April 23,
1999.
5
<PAGE>
RISK FACTORS
An investment in our common stock involves risks. You should carefully
consider the following risk factors in addition to all other information in this
prospectus before making a decision to purchase the common stock.
OUR CONVERSION, INTEGRATION AND OPERATION OF THE FORMER HILLS STORES MAY
NOT SUCCEED.
We are converting 150 of the former Hills stores to Ames stores and closing
the five remaining Hills stores that we acquired. The integration of the
converted Hills stores into the Ames retail chain will require substantial
management, logistical and financial resources which might otherwise be devoted
to our existing operations. The Hills acquisition is larger than any store
acquisition that we have made under our current management and represents a 50%
increase in the total number of our stores and a 50% increase in our employee
work force. Although we believe our management information, merchandise
purchasing and distribution systems are capable of accommodating this growth, a
failure of these systems to effectively accommodate the demands of the
additional stores could have a material adverse effect on our results of
operations. We will have to train approximately 14,800 former Hills employees to
adapt to our own operating procedures and systems. In addition, in the
approximately 94 communities previously served by Hills in which we have not
previously had a retail presence, we will have to establish consumer recognition
of Ames as a distinct and preferred source of value and customer service
superior to that previously associated with the Hills stores.
THE HILLS ACQUISITION WILL ADVERSELY IMPACT OUR NEAR TERM RESULTS.
Shortly after the acquisition of Hills, we began the first of a series of
liquidation sales in the Hills stores and, in February 1999, we began remodeling
50 of the 150 Hills stores that we are converting to Ames stores. We completed
the conversion of those 50 stores and reopened them under the Ames banner in
late April 1999. An additional 54 Hills stores will be converted by July 1999
and the remaining 46 stores will be converted by September 1999. A typical store
conversion takes seven to eight weeks, during which the store conducts no
customer business. The operation of the 155 acquired Hills stores prior to their
conversion or final closure, including the liquidation of their inventory, as
well as the conversion of all but five of those stores into Ames stores, will
adversely affect our earnings at least through the third quarter of fiscal 1999.
We will incur approximately $63.0 million of pre-opening expenses with respect
to the 150 Hills stores that we are converting to Ames stores. We expect the
Hills acquisition to have a positive impact on our earnings beginning in the
fourth quarter of fiscal 1999, but we cannot assure you that our expectations
will prove to have been correct.
WE FACE SIGNIFICANT COMPETITION FROM OTHER DISCOUNT RETAILERS.
We operate in an extremely competitive environment. In recent years, many
large discount retailers, including Hills and Caldor, have succumbed to the
intense effects of competition from both national and regional chains. Although
Ames is the largest regional discount retailer in the United States, we are
still considerably smaller in terms of number of stores, sales and earnings than
the three leading national chains: Wal-Mart, Kmart and Target Stores. Each of
these chains, as well as other regional operators such as Bradlees, currently
operates stores within our regional market and competes with us for customers
and potential store locations. We anticipate a further increase in competition
from those national discount store chains. Our merchandising focus is primarily
directed to consumers who we believe are underserved by the major national
chains and our merchandising strategy and smaller store size are intended to
enable us to compete more effectively with these chains. Nevertheless, we remain
vulnerable to the marketing power and high level of consumer recognition of the
major national discount store chains.
OUR HIGH LEVEL OF DEBT MAY ADVERSELY AFFECT OUR FINANCIAL AND OPERATING
FLEXIBILITY.
We have substantial debt and debt service requirements, including
obligations under our bank credit facility, which permits us to borrow up to
$650.0 million on a revolving basis. The following chart shows basic financial
information about us and gives pro forma effect to our sale of $200.0 million of
senior notes
6
<PAGE>
on April 27, 1999 and the application of the net proceeds of that sale to reduce
our outstanding bank borrowings and also gives pro forma effect to this offering
of common stock:
<TABLE>
<CAPTION>
PRO FORMA AS OF
JANUARY 30, 1999
---------------------
(DOLLARS IN MILLIONS,
UNAUDITED)
<S> <C>
Total debt....................................... $ 460.6
Stockholders' equity............................. $ 459.6
Net debt to equity ratio (inclusive of cash and
cash equivalents).............................. 0.31x
</TABLE>
Our highly leveraged financial position has important consequences for us,
including:
o our ability to borrow additional amounts for working capital, debt
service requirements, capital expenditures or acquisitions may be
limited;
o a substantial portion of our cash flow from operations will be required
to make debt service payments;
o our ability to capitalize on significant business opportunities may be
limited and our flexibility to react to changes in competitive pressures
and general economic conditions may be reduced;
o we could be at a competitive disadvantage with respect to less highly
leveraged companies with which we compete; and
o we may be more vulnerable in the event of a downturn in the economy or a
disruption in our business.
We expect to be able to repay the balance of our indebtedness and meet our
other obligations through cash generated from operations. However, we may need
to obtain new credit arrangements and other sources of financing in order to
meet our future obligations and working capital requirements and to fund our
future capital expenditures. You should be aware that our ability to repay or
refinance our outstanding debt and to fund our capital expenditures and other
obligations depends on our successful financial and operating performance,
including the future performance of the 150 former Hills stores that we are
converting to Ames stores. We cannot assure you of our future performance, which
depends upon a number of factors, many of which are beyond our control. These
factors include:
o deteriorating general economic conditions in the United States,
particularly in the regions in which our stores are located;
o decreased consumer spending, particularly among those consumers who
comprise our primary customer base;
o increased competition from other discount retailers, including major
national chains, as well as from merchandise offerings over the Internet;
o severe adverse weather conditions during the winter months, particularly
during the peak Christmas holiday shopping season; and
o failure of our merchandise suppliers to make their computer systems year
2000 compliant in a timely manner.
These and other factors, which are discussed more fully below, could have
an adverse effect on our ability to pay interest on and the principal of our
outstanding debt.
OUR SENIOR DEBT AGREEMENTS RESTRICT OUR FLEXIBILITY.
Our bank credit agreement and the indenture relating to our recently issued
10% senior notes contain a number of significant provisions that, among other
things, restrict our ability to:
o sell assets outside the ordinary course of business;
o incur more indebtedness;
7
<PAGE>
o grant or incur liens on our assets;
o repay certain indebtedness;
o pay dividends;
o make certain investments or acquisitions;
o repurchase or redeem capital stock;
o engage in mergers or consolidations; and
o engage in certain transactions with our affiliates.
These restrictions could hurt our ability to finance our future operations
or capital needs or make acquisitions that may be in our interest. In addition,
our bank credit facility requires that we achieve a specified minimum level of
consolidated earnings before interest, taxes, depreciation and amortization for
the fiscal quarter ending April 29, 2000, and that for fiscal quarters beginning
after April 30, 2000, we achieve a specified minimum ratio of consolidated
earnings before interest, taxes, depreciation and amortization to fixed charges.
Our ability to comply with these financial requirements may be affected by
events beyond our control, and our inability to comply with them could result in
a default under the bank credit agreement in which event the lenders could elect
to:
o declare all our outstanding borrowings under that agreement, as well as
accrued interest and fees, to be due and payable;
o require us to apply all of our available cash to repay those borrowings.
If we were unable to repay those borrowings when due, the lenders under our
bank credit facility could proceed against their collateral, which includes a
first priority lien on substantially all of our assets and a first priority
security interest in the capital stock of our subsidiaries. A default under our
bank credit agreement, if not cured in a timely manner, would also result in a
default under our senior notes indentures.
WE ARE VULNERABLE TO ADVERSE WINTER WEATHER AND REGIONAL ECONOMIC
DOWNTURNS.
Our stores, including those acquired from Hills, are concentrated in a
geographic region that is subject to severe winter weather conditions. Frequent
or unusually heavy snow or ice storms in our markets, particularly during the
important Christmas selling season, could have a material adverse effect on our
sales and earnings and could adversely impact our ability to make scheduled
interest payments on our outstanding indebtedness, including the Notes.
In addition, the geographic concentration of our stores increases our
vulnerability to regional economic downturns. Although we believe our emphasis
on low prices and superior customer value makes us better able than most other
large retailers to withstand periods of increased unemployment, we cannot assure
you that we would not be materially impacted by a protracted or severe regional
economic downturn.
THE LOSS OF OUR KEY EXECUTIVES COULD HAVE A SIGNIFICANT IMPACT ON OUR
COMPANY.
Our success over the past five years has been the result of a merchandising
and marketing strategy conceived and implemented by our senior management team
and particularly our President and Chief Executive Officer, Joseph R. Ettore,
our Executive Vice President and Chief Operating Officer, Denis T. Lemire, and
our Executive Vice President and Chief Financial and Administrative Officer,
Rolando de Aguiar. The loss of the services of Messrs. Ettore, Lemire and de
Aguiar could have a material adverse effect on our company. We have employment
agreements with these executives that continue until May 2004, May 2003 and May
2003, respectively.
OUR ABILITY TO USE OUR NET OPERATING LOSS CARRYFORWARDS COULD BE LIMITED.
At January 30, 1999, we had net operating loss carryforwards totalling
approximately $444.0 million available to reduce our future federal income tax
liabilities. This amount is exclusive of net operating loss carryforwards of
Hills. Our ability to use these loss carryforwards to reduce our future federal
income tax liabilities could be limited if we were to experience more than a 50%
change in ownership over any three-
8
<PAGE>
year period, all as defined and governed by section 382 of the Internal Revenue
Code. For purposes of determining if a 50% change in ownership occurs within any
three-year period, any public stock offerings during that period (including this
offering) are taken into account in accordance with applicable regulations. If
the benefits of these loss carryforwards were so limited, our earnings and cash
resources could be materially and adversely affected.
In addition to Ames' loss carryforwards, Hills also has loss and tax credit
carryforwards for federal income tax purposes. However, the Hills carryforwards
are subject to severe limitations on their future utilization as a result of the
recent change in ownership of Hills. See Note 10 to Ames' audited consolidated
financial statements included in this prospectus.
SOME OF OUR VENDORS' COMPUTER SYSTEMS MAY NOT BE YEAR 2000 COMPLIANT.
In operating our business, we are dependent on information technology and
process control systems that employ computers as well as embedded
microprocessors. We also depend on the proper functioning of the business
systems of third parties, particularly the more than 3,200 vendors from whom we
purchase the merchandise sold in our stores. Many computer systems and
microprocessors can only process dates in which the year is represented by two
digits. As a result, some of these systems and processors may interpret "00"
incorrectly as the year 1900 instead of the year 2000, in which event they could
malfunction or become inoperable after December 31, 1999. Systems and processors
that can properly recognize the year 2000 are referred to as "year 2000
compliant."
We have assessed our own business and management information systems and
believe that those of our systems that are material to our operations are, or
before the end of 1999 will be, year 2000 compliant, although we cannot assure
you that our assessment will prove to be correct. We also have taken steps to
determine whether our principal vendors are or expect to be year 2000 compliant
by the end of this year. Based on our inquiries, we are reasonably comfortable
that our major vendors, whose products collectively account for approximately
80% of our sales, are or will be year 2000 compliant. However, we cannot assure
you of the year 2000 compliance of the remaining vendors who do business with
us, and it is possible that a number of those vendors may encounter problems
with their systems after the end of this year. If, however, one or more of these
vendors is unable to produce or ship merchandise to us as a result of a computer
system malfunction, we believe that there are adequate alternative sources for
similar merchandise.
ANTI-TAKEOVER PROVISIONS COULD IMPEDE OR DISCOURAGE A THIRD-PARTY
ACQUISITION OF OUR COMPANY.
Ames is a Delaware corporation. Anti-takeover provisions of Delaware law
impose various impediments to the ability of a third party to acquire control of
our company, even if a change in control would be beneficial to our existing
stockholders. In addition, our board of directors has the power, without
shareholder approval, to designate the terms of one or more series of preferred
stock and issue shares of preferred stock, which could be used defensively if a
takeover is threatened. Lastly, we have adopted a rights plan, commonly known as
a "poison pill," that entitles our stockholders to acquire additional shares of
our company, or a potential acquiror of our company, at a substantial discount
from their market value in the event of an attempted takeover. Our incorporation
under Delaware law, our board's ability to create and issue a new series of
preferred stock and the existence of our rights plan could impede a merger,
takeover or other business combination involving our company or discourage a
potential acquiror from making a tender offer for our common stock, which, under
certain circumstances, could reduce the market value of our common stock.
9
<PAGE>
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
The statements contained or incorporated by reference in this prospectus
that are not historical facts are "forward-looking statements," as that term is
defined in the Private Securities Litigation Reform Act of 1995. Those
statements include all discussions of strategy as well as statements that
contain such forward-looking expressions as "believes," "estimates," "expects,"
"intends," "may," "will," "should," or "anticipates" or the negative thereof. In
addition, from time to time, we or our representatives have made or may make
forward-looking statements, orally or in writing. Furthermore, forward-looking
statements may be included in our filings with the Commission as well as in
press releases or oral presentations made by or with the approval of one of our
authorized executive officers.
We caution you to bear in mind that forward-looking statements, by their
very nature, involve assumptions and expectations and are subject to risks and
uncertainties. Although we believe that the assumptions and expectations
reflected in the forward-looking statements contained in this prospectus are
reasonable, no assurance can be given that those assumptions or expectations
will prove to have been correct. Important factors that could cause actual
results to differ materially from our expectations are disclosed in this
prospectus, including, without limitation, under the caption "Risk Factors."
These factors include, but are not limited to, the following:
o deteriorating general economic conditions in the United States,
particularly in the regions in which our stores are located;
o decreased consumer spending, particularly among those consumers who
comprise our primary customer base;
o increased competition from other discount retailers, including major
national chains, as well as from merchandise offerings over the Internet;
o severe adverse weather conditions during the winter months, particularly
during the peak Christmas holiday shopping season; and
o failure of our suppliers to make their computer systems year 2000
compliant in a timely manner.
All subsequent written and oral forward-looking statements attributable to
us or persons acting on our behalf are expressly qualified in their entirety by
these factors and the cautionary statements contained throughout this
prospectus.
10
<PAGE>
RECENT TRANSACTIONS
THE HILLS ACQUISITION
On November 12, 1998, we entered into an agreement for the acquisition of
Hills Stores Company. Pursuant to that agreement, we promptly began a tender
offer for all of Hills' outstanding common and convertible preferred stock.
Concurrently with that tender offer, we also offered to purchase all of Hills'
outstanding 12 1/2% Senior Notes due 2003 and solicited consents from the
holders of those notes to eliminate and waive various provisions of the
indenture governing those notes. Following the expiration of those offers on
December 31, 1998, we acquired approximately 81.3% of Hills' outstanding common
stock and 74.4% of its outstanding convertible preferred stock, in each case at
a price of $1.50 per share, or an aggregate of $13.7 million. On the same date,
we purchased approximately $144.1 million, or approximately 73.9%, of the
$195.0 million of outstanding Hills senior notes at a price of approximately
$700 for each $1,000 principal amount of those notes, or an aggregate of
$100.8 million. Pursuant to the terms of those offers, holders of Hills' shares
and senior notes who tendered their securities for purchase also received a
deferred contingent right to receive a further cash payment out of, and based
upon, Hills' ultimate net recovery, if any, in a lawsuit brought by Hills in
September 1995 against certain of its former directors.
In March 1999, we consummated the merger of Hills into a subsidiary of
Ames. Shares of Hills' common and convertible preferred stock not previously
acquired by us were automatically converted into the right to receive $1.50 per
share (plus a deferred contingent cash right as discussed above). Thereafter,
that subsidiary was merged into Ames and the $50.9 million of outstanding Hills'
senior notes not previously purchased by us became direct obligations of Ames.
The cost of acquiring the remaining outstanding common and preferred shares of
Hills was $3.3 million. We also incurred professional fees, accounting, legal
and other costs of approximately $12.2 million in connection with the
acquisition.
The total cost of the Hills acquisition was approximately $330.0 million,
inclusive of the approximately $50.9 million of Hills senior notes that remained
outstanding and $147.8 million of capitalized leasehold and financing
obligations related to the Hills stores. Cash required for the acquisition
totalled approximately $130.0 million. Funds for these purposes were derived
from borrowings under our bank credit facility.
At the time of the acquisition, Hills operated 155 discount department
stores in twelve states within or contiguous to our existing geographic region.
The Hills stores have a sales area that is similar in size to that of the
typical Ames store. They are located in communities with demographics that are
similar to those of our existing locations and they serve a similar target
customer. The Hills acquisition was particularly opportunistic for Ames, since
it permitted us to obtain 155 well-maintained stores in locations that were
complementary to and to a large extent not competitive with our existing store
locations. After a review of locations where a Hills store operated in the same
general market area as an existing Ames store, we determined that in only ten
instances would store closings be required. The acquisition substantially
increased our presence in five states and enabled us to enter five new states.
We also acquired a Hills distribution facility in Columbus, Ohio that is
complementary to but not duplicative of our two existing principal distribution
centers.
In February 1999, we began a program to remodel and convert 150 of the
acquired Hills stores to Ames stores. The five remaining Hills stores, as well
as seven Ames stores, are being closed because they are in locations that either
are competitive with, or are underperforming, our other stores. The remodeling
and conversion process is being conducted in three stages:
o the first stage, involving 50 stores, was completed in late April 1999;
o the second stage, involving 54 stores, is scheduled to be completed in
July 1999; and
o the last stage, involving 46 stores, is scheduled to be completed in
September 1999.
The total cost of the remodeling and conversion is expected to be
approximately $185.0 million and is being funded primarily with proceeds from
our liquidation of the Hills merchandise inventories. This cost consists
primarily of expenditures for fixtures, signage, point-of-sale register systems,
training of employees and other labor costs, as well as various pre-opening
expenses.
11
<PAGE>
Under a "turn-key" agreement with us, Gordon Brothers Retail Partners, LLC
and The Nassi Group, LLC have been engaged to operate all of the acquired Hills
stores and to conduct inventory liquidation sales at each of those stores prior
to its scheduled remodeling or final closure. These liquidation sales also are
being conducted in three stages, the first having ended on February 22, 1999 and
the second and third scheduled to be completed on May 21 and July 26, 1999,
respectively. These two firms are responsible for all expenses associated with
operating the Hills stores and liquidating their inventory prior to their
closure, including compensation of store employees and rental payments under
store leases. Upon completion of each sale, they must remove all unsold
merchandise and turn over the store in "broom clean" condition. Cash proceeds
from the liquidation sales are collected at the point of sale by Ames,
effectively minimizing Ames' financial risk. Pursuant to the agreement, Ames is
entitled to retain from the liquidation proceeds a minimum sum equal to 40% of
the initial ticketed retail price of all items of Hills merchandise on hand and
on order as of January 2, 1999, irrespective of the actual sales proceeds. In
addition, Ames is entitled to share in that portion, if any, of the proceeds
from the sale of Hills merchandise in excess of 62% of the aggregate initial
ticketed retail price of the merchandise. We have estimated that the aggregate
retail price of the Hills merchandise inventory is at least $670.0 million and,
therefore, we expect to realize a minimum of $268.0 million from the liquidation
of this inventory.
THE CALDOR STORES AND DISTRIBUTION CENTER
In April 1999, we completed the purchase from Caldor Corporation of seven
stores in Connecticut, two stores in Massachusetts and a 649,000 square foot
state-of-the-art distribution center in Westfield, Massachusetts, for an
aggregate of $42.7 million in cash. Caldor is currently winding up its business
under the jurisdiction of the U.S. Bankruptcy Court for the Southern District of
New York and these purchases were made with the court's approval. Under the
terms of our agreements with Caldor, we are assuming Caldor's leases for the
nine stores and the distribution center and are acquiring all of the store
fixtures and all racking, sorting systems and materials handling equipment in
the distribution center. Caldor delivered the stores and distribution center to
us in "broom clean" condition. We will soon begin remodelling the stores in
accordance with our prototype design and will reopen them under the Ames banner
in late September 1999.
The nine Caldor stores, which range in size from 59,400 to 75,400 square
feet of selling space, are in communities with similar demographics to those in
which our own stores are located. None of the stores is in a location that is
directly competitive with any of our existing stores, including the former Hills
stores that we are currently converting. After giving effect to the acquisition
of these stores, we will become the largest discount department store operator
in Connecticut, with a total of 22 stores in that state.
NOTES OFFERING
On April 27, 1999, we consummated the sale in a private placement to
institutional buyers of $200.0 million principal amount of our 10% Senior Notes
due 2006. The net proceeds from the sale of the senior notes were applied to
reduce outstanding borrowings under our revolving credit facility.
12
<PAGE>
USE OF PROCEEDS
We estimate the net proceeds from this offering to be approximately
$135.6 million, based on an assumed offering price of $35 7/8 per share, the
last reported sale price of the common stock on April 23, 1999, and after
deducting the underwriting discount and estimated expenses payable by Ames. If
the underwriters also purchase all of the 600,000 additional shares that are
subject to their over-allotment option, the estimated net proceeds will increase
to approximately $156.1 million.
We will apply the net proceeds for working capital and general corporate
purposes. Pending application for these purposes, we will use the net proceeds
to repay our then outstanding revolving credit borrowings, which totalled
approximately $76.0 million at the close of business on April 27, 1999, and will
invest the balance in U.S. government and short-term investment grade corporate
debt obligations. Following completion of this offering and application of the
net proceeds as indicated, we may continue to incur indebtedness of up to
$650.0 million under our revolving credit facility. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations" included
elsewhere in this prospectus.
13
<PAGE>
PRICE RANGE OF COMMON STOCK
Our common stock is traded on The NASDAQ Stock Market under the symbol
"AMES." The following table provides the high and low last sale prices for our
common stock on The NASDAQ Stock Market reported for the fiscal quarterly
periods indicated below. These prices do not include retail markups, markdowns
or commissions.
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
Fiscal 1999
First Quarter (through April 26, 1999).......................................... $38 3/4 $25 3/8
Fiscal 1998
Fourth Quarter.................................................................. 32 1/2 18 1/8
Third Quarter................................................................... 25 3/8 10 1/2
Second Quarter.................................................................. 29 5/8 21 1/8
First Quarter................................................................... 25 1/2 14
Fiscal 1997
Fourth Quarter.................................................................. 19 5/8 12 3/8
Third Quarter................................................................... 18 12 5/8
Second Quarter.................................................................. 12 13/16 6 3/4
First Quarter................................................................... 10 1/4 6 1/4
</TABLE>
On April 26, 1999, the last reported sale price of our common stock was
$35 31/32. On that date, there were approximately 6,430 holders of record of our
common stock.
DIVIDEND POLICY
We have not declared or paid any dividends on our common stock for more
than the past five fiscal years, and we do not anticipate paying any cash
dividends in the foreseeable future. We currently intend to retain our future
earnings to finance our operations and expand our business. In addition, our
ability to pay cash dividends is restricted by our bank credit agreement and the
indenture relating to the $200.0 million of senior notes that we issued. Any
future determination to pay cash dividends will be at the discretion of the
board of directors and will be dependent upon our financial condition, operating
results, capital requirements and such other factors as the board of directors
deems relevant.
14
<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of January 30, 1999.
Our capitalization is presented:
o on an actual basis;
o on an as adjusted basis to reflect our sale on April 27, 1999 of
$200.0 million aggregate principal amount of our 10% senior notes
and our receipt and application of the net proceeds therefrom and
our sale of the 4,000,000 shares of common stock we are offering
pursuant to this prospectus and our receipt of the estimated net
proceeds therefrom (based on an assumed offering price of
$35 7/8 per share, the last reported sale price of the common stock
on April 23, 1999, and after deducting the underwriting discount and
estimated expenses payable by Ames).
<TABLE>
<CAPTION>
AS OF JANUARY 30,
1999
---------------------
AS ADJUSTED
ACTUAL (UNAUDITED)
------ -----------
(DOLLARS IN MILLIONS)
<S> <C> <C>
Cash and temporary investments............................................................. $ 35.7 $ 319.9
------ -------
------ -------
Current maturities of capital lease obligations and long-term debt......................... $ 17.8 $ 17.8
------ -------
------ -------
Long-term debt:
Bank credit facility(a)............................................................... $ 44.9 $ --
12.5% Senior Notes due 2003........................................................... 50.9 50.9
10% Senior Notes due 2006............................................................. -- 200.0
Capital leases and other debt (excluding current liabilities)......................... 191.9 191.9
------ -------
Total long-term debt............................................................. 287.7 442.8
------ -------
Stockholders' equity:
Preferred stock--authorized 3,000,000 shares; no shares issued or outstanding......... -- --
Common stock--authorized 40,000,000 shares; 23,921,545 shares issued and outstanding,
actual; 27,921,545 shares issued and outstanding, as adjusted(b)..................... 0.2 0.3
Additional paid-in capital............................................................ 236.7 372.2
Treasury stock--at cost--79,495 shares of common stock................................ (0.9) (0.9)
Retained earnings..................................................................... 88.0 88.0
------ -------
Total stockholders' equity....................................................... 324.0 459.6
------ -------
Total capitalization........................................................... $611.7 $ 902.4
------ -------
------ -------
</TABLE>
- ------------------
(a) As of the close of business on April 27, 1999, outstanding borrowings under
the bank credit facility (exclusive of letters of credit) were approximately
$76.0 million.
(b) Assumes no exercise of the over-allotment option by the underwriters and
excludes an aggregate of 520,251 shares of common stock issuable upon
exercise of currently outstanding stock options under our stock option
plans.
You should read this capitalization table in conjunction with the audited
consolidated financial statements and accompanying notes included elsewhere in
this prospectus and with the information set forth under the headings "Selected
Historical Financial and Operating Data" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
15
<PAGE>
SELECTED HISTORICAL FINANCIAL AND OPERATING DATA
The selected historical consolidated financial data for our fiscal years
ended January 25, 1997, January 31, 1998 and January 30, 1999 are derived from
our audited consolidated financial statements. The selected historical
consolidated financial data for our fiscal years ended January 28, 1995 and
January 27, 1996 are derived from our audited consolidated financial statements
which are not included herein. You should read this table in conjunction with
the audited consolidated financial statements and accompanying notes as well as
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this prospectus.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
--------------------------------------------------------------------------
JANUARY 28, JANUARY 27, JANUARY 25, JANUARY 31, JANUARY 30,
1995 1996 1997 1998 1999
----------- ----------- ----------- ------------- ----------------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales......................................... $ 2,142.8 $ 2,104.2 $ 2,161.7 $ 2,233.1 $2,507.2
Cost of merchandise sold.......................... 1,571.2 1,544.0 1,565.7 1,603.6 1,786.2
Gross profit...................................... 571.6 560.2 596.0 629.5 721.0
Selling, general and administrative expenses...... 568.9 552.7 564.4 581.7 660.6
Operating income.................................. 33.9 31.0 52.7 66.2 76.1
Net income (loss)................................. 17.0(a) (1.6) 17.3(b) 34.5 33.8
Net income (loss) per common share:
Basic........................................... 0.85 (0.08) 0.85 1.59 1.47
Diluted......................................... 0.79(a) (0.08) 0.79(b) 1.46 1.40
OTHER FINANCIAL DATA:
Gross margin...................................... 26.7% 26.6% 27.6% 28.2% 28.2%(c)
Selling, general and administrative expenses as a
percentage of net sales......................... 26.5% 26.3% 26.1% 26.1% 25.3%(c)
Same-store sales increase......................... 1.7% (1.0)% 1.0% 2.1% 7.2%
Average sales per store........................... $ 7.0 $ 6.9 $ 7.1 $ 7.5 $ 8.0(d)
Number of stores at end of period................. 306 307 303 298 456
Total store square footage at end of period
(000s).......................................... 18,670 18,700 18,487 17,600 31,500
BALANCE SHEET DATA (END OF PERIOD):
Cash.............................................. $ 30.4 $ 14.2 $ 46.1 $ 57.8 $ 35.7
Total assets...................................... 533.4 505.8 536.8 610.0 1,483.4
Total debt, including current maturities.......... 96.3 74.2 53.8 39.9 305.5
Stockholders' equity.............................. 84.9 83.3 108.2 173.4 324.0
</TABLE>
- ------------------
(a) Includes an extraordinary loss, net of tax, of $1.5 million or $0.07 per
common share for the early extinguishment of debt.
(b) Includes an extraordinary loss, net of tax, of $1.4 million or $0.06 per
common share for the early extinguishment of debt.
(c) Data for the fiscal year ended January 30, 1999 exclude Hills operations for
the month of January 1999 and various other acquisition related costs and
charges. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations" included elsewhere in this prospectus.
(d) Average sales per store excludes the acquired Hills stores.
16
<PAGE>
UNAUDITED PRO FORMA FINANCIAL DATA
The following unaudited pro forma combined condensed consolidated statement
of operations data have been derived from the audited consolidated financial
statements of Ames for the fiscal year ended January 30, 1999, which include the
results of Hills for the month of January 1999, and from the unaudited
consolidated statement of operations of Hills for the 11 months ended December
31, 1998. The pro forma data give effect to the Hills acquisition as if it had
occurred at the beginning of the fiscal year ended January 30, 1999.
The pro forma data reflect pro forma adjustments that are based upon
available information and certain assumptions that Ames believes are reasonable.
These data are provided for informational purposes only and are not necessarily
indicative of what Ames' actual results of operations would have been had the
Hills acquisition been consummated at the beginning of fiscal 1998, or the
results of operations Ames may obtain in the future. In preparing these pro
forma data, Ames has utilized what it believes are reasonable methods to conform
the bases of presentation of Ames' and Hills' historical financial statements.
The Hills acquisition has been accounted for by the purchase method of
accounting. The purchase price has been allocated to assets acquired and
liabilities assumed based on a preliminary determination of respective fair
market values at the date of acquisition and is subject to adjustment. Ames does
not expect that differences between the preliminary and final allocations will
have a material impact on Ames' pro forma results of operations.
You should read the following table in conjunction with the historical
audited consolidated financial statements and accompanying notes of Ames and
Hills included elsewhere in this prospectus and with the information set forth
under the headings "Capitalization" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
UNAUDITED PRO FORMA COMBINED CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FISCAL YEAR ENDED JANUARY 30, 1999
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HILLS
11 MONTHS
AMES ENDED
FISCAL YEAR DECEMBER 31, PRO FORMA PRO FORMA
ENDED 1998 ADJUSTMENTS TOTAL
JANUARY 30, 1999 (UNAUDITED) (UNAUDITED) (UNAUDITED)
---------------- ------------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales......................................... $2,507.2 $ 1,624.0 $ -- $ 4,131.2
Cost of merchandise sold.......................... 1,786.2 1,214.9 (9.6)(a) 2,991.5
Selling, general and administrative expenses...... 660.6 376.5 20.0 (b) 1,057.1
Depreciation and amortization expense, net........ 14.5 43.9 7.2 (c)(d) 65.6
Other (income) expense............................ (22.0) -- (10.4)(b) (32.4)(e)
Interest expense, net............................. 15.3 49.2 (6.9)(f) 57.6
-------- --------- ----- ---------
Income (loss) before income taxes................. 52.6 (60.5) (0.3) (8.2)
Income tax (provision) benefit.................... (18.8) (49.6) 21.7 (g) (46.7)
-------- --------- ----- ---------
Net income (loss)................................. $ 33.8 $ (110.1) $21.4 $ (54.9)(h)
-------- --------- ----- ---------
-------- --------- ----- ---------
Net loss per common share:
Basic and diluted net loss per common share..... $ (2.39)(h)
---------
---------
Shares outstanding used in basic and diluted net
loss per common share calculation (000s)..... 23,010
---------
---------
</TABLE>
- ------------------
(Footnotes appear on following page.)
17
<PAGE>
- ------------------
Footnotes:
(a) Approximately $9.6 million of Hills' buying expenses have been reclassified
from cost of merchandise sold to selling, general and administrative
expenses to conform to Ames' presentation. See footnote (b) below.
(b) Certain items of Hills' income have been reclassified from, and certain
items of Hills' expenses have been reclassified to, selling, general and
administrative expense to conform to Ames' presentation as follows:
<TABLE>
<CAPTION>
FISCAL YEAR
ENDED
JANUARY 30, 1999
----------------
(IN MILLIONS)
<S> <C>
Leased department income reclassified to
leased department and other income....................
$ 10.4
Buying expenses reclassified from cost of
merchandise sold...................................... 9.6
------
Total adjustments.................................. $ 20.0
------
------
</TABLE>
(c) Depreciation and amortization expense, net has been adjusted to reflect the
fair market revaluation of Hills' capital leases and beneficial lease
rights.
(d) Hills' amortization of reorganization value in excess of revalued assets
has been eliminated and amortization of purchase price in excess of assets
acquired has been added, using a 25 year amortization period.
(e) Other income presented is net of Ames' store closing charges of $8.2
million.
(f) Interest expense has been adjusted as follows:
<TABLE>
<CAPTION>
FISCAL YEAR
ENDED
JANUARY 30, 1999
----------------
(IN MILLIONS)
<S> <C>
Interest eliminated on the $144.1 million of Hills'
12 1/2% Senior Notes purchased by Ames................ $(16.7)
Elimination of amortized fees on the previous revolving
credit facilities of each of Hills and Ames offset by
the amortization of fees associated with Ames' new
revolving credit facility............................. (0.5)
Additional interest costs recorded relating to the
purchase of Hills..................................... 11.1
Change in interest expense on revalued debt............. (0.8)
------
Total adjustments.................................. $ (6.9)
------
------
</TABLE>
(g) Income taxes were adjusted to record a benefit on the pro forma combined
loss at Ames' historical rate, offset by a write-down of Hills deferred tax
assets of approximately $49.6 million (which is net of a reversal of
approximately $5.9 million of accrued tax liabilities). This net deferred
tax assets write-down was previously recorded by Hills, as of October 1998,
because Hills' management determined that these tax assets were not
realizable and, accordingly, recorded a write-down of the assets as a
component of the tax provision. The impact of recording the write-down of
these tax assets has not been eliminated for pro forma purposes.
(h) The pro forma net loss reflects the previously recorded write-down of Hills'
net deferred tax assets as discussed in note (g). Excluding the write-down
of the Hills' net deferred tax assets recorded as of October 31, 1998, pro
forma net loss and basic and diluted net loss per common share would have
been $5.3 million and $0.23, respectively.
18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Ames changed its fiscal year from the last Saturday in January to the
Saturday nearest January 31, effective with the fiscal year ended January 30,
1999, which we refer to as "fiscal 1998." We made this change so that our fiscal
year would coincide with the fiscal year of most other publicly-held retailers.
Fiscal 1998 consisted of 52 weeks. Our fiscal year ended January 31, 1998, which
we refer to as "fiscal 1997," consisted of 53 weeks. Our fiscal year ended
January 25, 1997, which we refer to as "fiscal 1996," consisted of 52 weeks.
You should read the discussion that follows in conjunction with the
consolidated financial statements and accompanying notes included elsewhere in
this prospectus.
RESULTS OF OPERATIONS
FISCAL 1998 COMPARED TO FISCAL 1997
On December 31, 1998, we acquired approximately 81.3% of the outstanding
voting stock of Hills Stores Company. Accordingly, the operations of Hills and
its subsidiaries during the month of January 1999 are included in our
consolidated results of operations for fiscal 1998. Immediately following our
acquisition of Hills, we began implementing a series of initiatives to prepare
for the conversion of 150 of the Hills stores into Ames stores and the permanent
closure of the five remaining Hills stores. These initiatives included the
termination of most of Hills' corporate and administrative operations and
personnel, the announced closure of seven Ames stores that we considered to be
directly competitive with acquired Hills stores and the engagement of two
experienced liquidation firms, Gordon Brothers Retail Partners and The Nassi
Group, to operate the Hills stores until their closure and to liquidate Hills'
merchandise inventories.
Under our agreement with Gordon Brothers and The Nassi Group, we are
entitled to retain from the proceeds of the liquidation sales, as a minimum
guaranteed amount, 40% of the initial ticketed retail price of the inventory
being sold, irrespective of the actual price at which it is sold. The remaining
sale proceeds, net of the expenses of operating the stores, are payable to the
liquidators as compensation for their services, subject to additional
allocations to Ames to the extent the proceeds exceed specified targets. For
financial reporting purposes, Hills' net sales during the month of January
represent the actual sale proceeds from merchandise liquidation sales, its cost
of merchandise sold represents the guaranteed minimum amount that Ames is
entitled to retain, and its selling, general and administrative expenses include
the portion of those proceeds that are to be paid over to the liquidators.
Because of the unique nature of our contractual arrangements with Gordon
Brothers and The Nassi Group, as well as the fact that 50 Hills stores were in
the process of liquidation, Hills' results for the month of January 1999 are not
representative of those of a retailer operating in the ordinary course of
business and are not directly comparable to Ames' results exclusive of Hills.
The acquisition of Hills also resulted in various costs and charges during the
month of January 1999 that impacted Ames' consolidated results. These other
costs and charges consisted principally of costs associated with terminating
contracts that became obsolete with the acquisition of Hills, the write-off of
deferred financing costs related to a prior credit facility, interest expense
for borrowings incurred to finance the acquisition and a one-time charge for the
announced closing of the seven Ames stores.
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The following table illustrates the separate contribution of Ames' full
year of operations and Hills' one month of operations to various components of
the consolidated results of operations for fiscal 1998, as well as the impact on
these consolidated results of the other costs and charges described above:
<TABLE>
<CAPTION>
OTHER COSTS
AMES HILLS AND CHARGES CONSOLIDATED
-------- ------ ----------- ------------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Net sales.............................................. $2,395.1 $112.1 $ -- $2,507.2
Costs and expenses (income)
Cost of merchandise sold............................. 1,719.9 66.3 -- 1,786.2
Selling, general and administrative expenses......... 606.9 51.9 1.8 660.6
Leased department and other income................... (29.2) (0.9) -- (30.1)
Depreciation and amortization expense, net........... 11.3 3.2 -- 14.5
Interest and debt expense, net....................... 11.4 1.9 1.9 15.2
Store closing charge................................. -- -- 8.2 8.2
-------- ------ ----- --------
Income (loss) before income taxes...................... 74.8 (10.3) (11.9) 52.6
Income tax (provision) benefit....................... (26.7) 3.7 4.2 (18.8)
-------- ------ ----- --------
Net income (loss)...................................... $ 48.1 $ (6.6) $(7.7) $ 33.8
-------- ------ ----- --------
-------- ------ ----- --------
</TABLE>
The unique circumstances under which Hills' operations have been conducted
since December 31, 1998 and the accounting treatment accorded those operations
as a consequence of our agreement with Gordon Brothers and The Nassi Group
distort any direct comparison of the principal components of Ames' consolidated
results for fiscal 1998 and fiscal 1997. Accordingly, in the discussion that
follows, Ames' net sales, gross margin, selling, general and administrative
expense, and its leased department and other income for fiscal 1998 are
presented and compared exclusive of the Hills results. The impact of the Hills
acquisition is included in the comparison of depreciation and amortization
expense and interest and debt expense.
Ames' net sales (which exclude sales from leased shoe departments)
increased 7.3%, to $2.40 billion in fiscal 1998 from $2.23 billion in fiscal
1997, due primarily to 7.2% growth in same-store sales. Ames experienced
particularly strong improvements in sales of domestics, toys, ready-to-assemble
furniture and women's sportswear. In comparing results for the two fiscal years,
you should bear in mind that net sales in fiscal 1997 were favorably affected by
the inclusion of a full or nearly full year of operations of two stores that
were closed in the beginning of fiscal 1998 and by the fact that fiscal 1997
included one additional week of operations.
Ames' gross margin increased $45.7 million in fiscal 1998 compared to
fiscal 1997, but remained unchanged as a percentage of net sales at 28.2%. The
gross margin rate in fiscal 1998 benefitted from a higher average markup on
sales, which was partially offset by higher markdowns.
Ames' selling, general and administrative expenses increased $25.3 million
in fiscal 1998, but decreased as a percentage of net sales from 26.1% in fiscal
1997 to 25.3% in fiscal 1998. The percentage decrease was primarily attributable
to a reduction in store related expenses and advertising expense, partially
offset by an increase in health and medical costs.
Ames' leased department and other income increased $4.1 million, or 16.3%,
in fiscal 1998 compared to fiscal 1997. The increase was due primarily to the
leased shoe department, layaway and vending income, as well as the receipt of
funds held in a trust.
Ames' depreciation and amortization expense increased by $4.6 million, or
69.1%, in fiscal 1998 compared to fiscal 1997. The increase related primarily to
new point-of-sale systems and store automation equipment acquired under certain
capital leases. The Hills acquisition added a further $3.2 million of
depreciation and amortization expense associated with the additional
depreciation and amortization of its fixed assets and beneficial lease rights
and the amortization of goodwill relating to the excess of the Hills acquisition
cost over the value of the acquired assets. We are amortizing the beneficial
lease rights using the straight-line method over the terms of the related leases
(which average approximately 25 years) and are amortizing the Hills goodwill
over 25 years on a straight-line basis. The amortization of the excess of our
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<PAGE>
revalued net assets over equity under fresh-start reporting remained the same in
fiscal 1998 as in fiscal 1997. We are amortizing this amount over a ten-year
period that will conclude in January 2003.
The Hills acquisition resulted in a 31.5%, or $3.7 million, increase in
consolidated interest expense, net of interest income, in fiscal 1998. Debt and
capital lease obligations of Hills accounted for $1.9 million of the increase.
Another $1.4 million of the increase was attributable to the non-cash write-off
of deferred financing costs under Ames' prior credit facility. The balance was
attributable to borrowings under our bank credit agreement to finance the costs
of the acquisition.
In the fourth quarter of fiscal 1998, we recorded charges of $8.2 million
in connection with the announced closing of seven Ames stores that are scheduled
to close in fiscal 1999. Principal components of these charges are for lease
costs and the write-down of fixed assets. We have also planned for the closing
of five of the acquired Hills stores and, pursuant to the purchase method of
accounting, have provided for these closings in the valuation of the acquired
Hills assets. In the fourth quarter of fiscal 1997, we recorded charges of
$1.6 million in connection with the closing of two stores, of which
$1.0 million was classified as a store closing charge and $0.6 million was
recorded as part of the cost of merchandise sold.
We recorded an income tax provision of $18.8 million in fiscal 1998, of
which approximately $0.5 million will be paid in cash. In fiscal 1997, we
recorded an income tax provision of $19.1 million, of which approximately
$0.3 million was paid in cash. See Note 10 of the Notes to Ames' audited
consolidated financial statements for an explanation of fresh-start reporting
and SFAS No. 109.
FISCAL 1997 COMPARED TO FISCAL 1996
We reported improvements in sales and net earnings for fiscal 1997 over
fiscal 1996. The improvements were due to the favorable impact of our opening 21
new stores in the preceding two fiscal years, our closing of 12 underperforming
stores at the beginning of fiscal 1997 and the continued improvement in our
gross margin rate. The following table sets forth various components of Ames'
results of operations for fiscal 1996 and 1997 expressed in dollars and as a
percentage of net sales:
<TABLE>
<CAPTION>
FISCAL 1996 FISCAL 1997
----------------------------- -----------------------------
IN MILLIONS % OF NET SALES IN MILLIONS % OF NET SALES
----------- -------------- ----------- --------------
<S> <C> <C> <C> <C>
Net sales........................................ $ 2,161.7 100.0% $ 2,233.1 100.0%
Costs and expenses (income):
Cost of merchandise sold....................... 1,565.7 72.4 1,603.6 71.8
Selling, general and administrative expenses... 564.4 26.1 581.7 26.1
Leased department and other income............. (25.8) (1.2) (25.1) (1.1)
Depreciation and amortization expense, net..... 4.7 0.2 6.7 0.3
Interest and debt expense, net................. 19.0 0.9 11.6 0.5
Store closing charge........................... 6.9 0.3 1.0 --
--------- ------ --------- ------
Income before income taxes and extraordinary
item........................................ 26.8 1.3 53.6 2.4
Income tax (provision)........................... (8.1) (0.4) (19.1) (0.9)
--------- ------ --------- ------
Income before extraordinary item................. 18.7 0.9 34.5 1.5
Extraordinary loss, net.......................... 1.4 0.1 -- --
--------- ------ --------- ------
Net income.................................. $ 17.3 0.8% $ 34.5 1.5%
--------- ------ --------- ------
--------- ------ --------- ------
</TABLE>
Net sales increased 3.3%, from $2.16 billion in fiscal 1996 to
$2.23 billion in fiscal 1997, due to an increase of 2.1% in same-store sales,
the inclusion of 53 weeks of operations in fiscal 1997 and the opening of new
stores.
Gross margin increased $33.5 million, or 0.6% as a percentage of net sales,
in fiscal 1997. The gross margin rate was favorably impacted by a slightly
higher average markup on sales and a reduction in markdowns. These factors were
partially offset by higher volume of "55 Gold(Registered) Savings" senior
citizen markdowns in fiscal 1997. Cost of merchandise sold in fiscal 1997
included a $0.6 million charge for inventory write-downs associated with two
stores that were designated for closing in fiscal 1998. Cost of
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<PAGE>
merchandise sold in fiscal 1996 included a $2.8 million charge for inventory
write-downs associated with 13 stores that were designated for closing in fiscal
1997.
Selling, general and administrative expenses increased $17.3 million in
fiscal 1997, but remained unchanged as a percentage of net sales compared to
fiscal 1996. The increase was primarily attributable to higher payroll expenses,
a substantial portion of which was related to the inclusion of an additional
week of operations and to federal minimum wage increases. Insurance expense
increased due to a greater loss experience in fiscal 1997 compared to fiscal
1996.
Leased department and other income declined $0.7 million (or 2.7%) in
fiscal 1997 compared to fiscal 1996, due primarily to a decline in sales at
leased shoe departments.
Depreciation and amortization expense increased by $2.0 million, or 0.1% as
a percentage of net sales, in fiscal 1997. Depreciation and amortization expense
included impairment losses of $1.2 million in fiscal 1997 and $2.2 million in
fiscal 1996 that were recorded pursuant to the adoption of SFAS No. 121 in the
fourth quarter of fiscal 1995. Depreciation and amortization also included
depreciation on capital additions subsequent to December 26, 1992, the date on
which we wrote off all of our non-current assets in connection with the adoption
of fresh-start reporting. The amortization of the excess of revalued net assets
over equity under fresh-start reporting remained the same in fiscal 1997 as in
fiscal 1996. We are amortizing this amount over a ten-year period.
Interest and debt expense, net of interest income, declined $7.4 million,
or 0.4% as a percentage of net sales, in fiscal 1997. The reduction was
primarily due to a reduction in the amortization of deferred financing costs, a
reduction in short-term interest expense and the favorable impact of lower
outstanding long-term debt and capital lease balances. The decrease in
short-term interest expense reflected a decrease in short-term borrowings
(weighted average of $66.5 million in fiscal 1997 compared to $86.1 million in
fiscal 1996) and a decrease in interest rates under our revolving credit
facility. Our average outstanding long-term debt and capital lease balances
decreased to $41.3 million in fiscal 1997 from $56.3 million in fiscal 1996.
During fiscal 1997, we realized proceeds of $1.9 million from the sale of
our rights under a lease, which resulted in a deferred gain of $1.7 million to
be recognized over a 20-year period. During fiscal 1996, we sold our rights
under several leases for a total of $0.7 million in proceeds and recognized
gains totaling $0.4 million.
In the fourth quarter of fiscal 1997, we recorded charges of $1.6 million
in connection with the closing of two stores, of which $1.0 million was
classified as a store closing charge and $0.6 million was classified as part of
the cost of merchandise sold. Both of the stores closed in February 1998. In the
fourth quarter of fiscal 1996, we recorded charges of $9.7 million in connection
with the closing of 13 stores. The $9.7 million is classified in two line items:
$6.9 million as a store closing charge and $2.8 million as part of cost of
merchandise sold.
We recorded an income tax provision of $19.1 million in fiscal 1997, of
which approximately $0.3 million was paid in cash. In fiscal 1996, we recorded a
non-cash income tax provision of $8.1 million.
As a result of our termination of a revolving credit facility in December
1996, we recorded in fiscal 1996 a non-cash extraordinary charge of
$1.4 million, net of tax benefit of $0.6 million. The tax benefit was recorded
as a reduction of additional paid-in capital. The charge was for the write-off
of the deferred financing costs related to the facility.
LIQUIDITY AND CAPITAL RESOURCES
Our principal sources of liquidity are our bank credit facility, cash from
operations and cash on hand. Our current bank credit facility consists of a
revolving credit facility of up to $650.0 million, with a sublimit of
$150.0 million for letters of credit, which expires June 30, 2002. Borrowings
under the bank credit facility are secured by substantially all of our assets
and we are required to meet certain financial covenants after February 2000. In
addition, we are required to maintain a minimum availability of at least
$100.0 million. Our peak borrowing level in fiscal 1998 under this bank credit
facility and a predecessor facility was
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<PAGE>
$148.3 million. We believe we will have sufficient liquidity to meet our
financial obligations for the foreseeable future.
Our cash position decreased by $22.1 million during fiscal 1998. The
decrease was due primarily to $103.9 million paid out in the acquisition of
Hills (net of cash acquired), $51.6 million of capital expenditures and
$16.3 million in debt and capital lease payments, partially offset by
$111.6 million in cash from operations and $44.9 million of borrowings under our
bank credit facility. Our cash position increased by $11.7 million during fiscal
1997. This increase was primarily due to $56.8 million of cash from operations,
partially offset by $32.9 million of capital expenditures and $15.7 million of
debt and capital lease payments.
Merchandise inventories increased by $197.7 million in fiscal 1998 due to
planned increases and the inclusion of $169.1 million of merchandise inventories
of Hills. The Hills inventories have been valued at approximately 40% of the
initial ticketed retail price of the merchandise, which represents the minimum
amount we are entitled to retain out of the proceeds from the liquidation of the
merchandise. Our merchandise inventories increased by $32.8 million in fiscal
1997 as a result of planned increases as well as early receipts of additional
merchandise for our 40th anniversary promotion held in March 1998. We use the
first-in, first-out (FIFO) method of accounting for inventories.
Net fixed assets increased by $288.3 million during fiscal 1998 due to the
inclusion of $230.9 million in net fixed assets of Hills and $77.5 million of
capital expenditures, including $25.9 million in new point-of-sale information
equipment and related software acquired under capital leases. The Hills net
fixed assets were adjusted to their estimated fair value as of the acquisition
date. In fiscal 1997, our net fixed assets increased by $19.7 million.
Beneficial lease rights represent the excess of the fair market value of
the acquired Hills leases over contract value of those leases. We are amortizing
this amount over the terms of the related leases (which average approximately
25 years) using the straight-line method. Goodwill is being amortized over
25 years using the straight-line method.
Accounts payable increased $173.6 million during fiscal 1998 due to
improved payment terms and the inclusion of Hills accounts payable of $127.8
million as of January 30, 1999. Accounts payable increased $34.2 million during
fiscal 1997 due to improved payment terms and an increase in merchandise
receipts in January 1998 over January 1997.
Long-term debt as of January 30, 1999 consisted of borrowings under our
revolving credit facility of $44.9 million and $50.9 million of Hills senior
notes that remained outstanding after the acquisition. See "Recent Developments"
for information with respect to the sale on April 27, 1999 of $200.0 million
principal amount of Ames' 10% Senior Notes due 2006 and application of the
proceeds to reduce Ames' then outstanding borrowings under the revolving credit
facility.
Capital lease and financing obligations increased by $165.5 million during
fiscal 1998 due to the inclusion of $147.9 million of capital lease and
financing obligations of Hills and $25.9 million of new capital leases.
We have not paid any cash dividends during the past three fiscal years. The
payment of cash dividends is restricted under the terms of our bank credit
facility.
CAPITAL EXPENDITURES
Capital expenditures for fiscal 1998 were $77.5 million, including
$25.9 million in new point-of-sale information equipment and related software
acquired pursuant to capital leases. The capital expenditure amount also
included, among other items, the opening of six new stores, the remodeling of 22
stores and the upgrading of certain management information systems. Capital
expenditures for fiscal 1997 were $32.9 million and included, among other items,
the opening of nine new stores, the remodeling of nine stores and the upgrading
of certain management information systems, including the installation of new
point-of-sale systems in ten stores.
23
<PAGE>
Capital expenditures are expected to be approximately $210.0 million for
fiscal 1999, primarily for the remodeling and conversion of 150 of the acquired
Hills stores and nine former Caldor stores. We expect to finance conversion
expenditures, including but not limited to, distribution center equipment
purchases, store fixtures and equipment and remodeling expenses, through
internally generated funds and borrowings under our bank credit facility. We
expect to finance a substantial portion of new point-of-sale systems through
capital leases. Land, buildings and improvements are financed principally
through long-term leases.
SEASONALITY
Our business is seasonal in nature, with a large portion of our net sales
occurring in the second half of our fiscal year as a result of the
back-to-school and Christmas shopping seasons. Net sales are highest in the last
fiscal quarter (31.7% in fiscal 1998). The demand for working capital is
heaviest in May, and from August through November, when sufficient merchandise
must be purchased for the spring, back-to-school and Christmas seasons,
respectively.
YEAR 2000 READINESS
In operating our business, we are dependent on information technology and
process control systems that employ computers as well as embedded
microprocessors. We also depend on the proper functioning of the business
systems of third parties, particularly the more than 3,200 vendors from whom we
purchase the merchandise sold in our stores. Many computer systems and
microprocessors can only process dates in which the year is represented by two
digits. As a result, some of these systems and processors may interpret "00"
incorrectly as the year 1900 instead of the year 2000, in which event they could
malfunction or become inoperable after December 31, 1999. Systems and processors
that can properly recognize the year 2000 are referred to as "year 2000
compliant."
As previously reported, we initiated a comprehensive program to prepare our
computer systems and applications for the year 2000. We have spent approximately
$3.8 million on this program through the end of fiscal 1998 and expect that full
implementation of the program will involve an additional $2.0 million to
$2.5 million, including expenditures for software and consulting services.
Additionally, we estimate the allocated costs of our internal systems
development staff who are implementing our year 2000 initiatives to be
$3.5 million to $4.0 million over the life of the project.
24
<PAGE>
BUSINESS
OVERVIEW
Ames is the largest regional discount retailer in the United States. We
currently operate 453 stores in 19 contiguous states in the Northeast, Midwest
and Mid-Atlantic regions, as well as the District of Columbia. Our stores offer
a wide range of both brand name and other quality merchandise for the home and
family at prices below those of conventional department stores and specialty
retailers. They are situated in rural communities, small cities and the suburbs
of larger metropolitan areas and are smaller and more customer friendly than the
stores of most competing "big box" retailers, including the national discount
department store chains.
Our customer base consists primarily of working women with families and
senior citizens. They have an average annual household income between $25,000
and $35,000 and their purchasing decisions are determined primarily by a desire
for low prices and shopping convenience. Our merchandise offerings, prices,
store design and focus on customer service are targeted to meet the needs of
these cost-conscious consumers, who we believe are generally underserved by
other large discount retailers. We reinforce our image and drive customer
traffic by employing a "high/low" pricing strategy that is implemented through
weekly advertising circulars and recurring promotional programs. We believe that
our knowledge of and focus on our target customers have enabled us to develop a
distinct advantage in an increasingly competitive discount retailing
environment.
On December 31, 1998, we acquired Hills Department Stores. Our financial
results for fiscal 1998 include the operations of the 155 acquired Hills stores
for the month of January 1999. In the discussion that follows, however,
references to various percentages of our fiscal 1998 net sales reflect only the
operations and sales of our existing Ames stores.
GROWTH STRATEGY
Since 1994, we have pursued a program to improve our profitability through
vigorous cost containment initiatives, a highly-focused approach to
merchandising and the rationalization of our store base. Our efforts over the
past four years have resulted in an increase in our gross margins from 26.7% to
28.2% and a doubling of our operating margin. During this time period, we also
acquired and successfully integrated 30 new stores, remodeled 60 of our existing
stores and closed 37 stores.
During the past 18 months, we have redirected our focus to enhancing our
revenues, expanding the breadth of our regional market and increasing our
penetration of that market. In addition to our on-going program of store
remodeling, we implemented merchandising and marketing initiatives that in
fiscal 1998 resulted in a 7.2% increase in same-store sales. At the same time,
we embarked on an accelerated program to acquire groups of stores located in
states in which we currently operate or that are contiguous with our existing
regional market.
The Hills acquisition is representative of our growth strategy. It will
significantly increase our revenue and enable us to leverage our administrative
costs over a far larger operating base. This acquisition was particularly
opportunistic for Ames, since it permitted us to obtain 155 well-maintained
store sites in locations that were complementary to our existing locations. The
Hills stores are located primarily in communities with demographics similar to
those of our existing locations. The acquisition expands our selling space by
approximately 70%, substantially increases our presence in five states and
enables us to enter five new states in which we foresee opportunities to add
additional stores to increase our market penetration. The Hills acquisition
enables us to achieve significant economies of scale. By eliminating
substantially all of Hills' administrative and buying functions, we expect to
generate annual savings in excess of $70.0 million, of which approximately
$60.0 million is expected to be realized in fiscal 1999 and the full benefit of
which will be realized beginning in fiscal 2000.
As a further step in the implementation of our growth strategy, we recently
acquired from Caldor Corporation nine stores that we are converting to Ames
stores, as well as a state-of-the-art distribution center.
25
<PAGE>
MERCHANDISING AND CUSTOMER SERVICE
Our mission is to provide our customers a broad selection of quality
merchandise at prices they can afford in a shopping environment that is friendly
and convenient. Our merchandising strategy is targeted to our customer base, and
we believe that this merchandising strategy has enabled us to develop a distinct
competitive advantage in serving our targeted customer base.
Ames sells merchandise in three major categories: home lines, softlines and
hardlines. The following table sets forth the types of merchandise offered
within each of these three categories and the percentage of our total sales in
fiscal 1998 (exclusive of sales in January attributable to the acquired Hills
stores) attributable to each category:
HOME LINES (39%)
o Domestics, such as sheets, towels and bath accessories
o Window treatments
o Home entertainment products
o Small appliances
o Housewares
o Ready-to-assemble furniture
o Patio furniture
o Crafts
SOFTLINES (30%)
o Women's apparel, consisting primarily of non-fashion basic items, sportswear
and intimates
o Men's workwear, denims, fleece goods, hosiery and underwear
o Children's apparel
o Jewelry
HARDLINES (27%)
o Health and beauty care products
o Toys
o Hardware and paints
o Automotive supplies
o Sporting goods
o Stationery
o Seasonal items, such as Christmas and other holiday decorations
In addition, all Ames stores include a shoe department, operated by a licensee,
that accounted for approximately 4% of our total sales in fiscal 1998.
A significant portion of our net sales is derived from the sale of products
that bear readily-recognized brand names, including Cannon(Registered),
Coleman(Registered), Dickies(Registered), Fisher-Price(Registered), Fruit of the
Loom(Registered), General Electric(Registered), Hanes(Registered),
Hasbro(Registered), Kodak(Registered), Magnavox(Registered), Mattel(Registered),
Proctor-Silex(Registered), Rider(Registered), Rubbermaid(Registered),
Sunbeam(Registered), Timex(Registered) and Wrangler(Registered).
Women's apparel is the only product line that accounts for more than 10% of
our sales, generating approximately 13% of our fiscal 1998 net sales. We carry
predominantly staple, non-fashion items of basic women's apparel, including
outerwear, sportswear and intimates, with a particularly broad selection of
merchandise in "plus" sizes for the larger woman. Similarly, our selection of
men's apparel is predominantly staple, non-fashion items that women frequently
purchase for the men in their families and that are most commonly sought by men
within our target customer base. We believe that our focus on basic apparel
limits our exposure to risks associated with changing fashion trends.
Our hardlines merchandise also consists primarily of products that are most
frequently purchased by women, such as health and beauty care products, toys,
stationery, gift wrap and holiday decorations. We concentrate our hardware
offerings on basic home repair and maintenance items, many of which are
purchased by women. Although we sell a number of hardware items and automotive
supplies that are more commonly purchased by men, our offerings of these
products are more limited than those of other large discount retailers.
Our home lines, which also consist primarily of products that are purchased
by women, include a "Crafts & More(Registered)" department that features what we
believe is the largest selection of crafts offered by any non-specialty retailer
in the United States. The crafts department has become a destination shop for
Ames' customers, and accounted for approximately 4% of our fiscal 1998 net
sales.
In certain of our markets, we are able to customize or "localize" our
merchandising. In our stores located in college towns, we offer a larger
assortment of the items most frequently desired by students for
26
<PAGE>
their dormitory rooms, as well as stationery supplies, jeans, sweatshirts,
athletic apparel and similar products. In our stores located in resort or
vacation communities, we feature broader selections of such seasonal items as
beach and camping supplies, and we continue to stock those items throughout the
duration of the related vacation season. This micromarketing strategy drives
customer traffic at those stores and develops and improves the loyalty of their
customer base.
In addition to offering a merchandise selection that is specifically
tailored to the needs and preferences of our target customers, we strive to make
each customer's shopping experience pleasant and convenient. We offer an
extensive layaway program that accounted for approximately 6% of our fiscal 1998
net sales. We have a fully-staffed customer service desk at a location away from
the most heavily trafficked areas in the store to afford customers greater
privacy. We also have implemented an "A+ Customer Service Program," which
encourages our in-store personnel to enhance customer satisfaction with a
well-defined four-step method: smile, greet the customer, meet the customer's
needs and thank the customer for shopping at Ames. Since the introduction of
this program in 1995, our customer comment scores have consistently improved.
MARKETING
We use a "high/low" promotional pricing strategy to attract customers to
our stores by periodically offering greater discounts on selected items or
categories of merchandise while maintaining our regular discount prices on all
other merchandise. In addition to increasing customer traffic, the "high/low"
strategy provides us greater control over margins and inventory levels by
allowing us to quickly adjust the number and mix of deeply discounted items and
increase or decrease our average pricing discount. We are also able to tailor
our selection of more heavily discounted products to customer demographics and
purchasing patterns in individual store locations.
Our main marketing theme, "Bargains by the Bagful(Registered)," is designed
to emphasize our value pricing. We support the "Bargains by the
Bagful(Registered)" theme through several promotional programs, including
"Special Buy" and "55Gold(Registered) Savings" programs, as well as periodic
"event" sales.
o Our "Special Buy" program allows us to offer selected items of
recognizable brand name and other quality merchandise to consumers at
deep discounts, thereby providing the customer with readily recognizable
values. "Special Buy" items are generally not actively advertised.
Instead, we use special signage and fixtures to make "Special Buy"
merchandise easily recognizable to customers, who are often drawn to our
stores as a result of their desire to discover the latest "Special Buy"
offerings. We are able to offer these deep discounts because of our
ability to react quickly to buying opportunities for close-out and
end-of-run products that are popular with our customers. Apparel
comprises approximately 90% of the merchandise offered through our
"Special Buy" program, although "Special Buy" items also are offered in
the hardlines and home lines product categories. Sales of "Special Buy"
merchandise accounted for approximately 4% of Ames' net sales in fiscal
1998.
o Our "55Gold(Registered) Savings" program provides a 10% discount on all
merchandise, including sale and "Special Buy" items, for consumers aged
55 and older who present a "55Gold(Registered) Savings" card when
shopping on Tuesdays. Since its inception in late 1994, over two million
people have joined the program and Tuesday has moved from being the
lowest to the second highest selling day in the week. During fiscal 1998,
the "55Gold(Registered) Savings" program generated sales of approximately
$250.0 million compared to approximately $238.0 million in fiscal 1997
and the number of active cardholders increased to 1.4 million from
1.2 million over the same period. We expect an additional 1.3
million cardholders by September 1999, as a result of the Hills and
Caldor acquisitions as well as the increasing popularity of this program.
o Our periodic "event" sales are heavily advertised, vendor-supported
promotions of selected categories of merchandise as well as promotions
that are intended to capitalize on seasonal shopping trends. Examples
include our "Baby Sale," "Housewares Spectacular," "Truckload Sale,"
"Patio Plaza," "Shoe Sale" and "Underwear Fair." Our most successful
special sale promotions include the "MarchMania Sale," the October "Home
Sale" and the November "Ames Biggest Toy Sale," which is designed to
attract Christmas shoppers. Because of the substantial increase in unit
volume generated
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<PAGE>
by these "event" sales, they are supported by many of our major vendors,
either through gross margin allowances or cooperative advertising.
We reinforce Ames' "Bargains by the Bagful(Registered)" theme through
extensive use of weekly full-color newspaper circulars. We have found that our
customers tend to compare merchandise offerings in different Sunday newspaper
circulars. They effectively "shop on the kitchen table," deciding what they are
going to buy and where they will buy it before they leave their homes. We
distribute 53 newspaper circulars per year, with an average weekly circulation
of 10.2 million households in 1998. Upon completion of our conversion of the
Hills and Caldor stores, we expect our weekly circulars to reach approximately
17.0 million households by September 1999. We estimate that approximately 45% of
our net sales in fiscal 1998 were generated by these circulars.
STORE LAYOUT AND DESIGN
Ames' stores, which range from 38,000 to 70,000 square feet of selling
space, are smaller and we believe more customer friendly than those of most
competing "big box" retailers, particularly the national discount store chains.
Their smaller size appeals to Ames' target customer base of working mothers and
senior citizens, who prefer an easy-to-shop, convenient store environment. In
1994, we introduced a new store prototype. The prototype features an open floor
plan and wide aisles that allow customers to see the entire store at a glance.
Bright, attractive signage and "soft" corners highlight key departments and make
finding the right department easy. The home lines department, our largest
merchandise category, typically spans the back wall of the store, with
promotional pallet and bin displays bordering the main aisle. Promotional items
are placed throughout the store near similar merchandise.
Set forth below is the prototype floor plan of our new and remodeled
stores:
[GRAPHIC]
This prototype has generally increased our return on investment in our
remodeled stores or, where the stores have been subject to increasing
competition, significantly enhanced their competitiveness. Approximately 90 of
our existing stores currently feature this design format and we are continuing
to remodel our remaining stores to this pattern on an as-needed basis. All of
the acquired Hills stores that we are converting to Ames stores, as well as the
nine Caldor stores that we recently acquired, will incorporate this layout, and,
by the end of fiscal 1999, approximately two-thirds of our total square footage
of selling space will be in this format.
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<PAGE>
STORE LOCATIONS
After having already closed two of the acquired Hills stores, we currently
operate 453 stores located in the Northeast, Midwest and Mid-Atlantic regions.
The Hills acquisition extended our presence into Illinois, Indiana, Kentucky,
North Carolina and Tennessee, where we previously had no stores, and
substantially strengthened our market penetration in several states in which we
had existing operations, including New York, Ohio, Pennsylvania, Virginia and
West Virginia.
The following table sets forth the locations of our stores after giving
prospective effect to our previously announced closing of seven Ames stores and
an additional three Hills stores and our acquisition of nine Caldor stores:
<TABLE>
<CAPTION>
NUMBER OF STORES
--------------------------------------------------
AMES HILLS CALDOR COMBINED
---- ----- ------ --------
<S> <C> <C> <C> <C>
Pennsylvania 54 45 -- 99
New York 70 21 -- 91
Ohio 7 46 -- 53
Massachusetts 33 1 2 36
Maryland 23 1 -- 24
Maine 23 -- -- 23
Connecticut 15 -- 7 22
New Hampshire 19 -- -- 19
West Virginia 6 13 -- 19
Virginia 6 8 -- 14
New Jersey 12 -- -- 12
Vermont 12 -- -- 12
Indiana -- 9 -- 9
Rhode Island 8 -- -- 8
Delaware 4 -- -- 4
Tennessee -- 3 -- 3
District of Columbia 1 -- -- 1
Illinois -- 1 -- 1
Kentucky -- 1 -- 1
North Carolina -- 1 -- 1
---- --- -- ----
Total: 293 150 9 452
</TABLE>
All but seven of our stores are leased. The store leases expire at various
dates through 2023 with an average remaining lease term of approximately
26 years, inclusive of renewal options. The leases generally have one or more
renewal options, each permitting an extension for at least five years. The
leases typically provide for fixed annual rentals, payment of certain taxes,
insurance and other charges and the payment of additional rentals based on a
percentage of sales in excess of certain fixed amounts.
PURCHASING
We buy merchandise from approximately 3,200 vendors, 93% of which are
located in the United States. No single vendor accounted for more than 1.3% of
our purchases in fiscal 1998 and there is no current or anticipated problem with
respect to the availability of merchandise. Merchandise is purchased centrally
for all stores by buyers who are based at Ames' headquarters.
We work actively with our vendors to reduce costs and improve the
efficiency of our supply chain. Nearly 1,600 vendors participate in our
electronic ordering and invoicing program, which is designed to automate the
inventory purchasing, delivery billing and payment process, reduce the number of
out-of-stock items and reduce the cycle time of product deliveries.
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<PAGE>
DISTRIBUTION
We operate distribution centers in Leesport, Pennsylvania, Mansfield,
Massachusetts, and, as a result of the Hills acquisition, Columbus, Ohio, which
aggregate approximately three million square feet. In addition, we recently
acquired from Caldor Corporation a state-of-the-art 649,000 square foot
distribution facility in Westfield, Massachusetts. We also are using, on a short
term basis, warehouse space in Elmira, New York. Merchandise is shipped by
vendors either directly to our stores or to our distribution centers, which then
make deliveries to the stores using our own fleet of trucks.
We have a 5:00 am delivery program to ensure that merchandise is delivered
to our stores before business hours. This delivery policy, together with our
investments in in-store automation, has increased the efficiency of our store
stocking and delivery and reduced the number of our out-of-stock items. An
improved in-stock position enables us to consistently provide customers with
merchandise in our stores upon demand.
MANAGEMENT INFORMATION SYSTEMS
In fiscal 1998, we invested approximately $35.0 million in state-of-the-art
technology for hardware, software and communications equipment to automate our
store operations. This investment included new point-of-sale devices, office
equipment to automate the office functions at each store as well as equipment to
improve the receipt and stocking of merchandise at the stores.
Our point-of-sale systems have significantly reduced the amount of time
customers spend on the checkout line, streamlined layaway and credit
transactions, facilitated our targeted promotional activities and increased
employee productivity. We are working on development of programs and tools to
evaluate and use customer information derived from our "55Gold(Registered)
Savings" program to enhance our ability to selectively market to these customer
groups.
Our new store office systems are being used to automate many manual, labor
intensive processes including cash counting, time keeping, store opening and
closing routines and other clerical tasks. In the receiving area, the new
systems are being used to speed the receipt of merchandise and its movement to
the sales floor. Additionally, these systems have significantly improved the
process by which we send customer returns to a central return center in eastern
Pennsylvania.
Through these store automation systems we can capture valuable financial,
merchandising, logistics and shrinkage information and transmit this information
to our corporate headquarters on a daily basis, enabling us to more effectively
operate our business. These systems are being included in all of the former
Hills and Caldor stores that we are converting to Ames stores.
COMPETITION
We operate in an extremely competitive environment. Many of our stores are
located in smaller communities and, in some cases, are the largest non-food
retail store in their market area. They compete, however, with many smaller
stores offering a similar range of products. Although Ames is the largest
regional discount retailer in the United States, we are still considerably
smaller in terms of our total number of stores, sales and earnings than the
three leading national chains: Wal-Mart, Kmart and Target Stores. Each of these
chains, as well as other regional operators, currently operates stores within
our regional market and competes with us for customers and potential store
locations. We currently anticipate a further increase in competition from these
national discount store chains. The following table illustrates the proximity
between the Ames and Hills stores and stores that are operated by various of our
major competitors.
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<PAGE>
COMPETING STORE LOCATIONS
<TABLE>
<CAPTION>
DISTANCE FROM NEAREST AMES STORE
3 MILES 5 MILES 10 MILES
------- ------- --------
<S> <C> <C> <C>
Wal-Mart....................................... 73 214 349
Kmart.......................................... 84 261 320
Bradlees....................................... 16 21 35
Value City..................................... 2 32 32
Target......................................... 12 23 37
Meijer......................................... 15 17 17
</TABLE>
Our merchandising focus is primarily directed to consumers who we believe
are underserved by the major national chains. Although this approach combined
with our smaller store size has enabled us to compete effectively with these
chains and operate profitably in proximity to their stores, we remain vulnerable
to the marketing power and high level of consumer recognition of the major
national discount chains.
EMPLOYEES
At March 31, 1999, we employed approximately 36,400 people (including
approximately 14,800 former Hills employees). Approximately 32,000 of our
employees work in various capacities within our stores, approximately 2,400 are
employed in our distribution centers and the balance is based at our corporate
and regional offices. With the exception of approximately 1,350 employees at our
distribution centers in Leesport, Pennsylvania, and Mansfield, Massachusetts,
who are covered by collective bargaining agreements that expire in December 1999
and December 2000, respectively, none of our employees is represented by a
union.
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<PAGE>
MANAGEMENT
The following table sets forth information with respect to the executive
officers and directors of Ames:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Joseph R. Ettore............. 60 President and Chief Executive Officer
Denis T. Lemire.............. 52 Executive Vice President and Chief Operating Officer
Rolando de Aguiar............ 50 Executive Vice President and Chief Financial and Administrative
Officer
James J. Aglio, Jr........... 47 Senior Vice President and General Merchandise Manager, Home Lines
Lisa Bachmann................ 37 Senior Vice President, Allocation and Planning
Eugene E. Bankers............ 59 Senior Vice President, Marketing
Richard L. Carter............ 50 Senior Vice President, Human Resources
David S. Covitz.............. 57 Senior Vice President and General Merchandise Manager, Hardlines
Paul C. Lanham............... 41 Senior Vice President, Chief Information Officer
David H. Lissy............... 55 Senior Vice President, General Counsel and Corporate Secretary
Alfred B. Petrillo, Jr....... 56 Senior Vice President, Store Planning
Grant C. Sanborn............. 47 Senior Vice President, Store Operations
Sanford H. Sansavera......... 50 Senior Vice President and General Merchandise Manager, Softlines
John Tempesta................ 50 Senior Vice President, Logistics
James A. Varhol.............. 43 Senior Vice President, Asset Protection
Paul M. Buxbaum.............. 44 Director and Chairman of the Board
Francis X. Basile............ 66 Director
Alan Cohen................... 62 Director
Richard M. Felner............ 63 Director
Sidney S. Pearlman........... 67 Director
Laurie M. Shahon............. 47 Director
</TABLE>
Joseph R. Ettore has been President, Chief Executive Officer and a director
of Ames since he joined our company in June 1994. Mr. Ettore has nearly
30 years of experience in the retailing industry. From July 1993 to June 1994,
he was President, Chief Executive Officer and a director of Jamesway Corp., a
regional discount store chain based in Secaucus, New Jersey, where he had
previously served in various merchandise management positions from 1982 to 1989.
He served as President, Chief Operating Officer and a director of Stuarts
Department Stores Inc., a regional discount store chain based in Franklin,
Massachusetts, from October 1989 until October 1992, when he was promoted to
President, Chief Executive Officer and Chairman of the Board of that company.
Mr. Ettore remained a director of Stuarts until May 1994.
Denis T. Lemire joined Ames in August 1994 as Executive Vice President,
Merchandising and was promoted to Executive Vice President and Chief Operating
Officer in March 1999. Mr. Lemire has nearly 25 years of retailing experience.
He served as President and Chief Operating Officer of Stuarts Department Stores
Inc. from November 1993 to August 1994 and as Senior Vice President,
Merchandising, of Stuarts from April 1990 to November 1993. From 1989 to 1990,
Mr. Lemire was a General Merchandise Manager at American Eagle Outfitters, Inc.,
a subsidiary of Retail Ventures, Inc. From 1987 to 1989, he served as President
of the Buying Network. Prior thereto, Mr. Lemire served for twelve years with
Marshalls, formerly a division of Melville Corp., including as Vice President
and General Merchandise Manager, Women's Apparel, from 1983 to 1987 and as
Merchandising Manager from 1978 to 1983.
Rolando de Aguiar joined Ames as Executive Vice President and Chief
Financial Officer in April 1998 and was promoted to Executive Vice President and
Chief Financial and Administrative Officer in March 1999. From March 1997 to
March 1998, he was President of Aguiar Associates, a retailing consulting firm.
From October 1994 to January 1997, he served as Executive Vice President and
Chief Administrative Officer of Gruma S.A. de C.V., a leading packaged food
producer in Mexico, and from September 1991 to August 1994, he held senior
financial positions at Sears, Roebuck & Co., including Vice President and
Controller--
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<PAGE>
Merchandise Group for Sears' U.S. operations and, prior thereto, Vice President,
Planning and Development at Sears in Mexico. Mr. de Aguiar previously served for
ten years at Occidental Petroleum Corporation in various management positions,
including Manager of Mergers and Acquisitions, Chief Financial Officer of the
Minerals Division and Director of Internal Audit for Occidental Petroleum's
worldwide operations.
James J. Aglio, Jr. became Senior Vice President, General Merchandise
Manager, of Ames' Home Lines Division in June 1998. Since joining Ames in July
1974, he has served in various merchandising positions, including as a buyer, a
Divisional Merchandise Manager, Assistant Vice President, and Vice President of
the Home Lines Division.
Lisa Bachmann joined Ames in August 1997 as Vice President, Allocation and
Planning, and was named Senior Vice President, Allocation and Planning, in
December 1998, when she also assumed responsibility for the Merchandising
Information Office. From 1983 to 1997, she held several management positions
with the Casual Corner Group, Inc., including Senior Merchandise Planner at Ups
N' Downs, Director--Planning & Allocation at the Capezio Division, Vice
President--Planning & Allocation, Casual Corner Division, and Vice
President--Planning & Allocation for the Casual Corner and Petite Sophisticate
Divisions.
Eugene E. Bankers joined Ames as Senior Vice President, Marketing, in
December 1993. Prior to joining Ames, he served for nearly 14 years in several
capacities at ShopKo Stores, Inc., including Vice President, Communications and
Investor Relations from 1991 to 1993, Vice President of Advertising, Public
Relations and Sales Promotion from 1986 to 1990, Vice President Planning and
Real Estate from 1984 to 1986 and Divisional Merchandise Manager from 1981 to
1984.
Richard L. Carter joined Ames in February 1993 as Senior Vice President,
Human Resources. From May 1978 to 1993 Mr. Carter held a variety of senior
management positions with The May Department Stores Company, most recently as
Senior Vice President, Human Resources for G. Fox Department Stores in Hartford,
Connecticut. While with May, he also served as Senior Vice President, Human
Resources, for Hahne's Department Stores in New Jersey and as Director of
Executive Development at May's corporate headquarters in St. Louis, Missouri.
Mr. Carter began his career in 1978 at O'Neil's Department Stores, where he
served in a variety of Human Resources positions.
David S. Covitz joined Ames in November 1989 as Divisional Merchandise
Manager and subsequently was promoted to the position of Vice President, General
Merchandise Manager. Mr. Covitz was named to his current position as Senior Vice
President and General Merchandise Manager, Hardlines, in June 1998. Prior to
joining Ames he held positions in the buying division at Filene's and as Vice
President/Divisional Merchandise Manager at Gold Circle Stores.
Paul C. Lanham joined Ames in October 1994 as Vice President, Planning and
Allocation. He was named Senior Vice President, Management Information Systems,
in March 1995, and assumed his current position as Senior Vice President and
Chief Information Officer in March 1996. Prior to joining Ames Mr. Lanham held a
variety of positions in the retailing industry, including Director of Inventory
Management at Brookstone, Inc., Distribution Manager and Regional Merchandise
Manager at Payless Shoesource, Inc., and Systems Analyst, Distributor and Store
Manager at The Gap Inc.
David H. Lissy joined Ames in June 1990 and was named Senior Vice
President, General Counsel and Corporate Secretary in December 1992. Prior to
joining Ames, Mr. Lissy served in senior positions in a number of other major
corporations, including United Brands and Gulf & Western, and in the federal
government, where from 1969 to 1977 he held positions including Special
Assistant to the President, Special Assistant to the Secretary of State and
Executive Secretary of the Department of Health Education and Welfare.
Mr. Lissy has also owned Samuel Lehrer & Co., Inc., a wholesaler of fine quality
fabrics, since 1988.
Alfred B. Petrillo, Jr. joined Ames in October 1995 as Senior Vice
President, Store Planning. Prior to joining Ames, Mr. Petrillo was Senior
Vice-President, Store Planning, Construction, Visual Merchandising,
Planogramming, Maintenance and Energy at Jamesway. He joined Jamesway in 1969 as
Director of Store Planning and Construction. He was promoted to Assistant Vice
President, Store Planning and Construction in 1973 and served as Vice President,
Store Planning, Construction, Maintenance and Energy from 1976 to 1995.
Mr. Petrillo began his career in 1962 as an architectural designer and draftsman
at the firm of John Scacchetti, AIA.
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<PAGE>
Grant C. Sanborn joined Ames in April 1971 as an assistant manager and was
named Senior Vice President, Store Operations, in January 1995. Since joining
Ames, Mr. Sanborn has held a wide variety of field store operations positions,
including Store Manager at seven locations, District Manager in both northern
Maine and Syracuse, New York, Assistant Regional Director and Regional
Operations Director. In July 1991, Mr. Sanborn joined Ames' corporate
headquarters as Director of Store Operations, with responsibility for
remodelling, merchandise presentation and store planning, construction and
facilities. In October 1993, he was promoted to Vice President, Store
Operations. In January 1995 he became responsible for Ames' entire field
organization.
Sanford H. Sansavera joined Ames in May 1993 as Divisional Merchandise
Manager--Jewelry and assumed additional responsibility for Accessories in August
1994. He was promoted to Senior Vice President, General Merchandise
Manager--Softlines, in June 1998. Prior to joining Ames, Mr. Sansavera spent
21 years with The May Department Stores Company in a variety of positions,
including General Manager--Merchandise, Branch Store Divisional Manager,
Department Manager and Store Manager.
John Tempesta joined Ames in February 1999 as Senior Vice President,
Logistics, and is responsible for all aspects of Ames' logistics and
distribution network. From 1994 to 1999, Mr. Tempesta was with Caldor
Corporation, most recently as Senior Vice President, Distribution/Logistics.
From 1988 to 1993, Mr. Tempesta was a Senior Vice President, Catalogue
Operations, at Chadwick's of Boston, a division of TJX Companies, Inc. From 1983
to 1988, he was Senior Vice President, Operations, at Filene's Basement. He also
has held management positions at Hit or Miss and Zayre Corporation.
James A. Varhol joined Ames in August 1995 as Senior Vice President, Asset
Protection, and is responsible for all aspects of corporate, store and
distribution center loss prevention and safety initiatives. From 1977 to 1995,
Mr. Varhol was employed at Jamesway Corp., where he served in various positions,
including eight years as Vice President of Loss Prevention.
Paul M. Buxbaum became a director of Ames in 1992 and Chairman of its Board
of Directors in 1993. He has been President of Buxbaum Group & Associates, Inc.,
a nationwide retail consulting company since 1984, and since 1998 has been Chief
Executive Officer and a director of Global Health Sciences, Inc., a developer,
manufacturer and packager of vitamins, herbs, dietary supplements and protein
powders. He is also a director of Lamonts Apparel, Inc. and was formerly a
director of Herbalife International, Inc. and Richmond Gordon 1/2 Price Stores.
Francis X. Basile has been a director of Ames since 1992. Prior to his
retirement in January 1992, he served as Chairman and Chief Executive Officer of
the CIT Group/Factoring, Inc. from 1986. He also served as a director and
Chairman of the National Commercial Finance Association and a member of its
Executive Committee.
Alan Cohen has been a director of Ames since 1992. He has been Chairman of
Alco Capital Group, Inc., a diversified financial service and investment
company, since 1975, and Chief Executive Officer of Russ Toggs, Inc., since
November 1993. He also serves as Chairman of the Board of Alco Cadillac-Pontiac
Sales Corp., and formerly served as court-appointed trustee of Tower Financial
Corporation and as Chief Executive Officer of Health-Tex, Inc.
Richard M. Felner has been a director of Ames since 1994. Since 1991, he
has been the head of Richard M. Felner Associates, a consulting firm
specializing in retail and commercial real estate. From 1985 to 1991, he was
Vice President of Real Estate and Corporate Development, and a director of
Worths Stores Corporation, a subsidiary of Reitmans Ltd., Canada's largest
women's apparel retailer.
Sidney S. Pearlman has been a director of Ames since 1992. He has been
retired since May 1991, after 40 years in the retailing industry, including
service as President of three department store chains and as Senior Vice
President/General Merchandise Manager of Younkers, Inc. from 1987 to March 1991.
Laurie M. Shahon has been a director of Ames since 1995. Since January
1994, she has served as President of the Wilton Capital Group, which invests as
a principal in later-stage venture capital companies and medium-sized management
buyouts. From April 1988 to December 1993, she served as a Managing Director of
"21" International Holdings, Inc., a privately-owned holding company. She is
also a director of One Price Clothing Stores, Inc. and Homeland Holdings
Corporation. Ms. Shahon has informed Ames that she will not stand for reelection
at the 1999 annual meeting.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
GENERAL
The current certificate of incorporation of Ames authorizes 40,000,000
shares of common stock, par value $.01 per share. As of April 26, 1999, the
outstanding capital stock of Ames consisted of 24,037,149 shares of common stock
held by approximately 6,430 stockholders of record. The following summaries of
certain provisions of the common stock do not purport to be complete and are
subject to, and qualified in their entirety by, the provisions of the
certificate of incorporation and bylaws of Ames, which are incorporated by
reference as exhibits to the Registration Statement of which this prospectus
forms a part, and by applicable law. Ames is a Delaware corporation and is
subject to the Delaware General Corporation Law (the "DGCL").
COMMON STOCK
Holders of common stock are entitled to one vote per share on all matters
to be voted upon by the stockholders of Ames, and the holders of common stock
vote together as a single class on all matters to be voted upon by the
stockholders. The holders of common stock are entitled to receive ratably such
dividends when, as and if declared from time to time by the Board of Directors
out of the assets of Ames available for the payment of dividends to the extent
permitted by law, subject to preferences that may be applicable to any
outstanding preferred stock and any other provisions of Ames' certificate of
incorporation. Ames does not, however, anticipate paying any cash dividends in
the foreseeable future.
Holders of common stock have no preemptive or other rights to subscribe for
additional shares. No shares of common stock are subject to redemption or a
sinking fund. Holders of common stock also do not have cumulative voting rights,
which means the holder or holders of more than half of the shares voting for the
election of directors can elect all the directors then being elected. In the
event of any liquidation, dissolution or winding up of Ames, whether voluntary
or involuntary, after payment of the debts and other liabilities of Ames, and
subject to the rights of holders of shares of preferred stock, holders of common
stock are entitled to share pro rata in any distribution of remaining assets to
the stockholders. All of the outstanding shares of common stock are, and the
shares offered hereby will be, fully paid and nonassessable. See the information
set forth elsewhere in this prospectus under the heading "Dividend Policy."
PREFERRED STOCK
The Board of Directors is authorized, without further vote or action by the
holders of common stock, to issue an aggregate of 3,000,000 shares of preferred
stock, par value $.01 per share, in one or more series and to designate the
voting powers (but no greater than one vote per share), preferences,
designations, limitations and relative participating, optional, redemption,
conversion, exchange or other special rights, qualifications, limitations or
restrictions of each series, and the number of shares in each series, to the
full extent permitted by law. The Board of Directors may also designate dividend
rights and preferences in liquidation.
No shares of preferred stock are outstanding and Ames has no plans to issue
a new series of preferred stock. It is not possible to state the effect of the
authorization and issuance of any series of preferred stock upon the rights of
the holders of common stock until the Board of Directors determines the specific
terms, rights and preferences of such a series of preferred stock. However, such
effects might include, among other things, restricting dividends on the common
stock, diluting the voting power of the common stock or impairing the
liquidation rights of such shares without further action by holders of common
stock. In addition, under certain circumstances, the issuance of preferred stock
may render more difficult or tend to discourage a merger, tender offer or proxy
contest, the assumption of control by a holder of a large block of Ames'
securities or the removal of incumbent management, which could thereby depress
the market price of Ames' common stock.
COMMON STOCK WARRANTS
As of April 26, 1999, we had outstanding 100,000 warrants for the purchase
of shares of common stock. Each warrant entitles the holder to purchase one
share of common stock at any time prior to December 30, 2000. The exercise price
is $5.92 per share. During fiscal 1998, 100,000 warrants were exercised.
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<PAGE>
The exercise price of the warrants is subject to adjustment upon the
occurrence of certain events, including, among other things, the payment of a
stock dividend, a merger or consolidation and the issuance for consideration of
rights, options or warrants (other than rights to purchase common stock issued
to stockholders generally) to acquire our common stock. A holder of any of the
warrants described above will not be entitled to any rights as a stockholder of
Ames, including, without limitation, the right to vote with respect to the
shares of our common stock, until such holder has exercised the warrants.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the DGCL provides the power to indemnify any director or
officer acting in his capacity as our representative who was, is or is
threatened to be made a party to any action or proceeding for expenses,
judgments, penalties, fines and amounts paid in settlement in connection with
that action or proceeding. The indemnity provisions apply whether the action was
instituted by a third party or arose by or in our right. Generally the only
limitations on our ability to indemnify our director or officer is that the
director or officer acted in good faith in a manner reasonably believed to be
in, or not opposed to, the best interests of the corporation and, with respect
to any criminal action, that the director or officer has no reasonable cause to
believe that his conduct was unlawful.
Our bylaws provide a right to indemnification to the full extent permitted
by law for expenses, attorney's fees, judgments, fines and amounts paid in
settlement actually and reasonably incurred by any director or officer whether
or not the indemnified liability arises or arose from any threatened, pending or
completed proceeding by or in our right by reason of the fact that such director
or officer is or was serving as our director or officer at our request, as a
director, officer, partner, fiduciary or trustee of another corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise,
unless a court finally determines that the director or officer did not act in
good faith in a manner reasonably believed to be in, or not opposed to, the best
interests of the corporation and, with respect to any criminal action, that the
director or officer has no reasonable cause to believe that his conduct was
unlawful. Our bylaws provide for the advancement of expenses to an indemnified
party upon receipt of an undertaking by the party to repay those amounts if it
is finally determined that the indemnified party is not entitled to
indemnification.
Our bylaws authorize us to take steps to ensure that all persons entitled
to indemnification are properly indemnified, including, if the board of
directors so determines, purchasing and maintaining insurance.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers or persons controlling the
registrant pursuant to the foregoing provisions, the registrant has been
informed that in the opinion of the Commission such indemnification is against
public policy as expressed in the Act and is, therefore, unenforceable.
LIMITATION OF LIABILITY
Our certificate of incorporation provides that none of our directors shall
be personally liable to us or our stockholders for monetary damages for a breach
of fiduciary duty as a director, except for liability:
o for any breach of that person's duty of loyalty;
o for acts or omissions not in good faith or involving intentional
misconduct or a knowing violation of law;
o for the payment of unlawful dividends and certain other actions
prohibited by Delaware corporate law; and
o for any transaction resulting in receipt by that person of an
improper personal benefit.
We maintain directors and officers' liability insurance to provide
directors and officers with insurance coverage for losses arising from claims
based on breaches of duty, negligence, error and other wrongful acts. At
present, there is no pending litigation or proceeding, and we are not aware of
any threatened litigation or proceeding, involving any director or officer where
indemnification will be required or permitted under our certificate of
incorporation or our bylaws.
36
<PAGE>
SECTION 203 OF THE DELAWARE GENERAL CORPORATION LAW
Ames is a Delaware corporation subject to Section 203 of the DGCL
("Section 203"). Section 203 provides in general that a stockholder acquiring
more than 15% of the outstanding voting stock of a corporation subject to
Section 203 (an "Interested Stockholder") but less than 85% of such stock may
not engage in certain Business Combinations (as defined in Section 203) with the
corporation for a period of three years subsequent to the date on which the
stockholder became an Interested Stockholder unless (i) prior to such date the
corporation's board of directors approved either the Business Combination or the
transaction in which the stockholder became an Interested Stockholder or (ii)
the Business Combination is approved by the corporation's board of directors and
authorized by a vote of at least 66 2/3% of the outstanding voting stock of the
corporation not owned by the Interested Stockholder. A "Business Combination"
includes mergers, asset sales and other transactions resulting in financial
benefit to a stockholder. Section 203 could prohibit or delay mergers or other
takeover or change of control attempts with respect to Ames and, accordingly,
may discourage attempts that might result in a premium over the market price for
the shares held by stockholders.
CERTAIN ANTI-TAKEOVER PROVISIONS
The ability of the Board of Directors to establish the rights of, and to
issue, substantial amounts of preferred stock without the need for stockholder
approval, may have the effect of discouraging, delaying or preventing a change
of control. Newly created preferred stock may be used, among other things, to
establish voting impediments to a change of control or to dilute the stock
ownership of holders of common stock who are seeking to obtain control.
Ames also has a stock purchase rights agreement, commonly known as a
"poison pill." Under the terms of the rights agreement, one purchase right, with
an initial exercise price of $14.00, is attached to each share of Ames' common
stock outstanding as of, or issued subsequent to, November 30, 1994 but prior to
the occurrence of certain events. The rights become exercisable in the event
that a person or group either acquires 15% or more of Ames' outstanding voting
stock or announces an intention to acquire 20% or more of such stock. Once
exercisable, each right will, depending on the circumstances, entitle a holder,
other than the potential acquiror, to purchase shares of either Ames or an
acquiring company having a market value equal to twice the exercise price. The
rights agreement was adopted to assure that all of Ames' stockholders receive
full value for their investment in the event of stock accumulation by a
potential acquiror. Unless previously redeemed by Ames, the rights will expire
on November 29, 2004.
These anti-takeover measures are among the special risks identified under
the heading "Risk Factors" elsewhere in this prospectus.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock is ChaseMellon
Shareholder Services, L.L.C.
37
<PAGE>
U.S. TAX CONSIDERATIONS APPLICABLE
TO NON-U.S. HOLDERS OF THE COMMON STOCK
The following is a general discussion of certain U.S. federal income and
estate tax consequences of the ownership and disposition of common stock
applicable to Non-U.S. Holders who acquire and own shares of common stock as
capital assets within the meaning of section 1221 of the Internal Revenue Code
of 1986, as amended (the "Code"). A "Non-U.S. Holder" is any person other than
(i) a citizen or resident of the United States, (ii) a corporation or
partnership created or organized in the United States under the laws of the
United States or of any state, (iii) an estate whose income is includable in
gross income for United States federal income tax purposes regardless of its
source, or (iv) a trust if a court within the United States is able to exercise
primary supervision over the administration of the trust and one or more U.S.
persons have the authority to control all substantial decisions of the trust.
The discussion does not consider specific facts and circumstances that may
be relevant to a particular Non-U.S. Holder's tax position (including the fact
that, in the case of a Non-U.S. Holder that is a partnership, the U.S. tax
consequences of holding and disposing of shares of common stock may be affected
by certain determinations made at the partner level) and does not consider U.S.
state and local or non-U.S. tax consequences. Further, it does not consider
Non-U.S. Holders subject to special tax treatment under the federal income tax
laws (including banks and insurance companies, dealers in securities, and
holders of securities held as part of a "straddle," "hedge," or "conversion
transaction"). The following discussion is based on provisions of the Code and
administrative and judicial interpretations as of the date hereof, all of which
are subject to change, possibly on a retroactive basis, and any change could
affect the continuing validity of this discussion.
THE FOLLOWING SUMMARY IS INCLUDED HEREIN FOR GENERAL INFORMATION.
ACCORDINGLY, EACH PROSPECTIVE NON-U.S. HOLDER IS URGED TO CONSULT A TAX ADVISOR
WITH RESPECT TO THE U.S. FEDERAL TAX CONSEQUENCES OF HOLDING AND DISPOSING OF
COMMON STOCK, AS WELL AS ANY TAX CONSEQUENCES THAT MAY ARISE UNDER THE LAWS OF
ANY U.S. STATE, LOCAL OR NON-U.S. TAXING JURISDICTION.
NON-U.S. HOLDERS
For purposes of the following discussion, dividends and gain on the sale,
exchange or other disposition of common stock will be considered to be "U.S.
trade or business income" if such income or gain is (i) effectively connected
with the conduct of a U.S. trade or business or (ii) in the case of a treaty
resident, attributable to a permanent establishment (or, in the case of an
individual, a fixed base) in the United States.
Dividends
In general, dividends paid to a Non-U.S. Holder of common stock will be
subject to withholding of U.S. federal income tax at a 30% rate unless such rate
is reduced by an applicable tax treaty. The tax treaty between the United States
and Canada reduces the rate of withholding to 15% in the case of dividends paid
to some Canadian residents. Dividends that are U.S. trade or business income are
generally subject to U.S. federal income tax on a net basis at regular income
tax rates, and are not generally subject to the 30% withholding tax if the Non-
U.S. Holder provides a Form 4224 or successor form to the payor. Any U.S. trade
or business income received by a Non-U.S. Holder that is a corporation may also,
under certain circumstances, be subject to an additional "branch profits tax" at
a 30% rate or such lower rate as may be applicable under a tax treaty (generally
a 5% rate under the tax treaty between the United States and Canada). Dividends
paid to an address in a foreign country generally are presumed (absent actual
knowledge to the contrary) to be paid to a resident of such country for purposes
of the withholding discussed above and for purposes of determining the
applicability of a tax treaty rate. Under U.S. Treasury Regulations generally
effective January 1, 2000 (the "Final Regulations"), a Non-U.S. Holder of common
stock who wishes to claim the benefit of an applicable treaty rate will be
required to satisfy certain certification and other requirements, which will
include the requirement that the Non-U.S. Holder file a Form W-8 containing the
holder's name and address and may require the Non-U.S. Holder to provide certain
documentary evidence issued by foreign governmental authorities as proof of
residence in the foreign country.
A Non-U.S. Holder of common stock that is eligible for a reduced rate of
U.S. withholding tax pursuant to a tax treaty may obtain a refund of any excess
amounts currently withheld by filing an appropriate claim for a refund with the
IRS.
38
<PAGE>
Sale, Exchange, Redemption or Other Disposition
Except as described below and subject to the discussion concerning backup
withholding, any gain realized by a Non-U.S. Holder on the sale, exchange,
redemption or other disposition of common stock generally will not be subject to
U.S. federal income tax, unless (i) such gain is U.S. trade or business income,
(ii) subject to certain exceptions, the Non-U.S. Holder is an individual who is
present in the United States for 183 days or more during the taxable year of the
disposition, and certain other conditions are present, (iii) the Non-U.S. Holder
is subject to tax under U.S. tax law provisions applicable to certain U.S.
expatriates (including certain former citizens or residents of the United
States) or (iv) Ames is or has been a "United States real property holding
corporation" (a "USRPHC") for federal income tax purposes and such Non-U.S.
Holder has held, directly or constructively, more than 5% of the outstanding
common stock within the five-year period ending on the date of the sale or
exchange. No assurance can be given that Ames is not, or will not be, a United
States real property holding corporation when a Non-U.S. Holder sells its shares
of common stock.
Federal Estate Tax
Common stock owned or treated as owned by an individual Non-U.S. Holder who
is not a citizen or resident of the United States for U.S. federal estate tax
purposes will be included in such individual's gross estate for U.S. federal
estate tax purposes unless an applicable estate tax treaty otherwise provides.
Information Reporting and Backup Withholding
Ames must report annually to the IRS and to each Non-U.S. Holder any
dividend income that is subject to withholding, or that is exempt from U.S.
withholding tax pursuant to a tax treaty. Copies of these information returns
may also be made available under the provisions of a specific treaty or
agreement to the tax authorities of the country in which the Non-U.S. Holder
resides.
Under current law, backup withholding at the rate of 31% generally will not
apply to dividends paid to a Non-U.S. Holder at an address outside the United
States (absent actual knowledge that the payee is a U.S. person). Under the
Final Regulations, however, a Non-U.S. Holder will be subject to backup
withholding unless a Form W-8 is provided and certain other requirements are
met.
The payment of proceeds from the disposition of common stock to or through
the United States office of any broker, U.S. or foreign, will be subject to
information reporting and possible backup withholding unless the owner certifies
as to its non-U.S. status under penalty of perjury or otherwise establishes its
entitlement to an exemption from information reporting and backup withholding,
provided that the broker does not have actual knowledge that the holder is a
U.S. person or that the conditions of an exemption are not, in fact, satisfied.
The payment of proceeds from the disposition of common stock to or through a
non-U.S. office of a non-U.S. broker that is not a "U.S. related person" will
not be subject to information reporting or backup withholding. For this purpose,
a "U.S. related person" is a foreign person with one or more enumerated
relationships with the United States.
In the case of the payment of proceeds from the disposition of common stock
to or through a non-U.S. office of a broker that is either a U.S. person or a
U.S. related person, the regulations require information reporting on the
payment unless the broker has documentary evidence in its files that the owner
is a Non-U.S. Holder and the broker has no knowledge to the contrary. Backup
withholding will not apply to payments made through the foreign office of a
broker that is a U.S. person or a U.S. related person (absent actual knowledge
that the payee is a U.S. person).
Any amounts withheld under the backup withholding rules from a payment of a
Non-U.S. Holder will be allowed as a refund or a credit against such Non-U.S.
Holder's U.S. federal income tax liability provided the requisite procedures are
followed.
39
<PAGE>
UNDERWRITING
Under their underwriting agreement with us, each of the underwriters named
below, for whom Lehman Brothers Inc., NationsBanc Montgomery Securities LLC,
Bear, Stearns & Co. Inc., Johnson Rice & Company L.L.C. and Tucker Anthony
Cleary Gull are acting as representatives, has agreed severally to purchase from
us the number of shares of common stock shown opposite its name below:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
- ------------ ------------
<S> <C>
Lehman Brothers Inc.......................................
NationsBanc Montgomery Securities LLC.....................
Bear, Stearns & Co. Inc...................................
Johnson Rice & Company L.L.C..............................
Tucker Anthony Cleary Gull................................
----------
Total................................................... 4,000,000
----------
----------
</TABLE>
The underwriting agreement provides that the underwriters' obligations to
purchase shares of common stock depend on the satisfaction of the conditions
contained in the underwriting agreement, and that if any shares of common stock
are purchased by the underwriters under the underwriting agreement, then all of
the shares of common stock that they have agreed to purchase under the
underwriting agreement, must be purchased. The conditions contained in the
underwriting agreement include the requirement that, at the date of closing, our
representations and warranties to the underwriters will be true, that there will
have been no material change in the financial markets and that we deliver to the
underwriters customary closing documents. A copy of the underwriting agreement
has been filed with the Commission as an exhibit to the registration statement
of which this prospectus constitutes a part.
The representatives have advised us that the underwriters propose to offer
the shares of common stock directly to the public initially at the public
offering price set forth on the cover page of this prospectus, and to dealers,
who may include the underwriters, at that price less a selling concession not in
excess of $ per share. The underwriters may allow, and the dealers may
re-allow, a concession not in excess of $ per share to brokers and
dealers. After the offering, the underwriters may change the offering price and
other selling terms.
We have granted to the underwriters an option to purchase up to an
aggregate of 600,000 additional shares of common stock, solely for the purpose
of covering over-allotments, if any, in the sale of the 4,000,000 shares that we
are offering. The option price for the additional shares is the same as the
price to be paid by the underwriters for the shares we are offering. The
underwriters may exercise this option at any time within 30 days after the date
of this prospectus. If this option is exercised, each underwriter will be
committed, so long as the conditions of the underwriting agreement are
satisfied, to purchase, and we will be obligated to issue and sell, a number of
additional shares of common stock that is proportionate to that underwriter's
initial commitment as indicated in the preceding table.
We have agreed that, without the prior consent of Lehman Brothers, we will
not, except for limited exceptions, directly or indirectly, offer, sell or
otherwise dispose of any shares of common stock or any securities that may be
converted into or exchanged for shares of common stock for a period of 90 days
from the date of this prospectus. Except for limited exceptions, all of our
executive officers and directors have agreed under lock-up agreements that,
without the prior written consent of Lehman Brothers, they will not, directly or
indirectly, offer, sell or otherwise dispose of any shares of common stock or
any securities which may be converted into or exchanged for any such shares of
the period ending 90 days after the date of this prospectus.
We have agreed to indemnify the underwriters against liabilities, including
liabilities under the Securities Act and liabilities arising from breaches of
the representations and warranties contained in the underwriting agreement, and
to contribute to payments that the underwriters may be required to make for
these liabilities.
40
<PAGE>
Until the distribution of the common stock is completed, rules of the
Commission may limit the ability of the underwriters and selling group members
to bid for and purchase shares of common stock. As an exception to these rules,
the representatives, acting on behalf of the underwriters, are permitted to
engage in transactions that stabilize the price of the common stock. These
transactions may consist of bids or purchases for the purposes of pegging,
fixing or maintaining the price of the common stock.
In addition, the underwriters may create a short position in the common
stock in connection with the offering, which means that they may sell more
shares than are set forth on the cover page of this prospectus. This is referred
to as over-allotting. If the underwriters create a short position, then the
representatives may reduce that short position by purchasing common stock in the
open market. The representatives also may elect to reduce any short position by
exercising all or part of the over-allotment option.
The representatives also may impose a penalty bid on underwriters and
selling group members. This means that if the representatives purchase shares of
common stock in the open market to reduce the underwriters' short position or to
stabilize the price of the common stock, they may reclaim the amount of the
selling concession from the underwriters and selling group members who sold
those shares as part of the offering.
In general, purchases of a security for the purpose of stabilization or to
reduce a syndicate short position could cause the price of the security to be
higher than it might otherwise be in the absence of such purchases. The
imposition of a penalty bid might have an effect on the price of a security to
the extent that it were to discourage resales of the security by purchasers in
an offering.
Neither we nor any of the underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of the common stock. In addition, neither
we nor any of the underwriters makes any representation that the representatives
will engage in these transactions or that these transactions, once commenced,
will not be discontinued without notice.
Any offers and sales in Canada will be made only under an exemption from
the requirements to file a prospectus in the relevant province of Canada in
which the offer or sale is made.
The representatives have informed us that they do not intend to confirm the
sales of common stock to accounts over which they exercise discretionary
authority that exceed 5% of the total number of shares we are offering.
In April 1999, Lehman Brothers and NationsBanc Montgomery Securities acted
as initial purchasers in connection with the private placement with
institutional buyers of $200.0 million principal amount of Ames' 10% Senior
Notes due 2006. Bank of America NT&SA, an affiliate of NationsBanc Montgomery
Securities LLC, acts as the administrative agent and a lender under Ames'
revolving credit agreement. Bank of America NT&SA received a portion of the net
proceeds from the senior notes offering and may receive a portion of the net
proceeds of this offering in repayment of indebtedness outstanding under that
credit agreement. Bear, Stearns & Co. Inc. acted as financial advisor to Ames
and dealer manager in connection with the Hills acquisition and related tender
offers. In the past, one or more of the underwriters has, and in the future one
or more of them may, provide investment banking, financial advisory and other
services to Ames and certain of its subsidiaries and affiliates for which they
have received or will receive customary fees.
LEGAL MATTERS
The validity of the common stock offered by this prospectus will be passed
upon for us by David H. Lissy, Esq., our General Counsel, and by Weil, Gotshal &
Manges LLP, New York, New York. Certain legal matters in connection with the
offering will be passed upon for the underwriters by Milbank, Tweed, Hadley &
McCloy LLP, New York, New York. From time to time Milbank also renders legal
services to Ames.
41
<PAGE>
EXPERTS
The consolidated balance sheets of Ames Department Stores, Inc. and
subsidiaries as of January 30, 1999 and January 31, 1998 and the related
consolidated statements of operations, shareholders' equity and cash flows for
the fifty-two weeks ended January 30, 1999, the fifty-three weeks ended January
31, 1998 and the fifty-two weeks ended Janaury 25, 1997 have been included in
and incorporated by reference into this prospectus and the registration
statement in reliance on the report of Arthur Andersen LLP, independent public
accountants, given on their authority as experts in accounting and auditing.
The consolidated balance sheets of Hills Stores Company and subsidiaries as
of January 31, 1998 and February 1, 1997 and the related consolidated statements
of operations, shareholders' equity and cash flows for the years ended January
31, 1998, February 1, 1997 and February 3, 1996 included in this prospectus have
been audited by Deloitte & Touche LLP, independent auditors as stated in their
report appearing herein and have been so included in reliance upon the report of
such firm, given upon their authority as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and current reports, proxy statements and other
documents with the Securities and Exchange Commission under the Securities
Exchange Act of 1934. You may read and copy any of those reports, proxy
statements or other documents at the public reference facilities maintained by
the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549 and at its regional offices located at 7 World Trade
Center, New York, New York 10048 and Northwest Atrium Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661. Please call the Commission at
1-800-SEC-0330 for further information on its public reference facilities. These
filings are also available to the public from commercial document retrieval
services and at the Commission's Web site at "http://www.sec.gov."
Our common stock is quoted on The NASDAQ National Market System. Reports,
proxy statements and other information concerning Ames can be inspected at the
National Association of Securities Dealers, Inc., 1735 K Street, N.W.,
Washington, D.C. 20006. In addition, we maintain a Web site at
"http://www.amesstores.com" that contains additional information, including news
releases, about our business and operations.
You may also request a copy of any of our filings with the Commission, or
any of the agreements or other documents that constitute exhibits to those
filings, at no cost, by writing or telephoning us at the following address or
phone number:
Ames Department Stores, Inc.
2418 Main Street
Rocky Hill, CT 06067
(860) 257-2000
Attention: Investor Relations
The Commission allows us to "incorporate by reference" in this prospectus
reports that we file with them, which means that we can disclose important
information to you by referring you to those reports. Accordingly, we are
incorporating by reference in this prospectus our Annual Report on Form 10-K for
the fiscal year ended January 30, 1999 and any future filings made by us with
the Commission under the applicable sections of the Securities Exchange Act of
1934. Any information that we file later with the Commission will automatically
update and supercede this information.
This prospectus constitutes a part of a registration statement on Form S-3
filed by us with the Commission under the Securities Act, with respect to the
common stock that we are offering in this prospectus. This prospectus does not
contain all the information that is contained in the registration statement,
some of which we are allowed to omit in accordance with the rules and
regulations of the Commission. We refer to the registration statement and to the
exhibits filed with the registration statement for further information with
respect to Ames. Copies of the registration statement and the exhibits to such
registration statement are on file at the offices of the Commission and may be
obtained upon payment of the prescribed
42
<PAGE>
fee or may be examined without charge at the public reference facilities of the
Commission described above. Statements contained in this prospectus concerning
the provisions of documents are summaries of the material provisions of those
documents, and each of those statements is qualified in its entirety by
reference to the copy of the applicable document filed with the Commission.
Since this prospectus may not contain all of the information that you may find
important, you should review the full text of these documents.
43
<PAGE>
INDEX TO FINANCIAL STATEMENTS
AUDITED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
AMES DEPARTMENT STORES, INC.
Report of Independent Public Accountants................................................................... F-2
Consolidated Statements of Operations for the fiscal years ended January 30, 1999,
January 31, 1998 and January 25, 1997.................................................................... F-3
Consolidated Balance Sheets as of January 30, 1999 and January 31, 1998.................................... F-4
Consolidated Statements of Changes in Stockholders' Equity for the fiscal years ended
January 30, 1999, January 31, 1998 and January 25, 1997.................................................. F-5
Consolidated Statements of Cash Flows for the fiscal years ended January 30, 1999,
January 31, 1998 and January 25, 1997.................................................................... F-6
Notes to Consolidated Financial Statements................................................................. F-7
SCHEDULE:
II. Valuation and Qualifying Accounts for the fiscal years ended January 30, 1999, January 31, 1998 and
January 25, 1997...................................................................................... F-28
HILLS STORES COMPANY
Independent Auditors' Report............................................................................... F-29
Consolidated Balance Sheets as of January 31, 1998 and February 1, 1997.................................... F-30
Consolidated Statements of Operations for the fiscal years ended January 31, 1998,
February 1, 1997 and February 3, 1996.................................................................... F-31
Consolidated Statements of Cash Flows for the fiscal years ended January 31, 1998,
February 1, 1997 and February 3, 1996.................................................................... F-32
Consolidated Statements of Common Shareholders' Equity for the fiscal years ended
January 31, 1998, February 1, 1997 and February 3, 1996.................................................. F-33
Notes to Consolidated Financial Statements................................................................. F-34
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors of
Ames Department Stores, Inc.:
We have audited the accompanying consolidated balance sheets of Ames Department
Stores, Inc. (a Delaware corporation) and subsidiaries as of January 30, 1999
and January 31, 1998, and the related consolidated statements of operations,
changes in stockholders' equity and cash flows for the fifty-two weeks ended
January 30, 1999, and the fifty-three weeks ended January 31, 1998 and the
fifty-two weeks ended January 25, 1997. These consolidated financial statements
and the schedule referred to below are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements and schedule 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 financial position of Ames Department Stores, Inc.
and subsidiaries as of January 30, 1999 and January 31, 1998, and the results of
their operations and their cash flows for the fifty-two weeks ended January 30,
1999, and the fifty-three weeks ended January 31, 1998 and the fifty-two weeks
ended January 25, 1997 in conformity with generally accepted accounting
principles.
Our audits were performed for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index to
consolidated financial statements is presented for the purpose of complying with
the Securities and Exchange Commission's rules and is not part of the basic
financial statements. This schedule has been subjected to the auditing
procedures applied in the audits of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
ARTHUR ANDERSEN LLP
New York, New York
March 15, 1999
F-2
<PAGE>
AMES DEPARTMENT STORES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
52 WEEKS 53 WEEKS 52 WEEKS
ENDED ENDED ENDED
JANUARY 30, JANUARY 31, JANUARY 25,
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Ames net sales.......................................................... $ 2,395,092 $ 2,233,118 $ 2,161,680
Hills net sales......................................................... 112,126 -- --
----------- ----------- -----------
Total net sales......................................................... 2,507,218 2,233,118 2,161,680
Costs, expenses and (income):
Ames cost of merchandise sold......................................... 1,719,907 1,603,636 1,565,653
Hills cost of merchandise sold........................................ 66,324 -- --
Ames selling, general and administrative expenses..................... 608,653 581,659 564,432
Hills operating expenses and agency fees.............................. 51,940 -- --
Leased department and other income.................................... (30,164) (25,069) (25,811)
Depreciation and amortization expense, net............................ 14,478 6,659 4,701
Interest and debt expense, net........................................ 15,253 11,600 19,043
Store closing charge.................................................. 8,222 1,000 6,858
----------- ----------- -----------
Income before income taxes and extraordinary item....................... 52,605 53,633 26,804
Income tax provision.................................................... (18,775) (19,087) (8,149)
----------- ----------- -----------
Income before extraordinary item........................................ 33,830 34,546 18,655
Extraordinary item--loss on early extinguishment of debt (net of tax
benefit of $571)...................................................... -- -- (1,354)
----------- ----------- -----------
Net income.............................................................. $ 33,830 $ 34,546 $ 17,301
----------- ----------- -----------
----------- ----------- -----------
Basic net income per common share:
Income before extraordinary item...................................... $ 1.47 $ 1.59 $ 0.91
Extraordinary item.................................................... -- -- (0.06)
----------- ----------- -----------
Net income............................................................ $ 1.47 $ 1.59 $ 0.85
----------- ----------- -----------
----------- ----------- -----------
Weighted average common shares........................................ 23,010 21,723 20,467
----------- ----------- -----------
----------- ----------- -----------
Diluted net income per common share:
Income before extraordinary item...................................... $ 1.40 $ 1.46 $ 0.85
Extraordinary item.................................................... -- -- (0.06)
----------- ----------- -----------
----------- ----------- -----------
Net income............................................................ $ 1.40 $ 1.46 $ 0.79
----------- ----------- -----------
----------- ----------- -----------
Weighted average common and common equivalent shares.................... 24,216 23,649 21,812
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
(The accompanying notes are an integral part of these consolidated financial
statements.)
F-3
<PAGE>
AMES DEPARTMENT STORES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
JANUARY 30, JANUARY 31,
1999 1998
----------- -----------
<S> <C> <C>
ASSETS
Current Assets:
Cash and short-term investments....................................................... $ 35,744 $ 57,828
Receivables:
Trade.............................................................................. 13,315 8,977
Other.............................................................................. 16,929 9,945
----------- ---------
Total receivables............................................................. 30,244 18,922
Merchandise inventories............................................................... 621,509 423,836
Prepaid expenses and other current assets............................................. 16,075 12,060
----------- ---------
Total current assets.......................................................... 703,572 512,646
----------- ---------
Fixed Assets:
Land and buildings.................................................................... 22,319 3,694
Property under capital leases......................................................... 159,654 7,115
Fixtures and equipment................................................................ 179,766 83,335
Leasehold improvements................................................................ 76,095 34,646
----------- ---------
437,834 128,790
Less--Accumulated depreciation and amortization....................................... (66,205) (45,457)
----------- ---------
Net fixed assets.............................................................. 371,629 83,333
----------- ---------
Other assets and deferred charges....................................................... 16,447 6,657
Deferred taxes, net..................................................................... 102,406 7,406
Beneficial lease rights, net............................................................ 58,885 --
Goodwill, net........................................................................... 230,454 --
----------- ---------
$ 1,483,393 $ 610,042
----------- ---------
----------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable:
Trade.............................................................................. $ 313,280 $ 180,971
Other.............................................................................. 83,485 42,185
----------- ---------
Total accounts payable........................................................ 396,765 223,156
----------- ---------
Current portion of long-term debt..................................................... -- 2,000
Current portion of capital lease and financing obligations............................ 17,799 2,177
Self-insurance reserves............................................................... 29,115 16,059
Accrued compensation.................................................................. 48,408 31,789
Accrued expenses...................................................................... 163,419 41,648
Store closing reserves................................................................ 59,768 12,050
----------- ---------
Total current liabilities..................................................... 715,274 328,879
----------- ---------
Long-term debt.......................................................................... 95,810 9,340
Capital lease and financing obligations................................................. 191,904 26,393
Other long-term liabilities............................................................. 132,376 41,874
Excess of revalued net assets over equity under fresh-start reporting................... 24,021 30,174
Commitments and contingencies
Stockholders' Equity:
Preferred stock (3,000,000 shares authorized; no shares issued or outstanding at
January 30, 1999 and January 31, 1998, respectively; par value per share $.01)..... -- --
Common stock (40,000,000 shares authorized; 23,921,545 and 22,506,108 shares
outstanding at January 30, 1999 and January 31, 1998, respectively; par value per
share $.01)........................................................................ 239 225
Additional paid-in capital............................................................ 236,667 118,971
Retained earnings..................................................................... 88,016 54,186
Treasury stock (79,495 shares, at cost)............................................... (914) --
----------- ---------
Total stockholders' equity.................................................... 324,008 173,382
----------- ---------
$ 1,483,393 $ 610,042
----------- ---------
----------- ---------
</TABLE>
(The accompanying notes are an integral part of these consolidated financial
statements.)
F-4
<PAGE>
AMES DEPARTMENT STORES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK ADDITIONAL TREASURY STOCK
--------------- --------------- PAID-IN RETAINED --------------- TOTAL
SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS SHARES AMOUNT EQUITY
------ ------ ------ ------ ---------- -------- ------ ------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, January 27, 1996.......... -- $ -- 20,472 $205 $ 80,759 $ 2,339 $ -- $ 83,303
Exercise of stock options.......... 2 -- 4 4
Utilization of tax attributes...... 7,578 7,578
Net income......................... 17,301 17,301
------ ---- ------ ---- -------- -------- ---- ------ --------
Balance, January 25, 1997.......... -- $ -- 20,474 $205 $ 88,341 $ 19,640 -- $ -- $108,186
Exercise of stock options, net..... 772 7 3,074 3,081
Exercise of warrants............... 1,260 13 1,386 1,399
Utilization of tax attributes...... 26,170 26,170
Net income......................... 34,546 34,546
------ ---- ------ ---- -------- -------- ---- ------ --------
Balance, January 31, 1998.......... -- $ -- 22,506 $225 $118,971 $ 54,186 -- $ -- $173,382
Exercise of warrants............... 824 8 1,387 1,395
Exercise of stock options, net..... 331 3 1,106 1,109
Issuance of common stock pursuant
to executive employment
agreement........................ 70 1 1,640 1,641
Issuance of restricted common
stock, net....................... 190 2 2
Vesting of restricted common
stock............................ 788 788
Utilization of tax attributes...... 112,775 112,775
Acquisition of treasury shares..... (79) (914) (914)
Net income......................... 33,830 33,830
------ ---- ------ ---- -------- -------- ---- ------ --------
Balance, January 30, 1999.......... -- $ -- 23,921 $239 $236,667 $ 88,016 (79) $(914) $324,008
------ ---- ------ ---- -------- -------- ---- ------ --------
------ ---- ------ ---- -------- -------- ---- ------ --------
</TABLE>
(The accompanying notes are an integral part of these consolidated financial
statements.)
F-5
<PAGE>
AMES DEPARTMENT STORES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
52 WEEKS ENDED 53 WEEKS ENDED 52 WEEKS ENDED
JANUARY 30, 1999 JANUARY 31, 1998 JANUARY 25, 1997
----------------- ---------------- ----------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income................................................ $ 33,830 $ 34,546 $ 17,301
Expenses not requiring the outlay of cash:
Extraordinary loss on early extinguishment of debt..... -- -- 1,354
Income tax provision................................... 18,275 18,764 8,149
Depreciation and amortization of fixed and other
assets............................................... 15,487 6,884 5,201
Amortization of debt discounts and deferred financing
costs................................................ 2,787 861 3,037
Gain on disposition of properties...................... -- -- (395)
Other, net............................................. (3,514) 1,834 1,141
--------- -------- --------
Cash provided by operations before changes in working
capital and store closing activities...................... 66,865 62,889 35,788
Changes in working capital:
(Increase) decrease in receivables........................ (6,787) 149 (4,593)
(Increase) decrease in merchandise inventories............ 12,259 (32,760) 7,857
(Increase) decrease in prepaid expenses and other current
assets................................................. (2,962) 109 624
Increase in accounts payable.............................. 12,233 34,239 32,599
Increase in accrued expenses and other current
liabilities............................................ 24,302 5,033 6,516
Changes due to store closing activities:
Payments of store closing costs........................... (2,547) (13,907) (7,621)
Store closing charge...................................... 8,222 1,000 6,858
--------- -------- --------
Net cash provided by operating activities................... 111,585 56,752 78,028
--------- -------- --------
Cash flows from investing activities:
Acquisition costs, net of cash acquired................... (103,857) -- --
Proceeds from the disposition of properties............... -- 1,900 690
Purchases of fixed assets................................. (51,602) (32,875) (19,805)
Purchases of leases....................................... -- (2,801) (3,211)
--------- -------- --------
Net cash used for investing activities...................... (155,459) (33,776) (22,326)
--------- -------- --------
Cash flows from financing activities:
Borrowings (payments) under the revolving credit
facilities, net........................................ 44,935 -- (4,284)
Proceeds from option exercises............................ 4,933 4,480 4
Payments on debt and capital lease obligations............ (16,262) (15,747) (17,388)
Purchase of treasury stock................................ (914) -- --
Deferred financing costs.................................. (10,902) -- (2,100)
--------- -------- --------
Net cash provided by (used for) financing activities........ 21,790 (11,267) (23,768)
--------- -------- --------
Increase (decrease) in cash and short-term investments...... (22,084) 11,709 31,934
Cash and short-term investments, beginning of period........ 57,828 46,119 14,185
--------- -------- --------
Cash and short-term investments, end of period.............. $ 35,744 $ 57,828 $ 46,119
--------- -------- --------
--------- -------- --------
</TABLE>
(The accompanying notes are an integral part of these consolidated financial
statements.)
F-6
<PAGE>
AMES DEPARTMENT STORES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
(a) Nature of operations:
Ames Department Stores, Inc. (a Delaware corporation) and its subsidiaries
(collectively, "Ames" or the "Company") are retail merchandisers. As of
March 1, 1999, Ames operated 453 discount department stores in 19 states in the
Northeast, Midwest and Mid-Atlantic regions, as well as the District of
Columbia. The stores are located in rural communities, small cities and the
suburbs of larger metropolitan areas.
In 1999, the Company will remodel and convert substantially all of the
acquired Hills stores to Ames stores. The remodeling and conversion process is
being conducted in three stages, each stage involving approximately one-third of
the Hills stores. The first stage is scheduled to be completed in late April
1999; the second and third stages are scheduled to be completed in July 1999 and
September 1999, respectively.
(b) Basis of presentation:
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
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Certain prior year items have been reclassified to conform to the current
year presentation.
(c) Change in fiscal year:
The Company changed its fiscal year from the last Saturday in January to
the Saturday nearest January 31, effective with the fiscal year ended January
30, 1999. This change was made so that the Company's fiscal year would coincide
with the fiscal year of most other publicly-held retailers. There was no impact
on the current year period as a result of this change. The fiscal year ended
January 30, 1999 ("Fiscal 1998" or "1998") included 52 weeks. The fiscal year
ended January 31, 1998 ("Fiscal 1997" or "1997") included 53 weeks. The fiscal
year ended January 25, 1997 ("Fiscal 1996" or "1996") included 52 weeks.
(d) Principles of consolidation:
The consolidated financial statements include the accounts of Ames and its
subsidiaries, all of which are wholly-owned. All intercompany accounts and
transactions have been eliminated.
(e) Cash and short-term investments:
Ames considers all highly liquid investments with an original maturity of
three months or less when purchased to be cash and short-term investments.
(f) Inventory valuation:
Inventories are valued at the lower of cost, using the first-in, first-out
(FIFO) method, or market and include the capitalization of transportation and
distribution center costs.
(g) Fixed assets:
Land and buildings, fixtures and equipment, and leasehold improvements are
recorded at cost. Major replacements and betterments are capitalized.
Maintenance and repairs are charged to earnings as incurred. The cost of assets
sold or retired and the related amounts of accumulated depreciation are
eliminated from the accounts in the year of disposal, with the resulting gain or
loss included in earnings.
F-7
<PAGE>
AMES DEPARTMENT STORES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:--(CONTINUED)
(h) Intangible assets:
Beneficial lease rights represent the excess of fair market value over
contract value of certain of the leases acquired in the Hills Acquisition (as
defined in Note 2 below). Goodwill represents the excess of cost over the fair
value of net tangible assets acquired at the date of the Hills Acquisition. See
Note 2 for further explanation.
(i) Depreciation and amortization:
Land and buildings and fixtures and equipment are recorded at cost and are
depreciated on a straight-line basis over their estimated useful lives. Property
under capital leases and leasehold improvements are depreciated over the shorter
of their estimated useful lives or their related lease terms.
Beneficial lease rights are being amortized over the terms of the related
leases (which average approximately 25 years). Goodwill is being amortized over
a 25-year period.
The excess of revalued net assets over equity under fresh-start reporting
is being amortized over a 10-year period. The amount recorded as a credit to
depreciation and amortization was $6.2 million in each of Fiscal 1998, Fiscal
1997 and Fiscal 1996.
The unfavorable lease liability is being amortized on a straight-line basis
over the applicable lease terms.
Depreciation and amortization includes adjustments recorded pursuant to the
application of Statement of Financial Accounting Standards No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of." The Company did not record an impairment loss during Fiscal 1998. During
Fiscal 1997 and Fiscal 1996, the Company recorded impairment losses of
$1.2 million and $2.2 million, respectively.
(j) Deferred charges:
Pursuant to SOP 98-5, "Reporting on the Costs of Start-Up Activities,"
expenses related to new store openings are expensed when incurred. See
Note 18--Recently Issued Accounting Standards.
Debt transaction costs and related issue expenses are deferred and
amortized over the term of the associated debt. Lease acquisition and related
costs are deferred and amortized over the term of the lease.
(k) Income taxes:
Ames files a consolidated federal income tax return. In December 1992, Ames
adopted Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes" ("SFAS No. 109") under fresh-start reporting. Under this method,
any deferred income taxes recorded are provided for at currently effective
statutory rates on the differences in the basis of assets and liabilities for
tax and financial reporting purposes. If recorded, deferred income taxes are
classified in the balance sheet as current or non-current based upon the
expected future period in which such deferred income taxes are anticipated to
reverse.
(l) Self-insurance reserves:
The Company is self-insured for workers' compensation, general liability,
property and casualty, and accident and health insurance claims, subject to
certain limitations. The Company has insurance coverage for losses that may
occur above certain levels. The Company determines its liability for claims
based on the circumstances of each individual claim and estimates its liability
for claims incurred but not yet reported based on historical experience. As of
January 30, 1999 and January 31, 1998, Ames had established self-insurance
reserves of $66.3 million and $31.7 million, respectively. The long-term portion
of these reserves is classified as part of other long-term liabilities in the
Consolidated Balance Sheets. These reserves are subject to changes in estimates
as claims are settled or continue to remain outstanding.
F-8
<PAGE>
AMES DEPARTMENT STORES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:--(CONTINUED)
(m) Leased department and other income:
Ames has an agreement with an independent contractor that allows the
independent contractor to operate shoe departments within the Ames stores. Ames
receives a percentage of the sales under the agreement.
(n) Earnings per common share:
In February 1997 the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS
No. 128"). Under SFAS No. 128, the presentation of Primary and Fully Diluted
Earnings per Share was replaced by Basic and Diluted Earnings per Share. The
Company adopted the provisions of SFAS No. 128 effective January 31, 1998, and
has restated all periods presented.
Net income per common share for each of Fiscal 1998, 1997 and 1996 was
determined by using the weighted average number of common and common equivalent
shares outstanding during that fiscal year. Common equivalent shares represented
the assumed exercise of the Company's outstanding Series B and Series C Warrants
and stock options.
(o) Stock-based compensation:
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation," ("SFAS No. 123") encourages, but does not require
companies to record compensation cost for stock-based employee compensation
plans at fair value. The Company has chosen to continue to account for
stock-based compensation using the intrinsic value method prescribed in
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees," ("APB Opinion No. 25") and related interpretations. Accordingly,
compensation cost for stock options is measured as the excess, if any, of the
quoted market price of the Company's stock at the date of grant over the
exercise price of the options.
2. ACQUISITION AND AGENCY AGREEMENT:
Acquisition of Hills Stores Company
On December 31, 1998, HSC Acquisition Corp. ("HSC"), a wholly owned
subsidiary of the Company, acquired 81.3% of the outstanding common stock and
74.4% of the outstanding convertible preferred stock of Hills Stores Company
("Hills") pursuant to a tender offer made in implementation of an Agreement and
Plan of Merger (the "Merger Agreement"), dated as of November 12, 1998, by and
among the Company, HSC and Hills. At the closing of that acquisition (the "Hills
Acquisition"), a total of $114.5 million was disbursed as follows:
o $12.7 million to Hills common shareholders for 81.3% of the shares
outstanding
o $1.0 million to holders of Hills Series A convertible preferred stock for
74.4% of the shares outstanding
o $100.8 million to holders of Hills 12 1/2% senior notes for 73.9% of the
notes outstanding
The amount paid to the holders of the Hills senior notes represented a
discount of approximately 30% from the face value of the acquired notes.
Holders of the Hills shares and senior notes who tendered their securities
for purchase also received a deferred contingent right to receive a further cash
payment out of, and based upon, Hills ultimate net recovery, if any, in a
lawsuit brought by Hills in September 1995 against certain of its former
directors. The outcome of this lawsuit, whether favorable or unfavorable, would
result in a corresponding adjustment to goodwill recorded in connection with the
Hills Acquisition.
F-9
<PAGE>
AMES DEPARTMENT STORES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
2. ACQUISITION AND AGENCY AGREEMENT:--(CONTINUED)
Subsequent to the acquisition date, Hills was merged with HSC. Upon the
effectiveness of that merger, the Company paid $3.3 million to retire the
remaining common and preferred shares of Hills. The Company also incurred
professional fees, accounting, legal and other costs of approximately
$12.2 million in connection with the acquisition. These costs have been
accounted for as part of the purchase price. The Hills Acquisition was funded by
cash provided by operations and borrowings under the Company's 1998 Credit
Agreement. (See Note 6.)
The acquisition has been recorded under the purchase method of accounting
and, accordingly, the results of operations of Hills for the period from
December 31, 1998 through January 30, 1999 are included in the accompanying
consolidated financial statements. The aggregate purchase price of $130 million
has been allocated to assets acquired and liabilities assumed based on a
preliminary determination of respective fair market values at the date of
acquisition and is subject to adjustment. The fair value of tangible assets
acquired and liabilities assumed was $477 million and $637 million,
respectively. The balance of the purchase price, $290 million, was recorded as
two components: an excess of cost over net assets acquired (goodwill) of
$231 million, which is being amortized over 25 years on a straight-line basis,
and beneficial lease rights of $59 million, which is being amortized over the
life of the respective leases (which average approximately 25 years).
In connection with the acquisition, management determined that certain
previously capitalized technology costs, intangible assets, property and
equipment and other assets of Hills had no future use to the Company. As a
result, these assets have been effectively written-off in connection with the
acquisition, and have been reflected at "zero value" (or adjusted estimated fair
value where appropriate) in the above summary of fair value of assets assumed.
In addition, due to the agency agreement discussed below, certain fair value
adjustments were recorded to inventory and related accounts.
At the time of the acquisition, Hills operated 155 discount department
stores. In 1999, the Company will remodel and convert 150 of the Hills stores to
Ames stores. The five remaining Hills stores will be closed because they are in
locations that are either competitive with other Ames stores or are
underperforming. The remodeling and conversion process will be conducted in
three stages, each stage involving approximately one third of the Hills stores.
The first stage is scheduled to be completed in late April 1999; the second and
third stages are scheduled to be completed in July 1999, and September 1999,
respectively.
Agency Agreement Overview
Concurrent with the Hills Acquisition, the Company entered into a
transition and agency agreement (the "Agency Agreement") with Gordon Brothers
Retail Partners, LLC and The Nassi Group, LLC (collectively the "Agent"), which
provides that the Agent serve for a period of time to operate all of the
acquired Hills stores and to conduct inventory liquidation sales at each of
those stores prior to its scheduled remodeling or final closure. Accordingly,
the Agent is managing the sale of the inventory acquired in the Hills
Acquisition as well as certain other inventory identified in the Agency
Agreement (collectively the "Merchandise").
The Agency Agreement is based upon the Company providing Hills merchandise
having a minimum initial retail value or selling price of $625.0 million for the
Agent to manage, including both store merchandise and distribution center
merchandise, on-hand at the time of the acquisition, as well as committed
on-order merchandise. The Agency Agreement entitles the Company to receive out
of the sale proceeds a minimum amount (the "Guaranteed Amount") equal to 40% of
the initial retail value or initial ticketed selling price of the merchandise
(the "Guaranteed Return"). An additional payment may be made to the Company if
proceeds of sale exceed a target percentage of the initial retail value. The
Agency Agreement further entitles the Company to reimbursement of certain store
operating expenses (e.g., payroll, rent, advertising, etc.) out of the sale
proceeds during the agency period.
F-10
<PAGE>
AMES DEPARTMENT STORES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
2. ACQUISITION AND AGENCY AGREEMENT:--(CONTINUED)
The Agent will be paid a fee (the "Agency Fee") for its services pursuant
to the Agency Agreement. The Agency Fee will be an amount equal to the proceeds
from the sales of Hills merchandise less a deduction for the reimbursement of
store operating expenses and the Guaranteed Return.
As a result of the above terms and provisions, the Company valued the
acquired Hills inventory at an amount equal to the Guaranteed Return, which
resulted in an opening balance sheet adjustment to reduce inventory by
approximately $131.0 million. In addition, the Company has recorded a purchase
commitment valuation liability of approximately $37.5 million with respect to
the prior purchase commitments of Hills for merchandise ordered prior to the
Hills Acquisition which the Company is legally required to honor. The recording
of this valuation liability will result in an inventory valuation for these
committed purchases that approximates 40% of initial retail value.
Agency Agreement Accounting
As discussed earlier, the results of operations of Hills since the date of
the Hills Acquisition have been included in the accompanying consolidated
financial statements. For the month of January 1999, and for the duration of the
Agency Agreement, the following accounting treatment has been, and will be,
applied to recognize the results of the Hills stores prior to their conversion
to Ames stores during Fiscal 1999. Hills net sales will be recorded as "Hills
Net Sales" and represent net sales achieved by the Hills stores prior to their
conversion to Ames stores. "Hills Cost of Merchandise Sold" represents the cost
of merchandise sold in connection with the Hills net sales as adjusted for the
Guaranteed Return amount mentioned above. "Hills Operating Expenses and Agency
Fees " include the following: the associated store expenses incurred while
operating the Hills stores prior to their conversion to Ames stores, which are
reimbursable to the Company out of the proceeds of Hills merchandise sales per
the Agency Agreement; the Agency Fee due to the Agent for the period presented;
and other expenses (e.g., non-store payroll, non-store rent, etc.) associated
with supporting the Hills stores prior to their conversion to Ames stores, which
are not reimbursable under the Agency Agreement.
The Agency Fee amount was determined based upon the Hills sales results for
the period, less the Guaranteed Return and reimbursable Hills store expenses, as
specified in the Agency Agreement. Because the Company is entitled to a
Guaranteed Return and reimbursement of Hills store expenses during the term of
the Agency Agreement, it is anticipated that the Company will realize "Agency
Income" during the latter stages of the Agency Agreement after the sale proceeds
from the liquidation of Hills merchandise decrease as a percentage of the
initial retail value. As a result, any Agency Fee calculated on an interim basis
may not be indicative of the total fee to be remitted to the Agent. The Agency
Fee will only be determined after a final accounting for all revenues and
expenses earned/incurred during the entire agency period. The final accounting
will be completed during the third quarter of Fiscal 1999.
F-11
<PAGE>
AMES DEPARTMENT STORES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
3. SUPPLEMENTAL INFORMATION:
The following table illustrates the separate contribution to the Company's
consolidated results of operations for Fiscal 1998 of (i) the operations of Ames
stores during that year, (ii) the operation of the Hills stores during January
1999 and various other costs and charges discussed below:
<TABLE>
<CAPTION>
FISCAL 1998
---------------------------------------------------
OTHER COSTS
AMES HILLS AND CHARGES TOTAL
---------- -------- ----------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Net sales.................................................... $2,395,092 $112,126 $ -- $2,507,218
Costs, expenses and (income):
Cost of merchandise sold................................... 1,719,907 66,324 -- 1,786,231
Selling, general and administrative expenses............... 606,912 51,940 1,741 660,593
Leased department and other income......................... (29,160) (1,004) -- (30,164)
Depreciation and amortization expense, net................. 11,261 3,217 -- 14,478
Interest and debt expense, net............................. 11,423 1,935 1,895 15,253
Store closing charge....................................... -- -- 8,222 8,222
---------- -------- --------- ----------
Income (loss) before income taxes............................ 74,749 (10,286) (11,858) 52,605
Income tax (provision) benefit............................... (26,680) 3,672 4,233 (18,775)
---------- -------- --------- ----------
Net income (loss)............................................ $ 48,069 $ (6,614) $ (7,625) $ 33,830
---------- -------- --------- ----------
---------- -------- --------- ----------
Diluted net income (loss) per common share................... $ 1.99 $ (0.27) $ (0.32) $ 1.40
---------- -------- --------- ----------
---------- -------- --------- ----------
Weighted average common and common equivalent shares......... 24,216 24,216 24,216 24,216
---------- -------- --------- ----------
---------- -------- --------- ----------
</TABLE>
In January 1999, the Hills stores were being operated pursuant to the terms
and conditions of the Agency Agreement (see Note 2). Approximately one-third of
the Hills stores were conducting liquidation sales during January 1999 in order
to prepare these stores for their conversion to Ames stores. The cost of
merchandise for Hills represents the merchandise sold during January 1999
adjusted for the Guaranteed Return (see Note 2). The selling, general and
administrative expenses for Hills include reimbursable store operating expenses
of $25.4 million; Agency Fee of $21.7 million; and other non-reimbursable
expenses of $4.8 million. The depreciation and amortization expense for Hills
includes the depreciation and amortization of the revalued fixed assets, the
amortization of the beneficial lease rights and the goodwill recorded in the
Hills Acquisition. The interest expense reflects interest on the debt, capital
lease and financing obligations assumed in the Hills Acquisition.
The "Other Costs and Charges" column in the foregoing table consists of:
the cost to exit certain Ames contractual obligations rendered obsolete by the
Hills Acquisition; the write-off of the deferred financing costs related to the
Company's 1996 Credit Agreement; the incremental interest expense incurred in
January in connection with financing the purchase price of Hills and the charge
recorded in connection with the announced closing of seven Ames stores that are
scheduled to close in 1999. The closings are part of planned closings resulting
from the overlap in certain Ames and Hills locations.
4. CASH AND SHORT-TERM INVESTMENTS:
As of January 30, 1999 there were no short-term investments. As of January
31, 1998 short-term investments totaled $37.9 million. These investments
consisted of time deposits, certificates of deposit, bankers acceptances,
repurchase agreements and high grade commercial paper.
5. INVENTORIES:
Inventories are valued at the lower of cost, using the first-in, first-out
(FIFO) method, or market and include the capitalization of transportation and
distribution center costs.
F-12
<PAGE>
AMES DEPARTMENT STORES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
6. LONG-TERM DEBT:
The Company's outstanding long-term debt as of January 30, 1999 and January
31, 1998 is listed and described below:
<TABLE>
<CAPTION>
1/30/99 1/31/98
------- -------
(000S OMITTED)
<S> <C> <C>
Secured Debt:
Borrowings under the Credit Agreement..................................................... $44,935 $ --
9.5% Guaranteed First Mortgage Notes, due March 1997 through March 1999,
discount rate of 11%................................................................... -- 11,500
Unsecured Debt:
12.5% Senior Notes, due July 2003......................................................... 50,875 --
------- -------
Total Face Value of Debt.................................................................... $95,810 $11,500
Less: Current Portion..................................................................... -- 2,000
Debt Discount....................................................................... -- 160
------- -------
Amount Due After One Year................................................................... $95,810 $ 9,340
------- -------
------- -------
</TABLE>
THE CREDIT AGREEMENT
On December 31, 1998, in connection with the Hills Acquisition (see Note
2), certain of the Company's subsidiaries entered into an agreement (the "Credit
Agreement") with a syndicate of other banks and financial institutions for whom
Bank of America NT&SA is serving as agent. The Credit Agreement provides for a
secured revolving credit facility of up to $650 million, with a sublimit of
$150 million for letters of credit.
The Credit Agreement replaced a $320 million secured revolving credit
facility (the 1996 Credit Agreement).
The Credit Agreement is in effect until June 30, 2002 and is secured by
substantially all of the assets of the Company. The interest rate per annum on
borrowings under the Credit Agreement is equal to the Base Rate (as defined in
the Credit Agreement) plus 0.625% (subject to downward adjustments).
Alternatively, the interest rate per annum may be equal to LIBOR Rate (as
defined in the Credit Agreement) plus 2.25% (subject to downward adjustments).
Fees required under the Credit Agreement include: (a) monthly commitment
fees on the unused portion of the facility; (b) an initial closing fee and
(c) an initial agency fee and annual collateral management fees for the account
of the agent.
For Fiscal 1998, the weighted average interest rate on the Company's
revolving credit facilities was 7.57% and the peak borrowing level was $148.3
million. As of January 30, 1999, borrowings under the Credit Agreement were
$44.9 million (at a weighted average interest rate per annum of 7.57%) and $3.3
million and $11.0 million was outstanding in trade and standby letters of
credit, respectively.
The amount of borrowing under the Credit Agreement may not exceed the sum
of (a) an amount equal to 70% or 75% of certain inventory in the possession of
the Company (depending on the period of year as provided for in the Credit
Agreement) plus (b) an amount equal to 50% of certain inventory not in the
possession of the Company, but covered by any outstanding letter of credit. The
agent, in addition, reserves the right to adjust the total available to be
borrowed by establishing reserves, making determinations of eligible inventory,
revising standards of eligibility or decreasing from time to time the
percentages set forth above.
The financial covenants under the Credit Agreement are limited to: minimum
borrowing availability; for the quarter ended April 2000, minimum EBITDA (as
defined below) and, thereafter, a minimum fixed charge coverage ratio (as
defined in the Credit Agreement). EBITDA is defined as: income before
(a) interest expense, (b) income tax expense or benefit, (c) depreciation and
amortization expense, stock appreciation rights accruals, certain restructuring
charges and other non-cash charges.
F-13
<PAGE>
AMES DEPARTMENT STORES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
GUARANTEED FIRST MORTGAGE NOTES
The Guaranteed First Mortgage Notes were prepaid at par by the Company in
June 1998. This debt had been secured by the Company's distribution center in
Mansfield, Massachusetts.
SENIOR NOTES DUE 2003
The 12.5% Senior Notes due 2003 (the "Senior Notes") were, at the time of
the Hills Acquisition (see Note 2), an unsecured obligation of Hills.
Pursuant to the Merger Agreement, the Company, in November 1998, made a
tender offer to purchase at a stated discount all of Hills' outstanding Senior
Notes, which at the time totaled $195.0 million. Upon expiration of the tender
offer, the Company on December 31, 1998, paid cash of $100.8 million (including
the related accrued interest) to acquire Senior Notes having a face value of
$144.1 million. Senior Notes with a face value balance of $50.9 million remain
outstanding.
The tendering holders of the Senior Notes, representing 73.9% of the then
outstanding Senior Notes, consented to certain modifications to the indenture
governing the Senior Notes. Included among the modifications were the deletion
of the sections covering reporting requirements, debt and lien incurrence and
asset sales and additional subsidiary guarantees.
As of January 30, 1999, the payments due on long-term debt for the next
five years and thereafter were as follows:
<TABLE>
<CAPTION>
FISCAL YEARS
ENDING JANUARY AMOUNT
- -------------- --------------
(000S OMITTED)
<S> <C>
2000........................................................................... $ --
2001........................................................................... --
2002........................................................................... --
2003........................................................................... 44,935
2004........................................................................... 50,875
Thereafter..................................................................... --
</TABLE>
7. LEASE COMMITMENTS, BENEFICIAL LEASES AND UNFAVORABLE LEASE LIABILITY:
Ames is committed under long-term leases for various retail stores,
warehouses and equipment expiring at various dates through 2023 with varying
renewal options and escalating rent clauses. Some leases are classified as
capital leases under Statement of Financial Accounting Standards No. 13. Ames
generally pays for real estate taxes, insurance, and specified maintenance costs
under real property leases. Most leases also provide for contingent rentals
based on percentage of sales in excess of specified amounts.
F-14
<PAGE>
AMES DEPARTMENT STORES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
7. LEASE COMMITMENTS, BENEFICIAL LEASES AND UNFAVORABLE LEASE
LIABILITY:--(CONTINUED)
Future minimum lease payments for leases as of January 30, 1999 were as
follows:
<TABLE>
<CAPTION>
LEASE PAYMENTS
------------------------------------
CAPITAL FINANCING OPERATING
FISCAL YEAR ENDING JANUARY LEASES OBLIGATIONS LEASES
- -------------------------- -------- ----------- ---------
(000'S OMITTED)
<S> <C> <C> <C>
2000............................................................... $ 31,949 $ 8,006 $ 77,252
2001............................................................... 30,815 8,096 71,564
2002............................................................... 29,346 7,988 64,756
2003............................................................... 27,111 4,678 57,746
2004............................................................... 24,781 5,081 51,732
Thereafter......................................................... 172,488 12,321 279,686
-------- ------- ---------
Total minimum lease payments....................................... 316,490 46,170 $ 602,736
---------
---------
Less: amount representing estimated executory costs................ 1,701 --
-------- -------
Net minimum lease payments......................................... 314,789 46,170
Less: amount representing interest................................. 138,273 12,983
-------- -------
Present value of net minimum lease payments........................ 176,516 33,187
Less: currently payable............................................ 13,409 4,390
-------- -------
Long-term lease obligations........................................ $163,107 $28,797
-------- -------
-------- -------
</TABLE>
At January 30, 1999, the financing obligations represent sale/leaseback
arrangements. These lease arrangements, which have terms from 42 months to ten
years, include options to purchase some or all of the assets either at the end
of the initial lease term or renewal periods at an amount not greater than the
then current fair market value of the properties.
Total payments have not been reduced by minimum sublease rentals to be
received in the aggregate under noncancellable subleases of capital leases and
operating leases of approximately $0.0 and $9.3 million, respectively, as of
January 30, 1999. Amortization of capital lease assets was approximately
$2.5 million, $0.4 million and $0.4 million for Fiscal 1998, Fiscal 1997 and
Fiscal 1996, respectively. Rent expense (income) was as follows:
<TABLE>
<CAPTION>
FISCAL FISCAL FISCAL
1998 1997 1996
------- ------- -------
(000'S OMITTED)
<S> <C> <C> <C>
Minimum rent on operating leases....................................... $55,566 $48,577 $43,856
Contingent rental expense.............................................. 7,797 6,651 5,768
Sublease rental income................................................. (1,609) (1,730) (1,988)
</TABLE>
An unfavorable lease liability was recorded in December 1992 under fresh
start reporting and represents the estimated liability related to lease
commitments that exceeded market rents for similar locations. As of January 30,
1999 and January 31, 1998, the unfavorable lease liability is $13.7 million and
$15.3 million, respectively, and is classified as part of other long-term
liabilities in the Consolidated Balance Sheets. This liability is being
amortized as a reduction to depreciation and amortization in the Consolidating
Statements of Operations over the remaining lease terms. The amortization,
recorded as a reduction to depreciation and amortization, was $1.4 million,
$1.4 million and $1.6 million in Fiscal 1998, Fiscal 1997 and Fiscal 1996,
respectively.
Beneficial lease rights were recorded in connection with the Hills
Acquisition and represent the excess of fair market value over contract value of
certain of the Hills leases. Beneficial lease rights are being amortized as part
of depreciation and amortization in the Consolidated Statements of Operations
over the terms of the related leases (which average approximately 25 years).
F-15
<PAGE>
AMES DEPARTMENT STORES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
8. STOCKHOLDERS' EQUITY:
PREFERRED STOCK AND COMMON STOCK
As provided under the Amended and Restated Certificate of Incorporation,
the authorized capital stock of Ames consisted of 43,000,000 shares divided into
two classes: (i) 3,000,000 shares of preferred stock, par value of $.01 per
share (the "Preferred Stock"), and (ii) 40,000,000 shares of common stock, par
value $.01 per share (the "Common Stock").
There were no shares of Preferred Stock outstanding as of January 30, 1999
and January 31, 1998. There were 23,921,545 and 22,506,108 shares of Common
Stock outstanding as of January 30, 1999 and January 31, 1998, respectively.
The Board of Directors of the Company may authorize the issuance of one or
more series of Preferred Stock and specify for each such series the voting
powers (but no greater than one vote per share), designations, preferences, and
relative, participating, optional, redemption, conversion, exchange or other
special rights, qualifications, limitations or restrictions of such series, and
the number of shares in each series.
Holders of shares of Common Stock are entitled to one vote per share on all
matters to be voted upon by stockholders and are entitled to receive dividends
when, as and if declared by the Board of Directors. Dividends cannot be declared
under the terms of the Credit Agreement.
The Common Stock does not have any preemptive right or subscription or
redemption privilege. The Common Stock also does not have cumulative voting
rights, which means the holder or holders of more than half of the shares voting
for the election of directors can elect all the directors then being elected.
All of the shares of Common Stock are fully paid and nonassessable.
TREASURY STOCK
In August 1998, the Company's Board of Directors approved a stock
repurchase program and authorized management to purchase up to 1.5 million
shares of Common Stock. During Fiscal 1998, the Company acquired 79,495 shares
of its Common Stock. During the course of the third and fourth quarters of
Fiscal 1998, the Company suspended further purchases due to the pending
acquisition of Hills.
WARRANTS
An aggregate of 200,000 Series B Warrants were issued on December 30, 1992.
Each such warrant entitles the holder to purchase one share of Common Stock at
any time from June 30, 1993 through December 30, 2000. The exercise price is
$5.92 per share. During Fiscal 1998, 100,000 Series B Warrants were exercised.
An aggregate of 2,120,000 Series C Warrants were issued on December 30,
1992. Each such warrant entitled the holder to purchase one share of Common
Stock at any time from June 30, 1993 through January 31, 1999. The exercise
price was $1.11 per share. During Fiscal 1998, 723,867 Series C Warrants were
exercised. On January 31, 1999, 8,635 Series C Warrants expired.
The exercise prices of the above warrants are subject to adjustment upon
the occurrence of certain events, including, among other things, the payment of
a stock dividend, a merger or consolidation and the issuance for consideration
of rights, options or warrants (other than rights to purchase Common Stock
issued to shareholders generally) to acquire Common Stock.
A holder of any of the warrants described above will not be entitled to any
rights as a stockholder of the Company, including, without limitation, the right
to vote the underlying shares of Common Stock, until the holder has exercised
the warrants.
F-16
<PAGE>
AMES DEPARTMENT STORES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
8. STOCKHOLDERS' EQUITY:--(CONTINUED)
STOCK PURCHASE RIGHTS AGREEMENT
On November 30, 1994, the Company adopted a Stock Purchase Rights Agreement
(the "Rights Agreement"). Under the terms of the Rights Agreement, one purchase
right ("Right"), with an exercise price of $14.00, is attached to each share of
Common Stock outstanding as of, or issued subsequent to, November 30, 1994 but
prior to the occurrence of certain events (as more fully described in the Rights
Agreement). The Rights become exercisable in the event that a person or group
(an "Acquiring Person") either acquires 15% or more of the Company's outstanding
voting stock or announces an intention to acquire 20% or more of such stock.
Once exercisable, each Right will, depending on the circumstances, entitle a
holder, other than an Acquiring Person, to purchase shares of either the Company
or an acquiring company having a market value equal to twice the exercise price.
The Rights Agreement was adopted to assure that all of the Company's
stockholders receive full value for their investment in the event of stock
accumulation by an Acquiring Person. Unless previously redeemed by the Company,
the Rights will expire on November 29, 2004.
9. STOCK OPTIONS:
The 1998 Stock Incentive Plan (the "1998 Incentive Plan"), approved by
stockholders in May 1998, provides for the grant of Awards (as defined in the
1998 Incentive Plan) and makes available for Awards an aggregate amount of
1,800,000 shares of Common Stock. The maximum number of shares of Common Stock
with respect to which awards (as defined in the 1998 Incentive Plan) may be
granted (or measured) to any individual may not exceed 300,000. With respect to
such Awards under the 1998 Incentive Plan, the Company may grant awards in the
form of options to purchase Common Stock provided that the exercise price shall
not be less than 100% of the fair market value of the Common Stock on the date
the stock option is granted.
Pursuant to the 1994 Management Stock Option Plan (the "1994 Option Plan")
approved by stockholders in June 1994, the Company may grant options with
respect to an aggregate of up to 1,700,000 shares of Common Stock, with no
individual optionee to receive in excess of 200,000 shares of Common Stock upon
exercise of options granted. The exercise prices of the options are equal to the
fair market value of the Common Stock on the date the options are granted. The
options become exercisable over one to five years and terminate after five to
ten years from the grant date.
Pursuant to the 1994 Non-Employee Directors Stock Option Plan (the
"Non-Employee Plan") approved by stockholders in May 1995, the Company may grant
to non-employee directors options to purchase up to an aggregate of 200,000
shares of Common Stock. The exercise prices of the options are equal to the fair
market value of the Common Stock on the date the options are granted. The
options become exercisable in full six months after date of grant and terminate
ten years after date of grant. Effective on the date of each annual meeting of
stockholders of the Company commencing with the 1996 Annual Meeting, each
non-employee director of the Company then in office was granted an option to
purchase 2,500 shares, with the date of grant to be the date of such meeting. At
the 1998 Annual Meeting, the stockholders approved an amendment to the Non-
Employee Plan increasing the number of options granted on the date of each
Annual Meeting from 2,500 to 7,500 effective as of the May 27, 1998 grant. As of
January 30, 1999, 120,000 options had been granted under the Non-Employee Plan;
all were exercisable.
F-17
<PAGE>
AMES DEPARTMENT STORES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
9. STOCK OPTIONS:--(CONTINUED)
The following table sets forth the stock option activity for all stock
option plans for Fiscal 1998, Fiscal 1997 and Fiscal 1996 (shares in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
------------------ ------------------ ------------------
WEIGHTED WEIGHTED WEIGHTED
NUMBER AVERAGE NUMBER AVERAGE NUMBER AVERAGE
OF EXERCISE OF EXERCISE OF EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
------ -------- ------ -------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year................... 914 $ 3.97 1,664 $ 3.73 1,320 $ 4.15
Granted............................................ 608 19.09 76 9.43 538 2.82
Exercised.......................................... (375) 3.90 (775) 4.03 (2) 1.76
Forfeited.......................................... (19) 12.42 (51) 3.59 (192) 4.07
------ ------ ------
Outstanding at end of year......................... 1,128 12.00 914 3.97 1,664 3.73
------ ------ ------
------ ------ ------
Options exercisable at year-end.................... 490 5.79 640 3.77 691 4.27
------ ------ ------
------ ------ ------
Weighted average fair value of options granted..... $13.56 $7.09 $1.80
------ ------ ------
------ ------ ------
</TABLE>
The fair value of options granted per the above table was estimated on the
date of grant using the Black-Scholes pricing model with the following
assumptions: no dividend yield, expected option volatilities, a risk-free
interest rate equal to U.S. Treasury securities with a maturity equal to the
expected life of the option (weighted average interest rate of 5.2%, 6.4% and
6.4% for 1998, 1997 and 1996, respectively) and an expected life from date of
grant until option expiration date (weighted average expected life of 5.4, 6.0
and 5.6 years for 1998, 1997 and 1996, respectively).
The following table summarizes information about stock options outstanding
as of January 30, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
-------------------------------------------- OPTIONS EXERCISEABLE
WEIGHTED ---------------------------------
AVERAGE WEIGHTED
NUMBER REMAINING WEIGHTED NUMBER WEIGHTED
OUTSTANDING CONTRACTUAL AVERAGE EXERCISABLE AT AVERAGE
RANGE OF EXERCISE PRICES AT 1/30/99 LIFE EXERCISE PRICE 1/30/99 EXERCISE PRICE
- ----------------------------------------- ----------- ----------- -------------- --------------- --------------
<S> <C> <C> <C> <C> <C>
$1.50- 3.00.............................. 167 4.1 $ 2.34 137 $ 2.37
$3.13- 4.38.............................. 270 2.1 3.70 223 3.67
$5.06-15.56.............................. 378 4.1 13.12 85 7.69
$18.38-24.75............................. 313 4.3 22.94 45 23.19
----- ---
1,128 3.7 12.00 490 5.79
----- ---
----- ---
</TABLE>
The Company accounts for its stock option plans under APB Opinion No. 25.
Had compensation cost for the Company's 1998, 1997 and 1996 stock option grants
been determined in accordance with SFAS No. 123, the Company's net income and
net income per common share for Fiscal 1998, Fiscal 1997 and Fiscal 1996 would
have approximated the proforma amounts below:
<TABLE>
<CAPTION>
FISCAL 1998 FISCAL 1997 FISCAL 1996
-------------------- -------------------- --------------------
AS AS AS
REPORTED PROFORMA REPORTED PROFORMA REPORTED PROFORMA
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Net income..................................... $ 33,830 $32,065 $ 34,546 $34,147 $ 17,301 $ 16,700
Net income per common share
--basic...................................... $ 1.47 $ 1.39 $ 1.59 $ 1.57 $ .85 $ .82
--diluted.................................... $ 1.40 $ 1.32 $ 1.46 $ 1.44 $ .79 $ .77
</TABLE>
SFAS No. 123 does not apply to stock options granted prior to 1995.
F-18
<PAGE>
AMES DEPARTMENT STORES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
10. INCOME TAXES:
The Company adopted SFAS No. 109 in conjunction with the adoption of
fresh-start reporting in December 1992. Under SFAS No. 109, deferred income
taxes are recognized by applying the enacted statutory tax rates in future years
to the changes in "cumulative temporary differences" (the differences between
financial statement carrying values and the tax basis of assets and
liabilities).
As a consequence of the adoption of fresh-start reporting and SFAS No. 109,
any tax benefits realized for tax purposes after the Consummation Date for
pre-consummation cumulative temporary differences, as well as for the
pre-consummation net operating loss carryovers, are reported as additions to
paid-in capital (see Consolidated Statements of Changes in Stockholders' Equity)
rather than as reductions in the tax provisions in the Consolidated Statements
of Operations. Tax benefits or liabilities realized for book purposes after the
Consummation Date will be segregated from the pre-consummation deferred tax
assets. The utilization of post-consummation deferred tax assets may reduce
future income tax provisions. Such income tax provisions have no impact on the
Company's taxes payable or cash flows.
On December 31, 1998, the Company completed its acquisition of
approximately 81.3% of the outstanding common stock of Hills. Accordingly, the
tax data presented for Fiscal 1998 reflects the tax effects of the acquisition,
including the temporary differences created by the application of purchase
accounting.
For Fiscal 1998, the Company recorded an income tax provision of $18.8
million, of which approximately $0.5 million will be paid in cash. For Fiscal
1997, the Company recorded an income tax provision of approximately $19.1
million of which $0.3 million was paid in cash.
The provision for income taxes is comprised of the following:
<TABLE>
<CAPTION>
FISCAL 1998 FISCAL 1997 FISCAL 1996
----------- ----------- -----------
(IN MILLIONS)
<S> <C> <C> <C>
Currently Payable: Federal Alternative Minimum Tax................ $ 0.5 $ 0.3 $ --
Deferred Non-cash Pre-emergence Tax Provision..................... 18.3 18.8 8.1
----- ----- -----
Total Income Tax Provision...................................... $18.8 $19.1 $ 8.1
----- ----- -----
----- ----- -----
</TABLE>
Ames has the following deferred tax assets (liabilities) from
pre-consummation periods and the Hills Acquisition, as of the following dates:
<TABLE>
<CAPTION>
AS OF JANUARY 30, 1999 AS OF JANUARY 31, 1998
---------------------- ----------------------
(IN MILLIONS)
<S> <C> <C>
Fixed assets.............................................. $ 47 $ 31
Self insurance reserves................................... 13 13
Store closing reserves.................................... 16 9
Leases.................................................... 36 15
Inventory reserves........................................ 57 --
Vacation pay reserve and other............................ 52 16
Other purchase accounting liabilities..................... 20 --
Net operating loss carryovers............................. 162 172
------ ------
Total deferred tax assets................................. 403 256
Valuation allowances...................................... (301) (249)
------ ------
Net deferred tax assets................................... $ 102 $ 7
------ ------
------ ------
</TABLE>
The Company has reduced its valuation allowance on its deferred tax assets
by $95.0 million, after consideration for recording additional valuation
allowances to offset net deferred tax assets recorded in connection with the
Hills Acquisition, during Fiscal 1998, which reflects the Company's expectation
of utilization of net operating loss carryforwards and other deferred tax assets
in the foreseeable future (2 years)
F-19
<PAGE>
AMES DEPARTMENT STORES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
10. INCOME TAXES:--(CONTINUED)
after considering an adjustment for unusual activity and potential
contingencies. The reduction of the valuation allowance resulted in a
corresponding addition to paid-in-capital.
A significant portion of the Ames deferred tax assets (including those
created by the Hills Acquisition) continue to require a valuation allowance
because of the uncertainty of future recognition of such deductions. In
subsequent periods, Ames may further reduce the valuation allowances, provided
that the possibility of utilization of the deferred tax asset is more likely
than not to occur, as defined by SFAS No. 109. Any such reduction in the
valuation allowance in the near future will result in a corresponding addition
to paid-in-capital for the Ames component of the deferred asset and to goodwill
for the Hills components.
The Company has treated "pre-emergence net operating losses" (qualified
losses incurred prior to the Consummation Date) under Section 382(1) (5) of the
Internal Revenue Code ("IRC"). There is approximately $409.0 million of
pre-emergence and approximately $35.0 million of post-emergence net operating
losses currently available as carryovers without any annual limitation. These
losses will expire between 2007 and 2012. Additionally, the Company has filed a
$20 million refund claim under Section 172(f) of the Internal Revenue Code. The
claim represents a 10-year carryback of qualified expenses and is currently
under review by the Internal Revenue Service ("IRS"). The claim, if successful,
will reduce net operating losses by approximately $47.0 million.
In addition, Ames has targeted jobs tax credit carryovers of approximately
$7.0 million, which will expire in 2007, and alternative minimum tax credit
carryovers of approximately $4.0 million, which have no expiration period.
Federal net operating loss carryovers for fiscal years subsequent to
January 27, 1990 are subject to future adjustments, if any, by the IRS.
As a result of the acquisition of the common stock of the Hills Stores
Company, Ames has succeeded to the tax attributes of Hills, including net
operating losses of $178.0 million and general business credits of
$11.0 million. These tax attributes expire between 2000 and 2013. Ames also has
succeeded to minimum tax credit carryforwards of $5.0 million, which do not
expire. These tax attributes are significantly limited under Internal Revenue
Code Sections 382 and 383, respectively, as a result of the change in control
caused by the Hills Acquisition and the resulting deferred tax asset has been
reduced accordingly.
Ames and Hills have substantial potential state net operating loss
carryovers. It is difficult, however, to quantify the utilizable amounts of such
state operating losses because of the uncertainty related to the mix of future
profits in specific states.
The IRS has completed its audit of Hills for the 1991, 1992 and 1993 fiscal
years. The final outcome of this examination will not have an adverse effect on
the Company. Hills has filed a claim for a refund of federal taxes for the
subsequent years. The refund claim, if successful, is approximately
$7.0 million. If the Company receives this refund amount, there will be a
corresponding adjustment to reduce goodwill recorded in connection with the
Hills Acquisition.
11. BENEFIT AND COMPENSATION PLANS:
RETIREMENT AND SAVINGS PLANS
Ames Plan
Ames has a defined contribution retirement and savings plan (the "Ames
Retirement and Savings Plan") that is qualified under Sections 401(a) and 401(k)
of the Internal Revenue Code of 1986, as amended, for employees who, after one
year of service, have reached the age of 21 and have completed at least 1,000
hours of service in a 12-month period. For each participant's contribution (up
to a maximum of 5% of such participant's total compensation), the Company
contributes to the Retirement and Savings Plan an amount equal to 50% of
F-20
<PAGE>
AMES DEPARTMENT STORES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
11. BENEFIT AND COMPENSATION PLANS:--(CONTINUED)
such contribution. Ames funds all administrative costs incurred by the plan.
Ames' expense associated with this plan amounted to approximately $3.3 million,
$3.0 million and $2.9 million, in 1998, 1997 and 1996, respectively.
Hills Plan
Hills has a defined contribution retirement and savings plan (the "Hills
Retirement and Savings Plan ") that is qualified under sections 401(a) and
401(k) of the Internal Revenue Code of 1986, as amended, for full-time employees
who are eligible to participate at the first of each calendar quarter and for
all regular and part-time employees who, after one year of service have
completed at least 1,000 hours of service in a 12-month period. For each
participant's contribution (after one year of service) Hills contributes 100% of
the first 2% from service years 1-3 and 100% of the first 4% for service years 4
and over. Hills funds all administrative costs incurred by the plan with certain
exceptions. The expense associated with this plan was $0.3 million for January
1999.
The Company intends to merge the two retirement and savings plans after
further review and consideration of how to structure the merged plan and how to
transition to the merged plan.
RETIREMENT PLAN
Ames has an unfunded Retirement Plan for Officers/Directors (the
"Retirement Plan"). It provides that every person who is employed by Ames when
he or she retires, dies or becomes disabled and who serves as both a full-time
officer and a director of Ames and has completed five years of service, not
necessarily consecutive, in both of these capacities, is eligible for benefits
under the Retirement Plan.
The maximum annual benefit under the Retirement Plan is $100,000, reduced
by certain of each participant's annual Social Security benefits. Each
participant in the Retirement Plan is entitled to benefits for a period of 10
years. The Company has a reserve established for potential payments under the
Retirement Plan. No payments were made under this plan during the periods
presented.
THE G.C. MURPHY COMPANY LIFE INSURANCE PLAN
The G.C. Murphy Company Life Insurance Plan (the "GCM Plan") granted a flat
dollar amount (defined benefit) of group term life insurance at no cost to
certain retired employees. This plan excludes G.C. Murphy Co. employees who
retired from Ames after January 31, 1986. The amount of coverage varies by
retiree, is payable only upon death, and has no loan or cash value. During 1997,
the Company entered into a contract with an insurance company which effectively
transferred to the insurance company all future liabilities associated with the
GCM Plan in exchange for fixed annual payments over ten years.
ANNUAL INCENTIVE COMPENSATION PLAN
The Company has an Annual Incentive Compensation Plan (the "Annual Bonus
Plan") that is subject to annual review by the Board of Directors. The Annual
Bonus Plan provides annual incentive cash bonuses based on the achievement of
the Company's financial goals for the year (and customer service goals for store
and field management). There are approximately 1,500 members of management
eligible under the plan. Bonus expense recorded under the plan was $8.3 million,
$6.3 million, and $7.9 million for Fiscal 1998, 1997 and 1996, respectively.
F-21
<PAGE>
AMES DEPARTMENT STORES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
RESTRICTED STOCK AWARDS
1995 Long Term Incentive Plan
Pursuant to the Company's 1995 Long Term Incentive Plan (the "1995
Incentive Plan"), approved by the stockholders in May, 1995, the Company may
make awards of an aggregate of up to 500,000 shares of Common Stock and cash
payment in an amount up to 50% of the fair market value (as defined in the 1995
Incentive Plan) of the Common Stock awarded, determined as of and paid on the
vesting date. Each award under the 1995 Incentive Plan vests in full on the
third anniversary of the date of grant of such award. Awards may be made to the
Chief Executive Officer, any Executive Vice President and any Senior Vice
President of the Company. Other than for death or disability, awards which have
not yet vested are forfeited upon the termination of the employment of the
executive.
As of January 30, 1999, awards aggregating to 355,000 shares of Common
Stock had been made to certain executives of the Company, 60,000 of which remain
unvested.
1998 Incentive Plan
Pursuant to the Company's 1998 Incentive Plan (as defined in Note 9),
awards aggregating 195,000 shares of Common Stock were made to certain
executives during Fiscal 1998. Fifty percent (50%) of each stock award under the
1998 Incentive Plan vests on the fourth anniversary from the date of grant and
50% on the fifth anniversary. There is no cash payment to be made relative to
the vesting of the grant.
The shares for the outstanding awards under both the 1995 Incentive Plan
and the 1998 Incentive Plan have been issued and are being held in custody by
the Company on behalf of the grantees thereof. A portion of the estimated market
value of the awards, including the cash, has been accrued as compensation
expense as of January 30, 1999. The Company recorded as compensation expense for
the 1995 Incentive Plan and the 1998 Incentive Plan $1.9 million, $2.0 million,
and $1.1 million during 1998, 1997 and 1996, respectively.
STOCK APPRECIATION RIGHTS
All stock appreciation rights ("SARs") granted to certain members of
management in connection with the Company's emergence from Chapter 11 protection
in 1992 expired as of December 30, 1997. During Fiscal 1997, a total of 166,683
SARs were exercised. The Company recorded an expense of $0.1 million and $0.8
million in 1997 and 1996, respectively. In June 1998, the Company extended the
employment agreement with Joseph R. Ettore, Chief Executive Officer and
President. In connection therewith, Mr. Ettore was granted 125,000 SARs which
entitle Mr. Ettore to receive in cash upon exercise the excess of (a) the
average closing price of a share of Common Stock during the twenty trading days
prior to the exercise date over (b) $2.00 (representing the exercise price of
certain rights surrendered by Mr. Ettore). Mr. Ettore's SARs are exercisable on
or after May 31, 1999.
INCOME CONTINUATION PLAN
Certain officers of Ames participate in an Income Continuation Plan
("ICP"), which guarantees up to one year's salary in the event of termination
other than for cause. As of January 30, 1999, the Company had no obligations
under the ICP.
KEY EMPLOYEE CONTINUITY BENEFIT PLAN
Ames has a Key Employee Continuity Benefit Plan (the "Continuity Plan")
that covers all officers, Vice President and above, and certain other employees
of Ames. If the employment of any participant in the Continuity Plan is
terminated, other than for death, disability, cause (as defined in the
Continuity Plan) or by the participant other than for good reason (as defined in
the Continuity Plan), within 18 months after a change of control of Ames, the
participant will receive a lump sum cash severance payment. The severance
payment is 2.99 times Base Compensation for the President and Executive Vice
Presidents, two times Base Compensation for
F-22
<PAGE>
AMES DEPARTMENT STORES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Senior Vice Presidents and selected Vice Presidents and one times Base
Compensation for other Vice Presidents. Base Compensation is defined generally
as the sum of the participant's annual base compensation in effect immediately
prior to the participant's termination plus one-third of the value of the cash
and stock bonuses paid to the participant during the 36 months ending on the
date of termination. For purposes of the Continuity Plan, a change of control
includes but is not limited to the acquisition by any person of beneficial
ownership of 20% or more of Ames outstanding voting securities or the failure of
the individuals who constituted the Board of Directors at the beginning of any
period of 12 consecutive months to continue to constitute a majority of the
Board during such period.
HILLS POST RETIREMENT BENEFITS
Hills has a retiree medical plan that provides medical benefits to eligible
retirees of Hills. This plan is accounted for in accordance with Statement of
Financial Accounting Standards No. 106: "Employers' Accounting for
Postretirement Benefits Other Than Pensions" ("FAS 106"). This statement
requires accrual of postretirement benefits during the years an employee
provides services. Hills has historically funded benefit costs principally on a
pay-as-you-go basis. The status of the plan is as follows:
<TABLE>
<CAPTION>
JANUARY 30,
1999
-------------
(IN
THOUSANDS)
<S> <C>
Accumulated post retirement benefit obligation ("APBO") for:
Active employees...................................................................... $ 2,293
Retirees.............................................................................. 61
-------
2,354
Plan assets at fair value............................................................... --
-------
Unfunded APBO........................................................................... 2,354
Unrecognized actuarial gain............................................................. 1,442
-------
Accrued post retirement benefit cost.................................................... $ 3,796
-------
-------
</TABLE>
The assumed health care cost trend rate used in measuring the APBO was 9%
in fiscal year 1998 (7% for Medicare eligible retirees); grading down to 5% (5%
for Medicare eligible retirees) by fiscal year 2002 and remaining at that level
thereafter. A one percentage point increase in the assumed health care cost
trend rate would increase the APBO at the end of fiscal year 1998 by $348,300
(or by 15%) and the service and interest cost by $34,100 (or by 11%).
Conversely, a one percentage point decrease in the assumed healthcare cost trend
rate would decrease the APBO at the end of fiscal year 1998 by $278,600 (or by
12%) and the service and interest cost by $27,200 (or by 9%). The assumed
discount rate used in determining the APBO was 7%.
12. COMMITMENTS AND CONTINGENCIES:
Wage and Hour Litigation
Since March 1995, the Company has been named as a defendant in several
class action complaints which allege that the Company was obligated to pay
overtime to its hardlines and softlines assistant store managers. The Company
has consistently stated its belief that these positions are appropriately
designated as exempt positions not calling for overtime pay. The Company has
settled several of these cases. These settlements have not required any change
in the Company's treatment of the status of its hardlines and softlines
assistant managers. The Company is vigorously defending one remaining case which
it does not believe represents a material exposure.
F-23
<PAGE>
AMES DEPARTMENT STORES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Other Matters
The Company is party to various claims and legal proceedings covering a
wide range of matters that arise in the ordinary course of its business. The
Company believes that its probable liability as to these matters will not have a
material adverse effect on its consolidated financial position or results of
operations.
13. SUPPLEMENTAL CASH FLOW INFORMATION:
<TABLE>
<CAPTION>
FISCAL FISCAL FISCAL
1998 1997 1996
-------- ------- --------
(000'S OMITTED)
<S> <C> <C> <C>
Cash paid for interest and income taxes were as follows:
Interest............................................................. $ 12,166 $11,655 $ 15,149
Income taxes......................................................... 125 73 2
Ames entered into other non-cash investing
and financing activities as follows:
New capital lease obligations........................................ $ 25,859 $ 2,940 $ 375
Issuance of Common Stock under the 1998 Incentive Plan............... 2 -- --
</TABLE>
14. FAIR VALUES OF FINANCIAL INSTRUMENTS:
The Financial Accounting Standards Board requires disclosure of the fair
value of financial instruments under Statement of Financial Accounting Standards
No. 107, "Disclosures About Fair Value of Financial Instruments". The following
methods and assumptions were used by the Company in estimating the fair value
disclosures for its financial instruments.
The Company's financial instruments as of January 30, 1999 and January 31,
1998 were cash and short-term investments, long-term debt, and the Series C
Warrants, which expired on January 30, 1999. For cash and short-term
investments, the carrying amounts reported in the Consolidated Balance Sheets
approximated fair values. For long-term debt obligations, the fair values were
estimated using a discounted cash flow analysis (based upon the Company's
incremental borrowing rates for similar types of borrowing arrangements). The
fair value of the Series C Warrants was based on the market trading price at
year-end times the number of such warrants that were outstanding.
The carrying amounts and fair values of the Company's financial instruments
at January 30, 1999 and January 31, 1998 were as follows:
<TABLE>
<CAPTION>
FISCAL 1998 FISCAL 1997
------------------- -------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- ------- -------- -------
(000'S OMITTED)
<S> <C> <C> <C> <C>
Cash and short-term investments............................. $ 35,744 $35,744 $ 57,828 $57,828
Long-term debt
Secured debt.............................................. 44,935 44,935 11,340 11,500
Unsecured debt............................................ 50,875 50,875 -- --
Series C Warrants........................................... -- -- -- 9,065
</TABLE>
15. STORE CLOSING CHARGES:
In the fourth quarter of 1998, the Company recorded charges of $8.2 million
in connection with the closing of seven stores that overlap markets with
acquired Hills stores. Four stores are expected to close in August 1999, and
three stores are expected to close in October 1999.
F-24
<PAGE>
AMES DEPARTMENT STORES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
15. STORE CLOSING CHARGES:--(CONTINUED)
In the fourth quarter of 1997, the Company recorded charges of $1.6 million
in connection with the closing of two stores. The $1.6 million is classified in
two line items: $1.0 million as store closing charge and $0.6 million as part of
cost of merchandise sold.
In the fourth quarter of 1996, the Company recorded charges of $9.7 million
in connection with the closing of thirteen stores. The $9.7 million is
classified in two line items: $6.9 million as store closing charge and $2.8
million as part of cost of merchandise sold.
The following items represent the major components of the total charges
recorded in January 1999, January 1998 and January 1997 in connection with store
closings:
<TABLE>
<CAPTION>
FISCAL FISCAL FISCAL
ITEM 1998 1997 1996
- ---- ------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Lease costs................................................................ $6,254 $ 363 $3,535
Net fixed asset write-down................................................. 1,161 394 1,149
Severance costs............................................................ 370 113 773
Other...................................................................... 437 130 1,401
------ ------ ------
Store closing charge..................................................... 8,222 1,000 6,858
Inventory write-down..................................................... -- 560 2,860
------ ------ ------
Total charges......................................................... $8,222 $1,560 $9,718
------ ------ ------
------ ------ ------
</TABLE>
The lease costs provided for in the store closing charge include all
projected occupancy costs from date of closing until estimated lease disposition
date.
16. LEASED DEPARTMENT AND OTHER INCOME:
The following is a summary of the major components of the "Leased
department and other income":
<TABLE>
<CAPTION>
FISCAL FISCAL FISCAL
ITEM 1998 1997 1996
---- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Leased department income............................................... $17,914 $16,592 $16,932
Concession and vending income.......................................... 1,508 1,252 1,148
Layaway service fees................................................... 2,644 2,605 2,382
Various other.......................................................... 8,098 4,620 5,349
------- ------- -------
$30,164 $25,069 $25,811
------- ------- -------
------- ------- -------
</TABLE>
17. EXTRAORDINARY ITEMS:
In December 1996, the Company terminated a prior credit agreement (Note 6)
and recorded a non-cash extraordinary charge of $1.4 million, net of tax benefit
of $0.6 million, for the write-off of deferred financing costs.
18. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In April 1998, AICPA issued SOP 98-5, "Reporting on the Costs of Start-Up
Activities" which requires start-up costs, as defined, to be expensed as
incurred. Pursuant to SOP 98-5, previously capitalized start-up costs are
required to be written-off as a cumulative effect of a change in accounting
principle. SOP 98-5 is effective for financial statements for fiscal years
beginning after December 15, 1998.
F-25
<PAGE>
AMES DEPARTMENT STORES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
18. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS--(CONTINUED)
The Company elected early adoption of SOP 98-5 during the fourth quarter of
Fiscal 1998, retroactively effective to the first quarter of Fiscal 1998. The
Company's previous policy was to expense all store pre-opening costs in the year
of opening, amortizing them from the date of opening through the balance of the
fiscal year. No cumulative effect has been recorded on the Company's
Consolidated Statement of Operations. However, the quarterly financial data
presented in Note 19 has been restated to properly reflect the effect of the SOP
in each of the presented quarterly results.
In February 1998, the Financial Accounting Standards Board released
Statement No. 132, "Employers' Disclosures about Pensions and Other
Postretirement Benefits" ("SFAS No. 132"). This statement, which is effective
for fiscal years beginning after December 15, 1997, modifies and expands
disclosure requirements. Adoption of SFAS No. 132 will have no impact on the
Company's consolidated financial condition or results of operations.
19. QUARTERLY FINANCIAL DATA (UNAUDITED):
Summarized unaudited quarterly financial data (in thousands except for per
share amounts) for the last three fiscal years are shown below.
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
-------- -------- -------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Fiscal 1998:
Net sales................................................... $499,048 $536,297 $599,188 $ 872,685(d)
Gross margin................................................ 138,434 156,836 163,094 262,619(d)
Net income (loss) (a)....................................... (3,401) 8,375 5,885 22,981(d)
Net income (loss) per share--basic.......................... (0.15) 0.37 0.28 0.98(d)
--diluted....................... (0.15) 0.35 0.27 0.94(d)
Fiscal 1997:
Net sales................................................... $432,601 $503,567 $527,573 $ 769,377
Gross margin................................................ 118,366 146,348 148,231 215,809
Income (loss) before extraordinary item..................... (5,930) 7,378 3,519 29,579(b)
Income (loss) per share before extraordinary item........... (0.28) 0.31 0.15 1.23
Net income (loss)........................................... (5,930) 7,378 3,519 29,579(b)
Net income (loss) per share--basic.......................... (0.28) 0.34 0.16 1.32
--diluted....................... (0.28) 0.31 0.15 1.23
Fiscal 1996:
Net sales................................................... $438,667 $499,107 $516,876 $ 707,030
Gross margin................................................ 117,402 139,725 141,224 194,355
Income (loss) before extraordinary item..................... (6,998) 4,514 421 20,718(c)
Income (loss) per share before extraordinary item........... (0.34) 0.21 0.02 0.93
Net income (loss)........................................... (6,998) 4,514 421 19,364(c)
Net income (loss) per share--basic.......................... (0.34) 0.22 0.02 0.95
--diluted....................... (0.34) 0.21 0.02 0.87
</TABLE>
- ------------------
(a) First three quarters restated according to SOP 98-5 (Note 18).
(b) Includes charges of $1.6 million related to the closing of two (2) stores
(Note 15).
(c) Includes charges of $9.7 million related to the closing of thirteen
(13) stores (Note 15).
(d) Includes the financial results of Hills Stores Company for January 1999.
F-26
<PAGE>
AMES DEPARTMENT STORES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
20. PRO FORMA INFORMATION (UNAUDITED):
The following table reflects unaudited pro forma combined results of
operations of the Company and Hills on the basis that the Hills Acquisition had
taken place at the beginning of each of the fiscal years presented:
<TABLE>
<CAPTION>
YEAR ENDED
------------------------------------------
JANUARY 30, 1999 JANUARY 31, 1998
------------------- -------------------
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C>
Net sales...................................................... $ 4,131,194 $ 4,001,392
Net income (loss).............................................. (54,903) 27,635
Earnings (loss) per Common Share............................... $ (2.39) $ 1.27
</TABLE>
These unaudited pro forma results have been prepared for comparative
purposes only. They do not purport to be indicative of the results of operations
which actually would have resulted had the Hills Acquisition been consummated at
the beginning of fiscal 1997 or fiscal 1998, or of future results of operations
of the consolidated entities.
The above pro forma net income and earnings per common share amounts for
the year ended January 30, 1999 reflect the previously recorded write-down of
Hills deferred tax assets of approximately $49.6 million (which is net of a
reversal of approximately $5.9 million of accrued tax liabilities). Excluding
the write-down of the Hills deferred tax assets recorded as of October 31, 1998,
pro forma net loss and loss per common share would have been $5.3 million and
$0.23, respectively for the year ended January 30, 1999.
21. SUBSEQUENT EVENTS:
On March 4, 1999, the Company entered into an agreement with Caldor
Corporation to purchase seven of its stores in Connecticut, one store in
Massachusetts and a 649,000 square foot distribution center in Westfield,
Massachusetts, for a cash purchase price of $40.0 million. Under the terms of
the agreement, the Company will assume Caldor's leases for the eight stores and
the distribution center and will acquire all of the store fixtures and all
racking, sorting systems and materials handling equipment in the distribution
center.
On March 26, 1999, the United States Bankruptcy Court for the Southern
District of New York approved the Company's right to purchase the leases for the
stores and the distribution center.
On March 26, 1999, the Company entered into an agreement with Caldor
Corporation for the purchase of an additional store in Massachusetts for a cash
purchase price of $2.7 million. This agreement is subject to competing bids and
the approval of the Bankruptcy Court.
F-27
<PAGE>
SCHEDULE II
AMES DEPARTMENT STORES, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO BALANCE AT
BEGINNING OF COST AND END OF
DESCRIPTION PERIOD EXPENSE RECLASSIFICATIONS DEDUCTIONS PERIOD
- ----------- ------------ ---------- ----------------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Fiscal 1998:
Store Closing Reserve......................... $ 12,050 $8,222 $41,957 (a) $ (2,461) $ 59,768
Fiscal 1997:
Store Closing Reserve......................... $ 24,438 $1,000 $ 519 (b) $(13,907) $ 12,050
Fiscal 1996:
Store Closing Reserve......................... $ 27,379 $6,858 $(2,178)(b) $ (7,621) $ 24,438
Distribution Center Closing Reserve included
in Accrued Expenses......................... $ 123 $ -- $ (122)(b) $ (1) $ --
</TABLE>
- ------------------
(a) Represents the store (and other facilities) closing reserve assumed and
recorded in connection with the Hills Acquisition.
(b) Represents reclassifications of liabilities associated with closed stores
and other reclassifications.
F-28
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of Hills Stores Company and
Subsidiaries:
We have audited the accompanying consolidated balance sheets of Hills Stores
Company and Subsidiaries as of January 31, 1998 and February 1, 1997 and the
related consolidated statements of operations, common shareholders' equity, and
cash flows for the years ended January 31, 1998, February 1, 1997 and
February 3, 1996. 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, such consolidated financial statements present fairly, in all
material respects, the financial position of the Companies as of January 31,
1998 and February 1, 1997 and the results of their operations and their cash
flows for the years ended January 31, 1998, February 1, 1997 and February 3,
1996 in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Boston, Massachusetts
March 11, 1998
F-29
<PAGE>
HILLS STORES COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
JANUARY 31, FEBRUARY 1,
1998 1997
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................................................. $ 37,523 $ 66,163
Accounts receivable, less allowance for
doubtful accounts of approximately $5,500 and $4,500............................... 21,869 24,346
Inventories........................................................................... 340,719 341,477
Deferred tax asset, net (Note 16)..................................................... 26,933 32,991
Other current assets.................................................................. 5,542 5,115
--------- ---------
Total current assets............................................................. 432,586 470,092
Property and equipment, net (Note 2).................................................. 183,112 173,701
Property under capital leases, net (Note 7)........................................... 102,350 112,201
Beneficial lease rights, net (Note 1)................................................. 6,081 6,848
Deferred tax asset, net (Note 16)..................................................... 28,592 21,585
Reorganization value in excess of amounts allocable to
identifiable assets, net (Notes 1 and 3)........................................... 89,112 97,508
Other assets, net (Note 1)............................................................ 40,748 18,418
--------- ---------
$ 882,581 $ 900,353
--------- ---------
--------- ---------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of capital leases and financial obligations (Note 7).................. $ 10,541 $ 7,255
Current portion of long term debt (Note 6)............................................ 500 --
Accounts payable, trade............................................................... 110,329 111,064
Other accounts payable and accrued expenses (Note 4).................................. 77,803 81,752
--------- ---------
Total current liabilities........................................................ 199,173 200,071
Long term debt (Note 6)................................................................. 204,500 195,000
Obligations under capital leases (Note 7)............................................... 113,919 120,539
Financing obligations--sale/leaseback (Note 7).......................................... 30,335 34,100
Other liabilities....................................................................... 98,467 105,917
Commitments and contingencies (Note 18)................................................. -- --
Preferred stock, at mandatory redemption value (Note 9)................................. 18,209 19,942
Common shareholders' equity (Notes 10 and 11):
Common stock, 50,000,000 shares of $0.01 par value
authorized, 10,446,287 and 10,337,761 shares issued and
outstanding........................................................................ 105 103
Additional paid-in capital............................................................ 217,388 215,537
Retained earnings..................................................................... 927 9,942
Unearned compensation (Note 11)....................................................... (442) (798)
--------- ---------
Total common shareholders' equity....................................................... 217,978 224,784
--------- ---------
$ 882,581 $ 900,353
--------- ---------
--------- ---------
</TABLE>
(See Notes to Consolidated Financial Statements)
F-30
<PAGE>
HILLS STORES COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FISCAL YEAR FISCAL YEAR FISCAL YEAR
ENDED ENDED ENDED
JANUARY 31, FEBRUARY 1, FEBRUARY 3,
1998 1997 1996
(52 WEEKS) (52 WEEKS) (53 WEEKS)
----------- ----------- -----------
<S> <C> <C> <C>
Net sales..................................................... $ 1,768,274 $ 1,878,477 $ 1,900,104
Cost of sales................................................. 1,306,335 1,392,353 1,384,421
Selling and administrative expenses (Notes 7 and 8)........... 418,512 437,593 428,212
Amortization of reorganization value in excess of amounts
allocable to identifiable assets............................ 5,850 6,050 7,755
Impairment of long-lived assets and store closings
(Note 15)................................................... -- 33,706 --
Costs related to change in control (Note 19).................. -- -- 45,529
----------- ----------- -----------
Operating earnings............................................ 37,577 8,775 34,187
Interest expense, net (Note 1)................................ 48,392 53,555 47,666
----------- ----------- -----------
Loss before income taxes...................................... (10,815) (44,780) (13,479)
Income tax benefit (provision) (Note 16)...................... 1,800 14,000 (3,187)
----------- ----------- -----------
(9,015) (30,780) (16,666)
Extraordinary loss on early extinguishment of debt, net....... -- 4,278 --
----------- ----------- -----------
Net loss...................................................... $ (9,015) $ (35,058) $ (16,666)
----------- ----------- -----------
----------- ----------- -----------
Basic and diluted loss per common share (Note 17):
Loss before extraordinary loss.............................. $ (0.87) $ (3.00) $ (1.70)
Extraordinary loss -- (0.42) --
----------- ----------- -----------
Net loss................................................. $ (0.87) $ (3.42) $ (1.70)
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
(See Notes to Consolidated Financial Statements)
F-31
<PAGE>
HILLS STORES COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FISCAL YEAR FISCAL YEAR FISCAL YEAR
ENDED ENDED ENDED
JANUARY 31, FEBRUARY 1, FEBRUARY 3,
1998 1997 1996
(52 WEEKS) (52 WEEKS) (53 WEEKS)
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss................................................................... $(9,015) $ (35,058) $ (16,666)
Adjustments to reconcile net loss to net cash provided by (used for)
operating activities:
Depreciation and amortization............................................ 36,845 35,130 31,784
Amortization of deferred financing costs................................. 2,538 5,942 4,847
Deferred income taxes.................................................... (949) (12,332) (11,260)
Decrease in deferred tax assets recognized through a reduction in
reorganization value in excess of amounts allocable to identifiable
assets................................................................ 2,546 2,592 9,496
Impairment of long-lived assets and store closings....................... -- 28,958 --
Extraordinary loss on extinguishment of debt............................. -- 4,278 --
Amortization of reorganization value in excess of amounts allocable to
identifiable assets................................................... 5,850 6,050 7,755
Loss on disposal of fixed assets......................................... 78 998 54
Decrease (increase) in accounts receivable and other current
assets................................................................ 2,050 1,078 (2,325)
Decrease (increase) in inventories....................................... 758 (15,080) (17,846)
Increase (decrease) in accounts payable and other accrued
expenses.............................................................. (12,134) 25,293 (24,464)
Other, net............................................................... 96 (330) (1,962)
------- --------- ---------
Net cash provided by (used for) operating activities.................. 28,663 47,519 (20,587)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures..................................................... (34,267) (32,858) (56,714)
Deferred software expenditures........................................... (24,828) -- --
------- --------- ---------
Net cash used for investing activities................................ (59,095) (32,858) (56,714)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from secured term loan.......................................... 10,000 -- --
Proceeds from issuance of 12 1/2% Senior Notes........................... -- 195,000 --
Fees incurred with the issuance of 12 1/2% Senior Notes.................. -- (8,100) --
Redemption of 10.25% Senior Notes........................................ -- (160,000) --
Payment of premium on debt redemption.................................... -- (1,749) --
Proceeds from sale/leaseback financing................................... -- 16,559 --
Principal payments under capital lease obligations....................... (7,099) (6,467) (6,121)
Cash distributions pursuant to the Plan of Reorganization................ (84) (2,682) (5,297)
Shares repurchased per self-tender offer................................. -- -- (75,000)
Deferred finance costs and other financing activities.................... (1,025) (3,957) (10,857)
------- --------- ---------
Net cash provided by (used for) financing activities.................. 1,792 28,604 (97,275)
------- --------- ---------
Net increase (decrease) in cash and cash equivalents..................... (28,640) 43,265 (174,576)
Cash and cash equivalents:
Beginning of the period............................................... 66,163 22,898 197,474
------- --------- ---------
End of the period..................................................... $37,523 $ 66,163 $ 22,898
------- --------- ---------
------- --------- ---------
</TABLE>
(See Notes to Consolidated Financial Statements)
F-32
<PAGE>
HILLS STORES COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMMON SHAREHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL COMMON
------------------- PAID-IN RETAINED UNEARNED SHAREHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS COMPENSATION EQUITY
---------- ------ ---------- -------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 28, 1995............... 10,804,784 $108 $229,967 $ 76,666 $ -- $ 306,741
Retirement of Common Stock (Note 20)...... (3,000,000) (30) (59,970) (15,000) -- (75,000)
Conversion of Preferred Stock............. 1,975,400 20 39,488 -- -- 39,508
Exercise of stock options and warrants.... 4,387 -- 80 -- -- 80
Exchange for Stock Rights (Note 12)....... 198,271 2 (2) -- -- --
Net loss.................................. -- -- -- (16,666) -- (16,666)
---------- ---- -------- -------- -------- ---------
Balance at February 3, 1996............... 9,982,842 100 209,563 45,000 -- 254,663
Conversion of Preferred Stock............. 234,674 2 4,692 -- -- 4,694
Restricted stock grants................... 120,000 1 1,202 -- (1,203) --
Amortization of restricted stock grants... -- -- -- -- 405 405
Other..................................... 245 -- 7 -- -- 7
Stock options issued under compensatory
plan (Note 11).......................... -- -- 73 -- -- 73
Net loss.................................. -- -- -- (35,058) -- (35,058)
---------- ---- -------- -------- -------- ---------
Balance at February 1, 1997............... 10,337,761 103 215,537 9,942 (798) 224,784
Conversion of Preferred Stock............. 86,625 1 1,732 -- -- 1,733
Amortization of restricted stock grants... -- -- -- -- 356 356
Issuance due to Associated Stock Purchase
Plan (Note 11).......................... 21,901 1 58 -- -- 59
Stock options issued under compensatory
plan (Note 11).......................... -- -- 61 -- -- 61
Net loss.................................. -- -- -- (9,015) -- (9,015)
---------- ---- -------- -------- -------- ---------
Balance at January 31, 1998............... 10,446,287 $105 $217,388 $ 927 $ (442) $ 217,978
---------- ---- -------- -------- -------- ---------
---------- ---- -------- -------- -------- ---------
</TABLE>
(See Notes to Consolidated Financial Statements.)
F-33
<PAGE>
HILLS STORES COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Reporting
During fiscal year 1997, Hills Stores Company (HSC or the "Company")
operated, through its wholly-owned subsidiary Hills Department Store Company
("HDSC"), a chain of 155 discount department stores located primarily in the
Great Lakes and Ohio Valley regions of the United States. The consolidated
financial statements include the accounts of the Company and its wholly-owned
subsidiaries. All significant intercompany transactions and balances have been
eliminated. Certain prior year amounts were reclassified to conform to the
current year presentation. The Company's fiscal year ends on the Saturday
closest to January 31. Fiscal year 1995 was a fifty-three week year; fiscal
years 1997 and 1996 were fifty-two week years.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash and highly liquid investments
with maturities of three months or less from the date of purchase and whose cost
approximates market value due to the short maturity of the investments. Interest
income of $0.7 million, $1.3 million and $1.8 million was included in interest
expense, net for fiscal years 1997, 1996 and 1995, respectively.
Inventories
Inventories are valued using the retail method on the lower of last-in,
first-out (LIFO) cost or market basis. LIFO cost at January 31, 1998, February
1, 1997 and February 3, 1996 exceeded the cost of inventory on a first-in,
first-out basis; accordingly, there has been no LIFO charge.
Depreciation and Amortization
Depreciation and amortization are provided on a straight-line basis over
the estimated useful lives of the related assets, which is 27 1/2 years for
buildings and range from five to eight years for fixtures and equipment.
Amortization of leasehold improvements is provided on a straight-line basis over
the shorter of the lease term, considering renewal options that are likely to be
exercised, or the estimated useful life of the related asset. Leasehold
improvements are amortized principally over 15 years. Capital lease assets are
depreciated over the lease term or the estimated useful life of the related
asset.
Deferred Financing Costs
Net deferred financing costs of $9.9 million at January 31, 1998 and
$11.4 million at February 1, 1997 were included in other assets and are being
amortized on a straight-line basis over the estimated term of the related debt.
Accumulated amortization of deferred financing costs was $4.2 million at
January 31, 1998 and $1.7 million at February 1, 1997.
Deferred Software Expenditures
In fiscal year 1997, the Company had $24.8 million of deferred software
expenditures relating to its information systems replacement program. These
expenditures primarily represent direct costs of obtaining and modifying
commercially available computer software and costs associated with developing
internally used computer software. Expenditures such as Company payroll,
contracted services, capitalized interest during the period that the software is
not in service and other costs relating to the installation and testing of such
software, are included in deferred software. When placed in service, these
assets are generally amortized on a straight-line basis over seven years.
Intangible Assets
Beneficial lease rights are amortized using the straight-line method over
the terms of the related leases. Accumulated amortization of beneficial lease
rights was $3.3 million at January 31, 1998 and $2.5 million at February 1,
1997.
F-34
<PAGE>
HILLS STORES COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
Reorganization value in excess of amounts allocable to identifiable assets
is being amortized over twenty years on a straight-line basis. (See Notes 3 and
16)
Pre-opening Costs
Pre-opening costs consist of direct costs of opening a store and are
charged to operations within the fiscal year that a new store opens. The Company
did not open any new stores in fiscal year 1997, opened 1 store in fiscal year
1996 and opened 10 stores during fiscal year 1995.
Interest Capitalization
The Company capitalizes interest incurred in connection with the
construction and development of new stores, computer systems, and other major
assets for the Company's own use. The Company capitalized interest of $1.4
million in fiscal year 1997 and $0.5 million in fiscal year 1995. No interest
was capitalized during fiscal year 1996.
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 revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Significant estimates used in preparation of the consolidated financial
statements include, but are not limited to, income tax liabilities,
self-insurance liabilities for worker's compensation and general liability,
store closing liabilities, physical inventory shortage allowances, and the
estimated useful life of fixed and intangible assets.
New Accounting Pronouncements
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income" and SFAS No. 131, "Disclosures about Segments of an Enterprise and
Related Information" which are effective for the Company's financial statements
for the year ended January 31, 1999. The Company believes that neither
pronouncement will have a material impact on its financial statements.
2. PROPERTY AND EQUIPMENT
The components of property and equipment are listed below (in thousands):
<TABLE>
<CAPTION>
JANUARY 31, FEBRUARY 1,
1998 1997
----------- -----------
<S> <C> <C>
Fixtures and equipment.............................................. $ 164,816 $ 152,731
Leasehold improvements.............................................. 66,247 56,802
Buildings........................................................... 16,192 16,192
Land................................................................ 3,430 3,430
Improvements in progress............................................ 16,629 3,633
--------- ---------
267,314 232,788
Accumulated depreciation and amortization........................... (84,202) (59,087)
--------- ---------
$ 183,112 $ 173,701
--------- ---------
--------- ---------
</TABLE>
F-35
<PAGE>
HILLS STORES COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
3. REORGANIZATION VALUE IN EXCESS OF THE AMOUNTS ALLOCABLE TO IDENTIFIABLE
ASSETS
The activity for reorganization value is presented below (in thousands):
<TABLE>
<CAPTION>
JANUARY 31, FEBRUARY 1,
1998 1997
----------- -----------
<S> <C> <C>
Balance at beginning of period...................................... $ 97,508 $ 107,514
Amortization...................................................... (5,850) (6,050)
Tax benefit applied to reduce reorganization value................ (2,546) (2,592)
Impairment of long-lived assets and store closings................ -- (1,364)
--------- ---------
Balance at end of period............................................ $ 89,112 $ 97,508
--------- ---------
--------- ---------
</TABLE>
Accumulated amortization was $32.0 million at January 31, 1998 and $26.2
million at February 1, 1997.
4. OTHER ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Significant components of other accounts payable and accrued expenses are
presented below (in thousands):
<TABLE>
<CAPTION>
JANUARY 31, FEBRUARY 1,
1998 1997
----------- -----------
<S> <C> <C>
Other accounts payable and accrued expenses:
Accrued payroll and related costs................................. $ 20,880 $ 22,074
Taxes, other than income tax...................................... 13,988 13,418
Other............................................................. 42,935 46,260
--------- ---------
$ 77,803 $ 81,752
--------- ---------
--------- ---------
</TABLE>
5. SECURED CREDIT FACILITY
The Company, through its wholly-owned operating subsidiary Hills Department
Store Company (HDSC), maintains a $300 million secured credit facility (the
"Facility"), which matures in February, 2001. Borrowings under the Facility
include revolving working capital borrowings on a seasonal need basis and a
$10 million term note. Maximum borrowings under the Facility are limited by an
inventory-based borrowing base, as defined, and outstanding letters of credit;
up to $200 million of the Facility is available to secure letters of credit.
Borrowings under the Facility bear interest, at the option of the Borrowers, at
either of (1) the Bank of America's "reference rate" plus a margin ranging up to
0.75% or (2) LIBOR plus a margin ranging from 1.5% to 2.5% (2.25% at
January 31, 1998). The Company pays fees on the average undrawn letter of credit
amount at an annual rate ranging from 1.5% to 2.25%, and pays commitment fees at
an annual rate of 3/8% on the average daily unused portion of the commitment.
Interest rates and fees on undrawn letter of credit amounts are determined
quarterly by the Company's "excess cash flow", as defined. The Facility is
secured by a security interest in tangible and intangible assets of HDSC, other
than certain fixtures, equipment and real estate. The Facility is also
guaranteed by the parent Company (HSC).
The financial covenants under the secured credit agreement require that the
Company maintain levels of consolidated net worth and consolidated cash flow in
excess of certain defined or computed amounts. In addition, the Facility
requires the outstanding principal balance of revolving loans to be zero for at
least thirty consecutive days during the period from December 1 of each year to
March 31 of the next year. The Agreement prohibits the payment of dividends on
the Company's common stock and also contains, among other restrictions,
provisions limiting to varying degrees: business combinations, the issuance of
certain kinds of additional debt and the repurchase and prepayment of debt.
Under the Agreement, HDSC is only permitted to make payments or transfers to the
parent Company in the normal course of business as necessary for the parent
Company to service its Senior Note interest obligations and to otherwise conduct
its activities as a holding company. (Net assets of HDSC and its subsidiaries at
January 31, 1998 totaled $451 million.)
F-36
<PAGE>
HILLS STORES COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
5. SECURED CREDIT FACILITY--(CONTINUED)
The term loan component of the secured credit Facility requires quarterly
payments of $500,000 beginning November 1998, and continuing until the earlier
of (1) full payoff or (2) agreement termination (whereupon a balloon payment for
the balance plus accrued and unpaid interest is payable).
At January 31, 1998, the Company had $10 million of term loan borrowings
under the Facility, had no revolving borrowings, had outstanding letters of
credit totaling $40.3 million, had maintained its annual clean-up period for
more than the required thirty consecutive days, and was in compliance with all
covenants and restrictions.
In connection with replacing the prior Facility with the above Facility in
fiscal year 1996 with a new group of lenders, the Company recognized an
extraordinary after-tax loss for early extinguishment of debt of $2.3 million
($3.8 million pretax) from the write-off of deferred financing costs related to
the prior credit facility. Front-end fees in connection with the Facility were
$2.9 million. Additionally, $0.9 million of fees were paid in connection with
the two amendments during fiscal year 1997, which, among other things, extended
the maturity of the Facility. These fees are being amortized over the life of
the Facility.
6. LONG-TERM DEBT
Long-term debt at each year-end consisted of (in thousands):
<TABLE>
<CAPTION>
JANUARY 31, FEBRUARY 1,
1998 1997
----------- -----------
<S> <C> <C>
12 1/2% Senior Notes, due 2003...................................... $ 195,000 $ 195,000
Secured term note (see Note 5)...................................... 10,000 --
--------- ---------
205,000 195,000
Less current portion of secured term note........................... (500) --
--------- ---------
Net long-term debt.................................................. $ 204,500 $ 195,000
--------- ---------
--------- ---------
</TABLE>
The 12 1/2% unsecured Senior Notes (the "Senior Notes") pay interest
semiannually, are non-callable, and are unconditionally guaranteed by all the
subsidiaries of the Company. The subsidiary guarantees are subordinate to
borrowings under the secured credit facility (see Note 5). The Senior Notes
contain covenants regarding limitations on debt incurrence and the issuance of
preferred stock. Additionally, the Senior Notes place limitations on the Company
and its subsidiaries relative to the payment of dividends or distributions.
The estimated fair value of the Senior Notes was approximately $164 million
at January 31, 1998 and $144 million at February 1, 1997. These values were
based on quoted market prices in effect at those dates.
In fiscal year 1996, in connection with the sale of the Senior Notes, the
Company offered to redeem all of its outstanding 10.25% Senior Notes due 2003
(the "Old Senior Notes") at a redemption price equal to 101% of principal, plus
accrued interest. Pursuant to this offer, the Company subsequently redeemed
approximately $155 million of its approximately $157.5 million of outstanding
Old Senior Notes. The Company later called for redemption of the approximately
$2.5 million of remaining outstanding Old Senior Notes at the indenture
specified price of 104% of principal plus accrued interest. In addition, the
Company deposited, in trust, funds sufficient to redeem, upon issuance,
approximately $2.5 million of Old Senior Notes yet to be issued under the terms
of the Company's 1993 Plan of Reorganization (the "POR"). As a result of these
transactions, the Company recognized an extraordinary after-tax loss for early
extinguishment of debt of $2.0 million ($3.5 million pre-tax). The extraordinary
loss included the redemption premiums and the write-off of the related deferred
financing costs.
Separate financial statements of the Company's subsidiary guarantors have
not been provided because (1) the subsidiary guarantors constitute all of the
Company's direct and indirect subsidiaries, (2) they have fully and
unconditionally guaranteed the Senior Notes on a joint and several basis,
(3) their aggregate assets, liabilities, earnings and equity are substantially
equivalent to those of the Company on a consolidated basis, and (4) separate
financial statements are not deemed to be material to investors.
F-37
<PAGE>
HILLS STORES COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
7. LEASE COMMITMENTS
The Company's operations are conducted predominantly in leased properties,
which consist principally of retail outlets. Leases are generally for periods
between twenty to thirty years plus renewal options and generally includes fixed
rentals and rentals based on sales in excess of predetermined levels.
The composition of property under capital leases, net of accumulated
amortization, is shown below (in thousands):
<TABLE>
<CAPTION>
JANUARY 31, FEBRUARY 1,
1998 1997
----------- -----------
<S> <C> <C>
Retail outlets...................................................... $ 138,094 $ 138,094
Other............................................................... 982 982
--------- ---------
139,076 139,076
Accumulated amortization............................................ (36,726) (26,875)
--------- ---------
Property under capital leases, net.................................. $ 102,350 $ 112,201
--------- ---------
--------- ---------
</TABLE>
Consolidated rental expense under operating leases and rental expense based
on sales in excess of predetermined levels under capital leases are presented
below (in thousands):
<TABLE>
<CAPTION>
FISCAL YEAR FISCAL YEAR FISCAL YEAR
ENDED ENDED ENDED
JANUARY 31, FEBRUARY 1, FEBRUARY 3,
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Capital leases:
Rental based on sales........................................ $ 803 $ 801 $ 1,251
Operating leases:
Minimum facility rentals..................................... 28,415 29,125 26,133
Equipment and other rentals.................................. 12,905 14,647 17,706
Rental based on sales........................................ 1,533 1,511 1,244
-------- -------- --------
Consolidated rental expense.................................... $ 43,656 $ 46,084 $ 46,334
-------- -------- --------
-------- -------- --------
</TABLE>
At January 31, 1998, the financing obligations represent sale/leaseback
arrangements. The related property associated with these transactions, which has
a net book value of $62.4 million at January 31, 1998, remains in property and
equipment on the Company's books and continues to be depreciated. The leases,
which have terms from 42 months to ten years, include options to purchase some
or all of the assets either at the end of the initial lease term or renewal
periods at an amount not greater than the then current fair market value of the
properties. During fiscal year 1996, the Company obtained $16.6 million of
financing through such arrangements.
F-38
<PAGE>
HILLS STORES COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
7. LEASE COMMITMENTS--(CONTINUED)
Minimum future lease commitments under non-cancelable leases in effect at
January 31, 1998 are listed below (in thousands):
<TABLE>
<CAPTION>
CAPITAL FINANCING OPERATING
FISCAL YEARS: LEASES OBLIGATIONS LEASES TOTAL
- ------------- -------- ----------- --------- --------
<S> <C> <C> <C> <C>
1998.................................................. $ 19,488 $ 8,369 $ 35,290 $ 63,147
1999.................................................. 19,159 7,699 30,817 57,675
2000.................................................. 17,396 7,789 27,742 52,927
2001.................................................. 16,931 6,257 24,906 48,094
2002.................................................. 16,546 8,393 21,926 46,865
Thereafter............................................ 151,754 17,389 122,674 291,817
-------- ------- --------- --------
Minimum rental commitments............................ $241,274 $55,896 $ 263,355 $560,525
--------- --------
--------- --------
Less amount representing interest..................... 120,579 21,796
-------- -------
Present value of net minimum lease payments........... 120,695 34,100
Current portion....................................... (6,776) (3,765)
-------- -------
$113,919 $30,335
-------- -------
-------- -------
</TABLE>
8. EMPLOYEE PLAN BENEFITS
Post Retirement Benefits
The Company accounts for post retirement benefits (such as health care) in
accordance with Statement of Financial Accounting Standards No. 106: "Employers'
Accounting for Postretirement Benefits Other Than Pensions" ("FAS 106"). This
statement requires accrual of postretirement benefits during the years an
employee provides services. Under FAS 106, the Company recognized expenses of
$0.2 million in fiscal years 1997, 1996 and 1995, respectively. The Company
funds benefit costs principally on a pay-as-you-go basis. The status of the plan
is as follows (in thousands):
<TABLE>
<CAPTION>
JANUARY 31, FEBRUARY 1,
1998 1997
----------- -----------
<S> <C> <C>
Accumulated postretirement benefit obligation ("APBO") for: Active
employees......................................................... $ 2,399 $ 2,212
Retirees.......................................................... 83 303
--------- ---------
2,482 2,515
Plan assets at fair value........................................... -- --
--------- ---------
Unfunded APBO....................................................... 2,482 2,515
Unrecognized actuarial gain......................................... 1,352 1,329
--------- ---------
Accrued postretirement benefit cost................................. $ 3,834 $ 3,844
--------- ---------
--------- ---------
</TABLE>
The assumed health care cost trend rate used in measuring the APBO was 10%
in fiscal year 1997 (8% for Medicare eligible retirees); grading down to 5% (5%
for Medicare eligible retirees) by fiscal year 2002 and remaining at that level
thereafter. A one percentage point increase in the assumed health care cost
trend rate would increase the APBO at the end of fiscal year 1997 by $367,400
(or by 15%) and the service and interest cost by $36,800 (or by 11%). The
assumed discount rate used in determining the APBO was 7% for both years.
401(k) Plan
The Company offers a defined contribution 401(k) savings plan (the
"401(k)") for employees meeting certain employment conditions. In addition to
permitting employee contributions, the 401(k) plan provides for Company matching
contributions. Company matching contributions were $3.0 million in fiscal year
1997, $3.6 million in fiscal year 1996 and $3.9 million in fiscal year 1995.
F-39
<PAGE>
HILLS STORES COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
9. HILLS STORES SERIES A CONVERTIBLE PREFERRED STOCK
The Company is authorized to issue 15,000,000 shares of preferred stock,
par value of $0.10 per share. Pursuant to the POR 5,000,000 of shares were
authorized to be issued as Hills Stores Series A Convertible Preferred Stock the
("Preferred Stock"). As of January 31, 1998, a total of 50,060 shares of the
5,000,000 shares of the Preferred Stock remain to be issued pending resolution
of pre-petition claims and interests pursuant to the POR.
The Preferred Stock is convertible by the holders, at any time, into Hills
Stores common stock at a rate of one share of Common Stock for each share of the
Preferred Stock, subject to antidilution adjustments. During fiscal year 1997,
86,625 shares of the Preferred Stock were converted to common stock on a share
for share basis. As of January 31, 1998 and February 1, 1997, 855,109 and
941,344 shares, respectively, were outstanding.
Each share of Preferred Stock has one vote per share in the same class as
the shares of common stock. The holders of the Preferred Stock are entitled to
dividends when and if declared by the Board of Directors; however, dividend
payments are restricted under the terms of the Facility and the Senior Notes.
The Company does not expect to pay dividends in the foreseeable future.
The Company may redeem, at its option prior to October 4, 2008, all or part
of the outstanding Preferred Stock at $20 per share; and in any case shall
redeem all of the outstanding shares of Preferred Stock on October 4, 2008 at
$20 per share. Upon dissolution or liquidation of the Company, the holders of
the Preferred Stock will be entitled to receive $20 per share out of the assets
of the Company available for distribution to shareholders, in preference to the
holders of common stock and any other class or series of capital stock of the
Company that is junior to the Preferred Stock.
10. HILLS STORES COMMON STOCK
Each holder of common stock has one vote per share and is entitled
dividends when and if declared by the Board of Directors. However, dividend
payments are restricted under the terms of the Facility and the Senior Notes.
The Company does not expect to pay dividends in the foreseeable future. As of
January 31, 1998, a total of 58,151 shares of common stock remain to be issued
pending resolution of pre-petition claims and interests, pursuant to the POR.
11. STOCK COMPENSATION PLANS
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("FAS 123"). FAS 123 encourages, but does not require, the
recognition of compensation expense for the fair value of stock options and
other equity instruments issued to employees. This statement gives entities a
choice of recognizing related compensation expense by adopting the new fair
value method or to continue to measure compensation using the intrinsic value
approach under Accounting Principles Board Opinion No. 25 ("APB 25"), the former
standard. If the fair value provisions of FAS 123 are not adopted, companies are
required to disclose the pro forma amounts of net earnings and earnings per
share that would have been reported had these provisions been adopted. The
Company has chosen to continue to recognize compensation expense under APB 25.
Accordingly, no compensation cost has been recognized for its fixed stock option
plans, other than for options granted in connection with consulting services.
Such compensation expense was $61,000 and $73,000 for fiscal years 1997 and
1996, respectively.
The Company has stock-based compensation plans, which are described below.
1993 Stock Option Plan
In October 1993, the Company established an incentive and nonqualified
stock option plan (the "Option Plan") providing for the grant of nonqualified
stock options or incentive stock options. The options are granted at prices
greater than or equivalent to the market price of the common stock on the date
of each grant. The options
F-40
<PAGE>
HILLS STORES COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
11. STOCK COMPENSATION PLANS--(CONTINUED)
are generally subject to a five year vesting schedule, with initial vesting
beginning one year from the date of the grant, and expire ten years from the
date of the grant. A total of 1,303,763 shares of common stock are reserved for
grants of options under the Option Plan. During fiscal years 1997, 1996 and 1995
eligible participants were allowed, for a limited time, to exchange existing
options for new options with an exercise price of $5.00, $10.125 and $12.00,
respectively. The 1997 repricing was for a reduced number of new options. The
options exchanged in 1997 were subject to additional vesting restrictions, which
prohibited exercise of any vested option for one year and 50% of the vested
options for two years from the date of the repricing.
1996 Directors Stock Option Plan
During fiscal year 1996, the Company received shareholder approval of a
stock option plan for non-employee members of the Board of Directors. The plan
provided for an initial grant of 4,000 options to each non-employee member of
the Board of Directors with subsequent annual automatic grants of 2,000 options.
All options are granted at prices greater than or equivalent to the market price
of the common stock on the date of each grant. The options are subject to a
three year vesting schedule with vesting beginning from the date of the grant. A
total of 100,000 shares of common stock are reserved for grants under the plan.
In March 1997, participants were allowed to exchange existing options for a
reduced number of new options with an exercise price of the greater of $5.00 or
the closing share price on the date of acceptance. The repriced options were
subject to additional vesting restrictions, which prohibited exercise of any
vested option for one year and 50% of the vested options for two years from the
date of the repricing.
Restricted Stock Agreements
In fiscal year 1996, the Company entered into restricted stock agreements
with the Chairman of the Board and the President and Chief Executive Officer.
Pursuant to the agreements, the Company issued 120,000 shares of common stock
subject to certain restrictions. Unearned compensation was charged for the
market value of the restricted shares, shown as a reduction of common
shareholders' equity in the accompanying consolidated balance sheet, and is
being amortized ratably over the restricted period. The weighted-average fair
value of shares granted during fiscal year 1996 was approximately $10.00 per
share. During fiscal years 1997 and 1996, approximately $356,000 and $405,000
respectively, was charged to expense.
Pro Forma Information
Had compensation cost for the Company's two fixed stock option plans and
the associate stock purchase plan been determined based on the fair value at the
grant dates for awards under those plans consistent with the method of FAS 123,
the Company's net loss and loss per share would have increased to the pro forma
amounts indicated below:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Net loss
As reported.......................................... ($ 9,015) ($35,058) ($16,666)
Pro forma............................................ ($10,264) ($36,349) ($18,244)
Basic and diluted loss per share
As reported.......................................... ($ 0.87) ($ 3.42) ($ 1.70)
Pro forma............................................ ($ 0.99) ($ 3.55) ($ 1.86)
</TABLE>
The effects of applying FAS 123 in this pro forma disclosure are not
indicative of future amounts. The pro forma disclosure does not include awards
prior to 1995 or additional awards, which are anticipated to be made in future
years.
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in fiscal years 1997, 1996 and 1995:
F-41
<PAGE>
HILLS STORES COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
11. STOCK COMPENSATION PLANS--(CONTINUED)
dividend yield of zero; expected volatility of 50%, risk-free interest rate of
6.22%, 5.83% and 5.77% respectively; and expected lives of five years.
A summary of the status of the Company's fixed stock option plans as of
January 31, 1998, February 1, 1997 and February 3, 1996, and changes during the
years ending on those dates, is presented below:
<TABLE>
<CAPTION>
1997 1996 1995
---------------------------- ---------------------------- ------------------------------
WEIGHTED-AVERAGE WEIGHTED-AVERAGE WEIGHTED-AVERAGE
FIXED OPTIONS SHARES EXERCISE PRICE SHARES EXERCISE PRICE SHARES EXERCISE PRICE
- ----------------------- -------- ---------------- -------- ---------------- ---------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at
beginning of year.... 871,580 $10.64 416,797 $12.36 1,014,021 $ 18.48
Granted................ 317,950 4.22 678,751 11.08 203,000 12.75
Exchanged November 4,
1995................. -- -- -- -- (337,200) 18.26
Issued in exchange on
November 4, 1995..... -- -- -- -- 224,797 12.00
Exchanged on March 8,
1996................. -- -- (330,000) 12.00 -- --
Issued in exchange on
March 8, 1996........ -- -- 330,000 10.12 -- --
Exchanged on March 11,
1997................. (687,482) 10.58 -- -- -- --
Issued in exchange on
March 11, 1997....... 453,305 5.00 -- -- -- --
Exercised.............. -- -- -- -- (4,300) 18.25
Forfeited.............. (106,739) 7.26 (223,968) 12.42 (683,521) 18.49
-------- -------- ----------
Outstanding at end of
year................. 848,614 5.69 871,580 10.64 416,797 12.36
-------- -------- ----------
-------- -------- ----------
Options exercisable at
year-end............. 200,715 141,961 231,894
Weighted-average fair
value of options
granted during the
year................. $ 2.18 $ 5.60 $ 6.40
</TABLE>
The following table summarizes information about fixed stock options
outstanding at January 31, 1998:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
---------------------------------------------------- ----------------------------------
NUMBER WEIGHTED-AVERAGE WEIGHTED-AVERAGE NUMBER
OUTSTANDING REMAINING AVERAGE EXERCISABLE AT WEIGHTED-AVERAGE
RANGE OF EXERCISE PRICE AT 1/31/98 CONTRACTUAL LIFE EXERCISEPRICES 1/31/1998 EXERCISE PRICE
- ---------------------------- ----------- ----------------- ---------------- -------------- ----------------
<S> <C> <C> <C> <C> <C>
$2.75-$3.75................. 74,500 9.5 years $ 3.08 2,000 $ 3.00
$3.88-$4.63................. 206,450 9.0 years $ 4.43 0 $ 0.00
$5.00-$5.13................. 438,214 7.9 years $ 5.01 136,844 $ 5.00
$7.63-$18.25................ 129,450 7.3 years $ 11.52 61,871 $ 12.21
--------- ----------
848,614 200,715
--------- ----------
--------- ----------
</TABLE>
F-42
<PAGE>
HILLS STORES COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Associate Stock Purchase Plan
Under the Associate Stock Purchase Plan, the Company is authorized to issue
up to 500,000 shares of common stock to its full-time employees. Under the terms
of the Plan, during each semiannual subscription period associates can choose to
have up to 10 percent of their annual base earnings, up to $25,000, withheld to
purchase the Company's common stock. The purchase price of the stock is 85
percent of the lower of its market price at the commencement date or at the
termination date of each offering period. During fiscal year 1997, the Company
issued 21,901 shares pursuant to this plan. The Company anticipates issuing
approximately 25,000 shares for the subscription period ending on June 30, 1998.
12. SERIES 1993 STOCK RIGHTS
Each Series 1993 Stock Right (the "Stock Right") entitles the holder to
acquire, at $0.01 per share, shares of common stock, subject to antidilution
adjustments, as determined pursuant to a formula which is based on the Company's
pro forma utilization of certain tax benefits as defined in the Stock Right
Agreements. Shares under the Stock Right Agreements are not available for
issuance until vested. During 1995, the Company repurchased 693,949 of its
700,000 outstanding stock rights in exchange for 198,271 shares of newly issued
common stock. The aggregate par value of the newly issued common stock was
reclassified from additional paid-in capital to common stock. As of January 31,
1998 and February 1, 1997, 6,051 rights were outstanding.
13. SERIES 1993 WARRANTS
Each Series 1993 Warrant entitles the holder to purchase, subject to
antidilution adjustments, one share of common stock at $30 per share. The
Warrants are callable by the Company at $.01 per Warrant at any time after
October 4, 1998 if the average closing price of common stock, subject to
antidilution adjustments, for a period of thirty consecutive trading days is
equal to or greater than $35 per share. The Warrants expire on October 4, 2000.
During fiscal year 1995, 87 warrants were exercised. None were exercised during
fiscal years 1997 and 1996. As of January 31, 1998 and February 1, 1997, 432,903
warrants were outstanding and 432,903 shares of common stock were reserved for
issuance upon exercise of the warrants.
14. RIGHTS AGREEMENT
Pursuant to a Rights Agreement adopted on August 16, 1994, the Company
declared a distribution of one purchase right (the "Right") for each share of
Common Stock and Preferred Stock then outstanding. Each Right would initially
entitle the holder to purchase, subject to adjustment, one one-thousandth share
of the Company's Series B Participating Cumulative Preferred Stock, consisting
of 55,000 shares authorized, $.10 par value per share, at an exercise price of
$75 per one one-thousandth share. Each share of Common Stock and Preferred Stock
issued after August 16, 1994 will also have one Right attached. The Rights
expire August 16, 2004 and, under certain conditions, may be redeemed by the
Company at a price of $.01 per Right. The Rights have no voting or dividend
privileges and are not currently separable from the capital stock. The Rights
would become exercisable if certain events occurred relating to a person or
group (the "Acquiring Person") acquiring or attempting to acquire 20% or more of
the outstanding shares of capital stock other than through a qualifying tender
offer. Upon the occurrence of such an event, each Right (except the Rights
beneficially owned by the Acquiring Person, which become null and void) entitles
its holder to purchase for $75 the economic equivalent of Common Stock, or in
certain circumstances, securities of the Acquiring Person, or its affiliate,
worth twice as much. After there is an Acquiring Person, the Rights may be
exchanged, at the election of the Company, for consideration per Right
consisting of one-half of the securities that would otherwise be issuable at
that time.
15. IMPAIRMENT OF LONG-LIVED ASSETS AND STORE CLOSINGS
Effective February 4, 1996, the Company adopted Statement of Financial
Accounting Standards No. 121: "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of" ("FAS 121"). FAS 121
requires that the carrying value of long-lived tangible and certain intangible
assets be evaluated
F-43
<PAGE>
HILLS STORES COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
15. IMPAIRMENT OF LONG-LIVED ASSETS AND STORE CLOSINGS--(CONTINUED)
periodically in relation to the operating performance and estimated future cash
flows of the underlying assets. In accordance with FAS 121, the Company
recognized a pre-tax charge of $23.6 million ($11.7 million in the first quarter
of fiscal 1996 and $11.9 million in fourth quarter of fiscal 1996, in connection
with the store closings and impairments) to reduce the carrying value of certain
of its long-lived tangible and intangible assets to their estimated fair market
value. The impaired assets include property and equipment, beneficial lease
rights and reorganization value related to under performing stores. The fair
value was based on estimated future cash flows to be generated by these stores,
discounted at a rate commensurate with the risks involved.
In January 1997, the Company announced plans to close ten stores during the
first quarter of fiscal year 1997 as part of its initiatives to improve
profitability. In connection with these closures, the Company recorded in fiscal
year 1996 a pretax charge of $10.1 million to cover costs for disposal of
inventories ($5.3 million), lease terminations, net ($3.2 million), and other
related costs ($1.6 million).
During fiscal year 1997, approximately $4.8 million was incurred and
charged against the accrual for store closings, consisting primarily of cash
payments relating to lease terminations. The majority of the January 31, 1998
liability totaling $6.9 million is expected to be paid during fiscal years 1998
and 1999.
These 10 stores generated 4.6% and 3.9% of the total net sales of the
Company during fiscal years 1996 and 1995, respectively. In addition, these
stores had operating losses, excluding corporate overhead allocations, of $4.3
million and $1.7 million for fiscal years 1996 and 1995.
16. INCOME TAXES
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109: "Accounting for Income Taxes" ("FAS
109"). Under FAS 109, deferred taxes are computed on the difference between the
bases of assets and liabilities for tax reporting purposes and their
corresponding bases for financial reporting purposes. Deferred tax assets, net
of appropriate valuation reserves, may be recorded.
Temporary differences and carry forwards which give rise to significant
deferred tax assets and liabilities are as follows (in thousands):
<TABLE>
<CAPTION>
JANUARY 31, 1998 FEBRUARY 1, 1997
-------------------- --------------------
DEFERRED DEFERRED DEFERRED DEFERRED
TAX TAX TAX TAX
ASSET LIABILITY ASSET LIABILITY
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net operating loss and tax credit carry forwards......... $ 74,369 $ -- $ 58,307 $ --
Capital lease obligations................................ 46,943 -- 49,959 --
Assets under capital leases.............................. -- 39,303 -- 45,544
Accrued expenses......................................... 33,144 -- 37,102 --
Beneficial lease rights.................................. 14,800 -- 17,161 --
Property and equipment................................... -- 21,155 -- 15,359
Inventories.............................................. 5,356 -- 11,922 --
Financing obligation--sale/leaseback..................... 8,984 -- 11,717 --
Other.................................................... 10,421 -- 10,629 --
-------- -------- -------- --------
Total deferred taxes..................................... 194,017 60,458 196,797 60,903
Valuation allowance...................................... (78,034) -- (81,318) --
-------- -------- -------- --------
Net deferred taxes....................................... $115,983 $ 60,458 $115,479 $ 60,903
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
The consummation of the POR resulted in a change in ownership for federal
income tax purposes. Subsequent to the POR, a second change in ownership
occurred for federal income tax purposes. As a result, the Company's ability to
utilize its net operating loss and tax credit carry forwards is subject to an
annual limitation of $15.8 million. This limitation may be changed if additional
changes in ownership (generally determined by the
F-44
<PAGE>
HILLS STORES COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
16. INCOME TAXES--(CONTINUED)
creation of new 5% equity ownership blocks, accumulating to 50%, over a rolling
three year period) are deemed to occur subsequent to the second ownership
change. For fiscal years 1996 and 1997, the Company generated estimated net
operating tax loss carry forwards of $19.7 million. Total deferred tax assets as
of January 31, 1998, include $78.0 million of deferred tax assets which arose
before the Company's emergence from bankruptcy and which have been fully
reserved. For financial reporting purposes, any benefit derived from the
reduction of the valuation allowance related to deferred tax assets in existence
at October 4, 1993 will not be credited to the tax provision, but instead will
ultimately reduce Reorganization Value.
Federal income tax carry forwards at January 31, 1998 consisted of $3.0
million of Alternative Minimum Tax credits which do not expire, and net
operating losses and general business credits which expire as follows (in
thousands):
<TABLE>
<CAPTION>
NET OPERATING TAX
LOSSES CREDITS
------------- -------
<S> <C> <C>
FISCAL YEARS:
2000...................................................... $ -- $ 413
2001...................................................... -- 797
2002...................................................... -- 664
2003...................................................... -- 1,369
2004...................................................... 329 2,196
2005...................................................... -- 1,547
2006...................................................... 60,901 949
2007...................................................... 56,848 797
2008...................................................... 10,954 944
2009...................................................... -- 174
2010...................................................... -- 492
2011...................................................... 21,519 --
2012...................................................... 19,661 --
--------- -------
$ 170,212 $10,342
--------- -------
--------- -------
</TABLE>
The provision (benefit) for income taxes consists of the following
components (in thousands):
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-----------------------------------------
JANUARY 31, FEBRUARY 1, FEBRUARY 3,
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Current provision:
Federal.............................................. ($3,096) ($ 3,673) $ 227
State and local...................................... (301) (587) 23
------- --------- ---------
(3,397) (4,260) 250
Deferred provision:
Federal.............................................. (865) (9,159) (9,986)
State and local...................................... (84) (3,173) (1,274)
------- --------- ---------
(949) (12,332) (11,260)
Amount to be applied to reorganization value........... 2,546 2,592 14,197
------- --------- ---------
Total tax provision (benefit).......................... ($1,800) ($ 14,000) $ 3,187
------- --------- ---------
------- --------- ---------
</TABLE>
F-45
<PAGE>
HILLS STORES COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
16. INCOME TAXES--(CONTINUED)
The income tax provision in each of the periods presented reflects an
effective tax rate that differs from the statutory federal income tax rate for
those periods. For net earnings (loss) from operations before extraordinary
items, the table below reconciles the federal statutory rate to the effective
tax rate.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-----------------------------------------
JANUARY 31, FEBRUARY 1, FEBRUARY 3,
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Statutory tax rate............................................... (35.0%) (35.0%) (35.0%)
State and local income taxes, net of federal tax benefit......... (0.6) (2.7) 3.7
Goodwill......................................................... 18.9 5.8 20.1
Targeted jobs credit and other, net.............................. 0.1 0.6 0.7
Change in control costs.......................................... -- -- 34.2
----- ----- -----
Effective tax rate............................................... (16.6%) (31.3%) 23.7%
----- ----- -----
----- ----- -----
</TABLE>
The IRS is nearing completion of its audit of fiscal years 1991, 1992 and
1993. The Company has filed a Protest to certain adjustments proposed by the
IRS. The Company does not believe the final adjustments resulting from this
examination would have a material adverse effect on the Company's financial
condition.
17. EARNINGS PER SHARE
In fiscal year 1997, the Company adopted Statement of Financial Accounting
Standards Number 128, "Earnings per Share" ("FAS 128"). FAS 128 requires the
presentation of "basic" earnings per share (income applicable to common
shareholders divided by the weighted-average number of common shares outstanding
during the period) and "diluted" earnings per share (which gives effect to all
dilutive potential common shares that were outstanding during the period). All
prior-period earnings per share data have been restated to conform to FAS 128.
Basic and diluted earnings per share are the same for the periods ended
January 31, 1998, February 1, 1997 and February 3, 1996, as all common stock
equivalents are antidilutive, due to the net loss incurred during these periods.
Basic earnings per share was computed based on the weighted average number
of common shares assumed to be outstanding during each period. Such shares
amounted to 10,387,080, 10,252,022 and 9,809,675 for fiscal years 1997, 1996 and
1995, respectively.
If the impact would be dilutive, the following securities would be included
in the calculation of diluted earnings per share: preferred stock, stock
options, Series 1993 Warrants and stock rights (contingently issuable as
described in Note 14).
18. COMMITMENTS AND CONTINGENCIES
In September 1995, the Company and HDSC filed a suit in the Court of
Chancery of the State of Delaware against the former members of the Board of
Directors (the "Former Directors") of the Company. That action seeks, among
other things, recovery of damages caused by the breach by the Former Directors
of their fiduciary duties to shareholders arising from the refusal of the Former
Directors to approve the change in control which took place on July 5, 1995 (the
"1995 Change of Control") following the election of seven replacement directors
by the shareholders of the Company. In October 1995 the defendants filed a
motion to dismiss the suit. In February 1996, the court granted a motion of the
Former Directors to stay discovery pending the outcome of their motion to
dismiss. In March 1997, the court denied the Former Directors' motion to
dismiss.
In April 1997, three of the Former Directors, Michael Bozic, Norman S.
Matthews and John G. Reen, filed a counterclaim against the Company and the
seven replacement directors seeking damages of not less than $2.5 million for
breach of contract, unjust enrichment and intentional interference with
contractual relations arising out of allegations that the Company improperly
failed to honor their request to exercise stock options. The
F-46
<PAGE>
HILLS STORES COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
18. COMMITMENTS AND CONTINGENCIES--(CONTINUED)
Company believes the counterclaim is without merit and has denied the
allegations and asserted various defenses. Discovery is ongoing in the case.
In August 1995, in the Court of Chancery of the State of Delaware, three
shareholders of the Company, Gayle Dolowich, Ivan J. Dolowich and Joseph Weiss,
filed a class action lawsuit against the seven new directors of the Company
elected at the 1995 annual meeting, Dickstein Partners Inc. ("Dickstein
Partners") and the Company. In November 1995, the plaintiffs amended their
complaint to include a shareholder's derivative cause of action against the
Former Directors for breach of their fiduciary duties to the Company and its
shareholders. In the amended complaint, the plaintiffs claim (under Section 225
of the Delaware Corporation Code) that in connection with Dickstein Partners
effort to solicit proxies in support of the election of its nominees for
directors of the Company, Dickstein Partners issued a number of false and
misleading statements regarding its offer to acquire all of the Company's shares
it did not already own. On the Section 225 claim, the plaintiffs seek an order
nullifying the election of directors and declaring there has been "no change of
control" of the Company. The derivative cause of action seeks damages against
the Former Directors. In January 1996 in the same Delaware Chancery Court,
another shareholder, Peter M. Fusco, filed a substantially similar class action
and shareholder derivative suit against the parties named in the Dolowich suit.
The Former Directors filed a motion to dismiss the Dolowich and Fusco suits, and
in March 1997 the court denied that motion.
The Company is also involved in various suits and claims in the ordinary
course of business.
Management does not believe that the disposition of such suits and claims
will have a material adverse effect upon the continuing operations and financial
position of the Company.
19. CHANGE IN CONTROL
On July 5, 1995, following a proxy contest in connection with the annual
meeting of shareholders held on June 23, 1995, nominees of Dickstein Partners
were certified as being elected to the Board of Directors. The Company
reimbursed Dickstein Partners for, or directly paid, approximately $1.9 million
in third-party fees and expenses incurred or committed to by Dickstein Partners
in connection with the proxy contest and the related acquisition proposal of
Dickstein Partners. This amount included $1.0 million paid by the Company to the
financial advisor of Dickstein Partners, in respect of the advisor's proposal to
refinance the indebtedness of the Company accelerated as a result of the
election of the Dickstein Partners nominees. These costs are included in the
Consolidated Statements of Operations in costs related to change in control.
In connection with the change in control, the Company recognized $45.5
million in expense, including $31.0 million related to severance and retirement
payments, including certain taxes attributable thereto, to six senior
executives, a consultant to the Company and approximately twenty associates of
the Company, $6.0 million paid to holders of the Senior Notes, and legal and
other miscellaneous change in control costs.
20. SELF-TENDER FOR COMMON STOCK
In August 1994, Dickstein Partners, L.P., et al. ("Dickstein") commenced a
consent solicitation to replace four members of the then current Board of
Directors with Dickstein nominees. In response to the Dickstein consent
solicitation, the Company's Board of Directors announced a program to enhance
shareholder value, including the approval of a self-tender to purchase up to
3,000,000 common shares at $25 per share in cash. Effective February 21, 1995,
the Company accepted for payment 3,000,000 shares of Common Stock which were
validly tendered pursuant to the Company's offer, and for which payment of
$75,000,000 was made in March 1995. The excess of the purchase price over the
original issue price of the Common Stock, or $15,000,000, was charged to
retained earnings. In connection with this offer, 561,863 shares of Preferred
Stock were converted to Common Stock.
F-47
<PAGE>
HILLS STORES COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
21. STATEMENTS OF CASH FLOWS
Supplemental disclosures of cash flow information are presented in the
table below:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-----------------------------------------
JANUARY 31, FEBRUARY 1, FEBRUARY 3,
(IN THOUSANDS) 1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
NONCASH INVESTING AND FINANCING ACTIVITIES:
Preferred stock conversions to common stock.................... $ 1,733 $ 4,694 $39,508
Capital lease obligations, net................................. -- 3,735 --
CASH PAID:
Interest....................................................... 50,059 50,122 38,655
Income taxes................................................... (834) (8,956) 17,877
</TABLE>
22. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
(IN THOUSANDS, FIRST SECOND THIRD FOURTH
EXCEPT PER SHARE AMOUNTS) QUARTER QUARTER QUARTER QUARTER
-------- -------- -------- --------
<S> <C> <C> <C> <C>
FISCAL YEAR 1997
Net sales.............................................. $353,504 $349,269 $434,555 $630,946
-------- -------- -------- --------
-------- -------- -------- --------
Gross profit........................................... $ 96,784 $ 86,148 $115,101 $163,906
-------- -------- -------- --------
-------- -------- -------- --------
Net earnings (loss)(2) $ (9,820) $(16,119) $ (3,946) $ 20,870(1)
-------- -------- -------- --------
-------- -------- -------- --------
Basic earnings (loss) per common share................. $ (0.95) $ (1.56) $ (0.38) $ 2.00
-------- -------- -------- --------
-------- -------- -------- --------
Diluted earnings (loss) per common share(3)............ $ (0.95) $ (1.56) $ (0.38) $ 1.84
-------- -------- -------- --------
-------- -------- -------- --------
FISCAL YEAR 1996
Net sales.............................................. $370,248 $388,600 $460,983 $658,646
-------- -------- -------- --------
-------- -------- -------- --------
Gross profit........................................... $ 99,263 $ 97,691 $120,831 $168,339
-------- -------- -------- --------
-------- -------- -------- --------
Loss before extraordinary loss......................... $(14,738) $(10,321) $ (2,804) $ (2,917)
-------- -------- -------- --------
-------- -------- -------- --------
Net loss(2)............................................ $(14,738) $(12,367) $ (5,036) $ (2,917)
-------- -------- -------- --------
-------- -------- -------- --------
Basic loss per common share:
Loss before extraordinary loss....................... $ (1.45) $ (1.01) $ (0.27) $ (0.28)
Extraordinary loss................................... -- ( 0.20) ( 0.22) --
-------- -------- -------- --------
Net loss............................................. $ (1.45) $ (1.21) $ (0.49) $ (0.28)
-------- -------- -------- --------
-------- -------- -------- --------
Diluted loss per common share:
Loss before extraordinary loss....................... $ (1.45) $ (1.01) $ (0.27) $ (0.28)
Extraordinary loss................................... -- (0.20) (0.22) --
-------- -------- -------- --------
Net loss............................................. $ (1.45) $ (1.21) $ (0.49) $ (0.28)
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
- ------------------
(1) Operating expenses for the fourth quarter and fiscal year ended January 31,
1998 included approximately $0.5 million of business process reengineering
costs, incurred primarily during fiscal year 1997 in connection with the
Company's systems replacement initiatives, and charged to earnings as
required by Emerging Issues Task Force Issue 97-13 "Accounting for Costs
Incurred in Connection with a Consulting Contract or an Internal Project
That Combines Business Process Reengineering and Information Technology
Transformation".
(Footnotes continued on next page)
F-48
<PAGE>
HILLS STORES COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
QUARTERLY FINANCIAL INFORMATION (UNAUDITED)--(CONTINUED)
(Footnotes continued from previous page)
(2) In fiscal year 1997, the Company modified its approach to calculate the
interim income tax benefit compared with the approach used in fiscal year
1996. The Company believes the approach used more appropriately reflects
income taxes on a quarterly basis for 1997. Had the 1997 approach been used
in 1996, the income tax provision for the fourth quarter would have been
reduced, and the net loss decreased, by approximately $9.9 million or $0.96
per share, respectively.
In the fourth quarter of fiscal year 1996, income tax expense included a
charge of $22.8 million as the result of a lower full year effective rate
than the estimated used in the first three-quarters of the fiscal year.
(3) Diluted average shares outstanding used in the quarterly earnings per share
calculations, excluding the fourth quarter in fiscal year 1997, do not
include Preferred Shares, as the effect of the inclusion of such additional
shares would be anti-dilutive.
F-49
<PAGE>
4,000,000 SHARES
[ LOGO ]
AMES DEPARTMENT STORES, INC.
Common Stock
---------------------------
PROSPECTUS
, 1999
---------------------------
LEHMAN BROTHERS
NATIONSBANC MONTGOMERY SECURITIES LLC
BEAR, STEARNS & CO. INC.
JOHNSON RICE & COMPANY L.L.C.
TUCKER ANTHONY CLEARY GULL
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the estimated costs and expenses, other than
the underwriting discounts and commissions, payable by Ames Department Stores,
Inc. (the "Registrant") in connection with the sale of the common stock being
registered, all of which will be paid by the Registrant.
<TABLE>
<CAPTION>
AMOUNT TO
BE PAID
---------
<S> <C>
SEC registration fee.......................................... $ 45,870
NASD filing fee............................................... 30,500
NASDAQ Stock Market listing fee............................... 17,500
Legal fees and expenses....................................... 250,000
Accounting fees and expenses.................................. 80,000
Printing and engraving........................................ 200,000
Transfer agent fees........................................... 2,500
Miscellaneous................................................. 75,000
---------
Total.................................................... $ 701,370
---------
---------
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Registrant is a Delaware corporation. Subsection (b)(7) of Section 102
of the Delaware General Corporation Law (the "DGCL") enables a corporation in
its original certificate of incorporation or an amendment thereto to eliminate
or limit the personal liability of a director to the corporation or its
stockholders for monetary damages for violations of the director's fiduciary
duty, except (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) pursuant to Section 174 of the DGCL (providing for liability of directors
for unlawful payment of dividends or unlawful stock purchases or redemptions) or
(iv) for any transaction from which a director derived an improper personal
benefit. Article Fifth of the Amended and Restated Certificate of Incorporation
of the Registrant provides that, to the fullest extent permitted by the DGCL, no
director of the Registrant shall be personally liable to the corporation or any
of its stockholders for monetary damages for breach of fiduciary duty as a
director.
The bylaws of the Registrant provide for the indemnification of directors
and officers to the extent permitted by the DGCL. Subsection (a) of Section 145
of the DGCL empowers a corporation to indemnify any director or officer, or
former director or officer, who was or is a party or is threatened to be made a
party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative (other than an action
by or in the right of the corporation) by reason of the fact that such person is
or was a director or officer of the corporation or is or was serving at the
request of the corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred in connection with such action, suit
or proceeding provided that such director or officer acted in good faith in a
manner reasonably believed to be in, or not opposed to, the best interests of
the corporation, and, with respect to any criminal action or proceeding,
provided further that such director or officer has no reasonable cause to
believe his conduct was unlawful.
Subsection (b) of Section 145 empowers a corporation to indemnify any
director or officer, or former director or officer, who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the corporation to procure a judgment in its favor by
reason of the fact that such person acted in any of the capacities set forth
above, against expenses (including attorneys' fees) actually and reasonably
incurred in connection with the defense or settlement of such action or suit
provided that such director or officer acted in good faith and in a manner he
reasonably believed to be in, or not opposed to, the best interests of the
corporation, except that no indemnification may be made in respect of any claim,
issue or
II-1
<PAGE>
matter as to which such director or officer shall have been adjudged to be
liable to the corporation unless and only to the extent that the Court of
Chancery or the court in which such action or suit was brought shall determine
upon application that despite the adjudication of liability but in view of all
of the circumstances of the case, such director or officer is fairly and
reasonably entitled to indemnity for such expenses which the Court of Chancery
or such other court shall deem proper.
Section 145 further provides that (i) to the extent a director or officer
of a corporation has been successful in the defense of any action, suit or
proceeding referred to in subsections (a) and (b) or in the defense of any
claim, issue or matter therein, he shall be indemnified against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection therewith; and (ii) indemnification and advancement of expenses
provided for, by, or granted pursuant to, Section 145 shall not be deemed
exclusive of any other rights to which the indemnified party may be entitled. In
addition, Section 145 empowers the corporation to purchase and maintain
insurance on behalf of any person who is or was a director or officer of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted against him or
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 liabilities under Section 145.
ITEM 16. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ---------- -------------------
<S> <C> <C>
*1.1 -- Form of Underwriting Agreement.
2.1 -- Third Amended and Restated Plan of Reorganization of Ames Department Stores, Inc. and the other
members of the Ames Group, Citibank, N.A., as Agent, the Parent Creditor's Committee, the
Subsidiaries Creditor's Committee, the Bondholders' Committee and the Employees' Committee dated
October 23, 1992 (incorporated herein by reference to Exhibit 2 of the Registrant's Report on
Form 8-K filed with the Commission on December 31, 1992).
2.2 -- Statement of the Ames Group with respect to conditions to Consummation of Third Amended and
Restated Joint Plan of Reorganization of Ames Department Stores, Inc. and the other members of the
Ames Group, Citibank, N.A., the Parent Creditor's Committee, Subsidiaries Creditors' Committee,
Bondholders' Committee and Employees' Committee dated December 28, 1992 (incorporated herein by
reference to Exhibit 2B of the Registrant's Report on Form 8-K filed with the Commission on
December 31, 1992).
2.3 -- Ames Department Stores, Inc. Information Supplementing Disclosure Statement dated December 29,
1992 (incorporated herein by reference to Exhibit 2C of the Registrant's Report on Form 8-K filed
with the Commission on December 31, 1992).
2.4 -- Agreement and Plan of Merger, dated as of November 12, 1998, among Ames Department Stores, Inc.,
HSC Acquisition Corp. and Hills Stores Company (incorporated herein by reference to
Exhibit 99(c)(1) of the Registrant's Schedule 14D-1 filed with the Commission on November 12,
1998).
3.1 -- Amended and Restated Certificate of Incorporation of Ames Department Stores, Inc. (incorporated
herein by reference to the Registrant's definitive proxy filed with the Commission on April 8,
1996).
3.2 -- Bylaws of Ames Department Stores, Inc. as amended February 23, 1995 (incorporated by reference to
Exhibit 3(b) of the Registrant's Annual Report on Form 10-K for the fiscal year ended January 28,
1995 filed with the Commission on April 10, 1995).
4.1 -- Specimen certificate for shares of Common Stock, $.01 par value, of Ames Department Stores, Inc.
(incorporated herein by reference to Exhibit 1.1 to Amendment No. 1 on Form 8-A to the
Registrant's Registration Statement on Form 8, as filed with the Commission on December 29, 1992.
4.2 -- Series B Warrant Certificate for Purchase of New Common Stock of Ames Department Stores, Inc.
(incorporated herein by reference to Form 8-A filed with the Commission on December 11, 1992).
4.3 -- Rights Agreement, dated as of November 30, 1994, between Ames Department Stores, Inc. and Chemical
Bank, as Rights Agent (incorporated herein by reference to Exhibit 4 of the Registrant's Quarterly
Report on Form 10-Q for the quarterly period ended October 29, 1994 filed with the Commission on
December 13, 1994).
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ---------- -------------------
<S> <C> <C>
*4.4 -- Indenture, dated as of April 27, 1999, relating to Ames Department Stores, Inc.'s 10% Senior Notes
due 2006.
4.5 -- Indenture, dated as of April 19, 1996 relating to Hills Stores Company's 12 1/2% Senior Notes due
2003 (incorporated herein by reference to Exhibit 4.10 of Hills Stores Company's Quarterly Report
on Form 10-Q for the quarter ended May 4, 1996 filed with the Commission on June 6, 1996).
*4.6 -- First Supplemental Indenture, dated as of December 24, 1998, to Indenture dated as of April 19,
1996, among Hills Stores Company, as issuer, the guarantors named therein and State Street Bank
and Trust Company, as trustee.
*4.7 -- Second Supplemental Indenture, dated as of April 15, 1999, to Indenture dated as of April 19,
1996, among Ames Department Stores, Inc., Hills Stores Company, the guarantors named therein and
State Street Bank and Trust Company, as trustee.
*5 -- Opinion of David H. Lissy, Esq. with respect to the validity of securities being offered.
10.1 -- Retirement and Savings Plan as restated December 27, 1984, and Amendment No. 1 (incorporated
herein by reference to Exhibit 10(n) of the Registrant's Annual Report on Form 10-K for the fiscal
year ended January 26, 1985 filed with the Commission on April 24, 1985).
10.2 -- Settlement Agreement, dated March 31, 1994, between Ames Department Stores, Inc. and Subsidiaries
and Wertheim Schroder & Co. Incorporated and James A. Harmon (incorporated herein by reference to
Exhibit 10 of the Registrant's Report on Form 8-K filed with the Commission on April 8, 1994).
10.3 -- 1994 Management Stock Option Plan (incorporated herein by reference to the Registrant's definitive
proxy statement filed with the Commission on May 5, 1994).
10.4 -- 1994 Non-Employee Directors Stock Option Plan, as amended (incorporated by reference to the
Registrant's definitive proxy statement filed with the Commission on April 13, 1998).
10.5 -- 1995 Long Term Incentive Plan (incorporated by reference to the Registrant's definitive proxy
statement filed with the Commission on April 10, 1995).
10.6 -- Employment Agreement, dated March 23, 1999, between Ames Department Stores, Inc. and Denis Lemire
(incorporated herein by reference to Exhibit 10 of the Registrant's Report on Form 8-K filed with
the Commission on April 2, 1999).
10.7 -- Employment Agreement, dated March 23, 1999, between Ames Department Stores, Inc. and Rolando de
Aguiar (incorporated herein by reference to Exhibit 10 of the Registrant's Report on Form 8-K
filed with the Commission on April 2, 1999).
10.8 -- Employment Agreement, dated June 1, 1998, between Ames Department Stores, Inc. and Joseph R.
Ettore (incorporated herein by reference to Exhibit 10(j) of the Registrant's Report on Form 8-K
filed with the Commission on June 30, 1998).
10.9 -- Second Amended and Restated Credit Agreement, dated December 31, 1998, (the "Credit Agreement"),
among certain financial institutions, as Lenders, Bank of America NT&SA, as the Administrative
Agent, and Ames FS, Inc., Ames Merchandising Corporation and Hills Department Store Company
(incorporated herein by reference to Exhibit 10(k) of the Registrant's Report on Form 8-K filed
with the Commission on January 15, 1999).
10.10 -- Post Merger Transition and Agency Agreement, dated as of December 31, 1998, among the Gordon
Brothers Retail Partners, LLC, The Nassi Group, LLC, Hills Stores Company, Hills Department Stores
Company and Ames Merchandising Corporation (incorporated herein by reference to Exhibit 10(l) of
the Registrant's Report on Form 8-K filed with the Commission on January 15, 1999).
*10.11 -- Amendment Agreement, dated as of April 16, 1999, to the Credit Agreement.
*10.12 -- Registration Rights Agreement, dated as of April 27, 1999, relating to Ames Department Stores,
Inc.'s 10% Senior Notes due 2006.
*21 -- Subsidiaries of Ames Department Stores, Inc.
*23.1 -- Consent of David H. Lissy, Esq. (included in Exhibit 5).
**23.2 -- Consent of Arthur Andersen LLP.
**23.3 -- Consent of Deloitte & Touche LLP.
**24 -- Power of Attorney (included on the signature page of this Registration Statement, as filed on
April 5, 1999).
</TABLE>
- ------------------
* Filed herewith.
** Previously filed.
II-3
<PAGE>
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4), or
497(h) under the Securities Act of 1933, shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities (other
than the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the Registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes to deliver or cause to be
delivered with the prospectus, to each person to whom the prospectus is sent or
given, the latest annual report, to security holders that is incorporated by
reference in the prospectus and furnished pursuant to and meeting the
requirements of Rule 14a-3 or Rule 14c-3 under the Securities Exchange Act of
1934; and, where interim financial information required to be presented by
Article 3 of Regulation S-X is not set forth in the prospectus, to deliver, or
cause to be delivered to each person to whom the prospectus is sent or given,
the latest quarterly report that is specifically incorporated by reference in
the prospectus to provide such interim financial information.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Rocky Hill,
State of Connecticut, on April 27, 1999.
AMES DEPARTMENT STORES, INC.
By: /s/ ROLANDO DE AGUIAR
----------------------------------
Name: Rolando de Aguiar
Title: Executive Vice President and
Chief Financial and
Administrative Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment to the Registration Statement has been signed by the following
persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ * President, Chief Executive Officer April 27, 1999
- ----------------------------------------- and Director
Joseph R. Ettore
/s/ ROLANDO DE AGUIAR Executive Vice President April 27, 1999
- ----------------------------------------- and Chief Financial and Administrative
Rolando de Aguiar Officer
/s/ * Director April 27, 1999
- -----------------------------------------
Francis X. Basile
/s/ * Chairman of the Board April 27, 1999
- -----------------------------------------
Paul Buxbaum
/s/ * Director April 27, 1999
- -----------------------------------------
Alan Cohen
/s/ * Director April 27, 1999
- -----------------------------------------
Richard M. Felner
/s/ * Director April 27, 1999
- -----------------------------------------
Sidney S. Pearlman
/s/ * Director April 27, 1999
- -----------------------------------------
Laurie M. Shahon
*By: /s/ DAVID H. LISSY
-----------------------
David H. Lissy,
Attorney-in-Fact
</TABLE>
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ---------- -------------------
<S> <C> <C>
*1.1 -- Form of Underwriting Agreement.
2.1 -- Third Amended and Restated Plan of Reorganization of Ames Department Stores, Inc. and the other
members of the Ames Group, Citibank, N.A., as Agent, the Parent Creditor's Committee, the
Subsidiaries Creditor's Committee, the Bondholders' Committee and the Employees' Committee dated
October 23, 1992 (incorporated herein by reference to Exhibit 2 of the Registrant's Report on
Form 8-K filed with the Commission on December 31, 1992).
2.2 -- Statement of the Ames Group with respect to conditions to Consummation of Third Amended and
Restated Joint Plan of Reorganization of Ames Department Stores, Inc. and the other members of the
Ames Group, Citibank, N.A., the Parent Creditor's Committee, Subsidiaries Creditors' Committee,
Bondholders' Committee and Employees' Committee dated December 28, 1992 (incorporated herein by
reference to Exhibit 2B of the Registrant's Report on Form 8-K filed with the Commission on
December 31, 1992).
2.3 -- Ames Department Stores, Inc. Information Supplementing Disclosure Statement dated December 29,
1992 (incorporated herein by reference to Exhibit 2C of the Registrant's Report on Form 8-K filed
with the Commission on December 31, 1992).
2.4 -- Agreement and Plan of Merger, dated as of November 12, 1998, among Ames Department Stores, Inc.,
HSC Acquisition Corp. and Hills Stores Company (incorporated herein by reference to
Exhibit 99(c)(1) of the Registrant's Schedule 14D-1 filed with the Commission on November 12,
1998).
3.1 -- Amended and Restated Certificate of Incorporation of Ames Department Stores, Inc. (incorporated
herein by reference to the Registrant's definitive proxy filed with the Commission on April 8,
1996).
3.2 -- Bylaws of Ames Department Stores, Inc. as amended February 23, 1995 (incorporated by reference to
Exhibit 3(b) of the Registrant's Annual Report on Form 10-K for the fiscal year ended January 28,
1995 filed with the Commission on April 10, 1995).
4.1 -- Specimen certificate for shares of Common Stock, $.01 par value, of Ames Department Stores, Inc.
(incorporated herein by reference to Exhibit 1.1 to Amendment No. 1 on Form 8-A to the
Registrant's Registration Statement on Form 8, as filed with the Commission on December 29, 1992.
4.2 -- Series B Warrant Certificate for Purchase of New Common Stock of Ames Department Stores, Inc.
(incorporated herein by reference to Form 8-A filed with the Commission on December 11, 1992).
4.3 -- Rights Agreement, dated as of November 30, 1994, between Ames Department Stores, Inc. and Chemical
Bank, as Rights Agent (incorporated herein by reference to Exhibit 4 of the Registrant's Quarterly
Report on Form 10-Q for the quarterly period ended October 29, 1994 filed with the Commission on
December 13, 1994).
*4.4 -- Indenture, dated as of April 27, 1999, relating to Ames Department Stores, Inc.'s 10% Senior Notes
due 2006.
4.5 -- Indenture, dated as of April 19, 1996 relating to Hills Stores Company's 12 1/2% Senior Notes due
2003 (incorporated herein by reference to Exhibit 4.10 of Hills Stores Company's Quarterly Report
on Form 10-Q for the quarter ended May 4, 1996 filed with the Commission on June 6, 1996).
*4.6 -- First Supplemental Indenture, dated as of December 24, 1998, to Indenture dated as of April 19,
1996, among Hills Stores Company, as issuer, the guarantors named therein and State Street Bank
and Trust Company, as trustee.
*4.7 -- Second Supplemental Indenture, dated as of April 15, 1999, to Indenture dated as of April 19,
1996, among Ames Department Stores, Inc., Hills Stores Company, the guarantors named therein and
State Street Bank and Trust Company, as trustee.
*5 -- Opinion of David H. Lissy, Esq. with respect to the validity of securities being offered.
10.1 -- Retirement and Savings Plan as restated December 27, 1984, and Amendment No. 1 (incorporated
herein by reference to Exhibit 10(n) of the Registrant's Annual Report on Form 10-K for the fiscal
year ended January 26, 1985 filed with the Commission on April 24, 1985).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ---------- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
10.2 -- Settlement Agreement, dated March 31, 1994, between Ames Department Stores, Inc. and Subsidiaries
and Wertheim Schroder & Co. Incorporated and James A. Harmon (incorporated herein by reference to
Exhibit 10 of the Registrant's Report on Form 8-K filed with the Commission on April 8, 1994).
10.3 -- 1994 Management Stock Option Plan (incorporated herein by reference to the Registrant's definitive
proxy statement filed with the Commission on May 5, 1994).
10.4 -- 1994 Non-Employee Directors Stock Option Plan, as amended (incorporated by reference to the
Registrant's definitive proxy statement filed with the Commission on April 13, 1998).
10.5 -- 1995 Long Term Incentive Plan (incorporated by reference to the Registrant's definitive proxy
statement filed with the Commission on April 10, 1995).
10.6 -- Employment Agreement, dated March 23, 1999, between Ames Department Stores, Inc. and Denis Lemire
(incorporated herein by reference to Exhibit 10 of the Registrant's Report on Form 8-K filed with
the Commission on April 2, 1999).
10.7 -- Employment Agreement, dated March 23, 1999, between Ames Department Stores, Inc. and Rolando de
Aguiar (incorporated herein by reference to Exhibit 10 of the Registrant's Report on Form 8-K
filed with the Commission on April 2, 1999).
10.8 -- Employment Agreement, dated June 1, 1998, between Ames Department Stores, Inc. and Joseph R.
Ettore (incorporated herein by reference to Exhibit 10(j) of the Registrant's Report on Form 8-K
filed with the Commission on June 30, 1998).
10.9 -- Second Amended and Restated Credit Agreement, dated December 31, 1998, (the "Credit Agreement"),
among certain financial institutions, as Lenders, Bank of America NT&SA, as the Administrative
Agent, and Ames FS, Inc., Ames Merchandising Corporation and Hills Department Store Company
(incorporated herein by reference to Exhibit 10(k) of the Registrant's Report on Form 8-K filed
with the Commission on January 15, 1999).
10.10 -- Post Merger Transition and Agency Agreement, dated as of December 31, 1998, among the Gordon
Brothers Retail Partners, LLC, The Nassi Group, LLC, Hills Stores Company, Hills Department Stores
Company and Ames Merchandising Corporation (incorporated herein by reference to Exhibit 10(l) of
the Registrant's Report on Form 8-K filed with the Commission on January 15, 1999).
*10.11 -- Amendment Agreement, dated as of April 16, 1999, to the Credit Agreement.
*10.12 -- Registration Rights Agreement, dated as of April 27, 1999, relating to Ames Department Stores,
Inc.'s 10% Senior Notes due 2006.
*21 -- Subsidiaries of Ames Department Stores, Inc.
*23.1 -- Consent of David H. Lissy, Esq. (included in Exhibit 5).
**23.2 -- Consent of Arthur Andersen LLP.
**23.3 -- Consent of Deloitte & Touche LLP.
**24 -- Power of Attorney (included on the signature page of this Registration Statement, as filed on
April 5, 1999).
</TABLE>
- ------------------
* Filed herewith.
** Previously filed.
<PAGE>
4,000,000 Shares
AMES DEPARTMENT STORES, INC.
Common Stock, $.01 par value
UNDERWRITING AGREEMENT
May [__], 1999
LEHMAN BROTHERS INC.
NATIONSBANK MONTGOMERY SECURITIES LLC
BEAR, STEARNS & CO. INC.
JOHNSON RICE & COMPANY LLC
TUCKER ANTHONY CLEARY GULL
As Representatives of the several
Underwriters named in Schedule 1
c/o Lehman Brothers Inc.
Three World Financial Center
New York, New York 10285
Ladies and Gentlemen:
Ames Department Stores, Inc., a Delaware corporation (the
"Company") proposes to sell an aggregate of 4,000,000 shares (the "Firm
Stock") of the Company's Common Stock, par value $.01 per share (the "Common
Stock"). In addition, the Company proposes to grant to the Underwriters named
in Schedule 1 hereto (the "Underwriters") an option to purchase up to an
additional 600,000 shares of the Common Stock on the terms and for the
purposes set forth in Section 3 (the "Option Stock"). The Firm Stock and the
Option Stock, if purchased, are hereinafter collectively called the "Stock."
As described in the Prospectus (as hereinafter defined), the Company will use
the net proceeds from the sale of the Stock for working capital and general
corporate purposes, and to reduce outstanding borrowings. This is to confirm
the agreement concerning the purchase of the Stock from the Company by the
Underwriters.
1. Representations, Warranties and Agreements of
the Company. The Company represents, warrants and agrees that:
(a) A registration statement on Form S-3, and
amendment No. 1 thereto, with respect to the Stock have (i)
been prepared by the Company in conformity with the
requirements of the Securities Act of 1933, as amended (the
"Securities Act") and the rules and regulations (the "Rules
and Regulations") of the Securities and Exchange Commission
(the "Commission") thereunder, (ii)
<PAGE>
been filed with the Commission under the Securities Act and
(iii) become effective under the Securities Act. Copies of
such registration statement and the amendment thereto have
been delivered by the Company to you as the representatives
(the "Representatives") of the Underwriters. As used in this
Agreement, "Effective Time" means the time as of which such
registration statement, or the most recent post-effective
amendment thereto, if any, was declared effective by the
Commission; "Effective Date" means the date of the Effective
Time; "Preliminary Prospectus" means each prospectus included
in such registration statement, or amendment thereof, before
it became effective under the Securities Act and any
prospectus filed with the Commission by the Company with the
consent of the Representatives pursuant to Rule 424(a) of the
Rules and Regulations; "Registration Statement" means such
registration statement, as amended at the Effective Time,
including all information contained in the final prospectus
filed with the Commission pursuant to Rule 424(b) of the Rules
and Regulations in accordance with Section 6 hereof and deemed
to be a part of the registration statement as of the Effective
Time pursuant to paragraph (b) of Rule 430A of the Rules and
Regulations; and "Prospectus" means such final prospectus, as
first filed with the Commission pursuant to paragraph (1) or
(4) of Rule 424(b) of the Rules and Regulations. Reference
made herein to any Preliminary Prospectus or to the Prospectus
shall be deemed to refer to and include any documents
incorporated by reference therein pursuant to Item 12 of Form
S-3 under the Securities Act, as of the date of such
Preliminary Prospectus or the Prospectus, as the case may be.
If the Company has filed or is required pursuant to the terms
hereof to file a registration statement pursuant to Rule
462(b) under the Securities Act registering additional shares
of Common Stock (a "Rule 462(b) Registration Statement"),
then, unless otherwise specified, any reference herein to the
term "Registration Statement" shall be deemed to include such
Rule 462(b) Registration Statement. The Commission has not
issued any order preventing or suspending the use of any
Preliminary Prospectus; and no stop order suspending the
effectiveness of the Registration Statement is in effect, and
no proceedings for such purpose are pending before or
threatened by the Commission. Any Rule 462(b) Registration
Statement filed after the effectiveness of this Agreement will
become effective no later than 10:00 A.M., New York City time,
on the date following this Agreement.
(b) The Registration Statement (other than any Rule
462(b) Registration Statement to be filed by the Company
after the effectiveness of this Agreement) conforms, and the
Prospectus and any further amendments or supplements to the
Registration Statement (including, if the Company is
required to file a Rule 462(b) Registration Statement after
the effectiveness of this Agreement, such Rule 462(b)
Registration Statement and any amendments thereto) or the
Prospectus will, when they become effective or are filed
with the Commission, as the case may be, conform in all
respects to the requirements of the Securities Act and the
Rules and Regulations and do not and will not, as of the
applicable effective date (as to the Registration Statement
and any amendment thereto) and as of the applicable filing
date (as to the Prospectus and any
2
<PAGE>
amendment or supplement thereto) contain an untrue statement
of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements made
therein (i) in the case of the Registration Statement, not
misleading and (ii) in the case of the Prospectus, in the
light of the circumstances under which they were made, not
misleading; provided that no representation or warranty is
made as to information contained in or omitted from the
Registration Statement or the Prospectus in reliance upon and
in conformity with written information furnished to the
Company through the Representatives by or on behalf of any
Underwriter specifically for inclusion therein.
(c) The documents incorporated by reference in the
Prospectus when they were filed with the Commission,
conformed in all material respects to the requirements of
the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and the rules and regulations of the
Commission thereunder, and none of such documents, when read
together with the other information in the Prospectus,
contained an untrue statement of a material fact or omitted
to state a material fact required to be stated therein or
necessary to make the statements made therein, in the light
of the circumstances under which they were made, not
misleading.
(d) The market-related and customer-related data
and estimates included in the Prospectus are based on or
derived from sources which the Company believes to be
reliable and accurate.
(e) Each of the Company and its subsidiaries (as
defined in Section 15 hereof) has been duly organized and
are validly existing as corporations in good standing under
the laws of their respective jurisdictions of organization,
are duly qualified to do business and are in good standing
as foreign corporations in each jurisdiction in which their
respective ownership or lease of property or the conduct of
their respective businesses requires such qualification,
except for such qualification and good standing the failure
of which, individually or in the aggregate, would not result
in a material adverse effect on the condition (financial or
other), business, properties, stockholders' equity or
results of operations of the Company and its subsidiaries
taken as a whole (a "Material Adverse Effect"), and have all
power and authority necessary to own or hold their
respective properties and to conduct the businesses in which
they are engaged.
(f) The Company has an authorized capitalization as
set forth in the Prospectus, and all of the issued shares of
capital stock of the Company have been duly and validly
authorized and issued, are fully paid and non-assessable and
conform to the description thereof contained in the
Prospectus; and 100% of the issued shares of capital stock
of each subsidiary of the Company have been duly and validly
authorized and issued and are fully paid and non-assessable
and (except for directors' qualifying shares) are owned
directly or indirectly by the Company, free and clear of all
liens, encumbrances, equities or claims, other than liens,
encumbrances, equities or claims described in the
Prospectus. Neither the
3
<PAGE>
Company nor any of its subsidiaries owns capital stock or
other equity interests of any corporation or entity other than
as disclosed in the Prospectus.
(g) Prior to the delivery of the Stock on the First
Delivery Date (as hereinafter defined), the unissued shares
of the Stock to be issued and sold by the Company to the
Underwriters hereunder will have been duly and validly
authorized and, when issued and delivered against payment
therefor as provided herein, will be duly and validly
issued, fully paid and non-assessable; and the Stock will
conform to the description thereof contained in the
Prospectus.
(h) The Company has all requisite power and
authority to execute, deliver and perform its obligations
under this Agreement.
(i) This Agreement has been duly authorized,
executed and delivered by the Company and (assuming due
execution and delivery by the Underwriters) constitutes a
valid and binding agreement of the Company, enforceable
against the Company in accordance with its terms, subject to
the effects of bankruptcy, insolvency, fraudulent
conveyance, reorganization, moratorium and other similar
laws relating to or affecting creditors' rights generally
and general equitable principles, including, without
limitation, concepts of materiality, reasonableness, good
faith and fair dealing (whether considered in a proceeding
in equity or at law), and except as rights to indemnity and
contribution hereunder may be limited by Federal or state
securities laws or principles of public policy.
(j) The execution, delivery and performance of this
Agreement by the Company and the consummation of the
transactions contemplated hereby will not conflict with or
constitute a breach of, or a default under, any indenture,
mortgage, deed of trust, loan agreement or other agreement
or instrument to which the Company or any of its
subsidiaries is a party or by which the Company or any of
its subsidiaries is bound or to which any of the property or
assets of the Company or any of its subsidiaries is subject
that is material to the financial condition or prospects of
the Company and its subsidiaries, taken as a whole
(collectively, the "Material Agreements"), nor will such
actions result in any violation of the provisions of the
charter or by-laws, or other organizational documents of the
Company or any of its subsidiaries or any material law,
statute or any order, rule or regulation of any court or
governmental agency or body having jurisdiction over the
Company or any of its subsidiaries or any of their
properties or assets, provided that the provisions for
indemnification and contribution hereunder may be limited by
equitable principles and public policy consideration; and
except as may be required in connection with the
registration under the Securities Act of the Stock, approval
by the National Association of Securities Dealers, Inc. (the
"NASD") of the underwriting terms and arrangements, and
compliance with the securities or Blue Sky laws of various
jurisdictions in connection with the purchase and
distribution of the Stock by the Underwriters, no consent,
approval, authorization or order of, or filing or
registration with, any such court or governmental agency or
body is required for
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the execution, delivery and performance of this Agreement by
the Company and the consummation of the transactions
contemplated hereby.
(k) Except as described in the Prospectus and other
than the Registration Rights Agreement, dated as of April
27, 1999, among the parties named therein, there are no
contracts, agreements or understandings between the Company
and any person granting such person the right to require the
Company to file a registration statement under the
Securities Act with respect to any securities of the Company
owned or to be owned by such person or to require the
Company to include such securities within the coverage of
the Registration Statement or any other registration
statement filed by the Company under the Securities Act. In
addition, except as described in the Prospectus, the
consummation of the transactions contemplated by this
Agreement will not give rise to any third-party rights of
first refusal under any Material Agreement to which the
Company or any of its subsidiaries is a party or by which
the Company or any of its subsidiaries is bound or to which
any of their respective properties or assets is subject.
(l) The Company has not sold or issued any shares
of Common Stock during the six-month period preceding the
date of the Prospectus, including any sales pursuant to Rule
144A under, or Regulations D or S of, the Securities Act
other than shares issued pursuant to employee benefit plans,
qualified stock options plans or other employee compensation
plans or pursuant to outstanding options, rights or
warrants.
(m) Other than as set forth in the Prospectus,
neither the Company nor any of its subsidiaries has
sustained, since the date of the latest audited financial
statements included in the Prospectus, any loss or
interference with its business from fire, explosion, flood
or other calamity, whether or not covered by insurance, or
from any labor dispute or court or governmental action,
order or decree, that would have a Material Adverse Effect.
(n) The historical financial statements, together
with related notes, included in the Prospectus comply as to
form in all material respects with the requirements of
Regulation S-X under the Securities Act applicable to
registration statements on Form S-3 under the Securities Act
and documents incorporated by reference therein. The
historical consolidated financial statements of the Company
and its subsidiaries fairly present the consolidated
financial position of the Company and its subsidiaries at
the respective dates indicated and the results of operations
and cash flows of the Company and its subsidiaries for the
respective periods indicated, in accordance with generally
accepted accounting principles consistently applied
throughout such periods. The pro forma financial statements
have been prepared on a basis consistent with such
historical financial statements, except for the pro forma
adjustments specified therein, include all material
adjustments to the historical financial data required by
Rule 11-02 of Regulation S-X to reflect the Company's
acquisition of Hills Stores Company (as
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described in the Prospectus), give effect to assumptions made
on a reasonable basis and in good faith and present fairly the
historical and proposed transactions contemplated by the
Prospectus and this Agreement (including the issuance of the
Company's 10% Senior Notes due 2006). The other financial
information and data included in the Prospectus, historical
and pro forma, have been derived from the financial records of
the Company and, in all material respects, have been prepared
on a basis consistent with such records, except as disclosed
therein.
(o) Except as disclosed in the Prospectus, since
the date of the latest audited consolidated financial
statements of the Company and its subsidiaries included in
the Prospectus, neither the Company nor any of its
subsidiaries has incurred any liability or obligation,
direct or contingent, or entered into any transaction, in
each case not in the ordinary course of business, that is
material to the Company and its subsidiaries, taken as a
whole, and there has not occurred, to the Company's
knowledge, any development or event involving a prospective
Material Adverse Effect and, except as disclosed in or
contemplated by the Prospectus, since the date of the latest
audited consolidated financial statements of the Company and
its subsidiaries included in the Prospectus, there has been
no (i) dividend or distribution of any kind declared, paid
or made by the Company on any class of its capital stock,
(ii) issuance of securities (other than the Stock offered
hereby) or (iii) material increase in short-term or
long-term debt of the Company.
(p) The Company maintains a system of internal
accounting controls sufficient to provide reasonable
assurance that (i) transactions are executed in accordance
with management's general or specific authorization; (ii)
transactions are recorded as necessary to permit preparation
of consolidated financial statements in conformity with
generally accepted accounting principles and to maintain
accountability for assets; (iii) access to assets is
permitted only in accordance with management's general or
specific authorization; and (iv) the recorded accountability
for assets is compared with existing assets at reasonable
intervals and appropriate action is taken with respect to
any differences.
(q) Arthur Andersen LLP, who have certified certain
financial statements of the Company, whose report appears in
the Prospectus and who will deliver the letter referred to
in Section 7(g) hereof, are independent public accountants
under Rule 101 of the AICPA's Code of Professional Conduct,
and its interpretation and rulings.
(r) The Company, directly or through a subsidiary,
has good and marketable title to all property (real and
personal) described in the Prospectus as being owned by it,
free and clear of all liens, claims, security interests or
other encumbrances except such as are described in the
Prospectus or to the extent that any such liens, claims,
security interests or other encumbrances (individually or in
the aggregate) would not have a Material Adverse Effect and
all the material properties described in the Prospectus as
being held under lease by the Company,
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directly or through subsidiaries, are held under valid,
subsisting and enforceable leases, with only such exceptions
as would not have a Material Adverse Effect (individually or
in the aggregate); the Company and its subsidiaries are in
compliance with all material obligations, considering
applicable grace periods, under such leases, with such
exceptions as would not have a Material Adverse Effect; to the
knowledge of the Company, no person has instituted or
threatened to institute proceedings, or has taken or
threatened to take any other action, to challenge or
terminate, and no event or circumstance has occurred which
reasonably could be expected to materially interfere with (x)
the lessee's right to occupy the premises leased thereunder or
to continue to use such premises in the manner in which it is
currently being used, or (y) the lessor's right to continue to
lease such premises to the lessee, with such exceptions as
would not have a Material Adverse Effect; and none of such
leases contains any unusual or burdensome provision which
could reasonably be expected to have a Material Adverse
Effect.
(s) The Company, directly or through a subsidiary,
owns or possesses adequate rights to use all material
patents, trademarks, service marks, trade names, copyrights,
licenses, inventions, trade secrets and other rights, and
all registrations or applications relating thereto,
described in the Prospectus as being owned by it and
necessary for the conduct of its business, except as such
would not have a Material Adverse Effect (individually or in
the aggregate), and the Company is not aware of any pending
or threatened claim to the contrary or any pending or
threatened challenge by any other person to the rights of
the Company and its subsidiaries with respect to the
foregoing which, if determined adversely to the Company and
its subsidiaries, would have a Material Adverse Effect
(individually or in the aggregate).
(t) Except as described in the Prospectus, there
are no legal or governmental proceedings pending or, to the
knowledge of the Company, threatened, against the Company or
any of its subsidiaries or to which the Company or any of
its subsidiaries is a party or of which any property or
assets of the Company or any of its subsidiaries is the
subject which, if determined adversely to the Company or
such subsidiary, are reasonably likely to cause a Material
Adverse Effect.
(u) No material relationship, direct or indirect,
exists between or among the Company on the one hand, and the
directors, officers, stockholders, customers or suppliers of
the Company on the other hand, except as described in the
Prospectus.
(v) The Company is not involved in any strike, job
action or labor dispute with any group of employees that
would have a Material Adverse Effect, and, to the Company's
knowledge, no such action or dispute is threatened.
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(w) The Company and its subsidiaries have filed all
federal, state and local income and franchise tax returns
required to be filed through the date hereof and have paid
all taxes shown thereon to be due , and no tax deficiency
has been determined adversely to the Company or any of its
subsidiaries that would have a Material Adverse Effect, nor
does the Company have any knowledge of any tax deficiency
which, if determined adversely to the Company and its
subsidiaries, might have a Material Adverse Effect.
(x) Neither the Company nor any of its subsidiaries
(i) is in violation of its charter or by-laws or other
organizational document, (ii) is in default in any material
respect, and no event has occurred which, with notice or
lapse of time or both, would constitute such a default, in
the due performance or observance of any term, covenant or
condition contained in any Material Agreement or (iii) is in
violation in any material respect of any law, ordinance,
governmental rule, regulation or court decree to which it or
its property or assets may be subject or has failed to
obtain any material license, permit, certificate, franchise
or other governmental authorization or permit necessary to
the ownership of its property or to the conduct of its
business, except for such violations, defaults or failures
as would not, individually or in the aggregate, have a
Material Adverse Effect.
(y) The Company and its subsidiaries maintain or
are covered by insurance in such amounts and for such risks
as are adequate for the conduct of the Company's business
and the value of its properties and as is customary for
companies of like size engaged in a similar business.
(z) Neither the Company nor any subsidiary is, and,
upon sale of the Stock and the application of the net
proceeds of such sale as described in the Prospectus,
neither of them will be, an "investment company" or an
entity "controlled" by an "investment company" within the
meaning of such terms under the Investment Company Act of
1940, as amended (the "1940 Act") and the rules and
regulations of the Commission thereunder.
(aa) Except as permitted by the Securities Act, the
Company has not distributed and, prior to the later to occur
of the Closing Date and completion of the distribution of
the Stock, will not distribute any offering material in
connection with the offering and sale of the Stock other
than the Preliminary Prospectus and the Prospectus.
(bb) Neither the Company nor any of its
subsidiaries has taken or will take, directly or indirectly,
any action designed to cause or result in, or which has
constituted or which might reasonably be expected to
constitute, the stabilization or manipulation of the price
of the Stock to facilitate the sale or resale of the Stock.
(cc) No "nationally recognized statistical rating
organization" as such term is defined for purposes of Rule
436(g)(2) under the Securities Act (i) has
8
<PAGE>
imposed (or has informed the Company that it is considering
imposing) any condition (financial or otherwise) on the
Company's retaining any rating assigned as of the date hereof
to the Company or any of its securities or (ii) has indicated
to the Company that it is considering (A) the downgrading,
suspension or withdrawal of, or any review for a possible
change that does not indicate the direction of the possible
change in, any rating so assigned or (B) any negative change
in the outlook for any rating of the Company.
(dd) Neither the Company nor any of its
subsidiaries has taken, and none of them will take, any
action that might cause this Agreement or the issuance or
sale of the Stock to violate Regulation T (12 C.F.R. Part
220), Regulation U (12 C.F.R. Part 221) or Regulation X (12
C.F.R. Part 224) of the Board of Governors of the Federal
Reserve System.
(ee) There are no contracts or other documents
which are required to be described in the Prospectus or
filed as exhibits to the Registration Statement by the
Securities Act or by the Rules and Regulations which have
not been described in the Prospectus or filed as exhibits to
the Registration Statement or incorporated therein by
reference as permitted by the Rules and Regulations.
2. Purchase of the Stock by the Underwriters. On the basis
of the representations and warranties contained in, and subject to the terms
and conditions of, this Agreement, the Company agrees to sell 4,000,000 shares
of the Firm Stock to the several Underwriters and each of the Underwriters,
severally and not jointly, agrees to purchase the number of shares of the Firm
Stock set opposite that Underwriter's name in Schedule 1 hereto. Each
Underwriter shall be obligated to purchase from the Company that number of
shares of the Firm Stock which represents the same proportion of the number of
shares of the Firm Stock to be sold by the Company as the number of shares of
the Firm Stock set forth opposite the name of such Underwriter in Schedule 1
represents of the total number of shares of the Firm Stock to be purchased by
all of the Underwriters pursuant to this Agreement. The respective purchase
obligations of the Underwriters with respect to the Firm Stock shall be
rounded among the Underwriters to avoid fractional shares, as the
Representatives may determine.
In addition, the Company grants to the Underwriters an
option to purchase, in whole or in part, the Option Stock. Such option is
granted for the purpose of covering over-allotments in the sale of Firm Stock
and is exercisable as provided in Section 4 hereof. Shares of Option Stock
shall be purchased severally for the account of the Underwriters in proportion
to the number of shares of Firm Stock set opposite the name of such
Underwriters in Schedule 1 hereto. The respective purchase obligations of each
Underwriter with respect to the Option Stock shall be adjusted by the
Representatives so that no Underwriter shall be obligated to purchase Option
Stock other than in 100 share amounts. The price of both the Firm Stock and
any Option Stock shall be [$____] per share.
The Company shall not be obligated to sell and deliver any
of the Stock to be delivered on any Delivery Date (as hereinafter defined), as
the case may be, except upon
9
<PAGE>
purchase of and payment for all the Stock to be purchased on such Delivery Date
as provided herein.
3. Offering of Stock by the Underwriters.
Upon authorization by the Representatives of the release of
the Firm Stock, the several Underwriters propose to offer the Firm Stock for
sale upon the terms and conditions set forth in the Prospectus.
Each Underwriter agrees that, except to the extent permitted
by the Agreement Between Underwriters, it will not offer or sell any of the
Stock outside of the United States [and Canada].
4. Delivery of and Payment for the Stock. Delivery of and
payment for the Firm Stock shall be made at the office of Milbank, Tweed,
Hadley & McCloy LLP, 1 Chase Manhattan Plaza, New York, New York 10005 at
10:00 A.M., New York City time, on the third full business day following the
date of this Agreement or at such other date or place as shall be determined
by agreement between the Representatives and the Company. This date and time
are sometimes referred to as the "First Delivery Date." On the First Delivery
Date, the Company shall deliver or cause to be delivered certificates
representing the Firm Stock to the Representatives for the account of each
Underwriter against payment to or upon the order of the Company of the
purchase price by wire transfer in immediately available funds. Time shall be
of the essence, and delivery at the time and place specified pursuant to this
Agreement is a further condition of the obligation of each Underwriter
hereunder. Upon delivery, the Firm Stock shall be registered in such names and
in such denominations as the Representatives shall request in writing not less
than two full business days prior to the First Delivery Date. For the purpose
of expediting the checking and packaging of the certificates for the Firm
Stock, the Company shall make the certificates representing the Firm Stock
available for inspection by the Representatives in New York, New York, not
later than 2:00 P.M., New York City time, on the business day prior to the
First Delivery Date.
The option granted in Section 2 will expire 30 days after
the date of this Agreement and may be exercised in whole or in part from time
to time by written notice being given to the Company by the Representatives.
Such notice shall set forth the aggregate number of shares of Option Stock as
to which the option is being exercised, the names in which the shares of
Option Stock are to be registered, the denominations in which the shares of
Option Stock are to be issued and the date and time, as determined by the
Representatives, when the shares of Option Stock are to be delivered;
provided, however, that this date and time shall not be earlier than the First
Delivery Date nor earlier than the second business day after the date on which
the option shall have been exercised nor later than the fifth business day
after the date on which the option shall have been exercised. The date and
time the shares of Option Stock are delivered are sometimes referred to as a
"Second Delivery Date" and the First Delivery Date and any Second Delivery
Date are sometimes each referred to as a "Delivery Date."
Delivery of and payment for the Option Stock shall be made
at the place specified in the first sentence of the first paragraph of this
Section 4 (or at such other place as shall be
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<PAGE>
determined by agreement between the Representatives and the Company) at 10:00
A.M., New York City time, on such Second Delivery Date. On such Second Delivery
Date, the Company shall deliver or cause to be delivered the certificates
representing the Option Stock to the Representatives for the account of each
Underwriter against payment to or upon the order of the Company of the purchase
price by wire transfer in immediately available funds. Time shall be of the
essence, and delivery at the time and place specified pursuant to this Agreement
is a further condition of the obligation of each Underwriter hereunder. Upon
delivery, the Option Stock shall be registered in such names and in such
denominations as the Representatives shall request in the aforesaid written
notice. For the purpose of expediting the checking and packaging of the
certificates for the Option Stock, the Company shall make the certificates
representing the Option Stock available for inspection by the Representatives in
New York, New York, not later than 2:00 P.M., New York City time, on the
business day prior to such Second Delivery Date.
5. Further Agreements of the Company. The Company
agrees:
(a) To prepare the Prospectus in a form approved by
the Representatives and to file such Prospectus pursuant to
Rule 424(b) under the Securities Act not later than the
Commission's close of business on the second business day
following the execution and delivery of this Agreement or,
if applicable, such earlier time as may be required by Rule
430A(a)(3) under the Securities Act; to make no further
amendment or any supplement to the Registration Statement or
to the Prospectus except as permitted herein; to advise the
Representatives, promptly (i) after it receives notice
thereof, of the time when any amendment to the Registration
Statement has been filed or becomes effective or any
supplement to the Prospectus or any amended Prospectus has
been filed and (ii) if the Company is required to file a
Rule 462(b) Registration Statement after the effectiveness
of this Agreement, when the Rule 462(b) Registration
Statement has become effective and, in the case of each of
(i) and (ii), to furnish the Representatives with copies
thereof; to advise the Representatives, promptly after it
receives notice thereof, of the issuance by the Commission
of any stop order or of any order preventing or suspending
the use of any Preliminary Prospectus or the Prospectus, of
the suspension of the qualification of the Stock for
offering or sale in any jurisdiction, of the initiation or
threatening of any proceeding for any such purpose, or of
any request by the Commission for the amending or
supplementing of the Registration Statement or the
Prospectus or for additional information; and, in the event
of the issuance of any stop order or of any order preventing
or suspending the use of any Preliminary Prospectus or the
Prospectus or suspending any such qualification, to use
every reasonable effort to obtain its withdrawal at the
earliest possible time;
(b) To furnish promptly to each of the
Representatives and to counsel for the Underwriters a
conformed copy of the Registration Statement as originally
filed with the Commission, and each amendment thereto filed
with the Commission, including all consents and exhibits
filed therewith;
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(c) To deliver promptly to the Representatives such
number of the following documents as the Representatives
shall reasonably request: (i) conformed copies of the
Registration Statement as originally filed with the
Commission and each amendment thereto (in each case
including exhibits), (ii) each Preliminary Prospectus, the
Prospectus and any amended or supplemented Prospectus and
(iii) any document incorporated by reference in the
Prospectus; and, if the delivery of a prospectus is required
at any time after the Effective Time in connection with the
offering or sale of the Stock or any other securities
relating thereto and if at such time any events shall have
occurred as a result of which the Prospectus as then amended
or supplemented would include an untrue statement of a
material fact or omit to state any material fact necessary
in order to make the statements made therein, in the light
of the circumstances under which they were made, not be
misleading when such Prospectus is delivered, or, if for any
other reason it is necessary to amend or supplement the
Prospectus or to file under the Exchange Act any document
incorporated by reference into the Prospectus in order to
comply with applicable law, to promptly notify the
Representatives and, upon their request, to file such
document and to prepare and furnish (without charge for the
nine-month period following the First Delivery Date) to each
Underwriter and to any dealer in securities as many copies
as the Representatives may from time to time reasonably
request of an amended or supplemented Prospectus which will
correct such statement or omission or effect such
compliance;
(d) To file promptly with the Commission any
amendment to the Registration Statement or the Prospectus or
any supplement to the Prospectus that may, in the judgment
of the Company or the Representatives, be required by the
Securities Act or requested by the Commission;
(e) Prior to filing with the Commission any
amendment to the Registration Statement or supplement to the
Prospectus or any Prospectus pursuant to Rule 424 of the
Rules and Regulations, to furnish a copy thereof to the
Representatives and counsel for the Underwriters and not to
file any such document to which the Representatives shall
reasonably object after having been given reasonable notice
of the proposed filing thereof, unless the Company shall
reasonably conclude, upon the advice of its counsel, that
any such document must be filed prior to obtaining such
consent;
(f) To make generally available to the Company's
security holders and to deliver to the Representatives as
soon as practicable, but not later than 45 days after the
end of its fiscal quarter in which the first anniversary of
the Effective Date occurs, an earnings statement of the
Company and its subsidiaries (which need not be audited)
complying with Section 11(a) of the Securities Act and the
Rules and Regulations (including, at the option of the
Company, Rule 158);
(g) For a period of four years following the date
of the Prospectus, to furnish to the Representatives copies
of all materials furnished by the Company to
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<PAGE>
its stockholders and all public reports and financial
statements furnished by the company to the Commission pursuant
to the Exchange Act or any rule or regulation of the
Commission thereunder;
(h) Promptly from time to time to take such action
as the Representatives may reasonably request to qualify the
Stock for offering and sale under the securities laws of
such jurisdictions as the Representatives may request
(provided, however, that the Company shall not be obligated
to qualify as a foreign corporation in any jurisdiction in
which it is not now so qualified or to take any action that
would subject it to general consent to service of process in
any jurisdiction in which it is not now so subject) and to
comply with such laws so as to permit the continuance of
sales and dealings therein in such jurisdictions for as long
as may be necessary to complete the distribution of the
Stock;
(i) For a period of 90 days from the date of the
Prospectus, not to, directly or indirectly, (1) offer for
sale, sell, or otherwise dispose of (or enter into any
transaction or device which is designed to, or could be
expected to, result in the disposition by any person at any
time in the future of) any shares of Common Stock or
securities convertible into or exchangeable or exercisable
for Common Stock (other than (i) the Stock and (ii) shares
issued pursuant to employee benefit plans, nonqualified or
qualified stock option plans or other employee compensation
plans existing on the date hereof or pursuant to currently
outstanding options, warrants, rights or convertible
securities), or (2) enter into any swap or other derivatives
transaction that transfers to another, in whole or in part,
any of the economic benefits or risks of ownership of such
shares of Common Stock, whether any such transaction
described in clause (1) or (2) above is to be settled by
delivery of Common Stock or other securities, in cash or
otherwise, in each case without the prior written consent of
Lehman Brothers Inc.; and to cause each of the Company's
executive officers and directors [(other than Laurie M.
Shahon)] to furnish to the Representatives, prior to the
date of the Prospectus, a letter or letters, in the form of
Exhibit A hereto, pursuant to which each such person shall
agree not to, directly or indirectly, (1) offer for sale,
sell, or otherwise dispose of (or enter into any transaction
or device which is designed to, or could be expected to,
result in the disposition by any person at any time in the
future of) any shares of Common Stock or securities
convertible into or exchangeable or exercisable for Common
Stock or (2) enter into any swap or other derivatives
transaction that transfers to another, in whole or in part,
any of the economic benefits or risks of ownership of such
shares of Common Stock, whether any such transaction
described in clause (1) or (2) above is to be settled by
delivery of Common Stock or other securities, in cash or
otherwise, in each case for a period of 90 days from the
date of the Prospectus without the prior written consent of
Lehman Brothers Inc.;
(j) Prior to the Effective Date, to apply for the
inclusion of the Stock in The Nasdaq Stock Market and to use
its best efforts to complete that inclusion, subject only to
official notice of issuance, prior to the First Delivery
Date;
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<PAGE>
(k) To apply the net proceeds from the sale of the
Stock as set forth in the Prospectus under the caption "Use
of Proceeds";
(l) To take such steps as shall be necessary to
ensure that neither the Company nor any subsidiary shall
become an "investment company" within the meaning of such
term under the 1940 Act and the rules and regulations of the
Commission thereunder; and
(m) If the Registration Statement at the time of
the effectiveness of this Agreement does not cover all of
the Shares, to file a Rule 462(b) Registration Statement
with the Commission registering the Shares not so covered in
compliance with Rule 462(b) by 10:00 A.M., New York City
time, on the date following this Agreement and to pay to the
Commission the filing fee for such Rule 462(b) Registration
Statement at the time of the filing thereof or to give
irrevocable instructions for the payment of such fee
pursuant to Rule 111(b) under the Securities Act.
6. Expenses. The Company agrees to pay (a) the costs
incident to the authorization, issuance, sale and delivery of the Stock and
any taxes payable in that connection; (b) the costs incident to the
preparation, printing and filing under the Securities Act of the Registration
Statement and any amendments and exhibits thereto; (c) the costs of
distributing the Registration Statement as originally filed and each amendment
thereto and any post-effective amendments thereof (including, in each case,
exhibits), any Preliminary Prospectus, the Prospectus and any amendment or
supplement to the Prospectus, all as provided in this Agreement; (d) the fees
and expenses incident to securing any required review by the NASD of the terms
of sale of the Stock (including related fees and expenses of counsel to the
Underwriters); (e) all expenses and listing fees in connection with the
application for inclusion of the Stock in The Nasdaq Stock Market; (f) all
fees and expenses (including fees and expenses of counsel) of the Company in
connection with approval of the Stock by DTC for "book-entry" transfer; (g)
the fees and expenses of qualifying the Stock under the securities laws of the
several jurisdictions as provided in Section 5(g) and of preparing, printing
and distributing a Blue Sky Memorandum (including related fees and expenses of
counsel to the Underwriters); and (h) all other costs and expenses incident to
the performance of the obligations of the Company.
7. Conditions of Underwriters' Obligations. The respective
obligations of the Underwriters hereunder are subject to the accuracy, when
made and on each Delivery Date, of the representations and warranties of the
Company contained herein, to the performance by the Company of its obligations
hereunder, and to each of the following additional terms and conditions:
(a) The Prospectus shall have been timely filed
with the Commission in accordance with Section 5(a); no stop
order suspending the effectiveness of the Registration
Statement or any part thereof shall have been issued and no
proceeding for that purpose shall have been initiated or
threatened by the Commission; any request of the Commission
for inclusion of additional information in the Registration
Statement or the Prospectus or otherwise shall
14
<PAGE>
have been complied with; and any 462(b) Registration Statement
required by this Agreement to be filed shall have been so
filed and become effective.
(b) No Underwriter shall have discovered and
disclosed to the Company on or prior to such Delivery Date
that the Registration Statement or the Prospectus or any
amendment or supplement thereto contains an untrue statement
of a fact which, in the opinion of Milbank, Tweed, Hadley &
McCloy LLP, counsel for the Underwriters, is material or
omits to state a fact which, in the opinion of such counsel,
is material and is required to be stated therein or is
necessary to make the statements made therein (i) in the
case of the Registration Statement, not misleading and (ii)
in the case of the Prospectus, in the light of the
circumstances under which they were made, not misleading.
(c) All corporate proceedings and other legal
matters incident to the authorization, form and validity of
this Agreement, the Stock, the Registration Statement and
the Prospectus, and all other legal matters relating to this
Agreement and the transactions contemplated hereby shall be
reasonably satisfactory in all material respects to counsel
for the Underwriters, and the Company shall have furnished
to such counsel all documents and information that they may
reasonably request to enable them to pass upon such matters.
(d) Weil, Gotshal & Manges LLP shall have furnished
to the Representatives its written opinion, addressed to the
Underwriters and dated such Delivery Date, to the effect set
forth in Exhibit B hereto.
(e) David H. Lissy, General Counsel of the Company,
shall have furnished to the Representatives his written
opinion, addressed to the Underwriters and dated such
Delivery Date, to the effect set forth in Exhibit C hereto.
(f) The Representatives shall have received from
Milbank, Tweed, Hadley & McCloy LLP, counsel for the
Underwriters, such opinion or opinions, dated such Delivery
Date, with respect to the issuance and sale of the Stock,
the Registration Statement, the Prospectus and other related
matters as the Representatives may reasonably require, and
the Company shall have furnished to such counsel such
documents as they reasonably request for the purpose of
enabling them to pass upon such matters.
(g) The Representatives shall have received from
Arthur Andersen LLP a letter (the "AA Comfort Letter"),
addressed to the Underwriters and dated the date hereof, in
form and substance satisfactory to the Representatives (i)
confirming that they are independent public accountants
within the meaning of the Securities Act and are in
compliance with the applicable requirements relating to the
qualification of accountants under Rule 2-01 of Regulation
S-X of the Commission and (ii) stating the conclusions and
findings of such firm with respect to the financial
information and other matters ordinarily covered by
15
<PAGE>
accountants' "comfort letters" to underwriters in connection
with registered public offerings.
(h) On each Delivery Date, the Representatives
shall have received a letter (the "AA Bring-Down Letter")
from Arthur Andersen LLP, addressed to the Underwriters and
dated such Delivery Date confirming in all material respects
the conclusions and findings set forth in the AA Comfort
Letter.
(i) The Company shall have furnished to the
Representatives a certificate, dated such Delivery Date, of
its chief executive officer and chief financial officer
stating that:
(i) The representations and warranties of
the Company in Section 1 are true and correct as of
such Delivery Date; the Company has complied with
all its agreements contained herein; and the
conditions set forth in Sections 7(a) and 7(j) have
been fulfilled; and
(ii) They have carefully examined the
Registration Statement and the Prospectus and, in
their opinion (A) as of the Effective Date, the
Registration Statement did not contain any untrue
statement of a material fact and did not omit to
state a material fact required to be stated therein
or necessary to make the statements made therein
not misleading, (B) as of the date thereof and as
of such Delivery Date, the Prospectus did not and
does not contain any untrue statement of a material
fact and did not and does not omit to state a
material fact required to be stated therein or
necessary to make the statements made therein, in
the light of the circumstances under which they
were made, not misleading, and (C) since the
Effective Date no event has occurred which should
have been set forth in a supplement or amendment to
the Registration Statement or the Prospectus.
(j) (i) Neither the Company nor any of its
subsidiaries shall have sustained since the date of the
latest audited financial statements included in the
Prospectus any material loss or interference with its
business from fire, explosion, flood or other calamity,
whether or not covered by insurance, or from any labor
dispute or court or governmental action, order or decree,
otherwise than as set forth or contemplated in the
Prospectus or (ii) since such date there shall not have been
any change in the capital stock or long-term debt of the
Company or any of its subsidiaries or any change, or any
development involving a prospective change, in or affecting
the business, management, financial position, stockholders'
equity or results of operations of the Company and its
subsidiaries taken as a whole, otherwise than as set forth
or contemplated in the Prospectus, the effect of which, in
any such case described in clause (i) or (ii), is, in the
judgment of the Representatives, so material and adverse as
to make it impracticable or inadvisable to proceed with the
public offering and sale of the Stock being
16
<PAGE>
delivered on such Delivery Date on the terms and in the manner
contemplated in the Prospectus.
(k) Subsequent to the execution and delivery of
this Agreement (i) no downgrading shall have occurred in the
rating accorded the Company's debt securities by any
"nationally recognized statistical rating organization," as
that term is defined by the Commission for purposes of Rule
436(g)(2) of the Rules and Regulations and (ii) no such
organization shall have publicly announced that it has under
surveillance or review, with possible negative implications,
its rating of any of the Company's debt securities.
(l) Subsequent to the execution and delivery of
this Agreement there shall not have occurred any of the
following: (i) trading in securities generally on the New
York Stock Exchange or The Nasdaq Stock Market, or trading
in the Common Stock of the Company on The Nasdaq Stock
Market, shall have been suspended or minimum prices shall
have been established on such exchange or such market by the
Commission, by such exchange or by any other regulatory body
or governmental authority having jurisdiction, (ii) a
banking moratorium shall have been declared by Federal or
state authorities, (iii) the United States shall have become
engaged in hostilities, there shall have been an escalation
in hostilities involving the United States or there shall
have been a declaration of a national emergency or war by
the United States or (iv) there shall have occurred such a
material adverse change in general economic, political or
financial conditions (or the effect of international
conditions on the financial markets in the United States
shall be such) as to make it impracticable or inadvisable,
in the judgment of a majority in interest of the several
Underwriters, to proceed with the public offering and sale
of the Stock being delivered on such Delivery Date on the
terms and in the manner contemplated in the Prospectus.
(m) The Nasdaq Stock Market shall have approved the
Stock for inclusion, subject only to official notice of
issuance.
(n) Each of the directors and executive officers of
the Company [(other than Laurie M. Shahon)] shall have
furnished to the Representatives letters dated the First
Delivery Date in the form of Exhibit A hereto.
All opinions, letters, evidence and certificates mentioned
above or elsewhere in this Agreement shall be deemed to be in compliance with
the provisions hereof only if they are in form and substance reasonably
satisfactory to counsel for the Underwriters.
8. Indemnification and Contribution.
(a) The Company shall indemnify and hold harmless
each Underwriter, its officers and employees and each
person, if any, who controls any Underwriter within the
meaning of the Securities Act, from and against any loss,
claim, damage or liability, joint or several, or any action
in respect thereof
17
<PAGE>
(including, but not limited to, any loss, claim, damage,
liability or action relating to purchases and sales of Stock),
to which that Underwriter, officer, employee or controlling
person may become subject, under the Securities Act or
otherwise, insofar as such loss, claim, damage, liability or
action arises out of, or is based upon, (i) any untrue
statement or alleged untrue statement of a material fact
contained (A) in any Preliminary Prospectus, the Registration
Statement or the Prospectus or in any amendment or supplement
thereto, or (B) in any blue sky application or other document
prepared or executed by the Company (or based upon any written
information furnished by the Company) specifically for the
purpose of qualifying any or all of the Stock under the
securities laws of any state or other jurisdiction (any such
application, document or information being hereinafter called
a "Blue Sky Application"), or (ii) the omission or alleged
omission to state in any Preliminary Prospectus, the
Registration Statement or the Prospectus, or in any amendment
or supplement thereto, or in any Blue Sky Application any
material fact required to be stated therein or necessary to
make the statements made therein, in the light of the
circumstances under which they were made, not misleading, and
shall reimburse each Underwriter and each such officer,
employee or controlling person promptly upon demand for any
legal or other expenses reasonably incurred by that
Underwriter, officer, employee or controlling person in
connection with investigating or defending or preparing to
defend against any such loss, claim, damage, liability or
action as such expenses are incurred; provided, however, that
the Company shall not be liable in any such case to the extent
that any such loss, claim, damage, liability or action arises
out of, or is based upon, any untrue statement or alleged
untrue statement or omission or alleged omission made in any
Preliminary Prospectus, the Registration Statement or the
Prospectus, or in any such amendment or supplement, or in any
Blue Sky Application, in reliance upon and in conformity with
written information concerning such Underwriter furnished to
the Company through the Representatives by or on behalf of any
Underwriter specifically for inclusion therein; provided
further, that with respect to any such untrue statement or
omission made in any Preliminary Prospectus, the indemnity
agreement contained in this Section 8(a) shall not inure to
the benefit of the Underwriter from whom the person asserting
any such losses, claims, damages or liabilities purchased the
Stock concerned if any such loss, claim, damage or liability
of such Underwriter is a result of the fact that both (A) a
copy of the Prospectus was not sent or given to such person at
or prior to written confirmation of the sale of such Stock to
such person and (B) the untrue statement or omission in the
Preliminary Prospectus was corrected in the Prospectus unless
such failure to deliver the Prospectus was a result of
noncompliance by the Company with Section 5(c) hereof. The
foregoing indemnity agreement is in addition to any liability
which the Company may otherwise have to any Underwriter or to
any officer, employee or controlling person of that
Underwriter.
(b) Each Underwriter, severally and not jointly,
shall indemnify and hold harmless the Company, its
directors, officers and employees and each person, if any,
who controls the Company within the meaning of the
Securities
18
<PAGE>
Act, from and against any loss, claim, damage or
liability, joint or several, or any action in respect
thereof, to which the Company or any such director, officer,
employee or controlling person may become subject, under the
Securities Act or otherwise, insofar as such loss, claim,
damage, liability or action arises out of, or is based upon,
(i) any untrue statement or alleged untrue statement of a
material fact contained (A) in any Preliminary Prospectus,
the Registration Statement or the Prospectus or in any
amendment or supplement thereto, or (B) in any Blue Sky
Application or (ii) the omission or alleged omission to
state in any Preliminary Prospectus, the Registration
Statement or the Prospectus, or in any amendment or
supplement thereto, or in any Blue Sky Application any
material fact required to be stated therein or necessary to
make the statements made therein not misleading, but in each
case only to the extent that the untrue statement or alleged
untrue statement or omission or alleged omission was made in
reliance upon and in conformity with written information
concerning such Underwriter furnished to the Company through
the Representatives by or on behalf of that Underwriter
specifically for inclusion therein, and shall reimburse the
Company and each such director, officer, employee or
controlling person for any legal or other expenses
reasonably incurred by the Company or such director,
officer, employee or controlling person in connection with
investigating or defending or preparing to defend against
any such loss, claim, damage, liability or action as such
expenses are incurred. The foregoing indemnity agreement is
in addition to any liability which any Underwriter may
otherwise have to the Company or any such director, officer,
employee or controlling person.
(c) Promptly after receipt by an indemnified party
under this Section 8 of notice of any claim or the
commencement of any action, the indemnified party shall, if
a claim in respect thereof is to be made against the
indemnifying party under this Section 8, notify the
indemnifying party in writing of the claim or the
commencement of that action; provided, however, that the
failure to notify the indemnifying party shall not relieve
it from any liability which it may have under this Section 8
except to the extent it has been materially prejudiced by
such failure and, provided further, that the failure to
notify the indemnifying party shall not relieve it from any
liability which it may have to an indemnified party
otherwise than under this Section 8. If any such claim or
action shall be brought against an indemnified party, and it
shall notify the indemnifying party thereof, the
indemnifying party shall be entitled to participate therein
and, to the extent that it wishes, jointly with any other
similarly notified indemnifying party, to assume the defense
thereof with counsel reasonably satisfactory to the
indemnified party. After notice from the indemnifying party
to the indemnified party of its election to assume the
defense of such claim or action, the indemnifying party
shall not be liable to the indemnified party under this
Section 8 for any legal or other expenses subsequently
incurred by the indemnified party in connection with the
defense thereof other than reasonable costs of
investigation; provided, however, any indemnified party
shall have the right to employ separate counsel in any such
action and to participate in the defense thereof but the
fees and expenses of such counsel shall be at the expense of
the indemnified party unless (i) the employment
19
<PAGE>
of such counsel has been specifically authorized by the
indemnifying party in writing, (ii) such indemnified party
shall have been advised by such counsel that there may be one
or more legal defenses available to it which are different
from or additional to those available to the indemnifying
party and in the reasonable judgment of such counsel, it is
advisable for such indemnified party to employ separate
counsel or (iii) the indemnifying party has failed to assume
the defense of such action and employ counsel reasonably
satisfactory to the indemnified party, in which case, if such
indemnified party notifies the indemnifying party in writing
that it elects to employ separate counsel at the expense of
the indemnifying party, the indemnifying party shall not, in
connection with any one such action or separate but
substantially similar or related actions in the same
jurisdiction arising out of the same general allegations or
circumstances, be liable for the reasonable fees and expenses
of more than one separate firm of attorneys (in addition to
one local counsel) at any time for all such indemnified
parties, which firm shall be designated in writing (i) by
Lehman Brothers Inc., if the indemnified parties under this
Section 8 consist of any Underwriters or any of their
respective officers, employees or controlling persons, or (ii)
by the Company, if the indemnified parties under this Section
8 consist of the Company or any its directors, officers,
employees or controlling persons. No indemnifying party shall
(i) without the prior written consent of the indemnified
parties (which consent shall not be unreasonably withheld),
settle or compromise or consent to the entry of any judgment
with respect to any pending or threatened claim, action, suit
or proceeding in respect of which indemnification or
contribution may be sought hereunder (whether or not the
indemnified parties are actual or potential parties to such
claim or action) unless such settlement, compromise or consent
includes an unconditional release of each indemnified party
from all liability arising out of such claim, action, suit or
proceeding, or (ii) be liable for any settlement of any such
action effected without its written consent (which consent
shall not be unreasonably withheld), but if settled with the
consent of the indemnifying party or if there be a final
judgment of the plaintiff in any such action, the indemnifying
party agrees to indemnify and hold harmless any indemnified
party from and against any loss or liability by reason of such
settlement or judgment.
(d) If the indemnification provided for in this
Section 8 shall for any reason be unavailable to or
insufficient to hold harmless an indemnified party under
Section 8(a) or 8(b) in respect of any loss, claim, damage
or liability, or any action in respect thereof, referred to
therein, then each indemnifying party shall, in lieu of
indemnifying such indemnified party, contribute to the
amount paid or payable by such indemnified party as a result
of such loss, claim, damage or liability, or action in
respect thereof, (i) in such proportion as shall be
appropriate to reflect the relative benefits received by the
Company on the one hand and the
20
<PAGE>
Underwriters on the other from the offering of the Stock or
(ii) if the allocation provided by clause (i) above is not
permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred
to in clause (i) above but also the relative fault of the
Company on the one hand and the Underwriters on the other with
respect to the statements or omissions which resulted in such
loss, claim, damage or liability, or action in respect
thereof, as well as any other relevant equitable
considerations. The relative benefits received by the Company
on the one hand and the Underwriters on the other with respect
to such offering shall be deemed to be in the same proportion
as the total proceeds from the sale of the Stock under this
Agreement (before deducting expenses) received by the Company,
on the one hand, and the total underwriting discounts received
by the Underwriters with respect to the shares of the Stock
purchased under this Agreement, on the other hand, bear to the
total public offering price of the shares of the Stock sold
under this Agreement, in each case as set forth in the table
on the cover page of the Prospectus. The relative fault shall
be determined by reference to whether the untrue or alleged
untrue statement of a material fact or omission or alleged
omission to state a material fact relates to information
supplied by the Company, on the one hand, or the Underwriters,
on the other hand, the intent of the parties and their
relative knowledge, access to information and opportunity to
correct or prevent such statement or omission. The Company and
the Underwriters agree that it would not be just and equitable
if contributions pursuant to this Section 8(d) were to be
determined by pro rata allocation (even if the Underwriters
were treated as one entity for such purpose) or by any other
method of allocation which does not take into account the
equitable considerations referred to herein. The amount paid
or payable by an indemnified party as a result of the loss,
claim, damage or liability, or action in respect thereof,
referred to above in this Section 8(d) shall be deemed to
include, for purposes of this Section 8(d), any legal or other
expenses reasonably incurred by such indemnified party in
connection with investigating or defending any such action or
claim. Notwithstanding the provisions of this Section 8(d), no
Underwriter shall be required to contribute any amount in
excess of the amount by which the total price at which the
Stock underwritten by it and distributed to the public was
offered to the public exceeds the amount of any damages which
such Underwriter has otherwise paid or become liable to pay by
reason of any untrue or alleged untrue statement or omission
or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations to contribute
as provided in this Section 8(d) are several in proportion to
their respective underwriting obligations and not joint.
(e) The Underwriters severally confirm and the
Company acknowledges that the last sentence on the cover
page of, and the third, twelfth, thirteenth and fourteenth
paragraphs and the stabilization language in paragraphs
seven through ten under the caption "Underwriting" in, the
Prospectus constitute the only information concerning such
Underwriters furnished in writing to the Company by or on
behalf of the Underwriters specifically for inclusion in the
Registration Statement and the Prospectus.
21
<PAGE>
9. Defaulting Underwriters.
If, on either Delivery Date, any Underwriter defaults in the
performance of its obligations under this Agreement, the remaining
non-defaulting Underwriters shall be obligated to purchase the Stock which the
defaulting Underwriter agreed but failed to purchase on such Delivery Date in
the respective proportions which the number of shares of the Firm Stock set
opposite the name of each remaining non-defaulting Underwriter in Schedule 1
hereto bears to the total number of shares of the Firm Stock set opposite the
names of all the remaining non-defaulting Underwriters in Schedule 1 hereto;
provided, however, that the remaining non-defaulting Underwriters shall not be
obligated to purchase any of the Stock on such Delivery Date if the total
number of shares of the Stock which the defaulting Underwriter or Underwriters
agreed but failed to purchase on such date exceeds 9.09% of the total number
of shares of the Stock to be purchased on such Delivery Date, and any
remaining non-defaulting Underwriter shall not be obligated to purchase more
than 110% of the number of shares of the Stock which it agreed to purchase on
such Delivery Date pursuant to the terms of Section 2. If the foregoing
maximums are exceeded, the remaining non-defaulting Underwriters, or those
other underwriters satisfactory to the Representatives who so agree, shall
have the right, but shall not be obligated, to purchase, in such proportion as
may be agreed upon among them, all the Stock to be purchased on such Delivery
Date. If the remaining Underwriters or other underwriters satisfactory to the
Representatives do not elect to purchase the shares which the defaulting
Underwriter or Underwriters agreed but failed to purchase on such Delivery
Date, this Agreement (or, with respect to the Second Delivery Date, the
obligation of the Underwriters to purchase, and of the Company to sell, the
Option Stock) shall terminate without liability on the part of any
non-defaulting Underwriter or the Company, except that the Company will
continue to be liable for the payment of expenses to the extent set forth in
Sections 6 and 11. As used in this Agreement, the term "Underwriter" includes,
for all purposes of this Agreement unless the context requires otherwise, any
party not listed in Schedule 1 hereto who, pursuant to this Section 9,
purchases Firm Stock which a defaulting Underwriter agreed but failed to
purchase.
Nothing contained herein shall relieve a defaulting
Underwriter of any liability it may have to the Company for damages caused by
its default. If other underwriters are obligated or agree to purchase the
Stock of a defaulting or withdrawing Underwriter, either the Representatives
or the Company may postpone the Delivery Date for up to seven full business
days in order to effect any changes that in the opinion of counsel for the
Company or counsel for the Underwriters may be necessary in the Registration
Statement, the Prospectus or in any other document or arrangement.
10. Termination. The obligations of the Underwriters
hereunder may be terminated by the Representatives by notice given to and
received by the Company prior to delivery of and payment for the Firm Stock
if, prior to that time, any of the events described in Sections 7(j), 7(k) or
7(l), shall have occurred or if the Underwriters shall decline to purchase the
Stock for any reason permitted under this Agreement.
11. Reimbursement of Underwriters' Expenses. If (a) the
Company shall fail to tender the Stock for delivery to the Underwriters by
reason of any failure, refusal or inability on the part of the Company to
perform any agreement on its part to be performed, or because any
22
<PAGE>
other condition of the Underwriters' obligations hereunder required to be
fulfilled by the Company is not fulfilled, the Company will reimburse the
Underwriters for all reasonable out-of-pocket expenses (including fees and
disbursements of counsel) incurred by the Underwriters in connection with this
Agreement and the proposed purchase of the Stock, and upon demand the Company
shall pay the full amount thereof to the Representatives. If this Agreement is
terminated pursuant to Section 9 by reason of the default of one or more
Underwriters, the Company shall not be obligated to reimburse any defaulting
Underwriter on account of those expenses.
12. Notices, etc. All statements, requests, notices and
agreements hereunder shall be in writing, and:
(a) if to the Underwriters, shall be delivered or
sent by mail, telex or facsimile transmission to Lehman
Brothers Inc., Three World Financial Center, New York, New
York 10285, Attention: Syndicate Department (Fax:
212-526-6588), with a copy to Milbank, Tweed, Hadley &
McCloy LLP, 1 Chase Manhattan Plaza, New York, New York
10005, Attention: Arnold B. Peinado, III (Fax: 212-530-5219)
and, in the case of any notice pursuant to Section 8, to the
Director of Litigation, Office of the General Counsel,
Lehman Brothers Inc., Three World Financial Center, 10th
Floor, New York, NY 10285; and
(b) if to the Company, shall be delivered or sent
by mail, telex or facsimile transmission to the address of
the Company set forth in the Registration Statement,
Attention: David H. Lissy (Fax: 860-257-5160), with a copy
to Weil, Gotshal & Manges LLP, 767 Fifth Avenue, New York,
New York 10153, Attention: Steven H. Cooper (Fax:
212-310-8975);
provided, however, that any notice to an Underwriter pursuant to Section 8(c)
shall be delivered or sent by mail, telex or facsimile transmission to such
Underwriter at its address set forth in its acceptance telex to the
Representatives, which address will be supplied to any other party hereto by
the Representatives upon request. Any such statements, requests, notices or
agreements shall take effect at the time of receipt thereof. The Company shall
be entitled to act and rely upon any request, consent, notice or agreement
given or made on behalf of the Underwriters by Lehman Brothers Inc. on behalf
of the Representatives.
13. Persons Entitled to Benefit of Agreement. This Agreement
shall inure to the benefit of and be binding upon the Underwriters, the
Company, and their respective successors. This Agreement and the terms and
provisions hereof are for the sole benefit of only those persons, except that
(A) the representations, warranties, indemnities and agreements of the Company
contained in this Agreement shall also be deemed to be for the benefit of the
person or persons, if any, who control each Underwriter within the meaning of
Section 15 of the Securities Act and (B) the indemnity agreement of the
Underwriters contained in Section 8(b) of this Agreement shall be deemed to be
for the benefit of directors of the Company, officers of the Company who have
signed the Registration Statement and any person controlling the Company
within the meaning of Section 15 of the Securities Act. Nothing in this
Agreement is intended or shall be construed to give any person, other than the
persons referred to in this Section 13, any
23
<PAGE>
legal or equitable right, remedy or claim under or in respect of this Agreement
or any provision contained herein.
14. Survival. The respective indemnities, representations,
warranties and agreements of the Company and the Underwriters contained in
this Agreement or made by or on behalf on them, respectively, pursuant to this
Agreement, shall survive the delivery of and payment for the Stock and shall
remain in full force and effect, regardless of any investigation made by or on
behalf of any of them or any person controlling any of them.
15. Definition of the Terms "Business Day" and "Subsidiary."
For purposes of this Agreement, (a) "business day" means each Monday, Tuesday,
Wednesday, Thursday or Friday which is not a day on which banking institutions
in New York are generally authorized or obligated by law or executive order to
close and (b) "subsidiary" has the meaning set forth in Rule 405 of the Rules
and Regulations.
16. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of New York.
17. Counterparts. This Agreement may be executed in one or
more counterparts and, if executed in more than one counterpart, the executed
counterparts shall each be deemed to be an original but all such counterparts
shall together constitute one and the same instrument.
18. Headings. The headings herein are inserted for
convenience of reference only and are not intended to be part of, or to affect
the meaning or interpretation of, this Agreement.
[Signature pages follow]
24
<PAGE>
If the foregoing correctly sets forth the agreement among
the Company and the Underwriters, please indicate your acceptance in the space
provided for that purpose below.
Very truly yours,
AMES DEPARTMENT STORES, INC.
By:
Name:
Title:
<PAGE>
Accepted:
LEHMAN BROTHERS INC.
NATIONSBANK MONTGOMERY SECURITIES LLC
BEAR, STEARNS & CO. INC.
JOHNSON RICE & COMPANY LLC
TUCKER ANTHONY CLEARY GULL
For themselves and as Representatives
of the several Underwriters named
in Schedule 1 hereto
By: LEHMAN BROTHERS INC.
By:
Name:
Title:
<PAGE>
SCHEDULE 1
Number of
Underwriters Shares
------------ ---------
Lehman Brothers Inc...........................................
NationsBank Montgomery Securities LLC.........................
Bear, Stearns & Co. Inc.......................................
Johnson Rice & Company LLC....................................
Tucker Anthony Cleary Gull....................................
---------
Total 4,000,000
=========
<PAGE>
EXHIBIT A
FORM OF LOCK-UP LETTER AGREEMENT
LEHMAN BROTHERS INC.
NATIONSBANK MONTGOMERY SECURITIES LLC
BEAR, STEARNS & CO. INC.
JOHNSON RICE & COMPANY LLC
TUCKER ANTHONY CLEARY GULL
As Representatives of the
several underwriters
c/o LEHMAN BROTHERS INC.
Three World Financial Center
New York, NY 10285
Ladies and Gentlemen:
The undersigned understands that you and certain other firms propose
to enter into an underwriting agreement (the "Underwriting Agreement")
providing for the purchase by you and such other firms (collectively, the
"Underwriters") of shares (the "Shares") of Common Stock, par value $.01 per
share (the "Common Stock"), of Ames Department Stores, Inc. (the "Company")
and that the Underwriters propose to reoffer the Shares to the public (the
"Offering").
In consideration of the execution of the Underwriting Agreement by
the Underwriters, and for other good and valuable consideration, the
undersigned hereby irrevocably agrees that, without the prior written consent
of Lehman Brothers Inc., the undersigned will not, directly or indirectly, (1)
offer for sale, sell, or otherwise dispose of (or enter into any transaction
or device that is designed to, or could be expected to, result in the
disposition by any person at any time in the future of) any shares of Common
Stock (including, without limitation, shares of Common Stock that may be
deemed to be beneficially owned by the undersigned in accordance with the
rules and regulations of the Securities and Exchange Commission and shares of
Common Stock that may be issued upon exercise of any option or warrant) or
securities convertible into or exchangeable or exercisable for Common Stock
(other than the Shares) owned by the undersigned on the date of execution of
this Lock-Up Letter Agreement or on the date of the completion of the
Offering, or (2) enter into any swap or other derivatives transaction that
transfers to another, in whole or in part, any of the economic benefits or
risks of ownership of such shares of Common Stock, whether any such
transaction described in clause (1) or (2) above is to be settled by delivery
of Common Stock or other securities, in cash or otherwise, for a period of 90
days after the date of the final Prospectus relating to the Offering; except
that the foregoing shall not restrict the disposition of any shares of Common
Stock beneficially owned by the undersigned by or under will or the laws of
descent.
<PAGE>
In furtherance of the foregoing, the Company and its Transfer Agent
are hereby authorized to decline to make any transfer of securities if such
transfer would constitute a violation or breach of this Lock-Up Letter
Agreement.
It is understood that, if the Company notifies you that it does not
intend to proceed with the Offering, if the Underwriting Agreement does not
become effective, or if the Underwriting Agreement (other than the provisions
thereof which survive termination) shall terminate or be terminated prior to
payment for and delivery of the Shares, we will be released from our
obligations under this Lock-Up Letter Agreement.
The undersigned understands that the Company and the Underwriters
will proceed with the Offering in reliance on this Lock-Up Letter Agreement.
The undersigned hereby represents and warrants that the undersigned
has full power and authority to enter into this Lock-Up Letter Agreement and
that, upon request, the undersigned will execute any additional documents
necessary in connection with the enforcement hereof. Any obligations of the
undersigned shall be binding upon the heirs, personal representatives,
successors and assigns of the undersigned.
Very truly yours,
By:
-----------------------
Name:
Title:
Dated: May ___, 1999
<PAGE>
================================================================================
AMES DEPARTMENT STORES, INC.,
As Issuer
$275,000,000
10% SENIOR NOTES DUE 2006
--------------------------
INDENTURE
Dated as of April 27, 1999
--------------------------
-------------------------
The Chase Manhattan Bank,
As Trustee
-------------------------
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
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ARTICLE 1. DEFINITIONS AND INCORPORATION BY REFERENCE.............................................................1
SECTION 1.01. DEFINITIONS.....................................................................................1
SECTION 1.02. OTHER DEFINITIONS..............................................................................18
SECTION 1.03. INCORPORATION BY REFERENCE OF TRUST INDENTURE ACT..............................................18
SECTION 1.04. RULES OF CONSTRUCTION..........................................................................19
ARTICLE 2. THE NOTES.............................................................................................19
SECTION 2.01. FORM AND DATING................................................................................19
SECTION 2.02. EXECUTION AND AUTHENTICATION...................................................................20
SECTION 2.03. REGISTRAR AND PAYING AGENT.....................................................................21
SECTION 2.04. PAYING AGENT TO HOLD MONEY IN TRUST............................................................21
SECTION 2.05. HOLDER LISTS...................................................................................21
SECTION 2.06. TRANSFER AND EXCHANGE..........................................................................22
SECTION 2.07. REPLACEMENT NOTES..............................................................................35
SECTION 2.08. OUTSTANDING NOTES..............................................................................35
SECTION 2.09. TREASURY NOTES.................................................................................36
SECTION 2.10. TEMPORARY NOTES................................................................................36
SECTION 2.11. CANCELLATION...................................................................................36
SECTION 2.12. DEFAULTED INTEREST.............................................................................36
SECTION 2.13. CusipNUMBERS...................................................................................37
ARTICLE 3. REDEMPTION AND PREPAYMENT.............................................................................37
SECTION 3.01. NOTICES TO TRUSTEE.............................................................................37
SECTION 3.02. SELECTION OF NOTES TO BE REDEEMED..............................................................37
SECTION 3.03. NOTICE OF REDEMPTION...........................................................................38
SECTION 3.04. EFFECT OF NOTICE OF REDEMPTION.................................................................38
SECTION 3.05. DEPOSIT OF REDEMPTION PRICE....................................................................39
SECTION 3.06. NOTES REDEEMED IN PART.........................................................................39
SECTION 3.07. OPTIONAL REDEMPTION............................................................................39
SECTION 3.08. MANDATORY REDEMPTION...........................................................................40
SECTION 3.09. OFFER TO PURCHASE BY APPLICATION OF EXCESS PROCEEDS............................................40
ARTICLE 4. COVENANTS.............................................................................................42
SECTION 4.01. PAYMENT OF NOTES...............................................................................42
SECTION 4.02. MAINTENANCE OF OFFICE OR AGENCY................................................................42
SECTION 4.03. REPORTS........................................................................................42
SECTION 4.04. COMPLIANCE CERTIFICATE.........................................................................43
SECTION 4.05. TAXES..........................................................................................44
SECTION 4.06. SALE AND LEASEBACK TRANSACTIONS................................................................44
SECTION 4.07. RESTRICTED PAYMENTS............................................................................44
SECTION 4.08. DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING SUBSIDIARIES.................................47
SECTION 4.09. INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF PREFERRED STOCK.....................................48
SECTION 4.10. ASSET SALES....................................................................................50
SECTION 4.11. TRANSACTIONS WITH AFFILIATES...................................................................52
SECTION 4.12. LIENS..........................................................................................52
SECTION 4.13. ADDITIONAL SUBSIDIARY GUARANTEES...............................................................52
SECTION 4.14. CORPORATE EXISTENCE............................................................................53
SECTION 4.15. OFFER TO REPURCHASE UPON CHANGE OF CONTROL.....................................................53
SECTION 4.16. PAYMENTS FOR CONSENT...........................................................................54
SECTION 4.17. LIMITATIONS ON ISSUANCES AND SALES OF EQUITY INTERESTS IN WHOLLY OWNED SUBSIDIARIES............54
SECTION 4.18 BUSINESS ACTIVITIES............................................................................55
</TABLE>
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ARTICLE 5. SUCCESSORS............................................................................................55
SECTION 5.01. MERGER, CONSOLIDATION, OR SALE OF ASSETS.......................................................55
SECTION 5.02. SUCCESSOR CORPORATION SUBSTITUTED..............................................................55
ARTICLE 6. DEFAULTS AND REMEDIES.................................................................................56
SECTION 6.01. EVENTS OF DEFAULT..............................................................................56
SECTION 6.02. ACCELERATION...................................................................................58
SECTION 6.03. OTHER REMEDIES.................................................................................58
SECTION 6.04. WAIVER OF PAST DEFAULTS........................................................................59
SECTION 6.05. CONTROL BY MAJORITY............................................................................59
SECTION 6.06. LIMITATION ON SUITS............................................................................59
SECTION 6.07. RIGHTS OF HOLDERS OF NOTES TO RECEIVE PAYMENT..................................................60
SECTION 6.08. COLLECTION SUIT BY TRUSTEE.....................................................................60
SECTION 6.09. TRUSTEE MAY FILE PROOFS OF CLAIM...............................................................60
SECTION 6.10. PRIORITIES.....................................................................................60
SECTION 6.11. UNDERTAKING FOR COSTS..........................................................................61
ARTICLE 7. TRUSTEE...............................................................................................61
SECTION 7.01. DUTIES OF TRUSTEE..............................................................................61
SECTION 7.02. RIGHTS OF TRUSTEE..............................................................................62
SECTION 7.03. INDIVIDUAL RIGHTS OF TRUSTEE...................................................................63
SECTION 7.04. TRUSTEE'S DISCLAIMERS..........................................................................63
SECTION 7.05. NOTICE OF DEFAULTS.............................................................................64
SECTION 7.06. REPORTS BY TRUSTEE TO HOLDERS OF THE NOTES.....................................................64
SECTION 7.07. COMPENSATION AND INDEMNITY.....................................................................64
SECTION 7.08. REPLACEMENT OF TRUSTEE.........................................................................65
SECTION 7.09. SUCCESSOR TRUSTEE BY MERGER, ETC...............................................................66
SECTION 7.10. ELIGIBILITY; DISQUALIFICATION..................................................................66
SECTION 7.11. PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY..............................................66
ARTICLE 8. LEGAL DEFEASANCE AND COVENANT DEFEASANCE..............................................................66
SECTION 8.01. OPTION TO EFFECT LEGAL DEFEASANCE OR COVENANT DEFEASANCE.......................................66
SECTION 8.02. LEGAL DEFEASANCE AND DISCHARGE.................................................................66
SECTION 8.03. COVENANT DEFEASANCE............................................................................67
SECTION 8.04. CONDITIONS TO LEGAL OR COVENANT DEFEASANCE.....................................................67
SECTION 8.05. DEPOSITED MONEY AND GOVERNMENT SECURITIES TO BE HELD IN TRUST; OTHER MISCELLANEOUS
PROVISIONS.....................................................................................69
SECTION 8.06. REPAYMENT TO COMPANY...........................................................................69
SECTION 8.07. REINSTATEMENT..................................................................................70
ARTICLE 9. AMENDMENT, SUPPLEMENT AND WAIVER.....................................................................70
SECTION 9.01. WITHOUT CONSENT OF HOLDERS OF NOTES............................................................70
SECTION 9.02. WITH CONSENT OF HOLDERS OF NOTES...............................................................71
SECTION 9.03. COMPLIANCE WITH TRUST INDENTURE ACT............................................................72
SECTION 9.04. REVOCATION AND EFFECT OF CONSENTS..............................................................72
SECTION 9.05. NOTATION ON OR EXCHANGE OF NOTES...............................................................73
SECTION 9.06. TRUSTEE TO SIGN AMENDMENTS, ETC................................................................73
ARTICLE 10 SUBSIDIARY GUARANTEES.................................................................................73
SECTION 10.01. SUBSIDIARY GUARANTEES..........................................................................73
SECTION 10.02. EXECUTION AND DELIVERY OF SUBSIDIARY GUARANTEE.................................................74
SECTION 10.03. GUARANTORS MAY CONSOLIDATE, ETC., ON CERTAIN TERMS.............................................75
SECTION 10.04. RELEASES OF SUBSIDIARY GUARANTEES..............................................................75
SECTION 10.05. LIMITATION ON GUARANTOR LIABILITY; CONTRIBUTION................................................76
</TABLE>
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<TABLE>
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ARTICLE 11. MISCELLANEOUS........................................................................................76
SECTION 11.01. TRUST INDENTURE ACT CONTROLS...................................................................76
SECTION 11.02. NOTICES........................................................................................77
SECTION 11.03. COMMUNICATIONS BY HOLDERS OF NOTES WITH OTHER HOLDERS OF NOTES.................................78
SECTION 11.04. CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT.............................................78
SECTION 11.05. STATEMENTS REQUIRED IN CERTIFICATE OR OPINION..................................................78
SECTION 11.06. RULE BY TRUSTEE AND AGENTS.....................................................................78
SECTION 11.07. NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS.......................79
SECTION 11.08. GOVERNING LAW..................................................................................79
SECTION 11.09. NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS..................................................79
SECTION 11.10. SUCCESSORS.....................................................................................79
SECTION 11.11. SEVERABILITY...................................................................................79
SECTION 11.12. COUNTERPART ORIGINALS..........................................................................79
SECTION 11.13. TABLE OF CONTENTS, HEADINGS, ETC...............................................................79
</TABLE>
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<PAGE>
EXHIBITS
EXHIBIT A FORM OF NOTE
EXHIBIT B FORM OF CERTIFICATE OF TRANSFER
EXHIBIT C FORM OF CERTIFICATE OF EXCHANGE
EXHIBIT D FORM OF CERTIFICATE FROM ACQUIRING INSTITUTIONAL ACCREDITED
INVESTORS
EXHIBIT E FORM OF SUBSIDIARY GUARANTEE
EXHIBIT F FORM OF SUPPLEMENTAL INDENTURE
iv
<PAGE>
Cross-Reference Table*
Trust Indenture Act Section Indenture Section
310 (a)(1)..................................................... 7.10
(a)(2)..................................................... 7.10
(a)(3)..................................................... N.A.
(a)(4)..................................................... N.A.
(a)(5)..................................................... 7.10
(b)........................................................ 7.10
(c)........................................................ N.A.
311 (a)........................................................ 7.11
(b)........................................................ 7.11
(c)........................................................ N.A.
312 (a)........................................................ 2.05
(b)........................................................ 11.03
(c)........................................................ 11.03
313 (a)........................................................ 7.06
(b)(1)..................................................... N.A.
(b)(2)..................................................... 7.07
(c)........................................................7.06;11.02
(d)........................................................ 7.06
314 (a)........................................................4.03;11.02
(b)........................................................ N.A.
(c)(1)..................................................... 11.04
(c)(2)..................................................... 11.04
(c)(3)..................................................... N.A.
(d)........................................................ N.A.
(e)........................................................ 11.05
(f)........................................................ N.A.
315 (a)........................................................ 7.01
(b)........................................................7.05, 11.02
(c)........................................................ 7.01
(d)........................................................ 7.01
(e)........................................................ 6.11
316 (a)(last sentence)......................................... 2.09
(a)(1)(A).................................................. 6.05
(a)(1)(B).................................................. 6.04
(a)(2)..................................................... N.A.
(b)........................................................ 6.07
(c)........................................................ 2.12
317 (a)(1)..................................................... 6.08
(a)(2)..................................................... 6.09
(b)........................................................ 2.04
318 (a)........................................................ 11.01
(b)........................................................ N.A.
(c)........................................................ 11.01
N.A. means not applicable.
*This Cross-Reference Table is not part of the Indenture.
v
<PAGE>
This INDENTURE dated as of April 27, 1999, is among Ames
Department Stores, Inc., a Delaware corporation ("Ames" or the "Company"), Ames
Realty II, Inc., a Delaware corporation, Ames FS, Inc., a Delaware corporation,
Ames Transportation Systems, Inc., a Delaware corporation, AMD, Inc., a Delaware
corporation, and Ames Merchandising Corporation, a Delaware corporation
(collectively, the "Guarantors"), and The Chase Manhattan Bank, as trustee (the
"Trustee").
The Company, the Guarantors and the Trustee agree as follows
for the benefit of each other and for the equal and ratable benefit of the
Holders of the 10% Senior Notes due 2006 (the "Initial Notes") and the 10%
Senior Notes due 2006 (the "Exchange Notes" and, together with the Initial Notes
and any Additional Notes, the "Notes"):
ARTICLE 1.
DEFINITIONS AND INCORPORATION
BY REFERENCE
SECTION 1.01. DEFINITIONS.
"144A Global Note" means the global note in the form of
Exhibit A hereto bearing the Global Note Legend and the Private Placement Legend
and deposited with and registered in the name of the Depositary or its nominee
that will be issued in a denomination equal to the outstanding principal amount
of the Notes sold in reliance on Rule 144A.
"Additional Notes" means up to $75,000,000 in aggregate
principal amount of Notes (other than the Initial Notes or Exchange Notes)
issued under this Indenture in accordance with Sections 2.02 and 4.09 hereof.
"Acquired Debt" means, with respect to any specified Person,
(i) Indebtedness of any other Person existing at the time such other Person is
merged with or into or became a Restricted Subsidiary of such specified Person,
including, without limitation, Indebtedness incurred in connection with, or in
contemplation of, such other Person merging with or into or becoming a
Restricted Subsidiary of such specified Person, and (ii) Indebtedness secured by
a Lien encumbering any asset acquired by such specified Person.
"Additional Assets" means any property or assets (other than
Capital Stock, Indebtedness or rights to receive payments over a period greater
than 180 days) that are used or useful by the Company or a Restricted Subsidiary
of the Company in a Permitted Business.
"Adjusted Net Assets" of a Guarantor at any date means the
lesser of the amount by which (i) the fair value of the property of such
Guarantor exceeds the total amount of liabilities, including, without
limitation, contingent liabilities (after giving effect to all other fixed and
contingent liabilities incurred or assumed on such date), but excluding
liabilities under its Subsidiary Guarantee, of such Guarantor at such date and
(ii) the present fair salable value of the assets of such Guarantor at such date
exceeds the amount that will be required to pay the probable liability of such
Guarantor on its debts (after giving effect to all other fixed and contingent
liabilities incurred or assumed on such date and after giving effect to any
collection from any
<PAGE>
Subsidiary of such Guarantor in respect of the obligations of such Subsidiary
under such Subsidiary Guarantee), excluding debt in respect of such Subsidiary
Guarantee, as they become absolute and matured.
"Affiliate" of any specified Person means any other Person
directly or indirectly controlling or controlled by or under direct or indirect
common control with such specified Person. For purposes of this definition,
"control," as used with respect to any Person, shall mean the possession,
directly or indirectly, of the power to direct or cause the direction of the
management or policies of such Person, whether through the ownership of voting
securities, by agreement or otherwise; provided that beneficial ownership of 10%
or more of the Voting Stock of a Person shall be deemed to be control. For
purposes of this definition, the terms "controlling," "controlled by" and "under
common control with" shall have correlative meanings.
"Agent" means any Registrar, Paying Agent or co-registrar.
"Applicable Procedures" means, with respect to any transfer or
exchange of or for beneficial interests in any Global Note, the rules and
procedures of the Depositary, Euroclear and Cedel that apply to such transfer or
exchange.
"Asset Sale" means (i) the sale, lease, conveyance or other
disposition of any assets or rights other than sales of inventory in the
ordinary course of business consistent with past practices; provided that the
sale, lease, conveyance or other disposition of all or substantially all of the
assets of the Company and its Restricted Subsidiaries taken as a whole shall be
governed by Section 4.15 hereof and/or Section 5.01 hereof and not by Section
4.10 hereof, and (ii) the issuance or sale of Equity Interests in any of the
Company's Restricted Subsidiaries. Notwithstanding the foregoing, the following
shall not be deemed to be Asset Sales: (i) any single transaction or series of
related transactions that (A) involves assets having a fair market value of less
than $2,000,000 or (B) results in net proceeds to the Company and its Restricted
Subsidiaries of less than $2,000,000; (ii) a transfer of assets by the Company
to one of its Restricted Subsidiaries or by a Restricted Subsidiary of the
Company to the Company or to another Restricted Subsidiary of the Company; (iii)
an issuance of Equity Interests by a Restricted Subsidiary of the Company to the
Company or to another Restricted Subsidiary of the Company; (iv) the sale or
lease of equipment, inventory, accounts receivable or other assets in the
ordinary course of business, including from time to time the closing of one or
more stores, the disposition or transfer of store leases, the clearance or
liquidation of inventory in connection with the closing of one or more stores or
the conversion of one or more acquired stores to Ames stores, and the
disposition of related fixtures, equipment or other property; (v) the sale or
other disposition of cash or Cash Equivalents; (vi) the sale, conveyance or
other transfer of accounts receivable and related assets customarily transferred
in an asset securitization transaction involving accounts receivable to a
Receivables Subsidiary or by a Receivables Subsidiary, in connection with a
Qualified Receivables Transaction; and (vii) a Restricted Payment permitted by
or a Permitted Investment that is not prohibited by Section 4.07 hereof.
"Attributable Debt" in respect of a sale and leaseback
transaction means, at the time of determination, the present value of the
obligation of the lessee for net rental payments during the remaining term of
the lease included in such sale and leaseback transaction including any period
for which such lease has been extended or may, at the option of the lessor, be
2
<PAGE>
extended. The present value shall be calculated using a discount rate equal to
the rate of interest implicit in such transaction, determined in accordance with
GAAP.
"Bankruptcy Law" means Title 11, U.S. Code or any similar
federal or state law for the relief of debtors.
"Beneficial Owner" has the meaning assigned to such term in
Rule 13d-3 and Rule 13d-5 under the Exchange Act, except that in calculating the
beneficial ownership of any particular "person" (as that term is used in Section
13(d)(3) of the Exchange Act), that "person" shall be deemed to have beneficial
ownership of all securities that the "person" has the right to acquire by
conversion or exercise of other securities, whether the right is currently
exercisable or is exercisable only upon the occurrence of a subsequent
condition. The terms "Beneficially Owns" and "Beneficially Owned" shall have a
corresponding meaning.
"Board of Directors" means: (i) with respect to a corporation,
the board of directors of the corporation or any committee thereof duly
authorized to act on behalf of the board; (ii) with respect to a partnership,
the board of directors of the general partner of the partnership; and (iii) with
respect to any other Person, the board or committee of that Person serving a
similar function.
"Board Resolution" means, with respect to any Person, a copy
of a resolution certified by the Secretary or Assistant Secretary of that Person
to have been duly adopted by the Board of Directors of that Person and to be in
full force and effect on the date of such certification, and delivered to the
Trustee.
"Borrowing Base" means, as of any date, an amount equal to 75%
of the book value of all inventory owned by the Company and its Restricted
Subsidiaries as of that date, calculated on a consolidated basis and in
accordance with GAAP. To the extent that information is not available as to the
amount of inventory as of a specific date, the Company may utilize the most
recent available information for purposes of calculating the Borrowing Base.
"Business Day" means any day other than a Legal Holiday.
"Capital Lease Obligation" means, at the time any
determination thereof is to be made, the amount of the liability in respect of a
capital lease that would at such time be required to be capitalized on a balance
sheet in accordance with GAAP.
"Capital Stock" means (i) in the case of a corporation,
corporate stock, (ii) in the case of an association or business entity, any and
all shares, interests, participations, rights or other equivalents (however
designated) of corporate stock, (iii) in the case of a partnership or limited
liability company, partnership or membership interests (whether general or
limited), and (iv) any other interest or participation that confers on a Person
the right to receive a share of the profits and losses of, or distributions of
assets of, the issuing Person.
"Cash Equivalents" means (i) United States dollars, (ii)
securities issued or directly and fully guaranteed or insured by the United
States government or any agency or instrumentality thereof (provided that the
full faith and credit of the United States is pledged in support thereof) having
maturities of not more than six months from the date of acquisition, (iii)
3
<PAGE>
certificates of deposit and eurodollar time deposits with maturities of six
months or less from the date of acquisition, bankers' acceptances with
maturities not exceeding six months and overnight bank deposits, in each case,
with any lender party to any Credit Facility or with any domestic commercial
bank having capital and surplus in excess of $500,000,000 and a Thomson
Financial BankWatch Rating of "B" or better, (iv) repurchase obligations with a
term of not more than seven days for underlying securities of the types
described in clauses (ii) and (iii) above entered into with any financial
institution meeting the qualifications specified in clause (iii) above, (v)
commercial paper having the highest rating obtainable from Moody's or S&P and in
each case maturing within six months after the date of acquisition, and (vi)
money market funds at least 95% of the assets of which constitute Cash
Equivalents of the kinds described in clauses (i) through (v) of this
definition.
"Cedel" means Cedel Bank, societe anonyme.
"Change of Control" means the occurrence of any of the
following: (i) the direct or indirect sale, lease, transfer, conveyance or other
disposition (other than by way of merger or consolidation), in one or a series
of related transactions, of all or substantially all of the properties or assets
of the Company and its Restricted Subsidiaries taken as a whole to any "person"
(as such term is used in Section 13(d)(3) of the Exchange Act); (ii) the
adoption of a plan relating to the liquidation or dissolution of the Company;
(iii) the consummation of any transaction (including, without limitation, any
merger or consolidation) the result of which is that any "person" (as defined
above) becomes the Beneficial Owner, directly or indirectly, of more than 40% of
the Voting Stock of the Company (measured by voting power rather than number of
shares); (iv) the first day on which a majority of the members of the Board of
Directors of the Company are not Continuing Directors; or (v) the consolidation
or merger of the Company with or into, any Person, or the consolidation or
merger of any Person with or into, the Company, pursuant to a transaction in
which any of the outstanding Voting Stock of the Company or the other Person is
converted into or exchanged for cash, securities or other property, other than
any transaction where the Voting Stock of the Company outstanding immediately
prior to that transaction is converted into or exchanged for Voting Stock (other
than Disqualified Stock) constituting a majority of the outstanding shares of
the Voting Stock of the surviving or transferee Person (immediately after giving
effect to the issuance). For the purposes of this definition, any transfer of
any equity of any entity that was formed for the purpose of acquiring Voting
Stock of the Company will be deemed to be a transfer of equity interest in the
Company.
"Consolidated Cash Flow" means, with respect to any specified
Person for any period, the Consolidated Net Income of such Person for such
period plus (i) an amount equal to any extraordinary loss plus any net loss
realized by such Person or any of its Restricted Subsidiaries in connection with
an Asset Sale (to the extent such losses were deducted in computing such
Consolidated Net Income), plus (ii) provision for taxes based on income or
profits of such Person and its Restricted Subsidiaries for such period, to the
extent that such provision for taxes was deducted in computing such Consolidated
Net Income, plus (iii) consolidated interest expense of such Person and its
Restricted Subsidiaries for such period, whether paid or accrued and whether or
not capitalized (including, without limitation, amortization of debt issuance
costs and original issue discount, non-cash interest payments, the interest
component of any deferred payment obligations, the interest component of all
payments associated with Capital Lease Obligations, imputed interest with
respect to Attributable Debt,
4
<PAGE>
commissions, discounts and other fees and charges incurred in respect of letter
of credit or bankers' acceptance financings, and net of the effect of all
payments made or received pursuant to Hedging Obligations), to the extent that
any such expense was deducted in computing such Consolidated Net Income, plus
(iv) depreciation, amortization (including amortization of goodwill and other
intangibles but excluding amortization of prepaid cash expenses that were paid
in a prior period) and other non-cash expenses (excluding any non-cash expense
to the extent that it represents an accrual of or reserve for cash expenses in
any future period or amortization of a prepaid cash expense that was paid in a
prior period) of such Person and its Restricted Subsidiaries for such period to
the extent that such depreciation, amortization and other non-cash expenses were
deducted in computing such Consolidated Net Income, minus (v) non-cash items
increasing such Consolidated Net Income for such period, other than the accrual
of revenue in the ordinary course of business, in each case, on a consolidated
basis and determined in accordance with GAAP.
"Consolidated Net Income" means, with respect to any specified
Person for any period, the aggregate of the Net Income of such Person and its
Restricted Subsidiaries for such period, on a consolidated basis, determined in
accordance with GAAP; provided that (i) (A) the Net Income (but not loss) of any
Person that is not a Restricted Subsidiary or that is accounted for by the
equity method of accounting shall be included only to the extent of the amount
of dividends or distributions paid in cash to the referent Person or a
Restricted Subsidiary thereof and (B) the Net Income (but not loss) of any
Unrestricted Subsidiary shall be excluded, whether or not distributed to the
specified Person or one of its Subsidiaries, (ii) the Net Income of any
Restricted Subsidiary shall be excluded to the extent that the declaration or
payment of dividends or similar distributions by that Restricted Subsidiary of
that Net Income is not at the date of determination permitted without any prior
governmental approval (that has not been obtained) or, directly or indirectly,
by operation of the terms of its charter or any agreement, instrument, judgment,
decree, order, statute, rule or governmental regulation applicable to that
Restricted Subsidiary or its stockholders, (iii) the Net Income of any Person
acquired in a pooling of interests transaction for any period prior to the date
of such acquisition shall be excluded, and (iv) the cumulative effect of a
change in accounting principles shall be excluded.
"Consolidated Net Worth" means, with respect to any specified
Person as of any date, the sum of: (i) the consolidated equity of the common
stockholders of that Person and its consolidated Subsidiaries as of that date;
plus (ii) the respective amounts reported on that Person's balance sheet as of
that date with respect to any series of preferred stock (other than Disqualified
Stock) that by its terms is not entitled to the payment of dividends unless
those dividends may be declared and paid only out of net earnings in respect of
the year of such declaration and payment, but only to the extent of any cash
received by the Person upon issuance of such preferred stock.
"Continuing Directors" means, as of any date of determination,
any member of the Board of Directors of the Company who (i) was a member of such
Board of Directors on the Date hereof or (ii) was nominated for election or
elected to such Board of Directors with the approval of a majority of the
Continuing Directors who were members of such Board at the time of such
nomination or election.
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"Corporate Trust Office of the Trustee" shall be located at 55
Water Street, New York, New York 10041, or such other address as to which the
Trustee may give notice to the Company.
"Credit Agreement" means the Credit Agreement, dated as of
December 31, 1998, by and among the Company, the lenders named in the agreement
and Bank of America NT&SA, as Administrative Agent, providing for revolving
credit borrowings and letters of credit, including any related notes,
guarantees, collateral documents, instruments and agreements executed in
connection therewith, in each case as amended, restated, modified, renewed,
refunded, replaced or refinanced from time to time.
"Credit Facilities" means one or more debt facilities
(including, without limitation, the Credit Agreement) or commercial paper
facilities, in each case with banks or other institutional lenders providing for
revolving credit loans, term loans, receivables financing or letters of credit,
in each case, as amended, restated, modified, renewed, refunded, replaced or
refinanced in whole or in part from time to time.
"Default" means any event that is, or with the passage of time
or the giving of notice or both would be, an Event of Default.
"Definitive Note" means a certificated Note registered in the
name of the Holder thereof and issued in accordance with Article 2 hereof,
substantially in the form of Exhibit A hereto, except that such Note shall not
bear the Global Note Legend and shall not have the "Schedule of Exchanges of
Interests in the Global Note" attached thereto.
"Depositary" means, with respect to the Notes issuable or
issued in whole or in part in global form, the Person specified in Section 2.03
hereof as the Depositary with respect to the Notes, until a successor shall have
been appointed and become such pursuant to the applicable provision of this
Indenture, and, thereafter, "Depositary" shall mean or include such successor.
"Disqualified Stock" means any Capital Stock that, by its
terms (or by the terms of any security into which it is convertible, or for
which it is exchangeable, at the option of the holder thereof), or upon the
happening of any event, matures or is mandatorily redeemable, pursuant to a
sinking fund obligation or otherwise, or is redeemable at the option of the
Holder thereof, in whole or in part, on or prior to the date that is 91 days
after the date on which the Notes mature; provided, however, that any Capital
Stock that would constitute Disqualified Stock solely because the holders
thereof have the right to require the Company to repurchase such Capital Stock
upon the occurrence of a Change of Control or an Asset Sale shall not constitute
Disqualified Stock if the terms of such Capital Stock provide that the Company
may not repurchase or redeem any such Capital Stock pursuant to such provisions
unless such repurchase or redemption complies with Section 4.07 hereof.
"Distribution Compliance Period" means the 40-day distribution
compliance period as defined in Regulation S.
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"Domestic Subsidiary" means any Subsidiary of the Company that
was formed under the laws of the United States or any state thereof or the
District of Columbia or that guarantees or otherwise provides direct credit
support for any Indebtedness of the Company.
"Equity Interests" means Capital Stock and all warrants,
options or other rights to acquire Capital Stock (but excluding any debt
security that is convertible into, or exchangeable for, Capital Stock).
"Euroclear" means Morgan Guaranty Trust Company of New York,
Brussels office, as operator of the Euroclear system.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Exchange Notes" means the Notes issued in the Exchange Offer
pursuant to Section 2.06(f) hereof.
"Exchange Offer" has the meaning set forth in the Registration
Rights Agreement.
"Existing Indebtedness" means any Indebtedness of the Company
and its Subsidiaries (other than Indebtedness under the Credit Agreement) in
existence on the date of this Indenture, until such amounts are repaid.
"Fixed Charges" means, with respect to any specified Person or
any of its Restricted Subsidiaries for any period, the sum, without duplication,
of (i) the consolidated interest expense of such Person and its Restricted
Subsidiaries for such period, whether paid or accrued (including, without
limitation, amortization of debt issuance costs and original issue discount,
non-cash interest payments, the interest component of any deferred payment
obligations, the interest component of all payments associated with Capital
Lease Obligations, imputed interest with respect to Attributable Debt,
commissions, discounts and other fees and charges incurred in respect of letter
of credit or bankers' acceptance financings, and net of the effect of all
payments made or received pursuant to Hedging Obligations, plus (ii) the
consolidated interest of such Person and its Restricted Subsidiaries that was
capitalized during such period, plus (iii) any interest expense on Indebtedness
of another Person that is guaranteed by such Person or one of its Restricted
Subsidiaries or secured by a Lien on assets of such Person or one of its
Restricted Subsidiaries (whether or not such Guarantee or Lien is called upon)
plus (iv) the product of (A) all dividend payments, whether paid or accrued,
whether or not in cash, on any series of preferred stock of such Person or any
of its Restricted Subsidiaries, other than dividends on Equity Interests payable
solely in Equity Interests of the Company (other than Disqualified Stock) or to
the Company or a Restricted Subsidiary of the Company, times (B) a fraction, the
numerator of which is one and the denominator of which is one minus the then
current combined federal, state and local statutory tax rate of such Person,
expressed as a decimal, in each case, on a consolidated basis and in accordance
with GAAP.
"Fixed Charge Coverage Ratio" means with respect to any
specified Person and its Restricted Subsidiaries for any period, the ratio of
the Consolidated Cash Flow of such Person and its Restricted Subsidiaries for
such period to the Fixed Charges of such Person and its Restricted Subsidiaries
for such period. In the event that the specified Person or any of its Restricted
Subsidiaries incurs, assumes, guarantees, repays, repurchases or redeems any
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Indebtedness (other than ordinary working capital borrowings) or issues,
repurchases or redeems preferred stock subsequent to the commencement of the
period for which the Fixed Charge Coverage Ratio is being calculated and on or
prior to the date on which the event for which the calculation of the Fixed
Charge Coverage Ratio is made (the "Calculation Date"), then the Fixed Charge
Coverage Ratio shall be calculated giving pro forma effect to such incurrence,
assumption, Guarantee, repayment, repurchase or redemption of Indebtedness, or
such issuance, repurchase or redemption of preferred stock, and the use of
proceeds therefrom as if the same had occurred at the beginning of the
applicable four-quarter reference period. In addition, for purposes of
calculating the Fixed Charge Coverage Ratio, (i) acquisitions that have been
made by the specified Person or any of its Subsidiaries, including through
mergers or consolidations and including any related financing transactions,
during the four-quarter reference period or subsequent to such reference period
and on or prior to the Calculation Date shall be given pro forma effect as if
they had occurred on the first day of the four-quarter reference period and
Consolidated Cash Flow for such reference period shall be calculated on a pro
forma basis in accordance with Regulations S-X under the Securities Act, but
without giving effect to clause (iii) of the proviso set forth in the definition
of Consolidated Net Income, (ii) the Consolidated Cash Flow attributable to
discontinued operations, as determined in accordance with GAAP, and operations
or businesses disposed of prior to the Calculation Date, shall be excluded, and
(iii) the Fixed Charges attributable to discontinued operations, as determined
in accordance with GAAP, and operations or businesses disposed of prior to the
Calculation Date, shall be excluded, but only to the extent that the obligations
giving rise to such Fixed Charges will not be obligations of the referent Person
or any of its Restricted Subsidiaries following the Calculation Date.
"GAAP" means generally accepted accounting principles set
forth in the opinions and pronouncements of the Accounting Principles Board of
the American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as have been approved by a significant segment
of the accounting profession, which were in effect on the date hereof.
"Global Notes" means, individually and collectively, each of
the Restricted Global Notes and the Unrestricted Global Notes, substantially in
the form of Exhibit A hereto issued in accordance with Article 2 hereof.
"Global Note Legend" means the legend set forth in Section
2.06(g)(ii) hereof to be placed on all Global Notes issued under this Indenture.
"Government Securities" means direct obligations of, or
obligations guaranteed by, the United States of America for the payment of which
guarantee or obligations the full faith and credit of the United States is
pledged.
"Guarantee" means a guarantee (other than by endorsement of
negotiable instruments for collection in the ordinary course of business),
direct or indirect, in any manner (including, without limitation, by way of a
pledge of assets or through letters of credit and reimbursement agreements in
respect thereof), of all or any part of any Indebtedness.
"Guarantors" means each of the Company's Domestic Subsidiaries
in existence on the date hereof and any other Subsidiary of the Company that
executes a Subsidiary
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<PAGE>
Guarantee in accordance with the provisions of this Indenture, and their
respective successors and assigns.
"Hedging Obligations" means, with respect to any specified
Person, the obligations of such Person under (i) interest rate swap agreements,
interest rate cap agreements and interest rate collar agreements; (ii) foreign
exchange contracts and currency swap agreements; and (iii) other agreements or
arrangements entered into in the ordinary course of business and consistent with
past practices designed to protect such Person against fluctuations in interest
rates or currency exchange rates.
"Hills Indenture" means the Indenture dated as of April 19,
1996 between Hills Stores Company and Fleet National Bank, as trustee, pursuant
to which $195,000,000 of 12.5% Senior Notes due 2003 were originally issued, as
amended or supplemented from time to time.
"Holder" means a Person in whose name a Note is registered.
"IAI Global Note" means the global Note in the form of Exhibit
A hereto bearing the Global Note Legend and the Private Placement Legend and
deposited with and registered in the name of the Depositary or its nominee that
will be issued in a denomination equal to the outstanding principal amount of
the Notes sold to Institutional Accredited Investors.
"Indebtedness" means, with respect to any specified Person,
any indebtedness of such Person, whether or not contingent, in respect of (i)
borrowed money, (ii) evidenced by bonds, notes, debentures or similar
instruments or letters of credit (or reimbursement agreements in respect
thereof), (iii) banker's acceptances, (iv) representing Capital Lease
Obligations, (v) the balance deferred and unpaid of the purchase price of any
property, except any such balance that constitutes an accrued expense or trade
payable, or (vi) representing any Hedging Obligations, if and to the extent any
of the foregoing indebtedness (other than letters of credit and Hedging
Obligations) would appear as a liability upon a balance sheet of such Person
prepared in accordance with GAAP, as well as all Indebtedness of others secured
by a Lien on any asset of such Person (whether or not such Indebtedness is
assumed by such Person) and, to the extent not otherwise included, the Guarantee
by such Person of any indebtedness of any other Person. The amount of any
Indebtedness outstanding as of any date shall be (i) the accreted value thereof,
in the case of any Indebtedness issued with original issue discount, and (ii)
the principal amount thereof, together with any interest thereon that is more
than 30 days past due, in the case of any other Indebtedness.
"Indenture" means this Indenture, as amended or supplemented
from time to time.
"Indirect Participant" means a Person who holds a beneficial
interest in a Global Note through a Participant.
"Initial Notes" means $200,000,000 in aggregate principal
amount of Notes issued under this Indenture on the date hereof.
"Institutional Accredited Investor" means an institution that
is an "accredited investor" as defined in Rule 501(a)(1), (2), (3) or (7) under
the Securities Act.
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<PAGE>
"Investments" means, with respect to any Person, all
investments by such Person in other Persons (including Affiliates) in the forms
of direct or indirect loans (including Guarantees or other obligations),
advances or capital contributions (excluding commission, travel and similar
advances to officers and employees made in the ordinary course of business),
purchases or other acquisitions for consideration of Indebtedness, Equity
Interests or other securities, together with all items that are or would be
classified as investments on a balance sheet prepared in accordance with GAAP.
If the Company or any Restricted Subsidiary of the Company sells or otherwise
disposes of any Equity Interests of any direct or indirect Restricted Subsidiary
of the Company such that, after giving effect to any such sale or disposition,
such Person is no longer a Restricted Subsidiary of the Company, the Company
shall be deemed to have made an Investment on the date of any such sale or
disposition equal to the fair market value of the Equity Interests of such
Restricted Subsidiary not sold or disposed of in an amount determined as
provided in the last paragraph of Section 4.07 hereof.
"Legal Holiday" means a Saturday, a Sunday or a day on which
banking institutions in The City of New York or at a place of payment are
authorized by law, regulation or executive order to remain closed. If a payment
date is a Legal Holiday at a place of payment, payment may be made at that place
on the next succeeding day that is not a Legal Holiday, and no interest shall
accrue for the intervening period.
"Letter of Transmittal" means the letter of transmittal to be
prepared by the Company and sent to all Holders of the Initial Notes for use by
such Holders in connection with the Exchange Offer.
"Lien" means, with respect to any asset, any mortgage, lien,
pledge, charge, security interest or encumbrance of any kind in respect of such
asset, whether or not filed, recorded or otherwise perfected under applicable
law, including any conditional sale or other title retention agreement, any
lease in the nature thereof, any option or other agreement to sell or give a
security interest in and any filing of or agreement to give any financing
statement under the Uniform Commercial Code (or equivalent statutes) of any
jurisdiction.
"Liquidated Damages" means all liquidated damages then owing
pursuant to Section 5 of the Registration Rights Agreement.
"Moody's" means Moody's Investors Service.
"Net Income" means, with respect to any specified Person, the
net income (loss) of such Person, determined in accordance with GAAP and before
any reduction in respect of preferred stock dividends, excluding, however, (i)
any gain (but not loss), together with any related provision for taxes on such
gain (but not loss), realized in connection with (A) any Asset Sale or (B) the
disposition of any securities by such Person or any of its Restricted
Subsidiaries or the extinguishment of any Indebtedness of such Person or any of
its Restricted Subsidiaries and (ii) any extraordinary gain (but not loss),
together with any related provision for taxes on such extraordinary gain (but
not loss).
"Net Proceeds" means the aggregate cash proceeds received by
the Company or any of its Restricted Subsidiaries in respect of any Asset Sale
(including, without limitation, any
10
<PAGE>
cash received upon the sale or other disposition of any non-cash consideration
received in any Asset Sale), net of the direct costs relating to such Asset Sale
(including, without limitation, legal, accounting and investment banking fees,
and sales commissions) and any relocation expenses incurred as a result thereof,
taxes paid or payable as a result thereof (after taking into account any
available tax credits or deductions and any tax sharing arrangements) and
amounts required to be applied to the repayment of Indebtedness (other than
Indebtedness under any one or more Credit Facilities), secured by a Lien on the
asset or assets that were the subject of such Asset Sale and any reserve for
adjustment in respect of the sale price of such asset or assets established in
accordance with GAAP.
"Non-Recourse Debt" means Indebtedness (i) as to which neither
the Company nor any of its Restricted Subsidiaries (A) provides credit support
of any kind (including any undertaking, agreement or instrument that would
constitute Indebtedness), (B) is directly or indirectly liable (as a guarantor
or otherwise), or (C) constitutes the lender; (ii) no default with respect to
which (including any rights that the holders thereof may have to take
enforcement action against an Unrestricted Subsidiary) would permit (upon
notice, lapse of time or both) any holder of any other Indebtedness (other than
the Notes) of the Company or any of its Restricted Subsidiaries to declare a
default on such other Indebtedness or cause the payment thereof to be
accelerated or payable prior to its stated maturity; and (iii) the incurrence of
which will not result in any recourse to the stock or assets of the Company or
any of its Restricted Subsidiaries.
"Non-U.S. Person" means a person who is not a U.S. Person.
"Note Custodian" means the Trustee, as custodian with respect
to the Notes in global form, or any successor entity thereto.
"Obligations" means any principal, premium (if any), interest,
penalties, fees, indemnifications, guarantees, reimbursement, damages and other
liabilities payable under the documentation governing any Indebtedness.
"Offering Memorandum" means the Offering Memorandum of the
Company dated April 20, 1999 with respect to the Notes.
"Officer" means, with respect to any Person, the Chairman of
the Board, the Chief Executive Officer, the President, the Chief Operating
Officer, the Chief Financial Officer, the Treasurer, any Assistant Treasurer,
the Controller, the Secretary, any Assistant Secretary or any Vice-President of
such Person.
"Officers' Certificate" means a certificate signed on behalf
of the Company by two Officers of the Company, one of whom must be the principal
executive officer, the principal financial officer, the treasurer or the
principal accounting officer of the Company, that meets the requirements of
Section 11.05 hereof.
"Opinion of Counsel" means an opinion from legal counsel who
is reasonably acceptable to the Trustee, that meets the requirements of Section
11.05 hereof. The counsel may be an employee of or counsel to the Company, any
Subsidiary of the Company or the Trustee.
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"Participant" means, with respect to DTC, Euroclear or Cedel,
a Person who has an account with DTC, Euroclear or Cedel, respectively (and,
with respect to DTC, shall include Euroclear and Cedel).
"Permitted Business" means the business conducted (or proposed
to be conducted, including activities referred to as being contemplated by the
Company, as described or referred to in the Offering Memorandum) by the Company
and its Restricted Subsidiaries as of the date hereof and any and all businesses
that in the good faith judgment of the Board of Directors of the Company are
reasonably related businesses, including reasonably related extensions or
expansions thereof.
"Permitted Investments" means (i) any Investment in the
Company or in a Restricted Subsidiary of the Company that is a Guarantor; (ii)
any Investment in Cash Equivalents; (iii) any Investment by the Company or any
Restricted Subsidiary of the Company in a Person engaged in a Permitted
Business, if as a result of such Investment (A) such Person becomes a Restricted
Subsidiary of the Company and a Guarantor or (B) such Person is merged,
consolidated or amalgamated with or into, or transfers or conveys substantially
all of its assets to, or is liquidated into, the Company or a Restricted
Subsidiary of the Company that is a Guarantor; (iv) any Investment made as a
result of the receipt of non-cash consideration from an Asset Sale that was made
pursuant to and in compliance with Section 4.10 hereof; (v) any acquisition of
assets solely in exchange for the issuance of Equity Interests (other than
Disqualified Stock) of the Company; (vi) Hedging Obligations; (vii) loans and
advances to employees and officers of the Company and its Restricted
Subsidiaries in the ordinary course of business for bona fide business purposes
not to exceed an aggregate of $5,000,000 at any one time outstanding; (viii) any
Investment by the Company or a Restricted Subsidiary in a Receivables Subsidiary
or any Investment by a Receivables Subsidiary in any other Person, in each case,
in connection with a Qualified Receivables Transaction, provided, that the
Investment in any Person is in the form of a Purchase Money Note, an equity
interest or an interest in accounts receivable generated by the Company or a
Restricted Subsidiary and transferred to any Person in connection with a
Qualified Receivables Transaction or any Person owning those accounts
receivable; and (ix) other Investments in any Person having an aggregate fair
market value (measured on the date each such Investment was made and without
giving effect to subsequent changes in value), when taken together with all
other Investments made pursuant to this clause (ix) that are at the time
outstanding, not to exceed $50,000,000.
"Permitted Liens" means (i) Liens on assets of the Company and
any Guarantor securing Indebtedness and other Obligations under Credit
Facilities that were permitted by the terms of this Indenture to be incurred;
(ii) Liens in favor of the Company or any Guarantor; (iii) Liens on property of
a Person existing at the time such Person is merged with or into or consolidated
with the Company or any Restricted Subsidiary of the Company, provided that such
Liens were in existence prior to the contemplation of such merger or
consolidation and do not extend to any assets other than those of the Person
merged with or into or consolidated with the Company or such Restricted
Subsidiary; (iv) Liens on property existing at the time of acquisition thereof
by the Company or any Restricted Subsidiary of the Company, provided that such
Liens were in existence prior to the contemplation of such acquisition; (v)
Liens to secure the performance of statutory obligations, surety or appeal
bonds, performance bonds or other obligations of a like nature incurred in the
ordinary course of business; (vi) Liens to secure
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Indebtedness (including Capital Lease Obligations) permitted by clause (v) of
the second paragraph of Section 4.09 hereof covering only the assets acquired
with such Indebtedness; (vii) Liens existing on the date hereof; (viii) Liens
for taxes, assessments or governmental charges or claims that are not yet
delinquent or that are being contested in good faith by appropriate proceedings
promptly instituted and diligently concluded, provided that any reserve or other
appropriate provision as shall be required in conformity with GAAP shall have
been made therefor; (ix) Liens on assets of Unrestricted Subsidiaries that
secure Non-Recourse Debt of Unrestricted Subsidiaries; (x) Liens on accounts
receivable and related assets of a Receivables Subsidiary arising in connection
with a Qualified Receivables Transaction; and (xi) Liens incurred in the
ordinary course of business of the Company or any Subsidiary of the Company with
respect to obligations that do not exceed $35,000,000 at any one time
outstanding.
"Permitted Refinancing Indebtedness" means any Indebtedness of
the Company or any of its Restricted Subsidiaries issued in exchange for, or the
net proceeds of which are used to extend, refinance, renew, replace, defease or
refund other Indebtedness of the Company or any of its Restricted Subsidiaries
(other than intercompany Indebtedness); provided that: (i) the principal amount
(or accreted value, if applicable) of such Permitted Refinancing Indebtedness
does not exceed the principal amount of (or accreted value, if applicable) of
the Indebtedness so extended, refinanced, renewed, replaced, defeased or
refunded (plus all accrued interest thereon and the amount of all expenses and
premiums incurred in connection therewith); (ii) such Permitted Refinancing
Indebtedness has a final maturity date later than the final maturity date of,
and has a Weighted Average Life to Maturity equal to or greater than the
Weighted Average Life to Maturity of, the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded; (iii) if the Indebtedness
being extended, refinanced, renewed, replaced, defeased or refunded is
subordinated in right of payment to the Notes, such Permitted Refinancing
Indebtedness has a final maturity date later than the final maturity date of,
and is subordinated in right of payment to, the Notes on terms at least as
favorable to the Holders of Notes as those contained in the documentation
governing the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded; and (iv) such Indebtedness being extended, refinanced,
renewed, replaced, defeased or refunded is incurred either by the Company or by
the Restricted Subsidiary of the Company who is the obligor on the Indebtedness
being extended, refinanced, renewed, replaced, defeased or refunded.
"Person" means any individual, partnership, corporation,
limited liability company, unincorporated organization, association, joint-stock
company, trust, joint venture, government, or any agency or political
subdivision thereof or any other entity.
"Private Placement Legend" means the legend set forth in
Section 2.06(g)(i) hereof to be placed on all Notes issued under this Indenture
except as otherwise permitted by the provisions of this Indenture.
"Public Equity Offering" means any underwritten public
offering of common stock of the Company in which the gross proceeds to the
Company are at least $50,000,000.
"Purchase Money Note" means a promissory note evidencing a
line of credit, or evidencing other Indebtedness owed to the Company or any
Restricted Subsidiary of the Company in connection with a Qualified Receivables
Transaction, which note shall be repaid
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<PAGE>
from cash available to the maker of such note, other than amounts required to be
established as reserves pursuant to agreement, amounts paid to investors in
respect of interest, principal and other amounts owing to such investors and
amounts paid in connection with the purchase of newly generated accounts
receivable.
"QIB" means a "qualified institutional buyer" as defined in
Rule 144A.
"Qualified Receivables Transaction" means any transaction or
series of transactions that may be entered into by the Company or any Restricted
Subsidiary of the Company pursuant to which the Company or any Restricted
Subsidiary of the Company may sell, convey or otherwise transfer to (i) a
Receivables Subsidiary (in the case of a transfer by the Company or any
Restricted Subsidiary of the Company) and (ii) any other Person (in the case of
a transfer by a Receivables Subsidiary), or may grant a security interest in,
any accounts receivable (whether now existing or arising in the future) of the
Company or any Restricted Subsidiary of the Company and any asset related
thereto including, without limitation, all collateral securing the accounts
receivable, all contracts and all guarantees or other obligations in respect of
the accounts receivable, proceeds of the accounts receivable and other assets
which are customarily transferred, or in respect of which security interests are
customarily granted in connection with asset securitization transactions
involving accounts receivable.
"Receivables Subsidiary" means a Wholly Owned Subsidiary of
the Company (other than a Guarantor) which engages in no activities other than
in connection with the financing of accounts receivables and which is designated
by the Board of Directors of the Company (as provided below) as a Receivables
Subsidiary: (i) no portion of the Indebtedness or any other Obligations
(contingent or otherwise) of which (A) is guaranteed by the Company or any other
Restricted Subsidiary of the Company (excluding guarantees of Obligations (other
than the principal of, and interest on, Indebtedness) pursuant to Standard
Securitization Undertakings), (B) is recourse to or obligates the Company or any
other Restricted Subsidiary of the Company in any way other than pursuant to
Standard Securitization Undertakings, or (C) subjects any property or asset of
the Company or any other Restricted Subsidiary of the Company, directly or
indirectly, contingently or otherwise, to the satisfaction thereof, other than
pursuant to Standard Securitization Undertakings; (ii) with which neither the
Company nor any other Restricted Subsidiary of the Company has any material
contract, agreement, arrangement or understanding (except in connection with a
Purchase Money Note or Qualified Receivables Transaction) other than on terms no
less favorable to the Company or such other Restricted Subsidiary than those
that might be obtained at the time from persons that are not Affiliates of the
Company, other than fees payable in the ordinary course of business in
connection with servicing accounts receivable; and (iii) to which neither the
Company nor any other Restricted Subsidiary of the Company has any obligation to
maintain or preserve such entity's financial condition or cause such entity to
achieve certain levels of operating results. Any designation of a Subsidiary of
the Company as a Receivables Subsidiary shall be evidenced to the Trustee by
filing with the Trustee a certified copy of the Board Resolution of the Board of
Directors of the Company giving effect to such designation and an Officers'
Certificate certifying that the designation complied with the preceding
conditions and was permitted by this Indenture.
"Registration Rights Agreement" means the Registration Rights
Agreement, dated as of April 27, 1999, by and among the Company, the Guarantors,
Lehman Brothers Inc. and
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NationsBanc Montgomery Securities LLC, as such agreement may be amended,
modified or supplemented from time to time and, with respect to any Additional
Notes, one or more registration rights agreements between the Company and the
other parties thereto, as such agreement(s) may be amended, modified or
supplemented from time to time, relating to rights given by the Company to the
purchasers of Additional Notes to register such Additional Notes under the
Securities Act.
"Regulation S" means Regulation S promulgated under the
Securities Act.
"Regulation S Global Note" means a global Note bearing the
Private Placement Legend and deposited with and registered in the name of the
Depositary or its nominee that will be issued in a denomination equal to the
outstanding principal amount of the Notes sold in reliance on Regulation S.
"Responsible Officer" when used with respect to the Trustee,
means any officer within the Corporate Trust Administration of the Trustee (or
any successor group of the Trustee) or any other officer of the Trustee
customarily performing functions similar to those performed by any of the above
designated officers and also means, with respect to a particular corporate trust
matter, any other officer to whom such matter is referred because of his
knowledge of and familiarity with the particular subject.
"Restricted Definitive Note" means a Definitive Note bearing
the Private Placement Legend.
"Restricted Global Notes" means the 144A Global Note, the IAI
Global Note and the Regulation S Global Note, each of which shall bear the
Private Placement Legend.
"Restricted Investment" means an Investment other than a
Permitted Investment.
"Restricted Subsidiary" means, with respect to any Person, any
Subsidiary of such Person that is not an Unrestricted Subsidiary.
"Rule 144" means Rule 144 under the Securities Act.
"Rule 144A" means Rule 144A under the Securities Act.
"Rule 903" means Rule 903 under the Securities Act.
"Rule 904" means Rule 904 under the Securities Act.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Shelf Registration Statement" means the Shelf Registration
Statement as defined in the Registration Rights Agreement.
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"Significant Subsidiary" means any Subsidiary that would be a
"significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X,
promulgated pursuant to the Securities Act, as such Regulation is in effect on
the date hereof.
"Standard Securitization Undertakings" means representations,
warranties, covenants and indemnities entered into by the Company or any of its
Restricted Subsidiaries which are reasonably customary in an accounts receivable
transaction.
"Stated Maturity" means, with respect to any installment of
interest or principal on any series of Indebtedness, the date on which such
payment of interest or principal was scheduled to be paid in the original
documentation governing such Indebtedness, and shall not include any contingent
obligations to repay, redeem or repurchase any such interest or principal prior
to the date originally scheduled for the payment thereof.
"Subsidiary" means, with respect to any specified Person, (i)
any corporation, association or other business entity of which more than 50% of
the total voting power of shares of Capital Stock entitled (without regard to
the occurrence of any contingency) to vote in the election of directors,
managers or trustees thereof is at the time owned or controlled, directly or
indirectly, by such Person or one or more of the other Subsidiaries of that
Person (or a combination thereof) and (ii) any partnership (A) the sole general
partner or the managing general partner of which is such Person or a Subsidiary
of such Person or (B) the only general partners of which are such Person or of
one or more Subsidiaries of such Person (or any combination thereof).
"Subsidiary Guarantee" means the Guarantee of the Notes by
each of the Guarantors pursuant to Article 10 hereof and in the form of
guarantee attached as Exhibit E hereto on the form of Note attached as Exhibit A
hereto and any additional Guarantee of the Notes to be executed by any
Restricted Subsidiary of the Company pursuant to Section 4.13 hereof.
"S&P" means Standard and Poor's Ratings Services.
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C.
Sections 77aaa-77bbbb) as in effect on the date on which this Indenture is
qualified under the TIA.
"Total Assets" means, as of any date, the Company's total
consolidated assets as of that date, as determined in accordance with GAAP. To
the extent that information is not available as to the amount of total
consolidated assets as of a specific date, the Company may utilize the most
recent available information for purposes of calculating Total Assets.
"Transfer Restricted Securities" means securities that bear or
are required to bear the Private Placement Legend set forth in Section
2.06(g)(i) hereof.
"Trustee" means the party named as such above until a
successor replaces it in accordance with the applicable provisions of this
Indenture and thereafter means the successor serving hereunder.
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"Unrestricted Global Note" means one or more global Notes, in
the form of Exhibit A attached hereto, that do not and are not required to bear
the Private Placement Legend and are deposited with and registered in the name
of the Depositary or its nominee.
"Unrestricted Definitive Note" means one or more Definitive
Notes that do not and are not required to bear the Private Placement Legend.
"Unrestricted Subsidiary" means any Subsidiary of the Company
that is designated by the Board of Directors of the Company as an Unrestricted
Subsidiary pursuant to a Board Resolution, but only to the extent that such
Subsidiary: (i) has no Indebtedness other than Non-Recourse Debt; (ii) is not
party to any agreement, contract, arrangement or understanding with the Company
or any Restricted Subsidiary of the Company unless the terms of any such
agreement, contract, arrangement or understanding are no less favorable to the
Company or such Restricted Subsidiary than those that might be obtained at the
time from Persons who are not Affiliates of the Company; (iii) is a Person with
respect to which neither the Company nor any of its Restricted Subsidiaries has
any direct or indirect obligation (A) to subscribe for additional Equity
Interests or (B) to maintain or preserve such Person's financial condition or to
cause such Person to achieve any specified levels of operating results; (iv) has
not guaranteed or otherwise directly or indirectly provided credit support for
any Indebtedness of the Company or any of its Restricted Subsidiaries; and (v)
has at least one director on its Board of Directors that is not a director or
executive officer of the Company or any of its Restricted Subsidiaries and has
at least one executive officer that is not a director or executive officer of
the Company or any of its Restricted Subsidiaries. Any designation of a
Subsidiary of the Company as an Unrestricted Subsidiary shall be evidenced to
the Trustee by filing with the Trustee a certified copy of the Board Resolution
of the Board of Directors of the Company giving effect to such designation and
an Officers' Certificate certifying that such designation complied with the
foregoing conditions and was permitted by Section 4.07 hereof. If, at any time,
any Unrestricted Subsidiary would fail to meet the foregoing requirements as an
Unrestricted Subsidiary, it shall thereafter cease to be an Unrestricted
Subsidiary for purposes of this Indenture and any Indebtedness of such
Subsidiary shall be deemed to be incurred by a Restricted Subsidiary of the
Company as of such date (and, if such Indebtedness is not permitted to be
incurred as of such date under Section 4.09 hereof, the Company shall be in
default of such covenant). The Board of Directors of the Company may at any time
designate any Unrestricted Subsidiary to be a Restricted Subsidiary of the
Company; provided that such designation shall be deemed to be an incurrence of
Indebtedness by a Restricted Subsidiary of the Company of any outstanding
Indebtedness of such Unrestricted Subsidiary and such designation shall only be
permitted if (i) such Indebtedness is permitted under Section 4.09 hereof,
calculated on a pro forma basis as if such designation had occurred at the
beginning of the four-quarter reference period, and (ii) no Default or Event of
Default would be in existence following such designation.
"U.S. Person" means a U.S. person as defined in Rule 902(o)
under the Securities Act.
"Voting Stock" of any Person as of any date means the Capital
Stock of such Person that is at the time entitled to vote in the election of the
Board of Directors of such Person.
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"Weighted Average Life to Maturity" means, when applied to any
Indebtedness at any date, the number of years obtained by dividing (i) the sum
of the products obtained by multiplying (A) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect thereof, by (B) the
number of years (calculated to the nearest one-twelfth) that will elapse between
such date and the making of such payment, by (ii) the then outstanding principal
amount of such Indebtedness.
"Wholly Owned Subsidiary" of any specified Person means a
Subsidiary of such Person, all of the outstanding Capital Stock or other
ownership interests of which (other than directors' qualifying shares or shares
or interests required to be held by foreign nationals, in each case, to the
extent mandated by applicable law), shall at the time be owned by such Person
and/or by one or more Wholly Owned Subsidiaries of such Person.
SECTION 1.02. OTHER DEFINITIONS.
Defined in
Term Section
"Affiliate Transaction"..................................4.11
"Asset Sale Offer".......................................4.10
"Change of Control Offer"................................4.15
"Change of Control Payment"..............................4.15
"Change of Control Payment Date".........................4.15
"Covenant Defeasance"....................................8.03
"DTC"....................................................2.03
"Event of Default".......................................6.01
"Funding Guarantor".....................................10.05
"Global Note Legend".....................................2.06
"Excess Proceeds"........................................4.10
"incur"..................................................4.09
"Legal Defeasance".......................................8.02
"Offer Amount"...........................................3.09
"Offer Period"...........................................3.09
"Paying Agent"...........................................2.03
"Purchase Date"..........................................3.09
"Permitted Debt..........................................4.09
"Registrar"..............................................2.03
"Restricted Payments"....................................4.07
SECTION 1.03. INCORPORATION BY REFERENCE OF TRUST INDENTURE ACT.
Whenever this Indenture refers to a provision of the TIA, the
provision is incorporated by reference in and made a part of this Indenture.
The following TIA terms used in this Indenture have the
following meanings:
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"indenture securities" means the Notes;
"indenture security Holder" means a Holder of a Note;
"indenture to be qualified" means this Indenture;
"indenture trustee" or "institutional trustee" means the
Trustee;
"obligor" on the Notes means the Company and any successor
obligor upon the Notes.
All other terms used in this Indenture that are defined by the
TIA, defined by TIA reference to another statute or defined by SEC rule under
the TIA have the meanings so assigned to them.
SECTION 1.04. RULES OF CONSTRUCTION.
Unless the context otherwise requires:
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has the
meaning assigned to it in accordance with GAAP;
(3) "or" is not exclusive;
(4) words in the singular include the plural, and in the
plural include the singular;
(5) provisions apply to successive events and
transactions; and
(6) references to sections of or rules under the
Securities Act shall be deemed to include substitute, replacement or
successor sections or rules adopted by the SEC from time to time.
ARTICLE 2.
THE NOTES
SECTION 2.01. FORM AND DATING.
The Notes and the Trustee's certificate of authentication
shall be substantially in the form of Exhibit A hereto. The Notes may have
notations, legends or endorsements required by law, stock exchange rule or
usage. Each Note shall be dated the date of its authentication. The Notes shall
be in denominations of $1,000 and integral multiples thereof.
The terms and provisions contained in the Notes shall
constitute, and are hereby expressly made, a part of this Indenture, and the
Company and the Trustee, by their execution and delivery of this Indenture,
expressly agree to such terms and provisions and to be bound
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thereby. However, to the extent any provision of any Note conflicts with the
express provisions of this Indenture, the provisions of this Indenture shall
govern and be controlling.
Notes issued in global form shall be substantially in the form
of Exhibit A attached hereto (including the Global Note Legend and the "Schedule
of Exchanges in the Global Note" attached thereto). Notes issued in definitive
form shall be substantially in the form of Exhibit A attached hereto (but
without the Global Note Legend and without the "Schedule of Exchanges of
Interests in the Global Note" attached thereto). Each Global Note shall
represent such of the outstanding Notes as shall be specified therein and each
shall provide that it shall represent the aggregate principal amount of
outstanding Notes from time to time endorsed thereon and that the aggregate
principal amount of outstanding Notes represented thereby may from time to time
be reduced or increased, as appropriate, to reflect exchanges and redemptions.
Any endorsement of a Global Note to reflect the amount of any increase or
decrease in the aggregate principal amount of outstanding Notes represented
thereby shall be made by the Trustee or the Note Custodian, at the direction of
the Trustee, in accordance with instructions given by the Holder thereof as
required by Section 2.06 hereof.
The provisions of the "Operating Procedures of the Euroclear
System" and "Terms and Conditions Governing Use of Euroclear" and the "General
Terms and Conditions of Cedel Bank" and "Customer Handbook" of Cedel shall be
applicable to interests in the Regulation S Global Notes that are held by
Participants through Euroclear or Cedel.
SECTION 2.02. EXECUTION AND AUTHENTICATION
Two Officers shall sign the Notes for the Company by manual or
facsimile signature. The Company's seal shall be reproduced on the Notes and may
be in facsimile form.
If an Officer whose signature is on a Note no longer holds
that office at the time a Note is authenticated, the Note shall nevertheless be
valid.
A Note shall not be valid until authenticated by the manual
signature of the Trustee. The signature shall be conclusive evidence that the
Note has been authenticated under this Indenture.
The Trustee shall, upon a written order of the Company signed
by two Officers, authenticate Notes for original issue up to the aggregate
principal amount stated in paragraph 4 of the Notes. The aggregate principal
amount of Notes outstanding at any time may not exceed such amount except as
provided in Section 2.07 hereof.
The Trustee may appoint an authenticating agent acceptable to
the Company to authenticate Notes. An authenticating agent may authenticate
Notes whenever the Trustee may do so. Each reference in this Indenture to
authentication by the Trustee includes authentication by such agent. An
authenticating agent has the same rights as an Agent to deal with Holders or an
Affiliate of the Company.
The Notes will be limited in aggregate principal amount to
$275,000,000, of which $200,000,000 will be issued on the date hereof. The
Company may issue Additional Notes from time to time after the offering of the
Initial Notes. Any offering of Additional Notes
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is subject to Section 4.09 hereof. The Initial Notes and any Additional Notes
subsequently issued under this Indenture shall be treated as a single class for
all purposes under this Indenture, including, without limitation, waivers,
amendments, redemptions and offers to purchase.
SECTION 2.03. REGISTRAR AND PAYING AGENT.
The Company shall maintain an office or agency where Notes may
be presented for registration of transfer or for exchange ("Registrar") and an
office or agency where Notes may be presented for payment ("Paying Agent"). The
Registrar shall keep a register of the Notes and of their transfer and exchange.
The Company may appoint one or more co-registrars and one or more additional
paying agents. The term "Registrar" includes any co-registrar and the term
"Paying Agent" includes any additional paying agent. The Company may change any
Paying Agent or Registrar without notice to any Holder. The Company shall notify
the Trustee in writing of the name and address of any Agent not a party to this
Indenture. If the Company fails to appoint or maintain another entity as
Registrar or Paying Agent, the Trustee shall act as such. The Company or any of
its Subsidiaries may act as Paying Agent or Registrar.
The Company initially appoints The Depository Trust Company
("DTC") to act as Depositary with respect to the Global Notes.
The Company initially appoints the Trustee to act as the
Registrar and Paying Agent and to act as Note Custodian with respect to the
Global Notes.
SECTION 2.04. PAYING AGENT TO HOLD MONEY IN TRUST.
The Company shall require each Paying Agent other than the
Trustee to agree in writing that the Paying Agent will hold in trust for the
benefit of Holders or the Trustee all money held by the Paying Agent for the
payment of principal, premium or Liquidated Damages, if any, or interest on the
Notes, and will notify the Trustee of any default by the Company in making any
such payment. While any such default continues, the Trustee may require a Paying
Agent to pay all money held by it to the Trustee. The Company at any time may
require a Paying Agent to pay all money held by it to the Trustee. Upon payment
over to the Trustee, the Paying Agent (if other than the Company or a
Subsidiary) shall have no further liability for the money. If the Company or a
Subsidiary acts as Paying Agent, it shall segregate and hold in a separate trust
fund for the benefit of the Holders all money held by it as Paying Agent. Upon
any bankruptcy or reorganization proceedings relating to the Company, the
Trustee shall serve as Paying Agent for the Notes.
SECTION 2.05. HOLDER LISTS.
The Trustee shall preserve in as current a form as is
reasonably practicable the most recent list available to it of the names and
addresses of all Holders and shall otherwise comply with TIA ss. 312(a). If the
Trustee is not the Registrar, the Company shall furnish to the Trustee at least
five Business Days before each interest payment date and at such other times as
the Trustee may request in writing, a list in such form and as of such date as
the Trustee may reasonably require of the names and addresses of the Holders of
Notes and the Company shall otherwise comply with TIA ss. 312(a).
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SECTION 2.06. TRANSFER AND EXCHANGE.
(a) Transfer and Exchange of Global Notes. A Global Note
may not be transferred as a whole except by the Depositary to a nominee of the
Depositary, by a nominee of the Depositary to the Depositary or to another
nominee of the Depositary, or by the Depositary or any such nominee to a
successor Depositary or a nominee of such successor Depositary. All Global Notes
will be exchanged by the Company for Definitive Notes if (i) the Company
delivers to the Trustee notice from the Depositary that it is unwilling or
unable to continue to act as Depositary or that it is no longer a clearing
agency registered under the Exchange Act and, in either case, a successor
Depositary is not appointed by the Company within 120 days after the date of
such notice from the Depositary or (ii) the Company in its sole discretion
determines that the Global Notes (in whole but not in part) should be exchanged
for Definitive Notes and delivers a written notice to such effect to the
Trustee. Upon the occurrence of either of the preceding events in (i) or (ii)
above, Definitive Notes shall be issued in such names as the Depositary shall
instruct the Trustee. Global Notes also may be exchanged or replaced, in whole
or in part, as provided in Sections 2.06, 2.07 and 2.10 hereof. Every Note
authenticated and made available for delivery in exchange for, or in lieu of, a
Global Note or any portion thereof, pursuant to Section 2.06, 2.07 or 2.10
hereof, shall be authenticated and made available for delivery in the form of,
and shall be, a Global Note. A Global Note may not be exchanged for another Note
other than as provided in this Section 2.06(a); however beneficial interests in
a Global Note may be transferred and exchanged as provided in Section 2.06(b),
(c) or (f) hereof.
(b) Transfer and Exchange of Beneficial Interests in the
Global Notes. The transfer and exchange of beneficial interests in the Global
Notes shall be effected through the Depositary, in accordance with the
provisions of this Indenture and the Applicable Procedures. Beneficial interests
in the Restricted Global Notes shall be subject to restrictions on transfer
comparable to those set forth herein to the extent required by the Securities
Act. The Trustee shall have no obligation to ascertain the Depositary's
compliance with any such restrictions on transfer. Transfers of beneficial
interests in the Global Notes also shall require compliance with either
subparagraph (i) or (ii) below, as applicable, as well as one or more of the
other following subparagraphs as applicable:
(i) Transfer of Beneficial Interests in the Same Global Note.
Beneficial interests in any Restricted Global Note may be transferred
to Persons who take delivery thereof in the form of a beneficial
interest in the same Restricted Global Note in accordance with the
transfer restrictions set forth in the Private Placement Legend;
provided, however, that prior to the expiration of the Distribution
Compliance Period, transfers of beneficial interests in the Regulation
S Global Note may not be made to a U.S. Person or for the account or
benefit of a U.S. Person (other than an Initial Purchaser). Beneficial
interests in any Unrestricted Global Note may be transferred only to
Persons who take delivery thereof in the form of a beneficial interest
in an Unrestricted Global Note. No written orders or instructions shall
be required to be delivered to the Registrar to effect the transfers
described in this Section 2.06(b)(i).
(ii) All Other Transfers and Exchanges of Beneficial Interests
in Global Notes. In connection with all transfers and exchanges of
beneficial interests (other than transfers of beneficial interests in a
Global Note to Persons who take delivery thereof in
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the form of a beneficial interest in the same Global Note), the
transferor of such beneficial interest must deliver to the Registrar
either (A)(1) a written order from a Participant or an Indirect
Participant given to the Depositary in accordance with the Applicable
Procedures directing the Depositary to credit or cause to be credited a
beneficial interest in the specified Global Note in an amount equal to
the beneficial interest to be transferred or exchanged and (2)
instructions given in accordance with the Applicable Procedures
containing information regarding the Participant account to be credited
with such increase or (B)(1) a written order from a Participant or an
Indirect Participant given to the Depositary in accordance with the
Applicable Procedures directing the Depositary to cause to be issued a
Definitive Note in an amount equal to the beneficial interest to be
transferred or exchanged and (2) instructions given by the Depositary
to the Registrar containing information regarding the Person in whose
name such Definitive Note shall be registered to effect the transfer or
exchange referred to in (B)(1) above. Upon an Exchange Offer by the
Company in accordance with Section 2.06(f) hereof, the requirements of
this Section 2.06(b)(ii) shall be deemed to have been satisfied upon
receipt by the Registrar of the instructions contained in the Letter of
Transmittal delivered by the Holder of such beneficial interests in the
Restricted Global Notes. Upon satisfaction of all of the requirements
for transfer or exchange of beneficial interests in Global Notes
contained in this Indenture, the Notes and otherwise applicable under
the Securities Act, the Trustee shall adjust the principal amount of
the relevant Global Note(s) pursuant to Section 2.06(h) hereof.
(iii) Transfer of Beneficial Interests to Another Restricted
Global Note. Beneficial interests in any Restricted Global Note may be
transferred to Persons who take delivery thereof in the form of a
beneficial interest in another Restricted Global Note if the transfer
complies with the requirements of Section 2.06(b)(ii) above and the
Registrar receives the following:
(A) if the transferee will take delivery in the form
of a beneficial interest in the 144A Global Note, then the
transferor must deliver a certificate in the form of Exhibit B
hereto, including the certifications in item (1) thereof;
(B) if the transferee will take delivery in the form
of a beneficial interest in the Regulation S Global Note, then
the transferor must deliver a certificate in the form of
Exhibit B hereto, including the certifications in item (2)
thereof; and
(C) if the transferee will take delivery in the form
of a beneficial interest in the IAI Global Note, then the
transferor must deliver (x) a certificate in the form of
Exhibit B hereto, including the certifications in item (3)
thereof, (y) to the extent required by item 3(d) of Exhibit B
hereto, an Opinion of Counsel in form reasonably acceptable to
the Company to the effect that such transfer is in compliance
with the Securities Act and such beneficial interest is being
transferred in compliance with any applicable blue sky
securities laws of any State of the United States and (z) if
the transfer is being made to an Institutional Accredited
Investor and effected pursuant to an exemption from the
registration requirements of the Securities Act other than
Rule 144A under the Securities Act,
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Rule 144 under the Securities Act or Rule 904 under the
Securities Act, a certificate from the transferee in the form
of Exhibit D hereto.
(iv) Transfer and Exchange of Beneficial Interests in a
Restricted Global Note for Beneficial Interests in the Unrestricted
Global Note. Beneficial interests in any Restricted Global Note may be
exchanged by any holder thereof for a beneficial interest in the
Unrestricted Global Note or transferred to Persons who take delivery
thereof in the form of a beneficial interest in the Unrestricted Global
Note if the exchange or transfer complies with the requirements of
Section 2.06(b)(ii) above and:
(A) such exchange or transfer is effected pursuant to
the Exchange Offer in accordance with the Registration Rights
Agreement and the holder, in the case of an exchange, or the
transferee, in the case of a transfer, is not (1) a
broker-dealer, (2) a Person participating in the distribution
of the Exchange Notes or (3) a Person who is an affiliate (as
defined in Rule 144) of the Company;
(B) any such transfer is effected pursuant to the
Shelf Registration Statement in accordance with the
Registration Rights Agreement;
(C) any such transfer is effected by a Participating
Broker-Dealer pursuant to the Exchange Offer Registration
Statement in accordance with the Registration Rights
Agreement; or
(D) the Registrar receives the following:
(1) if the holder of such beneficial
interest in a Restricted Global Note proposes to exchange such
beneficial interest for a beneficial interest in the
Unrestricted Global Note, a certificate from such holder in
the form of Exhibit C hereto, including the certifications in
item (1)(a) thereof; or
(2) if the holder of such beneficial
interest in a Restricted Global Note proposes to transfer such
beneficial interest to a Person who shall take delivery
thereof in the form of a beneficial interest in the
Unrestricted Global Note, a certificate from such holder in
the form of Exhibit B hereto, including the certifications in
item (4) thereof; and
(3) in each such case set forth in this
subparagraph (D), an Opinion of Counsel in form reasonably
acceptable to the Registrar to the effect that such exchange
or transfer is in compliance with the Securities Act, that the
restrictions on transfer contained herein and in the Private
Placement Legend are not required in order to maintain
compliance with the Securities Act, and such beneficial
interest is being exchanged or transferred in compliance with
any applicable blue sky securities laws of any State of the
United States.
If any such transfer is effected pursuant to subparagraph (B)
or (D) above at a time when an Unrestricted Global Note has not yet been issued,
the Company shall issue and, upon receipt of an authentication order in
accordance with Section 2.02 hereof, the Trustee shall
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authenticate one or more Unrestricted Global Notes in an aggregate principal
amount equal to the principal amount of beneficial interests transferred
pursuant to subparagraph (B) or (D) above.
(v) Transfer or Exchange of Beneficial Interests in
Unrestricted Global Notes for Beneficial Interests in Restricted Global
Notes Prohibited. Beneficial interests in an Unrestricted Global Note
cannot be exchanged for, or transferred to Persons who take delivery
thereof in the form of, a beneficial interest in any Restricted Global
Note.
(c) Transfer or Exchange of Beneficial Interests for
Definitive Notes.
(i) Beneficial Interests in Restricted Global Notes to
Restricted Definitive Notes. If any holder of a beneficial interest in
a Restricted Global Note proposes to exchange such beneficial interest
for a Restricted Definitive Note or to transfer such beneficial
interest to a Person who takes delivery thereof in the form of a
Restricted Definitive Note, then, upon receipt by the Registrar of the
following documentation (all of which may be submitted by facsimile):
(A) if the holder of such beneficial interest in a
Restricted Global Note proposes to exchange such beneficial
interest for a Restricted Definitive Note, a certificate from
such holder in the form of Exhibit C hereto, including the
certifications in item (2)(a) thereof;
(B) if such beneficial interest is being transferred
to a QIB in accordance with Rule 144A under the Securities
Act, a certificate to the effect set forth in Exhibit B
hereto, including the certifications in item (1) thereof;
(C) if such beneficial interest is being transferred
to a Non-U.S. Person in an offshore transaction in accordance
with Rule 903 or Rule 904 under the Securities Act, a
certificate to the effect set forth in Exhibit B hereto,
including the certifications in item (2) thereof;
(D) if such beneficial interest is being transferred
pursuant to an exemption from the registration requirements of
the Securities Act in accordance with Rule 144 under the
Securities Act, a certificate to the effect set forth in
Exhibit B hereto, including the certifications in item (3)(a)
thereof;
(E) if such beneficial interest is being transferred
to an Institutional Accredited Investor in reliance on an
exemption from the registration requirements of the Securities
Act other than those listed in subparagraphs (B) through (D)
above, a certificate to the effect set forth in Exhibit B
hereto, including the certifications in item (3)(d) thereof, a
certificate from the transferee to the effect set forth in
Exhibit D hereof and, to the extent required by item 3(d) of
Exhibit B, an Opinion of Counsel from the transferee or the
transferor reasonably acceptable to the Company to the effect
that such transfer is in compliance with the Securities Act
and such beneficial interest is being transferred in
compliance with any applicable blue sky securities laws of any
State of the United States;
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(F) if such beneficial interest is being transferred
to the Company or any of its Subsidiaries, a certificate to
the effect set forth in Exhibit B hereto, including the
certifications in item (3)(b) thereof; or
(G) if such beneficial interest is being transferred
pursuant to an effective registration statement under the
Securities Act, a certificate to the effect set forth in
Exhibit B hereto, including the certifications in item (3)(c)
thereof, the Trustee shall cause the aggregate principal
amount of the applicable Global Note to be reduced accordingly
pursuant to Section 2.06(h) hereof, and the Company shall
execute and the Trustee shall authenticate and deliver to the
Person designated in the instructions a Definitive Note in the
appropriate principal amount. Definitive Notes issued in
exchange for beneficial interests in a Restricted Global Note
pursuant to this Section 2.06(c) shall be registered in such
names and in such authorized denominations as the holder shall
instruct the Registrar through instructions from the
Depositary and the Participant or Indirect Participant. The
Trustee shall deliver such Definitive Notes to the Persons in
whose names such Notes are so registered. Definitive Notes
issued in exchange for a beneficial interest in a Restricted
Global Note pursuant to this Section 2.06(c)(i) shall bear the
Private Placement Legend and shall be subject to all
restrictions on transfer contained therein.
(ii) Beneficial Interests in Restricted Global Notes to
Unrestricted Definitive Notes. Notwithstanding Section 2.06(c)(i)
hereof, a holder of a beneficial interest in a Restricted Global Note
may exchange such beneficial interest for an Unrestricted Definitive
Note or may transfer such beneficial interest to a Person who takes
delivery thereof in the form of an Unrestricted Definitive Note only
if:
(A) such exchange or transfer is effected pursuant to
the Exchange Offer in accordance with the Registration Rights
Agreement and the holder, in the case of an exchange, or the
transferee, in the case of a transfer, is not (1) a
broker-dealer, (2) a Person participating in the distribution
of the Exchange Notes or (3) a Person who is an affiliate (as
defined in Rule 144) of the Company;
(B) any such transfer is effected pursuant to the
Shelf Registration Statement in accordance with the
Registration Rights Agreement;
(C) any such transfer is effected by a Participating
Broker-Dealer pursuant to the Exchange Offer Registration
Statement in accordance with the Registration Rights
Agreement; or
(D) the Registrar receives the following:
(1) if the holder of such beneficial interest in
a Restricted Global Note proposes to exchange such beneficial
interest for a Definitive Note that does not bear the Private
Placement Legend, a certificate from such holder in the form
of Exhibit C hereto, including the certifications in item
(1)(b) thereof; or
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(2) if the holder of such beneficial interest in
a Restricted Global Note proposes to transfer such beneficial
interest to a Person who shall take delivery thereof in the
form of a Definitive Note that does not bear the Private
Placement Legend, a certificate from such holder in the form
of Exhibit B hereto, including the certifications in item (4)
thereof; and
(3) in each such case set forth in this
subparagraph (D), an Opinion of Counsel in form reasonably
acceptable to the Company, to the effect that such exchange or
transfer is in compliance with the Securities Act, that the
restrictions on transfer contained herein and in the Private
Placement Legend are not required in order to maintain
compliance with the Securities Act, and such beneficial
interest in a Restricted Global Note is being exchanged or
transferred in compliance with any applicable blue sky
securities laws of any State of the United States.
(iii) Beneficial Interests in Unrestricted Global Notes to
Unrestricted Definitive Notes. If any holder of a beneficial interest
in an Unrestricted Global Note proposes to exchange such beneficial
interest for a Definitive Note or to transfer such beneficial interest
to a Person who takes delivery thereof in the form of a Definitive
Note, then, upon satisfaction of the conditions set forth in Section
2.06(b)(ii) hereof, the Trustee shall cause the aggregate principal
amount of the applicable Global Note to be reduced accordingly pursuant
to Section 2.06(h) hereof, and the Company shall execute and the
Trustee shall authenticate and deliver to the Person designated in the
instructions a Definitive Note in the appropriate principal amount.
Definitive Notes issued in exchange for a beneficial interest pursuant
to this Section 2.06(c)(iii) shall be registered in such names and in
such authorized denominations as the holder shall instruct the
Registrar through instructions from the Depositary and the Participant
or Indirect Participant. The Trustee shall deliver such Definitive
Notes to the Persons in whose names such Notes are so registered.
Definitive Notes issued in exchange for a beneficial interest pursuant
to this Section 2.06(c)(iii) shall not bear the Private Placement
Legend.
(iv) Transfer or Exchange of Beneficial Interests in
Unrestricted Global Notes to Restricted Definitive Notes Prohibited.
Beneficial interests in an Unrestricted Global Note cannot be exchanged
for a Definitive Note bearing the Private Placement Legend or
transferred to a Person who takes delivery thereof in the form of a
Definitive Note bearing the Private Placement Legend.
(d) Transfer or Exchange of Definitive Notes for
Beneficial Interests.
(i) Restricted Definitive Notes to Beneficial Interests in
Restricted Global Notes. If any Holder of Restricted Definitive Notes
proposes to exchange such Notes for a beneficial interest in a
Restricted Global Note or to transfer such Restricted Definitive Notes
to a Person who takes delivery thereof in the form of a beneficial
interest in a Restricted Global Note, then, upon receipt by the
Registrar of the following documentation (all of which may be submitted
by facsimile):
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(A) if the Holder of such Restricted Definitive Notes
proposes to exchange such Notes for a beneficial interest in a
Restricted Global Note, a certificate from such Holder in the
form of Exhibit C hereto, including the certifications in item
(2)(b) thereof;
(B) if such Restricted Definitive Notes are being
transferred to a QIB in accordance with Rule 144A under the
Securities Act, a certificate to the effect set forth in
Exhibit B hereto, including the certifications in item (1)
thereof;
(C) if such Restricted Definitive Notes are being
transferred to a Non-U.S. Person in an offshore transaction in
accordance with Rule 903 or Rule 904 under the Securities Act,
a certificate to the effect set forth in Exhibit B hereto,
including the certifications in item (2) thereof;
(D) if such Restricted Definitive Notes are being
transferred pursuant to an exemption from the registration
requirements of the Securities Act in accordance with Rule 144
under the Securities Act, a certificate to the effect set
forth in Exhibit B hereto, including the certifications in
item (3)(a) thereof;
(E) if such Restricted Definitive Notes are being
transferred to an Institutional Accredited Investor in
reliance on an exemption from the registration requirements of
the Securities Act other than those listed in subparagraphs
(B) through (D) above, a certificate to the effect set forth
in Exhibit B hereto, including the certifications in item
(3)(d) thereof, a certificate from the transferee to the
effect set forth in Exhibit D hereof and, to the extent
required by item 3(d) of Exhibit B, an Opinion of Counsel from
the transferee or the transferor reasonably acceptable to the
Company to the effect that such transfer is in compliance with
the Securities Act and such Definitive Notes are being
transferred in compliance with any applicable blue sky
securities laws of any State of the United States;
(F) if such Restricted Definitive Notes are being
transferred to the Company or any of its Subsidiaries, a
certificate to the effect set forth in Exhibit B hereto,
including the certifications in item (3)(b) thereof; or
(G) if such Restricted Definitive Notes are being
transferred pursuant to an effective registration statement
under the Securities Act, a certificate to the effect set
forth in Exhibit B hereto, including the certifications in
item (3)(c) thereof,
the Trustee shall cancel the Definitive Notes, increase or cause to be
increased the aggregate principal amount of, in the case of clause (A)
above, the appropriate Restricted Global Note, in the case of clause
(B) above, the 144A Global Note, in the case of clause (C) above, the
Regulation S Global Note, and in all other cases, the IAI Global Note.
(ii) Restricted Definitive Notes to Beneficial Interests in
Unrestricted Global Notes. A Holder of Restricted Definitive Notes may
exchange such Notes for a beneficial interest in the Unrestricted
Global Note or transfer such Restricted Definitive
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Notes to a Person who takes delivery thereof in the form of a
beneficial interest in the Unrestricted Global Note only if:
(A) such exchange or transfer is effected pursuant to
the Exchange Offer in accordance with the Registration Rights
Agreement and the Holder, in the case of an exchange, or the
transferee, in the case of a transfer, is not (1) a
broker-dealer, (2) a Person participating in the distribution
of the Exchange Notes or (3) a Person who is an affiliate (as
defined in Rule 144) of the Company;
(B) any such transfer is effected pursuant to the
Shelf Registration Statement in accordance with the
Registration Rights Agreement;
(C) any such transfer is effected by a Participating
Broker-Dealer pursuant to the Exchange Offer Registration
Statement in accordance with the Registration Rights
Agreement; or
(D) the Registrar receives the following:
(1) if the Holder of such Definitive Notes
proposes to exchange such Notes for a beneficial interest in
the Unrestricted Global Note, a certificate from such Holder
in the form of Exhibit C hereto, including the certifications
in item (1)(c) thereof; or
(2) if the Holder of such Definitive Notes
proposes to transfer such Notes to a Person who shall take
delivery thereof in the form of a beneficial interest in the
Unrestricted Global Note, a certificate from such Holder in
the form of Exhibit B hereto, including the certifications in
item (4) thereof; and
(3) in each such case set forth in this
subparagraph (D), an Opinion of Counsel in form reasonably
acceptable to the Company to the effect that such exchange or
transfer is in compliance with the Securities Act, that the
restrictions on transfer contained herein and in the Private
Placement Legend are not required in order to maintain
compliance with the Securities Act, and such Definitive Notes
are being exchanged or transferred in compliance with any
applicable blue sky securities laws of any State of the United
States.
Upon satisfaction of the conditions of any of the
subparagraphs in this Section 2.06(d)(ii), the Trustee shall cancel the
Definitive Notes and increase or cause to be increased the aggregate
principal amount of the Unrestricted Global Note.
(iii) Unrestricted Definitive Notes to Beneficial Interests in
Unrestricted Global Notes. A Holder of Unrestricted Definitive Notes
may exchange such Notes for a beneficial interest in the Unrestricted
Global Note or transfer such Definitive Notes to a Person who takes
delivery thereof in the form of a beneficial interest in the
Unrestricted Global Note. Upon receipt of a request for such an
exchange or transfer, the Trustee shall cancel the Unrestricted
Definitive Notes and increase or cause to be increased the aggregate
principal amount of the Unrestricted Global Note.
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(iv) Transfer or Exchange of Unrestricted Definitive Notes
to Beneficial Interests in Restricted Global Notes Prohibited. An Unrestricted
Definitive Note cannot be exchanged for, or transferred to Persons who take
delivery thereof in the form of, beneficial interests in a Restricted Global
Note.
(v) Issuance of Unrestricted Global Notes. If any such
exchange or transfer from a Definitive Note to a beneficial interest is effected
pursuant to subparagraphs (ii)(B), (ii)(D) or (iii) above at a time when an
Unrestricted Global Note has not yet been issued, the Company shall issue and,
upon receipt of an authentication order in accordance with Section 2.02 hereof,
the Trustee shall authenticate one or more Unrestricted Global Notes in an
aggregate principal amount equal to the principal amount of beneficial interests
transferred pursuant to subparagraphs (ii)(B), (ii)(D) or (iii) above.
(e) Transfer and Exchange of Definitive Notes. Upon
request by a Holder of Definitive Notes and such Holder's compliance with the
provisions of this Section 2.06(e), the Registrar shall register the transfer or
exchange of Definitive Notes. Prior to such registration of transfer or
exchange, the requesting Holder shall present or surrender to the Registrar the
Definitive Notes duly endorsed or accompanied by a written instruction of
transfer in form satisfactory to the Registrar duly executed by such Holder or
by his attorney, duly authorized in writing. In addition, the requesting Holder
shall provide any additional certifications, documents and information, as
applicable, pursuant to the provisions of this Section 2.06(e).
(i) Restricted Definitive Notes to Restricted Definitive
Notes. Restricted Definitive Notes may be transferred to and registered
in the name of Persons who take delivery thereof in the form of a
Restricted Definitive Note if the Registrar receives the following:
(A) if the transfer will be made pursuant to Rule
144A under the Securities Act, then the transferor must
deliver a certificate in the form of Exhibit B hereto,
including the certifications in item (1) thereof;
(B) if the transfer will be made pursuant to Rule 903
or Rule 904 under the Securities Act, then the transferor must
deliver a certificate in the form of Exhibit B hereto,
including the certifications in item (2) thereof; and
(C) if the transfer will be made pursuant to any
other exemption from the registration requirements of the
Securities Act, then the transferor must deliver (x) a
certificate in the form of Exhibit B hereto, including the
certifications in item (3) thereof, (y) to the extent required
by item 3(d) of Exhibit B hereto, an Opinion of Counsel in
form reasonably acceptable to the Company to the effect that
such transfer is in compliance with the Securities Act and
such beneficial interest is being transferred in compliance
with any applicable blue sky securities laws of any State of
the United States and (z) if the transfer is being made to an
Institutional Accredited Investor and effected pursuant to an
exemption from the registration requirements of the Securities
Act other than Rule 144A under the Securities Act, Rule 144
under the Securities Act or Rule 904 under the Securities Act,
a certificate from the transferee in the form of Exhibit D
hereto.
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(ii) Restricted Definitive Notes to Unrestricted Definitive
Notes. Restricted Definitive Notes may be exchanged by any Holder
thereof for an Unrestricted Definitive Note or transferred to Persons
who take delivery thereof in the form of an Unrestricted Definitive
Note if:
(A) such exchange or transfer is effected pursuant to
the Exchange Offer in accordance with the Registration Rights
Agreement and the holder, in the case of an exchange, or the
transferee, in the case of a transfer, is not (1) a
broker-dealer, (2) a Person participating in the distribution
of the Exchange Notes or (3) a Person who is an affiliate (as
defined in Rule 144) of the Company;
(B) any such transfer is effected pursuant to the
Shelf Registration Statement in accordance with the
Registration Rights Agreement;
(C) any such transfer is effected by a Participating
Broker-Dealer pursuant to the Exchange Offer Registration
Statement in accordance with the Registration Rights
Agreement; or
(D) the Registrar receives the following:
(1) if the Holder of such Restricted
Definitive Notes proposes to exchange such Notes for an
Unrestricted Definitive Note, a certificate from such Holder
in the form of Exhibit C hereto, including the certifications
in item (1)(a) thereof; or
(2) if the Holder of such Restricted
Definitive Notes proposes to transfer such Notes to a Person
who shall take delivery thereof in the form of an Unrestricted
Definitive Note, a certificate from such Holder in the form of
Exhibit B hereto, including the certifications in item (4)
thereof; and
(3) in each such case set forth in this
subparagraph (D), an Opinion of Counsel in form reasonably
acceptable to the Company to the effect that such exchange or
transfer is in compliance with the Securities Act, that the
restrictions on transfer contained herein and in the Private
Placement Legend are not required in order to maintain
compliance with the Securities Act, and such Restricted
Definitive Note is being exchanged or transferred in
compliance with any applicable blue sky securities laws of any
State of the United States.
(iii) Unrestricted Definitive Notes to Unrestricted Definitive
Notes. A Holder of Unrestricted Definitive Notes may transfer such
Notes to a Person who takes delivery thereof in the form of an
Unrestricted Definitive Note. Upon receipt of a request for such a
transfer, the Registrar shall register the Unrestricted Definitive
Notes pursuant to the instructions from the Holder thereof.
Unrestricted Definitive Notes cannot be exchanged for or transferred to
Persons who take delivery thereof in the form of a Restricted
Definitive Note.
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(iv) Transfer or Exchange of Unrestricted Definitive Notes
to Restricted Definitive Notes Prohibited. An Unrestricted Definitive Note
cannot be exchanged for, or transferred to Persons who take delivery thereof in
the form of a Restricted Definitive Note.
(f) Exchange Offer. Upon the occurrence of the Exchange
Offer in accordance with the Registration Rights Agreement, the Company shall
issue and, upon receipt of an authentication order in accordance with Section
2.02 hereof, the Trustee shall authenticate (i) one or more Unrestricted Global
Notes in an aggregate principal amount equal to the principal amount of the
beneficial interests in the Restricted Global Notes tendered for acceptance by
persons that are not (x) broker-dealers, (y) Persons participating in the
distribution of the Exchange Notes or (z) Persons who are affiliates (as defined
in Rule 144) of the Company and accepted for exchange in the Exchange Offer and
(ii) Definitive Notes in an aggregate principal amount equal to the principal
amount of the Restricted Definitive Notes accepted for exchange in the Exchange
Offer. Concurrent with the issuance of such Notes, the Trustee shall cause the
aggregate principal amount of the applicable Restricted Global Notes to be
reduced accordingly, and the Company shall execute and the Trustee shall
authenticate and make available for delivery to the Persons designated by the
Holders of Definitive Notes so accepted Definitive Notes in the appropriate
principal amount.
(g) Legends. The following legends shall appear on the
face of all Global Notes and Definitive Notes issued under this Indenture unless
specifically stated otherwise in the applicable provisions of this Indenture.
(i) Private Placement Legend.
(A) Except as permitted by subparagraph (b) below,
each Global Note and each Definitive Note (and all Notes
issued in exchange therefor or substitution thereof) shall
bear the legend in substantially the following form:
"THE NOTES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR OTHER
SECURITIES LAWS. NEITHER THIS NOTE NOR ANY INTEREST OR PARTICIPATION
HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED,
ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION
UNLESS THE TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. THE HOLDER OF THIS
SECURITY BY ITS ACCEPTANCE HEREOF (1) REPRESENTS THAT (A) IT IS A
"QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE
SECURITIES ACT) OR (B) IT IS NOT A U.S. PERSON AND IS ACQUIRING ITS
NOTE IN AN "OFFSHORE TRANSACTION" PURSUANT TO RULE 904 OF REGULATION S
UNDER THE SECURITIES ACT, (2) AGREES THAT IT WILL NOT PRIOR TO (X) THE
DATE WHICH IS TWO YEARS (OR SUCH SHORTER PERIOD OF TIME AS PERMITTED BY
RULE 144(k) UNDER THE SECURITIES ACT OR ANY SUCCESSOR PROVISION
THEREUNDER) AFTER THE LATER OF THE ORIGINAL ISSUE DATE HEREOF (OR OF
ANY PREDECESSOR OF THIS NOTE) OR THE LAST DAY ON WHICH AMES OR ANY
AFFILIATE OF AMES
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WAS THE OWNER OF THIS NOTE (OR ANY PREDECESSOR OF THIS NOTE) AND (Y)
SUCH LATER DATE, IF ANY, AS MAY BE REQUIRED BY APPLICABLE LAW (THE
"RESALE RESTRICTION TERMINATION DATE"), OFFER, SELL OR OTHERWISE
TRANSFER THIS NOTE EXCEPT (A) TO AMES, (B) PURSUANT TO A REGISTRATION
STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT,
(C) FOR SO LONG AS THE NOTES ARE ELIGIBLE FOR RESALE PURSUANT TO
RULE 144A, TO A PERSON IT REASONABLY BELIEVES IS A "QUALIFIED
INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT
THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED
INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING
MADE IN RELIANCE ON RULE 144A INSIDE THE UNITED STATES, (D) PURSUANT TO
OFFERS AND SALES TO NON-U.S. PERSONS THAT OCCUR OUTSIDE THE UNITED
STATES WITHIN THE MEANING OF REGULATION S UNDER THE SECURITIES ACT OR
(E) PURSUANT TO ANY OTHER AVAILABLE EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND (3) AGREES THAT IT WILL GIVE TO
EACH PERSON TO WHOM THIS NOTE IS TRANSFERRED A NOTICE SUBSTANTIALLY TO
THE EFFECT OF THIS LEGEND; PROVIDED THAT AMES, THE TRUSTEE, AND THE
REGISTRAR SHALL HAVE THE RIGHT PRIOR TO ANY SUCH OFFER, SALE OR
TRANSFER (I) PURSUANT TO CLAUSE (D) OR (E) TO REQUIRE THE DELIVERY OF
AN OPINION OF COUNSEL, CERTIFICATION AND/OR OTHER INFORMATION
SATISFACTORY TO EACH OF THEM, AND (II) IN EACH OF THE FOREGOING CASES,
TO REQUIRE THAT A CERTIFICATION OF TRANSFER IN THE FORM PROVIDED IN THE
INDENTURE GOVERNING THIS NOTE IS COMPLETED AND DELIVERED BY THE
TRANSFEROR TO THE TRUSTEE. THIS LEGEND WILL BE REMOVED UPON THE REQUEST
OF THE HOLDER AFTER THE RESALE RESTRICTION TERMINATION DATE. AS USED
HEREIN, THE TERMS "OFFSHORE TRANSACTION," "UNITED STATES" AND "U.S.
PERSON" HAVE THE MEANINGS GIVEN TO THEM BY REGULATION S UNDER THE
SECURITIES ACT."
(B) Notwithstanding the foregoing, any Global Note or
Definitive Note issued pursuant to subparagraphs (b)(iv),
(c)(ii), (c)(iii), (d)(ii), (d)(iii), (e)(ii), (e)(iii) or (f)
of this Section 2.06 (and all Notes issued in exchange
therefor or substitution thereof) shall not bear the Private
Placement Legend.
(ii) Global Note Legend. Each Global Note shall bear a legend
in substantially the following form:
"THIS GLOBAL NOTE IS HELD BY THE DEPOSITARY (AS DEFINED IN THE
INDENTURE GOVERNING THIS NOTE) OR ITS NOMINEE IN CUSTODY FOR THE
BENEFIT OF THE BENEFICIAL OWNERS HEREOF, AND IS NOT TRANSFERABLE TO ANY
PERSON UNDER ANY CIRCUMSTANCES EXCEPT THAT (I) THE TRUSTEE MAY MAKE
SUCH NOTATIONS HEREON AS MAY BE REQUIRED PURSUANT TO SECTION 2.06 OF
THE INDENTURE, (II) THIS GLOBAL NOTE MAY BE EXCHANGED IN WHOLE BUT NOT
IN PART
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PURSUANT TO SECTION 2.06(a) OF THE INDENTURE, (III) THIS GLOBAL
NOTE MAY BE DELIVERED TO THE TRUSTEE FOR CANCELLATION PURSUANT TO
SECTION 2.11 OF THE INDENTURE AND (IV) THIS GLOBAL NOTE MAY BE
TRANSFERRED TO A SUCCESSOR DEPOSITARY WITH THE PRIOR WRITTEN CONSENT OF
AMES."
(h) Cancellation and/or Adjustment of Global Notes. At
such time as all beneficial interests in a particular Global Note have been
exchanged for Definitive Notes or a particular Global Note has been redeemed,
repurchased or canceled in whole and not in part, each such Global Note shall be
returned to or retained and canceled by the Trustee in accordance with Section
2.11 hereof. At any time prior to such cancellation, if any beneficial interest
in a Global Note is exchanged for or transferred to a Person who will take
delivery thereof in the form of a beneficial interest in another Global Note or
for Definitive Notes, the principal amount of Notes represented by such Global
Note shall be reduced accordingly and an endorsement shall be made on such
Global Note, by the Trustee or by the Depositary at the direction of the
Trustee, to reflect such reduction; and if the beneficial interest is being
exchanged for or transferred to a Person who will take delivery thereof in the
form of a beneficial interest in another Global Note, such other Global Note
shall be increased accordingly and an endorsement shall be made on such Global
Note, by the Trustee or by the Depositary at the direction of the Trustee, to
reflect such increase.
(i) General Provisions Relating to Transfers and Exchanges.
(i) To permit registrations of transfers and exchanges, the
Company shall execute and the Trustee shall authenticate Global Notes
and Definitive Notes upon the Company's order or at the Registrar's
request.
(ii) No service charge shall be made to a holder of a
beneficial interest in a Global Note or to a Holder of a Definitive
Note for any registration of transfer or exchange, but the Company may
require payment of a sum sufficient to cover any transfer tax or
similar governmental charge payable in connection therewith (other than
any such transfer taxes or similar governmental charge payable upon
exchange or transfer pursuant to Sections 2.10, 3.06, 4.10, 4.15 and
9.05 hereof).
(iii) The Registrar shall not be required to register the
transfer of or exchange any Note selected for redemption in whole or in
part, except the unredeemed portion of any Note being redeemed in part.
(iv) All Global Notes and Definitive Notes issued upon any
registration of transfer or exchange of Global Notes or Definitive
Notes shall be the valid obligations of the Company, evidencing the
same debt, and entitled to the same benefits under this Indenture, as
the Global Notes or Definitive Notes surrendered upon such registration
of transfer or exchange.
(v) The Company shall not be required (A) to issue, to
register the transfer of or to exchange Notes during a period beginning
at the opening of business 15 days before the day of any selection of
Notes for redemption under Section 3.02 hereof and ending at
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the close of business on the day of selection, (B) to register the
transfer of or to exchange any Note so selected for redemption in whole
or in part, except the unredeemed portion of any Note being redeemed in
part or (C) to register the transfer of or to exchange a Note between a
record date and the next succeeding Interest Payment Date.
(vi) Prior to due presentment for the registration of a
transfer of any Note, the Trustee, any Agent and the Company may deem
and treat the Person in whose name any Note is registered as the
absolute owner of such Note for the purpose of receiving payment of
principal of and interest on such Notes and for all other purposes, and
none of the Trustee, any Agent or the Company shall be affected by
notice to the contrary.
(vii) The Trustee shall authenticate Global Notes and
Definitive Notes in accordance with the provisions of Section 2.02
hereof.
SECTION 2.07. REPLACEMENT NOTES.
If any mutilated Note is surrendered to the Trustee or the
Company and the Trustee receives evidence to its satisfaction of the
destruction, loss or theft of any Note, the Company shall issue and the Trustee,
upon the written order of the Company signed by two Officers of the Company,
shall authenticate a replacement Note if the Trustee's requirements are met. If
required by the Trustee or the Company, an indemnity bond must be supplied by
the Holder that is sufficient in the judgment of the Trustee and the Company to
protect the Company, the Trustee, any Agent and any authenticating agent from
any loss that any of them may suffer if a Note is replaced. The Company may
charge for its expenses in replacing a Note.
Every replacement Note is an additional obligation of the
Company and shall be entitled to all of the benefits of this Indenture equally
and proportionately with all other Notes duly issued hereunder.
SECTION 2.08. OUTSTANDING NOTES.
The Notes outstanding at any time are all the Notes
authenticated by the Trustee except for those canceled by it, those delivered to
it for cancellation, those reductions in the interest in a Global Note effected
by the Trustee in accordance with the provisions hereof, and those described in
this Section 2.08 as not outstanding. Except as set forth in Section 2.09
hereof, a Note does not cease to be outstanding because the Company or an
Affiliate of the Company holds the Note.
If a Note is replaced pursuant to Section 2.07 hereof, it
ceases to be outstanding unless the Trustee receives proof satisfactory to it
that the replaced Note is held by a bona fide purchaser.
If the principal amount of any Note is considered paid under
Section 4.01 hereof, it ceases to be outstanding and interest on it ceases to
accrue.
If the Paying Agent (other than the Company, a Subsidiary or
an Affiliate of any thereof) holds, on a redemption date or maturity date, money
sufficient to pay Notes payable on
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that date, then on and after that date such Notes shall be deemed to be no
longer outstanding and shall cease to accrue interest.
SECTION 2.09. TREASURY NOTES.
In determining whether the Holders of the required principal
amount of Notes have concurred in any direction, waiver or consent, Notes owned
by the Company, or by any Person directly or indirectly controlling or
controlled by or under direct or indirect common control with the Company, shall
be considered as though not outstanding, except that for the purposes of
determining whether the Trustee shall be protected in relying on any such
direction, waiver or consent, only Notes that a Trustee knows are so owned shall
be so disregarded.
SECTION 2.10. TEMPORARY NOTES.
Until Definitive Notes are ready for delivery, the Company may
prepare and the Trustee shall authenticate temporary Notes upon a written order
of the Company signed by two Officers of the Company. Temporary Notes shall be
substantially in the form of Definitive Notes but may have variations that the
Company considers appropriate for temporary Notes and as shall be reasonably
acceptable to the Trustee. Without unreasonable delay, the Company shall prepare
and the Trustee shall authenticate Definitive Notes in exchange for temporary
Notes.
Holders of temporary Notes shall be entitled to all of the
benefits of this Indenture.
SECTION 2.11. CANCELLATION.
The Company at any time may deliver Notes to the Trustee for
cancellation. The Registrar and Paying Agent shall forward to the Trustee any
Notes surrendered to them for registration of transfer, exchange or payment. The
Trustee and no one else shall cancel all Notes surrendered for registration of
transfer, exchange, payment, replacement or cancellation and shall destroy
canceled Notes (subject to the record retention requirements of the Exchange
Act). Certification of the destruction of all canceled Notes shall be delivered
to the Company. The Company may not issue new Notes to replace Notes that it has
paid or that have been delivered to the Trustee for cancellation.
SECTION 2.12. DEFAULTED INTEREST.
If the Company defaults in a payment of interest on the Notes,
it shall pay the defaulted interest in any lawful manner plus, to the extent
lawful, interest payable on the defaulted interest, to the Persons who are
Holders on a subsequent special record date, in each case at the rate provided
in the Notes and in Section 4.01 hereof. The Company shall notify the Trustee in
writing of the amount of defaulted interest proposed to be paid on each Note and
the date of the proposed payment. The Company shall fix or cause to be fixed
each such special record date and payment date, provided that no such special
record date shall be less than 10 days prior to the related payment date for
such defaulted interest. At least 15 days before the special record date, the
Company (or, upon the written request of the Company, the Trustee in the name
and at the expense of the Company) shall mail or cause to be mailed to Holders a
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notice that states the special record date, the related payment date and the
amount of such interest to be paid.
SECTION 2.13. Cusip NUMBERS.
The Company in issuing the Notes may use "CUSIP," "CINS," and
"ISIN" numbers (if then generally in use), and, if so, the Trustee shall use
CUSIP, CINS or ISIN numbers as applicable, in notices of redemption as a
convenience to Holders; provided that any such notice may state that no
representation is made as to the correctness of such numbers either as printed
on the Notes or as contained in any notice of a redemption and that reliance may
be placed only on the other identification numbers printed on the Notes, and any
such redemption shall not be affected by any defect in or omission of such
numbers. The Company will promptly notify the Trustee of any change in the
CUSIP, CINS or ISIN numbers.
ARTICLE 3.
REDEMPTION AND PREPAYMENT
SECTION 3.01. NOTICES TO TRUSTEE.
If the Company elects to redeem Notes pursuant to the optional
redemption provisions of Section 3.07 hereof, it shall furnish to the Trustee,
at least 30 days but not more than 60 days before a redemption date, an
Officers' Certificate setting forth (i) the clause of this Indenture pursuant to
which the redemption shall occur, (ii) the redemption date, (iii) the principal
amount of Notes to be redeemed and (iv) the redemption price.
SECTION 3.02. SELECTION OF NOTES TO BE REDEEMED.
If less than all of the Notes are to be redeemed at any time,
selection of Notes for redemption shall be made by the Trustee in compliance
with the requirements of the principal national securities exchange, if any, on
which the Notes are listed, or, if the Notes are not so listed, on a pro rata
basis, by lot or by such method as the Trustee shall deem fair and appropriate;
provided that no Notes of less than $1,000 shall be redeemed in part. Notices of
redemption shall be mailed by first class mail at least 30 but not more than 60
days before the redemption date to each Holder of Notes to be redeemed at its
registered address. If any Note is to be redeemed in part only, the notice of
redemption that relates to such Note shall state the portion of the principal
amount thereof to be redeemed. A new Note in principal amount equal to the
unredeemed portion thereof shall be issued in the name of the Holder thereof
upon cancellation of the original Note. Notes called for redemption become due
on the date fixed for redemption. On and after the redemption date, interest
ceases to accrue on Notes or portions of them called for redemption.
The Trustee shall promptly notify the Company in writing of
the Notes selected for redemption and, in the case of any Note selected for
partial redemption, the principal amount thereof to be redeemed. Notes and
portions of Notes selected shall be in amounts of $1,000 or whole multiples of
$1,000; except that if all of the Notes of a Holder are to be redeemed, the
entire outstanding amount of Notes held by such Holder, even if not a multiple
of $1,000, shall be redeemed. Except as provided in the preceding sentence,
provisions of this Indenture that apply to Notes called for redemption also
apply to portions of Notes called for redemption.
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As of the date hereof, the Notes are not listed on any
national securities exchange. The Company shall give notice to the Trustee of
any such listing promptly after it becomes effective.
SECTION 3.03. NOTICE OF REDEMPTION.
Subject to the provisions of Section 3.09 hereof, at least 30
days but not more than 60 days before a redemption date, the Company shall mail
or cause to be mailed, by first class mail, a notice of redemption to each
Holder whose Notes are to be redeemed at its registered address.
The notice shall identify the Notes to be redeemed (including
CUSIP, CINS or ISIN numbers, if any) and shall state:
(a) the redemption date;
(b) the redemption price;
(c) if any Note is being redeemed in part, the portion of
the principal amount of such Note to be redeemed and that, after the redemption
date upon surrender of such Note, a new Note or Notes in principal amount equal
to the unredeemed portion shall be issued upon cancellation of the original
Note;
(d) the name and address of the Paying Agent;
(e) that Notes called for redemption must be surrendered to
the Paying Agent to collect the redemption price;
(f) that, unless the Company defaults in making such
redemption payment, interest on Notes called for redemption ceases to accrue on
and after the redemption date;
(g) the paragraph of the Notes and/or Section of this
Indenture pursuant to which the Notes called for redemption are being redeemed;
and
(h) that no representation is made as to the correctness or
accuracy of the CUSIP, CINS or ISIN number, if any, listed in such notice or
printed on the Notes.
At the Company's request, the Trustee shall give the notice of
redemption in the Company's name and at its expense; provided, however, that the
Company shall have delivered to the Trustee, at least 45 days prior to the
redemption date, an Officers' Certificate requesting that the Trustee give such
notice and setting forth the information to be stated in such notice as provided
in the preceding paragraph.
SECTION 3.04. EFFECT OF NOTICE OF REDEMPTION.
Once notice of redemption is mailed in accordance with Section
3.03 hereof, Notes called for redemption become irrevocably due and payable on
the redemption date at the redemption price.
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SECTION 3.05. DEPOSIT OF REDEMPTION PRICE.
Prior to 11:00 a.m. on the Business Day prior to the
redemption date, the Company shall deposit with the Trustee or with the Paying
Agent money sufficient to pay the redemption price of and accrued interest on
all Notes to be redeemed on that date. The Trustee or the Paying Agent shall
promptly return to the Company any money deposited with the Trustee or the
Paying Agent by the Company in excess of the amounts necessary to pay the
redemption price of, and accrued interest on, all Notes to be redeemed.
If the Company complies with the provisions of the preceding
paragraph, on and after the redemption date, interest shall cease to accrue on
the Notes or the portions of Notes called for redemption. If a Note is redeemed
on or after an interest record date but on or prior to the related interest
payment date, then any accrued and unpaid interest shall be paid to the Person
in whose name such Note was registered at the close of business on such record
date. If any Note called for redemption shall not be so paid upon surrender for
redemption because of the failure of the Company to comply with the preceding
paragraph, interest shall be paid on the unpaid principal, from the redemption
date until such principal is paid, and to the extent lawful on any interest not
paid on such unpaid principal, in each case at the rate provided in the Notes
and in Section 4.01 hereof.
SECTION 3.06. NOTES REDEEMED IN PART.
Upon surrender of a Note that is redeemed in part, the Company
shall issue and, upon the Company's written request, the Trustee shall
authenticate for the Holder at the expense of the Company a new Note equal in
principal amount to the unredeemed portion of the Note surrendered. SECTION
3.07. OPTIONAL REDEMPTION.
(a) Except as set forth in clause (b) of this Section 3.07,
the Notes shall not be redeemable at the Company's option prior to April 15,
2003. Thereafter, the Notes shall be subject to redemption at any time at the
option of the Company, in whole or in part, upon not less than 30 nor more than
60 days' notice, at the redemption prices (expressed as percentages of principal
amount) set forth below plus accrued and unpaid interest, if any, to the
applicable redemption date, if redeemed during the twelve-month period beginning
on April 15 of the years indicated below:
Year Percentage
2003............................105.00%
2004............................102.50%
2005............................100.00%
(b) Notwithstanding the foregoing clause (a), on or prior to
April 15, 2002, the Company may on any one or more occasions redeem up to an
aggregate of 35% of the Notes originally issued at a redemption price of 110% of
the principal amount thereof, plus accrued and unpaid interest and Liquidated
Damages thereon, if any, to the redemption date, with the net cash proceeds of
one or more Public Equity Offerings; provided that at least 65% of the Notes
originally issued remain outstanding immediately after the occurrence of each
such redemption;
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and provided, further, that any such redemption must occur within 60 days of the
date of the closing of such Public Equity Offering.
SECTION 3.08. MANDATORY REDEMPTION.
Except as set forth under Sections 4.10 and 4.15 hereof, the
Company is not required to make mandatory redemption or sinking fund payments
with respect to the Notes.
SECTION 3.09. OFFER TO PURCHASE BY APPLICATION OF EXCESS PROCEEDS.
In the event that, pursuant to Section 4.10 hereof, the
Company shall be required to commence an Asset Sale Offer to all Holders to
purchase Notes, it shall follow the procedures specified below.
The Asset Sale Offer shall remain open for a period of 20
Business Days following its commencement and no longer, except to the extent
that a longer period is required by applicable law (the "Offer Period"). No
later than five Business Days after the termination of the Offer Period (the
"Purchase Date"), the Company shall purchase the principal amount of Notes
required to be purchased pursuant to Section 4.10 hereof (the "Offer Amount")
or, if less than the Offer Amount has been tendered, all Notes tendered in
response to the Asset Sale Offer. Payment for any Notes so purchased shall be
made in the same manner as interest payments are made.
If the Purchase Date is on or after an interest record date
and on or before the related interest payment date, any accrued and unpaid
interest shall be paid to the Person in whose name a Note is registered at the
close of business on such record date, and no additional interest shall be
payable to Holders who tender Notes pursuant to the Asset Sale Offer.
Upon the commencement of an Asset Sale Offer, the Company
shall send, by first class mail, a notice to the Trustee and each of the
Holders, with a copy to the Trustee. The notice shall contain all instructions
and materials necessary to enable such Holders to tender Notes pursuant to the
Asset Sale Offer. The Asset Sale Offer shall be made to all Holders. The notice,
which shall govern the terms of the Asset Sale Offer, shall state:
(a) that the Asset Sale Offer is being made pursuant to this
Section 3.09 and Section 4.10 hereof and the length of time the Asset Sale Offer
shall remain open;
(b) the Offer Amount, the purchase price and the Purchase
Date;
(c) that any Note not tendered or accepted for payment shall
continue to accrete or accrue interest;
(d) that, unless the Company defaults in making such
payment, any Note accepted for payment pursuant to the Asset Sale Offer shall
cease to accrue interest after the Purchase Date;
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(e) that Holders electing to have a Note purchased pursuant
to an Asset Sale Offer may only elect to have all of such Note purchased and may
not elect to have only a portion of such Note purchased;
(f) that Holders electing to have a Note purchased pursuant
to any Asset Sale Offer shall be required to surrender the Note, with the form
entitled "Option of Holder to Elect Purchase" on the reverse of the Note
completed, or transfer by book-entry transfer, to the Company, a depositary, if
appointed by the Company, or a Paying Agent at the address specified in the
notice at least three days before the Purchase Date;
(g) that Holders shall be entitled to withdraw their
election if the Company, the depositary or the Paying Agent, as the case may be,
receives, not later than the expiration of the Offer Period, a facsimile
transmission or letter setting forth the name of the Holder, the principal
amount of the Note the Holder delivered for purchase and a statement that such
Holder is withdrawing his election to have such Note purchased;
(h) that, if the aggregate principal amount of Notes
surrendered by Holders exceeds the Offer Amount, the Company shall select the
Notes to be purchased on a pro rata basis (with such adjustments as may be
deemed appropriate by the Company so that only Notes in denominations of $1,000,
or integral multiples thereof, shall be purchased); and
(i) that Holders whose Notes were purchased only in part
shall be issued new Notes equal in principal amount to the unpurchased portion
of the Notes surrendered (or transferred by book-entry transfer).
On or before the Purchase Date, the Company shall, to the
extent lawful, accept for payment, on a pro rata basis to the extent necessary,
the Offer Amount of Notes or portions thereof tendered pursuant to the Asset
Sale Offer, or if less than the Offer Amount has been tendered, all Notes
tendered, and shall deliver to the Trustee an Officers' Certificate stating that
such Notes or portions thereof were accepted for payment by the Company in
accordance with the terms of this Section 3.09. The Company, the Depositary or
the Paying Agent, as the case may be, shall promptly (but in any case not later
than five days after the Purchase Date) mail or deliver to each tendering Holder
an amount equal to the purchase price of the Notes tendered by such Holder and
accepted by the Company for purchase, and the Company shall promptly issue a new
Note, and the Trustee, upon written request from the Company shall authenticate
and mail or deliver such new Note to such Holder, in a principal amount equal to
any unpurchased portion of the Note surrendered. Any Note not so accepted shall
be promptly mailed or delivered by the Company to the Holder thereof. The
Company shall publicly announce the results of the Asset Sale Offer on the
Purchase Date.
Other than as specifically provided in this Section 3.09, any
purchase pursuant to this Section 3.09 shall be made pursuant to the provisions
of Sections 3.01 through 3.06 hereof.
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ARTICLE 4.
COVENANTS
SECTION 4.01. PAYMENT OF NOTES.
The Company shall pay or cause to be paid the principal of,
premium, if any, and interest on the Notes on the dates and in the manner
provided in the Notes. Principal, premium, if any, and interest shall be
considered paid on the date due if the Paying Agent, if other than the Company
or a Subsidiary thereof, holds as of 10:00 a.m. Eastern Time on the due date,
money deposited by the Company in immediately available funds and designated for
and sufficient to pay all principal, premium, if any, and interest then due. The
Company shall pay all Liquidated Damages, if any, in the same manner on the
dates and in the amounts set forth in the Registration Rights Agreement.
SECTION 4.02. MAINTENANCE OF OFFICE OR AGENCY.
The Company shall maintain in the Borough of Manhattan, The
City of New York, an office or agency (which may be an office of the Trustee or
an affiliate of the Trustee, Registrar or co-registrar) where Notes may be
surrendered for registration of transfer or for exchange and where notices and
demands to or upon the Company in respect of the Notes and this Indenture may be
served. The Company shall give prompt written notice to the Trustee of the
location, and any change in the location, of such office or agency. If at any
time the Company shall fail to maintain any such required office or agency or
shall fail to furnish the Trustee with the address thereof, such presentations,
surrenders, notices and demands may be made or served at the Corporate Trust
Office of the Trustee.
The Company may also from time to time designate one or more
other offices or agencies where the Notes may be presented or surrendered for
any or all such purposes and may from time to time rescind such designations;
provided, however, that no such designation or rescission shall in any manner
relieve the Company of its obligation to maintain an office or agency in the
Borough of Manhattan, The City of New York for such purposes. The Company shall
give prompt written notice to the Trustee of any such designation or rescission
and of any change in the location of any such other office or agency.
The Company hereby designates the Corporate Trust Office of
the Trustee as one such office or agency of the Company in accordance with
Section 2.03 hereof.
SECTION 4.03. REPORTS.
So long as any Notes are outstanding, the Company will furnish
to the holders of Notes, within the time periods specified in the SEC's rules
and regulations: (a) all quarterly and annual financial information that would
be required to be contained in a filing with the SEC on Forms 10-Q and 10-K (or
any successor forms) if the Company were required to file those forms, including
a "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and, with respect to the annual information only, a report on the
annual financial statement by the Company's certified independent accountants;
and (b) all current reports that would be required to be filed with the SEC on
Form 8-K (or any successor form) if the Company were required to file such
reports.
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If the Company has designated any of its Subsidiaries as
Unrestricted Subsidiaries, then the quarterly and annual financial information
required by the foregoing shall include a reasonably detailed presentation,
either on the face of the financial statements or in the footnotes, and in
Management's Discussion and Analysis of Financial Condition and Results of
Operations, of the financial condition and results of operations of the Company
and its Restricted Subsidiaries separate from the financial condition and
results of operations of the Unrestricted Subsidiaries of the Company.
In addition, the Company will file a copy of all information
and reports referred to above with the SEC for public availability within the
time periods specified in the SEC's rules and regulations (unless the SEC will
not accept that filing) and make that information available to securities
analysts and prospective investors upon request. The Company and the Subsidiary
Guarantors have also agreed that, for so long as any Notes remain outstanding,
they will furnish to the Holders and to securities analysts and prospective
investors, upon their request, the information required to be delivered pursuant
to Rule 144A(d)(4) under the Securities Act.
Subject to the provisions of Article 7 hereof, delivery of
such reports, information and documents to the Trustee is for informational
purposes only and the Trustee's receipt of such shall not constitute
constructive notice of any information contained therein or determinable from
information contained therein, including the Company's compliance with any of
its covenants hereunder (as to which the Trustee is entitled to rely exclusively
on Officers' Certificates).
SECTION 4.04. COMPLIANCE CERTIFICATE.
(a) The Company shall deliver to the Trustee, within 90 days
after the end of each fiscal year, an Officers' Certificate stating that a
review of the activities of the Company and its Subsidiaries during the
preceding fiscal year has been made under the supervision of the signing
Officers with a view to determining whether the Company has kept, observed,
performed and fulfilled its obligations under this Indenture, and further
stating, as to each such Officer signing such certificate, that to the best of
his or her knowledge the Company has kept, observed, performed and fulfilled
each and every covenant contained in this Indenture and is not in default in the
performance or observance of any of the terms, provisions and conditions of this
Indenture (or, if a Default or Event of Default shall have occurred, describing
all such Defaults or Events of Default of which he or she may have knowledge and
what action the Company is taking or proposes to take with respect thereto) and
that to the best of his or her knowledge no event has occurred and remains in
existence by reason of which payments on account of the principal of or
interest, if any, on the Notes is prohibited or if such event has occurred, a
description of the event and what action the Company is taking or proposes to
take with respect thereto.
(b) So long as not contrary to the then current
recommendations of the American Institute of Certified Public Accountants, the
year-end financial statements delivered pursuant to Section 4.03 hereof shall be
accompanied by a written statement of the Company's independent public
accountants (who shall be a firm of established national reputation) that in
making the examination necessary for certification of such financial statements,
nothing has come to their attention that would lead them to believe that the
Company has violated any provisions of Article 4 or Article 5 hereof or, if any
such violation has occurred, specifying the
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nature and period of existence thereof, it being understood that such
accountants shall not be liable directly or indirectly to any Person for any
failure to obtain knowledge of any such violation.
(c) The Company shall, so long as any of the Notes are
outstanding, deliver to the Trustee, as soon as possible and in any event within
five Business Days after any Officer becomes aware of any Default or Event of
Default, an Officers' Certificate specifying such Default or Event of Default
and what action the Company is taking or proposes to take with respect thereto.
SECTION 4.05. TAXES.
The Company shall pay, and shall cause each of its
Subsidiaries to pay, prior to delinquency, all material taxes, assessments, and
governmental levies except such as are contested in good faith and by
appropriate proceedings or where the failure to effect such payment is not
adverse in any material respect to the Holders of the Notes.
SECTION 4.06. SALE AND LEASEBACK TRANSACTIONS.
The Company shall not, and shall not permit any of its
Restricted Subsidiaries to, enter into any sale and leaseback transaction;
provided that the Company or any Restricted Subsidiary that is a Domestic
Subsidiary may enter into a sale and leaseback transaction if: (i) the Company
or such Restricted Subsidiary, as applicable, could have incurred Indebtedness
in an amount equal to the Attributable Debt relating to such sale and leaseback
transaction under the Fixed Charge Coverage Ratio test in the first paragraph of
Section 4.09 hereof; (ii) the gross cash proceeds of such sale and leaseback
transaction are at least equal to the fair market value, as determined in good
faith by the Company and set forth in an Officers' Certificate delivered to the
Trustee, of the property that is the subject of such sale and leaseback
transaction; and (iii) the transfer of assets in such sale and leaseback
transaction is permitted by, and the Company or such Restricted Subsidiary
applies the proceeds of such transaction in compliance with, Section 4.10
hereof.
SECTION 4.07. RESTRICTED PAYMENTS.
The Company shall not, and shall not permit any of its
Restricted Subsidiaries to, directly or indirectly: (i) declare or pay any
dividend or make any other payment or distribution on account of the Company's
or any of its Restricted Subsidiaries' Equity Interests (including, without
limitation, any distribution, dividend or payment in connection with any merger
or consolidation involving the Company or any of its Restricted Subsidiaries) or
to the direct or indirect holders of the Company's or any of its Restricted
Subsidiaries' Equity Interests in their capacity as such (except for dividends
or distributions payable in Equity Interests (other than Disqualified Stock) of
the Company or payable to the Company or a Restricted Subsidiary of the
Company); (ii) purchase, redeem or otherwise acquire or retire for value
(including without limitation, in connection with any merger or consolidation
involving the Company) any Equity Interests of the Company, any Restricted
Subsidiary of the Company or any direct or indirect parent of the Company; (iii)
make any payment on or with respect to, or purchase, redeem, defease or
otherwise acquire or retire for value any Indebtedness that is subordinated to
the
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Notes or the Subsidiary Guarantees, except the scheduled payment of interest
and Liquidated Damages, if any, or principal and premium, if any, at the Stated
Maturity thereof; or (iv) make any Restricted Investment (all such payments and
other actions set forth in clauses (i) through (iv) above being collectively
referred to as "Restricted Payments"), unless, at the time of and after giving
effect to such Restricted Payment:
(a) no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence thereof;
(b) at the date of such Restricted Payment and after giving
pro forma effect thereto as if such Restricted Payment had been made at
the beginning of the applicable four-quarter period, the Company would
have been permitted to incur at least $1.00 of additional Indebtedness
pursuant to the Fixed Charge Coverage Ratio test set forth in the first
paragraph of Section 4.09 hereof; and
(c) the aggregate amount of such Restricted Payment and all
other Restricted Payments made since the date hereof (excluding
Restricted Payments permitted by clauses (ii), (iii), (iv) and (vi) of
the next succeeding paragraph), is less than the sum, without
duplication, of (i) 50% of the Consolidated Net Income of the Company
for the period (taken as one accounting period) from the beginning of
the first fiscal quarter commencing after the date of this Indenture
through the last full fiscal quarter of the Company for which internal
financial statements are available at the time of that Restricted
Payment (or, if the Consolidated Net Income for that period is a
deficit, minus 100% of the deficit), plus (ii) 100% of the aggregate
net cash proceeds received by the Company since the date hereof as a
contribution to its common equity capital or from the issue or sale of
Equity Interests of the Company (other than Disqualified Stock) or from
the issue or sale of Disqualified Stock or debt securities of the
Company that have been converted into or exchanged for such Equity
Interests (other than Equity Interests (or Disqualified Stock or
convertible debt securities) sold to a Restricted Subsidiary of the
Company), plus (iii) to the extent that any Restricted Investment that
was made after the date hereof is sold for cash or otherwise liquidated
or repaid for cash, the lesser of (A) the cash return of capital with
respect to such Restricted Investment (less the cost of disposition, if
any) and (B) the initial amount of such Restricted Investment unless
already included in Consolidated Net Income of the Company for that
period; plus (iv) if any Unrestricted Subsidiary is redesignated by the
Company as a Restricted Subsidiary of the Company after the date
hereof, an amount equal to the lesser of (A) the net book value of the
Company's Investment in the Unrestricted Subsidiary at the time of the
redesignation and (B) the fair market value of the Company's Investment
in the Unrestricted Subsidiary at the time of the redesignation.
The foregoing provisions shall not prohibit: (i) the payment
of any dividend within 60 days after the date of declaration thereof, if at said
date of declaration such payment would have complied with the provisions of this
Indenture; (ii) the redemption, repurchase, retirement, defeasance or other
acquisition of any subordinated Indebtedness of the Company or any Guarantor or
of any Equity Interests of the Company or any Restricted Subsidiary of the
Company in exchange for, or out of the net cash proceeds of the substantially
concurrent sale (other than to a Restricted Subsidiary of the Company) of,
Equity Interests of the Company
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(other than Disqualified Stock); provided that the amount of any such net cash
proceeds that are utilized for any such redemption, repurchase, retirement,
defeasance or other acquisition shall be excluded from clause (c) (ii) of the
preceding paragraph; (iii) the defeasance, redemption, repurchase or other
acquisition of subordinated Indebtedness of the Company or any Guarantor with
the net cash proceeds from an incurrence of Permitted Refinancing Indebtedness;
(iv) the payment of any dividend or distribution by a Restricted Subsidiary of
the Company to the holders of such Restricted Subsidiary's common Equity
Interests so long as the Company or such Restricted Subsidiary receives at least
its pro rata share (and in like form) of the dividend or distribution in
accordance with its common Equity Interests; (v) the repurchase, redemption or
other acquisition or retirement for value of any Equity Interests of the Company
or any Restricted Subsidiary of the Company held by any member of the Company's
(or any of its Restricted Subsidiaries') management pursuant to any management
equity subscription agreement or stock option agreement; provided that the price
paid for all repurchased, redeemed, acquired or retired Equity Interests does
not exceed $1,000,000 per individual member of management or $2,500,000 in the
aggregate in any twelve-month period; (vi) the deemed repurchase of Capital
Stock by the Company on the exercise of stock options; and (vii) Restricted
Payments in an aggregate principal amount not to exceed $15,000,000;
provided that the Company will not and will not permit any of its Restricted
Subsidiaries to make any Restricted Payment contemplated by clauses (iii)
through (vii) above so long as a Default or an Event of Default has occurred and
is continuing.
The Board of Directors of the Company may designate any
Restricted Subsidiary of the Company to be an Unrestricted Subsidiary if such
designation would not cause a Default. The aggregate fair market value of all
outstanding Investments owned by the Company and its Restricted Subsidiaries in
the newly designated Unrestricted Subsidiary shall be deemed to be an Investment
made as of the time of such designation and will either reduce the amount
available for Restricted Payments under this Section 4.07 or reduce the amount
available for future Investments under one or more clauses of the definition of
Permitted Investments, as the Company shall determine. Such designation shall
only be permitted if such investment would be permitted at such time and if such
Restricted Subsidiary otherwise meets the definition of an Unrestricted
Subsidiary. The Board of Directors of the Company may redesignate any
Unrestricted Subsidiary to be a Restricted Subsidiary of the Company if the
redesignation would not cause a Default.
The amount of all Restricted Payments (other than cash) shall
be the fair market value of the asset(s) or securities proposed to be
transferred or issued to or by the Company or such Restricted Subsidiary, as the
case may be, pursuant to the Restricted Payment on the date of such Restricted
Payment. The fair market value of any assets or securities that are required to
be valued by this Section 4.07 shall be determined in good faith by the Company
and set forth in an Officers' Certificate delivered to the Trustee. The
Company's determination must be based upon an opinion or appraisal issued by an
accounting, appraisal or investment banking firm of national standing if the
fair market value exceeds $25,000,000. Not later than the date of making any
Restricted Payment, the Company shall deliver to the Trustee an Officers'
Certificate stating that such Restricted Payment is permitted and setting forth
the basis upon which the calculations required by this Section 4.07 were
computed, together with a copy of any fairness opinion or appraisal required by
this Indenture.
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SECTION 4.08. DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING
SUBSIDIARIES.
The Company shall not, and shall not permit any of its
Restricted Subsidiaries to, directly or indirectly, create or permit to exist or
become effective any consensual encumbrance or restriction on the ability of any
Restricted Subsidiary of the Company to (i) pay dividends or make any other
distributions on its Capital Stock to the Company or any of its Restricted
Subsidiaries, or with respect to any other interest or participation in, or
measured by, its profits, or pay any indebtedness owed to the Company or any of
its Restricted Subsidiaries, (ii) make loans or advances to the Company or any
of its Restricted Subsidiaries, or (iii) transfer any of its properties or
assets to the Company or any of its Restricted Subsidiaries.
However, the foregoing will not apply to encumbrances or
restrictions existing under or by reason of: (i) Existing Indebtedness as in
effect on the date hereof and any amendments, modifications, restatements,
renewals, increases, supplements, refundings, replacements or refinancings
thereof, provided that those amendments, modifications, restatements, renewals,
increases, supplements, refundings, replacement or refinancings are no more
restrictive, taken as a whole, with respect to such dividend and other payment
restrictions than those contained in that Existing Indebtedness, as in effect on
the date hereof; (ii) the Credit Agreement as in effect on the date hereof and
any amendments, modifications, restatements, renewals, increases, supplements,
refundings, replacements or refinancings thereof or any other Credit Facility,
provided that those amendments, modifications, restatements, renewals,
increases, supplements, refundings, replacements or refinancings, and such other
Credit Facility, are no more restrictive, taken as a whole, with respect to such
dividend and other payment restrictions than those contained in the Credit
Agreement, as in effect on the date hereof; (iii) this Indenture and the Notes
or any other indenture governing debt securities that are no more restrictive,
taken as a whole, with respect to dividend and other payment restrictions than
those contained in this Indenture and those debt securities; (iv) applicable
law; (v) any instrument governing Indebtedness or Capital Stock of a Person
acquired by the Company or any of its Restricted Subsidiaries as in effect at
the time of such acquisition (except to the extent that Indebtedness was
incurred in connection with or in contemplation of that acquisition), which
encumbrance or restriction is not applicable to any Person, or the properties or
assets of any Person, other than the Person, or the property or assets of the
Person, so acquired, provided that, in the case of Indebtedness, such
Indebtedness was permitted to be incurred by the terms of this Indenture; (vi)
customary non-assignment provisions in leases entered into in the ordinary
course of business and consistent with past practices; (vii) purchase money
obligations for property acquired in the ordinary course of business that impose
restrictions on the property so acquired of the nature described in clause (iii)
of the preceding paragraph; (viii) any agreement for the sale or other
disposition of a Restricted Subsidiary of the Company that restricts
distributions by such Restricted Subsidiary pending its sale or other
disposition; (ix) Permitted Refinancing Indebtedness, provided that the
restrictions contained in the agreements governing that Permitted Refinancing
Indebtedness are no more restrictive, taken as a whole, than those contained in
the agreements governing the Indebtedness being refinanced; (x) Liens securing
Indebtedness that limit the right of the debtor to dispose of the assets subject
to that Lien; (xi) provisions with respect to the disposition or distribution of
assets or property in joint venture agreements, asset sale agreements, stock
sale agreements and other similar agreements entered into in the ordinary course
of business; (xii) any Purchase Money Note or other Indebtedness or contractual
requirements incurred with respect to a Qualified Receivables Transaction
relating to a
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Receivables Subsidiary; and (xiii) restrictions on cash or other deposits or net
worth imposed by customers under contracts entered into in the ordinary course
of business.
SECTION 4.09. INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF PREFERRED STOCK.
The Company shall not, and shall not permit any of its
Subsidiaries to, directly or indirectly, create, incur, issue, assume, guarantee
or otherwise become directly or indirectly liable, contingently or otherwise,
with respect to (collectively, "incur") any Indebtedness (including Acquired
Debt), and the Company shall not issue any Disqualified Stock and will not
permit any of its Subsidiaries to issue any shares of Preferred Stock; provided,
however, that the Company may incur Indebtedness (including Acquired Debt) or
issue Disqualified Stock, and Restricted Subsidiaries of the Company that are
Guarantors may incur Indebtedness or issue Preferred Stock, if the Fixed Charge
Coverage Ratio for the Company's most recently ended four full fiscal quarters
for which internal financial statements are available immediately preceding the
date on which such additional Indebtedness is incurred or such Disqualified
Stock is issued would have been at least 2.25 to 1.0, determined on a pro forma
basis (including a pro forma application of the net proceeds therefrom), as if
such additional Indebtedness had been incurred, or such Preferred Stock or
Disqualified Stock had been issued, as the case may be, at the beginning of such
four-quarter period.
The provisions of the first paragraph of this Section 4.09
shall not prohibit the following (collectively, "Permitted Debt"):
(i) the incurrence by the Company and any Restricted
Subsidiary that is a Guarantor of additional Indebtedness and letters
of credit under Credit Facilities in an aggregate principal amount at
any one time outstanding pursuant to this clause (i) (with letters of
credit being deemed to have a principal amount equal to the maximum
potential liability of the Company and its Restricted Subsidiaries
thereunder) not to exceed an amount equal to the greater of (A) the
Borrowing Base; and (B) $700,000,000 as of the date of incurrence minus
(1) the aggregate amount of all Net Proceeds of Asset Sales required to
be applied that are in fact applied by the Company or any of its
Restricted Subsidiaries to repay permanently Indebtedness outstanding
under one or more Credit Facilities (and to reduce commitments with
respect thereto if the Indebtedness being repaid is revolving
Indebtedness) pursuant to Section 4.10 hereof and (2) the aggregate
amount of all repayments, optional or mandatory, of the principal of
any such additional term Indebtedness (other than repayments that are
concurrently reborrowed) that have actually been made since the date
hereof;
(ii) the incurrence by the Company and its Restricted
Subsidiaries of Existing Indebtedness;
(iii) the incurrence by the Company and the Guarantors of
Indebtedness represented by the Notes to be issued on the date hereof
and the Exchange Notes to be issued pursuant to the Registration Rights
Agreement (including, in each case, the Subsidiary Guarantees);
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(iv) the incurrence by the Company or any of its Restricted
Subsidiaries of Indebtedness represented by Capital Lease Obligations,
mortgage financings or purchase money obligations, in each case,
incurred for the purpose of financing all or any part of the purchase
price or cost of construction or improvement of property, plant or
equipment used in the business of the Company or such Restricted
Subsidiary, in an aggregate principal amount, including all Permitted
Refinancing Indebtedness incurred to refund, refinance or replace any
Indebtedness incurred pursuant to this clause (iv), not to exceed, in
aggregate principal amount at any one time outstanding, 5% of Total
Assets on a pro forma basis (including a pro forma application of the
net proceeds of that Indebtedness), as if that Indebtedness had been
incurred on the date of calculation;
(v) the incurrence by the Company or any of its Restricted
Subsidiaries of Permitted Refinancing Indebtedness in exchange for, or
the net proceeds of which are used to refund, refinance or replace
Indebtedness (other than intercompany Indebtedness) that was permitted
by this Indenture to be incurred under the first paragraph of this
Section 4.09 or clauses (ii), (iii), (iv), (v) or (xiii) of this
paragraph in a substantially concurrent transaction (which incurrence
shall be no earlier than 30 days prior to the refunding, refinancing or
replacing of the Indebtedness being refunded, refinanced or replaced
and the proceeds of the Permitted Refinancing Indebtedness shall be
deposited in escrow pending application);
(vi) the incurrence by the Company or any of its Restricted
Subsidiaries of intercompany Indebtedness between or among the Company
and any of its Wholly Owned Subsidiaries that are Guarantors; provided,
however, that (A) such Indebtedness is expressly subordinated to the
prior payment in full in cash of all Obligations with respect to the
Notes and this Indenture, in the case of the Company, or the Subsidiary
Guarantee, in the case of a Guarantor and (B)(1) any subsequent
issuance or transfer of Equity Interests that results in any such
Indebtedness being held by a Person other than the Company or any of
its Wholly Owned Subsidiaries that are Guarantors and (2) any sale or
other transfer of any such Indebtedness to a Person that is not either
the Company or any of its Wholly Owned Subsidiaries that are Guarantors
shall be deemed, in each case, to constitute an incurrence of such
Indebtedness by the Company or such Restricted Subsidiary, as the case
may be, that was not permitted by this clause (vi);
(vii) the incurrence by the Company or any of its Restricted
Subsidiaries of Hedging Obligations that are incurred for the purpose
of (A) fixing or hedging interest rate risk with respect to any
floating rate Indebtedness that is permitted by the terms of this
Indenture to be outstanding or (B) hedging exposure to foreign currency
fluctuations;
(viii) the guarantee by the Company or any of the Guarantors
of Indebtedness of the Company or a Restricted Subsidiary of the
Company that was permitted to be incurred by another provision of this
Section 4.09;
(ix) the incurrence of Non-Recourse Debt by the Company's
Unrestricted Subsidiaries, provided, however, that if any such
Indebtedness ceases to be Non-Recourse Debt of an Unrestricted
Subsidiary, such event shall be deemed to constitute an
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incurrence of Indebtedness by a Restricted Subsidiary of the Company
that was not permitted by this clause (ix);
(x) the accrual of interest, the accretion or amortization
of original issue discount, the payment of interest on any Indebtedness
in the form of additional Indebtedness with the same terms, and the
payment of dividends on Disqualified Stock or Preferred Stock in the
form of additional shares of the same class of Disqualified Stock or
Preferred Stock, as the case may be, which will not be deemed to be an
incurrence of Indebtedness or an issuance of Disqualified Stock or
Preferred Stock, as the case may be, for purposes of this Section 4.09;
provided, in each case, that the amount thereof is included in Fixed
Charges of the Company as accrued;
(xi) the incurrence by the Company or any of its Restricted
Subsidiaries of Indebtedness in respect of performance and surety bonds
in the ordinary course of business;
(xii) the incurrence by a Receivables Subsidiary of
Indebtedness that is not recourse to the Company or any other
Restricted Subsidiary of the Company (other than with respect to
Standard Securitization Undertakings) in connection with a Qualified
Receivables Transaction; and
(xiii) the incurrence by the Company or any of its Restricted
Subsidiaries of additional Indebtedness in an aggregate principal
amount (or accreted value, as applicable) at any time outstanding,
including all Permitted Refinancing Indebtedness incurred to refund,
refinance or replace any other Indebtedness incurred pursuant to this
clause (xiii), not to exceed $50,000,000.
For purposes of determining compliance with this Section 4.09,
in the event that an item of proposed Indebtedness meets the criteria of more
than one of the categories of Permitted Debt described in clauses (i) through
(xiii) above, or is entitled to be incurred pursuant to the first paragraph of
this Section 4.09, the Company shall be permitted to classify that item of
Indebtedness on the date of its incurrence, or reclassify all or a portion of
such item of Indebtedness in any manner that complies with this Section 4.09.
Indebtedness under Credit Facilities that are in existence on the date on which
Notes are first issued and authenticated under this Indenture shall be deemed to
have been incurred on that date in reliance on the exception provided by clause
(i) of the definition of Permitted Debt.
SECTION 4.10. ASSET SALES.
The Company shall not, and shall not permit any of its
Restricted Subsidiaries to, consummate an Asset Sale unless (i) the Company (or
the Restricted Subsidiary of the Company, as the case may be) receives
consideration at the time of such Asset Sale at least equal to the fair market
value of the assets or Equity Interests issued or sold or otherwise disposed of,
(ii) the fair market value is determined by the Board of Directors of the
Company and evidenced by a resolution of that Board of Directors set forth in an
Officers' Certificate delivered to the Trustee; and (iii) at least 75% of the
consideration therefor received by the Company or such Restricted Subsidiary, as
the case may be, consists of cash or Cash Equivalents; provided, however, that
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(A) any liabilities of the Company (or the Restricted Subsidiary of the Company,
as the case may be), as shown on its most recent balance sheet (other than
contingent liabilities and liabilities that are by their terms subordinated to
the Notes or any Subsidiary Guarantee) that are assumed by the transferee of the
assets pursuant to a customary novation agreement that releases the transferor
from further liability, (B) any securities, notes or other obligations received
from the transferee that are contemporaneously (subject to ordinary settlement
periods) converted by the Company or the Restricted Subsidiary into cash (to the
extent of that cash), and (C) Additional Assets received in an
exchange-of-assets transaction shall all be deemed to be cash for purposes of
this provision.
Within 360 days after the receipt by the Company or any of its
Restricted Subsidiaries of any Net Proceeds from an Asset Sale, the Company may
apply such Net Proceeds, at its option, (i) to repay permanently Indebtedness
that is pari passu with the Notes and, if the Indebtedness repaid is revolving
credit Indebtedness, to correspondingly reduce the lenders' commitments with
respect thereto; (ii) to acquire all or substantially all of the assets or a
majority of the Voting Stock of another company that is engaged in a Permitted
Business; (iii) to make a capital expenditure in a Permitted Business; or (iv)
to acquire Additional Assets; provided that the Company will have complied with
this clause (iv) if, within 360 days of the Asset Sale, the Company has entered
into an agreement covering the acquisition which is thereafter completed within
180 days after the date of the agreement. Pending the final application of any
such Net Proceeds, the Company may temporarily reduce revolving credit
borrowings or otherwise invest such Net Proceeds in any manner that is not
prohibited by this Indenture. Any Net Proceeds from Asset Sales that are not
applied or invested as provided in the first sentence of this paragraph shall be
deemed to constitute "Excess Proceeds." Within five days of each date on which
the aggregate amount of Excess Proceeds exceeds $10,000,000, the Company shall
make an offer to all Holders of Notes, as well as all holders of other
Indebtedness that is pari passu with the Notes and that has the benefit of
provisions requiring the Company to make a similar offer (an "Asset Sale
Offer"), to purchase the maximum principal amount of Notes and such other pari
passu Indebtedness that may be purchased out of the Excess Proceeds. The offer
price will be equal to 100% of the principal amount of Notes and other
Indebtedness to be purchased, plus accrued and unpaid interest and Liquidated
Damages, if any, to the date of purchase. The Company may use any Excess
Proceeds remaining after consummation of an Asset Sale Offer for any purpose not
otherwise prohibited by this Indenture. If the aggregate principal amount of
Notes and other pari passu Indebtedness tendered into such Asset Sale Offer
exceeds the amount of Excess Proceeds, the Trustee shall select the Notes and
other pari passu Indebtedness to be purchased on a pro rata basis based on the
principal amount of Notes and other pari passu Indebtedness so tendered. Upon
completion of each Asset Sale Offer, the amount of Excess Proceeds shall be
reset at zero.
The Company will comply with the requirements of Rule 14e-1
under the Exchange Act and all other applicable securities laws and regulations
in connection with each purchase of Notes pursuant to an Asset Sale Offer. If
the provisions of any securities laws or regulations conflict with this Section
4.10, the Company will comply with the applicable securities laws and
regulations and by so doing will not be deemed to have breached its obligations
under this Section 4.10.
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SECTION 4.11. TRANSACTIONS WITH AFFILIATES.
The Company shall not, and shall not permit any of its
Restricted Subsidiaries to, make any payment to, or sell, lease, transfer or
otherwise dispose of any of its properties or assets to, or purchase any
property or assets from, or enter into or make or amend any transaction,
contract, agreement, understanding, loan, advance or guarantee with, or for the
benefit of, any Affiliate (each of the foregoing, an "Affiliate Transaction"),
unless (i) such Affiliate Transaction is on terms that are no less favorable to
the Company or the relevant Restricted Subsidiary than those that would have
been obtained in a comparable transaction by the Company or such Restricted
Subsidiary with an unrelated Person and (ii) the Company delivers to the Trustee
(A) with respect to any Affiliate Transaction or series of related Affiliate
Transactions involving aggregate consideration in excess of $5,000,000, a
resolution of its Board of Directors set forth in an Officers' Certificate
certifying that such Affiliate Transaction complies with clause (i) above and
that such Affiliate Transaction has been approved by a majority of the
disinterested members of its Board of Directors and (B) with respect to any
Affiliate Transaction or series of related Affiliate Transactions involving
aggregate consideration in excess of $10,000,000, an opinion as to the fairness
to the Holders of such Affiliate Transaction from a financial point of view
issued by an accounting, appraisal or investment banking firm of national
standing.
The following items shall not be deemed to be Affiliate
Transactions and, therefore, will not be subject to the provisions of the prior
paragraph: (i) any employment agreement entered into by the Company or any of
its Restricted Subsidiaries in the ordinary course of business and consistent
with the past practice of the Company or such Restricted Subsidiary, as the case
may be; (ii) transactions between or among the Company and/or its Restricted
Subsidiaries; (iii) any sale or other issuance of Equity Interests (other than
Disqualified Stock) of the Company; (iv) payment of reasonable directors fees to
persons who are not otherwise Affiliates of the Company; (v) any sale,
conveyance or other transfer of accounts receivable and other related assets
customarily transferred in an asset securitization transaction involving
accounts receivable to a Receivables Subsidiary in a Qualified Receivables
Transaction; and (vi) Restricted Payments that are permitted by Section 4.07
hereof.
SECTION 4.12. LIENS.
The Company shall not, and shall not permit any of its
Restricted Subsidiaries to, directly or indirectly, create, incur, assume or
suffer to exist any Lien of any kind securing Indebtedness, Attributable Debt or
trade payables on any asset now owned or hereafter acquired, except Permitted
Liens.
SECTION 4.13. ADDITIONAL SUBSIDIARY GUARANTEES.
The Company shall not permit any of its Restricted
Subsidiaries, directly or indirectly, to guarantee or pledge any assets to
secure the payment of any other Indebtedness of the Company or any Restricted
Subsidiary of the Company unless that Restricted Subsidiary simultaneously
executes and delivers to the Trustee an Opinion of Counsel and a supplemental
indenture providing for a Subsidiary Guarantee of the payment of the Notes by
such Restricted Subsidiary, which Subsidiary Guarantee shall be senior to such
Restricted Subsidiary's
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Guarantee of or pledge to secure the other Indebtedness if the other
Indebtedness is subordinated, and shall be pari passu to such Restricted
Subsidiary's Guarantee of or pledge to secure the other Indebtedness if the
other Indebtedness is senior; provided that this Section 4.13 shall not apply to
any Subsidiary that has been properly designated as an Unrestricted Subsidiary
or as a Receivables Subsidiary.
SECTION 4.14. CORPORATE EXISTENCE.
Subject to Article 5 hereof, the Company shall do or cause to
be done all things necessary to preserve and keep in full force and effect (i)
its corporate existence, and the corporate, partnership or other existence of
each of its Restricted Subsidiaries, in accordance with the respective
organizational documents (as the same may be amended from time to time) of the
Company or any such Restricted Subsidiary and (ii) the rights (charter and
statutory), licenses and franchises of the Company and its Restricted
Subsidiaries; provided, however, that the Company shall not be required to
preserve any such right, license or franchise, or the corporate, partnership or
other existence of any of its Restricted Subsidiaries, if the Board of Directors
of the Company shall determine that the preservation thereof is no longer
desirable in the conduct of the business of the Company and its Restricted
Subsidiaries, taken as a whole, and that the loss thereof is not adverse in any
material respect to the Holders of the Notes.
SECTION 4.15. OFFER TO REPURCHASE UPON CHANGE OF CONTROL.
(a) Upon the occurrence of a Change of Control, each Holder of
Notes shall have the right to require the Company to repurchase all or any part
(equal to $1,000 or an integral multiple thereof) of such Holder's Notes
pursuant to the offer described below (the "Change of Control Offer") at an
offer price in cash equal to 101% of the aggregate principal amount thereof plus
accrued and unpaid interest and Liquidated Damages thereon, if any, to the date
of purchase (the "Change of Control Payment"). Within ten days following any
Change of Control, the Company shall mail a notice to each Holder describing the
transaction or transactions that constitute the Change of Control and offering
to repurchase Notes on the date specified in such notice, which date shall be no
earlier than 30 days and no later than 60 days from the date such notice is
mailed (the "Change of Control Payment Date"). Such notice, which shall govern
the terms of the Change of Control offer, shall state: (i) that the Change of
Control Offer is being made pursuant to this Section 4.15 and that all Notes
tendered will be accepted for payment; (ii) the purchase price and the purchase
date; (iii) that any Note not tendered will continue to accrue interest; (iv)
that, unless the Company defaults in the payment of the Change of Control
Payment, all Notes accepted for payment pursuant to the Change of Control Offer
shall cease to accrue interest after the Change of Control Payment Date; (v)
that Holders electing to have any Notes purchased pursuant to a Change of
Control Offer will be required to surrender the Notes, with the form entitled
"Option of Holder to Elect Purchase" on the reverse of the Notes completed, to
the Paying Agent at the address specified in the notice prior to the close of
business on the third Business Day preceding the Change of Control Payment Date;
(vi) that Holders will be entitled to withdraw their election if the Paying
Agent receives, not later than the close of business on the second Business Day
preceding the Change of Control Payment Date, a telegram, telex, facsimile
transmission or letter setting forth the name of the Holder, the principal
amount of Notes delivered for purchase, and a statement that such Holder is
withdrawing his election to have the Notes purchased; and (vii) that Holders
whose Notes are being purchased
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only in part will be issued new Notes equal in principal amount to the
unpurchased portion of the Notes surrendered, which unpurchased portion must be
equal to $1,000 in principal amount or an integral multiple thereof.
The Company shall comply with the requirements of Rule 14e-1
under the Exchange Act and all other applicable securities laws and regulations
in connection with the repurchase of Notes as a result of a Change of Control.
If the provisions of any securities laws or regulations conflict with this
Section 4.15, the Company will comply with the applicable securities laws and
regulations and by so doing will not be deemed to have breached its obligations
under this Section 4.15.
(b) On the Change of Control Payment Date, the Company shall,
to the extent lawful, (i) accept for payment all Notes or portions thereof
properly tendered pursuant to the Change of Control Offer, (ii) deposit with the
Paying Agent an amount equal to the Change of Control Payment in respect of all
Notes or portions thereof so tendered and (iii) deliver or cause to be delivered
to the Trustee the Notes so accepted together with an Officers' Certificate
stating the aggregate principal amount of Notes or portions thereof being
purchased by the Company. The Paying Agent shall promptly mail to each Holder of
Notes so tendered the Change of Control Payment for such Notes, and the Trustee
shall promptly authenticate and mail (or cause to be transferred by book entry)
to each Holder a new Note equal in principal amount to any unpurchased portion
of the Notes surrendered, if any; provided that each such new Note shall be in a
principal amount of $1,000 or an integral multiple thereof. The Company shall
publicly announce the results of the Change of Control Offer on or as soon as
practicable after the Change of Control Payment Date.
SECTION 4.16. PAYMENTS FOR CONSENT.
The Company shall not, and shall not permit any of its
Restricted Subsidiaries to, directly or indirectly, pay or cause to be paid any
consideration to or for the benefit of any Holder of Notes for or as an
inducement to any consent, waiver or amendment of any of the terms or provisions
of this Indenture or the Notes unless such consideration is offered to be paid
or is paid to all Holders of the Notes that consent, waive or agree to amend in
the time frame set forth in the solicitation documents relating to such consent,
waiver or agreement.
SECTION 4.17. LIMITATIONS ON ISSUANCES AND SALES OF EQUITY INTERESTS IN
WHOLLY OWNED SUBSIDIARIES.
The Company shall not, and shall not permit any of its
Subsidiaries to, transfer, convey, sell, lease or otherwise dispose of any
Equity Interests in any Wholly Owned Subsidiary of the Company to any Person
(other than the Company or a Wholly Owned Subsidiary of the Company), unless (i)
the transfer, conveyance, sale, lease or other disposition is of all the Equity
Interests in such Wholly Owned Subsidiary; and (ii) the cash Net Proceeds from
the transfer, conveyance, sale, lease or other disposition are applied in
accordance with Section 4.10 hereof.
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SECTION 4.18 BUSINESS ACTIVITIES.
The Company shall not, and shall not permit any of its
Restricted Subsidiaries to, engage in any business other than Permitted
Businesses, except to such extent as would not be material to the Company or its
Restricted Subsidiaries taken as a whole.
ARTICLE 5.
SUCCESSORS
SECTION 5.01. MERGER, CONSOLIDATION, OR SALE OF ASSETS.
The Company shall not, directly or indirectly, consolidate or
merge with or into another Person (whether or not the Company is the surviving
corporation), or sell, assign, transfer, convey, lease or otherwise dispose of
all or substantially all of the properties or assets of the Company and its
Restricted Subsidiaries taken as a whole, in one or more related transactions,
to another Person unless (i) (A) the Company is the surviving corporation,
limited liability company, business trust or limited partnership; or (B) the
Person formed by or surviving any such consolidation or merger (if other than
the Company) or to which such sale, assignment, transfer, lease, conveyance or
other disposition shall have been made is a corporation, limited liability
company, business trust or limited partnership organized or existing under the
laws of the United States, any state thereof or the District of Columbia;
provided that in the case of (A) or (B) above, if the surviving Person is a
limited liability company, business trust or limited partnership, a corporation
which is Wholly Owned Subsidiary of the surviving Person shall act as joint and
several obligor with respect to the Notes; (ii) the Person formed by or
surviving any such consolidation or merger (if other than the Company) or the
Person to which such sale, assignment, transfer, lease, conveyance or other
disposition shall have been made assumes all the obligations of the Company
under the Notes, this Indenture and the Registration Rights Agreement pursuant
to agreements reasonably satisfactory to the Trustee; (iii) immediately after
such transaction no Default or Event of Default exists; and (iv) the Company or
the Person formed by or surviving any such consolidation or merger (if other
than the Company), or to which such sale, assignment, transfer, lease,
conveyance or other disposition shall have been made: (A) will have a
Consolidated Net Worth immediately after the transaction equal to or greater
than the Consolidated Net Worth of the Company immediately preceding the
transaction; and (B) on the date of the transaction and after giving pro forma
effect to the transaction and any related financing transactions as if they had
occurred at the beginning of the applicable four-quarter period, will be
permitted to incur at least $1.00 of additional Indebtedness pursuant to the
Fixed Charge Coverage Ratio test set forth in the first paragraph of Section
4.09 hereof.
This Section 5.01 will not apply to a sale, assignment,
transfer, conveyance, lease or other disposition of assets between or among the
Company and any of its Wholly Owned Subsidiaries that are not Unrestricted
Subsidiary.
SECTION 5.02. SUCCESSOR CORPORATION SUBSTITUTED.
Upon any consolidation or merger, or any sale, assignment,
transfer, lease, conveyance or other disposition of all or substantially all of
the assets of the Company in accordance with Section 5.01 hereof, the successor
corporation formed by such consolidation or
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into or with which the Company is merged or to which such sale, assignment,
transfer, lease, conveyance or other disposition is made shall succeed to, and
be substituted for (so that from and after the date of such consolidation,
merger, sale, lease, conveyance or other disposition, the provisions of this
Indenture referring to the "Company" or "Ames" shall refer instead to the
successor corporation and not to the Company), and may exercise every right and
power of the Company under this Indenture with the same effect as if such
successor Person had been named as the Company herein; provided, however, that
the predecessor Company shall not be relieved from the obligation to pay the
principal of and interest on the Notes except in the case of a sale of all of
the Company's assets that meets the requirements of Section 5.01 hereof.
ARTICLE 6.
DEFAULTS AND REMEDIES
SECTION 6.01. EVENTS OF DEFAULT.
An "Event of Default" occurs if:
(a) the Company defaults in the payment when due of interest
on, or Liquidated Damages, if any, with respect to, the Notes and such default
continues for a period of 30 days;
(b) the Company defaults in the payment when due of the
principal of or premium, if any, on the Notes;
(c) the Company fails to comply with any of the provisions of
Sections 4.10, 4.15, or 5.01 hereof;
(d) the Company or any of its Restricted Subsidiaries fails to
comply with the provisions of Sections 4.07 and 4.09 hereof for 30 days after
notice of such failure has been given;
(e) the Company fails to observe or perform any other
agreements in this Indenture or the Notes for 60 days after notice of such
failure has been given;
(f) a default occurs under any mortgage, indenture or
instrument under which there may be issued or by which there may be secured or
evidenced any Indebtedness for money borrowed by the Company or any of its
Restricted Subsidiaries (or the payment of which is guaranteed by the Company or
any of its Restricted Subsidiaries), whether such Indebtedness or guarantee now
exists, or is created after the date of this Indenture, which default is caused
by a failure to pay principal of, or interest or premium, if any, on such
Indebtedness prior to the expiration of the grace period provided in such
Indebtedness on the date of such default (a "Payment Default"), or results in
the acceleration of such Indebtedness prior to its express maturity and, in each
case, the principal amount of such Indebtedness, together with the principal
amount of any other such Indebtedness under which there has been a Payment
Default or the maturity of which has been so accelerated, aggregates $20,000,000
or more;
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(g) the Company or any of its Subsidiaries fails to pay final
judgments aggregating in excess of $20,000,000, which judgments are not paid,
discharged or stayed for a period of 60 days;
(h) any Subsidiary Guarantee is held in any judicial
proceeding to be unenforceable or invalid or shall cease for any reason to be in
full force and effect or any Guarantor, or any Person acting on behalf of any
Guarantor, shall deny or disaffirm its obligations under its Subsidiary
Guarantee, except as permitted by this Indenture;
(i) the Company or any of its Significant Subsidiaries or any
group of Subsidiaries that, taken as a whole, would constitute a Significant
Subsidiary pursuant to or within the meaning of Bankruptcy Law:
(i) commences a voluntary case,
(ii) consents to the entry of an order for relief against it
in an involuntary case,
(iii) consents to the appointment of a custodian of it or for
all or substantially all of its property,
(iv) makes a general assignment for the benefit of its
creditors, or
(v) generally is not paying its debts as they become due; or
(j) a court of competent jurisdiction enters an order or
decree under any Bankruptcy Law that:
(i) is for relief against the Company or any of its
Significant Subsidiaries or any group of Subsidiaries that, taken as a
whole, would constitute a Significant Subsidiary in an involuntary
case;
(ii) appoints a custodian of the Company or any of its
Significant Subsidiaries or any group of Subsidiaries that, taken as a
whole, would constitute a Significant Subsidiary or for all or
substantially all of the property of the Company or any of its
Significant Subsidiaries or any group of Subsidiaries that, taken as a
whole, would constitute a Significant Subsidiary; or
(iii) orders the liquidation of the Company or any of its
Significant Subsidiaries or any group of Subsidiaries that, taken as a
whole, would constitute a Significant Subsidiary;
and the order or decree remains unstayed and in effect for 60 consecutive days.
The Holders of a majority in aggregate principal amount of the
Notes then outstanding by notice to the Trustee may on behalf of the Holders of
all of the Notes waive any existing Default or Event of Default and its
consequences under this Indenture except a continuing Default or Event of
Default in the payment of interest or Liquidated Damages on, or the principal
of, the Notes.
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SECTION 6.02. ACCELERATION.
If any Event of Default occurs and is continuing, the Trustee
or the Holders of at least 25% in principal amount of the then outstanding Notes
may declare all the Notes to be due and payable immediately. Notwithstanding the
foregoing, in the case of an Event of Default specified in Section 6.01(i) or
(j) hereof, with respect to the Company, any Subsidiary that is a Significant
Subsidiary or any group of Subsidiaries that, taken together, would constitute a
Significant Subsidiary, all outstanding Notes will become due and payable
immediately without further action or notice. Holders of the Notes may not
enforce this Indenture or the Notes except as provided in this Indenture.
Subject to certain limitations, Holders of a majority in principal amount of the
then outstanding Notes may direct the Trustee in its exercise of any trust or
power. The Trustee may withhold from Holders of the Notes notice of any
continuing Default or Event of Default (except a Default or Event of Default
relating to the payment of principal or interest or Liquidated Damages) if it
determines that withholding notice is in their interest.
In the case of any Event of Default occurring by reason of any
willful action (or inaction) taken (or not taken) by or on behalf of the Company
with the intention of avoiding payment of the premium that the Company would
have had to pay upon an Optional Redemption, an equivalent premium shall also
become and be immediately due and payable to the extent permitted by law upon
the acceleration of the Notes. If an Event of Default occurs prior to April 15,
2003 by reason of any willful action (or inaction) taken (or not taken) by or on
behalf of the Company with the intention of avoiding the prohibition on
redemption of the Notes prior to April 15, 2003, then the premium specified
below shall also become immediately due and payable to the extent permitted by
law upon the acceleration of the Notes during the twelve-month period ending on
April 15 of the years indicated below:
Year Percentage
2000.........................................115.00%
2001.........................................112.50%
2002.........................................110.00%
2003.........................................107.50%
SECTION 6.03. OTHER REMEDIES.
If an Event of Default occurs and is continuing, the Trustee
may pursue any available remedy to collect the payment of principal, premium, if
any, and interest on the Notes or to enforce the performance of any provision of
the Notes or this Indenture.
The Trustee may maintain a proceeding even if it does not
possess any of the Notes or does not produce any of them in the proceeding. A
delay or omission by the Trustee or any Holder of a Note in exercising any right
or remedy accruing upon an Event of Default shall not impair the right or remedy
or constitute a waiver of or acquiescence in the Event of Default. All remedies
are cumulative to the extent permitted by law.
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SECTION 6.04. WAIVER OF PAST DEFAULTS.
Holders of not less than a majority in aggregate principal
amount of the then outstanding Notes by notice to the Trustee may on behalf of
the Holders of all of the Notes waive an existing Default or Event of Default
and its consequences hereunder, except a continuing Default or Event of Default
in the payment of the principal of, premium and Liquidated Damages, if any, or
interest on, the Notes (including in connection with an offer to purchase)
(provided, however, that the Holders of a majority in aggregate principal amount
at maturity of the then outstanding Notes may rescind an acceleration and its
consequences, including any related payment default that resulted from such
acceleration). Upon any such waiver, such Default shall cease to exist, and any
Event of Default arising therefrom shall be deemed to have been cured for every
purpose of this Indenture; but no such waiver shall extend to any subsequent or
other Default or impair any right consequent thereon.
SECTION 6.05. CONTROL BY MAJORITY.
Holders of a majority in principal amount of the then
outstanding Notes may direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee or exercising any
trust or power conferred on it. However, the Trustee may refuse to follow any
direction that conflicts with law or this Indenture that the Trustee determines
may be unduly prejudicial to the rights of other Holders of Notes or that may
involve the Trustee in personal liability.
SECTION 6.06. LIMITATION ON SUITS.
A Holder of a Note may pursue a remedy with respect to this
Indenture or the Notes only if:
(a) the Holder of a Note gives to the Trustee written notice
of a continuing Event of Default;
(b) the Holders of at least 25% in principal amount of the
then outstanding Notes make a written request to the Trustee to pursue the
remedy;
(c) such Holder of a Note or Holders of Notes offer and, if
requested, provide to the Trustee indemnity satisfactory to the Trustee against
any loss, liability or expense;
(d) the Trustee does not comply with the request within 60
days after receipt of the request and the offer and, if requested, the provision
of indemnity; and
(e) during such 60-day period the Holders of a majority in
principal amount of the then outstanding Notes do not give the Trustee a
direction inconsistent with the request.
A Holder of a Note may not use this Indenture to prejudice the rights of another
Holder of a Note or to obtain a preference or priority over another Holder of a
Note.
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SECTION 6.07. RIGHTS OF HOLDERS OF NOTES TO RECEIVE PAYMENT.
Notwithstanding any other provision of this Indenture, the
right of any Holder of a Note to receive payment of principal, premium and
Liquidated Damages, if any, and interest on the Note, on or after the respective
due dates expressed in the Note (including in connection with an offer to
purchase), or to bring suit for the enforcement of any such payment on or after
such respective dates, shall not be impaired or affected without the consent of
such Holder.
SECTION 6.08. COLLECTION SUIT BY TRUSTEE.
If an Event of Default specified in Section 6.01(a) or (b)
hereof occurs and is continuing, the Trustee is authorized to recover judgment
in its own name and as trustee of an express trust against the Company for the
whole amount of principal of, premium and Liquidated Damages, if any, and
interest remaining unpaid on the Notes and interest on overdue principal and, to
the extent lawful, interest and such further amount as shall be sufficient to
cover the costs and expenses of collection, including the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel.
SECTION 6.09. TRUSTEE MAY FILE PROOFS OF CLAIM.
The Trustee is authorized to file such proofs of claim and
other papers or documents as may be necessary or advisable in order to have the
claims of the Trustee (including any claim for the reasonable compensation,
expenses, disbursements and advances of the Trustee, its agents and counsel) and
the Holders of the Notes allowed in any judicial proceedings relative to the
Company (or any other obligor upon the Notes), its creditors or its property and
shall be entitled and empowered to collect, receive and distribute any money or
other property payable or deliverable on any such claims and any custodian in
any such judicial proceeding is hereby authorized by each Holder to make such
payments to the Trustee, and in the event that the Trustee shall consent to the
making of such payments directly to the Holders, to pay to the Trustee any
amount due to it for the reasonable compensation, expenses, disbursements and
advances of the Trustee, its agents and counsel, and any other amounts due the
Trustee under Section 7.07 hereof. To the extent that the payment of any such
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel, and any other amounts due the Trustee under Section 7.07 hereof out
of the estate in any such proceeding, shall be denied for any reason, payment of
the same shall be secured by a Lien on, and shall be paid out of, any and all
distributions, dividends, money, securities and other properties that the
Holders may be entitled to receive in such proceeding whether in liquidation or
under any plan of reorganization or arrangement or otherwise. Nothing herein
contained shall be deemed to authorize the Trustee to authorize or consent to or
accept or adopt on behalf of any Holder any plan of reorganization, arrangement,
adjustment or composition affecting the Notes or the rights of any Holder, or to
authorize the Trustee to vote in respect of the claim of any Holder in any such
proceeding.
SECTION 6.10. PRIORITIES.
If the Trustee collects any money pursuant to this Article, it
shall pay out the money in the following order:
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First: to the Trustee, its agents and attorneys for amounts
due under Section 7.07 hereof, including payment of all compensation, expense
and liabilities incurred, and all advances made, by the Trustee and the costs
and expenses of collection;
Second: to Holders of Notes for amounts due and unpaid on the
Notes for principal, premium and Liquidated Damages, if any, and interest,
ratably, without preference or priority of any kind, according to the amounts
due and payable on the Notes for principal, premium and Liquidated Damages, if
any and interest, respectively; and
Third: to the Company or to such party as a court of
competent jurisdiction shall direct.
The Trustee may fix a record date and payment date for any
payment to Holders of Notes pursuant to this Section 6.10.
SECTION 6.11. UNDERTAKING FOR COSTS.
In any suit for the enforcement of any right or remedy under
this Indenture or in any suit against the Trustee for any action taken or
omitted by it as a Trustee, a court in its discretion may require the filing by
any party litigant in the suit of an undertaking to pay the costs of the suit,
and the court in its discretion may assess reasonable costs, including
reasonable attorneys' fees, against any party litigant in the suit, having due
regard to the merits and good faith of the claims or defenses made by the party
litigant. This Section 6.11 does not apply to a suit by the Trustee, a suit by a
Holder of a Note pursuant to Section 6.07 hereof, or a suit by Holders of more
than 10% in principal amount of the then outstanding Notes.
ARTICLE 7.
TRUSTEE
SECTION 7.01. DUTIES OF TRUSTEE.
(a) If an Event of Default has occurred and is continuing, the
Trustee shall exercise such of the rights and powers vested in it by this
Indenture, and use the same degree of care and skill in its exercise, as a
prudent man would exercise or use under the circumstances in the conduct of his
own affairs.
(b) Except during the continuance of an Event of Default:
(i) the duties of the Trustee shall be determined solely by
the express provisions of this Indenture and the Trustee need perform
only those duties that are specifically set forth in this Indenture and
no others, and no implied covenants or obligations shall be read into
this Indenture against the Trustee; and
(ii) in the absence of bad faith or negligence on its part,
the Trustee may conclusively rely, as to the truth of the statements
and the correctness of the opinions expressed therein, upon
certificates or opinions furnished to the Trustee and conforming to the
requirements of this Indenture. However, the Trustee shall examine the
certificates and opinions to determine whether or not they conform to
the requirements of this
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Indenture (but need not confirm or investigate the accuracy of
mathematical calculations or other facts stated therein).
(c) The Trustee may not be relieved from liabilities for its
own negligent action, its own negligent failure to act, or its own willful
misconduct, except that:
(i) this paragraph does not limit the effect of paragraph
(b) of this Section 7.01;
(ii) the Trustee shall not be liable for any error of
judgment made in good faith by a Responsible Officer, unless it is
proved that the Trustee was negligent in ascertaining the pertinent
facts; and
(iii) the Trustee shall not be liable with respect to any
action it takes or omits to take in good faith in accordance with a
direction received by it pursuant to Section 6.05 hereof.
(d) Whether or not therein expressly so provided, every
provision of this Indenture that in any way relates to the Trustee is subject to
paragraphs (a), (b), and (c) of this Section.
(e) No provision of this Indenture shall require the Trustee
to expend or risk its own funds or incur any liability. The Trustee shall be
under no obligation to exercise any of its rights and powers under this
Indenture at the request of any Holders, unless such Holder shall have offered
to the Trustee security and indemnity satisfactory to it against any loss,
liability or expense.
(f) The Trustee shall not be liable for interest on any
money received by it except as the Trustee may agree in writing with the
Company. Money held in trust by the Trustee need not be segregated from other
funds except to the extent required by law.
SECTION 7.02. RIGHTS OF TRUSTEE.
(a) The Trustee may conclusively rely upon any document
believed by it to be genuine and to have been signed or presented by the proper
Person. The Trustee need not investigate any fact or matter stated in such
document.
(b) Before the Trustee acts or refrains from acting, it may
require an Officers' Certificate or an Opinion of Counsel or both. The Trustee
shall not be liable for any action it takes or omits to take in good faith in
reliance on such Officers' Certificate or Opinion of Counsel. The Trustee may
consult with counsel and the written advice of such counsel or any Opinion of
Counsel shall be full and complete authorization and protection from liability
in respect of any action taken, suffered or omitted by it hereunder in good
faith and in reliance thereon.
(c) The Trustee may act through its attorneys and agents and
shall not be responsible for the misconduct or negligence of any agent appointed
with due care.
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(d) The Trustee shall not be liable for any action it takes
or omits to take in good faith that it believes to be authorized or within the
rights or powers conferred upon it by this Indenture.
(e) Unless otherwise specifically provided in this
Indenture, any demand, request, direction or notice from the Company shall be
sufficient if signed by an Officer of the Company.
(f) The Trustee shall be under no obligation to exercise any
of the rights or powers vested in it by this Indenture at the request or
direction of any of the Holders unless such Holders shall have offered to the
Trustee reasonable security or indemnity against the costs, expenses and
liabilities that might be incurred by it in compliance with such request or
direction.
(g) The Trustee may execute any of the trusts or powers
hereunder or perform any duties hereunder either directly or by or through
agents or attorneys and the Trustee shall not be responsible for any misconduct
or negligence on the part of any agent or attorney appointed with due care by it
hereunder.
(h) The Trustee shall not be deemed to have notice of any
Default or Event of Default unless a Responsible Officer of the Trustee has
actual knowledge thereof or unless written notice of any event which is in fact
such a default is received by a Responsible Officer of the Trustee at the
Corporate Trust Office of the Trustee, and such notice references the specific
Default or Event of Default, the Notes and this Indenture.
(i) Money held by the Trustee in trust hereunder need not be
segregated from other funds except to the extent required by law. The Trustee
shall be under no liability for interest on any money received by it hereunder
except as otherwise agreed in writing with the Company.
SECTION 7.03. INDIVIDUAL RIGHTS OF TRUSTEE.
The Trustee in its individual or any other capacity may become
the owner or pledgee of Notes and may otherwise deal with the Company or any
Affiliate of the Company with the same rights it would have if it were not
Trustee. However, in the event that the Trustee acquires any conflicting
interest it must eliminate such conflict within 90 days, apply to the SEC for
permission to continue as trustee or resign. Any Agent may do the same with like
rights and duties. The Trustee is also subject to Sections 7.10 and 7.11 hereof.
SECTION 7.04. TRUSTEE'S DISCLAIMERS.
The Trustee shall not be responsible for and makes no
representation as to the validity or adequacy of this Indenture or the Notes, it
shall not be accountable for the Company's use of the proceeds from the Notes or
any money paid to the Company or upon the Company's direction under any
provision of this Indenture, it shall not be responsible for the use or
application of any money received by any Paying Agent other than the Trustee,
and it shall not be responsible for any statement or recital herein or any
statement in the Notes or any other document in connection with the sale of the
Notes or pursuant to this Indenture other than its certificate of
authentication.
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SECTION 7.05. NOTICE OF DEFAULTS.
If a Default or Event of Default occurs and is continuing and
if it is known to the Trustee, the Trustee shall mail to Holders of Notes a
notice of the Default or Event of Default within 90 days after it occurs. Except
in the case of a Default or Event of Default in payment of principal of,
premium, if any, or interest on any Note, the Trustee may withhold the notice if
and so long as a committee of its Responsible Officers in good faith determines
that withholding the notice is in the interests of the Holders of the Notes.
SECTION 7.06. REPORTS BY TRUSTEE TO HOLDERS OF THE NOTES.
Within 60 days after each May 15 beginning with the May 15
following the date of this Indenture, and for so long as Notes remain
outstanding, the Trustee shall mail to the Holders of the Notes a brief report
dated as of such reporting date that complies with TIA ss.313(a) (but if no
event described in TIA ss.313(a) has occurred within the twelve months preceding
the reporting date, no report need be transmitted). The Trustee also shall
comply with TIA ss.313(b)(2). The Trustee shall also transmit by mail all
reports as required by TIA ss.313(c).
A copy of each report at the time of its mailing to the
Holders of Notes shall be mailed to the Company and filed with the SEC and each
stock exchange on which the Notes are listed in accordance with TIA ss.313(d).
The Company shall promptly notify the Trustee when the Notes are listed on any
stock exchange.
SECTION 7.07. COMPENSATION AND INDEMNITY.
The Company shall pay to the Trustee from time to time such
compensation as the Company and the Trustee shall from time to time agree in
writing for its acceptance of this Indenture and services hereunder. The
Trustee's compensation shall not be limited by any law on compensation of a
trustee of an express trust. The Company shall reimburse the Trustee promptly
upon request for all reasonable disbursements, advances and expenses incurred or
made by it in addition to the compensation for its services. Such expenses shall
include the reasonable compensation, disbursements and expenses of the Trustee's
agents and counsel.
The Company shall indemnify the Trustee or any predecessor
Trustee against any and all losses, claims, damages, penalties, fines,
liabilities or expenses, including incidental and out-of-pocket expenses and
reasonable attorneys fees ("losses") incurred by it arising out of or in
connection with the acceptance or administration of its duties under this
Indenture, including the costs and expenses of enforcing this Indenture against
the Company (including this Section 7.07) and defending itself against any claim
(whether asserted by the Company or any Holder or any other person) or liability
in connection with the exercise or performance of any of its powers or duties
hereunder, except to the extent any such losses may be attributable to its
negligence or bad faith. The Trustee shall notify the Company promptly of any
claim for which it may seek indemnity. Failure by the Trustee to so notify the
Company shall not relieve the Company of its obligations hereunder. The Company
shall defend the claim and the Trustee shall cooperate in the defense. The
Trustee may have separate counsel and the Company shall pay the reasonable fees
and expenses of such counsel. The Company need not pay for any settlement made
without its consent, which consent shall not be unreasonably withheld.
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The obligations of the Company under this Section 7.07 shall
survive the satisfaction and discharge of this Indenture.
When the Trustee incurs expenses or renders services after an
Event of Default specified in Section 6.01(i) or (j) hereof occurs, the expenses
and the compensation for the services (including the fees and expenses of its
agents and counsel) are intended to constitute expenses of administration under
any Bankruptcy Law.
The Trustee shall comply with the provisions of TIA
ss.313(b)(2) to the extent applicable.
SECTION 7.08. REPLACEMENT OF TRUSTEE.
A resignation or removal of the Trustee and appointment of a
successor Trustee shall become effective only upon the successor Trustee's
acceptance of appointment as provided in this Section.
The Trustee may resign in writing at any time and be
discharged from the trust hereby created by so notifying the Company. The
Holders of Notes of a majority in principal amount of the then outstanding Notes
may remove the Trustee by so notifying the Trustee and the Company in writing.
The Company may remove the Trustee if:
(a) the Trustee fails to comply with Section 7.10 hereof;
(b) the Trustee is adjudged a bankrupt or an insolvent or an
order for relief is entered with respect to the Trustee under any Bankruptcy
Law;
(c) a custodian or public officer takes charge of the
Trustee or its property; or
(d) the Trustee becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in
the office of Trustee for any reason, the Company shall promptly appoint a
successor Trustee. Within one year after the successor Trustee takes office, the
Holders of a majority in principal amount of the then outstanding Notes may
appoint a successor Trustee to replace the successor Trustee appointed by the
Company.
If a successor Trustee does not take office within 30 days
after the retiring Trustee resigns or is removed, the retiring Trustee, the
Company, or the Holders of Notes of at least 10% in principal amount of the then
outstanding Notes may petition any court of competent jurisdiction for the
appointment of a successor Trustee.
If the Trustee, after written request by any Holder of a Note
who has been a Holder of a Note for at least six months, fails to comply with
Section 7.10, such Holder of a Note may petition any court of competent
jurisdiction for the removal of the Trustee and the appointment of a successor
Trustee.
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A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Thereupon, the
resignation or removal of the retiring Trustee shall become effective, and the
successor Trustee shall have all the rights, powers and duties of the Trustee
under this Indenture. The successor Trustee shall mail a notice of its
succession to Holders of the Notes. The retiring Trustee shall promptly transfer
all property held by it as Trustee to the successor Trustee, provided all sums
owing to the Trustee hereunder have been paid and subject to the Lien provided
for in Section 7.07 hereof. Notwithstanding replacement of the Trustee pursuant
to this Section 7.08, the Company's obligations under Section 7.07 hereof shall
continue for the benefit of the retiring Trustee.
SECTION 7.09. SUCCESSOR TRUSTEE BY MERGER, ETC.
If the Trustee consolidates, merges or converts into, or
transfers all or substantially all of its corporate trust business to, another
corporation, the successor corporation without any further act shall be the
successor Trustee.
SECTION 7.10. ELIGIBILITY; DISQUALIFICATION.
There shall at all times be a Trustee hereunder that is a
corporation organized and doing business under the laws of the United States of
America or of any state thereof that is authorized under such laws to exercise
corporate trustee power, that is subject to supervision or examination by
federal or state authorities and that has a combined capital and surplus of at
least $150,000,000 as set forth in its most recent published annual report of
condition.
This Indenture shall always have a Trustee who satisfies the
requirements of TIA ss.310(a)(1), (2) and (5). The Trustee is subject to TIA
ss.310(b).
SECTION 7.11. PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY.
The Trustee is subject to TIA ss.311(a), excluding any
creditor relationship listed in TIA ss.311(b). A Trustee who has resigned or
been removed shall be subject to TIA ss.311(a) to the extent indicated therein.
ARTICLE 8.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
SECTION 8.01. OPTION TO EFFECT LEGAL DEFEASANCE OR COVENANT DEFEASANCE.
The Company may, at its option and at any time, elect to have
either Section 8.02 or 8.03 hereof be applied to all outstanding Notes and all
obligations of the Guarantors with respect to their Subsidiary Guarantees upon
compliance with the conditions set forth below in this Article 8.
SECTION 8.02. LEGAL DEFEASANCE AND DISCHARGE.
Upon the Company's exercise under Section 8.01 hereof of the
option applicable to this Section 8.02, the Company shall, subject to the
satisfaction of the conditions set forth in Section 8.04 hereof, be deemed to
have been discharged from its obligations with respect to all
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outstanding Notes and all obligations of the Guarantors with respect to their
Subsidiary Guarantees on the date the conditions set forth below are satisfied
(hereinafter, "Legal Defeasance"). For this purpose, Legal Defeasance means that
the Company shall be deemed to have paid and discharged the entire Indebtedness
represented by the outstanding Notes and Subsidiary Guarantees, which shall
thereafter be deemed to be "outstanding" only for the purposes of Section 8.05
hereof and the other Sections of this Indenture referred to in (a) and (b)
below, and to have satisfied all its other obligations under such Notes and this
Indenture (and the Trustee, on demand of and at the expense of the Company,
shall execute proper instruments acknowledging the same), except for the
following provisions which shall survive until otherwise terminated or
discharged hereunder: (a) the rights of Holders of outstanding Notes to receive
payments in respect of the principal of, premium, if any, or interest and
Liquidated Damages, if any, on such Notes when such payments are due solely from
the trust fund described in Section 8.04 hereof, (b) the Company's obligations
with respect to such Notes under Sections 2.06, 2.07, 2.10 and 4.02 hereof, (c)
the rights, powers, trusts, duties and immunities of the Trustee hereunder and
the Company's obligations in connection therewith and (d) this Article 8.
Subject to compliance with this Article 8, the Company may exercise its option
under this Section 8.02 notwithstanding the prior exercise of its option under
Section 8.03 hereof.
SECTION 8.03. COVENANT DEFEASANCE.
Upon the Company's exercise under Section 8.01 hereof of the
option applicable to this Section 8.03, the Company shall, subject to the
satisfaction of the conditions set forth in Section 8.04 hereof, be released
from its obligations under Sections 4.03, 4.06, 4.07, 4.08, 4.09, 4.10, 4.11,
4.12, 4.13, 4.15, 4.16, 4.17 and 4.18 and Articles 5 and 10 hereof with respect
to the outstanding Notes on and after the date the conditions set forth below
are satisfied (hereinafter, "Covenant Defeasance"), and the Notes shall
thereafter be deemed not "outstanding" for the purposes of any direction,
waiver, consent or declaration or act of Holders (and the consequences of any
thereof) in connection with such covenants, but shall continue to be deemed
"outstanding" for all other purposes hereunder (it being understood that such
Notes shall not be deemed outstanding for accounting purposes). For this
purpose, Covenant Defeasance means that, with respect to the outstanding Notes,
the Company may omit to comply with and shall have no liability in respect of
any term, condition or limitation set forth in any such covenant, whether
directly or indirectly, by reason of any reference elsewhere herein to any such
covenant or by reason of any reference in any such covenant to any other
provision herein or in any other document and such omission to comply shall not
constitute a Default or an Event of Default under Section 6.01 hereof, but,
except as specified above, the remainder of this Indenture and such Notes shall
be unaffected thereby. In addition, upon the Company's exercise under Section
8.01 hereof of the option applicable to this Section 8.03 hereof, subject to the
satisfaction of the conditions set forth in Section 8.04 hereof, Sections
6.01(c) through 6.01(h) hereof shall not constitute Events of Default.
SECTION 8.04. CONDITIONS TO LEGAL OR COVENANT DEFEASANCE.
The following shall be the conditions to the application of
either Section 8.02 or 8.03 hereof to the outstanding Notes:
In order to exercise either Legal Defeasance or Covenant
Defeasance:
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(a) the Company must irrevocably deposit with the Trustee, in
trust, for the benefit of the Holders, cash in United States dollars,
non-callable Government Securities, or a combination thereof, in such amounts as
will be sufficient, in the opinion of a nationally recognized firm of
independent public accountants, to pay the principal of, premium and Liquidated
Damages, if any, and interest on the outstanding Notes on the stated date for
payment thereof or on the applicable redemption date, as the case may be, and
the Company must specify whether the Notes are being defeased to maturity or to
a particular redemption date;
(b) in the case of an election under Section 8.02 hereof, the
Company shall have delivered to the Trustee an Opinion of Counsel reasonably
acceptable to the Trustee confirming that (A) the Company has received from, or
there has been published by, the Internal Revenue Service a ruling or (B) since
the date of this Indenture, there has been a change in the applicable federal
income tax law, in either case to the effect that, and based thereon such
Opinion of Counsel shall confirm that, the Holders of the outstanding Notes will
not recognize income, gain or loss for federal income tax purposes as a result
of such Legal Defeasance and will be subject to federal income tax on the same
amounts, in the same manner and at the same times as would have been the case if
such Legal Defeasance had not occurred;
(c) in the case of an election under Section 8.03 hereof, the
Company shall have delivered to the Trustee an Opinion of Counsel reasonably
acceptable to the Trustee confirming that the Holders of the outstanding Notes
will not recognize income, gain or loss for federal income tax purposes as a
result of such Covenant Defeasance and will be subject to federal income tax on
the same amounts, in the same manner and at the same times as would have been
the case if such Covenant Defeasance had not occurred;
(d) no Default or Event of Default shall have occurred and be
continuing on the date of such deposit (other than a Default or Event of Default
resulting from the borrowing of funds to be applied to that deposit) or insofar
as Sections 6.01(i) or 6.01(j) hereof is concerned, at any time in the period
ending on the 91st day after the date of deposit;
(e) such Legal Defeasance or Covenant Defeasance shall not
result in a breach or violation of, or constitute a default under, any material
agreement or instrument (other than this Indenture) to which the Company or any
of its Restricted Subsidiaries is a party or by which the Company or any of its
Subsidiaries is bound;
(f) the Company shall have delivered to the Trustee an Opinion
of Counsel to the effect that, assuming no intervening bankruptcy of the Company
or any Guarantor between the date of deposit and the 91st day following the
deposit and assuming that no Holder is an "insider" of the Company under
applicable Bankruptcy Law, after the 91st day following the deposit, the trust
funds will not be subject to the effect of any applicable bankruptcy,
insolvency, reorganization or similar laws affecting creditors' rights
generally;
(g) the Company shall have delivered to the Trustee an
Officers' Certificate stating that the deposit was not made by the Company with
the intent of preferring the Holders over any other creditors of the Company or
with the intent of defeating, hindering, delaying or defrauding any other
creditors of the Company; and
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(h) the Company shall have delivered to the Trustee an
Officers' Certificate and an Opinion of Counsel, each stating that all
conditions precedent provided for or relating to the Legal Defeasance or the
Covenant Defeasance have been complied with.
SECTION 8.05. DEPOSITED MONEY AND GOVERNMENT SECURITIES TO BE HELD IN
TRUST; OTHER MISCELLANEOUS PROVISIONS.
Subject to Section 8.06 hereof, all money and non-callable
Government Securities (including the proceeds thereof) deposited with the
Trustee (or other qualifying trustee, collectively for purposes of this Section
8.05, the "Trustee") pursuant to Section 8.04 hereof in respect of the
outstanding Notes shall be held in trust and applied by the Trustee, in
accordance with the provisions of such Notes and this Indenture, to the payment,
either directly or through any Paying Agent (including the Company acting as
Paying Agent) as the Trustee may determine, to the Holders of such Notes of all
sums due and to become due thereon in respect of principal, premium, if any, and
interest, but such money need not be segregated from other funds except to the
extent required by law.
The Company shall pay and indemnify the Trustee against any
tax, fee or other charge imposed on or assessed against the cash or non-callable
Government Securities deposited pursuant to Section 8.04 hereof or the principal
and interest received in respect thereof other than any such tax, fee or other
charge which by law is for the account of the Holders of the outstanding Notes.
Anything in this Article 8 to the contrary notwithstanding,
the Trustee shall deliver or pay to the Company from time to time upon the
request of the Company any money or non-callable Government Securities held by
it as provided in Section 8.04 hereof which, in the opinion of a nationally
recognized firm of independent public accountants expressed in a written
certification thereof delivered to the Trustee (which may be the opinion
delivered under Section 8.04(a) hereof), are in excess of the amount thereof
that would then be required to be deposited to effect an equivalent Legal
Defeasance or Covenant Defeasance.
SECTION 8.06. REPAYMENT TO COMPANY.
Any money deposited with the Trustee or any Paying Agent, or
then held by the Company, in trust for the payment of the principal of, premium,
if any, or interest on any Note and remaining unclaimed for two years after such
principal, and premium, if any, or interest has become due and payable shall be
paid to the Company on its request or (if then held by the Company) shall be
discharged from such trust; and the Holder of such Note shall thereafter, as a
secured creditor, look only to the Company for payment thereof, and all
liability of the Trustee or such Paying Agent with respect to such trust money,
and all liability of the Company as trustee thereof, shall thereupon cease;
provided, however, that the Trustee or such Paying Agent, before being required
to make any such repayment, may at the expense of the Company cause to be
published once, in The New York Times and The Wall Street Journal (national
edition), notice that such money remains unclaimed and that, after a date
specified therein, which shall not be less than 30 days from the date of such
notification or publication, any unclaimed balance of such money then remaining
will be repaid to the Company.
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SECTION 8.07. REINSTATEMENT.
If the Trustee or Paying Agent is unable to apply any United
States dollars or non-callable Government Securities in accordance with Section
8.02 or 8.03 hereof, as the case may be, by reason of any order or judgment of
any court or governmental authority enjoining, restraining or otherwise
prohibiting such application, then the Company's obligations under this
Indenture and the Notes shall be revived and reinstated as though no deposit had
occurred pursuant to Section 8.02 or 8.03 hereof until such time as the Trustee
or Paying Agent is permitted to apply all such money in accordance with Section
8.02 or 8.03 hereof, as the case may be; provided, however, that, if the Company
makes any payment of principal of, premium, if any, or interest on any Note
following the reinstatement of its obligations, the Company shall be subrogated
to the rights of the Holders of such Notes to receive such payment from the
money held by the Trustee or Paying Agent.
ARTICLE 9.
AMENDMENT, SUPPLEMENT AND WAIVER
SECTION 9.01. WITHOUT CONSENT OF HOLDERS OF NOTES.
Notwithstanding Section 9.02 hereof, the Company and the
Trustee may amend or supplement this Indenture or the Notes without the consent
of any Holder of a Note:
(a) to cure any ambiguity, defect or inconsistency;
(b) to provide for uncertificated Notes in addition to or
in place of certificated Notes;
(c) to provide for the assumption of the Company's
obligations to the Holders of the Notes in the case of a merger or consolidation
or sale of all or substantially all of the Company's assets;
(d) to make any change that would provide any additional
rights or benefits to the Holders of the Notes;
(e) to provide for the issuance of Additional Notes in
accordance with the provisions set forth in this Indenture;
(f) to comply with requirements of the SEC in order to effect
or maintain the qualification of this Indenture under the TIA; or
(g) to make any other change, provided that such other change
does not adversely affect the legal rights hereunder of any Holder of the Notes.
Upon the request of the Company accompanied by a resolution of
its Board of Directors authorizing the execution of any such amended or
supplemental Indenture, and upon receipt by the Trustee of the documents
described in Section 7.02(b) hereof, the Trustee shall join with the Company in
the execution of any amended or supplemental Indenture authorized or permitted
by the terms of this Indenture and to make any further appropriate agreements
and
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stipulations that may be therein contained, but the Trustee shall not be
obligated to enter into such amended or supplemental Indenture that, by its
express terms, affects its own rights, duties or immunities under this Indenture
or otherwise.
SECTION 9.02. WITH CONSENT OF HOLDERS OF NOTES.
Except as provided below in this Section 9.02, the Company and
the Trustee may amend or supplement this Indenture (including Section 3.09, 4.10
and 4.15 hereof) and the Notes may be amended or supplemented with the consent
of the Holders of at least a majority in principal amount of the Notes then
outstanding (including consents obtained in connection with a tender offer or
exchange offer for the Notes), and, subject to Sections 6.04 and 6.07 hereof,
any existing Default or Event of Default (other than a Default or Event of
Default in the payment of the principal of, premium, if any, or interest on the
Notes, except a payment default resulting from an acceleration that has been
rescinded) or compliance with any provision of this Indenture or the Notes may
be waived with the consent of the Holders of a majority in principal amount of
the then outstanding Notes (including consents obtained in connection with a
tender offer or exchange offer for the Notes).
Upon the request of the Company accompanied by a resolution of
its Board of Directors authorizing the execution of any such amended or
supplemental Indenture, and upon the filing with the Trustee of evidence
satisfactory to the Trustee of the consent of the Holders of Notes as aforesaid,
and upon receipt by the Trustee of the documents described in Section 7.02(b)
hereof, the Trustee shall join with the Company in the execution of such amended
or supplemental Indenture unless such amended or supplemental Indenture, by its
express terms, affects the Trustee's own rights, duties or immunities under this
Indenture or otherwise, in which case the Trustee may in its discretion, but
shall not be obligated to, enter into such amended or supplemental Indenture.
The Company may, but shall not be obligated to, fix a record
date for the purpose of determining the Persons entitled to consent to any
indenture supplemental hereto. If a record date is fixed, the Holders on such
record date, or their duly designated proxies, and only such Persons, shall be
entitled to consent to such supplemental indenture, whether or not such Holders
remain Holders after such record date; provided, that unless such consent shall
have become effective by virtue of the requisite percentage having been obtained
prior to the date which is 180 days after such record date, any such consent
previously given shall automatically and without further action by any Holder be
canceled and of no further effect.
It shall not be necessary for the consent of the Holders of
Notes under this Section 9.02 to approve the particular form of any proposed
amendment or waiver, but it shall be sufficient if such consent approves the
substance thereof.
After an amendment, supplement or waiver under this Section
becomes effective, the Company shall mail to the Holders of Notes affected
thereby a notice briefly describing the amendment, supplement or waiver. Any
failure of the Company to mail such notice, or any defect therein, shall not,
however, in any way impair or affect the validity of any such amended or
supplemental Indenture or waiver. Subject to Sections 6.04 and 6.07 hereof, the
Holders of a majority in aggregate principal amount of the Notes then
outstanding may waive compliance in a
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particular instance by the Company with any provision of this Indenture or the
Notes. However, without the consent of each Holder affected, an amendment or
waiver may not (with respect to any Notes held by a non-consenting Holder):
(a) reduce the principal amount of Notes whose Holders must
consent to an amendment, supplement or waiver;
(b) reduce the principal of or change the fixed maturity of
any Note or alter the provisions with respect to the redemption of the Notes
except as provided above with respect to Sections 4.10 and 4.15 hereof;
(c) reduce the rate of or change the time for payment of
interest, including default interest, on any Note;
(d) waive a Default or Event of Default in the payment of
principal of or premium, if any, or interest or Liquidated Damages, if any, on
the Notes (except a rescission of acceleration of the Notes by the Holders of at
least a majority in aggregate principal amount of the then outstanding Notes and
a waiver of the payment default that resulted from such acceleration);
(e) make any Note payable in money other than that stated in
the Notes;
(f) make any change in the provisions of this Indenture
relating to waivers of past Defaults or the rights of Holders of Notes to
receive payments of principal of, or interest or premium or Liquidated Damages
on the Notes;
(g) waive a redemption payment with respect to any Note
(other than a payment required by Sections 4.10 and 4.15 hereof);
(h) release any Guarantor from any of its obligations under
its Subsidiary Guarantee or this Indenture, except in accordance with the terms
of this Indenture; or
(i) make any change in the foregoing amendment and waiver
provisions.
SECTION 9.03. COMPLIANCE WITH TRUST INDENTURE ACT.
Every amendment or supplement to this Indenture or the Notes
shall be set forth in a amended or supplemental Indenture that complies with the
TIA as then in effect.
SECTION 9.04. REVOCATION AND EFFECT OF CONSENTS.
Until an amendment, supplement or waiver becomes effective, a
consent to it by a Holder of a Note is a continuing consent by the Holder of a
Note and every subsequent Holder of a Note or portion of a Note that evidences
the same debt as the consenting Holder's Note, even if notation of the consent
is not made on any Note. However, any such Holder of a Note or subsequent Holder
of a Note may revoke the consent as to its Note if the Trustee receives written
notice of revocation before the date the waiver, supplement or amendment becomes
effective. An
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amendment, supplement or waiver becomes effective in accordance with its terms
and thereafter binds every Holder.
SECTION 9.05. NOTATION ON OR EXCHANGE OF NOTES.
The Trustee may place an appropriate notation about an
amendment, supplement or waiver on any Note thereafter authenticated. The
Company in exchange for all Notes may issue and the Trustee shall authenticate
new Notes that reflect the amendment, supplement or waiver.
Failure to make the appropriate notation or issue a new Note
shall not affect the validity and effect of such amendment, supplement or
waiver.
SECTION 9.06. TRUSTEE TO SIGN AMENDMENTS, ETC.
The Trustee shall sign any amended or supplemental Indenture
authorized pursuant to this Article 9 if the amendment or supplement does not
adversely affect the rights, duties, liabilities or immunities of the Trustee.
The Company may not sign an amendment or supplemental Indenture until the Board
of Directors approves it. In executing any amended or supplemental indenture,
the Trustee shall be entitled to receive and (subject to Section 7.01 hereof)
shall be fully protected in relying upon, an Officer's Certificate and an
Opinion of Counsel stating that the execution of such amended or supplemental
indenture is authorized or permitted by this Indenture.
ARTICLE 10
SUBSIDIARY GUARANTEES
SECTION 10.01. SUBSIDIARY GUARANTEES.
Subject to Section 10.05 hereof, each of the Guarantors
hereby, jointly and severally, unconditionally guarantees to each Holder of a
Note authenticated and delivered by the Trustee and to the Trustee and its
successors and assigns, the Notes and the Obligations of the Company hereunder
and thereunder, that: (a) the principal of, premium, if any, interest and
Liquidated Damages, if any, on the Notes will be promptly paid in full when due,
subject to any applicable grace period, whether at maturity, by acceleration,
redemption or otherwise, and interest on the overdue principal, premium, if any
(to the extent permitted by law), interest on any interest, if any, and
Liquidated Damages, if any, on the Notes, and all other payment Obligations of
the Company to the Holders or the Trustee hereunder or thereunder will be
promptly paid in full and performed, all in accordance with the terms hereof and
thereof; and (b) in case of any extension of time of payment or renewal of any
Notes or any of such other Obligations, the same will be promptly paid in full
when due or performed in accordance with the terms of the extension or renewal,
subject to any applicable grace period, whether at stated maturity, by
acceleration, redemption or otherwise. Failing payment when so due of any amount
so guaranteed or any performance so guaranteed for whatever reason the
Guarantors will be jointly and severally obligated to pay the same immediately.
An Event of Default under this Indenture or the Notes shall constitute an event
of default under the Subsidiary Guarantees, and shall entitle the Holders to
accelerate the obligations of the Guarantors hereunder in the same manner and to
the same extent as the Obligations of the Company. The Guarantors hereby agree
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that their obligations hereunder shall be unconditional, irrespective of the
validity or enforceability of the Notes or this Indenture, the absence of any
action to enforce the same, any waiver or consent by any Holder with respect to
any provisions hereof or thereof, the recovery of any judgment against the
Company, any action to enforce the same or any other circumstance which might
otherwise constitute a legal or equitable discharge or defense of a Guarantor.
Each Guarantor hereby waives diligence, presentment, demand of payment, filing
of claims with a court in the event of insolvency or bankruptcy of the Company,
any right to require a proceeding first against the Company, protest, notice and
all demands whatsoever and covenants that its Subsidiary Guarantee will not be
discharged except by complete performance of the Obligations contained in the
Notes and this Indenture. If any Holder or the Trustee is required by any court
or otherwise to return to the Company, the Guarantors, or any Note Custodian,
Trustee, liquidator or other similar official acting in relation to either the
Company or the Guarantors, any amount paid by the Company or any Guarantor to
the Trustee or such Holder, the Subsidiary Guarantees, to the extent theretofore
discharged, shall be reinstated in full force and effect. Each Guarantor agrees
that it shall not be entitled to, and hereby waives, any right of subrogation in
relation to the Holders in respect of any Obligations guaranteed hereby. Each
Guarantor further agrees that, as between the Guarantors, on the one hand, and
the Holders and the Trustee, on the other hand, (x) the maturity of the
Obligations guaranteed hereby may be accelerated as provided in Article 6 hereof
for the purposes of its Subsidiary Guarantee, notwithstanding any stay,
injunction or other prohibition preventing such acceleration in respect of the
Obligations guaranteed thereby, and (y) in the event of any declaration of
acceleration of such Obligations as provided in Article 6 hereof, such
Obligations (whether or not due and payable) shall forthwith become due and
payable by the Guarantor for the purpose of its Subsidiary Guarantee. The
Guarantors shall have the right to seek contribution from any non-paying
Guarantor as provided in Section 10.05 hereof so long as the exercise of such
right does not impair the rights of the Holders or the Trustee under the
Subsidiary Guarantees or this Indenture.
SECTION 10.02. EXECUTION AND DELIVERY OF SUBSIDIARY GUARANTEE.
(a) To evidence its Subsidiary Guarantee set forth in Section
10.01 hereof, each Guarantor hereby agrees that a notation of such Subsidiary
Guarantee substantially in the form of Exhibit E hereto shall be endorsed by
manual or facsimile signature by an Officer of such Guarantor on each Note
authenticated and delivered by the Trustee and that this Indenture shall be
executed on behalf of such Guarantor, by manual or facsimile signature, by an
Officer of such Guarantor.
(b) Each Guarantor hereby agrees that its Subsidiary Guarantee
set forth in Section 10.01 hereof shall remain in full force and effect
notwithstanding any failure to endorse on each Note a notation of such
Subsidiary Guarantee.
(c) If an officer whose signature is on this Indenture or on
any Subsidiary Guarantee no longer holds that office at the time the Trustee
authenticates the Note on which such Subsidiary Guarantee is endorsed, such
Subsidiary Guarantee shall be valid nevertheless.
(d) The delivery of any Note by the Trustee, after the
authentication thereof hereunder, shall constitute due delivery of the
Subsidiary Guarantees set forth in this Indenture on behalf of the Guarantors.
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SECTION 10.03. GUARANTORS MAY CONSOLIDATE, ETC., ON CERTAIN TERMS.
(a) Except as set forth in Articles 4 and 5 hereof, nothing
contained in this Indenture shall prohibit a merger between a Guarantor and
another Guarantor or a merger between a Guarantor and the Company.
(b) No Guarantor shall consolidate with or merge with or into
(whether or not such Guarantor is the surviving Person) or sell or otherwise
dispose of all or substantially all of its assets to, another Person (other than
the Company or another Guarantor) unless (i) immediately after giving effect to
such transaction, no Default or Event of Default exists and (ii) either (x) the
Person formed by or surviving any such merger or consolidation, or to which such
sale of assets shall have been made (if other than such Guarantor) assumes all
the obligations of such Guarantor under this Indenture, pursuant to a
supplemental indenture substantially in the form of Exhibit F hereto, or (y) the
Net Proceeds of such transaction are applied in accordance with Section 4.10
hereof.
(c) In the case of any such consolidation, merger, sale or
conveyance and upon the assumption by the successor Person, by supplemental
indenture, executed and delivered to the Trustee and substantially in the form
of Exhibit F hereto, of the Subsidiary Guarantees endorsed upon the Notes and
the due and punctual performance of all of the covenants and conditions of this
Indenture to be performed by the Guarantor, such successor Person shall succeed
to and be substituted for the Guarantor with the same effect as if it had been
named herein as a Guarantor. Such successor Person thereupon may cause to be
signed any or all of the Subsidiary Guarantees to be endorsed upon all of the
Notes issuable hereunder which theretofore shall not have been signed by the
Company and delivered to the Trustee. All of the Subsidiary Guarantees so issued
shall in all respects have the same legal rank and benefit under this Indenture
as the Subsidiary Guarantees theretofore and thereafter issued in accordance
with the terms of this Indenture as though all of such Subsidiary Guarantees had
been issued at the date of the execution hereof.
SECTION 10.04. RELEASES OF SUBSIDIARY GUARANTEES.
(a) In the event of (i) a sale or other disposition of all or
substantially all of the assets of any Guarantor, or (ii) a sale or other
disposition of all of the Capital Stock of any Guarantor, in each case to a
Person that is not (either before or after giving effect to such transaction) a
Subsidiary of the Company, then such Guarantor shall be released and relieved of
any obligations under this Indenture and its Subsidiary Guarantee; provided that
(i) the Net Proceeds from such sale or other disposition are treated in
accordance with the provisions of Section 4.10 hereof and (ii) the Company is in
compliance with all other provisions of this Indenture applicable to such
disposition.
(b) Upon the designation of a Guarantor as an Unrestricted
Subsidiary or a Receivables Subsidiary in accordance with the terms of this
Indenture, such Guarantor shall be released and relieved of any obligations
under this Indenture and its Subsidiary Guarantee.
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(c) In the event of the Company's exercise of its option under
Section 8.01 hereof, each Guarantor shall be released and relieved of any
obligations under this Indenture and its Subsidiary Guarantee.
(d) Upon delivery by the Company to the Trustee of an
Officers' Certificate to the effect of any of the foregoing, the Trustee shall
execute any documents reasonably required in order to evidence the release of
any Guarantor from its obligations under its Subsidiary Guarantee. Any Guarantor
not released from its obligations under its Subsidiary Guarantee shall remain
liable for the full amount of principal of, premium, if any, interest and
Liquidated Damages, if any, on the Notes and for the other obligations of such
Guarantor under this Indenture as provided in this Article 10.
SECTION 10.05. LIMITATION ON GUARANTOR LIABILITY; CONTRIBUTION.
(a) For purposes hereof, each Guarantor's liability shall be
limited to the lesser of (i) the aggregate amount of the Obligations of the
Company under the Notes and this Indenture and (ii) the maximum amount that will
result in the obligations of such Guarantor under its Subsidiary Guarantee not
constituting a fraudulent transfer or conveyance under applicable law of any
relevant jurisdiction; provided that, it will be a presumption in any lawsuit or
other proceeding in which a Guarantor is a party that the amount guaranteed
pursuant to its Subsidiary Guarantee is the amount set forth in clause (i) above
unless any creditor, or representative of creditors of such Guarantor, or debtor
in possession or trustee in bankruptcy of the Guarantor, otherwise proves in
such a lawsuit that the aggregate liability of the Guarantor is the amount set
forth in clause (ii) above. In making any determination as to solvency or
sufficiency of capital of a Guarantor in accordance with the previous sentence,
the right of such Guarantor to contribution from other Guarantors as set forth
below, and any other rights such Guarantor may have, contractual or otherwise,
shall be taken into account.
(b) In order to provide for just and equitable contribution
among the Guarantors, the Guarantors agree, inter se, that in the event any
payment or distribution is made by any Guarantor (a "Funding Guarantor") under
its Subsidiary Guarantee, such Funding Guarantor shall be entitled to a
contribution from all other Guarantors in a pro rata amount based on the
Adjusted Net Assets of each Guarantor (including the Funding Guarantor) for all
payments, damages and expenses incurred by that Funding Guarantor in discharging
the Company's Obligations with respect to the Notes or any other Guarantor's
obligations with respect to its Subsidiary Guarantee.
ARTICLE 11.
MISCELLANEOUS
SECTION 11.01. TRUST INDENTURE ACT CONTROLS.
If any provision of this Indenture limits, qualifies or
conflicts with the duties imposed by TIA ss.318(c), the imposed duties shall
control.
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SECTION 11.02. NOTICES.
Any notice or communication by the Company or the Trustee to
the others is duly given if in writing and delivered in Person or mailed by
first class mail (registered or certified, return receipt requested), telecopier
or overnight air courier guaranteeing next day delivery, to the others' address:
If to the Company or any Guarantor:
Ames Department Stores, Inc.
2418 Main Street
Rocky Hill, CT 06067
Attention: David H. Lissy (Fax: 860-257-7806)
With a copy to:
Weil, Gotshal & Manges LLP
767 Fifth Avenue
New York, NY 10053
Attention: Stephen A. Cooper (Fax: 212-310-8007)
If to the Trustee:
The Chase Manhattan Bank
c/o Chase National Corporate Services, Inc.
73 Tremont Street
Boston, MA 02106
Attention: Corporate Trust Department (Fax: 617-557-6551)
The Company or the Trustee, by notice to the others may
designate additional or different addresses for subsequent notices or
communications.
All notices and communications (other than those sent to
Holders) shall take effect at the time of receipt thereof.
Any notice or communication to a Holder shall be mailed by
first class mail, certified or registered, return receipt requested, or by
overnight air courier guaranteeing next day delivery to its address shown on the
register kept by the Registrar. Any notice or communication shall also be so
mailed to any Person described in TIA ss.313(c), to the extent required by the
TIA. Failure to mail a notice or communication to a Holder or any defect in it
shall not affect its sufficiency with respect to other Holders.
If a notice or communication is mailed in the manner provided
above within the time prescribed, it is duly given, whether or not the addressee
receives it.
If the Company mails a notice or communication to Holders, it
shall mail a copy to the Trustee and each Agent at the same time.
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SECTION 11.03. COMMUNICATIONS BY HOLDERS OF NOTES WITH OTHER HOLDERS OF
NOTES.
Holders may communicate pursuant to TIA ss.312(b) with other
Holders with respect to their rights under this Indenture or the Notes. The
Company, the Trustee, the Registrar and anyone else shall have the protection of
TIA ss.312(c).
SECTION 11.04. CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT.
Upon any request or application by the Company to the Trustee
to take any action under this Indenture, the Company shall furnish to the
Trustee:
(a) an Officers' Certificate in form and substance reasonably
satisfactory to the Trustee (which shall include the statements set forth in
Section 11.05 hereof) stating that, in the opinion of the signers, all
conditions precedent and covenants, if any, provided for in this Indenture
relating to the proposed action have been satisfied; and
(b) an Opinion of Counsel in form and substance reasonably
satisfactory to the Trustee (which shall include the statements set forth in
Section 11.05 hereof) stating that, in the opinion of such counsel, all such
conditions precedent have been satisfied.
SECTION 11.05. STATEMENTS REQUIRED IN CERTIFICATE OR OPINION.
Each certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture (other than a certificate
provided pursuant to TIA ss.314(a)(4)) shall comply with the provisions of TIA
ss.314(e) and shall include:
(a) a statement that the Person making such certificate or
opinion has read such covenant or condition;
(b) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions contained in
such certificate or opinion are based;
(c) a statement that, in the opinion of such Person, he or she
has made such examination or investigation as is necessary to enable him to
express an informed opinion as to whether or not such covenant or condition has
been satisfied; and
(d) a statement as to whether or not, in the opinion of such
Person, such condition or covenant has been satisfied.
SECTION 11.06. RULE BY TRUSTEE AND AGENTS.
The Trustee may make reasonable rules for action by or at a
meeting of Holders. The Registrar or Paying Agent may make reasonable rules and
set reasonable requirements for its functions.
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SECTION 11.07. NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES
AND STOCKHOLDERS.
No director, officer, employee, incorporator or stockholder of
the Company or any Guarantor, as such, shall have any liability for any
obligations of the Company or the Guarantors under the Notes, this Indenture,
the Subsidiary Guarantees or for any claim based on, in respect of, or by reason
of, such obligations or their creation. Each Holder of Notes by accepting a Note
waives and releases all such liability. The waiver and release are part of the
consideration for issuance of the Notes.
SECTION 11.08. GOVERNING LAW.
THE INTERNAL LAW OF THE STATE OF NEW YORK SHALL GOVERN AND BE
USED TO CONSTRUE THIS INDENTURE, THE NOTES AND THE SUBSIDIARY GUARANTEES.
SECTION 11.09. NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS.
This Indenture may not be used to interpret any other
indenture, loan or debt agreement of the Company or its Subsidiaries or of any
other Person. Any such indenture, loan or debt agreement may not be used to
interpret this Indenture.
SECTION 11.10. SUCCESSORS.
All agreements of the Company in this Indenture and the Notes
shall bind its successors. All agreements of the Trustee in this Indenture shall
bind its successors.
SECTION 11.11. SEVERABILITY.
In case any provision in this Indenture or in the Notes shall
be invalid, illegal or unenforceable, the validity, legality and enforceability
of the remaining provisions shall not in any way be affected or impaired
thereby.
SECTION 11.12. COUNTERPART ORIGINALS.
The parties may sign any number of copies of this Indenture.
Each signed copy shall be an original, but all of them together represent the
same agreement.
SECTION 11.13. TABLE OF CONTENTS, HEADINGS, ETC.
The Table of Contents, Cross-Reference Table and Headings of
the Articles and Sections of this Indenture have been inserted for convenience
of reference only, are not to be considered a part of this Indenture and shall
in no way modify or restrict any of the terms or provisions hereof.
[Signatures on following pages]
79
<PAGE>
SIGNATURES
Dated as of April 27, 1999
AMES DEPARTMENT STORES, INC.
By: /s/ Rolando de Aguiar
------------------------------
Name: Rolando de Aguiar
Title: Executive Vice President
AMES REALTY II, INC.
By: /s/ Rolando de Aguiar
------------------------------
Name: Rolando de Aguiar
Title: Executive Vice President
AMES FS, INC.
By: /s/ Rolando de Aguiar
------------------------------
Name: Rolando de Aguiar
Title: Executive Vice President
AMES TRANSPORTATION SYSTEMS, INC.
By: /s/ Rolando de Aguiar
------------------------------
Name: Rolando de Aguiar
Title: Executive Vice President
AMD, INC.
By: /s/ Rolando de Aguiar
------------------------------
Name: Rolando de Aguiar
Title: Executive Vice President
AMES MERCHANDISING CORPORATION
By: /s/ Rolando de Aguiar
------------------------------
Name: Rolando de Aguiar
Title: Executive Vice President
S-1
<PAGE>
THE CHASE MANHATTAN BANK,
as Trustee
By: /s/ L. O'Brien
---------------------------
Name: L. O'Brien
Title: Vice President
S-2
<PAGE>
EXHIBIT A
(Face of Note)
================================================================================
CUSIP/CINS __________
10% Senior Notes due 2006
No. ___ $_________
AMES DEPARTMENT STORES, INC.
promises to pay to__________________________________________
or registered assigns,
the principal sum of________________________________________
Dollars on [______________].
Interest Payment Dates: April 15 and October 15.
Record Dates: April 1 and October 1.
Dated: [______________]
Ames Department Stores, Inc.
By:
-----------------------------------
Name:
Title:
By:
-----------------------------------
Name:
Title:
This is one of the [Global]
Notes referred to in the
within-mentioned Indenture:
Dated: ______________
THE CHASE MANHATTAN BANK,
as Trustee
By:
-----------------------------
Name:
Title:
================================================================================
A-1
<PAGE>
(Back of Note)
10% Senior Notes due 2006
[THIS GLOBAL NOTE IS HELD BY THE DEPOSITARY (AS DEFINED IN THE INDENTURE
GOVERNING THIS NOTE) OR ITS NOMINEE IN CUSTODY FOR THE BENEFIT OF THE BENEFICIAL
OWNERS HEREOF, AND IS NOT TRANSFERABLE TO ANY PERSON UNDER ANY CIRCUMSTANCES
EXCEPT THAT (I) THE TRUSTEE MAY MAKE SUCH NOTATIONS HEREON AS MAY BE REQUIRED
PURSUANT TO SECTION 2.06 OF THE INDENTURE, (II) THIS GLOBAL NOTE MAY BE
EXCHANGED IN WHOLE BUT NOT IN PART PURSUANT TO SECTION 2.06(a) OF THE INDENTURE,
(III) THIS GLOBAL NOTE MAY BE DELIVERED TO THE TRUSTEE FOR CANCELLATION PURSUANT
TO SECTION 2.11 OF THE INDENTURE AND (IV) THIS GLOBAL NOTE MAY BE TRANSFERRED TO
A SUCCESSOR DEPOSITARY WITH THE PRIOR WRITTEN CONSENT OF THE COMPANY.]1
THE NOTES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), OR OTHER SECURITIES LAWS. NEITHER THIS
NOTE NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED,
TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH
REGISTRATION UNLESS THE TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. THE HOLDER OF THIS SECURITY BY
ITS ACCEPTANCE HEREOF (1) REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL
BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) OR (B) IT IS NOT A
U.S. PERSON AND IS ACQUIRING ITS NOTE IN AN "OFFSHORE TRANSACTION" PURSUANT TO
RULE 904 OF REGULATION S UNDER THE SECURITIES ACT, (2) AGREES THAT IT WILL NOT
PRIOR TO (X) THE DATE WHICH IS TWO YEARS (OR SUCH SHORTER PERIOD OF TIME AS
PERMITTED BY RULE 144(k) UNDER THE SECURITIES ACT OR ANY SUCCESSOR PROVISION
THEREUNDER) AFTER THE LATER OF THE ORIGINAL ISSUE DATE HEREOF (OR OF ANY
PREDECESSOR OF THIS NOTE) OR THE LAST DAY ON WHICH AMES OR ANY AFFILIATE OF AMES
WAS THE OWNER OF THIS NOTE (OR ANY PREDECESSOR OF THIS NOTE) AND (Y) SUCH LATER
DATE, IF ANY, AS MAY BE REQUIRED BY APPLICABLE LAW (THE "RESALE RESTRICTION
TERMINATION DATE"), OFFER, SELL OR OTHERWISE TRANSFER THIS NOTE EXCEPT (A) TO
AMES, (B) PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE
UNDER THE SECURITIES ACT, (C) FOR SO LONG AS THE NOTES ARE ELIGIBLE FOR RESALE
PURSUANT TO RULE 144A, TO A PERSON IT REASONABLY BELIEVES IS A "QUALIFIED
INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT THAT
PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL
BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON
RULE 144A INSIDE THE UNITED STATES, (D) PURSUANT TO OFFERS AND SALES TO NON-U.S.
PERSONS THAT OCCUR OUTSIDE THE UNITED STATES WITHIN THE MEANING OF
- ----------
(1) This paragraph should be included only if the Note is issued in global form.
A-2
<PAGE>
REGULATION S UNDER THE SECURITIES ACT OR (E) PURSUANT TO ANY OTHER AVAILABLE
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND (3)
AGREES THAT IT WILL GIVE TO EACH PERSON TO WHOM THIS NOTE IS TRANSFERRED A
NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND; PROVIDED THAT AMES, THE
TRUSTEE, AND THE REGISTRAR SHALL HAVE THE RIGHT PRIOR TO ANY SUCH OFFER, SALE OR
TRANSFER (I) PURSUANT TO CLAUSE (D) OR (E) TO REQUIRE THE DELIVERY OF AN OPINION
OF COUNSEL, CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO EACH OF THEM,
AND (II) IN EACH OF THE FOREGOING CASES, TO REQUIRE THAT A CERTIFICATION OF
TRANSFER IN THE FORM PROVIDED IN THE INDENTURE GOVERNING THIS NOTE IS COMPLETED
AND DELIVERED BY THE TRANSFEROR TO THE TRUSTEE. THIS LEGEND WILL BE REMOVED UPON
THE REQUEST OF THE HOLDER AFTER THE RESALE RESTRICTION TERMINATION DATE. AS USED
HEREIN, THE TERMS "OFFSHORE TRANSACTION," "UNITED STATES" AND "U.S. PERSON" HAVE
THE MEANINGS GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES ACT.
Capitalized terms used herein shall have the meanings assigned
to them in the Indenture referred to below unless otherwise indicated.
A-3
<PAGE>
1. INTEREST. Ames Department Stores, Inc., a Delaware corporation
("Ames" or the "Company"), promises to pay interest on the principal amount of
this Note at 10% per annum from April 27, 1999 until maturity and shall pay the
Liquidated Damages payable pursuant to Section 5 of the Registration Rights
Agreement referred to below. The Company will pay interest and Liquidated
Damages, if any, semi-annually on April 15 and October 15 of each year, or if
any such day is not a Business Day, on the next succeeding Business Day (each an
"Interest Payment Date"), with the same force and effect as if made on the date
for such payment. Interest on the Notes will accrue from the most recent date to
which interest has been paid or, if no interest has been paid, from the date of
issuance; provided that if there is no existing Default in the payment of
interest, and if this Note is authenticated between a record date referred to on
the face hereof and the next succeeding Interest Payment Date, interest shall
accrue from such next succeeding Interest Payment Date; provided, further, that
the first Interest Payment Date shall be October 15, 1999. Interest will be
computed on the basis of a 360-day year of twelve 30-day months.
2. METHOD OF PAYMENT. The Company will pay interest on the Notes
(except defaulted interest) and Liquidated Damages to the Persons who are
registered Holders of Notes at the close of business on the April 1 or October 1
next (whether or not a Business Day) preceding the Interest Payment Date, even
if such Notes are canceled after such record date and on or before such Interest
Payment Date. The Notes will be payable as to principal, premium and Liquidated
Damages, if any, and interest at the office or agency of the Company maintained
for such purpose within The City and State of New York, or, at the option of the
Company, payment of interest and Liquidated Damages may be made by check mailed
to the Holders at their addresses set forth in the register of Holders; provided
that payment by wire transfer of immediately available funds will be required
with respect to principal of and interest, premium and Liquidated Damages, if
any, on, all Global Notes and all other Notes the Holders of which shall have
provided wire transfer instructions to the Company or the Paying Agent. Such
payment shall be in such coin or currency of the United States of America as at
the time of payment is legal tender for payment of public and private debts.
3. PAYING AGENT AND REGISTRAR. Initially, The Chase Manhattan Bank, the
Trustee under the Indenture, will act as Paying Agent and Registrar. The Company
may change any Paying Agent or Registrar without notice to any Holder. The
Company or any of its Subsidiaries may act in any such capacity.
4. INDENTURE. The Company issued the Notes under an Indenture dated as
of April 27, 1999 (the "Indenture") among the Company, the Guarantors named
therein and the Trustee. The terms of the Notes include those stated in the
Indenture and those made part of the Indenture by reference to the Trust
Indenture Act of 1939, as amended (15 U.S. Code ss.ss. 77aaa-77bbbb). The Notes
are subject to all such terms, and Holders are referred to the Indenture and the
TIA for a statement of such terms. To the extent any provision of this Note
conflicts with the express provisions of the Indenture, the provisions of the
Indenture shall govern and be controlling. The Notes issuable under the
Indenture are obligations of the Company limited to $275,000,000 in aggregate
principal amount, plus amounts, if any, issued to pay Liquidated Damages on
outstanding Notes as set forth in Paragraph 2 hereof.
A-4
<PAGE>
5. OPTIONAL REDEMPTION.
(a) Except as set forth in clause (b) of this paragraph 5, the
Notes shall not be redeemable at the Company's option prior to April 15, 2003.
Thereafter, the Notes shall be subject to redemption at any time at the option
of the Company, in whole or in part, upon not less than 30 nor more than 60
days' notice, at the redemption prices (expressed as percentages of principal
amount) set forth below plus accrued and unpaid interest and Liquidated Damages
thereon, if any, to the applicable redemption date, if redeemed during the
twelve-month period beginning on April 15 of the years indicated below:
Year Percentage
2003.......................................... 105.00%
2004.......................................... 102.50%
2005.......................................... 100.00%
(b) Notwithstanding the foregoing, on or prior to April 15,
2002, the Company may on any one or more occasions redeem up to an aggregate of
35% of the Notes originally issued at a redemption price of 110% of the
principal amount thereof, plus accrued and unpaid interest and Liquidated
Damages thereon, if any, to the redemption date, with the net cash proceeds of
one or more Public Equity Offerings by the Company; provided that at least 65%
of the Notes originally issued remain outstanding immediately after the
occurrence of each such redemption; and provided, further, that any such
redemption must occur within 60 days of the date of the closing of such Public
Equity Offering.
6. MANDATORY REDEMPTION.
Except as set forth in paragraph 7 below, the Company shall
not be required to make mandatory redemption payments with respect to the Notes.
7. REPURCHASE AT OPTION OF HOLDER.
(a) If there is a Change of Control, the Company shall be
required to make an offer (a "Change of Control Offer") to repurchase all or any
part (equal to $1,000 or an integral multiple thereof) of each Holder's Notes at
a purchase price equal to 101% of aggregate principal amount thereof plus
accrued and unpaid interest and Liquidated Damages thereon, if any, to the date
of purchase (in either case, the "Change of Control Payment"). Within 10 days
following any Change of Control, the Company shall mail a notice to each Holder
setting forth the procedures governing the Change of Control Offer as required
by the Indenture.
(b) If the Company or any of its Restricted Subsidiaries
consummates any Asset Sales, within five Business Days of each date on which the
aggregate amount of Excess Proceeds exceeds $10,000,000, the Company will be
required to make an offer to all Holders of Notes and any other Indebtedness
that ranks pari passu with the Notes that, by its terms, requires the Company to
offer to repurchase such Indebtedness with such Excess Proceeds (an "Asset Sale
Offer") to purchase the maximum principal amount of Notes and such other pari
passu Indebtedness that may be purchased out of the Excess Proceeds, at an offer
price in cash in an amount equal to 100% of the principal amount thereof plus
accrued and unpaid interest and
A-5
<PAGE>
Liquidated Damages, if any, to the date of purchase, in accordance with the
procedures set forth in the Indenture. To the extent that the aggregate amount
of Notes or pari passu Indebtedness tendered pursuant to an Asset Sale Offer is
less than the Excess Proceeds, the Company may use any Excess Proceeds for any
purpose not prohibited by the Indenture. If the aggregate principal amount of
Notes or pari passu Indebtedness surrendered by Holders thereof exceeds the
amount of Excess Proceeds, the Trustee shall select the Notes to be purchased on
a pro rata basis. Holders of Notes that are the subject of an offer to purchase
will receive an Asset Sale Offer from the Company prior to any related purchase
date and may elect to have such Notes purchased by completing the form entitled
"Option of Holder to Elect Purchase" on the reverse of the Notes.
8. NOTICE OF REDEMPTION. Notice of redemption will be mailed at least
30 days but not more than 60 days before the redemption date to each Holder
whose Notes are to be redeemed at its registered address. Notes in denominations
larger than $1,000 may be redeemed in part but only in whole multiples of
$1,000, unless all of the Notes held by a Holder are to be redeemed. On and
after the redemption date interest ceases to accrue on Notes or portions thereof
called for redemption.
9. DENOMINATIONS, TRANSFER, EXCHANGE. The Notes are in registered form
without coupons in denominations of $1,000 and integral multiples of $1,000. The
transfer of Notes may be registered and Notes may be exchanged as provided in
the Indenture. The Registrar and the Trustee may require a Holder, among other
things, to furnish appropriate endorsements and transfer documents and the
Company may require a Holder to pay any taxes and fees required by law or
permitted by the Indenture. The Company need not exchange or register the
transfer of any Note or portion of a Note selected for redemption, except for
the unredeemed portion of any Note being redeemed in part. Also, it need not
exchange or register the transfer of any Notes for a period of 15 days before a
selection of Notes to be redeemed or during the period between a record date and
the corresponding Interest Payment Date.
10. PERSONS DEEMED OWNERS. The registered Holder of a Note may be
treated as its owner for all purposes.
11. AMENDMENT, SUPPLEMENT AND WAIVER. Subject to certain exceptions,
the Indenture or the Notes may be amended or supplemented with the consent of
the Holders of at least a majority in principal amount of the then outstanding
Notes, and any existing default or compliance with any provision of the
Indenture or the Notes may be waived with the consent of the Holders of a
majority in principal amount of the then outstanding Notes. Without the consent
of any Holder of a Note, the Indenture or the Notes may be amended or
supplemented to cure any ambiguity, defect or inconsistency, to provide for
uncertificated Notes in addition to or in place of certificated Notes, to
provide for the assumption of the Company's obligations to Holders of the Notes
in case of a merger or consolidation or sale of all or substantially all of the
Company's assets, to make any change that would provide any additional rights or
benefits to the Holders of the Notes or any other change that does not adversely
affect the legal rights under the Indenture of any such Holder, to provide for
the issuance of Additional Notes in accordance with the Indenture, or to comply
with the requirements of the Commission in order to effect or maintain the
qualification of the Indenture under the Trust Indenture Act.
12. DEFAULTS AND REMEDIES. An "Event of Default" occurs if:
(i) the Company defaults in the payment when due of interest on, or Liquidated
Damages, if any, with
A-6
<PAGE>
respect to, the Notes and such default continues for a period of 30 days; (ii)
the Company defaults in the payment when due of the principal of or premium, if
any, on the Notes; (iii) the Company fails to comply with any of the provisions
of Sections 4.10, 4.15, or 5.01 of the Indenture; (iv) the Company or any of its
Restricted Subsidiaries fails to comply with the provisions of Sections 4.07 and
4.09 for 30 days after notice of such failure has been given; (v) the Company
fails to observe or perform any other agreements in the Indenture or the Notes
for 60 days after notice of such failure has been given; (vi) a default occurs
under any mortgage, indenture or instrument under which there may be issued or
by which there may be secured or evidenced any Indebtedness for money borrowed
by the Company or any of its Restricted Subsidiaries (or the payment of which is
guaranteed by the Company or any of its Restricted Subsidiaries), whether such
Indebtedness or guarantee now exists, or is created after the date of the
Indenture, which default is caused by a failure to pay principal of, or interest
or premium, if any, on such Indebtedness prior to the expiration of the grace
period provided in such Indebtedness on the date of such default (a "Payment
Default"), results in the acceleration of such Indebtedness prior to its express
maturity and, in each case, the principal amount of such Indebtedness, together
with the principal amount of any other such Indebtedness under which there has
been a Payment Default or the maturity of which has been so accelerated,
aggregates $20,000,000 or more; (vii) the Company or any of its Subsidiaries
fails to pay final judgments aggregating in excess of $20,000,000, which
judgments are not paid, discharged or stayed for a period of 60 days; (viii) any
Subsidiary Guarantee is held in any judicial proceeding to be unenforceable or
invalid or shall cease for any reason to be in full force and effect or any
Guarantor, or any Person acting on behalf of any Guarantor, shall deny or
disaffirm its obligations under its Subsidiary Guarantee, except as permitted by
this Indenture; and (ix) certain events of bankruptcy or insolvency with respect
to the Company or any of its Significant Subsidiaries.
If any Event of Default occurs and is continuing, the Trustee or the
Holders of at least 25% in principal amount of the then outstanding Notes may
declare all the Notes to be due and payable immediately. Notwithstanding the
foregoing, in the case of an Event of Default arising from certain events of
bankruptcy or insolvency, with respect to the Company or any Restricted
Subsidiary, all outstanding Notes will become due and payable without further
action or notice. Holders of the Notes may not enforce the Indenture or the
Notes except as provided in the Indenture. Subject to certain limitations,
Holders of a majority in principal amount of the then outstanding Notes may
direct the Trustee in its exercise of any trust or power. The Trustee may
withhold from Holders of the Notes notice of any continuing Default or Event of
Default (except a Default or Event of Default relating to the payment of
principal or interest) if it determines that withholding notice is in their
interest.
In the case of any Event of Default occurring by reason of any willful
action (or inaction) taken (or not taken) by or on behalf of the Company with
the intention of avoiding payment of the premium that the Company would have had
to pay if the Company then had elected to redeem the Notes pursuant to the
optional redemption provisions of the Indenture, an equivalent premium shall
also become and be immediately due and payable to the extent permitted by law
upon the acceleration of the Notes. If an Event of Default occurs prior to April
15, 2003 by reason of any willful action (or inaction) taken (or not taken) by
or on behalf of the Company with the intention of avoiding the prohibition on
redemption of the Notes prior to April 15, 2003,
A-7
<PAGE>
then the premium specified in the Indenture shall also become immediately due
and payable to the extent permitted by law upon the acceleration of the Notes.
The Holders of a majority in aggregate principal amount of the Notes
then outstanding by notice to the Trustee may on behalf of the Holders of all of
the Notes waive any existing Default or Event of Default and its consequences
under the Indenture except a continuing Default or Event of Default in the
payment of interest on, or the principal of, the Notes.
13. TRUSTEE DEALINGS WITH COMPANY. The Trustee, in its individual or
any other capacity, may make loans to, accept deposits from, and perform
services for the Company or its Affiliates, and may otherwise deal with the
Company or its Affiliates, as if it were not the Trustee.
14. NO RECOURSE AGAINST OTHERS. A director, officer, employee,
incorporator or stockholder, of the Company, as such, shall not have any
liability for any obligations of the Company under the Notes or the Indenture or
for any claim based on, in respect of, or by reason of, such obligations or
their creation. Each Holder by accepting a Note waives and releases all such
liability. The waiver and release are part of the consideration for the issuance
of the Notes.
15. AUTHENTICATION. This Note shall not be valid until authenticated by
the manual signature of the Trustee or an authenticating agent.
16. ABBREVIATIONS. Customary abbreviations may be used in the name of a
Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (=
tenants by the entireties), JT TEN (= joint tenants with right of survivorship
and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts
to Minors Act).
17. ADDITIONAL RIGHTS OF HOLDERS OF TRANSFER RESTRICTED SECURITIES. In
addition to the rights provided to Holders of Notes under the Indenture, Holders
of Transferred Restricted Securities shall have all the rights set forth in the
Registration Rights Agreement dated as of April 27, 1999 between the Company and
the parties named on the signature pages thereof (the "Registration Rights
Agreement").
18. CUSIP NUMBERS. Pursuant to a recommendation promulgated by the
Committee on Uniform Security Identification Procedures, the Company has caused
CUSIP, CINS and/or ISIN numbers to be printed on the Notes and the Trustee may
use CUSIP, CINS and/or ISIN numbers in notices of redemption as a convenience to
Holders. No representation is made as to the accuracy of such numbers either as
printed on the Notes or as contained in any notice of redemption and reliance
may be placed only on the other identification numbers placed thereon.
19. GOVERNING LAW. The internal law of the State of New York shall
govern and be used to construe this Note.
The Company will furnish to any Holder upon written request and without
charge a copy of the Indenture and/or the Registration Rights Agreement.
Requests may be made to:
Ames Department Stores, Inc.
2418 Main Street
Rocky Hill, CT 06067
Attention: David H. Lissy (Fax: 860-257-7806)
A-8
<PAGE>
ASSIGNMENT FORM
To assign this Note, fill in the form below: (I) or (we) assign and
transfer this Note to
- --------------------------------------------------------------------------------
(Insert assignee's soc. sec. or tax I.D. no.)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Print or type assignee's name, address and zip code)
and irrevocably appoint_________________________________________________________
to transfer this Note on the books of the Company. The agent may substitute
another to act for him.
Date:________________________
Your Signature:
---------------------------
(Sign exactly as your name
appears on the face of this
Note)
Signature Guarantee.
A-9
<PAGE>
Option of Holder to Elect Purchase
If you want to elect to have this Note purchased by the Company
pursuant to Section 4.10 or 4.15 of the Indenture, check the box below:
/ / Section 4.10 / / Section 4.15
If you want to elect to have only part of the Note purchased by the
Company pursuant to Section 4.10 or Section 4.15 of the Indenture, state the
amount you elect to have purchased: $______________
Date:_________________ Your Signature:
---------------------------------
(Sign exactly as your name
appears on the Note)
Tax Identification No.:
-------------------------
Signature Guarantee.
A-10
<PAGE>
SCHEDULE OF EXCHANGES OF INTERESTS IN THE GLOBAL NOTE
The following exchanges of a part of this Global Note for an interest
in another Global Note or for a Definitive Note, or exchanges of a part of
another Global Note or Definitive Note for an interest in this Global Note, have
been made:
<TABLE>
<CAPTION>
Principal Amount of
this Global Note Signature of
Amount of decrease Amount of increase in following such authorized officer
in Principal Amount Principal Amount of decrease of Trustee or Note
Date of Exchange of this Global Note this Global Note (or increase) Custodian
- ------------------------- ------------------- --------------------- ------------------- ------------------
<S> <C> <C> <C> <C>
</TABLE>
- ----------
(2) This should be included only if the Note is issued in global form.
A-11
<PAGE>
EXHIBIT B
FORM OF CERTIFICATE OF TRANSFER
Ames Department Stores, Inc.
2418 Main Street
Rocky Hill, CT 06067
Attention: David H. Lissy (Fax: 860-257-7806)
The Chase Manhattan Bank
73 Tremont Street
Boston, MA 02106
Attention: Corporate Trust Department (Fax: 617-557-6551)
Re: 10% Senior Notes due 2006.
Reference is hereby made to the Indenture, dated as of April 27, 1999
(the "Indenture"), among Ames Department Stores, Inc., as issuer (the
"Company"), the Guarantors named therein and The Chase Manhattan Bank, as
trustee. Capitalized terms used but not defined herein shall have the meanings
given to them in the Indenture.
________________, (the "Transferor") owns and proposes to transfer the
Note[s] or interest in such Note[s] specified in Annex A hereto, in the
principal amount of $___________ in such Note[s] or interests (the "Transfer"),
to ___________ (the "Transferee"), as further specified in Annex A hereto. In
connection with the Transfer, the Transferor hereby certifies that:
[CHECK ALL THAT APPLY]
1. / / Check if Transferee will take delivery of Beneficial Interests in the
144A Global Note or Definitive Notes Pursuant to Rule 144A. The Transfer is
being effected pursuant to and in accordance with Rule 144A under the United
States Securities Act of 1933, as amended (the "Securities Act"), and,
accordingly, the Transferor hereby further certifies that the Beneficial
Interests or Definitive Note(s) are being transferred to a Person that the
Transferor reasonably believes is purchasing the Beneficial Interests or
Definitive Note(s) for its own account, or for one or more accounts with respect
to which such Person exercises sole investment discretion, and such Person and
each such account is a "qualified institutional buyer" within the meaning of
Rule 144A in a transaction meeting the requirements of Rule 144A and such
Transfer is in compliance with any applicable blue sky securities laws of any
state of the United States. Upon consummation of the proposed Transfer in
accordance with the terms of the Indenture, the transferred Beneficial Interest
or Definitive Note(s) will be subject to the restrictions on transfer enumerated
in the Private Placement Legend printed on the 144A Global Note and/or the
Definitive Note(s) and in the Indenture and the Securities Act.
2. / / Check if Transferee will take delivery of Beneficial Interests in the
Regulation S Global Note or Definitive Notes pursuant to Regulation S. The
Transfer is being effected pursuant to and in accordance with Rule 903 or Rule
904 under the Securities Act and, accordingly, the Transferor hereby further
certifies that (i) the Transfer is not being made to a person in the United
States and (x) at the time the buy order was originated, the Transferee was
B-1
<PAGE>
outside the United States or such Transferor and any Person acting on its behalf
reasonably believed and believes that the Transferee was outside the United
States or (y) the transaction was executed in, on or through the facilities of a
designated offshore securities market and neither such Transferor nor any Person
acting on its behalf knows that the transaction was prearranged with a buyer in
the United States, (ii) no directed selling efforts have been made in
contravention of the requirements of Rule 903(b) or Rule 904(b) of Regulation S
under the Securities Act and (iii) the transaction is not part of a plan or
scheme to evade the registration requirements of the Securities Act and (iv) if
the proposed transfer is being made prior to the expiration of the Distribution
Compliance Period, the transfer is not being made to a U.S. Person or for the
account or benefit of a U.S. Person (other than an Initial Purchaser). Upon
consummation of the proposed transfer in accordance with the terms of the
Indenture, the transferred Beneficial Interest or Definitive Note(s) will be
subject to the restrictions on Transfer enumerated in the Private Placement
Legend printed on the Regulation S Global Note and/or the Definitive Note(s) and
in the Indenture and the Securities Act.
3. / / Check and complete if Transferee will take delivery of Beneficial
Interests in the IAI Global Note or Definitive Notes pursuant to any provision
of the Securities Act other than Rule 144A or Regulation S. The Transfer is
being effected in compliance with the transfer restrictions applicable to
Beneficial Interests in Restricted Global Notes and Definitive Notes bearing the
Private Placement Legend and pursuant to and in accordance with the Securities
Act and any applicable blue sky securities laws of any State of the United
States, and accordingly the Transferor hereby further certifies that (check
one):
(a) / / such Transfer is being effected pursuant to and in accordance
with Rule 144 under the Securities Act;
OR
(b) / / such Transfer is being effected to the Company or a subsidiary
thereof,
OR
(c) / / such Transfer is being effected pursuant to an effective
registration statement under the Securities Act;
OR
(d) / / such Transfer is being effected to an Institutional Accredited
Investor and pursuant to an available exemption from the registration
requirements of the Securities Act other than Rule 144A, Rule 144 or Rule 904,
and the Transferor hereby further certifies that the Transfer complies with the
transfer restrictions applicable to Beneficial Interests in a Restricted Global
Note or Definitive Notes bearing the Private Placement Legend and the
requirements of the exemption claimed, which certification is supported by (x)
if such Transfer is in respect of a principal amount of Notes at the time of
Transfer of $250,000 or more, a certificate executed by the Transferee in the
form of Exhibit D to the Indenture, or (y) if such Transfer is in respect of a
principal amount of Notes at the time of transfer of less than $250,000, (1) a
certificate executed by the Transferee in the form of Exhibit D to the Indenture
and (2) an Opinion of Counsel provided by the Transferor or the Transferee (a
copy of which the Transferor has attached to this certification), to the effect
that (1) such Transfer is in compliance with the Securities Act and (2) such
Transfer complies with any applicable blue sky securities laws of any state of
the United
B-2
<PAGE>
States. Upon consummation of the proposed transfer in accordance with
the terms of the Indenture, the transferred Beneficial Interest or Definitive
Note(s) will be subject to the restrictions on transfer enumerated in the
Private Placement Legend printed on the IAI Global Note and/or the Definitive
Note(s) and in the Indenture and the Securities Act.
4. / / Check if Transferee will take delivery of Beneficial Interests in the
Unrestricted Global Note or in Unrestricted Definitive Notes.
(a) / / Check if Transfer is pursuant to Rule 144. (i) The Transfer is
being effected pursuant to and in accordance with Rule 144 under the Securities
Act and in compliance with the transfer restrictions contained in the Indenture
and any applicable blue sky securities laws of any state of the United States
and (ii) the restrictions on transfer contained in the Indenture and the Private
Placement Legend are not required in order to maintain compliance with the
Securities Act. Upon consummation of the proposed Transfer in accordance with
the terms of the Indenture, the transferred Beneficial Interests or Definitive
Note(s) will no longer be subject to the restrictions on transfer enumerated in
the Private Placement Legend printed on the Restricted Global Notes, on
Definitive Notes bearing the Private Placement Legend and in the Indenture.
(b) / / Check if Transfer is Pursuant to Regulation S. (i) The
Transfer is being effected pursuant to and in accordance with Rule 903 or Rule
904 under the Securities Act and in compliance with the transfer restrictions
contained in the Indenture and any applicable blue sky securities laws of any
state of the United States and (ii) the restrictions on transfer contained in
the Indenture and the Private Placement Legend are not required in order to
maintain compliance with the Securities Act. Upon consummation of the proposed
Transfer in accordance with the terms of the Indenture, the transferred
Beneficial Interests or Definitive Note(s) will no longer be subject to the
restrictions on transfer enumerated in the Private Placement Legend printed on
the Restricted Global Notes, on Definitive Notes bearing the Private Placement
Legend and in the Indenture.
(c) / / Check if Transfer is Pursuant to Other Exemption. (i) The
Transfer is being effected pursuant to and in compliance with an exemption from
the registration requirements of the Securities Act other than Rule 144, Rule
903 or Rule 904 and in compliance with the transfer restrictions contained in
the Indenture and any applicable blue sky securities laws of any State of the
United States and (ii) the restrictions on transfer contained in the Indenture
and the Private Placement Legend are not required in order to maintain
compliance with the Securities Act. Upon consummation of the proposed Transfer
in accordance with the terms of the Indenture, the transferred Beneficial
Interests or Definitive Note(s) will not be subject to the restrictions on
transfer enumerated in the Private Placement Legend printed on the Restricted
Global Notes, on Definitive Notes bearing the Private Placement Legend and in
the Indenture.
This certificate and the statements contained herein are made for your
benefit and the benefit of the Company.
------------------------------------------
[Insert Name of Transferor]
By:
---------------------------------------
Name:
Title:
Dated: ____________, ____
B-3
<PAGE>
ANNEX A TO CERTIFICATE OF TRANSFER
1. The Transferor owns and proposes to transfer the following:
[CHECK ONE OF (A) OR (B)]
(a) / / Beneficial Interests in the:
(i) / / 144A Global Note (CUSIP _______), or
(ii) / / Regulation S Global Note (CUSIP ______), or
(iii) / / IAI Global Note (CUSIP ________); or
(b) / / Restricted Definitive Notes.
2. After the Transfer the Transferee will hold:
[CHECK ONE]
(a) / / Beneficial Interests in the:
(i) / / 144A Global Note (CUSIP _____), or
(ii) / / Regulation S Global Note (CUSIP _____), or
(iii) / / IAI Global Note (CUSIP ______); or
(iv) / / Unrestricted Global Note (CUSIP ______); or
(b) / / Restricted Definitive Notes; or
(c) / / Definitive Notes that do not bear the Private Placement
Legend, in accordance with the terms of the Indenture.
B-4
<PAGE>
EXHIBIT C
FORM OF CERTIFICATE OF EXCHANGE
Ames Department Stores, Inc.
2418 Main Street
Rocky Hill, CT 06067
Attention: David H. Lissy (Fax: 860-257-7806)
The Chase Manhattan Bank
73 Tremont Street
Boston, MA 02106
Attention: Corporate Trust Department (Fax: 617-557-6551)
Re: 10% Senior Notes due 2006
(CUSIP ____________)
Reference is hereby made to the Indenture, dated as of April
27, 1999 (the "Indenture"), among Ames Department Stores, Inc., as issuer (the
"Company"), the Guarantors named therein and The Chase Manhattan Bank, as
trustee. Capitalized terms used but not defined herein shall have the meanings
given to them in the Indenture.
______________, (the "Holder") owns and proposes to exchange
the Note[s] or interest in such Note[s] specified herein, in the principal
amount of $______________ in such Note[s] or interests (the "Exchange"). In
connection with the Exchange, the Holder hereby certifies that:
1. Exchange of Restricted Definitive Notes or Restricted Beneficial
Interests for Unrestricted Definitive Notes or Unrestricted Beneficial Interests
(a) / / Check if Exchange is from Restricted Beneficial Interest to
Unrestricted Beneficial Interest. In connection with the Exchange of the
Holder's Restricted Beneficial Interest for Unrestricted Beneficial Interests in
an equal principal amount, the Holder hereby certifies (i) the Unrestricted
Beneficial Interests are being acquired for the Holder's own account without
transfer, (ii) such Exchange has been effected in compliance with the transfer
restrictions applicable to the Global Notes and pursuant to and in accordance
with the United States Securities Act of 1933, as amended (the "Securities
Act"), (iii) the restrictions on transfer contained in the Indenture and the
Private Placement Legend are not required in order to maintain compliance with
the Securities Act and (iv) the Unrestricted Beneficial Interests are being
acquired in compliance with any applicable blue sky securities laws of any state
of the United States.
(b) / / Check if Exchange is from Restricted Beneficial Interest to
Unrestricted Definitive Notes. In connection with the Exchange of the Holder's
Restricted Beneficial Interests for Unrestricted Definitive Notes, the Holder
hereby certifies (i) the Definitive Notes are being acquired for the Holder's
own account without transfer, (ii) such Exchange has been effected in compliance
with the transfer restrictions applicable to the Restricted Global Notes
C-1
<PAGE>
and pursuant to and in accordance with the Securities Act, (iii) the
restrictions on transfer contained in the Indenture and the Private Placement
Legend are not required in order to maintain compliance with the Securities Act
and (iv) the Definitive Notes are being acquired in compliance with any
applicable blue sky securities laws of any state of the United States.
(c) / / Check if Exchange is from Restricted Definitive Notes to
Unrestricted Beneficial Interests. In connection with the Holder's Exchange of
Restricted Definitive Notes for Unrestricted Beneficial Interests, (i) the
Unrestricted Beneficial Interests are being acquired for the Holder's own
account without transfer, (ii) such Exchange has been effected in compliance
with the transfer restrictions applicable to Restricted Definitive Notes and
pursuant to and in accordance with the Securities Act, (iii) the restrictions on
transfer contained in the Indenture and the Private Placement Legend are not
required in order to maintain compliance with the Securities Act and (iv) the
Unrestricted Beneficial Interests are being acquired in compliance with any
applicable blue sky securities laws of any state of the United States.
(d) / / Check if Exchange is from Restricted Definitive Notes to
Unrestricted Definitive Notes. In connection with the Holder's Exchange of a
Restricted Definitive Note for Unrestricted Definitive Notes, the Holder hereby
certifies (i) the Unrestricted Definitive Notes are being acquired for the
Holder's own account without transfer, (ii) such Exchange has been effected in
compliance with the transfer restrictions applicable to Restricted Definitive
Notes and pursuant to and in accordance with the Securities Act , (iii) the
restrictions on transfer contained in the Indenture and the Private Placement
Legend are not required in order to maintain compliance with the Securities Act
and (iv) the Notes are being acquired in compliance with any applicable blue sky
securities laws of any state of the United States.
2. Exchange of Restricted Definitive Notes or Restricted Beneficial
Interests for Restricted Definitive Notes or Restricted Beneficial Interests
(a) / / Check if Exchange is from Restricted Beneficial Interests to
Restricted Definitive Note. In connection with the Exchange of the Holder's
Restricted Beneficial Interest for Restricted Definitive Notes with an equal
principal amount, (i) the Restricted Definitive Notes are being acquired for the
Holder's own account without transfer and (ii) such Exchange has been effected
in compliance with the transfer restrictions applicable to the Restricted Global
Notes and pursuant to and in accordance with the Securities Act, and in
compliance with any applicable blue sky securities laws of any state of the
United States. Upon consummation of the proposed Exchange in accordance with the
terms of the Indenture, the Restricted Definitive Notes issued will be subject
to the restrictions on transfer enumerated in the Private Placement Legend
printed on the Restricted Definitive Notes and in the Indenture and the
Securities Act.
(b) / / Check if Exchange is from Restricted Definitive Notes to
Restricted Beneficial Interests. In connection with the Exchange of the Holder's
Restricted Definitive Note for Restricted Beneficial Interests in the [CHECK
ONE] / / 144A Global Note, / / Regulation S Global Note, / / IAI Global Note
with an equal principal amount, (i) the Definitive Notes are being acquired for
the Holder's own account without transfer and (ii) such Exchange has been
effected in compliance with the transfer restrictions applicable to the
Restricted Definitive Note and pursuant to and in accordance with the Securities
Act, and in compliance with any applicable blue sky securities laws of any state
of the United States. Upon consummation of the proposed Exchange in accordance
with the terms of the Indenture, the Beneficial Interests issued will be subject
to the restrictions on transfer enumerated in the Private
C-2
<PAGE>
Placement Legend printed on the relevant Restricted Global Note and in the
Indenture and the Securities Act.
This certificate and the statements contained herein are made for your
benefit and the benefit of the Company.
--------------------------------------------
[Insert Name of Transferor]
By:
-----------------------------------------
Name:
Title:
Dated: ____________, ____
C-3
<PAGE>
EXHIBIT D
FORM OF CERTIFICATE FROM
ACQUIRING INSTITUTIONAL ACCREDITED INVESTOR
Ames Department Stores, Inc.
2418 Main Street
Rocky Hill, CT 06067
Attention: David H. Lissy (Fax: 860-257-7806)
The Chase Manhattan Bank
73 Tremont Street
Boston, MA 02106
Attention: Corporate Trust Department
Re: 10% Senior Notes due 2006
Reference is hereby made to the Indenture, dated as of April
27, 1999 (the "Indenture"), among Ames Department Stores, Inc., as issuer (the
"Company"), the Guarantors named therein and The Chase Manhattan Bank, as
trustee. Capitalized terms used but not defined herein shall have the meanings
given to them in the Indenture.
In connection with our proposed purchase of $____________
aggregate principal amount at maturity of:
(a) / / Beneficial Interests, or
(b) / / Definitive Notes,
we confirm that:
1. we are an "accredited investor" within the meaning of Rule 501(a)(1),
(2), (3) or (7) under the Securities Act of 1933, as amended (the
"Securities Act"), or an entity in which all of the equity owners are
accredited investors within the meaning of Rule (501)(a)(1), (2), (3)
or (7) under the Securities Act (an "institutional accredited
investor");
2. (A) any purchase of the Notes by us will be for our own account or for
the account of one or more other institutional accredited investors or
as fiduciary for the account of one or more trusts, each of which is an
"accredited investor" within the meaning of Rule 501(a)(7) under the
Securities Act and for each of which we exercise sole investment
discretion or (B) we are a "bank," within the meaning of Section
3(a)(2) of the Securities Act, or a "savings and loan association" or
other institution described in Section 3(a)(5)(A) of the Securities Act
that is acquiring Notes as fiduciary for the account of one or more
institutions for which we exercise sole investment discretion;
3. we have such knowledge and experience in financial and business matters
that we are capable of evaluating the merits and risks of purchasing
Notes;
D-1
<PAGE>
4. we are not acquiring the Notes with a view to any distribution thereof
in a transaction that would violate the Securities Act or the
securities laws of any state of the United States or any other
applicable jurisdictions, provided that the disposition of our property
and the property of any accounts for which we are acting as fiduciary
shall remain at all times within our control; and
5. we acknowledge that we have had access to such financial and other
information, and have been afforded the opportunity to ask such
questions of representatives of the Company and receive answers
thereto, as we deem necessary in connection with our decision to
purchase the Notes.
We understand that the Notes are being offered in a
transaction not involving any public offering within the United States within
the meaning of the Securities Act and that the Notes have not been registered
under the Securities Act. We agree on our own behalf and on behalf of any
investor account for which we are purchasing the Notes, to offer, sell or
otherwise transfer such Notes prior to (x) the date which is two years (or such
shorter period of time as permitted by Rule 144(k) under the Securities Act or
any successor provision thereunder) after the later of the date of the original
issue of the Notes and the last date on which Ames or any affiliate of Ames was
the owner of such Notes (or any predecessor thereto) or (y) such later date, if
any, as may be required by applicable law (the "Resale Restriction Termination
Date") only (a) to Ames, (b) pursuant to a registration statement which has been
declared effective under the Securities Act, (c) for so long as the Notes are
eligible for resale pursuant to Rule 144A, to a person we reasonably believe is
a QIB, that purchases for its own account or for the account of a QIB to whom
notice is given that the transfer is being made in reliance on Rule 144A, (d)
pursuant to offers and sales to non-U.S. persons that occur outside the United
States within the meaning of Regulation S under the Securities Act or (e)
pursuant to any other available exemption from the registration requirements of
the Securities Act, subject in each of the foregoing cases to any requirements
of law that the disposition of our property or the property of such investor
account or accounts be at all times within our control and in compliance with
any applicable state securities laws. We further agree to provide any person
purchasing any of the Notes other than pursuant to clause (b) above from us a
notice advising such purchaser that resales of such securities are restricted as
stated herein. We understand that the Trustee and the Registrar for the Notes
will not be required to accept for registration of transfer any Notes, except
upon presentation of evidence satisfactory to the Company that the foregoing
restrictions on transfer have been complied with.
THIS LETTER SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH, THE LAW OF THE STATE OF NEW YORK.
D-2
<PAGE>
You and the Company are entitled to rely upon this letter and
are irrevocably authorized to produce this letter or a copy hereof to any
interested party in any administrative or legal proceedings or official inquiry
with respect to the matters covered hereby.
-------------------------------------
[Insert Name of Accredited Investor]
By:
----------------------------------
Name:
Title:
Dated: ____________, ____
D-3
<PAGE>
EXHIBIT E
FORM OF SUBSIDIARY GUARANTEE
Subject to Section 10.05 of the Indenture, each Guarantor hereby,
jointly and severally, unconditionally guarantees on a senior basis to each
Holder of a Note authenticated and delivered by the Trustee and to the Trustee
and its successors and assigns, the Notes and the Obligations of the Company
under the Notes or under the Indenture, that: (a) the principal of, premium, if
any, interest and Liquidated Damages, if any, on the Notes will be promptly paid
in full when due, subject to any applicable grace period, whether at maturity,
by acceleration, redemption or otherwise, and interest on overdue principal,
premium, if any, (to the extent permitted by law) interest on any interest, if
any, and Liquidated Damages, if any, on the Notes and all other payment
Obligations of the Company to the Holders or the Trustee under the Indenture or
under the Notes will be promptly paid in full and performed, all in accordance
with the terms thereof; and (b) in case of any extension of time of payment or
renewal of any Notes or any of such other payment Obligations, the same will be
promptly paid in full when due or performed in accordance with the terms of the
extension or renewal, subject to any applicable grace period, whether at stated
maturity, by acceleration, redemption or otherwise. Failing payment when so due
of any amount so guaranteed or any performance so guaranteed for whatever
reason, the Guarantors will be jointly and severally obligated to pay the same
immediately.
The obligations of the Guarantors to the Holders and to the Trustee
pursuant to this Subsidiary Guarantee and the Indenture are expressly set forth
in Article 10 of the Indenture, and reference is hereby made to such Indenture
for the precise terms of this Subsidiary Guarantee. The terms of Article 10 of
the Indenture are incorporated herein by reference. This Subsidiary Guarantee is
subject to release as and to the extent provided in Section 10.04 of the
Indenture.
This is a continuing Guarantee and shall remain in full force and
effect and shall be binding upon each Guarantor and its respective successors
and assigns to the extent set forth in the Indenture until full and final
payment of all of the Company's Obligations under the Notes and the Indenture
and shall inure to the benefit of the successors and assigns of the Trustee and
the Holders and, in the event of any transfer or assignment of rights by any
Holder or the Trustee, the rights and privileges herein conferred upon that
party shall automatically extend to and be vested in such transferee or
assignee, all subject to the terms and conditions hereof. This is a Guarantee of
payment and not a guarantee of collection.
Each Guarantor hereby waives diligence, presentment, demand of payment,
filing of claims with a court in the event of insolvency or bankruptcy of the
Company, any right to require a proceeding first against the Company, protest,
notice and all demands whatsoever and covenants that this Subsidiary Guarantee
will not be discharged except by complete performance of the Obligations
contained in the Notes and the Indenture.
This Subsidiary Guarantee shall not be valid or obligatory for any
purpose until the certificate of authentication on the Note upon which this
Subsidiary Guarantee is noted shall have been executed by the Trustee under the
Indenture by the manual signature of one of its authorized officers.
E-1
<PAGE>
For purposes hereof, each Guarantor's liability shall be limited to the
lesser of (i) the aggregate amount of the Obligations of the Company under the
Notes and the Indenture and (ii) the maximum amount that will result in the
obligations of such Guarantor under its Subsidiary Guarantee not constituting a
fraudulent transfer or conveyance under applicable law of any relevant
jurisdiction.
Capitalized terms used herein have the same meanings given in the
Indenture unless otherwise indicated.
Dated: AMES REALTY II, INC.
By:
------------------------------------
Name:
Title:
AMES FS, INC.
By:
------------------------------------
Name:
Title:
AMES TRANSPORTATION SYSTEMS, INC.
By:
------------------------------------
Name:
Title:
AMD, INC.
By:
-----------------------------------
Name:
Title:
AMES MERCHANDISING CORPORATION
By:
----------------------------------
Name:
Title:
E-2
<PAGE>
EXHIBIT F
FORM OF SUPPLEMENTAL INDENTURE
SUPPLEMENTAL INDENTURE (this "Supplemental Indenture"), dated as of
______________, ______ among Ames Department Stores, Inc., a Delaware
corporation (the "Company"), Ames Realty II, Inc., a Delaware corporation, Ames
FS, Inc., a Delaware corporation, Ames Transportation Systems, Inc., a Delaware
corporation, AMD, Inc., a Delaware corporation and Ames Merchandising
Corporation, a Delaware corporation (collectively, the "Guarantors") and The
Chase Manhattan Bank, as trustee under the indenture referred to below (the
"Trustee"). Capitalized terms used herein and not defined herein shall have the
meaning ascribed to them in the Indenture (as defined below).
W I T N E S S E T H
WHEREAS, the Company and the Guarantors have heretofore executed and
delivered to the Trustee an indenture (the "Indenture"), dated as of April 27,
1999, providing for the issuance of an aggregate principal amount of
$275,000,000 of 10% Senior Notes due 2006 (the "Notes");
WHEREAS, Section 4.13 and Article 10 of the Indenture provides that
under certain circumstances the Company may or must cause certain of its
Subsidiaries to execute and deliver to the Trustee a supplemental indenture
pursuant to which such Subsidiaries shall unconditionally guarantee all of the
Company's Obligations under the Notes pursuant to a Subsidiary Guarantee on the
terms and conditions set forth herein; and
WHEREAS, pursuant to Section 9.01 of the Indenture, the Trustee is
authorized to execute and deliver this Supplemental Indenture.
NOW THEREFORE, in consideration of the foregoing and for other good and
valuable consideration, the receipt of which is hereby acknowledged, the
Company, the New Guarantor and the Trustee mutually covenant and agree for the
equal and ratable benefit of the Holders of the Notes as follows:
1. CAPITALIZED TERMS. Capitalized terms used herein without definition
shall have the meanings assigned to them in the Indenture.
2. AGREEMENT TO GUARANTEE. The New Guarantor hereby agrees, jointly and
severally with all other Guarantors, to guarantee the Company's Obligations
under the Notes and the Indenture on the terms and subject to the conditions set
forth in Article 10 of the Indenture and to be bound by all other applicable
provisions of the Indenture.
3. NO RECOURSE AGAINST OTHERS. No past, present or future director,
officer, employee, incorporator, partner, member, shareholder or agent of any
Guarantor, as such, shall have any liability for any obligations of the Company
or any Guarantor under the Notes, any Subsidiary Guarantees, the Indenture or
this Supplemental Indenture or for any claim based on, in respect of, or by
reason of, such obligations or their creation. Each Holder by accepting a Note
F-1
<PAGE>
waives and releases all such liability. The waiver and release are part of the
consideration for issuance of the Notes.
4. NEW YORK LAW TO GOVERN. THE INTERNAL LAW OF THE STATE OF NEW YORK
SHALL GOVERN AND BE USED TO CONSTRUE THIS SUPPLEMENTAL INDENTURE.
5. COUNTERPARTS. The parties may sign any number of copies of this
Supplemental Indenture. Each signed copy shall be an original, but all of them
together represent the same agreement.
6. EFFECT OF HEADINGS. The Section headings herein are for convenience
only and shall not affect the construction hereof.
7. THE TRUSTEE. The Trustee shall not be responsible in any manner
whatsoever for or in respect of the validity or sufficiency of this Supplemental
Indenture or for or in respect of the correctness of the recitals of fact
contained herein, all of which recitals are made solely by the New Guarantor.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Supplemental
Indenture to be duly executed and attested, all as of the date first above
written.
Dated: ______________, ______ [GUARANTEEING SUBSIDIARY]
By:
------------------------------------
Name:
Title:
AMES DEPARTMENT STORES, INC.
By:
------------------------------------
Name:
Title:
AMES REALTY II, INC.
By:
------------------------------------
Name:
Title:
AMES FS, INC.
By:
------------------------------------
Name:
Title:
AMES TRANSPORTATION SYSTEMS, INC.
By:
-----------------------------------
Name:
Title:
AMD, INC.
By:
----------------------------------
Name:
Title:
F-3
<PAGE>
AMES MERCHANDISING CORPORATION
By:
----------------------------------
Name:
Title:
Dated: ______________, ______ THE CHASE MANHATTAN BANK,
as Trustee
By:
----------------------------------
Name:
Title:
F-4
<PAGE>
HILLS STORES COMPANY
------------------------------------
12 1/2% Senior Notes Due 2003
------------------------------------
FIRST SUPPLEMENTAL INDENTURE
Dated as of December 24, 1998
to
INDENTURE
Dated as of April 19, 1996
------------------------------------
STATE STREET BANK AND TRUST COMPANY,
as Trustee
<PAGE>
FIRST SUPPLEMENTAL INDENTURE
----------------------------
HILLS STORES COMPANY
STATE STREET BANK AND TRUST COMPANY, Trustee
Dated as of December 24, 1998
--------------------------------
First Supplemental Indenture, dated as of December 24, 1998
among Hills Stores Company, a Delaware corporation (the "Company"), Hills
Department Store Company, a Delaware corporation, Canton Advertising, Inc., a
Massachusetts corporation, Corporate Vision, Inc., a Massachusetts corporation,
HDS Transport, Inc., an Ohio corporation, and Hills Distributing Company, a
Delaware corporation (collectively, the "Guarantors"), as guarantors, and State
Street Bank and Trust Company, successor to Fleet National Bank, as Trustee (the
"Trustee"), to the Indenture, dated as of April 19, 1996 among the Company, the
Guarantors, and the Trustee (the "Indenture") relating to the 12 1/2% Senior
Notes due 2003 of the Company (the "Notes"). Capitalized terms used herein and
not defined herein have the meanings set forth in the Indenture.
WHEREAS, pursuant to an Agreement and Plan of Merger, dated as
of November 12, 1998 (the "Merger Agreement"), among Ames Department Stores,
Inc. ("Ames"), HSC Acquisition Corp. ("Purchaser") and the Company, Purchaser
has caused to be delivered to the holders of the Notes an offer to purchase the
Notes and solicited the consent of such holders to the amendments of the
Indenture set forth herein (such offer to purchase and consent solicitation
being collectively referred to as the "Note Tender Offer"); and
WHEREAS, Section 9.02 of the Indenture authorizes the Company,
the Guarantors and the Trustee to amend certain of the provisions of the
Indenture with the consent of the holders of at least a majority in principal
amount of the Notes outstanding; and
WHEREAS, Section 9.02 of the Indenture authorizes the Company,
the Guarantors and the Trustee to amend Sections 4.10 and 4.14 of the Indenture
with the consent of the holders of at least 66 2/3% in principal amount of the
Notes outstanding; and
WHEREAS, the holders of more than 66 2/3% in principal amount
of the Notes outstanding have consented to all of the amendments set forth
herein; and
WHEREAS, the Board of Directors of the Company and each of the
Guarantors has duly adopted resolutions authorizing the Company and the
Guarantors, respectively, to execute and deliver this Supplemental Indenture;
2
<PAGE>
NOW, THEREFORE, IT IS AGREED AS FOLLOWS:
1. Amendment of Indenture.
(a) The following defined terms and the definitions thereof in
Section 1.01 of the Indenture are deleted in their entirety: "Acquired Debt,"
"Asset Sale," "Attributable Debt," "Borrowing Base," "Capital Lease Obligation,"
"Cash Equivalents," "Change of Control," "Consolidated Cash Flow," "Consolidated
Net Income," "Equity Interests," "Existing Indebtedness," "Fixed Charges,"
"Fixed Charge Coverage Ratio," "Hedging Obligations," "Indebtedness,"
"Investments," "Lien," "Net Income," "Net Proceeds," "Permitted Investments,"
"Permitted Liens," "Permitted Refinancing Debt," "Restricted Investment,"
"Revolving Credit Facility," "Total Assets" and "Weighted Average Life to
Maturity."
(b) The following references to defined terms and the
definitions thereof set forth in Section 1.02 of the Indenture are deleted in
their entirety: "Affiliate Transaction," "Asset Sale Offer," "Change of Control
Offer," "Change of Control Payment," "Change of Control Payment Date," "Excess
Proceeds," "incur," "Offer Amount," "Offer Period," "Purchase Date," "Purchase
Money Debt" and "Restricted Payments."
(c) The definition of "Consolidated Net Worth" in Section 1.01
of the Indenture is amended in its entirety to read as follows:
"Consolidated Net Worth" means, with respect to any
Person as of any date, the sum of (i) the consolidated equity
of the common stockholders of such Person and its consolidated
Subsidiaries as of such date plus (ii) the respective amounts
reported on such Person's balance sheet as of such date with
respect to any series of preferred stock (other than
Disqualified Stock) that by its terms is not entitled to the
payment of dividends unless such dividends may be declared and
paid only out of net earnings in respect of the year of such
declaration and payment, but only to the extent of any cash
received by such Person upon issuance of such preferred stock,
less (x) all write-ups (other than write-ups resulting from
foreign currency translations and write-ups of tangible assets
of a going concern business made within 12 months after the
acquisition of such business) subsequent to the date of this
Indenture in the book value of any asset owned by such Person
or a consolidated Subsidiary of such Person, and (y) all
unamortized debt discount and expense and unamortized deferred
charges as of such date, all of the foregoing determined in
accordance with GAAP.
(d) Subsection (c) of Section 6.01 of the Indenture is deleted
in its entirety and replaced by the following:
(c) [Text Intentionally Deleted]
3
<PAGE>
(e) Sections 3.10, 4.03, 4.07, 4.08, 4.09, 4.10, 4.11, 4.12,
4.14, 4.15, 4.16 and 4.18 of the Indenture are deleted in their entirety and
replaced by the following:
Section 3.10. [Text Intentionally Deleted]
Section 4.03. [Text Intentionally Deleted]
Section 4.07. [Text Intentionally Deleted]
Section 4.08. [Text Intentionally Deleted]
Section 4.09. [Text Intentionally Deleted]
Section 4.10. [Text Intentionally Deleted]
Section 4.11. [Text Intentionally Deleted]
Section 4.12. [Text Intentionally Deleted]
Section 4.14. [Text Intentionally Deleted]
Section 4.15. [Text Intentionally Deleted]
Section 4.16. [Text Intentionally Deleted]
Section 4.18. [Text Intentionally Deleted]
(f) Section 5.01 of the Indenture is amended in its entirety
to read as follows:
Section 5.01. MERGER, CONSOLIDATION, OR SALE OF
ASSETS. (a) The Company shall not consolidate or merge with or
into (whether or not the Company is the surviving
corporation), or sell, assign, transfer, lease, convey or
otherwise dispose of all or substantially all of its
properties or assets in one or more related transactions, to
another corporation, Person or entity unless (i) the Company
is the surviving entity or the entity or the Person formed by
or surviving any such consolidation or merger (if other than
the Company) or to which such sale, assignment, transfer,
lease, conveyance or other disposition shall have been made is
a corporation organized or existing under the laws of the
United States, any state thereof or the District of Columbia;
(ii) the entity or Person formed by or surviving any such
consolidation or merger (if other than the Company) or the
entity or Person to which such sale, assignment, transfer,
lease, conveyance or other disposition shall have been made
assumes all the obligations of the Company under the Notes and
this Indenture pursuant to a supplemental indenture in a form
reasonably satisfactory to the Trustee; (iii) immediately
after such transaction no Default or Event of Default exists;
and (iv) except in the case of a merger of the Company with or
4
<PAGE>
into a Wholly Owned Subsidiary of the Company, the Company or
the entity or Person formed by or surviving any such
consolidation or merger (if other than the Company), or to
which such sale, assignment, transfer, lease, conveyance or
other disposition shall have been made shall have Consolidated
Net Worth immediately after the transaction equal to or
greater than the Consolidated Net Worth of the Company
immediately preceding the transaction.
(b) No Guarantor shall consolidate with or merge with
or into (whether or not such Guarantor is the surviving
Person), another corporation, Person or entity whether or not
affiliated with such Guarantor unless (i) subject to the
provisions of the following paragraph, the Person formed by or
surviving any such consolidation or merger (if other than such
Guarantor) assumes all the obligations of such Guarantor
pursuant to a supplemental indenture in form and substance
reasonably satisfactory to the Trustee, under the Notes and
this Indenture and (ii) immediately after giving effect to
such transaction, no Default or Event of Default exists;
provided that clause (ii) above shall not apply with respect
to a merger of one Guarantor with and into another Guarantor.
(c) In the event of a sale or other disposition of
all of the assets of any Guarantor, by way of merger,
consolidation or otherwise, or a sale or other disposition of
all of the capital stock of any Guarantor, then such Guarantor
(in the event of a sale or other disposition, by way of such a
merger, consolidation or otherwise, of all of the capital
stock of such Guarantor) or the corporation acquiring the
property (in the event of a sale or other disposition of all
of the assets of such Guarantor) will be released and relieved
of any obligations under its Subsidiary Guarantee.
(d) The Company or the Guarantor, as the case may be,
shall deliver to the Trustee prior to the consummation of the
proposed transaction pursuant to the foregoing paragraphs (a)
and (b) an Officers' Certificate to the foregoing effect and
an Opinion of Counsel stating that the proposed transaction
and such supplemental indenture comply with this Indenture.
(g) Section 10.06 of the Indenture is amended in its entirety
to read as follows:
Section 10.06. RELEASES FOLLOWING SALE OF ASSETS.
Subject to Section 7.07 hereof, concurrently with any sale of
assets (including, if applicable, all of the capital stock of
any Guarantor) any liens in favor of the Trustee in the assets
sold thereby shall be released. In the event of a sale or
other disposition of all of the assets of any Guarantor, by
way of merger, consolidation or otherwise, or a sale or other
disposition of all of the capital stock of any Guarantor, then
such Guarantor (in the event of a sale or other disposition,
by way of such a merger, consolidation or otherwise, of all of
5
<PAGE>
the capital stock of such Guarantor in accordance with the
provisions of this Indenture) or the corporation acquiring the
property (in the event of a sale or other disposition of all
of the assets of such Guarantor), shall be released and
relieved of its obligations under its Subsidiary Guarantee or
Section 10.03 hereof, as the case may be. Upon delivery by the
Company to the Trustee of an Officers' Certificate and an
Opinion of Counsel to the effect that such sale or other
disposition was made by the Company in accordance with the
provisions of this Indenture, the Trustee shall execute any
documents reasonably required in order to evidence the release
of any Guarantor from its obligations under its Subsidiary
Guarantee. Any Guarantor not released from its obligations
under its Subsidiary Guarantee shall remain liable for the
full amount of principal of and interest on the Notes and for
the other obligations of any Guarantor under this Indenture as
provided in this Article 10. The release of any Guarantor
pursuant to this Section shall be effective whether or not
such release shall be noted on any Note then outstanding or
thereafter authenticated and delivered.
2. Confirmation. Except as expressly amended hereby, all of
the provisions of the Indenture and all guarantees thereof are in all respects
ratified and confirmed, and nothing herein shall affect the validity or
enforceability of the Indenture, as amended hereby, or of any guarantees
thereof.
3. Counterparts. This Supplemental Indenture may be executed
in any number of counterparts, each of which, when so executed, shall be deemed
to be an original, but all of which shall together constitute but one and the
same instrument.
4. Effectiveness. This Supplemental Indenture shall become
effective immediately upon (i) the execution and delivery hereof by the Company,
the Guarantors and the Trustee, (ii) the execution and delivery to the Trustee
by the Company of an Officer's Certificate and an opinion of counsel, in form
and substance acceptable to the Trustee, and (iii) the execution and delivery to
the Trustee by the Purchaser of an Officer's Certificate confirming that
consents to the amendments set forth herein from at least 66 2/3% of the
outstanding principal amount of the Notes have been delivered and have not been
withdrawn or revoked; provided however, that Article One shall not become
operative unless and until the Trustee receives an Officer's Certificate from
the Purchaser confirming that (i) the Minimum Note Condition (as defined in the
Merger Agreement) has been satisfied or waived as provided in the Merger
Agreement, (ii) all other conditions to the Note Tender Offer set forth in Annex
B to the Merger Agreement have been satisfied or waived by Ames and Purchaser
and (iii) Purchaser has accepted for purchase all Notes validly tendered
pursuant to the Note Tender Offer. In the event of any termination of the Note
Tender Offer prior to such acceptance for payment, Article One of this
Supplemental Indenture shall be null and void and of no force or effect.
5. Governing Law. This Supplemental Indenture shall be
governed by and construed in accordance with the law of the State of New York.
6
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Supplemental
Indenture to be duly executed, all as of the date and year above first written.
HILLS STORES COMPANY
By: /s/ Chaim Edelstein
--------------------------------------------
Name: Chaim Edelstein
Title: Chairman and CEO
HILLS DEPARTMENT STORE COMPANY
By: /s/ William K. Friend
--------------------------------------------
Name: William K. Friend
Title: Sr. Vice President-Secretary
CANTON ADVERTISING, INC.
By: /s/ William K. Friend
--------------------------------------------
Name: William K. Friend
Title: Vice President-Secretary/Clerk
CORPORATE VISION, INC.
By: /s/ William K. Friend
--------------------------------------------
Name: William K. Friend
Title: Vice President-Secretary/Clerk
HDS TRANSPORT, INC.
By: /s/ William K. Friend
--------------------------------------------
Name: William K. Friend
Title: Vice President-Secretary
HILLS DISTRIBUTING COMPANY
By: /s/ William K. Friend
--------------------------------------------
Name: William K. Friend
Title: Vice President-Secretary
STATE STREET BANK AND TRUST COMPANY, as Trustee
By: /s/ Robert C. Butzier
--------------------------------------------
Name: Robert C. Butzier
Title: Vice President
7
<PAGE>
AMES DEPARTMENT STORES, INC.
------------------------------------
12 1/2% Senior Notes Due 2003
------------------------------------
SECOND SUPPLEMENTAL INDENTURE
Dated as of April 15, 1999
to
INDENTURE
Dated as of April 19, 1996
------------------------------------
STATE STREET BANK AND TRUST COMPANY,
as Trustee
<PAGE>
SECOND SUPPLEMENTAL INDENTURE
-----------------------------------
AMES DEPARTMENT STORES, INC.
STATE STREET BANK AND TRUST COMPANY, Trustee
Dated as of April 15, 1999
---------------------------------------
Second Supplemental Indenture (this "Supplemental Indenture"), dated as
of April 15, 1999, by and among Ames Department Stores, Inc., a Delaware
corporation ("Ames"), Hills Stores Company, a Delaware corporation ("Hills"
and/or the "Company"), Hills Department Store Company, a Delaware corporation
("HDSC"), Canton Advertising, Inc., a Massachusetts corporation ("Canton"), HDS
Transport, Inc., an Ohio corporation ("Transport"), Corporate Vision, Inc., a
Massachusetts corporation ("Vision"), and Hills Distributing Company, a Delaware
corporation ("Distributing" and, together with Canton, Transport and Vision, the
"Subsidiaries"; and, together with HDSC, the "Guarantors"), and State Street
Bank and Trust Company, successor to Fleet National Bank, as Trustee (the
"Trustee"), to the Indenture, dated as of April 19, 1996, as amended by the
First Supplemental Indenture, dated as of December 24, 1998, among Hills, the
Guarantors, as guarantors, and the Trustee relating to the 12 1/2% Senior Notes
due 2003 of the Company (the "Notes"). Capitalized terms used herein and not
defined herein have the meanings set forth in the Indenture.
W I T N E S S E T H:
WHEREAS, pursuant to an Agreement and Plan of Merger, dated as
of November 12, 1998 (the "Merger Agreement"), among Ames, HSC Acquisition
Corp., formerly a Delaware corporation and wholly-owned subsidiary of Ames
("HSC"), and Hills, HSC engaged in a tender offer (the "Equity Offer") for all
of the outstanding common stock, par value $0.01 per share (the "Hills Common
Stock"), and preferred stock, par value $0.10 per share (the "Hills Preferred
Stock"), of Hills; and
WHEREAS, concurrently with the Equity Offer and pursuant to
the Merger Agreement, HSC conducted a tender offer (the "Debt Offer" and
collectively with the Equity Offer, the "Offers") for all of the outstanding
Notes; and
WHEREAS, the Offers closed on December 30, 1998, and, as a
result, HSC acquired approximately 81% and 74% of the then outstanding shares of
Hills Common Stock and Hills Preferred Stock, respectively, and 74% of the then
outstanding principal amount of the Notes; and
WHEREAS, following the consummation of the Equity Offer and
pursuant to the Merger Agreement, on March 19, 1999, HSC was merged with and
into Hills (the "Second-Step Merger"); and
2
<PAGE>
WHEREAS, as a result of the Equity Offer and the Second-Step
Merger, Ames, as the owner of all of the capital stock of HSC, acquired the
entire equity interest in Hills, and Hills, as the surviving corporation of the
Second-Step Merger, became a wholly-owned subsidiary of Ames; and
WHEREAS, (1) Sections 5.01 and 10.05 of the Indenture provide
that a Guarantor may merge with or into another corporation, including another
Guarantor or the Company, with the other corporation as the surviving entity of
any such merger, and (2) Section 5.01 of the Indenture provides that Hills may
merge with or into another corporation, with the other corporation as the
surviving entity of any such merger, in each case, provided that the provisions
set forth in such Sections 5.01 and 10.05, as the case may be, are complied
with; and
WHEREAS, on or about April 19, 1999, (1) each of the
Subsidiaries shall be merged with and into HDSC (the "Subsidiary Mergers"), with
HDSC being the surviving entity of each such Subsidiary Merger, (2) promptly
thereafter, HDSC shall be merged with and into Hills (the "HDSC Merger"), with
Hills being the surviving entity of the HDSC Merger, and (3) promptly
thereafter, Hills shall be merged with and into Ames (the "Hills Merger" and,
together with the Subsidiary Mergers and the HDSC Merger, the "Mergers"), with
Ames being the surviving entity of the Hills Merger; and
WHEREAS, Section 5.01 of the Indenture provides that, upon a
merger as described above, the surviving entity of each such merger shall assume
all of the obligations of the merged entities pursuant to a supplemental
indenture reasonably acceptable to the Trustee; and
WHEREAS, the Mergers described above are intended to occur in
immediate succession such that (1) the time period for which HDSC and Hills are
the surviving entities shall be de minimus and (2) the parties have determined
that no separate supplemental indenture is reasonable or necessary with respect
to the Subsidiary Mergers or the HDSC Merger, but that such entities shall
execute this Supplemental Indenture so as to acknowledge, in accordance with
Section 5.01 of the Indenture, their assumption of the Obligations for such
period as may be applicable; and
WHEREAS, in accordance with Section 5.01 of the Indenture,
upon the effectiveness of this Supplemental Indenture, Ames shall assume all of
the Obligations (as defined in the Indenture) of Hills under the Notes and the
Indenture; and
WHEREAS, the Boards of Directors of each of Ames, Hills and
the Guarantors have duly adopted resolutions authorizing (1) each of Ames, Hills
and the Guarantors, respectively, to execute and deliver this Supplemental
Indenture and (2) the Mergers as required by applicable law; and
WHEREAS, pursuant to Section 9.01 of the Indenture, the
Trustee is authorized to execute and deliver this Supplemental Indenture.
3
<PAGE>
NOW, THEREFORE, IT IS AGREED AS FOLLOWS:
1. Release of Subsidiary Guarantee Obligations. Pursuant to
Sections 5.01(c) and 10.06 of the Indenture, (a) immediately upon the
effectiveness of each Subsidiary Merger, HDSC shall assume and shall be deemed
to have assumed all of the Obligations of the Subsidiaries under the Notes and
the Indenture, and each Subsidiary party thereto other than HDSC shall hereby be
released from its obligations under its Subsidiary Guarantee, and (b)
immediately upon the effectiveness of the HDSC Merger, Hills shall assume and
shall be deemed to have assumed all of the Obligations of the Guarantors under
the Notes and the Indenture, and HDSC shall hereby be released from its
obligations under its Subsidiary Guarantee.
2. Assumption of Obligations. In accordance with Sections 5.01
and 5.02 of the Indenture, immediately upon the effectiveness of the Hills
Merger, Ames shall, and by this Supplemental Indenture does, hereby assume all
of the Obligations of Hills under the Notes and the Indenture.
3. Confirmation. Except as expressly amended hereby, all of
the provisions of the Indenture are in all respects ratified and confirmed, and
nothing herein shall affect the validity or enforceability of the Indenture, as
amended hereby.
4. Counterparts. This Supplemental Indenture may be executed
in any number of counterparts, each of which, when so executed, shall be deemed
to be an original, but all of which shall together constitute but one and the
same instrument.
5. Effectiveness. This Supplemental Indenture shall become
effective immediately upon (i) the execution and delivery hereof by Ames, Hills,
the Guarantors and the Trustee, (ii) the execution and delivery to the Trustee
by Ames, Hills and the Guarantors of an Officers' Certificate and an opinion of
counsel in accordance with Sections 5.01 and 10.05 of the Indenture, in form and
substance acceptable to the Trustee, and (iii) the execution and delivery to the
Trustee by Ames of an officer's certificate certifying the effectiveness of the
Mergers.
6. Governing Law. This Supplemental Indenture shall be
governed by and construed in accordance with the law of the State of New York.
[Signatures on following page.]
4
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Supplemental Indenture
to be duly executed, all as of the date and year above first written.
AMES DEPARTMENT STORES, INC.
By: /s/ David H. Lissy
----------------------------------------------
Name: David H. Lissy
Title: Senior Vice President, General Counsel
and Corporate Secretary
HILLS STORES COMPANY
By: /s/ David H. Lissy
----------------------------------------------
Name: David H. Lissy
Title: Vice President and Secretary
HILLS DEPARTMENT STORE COMPANY
By: /s/ David H. Lissy
----------------------------------------------
Name: David H. Lissy
Title: Vice President and Secretary
CANTON ADVERTISING, INC.
By: /s/ David H. Lissy
----------------------------------------------
Name: David H. Lissy
Title: Vice President and Secretary
HDS TRANSPORT, INC.
By: /s/ David H. Lissy
----------------------------------------------
Name: David H. Lissy
Title: Vice President and Secretary
CORPORATE VISION, INC.
By: /s/ David H. Lissy
----------------------------------------------
Name: David H. Lissy
Title: Vice President and Secretary
HILLS DISTRIBUTING COMPANY
By: /s/ David H. Lissy
----------------------------------------------
Name: David H. Lissy
Title: Vice President and Secretary
5
<PAGE>
STATE STREET BANK AND TRUST COMPANY, as Trustee
By: /s/ Paul D. Allen
----------------------------------------------
Name: Paul D. Allen
Title: Vice President
<PAGE>
AMES DEPARTMENT STORES, INC.
2418 Main Street
Rocky Hill, CT 06067-2598
April 27, 1999
The Board of Directors
Ames Department Stores, Inc.
2418 Main Street
Rocky Hill, Connecticut 06067-2598
Dear Sirs and Madam:
In my capacity as General Counsel of Ames Department Stores,
Inc. ("the Company"), I am furnishing this opinion in connection with the
filing by the Company with the Securities and Exchange Commission of a
Registration Statement on Form S-3 (as amended, the "Registration Statement")
under the Securities Act of 1933 with respect to an aggregate of up to 4,600,000
shares of the Company's Common Stock, $.01 par value (the "Shares").
In my capacity as General Counsel of the Company, I have
examined originals or copies (certified or otherwise identified to my
satisfaction) of such corporate records, documents and other instruments, and
such certificates or comparable documents of public officials and of officers of
the Company, as I have deemed relevant and necessary as a basis for the opinions
hereinafter set forth. In such examination, I have assumed the genuineness of
all signatures, the authenticity of all documents submitted to me as certified,
conformed or photostatic copies and the authenticity of the originals of such
latter documents.
Based on the foregoing, I am of the opinion that:
(1) the Company is a corporation validly existing and
in good standing under the laws of the State of Delaware and
has all requisite corporate power and authority to own, lease
and operate its properties and to carry on its business as now
being conducted; and
(2) the Shares have been duly authorized and, when
issued, sold and delivered against payment therefor in the
manner and upon the terms described in the prospectus forming
<PAGE>
April 27, 1999
Page 2
a part of the Registration Statement, will be validly issued,
fully-paid and non-assessable.
The opinions expressed herein are limited to the laws of the
State of New York, the corporate laws of the State of Delaware and the federal
laws of the United States, and no opinion is expressed as to the effect on the
matters covered by this letter of the laws of any other jurisdiction.
I hereby consent to the filing of a copy of this opinion as an
exhibit to the Registration Statement and to the use of my name under the
heading "Legal Matters" in the prospectus contained therein.
Very truly yours,
/s/ David H. Lissy
David H.Lissy
<PAGE>
AMENDMENT AGREEMENT
AMENDMENT AGREEMENT, dated as of April 16, 1999 (the
"Amendment Agreement"), among the financial institutions named in the Credit
Agreement (as defined below) (such financial institutions, together with their
respective successors and assigns, are referred to hereinafter each individually
as a "Lender" and collectively as the "Lenders"), Bank of America NT&SA
(formerly BankAmerica Business Credit, Inc. ("BABC")) as administrative agent
for the Lenders (in its capacity as administrative agent, together with any
successor in such capacity, the "Administrative Agent"), Ames FS, Inc. ("AFS"),
Ames Merchandising Corporation ("AMC"), and Hills Department Store Company
("HDSC", and together with AFS and AMC, each a "Borrower" and collectively, the
"Borrowers"), and the other Credit Parties named in and signatory to the Second
Amended and Restated Credit Agreement, dated as of December 31, 1998, (as
previously amended and as further amended, restated, modified and supplemented
from time to time, the "Credit Agreement") among the Lenders, the Administrative
Agent, the Borrowers, and the other Credit Parties named therein and signatories
thereto. Capitalized terms used herein and not otherwise defined shall have the
meanings ascribed to them in the Credit Agreement.
WHEREAS, the Borrowers have informed the Administrative Agent
and the Lenders that they would like to effect a corporate reorganization
pursuant to which the following will occur sequentially: (1) each of Hills
Distributing Company, Canton Advertising, Inc., Corporate Vision, Inc., and HDS
Transport, Inc. will be merged with and into HDSC and, as a result of such
merger, the separate corporate existence of each of Hills Distributing Company,
Canton Advertising, Inc., Corporate Vision, Inc., and HDS Transport, Inc. will
cease, and HDSC shall assume all of the Obligations of each of Hills
Distributing Company, Canton Advertising, Inc., Corporate Vision, Inc., and HDS
Transport, Inc.; (2) HDSC will be merged with and into Hills Stores Company
("Hills"), and as a result of such merger, the separate corporate existence of
HDSC will cease, and Hills shall assume all of the Obligations of HDSC; and (3)
Hills will be merged with and into Ames Department Stores, Inc. ("Parent"), and
as a result of such merger, the separate corporate existence of Hills will
cease, and Parent shall assume all of the Obligations of Hills in addition to
being a "Credit Party" and "Guarantor" under the Credit Agreement and a
"Grantor" and "Pledgor", as such terms are defined in the Security Documents;
WHEREAS, the Parent shall reaffirm the prior granting to the
Administrative Agent of a security interest in all of its assets and in those
assets it acquires as a result of the merger, and will execute and deliver such
other documents and instruments necessary to carry out the terms of the Credit
Agreement and the Security Documents;
1
<PAGE>
WHEREAS, after consummation of the mergers, the Parent will
contribute all of the inventory and certain of the other assets of the former
Hills Credit Parties to AMC, with all other assets of the former Hills Credit
Parties to be distributed to other Credit Parties thereafter (all as set forth
on Schedule I attached hereto), and the Credit Parties shall each reaffirm the
prior granting to the Administrative Agent of a security interest in all of its
assets, including (without limitation) those assets contributed, or to be
contributed, to it by the Parent;
WHEREAS, the Parent has informed the Administrative Agent and
the Lenders that it proposes to issue up to $275,000,000 in unsecured senior
debt under an Indenture among the Parent, the Credit Parties, and The Chase
Manhattan Bank as trustee (such Indenture as attached hereto as Annex A, the
"Ames Indenture") to be pari passu in right of payment with the Obligations and
debt under the Indenture (as defined in the Credit Agreement) and to be
guaranteed by the Credit Parties;
WHEREAS, Section 9.2 of the Credit Agreement requires the
Parent to, and to cause its Subsidiaries to, maintain their corporate existence
(except for mergers permitted under Section 9.9);
WHEREAS, Section 9.9 of the Credit Agreement prohibits the
Parent or any of its Subsidiaries from, among other things, entering into any
transaction of merger, reorganization, or consolidation, or transferring,
selling, assigning, leasing, or otherwise disposing of all or any part of its
property, or wind up, liquidate or dissolve, or agree to do any of the
foregoing, except under certain circumstances enumerated in such section;
WHEREAS, Sections 9.12 and 9.13 of the Credit Agreement
prohibits the incurrence or guarantee of the Debt proposed by the Ames
Indenture;
WHEREAS, Section 9.30 of the Credit Agreement prohibits the
Parent and any Credit Party from entering into, or being subject to, any
agreement prohibiting or restricting (1) incurrence, creation or assumption of
any Debt, (2) incurrence or creation of any Lien, and (3) sale, disposition or
pledge of any asset, all of the foregoing being negative covenants contained in
the Ames Indenture; and
WHEREAS, the Borrowers have requested that the Lenders agree
to amend certain provisions of the Credit Agreement and the Security Documents
to permit the mergers, the assumption of the Obligations, the contribution of
assets to AMC, the issuance, guarantee and exchange of the notes under the Ames
Indenture, and the change to the definition of Fiscal Year.
2
<PAGE>
NOW, THEREFORE, for valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, and subject to the fulfillment of
the conditions set forth below, the parties hereto agree hereby as follows:
SECTION 1. AMENDMENTS TO THE CREDIT AGREEMENT
1.1 Each reference in the Credit Agreement to the Borrowers
shall mean each of AFS and AMC, jointly and severally (unless otherwise
specifically required by the context of such usage). The Parent shall remain a
"Guarantor" and a "Credit Party", as such terms are defined in the Credit
Agreement. Each reference to a Hills Credit Party in the Credit Agreement and
the Security Documents shall be deemed a reference to AMC (unless otherwise
required by the context).
1.2 The definition of "Change in Control" on Section 1.1 is
hereby amended by adding immediately prior to the period at the end thereof the
following:
or (vi) there occurs any "Change of Control" as defined
in the Ames Indenture
1.3 The definition of "Fiscal Year" in Section 1.1 is hereby
amended by deleting the word "last" where it appears therein and adding the
words "closest to the thirty-first" immediately following the word "Saturday"
where it appears therein.
1.4 Section 1.1 is hereby amended by adding the following
definitions in the proper alphabetical order therein:
"Amendment Agreement" means that certain Amendment
Agreement dated as of April 16, 1999 among the Borrowers, the
Lenders, the Administrative Agent and the other Credit
Parties.
"Ames Indenture" means that certain Indenture, dated
as of April 27, 1999, among the Parent, the Credit Parties,
and The Chase Manhattan Bank as trustee, in the form attached
as Annex A to the Amendment Agreement.
"Subsidiaries Merger Documents" means any and all
merger agreements, Certificates of Ownership and Merger,
Certificates of Merger, Articles of Merger, and all
agreements, documents and instruments pursuant to or in
connection with the mergers of the Hills Credit Parties
executed and delivered between March 30, 1999 and May 15,
1999.
3
<PAGE>
"Subsidiaries Merger Transaction" means the mergers
of the Hills Credit Parties with and into the Parent with the
Parent being the surviving corporation, all pursuant to the
Subsidiaries Merger Documents.
1.5 Section 9.6 is hereby amended by replacing "Leases" with
the word "leases" in the seventh line thereof.
1.6 Section 9.9 is hereby amended by adding at the beginning
of clause (e) therein the words "the mergers in connection with the Subsidiaries
Merger Transaction and," immediately prior to the words "subject to compliance".
1.7 Section 9.12 is hereby amended by (1) replacing the word
"and" in the third line thereof with a comma, and (2) adding the phrase "and,
(iii) Guaranties by any Credit Party of the Debt under the Ames Indenture"
immediately prior to the period at the end thereof.
1.8 Section 9.13 is hereby amended by (1) adding ", landlords"
to clause (b) immediately after the word "suppliers" therein; and (2) replacing
clause (i) therein with the following new clause (i):
4
<PAGE>
(i) Debt under the Ames Indenture in a principal
amount not to exceed $275,000,000, but not any increase in or
refinancings, extensions, renewals, exchanges or replacements
of such Debt, other than the exchange of Exchange Notes for
Initial Notes and Additional Notes (all as defined in the Ames
Indenture) in the limited circumstances and pursuant to the
terms and conditions set forth in the Ames Indenture;
1.9 Section 9.14 is hereby amended by: (1) adding an "and"
immediately before "(y)" therein and adding a closing parenthesis immediately
after the first reference to "Section 9.13 therein; (2) replacing "(g)," with
"or" in the tenth line thereof; (3) deleting "or (i)" in the tenth line thereof;
(4) replacing the closing parenthesis and the word "and" in the eleventh line
with a comma; and (5) adding immediately prior to the ending period thereof the
following:
, and (iv) regularly scheduled payments of interest under the
Debt permitted by Section 9.13(i), in each case to the extent
due and payable and permitted to be paid by the terms thereof
1.10 Section 9.30 is hereby amended by adding the words "(x)
to the extent set forth in the Ames Indenture, and (y)" immediately after the
word "except" where it appears in both clauses (i) and (ii) therein.
1.11 Clause (e) of Section 11.1 of the Credit Agreement is
hereby amended by deleting the word "or" appearing at the very end thereof.
1.12 Clause (o) of Section 11.1 of the Credit Agreement is
hereby amended by replacing the semi-colon that appears at the end thereof with
a period.
1.13 Exhibit A to the Credit Agreement is hereby amended by
deleting such exhibit in its entirety and by substituting, in lieu thereof the
Exhibit A attached hereto as Annex B.
1.14 The schedules to the Credit Agreement are hereby amended
to include the information on the schedules attached hereto as Annex C.
SECTION 2. AMENDMENTS TO THE AMENDED AND RESTATED PATENT AND
TRADEMARK AGREEMENT
2.1 Schedules A, B and C to the Amended and Restated Patent
and Trademark Agreement are hereby amended by deleting such schedules in their
entirety and by substituting, in lieu thereof, Schedules A, B and C attached
hereto as Annex D.
5
<PAGE>
SECTION 3. AMENDMENTS TO THE AMENDED AND RESTATED STOCK PLEDGE
AGREEMENT
3.1 Schedules I and II to the Amended and Restated Stock
Pledge Agreement are hereby amended by deleting such schedules in their entirety
and by substituting, in lieu thereof, Schedules I and II attached hereto as
Annex E.
SECTION 4. CONDITIONS PRECEDENT TO EFFECTIVE DATE
This Amendment Agreement shall be deemed effective as of the
date hereof on such date (the "Effective Date") that the following conditions
have been satisfied in full or waived by the Administrative Agent in writing:
4.1 This Amendment Agreement shall have been executed by the
Credit Parties, the Administrative Agent and the Majority Lenders, and the
Credit Parties shall have performed and shall be in compliance with all
covenants, agreements and conditions contained herein, in the Credit Agreement
and in the other Loan Documents each as amended hereby.
4.2 The Administrative Agent shall have received:
4.2.1 Executed copies of proper financing statements,
ready to be filed by the Administrative Agent on or before the
Effective Date under the UCC of all jurisdictions that the
Administrative Agent may deem necessary or desirable in order to
perfect the Administrative Agent's Lien on the Collateral;
4.2.2 Stock certificates, together with stock powers
executed in blank, and instruments, duly endorsed to the Administrative
Agent, pledged and not previously delivered under the relevant Security
Documents or reissued as a result of the Subsidiaries Merger
Transaction (as defined in Section 1.4 hereinabove);
4.2.3 Such opinions of counsel for the Parent and its
Subsidiaries as the Administrative Agent or any Lender shall request,
each such opinion to be in a form, scope, and substance satisfactory to
the Administrative Agent, the Lenders, and their respective counsel;
4.2.4 (x) a certificate of the Secretary or Assistant
Secretary of each Credit Party dated within three Business Days prior
to the date hereof and certifying that (A) the copy of its By-laws
attached to the certificate of its Secretary or Assistant Secretary
delivered on the Closing Date is a true and complete copy of its
By-laws as in effect on the date of the certificate delivered pursuant
to this subsection and such By-laws have not been amended since the
Closing Date, (B) attached thereto is a true
6
<PAGE>
and complete copy of the resolutions adopted by its Board of Directors
authorizing the execution, delivery and performance of this Amendment
Agreement, the Ames Indenture and the Subsidiaries Merger Transaction
(as defined in Section 1.4 hereinabove), if applicable, and that such
resolutions have not been modified, rescinded or amended and are in
full force and effect, (C) its certificate or articles of incorporation
has not been amended since the date of the last amendment thereto shown
on the certificate of good standing from the Secretary of State of the
state of its incorporation delivered on the Closing Date, and (D) the
officers executing this Amendment Agreement or any other document to
which it is a party delivered in connection herewith or therewith are
the incumbent officers and their signatures are as set forth thereto;
and (y) a certificate of another officer thereof attesting to the
incumbency and signature of its Secretary or Assistant Secretary, as
the case may be;
4.2.5 Such other approvals, opinions or documents as
the Administrative Agent may reasonably request.
4.3 To the extent invoiced, the Borrowers shall have paid all
fees and expenses of the Administrative Agent and the Attorney Costs incurred in
connection with this Amendment Agreement and the transactions contemplated
hereby.
4.4 All proceedings taken in connection with the execution of
this Amendment Agreement, the Subsidiaries Merger Documents (as defined in
Section 1.4 hereinabove) and all documents and papers relating hereto and
thereto shall be satisfactory in form, scope, and substance to the
Administrative Agent and the Majority Lenders.
4.5 All representations and warranties contained in this
Amendment Agreement or otherwise made in writing to the Administrative Agent or
the Lenders in connection herewith shall be true and correct in all material
respects.
4.6 No unwaived event has occurred and is continuing which
constitutes a Default or an Event of Default under the Credit Agreement.
The execution and delivery to the Administrative Agent by the Borrowers
of a counterpart of this Amendment Agreement shall be deemed to be a
representation and warranty made by the Credit Parties to the effect that the
conditions precedent to the Effective Date set forth in 4.5 and 4.6 above have
been satisfied, with the same effect as delivery to the Administrative Agent and
the Lenders of a certificate signed by a Responsible Officer of the Parent or
the Borrowers, dated the Effective Date, to such effect.
7
<PAGE>
SECTION 5. ADDITIONAL COVENANTS
5.1 Within five Business Days of the consummation of the
Subsidiaries Merger Transaction (as defined in Section 1.4 hereinabove), the
Credit Parties shall deliver to the Administrative Agent executed copies of the
Subsidiaries Merger Documents (as defined in Section 1.4 hereinabove) and
evidence of the consummation of the Subsidiaries Merger Transaction.
5.2 Within two Business Days after execution of the Ames
Indenture, the Credit Parties shall deliver to the Administrative Agent executed
copies of the Ames Indenture.
5.3 Within two Business Days after the note issuance under the
Ames Indenture, the Credit Parties shall deliver to the Administrative Agent
copies of opinions of counsel for the Parent and its Subsidiaries delivered in
connection with the issuance of the notes (such opinions to be in a form, scope,
and substance satisfactory to the Administrative Agent and its counsel),
accompanied by a letter of reliance thereon addressed to the Administrative
Agent and the Lenders, and copies of certificates, government filings and
consents required in connection therewith.
SECTION 6. MISCELLANEOUS
6.1 Each Credit Party reaffirms and restates the
representations and warranties set forth in Articles 6 and 8 of the Credit
Agreement, as amended by this Amendment Agreement, and all such representations
and warranties shall be true and correct on the date hereof with the same force
and effect as if made on such date. Each Credit Party represents and warrants
(which representations and warranties shall survive the execution and delivery
hereof) to the Agent that:
(a) It has the corporate power and authority to execute,
deliver and carry out the terms and provisions of this Amendment
Agreement and the transactions contemplated hereby and has taken or
caused to be taken all necessary corporate action to authorize the
execution, delivery and performance of this Amendment Agreement and the
transactions contemplated hereby;
(b) No consent of any other person (including, without
limitation, shareholders or creditors of any Credit Party), and no
action of, or filing with any governmental or public body or authority
is required to authorize, or is otherwise required in connection with
the execution, delivery and performance of this Amendment Agreement and
the other instruments and documents contemplated hereby, other than the
filings contemplated by Section 4.2.1 hereof and the consents hereunder
and filings in connection with the Subsidiaries Merger Transaction;
8
<PAGE>
(c) This Amendment Agreement and the other instruments and
documents contemplated hereby have been duly executed and delivered by
a duly authorized officer on behalf of such party, and constitutes a
legal, valid and binding obligation of such party enforceable against
such party in accordance with its terms, subject to bankruptcy,
reorganization, insolvency, moratorium and other similar laws affecting
the enforcement of creditors' rights generally and the exercise of
judicial discretion in accordance with general principles of equity;
and
(d) The execution, delivery and performance of this Amendment
Agreement and the other instruments and documents contemplated hereby
will not violate any law, statute or regulation, or any order or decree
of any court or governmental instrumentality, or conflict with, or
result in the breach of, or constitute a default under any contractual
obligation of such party.
6.2 Nothing herein shall be deemed to be a waiver of any
covenant or agreement contained in the Credit Agreement, and each Credit Party
hereby agrees that all of the covenants and agreements contained in the Credit
Agreement and the other Loan Documents are hereby ratified and confirmed in all
respects and shall remain in full force and effect in accordance with their
respective terms. Each Credit Party reaffirms its prior grant under the Credit
Agreement of a continuing first priority security interest in, lien on, and
right of set-off against, all of the Collateral of such Credit Party, whether
now owned or existing or hereafter acquired or arising, regardless of where
located, and each of them shall enter into any confirmatory documentation
requested by the Administrative Agent.
6.3 All references to the Credit Agreement in the Credit
Agreement or any other Loan Document and the other documents and instruments
delivered pursuant to or in connection therewith shall mean such agreement as
amended hereby and as each may in the future be amended, restated, supplemented
or modified from time to time.
6.4 This Amendment Agreement may be executed by the parties
hereto individually or in combination, in one or more counterparts, each of
which shall be an original and all of which shall constitute one and the same
agreement.
6.5 Delivery of an executed counterpart of a signature page by
telecopier shall be effective as delivery of a manually executed counterpart.
6.6 This Amendment Agreement shall be governed by, and
construed and interpreted in accordance with, the laws of the State of New York.
9
<PAGE>
6.7 The parties hereto shall, at any time and from time to
time following the execution of this Amendment Agreement, execute and deliver
all such further instruments and take all such further action as may be
reasonably necessary or appropriate in order to carry out the provisions of this
Amendment Agreement.
[REMAINDER OF PAGE INTENTIONALLY BLANK]
<PAGE>
IN WITNESS WHEREOF, each Borrower, the Majority Lenders, the
Administrative Agent, each Co-Agent and the other Credit Parties have caused
this Amendment Agreement to be duly executed by their respective authorized
officers as of the day and year first above written.
BANK OF AMERICA NT&SA
(formerly BANKAMERICA BUSINESS CREDIT, INC.),
as the Administrative Agent
By: /s/ William J. Wilson
--------------------------------------
Name: William J. Wilson
Title: Senior Account Executive
Address: 40 East 52nd Street
New York, New York 10022
Attn: Division Manager
Telecopy No.: (212) 836-5167
AMES MERCHANDISING CORPORATION, as a
Borrower and Guarantor
By: /s/ Rolando de Aguiar
--------------------------------------
Name: Rolando de Aguiar
Title: Vice President
Address: 2418 Main Street
Rocky Hill, Connecticut 06067
Attn: Rolando de Aguiar
Telecopy No.: (860) 563-8560
AMES FS, INC., as a Borrower and Guarantor
By: /s/ Rolando de Aguiar
--------------------------------------
Name: Rolando de Aguiar
Title: Vice President
Address: 2418 Main Street
Rocky Hill, Connecticut 06067
Attn: Rolando de Aguiar
Telecopy No.: (860) 563-8560
11
<PAGE>
HILLS DEPARTMENT STORE COMPANY, as a
Borrower and Guarantor
By: /s/ Rolando de Aguiar
---------------------------------------
Name: Rolando de Aguiar
Title: Vice President
Address: 2418 Main Street
Rocky Hill, Connecticut 06067
Attn: Rolando de Aguiar
Telecopy No.: (860) 563-8560
AMES DEPARTMENT STORES, INC., as a Guarantor
By: /s/ Rolando de Aguiar
---------------------------------------
Name: Rolando de Aguiar
Title: Executive Vice President and CFO
Address: 2418 Main Street
Rocky Hill, Connecticut 06067
Attn: Rolando de Aguiar
Telecopy No.: (860) 563-8560
HILLS STORES COMPANY, as a Guarantor
By: /s/ Rolando de Aguiar
---------------------------------------
Name: Rolando de Aguiar
Title: Vice President
Address: 2418 Main Street
Rocky Hill, Connecticut 06067
Attn: Rolando de Aguiar
Telecopy No.: (860) 563-8560
12
<PAGE>
AMD, INC., as a Guarantor
By: /s/ Rolando de Aguiar
---------------------------------------
Name: Rolando de Aguiar
Title: Vice President
Address: 2418 Main Street
Rocky Hill, Connecticut 06067
Attn: Rolando de Aguiar
Telecopy No.: (860) 563-8560
AMES REALTY II, INC., as a Guarantor
By: /s/ Rolando de Aguiar
---------------------------------------
Name: Rolando de Aguiar
Title: Vice President
Address: 2418 Main Street
Rocky Hill, Connecticut 06067
Attn: Rolando de Aguiar
Telecopy No.: (860) 563-8560
AMES TRANSPORTATION SYSTEMS, INC.,
as a Guarantor
By: /s/ Rolando de Aguiar
---------------------------------------
Name: Rolando de Aguiar
Title: Vice President
Address: 2418 Main Street
Rocky Hill, Connecticut 06067
Attn: Rolando de Aguiar
Telecopy No.: (860) 563-8560
13
<PAGE>
CANTON ADVERTISING, INC.,
as a Guarantor
By: /s/ Rolando de Aguiar
---------------------------------------
Name: Rolando de Aguiar
Title: Vice President
Address: 2418 Main Street
Rocky Hill, Connecticut 06067
Attn: Rolando de Aguiar
Telecopy No.: (860) 563-8560
HDS TRANSPORT, INC.,
as a Guarantor
By: /s/ Rolando de Aguiar
---------------------------------------
Name: Rolando de Aguiar
Title: Vice President
Address: 2418 Main Street
Rocky Hill, Connecticut 06067
Attn: Rolando de Aguiar
Telecopy No.: (860) 563-8560
CORPORATE VISION INC.,
as a Guarantor
By: /s/ Rolando de Aguiar
---------------------------------------
Name: Rolando de Aguiar
Title: Vice President
Address: 2418 Main Street
Rocky Hill, Connecticut 06067
Attn: Rolando de Aguiar
Telecopy No.: (860) 563-8560
14
<PAGE>
HILLS DISTRIBUTING COMPANY,
as a Guarantor
By: /s/ Rolando de Aguiar
---------------------------------------
Name: Rolando de Aguiar
Title: Vice President
Address: 2418 Main Street
Rocky Hill, Connecticut 06067
Attn: Rolando de Aguiar
Telecopy No.: (860) 563-8560
Commitment: $50,000,000 BANK OF AMERICA NT&SA
(formerly BANKAMERICA BUSINESS CREDIT, INC.),
as a Lender
By: /s/ William J. Wilson
---------------------------------------
Name: William J. Wilson
Title: Senior Account Executive
Address: 40 East 52nd Street
New York, New York 10022
Attn: Division Manager
Telecopy No.: (212) 836-5167
Commitment: $50,000,000 CONGRESS FINANCIAL CORPORATION,
as a Lender
By: /s/ Cindy B. Denbaum
---------------------------------------
Name: Cindy B. Denbaum
Title: Vice President
Address: 1133 Avenue of the Americas
New York, New York 10036
Attn: Ms. Cindy Dennbaum
Telecopy No.: (212) 545-4283
15
<PAGE>
Commitment: $50,000,000 GENERAL ELECTRIC CAPITAL CORPORATION,
as a Lender
By:
---------------------------------------
Name:
Title:
Address: 201 High Ridge Road
Stamford, Connecticut 06927
Attn: Vice President - Portfolio
Telecopy No.: (203) 316-7893
Commitment: $50,000,000 TRANSAMERICA BUSINESS CREDIT CORPORATION,
as a Lender
By:
---------------------------------------
Name:
Title:
Address: 555 Theodore Fremd Avenue
Suite 301
Rye, New York 10580
Attn: Mr. Jon Oldham
Telecopy No.: (914) 921-0110
Commitment: $30,000,000 THE CHASE MANHATTAN BANK,
as a Lender
By: /s/ James M. Dailey
---------------------------------------
Name: James M. Dailey
Title: Vice President
Address: One Chase Square
CS - 5
Rochester, New York 14643
Attn: James M. Dailey
Telecopy No.: (716) 258-7440
16
<PAGE>
Commitment: $25,000,000 FLEET BUSINESS CREDIT CORPORATION
as a Lender
By: /s/ John P. Masotti
---------------------------------------
Name: John P. Masotti
Title: Vice President
Address: 200 Glastonbury Blvd.
Glastonbury, CT 06033
Attn: Mr. John P. Masotti
Telecopy No.: (860) 657-7759
Commitment: $25,000,000 LASALLE BUSINESS CREDIT, INC.,
as a Lender
By: /s/ Lawrence P. Garni
---------------------------------------
Name: Lawrence P. Garni
Title: First Vice President
Address: 477 Madison Avenue
12th Floor
New York, New York 10022
Attn: Mr. Corey Sclar
Telecopy No.: (212) 371-2966
Commitment: $25,000,000 FLEET NATIONAL BANK, as a Lender
By:
---------------------------------------
Name:
Title:
Address: 777 Main Street
MSN 240
Hartford, Connecticut 06115
Attn: Linda Smyth
Telecopy No.: (860) 986-6919
17
<PAGE>
Commitment: $25,000,000 NATIONAL CITY COMMERCIAL FINANCE, INC.,
as a Lender
By: /s/ Matthew D. Sheets
---------------------------------------
Name: Matthew D. Sheets
Title: Account Executive
Address: 1965 East 6th Street, Suite 400
Cleveland, Ohio 44114
Attn: Ms. Carla Kehres
Telecopy No.: (216) 575-9486
Commitment: $25,000,000 PNC BANK, NATIONAL ASSOCIATION,
as a Lender
By: /s/ Janeann Fehrle
---------------------------------------
Name: Janeann Fehrle
Title: Vice President
Address: 1600 Market Street
31st Floor F2-F070-31-2
Philadelphia, Pennsylvania 19103
Attn: Ms. Janeann Fehrle
Telecopy No.: (215) 585-4749
Commitment: $20,000,000 CITIZENS BUSINESS CREDIT COMPANY,
as a Lender
By: /s/ William H. Creaser
---------------------------------------
Name: William H. Creaser
Title: Vice President
Address: 237 Main Street
Middletown, Connecticut
Attn: Mr. William Creaser
Telecopy No.: (860) 638-4444
18
<PAGE>
Commitment: $30,000,000 FOOTHILL CAPITAL CORPORATION, as a Lender
By: /s/ Todd R. Nakamoto
---------------------------------------
Name: Todd R. Nakamoto
Title: Vice President
Address: 11111 Santa Monica Blvd.
Los Angeles, California 90025
Attn: Mr. Todd Nakamoto
Telecopy No.: (310) 479-8952
Commitment: $20,000,000 AMSOUTH BANK, as a Lender
By: /s/ Kevin R. Rogers
---------------------------------------
Name: Kevin R. Rogers
Title: Attorney In Fact
Address: c/o AmSouth Capital Corp.
350 Park Avenue
19th Floor
New York, New York 10022
Attn: Mr. Joseph B. Huston
Telecopy No.: (212) 935-7548
Commitment: $15,000,000 IBJ WHITEHALL BUSINESS CREDIT CORPORATION,
as a Lender
By: /s/ James M. Steffy
---------------------------------------
Name: James M. Steffy
Title: Vice President
Address: One State Street
New York, New York 10004
Attn: Mr. James Steffy
Telecopy No.: (212) 858-2151
19
<PAGE>
Commitment: $50,000,000 BANKBOSTON RETAIL FINANCE INC.,
as a Lender
By: /s/ Betsy Ratto
---------------------------------------
Name: Betsy Ratto
Title: Managing Director
Address: 40 Broad Street
11th Floor
Boston, Massachusetts 02109
Attn: Ms. Betsy Ratto
Telecopy No.: (617) 434-4339
Commitment: $50,000,000 CIT GROUP/BUSINESS CREDIT, INC., as a Lender
By: /s/ Kevin O'Hara
---------------------------------------
Name: Kevin O'Hara
Title: Assistant Vice President
Address: 1211 Avenue of the Americas
New York, New York 10036
Attn: Mr. Kevin O'Hara
Telecopy No.: (212) 536-1295
Commitment: $25,000,000 TEXTRON FINANCIAL CORPORATION, as a Lender
By: /s/ John M. Parnett
---------------------------------------
Name: John M. Parnett
Title: Vice President
Address: 4550 North Point
Suite 400
Alpharetta, Georgia 30022
Attn: Ms. Christine MacKay
Telecopy No.: (770) 360-1672
20
<PAGE>
Commitment: $50,000,000 HELLER FINANCIAL, INC., as a Lender
By: /s/ John Buff
---------------------------------------
Name: John Buff
Title: Senior Vice President
Address: 150 East 42nd Street
7th Floor
New York, New York 10017
Attn: Mr. Thomas Bukowski
Telecopy No.: (212) 880-2960
Commitment: $10,000,000 FREMONT FINANCIAL CORPORATION, as a Lender
By: /s/ Ruth Yang
---------------------------------------
Name: Ruth Yang
Title: Portfolio Administrator / Credit
Analyst
Address: 2020 Santa Monica Boulevard
Suite 500
Santa Monica, California 90404
Attn: Mr. John Neher
Telecopy No.: (310) 264-7401
Commitment: $25,000,000 BNY FINANCIAL CORPORATION, as a Lender
By: /s/ Robert E. Nuytkens
---------------------------------------
Name: Robert E. Nuytkens
Title: Vice President
Address: 1290 Avenue of the Americas
3rd Floor
New York, New York 10004
Attn: Mr. Frank Imperato
Telecopy No.: (212) 408-4317
21
<PAGE>
EXECUTION COPY
================================================================================
Registration Rights Agreement
Dated as of April 27, 1999
by and among
Ames Department Stores, Inc.
The Guarantors listed on the Signature Pages Hereto
and
Lehman Brothers Inc.
and
NationsBanc Montgomery Securities LLC
================================================================================
<PAGE>
Registration Rights Agreement
This Registration Rights Agreement (this "Agreement") is made and
entered into as of April 27, 1999 by and among Ames Department Stores, Inc., a
Delaware corporation (the "Company"), Ames Realty II, Inc., a Delaware
corporation, Ames FS, Inc., a Delaware corporation, Ames Transportation Systems,
Inc., a Delaware corporation, AMD, Inc., a Delaware corporation, and Ames
Merchandising Corporation, a Delaware corporation (collectively, the "Existing
Guarantors"), and Lehman Brothers Inc. and NationsBanc Montgomery Securities LLC
(together, the "Initial Purchasers").
This Agreement is made pursuant to the Purchase Agreement, dated April
20, 1999 (the "Purchase Agreement"), by and among the Company, the Existing
Guarantors and the Initial Purchasers, which provides for the sale by the
Company to the Initial Purchasers of $200,000,000 aggregate principal amount of
the Company's 10% Senior Notes due 2006 (the "Notes"). The Notes are, and the
Exchange Notes (as defined herein) will be, guaranteed on a senior basis by the
Guarantors (as defined herein). In order to induce the Initial Purchasers to
purchase the Notes, the Company and the Existing Guarantors have agreed to
provide the registration rights set forth in this Agreement. The execution and
delivery of this Agreement is a condition to the obligations of the Initial
Purchasers set forth in Section 3 of the Purchase Agreement.
The parties hereby agree as follows:
Section 1. DEFINITIONS
As used in this Agreement, the following capitalized terms shall have
the following meanings:
Additional Guarantor: Any subsidiary of the Company that executes a
Subsidiary Guarantee under the Indenture after the date of this Agreement.
Broker-Dealer: Any broker or dealer registered under the Exchange Act.
Closing Date: The date of this Agreement.
Commission: The Securities and Exchange Commission.
Consummate: A Registered Exchange Offer shall be deemed "Consummated"
for purposes of this Agreement upon the occurrence of (i) the filing and
effectiveness under the Securities Act of the Exchange Offer Registration
Statement relating to the Exchange Notes to be issued in the Exchange Offer,
(ii) the maintenance of such Registration Statement continuously effective and
the keeping of the Exchange Offer open for a period not less than the minimum
period required pursuant to Section 3(b) hereof, and (iii) the delivery by the
Company to the Registrar under the Indenture of Exchange Notes in the same
aggregate principal amount as the aggregate
<PAGE>
principal amount of Notes that were tendered by Holders thereof pursuant to the
Exchange Offer.
Damages Payment Date: With respect to the Notes, each Interest Payment
Date.
Effectiveness Target Date: As defined in Section 5 hereof.
Exchange Act: The Securities Exchange Act of 1934, as amended.
Exchange Notes: The Company's 10% Senior Notes due 2006 to be issued
pursuant to the Indenture in the Exchange Offer, together with the related
Subsidiary Guarantees.
Exchange Offer: The registration by the Company under the Securities
Act of the Exchange Notes pursuant to a Registration Statement pursuant to which
the Company offers the Holders of all outstanding Transfer Restricted Securities
the opportunity to exchange all such outstanding Transfer Restricted Securities
held by such Holders for Exchange Notes in an aggregate principal amount equal
to the aggregate principal amount of the Transfer Restricted Securities validly
tendered in such exchange offer by such Holders.
Exchange Offer Registration Statement: The Registration Statement
relating to the Exchange Offer, including the related Prospectus.
Exempt Resales: The transactions in which the Initial Purchasers
propose to sell the Notes to (i) certain "qualified institutional buyers," as
such term is defined in Rule 144A under the Securities Act, and (ii) outside the
United States to Persons other than U.S. Persons in offshore transactions
meeting the requirements of Rule 904 of Regulation S under the Securities Act.
Guarantors: The Additional Guarantors and the Existing Guarantors.
Holders: As defined in Section 2(b) hereof.
Indenture: The Indenture, dated as of the date hereof, among the
Company, the Existing Guarantors and The Chase Manhattan Bank, as trustee (the
"Trustee"), pursuant to which the Notes and the Exchange Notes are to be issued,
as such Indenture may be amended or supplemented from time to time in accordance
with the terms thereof.
Initial Purchasers: As defined in the preamble hereto.
Interest Payment Date: As defined in the Indenture and the Notes.
NASD: National Association of Securities Dealers, Inc.
2
<PAGE>
Person: An individual, partnership, corporation, limited liability
company, unincorporated organization, association, joint-stock company, trust,
joint venture, government or any agency or political subdivision thereof.
Prospectus: The prospectus included in a Registration Statement, as
amended or supplemented by any prospectus supplement and by all other amendments
thereto, including post-effective amendments, and all material incorporated by
reference into such Prospectus.
Record Holder: With respect to any Damages Payment Date relating to
Notes, each Person who is a Holder of Notes on the record date with respect to
the Interest Payment Date on which such Damages Payment Date shall occur.
Registration Default: As defined in Section 5 hereof.
Registration Statement: Any Registration Statement of the Company
relating to (a) an offering of Exchange Notes pursuant to an Exchange Offer or
(b) the registration for resale of Transfer Restricted Securities pursuant to
the Shelf Registration Statement, which is filed pursuant to the provisions of
this Agreement, in each case including the Prospectus included therein, all
amendments and supplements thereto (including post-effective amendments) and all
exhibits and material incorporated by reference therein.
Securities Act: The Securities Act of 1933, as amended.
Shelf Filing Deadline: As defined in Section 4 hereof.
Shelf Registration Statement: As defined in Section 4 hereof.
Subsidiary Guarantee: The Guarantee by a Guarantor of the Company's
obligations under the Notes, the Exchange Notes and the Indenture.
TIA: The Trust Indenture Act of 1939 (15 U.S.C. Section 77aaa-77bbbb)
as in effect on the date of the Indenture.
Transfer Restricted Securities: Each Note (including the Subsidiary
Guarantees), until the earliest to occur of (a) the date on which such Note is
exchanged in the Exchange Offer in exchange for an Exchange Note that can be
resold to the public by the Holder thereof without complying with the prospectus
delivery requirements of the Securities Act, (b) the date on which such Note has
been effectively registered under the Securities Act and disposed of in
accordance with a Shelf Registration Statement and (c) the date on which such
Note is sold by the Holder pursuant to Rule 144 under the Securities Act, may be
sold by the Holder pursuant to Rule 144(k) under the Securities Act or is sold
by a Broker-Dealer pursuant to the "Plan of Distribution" contemplated by the
Exchange Offer Registration Statement (including delivery of the Prospectus
contained therein).
3
<PAGE>
Underwritten Registration or Underwritten Offering: A registration in
which securities of the Company are sold to an underwriter for reoffering to the
public.
Section 2. SECURITIES SUBJECT TO THIS AGREEMENT
(a) Transfer Restricted Securities. The securities entitled to the
benefits of this Agreement are the Transfer Restricted Securities.
(b) Holders of Transfer Restricted Securities. A Person is deemed to be
a holder of Transfer Restricted Securities (each, a "Holder") whenever such
Person owns Transfer Restricted Securities.
Section 3. REGISTERED EXCHANGE OFFER
(a) Unless the Exchange Offer shall not be permissible under applicable
law or Commission policy (after the procedures set forth in Section 6(a) below
have been complied with), the Company and the Guarantors shall (i) cause to be
filed with the Commission as soon as practicable after the Closing Date, but in
no event later than 120 days after the Closing Date, a Registration Statement
under the Securities Act relating to the Exchange Notes and the Exchange Offer,
(ii) use their best efforts to cause such Registration Statement to become
effective at the earliest possible time, but in no event later than 180 days
after the Closing Date, (iii) in connection with the foregoing, file (A) all
pre-effective amendments to such Registration Statement as may be necessary in
order to cause such Registration Statement to become effective, (B) if
applicable, a post-effective amendment to such Registration Statement pursuant
to Rule 430A under the Securities Act and (C) cause all necessary filings in
connection with the registration and qualification of the Exchange Notes to be
made under the Blue Sky laws of such jurisdictions as are necessary to permit
Consummation of the Exchange Offer, and (iv) upon the effectiveness of such
Registration Statement, commence the Exchange Offer. The Exchange Offer shall be
on the appropriate form permitting registration of the Exchange Notes to be
offered in exchange for the Transfer Restricted Securities and to permit resales
of Notes and Exchange Notes held by Broker-Dealers as contemplated by Section
3(c) below.
(b) The Company and the Guarantors shall cause the Exchange Offer
Registration Statement to be effective continuously and shall keep the Exchange
Offer open for a period of not less than the minimum period required under
applicable federal and state securities laws to Consummate the Exchange Offer;
provided, however, that in no event shall such period be less than 20 business
days. The Company and the Guarantors shall cause the Exchange Offer to comply
with all applicable federal and state securities laws. No securities other than
the Exchange Notes shall be included in the Exchange Offer Registration
Statement. The Company and the Guarantors shall use their best efforts to cause
the Exchange Offer to be Consummated on the earliest practicable date after the
Exchange Offer Registration Statement has become effective, but in no event
later than 30 business days thereafter.
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(c) The Company and the Guarantors shall indicate in a "Plan of
Distribution" section of the Prospectus contained in the Exchange Offer
Registration Statement that any Broker-Dealer who holds Notes that are Transfer
Restricted Securities and that were acquired for its own account as a result of
market-making activities or other trading activities (other than Transfer
Restricted Securities acquired directly from the Company), may exchange such
Notes pursuant to the Exchange Offer; however, such Broker-Dealer may be deemed
to be an "underwriter" within the meaning of the Securities Act and must,
therefore, deliver a Prospectus meeting the requirements of the Securities Act
in connection with any resales of the Exchange Notes received by such
Broker-Dealer in the Exchange Offer, which Prospectus delivery requirement may
be satisfied by the delivery by such Broker-Dealer of the Prospectus contained
in the Exchange Offer Registration Statement. Such "Plan of Distribution"
section shall also contain all other information with respect to such resales by
Broker-Dealers that the Commission may require in order to permit such resales
pursuant thereto, but such "Plan of Distribution" shall not name any such
Broker-Dealer or disclose the amount of Notes held by any such Broker-Dealer
except to the extent required by the Commission.
The Company and the Guarantors shall use their best efforts to keep the
Exchange Offer Registration Statement continuously effective, supplemented and
amended as required by the provisions of Section 6(c) below to the extent
necessary to ensure that it is available for resales of Notes and Exchange Notes
acquired by Broker-Dealers for their own accounts as a result of market-making
activities or other trading activities, and to ensure that it conforms with the
requirements of this Agreement, the Securities Act and the policies, rules and
regulations of the Commission as announced from time to time, for a period of
180 days from the date on which the Exchange Offer Registration Statement is
declared effective.
The Company and the Guarantors shall provide sufficient copies of the
latest version of such Prospectus to Broker-Dealers promptly upon request at any
time during such 180 day period in order to facilitate such resales.
Section 4. SHELF REGISTRATION
(a) Shelf Registration. If (i) the Company and the Guarantors are not
required to file an Exchange Offer Registration Statement or to Consummate the
Exchange Offer because the Exchange Offer is not permitted by applicable law or
Commission policy (after the procedures set forth in Section 6(a) below have
been complied with) or (ii) if any Holder of Transfer Restricted Securities that
is a "qualified institutional buyer," as such term is defined in Rule 144A under
the Securities Act shall notify the Company prior to the 20th business day
following the Consummation of the Exchange Offer that such Holder alone or
together with holders who hold in the aggregate at least $1.0 million in
principal amount of Notes (A) is prohibited by applicable law or Commission
policy from
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participating in the Exchange Offer, or (B) may not resell the Exchange Notes
acquired by it in the Exchange Offer to the public without delivering a
prospectus and that the Prospectus contained in the Exchange Offer Registration
Statement is not appropriate or available for such resales by such Holder, or
(C) is a Broker-Dealer and holds Notes acquired directly from the Company or one
of its affiliates, then the Company and the Guarantors shall
(x) cause to be filed a shelf Registration Statement pursuant
to Rule 415 under the Securities Act, which may be an amendment to the
Exchange Offer Registration Statement (in either event, the "Shelf
Registration Statement") on or prior to the earliest to occur of (1)
the 30th day after the date on which the Company determines that it is
not required to file the Exchange Offer Registration Statement, or
permitted to Consummate the Exchange Offer and (2) the 30th day after
the date on which the Company receives notice from a Holder of Transfer
Restricted Securities as contemplated by clause (ii) of paragraph (a)
above (such earliest date being the "Shelf Filing Deadline"), which
Shelf Registration Statement shall provide for resales of all Transfer
Restricted Securities the Holders of which shall have provided the
information required pursuant to Section 4(b) hereof; and
(y) use their best efforts to cause such Shelf Registration
Statement to be declared effective by the Commission on or before the
90th day after the Shelf Filing Deadline.
The Company and the Guarantors shall use their best efforts to keep such Shelf
Registration Statement continuously effective, supplemented and amended as
required by the provisions of Sections 6(b) and (c) hereof to the extent
necessary to ensure that it is available for resales of Notes by the Holders of
Transfer Restricted Securities entitled to the benefit of this Section 4(a), and
to ensure that it conforms with the requirements of this Agreement, the
Securities Act and the policies, rules and regulations of the Commission as
announced from time to time, for a period of at least two years following the
Closing Date or such shorter period that will terminate when all Notes covered
by the Shelf Registration Statement have been sold pursuant to the Shelf
Registration Statement or become eligible for resale pursuant to Rule 144
without volume or other restrictions.
(b) Provision by Holders of Certain Information in Connection with the
Shelf Registration Statement. No Holder of Transfer Restricted Securities may
include any of its Transfer Restricted Securities in any Shelf Registration
Statement pursuant to this Agreement unless and until such Holder furnishes to
the Company in writing, within 10 business days after receipt of a request
therefor, such information as the Company may reasonably request for use in
connection with any Shelf Registration Statement or Prospectus or preliminary
Prospectus included therein. No Holder of Transfer Restricted Securities shall
be entitled to Liquidated Damages pursuant to Section 5 hereof unless and until
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such Holder shall have used its best efforts to provide all such reasonably
requested information. Each Holder as to which any Shelf Registration Statement
is being effected agrees to furnish promptly to the Company all information
required to be disclosed in order to make the information previously furnished
to the Company by such Holder not materially misleading.
Section 5. LIQUIDATED DAMAGES
If (i) any of the Registration Statements required by this Agreement is
not filed with the Commission on or prior to the date specified for such filing
in sections 3(a) and 4(a), as applicable, (ii) any of such required Registration
Statements has not been declared effective by the Commission on or prior to the
date specified for such effectiveness in sections 3(a) and 4(a), as applicable,
(the "Effectiveness Target Date"), (iii) the Exchange Offer has not been
Consummated within 30 business days after the Effectiveness Target Date with
respect to the Exchange Offer Registration Statement or (iv) any Registration
Statement required by this Agreement is filed and declared effective but shall
thereafter cease to be effective or fail to be usable for its intended purpose
without being succeeded immediately by a post-effective amendment to such
Registration Statement that cures such failure and that is itself immediately
declared effective (each such event referred to in clauses (i) through (iv), a
"Registration Default"), the Company and the Guarantors jointly and severally
agree to pay liquidated damages to each Holder of Transfer Restricted Securities
with respect to the first 90-day period immediately following the occurrence of
such Registration Default, in an amount equal to $.05 per week per $1,000
principal amount of Transfer Restricted Securities held by such Holder for each
week or portion thereof that the Registration Default continues. The amount of
the liquidated damages shall increase by an additional $.05 per week per $1,000
in principal amount of Transfer Restricted Securities with respect to each
subsequent 90-day period until all Registration Defaults have been cured, up to
a maximum amount of liquidated damages of $.50 per week per $1,000 principal
amount of Transfer Restricted Securities. All accrued liquidated damages shall
be paid to Record Holders by the Company and the Guarantors by wire transfer of
immediately available funds or by federal funds check on each Damages Payment
Date, as provided in the Indenture. Following the cure of all Registration
Defaults relating to any particular Transfer Restricted Securities, the accrual
of liquidated damages with respect to such Transfer Restricted Securities will
cease.
All payment obligations of the Company and the Guarantors set forth in
the preceding paragraph that are outstanding with respect to any Transfer
Restricted Security at the time such security ceases to be a Transfer Restricted
Security shall survive until such time as all such payment obligations with
respect to such Security shall have been satisfied in full.
Section 6. REGISTRATION PROCEDURES
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(a) Exchange Offer Registration Statement. In connection with the
Exchange Offer, the Company and the Guarantors shall comply with all of the
provisions of Section 6(c) below, shall use their best efforts to effect such
exchange to permit the sale of Transfer Restricted Securities being sold in
accordance with the intended method or methods of distribution thereof, and
shall comply with all of the following provisions:
(i) As a condition to its participation in the Exchange Offer
pursuant to the terms of this Agreement, each Holder of Transfer
Restricted Securities shall furnish, upon the request of the Company,
prior to the Consummation thereof, a written representation to the
Company and the Guarantors (which may be contained in the letter of
transmittal contemplated by the Exchange Offer Registration Statement)
to the effect that (A) it is not an affiliate of the Company, (B) it is
not engaged in, and does not intend to engage in, and has no
arrangement or understanding with any Person to participate in, a
distribution of the Exchange Notes to be issued in the Exchange Offer
and (C) it is acquiring the Exchange Notes in its ordinary course of
business. In addition, all such Holders of Transfer Restricted
Securities shall otherwise cooperate in the Company's and the
Guarantors' preparations for the Exchange Offer. Each Holder hereby
acknowledges and agrees that any Broker-Dealer and any such Holder
using the Exchange Offer to participate in a distribution of the
securities to be acquired in the Exchange Offer (1) could not under
Commission policy as in effect on the date of this Agreement rely on
the position of the Commission enunciated in Morgan Stanley and Co.,
Inc. (available June 5, 1991) and Exxon Capital Holdings Corporation
(available May 13, 1988), as interpreted in the Commission's letter to
Shearman & Sterling dated July 2, 1993, and similar no-action letters,
and (2) must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with a secondary
resale transaction and that such a secondary resale transaction should
be covered by an effective Registration Statement containing the
selling security holder information required by Item 507 or 508, as
applicable, of Regulation S-K if the resales are of Exchange Notes
obtained by such Holder in exchange for Notes acquired by such Holder
directly from the Company.
(ii) Prior to effectiveness of the Exchange Offer Registration
Statement, the Company and the Guarantors shall provide a supplemental
letter to the Commission (A) stating that the Company and the
Guarantors are registering the Exchange Offer in reliance on the
position of the Commission enunciated in Exxon Capital Holdings
Corporation (available May 13, 1988), Morgan Stanley and Co., Inc.
(available June 5, 1991) and (B) including a representation that
neither the Company nor any Guarantor has entered into any arrangement
or understanding with any Person to distribute the Exchange Notes to be
received in the Exchange Offer and that, to the best of the Company's
and each Guarantor's information and belief, each Holder participating
in the
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Exchange Offer is acquiring the Exchange Notes in its ordinary
course of business and has no arrangement or understanding with any
Person to participate in the distribution of the Exchange Notes
received in the Exchange Offer.
(b) Shelf Registration Statement. In connection with the Shelf
Registration Statement, the Company and the Guarantors shall comply with all the
provisions of Section 6(c) below and shall use their best efforts to effect such
registration to permit the sale of the Transfer Restricted Securities being sold
in accordance with the intended method or methods of distribution thereof, and
pursuant thereto the Company and the Guarantors will as expeditiously as
possible prepare and file with the Commission a Registration Statement relating
to the registration on any appropriate form under the Securities Act, which form
shall be available for the sale of the Transfer Restricted Securities in
accordance with the intended method or methods of distribution thereof.
(c) General Provisions. In connection with any Registration Statement
and any Prospectus required by this Agreement to permit the sale or resale of
Transfer Restricted Securities (including, without limitation, any Registration
Statement and the related Prospectus required to permit resales of Notes and
Exchange Notes by Broker-Dealers), the Company and the Guarantors shall:
(i) use their best efforts to keep such Registration Statement
continuously effective and provide all requisite financial statements
(including, if required by the Securities Act or any regulation
thereunder, financial statements of any Guarantors) for the period
specified in Section 3 or 4 of this Agreement, as applicable; upon the
occurrence of any event that would cause any such Registration
Statement or the Prospectus contained therein (A) to contain a material
misstatement or omission or (B) not to be effective and usable for
resale of Transfer Restricted Securities during the period required by
this Agreement, the Company and the Guarantors shall file promptly an
appropriate amendment to such Registration Statement, in the case of
clause (A), correcting any such misstatement or omission, and, in the
case of either clause (A) or (B), use their best efforts to cause such
amendment to be declared effective and such Registration Statement and
the related Prospectus to become usable for their intended purpose(s)
as soon as practicable thereafter. Notwithstanding the foregoing, at
any time after Consummation of the Exchange Offer, the Company and the
Guarantors may allow the Shelf Registration Statement and the related
Registration Statement to cease to become effective and usable if (x)
the board of directors of the Company determines in good faith that it
is in the best interests of the Company not to disclose the existence
of or facts surrounding any proposed or pending material corporate
transaction involving the Company or the Guarantors, and the Company
notifies the Holders within two business days after the board of
directors makes such determination, or (y) the Prospectus contained in
the Shelf Registration Statement contains an untrue
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statement of the material fact or omits to state a material fact
necessary in order to make the statements made therein, in the light of
the circumstances under which they were made, not misleading; provided
that the two-year period referred to in Section 4(a) hereof during
which the Shelf Registration Statement is required to be effective and
usable shall be extended by the number of days during which such
Registration Statement was not effective or usable pursuant to the
foregoing provisions;
(ii) prepare and file with the Commission such amendments and
post-effective amendments to the Registration Statement as may be
necessary to keep the Registration Statement effective for the
applicable period set forth in Section 3 or 4 hereof, as applicable;
cause the Prospectus to be supplemented by any required Prospectus
supplement, and as so supplemented to be filed pursuant to Rule 424
under the Securities Act, and to comply fully with the applicable
provisions of Rules 424 and 430A under the Securities Act in a timely
manner; and comply with the provisions of the Securities Act with
respect to the disposition of all securities covered by such
Registration Statement during the applicable period in accordance with
the intended method or methods of distribution by the sellers thereof
set forth in such Registration Statement or supplement to the
Prospectus;
(iii) advise the underwriter(s), if any, and selling Holders
of Transfer Restricted Securities promptly and, if requested by such
Persons, to confirm such advice in writing, (A) when the Prospectus or
any Prospectus supplement or post-effective amendment has been filed,
and, with respect to any Registration Statement or any post-effective
amendment thereto, when the same has become effective, (B) of any
request by the Commission for amendments to the Registration Statement
or amendments or supplements to the Prospectus or for additional
information relating thereto, (C) of the issuance by the Commission of
any stop order suspending the effectiveness of the Registration
Statement under the Securities Act or of the suspension by any state
securities commission of the qualification of the Transfer Restricted
Securities for offering or sale in any jurisdiction, or the initiation
of any proceeding for any of the preceding purposes, (D) of the
existence of any fact or the happening of any event that requires the
making of any additions to or changes in the Registration Statement or
the Prospectus in order that the Registration Statement and the
Prospectus do not contain an untrue statement of a material fact or
omit to state a material fact necessary to make the statements made
therein, in the light of the circumstances under which they were made,
not misleading. If at any time the Commission shall issue any stop
order suspending the effectiveness of the Registration Statement, or
any state securities commission or other regulatory authority shall
issue an order suspending the qualification or exemption from
qualification of the Transfer Restricted Securities under state
securities or Blue Sky laws, the Company and the Guarantors shall
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<PAGE>
use their best efforts to obtain the withdrawal or lifting of such
order at the earliest possible time;
(iv) if requested in writing, furnish to each of the selling
Holders of Transfer Restricted Securities and each of the
underwriter(s), if any, before filing with the Commission, copies of
any Registration Statement or any Prospectus included therein or any
amendments or supplements to any such Registration Statement or
Prospectus (including all documents incorporated by reference after the
initial filing of such Registration Statement), which documents will be
subject to the review of such Holders and underwriter(s), if any, for a
period of at least five business days;
(v) promptly prior to the filing of any document that is to be
incorporated by reference into a Registration Statement or Prospectus,
provide copies of such document to the selling Holders and to the
underwriter(s), if any, make the Company's and the Guarantors'
representatives available for discussion of such document and other
customary due diligence matters, and include such information in such
document prior to the filing thereof as such selling Holders or
underwriter(s), if any, reasonably may request;
(vi) make available for inspection at reasonable times at the
Company's principal place of business by the Holders of Transfer
Restricted Securities, any underwriter participating in any disposition
pursuant to such Registration Statement, and any attorney or accountant
retained by such selling Holders or any of the underwriter(s) who shall
certify to the Company and the Guarantors that they have a current
intention to sell Transfer Restricted Securities pursuant to a Shelf
Registration Statement such relevant financial and other records,
pertinent corporate documents and properties of the Company and the
Guarantors as reasonably requested and cause the Company's and the
Guarantors' officers, directors and employees to respond to such
inquiries as shall be reasonably necessary, in the reasonable judgment
of counsel to such Holders, to conduct a reasonable investigation;
provided, however, that the foregoing inspection and information
gathering shall be coordinated on behalf of the Initial Purchasers by
Lehman Brothers Inc. and on behalf of the selling Holders by one
counsel designated by and on behalf of such Holders as described in
Section 7 hereof and, provided further, that each such party shall be
required to maintain in confidence and not disclose to any other Person
any information or records reasonably designated by the Company in
writing as being confidential, until such time as (A) such information
becomes a matter of public record (whether by virtue of its inclusion
in such Registration Statement or otherwise), or (B) such Person shall
be required so to disclose such information pursuant to the subpoena or
order of any court or other governmental agency or body having
jurisdiction over the matter (subject to the requirements of such
order, and only after such Person shall have given the Company prompt
prior written notice of
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such requirement), or (C) such information is required to be set forth
in such Registration Statement or the Prospectus included therein or in
an amendment to such Registration Statement or an amendment or
supplement to such Prospectus in order that such Registration
Statement, Prospectus, amendment or supplement, as the case may be,
does not contain an untrue statement of a material fact or omit to
state therein a material fact required to be stated therein or
necessary to make the statements made therein not misleading;
(vii) if requested by any selling Holders of Transfer
Restricted Securities or the underwriter(s), if any, promptly
incorporate in any Registration Statement or Prospectus, pursuant to a
supplement or post-effective amendment if necessary, such information
as such selling Holders and underwriter(s), if any, may reasonably
request to have included therein, including, without limitation,
information relating to the "Plan of Distribution" of the Transfer
Restricted Securities, information with respect to the principal amount
of Transfer Restricted Securities being sold to such underwriter(s),
the purchase price being paid therefor and any other terms of the
offering of the Transfer Restricted Securities to be sold in such
offering; and make all required filings of such Prospectus supplement
or post-effective amendment as soon as practicable after the Company is
notified of the matters to be incorporated in such Prospectus
supplement or post-effective amendment;
(viii) furnish to each selling Holder of Transfer Restricted
Securities and each of the underwriter(s), if any, without charge, at
least one copy of the Registration Statement, as first filed with the
Commission, and of each amendment thereto, including all documents
incorporated by reference therein and all exhibits (including exhibits
incorporated therein by reference);
(ix) deliver to each selling Holder of Transfer Restricted
Securities and each of the underwriter(s), if any, without charge, as
many copies of the Prospectus (including each preliminary prospectus)
and any amendment or supplement thereto as such Persons reasonably may
request; the Company and the Guarantors hereby consent to the use of
the Prospectus and any amendment or supplement thereto by each of the
selling Holders and each of the underwriter(s), if any, in connection
with the offering and the sale of the Transfer Restricted Securities
covered by the Prospectus or any amendment or supplement thereto;
(x) enter into such agreements (including an underwriting
agreement), and make such representations and warranties, and take all
such other actions in connection therewith in order to expedite or
facilitate the disposition of the Transfer Restricted Securities
pursuant to any Registration Statement contemplated by this Agreement,
all to such extent as may be requested by the Initial Purchasers or, in
the case of
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registration for resale of Transfer Restricted Securities pursuant to
the Shelf Registration Statement, by any Holder or Holders of Transfer
Restricted Securities; and whether or not an underwriting agreement is
entered into and whether or not the registration is an Underwritten
Registration, the Company and the Guarantors shall:
(A) furnish to the Initial Purchasers, the Holders of
Transfer Restricted Securities (in the case of a Shelf
Registration Statement) and each underwriter, if any, in such
substance and scope as they may request and as are customarily
made in connection with an offering of debt securities pursuant to
a Registration Statement (i) upon the effective date of any
Registration Statement (and if such Registration Statement
contemplates an Underwritten Offering of Transfer Restricted
Securities upon the date of the closing under the underwriting
agreement related thereto) and (ii) upon the filing of any
amendment or supplement to any Registration Statement or any other
document that is incorporated in any Registration Statement by
reference and includes financial data with respect to a fiscal
quarter or year:
(1) a certificate, dated the date of effectiveness of
the Shelf Registration Statement signed by (y) the respective
Chief Executive Officer, the respective President or any Vice
President and (z) the respective Chief Financial Officer of
the Company and each of the Guarantors confirming, as of the
date thereof, the matters set forth in paragraph (l) of
Section 7 of the Purchase Agreement and such other matters as
such parties may reasonably request;
(2) an opinion, dated the date of effectiveness of
the Shelf Registration Statement, as the case may be, of
counsel for the Company covering the matters set forth in
paragraphs (d), (e) and (f) of Section 7 of the Purchase
Agreement and such other matter as such parties may reasonably
request, and in any event including a statement to the effect
that such counsel has participated in conferences with
officers and other representatives of the Company,
representatives of the independent public accountants for the
Company, the Initial Purchasers' representatives and the
Initial Purchasers' counsel in connection with the preparation
of such Registration Statement and the related Prospectus and
have considered the matters required to be stated therein and
the statements contained therein, although such counsel has
not independently verified the accuracy, completeness or
fairness of such statements; and that such counsel advises
that, on the basis of the foregoing, no facts came to such
counsel's attention that caused such counsel to believe that
the applicable Registration Statement, at the time such
Registration Statement or any post-effective amendment thereto
became effective, and, in the case of the
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Exchange Offer Registration Statement, as of the date of
Consummation, contained an untrue statement of a material fact
or omitted to state a material fact required to be stated
therein or necessary to make the statements therein not
misleading, or that the Prospectus contained in such
Registration Statement as of its date and, in the case of the
opinion dated the date of Consummation of the Exchange Offer,
as of the date of Consummation, contained an untrue statement
of a material fact or omitted to state a material fact
necessary in order to make the statements made therein, in the
light of the circumstances under which they were made, not
misleading. Such counsel may state further that such counsel
assumes no responsibility for, and has not independently
verified, the accuracy, completeness or fairness of the
financial statements, notes and schedules and other financial
data included in any Registration Statement contemplated by
this Agreement or the related Prospectus; and
(3) a customary comfort letter, dated as of the date
of Consummation of the Exchange Offer or the date of
effectiveness of the Shelf Registration Statement, as the case
may be, from the Company's independent accountants, in the
customary form and covering matters of the type customarily
covered in comfort letters by underwriters in connection with
primary underwritten offerings, and affirming the matters set
forth in the comfort letters delivered pursuant to Section 7
of the Purchase Agreement, without exception;
(B) set forth in full or incorporated by reference in the
underwriting agreement, if any, the indemnification provisions and
procedures of Section 8 hereof with respect to all parties to be
indemnified pursuant to said Section; and
(C) deliver such other documents and certificates as may
be reasonably requested by such parties to evidence compliance
with clause (A) above and with any customary conditions contained
in the underwriting agreement or other agreement entered into by
the Company and the Guarantors pursuant to this clause (x), if
any.
If at any time the representations and warranties of the
Company or the Guarantors contemplated in clause (A)(1) above cease to
be true and correct, the Company or the Guarantors shall so advise the
Initial Purchasers and the underwriters, if any, and each selling
Holder promptly and, if requested by such Persons, shall confirm such
advice in writing.
(xi) prior to any public offering of Transfer Restricted
Securities, cooperate with the selling Holders of Transfer Restricted
Securities, the underwriter(s), if any, and their respective counsel in
connection with the
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registration and qualification of the Transfer Restricted Securities
under the securities or Blue Sky laws of such jurisdictions as the
selling Holders of Transfer Restricted Securities or underwriter(s) may
reasonably request and do any and all other acts or things necessary or
advisable to enable the disposition in such jurisdictions of the
Transfer Restricted Securities covered by the Shelf Registration
Statement filed pursuant to Section 4 hereof; provided, however, that
the Company and the Guarantors shall not be obligated to qualify as a
foreign corporation in any jurisdiction in which it is not now so
qualified or to take any action that would subject it to general
consent to service of process, other than as to matters and
transactions relating to the Registration Statement, in any
jurisdiction where it is not now so subject;
(xii) shall issue, upon the request of any Holder of Notes
covered by the Shelf Registration Statement, Exchange Notes, having an
aggregate principal amount equal to the aggregate principal amount of
Notes surrendered to the Company by such Holder in exchange therefor or
being sold by such Holder; such Exchange Notes to be registered in the
name of such Holder or in the name of the purchaser(s) of such Exchange
Notes, as the case may be; in return, the Notes held by such Holder
shall be surrendered to the Company for cancellation;
(xiii) cooperate with the selling Holders of Transfer
Restricted Securities and the underwriter(s), if any, to facilitate the
timely preparation and delivery of certificates representing Transfer
Restricted Securities to be sold and not bearing any restrictive
legends; and enable such Transfer Restricted Securities to be in such
denominations and registered in such names as the Holders or the
underwriter(s), if any, may request at least two business days prior to
any sale of Transfer Restricted Securities made by such underwriter(s);
(xiv) if any fact or event contemplated by clause (c)(iii)(D)
above shall exist or have occurred, prepare a supplement or
post-effective amendment to the Registration Statement or related
Prospectus or any document incorporated therein by reference or file
any other required document so that, as thereafter delivered to the
purchasers of Transfer Restricted Securities, the Prospectus will not
contain an untrue statement of a material fact or omit to state any
material fact necessary to make the statements made therein, in the
light of the circumstances under which they were made, not misleading;
(xv) provide a CUSIP number for all Transfer Restricted
Securities not later than the effective date of the Registration
Statement and provide the Trustee under the Indenture with printed
certificates for the Transfer Restricted Securities which are in a form
eligible for deposit with the Depository Trust Company;
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(xvi) cooperate and assist in any filings required to be made
with the NASD and in the performance of any due diligence investigation
by any underwriter (including any "qualified independent underwriter")
that is required to be retained in accordance with the rules and
regulations of the NASD;
(xvii) otherwise use their best efforts to comply with all
applicable rules and regulations of the Commission, and make generally
available to its security holders, as soon as practicable, a
consolidated earnings statement meeting the requirements of Rule 158
(which need not be audited) for the twelve-month period (A) commencing
at the end of any fiscal quarter in which Transfer Restricted
Securities are sold to underwriters in a firm or best efforts
Underwritten Offering or (B) if not sold to underwriters in such an
offering, beginning with the first month of the Company's first fiscal
quarter commencing after the effective date of the Registration
Statement;
(xviii) cause the Indenture to be qualified under the TIA not
later than the effective date of the first Registration Statement
required by this Agreement, and, in connection therewith, cooperate
with the Trustee and the Holders of Notes and Exchange Notes to effect
such changes to the Indenture as may be required for such Indenture to
be so qualified in accordance with the terms of the TIA; and execute,
and use their best efforts to cause the Trustee to execute, all
documents that may be required to effect such changes and all other
forms and documents required to be filed with the Commission to enable
such Indenture to be so qualified in a timely manner;
(xix) provide promptly to any Holder upon such Holder's
written request each document filed with the Commission pursuant to the
requirements of Section 13 and Section 15 of the Exchange Act; and
(xx) cause each Additional Guarantor upon the creation or
acquisition by the Company of such Additional Guarantor, to execute a
counterpart to this Agreement in the form attached hereto as Annex A
and to deliver such counterpart, together with an opinion of counsel as
to the enforceability thereof against such entity, to the Initial
Purchasers no later than five business days following the execution
thereof.
Each Holder agrees by acquisition of a Transfer Restricted Security
that, upon receipt of any notice from the Company of the existence of any fact
of the kind described in Section 6(c)(iii)(D) hereof, such Holder will forthwith
discontinue disposition of Transfer Restricted Securities pursuant to the
applicable Registration Statement until such Holder's receipt of the copies of
the supplemented or amended Prospectus contemplated by Section 6(c)(xiv) hereof,
or until it is advised in writing (the "Advice") by the Company that the use of
the Prospectus may be resumed, and has received copies of any additional or
16
<PAGE>
supplemental filings that are incorporated by reference in the Prospectus. If so
directed by the Company, each Holder will deliver to the Company (at the
Company's expense) all copies, other than permanent file copies then in such
Holder's possession, of the Prospectus covering such Transfer Restricted
Securities that was current at the time of receipt of such notice. In the event
the Company shall give any such notice, the time period regarding the
effectiveness of such Registration Statement set forth in Section 3 or 4 hereof,
as applicable, shall be extended by the number of days during the period from
and including the date of the giving of such notice pursuant to Section
6(c)(iii)(D) hereof to and including the date when each selling Holder covered
by such Registration Statement shall have received the copies of the
supplemented or amended Prospectus contemplated by Section 6(c)(xiv) hereof or
shall have received the Advice.
The Company and the Guarantors may require each Holder of Transfer
Restricted Securities as to which any registration is being effected to furnish
to the Company such information regarding such Holder and such Holder's intended
method of distribution of the applicable Transfer Restricted Securities as the
Company may from time to time reasonably request in writing, but only to the
extent that such information is required in order to comply with the Securities
Act. Each such Holder agrees to notify the Company as promptly as practicable of
(i) any inaccuracy or change in information previously furnished by such Holder
to the Company or (ii) the occurrence of any event, in either case, as a result
of which any Prospectus relating to such registration contains or would contain
an untrue statement of a material fact regarding such Holder or such Holder's
intended method of distribution of the applicable Transfer Restricted Securities
or omits to state any material fact regarding such Holder or such Holder's
intended method of distribution of the applicable Transfer Restricted Securities
required to be stated therein or necessary to make the statements made therein,
in the light of the circumstances under which they were made, not misleading and
promptly to furnish to the Company any additional information required to
correct and update any previously furnished information or required so that such
Prospectus shall not contain, with respect to such Holder or the distribution of
the applicable Transfer Restricted Securities, an untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
to make the statements therein not misleading.
Section 7. REGISTRATION EXPENSES
All expenses incident to the Company's and the Guarantors' performance
of or compliance with this Agreement will be borne by the Company regardless of
whether a Registration Statement becomes effective, including without
limitation: (i) all Commission, securities exchange or NASD registration and
filing fees; (ii) all fees and expenses of compliance with federal securities
and state Blue Sky or securities laws and compliance with the rules of the NASD
(including reasonable fees and disbursements of one counsel for Holders in
connection with Blue Sky and/or NASD qualification of the Exchange Notes); (iii)
all expenses of printing (including printing certificates for the Exchange
17
<PAGE>
Notes to be issued in the Exchange Offer and printing of Prospectuses),
messenger and delivery services; (iv) all fees and disbursements of counsel for
the Company and the Guarantors; (v) all fees and disbursements of independent
certified public accountants of the Company (including the expenses of any
special audit and comfort letters required by or incident to such performance);
and (vi) the reasonable fees and disbursements of one firm of counsel designated
by the Holders of a majority in principal amount of Transfer Restricted
Securities covered by the Registration Statement to act as counsel for the
Holders of those Transfer Restricted Securities in connection therewith.
The Company will, in any event, bear its and the Guarantors' internal
expenses (including, without limitation, all salaries and expenses of its
officers and employees performing legal or accounting duties), the expenses of
any annual audit and the fees and expenses of any Person, including special
experts, retained by the Company or the Guarantors.
Section 8. INDEMNIFICATION
(a) The Company and the Guarantors shall, jointly and severally,
indemnify and hold harmless each Holder of Transfer Restricted Securities, its
officers and employees and each Person, if any, who controls any such Holders,
within the meaning of the Securities Act, from and against any loss, claim,
damage or liability, joint or several, or any action in respect thereof
(including, but not limited to, any loss, claim, damage, liability or action
relating to purchases, sales and registration of Notes and Exchange Notes), to
which that Holder, officer, employee or controlling Person may become subject,
under the Securities Act or otherwise, insofar as such loss, claim, damage,
liability or action arises out of, or is based upon, (i) any untrue statement or
alleged untrue statement of a material fact contained (A) in any Registration
Statement or preliminary Prospectus or Prospectus or in any amendment or
supplement thereto or (B) in any blue sky application or other document prepared
or executed by the Company or any Guarantor (or based upon any written
information furnished by the Company or any Guarantor) specifically for the
purpose of qualifying any or all of the Notes under the securities laws of any
state or other jurisdiction (any such application, document or information being
hereinafter called a "Blue Sky Application"), or (ii) the omission or alleged
omission to state in any Registration Statement or Prospectus, or in any
amendment or supplement thereto, or in any Blue Sky Application any material
fact required to be stated therein or necessary to make the statements made
therein, in light of the circumstances under which they were made, not
misleading, and shall reimburse each Holder and each such officer, employee or
controlling Person promptly upon demand for any legal or other expenses
reasonably incurred by that Holder, officer, employee or controlling Person in
connection with investigating or defending or preparing to defend against any
such loss, claim, damage, liability or action as such expenses are incurred;
provided, however, that the Company and the Guarantors shall not be liable in
any such case to the extent that any such loss, claim, damage, liability or
action
18
<PAGE>
arises out of, or is based upon, any untrue statement or alleged untrue
statement or omission or alleged omission made in any Registration Statement or
Prospectus, or in any such amendment or supplement, or in any Blue Sky
Application, in reliance upon and in conformity with written information
concerning such Holder furnished to the Company by or on behalf of any Holder
specifically for inclusion therein; provided, further that with respect to any
such untrue statement or omission made in any preliminary Prospectus, the
indemnity agreement contained in this Section 8(a) shall not enure to the
benefit of the Holder from whom the Person asserting any such losses, claims,
damages or liabilities purchased the Notes or Exchange Notes concerned if, to
the extent that such sale was a sale by the Holder and any such loss, claim,
damage or liability of such Holder is a result of the fact that both (A) a copy
of the Prospectus (or the Prospectus as then amended or supplemented) was not
sent or given to such Person at or prior to written confirmation of the sale of
such Notes or Exchange Notes to such Person and (B) the untrue statement or
omission in the preliminary Prospectus was corrected in the Prospectus (or the
Prospectus as then amended or supplemented) unless such failure to deliver the
Prospectus was a result of noncompliance by the Company with Section 6(c)(ix)
hereof. The foregoing indemnity agreement is in addition to any liability which
the Company and the Guarantors may otherwise have to any Holder or to any
officer, employee or controlling Person of that Holder.
(b) Each Holder, severally and not jointly, shall indemnify and hold
harmless the Company, each of the Guarantors, their respective directors,
officers and employees, and each Person, if any, who controls the Company or any
of the Guarantors within the meaning of the Securities Act, from and against any
loss, claim, damage or liability, joint or several, or any action in respect
thereof, to which the Company, the Guarantors or any such director, officer or
controlling Person may become subject, under the Securities Act or otherwise,
insofar as such loss, claim, damage, liability or action arises out of, or is
based upon, (i) any untrue statement or alleged untrue statement of a material
fact contained (A) in any Registration Statement, preliminary Prospectus or
Prospectus, or in any amendment or supplement thereto, or (B) in any Blue Sky
Application or (ii) the omission or alleged omission to state in any
Registration Statement, preliminary Prospectus or Prospectus, or in any
amendment or supplement thereto, or in any Blue Sky Application any material
fact required to be stated therein or necessary to make the statements therein
not misleading, but in each case only to the extent that the untrue statement or
alleged untrue statement or omission or alleged omission was made in reliance
upon and in conformity with written information concerning such Holders
furnished to the Company by or on behalf of that Holder specifically for
inclusion therein, and shall reimburse the Company, each of the Guarantors and
each such director, officer, employee and controlling Person for any legal or
other expenses reasonably incurred by the Company, such Guarantor or each such
director, officer, employee or controlling Person in connection with
investigating or defending or preparing to defend against any such loss, claim,
damage, liability or action as such expenses are incurred. The foregoing
indemnity
19
<PAGE>
agreement is in addition to any liability which any Holder may otherwise have to
the Company, any of the Guarantors or any such director, officer, employee or
controlling Person.
(c) Promptly after receipt by an indemnified party under this Section 8
of notice of any claim or the commencement of any action, the indemnified party
shall, if a claim in respect thereof is to be made against the indemnifying
party under this Section 8, notify the indemnifying party in writing of the
claim or the commencement of that action; provided, however, that the failure to
notify the indemnifying party shall not relieve it from any liability which it
may have under this Section 8 except to the extent it has been materially
prejudiced by such failure and, provided further, that the failure to notify the
indemnifying party shall not relieve it from any liability which it may have to
an indemnified party otherwise than under this Section 8. If any such claim or
action shall be brought against an indemnified party, and it shall notify the
indemnifying party thereof, the indemnifying party shall be entitled to
participate therein and, to the extent that it wishes, jointly with any other
similarly notified indemnifying party, to assume the defense thereof with
counsel reasonably satisfactory to the indemnified party. After notice from the
indemnifying party to the indemnified party of its election to assume the
defense of such claim or action, the indemnifying party shall not be liable to
the indemnified party under this Section 8 for any legal or other expenses
subsequently incurred by the indemnified party in connection with the defense
thereof other than reasonable costs of investigation; provided, however, any
indemnified party shall have the right to employ separate counsel in any such
action and to participate in the defense thereof but the fees and expenses of
such counsel shall be at the expense of the indemnified party unless (i) the
employment of such counsel has been specifically authorized by the indemnifying
party in writing, or (ii) such indemnified party shall have been advised by such
counsel that there may be one or more legal defenses available to it which are
different from or additional to those available to the indemnifying party and in
the reasonable judgment of such counsel it is advisable for such indemnified
party to employ separate counsel or (iii) the indemnifying party has failed to
assume the defense of such action and employ counsel reasonably satisfactory to
the indemnified party, in which case, if such indemnified party notifies the
indemnifying party in writing that it elects to employ separate counsel at the
expense of the indemnifying party, the indemnifying party shall not, in
connection with any one such action or separate but substantially similar or
related actions in the same jurisdiction arising out of the same general
allegations or circumstances, be liable for the reasonable fees and expenses of
more than one separate firm of attorneys (in addition to one local counsel) at
any time for all such indemnified parties, which firm shall be designated in
writing by (i) Lehman Brothers Inc. if the indemnified parties under this
Section 8 consist of either Initial Purchaser or any of their respective
officers, employees or controlling Persons, or (ii) by the Company if the
indemnified parties under this Section 8 consist of the Company, any of the
Guarantors or any of their respective directors, officers, employees or
controlling Persons. No indemnifying
20
<PAGE>
party shall (i) without the prior written consent of the indemnified parties
(which consent shall not be unreasonably withheld), settle or compromise or
consent to the entry of any judgment with respect to any pending or threatened
claim, action, suit or proceeding in respect of which indemnification or
contribution may be sought hereunder (whether or not the indemnified parties are
actual or potential parties to such claim or action) unless such settlement,
compromise or consent includes an unconditional release of each indemnified
party from all liability arising out of such claim, action, suit or proceeding,
or (ii) be liable for any settlement of any such action effected without its
written consent (which consent shall not be unreasonably withheld), but if
settled with the consent of the indemnifying party or if there be a final
judgment of the plaintiff in any such action, the indemnifying party agrees to
indemnify and hold harmless any indemnified party from and against any loss or
liability by reason of such settlement or judgment.
(d) If the indemnification provided for in this Section 8 shall for any
reason be unavailable to or insufficient to hold harmless an indemnified party
under Section 8(a) or 8(b) in respect of any loss, claim, damage or liability,
or any action in respect thereof, referred to therein, then each indemnifying
party shall, in lieu of indemnifying such indemnified party, contribute to the
amount paid or payable by such indemnified party as a result of such loss,
claim, damage or liability, or action in respect thereof, (i) in such proportion
as shall be appropriate to reflect the relative benefits received by the Company
and the Guarantors, on the one hand, and the Holders on the other, from the sale
of the Transfer Restricted Securities or (ii) if the allocation provided by
clause (i) above is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause (i)
above but also the relative fault of the Company and the Guarantors, on the one
hand and the Holders on the other with respect to the statements or omissions
which resulted in such loss, claim, damage or liability, or action in respect
thereof, as well as any other relevant equitable considerations. The relative
fault shall be determined by reference to whether the untrue or alleged untrue
statement of a material fact or omission or alleged omission to state a material
fact relates to information supplied by the Company or any of the Guarantors, on
the one hand, or the Holders, on the other hand, the intent of the parties and
their relative knowledge, access to information and opportunity to correct or
prevent such statement or omission. The Company, the Guarantors and the Holders
agree that it would not be just and equitable if contributions pursuant to this
Section 8(d) were to be determined by pro rata allocation (even if the Holders
were treated as one entity for such purpose) or by any other method of
allocation which does not take into account the equitable considerations
referred to herein. The amount paid or payable by an indemnified party as a
result of the loss, claim, damage or liability, or action in respect thereof,
referred to above in this Section shall be deemed to include, for purposes of
this Section 8(d), any legal or other expenses reasonably incurred by such
indemnified party in connection with investigating or defending any such action
or claim. Notwithstanding the provisions of this Section 8(d), no Holder shall
be required to contribute any
21
<PAGE>
amount in excess of the amount by which the net proceeds received by it in
connection with its sale of Notes exceeds the amount of any damages which such
Holder has otherwise paid or become liable to pay by reason of the untrue or
alleged untrue statement or omission or alleged omission. No Person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any Person who was not
guilty of such fraudulent misrepresentation. The Holders' obligations to
contribute as provided in this Section 8(d) are several and not joint.
Section 9. RULE 144A
The Company and each Guarantor hereby agrees with each Holder of
Transfer Restricted Securities, during any period in which the Company or such
Guarantor is not subject to Section 13 or 15(d) of the Exchange Act within the
two-year period following the Closing Date to make available to any Holder or
beneficial owner of Transfer Restricted Securities, in connection with any sale
thereof and any prospective purchaser of such Transfer Restricted Securities
from such Holder or beneficial owner, the information required by Rule
144A(d)(4) under the Securities Act in order to permit resales of such Transfer
Restricted Securities pursuant to Rule 144A.
Section 10. PARTICIPATION IN UNDERWRITTEN REGISTRATIONS
No Holder may participate in any Underwritten Registration hereunder
unless such Holder (a) agrees to sell such Holder's Transfer Restricted
Securities on the basis provided in any underwriting arrangements approved by
the Persons entitled hereunder to approve such arrangements and (b) completes
and executes all reasonable questionnaires, powers of attorney, indemnities,
underwriting agreements, lock-up letters and other documents required under the
terms of such underwriting arrangements.
Section 11. SELECTION OF UNDERWRITERS
The Holders of Transfer Restricted Securities covered by the Shelf
Registration Statement who desire to do so may sell such Transfer Restricted
Securities in an Underwritten Offering at such Holders' expense. In any such
Underwritten Offering, the investment banker or investment bankers and manager
or managers that will administer the offering will be selected by the Holders of
a majority in aggregate principal amount of the Transfer Restricted Securities
included in such offering; provided, that such investment bankers and managers
must be reasonably satisfactory to the Company.
Section 12. MISCELLANEOUS
(a) Remedies. The Company and the Guarantors agree that monetary
damages (including the liquidated damages contemplated hereby) would not be
adequate compensation for any loss incurred by reason of a breach by it of the
provisions of this Agreement and hereby agree to waive the defense in any action
22
<PAGE>
for specific performance that a remedy at law would be adequate.
(b) No Inconsistent Agreements. Neither the Company nor any Guarantor
will, on or after the date of this Agreement, enter into any agreement with
respect to its securities that is inconsistent with the rights granted to the
Holders in this Agreement or otherwise conflicts with the provisions hereof. The
rights granted to the Holders hereunder do not in any way conflict with and are
not inconsistent with the rights granted to the holders of the Company's or any
Guarantor's securities under any agreement in effect on the date hereof.
(c) Amendments and Waivers. The provisions of this Agreement may not be
amended, modified or supplemented, and waivers or consents to or departures from
the provisions hereof may not be given unless the Company has obtained the
written consent of Holders of a majority of the outstanding principal amount of
the Transfer Restricted Securities affected by such amendment, modification,
supplement, waiver or consent. Notwithstanding the foregoing, a waiver or
consent to departure from the provisions hereof that relates exclusively to the
rights of Holders whose securities are being tendered pursuant to the Exchange
Offer and that does not affect directly or indirectly the rights of other
Holders whose securities are not being tendered pursuant to such Exchange Offer
may be given by the Holders of a majority of the outstanding principal amount of
Transfer Restricted Securities being tendered or registered.
(d) Notices. All notices and other communications provided for or
permitted hereunder shall be made in writing by hand-delivery, first-class mail
(registered or certified, return receipt requested), telex, telecopier, or air
courier guaranteeing overnight delivery:
(i) if to a Holder, at the address set forth on the
records of the Registrar under the Indenture, with a copy to the
Registrar under the Indenture; and
(ii) if to the Company or the Guarantors:
Ames Department Stores, Inc.
2418 Main Street
Rocky Hill, CT 06067-2598
Attention: David H. Lissy (Fax: 860-257-7806),
With a copy to:
Weil Gotshal & Manges LLP
767 Fifth Avenue
New York, NY 10153
Attention: Stephen H. Cooper (Fax: 212-310-8007)
Any such notices and communications shall take effect at the time of
receipt thereof. The Company shall be entitled to act and rely upon any notice
or
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<PAGE>
communication given or made on behalf of the Initial Purchasers by Lehman
Brothers Inc.
Copies of all such notices, demands or other communications shall be
concurrently delivered by the Person giving the same to the Trustee at the
address specified in the Indenture.
(e) Successors and Assigns. This Agreement shall inure to the benefit
of and be binding upon the successors and assigns of each of the parties,
including without limitation and without the need for an express assignment,
subsequent Holders; provided, however, that this Agreement shall not inure to
the benefit of or be binding upon a successor or assign of a Holder unless and
to the extent such successor or assign acquired Transfer Restricted Securities
from such Holder.
(f) Counterparts. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(g) Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(h) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
(i) Severability. In the event that any one or more of the provisions
contained herein, or the application thereof in any circumstance, is held
invalid, illegal or unenforceable, the validity, legality and enforceability of
any such provision in every other respect and of the remaining provisions
contained herein shall not be affected or impaired thereby.
(j) Entire Agreement. This Agreement together with the other Operative
Documents (as defined in the Purchase Agreement) is intended by the parties as a
final expression of their agreement and intended to be a complete and exclusive
statement of the agreement and understanding of the parties hereto in respect of
the subject matter contained herein. There are no restrictions, promises,
warranties or undertakings, other than those set forth or referred to herein
with respect to the registration rights granted by the Company and the
Guarantors with respect to the Transfer Restricted Securities. This Agreement
supersedes all prior agreements and understandings between the parties with
respect to such subject matter.
[Signature pages follow]
24
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
AMES DEPARTMENT STORES, INC.
By: /s/ Rolando de Aguiar
----------------------
Name: Roland de Aguiar
Title: Executive Vice President
AMES REALTY II, INC.
By: /s/ Rolando de Aguiar
----------------------
Name: Roland de Aguiar
Title: Executive Vice President
AMES FS, INC.
By: /s/ Rolando de Aguiar
----------------------
Name: Roland de Aguiar
Title: Executive Vice President
AMES TRANSPORTATION SYSTEMS, INC.
By: /s/ Rolando de Aguiar
----------------------
Name: Roland de Aguiar
Title: Executive Vice President
AMD, INC.
By: /s/ Rolando de Aguiar
----------------------
Name: Roland de Aguiar
Title: Executive Vice President
AMES MERCHANDISING CORPORATION
By: /s/ Rolando de Aguiar
----------------------
Name: Roland de Aguiar
Title: Executive Vice President
S-1
<PAGE>
Accepted:
LEHMAN BROTHERS INC.
By: /s/ Robert E. Kiernan III
--------------------------------------
Name: Robert E. Kiernan III
Title: Managing Director
NATIONSBANC MONTGOMERY SECURITIES LLC
By: /s/ Leland T. Hart
--------------------------------------
Name: Leland T. Hart
Title: Vice President
S-2
<PAGE>
Annex A
-------
Counterpart To Registration Rights Agreement
The undersigned hereby absolutely, unconditionally and irrevocably
agrees (as a "Guarantor") to use its best efforts to include its Subsidiary
Guarantee in any Registration Statement required to be filed by the Company and
the Guarantors pursuant to the Registration Rights Agreement, dated as of April
27, 1999 (the "Registration Rights Agreement") by and among Ames Department
Stores, Inc., a Delaware corporation, the guarantors named therein, Lehman
Brothers Inc. and NationsBanc Montgomery Securities LLC; to use its best efforts
to cause such Registration Statement to become effective as specified in the
Registration Rights Agreement; and to otherwise be bound by the terms and
provisions of the Registration Rights Agreement.
IN WITNESS WHEREOF, the undersigned has executed this Counterpart as of
_________, [_____].
[NAME]
By:
-------------------------
Name:
Title:
<PAGE>
EXHIBIT 21
AMES DEPARTMENT STORES, INC. AND SUBSIDIARIES
Subsidiaries of the Registrant
As of April 28, 1999, the subsidiaries of the Registrant were as
follows:
State of
Name Incorporation
- --------------------------------------------------------------------------------
Ames Transportation Systems, Inc......................................Delaware
Ames Realty II, Inc...................................................Delaware
Ames FS, Inc..........................................................Delaware
AMD, Inc., a subsidiary of Ames FS, Inc............................Delaware
Ames Merchandising Corporation, a subsidiary of AMD, Inc.......Delaware
