<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
--- EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED AUGUST 28, 1999 OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
--- EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO
-------------
-----------------
Commission File Number: 1-9595
BEST BUY CO., INC.
(Exact name of registrant as specified in its charter)
Minnesota 41-0907483
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
7075 Flying Cloud Drive 55344
Eden Prairie, Minnesota (Zip Code)
(Address of principal executive offices)
(612)947-2000
(Registrant's telephone number, including area code)
N/A
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. YES X NO
--- ---
At August 28, 1999, there were 205,270,000 shares of common stock, $.10 par
value, outstanding.
<PAGE>
BEST BUY CO., INC.
FORM 10-Q FOR THE QUARTER ENDED AUGUST 28, 1999
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
Part I. Financial Information
Item 1. Consolidated Financial Statements:
a) Consolidated balance sheets as of 3-4
August 28, 1999, February 27, 1999 and
August 29, 1998
b) Consolidated statements of earnings 5
for the three and six months ended August 28, 1999
and August 29, 1998
c) Consolidated statement of changes in 6
shareholders' equity for the six months
ended August 28, 1999
d) Consolidated statements of cash flows 7
for the six months ended August 28, 1999
and August 29, 1998
e) Notes to consolidated financial statements 8-9
Item 2. Management's Discussion and Analysis of 10-15
Financial Condition and Results of Operations
Item 3: Quantitative and Qualitative Disclosures 15
About Market Risk
Part II. Other Information
Item 4. Submission of Matters to a Vote of 16
Security Holders
Item 6. Exhibits and Reports on Form 8-K 17
Signatures 18
</TABLE>
2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
BEST BUY CO., INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
($ in 000)
<TABLE>
<CAPTION>
August 28, February 27, August 29,
1999 1999 1998
(Unaudited) (Unaudited)
----------- ------------ -----------
<S> <C> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 473,444 $ 785,777 $ 491,632
Receivables 178,492 132,401 140,714
Recoverable costs from developed
properties 89,699 73,956 48,045
Merchandise inventories 1,287,646 1,046,366 1,167,966
Other current assets 25,974 24,591 22,483
---------- ---------- ----------
Total current assets 2,055,255 2,063,091 1,870,840
PROPERTY AND EQUIPMENT
Land and buildings 48,309 23,158 21,212
Leasehold improvements 187,887 174,495 162,680
Furniture, fixtures and equipment 610,831 505,232 395,360
Property under capital leases 29,079 29,079 29,079
---------- ---------- ----------
876,106 731,964 608,331
Less accumulated depreciation and
amortization 353,286 308,324 280,137
---------- ---------- ----------
Net property and equipment 522,820 423,640 328,194
OTHER ASSETS 30,099 25,762 9,899
---------- ---------- ----------
TOTAL ASSETS $2,608,174 $2,512,493 $2,208,933
========== ========== ==========
</TABLE>
See notes to consolidated financial statements.
3
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BEST BUY CO., INC.
CONSOLIDATED BALANCE SHEETS (CONTINUED)
LIABILITIES AND SHAREHOLDERS' EQUITY
($ in 000)
<TABLE>
<CAPTION>
August 28, February 27, August 29,
1999 1999 1998
(Unaudited) (Unaudited)
----------- ------------ -----------
<S> <C> <C> <C>
CURRENT LIABILITIES
Accounts payable $1,058,921 $1,011,746 $ 860,116
Accrued compensation and related expenses 68,097 86,667 48,403
Accrued liabilities 237,175 258,406 190,972
Current portion of long-term debt 10,130 30,088 182,078
---------- ---------- ----------
Total current liabilities 1,374,323 1,386,907 1,281,569
LONG-TERM LIABILITIES 42,045 30,943 26,664
LONG-TERM DEBT 25,690 30,509 35,295
SHAREHOLDERS' EQUITY
Preferred stock, $1.00 par value:
Authorized - 400,000 shares;
Issued and outstanding - none - - -
Common stock, $.10 par value:
Authorized - 400,000,000 shares;
Issued and outstanding 205,270,000,
203,621,000 and 201,540,000 shares,
respectively 20,527 10,181 10,077
Additional paid-in capital 527,717 542,377 508,329
Retained earnings 617,872 511,576 346,999
---------- ---------- ----------
Total shareholders' equity 1,166,116 1,064,134 865,405
---------- ---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $2,608,174 $2,512,493 $2,208,933
========== ========== ==========
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
BEST BUY CO., INC.
CONSOLIDATED STATEMENTS OF EARNINGS
($ in 000, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
-------------------------------- ---------------------------------
August 28, August 29, August 28, August 29,
1999 1998 1999 1998
----------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues $2,688,183 $2,182,124 $5,074,371 $4,125,788
Cost of goods sold 2,156,120 1,771,775 4,079,549 3,361,220
---------- ---------- ---------- ----------
Gross profit 532,063 410,349 994,822 764,568
Selling, general and administrative
expenses 440,914 337,554 831,215 663,708
---------- ---------- ---------- ----------
Operating income 91,149 72,795 163,607 100,860
Net interest income (expense) 4,276 (1,010) 8,689 (3,505)
---------- ---------- ---------- ----------
Earnings before income tax expense 95,425 71,785 172,296 97,355
Income tax expense 36,404 27,650 66,000 37,495
---------- ---------- ---------- ----------
Net earnings $ 59,021 $ 44,135 $ 106,296 $ 59,860
========== ========== ========== ==========
Basic earnings per share $ .29 $ .22 $ .52 $ .30
Diluted earnings per share $ .28 $ .21 $ .50 $ .29
Basic weighted average common
shares outstanding (000's) 205,038 201,029 204,536 196,273
Diluted weighted average common
shares outstanding (000's) 213,907 209,852 213,593 208,972
</TABLE>
See notes to consolidated financial statements.
5
<PAGE>
BEST BUY CO., INC.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED AUGUST 28, 1999
($ in 000)
(Unaudited)
<TABLE>
<CAPTION>
Additional
Common paid-in Retained
Stock Capital earnings
--------- ------------ ---------
<S> <C> <C> <C>
Balance, February 27, 1999 $ 10,181 $542,377 $511,576
Stock options exercised 333 27,235 -
Tax benefit from stock options exercised - 65,658 -
Two-for-one stock split 10,190 (10,190) -
Repurchase of common stock (177) (97,363) -
Net earnings, six months ended
August 28, 1999 - - 106,296
-------- -------- --------
Balance, August 28, 1999 $ 20,527 $527,717 $617,872
======== ======== ========
</TABLE>
See notes to consolidated financial statements.
6
<PAGE>
BEST BUY CO., INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
($ in 000)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
---------------------------------
August 28, August 29,
1999 1998
----------- ----------
<S> <C> <C>
OPERATING ACTIVITIES
Net earnings $ 106,296 $ 59,860
Depreciation, amortization and other non-cash charges 46,110 36,322
---------- ----------
152,406 96,182
Changes in operating assets and liabilities:
Receivables (46,091) (45,012)
Merchandise inventories (241,280) (107,178)
Other current assets (1,383) 11,409
Accounts payable 47,175 97,464
Other liabilities 36,441 (8,345)
---------- ----------
Total cash (used in) provided by operating activities (52,732) 44,520
---------- ----------
INVESTING ACTIVITIES
Additions to property and equipment (144,733) (31,124)
Increase in recoverable costs from developed properties (15,743) (39,830)
Increase in other assets (3,933) (3,531)
---------- ----------
Total cash used in investing activities (164,409) (74,485)
---------- ----------
FINANCING ACTIVITIES
Repurchase of common stock (97,540) -
Common stock issued 27,125 10,090
Long-term debt payments (24,777) (8,620)
---------- ----------
Total cash (used in) provided by financing activities (95,192) 1,470
---------- ----------
DECREASE IN CASH AND CASH EQUIVALENTS (312,333) (28,495)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 785,777 520,127
---------- ----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 473,444 $ 491,632
========== ==========
Amounts in this statement are presented on a cash basis and therefore may differ
from those shown in other sections of this quarterly report.
Supplemental cash flow information
Cash paid during the period for
Interest $ 3,132 $ 12,247
Income taxes $ 47,064 $ 33,952
</TABLE>
See notes to consolidated financial statements.
7
<PAGE>
BEST BUY CO., INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION:
The consolidated balance sheets as of August 28, 1999, and August 29,
1998, the related consolidated statements of earnings for the three and
six months then ended, consolidated cash flows for the six months then
ended and the consolidated statement of changes in shareholders' equity
for the six months ended August 28, 1999, are unaudited; in the opinion
of management, all adjustments necessary for a fair presentation of
such financial statements have been included and were normal and
recurring in nature. The Company's business is seasonal in nature and
interim results are not necessarily indicative of results for a full
year. These interim financial statements and the related notes should
be read in conjunction with the financial statements and notes included
in the Company's Annual Report to Shareholders for the fiscal year
ended February 27, 1999, and incorporated by reference into the
Company's Annual Report on Form 10-K. Certain prior year amounts have
been reclassified to conform to current year presentation.
2. INCOME TAXES:
Income taxes are provided on an interim basis based upon management's
estimate of the annual effective tax rate. Management's revised
estimate of the annual effective tax rate of 38.3% for fiscal 2000
reflects higher levels of tax exempt interest income. This revised
annual estimate resulted in an effective rate of 38.1% for the
second quarter.
3. EARNINGS PER SHARE:
The following table presents a reconciliation of the numerators and
denominators of basic and diluted earnings per common share:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------ ----------------
August 28, August 29, August 28, August 29,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Numerator (000's):
Net earnings $59,021 $44,135 $106,296 $59,860
Interest on preferred securities, net of tax - - - 771
------- ------- -------- -------
Net earnings assuming dilution $59,021 $44,135 $106,296 $60,631
, ======= ======= ======== =======
Denominator (000's):
Weighted average common shares
outstanding 205,038 201,029 204,536 196,273
Effect of dilutive securities:
Employee stock options 8,869 8,823 9,057 8,508
Preferred securities - - - 4,191
------- ------- -------- -------
Weighted average common shares
outstanding assuming dilution 213,907 209,852 213,593 208,972
======= ======= ======= =======
Basic earnings per share $ .29 $ .22 $ .52 $ .30
Diluted earnings per share $ .28 $ .21 $ .50 $ .29
</TABLE>
In March 1999, the Company effected a two-for-one stock split in the
form of a stock dividend. All common share and per share information
reflects the stock split.
8
<PAGE>
4. CREDIT FACILITY:
In August 1999, the Company entered into an unsecured $100 million
revolving credit facility, replacing the $220 million facility that was
scheduled to mature in June 2000. The Company was able to reduce the
size of the facility due to improved operating performance and better
inventory management. In addition, the new facility makes certain
financial covenants less restrictive thereby providing the Company with
additional flexibility. The current facility is scheduled to mature in
August 2002.
5. SHARE REPURCHASE PROGRAMS:
In October 1998, the Company's Board of Directors approved the purchase
of up to $100 million of the Company's common stock from time to time
through open market purchases over the following twelve months. As of
August 28, 1999, this repurchase program was completed with a total of
1.8 million shares purchased.
In September 1999, the Company's Board of Directors approved the
purchase of up to $200 million of the Company's common stock from time
to time through open market purchases. This repurchase program has no
stated expiration date.
9
<PAGE>
BEST BUY CO., INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Net earnings for the second quarter of fiscal 2000 were a record $59.0 million,
or $.28 per share on a diluted basis, compared to net earnings of $44.1 million,
or $.21 per share, for the comparable period last year. For the first six months
of the current fiscal year net earnings were a record $106.3 million, or $.50
per share on a diluted basis, compared to $59.9 million, or $.29 per share, for
the same period last year. Continued strength in consumer spending and market
share gains combined with continued improvement in gross profit margins were the
principal factors generating the record results. Pre-opening expenses incurred
in connection with the opening of 19 new stores during the quarter reduced net
earnings for the second quarter of the current year by approximately $8 million,
or $.04 per diluted share. No new stores were opened in the second quarter of
fiscal 1999.
Revenues in the second quarter increased 23% to $2.688 billion compared to
$2.182 billion in the second quarter last year. Revenues in the first six months
increased 23% to $5.074 billion compared to $4.126 billion last year. Comparable
store sales increases of 11.1% for the second quarter and 12.2% year-to-date and
a net increase of 43 new stores in the past twelve months drove the revenue
increases. The Company's multi-year program to offer a more customer focused
product assortment, improve in-stock levels and increase advertising
effectiveness, coupled with successful retail execution, has allowed the Company
to capitalize on the continued strength in the overall retail sector and
generate comparable store sales increases in excess of 10% for seven consecutive
quarters. Sales of digital technology products such as Digital Versatile Disc
(DVD), Digital Broadcast Satellite (DBS), digital cameras and camcorders, as
well as strong sales of personal computers and music and movies, fueled the
comparable store sales gains. All major product categories generated comparable
store sales increases as the Company continued to gain market share.
As of August 28, 1999, the Company operated 332 stores compared to 289 stores
one year ago. In the second quarter, the Company opened 19 new stores,
including five new stores in the San Francisco market and the first three of
the Company's new small market stores designed to serve markets with
populations less than 200,000. The Company also expanded four stores and
relocated three stores to larger facilities. The new stores and store
expansions were Concept IV stores which feature improved merchandising,
signage and customer service and are expected to better address customers'
needs as the industry continues to progress into new digital products. The
Company plans to open 23 new stores in the third quarter including entry into
the new markets of San Diego, California; Jacksonville and Tallahassee,
Florida; Richmond and Norfolk, Virginia; Rochester and Albany, New York; and
Providence, Rhode Island. In addition, the Company announced plans to open 55
to 60 new stores in fiscal 2001, including entry into the New York
metropolitan market with approximately twelve stores.
The Company is investing in building the systems infrastructure, vendor
relationships and content base to support its developing e-commerce business,
BestBuy.com. The Company is in the process of recruiting several new executives
to fill critical leadership roles in developing its online presence. The Company
anticipates introducing expanded product offerings on its website in early
calendar 2000. Internet operations are not expected to contribute materially to
the Company's total revenues in the current fiscal year.
10
<PAGE>
Retail store sales mix by major product category for the three-month and
six-month periods was as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------ ----------------
August 28, 1999 August 29, 1998 August 28, 1999 August 29, 1998
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Home Office 36% 36% 36% 36%
Consumer Electronics
Audio 10 11 10 11
Video 16 15 16 15
Entertainment Software 17 18 18 19
Appliances 11 11 10 10
Other 10 9 10 9
--- --- --- ---
Total 100% 100% 100% 100%
=== === === ===
</TABLE>
In the home office category, the launch of an Internet Service Provider (ISP)
subsidy offer on personal computers in the second quarter represented a
significant change in the retailing of personal computers. The ISP subsidy offer
quickly became common practice among retailers. The offer provides customers
with an instant rebate on the purchase of a personal computer when the customer
signs an extended contract to subscribe to Internet service provided by the ISP.
This rebate to the customer is funded by the ISP which also bears the risk of
collection of the monthly subscriber fees paid by the customer to the ISP. The
Company believes it has had a distinct advantage by being able to provide the
rebate to the customer at the time of the sale as opposed to utilizing a mail-in
rebate used by most other retailers. This program has been successful in driving
significant increases in unit volumes of personal computers, particularly the
lower price point, entry-level models. The higher volumes have been sufficient
to offset the decline in average selling price of computers sold by the Company
and resulted in a double-digit comparable store sales increase in the home
office category. The increased unit volumes also resulted in higher sales of
accessories and performance service plans (PSPs) that accompany the sale of
personal computer hardware.
Sales of digital technology products such as DVD, digital camcorders and DBS,
as well as strong sales of analog products such as televisions and home
theater systems, drove second quarter and year-to-date sales increases in the
consumer electronics category. The Company remains the industry leader in DVD
hardware sales market share and continues to effectively capitalize on the
consumer demand for digital products.
Sales of entertainment software, which includes music and movies, computer
software and video games, increased moderately in the second quarter. Sales
of compact discs and DVD movies were particularly strong despite a lack of
significant new releases. DVD movies outsold VHS movies for the first time in
the second quarter due to consumers' rapid acceptance of the DVD format. The
Company leads the industry in DVD software sales market share and, by
year-end, expects to offer over 2,000 DVD movie titles aided by the expected
release of Disney classic cartoon titles beginning in October. Strong sales
of music and movies were offset by softer sales of computer software and
video games due to declining average selling prices, a lack of new software
titles and the anticipated transition to advanced technology game systems in
the third quarter.
Management expects that comparable store sales increases could moderate in
the future as comparisons become more difficult. Additionally, the Company's
revenues are dependent upon adequate quantities of products from the
Company's suppliers. While management does not currently expect product
shortages, events such as natural disasters, component part availability, or
supply issues resulting from year 2000 systems issues could impact the
availability of product from the Company's suppliers and impact revenues.
Gross profit margin in the second quarter improved to 19.8% compared to 18.8% in
the second quarter of fiscal 1999, a full 1% of sales improvement. Gross profit
margin in the six-month period improved 1.1% of sales to 19.6% compared to 18.5%
in the same period last year. These improvements reflect the continuing benefit
from the Company's initiatives to generate more profitable product assortments,
improve inventory management and enhance advertising effectiveness. Increased
sales of higher margin PSPs and accessories favorably impacted margins in the
quarter and year-to-date periods. Sales of PSPs accounted for 4.2% of total
sales for both the second quarter and six-month period of the current year
compared to 3.9% and 3.8% for the quarter and six-
11
<PAGE>
month period of the prior year, respectively. The Company's ongoing efforts
to reduce inventory shrink also contributed to the margin improvements.
Management expects gross profit margins will continue to exceed prior year
levels in the second half of this year. However, an expected seasonal change
will result in a lower gross profit margin in the second half of the year as
compared to the first half. This change is due, in part, to a seasonal
product sales mix shift, which typically includes more personal computers and
fewer appliances and mobile electronics. In addition, promotional activity
typically increases during the holiday season and during store grand opening
events. The percentage of higher margin PSP sales in the mix declines during
the holiday season, also impacting gross profit margins in the second half of
the year.
Selling, general and administrative (SG&A) expenses increased to 16.4% of sales
in the quarter compared to 15.5% in the second quarter last year. Year-to-date,
SG&A expenses increased to 16.4% of sales in the current year compared to 16.1%
for the same period last year. These increases were largely due to hiring and
training costs associated with the opening of 19 new stores during the quarter,
as well as significant grand opening advertising costs associated with the entry
into the San Francisco market. The pre-opening costs of approximately $450,000
per store plus the grand opening advertising expenses increased second quarter
SG&A expenses by approximately $13 million, or 0.5% of sales, compared to the
same period last year. Of the 19 new stores opened in the current year's second
quarter, ten were opened in the last month of the quarter. As a result, the
benefits of the pre-opening costs incurred in opening those stores will not be
fully realized until the second half of the year. The remainder of the increase
in SG&A spending was due principally to expenses incurred to support the
Company's increased expansion plans, as well as investments in personnel and
strategic initiatives expected to produce longer-term benefits. These costs
include training and development of retail store management, developing the
Company's e-commerce business and enhancing systems that support retail and
service operations. Excluding the impact of the new store opening costs, SG&A
expenses as a percentage of gross margin declined to 80% in the second quarter
as compared to 82% in the second quarter last year, and operating margin
improved to 3.9% compared to 3.3% in the same quarter one year ago. This
leverage is consistent with management's intent to fund expansion and business
improvement initiatives through increased gross profit margins. Management
currently expects that SG&A spending will continue to increase on a
year-over-year basis. Higher sales volumes in the second half of the year,
combined with higher year-over-year gross margin rates, are expected to result
in improved operating income margins in the second half of the year.
Net interest income was $4.3 million in the second quarter and $8.7 million
year-to-date compared to net interest expense of $1.0 million and $3.5 million,
respectively, in the same periods last year. These improvements were principally
due to the early retirement of the Company's $150 million 8-5/8% Senior
Subordinated Notes in the third quarter of fiscal 1999 and the conversion into
equity of the Company's $230 million in preferred securities in the first
quarter of fiscal 1999. Interest earned on higher cash balances resulting from
faster inventory turns and earnings over the past four quarters in excess of
$270 million also contributed to the improvement.
The Company's effective income tax rate for the second quarter was 38.1%,
compared to 38.5% for the same quarter a year ago and 38.3% year-to-date
compared to 38.5% for the year-to-date period last year. The Company's effective
tax rate is primarily impacted by the taxability of investment income and state
income taxes. Management's revised estimate of the annual effective tax rate of
38.3% for fiscal 2000 reflects higher levels of tax-exempt interest income. This
revised annual estimate resulted in an effective rate of 38.1% in the second
quarter.
FINANCIAL CONDITION
Working capital of $681 million at August 28, 1999 improved from $589 million a
year ago. Cash and cash equivalents decreased by only $18 million compared to
one year ago even with the retirement of over $180 million in debt, the
repurchase of $100 million of the Company's common stock and the investment in
new stores, corporate facilities and other initiatives to grow the business.
Cash and cash equivalents decreased by $312 million compared to February 27,
1999, primarily due to investment in new stores and corporate facilities and the
repurchase of $98 million of the Company's common stock in the first half of
fiscal 2000. Merchandise inventories increased by $120 million compared to the
second quarter last year, or 10%, while the number of stores open at the end of
the second quarter increased by 15% and sales increased by 23% as inventory
turns continued to improve. The rolling twelve month inventory turns improved
nearly one full turn to 7.0 times for the period ended August 28, 1999, compared
to 6.1 times for the period ended August 29, 1998. The Company's net investment
in inventory, inventory net of accounts payable, was $229 million at August 28,
1999, down from $308 million at
12
<PAGE>
August 29, 1998. Merchandise inventories increased by $241 million compared
to February 27, 1999, largely due to seasonality and the net addition of 21
stores in the first six months of fiscal 2000. The Company's cash position
and net investment in inventory are impacted by the timing of payments to
vendors and can vary significantly. Receivables increased by $38 million as
compared to a year ago and $46 million compared to last fiscal year-end
primarily due to higher business volumes including amounts due from the ISP
subsidy provider. Recoverable costs from developed properties increased by
$42 million compared to last year primarily due to the development of new
stores. Other assets and long-term liabilities both increased due to the
Company's deferred compensation plan, established in fiscal 1999. Accounts
payable increased as compared to a year ago and last fiscal year-end as a
result of the higher business volume and increased inventory levels. Accruals
for payroll related liabilities increased as compared to last year's second
quarter consistent with an expanding employee base needed to support the
Company's growth, but decreased versus the prior fiscal year-end due to the
payment of fiscal 1999 bonuses. Other accrued liabilities increased compared
to August 29, 1998, as a result of the overall higher levels of business
activity.
Capital spending in the first six months of fiscal 2000 was $145 million
compared to $31 million for the same period last year as the Company invested in
the 22 stores opened during the first six months and the 23 additional stores
slated to open in the third quarter of fiscal 2000. Additionally, the Company
invested in expanding its corporate facilities to support the growth of the
business, the most significant investment being the purchase of an additional
office building to supplement the Company's existing corporate office. The
Company also continued to invest in new systems and technology to better
position the Company for continued growth and generate improvements in its
existing business.
Management expects total capital spending for fiscal 2000 to be approximately
$400 million, exclusive of amounts expected to be recovered through
subsequent sales and leasebacks, related to the Company's 45 new stores and
13 remodeled, expanded or relocated stores in fiscal 2000. Capital spending
for the current year also includes expenditures required to support the
Company's plans to open 55 to 60 stores in fiscal 2001, as well as further
expansion of the Company's corporate headquarters capacity. In addition, the
Company continues to invest in information systems to support the development
of its e-commerce business and to improve its Services division.
In October 1998, the Company's Board of Directors authorized the purchase of up
to $100 million of the Company's common stock over a twelve month period. This
repurchase program was completed in the second quarter of fiscal 2000 as the
Company purchased a total of 1.8 million shares. In September 1999, the Board
authorized the purchase of up to an additional $200 million of the Company's
common stock.
In August 1999, the Company entered into an unsecured $100 million revolving
credit facility, replacing the $220 million facility that was scheduled to
mature in June 2000. The Company was able to reduce the size of the facility due
to improved operating performance and better inventory management. In addition,
the new facility makes certain financial covenants less restrictive thereby
providing the Company with additional flexibility. The current facility is
scheduled to mature in August 2002.
Management believes that funds from the expected results of operations, and
available cash and cash equivalents will be sufficient to support the Company's
anticipated expansion plans and strategic initiatives for the next year. The
revolving credit facility and the Company's inventory financing program are also
available for additional working capital needs or opportunities.
YEAR 2000 READINESS
The Company recognized the material nature of the business issues surrounding
computer processing of dates into and beyond the year 2000 (Y2K) and began
taking corrective action in 1997. The Company's actions to address Y2K issues
began with the selection of a nationally recognized, experienced computer
hardware and consulting firm to assist in both identifying and resolving these
issues. The Company developed specific and detailed plans to correct Y2K issues
and management believes the Company has essentially completed all of the
activities within its control to ensure the Company's systems are Y2K compliant.
The Company has funded both the capital and expensed elements of resolving Y2K
issues through funds generated from operations.
The majority of the Company's business processing applications operate on
mainframe computer systems. The Company has replaced and tested all of the
existing computer code effected by Y2K issues and the Company's
13
<PAGE>
mainframe systems are fully functional in its current fiscal year 2000, which
began February 28, 1999. This portion of the Company's plan was completed
last fiscal year at a cost of approximately $9 million in outside
professional fees.
The Company has completed efforts to identify non-mainframe computer system Y2K
issues and other potential Y2K issues. These issues include the Company's
communication systems and operating systems at and between the Company's
retail locations and support facilities. This portion of the Company's plan was
completed at a total cost of approximately $9 million, with the majority
incurred in the current year.
The Company has replaced or installed certain non-mainframe computer hardware
and software that addressed new business application needs, as well as Y2K
issues. The timing was accelerated for certain projects to meet Y2K
compliance. The only implementation activities remaining are implementation
testing of the systems that support the Company's Services division and the
in-store register system. Testing for both systems is expected to be
completed during the third quarter.
The Company has communicated with its business partners, including significant
merchandise suppliers and service providers to assess their ability to support
the Company's operations with respect to their individual Y2K issues. These
issues include data exchange with the Company, as well as the business partners'
ability to maintain their production and shipping processes. The issues that
were identified as part of this assessment have been prioritized in order of
significance to the Company's operations and corrective actions are being taken
as appropriate. All assessments have been scored and rated according to the risk
to the Company's business. Both the Company's business partners and the
Company's Y2K technical team collaborated on the ratings. To date, all of the
Company's business partners deemed to have a potential material impact on the
Company's operations have been assessed. Action plans were developed for each
business partner that posed a material risk to the Company's ongoing operations.
Actions, which include working with existing vendors to maintain the supply
chain, will be taken through the end of the calendar year to minimize these
risks.
The Company has also documented and reviewed the key internal processes
required to operate its business. Each process was examined to determine if
systems or third-party Y2K failures could impact the Company's business
operations. Contingency plans to deal with potential business disruptions
caused by Y2K failures will be completed in the third quarter. To further
prepare for possible disruptions, the Company has planned a series of century
change preparation activities including the creation of a Y2K internal call
center to centrally manage Y2K events and support remote operations.
The Company generally believes that the vendors that supply products to the
Company for resale are responsible for the Y2K functionality of those products.
However, should product failures occur, the Company may be required to address
certain aspects of those failures such as handling product returns or repairs.
Actions to address this risk is included in the Company's contingency plans.
While the Company believes that it is pursuing the appropriate course of
action to ensure Y2K readiness, there can be no assurance that the objective
will be achieved either internally or as it relates to its business partners.
Also, the Company can provide no assurance regarding potential impact on
consumer spending that may result from concerns regarding the Y2K
functionality of products. For the Y2K issues which, if not timely resolved,
could have a significant impact on the Company's operations, the Company is
continuing to develop contingency plans to minimize the impact of failure to
achieve Y2K compliance. The Company has also devoted significant attention to
planning for what could be the result of the most adverse consequence of Y2K
issues including infrastructure failure or failure of core internal process
systems. Management believes that appropriate actions have been taken to
minimize the financial impact to the Company.
14
<PAGE>
SAFE HARBOR PROVISIONS UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995 (THE "1995 ACT")
The Private Securities Litigation Reform Act of 1995 provides a "safe harbor"
for forward-looking statements to encourage companies to provide prospective
information about their companies. With the exception of historical information,
the matters discussed in this Quarterly Report on Form 10-Q are forward-looking
statements and may be identified by the use of words such as "believe,"
"expect," "anticipate," "plan," "estimate," "intend" and "potential." Such
statements reflect the current view of the Company with respect to future events
and are subject to certain risks, uncertainties and assumptions. A variety of
factors could cause the Company's actual results to differ materially from the
anticipated results expressed in such forward-looking statements, including,
among other things, general economic conditions, product availability, sales
volumes, profit margins, the Company's and its suppliers' Year 2000 readiness,
and the impact of labor markets and new product introductions on the Company's
overall profitability. Readers are encouraged to review the Company's Current
Report on Form 8-K filed on May 15, 1998, that describes additional important
factors that could cause actual results to differ materially from those
contemplated by the statements made herein.
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's operations are not currently subject to market risks for interest
rates, foreign currency rates, commodity prices or other market price risks of a
material nature.
15
<PAGE>
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
a) The Regular Meeting of the Shareholders of the Company was held June 24,
1999. The following individuals were elected at the meeting as Class 2
Directors of the Company to serve until the 2001 Regular Meeting of
Shareholders. Shares voted were as follows:
Elliott S. Kaplan
Shares For 182,265,036
Shares Withheld 2,949,339
Richard M. Schulze
Shares For 184,488,175
Shares Withheld 726,200
Hatim A. Tyabji
Shares For 184,487,972
Shares Withheld 726,403
Shareholders ratified the appointment of the following individual as a
Class 1 Director of the Company to serve until the 2000 Regular
Meeting of Shareholders. Shares voted were as follows:
David H. Starr
Shares For 184,291,532
Shares Against 795,564
Shares Abstaining 127,279
Other matters voted on and the results of voting were as follows:
Shareholders ratified the appointment of Ernst & Young LLP, as the
Company's independent auditor for the fiscal year which began on
February 28, 1999, with shares voted as follows:
Shares For 185,029,179
Shares Against 79,504
Shares Abstaining 105,692
Shareholders approved the Company's EVA-Registered Trademark-
Incentive Program, with shares voted as follows:
Shares For 177,992,116
Shares Against 6,988,037
Shares Abstaining 234,222
16
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K:
a. Exhibits: Method of Filing
----------------
10.1 Credit Agreement dated August 9, 1999 Filed herewith
27.1 Financial Data Schedule Filed herewith
b. Reports on Form 8-K:
None.
17
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
BEST BUY CO., INC.
(Registrant)
Date: October 12, 1999 By: /s/ ALLEN U. LENZMEIER
---------------------------------------
Allen U. Lenzmeier, Executive Vice
President & Chief Financial Officer
(principal financial officer)
By: /s/ ROBERT C. FOX
----------------------------------------
Robert C. Fox, Senior Vice President-
Finance & Treasurer (principal
accounting officer)
18
<PAGE>
CREDIT AGREEMENT
CREDIT AGREEMENT dated as of August 9, 1999 by and between BEST BUY
CO., INC. (the "Company"), a Minnesota corporation, the lenders from time to
time party hereto (such lenders being hereinafter sometimes referred to
collectively as the "Banks" and individually as a "Bank"), and U.S. BANK
NATIONAL ASSOCIATION, as agent for the Banks (in such capacity, the "Agent").
RECITALS
A. The Company has requested that the Banks provide it with a
revolving credit facility with an aggregate commitment amount, as of the date
hereof, of $100,000,000.
B. The Banks are prepared to provide such revolving credit facility
on the terms and subject to the conditions hereinafter set forth.
Accordingly, the parties hereto hereby agree as follows:
ARTICLE I
DEFINITIONS
Section 1.01 CERTAIN DEFINED TERMS. As used herein and, unless
otherwise defined therein, in each Exhibit and Schedule, the following terms
shall have the following respective meanings (such meanings to be equally
applicable to both the singular and plural form of the terms defined, as the
context may require):
"ADJUSTED EURODOLLAR RATE": with respect to each Interest Period
applicable to a Eurodollar Advance, the rate (rounded upward, if necessary, to
the next higher one hundredth of one percent) determined by dividing the
Eurodollar Rate for such Interest Period by 1.00 minus the Eurodollar Reserve
Percentage.
"ADVANCE": a Reference Rate Advance or a Eurodollar Advance.
"AFFILIATE": when used with respect to a specified Person, another
Person that directly or indirectly through one or more intermediaries, controls
or is controlled by or is under common control with the Person specified. For
purposes hereof, "control"
<PAGE>
shall have the meaning given such term in Rule 12b-2 under the Securities
Exchange Act of 1934, and "controlled" shall have a
correlative meaning.
"AGGREGATE COMMITMENT AMOUNT": as of any date of determination, the
sum of the Commitment Amounts of all of the Banks.
"AGREEMENT": this Credit Agreement, as amended, supplemented,
restated or otherwise modified and in effect from time to time.
"APPLICABLE COMMITMENT FEE PERCENTAGE": subject to the last two
sentences of this definition, for the period beginning on the tenth day of the
first month after the financial statements described in Section 5.01(b) for each
fiscal quarter are required to be delivered and ending on the ninth day of the
first month after the month in which the financial statements described in
Section 5.01(b) for following fiscal quarter are required to be delivered, the
percentage specified as the Applicable Commitment Fee Percentage based on the
Interest Coverage Ratio calculated as of the end of such fiscal quarter:
<TABLE>
<CAPTION>
Interest Coverage Ratio Applicable Commitment
(in each case, to 1.00) Fee Percentage
----------------------- --------------
<S> <C>
Less than 2.50 0.250%
2.50 to 2.74 0.225%
2.75 to 2.99 0.200%
3.00 to 3.24 0.175%
3.25 or greater 0.150%
</TABLE>
During the period beginning on the Effective Date and ending on October 10,
1999, the Applicable Commitment Fee Percentage shall be 0.15%. Notwithstanding
the foregoing, if the Borrower has not furnished the quarterly financial
statements required under Section 5.01(b) for any fiscal quarter by the last day
of the month in which such financial statements are required to be delivered,
the Applicable Commitment Fee Percentage shall be 0.25% for the period from the
tenth day of the following month until the ninth day of the first month after
the month in which such financial statements are delivered.
"APPLICABLE LETTER OF CREDIT FEE PERCENTAGE": (a) for each day with
respect to Letters of Credit having a scheduled expiration date more than six
months after the date of issuance, the Applicable Margin for Eurodollar
Advances as of such day, and (b) with respect to Letters of Credit having a
scheduled expiration date six months or less
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<PAGE>
after the date of issuance, the Applicable Margin for Eurodollar Rate Advances
as of such day minus 0.25%.
"APPLICABLE MARGIN": subject to the last three sentences of this
definition, for the period beginning on the tenth day of the first month after
the financial statements described in Section 5.01(b) for each fiscal quarter
are required to be delivered and ending on the ninth day of the first month
after the month in which the financial statements described in Section 5.01(b)
for following fiscal quarter are required to be delivered, the percentage
specified as the Applicable Margin for Eurodollar Advances or Reference Rate
Advances, as applicable, based on the Interest Coverage Ratio calculated as of
the end of such fiscal quarter:
<TABLE>
<CAPTION>
Interest Coverage Ratio Eurodollar Reference
(in each case to 1.00) Advances Rate Advances
---------------------- -------- -------------
<S> <C> <C>
Less than 2.50 1.250% 0.00%
2.50 to 2.74 1.000 0.00
2.75 to 2.99 0.875 0.00
3.00 or greater 0.750 0.00
</TABLE>
During the period beginning on the Effective Date and ending on October 10,
1999, the Applicable Margin for Eurodollar Advances shall be 0.750%.
Notwithstanding the foregoing, if the Borrower has not furnished the quarterly
financial statements required under Section 5.01(b) for any fiscal quarter by
the last day of the month in which such financial statements are required to be
delivered, the Applicable Margin shall be determined for the period from the
tenth day of the following month until the ninth day of the first month after
the month in which such financial statements are delivered as if the Interest
Coverage Ratio, calculated as of the end of such fiscal quarter, were less than
2.50 to 1.00. The Applicable Margin for any Eurodollar Advance during any
Interest Period applicable thereto shall be the Applicable Margin in effect on
the first day of such Interest Period.
"BB CONCEPTS": Best Buy Concepts, Inc., a Nevada corporation.
"BB INVESTMENTS": BBC Investment Co., a Nevada corporation.
"BB STORES": Best Buy Stores, L.P., a Delaware limited partnership.
"BBC PROPERTY": BBC Property Co., a Minnesota corporation.
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<PAGE>
"BOARD": the Board of Governors of the Federal Reserve System of the
United States.
"BORROWING BASE": as of a date of determination, (a) 40% of the lower
of: (i) cost (determined on an average cost basis) of Eligible Inventory LESS
(y) the amount of Indebtedness of the Company or any Subsidiary secured by Liens
on inventory and (z) the amount accrued for losses due to missing inventory
(shrink accrual) or (ii) market value of Eligible Inventory LESS (y) the amount
of Indebtedness of the Company or any Subsidiary secured by Liens on inventory
and (z) the amount accrued for losses due to missing inventory (shrink accrual),
MINUS (b) the amount of any unsecured Indebtedness incurred by the Company
pursuant to Section 5.13(g).
"BORROWING BASE CERTIFICATE": a certificate in the form of Exhibit A.
"BORROWING DATE": each Business Day or Eurodollar Business Day on
which the Banks are to make Loans to the Company pursuant to Section 2.01.
"BUSINESS DAY": any day (other than a Saturday, Sunday or legal
holiday) on which banks are permitted to be open for business in all of the
cities where any Bank has its principal office in the United States of America.
"CAPITAL EXPENDITURES": with respect to any Person for any specified
period, the aggregate of all gross expenditures during such period for any fixed
assets, or for improvements, replacements, substitutions or additions therefor
or thereto, which are reflected as additions to property and equipment on
statements of cash flows of such Person in accordance with GAAP, excluding such
expenditures in connection with acquisitions.
"CASH FLOW LEVERAGE RATIO": at any date of determination, the ratio
of (a) the Interest-bearing Indebtedness of the Company and its Subsidiaries as
of such date, plus eight times Rental and Lease Expense for the Measurement
Period ended on such date, to (b) the sum for the Measurement Period ending on
such date of (i) Earnings Before Interest, Income Taxes and Depreciation and
(ii) Rental and Lease Expense, in all cases calculated by reference to the
amounts in the Company's financial statements delivered hereunder.
"CHANGE OF CONTROL": The occurrence of, during any period of up to
twelve consecutive months, whether commencing before or after the Signing Date,
individuals who at the beginning of such twelve-month period were directors of
the Company, ceasing for any reason (other than by reason of death, disability
or scheduled retirement)
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<PAGE>
to constitute a majority of the Board of Directors of the Company, unless
such directors were replaced by new directors whose election to the Board of
Directors of the Company, or whose nomination for election by the
stockholders of the Company, was approved by a majority of the directors then
still in office who either were directors at the beginning of such period or
whose election or nomination for election was previously so approved.
"CODE": the Internal Revenue Code of 1986, as amended or any
successor thereto.
"COMMITMENT": as to any Bank, the obligation of such Bank to make
Loans pursuant to Sections 2.01 and 2.12 and, as to U.S. Bank, its obligation to
issue Letters of Credit pursuant to Section 2.08.
"COMMITMENT AMOUNT": as to any Bank, the amount set opposite such
Bank's name as its "Commitment Amount" in Schedule1.01(a), as the same may be
reduced from time to time pursuant to Section2.14.
"COMMITMENT FEE": as such term is defined in Section 2.16.
"COMPLIANCE CERTIFICATE": a certificate in the form of Exhibit B.
"CONSOLIDATED NET WORTH": as of any date of determination, the sum of
the amounts set forth on the consolidated balance sheet of the Company as the
sum of the common stock, preferred stock, additional paid-in capital and
retained earnings of the Company (excluding treasury stock).
"DOCUMENTARY LETTER OF CREDIT": a letter of credit which requires
that the drafts thereunder be accompanied by a document of title covering or
securing title to the goods acquired with the proceeds of such drafts.
"ERISA": the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA AFFILIATE": any trade or business (whether or not
incorporated) that is a member of a group of which the Company is a member and
which is treated as a single employer under Section 414 of the Code.
"EARNINGS BEFORE INTEREST, INCOME TAXES AND DEPRECIATION": for any
period of determination, the consolidated net income of the Company and its
Subsidiaries before
-5-
<PAGE>
deductions for income taxes, net interest expense, and provisions for
depreciation and amortization of goodwill and intangibles accounted for in
calculating consolidated net income, all as determined in accordance with
GAAP, excluding therefrom (a) nonoperating gains (including, without
limitation, extraordinary or unusual gains, gains from discontinuance of
operations, gains arising from the sale of assets and other nonrecurring
gains) of the Company and its Subsidiaries during the applicable period and
(b) similar nonoperating losses (including, without limitation, losses
arising from the sale of assets and other nonrecurring losses) of the Company
and its Subsidiaries during such period.
"EFFECTIVE DATE": the date on or after the execution and delivery of
this Agreement by the Company, the Banks and the Agent on which all of the
conditions precedent set forth in Section 3.01 shall have been satisfied or
waived in writing by the Banks.
"ELIGIBLE INVENTORY": all inventory held by the Company or any
Operating Subsidiary that has executed and delivered a Guaranty for retail sale
in the ordinary course of business of the product classes listed on Schedule
1.01(b) hereto or otherwise approved by the Agent and which:
(a) is free and clear of all Liens except such as are permitted
by Section 5.12 (f);
(b) is not so identified to a contract to sell that it is
evidenced by an account receivable;
(c) is of good and merchantable quality free from any defects
which would affect the market value thereof;
(d) is not, as reasonably determined by the Agent, nonsalable in
the ordinary course of the Company's or such Operating Subsidiary's
business;
(e) is insured against loss or damage in accordance with the
provisions of the Credit Agreement;
(f) is not subject to or covered by a negotiable document of
title, including, without limitation, negotiable warehouse receipts and
negotiable bills of lading;
-6-
<PAGE>
(g) is not stored in a public warehouse or held by any Person as
bailee, unless the terms of such storage or bailment are satisfactory to
the Agent;
(h) is not a product that has been discontinued by the
manufacturer or by the vendor from which the Company or such Operating
Subsidiary purchased such inventory (close-out inventory); and
(i) is not being held for repair at the Company's service center
(service center inventory) or being held for return to the vendor from
which the Company or such Operating Subsidiary purchased it (defective
center inventory);
PROVIDED, that the Agent shall, notwithstanding the foregoing, have the right,
in the reasonable exercise of its discretion following consultation with the
Company, to establish reserves against the aggregate amount of Eligible
Inventory.
"EURODOLLAR ADVANCE": a portion of the Loans, with respect to which
the interest rate is determined by reference to the Adjusted Eurodollar Rate.
"EURODOLLAR BUSINESS DAY": a Business Day which is also a day for
trading by and between banks in United States dollar deposits in the interbank
eurodollar market and a day on which banks are open for business in New York,
New York and London.
"EURODOLLAR RATE": with respect to each Interest Period applicable to
a Eurodollar Advance, the average offered rate for deposits in United States
dollars (rounded upward, if necessary, to the nearest 1/16 of 1%) for delivery
of such deposits on the first day of such Interest Period, for the number of
days in such Interest Period, which appears on the Telerate page 3750 as of
11:00 a.m., London time (or such other time as of which such rate appears) two
Eurodollar Business Days prior to the first day of such Interest Period, or the
rate for such deposits determined by the Agent at such time based on such other
published service of general application as shall be selected by the Agent for
such purpose (including without limitation the Reuters Screen LIBO page);
provided, that in lieu of determining the rate in the foregoing manner, the
Agent may determine the rate based on rates at which United States dollar
deposits are offered to the Agent in the interbank Eurodollar market at such
time for delivery in Immediately Available Funds on the first day of such
Interest Period in an amount approximately equal to the Advance by the Agent to
which such Interest Period is to apply (rounded upward, if necessary, to the
nearest 1/16 of 1%). "Reuters Screen LIBO page" means the display designated as
page "LIBO" on the Reuters Monitor Money Rate Screen (or such other page as may
replace the LIBO page on such service for the purpose of displaying London
interbank offered rates of major banks for United States dollar deposits), and
-7-
<PAGE>
"Telerate page 3750" means the display designated as such on Telerate System
Incorporated (or such other page as may replace page 3750 or that service for
the purpose of displaying London interbank offered rates of major banks for U.S.
Dollar deposits).
"EURODOLLAR RESERVE PERCENTAGE": as of any day, that percentage
(expressed as a decimal) which is in effect on such day, as prescribed by the
Board of Governors of the Federal Reserve System (or any successor) for
determining the maximum reserve requirement for a member bank of the Federal
Reserve System, with deposits comparable in amount to those held by the Agent,
in respect of "Eurocurrency Liabilities" (or in respect of any other category of
liabilities which includes deposits by reference to which the interest rate of
Eurodollar Advances is determined or any category of extensions of credit or
other assets which includes loans by a non-United States office of a Bank to
United States residents). The rate of interest applicable to any outstanding
Eurodollar Advances shall be adjusted automatically on and as of the effective
date of any change in the Eurodollar Reserve Percentage.
"EVENT OF DEFAULT": any event described in Section 6.01.
"EXISTING CREDIT AGREEMENT": the Credit Agreement dated as of May 22,
1998 by and among the Company, U.S. Bank, as agent for the lenders party
thereto, and such lenders, as the same has been amended, supplemented or
otherwise modified and is in effect immediately prior to the Effective Date.
"FEDERAL FUNDS RATE": for any date of determination, the effective
rate charged to the Agent for overnight Federal funds transactions with member
banks of the Federal Reserve System.
"GAAP": generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as may be approved by a significant segment of the accounting
profession, which are applicable to the circumstances as of the Signing Date.
"GENERAL CAPITAL EXPENDITURES": Capital Expenditures of the Company
or any Subsidiary other than Real Estate capital expenditures and Capital
Expenditures in connection with acquisitions.
"GOVERNMENTAL AUTHORITY": any federal, state, local or foreign court
or governmental agency, authority, department, board, instrumentality or
regulatory body.
-8-
<PAGE>
"GUARANTEE": with respect to any Person at the time of any
determination, without duplication, any obligation, contingent or otherwise,
of such Person guaranteeing or having the economic effect of guaranteeing any
Indebtedness of any other Person (the "primary obligor") in any manner,
whether directly or otherwise: (a) to purchase or pay (or advance or supply
funds for the purchase or payment of) such Indebtedness or to purchase (or to
advance or supply funds for the purchase of) any direct or indirect security
therefor, (b) to purchase property, securities, or services for the purpose
of assuring the owner of such Indebtedness of the payment of such
Indebtedness, (c) to maintain working capital, equity capital, or other
financial statement condition of the primary obligor so as to enable the
primary obligor to pay such Indebtedness or otherwise to protect the owner
thereof against loss in respect thereof, or (d) entered into for the purpose
of assuring in any manner the owner of such Indebtedness of the payment of
such Indebtedness or to protect the owner against loss in respect thereof;
PROVIDED, that the term "Guarantee" shall not include endorsements for
collection or deposit in the ordinary course of business.
"GUARANTY": a guaranty, in the form of Exhibit D, of the Obligations,
executed and delivered to the Agent in connection with this Agreement.
"HOLDING ACCOUNT": an interest-bearing account established by the
Agent, which shall be under the Agent's sole dominion and control, for the
benefit of U.S. Bank, as the issuer of the Letters of Credit, and the Banks,
into which the Company shall, as required hereunder, deposit funds, and from
which the Agent may disburse funds, to pay the obligations of the Company to
reimburse U.S. Bank for any amount drawn on any Letter of Credit, and to pay any
other obligation of the Company to the Banks arising in connection with any
Letter of Credit.
"IMMEDIATELY AVAILABLE FUNDS": funds with good value on the day and
in the city in which payment is received.
"INDEBTEDNESS": with respect to any Person at the time of any
determination, without duplication, all obligations, contingent or otherwise,
of such Person which in conformity with GAAP should be classified upon the
balance sheet of such Person as liabilities, but in any event shall include:
(a) all obligations of such Person for borrowed money, (b) all obligations of
such Person evidenced by bonds, debentures, notes or other similar
instruments, (c) all obligations of such Person upon which interest charges
are customarily paid or accrued, (d) all obligations of such Person under
conditional sale or other title retention agreements relating to property
purchased by such Person, (e) all obligations of such Person issued or
assumed as the deferred purchase price of property or services, (f) all
obligations of others secured by any Lien on
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<PAGE>
property owned or acquired by such Person, whether or not the obligations
secured thereby have been assumed, (g) all capitalized lease obligations of
such Person, (h) all obligations of such Person in respect of interest rate
protection agreements, (i) all obligations of such Person, actual or
contingent, as an account party in respect of letters of credit or bankers'
acceptances, (j) all obligations of any partnership or joint venture as to
which such Person is or may become personally liable, and (k) all Guarantees
by such Person of Indebtedness of others.
"INTEREST-BEARING INDEBTEDNESS": at the time of any determination, all
Indebtedness of the Company and its Subsidiaries (a) for borrowed money or (b)
to third party financers to finance the purchase of inventory, to the extent not
paid before interest begins to accrue.
"INTEREST COVERAGE RATIO": for any Measurement Period, the ratio of
(a) the sum of the Company's (i) net income, plus (ii) consolidated net interest
expense, (iii) income tax expense; (iv) depreciation; (v) Rental and Lease
Expense to (b) the sum of (y) consolidated net interest expense, plus (z) Rental
and Lease Expense.
"INTEREST PERIOD": with respect to each Eurodollar Advance, the
period commencing on the date of such Advance and ending seven or fourteen days
or one, two or three months thereafter, as the Company may elect in the
applicable Notice of Borrowing, Continuation or Conversion; PROVIDED, that:
(1) Any Interest Period which would otherwise end on a day which
is not a Eurodollar Business Day shall be extended to the next succeeding
Eurodollar Business Day unless such Interest Period is one month or longer
and such Eurodollar Business Day falls in another calendar month, in which
case such Interest Period shall end on the next preceding Eurodollar
Business Day;
(2) Any Interest Period of one month or longer which begins on
the last Eurodollar Business Day of a calendar month (or a day for which
there is no numerically corresponding day in the calendar month at the end
of such Interest Period) shall end on the last Eurodollar Business Day of a
calendar month; and
(3) No Interest Period may end after the date set forth in
clause(a) of the definition of Termination Date.
"INVESTMENTS": as applied to any Person, any direct or indirect
purchase or other acquisition by such Person of, or a beneficial interest in,
stock or other securities of
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<PAGE>
any other Person, or any direct or indirect loan, advance (other than
advances to employees for moving and travel expenses, drawing accounts and
similar expenditures in the ordinary course of business) or capital
contribution by such Person to any other Person, including all Indebtedness
and accounts receivable from that other Person which did not arise from sales
to such other Person in the ordinary course of business. The amount of any
Investment shall be the original cost of such Investment plus the cost of all
additions thereto, without any adjustments for increases or decreases in
value, or write-ups, write-downs or write-offs with respect to such
Investment.
"LETTER OF CREDIT": an irrevocable letter of credit issued by U.S.
Bank for the account of the Company pursuant to Section 2.08, which shall not be
a Documentary Letter of Credit and shall not include letters of credit issued by
U.S. Bank pursuant to that certain Letter of Credit Agreement dated as of
February 1, 1989, as heretofore and hereafter amended, and that certain Covenant
Rider dated as of October 30, 1992, as heretofore and hereafter amended, between
U.S. Bank and the Company.
"LETTER OF CREDIT FEE": as defined in Section 2.17.
"LETTER OF CREDIT LOAN": a Loan made by a Bank to or for the account
of the Company pursuant to Section 2.12.
"LETTER OF CREDIT USAGE": as of any date, the amount equal to the
sum of (a) the amount of all Unpaid Draws plus (b) the amount available to be
drawn under all outstanding Letters of Credit.
"LIEN": with respect to any Person, any security interest, mortgage,
pledge, lien, charge, encumbrance, title retention agreement or analogous
instrument or device (including but not limited to the interest of each lessor
under any capitalized lease), in, of or on any assets or properties of such
Person, now owned or hereafter acquired, whether arising by agreement or
operation of law.
"LOAN": a loan made by a Bank to or for the account of the Company
pursuant to Section 2.01, or a Letter of Credit Loan.
"LOAN DOCUMENTS": this Agreement, the Notes, the Letters of Credit,
the Guaranties and all other agreements, documents, certificates and instruments
delivered pursuant hereto or in connection herewith, in each case as amended,
supplemented, restated or otherwise modified and in effect from time to time.
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"MAJORITY BANKS": at any time, Banks whose Pro Rata Shares
(determined under clause (b) of the definition thereof if any Loans are
outstanding, and otherwise under clause (a) of such definition) aggregate
more than 51%.
"MATERIAL ADVERSE EFFECT": with respect to any Person, (a) a
materially adverse effect on the business, assets, operations, or financial
condition of such Person and its Subsidiaries taken as a whole, (b) material
impairment of the ability of such Person to perform any material obligation
under any Loan Document to which such Person is or becomes a party or
(c) material impairment of any of the material rights of, or benefits available
to, the Agent or the Banks under any Loan Document.
"MEASUREMENT PERIOD": each period of four fiscal quarters ending on
the last day of a fiscal quarter of the Company.
"MULTIEMPLOYER PLAN": as such term is defined in Section 4001(a)
(3) of ERISA, which is maintained (on the Signing Date, within the five years
preceding the Signing Date, or at any time after the Signing Date) for
employees of Company or any ERISA Affiliate.
"NOTICE OF BORROWING, CONTINUATION OR CONVERSION": the written
notice, substantially in the form of Exhibit C, delivered in accordance with,
and within the period specified in, Section 2.02 or 2.04, as applicable.
"OBLIGATIONS": (a) the Company's obligations in respect of the due
and punctual payment of principal and interest on the Loans when and as due,
whether at maturity, by acceleration, or otherwise, (b) the Company's
obligations to reimburse U.S. Bank in the amount of each draw under a Letter
of Credit on the date of such draw, and to make deposits into the Holding
Account in respect of Letters of Credit pursuant to Sections 2.06(a) or (c),
2.11 or 6.02, and (c) all fees, expenses, indemnities, reimbursements and
other obligations, monetary or otherwise, owed to the Agent and the Banks
under this Agreement or any other Loan Document.
"OPERATING SUBSIDIARY": any Subsidiary of the Company other than a
Real Estate Subsidiary that owns inventory, operates retail stores or otherwise
conducts a business permitted pursuant to Section 5.11.
"PBGC": the Pension Benefit Guaranty Corporation created by Section
4002(a) of ERISA or any Governmental Authority succeeding to the functions
thereof.
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"PERSON": any natural person, corporation, partnership, joint
venture, firm, association, trust, unincorporated organization, government or
governmental agency or political subdivision or any other entity, whether acting
in an individual, fiduciary or other capacity.
"PLAN": each employee benefit plan (whether in existence on the
Signing Date or thereafter instituted), as such term is defined in Section 3 of
ERISA, maintained for the benefit of employees, officers or directors of Company
or of any ERISA Affiliate.
"PROHIBITED TRANSACTION": as such term is defined in Section 4975 of
the Code or Section 406 of ERISA.
"PRO RATA SHARE": with respect to each Bank, in each case expressed
as a percentage:
(a) as such term pertains to such Bank's obligation to make
Loans, right to receive Commitment Fees and Letter of Credit Fees, and
obligation to reimburse the Agent pursuant to Section 7.09, the percentage
set forth opposite such Bank's name as its "Commitment Percentage" in
Schedule 1.01(a), and
(b) as such term pertains to such Bank's right to receive
payment of interest on and principal of its outstanding Loans and for all
other purposes, the fraction which the amount of the unpaid principal
balance of its outstanding Loans is to the aggregate unpaid principal
balance of all outstanding Loans.
"REAL ESTATE CAPITAL EXPENDITURES": Capital Expenditures of the
Company or any Subsidiary for land and buildings.
"REAL ESTATE SUBSIDIARY": any Subsidiary of the Company that is not
an Operating Subsidiary and the only assets of which are ownership or leasehold
interests in real property held for lease or sublease to the Company or
Operating Subsidiaries.
"REFERENCE RATE": the greater of (a) the rate of interest from time
to time publicly announced by U.S. Bank as its "reference rate" or (b) the
Federal Funds Rate plus 1.5%. U.S. Bank may lend to its customers at rates that
are at, above or below the Reference Rate. For purposes of determining any
interest rate hereunder or under the Notes which is based on the Reference Rate,
such interest rate shall change as and when the Reference Rate shall change.
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"REFERENCE RATE ADVANCE": a portion of the Loans with respect to
which the interest rate is determined by reference to the Reference Rate.
"REGULATION D": Regulation D of the Board as from time to time in
effect and all official rulings and interpretations thereunder and thereof.
"REGULATION U": Regulation U of the Board as from time to time in
effect and all official rulings and interpretations thereunder and thereof.
"REGULATION X": Regulation X of the Board as from time to time in
effect and all official rulings and interpretations thereunder and thereof.
"REGULATORY CHANGE": with respect to any Bank, any change after the
Signing Date in federal, state or foreign laws or regulations or the adoption or
making after such date of any interpretations, directives or requests, in either
case applying to a class of banks including such Bank under any federal, state
or foreign laws or regulations (whether or not having the force of law) by any
court or Governmental Authority charged with the interpretation or
administration thereof.
"RENTAL AND LEASE EXPENSE": for any period of determination, all
amounts paid by the Company or any Subsidiary under all capital leases and other
leases of real or personal property, other than any portion thereof included in
calculating consolidated net interest expense of the Company for such period.
"REPORTABLE EVENT": as such term is defined in Section 4043 of ERISA
and the regulations issued under such Section, with respect to a Plan,
excluding, however, such events as to which the PBGC by regulation has waived
the requirement of Section 4043(a) of ERISA that it be notified within 30 days
of the occurrence of such event, PROVIDED, that a failure to meet the minimum
funding standard of Section 412 of the Code and of Section 302 of ERISA shall be
a Reportable Event regardless of the issuance of any such waivers in accordance
with Section 412(d) of the Code.
"RESTRICTED PAYMENTS": with respect to any Person, collectively, all
dividends or other distributions of any nature (cash, securities (other than
common stock of such Person), assets or otherwise) declared or paid, and all
payments made, by such Person on any class of equity securities (including,
without limitation, warrants, options or rights therefor) issued by such Person
or any of its Subsidiaries, whether such securities are authorized or
outstanding on the Signing Date or at any time thereafter.
"REVOLVING NOTES": as defined in Section 2.03.
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"SIGNING DATE": the Business Day on which counterparts of this
Agreement, duly executed by the Company, the Banks and the Agent, have been
delivered to the Agent.
"SUBORDINATED INDEBTEDNESS": Indebtedness of the Company incurred
after the Signing Date which is subordinated to the obligations of the Company
to the Banks hereunder and under the Notes in a manner and to an extent which
the Banks have reasonably determined to be satisfactory by a writing sent to the
Company.
"SUBSIDIARY": with respect to any Person, any corporation,
partnership, trust or other Person of which more than 50% of the outstanding
capital stock (or similar property right in the case of partnerships and trusts)
having ordinary voting power to elect a majority of the board of directors of
such corporation (or similar governing body or Person with respect to
partnerships and trusts) (irrespective of whether or not at the time capital
stock of any other class or classes of such corporation shall or might have
voting power upon the occurrence of any contingency) is at the time directly or
indirectly owned by such Person, by such Person and one or more other
Subsidiaries of such Person, or by one or more other Subsidiaries of such
Person.
"TERMINATION DATE": the earliest to occur of (a) June 30, 2002,
(b) the date on which the Commitments are terminated pursuant to Section 2.14
or (c) the date on which the Commitments are terminated pursuant to
Section6.02.
"TOTAL OUTSTANDINGS": as of any date of determination, the sum of
(a) the aggregate unpaid principal balance of Loans outstanding on such date,
PLUS (b) the Letter of Credit Usage.
"UNFUNDED LIABILITIES": (a) in the case of Plans subject to Title
IV of ERISA (other than Multiemployer Plans), the amount (if any) by which
the present value of all vested nonforfeitable benefits under such Plan
exceeds the fair market value of all Plan assets allocable to such benefits,
all determined as of the then most recent valuation report prepared by the
actuary for such Plan, and (b) in the case of Multiemployer Plans, the
withdrawal liability of the Company and the ERISA Affiliates.
"UNMATURED EVENT OF DEFAULT": any event which, with the giving of
notice (whether such notice is required under Section 6.01, or under some other
provision of this Agreement, or otherwise) or lapse of time, or both, would
constitute an Event of Default.
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"UNPAID DRAW": the obligation of the Company to reimburse U.S. Bank
for a draw under a Letter of Credit, to the extent not reimbursed by the Company
in accordance with Section 2.11.
"UNUSED COMMITMENT AMOUNT": at the time of any determination, the
Aggregate Commitment Amount less the Used Amount.
"U.S. BANK": U.S. Bank National Association, a national banking
association, in its individual capacity.
"USED AMOUNT": at any time of determination, Total Outstandings
outstanding on such date.
Section 1.02 ACCOUNTING TERMS AND CALCULATIONS. Except as may be
expressly provided to the contrary herein, all accounting terms used herein
shall be interpreted and all accounting determinations hereunder shall be made
in conformity with GAAP. To the extent any change in GAAP after the Signing
Date affects any computation or determination required to be made pursuant to
this Agreement, such computation or determination shall be made as if such
change in GAAP had not occurred unless the Company and the Banks agree in
writing on an adjustment to such computation or determination to account for
such change in GAAP.
Section 1.03 COMPUTATION OF TIME PERIODS. In this Agreement, in the
computation of a period of time from a specified date to a later specified date,
unless otherwise stated the word "from" means "from and including" and the word
"to" or "until" each means "to but excluding".
Section 1.04 PRINCIPLES OF CONSTRUCTION. In this Agreement, the
singular includes the plural and the plural the singular; words imparting any
gender include the other genders; references to "Section", "Exhibit", "Schedule"
and like references shall be to sections of, and exhibits and schedules to, this
Agreement unless otherwise specifically provided; the words "hereof", "herein"
and "hereunder" and words of similar import when used in this Agreement shall
refer to this Agreement as a whole and not to any particular provision of this
Agreement; references to "writing" include printing, typing, lithography and
other means of reproducing words in a visible form; references to agreements and
other contractual instruments shall be deemed to include all subsequent
amendments thereto or changes therein entered into in accordance with their
respective terms; and references to Persons include their permitted successors
and assigns. Unless the context in which used herein otherwise clearly
requires, "or" has the inclusive meaning represented by the phrase "and/or."
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ARTICLE II
TERMS OF THE CREDIT FACILITY
PART A -- TERMS OF LENDING
Section 2.01 THE COMMITMENTS. On the terms and subject to the
conditions hereof, each Bank severally agrees to make Loans to the Company on a
revolving basis at any time and from time to time from the Effective Date to the
Termination Date, during which period the Company may borrow, repay and reborrow
in accordance with the provisions hereof, PROVIDED, that no Loan will be made in
any amount which after giving effect thereto, would cause the Total Outstandings
to exceed the Aggregate Commitment Amount; and PROVIDED, FURTHER, that no Bank
shall be required to make any Loan if, after giving effect thereto, the sum of
the outstanding principal balance of such Bank's Revolving Note plus such Bank's
Pro Rata Share of the sum of the Letter of Credit Usage would exceed such Bank's
Commitment Amount. Loans hereunder shall be made by the Banks ratably based on
their respective Pro Rata Shares. Loans may be obtained and maintained, at the
election of the Company but subject to the limitations hereof, as Reference Rate
Advances or Eurodollar Advances.
Section 2.02 PROCEDURE FOR LOANS. Any request by the Company to
borrow hereunder shall be made to the Agent by telephone, promptly confirmed by
giving the Agent a Notice of Borrowing, Continuation or Conversion, and must be
received by the Agent not later than 12:00 noon (Minneapolis time) three
Eurodollar Business Days prior to the requested Borrowing Date if the Loans are
requested as Eurodollar Advances and not later than 12:00 noon (Minneapolis
time) on the requested Borrowing Date if the Loans are requested as Reference
Rate Advances. Each request to borrow hereunder shall be irrevocable and shall
be deemed a representation by the Company that on the requested Borrowing Date
and after giving effect to the requested Loans the applicable conditions
specified in Section 2.01 and Article III have been and will be satisfied. Each
request to borrow hereunder shall specify (a) the requested Borrowing Date,
(b) the aggregate amount of Loans to be made on such date, which shall be in a
minimum amount of $5,000,000 or an integral multiple of $1,000,000 in excess
thereof, to the extent such Loans are to be funded as Eurodollar Advances, or
$2,000,000 or an integral multiple of $500,000 in excess thereof to the extent
such Loans are to be funded as Reference Rate Advances, (c) whether such Loans
are to be made, Reference Rate Advances or Eurodollar Advances, and (d) in the
case of Eurodollar Advances, the duration of the initial Interest Period
applicable thereto. Without in any way limiting the Company's obligation to
confirm in writing any telephone request to borrow hereunder, the Agent may rely
on any such request which it believes in good faith to be genuine; and the
Company hereby waives any claim against the Agent or the Banks based on a
dispute
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with the Agent's record of the terms of such telephone request. The
Agent shall promptly notify each other Bank of the receipt of such request, the
matters specified therein, and of such Bank's Pro Rata Share of the requested
Loans. Unless the Agent determines that any applicable condition specified in
Article III has not been satisfied, the Agent will make available to the Company
at the Agent's principal office in Minneapolis, Minnesota in Immediately
Available Funds not later than 4:00 P.M. (Minneapolis time) on the requested
Borrowing Date the amount of the requested Loans. If the Agent has made a Loan
on behalf of a Bank but has not received the amount of such Loan (or a Federal
Reserve Bank reference number for the wire transfer of the amount of such Loan)
from such Bank by 4:00 P.M. (Minneapolis time) on the requested Borrowing Date,
such Bank shall pay interest to the Agent on the amount so advanced at the
Federal Funds Rate from the date of such Loan to the date funds are received by
the Agent from such Bank, such interest to be payable with such remittance from
such Bank of the principal amount of such Loan (PROVIDED, HOWEVER, that the
Agent shall not make any Loans on behalf of a Bank if the Agent has received
prior notice from such Bank that it will not make such Loan). If the Agent does
not receive payment from such Bank by the next Business Day after the date of
any Loan, the Agent shall be entitled to recover such Loan, with interest
thereon at the rate then applicable to the such Loan, on demand, from the
Company, without prejudice to the Agent's and the Company's rights against such
Bank. If such Bank pay the Agent the amount herein required with interest at
the Federal Funds Rate before the Agent has recovered from the Company, such
Bank shall be entitled to the interest payable by the Company with respect to
the Loan in question accruing from the date the Agent made such Loan.
Section 2.03 NOTES. The Loans made by each Bank shall be evidenced
by a single promissory note of the Company payable to the order of such Bank in
the form of Exhibit C, in a principal amount equal to the amount of such Bank's
Commitment originally in effect (each, together with any such promissory note
hereafter executed and delivered to a Bank to evidence the Loans, a "Revolving
Note" and, collectively, the "Revolving Notes"). Each Bank shall enter in its
ledgers and records the amount of each Loan, the various Advances made,
converted or continued and the payments made thereon, and each Bank is
authorized by the Company to enter on a schedule attached to its Note(s) a
record of such Loans, Advances and payments; PROVIDED, HOWEVER that the failure
by any Bank to make any such entry or any error in making such entry shall not
limit or otherwise affect the obligation of the Company hereunder and on the
Notes, and, in all events, the principal amount owing by the Company in respect
of each Revolving Note shall be the aggregate amount of all Loans made by the
Bank to which such Revolving Note is payable less all payments of principal
thereof made by the Company.
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Section 2.04 CONVERSIONS AND CONTINUATIONS. On the terms and
subject to the limitations hereof, the Company shall have the option at any
time and from time to time to convert all or any portion of the Loans into
Reference Rate Advances or Eurodollar Advances, or to continue a Eurodollar
Advance as such (in a minimum amount of $5,000,000 or an integral multiple of
$1,000,000 in excess thereof, with respect to any conversion into or
continuation as Eurodollar Advances, or $2,000,000 or an integral multiple of
$500,000 in excess thereof, with respect to any conversion into Reference
Rate Advances); PROVIDED, HOWEVER that (i) a Eurodollar Advance may be
converted or continued only on the last day of the Interest Period applicable
thereto, and (ii) no Advance may be converted into or continued as a
Eurodollar Advance if an Unmatured Event of Default or Event of Default has
occurred and is continuing on the proposed date of continuation or
conversion. The Company shall give the Agent a Notice of Borrowing,
Continuation or Conversion with respect to the continuation or conversion of
any Advance so as to be received by the Agent not later than 12:00 noon
(Minneapolis time) three Eurodollar Business Days prior to requested date of
conversion or continuation in the case of the continuation of, or conversion
to, Eurodollar Advances and not later than 12:00 noon (Minneapolis time) on
the date of any requested conversion to Reference Rate Advances. Each such
notice shall specify (a) the amount to be continued or converted, (b) the
date for the continuation or conversion (which must be (i) the last day of
the preceding Interest Period and a Eurodollar Business Day in the case of
conversions to or continuations of Eurodollar Advances, and (ii) a Business
Day in the case of conversions to Reference Rate Advances), and (c) in the
case of conversions to or continuations of Eurodollar Advances, the Interest
Period applicable thereto. Any notice given by the Company under this Section
2.04 shall be irrevocable. If the Company shall fail to notify the Agent of
the continuation of any Eurodollar Advances or of the conversion of
Eurodollar Advances within the time required by this Section 2.04, such
Advances shall, on the last day of the Interest Period applicable thereto,
automatically be converted into Reference Rate Advances of the same principal
amount. All conversions to and continuations of Advances shall be made
uniformly and ratably among the Banks.
Section 2.05 INTEREST RATES, INTEREST PAYMENTS AND DEFAULT INTEREST.
Interest shall accrue and be payable as follows:
(a) Each Eurodollar Advance shall bear interest on the unpaid
principal amount thereof during the Interest Period applicable thereto at a
rate per annum equal to the sum of (i) the Adjusted Eurodollar Rate for
such Interest Period plus (ii) the Applicable Margin.
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(b) Each Reference Rate Advance shall bear interest on the
unpaid principal amount thereof at a floating rate per annum equal to the
sum of (i) the Reference Rate PLUS (ii) the Applicable Margin.
(c) Any Advance not paid when due, whether at the date scheduled
therefor or earlier upon acceleration, shall bear interest until paid in
full (i) during the balance of any Interest Period applicable to such
Advance, at a rate per annum equal to the sum of the rate applicable to
such Advance during such Interest Period PLUS 2.0%, and (ii) otherwise, at
a rate per annum equal to the sum of the Reference Rate PLUS the Applicable
Margin PLUS 2.00%.
(d) Interest accrued through each date of payment shall be
payable (i) with respect to each Eurodollar Advance, on the last day of the
Interest Period applicable thereto; (ii) with respect to any Reference Rate
Advance, on the first day of each month; and (iii) with respect to all
Advances, on the Termination Date; PROVIDED that interest under Section
2.05(c) shall also be payable on demand.
(e) Interest payments received by the Agent shall be applied to
accrued, unpaid interest on the Revolving Notes then due and payable.
Section 2.06. REPAYMENT; MANDATORY PREPAYMENTS; DEPOSITS INTO HOLDING
ACCOUNT.
(a) Principal of all Loans, together with all accrued, unpaid
interest thereon, shall be due and payable on the Termination Date. Upon
issuance of any Letter of Credit having an expiration date after the
Termination Date, the Company shall deposit into the Holding Account an
amount sufficient to cause the amount deposited in the Holding Account to
equal the aggregate undrawn face amount of such Letter of Credit. At any
time after such deposit is made and all outstanding Obligations, other than
Obligations with respect to outstanding Letters of Credit, have been paid
in full, if an outstanding Letter of Credit expires or is reduced without
the full amount thereof having been drawn, the Agent shall withdraw from
the Holding Account and deliver to the Company an amount equal to the
amount by which the amount on deposit in the Holding Account exceeds the
aggregate undrawn face amount of outstanding Letters of Credit (after
giving effect to such expiration or reduction).
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(b) Between December 1 of each year and March 31 of the
following year, the Company shall reduce the outstanding principal balance
of the Loans for a period of not less than 30 consecutive days to $0.
(c) If at any time the Total Outstandings exceed the Aggregate
Commitment Amount, the Company shall prepay the Loans in the amount of
such excess.
Section 2.07 OPTIONAL PREPAYMENTS. The Company may prepay
Reference Rate Advances, in whole or in part, at any time, without premium or
penalty. Each partial prepayment shall be in an aggregate amount for all the
Banks of $2,000,000 or an integral multiple of $500,000 in excess thereof,
and shall be distributed to the Banks in accordance with their respective Pro
Rata Shares. Except upon an acceleration following an Event of Default or
upon termination of the Commitments in whole under Section 2.14, the Company
may pay Eurodollar Advances only on the last day of the Interest Period
applicable thereto. Amounts paid (unless following an acceleration or upon
termination of the Commitments in whole) or prepaid under this Section 2.07
may be reborrowed upon the terms and subject to the conditions and
limitations of this Agreement. All principal paid or prepaid under Section
2.06, this Section 2.07 or Section 2.14 shall be applied to the outstanding
principal balance of each Bank's Revolving Note (in accordance with such
Bank's Pro Rata Share).
PART B -- TERMS OF THE LETTER OF CREDIT FACILITY
Section 2.08 LETTERS OF CREDIT. The letters of credit issued by
the Agent for the account of the Company pursuant to the Existing Credit
Agreement shall be "Letters of Credit" hereunder from and after the Effective
Date, and the rights and obligations of the Agent, the Banks and the Company
with respect to such letters of credit shall be those set forth therein and,
to the extent not inconsistent therewith, those set forth herein with respect
to Letters of Credit. Upon the terms and subject to the conditions of this
Agreement, the Agent agrees to issue Letters of Credit for the account of the
Company from time to time between the Effective Date and the Termination Date
in such amounts as the Company shall request; PROVIDED that no Letter of
Credit will be issued in any amount which, after giving effect to such
issuance, would cause (i) Total Outstandings to exceed the Aggregate
Commitment Amount, or (ii) the Letter of Credit Usage to exceed $50,000,000.
Section 2.09 PROCEDURES FOR LETTERS OF CREDIT. Each request for a
Letter of Credit shall be made by the Company in writing and received by U.S.
Bank by 1:00 p.m. (Minneapolis time) not later than one Business Day
preceding the requested date of
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issuance (which shall also be a Business Day). Each request for a Letter of
Credit shall be deemed a representation by the Company that on the date of
issuance of such Letter of Credit and after giving effect thereto the
conditions specified in Article III have been and will be satisfied. The
Agent may require that such request be made on such letter of credit
application and reimbursement agreement form as the Agent may from time to
time specify. The Agent shall notify the other Banks by 1:00 P.M.
(Minneapolis time) on the date the Agent issues any Letter of Credit, of the
issuance of each Letter of Credit, and each Bank's Pro Rata Share thereof,
and the Agent will promptly provide to the other Banks a copy of each Letter
of Credit issued hereunder.
Section 2.10 TERMS OF LETTERS OF CREDIT. Letters of Credit shall
be issued in support of obligations of the Company incurred in the ordinary
course of its business. No Letter of Credit may have an expiration date more
than one year after the date of its issuance.
Section 2.11 AGREEMENT TO REPAY LETTER OF CREDIT DRAWS. If the
Agent has decided that it will a pay a draw made on any Letter of Credit, it
will notify the Company of that fact. The Company shall reimburse the Agent
in an amount equal to the amount of such draw by 11:00 A.M. (Minneapolis
time) on the day on which such draw is to be paid in Immediately Available
Funds. To the extent funds are available in the Holding Account, the Agent
may, in its discretion, withdraw the amount of such draw from the Holding
Account and apply such amount to the Company's reimbursement obligations in
respect of such draw. To the extent the amount of funds available in the
Holding Account equals or exceeds the Letter of Credit Usage as of the date
of such draw, the Agent shall withdraw the amount of such draw from the
Holding Account and apply such amount to the Company's reimbursement
obligations in respect of such draw.
Section 2.12 LOANS TO COVER UNPAID DRAWS. Whenever there is an
Unpaid Draw pursuant to Section 2.11, the Agent shall promptly give the other
Banks notice to that effect, specifying the amount thereof, in which event
each Bank is authorized (and the Company does here so authorize each Bank)
to, and shall, make a Loan (as a Reference Rate Advance) to the Company in an
amount equal to such Bank's Pro Rata Share of the amount of the Unpaid Draw.
Each Bank shall make such Loan, regardless of noncompliance with the
applicable conditions precedent specified in Article III hereof and
regardless of whether an Event of Default then exists or the Commitments have
been terminated, and provide the Agent with the proceeds of such Loan in
Immediately Available Funds, at the office of the Agent, not later than 4:00
P.M. (Minneapolis time) on the day on which such Bank received such notice.
The Agent shall apply the proceeds of such Loans directly to reimburse itself
for such Unpaid Draw. If any portion of any such amount paid to the Agent
should be recovered by or on behalf of the Company from
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the Agent in bankruptcy, by assignment for the benefit of creditors or
otherwise, the loss of the amount so recovered shall be ratably shared
between and among the Banks in the manner contemplated by Section 7.10. If
at the time the Banks make funds available to the Agent pursuant to the
provisions of this Section 2.12 the applicable conditions precedent specified
in Article III shall not have been satisfied, the Company shall pay to the
Agent for the account of the Banks interest on the funds so advanced at a
floating rate per annum equal to the Reference Rate plus the Applicable
Margin plus two percent (2.00%). If for any reason any Bank is unable to
make a Loan to the Company to reimburse the Agent for an Unpaid Draw, then
such Bank shall immediately purchase from the Agent a risk participation in
such Unpaid Draw, at par, in an amount equal to such Bank's Pro Rata Share of
the Unpaid Draw, which risk participation shall, for all purposes hereunder
except Sections 2.01 and 2.02, be deemed a Loan made by such Bank hereunder.
Section 2.13 OBLIGATIONS ABSOLUTE. The obligations of the Company
to repay the Agent for the amount of any draw on a Letter of Credit pursuant
to Section 2.11 and to repay any Letter of Credit Loans shall be absolute,
unconditional and irrevocable, shall continue for so long as any Letter of
Credit, Unpaid Draw or Letter of Credit Loan is outstanding notwithstanding
any termination of this Agreement, and shall be paid strictly in accordance
with the terms of this Agreement, under all circumstances whatsoever,
including without limitation the following circumstances:
(a) any lack of validity or enforceability of any Letter of
Credit;
(b) the existence of any claim, setoff, defense or other right
which the Company may have or claim at any time against any beneficiary,
transferee or holder of any Letter of Credit (or any Person for whom any
such beneficiary, transferee or holder may be acting), the Agent, U.S.
Bank or any Bank or any other Person, whether in connection with a Letter
of Credit, this Agreement, the transactions contemplated hereby, or any
unrelated transaction; or
(c) any statement or any other document presented under any
Letter of Credit proving to be forged, fraudulent, invalid or insufficient
in any respect or any statement therein being untrue or inaccurate in any
respect whatsoever.
Neither the Agent, U.S. Bank, any other Bank nor the officers, directors,
agents or employees of any thereof shall be liable or responsible for, and
the obligations of the Company to U.S. Bank and the Banks shall not be
impaired by:
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(i) the use which may be made of any Letter of Credit or for
any acts or omissions of any beneficiary, transferee or holder thereof in
connection therewith;
(ii) the validity, sufficiency or genuineness of documents, or
of any endorsements thereon, even if such documents or endorsements
should, in fact, prove to be in any or all respects invalid, insufficient,
fraudulent or forged;
(iii) the acceptance by U.S. Bank of documents that appear on
their face to be in order, without responsibility for further
investigation, regardless of any notice or information to the contrary; or
(iv) any other circumstances whatsoever in making or failing to
make payment under any Letter of Credit.
Notwithstanding the foregoing, the Company shall have a claim against U.S.
Bank, and U.S. Bank shall be liable to the Company, to the extent, but only
to the extent, of any direct, as opposed to consequential, damages suffered
by the Company which the Company proves were caused by U.S. Bank's willful
misconduct or gross negligence in determining whether documents presented
under any Letter of Credit comply with the terms thereof.
PART C -- GENERAL
Section 2.14 OPTIONAL REDUCTION OR TERMINATION OF COMMITMENTS.
The Company may, at any time, upon not less than five Business Days' prior
written notice to the Agent, reduce the Commitments, ratably, with any such
reduction in a minimum aggregate amount for all the Banks of $5,000,000, or
an integral multiple thereof, or terminate the Commitments in their entirety;
PROVIDED, HOWEVER, that (a) the Company may not at any time reduce the
Aggregate Commitment Amount below the Letter of Credit Usage as of the date
of such reduction unless the Company reduces the Aggregate Commitment Amount
to zero and deposits with U.S. Bank in the Holding Account an amount equal to
the Letter of Credit Usage as of such date; and (b) the Company may not
reduce the Commitments if the payment required by the next sentence as a
result of such reduction would result in any outstanding Eurodollar Advances
being repaid, in whole or in part, prior to the last day of the Interest
Period applicable to such Advances. Upon any reduction in the Commitments
pursuant to this Section 2.14, the Company shall pay to the Agent for the
account of the Banks the amount, if any, by which the Total Outstandings
exceed the Aggregate Commitment Amount after giving effect to such reduction.
Upon termination of the Commitments pursuant to this Section, the Company
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shall pay to the Agent for the account of the Banks the full amount of all
outstanding Loans, all accrued and unpaid interest thereon, all unpaid
Commitment Fees accrued to the date of such termination, any indemnities
payable pursuant to Section 2.25 and all other unpaid obligations of the
Company to the Banks and the Agent hereunder, and shall deposit with U.S.
Bank in the Holding Account an amount equal to the Letter of Credit Usage as
of such date.
Section 2.15 AGENT'S FEES. The Company shall pay to the Agent
fees in accordance with the terms of a letter agreement between the Company
and the Agent concerning such fees. The Agent may separately agree with any
Bank to pay a portion of such fees to such Bank, but shall not be obligated
to pay such portion to such Bank unless and until the same is received from
the Company.
Section 2.16 COMMITMENT FEES. The Company shall pay to the Agent,
for the account of the Banks, for the period from the Effective Date until
the Termination Date, fees (the "Commitment Fees") in an amount equal to (a)
if at any time during a calendar quarter any Loans were outstanding, 0.25%
per annum, and (b) otherwise, the Applicable Commitment Fee Percentage per
annum (determined daily on a floating basis), of the average daily Unused
Commitment Amount. Such Commitment Fees are payable quarterly in arrears on
the first day of the following calendar quarter and on the Termination Date.
Section 2.17 LETTER OF CREDIT FEES. For each Letter of Credit
issued or extended, the Company shall pay to the Agent for the account of the
Banks, in advance on the date of issuance or extension, a fee (a "Letter of
Credit Fee") in an amount equal to the Applicable Letter of Credit Fee
Percentage per annum, as in effect on the date of issuance or extension, of
the original face amount of the Letter of Credit for the period from the date
of issuance or extension to the scheduled expiration date of such Letter of
Credit. The Company shall also pay to U.S. Bank, for its own account, on
demand, all issuance, amendment, drawing and other fees regularly charged by
U.S. Bank to its letter of credit customers and all out-of-pocket expenses
incurred by U.S. Bank in connection with the issuance, amendment,
administration or payment of any Letter of Credit.
Section 2.18 COMPUTATION. Commitment Fees, Letter of Credit Fees
and interest on Advances shall be computed on the basis of actual days
elapsed (or, in the case of Letter of Credit Fees which are paid in advance,
actual days to elapse) and a year of 360 days.
Section 2.19 PAYMENTS. Payments and prepayments of principal of,
and interest on, the Notes and all fees, expenses and other obligations under
this Agreement
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payable to the Agent or the Banks shall be made without setoff or
counterclaim in Immediately Available Funds not later than 12:00 noon
(Minneapolis time) (except as otherwise provided herein) on the dates called
for under this Agreement to the Agent at its main office in Minneapolis,
Minnesota. Payments payable to U.S. Bank for its own account in respect of
Letters of Credit under this Agreement shall be made without setoff or
counterclaim in Immediately Available Funds not later than 12:00 noon
(Minneapolis time) (except as otherwise provided herein) on the dates called
for in this Agreement to U.S. Bank at its main office in Minneapolis,
Minnesota. Funds received after such time shall be deemed to have been
received on the next Business Day. The Agent will promptly distribute in
like funds to each Bank its Pro Rata Share of each payment of principal or
interest applied to the Revolving Notes, and each payment of Commitment Fees,
Letter of Credit Fees or other amounts received by the Agent for the account
of the Banks. If the Agent does not make any such distribution (or provide
Federal Reserve Bank reference numbers for the wire transfer of the amount
thereof) by 3:00 P.M. (Minneapolis time) on the date such payment of
principal, interest or other amounts is received or deemed received under
this Section 2.19, the Agent will pay interest to each Bank entitled to
receive a portion of such distribution on the amount distributable to it at
the Federal Funds Rate from the date such payment was received or deemed
received until the date such distribution is made, such interest to be
payable with such distribution. Whenever any payment to be made hereunder or
on the Notes shall be stated to be due on a day which is not a Business Day,
such payment shall be made on the next succeeding Business Day and such
extension of time, in he case of a payment of principal, shall be included in
the computation of any interest on such principal.
Section 2.20 USE OF LOAN PROCEEDS. The proceeds of the Loans
shall be used for the general corporate purposes of the Company and its
Subsidiaries in a manner not in conflict with any of the covenants in this
Agreement.
Section 2.21 INTEREST RATE NOT ASCERTAINABLE, ETC. If, on or
prior to the date for determining the Adjusted Eurodollar Rate in respect of
the Interest Period, any Bank reasonably determines (which determination
shall be conclusive and binding, absent error) that:
(a) deposits in dollars (in the applicable amount) are not
being made available to such Bank in the relevant market for such Interest
Period, or
(b) the Adjusted Eurodollar Rate will not adequately and fairly
reflect the cost to such Bank of funding or maintaining Eurodollar Advances
for such Interest Period,
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such Bank shall forthwith give notice to the Agent and the Company and the
other Banks of such determination, whereupon the obligation of such Bank to
make or continue, or to convert any Advances to, Eurodollar Advances shall be
suspended until such Bank notifies the Company and the Agent that the
circumstances giving rise to such suspension no longer exist. While any such
suspension continues, all further Advances by such Bank shall be made as
Reference Rate Advances. No such suspension shall affect the interest rate
then in effect during the applicable Interest Period for any Eurodollar
Advance outstanding at the time such suspension is imposed.
Section 2.22 INCREASED COST. If, after the date hereof, any
Regulatory Change:
(a) shall subject any Bank (or its applicable lending office)
to any tax, duty or other charge with respect to its Eurodollar Advances,
its Note(s), its obligation to make Eurodollar Advances, its issuance of
Letters of Credit or its obligation to make Letter of Credit Loans, or
shall change the basis of taxation of payment to any Bank (or its
applicable lending office) of the principal of or interest on its
Eurodollar Advances, or any other amounts due under this Agreement in
respect of its Eurodollar Advances, its obligation to make Eurodollar
Advances, its obligation to issue Letters of Credit or its obligation to
make Letter of Credit Loans (except for changes in the rate of tax on the
overall net income of such Bank or its applicable lending office imposed
by the jurisdiction in which such Bank's principal office or applicable
lending office is located); or
(b) shall impose, modify or deem applicable any reserve,
special deposit, capital requirement or similar requirement (including,
without limitation, any such requirement imposed by the Board of Governors
of the Federal Reserve System, but excluding with respect to any
Eurodollar Advance any such requirement to the extent included in
calculating the applicable Adjusted Eurodollar Rate) against assets of,
deposits with or for the account of, or credit extended by, any Bank's
applicable lending office or shall impose on any Bank (or its applicable
lending office) or on the interbank eurodollar market any other condition
affecting its Eurodollar Advances, its Note(s), its obligation to make
Eurodollar Advances, its obligation to issue Letters of Credit or its
obligations to make Letter of Credit Loans;
and the result of any of the foregoing is to increase the cost to such Bank
(or its applicable lending office) of making or maintaining any Eurodollar
Advance, issuing or maintaining Letters of Credit or making Letter of Credit
Loans, or to reduce the amount
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of any sum received or receivable by such Bank (or its applicable lending
office) under this Agreement or under its Note(s), then, within 30 days after
demand by such Bank (with a copy to the Agent), the Company shall pay to such
Bank such additional amount or amounts as will compensate such Bank for such
increased cost or reduction. Each Bank will promptly notify the Company and
the Agent of any Regulatory Change of which it has knowledge, occurring after
the date hereof, which will entitle such Bank to compensation pursuant to
this Section 2.22 and will designate a different applicable lending office if
such designation will avoid the need for, or reduce the amount of, such
compensation and will not, in the judgment of such Bank, be otherwise
disadvantageous to such Bank. A certificate of any Bank claiming
compensation under this Section 2.22, setting forth the additional amount or
amounts to be paid to it hereunder and stating in reasonable detail the basis
for the charge and the method of computation, shall be conclusive in the
absence of error. In determining such amount, any Bank may use any
reasonable averaging and attribution methods. The Company shall not be
obligated to pay any such amount that is attributable to the period ending 91
days prior to the date of the first notice delivered by any Bank under the
third preceding sentence with respect to any Regulatory Change (the
"Excluded Period"), except to the extent any amount is attributable to the
Excluded Period as a result of the retroactive application of the applicable
Regulatory Change. Failure on the part of any Bank to demand compensation
for any increased costs or reduction in amounts received or receivable with
respect to any Interest Period or other applicable period shall not constiute
a waiver of such Bank's rights to demand compensation for any increased costs
or reduction in amounts received or receivable in any subsequent Interest
Period or other applicable period.
Section 2.23 ILLEGALITY. If, after the date of this Agreement,
any Regulatory Change shall make it unlawful or impossible for such Bank to
make, maintain or fund any Eurodollar Advances, such Bank shall notify the
Company and the Agent, whereupon the obligation of such Bank to make or
continue, or to convert any Advances to, Eurodollar Advances shall be
suspended until such Bank notifies the Company and the Agent that the
circumstances giving rise to such suspension no longer exist. Before giving
any such notice, such Bank shall designate a different applicable lending
office if such designation will avoid the need for giving such notice and
will not, in the judgment of such Bank, be otherwise disadvantageous to such
Bank. If such Bank determines that it may not lawfully continue to maintain
any Eurodollar Advances to the end of the applicable Interest Periods, all of
the affected Advances shall be automatically converted to Reference Rate
Advances as of the date of such Bank's notice, and upon such conversion the
Company shall indemnify such Bank in accordance with Section 2.25.
Section 2.24 CAPITAL ADEQUACY. In the event that any Bank shall
have reasonably determined that any Regulatory Change has or shall have the
effect of
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reducing the rate of return on such Bank's capital or the capital of its
parent corporation as a consequence of its Commitment, the Advances and/or
the Letters of Credit or its obligations to make Loans to cover Unpaid Draws
to a level below that which such Bank or its parent corporation could have
achieved but for such Regulatory Change (taking into account such Bank's
policies and the policies of its parent corporation with respect to capital
adequacy), then the Company shall, within ten days after written notice and
demand from such Bank (with a copy to the Agent), pay to such Bank additional
amounts sufficient to compensate such Bank or its parent corporation for such
reduction; PROVIDED, that the Company shall not be obligated to pay any such
additional amount (i) unless such Bank shall first have notified the Company
in writing that it intends to seek such compensation pursuant to this Section
2.24 and (ii) that is attributable to the period ending 91 days prior to the
date of such notice with respect to any Regulatory Change (the "Excluded
Period"), except to the extent any amount is attributable to the Excluded
Period as a result of the retroactive application of the applicable
Regulatory Change. Any determination by such Bank under this Section and any
certificate as to the amount of such reduction given to the Company by such
Bank shall be final, conclusive and binding for all purposes, absent error.
Section 2.25 FUNDING LOSSES. The Company shall compensate each
Bank, upon its written request, for all losses, expenses and liabilities
(including, without limitation, any interest paid by such Bank to lenders of
funds borrowed by it to make or carry Eurodollar Advances to the extent not
recovered by such Bank in connection with the re-employment of such funds and
including loss of anticipated profits) which such Bank may sustain: (a) if
for any reason, other than a default by such Bank, a funding of a Eurodollar
Advance does not occur on the date specified therefor in the Company's
request or notice as to such Advance under Section 2.02 or 2.04, or (b) if,
for whatever reason (including, but not limited to, acceleration of the
maturity of Advances following an Event of Default), any repayment or
prepayment of a Eurodollar Advance, or a conversion pursuant to Section 2.23,
occurs on any day other than the last day of the Interest Period applicable
thereto. A Bank's request for compensation shall set forth the basis for the
amount requested and shall be final, conclusive and binding, absent error.
Section 2.26 DISCRETION OF BANKS AS TO MANNER OF FUNDING. Each
Bank shall be entitled to fund and maintain its funding of Eurodollar
Advances in any manner it may elect, it being understood, however, that for
the purposes of this Agreement all determinations hereunder (including, but
not limited to, determinations under Section 2.25, but excluding
determinations of the Eurodollar Rate that the Agent may elect to make from
the Telerate or Reuters screen) shall be made as if such Bank had actually
funded and maintained each Eurodollar Advance during the Interest Period for
such
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Advance through the purchase of deposits having a maturity corresponding to
the last day of the applicable Interest Period and an interest rate equal to
the Eurodollar Rate.
Section 2.27 SETOFF. Whenever an Event of Default shall have
occurred and be continuing, the Company hereby irrevocably authorizes each
Bank to set off the Obligations owed to it (including, without limitation,
any participation in the Obligations of other Banks purchased pursuant to
Section 7.10 or 7.11) against all deposits and credits of the Company with,
and any and all claims of the Company against, such Bank. Such right shall
exist whether or not the Agent shall have made any demand hereunder or under
any other Loan Document, whether or not such indebtedness, or any part
thereof, or deposits and credits held for the account of the Company is or
are matured or unmatured, and regardless of the existence or adequacy of any
collateral, guaranty or any other security, right or remedy available to the
Banks. Each Bank agrees that, as promptly as is reasonably possible after
the exercise of any such setoff right, it shall notify the Agent and the
Company of its exercise of such setoff right; PROVIDED, HOWEVER, that the
failure of any Bank to provide such notice shall not effect the validity of
the exercise of such setoff rights. Nothing in this Agreement shall be
deemed a waiver or prohibition of or restriction on any rights of banker's
lien, setoff and counterclaim available to any Bank pursuant to law.
Section 2.28 WITHHOLDING TAXES.
(a) BANKS TO SUBMIT FORMS. Each Bank represents to the Company
and the Agent that it is either (i) organized under the laws of the United
States or any State thereof or (ii) is entitled to complete exemption from
United States withholding tax imposed on or with respect to any payments,
including fees, to be made pursuant to this Agreement (x) under an applicable
provision of a tax convention to which the United States is a party or (y)
because it is acting through a branch, agency or office in the United States
and any payment to be received by it hereunder is effectively connected with
a trade or business in the United States. Each Bank that is not a United
States person (as such term is defined in Section 7701(a)(30) of the Code)
shall submit to the Company and the Agent, on or before the Closing Date or
the day on which such Bank becomes such under Section 8.01(b) or 8.05(b),
duly completed and signed copies of either Form 1001 (relating to such Bank
and entitling it to a complete exemption from withholding on all payments to
be received by such Bank hereunder) or Form 4224 (relating to all payments to
be received by such Bank hereunder) of the United States Internal Revenue
Service. Thereafter and from time to time, each such Bank shall submit to
the Company and the Agent such additional duly completed and signed copies of
one or the other of such Forms (or such successor Forms as shall be adopted
from time to time by the relevant United States taxing authorities) as may be
(i) reasonably requested
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by the Company or the Agent and (ii) required and permitted under
then-current United States law or regulations to avoid United States
withholding taxes on payments in respect of all payments to be received by
such Bank hereunder. Upon the request of the Company or the Agent, each Bank
that is a United States person (as such term is defined in Section
7701(a)(30) of the Code) shall submit to the Company and the Agent a
certificate in such form as is reasonably satisfactory to the Company and the
Agent to the effect that it is such a United States person.
(b) INABILITY OF A BANK. If any Bank that is not a United States
person (as such term is defined in Section 7701(a)(30) of the Code)
determines that, as a result of any Regulatory Change, the Company is
required by law or regulation to make any deduction, withholding or backup
withholding of any taxes, levies, imposts, duties, fees, liabilities or
similar charges of the United States of America, any possession or territory
of the United States of America (including the Commonwealth of Puerto Rico)
or any area subject to the jurisdiction of the United States of America
("U.S. TAXES") from any payments to a Bank pursuant to any Loan Document in
respect of the Obligations payable to such Bank then or thereafter
outstanding, the amount payable will be increased to the amount which, after
deduction from such increased amount of all U.S. Taxes required to be
withheld or deducted therefrom, will yield the amount required under any Loan
Document to be paid with respect thereto; PROVIDED, that the Company shall
not be required to pay any additional amount pursuant to this Section 2.28(b)
to any Bank (i) that is not, either on the date this Agreement is executed by
such Bank or on the date such Bank becomes such under Section 8.01(b) or
8.05(b), either (x) entitled to submit Form 1001 (relating to such Bank and
entitling it to a complete exemption from withholding on all payments to be
received by such Bank hereunder) or Form 4224 (relating to all payments to be
received by such Bank hereunder) or (y) a United States person (as such term
is defined in Section 7701(a)(30) of the Code), or (ii) that has failed to
submit any form or certificate that it was required to file pursuant to
subsection (a) and entitled to file under applicable law or (iii) arising
from such Bank's failure to comply with any certification, identification or
other similar requirement under United States income tax laws or regulations
(including backup withholding) to establish entitlement to exemption from
such U.S. Taxes; and PROVIDED, FURTHER, that if a Bank, as a result of any
amount paid by the Company to such Bank pursuant to this Section 2.28, shall
realize a tax credit or refund, which tax credit or refund would not have
been realized but for the Company's payment of such amount, such Bank shall
pay to the Company an amount equal to such tax credit or refund. Each Bank
may determine the portion, if any, of any tax credit or refund attributable
to the Company's payments using such attribution and accounting methods as
such Bank reasonably selects, and such Bank's determination of the portion of
any tax credit or refund attributable to the Company's payments shall be
conclusive in the absence of manifest error. The obligation of the Company
under this
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Section 2.28(b) shall survive the payment in full of the Obligations and the
termination of the Commitments of such Bank.
(c) SUBSTITUTION OF BANK. In the event the Company is required
pursuant to this Section 2.28 to pay any additional amount to any Bank, such
Bank shall, if no Event of Default or Unmatured Event of Default has occurred
and is continuing, upon the request of the Company to such Bank and the
Agent, assign, pursuant to and in accordance with the provisions of Section
8.05(b), all of its rights and obligations under this Agreement and under the
Loan Documents to another Bank or an assignee selected by the Company and
reasonably satisfactory to the Agent, in consideration for (i) the payment by
such assignee to the assigning Bank of the principal of, and interest accrued
and unpaid to the date of such assignment on, the Note of such Bank, (ii) the
payment by the Company to the assigning Bank of any and all other amounts
owing to such Bank under any provision of this Agreement accrued and unpaid
to the date of such assignment and (iii) the Company's release of the
assigning Bank from any further obligation or liability under this Agreement.
Notwithstanding anything to the contrary in this Section 2.28(c), in no
event shall the replacement of any Bank result in a decrease in the aggregate
Commitment Amounts without the written consent of the Majority Banks.
ARTICLE III
CONDITIONS PRECEDENT
Section 3.01 CONDITIONS PRECEDENT TO INITIAL LOAN. The obligation
of the Banks to make the initial Loans hereunder, and the obligation of U.S.
Bank to issue the initial Letter of Credit hereunder, shall be subject to the
prior or simultaneous fulfillment of each of the following conditions:
(a) the Agent shall have received the following:
(i) Revolving Notes payable to the Banks, duly executed
by the Company, complying with the requirements of Section 2.03;
(ii) Guaranties of BB Concepts, BB Stores, BB Investments
and BBC Property, duly executed by each such Subsidiary;
(iii) copies of the articles or certificate of
incorporation or organization, including all amendments thereto, of
the Company, BB Stores, BB Concepts, BB Investments and BBC
Property., certified as of a
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recent date prior to the Effective Date by the appropriate
governmental official of the jurisdiction of its incorporation or
organization;
(iv) long-form certificates of good standing of the
Company, BB Concepts, BB Stores, BB Investments and BBC Property, as
of a recent date, from such governmental official;
(v) certificates of the Secretary or an Assistant
Secretary of the Company, BB Concepts, BB Investments, BB Stores and
BBC Property, dated the Effective Date, certifying (A) that attached
thereto is a true and complete copy of the by-laws of the Company or
such Subsidiary as in effect on such date, (B) that attached thereto
is a true and complete copy of resolutions duly adopted by the Board
of Directors, sole shareholder or other governing body of the Company
or such Subsidiary, authorizing the execution, delivery and
performance of the Loan Documents to which it is a party and, in the
case of the Company, the borrowings thereunder, and certifying that
such resolutions have not been modified, rescinded or amended and are
in full force and effect, (C) that the articles or certificate of
incorporation or organization of the Company or such Subsidiary have
not been amended since the date of the last amendment thereto shown
on the certificate of good standing furnished pursuant to Section
3.01(a)(iv), and (D) as to the authority, incumbency and specimen
signature of each officer executing any Loan Document or any other
document delivered in connection herewith or therewith on behalf of
the Company or such Subsidiary;
(vi) the favorable written opinion of Robins, Kaplan,
Miller & Ciresi, counsel for the Company and its Subsidiaries,
addressed to the Banks, as to the matters and to the effect set forth
in Exhibit E;
(vii) a copy of a letter from the Company to the
accounting firm that audited the financial statements referred to in
Section 4.05, informing such accounting firm that the Banks are
extending credit in reliance on such statements; and
(viii) a certificate of the Senior Vice President and
Treasurer of the Company to the effect that, as of the Effective
Date, the representations and warranties of the Company set forth
herein and of BB Concepts, BB Investments, BB Stores and BBC Property
set forth in its
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Guaranty are true and correct, and that no event of Default or
Unmatured Event of Default has occurred or will exist.
(b) the Agent shall have received evidence satisfactory to it
that, simultaneously with the effectiveness of this Agreement, the
Existing Credit Agreement will have terminated and all obligations of the
Company to the agent and the lenders thereunder will have been paid and
performed in full;
(c) the Agent and the Banks shall have received all fees and
other amounts due and payable by the Company to the Agent and the Banks
under, or as contemplated by, this Agreement or any other Loan Document on
or prior to the Effective Date, including, but not limited to, the
reasonable fees and expenses of counsel to the Agent payable pursuant to
Section 8.03(a); and
(d) the Company shall have performed and complied with all
agreements, terms and conditions contained in this Agreement required to
be performed or complied with by the Company prior to or simultaneously
with the Effective Date.
Section 3.02 CONDITIONS PRECEDENT TO EACH LOAN. The obligation of
the Banks to make all Loans (including the initial Loan) other than Letter of
Credit Loans, to continue any Eurodollar Advances as such or to convert any
outstanding Advances to Eurodollar Advances, and the obligation of U.S. Bank
to issue Letters of Credit, shall be subject to the fulfillment of the
following conditions:
(a) the representations and warranties of the Company contained
in Article IV and of BB Concepts, BB Stores, BB Investments and BBC
Property contained in its Guaranty shall be true and correct on and as of
the date on which each Loan is requested to be made, on which each Advance
is requested to be continued or converted or on which each Letter of Credit
is requested to be issued, with the same force and effect as if made on and
as of such date, and the giving of the relevant Notice of Borrowing,
Continuation or Conversion or the making of the relevant request for the
issuance of a Letter of Credit shall constitute a representation and
warranty to such effect;
(b) no Event of Default or Unmatured Event of Default shall
have occurred and be continuing on the Borrowing Date or would exist after
giving effect to the making of the requested Loan, the requested
continuation or conversion of an Advance or the issuance of the requested
Letter of Credit; and
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(c) the Agent shall have received a timely and properly
completed Notice of Borrowing, Continuation or Conversion, as required
under Section 2.02 or Section 2.05, or U.S. Bank shall have received a
timely and properly completed written request for the issuance of a Letter
of Credit, as required under Section 2.09.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
To induce the Banks to enter into this Agreement, to grant their
respective Commitments and to make Loans thereunder, and to induce U.S. Bank
to issue Letters of Credit hereunder, the Company hereby represents and
warrants to the Banks that:
Section 4.01 ORGANIZATION, STANDING, ETC. The Company is a
corporation duly incorporated, validly existing and in good standing under
the laws of the jurisdiction of its incorporation and has all requisite
corporate power and authority to carry on its business as now conducted, to
enter into this Agreement and to perform its obligations under each Loan
Document to which it is a party. Each Subsidiary of the Company is duly
organized, validly existing and in good standing under the laws of its
jurisdiction of organization and has all requisite power and authority to
carry on its business as now conducted. The Company and each Subsidiary
(a) holds all certificates of authority, licenses and permits necessary to
carry on its business as presently conducted in each jurisdiction in which it
is carrying on such business, except where the failure to hold such
certificates, licenses or permits would not have a Material Adverse Effect,
and (b) is duly qualified and in good standing as a foreign corporation in
each jurisdiction in which the character of the properties owned, leased or
operated by it or the business conducted by it makes such qualification
necessary and the failure so to qualify would permanently preclude it from
enforcing its rights with respect to any assets or expose it to any
liability, which in either case would be material to it.
Section 4.02 AUTHORIZATION AND VALIDITY. The execution, delivery
and performance by the Company of each Loan Document to which it is a party
have been duly authorized by all necessary corporate action, and this
Agreement and each other Loan Document to which the Company is a party
constitutes the legal, valid and binding obligations of the Company,
enforceable against the Company in accordance with its respective terms,
subject to limitations as to enforceability which might result from
bankruptcy, insolvency, moratorium and other similar laws affecting
creditors' rights generally and general principles of equity. The execution,
delivery and performance by each of BB Concepts, BB Investments, BB Stores
and BBC Property of its Guaranty have been duly authorized by all necessary
corporate action, and each Guaranty
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constitutes the legal, valid and binding obligations of the Subsidiary party
to it, enforceable against such Subsidiary in accordance with its respective
terms, subject to limitations as to enforceability which might result from
bankruptcy, insolvency, moratorium and other similar laws affecting
creditors' rights generally and general principles of equity.
Section 4.03 COMPLIANCE WITH LAW AND OTHER AGREEMENTS. The
execution, delivery and performance by the Company, BB Concepts, BB
Investments, BB Stores, BBC Property and each Operating Subsidiary of each
Loan Document to which it is a party will not (a) violate any provision of any
law, statute, rule or regulation or any order, writ, judgment, injunction,
decree, determination or award of any Governmental Authority applicable to
the Company or any Subsidiary, (b) violate or contravene any provision of the
Articles or Certificate of Incorporation or bylaws of the Company or any
Subsidiary, or (c) result in a breach of or constitute a default under any
indenture, loan or credit agreement or any other agreement, lease or
instrument to which the Company or any Subsidiary is a party or by which the
Company, any Subsidiary or any of their properties may be bound, or result in
the creation of any Lien thereunder. Neither the Company nor any Subsidiary
is in default under or in violation of any law, statute, rule or regulation,
order, writ, judgment, injunction, decree, determination or award of any
Governmental Authority applicable to it or any indenture, loan or credit
agreement or other agreement, lease or instrument to which it is a party or
by which it or any of its properties may be bound in any case in which the
consequences of such default or violation would have a Material Adverse
Effect.
Section 4.04 GOVERNMENTAL CONSENT. No order, consent, approval,
license, authorization or validation of, or filing, recording or registration
with, or exemption by, any Governmental Authority is required on the part of
the Company or any Subsidiary to authorize, or is required in connection
with, the execution, delivery and performance of, or the legality, validity,
binding effect or enforceability of, the Loan Documents.
Section 4.05 FINANCIAL STATEMENTS AND NO MATERIAL ADVERSE CHANGE.
The Company's audited financial statements as of February 27, 1999, and its
consolidated unaudited financial statements as of May 29, 1999, as heretofore
furnished to the Banks, have been prepared in conformity with GAAP on a
consistent basis (except for year-end audit adjustments as to the unaudited
statements) and fairly present the consolidated financial condition of the
Company as at such dates and the results of its operations and cash flow for
the respective periods then ended. As of the dates of such financial
statements, neither the Company nor any Subsidiary had any material
obligation, contingent liability, liability for taxes or long-term lease
obligations or unusual forward or long-term commitment which is not either
reflected in such financial statements or in
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the notes thereto. Since the date of the Company's most recent audited
financial statements delivered to the Banks, there has been no material
adverse change in the business, operations, property, assets or condition,
financial or otherwise, of the Company or any Subsidiary.
Section 4.06 LITIGATION. There are no actions, suits or
proceedings pending or, to the knowledge of the Company, threatened against
or affecting the Company, any Subsidiary or any of their properties before
any arbitrator or any Governmental Authority which has had, or, if determined
adversely to the Company or such Subsidiary, would likely have, a Material
Adverse Effect.
Section 4.07 ERISA. Each Plan complies with all material
applicable requirements of ERISA and the Code and with all material
applicable rulings and regulations issued under the provisions of ERISA and
the Code setting forth those requirements. No Reportable Event has occurred
and is continuing with respect to any Plan. All of the minimum funding
standards applicable to such Plans have been satisfied and there exists no
event or condition which would permit the institution of proceedings to
terminate any Plan under Section 4042 of ERISA. The current value of the
Plans' benefits guaranteed under Title IV of ERISA does not exceed the
current value of the Plans' assets allocable to such benefits. As of the
Signing Date, neither the Company nor any ERISA Affiliate is a party to or
has any liability to any Multiemployer Plan.
Section 4.08 ENVIRONMENTAL, HEALTH AND SAFETY LAWS. There does
not exist any violation by the Company or any Subsidiary of any applicable
federal, state or local law, rule or regulation or order of any government,
governmental department, board, agency or other instrumentality relating to
environmental, pollution, health or safety matters which will or threatens to
impose a material liability on the Company or a Subsidiary or which would
require a material expenditure by the Company or such Subsidiary to cure.
Neither the Company nor any Subsidiary has received any notice to the effect
that any part of its operations or properties is not in material compliance
with any such law, rule, regulation or order or notice that it or its
property is the subject of any governmental investigation evaluating whether
any remedial action is needed to respond to any release of any toxic or
hazardous waste or substance into the environment, which non-compliance or
remedial action could reasonably be expected to have a Material Adverse
Effect on the Company.
Section 4.09 FEDERAL RESERVE REGULATIONS. Neither the Company nor
any Subsidiary is engaged principally or as one of its important activities
in the business of extending credit for the purpose of purchasing or carrying
margin stock and no part of the proceeds of any Loan will be used, whether
directly or indirectly, and whether
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immediately, incidentally or ultimately, (a) to purchase or carry margin stock
or to extend credit to others for the purpose of purchasing or carrying
margin stock or to refund indebtedness originally incurred for such purpose
or (b) for any purpose which entails a violation of, or which is inconsistent
with, the provisions of Regulations U or X. The value of all margin stock
owned by the Company and its Subsidiaries does not constitute more than 25%
of the value of the consolidated assets of the Company.
Section 4.10 TITLE TO PROPERTY; POSSESSION UNDER LEASES. Each of
the Company and its Subsidiaries has good title, free of all Liens other than
those permitted by Section 5.12 hereof, to all of the properties and assets
reflected in the most recent financial statements delivered to the Banks
hereunder as being owned by it and all assets acquired subsequent to the date
of such financial statements, except for assets disposed of in the ordinary
course of business. To the knowledge of the Company, there are no actual,
threatened or alleged material defaults with respect to any leases of any
real or personal property under which the Company or any of its Subsidiaries
is lessor.
Section 4.11 TAXES. The Company and its Subsidiaries have filed
all federal, state, local and foreign tax returns required to be filed by
them and have paid or made provision for the payment of all taxes due and
payable pursuant to such returns and pursuant to any assessments made against
them or any of their property and all other taxes, fees and other charges
imposed on them or any of their property by any Governmental Authority (other
than taxes, fees or charges the amount or validity of which is currently
being contested in good faith by appropriate proceedings and with respect to
which adequate reserves have been set aside on the books of the Company or
such Subsidiary in conformity with GAAP). No tax Liens have been filed and
no material claims are being asserted with respect to any such taxes, fees or
charges. The charges, accruals and reserves on the books of the Company and
each Subsidiary in respect of taxes and other governmental charges are
adequate and the Company knows of no proposed material tax assessment against
it or any Subsidiary or any basis therefor. The United States income tax
returns of the Company and its Subsidiaries have been audited by the Internal
Revenue Service, or the period for audit thereof has expired, for all fiscal
years of the Company ending on or before March 31, 1996.
Section 4.12 TRADEMARKS, PATENTS. Each of the Company and its
Subsidiaries possesses or has the right to use all of the patents,
trademarks, trade names, service marks and copyrights, and applications
therefor, and all technology, know-how, processes, methods and designs used
in or necessary for the conduct of its business, without known conflict with
the rights of others except conflicts that would not be likely to have a
Material Adverse Effect on the Company.
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Section 4.13 BUSINESS AND PROPERTIES OF COMPANY AND ITS
SUBSIDIARIES. Since the date of the most recent financial statements
delivered to the Banks hereunder, the business, properties and other assets
of the Company and its Subsidiaries have not been materially and adversely
affected in any way as the result of any fire or other casualty, strike,
lockout, or other labor trouble, embargo, sabotage, confiscation,
condemnation, riot, civil disturbance, activity of armed forces or act of God.
Section 4.14 SECURITIES LAWS. Neither the Company nor any
Subsidiary has issued any unregistered securities in violation of the
registration requirements of Section 5 of the Securities Act of 1933, as
amended, or any other federal, state or foreign law, nor is the Company or
any Subsidiary violating any rule, regulation or requirement under the
Securities Act of 1933, as amended, or the Securities Exchange Act of 1934,
as amended, or other federal, state or foreign law in any material respect.
Section 4.15 INVESTMENT COMPANY ACT. The Company is not an
"investment company" or a company "controlled" by an investment company
within the meaning of the Investment Company Act of 1940, as amended.
Section 4.16 PUBLIC UTILITY HOLDING COMPANY ACT. The Company is
not a "holding company" or a "subsidiary company" of a holding company or an
"affiliate" of a holding company or of a subsidiary company of a holding
company within the meaning of the Public Utility Holding Company Act of 1940,
as amended.
Section 4.17 RETIREMENT BENEFITS. Except as required under
Section 4980B of the Code, Section 601 of ERISA or applicable state law,
neither the Company nor any Subsidiary is obligated to provide
post-retirement medical or insurance benefits with respect to employees or
former employees.
Section 4.18 INDEBTEDNESS. The Company and its Subsidiaries have
no outstanding Indebtedness except Indebtedness permitted pursuant to
Section 5.13.
Section 4.19 SUBSIDIARIES. Schedule 4.19 sets forth the name of
each of the Company's Subsidiaries as of the Signing Date and, as to each
Subsidiary, the jurisdiction of its incorporation, the authorized and
outstanding capital stock thereof by class and number, the name of each
Person owning such capital stock and a description (by type and amount) of
each Investment by the Company therein other than the ownership of its
capital stock. There are no warrants, options or other rights to purchase any
such capital stock.
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Section 4.20 MILLENNIUM COMPLIANCE; YEAR 2000. Borrower has
reviewed and assessed its business operations and computer systems and
applications to address the "year 2000 problem" (that is, that computer
applications and equipment used by Borrower, directly or indirectly through
third parties, may be unable to properly perform date-sensitive functions
before, during and after January 1, 2000). Borrower reasonably believes that
the year 2000 problem will not result in a material adverse change in
Borrower's business condition (financial or otherwise), operations,
properties or prospects or ability to repay Lender. Borrower is in the
process of implementing a plan to remediate year 2000 problems and will
complete implementation of such plan with respect to any material year 2000
problems, and testing thereof, by September 30, 1999. Borrower agrees that
this representation will be true and correct on and shall be deemed made by
Borrower on each date Borrower requests any advance under this Agreement or
Note or delivers any information to Lender. Borrower will promptly deliver
to Lender such information relating to this representation and covenant as
Lender requests from time to time.
Section 4.21 FULL DISCLOSURE. Subject to the following sentence,
neither the financial statements delivered to the Banks hereunder nor any
other certificate, written statement, exhibit or report furnished by or on
behalf of the Company in connection with or pursuant to this Agreement
contains any untrue statement of a material fact or omits to state any
material fact necessary in order to make the statements contained therein not
misleading. Certificates or statements furnished by or on behalf of the
Company to the Agent or any Bank consisting of projections or forecasts of
future results or events have been prepared in good faith and are based on
good faith estimates and assumptions of the management of the Company, and
the Company has no reason to believe that such projections or forecasts are
not reasonable.
ARTICLE V
COVENANTS
Until the Commitments shall have expired or been terminated and all
of the Obligations shall have been paid in full, unless the Majority Banks
shall otherwise consent in writing, the Company will comply with the
following covenants:
Section 5.01 FINANCIAL STATEMENTS. Furnish to the Agent, with a
copy for each Bank:
(a) as soon as available and in any event within 90 days after
the end of each fiscal year of the Company, a copy of the consolidated
financial statements of the Company consisting of at least statements of
income, a
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reconciliation of changes in equity accounts and cash flow
statements for such fiscal year and balance sheets as at the end of such
fiscal year, setting forth in each case in comparative form corresponding
figures from the preceding year audit, certified without qualification as
to scope, as to the going concern nature of the Company or as to any other
matter deemed material by the Majority Banks, by Ernst & Young or other
independent certified public accountants of recognized national standing
selected by the Company and acceptable to the Agent, together with (i)to
the extent not previously delivered to such accounting firm under the terms
hereof, a letter from the Company to such accounting firm advising such
accounting firm that the Banks are extending credit in reliance on such
financial statements and (ii)a statement of the accounting firm performing
such audit to the effect that in the course of performing its examination
nothing came to its attention that caused it to believe that the Company
was not in compliance with Sections 5.21, 5.22 or 5.23;
(b) as soon as available and in any event within (i) in the
case of the last fiscal quarter of each year, 60 days and (ii) in all other
cases, 30 days, after the end of each fiscal quarter, a copy of the
unaudited consolidated financial statements of the Company consisting of at
least statements of income for said fiscal quarter and for the period from
the beginning of the fiscal year to the end of such fiscal quarter, cash
flow statements for such fiscal quarter and for the period from the
beginning of the fiscal year to the end of such fiscal quarter and balance
sheets as at the end of such fiscal quarter, setting forth, in each case,
comparative figures for the corresponding period of the preceding fiscal
year and forecasted figures for such period, certified by the chief
financial officer of the Company or his designee as being true and prepared
in accordance with GAAP, except for year-end audit adjustments and the
absence of footnotes;
(c) as soon as available and in any event within tendays after
the end of each month during which (i) any Loans were at any time
outstanding or (ii) the Letter of Credit Usage at any time exceeded
$25,000,000, and in all events prior to the making of any Loans or the
issuance of any Letter of Credit that would cause the Letter of Credit
Usage to exceed $25,000,000, for the month prior to the month in which the
Company requested the making of such Loans or the issuance of such Letter
of Credit, a properly completed Borrowing Base Certificate as of the end of
such month, signed by the Senior Vice President and Treasurer of the
Company or his designee;
(d) promptly after the sending or filing thereof, copies of all
regular and periodic financial reports which the Company or any Subsidiary
shall
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file with the Securities and Exchange Commission or any national securities
exchange;
(e) as soon as practicable and in any event on or before the
last Business Day of the second month of each fiscal year of the Company,
projections, in reasonable detail, on a quarterly basis for such fiscal
year, including projected earnings statements and cash flow statements for
each month during such fiscal year and the period from the beginning of
such fiscal year through the end of such month, and accompanying balance
sheets as of the end of such month, signed by the chief financial officer
of the Company or his designee;
(f) together with the financial statements delivered for each
fiscal quarter pursuant to Section 5.01(b), the Company's quarterly sales
release for such quarter; and
(g) such other information respecting the financial condition
and results of operations of the Company as the Agent or any Bank may
from time to time reasonably request.
(h) as soon as available and in any event within (i) in the
case of the last fiscal quarter of each year, 60 days and (ii) in all other
cases, 30 days after the end of each fiscal quarter, and together with the
financial statements required pursuant to Section 5.01(b), a properly
completed Compliance Certificate, signed by the Senior Vice President and
Treasurer of the Company or his designee.
Section 5.02 CORPORATE EXISTENCE. Except as permitted by Section
5.11, maintain, and cause each Subsidiary to maintain, its corporate existence
in good standing under the laws of its jurisdiction of incorporation and its
qualification to transact business in each jurisdiction where failure so to
qualify would permanently preclude the Company or such Subsidiary from enforcing
its rights with respect to any material asset or would expose the Company or
such Subsidiary to any material liability, and do or cause to be done, and cause
each Subsidiary to do or cause to be done, all things necessary to obtain,
preserve, renew, extend and keep in full force and effect the rights, licenses,
permits, franchises and authorizations material to the conduct of its business.
Section 5.03 COMPLIANCE WITH LAWS, ETC. Comply, and cause each
Subsidiary to comply, in all material respects with all applicable laws, rules,
regulations and orders of any Governmental Authority applicable to the Company
or such Subsidiary, whether now in effect or hereafter enacted, the failure to
comply with which has had or would likely have a Material Adverse Effect on the
Company.
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Section 5.04 INSURANCE. Keep, and cause each Subsidiary to keep,
its insurable properties adequately insured at all times by financially sound
and reputable insurers; maintain, and cause each Subsidiary to maintain, such
other insurance, in such amounts and against such risks, as is customary with
companies in the same or similar businesses, including (i) public liability
insurance against such tort claims which may be asserted against it, and (ii)
fire and other risks insured against by extended coverage; and maintain, and
cause each Subsidiary to maintain, such other insurance as may be required by
law or agreement.
Section 5.05 PAYMENT OF INDEBTEDNESS, TAXES AND CLAIMS. Pay, and
cause each of its Subsidiaries to pay, its Indebtedness and other obligations
promptly and in accordance with their terms; file, and cause each of its
Subsidiaries to file, all tax returns and reports which are required by law to
be filed by it; pay, and cause each of its Subsidiaries to pay, before they
become delinquent, all taxes, assessments and governmental charges and levies
imposed upon it or its property and all claims or demands of any kind (including
but not limited to those of suppliers, mechanics, carriers, warehousemen,
landlords and other like Persons) which, if unpaid, might result in the creation
of a Lien upon its property; PROVIDED that the foregoing items need not be paid
if they are being contested in good faith by appropriate proceedings, and as
long as the Company's or such Subsidiary's title to its property is not
materially adversely affected, its use of such property in the ordinary course
of its business is not materially interfered with and adequate reserves with
respect thereto have been set aside on the Company's or such Subsidiary's books
in conformity with GAAP.
Section 5.06 BOOKS AND RECORDS; INSPECTIONS; AUDITS. Keep, and cause
each Subsidiary to keep, proper books and records of account in which full, true
and correct entries will be made of all its dealings, business and affairs in
accordance with GAAP consistently applied and consistent with the principles
applied in the preparation of the financial statements referred to in Section
4.05; permit, and cause each Subsidiary to permit, any Person designated by any
Bank to visit and inspect any of its properties, corporate books and financial
records and to copy and make extracts therefrom and to discuss its affairs and
finances with its officers and independent certified public accountants, all at
such times as such Bank shall reasonably request; and permit the Agent or its
designee to conduct audits of the Company's inventory annually, and after the
occurrence and during the continuance of an Event of Default or an Unmatured
Event of Default, at any time at the option of the Agent. The Agent shall
provide to each of the Banks a copy of the report prepared by or for the Agent
concerning such audits. The Company shall reimburse the Agent for its costs and
expenses of conducting the audits of the Company's inventory described in the
second preceding sentence.
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Section 5.07 MAINTENANCE OF PROPERTIES. Maintain, and cause each
Subsidiary to maintain, its properties used or useful in the conduct of its
business in good condition, repair and working order, and supplied with all
necessary equipment, and make all necessary repairs, renewals, replacements,
betterments and improvements thereto, all as may be necessary so that the
business carried on in connection therewith may be properly and advantageously
conducted at all times.
Section 5.08 ERISA. Establish, maintain and operate each Plan in
compliance with all material applicable requirements of ERISA and of the Code
and with all material applicable rulings and regulations issued under the
provisions of ERISA and of the Code, and will not, and will not permit any ERISA
Affiliate to, (a) engage in any transaction in connection with which the Company
or any ERISA Affiliate would be subject to either a civil penalty assessed
pursuant to Section 502(i) of ERISA or a tax imposed by Section 4975 of the
Code, in either case in an amount exceeding $100,000, (b) fail to make full
payment when due of all amounts which, under the provisions of any Plan, the
Company or any ERISA Affiliate is required to pay as contributions thereto, or
permit to exist any accumulated funding deficiency (as such term is defined in
Section 302 of ERISA and Section 412 of the Code), whether or not waived, with
respect to any Plan in an aggregate amount exceeding $1,000,000 or (c) fail to
make any payments in an aggregate amount exceeding $1,000,000 to any
Multiemployer Plan that the Company or any ERISA Affiliate may be required to
make under any agreement relating to such Multiemployer Plan or any law
pertaining thereto.
Section 5.09 LITIGATION AND OTHER NOTICES. Furnish to the Agent,
with a copy for each Bank, written notice of the following promptly after any
officer of the Company or any Subsidiary becomes aware of the same:
(a) any Event of Default or Unmatured Event of Default,
specifying the nature and extent thereof and the corrective action (if any)
proposed to be taken with respect thereto;
(b) the filing or commencement of, or receipt of notice of
intention of any person to file or commence, any action, suit or
proceeding, whether at law or in equity or by or before any Governmental
Authority, against the Company or any Subsidiary which has had or would
likely have a Material Adverse Effect on the Company;
(c) any development affecting or relating to the Company or any
Subsidiary, including without limitation any development in litigation,
that in the
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reasonable judgment of the Company has had, or would likely have, a
Material Adverse Effect on the Company;
(d) the issuance by any Governmental Authority of any
injunction, order, decision or other restraint prohibiting, or having the
effect of prohibiting, the Loans or Letters of Credit, or the initiation of
any litigation or similar proceeding seeking any such injunction, order or
other restraint;
(e) the occurrence of any Reportable Event with respect to any
Plan and the action which is proposed to be taken with respect thereto,
together with a copy of the notice of such Reportable Event to the PBGC;
(f) any violation as to any environmental matter by the Company
or any Subsidiary or the commencement of any judicial or administrative
proceeding relating to health, safety or environmental matters (i) in which
an adverse determination or result could result in the revocation of or
have a material adverse effect on any operating permits, air emission
permits, water discharge permits, hazardous waste permits or other permits
held by the Company or any Subsidiary which are material to the operations
of the Company or such Subsidiary, or (ii) which will or threatens to
impose a material liability on the Company or such Subsidiary to any Person
or which will require a material expenditure by the Company or such
Subsidiary to cure any alleged problem or violation; or
(g) the issuance by any Governmental Authority of any
injunction, order or decision, or the entry by the Company or any
Subsidiary into an agreement with any Governmental Agency, materially
restricting the business of the Company or any Subsidiary or concerning any
material business practice of the Company or any Subsidiary.
Section 5.10 SUPPLEMENTAL DISCLOSURE. From time to time as may be
necessary (in the event that such information is not otherwise delivered by the
Company to the Banks pursuant to this Agreement), as promptly as is reasonable
under the circumstances after any executive officer of the Company or any
Subsidiary has knowledge with respect thereto, and at least quarterly,
supplement or amend and deliver to the Agent, with a copy for each Bank, each
Schedule or representation herein with respect to any matter hereafter arising
which, if existing or occurring at the Signing Date, would have been required to
be set forth or described in such Schedule or as an exception to such
representation or which is necessary to correct any information in such Schedule
or representation which has been rendered inaccurate thereby. No supplement
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to any Schedule or representation provided by the Company hereunder shall
amend this Agreement (including, without limitation, the applicable Schedule)
unless such amendment is agreed to by the requisite Banks as provided in
Section 8.01(a).
Section 5.11 RESTRICTIONS ON FUNDAMENTAL CHANGES. Not, and not
permit any Subsidiary to engage in any business activities or operations if, as
a result thereof, the general nature of the business of the Company or the
Company and its Subsidiaries taken as a whole would be substantially changed
from that conducted on the Signing Date. So long as the Company is and
continues to be in compliance with the requirements of Sections 5.21, 5.22, and
5.23 before and after any of the transactions hereinafter described, the Company
or any Subsidiary may (i) merge or consolidate with any other Person, so long as
the Company or such Subsidiary is the survivor; (ii) sell, lease or otherwise
dispose of (or enter into any commitment to convey, sell, lease, transfer or
otherwise dispose of) all or any part of its business or assets; (iii) acquire
by purchase or otherwise all of the business or property of, or stock or other
evidence of beneficial ownership of, any Person or (iv) create or acquire any
new Subsidiaries.
Section 5.12 LIENS. Not, and not permit any Subsidiary to, create,
incur, assume or suffer to be created, incurred or exist any Lien, or enter into
or make any commitment to enter into any arrangement for the acquisition of any
property through conditional sale, lease-purchase, or other title retention
agreements with respect to property now owned or hereafter acquired by the
Company or any Subsidiary, except:
(a) Liens existing on the Signing Date and described in
Schedule 5.12, and Liens on the same property securing any Indebtedness
the proceeds of which are used solely to refinance the Indebtedness
secured by such existing Liens;
(b) deposits or pledges to secure payment of workers'
compensation, unemployment insurance, old age pensions or other social
security obligations, incurred in the ordinary course of business of the
Company;
(c) Liens for taxes, fees, assessments and governmental charges
not delinquent or which are being contested in good faith by appropriate
proceedings and for which whatever reserves required by GAAP have been
established;
(d) Liens consisting of easements, rights-of-way, zoning
restrictions, restrictions on the use of real property, and defects and
irregularities in the title thereto, landlords' liens and other similar
liens and encumbrances none
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of which interfere materially with the use of the property covered thereby
in the ordinary course of the business of the Company or such Subsidiary
and which do not materially detract from the value of such properties;
(e) subject to the requirements of Section 5.17 and 5.24, Liens
created or assumed in connection with the acquisition of real or personal
property by the Company or any Subsidiary, provided that such Liens attach
only to the property acquired and secure only Indebtedness incurred solely
to finance the acquisition of such property, and Liens on the same property
securing any Indebtedness the proceeds of which are used solely to
refinance such Indebtedness;
(f) subject to the limitation set forth in Section 5.13(e),
Liens on inventory of the Company or any Subsidiary and proceeds thereof
pursuant to agreements with the suppliers of inventory or inventory lenders
to the Company or such Subsidiary, provided that such Liens attach only to
inventory financed pursuant to such agreements and secure only Indebtedness
incurred solely to finance the acquisition of such inventory by the Company
or such Subsidiary; and
(g) subject to the requirements of Sections 5.17 and 5.24,
Liens on real property (but not any equipment other than building
fixtures), provided that such Liens secure only Indebtedness incurred
solely to finance, or reimburse the Company for the cost of, Capital
Expenditures for the acquisition or construction of such real property.
Section 5.13 INDEBTEDNESS. Not, and not permit any Subsidiary to,
incur, create, issue, assume or remain liable for any Indebtedness, except:
(a) the Obligations;
(b) other Indebtedness existing on the Signing Date and described
in Schedule 5.13, and Indebtedness the proceeds of which are used solely to
refinance such Indebtedness;
(c) Subordinated Indebtedness;
(d) Indebtedness secured by Liens permitted under
Section 5.12(e) or Section 5.12(g);
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(e) Indebtedness secured by Liens permitted under Section
5.12(f), provided the amount of such Indebtedness at any time outstanding
does not exceed thirty-five percent of the lower of cost (determined on an
average cost basis) or market value of the Company's inventory;
(f) Indebtedness in respect of Documentary Letters of Credit
incurred in the ordinary course of business;
(g) Indebtedness of the Company in an amount not to exceed
$50,000,000;
(h) current liabilities, other than for borrowed money,
incurred in the ordinary course of business;
(i) Indebtedness incurred after the date hereof in order to
finance the acquisition of new corporate headquarters facilities.
Section 5.14 [INTENTIONALLY DELETED]
Section 5.15 GUARANTEES. Not, and not permit any Subsidiary to, be
or become liable on any Guarantee, except (a) Guarantees of the Indebtedness of
(i) the Company and (ii) Operating Subsidiaries; PROVIDED, that (x) to the
extent that the Indebtedness so guaranteed is subordinated to the Obligations,
such Guarantee shall be similarly subordinated to the Obligations, and any
Guarantees thereof, and (y) the Company may not amend or cancel, or permit or
consent to the amendment or cancellation of, the subordination provisions
thereof.
Section 5.16 RESTRICTED PAYMENTS. Not make Restricted Payments
unless both before and after giving effect thereto, no Event of Default or
Unmatured Event of Default will have occurred or be continuing.
Section 5.17 GENERAL CAPITAL EXPENDITURES. Not, and not permit its
Subsidiaries to, make General Capital Expenditures in an aggregate amount
exceeding $500,000,000 in any fiscal year.
Section 5.18 FEDERAL RESERVE REGULATIONS. Not use any part of the
proceeds of any Loan directly or indirectly (a)to purchase or carry margin stock
or to extend credit to others for the purpose of purchasing or carrying margin
stock or to refund Indebtedness originally incurred for such purpose or (b)for
any purpose which entails a violation of, or which is inconsistent with, the
provisions of Regulations U or X.
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Section 5.19 ENVIRONMENTAL MATTERS. Observe and comply with, and
cause each Subsidiary to observe and comply with, all laws, rules,
regulations and orders of any government or government agency relating to
health, safety, pollution, hazardous materials or other environmental matters
to the extent non-compliance could result in a Material Adverse Effect on the
Company.
Section 5.20 PAYMENT OF SUBORDINATED INDEBTEDNESS. Not, and not
permit any Subsidiary to: make any prepayment of principal of, or acquire,
redeem or otherwise retire any Subordinated Indebtedness, if an Event of Default
or Unmatured Event of Default has occurred and is continuing or will exist as a
result of such prepayment; make any payment of principal or interest on any
Subordinated Indebtedness if an Event of Default or Unmatured Event of Default
exists or otherwise in any manner inconsistent with the subordination provisions
thereof; amend or cancel or consent to or permit the amendment or cancellation
of, or the subordination provisions thereof; take or omit to take any action
whereby the subordination of such Indebtedness or any part thereof to the Notes
might be terminated, impaired or adversely affected; or omit to give the Banks
prompt written notice of any notice received from any holder of Subordinated
Indebtedness of any default under any agreement or instrument relating to any
Subordinated Indebtedness by reason whereof such Subordinated Indebtedness might
become or be declared to be due or payable.
Section 5.21 MINIMUM CONSOLIDATED NET WORTH. Not at any time
permit Consolidated Net Worth to be less than the sum of (i) $850,000,000
PLUS (ii) for each fiscal year of the Company ending after March 1, 1999,
fifty percent of the Company's consolidated net income for such fiscal year,
if positive, PLUS (iii) one hundred percent of the amount added to the net
worth of the Company as a result of the issuance and sale by the Company of
additional shares of its capital stock after March 1, 1999.
Section 5.22 CASH FLOW LEVERAGE RATIO. Not permit the Cash Flow
Leverage Ratio (a) at the end of any fiscal year of the Company to exceed the
ratio set forth for such fiscal year below:
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<TABLE>
<CAPTION>
Maximum Cash Flow
-----------------
Fiscal Year Ending Leverage Ratio
------------------ --------------
<C> <C>
February 26, 2000 3.25 to 1.0
Thereafter 3.00 to 1.0
</TABLE>
or (b) at the end of each fiscal quarter (other than the last fiscal quarter)
during any such fiscal year to exceed the ratio set forth below for such fiscal
year:
<TABLE>
<CAPTION>
Maximum Cash Flow
-----------------
Fiscal Year Ending Leverage Ratio
------------------ --------------
<S> <C>
February 26, 2000 3.75 to 1.0
Thereafter 3.50 to 1.0
</TABLE>
Section 5.23 INTEREST COVERAGE RATIO. Not permit the Interest
Coverage Ratio for any Measurement Period ending during any period described
below to be less than the ratio set forth below for such period:
<TABLE>
<CAPTION>
Measurement Minimum Interest
----------- ----------------
Period Ending Coverage Ratio
------------- --------------
<S> <C>
Effective date - November 27,
1999 2.25 to 1.00
Thereafter 2.50 to 1.00
</TABLE>
Section 5.24 OWNED LAND AND BUILDINGS. Not permit the sum of (a)
the aggregate amount of owned land and buildings of the Company and its
Subsidiaries, excluding its corporate headquarters facilities referenced to
in Section 5.13(i), plus (b) Investments at cost made to acquire new stores,
to exceed $250,000,000 at any time.
Section 5.25 NEGATIVE PLEDGES. Not, and not permit any Subsidiary
to, enter into any agreement, bond, note or other instrument for the benefit of
any Person other than the Agent and the Banks that would (a) prohibit the
Company or such Subsidiary from granting, or otherwise limit the ability of the
Company or such Subsidiary to grant, any Lien on any of its property to the
Agent, for the benefit of the Banks, or to lenders providing credit facilities
to replace the Commitments or refinance the Obligations, except limitations
created in agreements creating Liens on, and applicable only to, property on
which a Lien is granted by the Company as permitted in Sections 5.12(e), (f) or
(g), or (b) require the Company or such Subsidiary to grant a Lien
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to any other Person if the Company or such Subsidiary grants Liens to the
Agent, for the benefit of the Banks, or to lenders providing credit
facilities to replace the Commitments or refinance the Obligations.
ARTICLE VI
EVENTS OF DEFAULT AND REMEDIES
Section 6.01 EVENTS OF DEFAULT. The occurrence of any one or more of
the following events shall constitute an Event of Default:
(a) the Company shall fail to make when due, whether by
acceleration of maturity, required prepayment or otherwise, any payment of
principal of or interest on the Notes, any reimbursement obligation in
respect of a draw under a Letter of Credit or any other Obligation required
to be paid to the Agent or any Bank pursuant to this Agreement or any other
Loan Document, or fails to make, when due, any deposit into the Holding
Account required hereunder; or
(b) any representation or warranty made by or on behalf of the
Company or any Subsidiary in this Agreement or any other Loan Document or
in any certificate, statement, report or document herewith or hereafter
furnished to the Agent or any Bank pursuant to this Agreement or any other
Loan Document shall prove to have been false or misleading in any material
respect on the date as of which the facts set forth are stated or
certified; or
(c) the Company shall fail to preserve its corporate existence
under the laws of the jurisdiction of its incorporation or shall fail to
comply with any term, covenant or agreement contained in Sections 5.11,
5.12, 5.13, 5.15, 5.16, 5.17, 5.18, 5.20, 5.21, 5.22, 5.23, 5.24, or 5.25;
or
(d) the Company shall fail to comply with any other agreement,
covenant, condition, provision or term contained in this Agreement (other
than those herein above set forth in this Section 6.01) or any other Loan
Document and such failure to comply shall continue for 30 days after
whichever of the following dates is the earliest: (i) the date the Company
gives notice of such failure to the Agent, (ii) the date the Company should
have given notice of such failure to the Agent pursuant to Section 5.09, or
(iii) the date the Agent gives notice of such failure to the Company; or
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(e) the Company or any Subsidiary shall become insolvent or
shall generally not pay its debts as they mature or shall apply for, shall
consent to, or shall acquiesce in the appointment of a custodian, trustee
or receiver of the Company or any Subsidiary or for a substantial part of
the property of any of them or, in the absence of such application, consent
or acquiescence, a custodian, trustee or receiver shall be appointed for
the Company or any Subsidiary or for a substantial part of the property of
any of them or the Company or any Subsidiary shall make an assignment for
the benefit of creditors; or
(f) any bankruptcy, receivership, custodianship,
reorganization, debt arrangement or other proceedings under any bankruptcy
or insolvency law shall be instituted by or against the Company or any
Subsidiary, and, if instituted against the Company or any Subsidiary, shall
have been consented to or acquiesced in by the Company or such Subsidiary,
as applicable, or shall not have been dismissed within 60 days, or an order
for relief shall have been entered against the Company or such Subsidiary,
as applicable; or
(g) any dissolution or liquidation proceeding shall be
instituted by or against the Company or any Subsidiary and, if instituted
against the Company or any Subsidiary, shall be consented to or acquiesced
in by the Company or such Subsidiary or shall not have been dismissed
within 60 days; or
(h) one or more judgments for the payment of money in an
aggregate amount in excess of $10,000,000 shall be rendered against the
Company or any Subsidiary (unless such judgment is covered by insurance and
the insurer has offered to defend such judgment or acknowledged, in
writing, its liability with respect thereto) and the same shall remain
undischarged for a period of 60 consecutive days during which execution
shall not be effectively stayed, or any action shall be legally taken by a
judgment creditor to levy upon assets or properties of the Company or any
Subsidiary to enforce any such judgment; or
(i) the Company or any Subsidiary shall (i) fail to pay any
principal or interest, regardless of amount, due in respect of Indebtedness
in a principal amount aggregating in excess of $5,000,000, when and as the
same shall become due and payable (after giving effect to any applicable
grace period specified in the instrument evidencing or governing such
Indebtedness), or (ii) fail to observe or perform any other term, covenant
or provision contained in any instrument evidencing or governing such
Indebtedness in a principal amount aggregating in excess of $5,000,000
(after giving effect to any applicable grace period specified in the
instrument evidencing or governing such Indebtedness) if
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the effect of any such failure is to cause, or to permit the holder or
holders of such Indebtedness or a trustee or other Person acting on
behalf of such holder or holders to cause, such Indebtedness to become
due prior to its stated maturity or to realize on any collateral given
as security for such Indebtedness; provided, however, that any of the
foregoing occurrences with respect to any Indebtedness arising from the
purchase of goods or services by the Company that is being contested in
good faith by appropriate proceedings shall not constitute an Event of
Default as long as the Company's or such Subsidiary's title to any
substantial part of its property is not materially adversely affected,
its use of such property in the ordinary course of its business is not
materially interfered with and adequate reserves with respect thereto
have been set aside on its books in conformity with GAAP; or
(j) any execution or attachment shall be issued whereby any
substantial part of the property of the Company or any Subsidiary shall be
taken or attempted to be taken and the same shall not have been vacated or
stayed within 60 days after the issuance thereof; or
(k) (i) a Reportable Event as defined in Section 4043(b),
subdivision (5), of ERISA shall have occurred with respect to any Plan
subject to Title IV of ERISA (other than any Multiemployer Plan)
unless a waiver of the failure to meet minimum funding standards under
Section 412 of the Code shall have been timely applied for and shall
not have been denied; or
(ii) a Reportable Event as defined in Section 4043(b),
subdivision (6), of ERISA shall have occurred with respect to any Plan
subject to Title IV of ERISA (other than any Multiemployer Plan); or
(iii) the Company or any ERISA Affiliate shall have
engaged in any Prohibited Transaction and either (1)the Prohibited
Transaction shall not have been corrected within the correction period
applicable to it under Section 502(i) of ERISA or Section 4975(b) of
the Code, or (2)an exemption shall not be applicable or have been
obtained under Section 408 of ERISA or Section 4975 of the Code; or
(iv) the PBGC shall have terminated any Plan other than
any Multiemployer Plan under Title IV of ERISA or the Company or any
ERISA Affiliate shall have received notice from the PBGC of the
intention of the PBGC to terminate any such Plan or to appoint a
Trustee to
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administer any such Plan, which notice shall not have been withdrawn
within 14 days of the date thereof; or
(v) the Company or any ERISA Affiliate shall have
voluntarily terminated any Plan subject to Title IV of ERISA (other
than a Multiemployer Plan), pursuant to a distress termination under
Title IV of ERISA; or
(vi) the Company or any ERISA Affiliate, as an employer
under a Multiemployer Plan, shall have made a complete or partial
withdrawal from such Multiemployer Plan;
and, upon the occurrence of any of the foregoing, the aggregate amount of
the Unfunded Liabilities of all Plans subject to Title IV of ERISA shall
exceed in the aggregate $2,000,000 or the Company shall incur liability in
excess of $2,000,000 in the aggregate; or
(l) lessors under leases of real property with an aggregate
fair market value (determined under the most recent available appraisals
thereof) in excess of $ 10,000,000 to which the Company or any Subsidiary
is a party, any lender to any such lessor(s), or any trustee, agent or
other representatives of any lender to, or the holders of any securities
issued by, any such lessor(s), shall exercise, give any required formal
written notice of intent to exercise, or otherwise express in writing any
present or unconditional intent to exercise, any remedy they may have
against the Company, any Subsidiary or any leased property that involves
(i) payment by the Company or any Subsidiary of an amount in excess of
$5,000,000 or (ii) any material interference with the Company's or any
Subsidiary's operations at any leased property;
(k) a Change of Control shall occur.
Section 6.02 REMEDIES. If (x) any Event of Default described in
Section 6.01(e) or (f) shall occur, the Commitments shall automatically
terminate, the Obligations shall automatically become immediately due and
payable, the Company shall automatically become obligated to pay to U.S.
Bank, for deposit in the Holding Account, an amount equal to the outstanding
Letter of Credit Usage as of such date and the Agent, at the direction of the
Majority Banks, may enforce all rights and exercise all remedies of the Agent
or the Banks under the Loan Documents and under applicable law, or (y) any
other Event of Default shall occur and be continuing, then, the Agent, at the
direction of the Majority Banks, may at any time and from time to time do any
or all of the following:
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(i) declare the Commitments terminated, whereupon the Commitments shall be
terminated, (ii) declare the Obligations to be forthwith due and payable,
whereupon the Obligations shall immediately become due and payable, in each
case without presentment, demand, protest or other notice of any kind, all of
which are hereby expressly waived, anything in this Agreement or the other
Loan Documents to the contrary notwithstanding, (iii) demand that the Company
pay to U.S. Bank for deposit in the Holding Account an amount equal to the
outstanding Letter of Credit Usage as of the date of such demand, whereupon
the Company shall pay such amount to U.S. Bank, and (iv) enforce all rights
and exercise all remedies of the Agent or the Banks under the Loan Documents
and under applicable law.
ARTICLE VII
THE AGENT
The following provisions shall govern the relationship of the Agent
with the Banks.
Section 7.01 APPOINTMENT AND AUTHORIZATION. Each Bank appoints and
authorizes the Agent to take such action as agent on its behalf and to exercise
such respective powers under the Loan Documents as are delegated to the Agent by
the terms thereof, together with such powers as are reasonably incidental
thereto. Neither the Agent nor any of its directors, officers or employees
shall be liable for any action taken or omitted to be taken by it under or in
connection with the Loan Documents, except for its own gross negligence or
willful misconduct. The Agent shall act as an independent contractor in
performing its obligations as Agent hereunder and nothing herein contained shall
be deemed to create any fiduciary relationship among or between the Agent, the
Company or the Banks.
Section 7.02 NOTE HOLDERS. The Agent may treat the payee of any Note
as the holder of the Obligations evidenced thereby until written notice of
transfer shall have been filed with it, signed by such payee and in form
satisfactory to the Agent.
Section 7.03 CONSULTATION WITH COUNSEL. The Agent may consult with
legal counsel selected by it and shall not be liable for any action taken or
suffered in good faith by it in accordance with the advice of such counsel.
Section 7.04 LOAN DOCUMENTS. The Agent shall not be under a duty to
examine or pass upon the validity, effectiveness, genuineness or value of any of
the Loan Documents or any other instrument or document furnished pursuant
thereto, and the
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Agent shall be entitled to assume that the same are valid, effective and
genuine and what they purport to be.
Section 7.05 U.S. BANK AND AFFILIATES. With respect to its
Commitment and the Loans made by it, U.S. Bank shall have the same rights and
powers under the Loan Documents as any other Bank and may exercise the same as
though it were not the Agent consistent with the terms thereof, and U.S. Bank
and its affiliates may accept deposits from, lend money to, issue Documentary
Letters of Credit for the account of and generally engage in any kind of
business with the Company as if it were not the Agent.
Section 7.06 ACTION BY AGENT. Except as may otherwise be expressly
stated in this Agreement, the Agent shall be entitled to use its discretion with
respect to exercising or refraining from exercising any rights which may be
vested in it by, or with respect to taking or refraining from taking any action
or actions which it may be able to take under or in respect of, the Loan
Documents. The Agent shall be required to act or to refrain from acting (and
shall be fully protected in so acting or refraining from acting) upon the
instructions of the Majority Banks, and such instructions shall be binding upon
all holders of Notes; provided, however, that the Agent shall not be required to
take any action which exposes the Agent to personal liability or which is
contrary to the Loan Documents or applicable law. The Agent shall incur no
liability under or in respect of any of the Loan Documents by acting upon any
notice, consent, certificate, warranty or other paper or instrument believed by
it to be genuine or authentic or to be signed by the proper party or parties and
to be consistent with the terms of this Agreement.
Section 7.07 CREDIT ANALYSIS. Each Bank has made, and shall continue
to make, its own independent investigation or evaluation of the operations,
business, property and condition, financial and otherwise, of the Company in
connection with entering into this Agreement and has made its own appraisal of
the creditworthiness of the Company. Except as explicitly provided herein, the
Agent has no duty or responsibility, either initially or on a continuing basis,
to provide any Bank with any credit or other information with respect to such
operations, business, property, condition or creditworthiness, whether such
information comes into its possession on or before the first Event of Default or
at any time thereafter.
Section 7.08 NOTICES OF EVENT OF DEFAULT, ETC. In the event that any
Bank shall have acquired actual knowledge of any Event of Default or Unmatured
Event of Default, other than as a result of its receipt of financial statements
delivered to it pursuant to Section 5.01, such Bank shall promptly give notice
thereof to the Agent. The Agent shall, promptly upon receipt of any such notice
provide a copy thereof to the other Banks. Upon receipt from any Bank of a
request that the Agent give notice to the
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Company of the occurrence of an Event of Default or Unmatured Event of
Default, the Agent shall promptly forward such request to the other Banks and
will take such action and assert such rights under this Agreement and the
other Loan Documents as the Majority Banks shall direct in writing.
Section 7.09 INDEMNIFICATION. Each Bank agrees to indemnify the
Agent, as Agent (to the extent not reimbursed by the Company), according to such
Bank's Pro Rata Share, from and against any and all liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs, expenses or
disbursements of any kind or nature whatsoever which may be imposed on or
incurred by the Agent in any way relating to or arising out of the Loan
Documents or any action taken or omitted by the Agent under the Loan Documents,
provided that no Bank shall be liable for any portion of such liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements resulting from the Agent's gross negligence or willful
misconduct. No payment by any Bank under this Section 7.09 shall relieve the
Company of any of its obligations under this Agreement.
Section 7.10 PAYMENTS AND COLLECTIONS. All funds received by the
Agent in respect of any payments made by the Company on the Revolving Notes,
Commitment Fees or Letter of Credit Fees shall be distributed by the Agent
among the Banks on the date received or deemed received pursuant to Section
2.19, in like currency and funds as received, ratably according to each
Bank's Pro Rata Share. If the Agent does not make any distribution on the
date any such payment is received or deemed received pursuant to Section
2.19, the Agent will pay interest to each Bank entitled to receive a portion
of such distribution on the amount distributable to it at the Federal Funds
Rate from such date until the date distribution is made, such interest to be
payable with such distribution. After any Event of Default has occurred, all
funds received by the Agent, whether as payments by the Company or as
realization on collateral or on any guaranties, shall (except as may
otherwise be required by law) be distributed by the Agent in the following
order: (a) first to the Agent or any Bank who has incurred unreimbursed
costs of collection with respect to any Indebtedness of the Company
hereunder, ratably to the Agent and each Bank in the proportion that the
costs incurred by the Agent or such Bank bear to the total of all such costs
incurred by the Agent and all Banks; (b) next to U.S. Bank in payment of any
Unpaid Draws outstanding, to satisfy any requirement that the Company make
payments to U.S. Bank for deposit in the Holding Account to cover any
outstanding Letters of Credit; (c) next to the Banks (in accordance with
their respective Pro Rata Shares) for application on the Revolving Notes; and
(d) last to the Banks (in accordance with their respective Pro Rata Shares)
for any unpaid Commitment Fees or Letter of Credit Fees owing by the Company
hereunder. To the extent the Agent or any Bank receives any payment on the
Obligations, whether from the Company or otherwise,
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that is subsequently invalidated, declared to be fraudulent or preferential,
set aside or required to be repaid to a trustee, receiver or any other party
under any bankruptcy law, state or federal law, common law or equitable
cause, then, to the extent of such recovery, the Obligations originally
intended to be satisfied by such payment shall be revived and continued in
full force and effect as if such payment had not been received, and each Bank
shall purchase from the Agent or such Bank, for cash, at face value and
without recourse, such participations in the revived Obligations as shall be
necessary to cause such revived Obligations to be shared ratably among all of
the Banks. The Agent or such Bank, as the case may be, shall promptly notify
the other Banks and, if applicable, the Agent, of any such recovery.
Section 7.11 SHARING OF PAYMENTS. If any Bank shall receive and
retain any payment, voluntary or involuntary, whether by setoff, application
of deposit balance or security, or otherwise, in respect of Indebtedness
under this Agreement or the Notes in excess of such Bank's share thereof as
determined under this Agreement, then such Bank shall purchase from the other
Banks for cash and at face value and without recourse, such participation in
the Notes held by such other Banks as shall be necessary to cause such excess
payment to be shared ratably as aforesaid with such other Banks; provided,
that if such excess payment or part thereof is thereafter recovered from such
purchasing Bank, the related purchases from the other Banks shall be
rescinded ratably and the purchase price restored as to the portion of such
excess payment so recovered, but without interest.
Section 7.12 ADVICE TO BANKS. The Agent shall forward to the
Banks copies of all notices, financial reports and other communications
received hereunder from the Company by it as Agent, excluding, however,
notices, reports and communications which by the terms hereof are to be
furnished by the Company directly to each Bank.
Section 7.13 SUCCESSOR AGENT. The Agent may resign at any time by
giving ten days written notice thereof to the Banks and the Company. The
Majority Banks may remove the Agent at any time with or without cause by
giving the Agent and the Company ten days written notice thereof. Upon any
such resignation or removal, the Majority Banks shall have the right to
appoint a successor Agent, which successor Agent shall (unless an Event of
Default has occurred and is continuing) be reasonably acceptable to the
Company. If no successor Agent shall have been so appointed and shall have
accepted such appointment within 30 days after the retiring Agent's giving of
notice of its resignation or the removal of the retiring Agent, then the
retiring Agent may, on behalf of the Banks, appoint an Agent which shall be a
Bank or a commercial bank organized under the laws of the United States of
America or of any State thereof and having a combined capital and surplus of
at least $100,000,000, which successor Agent
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shall (unless an Event of Default has occurred and is continuing) be
reasonably acceptable to the Company. Any such resignation or removal shall
be effective upon the appointment of a successor Agent. Upon the acceptance
of any appointment as the Agent hereunder by a successor Agent, such
successor Agent shall thereupon succeed to and become vested with all rights,
powers, privileges and duties of the retiring Agent, and the retiring Agent
shall be discharged from its duties and obligations, under this Agreement and
the other Loan Documents. After the retiring Agent's resignation or removal
hereunder as the Agent, the provisions of this Article VII shall inure to its
benefit as to any actions taken or omitted to be taken by it while it was
acting as the Agent under this Agreement and any other Loan Document.
ARTICLE VIII
MISCELLANEOUS
Section 8.01 AMENDMENTS AND WAIVERS; NO WAIVER OF RIGHTS AND
REMEDIES.
(a) Except as otherwise provided in Section 8.01(b), none of
this Agreement, any Loan Document or any provision hereof or thereof may be
amended, modified or waived unless the same shall be in writing signed by
the Company and the Majority Banks; PROVIDED, that (i) no amendment, waiver
or consent shall, unless in writing and signed by all the Banks, do any of
the following: (A) reduce the amount of the principal of, or the amount of
or rate of interest on, any Note or any Loan or any fees or other amount
payable hereunder, (B) postpone any date fixed for any payment of principal
of, or interest on, the Loans or any fees or other amounts payable
hereunder, (C) amend the definitions of "Pro Rata Share" or "Majority
Banks", (D) amend Section 3.01 or Section 3.02, (E) amend this
Section8.01(a) or (F) release any Guaranty; (ii) no amendment, waiver or
consent shall, unless in writing and signed by Banks whose Pro Rata Shares
(determined under clause (b) of the definition thereof if any Loans are
outstanding and otherwise under clause (a) of such definition) aggregate 66
2/3% or more, amend Section 5.12(f) or Section 5.13(e) (except in a manner
that would be more restrictive; (iii)no amendment, waiver or consent shall,
unless in writing and signed by the Agent in addition to the requisite
Banks indicated above to take such action, affect the rights or duties of
the Agent under this Agreement; (iv)no amendment may increase any Bank's
Commitment Amount unless it is in writing and signed by such Bank; and
(v)no amendment, waiver or consent shall reduce the amount payable with
respect to, or postpone any date fixed for any payment with respect to, any
draw under any Letter of Credit, amend or modify Section 2.01, 2.07, 2.08,
2.09, 2.10, 2.11, 2.12 or 2.13,
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unless it is in writing and signed by U.S. Bank. Any such amendment,
modification or waiver or any other consent to any departure from any
such provision by the Company shall in any event be effective only in
the specific instance or for the specific purpose for which given. No
notice to, or demand on, the Company in any case shall entitle the
Company to any other or further notice or demand in similar or other
circumstances.
(b) No failure or delay on the part of the Agent or any Bank
in exercising, and no course of dealing with respect to, any right,
power or privilege hereunder or under any other Loan Document shall
operate as a waiver thereof; nor shall any single or partial exercise of
any such right, power or privilege, or any abandonment or discontinuance
of the enforcement thereof, preclude any other or further exercise
thereof or the exercise of any other right, power or privilege. The
rights and remedies of the Agent and the Banks hereunder and under any
other Loan Document are cumulative and not exclusive of any right or
remedy which the Agent or any Bank otherwise has.
Section 8.02 NOTICES. Except as otherwise specifically provided
for herein, all notices, requests, demands, instructions, consents,
directions and other communications provided for herein shall be in writing
(including teletransmission communication) and (unless otherwise required by
applicable law) shall be teletransmitted, mailed or delivered to the intended
recipient at the "Address for Notices" specified below its name on the
signature page(s) hereof or on a separate page immediately following such
signature page(s); or at such other address as shall be designated by such
party in a notice to the other parties. All notices and other communications
shall be effective when transmitted by telecopier, delivered to the telegraph
or cable office or personally delivered or, in the case of a mailed notice or
notice sent by overnight courier, upon receipt thereof as conclusively
evidenced by the signed receipt therefor, in each case given or addressed as
aforesaid, except that notices to the Agent, U.S. Bank or any Bank under the
provisions of Article II shall not be effective until received by the Agent,
U.S. Bank or such Bank.
Section 8.03 COSTS AND EXPENSES. The Company agrees to pay on
demand: (a) all out-of-pocket costs, expenses and fees incurred by the Agent
in connection with the negotiation, preparation, approval and execution and
delivery of the Loan Documents, including, without limitation, the reasonable
fees and expenses of Dorsey & Whitney LLP, special counsel to the Agent, in
connection with the negotiation, preparation, execution and delivery of this
Agreement and the other Loan Documents, the commitments relating thereto, the
transactions contemplated hereby and thereby and the satisfaction and
attempted satisfaction of conditions precedent hereunder, (b) the
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reasonable fees and expenses of counsel for the Agent in connection with any
amendment, modification or waiver or proposed amendment, modification or
waiver of any of the terms of this Agreement or any of the other Loan
Documents and (c) all reasonable costs and expenses of the Agent and the Banks
(including reasonable counsels' fees) in connection with the enforcement
(whether through negotiations, legal proceedings or otherwise) of this
Agreement and the other Loan Documents.
Section 8.04 SURVIVAL OF AGREEMENT. All representations,
warranties, covenants and agreements made by the Company or any of its
Subsidiaries herein, in the other Loan Documents or in any certificates or
other instruments prepared or delivered in connection with or pursuant to
this Agreement or any other Loan Document shall be deemed to have been relied
upon by the Banks and shall survive the making of the Loans by the Banks and
the execution and delivery to the Banks by the Company of the Notes,
regardless of any investigation made by or on behalf of the Banks, and shall
continue in full force and effect as long as any Letter of Credit or
Obligation is outstanding and undrawn or unpaid and so long as the
Commitments have not expired or been terminated; PROVIDED, that the
obligations and agreements of the Company under Sections 2.11, 2.13, 2.22,
2.24, 2.25, 2.28, 8.03, 8.06 and 8.15 shall survive payment in full of the
Obligations, the expiration of or other discharge of U.S. Bank's liability
with respect to the Letters of Credit and the expiration or termination of
the Commitments. The obligations of the Banks under Section 2.12 shall
remain in effect, notwithstanding the termination of the Commitments and the
payment in full of the Obligations (other than contingent Obligations with
respect to outstanding Letters of Credit), until the Letters of Credit have
expired or U.S. Bank's liability with respect thereto has otherwise been
discharged; PROVIDED, that if the amount on deposit in the Holding Account at
any time equals the aggregate undrawn face amount of all outstanding Letters
of Credit, the obligations of the Banks under Section 2.12 shall terminate;
PROVIDED, FURTHER, that the obligations of the Banks under Section 2.12 shall
be reinstated if, and to the extent, U.S. Bank is required to return or repay
any payment received by it in respect of any draw under a Letter of Credit,
or U.S. Bank's Lien on or right of setoff with respect to any amount on
deposit into theHolding Account is avoided or enjoined, by reason of (i) any
judgment, decree or order of any court or administrative body or (ii) any
settlement or compromise of any claim for such return, avoidance or
injunction effected by U.S. Bank.
Section 8.05 BINDING EFFECT; ASSIGNMENTS AND PARTICIPATIONS.
(a) Whenever in this Agreement or any other Loan Agreement
any of the parties hereto or thereto is referred to, such reference
shall be deemed to refer to the successors and any permitted assigns of
such party and this Agreement and the other Loan Documents shall be
binding upon and inure to the benefit of
-61-
<PAGE>
each party hereto and the respective successors and assigns of each of
them, except that the Company may not assign its rights or delegate its
obligations hereunder or under any other Loan Document without the prior
written consent of all of the Banks.
(b) Any Bank may (i) with the prior written consent (except
no consent shall be required in the case of an assignment by any Bank to
an Affiliate of such Bank or to another Bank) of the Agent and, prior to
the occurrence of an Event of Default, the Company, which consents shall
not be unreasonably withheld or delayed, assign its rights and delegate
its obligations under this Agreement and any other Loan Document,
including, without limitation, all or any portion of its Commitment, its
Revolving Note, its Loans and any other Obligation owned by it, to one
or more banks, financial institutions or other Person generally engaged
in the business of making, purchasing or otherwise investing in
commercial loans in the ordinary course of its business, PROVIDED, that
the aggregate amount of the Commitment which is the subject of the
assignment shall be $10,000,000 or an integral multiple of $1,000,000 in
excess thereof, except (I) in the case of an assignment by one Bank to
another Bank or an Affiliate of a Bank, in which case the aggregate
amount of the Commitment which is the subject of the assignment shall be
$1,000,000 or an integral multiple of $1,000,000 in excess thereof, and
(II) in the case of the assignment by any Bank of its Commitment in
full, and PROVIDED, that following any such assignment, the transferring
Bank shall continue to hold a Commitment in an aggregate amount not less
than $10,000,000, unless it has assigned its Commitment in full, and
(ii) sell participations therein to one or more banks, financial
institutions, corporate lenders or other sophisticated investors. Any
such assignee under clause (i) of the preceding sentence, to the extent
of such assignment (unless otherwise provided therein), shall have all
the rights and obligations of a Bank hereunder and the assigning Bank
shall be released from its duties and obligations under this Agreement
to the extent of such assignment. Upon any assignment and delegation
as contemplated in clause (i) of the second preceding sentence, (A) the
Agent shall revise Schedule 1.01(a) to reflect such assignment and
delegation and distribute such revised Schedule 1.01(a) to the Company
and the Banks, (B) the Company shall, at the request of either the
assignor or assignee Bank, execute and deliver new Revolving Notes to
the assignor Bank (if it retains a Commitment following such assignment)
and the assignee Bank, in the principal amount of their respective
Commitments, and (C) the assignor Bank shall pay to the Agent an
assignment fee in the amount of $3,000, except with respect to
assignments by a Bank to an Affiliate of such Bank. Upon the delivery
of such new Revolving Notes, the assignor Bank shall return to the
Company its Revolving Note in effect
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<PAGE>
prior to such assignment and delegation. Notwithstanding the sale of
any such participation under clause (ii) of the fifth preceding sentence,
(x) no such participant shall be deemed to be or have the rights and
obligations of a Bank hereunder except that any such participant shall
have a right of setoff under Section 2.27 as if it were a Bank and the
amount of its participation were owing directly to such participant by
the Company obligated thereon and (y) each Bank, in connection with
selling any such participation, shall not condition its rights in
connection with consenting to amendments or granting waivers concerning
any matter under any Loan Document upon obtaining the consent of such
participant other than on matters relating to (1) any reduction in the
amount of any principal of, or the amount of or rate of interest or fee
in connection with, its Commitment or any Obligation, or (2) any
extension of the termination of its Commitment or the maturity of any
principal of or interest on any Obligation.
Section 8.06 TAXES. The Company agrees to pay, and save the Agent
and the Banks harmless from all liability for, any stamp or other taxes which
may be payable with respect to the execution or delivery of this Agreement or
the issuance of the Notes.
Section 8.07 SEVERABILITY OF PROVISIONS. Whenever possible, each
provision of this Agreement and the other Loan Documents and any other
statement, instrument or transaction contemplated hereby or thereby or
relating hereto or thereto shall be interpreted in such manner as to be
effective and valid under applicable law, but, if any provision of this
Agreement or any other Loan Document or any other statement, instrument or
transaction contemplated hereby or thereby or relating hereto or thereto
shall be held to be prohibited or invalid in any jurisdiction under such
applicable law, such provision shall be ineffective only to the extent of
such prohibition or invalidity, without invalidating the remainder of such
provision or the remaining provisions of this Agreement or the other Loan
Documents and any other statement, instrument or transaction contemplated
hereby or thereby or relating hereto or thereto and shall not be effective to
affect the enforceability of such provision in any other jurisdiction.
Section 8.08 GOVERNING LAW AND CONSTRUCTION. THE VALIDITY,
CONSTRUCTION AND ENFORCEABILITY OF THIS AGREEMENT AND THE OTHER LOAN
DOCUMENTS SHALL BE GOVERNED BY THE INTERNAL LAWS OF THE STATE OF MINNESOTA,
WITHOUT GIVING EFFECT TO CONFLICT OF LAWS PRINCIPLES THEREOF, BUT GIVING
EFFECT TO FEDERAL LAWS OF THE UNITED STATES APPLICABLE TO NATIONAL BANKS.
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<PAGE>
Section 8.09 CONSENT TO JURISDICTION. THE COMPANY HEREBY
IRREVOCABLY SUBMITS TO THE JURISDICTION OF ANY MINNESOTA STATE OR FEDERAL
COURT SITTING IN MINNEAPOLIS, MINNESOTA OR ST. PAUL, MINNESOTA OVER ANY
ACTION OR PROCEEDING COMMENCED BY THE AGENT OR ANY BANK ARISING OUT OF OR
RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT AND THE COMPANY HEREBY
IRREVOCABLY AGREES THAT ALL CLAIMS IN RESPECT OF SUCH ACTION OR PROCEEDING
MAY BE HEARD AND DETERMINED IN SUCH MINNESOTA STATE OR FEDERAL COURT. THE
COMPANY HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT IT MAY EFFECTIVELY
DO SO, THE DEFENSE OF AN INCONVENIENT FORUM TO THE MAINTENANCE OF SUCH ACTION
OR PROCEEDING. THE COMPANY AGREES THAT A JUDGMENT, FINAL BY APPEAL OR
EXPIRATION OF TIME TO APPEAL WITHOUT AN APPEAL BEING TAKEN, IN ANY SUCH
ACTION OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER
JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW.
NOTHING IN THIS SECTION 8.09 SHALL AFFECT THE RIGHT OF THE AGENT OR ANY BANK
TO BRING ANY ACTION OR PROCEEDING AGAINST THE COMPANY OR ITS PROPERTY IN THE
COURTS OF ANY OTHER JURISDICTIONS.
Section 8.10 CAPTIONS. The captions or headings herein and any
table of contents hereto are for convenience only and in no way define, limit
or describe the scope or intent of any provision of this Agreement.
Section 8.11 ENTIRE AGREEMENT; NO THIRD PARTY BENEFICIARIES. This
Agreement and the other Loan Documents embody the entire agreement and
understanding between the Company, the Agent and the Banks with respect to
the subject matter hereof and thereof. This Agreement supersedes all prior
agreements and understandings relating to the subject matter hereof. Nothing
contained in this Agreement or in any other Loan Document, expressed or
implied is intended to confer upon any Person other than the parties hereto
and thereto any rights, remedies, obligations or liabilities hereunder or
thereunder.
Section 8.12 COUNTERPARTS. This Agreement may be executed in any
number of counterparts, each of which shall constitute an original but all of
which when taken together shall constitute but one contract which shall
become effective when the Agent shall have received counterparts hereof
signed on behalf of the Company, the Agent and each Bank.
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<PAGE>
Section 8.13 COMPANY ACKNOWLEDGMENTS. The Company hereby
acknowledges that (a)it has been advised by counsel in the negotiation,
execution and delivery of this Agreement and the other Loan Documents,
(b)neither the Agent nor any Bank has any fiduciary relationship to the
Company, the relationship being solely that of borrower and lender, (c)no
joint venture exists among or between the Company and the Agent or any Bank,
and (d)the Agent and the Banks undertake no responsibility to the Company to
review or inform the Company of any matter in connection with any phase of
the business or operations of the Company and the Company shall rely entirely
upon its own judgment with respect to its business, and any review,
inspection or supervision of, or information supplied to the Company by the
Agent or any Bank is for the protection of the Agent and the Banks and
neither the Company nor any third party is entitled to rely thereon.
Section 8.14 HIGHEST LAWFUL RATE. Anything herein to the contrary
notwithstanding, the Obligations shall be subject to the limitation that
payments of interest thereon shall not be required, for any period for which
interest is computed hereunder, to the extent that contracting for or receipt
thereof would be contrary to provisions of any law applicable to any Bank
limiting the highest rate of interest which may be lawfully contracted for,
charged or received by such Bank.
Section 8.15 INDEMNIFICATION. The Company hereby agrees to defend,
protect, indemnify and hold harmless the Agent, the Banks, their respective
Affiliates, and their respective directors, officers, employees, attorneys and
agents (each of the foregoing being an "Indemnitee" and all of the foregoing
being collectively the "Indemnitees") from and against any and all claims,
actions, damages, liabilities, judgments, costs and expenses (including all
reasonable fees and disbursements of counsel which may be incurred in the
investigation or defense of any matter) imposed upon, incurred by or asserted
against any Indemnitee, whether direct, indirect or consequential and whether
based on any federal, state, local or foreign laws or regulations (including
securities laws, environmental laws, commercial laws and regulations), under
common law or on equitable cause, or on contract or otherwise:
(a) by reason of, relating to or in connection with the issuance,
extension, amendment or payment of any Letter of Credit, or any failure to do
any of the foregoing;
(b) by reason of, relating to or in connection with any action taken
or not taken by the Company, its Subsidiaries and Affiliates, and their
respective directors, officers, employees, attorneys or agents in connection
with any Loan Document, including, without limitation, any use of any credit
extended under the Loan Documents;
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<PAGE>
provided, however, that the Company shall not be liable to any Indemnitee for
any portion of such claims, damages, liabilities and expenses resulting from
such Indemnitee's gross negligence or willful misconduct, or arising from
claims made by the Agent or any Bank against the Agent or any other Bank,
unless resulting from the Company's negligence or willful misconduct. In the
event this indemnity is unenforceable as a matter of law as to a particular
matter or consequence referred to herein, it shall be enforceable to the full
extent permitted by law. This indemnification applies, without limitation,
to any act, omission, event or circumstance existing or occurring on or prior
to the later of the Termination Date or the date of payment in full of the
Obligations, including specifically Obligations arising under clause (b) of
this Section. The indemnification provisions set forth above shall be in
addition to any liability the Company may otherwise have. Without prejudice
to the survival of any other obligation of the Company hereunder the
indemnities and obligations of the Company contained in this Section shall
survive the payment in full of the other Obligations..c.:Section 8.15
Indemnification. The Company hereby agrees to defend, protect, indemnify and
hold harmless the Agent, the Banks, their respective Affiliates, and their
respective directors, officers, employees, attorneys and agents (each of the
foregoing being an "Indemnitee" and all of the foregoing being collectively
the "Indemnitees") from and against any and all claims, actions, damages,
liabilities, judgments, costs and expenses (including all reasonable fees and
disbursements of counsel which may b;
Section 8.16 WAIVER OF JURY TRIAL. EACH OF THE COMPANY , THE
AGENT AND THE BANKS IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN
ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY
OTHER LOAN DOCUMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed as of the day and year first above written.
BEST BUY CO., INC.
By /s/ Robert C. Fox
-----------------------------
Its /s/ Sr VP Finance
---------------------------
U.S. BANK NATIONAL ASSOCIATION
By /s/ Matt A. Ross
-----------------------------
Its Vice President
---------------------------
FIRST UNION NATIONAL BANK
By /s/ Mary J. Amatore
-----------------------------
Its Vice President
---------------------------
THE FIRST NATIONAL BANK OF CHICAGO
By /s/ Vincent R. Henchek
-----------------------------
Its Vice President
---------------------------
WELLS FARGO BANK N.A.
By /s/ David Kopolow
-----------------------------
Its Vice President
---------------------------
THE BANK OF TOKYO-MITSUBISHI,
LTD., CHICAGO BRANCH
By /s/ J. R. Arnold
-----------------------------
Its Vice President and Manager
---------------------------
Signature Page to Credit Agreement
<PAGE>
ADDRESS FOR NOTICES
BEST BUY CO., INC.
7075 Flying Cloud Drive
Eden Prairie, MN 55344
Attn: Ms. Judy A. Weigel
Attn: Mr. Mark Gordon
U.S. BANK NATIONAL ASSOCIATION
601 Second Avenue South
Minneapolis, MN 55402
Attn: Michael J. Smiggen
FIRST UNION NATIONAL BANK
301 South College Street
10th Floor, Mail Code NC 0745
Charlotte, NC 28288
Attn: Mary Amatore
THE FIRST NATIONAL BANK OF CHICAGO
One First National Plaza
Chicago, IL 60670
Attention: John Runger
WELLS FARGO BANK N.A.
Norwest Center
Sixth and Marquette
Minneapolis, MN 55479-3891
Attn: Dave Kopolow
THE BANK OF TOKYO-MITSUBISHI,
LTD., CHICAGO BRANCH
5100 Norwest Center
90 South Seventh Street
Minneapolis, MN 55402
Attn: Jeff Arnold
Addresses for Notices Page
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated financial statements for the periods indicated and is qualified in
its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> FEB-26-2000
<PERIOD-START> FEB-28-1999
<PERIOD-END> AUG-28-1999
<CASH> 473,444
<SECURITIES> 0
<RECEIVABLES> 178,492
<ALLOWANCES> 0
<INVENTORY> 1,287,646
<CURRENT-ASSETS> 2,055,255
<PP&E> 876,106
<DEPRECIATION> 353,286
<TOTAL-ASSETS> 2,608,174
<CURRENT-LIABILITIES> 1,374,323
<BONDS> 25,690
0
0
<COMMON> 20,527
<OTHER-SE> 1,145,589
<TOTAL-LIABILITY-AND-EQUITY> 2,608,174
<SALES> 5,074,371
<TOTAL-REVENUES> 5,074,371
<CGS> 4,079,549
<TOTAL-COSTS> 4,079,549
<OTHER-EXPENSES> 831,215
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (8,689)
<INCOME-PRETAX> 172,296
<INCOME-TAX> 66,000
<INCOME-CONTINUING> 106,296
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 106,296
<EPS-BASIC> .52
<EPS-DILUTED> .50
</TABLE>
