<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
/ X / ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended November 25, 1995
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
------------ -------------
Commission file number 1-8210
PAYLESS CASHWAYS, INC.
(Exact name of registrant as specified in its charter)
Iowa 42-0945849
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Two Pershing Square
2300 Main, P.O. Box 419466
Kansas City, Missouri 64141-0466
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (816) 234-6000
SECURITIES REGISTERED PURSUANT TO SECTION 12 (b) OF THE ACT:
Name of Each Exchange on
Title of Each Class Which Registered
- ------------------- -------------------------
Common Stock, $.01 par value New York Stock Exchange
9-1/8% Senior Subordinated Notes due April 15, 2003 New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12 (g) OF THE ACT: NONE
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES / X / NO / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. / X /
The aggregate market value of the Common Stock, par value $.01 per share, of the
registrant held by nonaffiliates of the registrant as of February 2, 1996, was
$158,704,224.
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date.
Common Stock, $.01 par value, outstanding as of February 2, 1996:
Voting -- 37,668,206 shares
Class A Non-Voting -- 2,250,000 shares
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Annual Report to Shareholders for the year ended
November 25, 1995, are incorporated by reference into Part II. Portions of the
Annual Proxy Statement for the Annual Meeting of Shareholders to be held April
18, 1996, are incorporated by reference into Part III.
<PAGE> 2
PART I
------
Item 1. BUSINESS.
------- ---------
GENERAL
Payless Cashways, Inc. ("Payless" or the "Company") is the fourth largest
retailer of building materials and home improvement products in the United
States as measured by sales. The Company operates 200 full-line retail stores in
22 states located in the Midwest, Southwest, Pacific Coast, Rocky Mountain and
New England areas under the names of Payless Cashways Building Materials, Furrow
Building Materials, Lumberjack Building Materials, Hugh M. Woods Building
Materials, Knox Lumber and Somerville Lumber. Each full-line store is designed
as a one-stop source that provides customers with a complete selection of
quality products and services needed to build, improve, and maintain their home,
business, farm or ranch properties. The Company's merchandise assortment
currently includes approximately 26,000 items in the following categories:
lumber and building materials, millwork, tools, hardware, electrical and
plumbing products, paint, lighting, home decor, kitchens, decorative plumbing,
heating, ventilating and cooling (HVAC), and seasonal items. The Company
believes that the combination of a full-line lumberyard, a broad product mix, a
high level of in-store customer assistance concerning product usage and
installation, and competitive prices distinguishes Payless from many
competitors.
The Company's primary customers include project oriented
do-it-yourselfers and professionals. Project oriented do-it-yourselfers
("DIY-ers") are those that engage in more frequent and complex repair or
improvement projects and typically spend in excess of $1,000 annually on home
improvement products. Professionals ("Pros") include remodelers, residential
contractors, and specialty tradesmen along with enterprises which purchase large
quantities of building materials for facility maintenance, such as property
management firms, commercial and industrial accounts, and government
institutions. Due to its product mix (especially the advantage provided by its
full-line lumberyard) and customer service approach, the Company believes that
it is well positioned to increase its penetration of these segments of the
building materials and home improvement products market. Payless also serves the
needs of the moderate and light DIY-er.
INDUSTRY OVERVIEW
Building materials and home improvement products are sold through two
distribution channels -- retail units and wholesale supply outlets. In the
latest study prepared by DRI/McGraw-Hill in November 1995, the retail channel of
the industry was estimated to be $133.9 billion in 1995, and is forecast to be
$169.2 billion by 2000. The Company estimates the wholesale supply channel for
products sold by the Company represented approximately $131 billion in 1995,
based on the most recently available unpublished data from the U.S. Department
of Commerce for 1995.
Retail distribution channels include neighborhood hardware stores, home
centers, warehouse stores, specialty stores (such as paint and tile stores) and
lumberyards. Although the industry remains highly fragmented, the retail
distribution channel has consolidated somewhat in the last ten years,
particularly in metropolitan areas. Warehouse, home center and building
materials chains have grown while the number of local independent merchants has
declined. The top 10 chains accounted for approximately 26% of industry sales in
1994.
In general terms, customers can be characterized as either
retail-oriented (consumer) or wholesale-oriented (professional). The consumer
segments, as defined by the Company, include light DIY-ers who spend less than
$200 annually on building materials and home improvements products; moderate
DIY-ers who make annual purchases of $200 to $1,000; and project oriented
DIY-ers who make annual purchases in excess of $1,000. Purchases by
professionals tend to be larger in volume and require specialized merchandise
assortments, competitive market pricing, superior lumber quality, telephone
order placement, commercial credit and job-site delivery.
BUSINESS STRATEGY
OBJECTIVES
The Company's principal objectives are to increase its market share in
the Pro and project-oriented DIY segments through its existing stores, to
maintain its leadership role in the industry and to continue to improve its
balance sheet by reducing its debt. Payless Cashways intends to remain an
industry leader by offering DIY customers a distinct alternative to the
warehouse shopping experience and by targeting the Pro business as the primary
source of growth.
<PAGE> 3
The Company believes that demographic and lifestyle factors (such as the
aging baby boomers, the increase in home-centered activities and the aging
housing stock) will result in a growing demand for its products. The Company
also believes that the rate of growth in the professional segment will continue
to exceed the consumer or DIY segment due to the lack of discretionary time of
many homeowners and the reluctance of an aging homeowner population to engage in
major repair or remodeling projects. As a national chain, the Company believes
it enjoys economies of scale, buying power and professional management that the
traditional outlets supplying the professional commonly do not have. These
advantages, along with the broad product assortment and full service package,
make the Company well-suited to supply the professional's needs.
Based on the Company's 1995 customer data from a sample of stores which
the Company believes are representative of its stores, the Company's business
mix as a percentage of sales was approximately 50% DIY and 50% Pro.
Approximately 66% of the DIY sales were derived from the project-oriented DIY-er
and the remainder from the light and medium DIY-er.
PROFESSIONAL STRATEGY
The Company is particularly well-suited to serve the needs of
professional customers and offers services not provided by others in the
industry.
A sales and service staff of approximately 1,800 are dedicated to serving
the professional customer. Professional sales representatives have assigned
customers for whom they provide service tailored to the customers' business
needs. Sales representatives call on professional customers at their places of
business and job sites. The sales representatives have detailed information
regarding account purchases and the profitability of their accounts. The Company
believes that this level of customer service and type of sales management system
is effective in increasing purchases and improving profitability from current
professional customers as well as building customer loyalty.
Each full-line store has a separate commercial sales area for the
professional customer to use. These offices allow private discussions between
the customer and their sales representative, speed the purchase process for the
Pro and offer small amenities to these customers such as coffee, ice, and phone
access. The Company has 94 drive-through lumberyards which significantly reduce
the time required to complete a purchase and meet the Pros' requirement for fast
and efficient service. The Company plans to convert an additional 17 stores to
this drive-through format in 1996.
The Company's merchandise assortment is particularly appealing to the
Pro. Preferred brands, commercial grade items, contractor packs and extensive
special order capabilities ensure that the Company meets the broad product
requirements of this customer segment. The merchandise assortment includes
products previously available to customers only through authorized wholesale
distribution. The Company has negotiated purchase arrangements with key lumber
suppliers which ensure a consistent source of high quality lumber.
The Company offers a number of special services which are tailored to
meet the needs of various professional and commercial customer segments.
Delivery services include next day job-site delivery and roof top delivery.
Credit programs include a 30-day revolving account (Pro Project Card) and a
full-service commercial credit program which provides job-based billing and
other more sophisticated credit features. Additionally, all stores offer
automated blueprint estimating services featuring rapid turnaround. This
estimating system is unique in that it utilizes a digitizer which ensures
accuracy in the measurement process, and it is fully integrated into the store's
point of sale ("POS") system. The Company also supports the Pro with joint
marketing programs such as its contractor referral data base.
The Company has a national accounts program which targets businesses with
major facilities or multiple locations and which utilize large amounts of
building materials and improvement products for facility maintenance. The
Company continues to develop these accounts which represent multiple individual
properties for which it provides repair and maintenance products.
Property management firms are an important component of the Company's Pro
portfolio. They provide non-seasonal repair and maintenance business which
balances business from builders, remodelers and commercial accounts.
<PAGE> 4
DIY STRATEGY
The Company's strategy to defend and increase market share with the DIY
customer focuses primarily on the project-oriented DIY-er. In recent years,
sales to project-oriented DIY-ers represented approximately 66% of the sales to
DIY-ers while accounting for approximately 50% of the DIY-er transactions based
on Company customer data from a sample of stores which the Company believes are
representative of its stores.
Quality products, a wide assortment, in-stock position, competitive
pricing and service assistance on more complex projects are important to the
project-oriented DIY customer and have been the foundation upon which the
Company has built its business with these customers. The Company continues to
upgrade its assortment and displays in product categories which represent a
significant portion of the purchases by project-oriented DIY-ers. These upgraded
product categories include paint, hardware, tools, decorative plumbing,
millwork, kitchen cabinets and home decor.
Project-oriented DIY-ers are similar to the Pro customer with regard to
the brands preferred and the importance of stocking high quality lumber. The
Company believes that many of the steps it has taken to serve the Pro customer
have also had a positive impact on sales to the project-oriented DIY customer.
Several additional components support the DIY strategy for growth and
profitability. These include the following:
IMPROVED CUSTOMER SERVICE. The Company has an employee
recognition and reward program and incentive compensation plans for all store
employees to promote outstanding customer service. Improved customer service is
intended to increase the average sales ticket size and the number of repeat
purchasers.
DESIGN SERVICES. The Company offers project design services to
its customers. A computer design system for kitchens, baths and closet systems
is located in each of the store's kitchen design centers. Design Works, a
building packages design system focusing initially on decks, garages and
post-frame buildings, is operating in all stores. Both of these systems are
integrated into the store's POS system, providing on-line pricing, confirmation
of inventory availability and immediate conversion of an estimate into an order.
LUMBERYARD IMPROVEMENTS. Project-oriented DIY-ers are frequent
purchasers of the lumber and building material products stocked in the
lumberyard. The drive-through format lumberyards mentioned earlier facilitate
the DIY customer purchases of lumberyard products, saving the customer time and
increasing customer satisfaction. The Company believes this lumberyard format
positions it for increased future sales.
SPECIAL EVENTS. The Company offers the project-oriented DIY-er
special buying opportunities through after-hours sales and other preferred
customer programs.
STRATEGIC INITIATIVES
The Company undertook an extensive strategic review in 1995. It was
comprehensive and included not only extensive consumer research, but also
competitive benchmarking and industry analysis. The review affirmed the
Company's business strategy, but highlighted areas of opportunity. Key findings
from the review showed that, although many consumers like the warehouse format,
a significant number prefer the distinctly different shopping experience offered
by Payless Cashways (full-line, drive-in lumberyards; smaller scale; finished,
well-lit showrooms). Research regarding the Pro indicates that, while the
Company has established significant business with this group, substantial growth
opportunity remains.
As a result of the review, the Company intends to better serve DIY
customers by increasing convenience, service, and product assortment with
particular emphasis on basic repair and maintenance products. The assortment
additions are designed to produce higher average tickets and increased shopping
frequency from DIY customers. While the Company expects to grow slightly from
DIY customer sales, the Company also expects the professional and commercial
customer to continue to be the primary source of growth. In order to increase
market share with those customers, the Company plans to attract and retain more
large volume accounts, whose business is not store based. Some existing and some
new facilities will be dedicated primarily to these high volume professional and
commercial accounts. The Company intends to improve the product assortment, key
service capabilities, and cost effectiveness at facilities dedicated to Pro
customers.
This approach is called the "Dual Path" strategy and will be field tested
in Phoenix and one other market in 1996. Of
<PAGE> 5
the five facilities the Company operates in the Phoenix market, four will be
remerchandised to better serve DIY customers with the product offering increased
from about 26,000 stock keeping units ("skus") to between 35,000 and 38,000
skus. These stores will continue to serve the walk-in, neighborhood-based
tradesman as well. The fifth facility in Phoenix -- renamed Contractor Supply --
will be dedicated to serve the large volume professional and commercial
customers throughout the entire Phoenix marketplace. Most of the Phoenix outside
sales force will work from this unit which will have a business to business
selling focus.
A significant aspect of the Dual Path strategy involves adding
manufacturing capabilities to better serve the needs of high volume professional
and commercial customers. In January 1996 the Company purchased a door and trim
company in Phoenix, which specializes in manufacturing a wide range of custom
doors, molding and trim products used by carpenters, homebuilders and
remodelers. Also, the Company's existing door plant in Dallas will be expanded
to serve the builder, remodeler and carpenter needs that the acquired door
company serves in Phoenix. The Company believes that these capabilities will
help position it to be the supplier of choice for the larger volume
professional.
There are a number of other components of the Dual Path strategy that are
also expected to be implemented in other markets and retail facilities. During
1996, approximately 50 stores will have significant DIY assortment additions to
product offerings. Seven stores -- generally not in metropolitan markets -- are
planned to be reoriented to the new Contractor Supply format and market
position. Given their location, facility size and current customer base, their
optimal and most profitable use is as a dedicated professional and commercial
supplier. Additionally, the Company intends to open one new store in 1996, with
a format which refines the Company's new store design and represents the
Company's continuing efforts to optimize the consumer's shopping experience.
In furtherance of the Dual Path strategy, the Company has recently
reallocated resources, by selling its ownership interest in Total Home de Mexico
(although it continues as a commercial partner providing information systems,
distribution and logistics services at market rates), selling its Bellingham,
Massachusetts, distribution center, and closing six store facilities, five of
which are in the Boston area.
MERCHANDISING AND MARKETING
During 1995, Payless' full-line stores sold a broad range of building
material products totaling approximately 26,000 items, many of which are
nationally advertised brand-name items. Payless categorizes its product
offerings into the classes described below:
LUMBERYARD - Dimensional lumber, plywood, sidings, roofing
materials, fencing materials, windows, doors and moldings, insulation
materials and drywall.
HARDWARE - Electrical wire and wiring materials, plumbing
materials, power and hand tools, paint and painting supplies, lawn and
garden products, door locks, fasteners, and heating and cooling products.
SHOWROOM - Interior and exterior lighting, bathroom fixtures
and vanities, kitchen cabinets, flooring, panelling, wallcoverings and
ceiling tiles.
During the last three fiscal years, the three product classifications
accounted for the following percentages of Payless' sales:
1993 1994 1995
---- ---- ----
Lumberyard 48 % 49 % 49 %
Hardware 33 34 35
Showroom 19 17 16
---- ---- ----
100 % 100 % 100 %
Payless addresses its primary target customers through a mix of
newspaper, direct mail, radio and television advertising methods. The primary
media vehicle is newspaper advertisements, both freestanding inserts and
run-of-press ads. Additionally, the Company participates in or hosts a variety
of customer hospitality events, contractor product shows and national trade
association shows and conferences. During fiscal 1995, the Company's
expenditures (net of vendor allowances) on all forms of advertising totaled
approximately $32 million or 1.2% of sales.
<PAGE> 6
The Company utilizes data base marketing techniques to increase the
effectiveness of its Pro marketing programs. The data base allows the Company to
track and analyze purchases of Pro customers. This purchase history data is used
in targeted marketing campaigns and to develop distinct customer profiles for
various product categories. In addition, the Company conducts its own market
research, including customer intercepts, phone surveys and customer focus
groups.
STORE LOCATIONS
The Company's 200 full-line stores are located in the following states:
No. of Stores No. of Stores
------------- -------------
Arizona................... 8 Minnesota................. 10
Arkansas.................. 1 Missouri.................. 11
California................ 16 Montana................... 1
Colorado.................. 18 Nebraska.................. 5
Illinois.................. 6 Nevada.................... 5
Indiana................... 16 New Mexico................ 3
Iowa...................... 10 Ohio...................... 12
Kansas.................... 11 Oklahoma.................. 8
Kentucky.................. 5 Oregon.................... 2
Louisiana................. 1 Tennessee................. 3
Massachusetts............. 5 Texas..................... 43
Payless owns 171 of its full-line store facilities and 160 of the 200
sites on which such stores are located. The remaining 29 stores and 40 sites are
leased. Mortgages or deeds of trust on 133 store parcels secure existing
indebtedness.
Payless has generally located retail stores adjacent to residential areas
of major metropolitan cities or adjacent to major arteries in smaller
communities which are convenient to the DIY and Pro customer. Operation of
multiple stores in a trade area permits more effective supervision of stores and
provides certain economies in distribution expenses and advertising costs. Each
of Payless' 200 existing stores has an average total selling space of
approximately 186,000 square feet consisting of 32,000 square feet of indoor
display space and 154,000 square feet of lumberyard. In addition, each store has
an average of 51,000 square feet of warehouse space. The average Payless store
occupies approximately eight acres of land. The stores built since 1993 average
approximately 242,000 square feet of total retail selling space consisting of
60,000 square feet of indoor display space and a 182,000 square foot lumberyard
with an attached 17,000 square foot warehouse on ten acres of land.
An average Payless store currently carries approximately $1.7 million of
inventory, and during fiscal 1995 sales at Payless stores averaged approximately
$13.1 million per store.
During fiscal 1995, six full-line stores were opened and two full-line
stores were sold. On December 30, 1995, six additional stores were closed.
During fiscal 1994, seven full-line stores were opened and one full-line store
was closed. During fiscal 1993, one full-line store was opened.
STORE MANAGEMENT AND PERSONNEL
Payless coordinates the operation of its 200 full-line-stores through 100
Group Store Directors and Store Managers each of whom reports to one of six
Regional Vice Presidents. Supervision and control over the individual stores are
facilitated by means of detailed operating reports. All of Payless' Group Store
Directors, Store Managers, and Regional Vice Presidents have been promoted from
within Payless or from within the stores Payless has acquired.
<PAGE> 7
To obtain candidates for store supervisory and management positions,
Payless recruits both recent college graduates and persons with business
experience. These employees are placed in a formal training program administered
by Payless. In addition, Payless maintains an ongoing training program for
existing store personnel. Group Store Directors and Store Managers typically
have more than ten years of experience with the Company.
The stores utilize a departmental management structure designed to
provide a superior level of service to customers. Sales associates are trained
in product knowledge, selling skills and systems and procedures. Formal
classroom training sessions are supplemented with product clinics, rallies and
special assignments. Department sales managers typically have more than five
years of experience with the Company.
Incentive compensation systems reward employees for store performance
above goal. In addition to management personnel, all sales and support personnel
in the retail stores participate in incentive compensation programs. In fiscal
1995, the Company paid $2.0 million in incentive compensation to its
nonmanagement store personnel. Group Store Directors and Store Managers can earn
in excess of 40% of base salary in incentive compensation. The Company paid
approximately $8.1 million in incentive compensation to its store management
personnel for fiscal 1995. The Company believes that its incentive compensation
systems are key to employee performance and motivation.
INFORMATION SYSTEMS
The Company has invested substantial time, effort and dollars ensuring
that technology and information are used to the maximum benefit throughout its
entire enterprise. In-store-processors based upon current technology standards
are integral to management of the stores and support customer services with
programs designed to enhance the shopping experience. A satellite-based
wide-area-network (WAN) linking each of the various Company facilities provides
for daily transmission of transaction detail data including SKU-level sales from
point-of-sale terminals equipped with the latest in scanning technology. This
network also serves to provide automatic check authorization and on-line credit
card processing. In addition to sales support and data gathering, the Company
has built sophisticated merchandising, inventory management, distribution and
promotional systems which are utilized at the corporate office to manage the
purchasing, movement and marketing of product lines.
DISTRIBUTION AND SUPPLIERS
The Company operates a total of seven distribution centers and four
manufacturing locations. The distribution centers maintain inventories and tag
and ship product to stores on a weekly basis. The Sedalia, Missouri distribution
center handles small-sized, conveyable, high value items such as hardware,
plumbing and electrical supplies, and hand tools. The other six distribution
centers handle commodity products and bulky manufactured products such as tubs,
paneling and ceiling tile. The manufacturing locations assemble pre-hung doors
and customized windows.
In fiscal 1995, 51% of merchandise was channeled through the distribution
centers for redistribution to individual stores. This benefits the Company in
the areas of product costs, in-stock positions and inventory turnover.
The Sedalia distribution center now serves 169 stores as well as two
Total Home stores in Mexico. The 592,000 square foot facility utilizes
computerized receiving, storage and selection technology. Excluding the Sedalia
operation, the Company's regional distribution centers average 18 acres with
154,000 square feet of warehouse space, operating with manual storage and
selection systems. In addition, the Company uses third-party operations for
specialized needs.
Payless purchases substantially all of its merchandise from approximately
3,700 suppliers, no one of which accounted for more than 5% of the Company's
purchases during fiscal 1995.
<PAGE> 8
CREDIT
The Company offers credit to both its DIY and Pro customers. Purchases
under national credit cards and the Company's private-label credit card program
as a percentage of sales represented 27.5% in fiscal 1995, 26.2% in fiscal 1994,
and 25.1% in fiscal 1993. Purchases under the Company's commercial credit
program as a percentage of sales represented 26.5% in fiscal 1995, 25.1% in
fiscal 1994, and 22.1% in fiscal 1993. The Company's private-label credit card
program and commercial credit program are administered by a large finance and
asset management company. Accounts written off (net of recoveries) under the
commercial credit program in fiscal 1995 were approximately $5.9 million or 0.8%
of net commercial credit sales. The cost of the private label credit card
program represents a fixed percentage fee of charge sales. The fees on the
commercial credit program consist of administrative fees which are primarily
tied to commercial credit sales and fees for accounts written off, which are
substantially all absorbed by the Company.
COMPETITION
The business of Payless is highly competitive. Payless encounters
competition from national and regional chains, including those with a warehouse
format, and from local independent wholesalers, supply houses and distributors.
In recent years, the building materials retailing industry has experienced
increased levels of competition as several national chains have expanded their
operations. Certain of these competitors are larger in terms of capital and
sales volume and have been operating longer than Payless in particular areas.
Although Payless' competition varies by geographical area, Payless believes that
it generally has a favorable competitive position as a result of its full-line
lumberyard, broad product mix, customer service, product availability and price.
As a result of the Company's marketing focus on the professional customer, the
Company competes with local independent lumberyards, independent wholesalers,
supply houses and distributors who market primarily to commercial and
professional users.
EMPLOYEES
At November 25, 1995, Payless employed approximately 18,100 persons,
approximately 25% of whom were part-time, although the number of employees may
fluctuate seasonally. Payless believes its employee relations are satisfactory.
Payless' employees are primarily nonunion with less than 2% being represented by
a union.
A substantial portion of the administrative, purchasing, advertising and
accounting functions are centralized at Payless' headquarters in Kansas City,
Missouri.
==========
Forward-looking statements in this Form 10-K are made pursuant to the
safe harbor provisions of the Private Securities Litigation Reform Act of 1995.
There are certain important factors that could cause results to differ
materially from those anticipated by some of the statements made above.
Investors are cautioned that all forward-looking statements involve risks and
uncertainty. In addition to the factors discussed above, among the other factors
that could cause actual results to differ materially are the following: consumer
spending and debt levels; interest rates; housing activity, including existing
home turnover and new home construction; lumber prices; product mix; sale of
certain real estate; growth of certain market segments; competitive pressure on
sales and pricing, and an excess of retail space devoted to the sale of building
materials. Additional information concerning those and other factors is
contained in the Company's Annual Report, copies of which are available from the
Company without charge.
EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth the name and age of all executive officers
of Payless and their present positions and recent business experience. There is
no family relationship among Payless' current directors and executive officers.
<TABLE>
<CAPTION>
Principal Occupation and
Name Age Five-Year Employment History
- ---- --- ----------------------------
<S> <C> <C>
David Stanley.............60 Chairman of the Board and Chief Executive Officer of Payless since
First elected a director: August 1986; and currently a director of Piper Jaffray Companies, Inc.,
1969 Digi International, Inc. and Best Buy Co., Inc. Mr. Stanley is a
member of the Corporate Governance and Nominating Committee of Payless'
Board of Directors.
<PAGE> 9
Susan M. Stanton..........47 President and Chief Operating Officer of Payless since November 1993; Senior
First elected a director: Vice President - Merchandising of Payless from October 1989 to November 1993;
1993 and currently a director of Western Resources, Inc. and Commerce Bank,
N.A. Ms. Stanton is a member of the Corporate Governance and Nominating
Committee of Payless' Board of Directors.
Gerald M. Buchen..........40 Senior Vice President - Store Operations of Payless since November 1993; and
Vice President - Merchandising/Lumberyard of Payless from August 1988 to
November 1993.
Linda J. French...........48 Senior Vice President - General Counsel/Secretary of Payless since October 1991;
and Vice President - General Counsel/Secretary of Payless from April 1986 to
October 1991.
E. J. Holland, Jr.........52 Senior Vice President - Human Resources of Payless since June 1992; and Partner
of the law firm Spencer Fane Britt & Browne from January 1974 to June 1992.
Stephen A. Lightstone.....50 Senior Vice President - Finance/Treasurer and Chief Financial Officer of Payless
since February 1988.
Richard E. Nawrot.........48 Senior Vice President - Information Systems of Payless since September 1991;
Vice President of Management Information Services of Jamesway Corporation from
February 1991 to September 1991; and Senior Vice President - MIS and Chief
Information Officer of Ames Department Stores, Inc. from July 1988 to February
1991.
Richard G. Luse...........48 Vice President - Controller of Payless since February 1988.
</TABLE>
Item 2. PROPERTIES.
- ------- -----------
Payless owns 171 of its full-line store facilities and 160 of the 200
sites on which such stores are located. The remaining 29 facilities and 40 sites
are leased. The leases provide for various terms. Mortgages or deeds of trust on
133 store parcels secure existing indebtedness.
Five of the Company's seven distribution centers are owned and, of the
remaining two, one is leased for land only and the facility and land are leased
for the other. Mortgages or deeds of trust on three distribution center parcels
secure existing indebtedness.
Payless leases its corporate office in Kansas City, Missouri, under a
lease expiring on November 30, 2002. The administrative offices occupy several
floors (approximately 204,000 square feet) of a multi-story building.
See also "Strategic Initiatives," "Store Locations" and "Distribution and
Suppliers" in Item 1, above.
Item 3. LEGAL PROCEEDINGS.
- ------ ------------------
On January 6, 1995, a group of terminated employees and others ("Former
Employees") filed a lawsuit against the Company and other named defendants (the
"Company"), entitled The Payless Cashways, Inc. Partners [et al.] v. Payless
Cashways, Inc. [et al], in the United States District Court for the Southern
District of Iowa. The Former Employees include management employees who were
terminated effective January 10, 1994, in connection with a reduction in force
pursuant to a restructuring, in which the Company eliminated certain management
in the field organization. The complaint asserted a variety of claims including
federal and state securities fraud claims, alleged violations of the Racketeer
Influenced and Corrupt Organizations Act, federal and state claims of age
discrimination, alleged violations of the Employment Retirement Income Security
Act of 1974, and various state law claims including, but not limited to,
fraudulent misrepresentation allegations. The complaint also asserted the Former
Employees' claims as class representatives and sought to expand the group of
party plaintiffs as to the federal age discrimination claims. Various forms of
relief, including unspecified monetary damages and an injunctive order, were
requested.
<PAGE> 10
The Company, in response, filed a motion to dismiss as to the majority of
the pending claims except the federal and state age discrimination claims, the
state law fraudulent misrepresentation claim and several other state law
equitable claims. The Former Employees responded, in part, by filing a second
amended complaint, providing in large part additional supportive factual detail.
To avoid filing a second motion to dismiss, the Company filed a reply brief in
support of the motion to dismiss. A hearing was held on the motion to dismiss on
August 18, 1995 and, as of this date, no ruling has been entered. Each of the
parties has propounded written discovery pursuant to the court's scheduling
order and discovery plan.
The Company denies any and all claimed liability and is vigorously
defending this litigation, but, given the early state of this litigation, is
unable to estimate a potential range of monetary exposure, if any, to the
Company or to predict the likely outcome of this matter.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
- ------- ----------------------------------------------------
None.
PART II
-------
Item 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
- ------- -----------------------------------------------------
STOCKHOLDER MATTERS
-------------------
Market and dividend information, included on page 32 of the Annual Report
to Shareholders for the fiscal year ended November 25, 1995, are incorporated
herein by reference.
Item 6. SELECTED FINANCIAL DATA.
- ------- ------------------------
The Five-Year Financial Summary, included on page 28 of the Annual Report
to Shareholders for the fiscal year ended November 25, 1995, is incorporated
herein by reference.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
- ------- -----------------------------------------------------------------------
OF OPERATIONS.
--------------
Management's Discussion and Analysis of the Financial Condition and
Results of Operations, included on pages 6 through 9 of the Annual Report to
Shareholders for the fiscal year ended November 25, 1995, is incorporated herein
by reference.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
- ------- --------------------------------------------
The financial statements and independent auditors' report, included on
pages 10 through 27 of the Annual Report to Shareholders for the fiscal year
ended November 25, 1995, are incorporated herein by reference.
The Quarterly Consolidated Statements of Operations, included on pages 4
and 5 of the Annual Report to Shareholders for the fiscal year ended November
25, 1995, are incorporated herein by reference.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
- ------- ---------------------------------------------------------------
FINANCIAL DISCLOSURE.
---------------------
None.
<PAGE> 11
PART III
--------
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
- -------- ---------------------------------------------------
The information required by this item with respect to directors and
compliance with Section 16(a) of the Securities Exchange Act of 1934 is
incorporated herein by reference to the Registrant's Proxy Statement for the
1996 Annual Meeting of Shareholders, dated February 23, 1996, to be filed
pursuant to Regulation 14A. The required information as to executive officers is
set forth in Part I hereof.
Item 11. EXECUTIVE COMPENSATION.
- -------- -----------------------
The information required by this item is incorporated herein by reference
to the Registrant's Proxy Statement for the 1996 Annual Meeting of Shareholders,
dated February 23, 1996, to be filed pursuant to Regulation 14A.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
- -------- ---------------------------------------------------------------
The information called for by this item is incorporated herein by
reference to the Registrant's Proxy Statement for the 1996 Annual Meeting of
Shareholders, dated February 23, 1996, to be filed pursuant to Regulation 14A.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
- -------- -----------------------------------------------
The information called for by this item is incorporated herein by
reference to the Registrant's Proxy Statement for the 1996 Annual Meeting of
Shareholders, dated February 23, 1996, to be filed pursuant to Regulation 14A.
PART IV
-------
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
- -------- -----------------------------------------------------------------
(a) Document list.
1. and 2. The response to this portion of Item 14 is submitted as a
separate section of this report.
3. List of exhibits.
3.1 Restated Articles of Incorporation of the Company
(incorporated by reference to Exhibit 3.1 filed as part of
Amendment No. 1 to Registration Statement No. 33-58008 on Form
S-2 on March 8, 1993).
3.2 By-laws of the Company (incorporated by reference to Exhibit
3.1 filed as part of Payless' Quarterly Report on Form 10-Q
for the quarter ended August 27, 1994).
4.0 Long-term debt instruments of the Registrant in amounts not
exceeding ten percent (10%) of the total assets of the
Registrant and its subsidiary on a consolidated basis will be
furnished to the Commission upon request.
4.1 Amended and Restated Credit Agreement, dated as of November
20, 1995, among Payless, the Banks listed on the signature
pages thereof and Canadian Imperial Bank of Commerce, New York
Agency, as Administrative Agent.
4.2 Indenture dated as of April 20, 1993, by and between Payless
and United States Trust Company of New York, pursuant to which
the 9 1/8% Senior Subordinated Notes of Payless due April 15,
2003, were issued (incorporated by reference to Exhibit 4.2
filed as part of Payless' Quarterly Report on Form 10-Q for
the quarter ended May 29, 1993).
4.3 Amended and Restated Warrant Agreement, dated as of January 1,
1993, to Warrant Agreement dated as of November 1, 1988,
between Payless and Bank of New York (incorporated by
reference to Exhibit 4.1(b) of Payless' Annual Report on Form
10-K for the fiscal year ended November 28, 1992, as amended
by Form 8, dated February 1, 1993).
<PAGE> 12
4.4(a) Loan Agreement dated June 20, 1989, by and among Payless
Cashways, Inc., Knox Home Centers, Inc. ("Knox"), Somerville
Lumber and Supply Co., Inc. ("Somerville"), and The Prudential
Insurance Company of America (incorporated by reference to
Exhibit 4.2 filed as part of Payless' Quarterly Report on Form
10-Q for the quarter ended May 27, 1989).
4.4(b) Promissory Note dated June 20, 1989, from Payless to The
Prudential Insurance Company of America, Tranche B (MN)
(incorporated by reference to Exhibit 4.12 filed as part of
Payless' Quarterly Report on Form 10-Q for the quarter ended
May 27, 1989).
4.4(c) Promissory Note dated June 20, 1989, from Payless to The
Prudential Insurance Company of America, Tranche B (MT)
(incorporated by reference to Exhibit 4.13 filed as part of
Payless' Quarterly Report on Form 10-Q for the quarter ended
May 27, 1989).
4.4(d) Promissory Note dated June 20, 1989, from Payless to the
Prudential Insurance Company of America, Tranche B (ND)
(incorporated by reference to Exhibit 4.14 filed as part of
Payless' Quarterly Report on Form 10-Q for the quarter ended
May 27, 1989).
4.4(e) Promissory Note dated June 20, 1989, from Payless to The
Prudential Insurance Company of America, Tranche B (NV)
(incorporated by reference to Exhibit 4.15 filed a part of
Payless' Quarterly Report on Form 10-Q for the quarter ended
May 27, 1989).
4.4(f) Promissory Note dated June 20, 1989, from Payless to The
Prudential Insurance Company of America, Tranche B (AZ, CA)
(incorporated by reference to Exhibit 4.16 filed as part of
Payless' Quarterly Report on Form 10-Q for the quarter ended
May 27, 1989).
4.4(g) Promissory Note dated June 20, 1989, from Payless to The
Prudential Insurance Company of America, Tranche C (IN, KY,
NM, OH, TN)(incorporated by reference to Exhibit 4.17 filed as
part of Payless' Quarterly Report on Form 10-Q for the quarter
ended May 27, 1989).
4.4(h) Promissory Note dated June 20, 1989, from Payless to The
Prudential Insurance Company of America, Tranche D (CO, IA,
IL, KS, NE, MO, TX, OR, OK) (incorporated by reference to
Exhibit 4.18 filed as part of Payless' Quarterly Report on
Form 10-Q for the quarter ended May 27, 1989).
4.4(i) Form of Deed of Trust, Mortgage and Security Agreement
effective June 20, 1989, given to The Prudential Insurance
Company of America (incorporated by reference to Exhibit 4.19
filed as part of Payless' Quarterly Report on Form 10-Q for
the quarter ended May 27, 1989).
4.4(j) Form of Deed of Trust, Security Agreement and Assignment of
Leases dated June 20, 1989, given to Morgan Bank (Delaware),
as Collateral Agent (incorporated by reference to Exhibit 4.20
filed as part of Payless' Quarterly Report on Form 10-Q for
the quarter ended May 27, 1989).
4.4(k) First Modification Agreement dated as of October 18, 1991, by
and among Payless, Knox, Somerville and The Prudential
Insurance Company of America (incorporated by reference to
Exhibit 4.9(r) filed as part of Payless' Annual Report on Form
10-K for fiscal year ended November 30, 1991).
4.4(l) Second Modification Agreement dated as of December 17, 1991,
by and among Payless, Knox, Somerville and The Prudential
Insurance Company of America (incorporated by reference to
Exhibit 4.9(s) filed as part of Payless' Annual Report on Form
10-K for fiscal year ended November 30, 1991).
4.4(m) Third Modification Agreement dated as of December 31, 1991, by
and among Payless, Knox, Somerville and the Prudential
Insurance Company of America (incorporated by reference to
Exhibit 4.9(t) filed as part of Payless' Annual Report on Form
10-K for fiscal year ended November 30, 1991).
4.4(n) Fourth Modification Agreement dated as of March 8, 1993, by
and among Payless, Somerville and The Prudential Insurance
Company of America (incorporated by reference to exhibit
4.6(v) filed as part of Amendment No. 1 to Registration
Statement No. 33-58008 on Form S-2 on March 8, 1993).
4.4(o) Letter dated March 12, 1993 modifying Fourth Modification
Agreement dated as of March 8, 1993, by and among Payless,
Somerville and The Prudential Insurance Company of America
(incorporated by reference to Exhibit 4.5(w) filed as part of
Registration Statement No. 33-59854 on Form S-2 on March 19,
1993).
<PAGE> 13
4.4(p) Fifth Modification Agreement, dated as of May 25, 1995, by and
among Payless, Somerville and The Prudential Insurance Company
of America (incorporated by reference to Exhibit 4.1 filed as
part of Payless' Quarterly Report on Form 10-Q for the quarter
ended August 27, 1995).
4.4(q) Sixth Modification Agreement dated as of November 21, 1995, by
and among Payless and The Prudential Insurance Company of
America.
4.5 Borrower Security Agreement, dated November 18, 1994, made by
Payless for the benefit of Canadian Imperial Bank of Commerce,
New York Agency, as Collateral Agent, and the banks and other
financial institutions party to the 1994 Credit Agreement
(incorporated by reference to Exhibit 4.5 filed as part of
Payless' Annual Report on Form 10-K for fiscal year ended
November 26, 1994).
4.6 Stock Pledge Agreement, dated November 18, 1994, made by
Payless for the benefit of Canadian Imperial Bank of Commerce,
New York Agency, as Collateral Agent, and the banks and other
financial institutions party to the 1994 Credit Agreement
(incorporated by reference to Exhibit 4.8 filed as part of
Payless' Annual Report on Form 10-K for the fiscal year ended
November 26, 1994).
4.7 Inter-Facility Agreement, dated November 18, 1994, among
Canadian Imperial Bank of Commerce, New York Agency, The Bank
of Nova Scotia, Nationsbank of Texas, N.A., Bank of America
National Trust and Savings Association, Commerce Bank, N.A.,
Payless and Somerville (incorporated by reference to Exhibit
4.9 filed as part of Payless' Annual Report on Form 10-K for
the fiscal year ended November 26, 1994).
10.1 Indemnification Agreement (incorporated by reference to
Exhibit 10.2 filed as part of Amendment No. 2 to Registration
Statement No. 33-49772 filed August 26, 1992).
10.2(a)* Payless Cashways, Inc. Corporate Management Incentive
Compensation Program, dated as of December 1991 (incorporated
by reference to Exhibit 10.2 filed as part of Payless'
Quarterly Report on Form 10-Q for the quarter ended May 30,
1992).
10.2(b)* First Amendment to Payless Cashways, Inc. Corporate Management
Incentive Compensation Program, dated as of February 2, 1995
(incorporated by reference to Exhibit 10.3(b) filed as part of
Payless' Annual Report on Form 10-K for the fiscal year ended
November 26, 1994).
10.3* Employment Agreement dated as of June 16, 1995, between
Payless and David Stanley (incorporated by reference to
Exhibit 10.1 filed as part of Payless' Quarterly Report on
Form 10-Q for the quarter ended May 27, 1995).
10.4* Employment Agreement dated as of February 8, 1993, between
Payless and Susan M. Stanton (incorporated by reference to
Exhibit 10.26 filed as part of Registration Statement No.
33-58008 on Form S-2 on February 8, 1993).
10.5* Employment Agreement dated as of February 8, 1993, between
Payless and Stephen A. Lightstone (incorporated by reference
to Exhibit 10.25 filed as part of Registration Statement No.
33-58008 on Form S-2 on February 8, 1993).
10.6* Retirement Agreement dated as of November 14, 1993, between
Payless and Harold Cohen (incorporated by reference to Exhibit
10.6(c) filed as part of Payless' Annual Report on Form 10-K
for the fiscal year ended November 27, 1993).
10.7(a)* Payless Cashways, Inc. Wealth-Op Deferred Compensation Plan
(incorporated by reference to Exhibit 10.8 filed as part of
Post-Effective Amendment No. 7 to Registration Statement No.
33-23893 on Form S-2 filed May 26, 1992).
10.7(b)* Amendment to Payless' Wealth-Op Deferred Compensation Plan
(incorporated by reference to Exhibit 10.10(b) filed as part
of Payless' Annual Report on Form 10-K for the fiscal year
ended November 27, 1993).
10.8(a)* Payless Cashways, Inc. 1988 Deferred Compensation Plan
(incorporated by reference to Exhibit 10.11(a) filed as part
of Payless' Annual Report on Form 10-K for the fiscal year
ended November 27, 1993).
10.8(b)* Amendment to Payless' 1988 Deferred Compensation Plan
(incorporated by reference to Exhibit 10.11(b) filed as part
of Payless' Annual Report on Form 10-K for the fiscal year
ended November 27, 1993).
<PAGE> 14
10.9(a)* Payless Cashways, Inc. Supplemental Death Benefit Plan
(incorporated by reference to Exhibit 10.12 filed as part of
Payless' Annual Report on Form 10-K for the fiscal year ended
November 27, 1993).
10.9(b)* First Amendment to the Payless Cashways, Inc. Supplemental
Death Benefit Plan, dated June 16, 1994 (incorporated by
reference to Exhibit 10.1 filed as part of Payless' Quarterly
Report on Form 10-Q for the quarter ended May 28, 1994).
10.10* Payless Cashways, Inc. Supplemental Disability Plan
(incorporated by reference to Exhibit 10.13 filed as part of
Payless' Annual Report on Form 10-K for the fiscal year ended
November 27, 1993).
10.11(a)* Payless Cashways, Inc. Supplemental Retirement Plan dated as
of January 1, 1988 (incorporated by reference to Exhibit
10.14(a) filed as part of Payless' Annual Report on Form 10-K
for the fiscal year ended November 27, 1993).
10.11(b)* First Amendment, effective June 22, 1989, to the Payless
Cashways, Inc. Supplemental Retirement Plan dated as of
January 1, 1988 (incorporated by reference to Exhibit 10.14(b)
filed as part of Payless' Annual Report on Form 10-K for the
fiscal year ended November 27, 1993).
10.11(c)* Second Amendment dated as of September 7, 1993, to the Payless
Cashways, Inc. Supplemental Retirement Plan dated as of
January 1, 1988 (incorporated by reference to Exhibit 10.14(c)
filed as part of Payless' Annual Report on Form 10-K for the
fiscal year ended November 26, 1994).
10.11(d)* Third Amendment dated as of August 31, 1994, to the Payless
Cashways, Inc. Supplemental Retirement Plan dated as of
January 1, 1988 (incorporated by reference to Exhibit 10.1(a)
filed as part of Payless' Quarterly Report on Form 10-Q for
the quarter ended August 27, 1994).
10.11(e)* Agreement for Supplemental Retirement Benefits between Payless
and David Stanley as of August 31, 1994 (incorporated by
reference to Exhibit 10.1(b) filed as part of Payless'
Quarterly Report on Form 10-Q for the quarter ended August 27,
1994).
10.11(f)* Fourth Amendment, effective June 16, 1995, to the Payless
Cashways, Inc. Supplemental Retirement Plan dated as of
January 1, 1988 (incorporated by reference to Exhibit 10.2
filed as part of the Payless' Quarterly Report on Form 10-Q
for the quarter ended August 27, 1995).
10.12(a) Registration Rights Agreement dated as of August 4, 1988,
among PCI Acquisition Corp. and certain of its shareholders
(incorporated by reference to Exhibit 10.15(a) filed as part
of Payless' Annual Report on Form 10-K for the fiscal year
ended November 27, 1993).
10.12(b) Agreement and Amendment dated as of November 11, 1988, to
Registration Rights Agreement dated as of August 4, 1988,
among Payless and certain of its shareholders (incorporated by
reference to Exhibit 10.15(b)filed as part of Payless' Annual
Report on Form 10-K for the fiscal year ended November 27,
1993).
10.12(c) Addendum to Shareholders' Agreement and Registration Rights
Agreement dated February 22, 1989, by and among Payless and
certain of its shareholders (incorporated by reference to
Exhibit 10.15(c) filed as part of Payless' Annual Report on
Form 10-K for the fiscal year ended November 27, 1993).
10.13(a) Amended and Restated Shareholders' Agreement, dated as of
February 22, 1990, by and among PCI Acquisition Corp. and
certain of its shareholders (incorporated by reference to
Exhibit 10.47 filed as part of Post-Effective Amendment No. 3
to Registration Statement No. 33-23893 on Form S-2 filed March
23, 1990).
10.13(b) Amendment No. 1 dated as of March 18, 1991, to the Amended and
Restated Shareholders' Agreement dated as of February 22,
1990, by and among Payless and certain of its shareholders
(incorporated by reference to Exhibit 10.43(b) filed as part
of Post-Effective Amendment No. 5 to Registration Statement
No. 33-23893 on Form S-2 filed March 21, 1991).
10.14(a)* 1988 Payless Cashways, Inc. Employee Stock Plan (incorporated
by reference to Annex 1 filed as part of Registration
Statement No. 33-24368 on Form S-8 filed September 9, 1988).
<PAGE> 15
10.14(b)* First Amendment to the 1988 Payless Cashways, Inc. Employee
Stock Plan, dated November 11, 1988 (incorporated by reference
to Exhibit 10.1(b) filed as part of Payless' Quarterly Report
on Form 10-Q for the quarter ended February 25, 1989).
10.14(c)* Second Amendment to the 1988 Payless Cashways, Inc. Employee
Stock Plan, dated February 22, 1989 (incorporated by reference
to Exhibit 10.1(c) filed as part of Payless' Quarterly Report
on Form 10-Q for the quarter ended February 25, 1989).
10.14(d)* Third Amendment to the 1988 Payless Cashways, Inc. Employee
Stock Plan, dated March 6, 1990 (incorporated by reference to
Exhibit 10.2 of Payless' Quarterly Report on Form 10-Q for the
quarter ended February 24, 1990).
10.14(e)* Form of Performance Stock Option Agreement pursuant to the
1988 Payless Cashways, Inc. Employee Stock Option Plan amended
on June 20, 1991 (incorporated by reference to Exhibit
10.21(e) filed as part of Payless' Annual Report on Form 10-K
for fiscal year ended November 30, 1991).
10.14(f)* Amendment to the 1988 Payless Cashways, Inc. Employee Stock
Plan, dated as of May 1, 1992 (incorporated by reference to
Exhibit 10.26 filed as part of Post-Effective Amendment No. 7
to Form S-2 Registration Statement No. 33-23893 filed May 26,
1992).
10.15* Payless Cashways 1992 Incentive Stock Program (incorporated by
reference to Exhibit 10.24 filed as part of Amendment No. 2 to
Registration Statement No. 33-49772 on Form S-2 filed August
26, 1992).
10.16* Payless Cashways Director Option Plan (incorporated by
reference to Exhibit 10.23 filed as part of Registration
Statement No. 33-59854 on Form S-2 on March 19, 1993).
10.17* Payless Cashways, Inc. Deferred Compensation Plan for
Directors, dated as of October 20, 1995.
11.1 Computation of per share earnings.
13.1 Annual Report to Shareholders.
23.1 Consent of KPMG Peat Marwick LLP.
27.1 Financial data schedule.
* Represents a management contract or a compensatory plan or arrangement.
Copies of any or all Exhibits will be furnished upon written request and payment
of Payless' reasonable expenses in furnishing the Exhibits.
(b) Reports on Form 8-K.
No reports on Form 8-K have been filed by the Registrant during the
quarter ended November 25, 1995.
(c) Exhibits.
The response to this portion of Item 14 is submitted as a separate
section of this report.
(d) Financial Statement Schedules.
The response to this portion of Item 14 is submitted as a separate
section of this report.
<PAGE> 16
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, Payless has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
PAYLESS CASHWAYS, INC.
(Registrant)
By s/David Stanley
--------------------------------------------
David Stanley, Principal Executive Officer
Dated: February 15, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of Payless and
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
------------------------ ------------------------------- ---------------------
<S> <C> <C>
s/David Stanley
------------------------
David Stanley Chief Executive Officer and February 15, 1996
Chairman of the Board
(Principal Executive Officer)
s/Susan M. Stanton
------------------------
Susan M. Stanton President and Chief Operating February 15, 1996
Officer and Director
s/Ralph Strangis
------------------------
Ralph Strangis Lead Director February 15, 1996
s/Harold Cohen
------------------------
Harold Cohen Director February 15, 1996
s/Scott G. Fossel
------------------------
Scott G. Fossel Director February 15, 1996
s/William A. Hall
------------------------
William A. Hall Director February 15, 1996
s/George Latimer
------------------------
George Latimer Director February 15, 1996
------------------------
Wayne B. Lyon Director February , 1996
s/Gary D. Rose
------------------------
Gary D. Rose Director February 15, 1996
s/Louis W. Smith
------------------------
Louis W. Smith Director February 15, 1996
s/John H. Weitnauer, Jr.
------------------------
John H. Weitnauer, Jr. Director February 15, 1996
s/Stephen A. Lightstone
------------------------
Stephen A. Lightstone Senior Vice President-Finance/ February 15, 1996
Treasurer and Chief Financial
Officer (Principal Financial
Officer and Principal
Accounting Officer
</TABLE>
<PAGE> 17
ANNUAL REPORT ON FORM 10-K
ITEM 14(a) (1) and (2), (c) and (d)
LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
FINANCIAL STATEMENT SCHEDULES
EXHIBITS
YEAR ENDED NOVEMBER 25, 1995
PAYLESS CASHWAYS, INC., and subsidiary
KANSAS CITY, MISSOURI
<PAGE> 18
PAYLESS CASHWAYS, INC., and subsidiary
FORM 10-K--ITEM 14(a) (1) and (2)
LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
The following consolidated financial statements of Payless Cashways,
Inc., and subsidiary included in Payless' Annual Report to the Shareholders for
the year ended November 25, 1995, are incorporated by reference in Item 8:
Consolidated Balance Sheets--November 25, 1995, and November 26, 1994.
Consolidated Statements of Operations--fiscal years ended November 25,
1995, November 26, 1994, and November 27, 1993.
Consolidated Statements of Shareholders' Equity--fiscal years ended
November 25, 1995, November 26, 1994, and November 27, 1993.
Consolidated Statements of Cash Flows--fiscal years ended November 25,
1995, November 26, 1994, and November 27, 1993.
Notes to Consolidated Financial Statements.
The following financial statement schedules of Payless Cashways, Inc.,
and subsidiary are included in Item 14(d):
VIII - Valuation and Qualifying Accounts
All other schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission are not required
under the related instructions or are inapplicable, and therefore have been
omitted.
<PAGE> 19
[KPMG Peat Marwick LLP Letterhead]
INDEPENDENT AUDITORS' REPORT
----------------------------
The Board of Directors
Payless Cashways, Inc.:
Under date of January 9, 1996, we reported on the consolidated balance sheets of
Payless Cashways, Inc. and subsidiary as of November 25, 1995 and November 26,
1994, and the related consolidated statements of operations, shareholders'
equity and cash flows for each of the fiscal years in the three-year period
ended November 25, 1995, as contained in the 1995 annual report to shareholders.
These consolidated financial statements and our report thereon are incorporated
by reference in the annual report on Form 10-K for the fiscal year 1995. In
connection with our audits of the aforementioned consolidated financial
statements, we also audited the related consolidated financial statement
schedule as listed in the accompanying index. This consolidated financial
statement schedule is the responsibility of the Company's management. Our
responsibility is to express an opinion on this consolidated financial statement
schedule based on our audits.
In our opinion, such financial statement schedule, when considered in relation
to the basic consolidated financial statements taken as a whole, presents
fairly, in all material respects, the information set forth therein.
s/KPMG Peat Marwick LLP
Kansas City, Missouri
January 9, 1996
<PAGE> 20
SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS
PAYLESS CASHWAYS, INC., and subsidiary
(In thousands)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
COL. A COL. B COL. C COL. D COL. E
- -----------------------------------------------------------------------------------------------------------------------------------
Balance at Charged to Balance at
beginning cost and end of
Description of period expenses Deductions period
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
YEAR ENDED NOVEMBER 25, 1995:
Reserve for Inventory Shrink
and Obsolescence................. $ 16,661 $ 33,108 $ 29,415 $ 20,354
YEAR ENDED NOVEMBER 26, 1994:
Reserve for Inventory Shrink
and Obsolescence................. $ 18,252 $ 21,920 $ 23,511 $ 16,661
YEAR ENDED NOVEMBER 27, 1993:
Reserve for Inventory Shrink
and Obsolescence................. $ 12,848 $ 23,948 $ 18,544 $ 18,252
</TABLE>
<PAGE> 1
Exhibit 4.1
AMENDED AND RESTATED CREDIT AGREEMENT
AMENDED AND RESTATED CREDIT AGREEMENT, dated as of November
20, 1995, among PAYLESS CASHWAYS, INC., an Iowa corporation (the "Borrower"),
the banks and other financial institutions parties hereto (together with their
respective successors and assigns, the "Banks"), CANADIAN IMPERIAL BANK OF
COMMERCE, NEW YORK AGENCY (acting through one or more of its agencies, branches
or affiliates, "CIBC"), as Administrative Agent (in such capacity, together with
any successor agent, the "Administrative Agent") and as Collateral Agent (in
such capacity, together with any successor agent, the "Collateral Agent") and
THE BANK OF NOVA SCOTIA, NATIONSBANK OF TEXAS, N.A., and BANK OF AMERICA
NATIONAL TRUST AND SAVINGS ASSOCIATION, as Co-Agents (in such capacity, together
with any successors and assigns, the "Co-Agents").
W I T N E S S E T H :
WHEREAS, the Borrower, certain of the Banks, the
Administrative Agent, the Collateral Agent and the Co-Agents are parties to the
Credit Agreement, dated as of November 18, 1994 (as amended prior to the date
hereof, the "Existing Credit Agreement");
WHEREAS, the Borrower has requested that the Existing Credit
Agreement be amended and restated to (a) provide for an additional financial
institution as a Bank to make Tranche B Term Loans (the "New Bank"), (b) add a
$40,000,000 five year senior secured Tranche B term loan facility and (c)
otherwise amend the Existing Credit Agreement and restate it in its entirety as
more fully set forth herein; and the Banks, the Administrative Agent, the
Collateral Agent and the Co-Agents are willing, upon and subject to the terms
and conditions hereof, to amend and restate the Existing Credit Agreement and,
in the case of the New Bank, to become a party hereto as a Bank;
NOW, THEREFORE, in consideration of the mutual agreements
herein set forth, the parties hereto hereby agree as follows:
SECTION 1. DEFINITIONS
SECTION 1.1 Definitions. The following terms, as used herein,
have the following meanings:
"Absolute Rate Money Market Loan" means any Money
Market Loan made pursuant to an Absolute Rate Money Market Loan
Request.
"Absolute Rate Money Market Loan Request" means any Money
Market Loan Request requesting the Banks to make Money Market Loans at an
absolute fixed rate for the term of the Money Market Loan.
<PAGE> 2
"Adjusted London Interbank Offered Rate" applicable to each
day during any Interest Period means a rate per annum equal to the quotient
obtained (rounded upwards, if necessary, to the next higher 1/100 of 1%) by
dividing (i) the applicable LIBOR by (ii) 1.00 minus the Euro-Dollar Reserve
Percentage in effect for such day.
"Administrative Agent" has the meaning set forth in the
first paragraph of this Agreement.
"Affiliate" as applied to any Person means (x) any other
Person directly or indirectly controlling, controlled by, or under common
control with, that Person or (y) any other Person that owns or controls 5% or
more of any class of equity securities of that Person or any of its Affiliates.
For the purposes of this definition, "control" (including with correlative
meanings, the terms "controlling," "controlled by," and "under common control
with"), as applied to any Person, means the possession, directly or indirectly,
of the power to direct or cause the direction of the management and policies of
that Person, whether through the ownership of voting securities or by contract
or otherwise.
"Aggregate Outstanding Revolving Extensions of Credit" means,
as to any Bank at any time, an amount equal to the sum of (a) the aggregate
principal amount of all Revolving Loans made by such Bank then outstanding and
(b) such Bank's Revolving Commitment Percentage of the L/C Obligations then
outstanding.
"Agreement" means this Credit Agreement, as amended, modified
or supplemented from time to time in accordance with the terms hereof.
"Applicable Index Rate" means, in respect of any Money
Market Loan requested pursuant to an Index Rate Money Market Loan
Request, LIBOR.
"Applicable Margin" means:
(a) with respect to the Revolving Loans, for each Margin
Period, the rate per annum for the relevant Type of Revolving Loan set forth
below opposite the Debt to EBITDA Ratio of the Borrower on the last day of the
fiscal quarter to which such Margin Period relates:
<PAGE> 3
Debt to EBITDA CIBC Alternate Euro-Dollar
Ratio Base Rate Loans Loans
- -------------- --------------- -----------
Greater than 1.00% 2.00%
4.25 to 1.0
Greater than .75% 1.75%
3.75 to 1.0 but
less than or equal to
4.25 to 1.0
Greater than .50% 1.50%
3.5 to 1.0 but
less than or equal to
3.75 to 1.0
Greater than .25% 1.25%
3.0 to 1 but
less than or equal to
3.5 to 1.0
Less than 0% 1.00%
or equal to
3.0 to 1.0
provided, however, that until the Margin Period relating to the fiscal quarter
ending November 25, 1995, the Applicable Margin shall be .75% for CIBC Alternate
Base Rate Loans and 1.75% for Euro-Dollar Loans, and provided, further, that if
at any time the Borrower shall fail to deliver the financial statements required
by Section 8.1(a) and (b) for any fiscal quarter or the related Compliance
Certificate required by Section 8.1(c) on or before the date such statements and
Compliance Certificate are required to be delivered pursuant to such Sections,
the Debt to EBITDA Ratio shall be deemed for purposes of this definition to be
greater than 4.25 to 1.0 for the period which commences five Domestic Business
Days after such required date of delivery and ends on the date which is five
Domestic Business Days after such financial statements and Compliance
Certificate are actually delivered (each such period, a "Late Delivery Period"),
after which the Applicable Margin for the remainder of such Margin Period shall
be determined in accordance with the preceding schedule (subject, nevertheless,
to the overriding provisions of this proviso insofar as this proviso may apply
to any other then delinquent financial statements and/or Compliance Certificate)
and provided, further, that if, when delivered, such statements and certificate
shall support a determination of an Applicable Margin for such Late Delivery
Period which is less than that determined therefor in accordance with the
foregoing proviso, the Applicable Margin for such period shall be retroactively
reduced to such lesser amount.
<PAGE> 4
(b) with respect to the Tranche B Term Loans, 1.25% if such
Loans are CIBC Alternate Base Rate Loans and 2.25% if such Loans are Euro-Dollar
Loans.
"Application" means an application, in such form as the Letter
of Credit Bank may specify from time to time (a copy of the current form of
which is attached hereto as Exhibit E), requesting the Letter of Credit Bank to
open a Letter of Credit, as such application may be amended, modified or
supplemented from time to time.
"Available Revolving Commitment" means, as to any Bank at any
time, an amount equal to the excess, if any, of (a) such Bank's Revolving
Commitment over (b) such Bank's Aggregate
Outstanding Revolving Extensions of Credit.
"Bank Obligations" means all obligations and liabilities of
the Borrower and its Subsidiaries under or in connection with the Credit
Documents, now existing or hereafter created, contingent or not, due or not,
arising by operation of law or otherwise.
"Beneficial Ownership" by a Person when used with respect to
any Voting Shares is defined to mean beneficial ownership by such Person of such
Voting Shares as defined in Rule 13d-3 of the Exchange Act.
"Borrowing" means a borrowing hereunder consisting of
Revolving Loans or Tranche B Term Loans made to the Borrower by the Banks
pursuant to Section 2. A Borrowing is a "CIBC Alternate Base Rate Borrowing" if
such Loans are CIBC Alternate Base Rate Loans and a "Euro-Dollar Borrowing" if
such Loans are Euro-Dollar Loans.
"Borrowing Date" means, any Domestic Business Day, or, in the
case of Euro-Dollar Loans, any Euro-Dollar Business Day, specified in a notice
pursuant to (a) Section 2.2 or 4.2 as a date on which the Borrower requests the
Banks to make Revolving Loans or Money Market Loans, respectively, hereunder or
(b) Section 3.2 as a date on which the Borrower requests the Letter of Credit
Bank to issue a Letter of Credit hereunder.
"Change of Control" means the occurrence of either of the
following events: (x) any Person or any Persons acting together which would
constitute a Group, together with any Affiliates thereof, shall after the
Closing Date purchase Voting Shares of the Borrower such that such Person or
Group, together with such Affiliates, have Beneficial Ownership of Voting Shares
of the Borrower entitling such Person or Group, together with such Affiliates,
to exercise at least 40% of the total voting power of all classes of Voting
Shares of the Borrower; or (y) any Person or any Group of Persons, together with
any Affiliates thereof, shall succeed in having a sufficient number of its or
their nominees elected to the Board of Directors of the Borrower
<PAGE> 5
such that such nominees so elected (whether new or continuing as directors)
shall constitute a majority of the Board of Directors of the Borrower.
"Charges" has the meaning set forth in Section 5.3.
"CIBC" has the meaning set forth in the first paragraph
of this Agreement.
"CIBC Alternate Base Rate" means on any particular date, a
rate of interest per annum equal to the higher of:
(a) the rate of interest most recently announced
by CIBC at its Domestic Lending Office as its
base rate; and
(b) the Federal Funds Rate for such date plus 1/2
of 1.0%.
The CIBC Alternate Base Rate is not necessarily intended to be the lowest rate
of interest charged by CIBC in connection with extensions of credit.
"CIBC Alternate Base Rate Borrowing" has the meaning set forth
in the definition of "Borrowing" in this Section.
"CIBC Alternate Base Rate Loan" means a Revolving Loan or a
Tranche B Term Loan which bears interest as provided in Section 2.4(a).
"Closing Date" means the date on which each of the conditions
precedent to the effectiveness of this Agreement contained in Section 6.2 shall
have been satisfied or waived in accordance with the terms and conditions
thereof.
"Code" means the Internal Revenue Code of 1986, as
amended, or any successor statute.
"Collateral" means all personal property (tangible and
intangible) in which a security interest, assignment or lien is now or hereafter
granted to the Collateral Agent for the benefit of the Collateral Agent, the
Administrative Agent and the Banks, or which is now or hereafter issued by the
Borrower or any of its Subsidiaries to the Collateral Agent for the benefit of
the Collateral Agent, the Administrative Agent and the Banks, as security for
the Bank Obligations.
"Collateral Agent" has the meaning set forth in the
first paragraph of this Agreement.
"Commitment" means, with respect to each Bank, the sum of (i)
such Bank's Revolving Commitment plus (ii) such Bank's Tranche B Term Loan
Commitment.
<PAGE> 6
"Commitment Fee Rate" means, for each day during any Margin
Period, the rate per annum set forth below opposite the Debt to EBITDA Ratio of
the Borrower on the last day of the fiscal quarter to which such Margin Period
relates:
Debt to EBITDA Commitment
Ratio Fee Rate
-------------- ----------
Greater than .50%
4.25 to 1.0
Less than or equal
to 4.25 to 1.0 .375%
provided, however, that until the Margin Period relating to the fiscal quarter
ending November 25, 1995, the Commitment Fee Rate shall be .375%, and provided,
further, that if at any time the Borrower shall fail to deliver the financial
statements required by Section 8.1(a) and (b) for any fiscal quarter or the
related Compliance Certificate required by Section 8.1(c) on or before the date
such statements and Compliance Certificate are required to be delivered pursuant
to such Sections, the Debt to EBITDA Ratio shall be deemed for purposes of this
definition to be greater than 4.25 to 1.0 for the period which commences five
Domestic Business Days after such required date of delivery and ends on the date
which is five Domestic Business Days after such financial statements and
Compliance Certificate are actually delivered (each such period, a "Late
Delivery Period"), after which the Commitment Fee Rate for the remainder of such
Margin Period shall be determined in accordance with the preceding schedule
(subject, nevertheless, to the overriding provisions of this proviso insofar as
this proviso may apply to any other then delinquent financial statements and/or
Compliance Certificate) and provided, further, that if, when delivered, such
statements and certificate shall support a determination of a Commitment Fee
Rate for such Late Delivery Period which is less than that determined therefor
in accordance with the foregoing proviso, the Commitment Fee Rate for such
period shall be retroactively reduced to such lesser amount.
"Commitment Transfer Supplement" means a Commitment Transfer
Supplement substantially in the form of Exhibit I.
"Compliance Certificate" has the meaning set forth in
Section 8.1(c).
"Consolidated Current Liabilities" means at any date (i) the
consolidated current liabilities (less any consolidated current tax liabilities
and any consolidated current Debt of the type described in clauses (i)-(iv) of
the definition of "Debt" in this Section) of the Borrower and its Consolidated
Subsidiaries plus (ii) the current liabilities (other than any consolidated
current Debt of the type described in clauses (i)-(iv) of the definition of
"Debt" in this Section) of any Person (other than
<PAGE> 7
the Borrower or a Consolidated Subsidiary) which are Guaranteed by the Borrower
or a Consolidated Subsidiary, all determined as of such date.
"Consolidated Net Worth" means at any date the consolidated
stockholders' equity of the Borrower and its Consolidated Subsidiaries ((i) less
an amount equal to any write-up in the book carrying value of any assets of the
Borrower or any of its Consolidated Subsidiaries resulting from a revaluation
thereof subsequent to November 27, 1993, (ii) less an amount equal to
extraordinary gains realized by the Borrower and its Consolidated Subsidiaries
subsequent to the Closing Date and (iii) plus an amount equal to extraordinary
losses realized by the Borrower and its Consolidated Subsidiaries subsequent to
the Closing Date).
"Consolidated Subsidiary" means at any date any Subsidiary or
other entity the accounts of which would be consolidated with those of the
Borrower in its consolidated financial statements as of such date.
"Consolidated Tangible Net Worth" means at any date,
Consolidated Net Worth after deducting therefrom the following:
(a) goodwill, including any amounts (however designated on the
balance sheet) representing the cost of acquisitions of Subsidiaries in
excess of underlying tangible assets;
(b) patents, trademarks and copyrights; and
(c) deferred charges (including, but not limited to,
unamortized debt discount and expense, organization expenses and
experimental and development expenses, but excluding prepaid expenses).
"Contractual Obligation" as to any Person, means any provision
of any security issued by such Person or of any agreement, instrument or other
undertaking to which such Person is a party or by which it or any of its
property is bound.
"Credit Documents" means this Agreement, the Notes, the
Applications, the Security Documents, the Fee Letter and all documents,
instruments and agreements executed and/or delivered in connection herewith or
therewith.
"Debt" of any Person means at any date, without duplication,
(i) all obligations of such Person for borrowed money, (ii) all obligations of
such Person evidenced by bonds, debentures, notes or other similar instruments,
(iii) all obligations of such Person to pay the deferred purchase price of
property or services, except trade accounts payable arising in the ordinary
course of business, (iv) all obligations of such Person as lessee under capital
leases, (v) all Debt of others
<PAGE> 8
secured by a Lien on any asset of such Person (other than Liens arising under
Permitted Operating Lease Transactions), whether or not such Debt is assumed by
such Person, (vi) all Debt of others Guaranteed by such Person, (vii)
indebtedness and other obligations arising under acceptance facilities and the
face amount of all letters of credit issued for the account of such Person and,
without duplication, all drafts drawn thereunder, and (viii) any withdrawal or
other liability incurred under ERISA by such Person (or, if such Person is the
Borrower, the Borrower and its ERISA Affiliates) to a Multiemployer Plan.
"Debt for Borrowed Money" of any Person means the Debt of such
Person described in clauses (i) and (ii) of the definition of "Debt" in this
Section.
"Debt to EBITDA Ratio" means, as at the last day of any fiscal
quarter of the Borrower, the ratio of (i) the aggregate amount of then
outstanding Debt of the Borrower and its Subsidiaries described in clauses (i)
through (vi) of the definition of "Debt" in this Section to (ii) EBITDA for the
period of four consecutive fiscal quarters then ending, provided, however, that,
for the purposes of calculating such ratio in connection with any determination
of the Applicable Margin or the rate at which the commitment fee is calculated
pursuant to Section 2.5, the principal amount of the Revolving Loans deemed to
be outstanding on any such last day shall be equal to (x) the sum of the
principal amounts of such Loans outstanding on such day and on each of the three
immediately preceding fiscal quarter end dates divided by (y) four.
"Default" means any condition or event which constitutes an
Event of Default or which with the giving of notice or lapse of time or both
would, unless cured or waived, become an Event of Default.
"Defaulting Bank" has the meaning set forth in the
definition of "Required Banks".
"Domestic Business Day" means any day except a Saturday,
Sunday or other day on which commercial banks in New York City are authorized by
law to close.
"Domestic Lending Office" means initially, as to each Bank,
its office designated as such on Schedule I, and thereafter, upon notice to the
Borrower and the Administrative Agent, such other office of such Bank, if any,
which shall be making or maintaining CIBC Alternate Base Rate Loans.
"EBITDA" means, for any period, the sum of (i) consolidated
net income of the Borrower and its Consolidated Subsidiaries for such period
(excluding extraordinary gains and losses), plus (ii) interest and tax expense
of the Borrower and its Consolidated Subsidiaries for such period to the extent
deducted in determining such consolidated net income plus (iii)
<PAGE> 9
depreciation and amortization expense of the Borrower and its Consolidated
Subsidiaries for such period to the extent deducted in determining such
consolidated net income, plus (iv) equity losses attributable to the Mexican
Joint Venture to the extent deducted in determining such consolidated net
income, minus (v) equity gains attributable to the Mexican Joint Venture to the
extent included in determining such consolidated net income.
"Environmental Law" has the meaning set forth in
Section 8.22(e).
"ERISA" means the Employee Retirement Income Security Act of
1974 and the regulations promulgated and rulings issued thereunder, as amended
from time to time.
"ERISA Affiliate" means any trade or business (whether or not
incorporated) which is a member of a controlled group of which the Borrower or
any Subsidiary of the Borrower is a member and which is under common control
with the Borrower or any Subsidiary of the Borrower within the meaning of
Section 414 of the Code and the regulations promulgated and rulings issued
thereunder.
"ERISA Event" means (a) a "reportable event" as such term is
described in Section 4043 of ERISA (other than a "reportable event" not subject
to the provision for 30-day notice to the PBGC under 29 C.F.R. 2615), or (b) the
withdrawal of the Borrower, any Subsidiary of the Borrower or any ERISA
Affiliate of either of them from a Multiple Employer Plan during a plan year in
which it was a "substantial employer", as such term is defined in Section
4001(a)(2) of ERISA, which would result in any liability to the Borrower, any
Subsidiary of the Borrower or any ERISA Affiliate of either of them, or the
incurrence of liability by the Borrower, any Subsidiary of the Borrower or any
ERISA Affiliate of either of them under Section 4064 of ERISA upon the
termination of a Multiple Employer Plan, or (c) an event described in Section
4068(f) of ERISA, or (d) the distribution of a notice of intent to terminate a
Plan pursuant to Section 4041(a)(2) of ERISA or the treatment of a Plan
amendment as a termination under Section 4041 of ERISA, where, in either case,
such termination would result in any liability to the Borrower, a Subsidiary of
the Borrower or any ERISA Affiliate of either of them, or (e) the failure by the
Borrower, a Subsidiary of the Borrower or any ERISA Affiliate of either of them
to make a payment to a Plan pursuant to Section 302(f)(1) of ERISA or (f) the
adoption of any amendment to a Plan requiring the provision of security to such
Plan pursuant to Section 307 of ERISA, or (g) the institution of proceedings to
terminate a Plan by the PBGC under Section 4042 of ERISA, or (h) any other event
or condition which might constitute grounds under Section 4042 of ERISA for the
termination of, or the appointment of a trustee to administer, any Plan.
<PAGE> 10
"Euro-Dollar Borrowing" has the meaning set forth in
the definition of "Borrowing" in this Section.
"Euro-Dollar Business Day" means any Domestic Business Day on
which commercial banks are open for international business (including dealings
in dollar deposits) in London, England.
"Euro-Dollar Lending Office" means, as to each Bank, its
office, branch or affiliate designated as such on Schedule I or such other
office, branch or affiliate of such Bank as it may hereafter designate as its
Euro-Dollar Lending Office by notice to the Borrower and the Administrative
Agent.
"Euro-Dollar Loan" means a Revolving Loan or a Tranche B Term
Loan which bears interest as provided in Section 2.5(b).
"Euro-Dollar Reference Bank" means the principal London
offices of CIBC or such other Bank as may be appointed pursuant to Section
11.6A(i).
"Euro-Dollar Reserve Percentage" means for 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 in New York City with deposits exceeding five billion
dollars in respect of "Eurocurrency liabilities" (or in respect of any other
category of liabilities which includes deposits by reference to which the
interest rate on Euro-Dollar Loans is determined or any category of extensions
of credit or other assets which includes loans by a non-United States office of
any Bank to United States residents). The Adjusted London Interbank Offered Rate
shall be adjusted automatically on and as of the effective date of any change in
the Euro-Dollar Reserve Percentage.
"Event of Default" has the meaning set forth in Section 9.1.
"Excess Cash Flow" means, for any period, an amount equal to
the sum of (i) consolidated net income or loss of the Borrower and its
Consolidated Subsidiaries for such period, plus (ii) an amount equal to the
amount of depreciation expense, amortization expense (including the amortization
of goodwill), accrued non-cash interest expense and all other non-cash charges
deducted in arriving at such consolidated net income or loss, plus (iii) an
amount equal to the aggregate Net Cash Proceeds of the sale, lease, transfer or
other disposition of assets by the Borrower and its Consolidated Subsidiaries
during such period (other than sales of inventory in the ordinary course of
business) to the extent not required to be applied to mandatory prepayments or
payments on the Loans, plus (iv) an amount (whether negative or positive) equal
to the change in Consolidated Current Liabilities of the Borrower and its
<PAGE> 11
Consolidated Subsidiaries during such period, plus (v) without duplication with
other items included in this definition the amount of any tax refunds or credits
received by the Borrower and its Consolidated Subsidiaries during such period,
less (vi) an amount (whether negative or positive) equal to the change in
non-cash current assets of the Borrower and its Consolidated Subsidiaries for
such period, less (vii) an amount equal to the aggregate amount of capital
expenditures of the Borrower and its Subsidiaries permitted to be made during
such period pursuant to Section 8.12, less (viii) an amount equal to the sum of
all regularly scheduled payments and optional and mandatory prepayments of
principal on Debt for Borrowed Money of the Borrower and its Consolidated
Subsidiaries (other than on the Revolving Loans and Money Market Loans) actually
made during such period to the extent permitted hereunder, less (ix) an amount
equal to the amount of all payments described in clauses (i) and (ii) of the
definition of "Restricted Payments", if any, actually made by the Borrower
during such period, less (x) an amount equal to the net gain on the sale, lease,
transfer or other disposition of assets by the Borrower and its Consolidated
Subsidiaries during such period (other than sales of inventory in the ordinary
course of business) to the extent included in arriving at such consolidated net
income or loss, less (xi) an amount equal to the aggregate amount of all
Investments (other than Temporary Cash Investments), if any, actually made with
cash by the Borrower and its Subsidiaries during such period.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Existing Credit Agreement" has the meaning set forth in the
recitals to this Agreement.
"Federal Funds Rate" means, for any period, a fluctuating
interest rate per annum equal for each day during such period to the weighted
average of the rates on overnight Federal funds transactions with members of the
Federal Reserve System arranged by Federal funds brokers, as published for such
day (or, if such day is not a Domestic Business Day, for the next preceding
Domestic Business Day) by the Federal Reserve Bank of New York, or, if such rate
is not so published for any day which is a Domestic Business Day, the average of
the quotations for such day on such transactions received by the Administrative
Agent from three Federal funds brokers of recognized standing selected by it.
"Fee Letter" means the fee letter dated as of October 15, 1994
as supplemented by the fee letter dated as of November 20, 1995, each of which
is between the Borrower and the Administrative Agent with respect to certain
fees, as the same may be further amended, supplemented or otherwise modified
from time to time by a written instrument executed by the parties thereto.
<PAGE> 12
"GE Credit Program Documents" means the Monogram Credit Card
Bank of Georgia Program Agreement, dated as of November 27, 1989, by and among
the Borrower, Somerville and Monogram Credit Card Bank of Georgia and the
Commercial Credit Account Purchase and Service Agreement, dated as of November
28, 1993, between the Borrower, Somerville and General Electric Capital
Corporation, as amended, modified or supplemented from time to time.
"Governmental Authority" means any federal, state, local,
foreign or other governmental or administrative body, instrumentality,
department or agency or any court, tribunal, administrative hearing body,
arbitration panel, commission or other similar dispute resolving panel or body.
"Grid Money Market Loan Note" has the meaning set forth in
Section 4.4(a) of the Existing Credit Agreement; collectively, the "Grid Money
Market Loan Notes."
"Group" means a "group" for purposes of Section 13(d) of the
Exchange Act.
"Guarantee" by any Person means any obligation, contingent or
otherwise, of such Person directly or indirectly guaranteeing any Debt or other
obligation of any other Person and, without limiting the generality of the
foregoing, any obligation, direct or indirect, contingent or otherwise, of such
Person (i) to purchase or pay (or advance or supply funds for the purchase or
payment of) such Debt or other obligation (whether arising by virtue of
partnership arrangements, by agreement to keep-well, to purchase assets, goods,
securities or services, to take-or-pay, or to maintain financial statement
conditions or otherwise) or (ii) entered into for the purpose of assuring in any
other manner the obligee of such Debt or other obligation of the payment thereof
or to protect such obligee against loss in respect thereof (in whole or in
part), provided that the term Guarantee shall not include endorsements for
collection or deposit in the ordinary course of business. The term "Guarantee"
used as a verb has a corresponding meaning.
"Hazardous Substance" has the meaning set forth in Section
8.22(e).
"Indemnified Party" has the meaning set forth in Section
11.10.
"Index Rate Money Market Loan" means any Money Market Loan
made pursuant to an Index Rate Money Market Loan Request.
"Index Rate Money Market Loan Request" means any Money Market
Loan Request requesting the Banks to offer to make Money Market Loans at an
interest rate equal to LIBOR for the applicable period plus (or minus) a margin.
<PAGE> 13
"Individual Money Market Loan Note" has the meaning set
forth in Section 4.4(b).
"Insufficiency" means, with respect to any Plan, the amount,
if any, of its unfunded benefit liabilities, as defined in Section 4001(a)(18)
of ERISA.
"Interest Coverage Ratio" has the meaning set forth in Section
8.17.
"Interest Period" means, with respect to each Euro-Dollar
Borrowing, (i) initially, the period commencing on the date of such Borrowing
and ending one, two, three or six months thereafter, as the Borrower may elect
in the applicable Notice of Borrowing or notice of conversion, as the case may
be, with respect thereto and (ii) thereafter, each period commencing on the last
day of the next preceding Interest Period applicable to such Euro-Dollar
Borrowing and ending one, two, three or six months thereafter, as the Borrower
may elect by irrevocable notice received by the Administrative Agent prior to
11:00 A.M., New York City time, on the day which is not less than three
Euro-Dollar Business Days prior to the end of the then current Interest Period
with respect thereto; provided that:
(a) any Interest Period which would otherwise end on a day
which is not a Euro-Dollar Business Day shall be extended to the next
succeeding Euro-Dollar Business Day unless such Euro-Dollar Business
Day falls in another calendar month, in which case such Interest Period
shall end on the next preceding Euro-Dollar Business Day;
(b) any Interest Period which begins on the last Euro-Dollar
Business Day of a calendar month (or on a day for which there is no
numerically corresponding day in the calendar month at the end of such
Interest Period) shall, subject to clause (c) below, end on the last
Euro-Dollar Business Day of a calendar month;
(c) if any Interest Period would otherwise include a date on
which a scheduled payment of principal of any of the Loans is required
to be made under this Agreement but does not end on such date, then,
subject to Section 5.5, (i) the Interest Period for the principal
amount (if any) of each Loan required to be repaid on such date shall
end on such date and (ii) the remainder (if any) of each such Loan
shall have an Interest Period determined in accordance with the other
provisions of this definition; and
(d) any Interest Period that would otherwise extend beyond the
Revolving Termination Date or beyond the date final payment is due on
the Tranche B Term Loans, as the case may be, shall, subject to Section
5.5, end on such date.
<PAGE> 14
"Inter-Facility Agreement" means the inter-facility agreement,
substantially in the form of Exhibit K to the Existing Credit Agreement by and
among the Collateral Agent, the Administrative Agent, the Merchandise Letter of
Credit Bank, the Borrower and Somerville, as amended, supplemented or otherwise
modified from time to time.
"Investment" means any investment in any Person, whether by
means of asset or share purchase, capital contribution, loan, advance, time
deposit or otherwise, other than any such purchase from such Person either (i)
constituting a capital expenditure that is covered by Section 8.12 (including
associated good will) or (ii) in the ordinary course of the purchaser's
business.
"L/C Fee Payment Date" means the last day of each March, June,
September and December.
"L/C Obligations" means, at any time, an amount equal to the
sum of (a) the aggregate undrawn and unexpired amount of the then outstanding
Letters of Credit and (b) the aggregate amount of drawings under Letters of
Credit which have not then been reimbursed pursuant to Section 3.5.
"L/C Participants" means, collectively, with respect to any
Letter of Credit, all the Banks which have Revolving Commitments other than the
Letter of Credit Bank which is the issuer thereof.
"L/C Rate" means a rate per annum that is at all times equal
to the Applicable Margin for Euro-Dollar Loans that are Revolving Loans then in
effect.
"Lending Office" means, as to each Bank, its Domestic Lending
Office or its Euro-Dollar Lending Office, as the context may require.
"Letter of Credit" has the meaning set forth in subsection
3.1(a).
"Letter of Credit Bank" means CIBC or any other Bank
designated by the Borrower with the consent of such Bank and the Administrative
Agent to replace the previous Letter of Credit Bank.
"LIBOR" with respect to each Interest Period pertaining to a
Euro-Dollar Loan (or with respect to each period during which an Index Rate
Money Market Loan is to remain outstanding), means the rate (rounded upwards, if
necessary, to the next higher 1/16 of 1%) per annum at which deposits in U.S.
Dollars are offered to the Euro-Dollar Reference Bank in the London interbank
market at approximately 11:00 A.M. (London time) two Euro-Dollar Business Days
before the first day of such Interest Period (or period in respect of such Index
Rate Money Market Loan, as the
<PAGE> 15
case may be) in an amount approximately equal to the principal amount of the
Euro-Dollar Loan of the Euro-Dollar Reference Bank to which such Interest Period
is to apply (or, in the case of an Index Rate Money Market Loan, in an amount
equal to $1,000,000) and for a period of time comparable to such Interest Period
(or period in respect of an Index Rate Money Market Loan, as the case may be).
"Lien" means, with respect to any asset, any mortgage, lien,
pledge, charge, security interest or encumbrance of any kind in respect of such
asset. For the purposes of this Agreement, the Borrower or any Subsidiary shall
be deemed to own subject to a Lien any asset which it has acquired or holds
subject to the interest of a vendor or lessor under any conditional sale
agreement, capital lease or other title retention agreement relating to such
asset.
"Loans" means the collective reference to the Revolving Loans,
the Tranche B Term Loans and the Money Market Loans; individually, a "Loan".
"Margin Period" in relation to any fiscal quarter, means the
period which (i) commences five Domestic Business Days after the earlier of (x)
the date of delivery to the Administrative Agent of the financial statements
required by Section 8.1(a) or (b) for such quarter and the related Compliance
Certificate required by Section 8.1(c) or (y) the date by which such delivery is
required, and (ii) ends four Domestic Business Days after the earlier of (x) the
date of delivery to the Administrative Agent of such financial statements and
related Compliance Certificate for the next succeeding fiscal quarter or (y) the
date by which such delivery is required.
"Margin Stock" has the meaning set forth in Regulation U.
"Materially Adverse Effect" means (i) with respect to the
Borrower and its Subsidiaries, any materially adverse change in the business,
operations, condition (financial or otherwise), assets or prospects of the
Borrower and its Subsidiaries taken as a whole, or (ii) any fact or circumstance
as to which, singly or in the aggregate, the Borrower has reason to believe
there is a reasonable possibility of (a) a materially adverse change described
in clause (i) or (b) the inability of the Borrower or any of its Subsidiaries to
perform in any material respect its obligations hereunder or under the other
Credit Documents.
"Merchandise Letter of Credit Bank" means any bank which shall
issue documentary letters of credit under the Merchandise Letter of Credit
Facility, together with its successors.
"Merchandise Letter of Credit Facility" means the Letter of
Credit Issuance and Reimbursement Agreement dated as of
<PAGE> 16
November 18, 1994 between Commerce Bank, N.A. and the Borrower, as such
agreement may be amended, supplemented, otherwise modified or replaced from time
to time with the consent of the Required Banks.
"Mexican Joint Venture" means the joint venture entered into
between the Borrower and Alfa S.A. de C.V., a Mexican corporation, or any of its
Subsidiaries, pursuant to the terms of that certain Shareholders' Agreement
dated as of October 18, 1993, as such Shareholders' Agreement may be amended,
supplemented or otherwise modified from time to time in a manner not adverse to
the interests of the Banks.
"Minority Investment" means any Investment consisting of the
acquisition of ownership interests in any partnership or joint venture.
"Money Market Loan Assignees" has the meaning set forth in
Section 11.6B(a).
"Money Market Loan Assignment" means any assignment by a Bank
to a Money Market Loan Assignee of a Money Market Loan and related Individual
Money Market Loan Note; any such Money Market Loan Assignment to be registered
in the Register must set forth, in respect of the Money Market Loan Assignee
thereunder, the full name of such Money Market Loan Assignee, its address for
notices, its lending office address (in each case with telephone and facsimile
transmission numbers) and payment instructions for all payments to such Money
Market Loan Assignee, and must contain an agreement by such Money Market Loan
Assignee to comply with the provisions of Section 11.6B and Section 11.6A(g) to
the same extent as any Bank.
"Money Market Loan Commitment Period" means the period from
and including the Closing Date until the date which is 15 days prior to the
Revolving Credit Termination Date.
"Money Market Loan Confirmation" means each confirmation by
the Borrower of its acceptance of Money Market Loan Offers, which Money Market
Loan Confirmation shall be substantially in the form of Exhibit H-1 and shall be
delivered to the Administrative Agent in writing or by facsimile transmission.
"Money Market Loan Interest Payment Date" means, as to each
Money Market Loan, each interest payment date specified by the Borrower for such
Money Market Loan in the related Money Market Loan Request.
"Money Market Loan Maturity Date" means, as to any Money
Market Loan, the date specified by the Borrower pursuant to Section 4.2(d)(2) in
its acceptance of the related Money Market Loan Offer.
<PAGE> 17
"Money Market Loan Notes" means the collective reference to
the Grid Money Market Loan Notes and the Individual Money Market Loan Notes;
each, individually, a "Money Market Loan Note."
"Money Market Loan Offer" means each offer by a Bank to make
Money Market Loans pursuant to a Money Market Loan Request, which Money Market
Loan Offer shall contain the information specified in Exhibit H-2 and shall be
delivered to the Administrative Agent by telephone, immediately confirmed by
facsimile transmission.
"Money Market Loan Request" means each request by the Borrower
for Banks to submit bids to make Money Market Loans, which request shall contain
the information in respect of such requested Money Market Loans specified in
Exhibit H-3 and shall be delivered to the Administrative Agent in writing or
facsimile transmission, or by telephone, immediately confirmed by facsimile
transmission.
"Money Market Loans" means each Money Market Loan made
pursuant to Section 4.
"Moody's" means Moody's Investors Service, Inc. or if such
company shall cease to issue ratings, another nationally recognized statistical
rating company selected in good faith by mutual agreement of the Administrative
Agent and the Borrower.
"Multiemployer Plan" means a "multiemployer plan" as defined
in Section 4001(a)(3) of ERISA to which the Borrower, any Subsidiary of the
Borrower or any ERISA Affiliate of either of them is making or accruing an
obligation to make contributions or has within any of the preceding three plan
years made or accrued an obligation to make contributions.
"Multiple Employer Plan" means an employee benefit plan, other
than a Multiemployer Plan, subject to Title IV of ERISA to which the Borrower,
any Subsidiary of the Borrower or any ERISA Affiliate of the Borrower or any
Subsidiary of the Borrower, and more than one employer other than the Borrower,
any Subsidiary of the Borrower or an ERISA Affiliate of the Borrower or any
Subsidiary of the Borrower, is making or accruing an obligation to make
contributions or, in the event that any such plan has terminated, to which the
Borrower, any Subsidiary of the Borrower or any ERISA Affiliate of the Borrower
or any Subsidiary of the Borrower made or accrued an obligation to make
contributions during any of the five plan years preceding the date of
termination of such plan.
"Net Cash Proceeds" means, with respect to any issuance or
creation of any Debt or any other financing or any sale, lease or other
disposition of assets or issuance of capital stock (other than pursuant to the
exercise of employee or director stock options), (a) the cash proceeds
(including, without limita-
<PAGE> 18
tion, all cash proceeds received by way of deferred payment of principal
pursuant to a note or installment receivable or otherwise, but only as and when
received) received by the Borrower or any Subsidiary of the Borrower, minus (b)
brokerage commissions and other reasonable fees and expenses (including fees and
expenses of counsel and investment bankers) related to such financing, sale,
lease or other disposition or issuance, and minus (c) in the case of any such
issuance or creation of any Debt or financing, sale, lease or other disposition
of assets, (i) provisions for all taxes payable as a result thereof and in
connection therewith, (ii) payments made to retire Debt (other than the Loans
and, in the case of any sale described in the second proviso to the second
sentence of Section 2.7(b), the Prudential Real Estate Financing) secured by or
otherwise relating directly to such assets being sold or otherwise disposed of
or the assets which are securing such issuance, creation or financing where
payment of such Debt is required in connection therewith and (iii) appropriate
amounts to be provided by the Borrower or any Subsidiary of the Borrower, as the
case may be, as a reserve, in accordance with generally accepted accounting
principles consistently applied with those applied in the preparation of the
financial statements referred to in Section 7.9(b), against any liabilities
associated with such assets being sold or otherwise disposed of and retained by
the Borrower or any Subsidiary of the Borrower, as the case may be, after such
sale, lease or other disposition of such assets.
"Note Pledge Agreement" means the note pledge agreement,
substantially in the form of Exhibit C to the Existing Credit Agreement, entered
into between the Borrower and the Collateral Agent for the benefit of the
Collateral Agent, the Administrative Agent, the Banks and the Merchandise Letter
of Credit Bank, as amended, supplemented or otherwise modified from time to
time.
"Notes" means the collective reference to the Revolving Notes,
the Tranche B Term Loan Notes and the Money Market Notes; individually, a
"Note".
"Notice of Borrowing" has the meaning set forth in Section
2.2.
"Pad Site" has the meaning set forth in the definition of
"Permitted Pad Sale".
"Participants" has the meaning set forth in Section 11.6A(b).
"Participating Interest" means with respect to each Letter of
Credit (i) in the case of the Letter of Credit Bank, its interest in such Letter
of Credit and any Application or time draft relating thereto after giving effect
to the granting of any participating interests therein pursuant hereto and (ii)
in the case of each L/C Participant, its undivided participating
<PAGE> 19
interest in such Letter of Credit and any Application or time draft relating
thereto.
"PBGC" means the Pension Benefit Guaranty Corporation or any
entity succeeding to any or all of its functions under ERISA.
"Permitted Operating Lease Transactions" means an operating
lease of facilities or tangible personal property by the Borrower, as lessee,
under which the Borrower provides a Lien on its interest in the underlying
operating lease and on its interest, if any, in the underlying leased facilities
or property.
"Permitted Pad Sale" means any sale of that portion (any such
portion, a "Pad Site") of any real property acquired by the Borrower in excess
of the portion thereof needed for the operation of a retail store, as determined
by the Borrower; provided that (i) the acquisition of such real property was not
prohibited by any provision of this Agreement, (ii) the aggregate acreage of all
Pad Sites on such real property does not exceed 50% of the total acreage of such
real property and (iii) such sale is completed within eighteen months of the
acquisition of such real property.
"Person" means an individual, a corporation, a partnership, a
joint venture, an association, a trust or any other entity or organization,
including a government or political subdivision or an agency or instrumentality
thereof.
"Plan" means an employee benefit plan (other than a
Multiemployer Plan), including any Multiple Employer Plan, which is or, in the
event that any such plan has been terminated within five years after the
occurrence of a transaction described in Section 4069 of ERISA, was maintained
for employees of the Borrower, any Subsidiary of the Borrower or any ERISA
Affiliate of the Borrower or any Subsidiary of the Borrower and is subject to
Title IV of ERISA.
"Pledge Agreements" means the collective reference to the Note
Pledge Agreement and the Stock Pledge Agreement.
"Projected Cash Flow Financial Statements" has the meaning set
forth in Section 7.9(c).
"Property" has the meaning set forth in Section 8.22(a).
"Prudential" means The Prudential Insurance Company of
America.
"Prudential Loan Agreement" means the Loan Agreement, dated
June 20, 1989, by and among the Borrower, Knox Home Centers, Inc., Somerville
and Prudential, as the same may be
<PAGE> 20
amended, supplemented or otherwise modified pursuant to the terms hereof and
thereof.
"Prudential Real Estate Financing" means the financing by
Prudential provided for by the Prudential Loan Agreement and other related
documentation.
"Purchasing Banks" has the meaning set forth in Section
11.6A(c).
"Register" has the meaning set forth in Section 11.6A(d).
"Regulation G" means Regulation G of the Board of Governors of
the Federal Reserve System (or any successor), as in effect from time to time.
"Regulation U" means Regulation U of the Board of Governors of
the Federal Reserve System (or any successor), as in effect from time to time.
"Reimbursement Obligation" means the obligation of the
Borrower to reimburse the Letter of Credit Bank pursuant to Section 3.5 for
amounts drawn under Letters of Credit issued by such Bank and for payments of
time drafts accepted thereunder.
"Remedial Work" has the meaning set forth in Section 8.22(c).
"Rent Expense" means all expenses related to operating leases.
"Required Banks" means at any time Banks having an aggregate
amount of the Revolving Commitments (or, after the Revolving Commitments expire,
are terminated or are fully utilized, Revolving Loans) and/or aggregate amount
of the Tranche B Term Loan Commitments (or, after the Tranche B Term Loan
Commitments expire, are terminated or are fully utilized, Tranche B Term Loans)
which constitute at least 51% of the sum of (x) the aggregate amount of all
Revolving Commitments (or, after the Revolving Commitments expire, are
terminated or are fully utilized, Revolving Loans) and (y) the aggregate amount
of the Tranche B Term Loan Commitments (or, after the Tranche B Term Loan
Commitments expire, are terminated or are fully utilized, Tranche B Term Loans)
then in effect or outstanding; provided, that for the purposes of this
definition the Commitments and Loans of any Bank shall be disregarded if and for
so long as such Bank (each, a "Defaulting Bank") shall have not theretofore made
available to (i) the Administrative Agent its pro rata share of a given
Borrowing in accordance with Section 2.2(c) or (ii) the Letter of Credit Bank
its pro rata share of a given unreimbursed reimbursement obligation in
accordance with Section 3.4(a).
<PAGE> 21
"Required Revolving Credit Banks" means at any time Banks
having an aggregate amount of the Revolving Commitments (or, after the Revolving
Commitments expire, are terminated or are fully utilized, Revolving Loans) which
constitute at least 51% of the aggregate amount of all Revolving Commitments
(or, after the Revolving Commitments expire, are terminated or are fully
utilized, Revolving Loans) then in effect or outstanding; provided, that for the
purposes of this definition the Commitments and Loans of any Revolving Credit
Bank shall be disregarded if and for so long as such Revolving Credit Bank
(each, a "Defaulting Bank") shall have not theretofore made available to (i) the
Administrative Agent its pro rata share of a given Borrowing in accordance with
Section 2.2(c) or (ii) the Letter of Credit Bank its pro rata share of a given
unreimbursed reimbursement obligation in accordance with Section 3.4(a).
"Required Tranche B Term Loan Banks" means at any time Tranche
B Term Loan Banks having an aggregate amount of the Tranche B Term Loan
Commitments (or, after the Tranche B Term Loan Commitments expire, are
terminated or are fully utilized, Tranche B Term Loans) which constitute at
least 51% of the aggregate amount of the Tranche B Term Loan Commitments (or,
after the Tranche B Term Loan Commitments expire, are terminated or are fully
utilized, Tranche B Term Loans) then in effect or outstanding; provided, that
for the purposes of this definition the Commitments and Loans of any Tranche B
Term Loan Bank shall be disregarded if and for so long as such Tranche B Term
Loan Bank (each, a "Defaulting Bank") shall have not theretofore made available
to the Administrative Agent its pro rata share of a given Borrowing in
accordance with Section 2.2(c).
"Requirement of Law" means as to any Person, the articles or
certificate of incorporation and by-laws or other organizational or governing
documents of such Person, and any law, treaty, rule or regulation or
determination of an arbitrator or a court or other Governmental Authority, in
each case applicable to or binding upon such Person or any of its property or to
which such Person or any of its property is subject.
"Restricted Payment" means (i) any dividend or other
distribution on any shares of the Borrower's capital stock (common or
preferred), (ii) any payment (including, without limitation, the setting aside
of assets or the deposit of funds therefor) on account of the purchase,
redemption, retirement or acquisition of (a) any shares of the Borrower's
capital stock or (b) any option, warrant or other right to acquire shares of the
Borrower's capital stock, (iii) any payment or prepayment of principal or
interest on account of Debt for Borrowed Money (other than the Loans but
including, without limitation, the Senior Subordinated Note) or any purchase,
defeasance, redemption, retirement or acquisition of any principal or interest
on such Debt (including, without limitation, the setting aside of assets or the
deposit of funds therefor) or (iv) any payment of management or consulting fees
to an Affiliate of the
<PAGE> 22
Borrower; provided, however, that the conversion into common stock of the
Borrower of all or any portion of the Borrower's Series A Cumulative Convertible
Preferred Stock shall not be deemed to result in a Restricted Payment; and,
provided, further, that the conversion of shares of any class of the common
stock of the Borrower into another class of common stock of the Borrower shall
not be deemed to result in a Restricted Payment.
"Revolving Borrowing" means a borrowing consisting of
Revolving Loans of the same Type made on the same day.
"Revolving Commitment" means as to any Bank, the obligation of
such Bank to make Revolving Loans to the Borrower in an aggregate principal
amount at any one time outstanding not to exceed the amount set forth under the
heading "Revolving Commitments" opposite such Bank's name on Schedule I, as such
amount may be reduced or adjusted from time to time pursuant to this Agreement.
"Revolving Commitment Percentage" means, as to any Bank at any
time, the percentage of the aggregate Revolving Commitments then constituted by
such Bank's Revolving Commitment (or, at any time after the Revolving
Commitments shall have expired or terminated, the percentage of the aggregate
principal amount of the Revolving Loans then outstanding then constituted by the
aggregate principal amount of such Bank's Revolving Loans then outstanding).
"Revolving Credit Bank" means each Bank which has a Revolving
Commitment or which has made Revolving Loans.
"Revolving Credit Period" means the period commencing on the
Closing Date and ending on the Revolving Termination Date, or the earlier date
of termination in whole of the Revolving Commitments pursuant to Section 2.6 or
2.7.
"Revolving Loans" has the meaning set forth in Section 2.1(a).
"Revolving Note" means a promissory note of the Borrower to
the order of any Bank, substantially in the form of Exhibit A to the Existing
Credit Agreement (which form is reproduced as Exhibit A hereto), evidencing the
obligation of the Borrower to repay the Revolving Loans made by such Bank, as
amended, modified, supplemented, replaced or substituted for from time to time.
"Revolving Termination Date" means November 18, 1999.
"SEC" means the Securities and Exchange Commission.
"Security Agreement" means the security agreement
substantially in the form of Exhibit D to the Existing Credit Agreement entered
into between the Borrower and the Collateral
<PAGE> 23
Agent, and such other security agreements, assignments, pledges and similar
documents, in form and substance satisfactory to the Administrative Agent, as
the Administrative Agent may request, pursuant to which the Borrower shall grant
to the Collateral Agent for the benefit of the Collateral Agent, the
Administrative Agent, the Banks and the Merchandise Letter of Credit Bank a
valid, perfected and enforceable first (unless otherwise permitted therein)
priority lien on and security interest in certain tangible and/or intangible
assets of the Borrower (other than inventory), as amended, modified or
supplemented from time to time.
"Security Documents" means the Security Agreement, the
Subsidiary Security Agreement, the Subsidiary Guarantee, the Pledge Agreements
and all other security agreements, mortgages, pledges and assignments at any
time delivered by the Borrower or its Subsidiaries to the Collateral Agent
pursuant to the terms of this Agreement, as amended, modified or supplemented
from time to time.
"Senior Subordinated Note Indenture" means the Indenture
between the Borrower and United States Trust Company of New York, dated as of
April 20, 1993 pursuant to which the Senior Subordinated Notes were issued, as
the same may be amended, supplemented or otherwise modified pursuant to the
terms hereof and thereof.
"Senior Subordinated Notes" means the Borrower's 9-1/8% Senior
Subordinated Notes due April 15, 2003 issued pursuant to the Senior Subordinated
Note Indenture.
"Somerville" means Somerville Lumber and Supply Co., Inc., a
Massachusetts corporation.
"S&P" means Standard & Poor's Ratings Group, a division of
McGraw-Hill, Inc., or if such company shall cease to issue ratings, another
nationally recognized statistical rating company selected in good faith by
mutual agreement of the Administrative Agent and the Borrower.
"Stock Pledge Agreement" means the pledge agreement,
substantially in the form of Exhibit G to the Existing Credit Agreement, entered
into between the Borrower and the Collateral Agent, pursuant to which the
Borrower shall maintain in favor of the Collateral Agent for the benefit of the
Collateral Agent, the Administrative Agent, the Banks and the Merchandise Letter
of Credit Bank, a valid, perfected and enforceable first priority lien on and
security interest in all shares of stock of the Borrower's Subsidiaries
identified therein, as amended, supplemented or otherwise modified from time to
time.
"Subsidiary" means any corporation or other entity of which
securities or other ownership interests having ordinary voting power to elect a
majority of the board of directors or
<PAGE> 24
other persons performing similar functions are at the time directly or
indirectly owned by the Borrower.
"Subsidiary Guarantee" means the guarantee, substantially in
the form of Exhibit E to the Existing Credit Agreement, entered into between
Somerville and the Collateral Agent for the benefit of the Collateral Agent, the
Administrative Agent, the Banks and the Merchandise Letter of Credit Bank, as
the same may be amended, supplemented or otherwise modified from time to time.
"Subsidiary Security Agreement" means the security agreement,
substantially in the form of Exhibit F to the Existing Credit Agreement, made by
Somerville in favor of the Collateral Agent, for the benefit of the Collateral
Agent, the Administrative Agent, the Banks and the Merchandise Letter of Credit
Bank, as the same may be amended, supplemented or otherwise modified from time
to time.
"Temporary Cash Investment" means any Investment in (i) direct
obligations of the United States or any agency thereof, or obligations
guaranteed by the United States or any agency thereof, (ii) commercial paper
rated in the highest grade (A1+/P1 or its equivalent) by a nationally recognized
credit rating agency or (iii) time deposits with, including certificates of
deposit issued by, any office located in the United States of any bank or trust
company that has capital, surplus and undivided profits aggregating at least
U.S. $500,000,000, and whose long term debt is rated A or higher by S&P and A2
or higher by Moody's, provided in each case that such Investment matures within
one year from the date of acquisition thereof by the Borrower or a Subsidiary.
"Tranche B Term Loan Bank" means each Bank which has a Tranche
B Term Loan Commitment or which has made a Tranche B Term Loan.
"Tranche B Term Loan Commitment" means, with respect to each
Bank, the amount set forth opposite the name of such Bank on Schedule I (or in
the Commitment Transfer Supplement pursuant to which such Bank became a Bank
hereunder) as its "Tranche B Term Loan Commitment", as such amount may be
adjusted pursuant to Section 11.6A.
"Tranche B Term Loan Commitment Percentage" means, as to any
Bank at any time, the percentage of the aggregate Tranche B Term Loans then
constituted by such Bank's Tranche B Term Loans.
"Tranche B Term Loan Maturity Date" means November 18, 2000.
"Tranche B Term Loan Note" means a promissory note of
the Borrower to the order of any Bank, substantially in the form
<PAGE> 25
of Exhibit B hereto, evidencing the obligation of the Borrower to repay the
Tranche B Term Loans made by such Bank, as amended, modified, supplemented,
replaced or substituted for from time to time.
"Tranche B Term Loans" has the meaning set forth in Section
2.1(b).
"Transferee" has the meaning set forth in Section 11.6A(f).
"Type" means, as to any Loan, its nature as a CIBC Alternate
Base Rate Loan, a Euro-Dollar Loan or a Money Market Loan.
"Uniform Customs" means the Uniform Customs and Practice for
Documentary Credits (1993 Revision), International Chamber of Commerce
Publication No. 500, or any successor publication, as the same may be amended
from time to time.
"Voting Shares" means, with respect to any Person, shares of
capital stock of any class or classes (however designated) having general voting
power for the election of the board of directors, managers or trustees of such
Person (irrespective of whether or not at the time capital stock of any other
class or classes shall have or might have voting power by reason of the
happening of any contingency).
"Warrants" means the warrants issued in connection with the
issuance of the Senior Subordinated Notes.
"Withdrawal Liability" has the meaning specified under Part I
of Subtitle E of Title IV of ERISA.
SECTION 1.2 Other Definitional Provisions. (a) Unless
otherwise specified therein, all terms defined in this Agreement shall have the
defined meanings when used in the Notes, any other Credit Document or any
certificate or other document made or delivered pursuant hereto.
(b) Unless otherwise specified herein, all accounting terms
used herein and in the Notes, any other Credit Document and any certificate or
other document made or delivered pursuant hereto, shall be interpreted, all
accounting determinations hereunder shall be made, and all financial statements
required to be delivered hereunder shall be prepared, in accordance with
generally accepted accounting principles as in effect from time to time, applied
on a basis consistent (except for changes concurred with by the Borrower's
independent public accountants) with the audited consolidated financial
statements of the Borrower and its Consolidated Subsidiary for the fiscal year
ended November 26, 1994; provided, that it is understood and agreed that the
reference in the terms "Consolidated Net Worth" and "EBITDA" to "extraordinary
gains and losses" has at all times
<PAGE> 26
been intended to be a reference to all gains and losses which under GAAP are
treated as extraordinary, unusual or non-recurring and has not been intended to
be limited only to those items which strictly meet the requirements of GAAP for
an extraordinary gain or loss. The parties hereto further agree that in the
event that any change in accounting principles from those used in the
preparation of the financial statements of the Borrower and its Consolidated
Subsidiary for the fiscal year ended November 26, 1994 hereafter occasioned by
the promulgation of rules, regulations, pronouncements and opinions by or
required by the Financial Accounting Standards Board or Accounting Principles
Board of the American Institute of Certified Public Accountants (or successors
thereto or agencies with similar functions) results in any change in the method
of calculation of financial covenants, standards or terms found in this
Agreement, the Administrative Agent and the Borrower shall enter into
negotiations to amend (in accordance with the provisions of Section 11.5) the
financial covenants, terms or standards contained in this Agreement to equitably
reflect such change in accounting principles with the desired result that the
criteria for evaluating the Borrower's and the Borrower's Subsidiaries'
financial condition shall be the same after such change as if such change had
not been made. If and so long as an amendment as contemplated by the immediately
preceding sentence is not adopted in accordance with the provisions of Section
11.5, the affected financial covenants shall be computed without giving effect
to such change in accounting principles.
(c) 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, and Section,
subsection, Schedule and Exhibit references are to this Agreement unless
otherwise specified.
(d) The meanings given to terms defined herein shall be
equally applicable to both the singular and plural forms of such terms.
SECTION 2. AMOUNT AND TERMS OF COMMITMENTS
SECTION 2.1 Commitments to Lend. (a) During the Revolving
Credit Period each Bank which has a Revolving Commitment severally agrees, on
the terms and conditions set forth in this Agreement, to lend to the Borrower
from time to time revolving credit loans (each a "Revolving Loan" and
collectively, the "Revolving Loans") not to exceed in the aggregate at any time
outstanding, when added to (i) such Bank's Revolving Commitment Percentage of
the then outstanding L/C Obligations and (ii) an amount equal to such Bank's
Revolving Commitment Percentage multiplied by the aggregate amount of all the
Money Market Loans of all the Banks then outstanding, the amount of its
Revolving Commitment. Each Borrowing under this paragraph shall (i) be in an
aggregate principal amount of $5,000,000 or any larger multiple of $1,000,000
(except that a
<PAGE> 27
CIBC Alternate Base Rate Borrowing may be in the aggregate amount of the then
unused Revolving Commitments) and (ii) consist of Revolving Loans of the same
Type made on the same day by the several Banks ratably in proportion to their
respective Revolving Commitments. The Borrower may borrow Revolving Loans under
this subsection, repay or, to the extent permitted by Section 2.8, prepay
Revolving Loans and reborrow Revolving Loans at any time during the Revolving
Credit Period.
(b) Each Bank which has a Tranche B Term Loan Commitment
severally agrees, on the terms and conditions set forth in this Agreement, to
make a Tranche B term loan (each a "Tranche B Term Loan" and collectively, the
"Tranche B Term Loans") to the Borrower on the Closing Date in an amount not to
exceed the amount of the Tranche B Term Loan Commitment of such Borrower.
SECTION 2.2 Method of Borrowing. (a) The Borrower shall give
the Administrative Agent written notice in substantially the form of Exhibit D
(a "Notice of Borrowing") on the Domestic Business Day of each Revolving
Borrowing which is a CIBC Alternate Base Rate Borrowing and at least three
Euro-Dollar Business Days before each Revolving Borrowing which is a Euro-Dollar
Borrowing (provided, in the case of each type of Revolving Borrowing, such
Notice of Borrowing is received by the Administrative Agent prior to 11:00 A.M.,
New York City time, on the required date of delivery) specifying:
(i) the date of such Revolving Borrowing, which shall be a
Domestic Business Day in the case of a CIBC Alternate Base Rate
Borrowing or a Euro-Dollar Business Day in the case of a Euro-Dollar
Borrowing,
(ii) the aggregate amount of such Revolving Borrowing,
(iii) whether the Loans comprising such Revolving Borrowing
are to be CIBC Alternate Base Rate Loans or Euro-Dollar Loans, and
(iv) in the case of a Euro-Dollar Borrowing, the duration of
the Interest Period applicable thereto, subject to the provisions of
the definition of Interest Period.
(b) Upon receipt of a Notice of Borrowing, the Administrative
Agent shall promptly notify each Bank of the contents thereof and of such Bank's
ratable share of such Revolving Borrowing, and such Notice of Borrowing shall
not thereafter be revocable by the Borrower.
(c) Not later than 1:00 PM (New York City time) on the date of
each Revolving Borrowing, each Bank shall make available its pro rata share of
such Revolving Borrowing, in Federal or other funds immediately available in New
York City, to the Administrative Agent at its address specified in or pursuant
to
<PAGE> 28
Section 11.1. Upon satisfaction of the applicable conditions specified in
Section 6.1, the Administrative Agent will make the funds so received from the
Banks available to the Borrower at the Administrative Agent's aforesaid address.
(d) The Borrower shall give the Administrative Agent a Notice
of Borrowing, which Notice of Borrowing must be received prior to 11:00 a.m. New
York City time one Domestic Business Day prior to the anticipated Closing Date
in the case of a CIBC Alternate Base Rate Borrowing and three Euro-Dollar
Business Days prior to the anticipated Closing Date in the case of a Euro-Dollar
Borrowing, requesting that the Tranche B Term Loan Banks make the Tranche B Term
Loans on the Closing Date, specifying (a) the amount to be borrowed and (b) the
Closing Date. Upon receipt of such Notice of Borrowing, the Administrative Agent
shall promptly notify each Bank of the contents thereof and of such Bank's
ratable share of such Tranche B Term Loan Borrowing, and such Notice of
Borrowing shall not thereafter be revocable by the Borrower. Not later than 1:00
PM (New York City time) on the Closing Date, each Bank shall make available its
pro rata share of the Tranche B Term Loan Borrowing, in Federal or other funds
immediately available in New York City, to the Administrative Agent at its
address specified in or pursuant to Section 11.1. Upon satisfaction of the
applicable conditions specified in Section 6.1, the Administrative Agent will
make the funds so received from the Banks available to the Borrower at the
Administrative Agent's aforesaid address.
SECTION 2.3 Notes. (a) The Revolving Loans of each Revolving
Bank shall continue to be evidenced by the Revolving Note delivered to it
pursuant to the Existing Credit Agreement.
(b) The Revolving Commitment of each Revolving Bank shall be
subject to semi-annual mandatory commitment reductions on June 15 and December
15 of each year, commencing on December 15, 1995; the aggregate amount of each
Revolving Bank's Revolving Commitment on any such date shall be reduced by such
Revolving Bank's Revolving Commitment Percentage of the amount set forth for
such date in the following schedule:
Date Principal Amount
---- ----------------
December 15, 1995 $5,000,000
June 15, 1996 $12,500,000
December 15, 1996 $12,500,000
June 15, 1997 $17,500,000
December 15, 1997 $17,500,000
June 15, 1998 $27,500,000
December 15, 1998 $27,500,000
June 15, 1999 $50,000,000
November 18, 1999 $245,000,000
provided that, such Revolving Commitment reduction schedule shall be subject to
adjustment as provided in Sections 2.6 and 2.7.
<PAGE> 29
(c) The Tranche B Term Loans of each Tranche B Term Loan Bank
shall be evidenced by a promissory note of the Borrower, substantially in the
form of Exhibit B, with appropriate insertions as to payee, date and principal
amount (as amended, endorsed, extended or otherwise modified from time to time,
a "Tranche B Term Loan Note"), payable to the order of such Tranche B Term Loan
Bank and in a principal amount equal to the amount of such Tranche B Term Loan
Bank's Tranche B Term Loan.
(d) The Borrower hereby unconditionally promises to pay to the
Administrative Agent for the account of the Tranche B Term Loan Banks the
principal amount of the Tranche B Term Loans made by such Tranche B Term Loan
Banks in (i) four consecutive annual installments of $1,000,000 each, payable on
the 15th day of each December to occur in 1996 through 1999 and (ii) one payment
of $36,000,000 on the Tranche B Term Loan Maturity Date; provided that on the
date of any prepayment of the Tranche B Term Loans pursuant to Section 2.8, the
amortization shall be deemed to be amended to reflect the application of such
prepayment in the manner contemplated by Section 2.8.
(e) Upon receipt of each Tranche B Term Loan Bank's Note
pursuant to Section 6.2(a) the Administrative Agent shall mail such Note to such
Bank. Each Revolving Bank shall record, and prior to any transfer of its
Revolving Notes shall endorse on the schedules forming a part thereof
appropriate notations to evidence the date, amount and maturity of each
Revolving Loan made by it and the date and amount of each payment of principal
made by the Borrower with respect thereto; provided that the failure of any
Revolving Bank to make any such recordation or endorsement or any error in any
such recordation or endorsement shall not affect the obligations of the Borrower
hereunder or under the Revolving Notes. Each Revolving Bank is hereby
irrevocably authorized by the Borrower so to endorse its Revolving Notes and to
attach to and make a part of any Revolving Note a continuation of any such
schedule as and when required.
SECTION 2.4 Interest Rates. (a) Each CIBC Alternate Base Rate
Loan shall bear interest on the outstanding principal amount thereof, for each
day from the date such Loan is made until it becomes due, at a rate per annum
equal to the sum of the Applicable Margin plus the CIBC Alternate Base Rate for
such day. Such interest shall be payable quarterly in arrears on the last day of
each March, June, September and December and on the Revolving Termination Date.
Any overdue principal of and overdue interest on any CIBC Alternate Base Rate
Loan shall bear interest, payable on demand, for each day until paid at a rate
per annum equal to 2% plus the rate otherwise applicable thereto for such day
(as well after as before judgment).
(b) Each Euro-Dollar Loan shall bear interest on the
outstanding principal amount thereof, for the Interest Period applicable
thereto, at a rate per annum equal to the sum of the Applicable Margin plus the
applicable Adjusted London Interbank
<PAGE> 30
Offered Rate. Such interest shall be payable for each Interest Period on the
last day thereof and, if such Interest Period is longer than three months, at
intervals of three months after the first day thereof. Any overdue principal of
and overdue interest on any Euro-Dollar Loan shall bear interest, payable on
demand, for each day until paid at a rate per annum equal to the greater of (i)
2% plus the CIBC Alternate Base Rate for such day and (ii) 2% plus the rate
otherwise applicable thereto for such day (as well after as before judgment).
(c) The Administrative Agent shall determine each interest
rate applicable to the Loans hereunder. The Administrative Agent shall give
prompt notice to the Borrower and the Banks by facsimile transmission of each
rate of interest so determined, and its determination thereof shall be
conclusive in the absence of manifest error.
(d) The Euro-Dollar Reference Bank agrees to use its best
efforts to furnish quotations to the Administrative Agent as contemplated
hereby. If the Euro-Dollar Reference Bank does not furnish a timely quotation,
the Administrative Agent shall forthwith give notice thereof to the Borrower and
the Banks, whereupon until the Administrative Agent notifies the Borrower that
such quotations are available on a timely basis, the obligation of the Banks to
make Euro-Dollar Loans shall be suspended.
(e) Notwithstanding the foregoing provisions of this Section,
if at any time the rate of interest set forth above on any Loan of any Bank
exceeds the maximum non-usurious interest rate permissible for such Bank to
charge commercial borrowers under applicable law (the "Maximum Rate") for such
Bank, the rate of interest charged on such Loan of such Bank hereunder shall be
limited to the Maximum Rate for such Bank.
In the event any Bank ever receives, collects or applies as
interest any sum in excess of the Maximum Rate for such Bank, such excess amount
shall be applied to the reduction of the principal balance of its Loans or to
other amounts (other than interest) payable hereunder, and if no such principal
is then outstanding, such excess or part thereof remaining shall be paid to the
Borrower.
SECTION 2.5 Commitment Fees. The Borrower shall pay to the
Administrative Agent for the account of each Bank a commitment fee for the
period from and including the Closing Date to but not including the Revolving
Termination Date calculated at a rate per annum equal to the Commitment Fee Rate
in effect for the period in respect of which payment is to be made on such
Bank's average daily excess, if any, of such Bank's Revolving Commitment over
such Bank's Aggregate Outstanding Revolving Extensions of Credit during the
period for which such payment is to be made. Such commitment fee shall be
payable quarterly in arrears on the last day of each March, June, September and
<PAGE> 31
December of each calendar year during the Revolving Credit Period and on the
Revolving Termination Date.
SECTION 2.6 Optional Termination or Reduction of Revolving
Commitments. The Borrower may, at any time subsequent to the Closing Date, upon
at least three Domestic Business Days' notice to the Administrative Agent,
terminate at any time, or proportionately reduce from time to time by an
aggregate amount of $5,000,000 or any integral multiple of $1,000,000 in excess
thereof, the unused portions of the Revolving Commitments. Any such partial
reduction shall be deemed to adjust the table in Section 2.3(b) by (a) in the
case of the first $35,000,000 in reductions on or subsequent to the Closing Date
(including, without limitation, the reduction referred to in subsection 6.2(m)),
applying the amount thereof to the then remaining scheduled Revolving Commitment
reductions set forth in such table in the direct order of the dates thereof and
(b) in the case of any other reductions, reducing the then remaining scheduled
Revolving Commitment reductions set forth on such Schedule on a pro rata basis.
If the Revolving Commitments are terminated in their entirety, all applicable
accrued commitment fees and Letter of Credit fees shall be payable on the
effective date of such termination.
SECTION 2.7 Mandatory Termination or Reduction of
Revolving Commitments and Mandatory Prepayments.
(a) The Revolving Commitments shall terminate on the Revolving
Termination Date, and any Revolving Loans then outstanding (together with
accrued interest thereon) shall be due
and payable on such date.
(b) Unless otherwise agreed to in writing by the Required
Banks (or all of the Banks in the case of any disposition of assets described in
clause (vii) of Section 11.5) or otherwise provided herein, upon the receipt by
the Borrower of any Net Cash Proceeds from the sale, lease or other disposition
of any of its assets permitted under Section 8.11 (other than (i) the sale of
inventory in the ordinary course of business, (ii) the sale or lease of assets
subject to the Lien granted to Prudential pursuant to the documentation relating
to the Prudential Real Estate Financing solely to the extent that the Net Cash
Proceeds thereof are applied to repay the Prudential Real Estate Financing,
(iii) transfers or sales of accounts pursuant to any customer sales charge
program of the type described in Section 8.18 and (iv) Permitted Pad Sales), the
Tranche B Term Loans shall be prepaid and the Revolving Commitments shall be
deemed to be automatically and permanently reduced in an aggregate amount equal
to 75% of any such Net Cash Proceeds. Any such amounts shall be applied ratably
between the Tranche B Term Loans and the Revolving Commitments and (i) with
respect to the Tranche B Term Loans, such ratable amount shall be applied to the
then remaining installments of principal thereof on a pro rata basis and (ii)
with respect to the Revolving
<PAGE> 32
Commitments, such ratable amount shall be applied on a pro rata basis to the
then remaining scheduled Revolving Commitment reductions set forth in Section
2.3(b); provided, that in the case of any fiscal year, the provisions of this
paragraph (b) (insofar as they relate to Net Cash Proceeds received in respect
of assets other than the assets described in the immediately succeeding proviso)
shall be applicable only if and to the extent that the aggregate amount of such
Net Cash Proceeds received in such fiscal year exceed $5,000,000 and provided,
further, that with respect to the sale by the Borrower of its ownership interest
in Somerville (or the sale by Somerville or the Borrower of all or any part of
the assets used in the business conducted by Somerville in one or more
transactions), (i) the first $20,000,000 (or, if less, the aggregate amount
required pursuant to the Prudential Real Estate Financing to be paid to
Prudential in connection with such sale) of the aggregate Net Cash Proceeds
received from such sale by the Borrower shall be applied to reduce the mortgage
loans outstanding under the Prudential Real Estate Financing and (ii) the
amount, if any, by which the aggregate Net Cash Proceeds received from such sale
exceeds $20,000,000 (or such lesser amount required pursuant to the Prudential
Real Estate Financing to be paid to Prudential in connection with such sale)
shall be applied to the reduce the Revolving Commitments and the Tranche B Term
Loans in the manner set forth above, up to a limit of $15,000,000.
(c) The Borrower shall, from time to time until payment in
full of the Loans and the termination of this Agreement, within 10 days
following the receipt by the Borrower (or by the Administrative Agent as loss
payee) of any payment of proceeds of any insurance (other than business
interruption insurance) required to be maintained pursuant to this Agreement on
account of each separate loss, damage or injury in excess of $1,000,000 to any
tangible property of the Borrower or any Subsidiary (unless no Default or Event
of Default shall have occurred and be continuing and such proceeds (or any
portion thereof) shall have been expended or irrevocably committed by the
Borrower for the repair or replacement of such property and the Borrower shall
have furnished to the Administrative Agent evidence satisfactory to the
Administrative Agent of such expenditure or commitment), apply, or, to the
extent the Administrative Agent is loss payee under any insurance policy,
irrevocably direct the Administrative Agent to apply, an amount equal to 100%
(or such lesser percentage which represents that portion of such proceeds not
expended or committed pursuant to the immediately preceding parenthetical
phrase) of such insurance proceeds to the reduction of the Tranche B Term Loans
and the Revolving Commitments, which reduction shall be applied ratably between
the Tranche B Term Loans and the Revolving Commitment and (i) with respect to
the Tranche B Term Loans, such ratable amount shall be applied to the then
remaining installments of principal thereof on a pro rata basis and (ii) with
respect to the Revolving Commitments, such ratable amount shall be applied on a
pro rata basis to the then remaining scheduled Revolving
<PAGE> 33
Commitment reductions set forth in Section 2.3(b); provided that, with respect
to tangible property subject to any Lien permitted herein, no such prepayment or
reduction would be required to the extent that this Section 2.7(c) or Section
2.7(e) would require an application of insurance proceeds that would violate or
breach any of the provisions of the instruments or documents under which such
permitted Lien arises.
(d) If for any fiscal year of the Borrower, commencing with
its 1995 fiscal year, there shall be Excess Cash Flow for such fiscal year, then
on the earlier of the date of delivery by the Borrower to the Banks of the
financial statements required to be delivered pursuant to Section 8.1(a)
covering such fiscal year and 90 days after the end of such fiscal year of the
Borrower the Tranche B Term Loans shall be prepaid and the Revolving Commitments
shall be deemed to be automatically and permanently reduced in an aggregate
amount equal to 50% of such Excess Cash Flow. Any such amounts shall be applied
ratably between the Tranche B Term Loans and the Revolving Commitments, and (i)
with respect to the Tranche B Term Loans, such ratable amount shall be applied
to the then remaining installments thereof on a pro rata basis and (ii) with
respect to the Revolving Commitments, such ratable amount shall be applied in a
pro rata basis to the then remaining scheduled Revolving Commitment reductions
set forth in Section 2.3(b). Concurrently with the making of each such
prepayment, the Borrower shall deliver to the Administrative Agent a statement
detailing the calculation of Excess Cash Flow for the fiscal year as to which
such prepayment was computed.
(e) On any day on which the sum of (i) the Aggregate
Outstanding Revolving Extensions of Credit and (ii) the aggregate outstanding
Money Market Loans exceeds the Revolving Commitments then in effect, the
Borrower shall first prepay the Revolving Loans in an aggregate amount equal to
such excess and second, if any amount remains, apply such amount to cash
collateralize the L/C Obligations in a manner reasonably satisfactory to the
Letter of Credit Bank and the Administrative Agent.
(f) If at any time the Revolving Commitments shall be
optionally reduced or terminated in accordance with Section 2.6, then on the
date of such reduction or termination, the Borrower shall make a ratable
prepayment of the Tranche B Term Loans, with such ratable amount being applied
to the then remaining installments of principal thereof on a pro rata basis.
(g) If at any time the Tranche B Term Loans shall be
optionally prepaid in accordance with Section 2.8, then on the date of such
prepayment, the Borrower shall make a ratable reduction of the Revolving
Commitments, with such ratable amount being applied on a pro rata basis to the
then remaining scheduled Revolving Commitment reductions set forth in Section
2.3(b).
(h) Each prepayment of the Loans pursuant to this Section 2.7
shall be accompanied by payment of accrued and unpaid
<PAGE> 34
interest on the amount prepaid and any amounts payable pursuant to Section 5.5,
except that, unless such prepayment is made in connection with a termination of
the Revolving Commitments, accrued and unpaid interest on Revolving Loans that
are CIBC Alternate Base Rate Loans shall be payable on the next interest payment
date under Section 2.4(a) to occur after the date of such prepayment; provided
that no additional interest shall accrue on such accrued and unpaid interest on
such CIBC Alternate Base Rate Loans during the period from the date of such
prepayment to such next interest payment date.
SECTION 2.8 Optional Prepayments. (a) The Borrower may, upon
at least one Domestic Business Days' written notice to the Administrative Agent,
prepay any CIBC Alternate Base Rate Borrowing in whole at any time, or from time
to time in part in amounts aggregating $5,000,000 or any larger multiple of
$1,000,000. Accrued and unpaid interest on the amount of any such prepayment
shall be payable (i) in the case of prepayments of Tranche B Term Loans, on the
date of such prepayment, and (ii) in the case of prepayments of Revolving Loans,
on the next interest payment date under Section 2.4(a) to occur after the date
of such prepayment, provided that no additional interest shall accrue on such
accrued and unpaid interest during the period from the date of such prepayment
to such next interest payment date. Each such optional prepayment shall be
applied to prepay ratably the CIBC Alternate Base Rate Loans of the several
Banks included in such Borrowing.
(b) The Borrower may, upon at least three Euro-Dollar Business
Days' written notice to the Administrative Agent, prepay any Euro-Dollar
Borrowing in whole at any time, or from time to time in part in amounts
aggregating $5,000,000 or any larger multiple of $1,000,000, by paying the
principal amount to be prepaid together with accrued interest thereon to the
date of prepayment and any amounts payable pursuant to Section 5.5. Each such
optional prepayment shall be applied to prepay ratably the Euro-Dollar Loans of
the several Banks included in such Euro-Dollar Borrowing. Within two Euro-Dollar
Business Days after receipt by the Administrative Agent of a notice of
prepayment pursuant to this subsection (b), the Administrative Agent shall
notify the Borrower of the estimated loss or expense that may be incurred by the
Banks and be required to be paid by the Borrower under Section 5.5 as a result
of the prepayment of such Euro-Dollar Borrowing prior to the last day of the
Interest Period therefor. The Borrower may, after having been notified by the
Administrative Agent of the estimated loss or cost resulting from such
prepayment and not later than two Euro-Dollar Business Days prior to the
intended date of such prepayment stated in the notice of prepayment relating
thereto, notify the Administrative Agent in writing that the Borrower desires to
revoke such notice of prepayment. If the Borrower shall have failed to notify
the Administrative Agent, not later than two Euro-Dollar Business Days prior to
the intended date of such prepayment, that the Borrower desires to revoke its
notice of prepayment of all or
<PAGE> 35
part of such Borrowing, then such notice of prepayment shall become irrevocable.
The Borrower agrees that the calculation of such loss or expense is only an
estimate and shall not be binding on the Administrative Agent or any of the
Banks.
(c) Upon receipt of a notice of prepayment pursuant to this
Section, the Administrative Agent shall promptly notify each Bank of the
contents thereof and of such Bank's ratable share of such prepayment, and,
except as provided in subsection (b) above, such notice shall not thereafter be
revocable by the Borrower. Each Bank shall promptly after receiving any such
notice of prepayment with respect to a Euro-Dollar Borrowing, cooperate with the
Administrative Agent to estimate the loss or cost that may be incurred by such
Bank as a result of the prepayment of its Loan comprising such Borrowing.
SECTION 2.9 Conversion and Continuation Options. (a) The
Borrower may elect from time to time to convert Euro-Dollar Loans to CIBC
Alternate Base Rate Loans by giving the Administrative Agent irrevocable written
notice, substantially in the form of Exhibit J, of such election prior to 11:00
A.M., New York City time, on the day which is one Domestic Business Day prior to
the date of such conversion, provided that any such conversion of Euro-Dollar
Loans may only be made on the last day of an Interest Period with respect
thereto. The Borrower may elect from time to time to convert CIBC Alternate Base
Rate Loans to Euro-Dollar Loans by giving the Administrative Agent irrevocable
notice of such election prior to 11:00 A.M., New York City time, on the day
which is three Euro-Dollar Business Days prior to the date of such conversion.
Any such notice of conversion to Euro-Dollar Loans shall specify the length of
the initial Interest Period or Interest Periods therefor. Upon receipt of any
such notice the Administrative Agent shall promptly notify each Bank thereof.
All or any part of outstanding Euro-Dollar Loans and CIBC Alternate Base Rate
Loans may be converted as provided herein, provided that (i) no Loan may be
converted into a Euro-Dollar Loan when any Default or Event of Default has
occurred and is continuing and the Administrative Agent or the Required Banks
have determined that such a conversion is not appropriate, (ii) any such
conversion may only be made if, after giving effect thereto, Section 2.10 shall
not have been contravened and (iii) no Loan may be converted into a Euro-Dollar
Loan after the date that is one month prior to the Revolving Termination Date
(in the case of conversions of Revolving Loans) or the date of the final
installment of principal of the Tranche B Term Loan.
(b) Any Euro-Dollar Loans may be continued as such upon the
expiration of the then current Interest Period with respect thereto by the
Borrower giving notice to the Administrative Agent, in accordance with the
applicable provisions of the term "Interest Period" set forth in Section 1.1, of
the length of the next Interest Period to be applicable to such Loans; provided
that no Euro-Dollar Loan may be continued
<PAGE> 36
as such (i) when any Default or Event of Default has occurred and is continuing
and the Administrative Agent or the Required Banks have determined that such a
continuation is not appropriate, (ii) if, after giving effect thereto, Section
2.10 would be contravened or (iii) after the date that is one month prior to the
Revolving Termination Date (in the case of continuations of Revolving Loans) or
the date of the final installment of principal of the Tranche B Term Loans;
provided, further, that if the Borrower shall fail to give any required notice
as described above in this paragraph or if such continuation is not permitted
pursuant to the preceding proviso such Loans shall be automatically converted to
CIBC Alternate Base Rate Loans on the last day of such then expiring Interest
Period.
SECTION 2.10 Minimum Amount and Maximum Number of Euro-Dollar
Borrowings. All Borrowings, conversions and continuations of Loans hereunder and
all selections of Interest Periods hereunder shall be in such amounts and be
made pursuant to such elections so that, after giving effect thereto, (i) the
aggregate principal amount of the Loans comprising each Euro-Dollar Borrowing
shall be equal to $5,000,000 or a whole multiple of $1,000,000 in excess thereof
and (ii) the total number of such Euro-Dollar Borrowings at any one time would
not exceed ten.
SECTION 3. LETTERS OF CREDIT
SECTION 3.1 L/C Commitment. (a) Subject to the terms and
conditions hereof, the Letter of Credit Bank, in reliance on the agreements of
the other Banks set forth in Section 3.4(a), agrees to issue letters of credit
("Letters of Credit") for the account of the Borrower on any Domestic Business
Day during the Revolving Credit Period in such form as may be approved from time
to time by the Letter of Credit Bank; provided that the Letter of Credit Bank
shall not, and shall have no obligation to, issue any Letter of Credit if, after
giving effect to such issuance and to the obligations of the Banks under Section
3.4(a), the excess, if any, of (i) the Available Revolving Commitment of any
Bank over (ii) an amount equal to such Bank's Revolving Commitment Percentage
multiplied by the aggregate principal amount of all the Money Market Loans of
all the Banks then outstanding would be less than zero; and provided, further,
that the Letter of Credit Bank shall not, and shall have no obligation to, issue
any Letter of Credit if, (i) after giving effect thereto, the L/C Obligations
would exceed $25,000,000 or (ii) on or before the date immediately preceding the
issuance date, the Letter of Credit Bank shall have received a notice of
Default, which has not been withdrawn, from any Bank. Each Letter of Credit
shall (i) be denominated in Dollars and shall be a standby letter of credit
issued to support obligations of the Borrower or any of its Subsidiaries and
(ii) expire no later than the earlier of the date which is one year after the
date of issuance thereof and the Revolving Termination Date (provided that such
Letter of Credit may provide that it may be extended with the consent of the
<PAGE> 37
Letter of Credit Bank for a period of no more than one year (but in no event
beyond the Revolving Termination Date)).
(b) Each Letter of Credit shall be subject to the Uniform
Customs and, to the extent not inconsistent therewith, the laws of the
jurisdiction in which is located the office of the Letter of Credit Bank from
which such Letter of Credit is issued.
(c) The Letter of Credit Bank shall not at any time be
obligated to issue any Letter of Credit hereunder if such issuance would
conflict with, or cause such Letter of Credit Bank or any L/C Participant to
exceed any limits imposed by, any applicable Requirement of Law.
(d) The Borrower and each Bank severally agree that, on the
Closing Date, the letters of credit outstanding on such date set forth in
Schedule II hereof shall be deemed to be Letters of Credit under this Agreement
for all purposes hereof, provided that all fees and interest on such outstanding
letters of credit accruing to but not including the Closing Date shall be paid
on such date.
SECTION 3.2 Procedure for Issuance of Letters of Credit. The
Borrower may from time to time request that the Letter of Credit Bank issue a
Letter of Credit by delivering to the Letter of Credit Bank at its address for
notices specified herein an Application therefor, completed to the satisfaction
of the Letter of Credit Bank (which completion may occur by means of any
electronic system operated by the Letter of Credit Bank), and such other
certificates, documents and other papers and information as the Letter of Credit
Bank may request. Upon receipt of any Application, the Letter of Credit Bank
will process such Application and the certificates, documents and other papers
and information delivered to it in connection therewith in accordance with its
customary procedures, subject to the terms and conditions hereof, and shall,
subject to the terms and conditions hereof, promptly issue the Letter of Credit
requested thereby (but in no event shall the Letter of Credit Bank (unless it
otherwise agrees) be required to issue any Letter of Credit earlier than two
Domestic Business Days after its receipt of the Application therefor and all
such other certificates, documents and other papers and information relating
thereto) by issuing the original of such Letter of Credit to the beneficiary
thereof or as otherwise may be agreed by the Letter of Credit Bank and the
Borrower. The Letter of Credit Bank shall furnish a copy of such Letter of
Credit to the Borrower promptly following the issuance thereof. The Letter of
Credit Bank will periodically (but in any event no less often than quarterly)
report to the Administrative Agent Letter of Credit issuance activity, and the
Administrative Agent will periodically (but in any event no less often than
quarterly) report to the Banks Letter of Credit issuance activity.
<PAGE> 38
SECTION 3.3 Fees, and Other Charges. (a) The Borrower shall
pay to the Administrative Agent, for the account of the Banks, a fee with
respect to the Letters of Credit in an amount calculated on the L/C Obligations
from time to time outstanding during each period for which payment is made at a
rate per annum equal to the L/C Rate then in effect. Such fee shall be shared
ratably among the Banks in accordance with their respective Revolving Commitment
Percentages, shall be payable in arrears on each L/C Fee Payment Date,
commencing on the first of such days to occur after the date hereof, and shall
be nonrefundable.
(b) In addition to the foregoing fees and commissions, the
Borrower shall also pay to the Letter of Credit Bank for its sole benefit (i)
such customary fees, costs and expenses in connection with the Letters of Credit
as may be separately agreed to between such Letter of Credit Bank and the
Borrower and (ii) a fronting fee calculated at the rate of 1/8 of 1% per annum
on the L/C Obligations from time to time outstanding during each period for
which payment is made. Such fronting fee shall be payable in arrears on each L/C
Fee Payment Date, commencing on the first of such days to occur after the date
hereof, and shall be nonrefundable.
(c) The Administrative Agent shall, promptly following its
receipt thereof, distribute to the Letter of Credit Bank and the L/C
Participants all fees received by the Administrative Agent for their respective
accounts pursuant to this Section.
SECTION 3.4 L/C Participation. (a) The Letter of Credit Bank
irrevocably agrees to grant and hereby grants to each L/C Participant, and, to
induce the Letter of Credit Bank to issue Letters of Credit hereunder, each L/C
Participant irrevocably severally agrees to accept and purchase and hereby
severally accepts and purchases from the Letter of Credit Bank, on the terms and
conditions hereinafter stated, for such L/C Participant's own account and risk
an undivided interest equal to such L/C Participant's Revolving Commitment
Percentage in the Letter of Credit Bank's obligations and rights under each
Letter of Credit issued hereunder by the Letter of Credit Bank and under each
time draft accepted pursuant to any Letter of Credit and the amount of each
draft paid by the Letter of Credit Bank thereunder. Each L/C Participant
unconditionally and irrevocably severally agrees with each Letter of Credit Bank
that, if a draft is paid under any Letter of Credit for which the Letter of
Credit Bank is not reimbursed in full by the Borrower in accordance with the
terms of this Agreement, such L/C Participant shall pay to the Administrative
Agent, for the account of the Letter of Credit Bank, upon demand at the
Administrative Agent's address for notices specified herein an amount equal to
such L/C Participant's Revolving Commitment Percentage of the amount of such
draft, or any part thereof, which is not so reimbursed; such amount shall be due
on the Domestic Business Day upon which such demand shall be given, if such
demand is given at or before
<PAGE> 39
1:00 P.M. (New York City time) on such day and, if such demand shall be given
later than such time, such amount shall be due on the next succeeding Domestic
Business Day. The Administrative Agent shall promptly pay over to the Letter of
Credit Bank all amounts so received by it.
(b) If any amount required to be paid by any L/C Participant
to the Letter of Credit Bank pursuant to Section 3.4(a) in respect of any
unreimbursed portion of any payment made by the Letter of Credit Bank under any
Letter of Credit is paid to the Administrative Agent for the account of the
Letter of Credit Bank within three Domestic Business Days after the date such
payment is due, such L/C Participant shall pay to the Letter of Credit Bank on
demand an amount equal to the product of (1) such amount, times (2) the daily
average Federal Funds Rate during the period from and including the date such
payment is required to the date on which such payment is immediately available
to the Letter of Credit Bank, times (3) a fraction the numerator of which is the
number of days that elapse during such period and the denominator of which is
360. If any such amount required to be paid by any L/C Participant pursuant to
Section 3.4(a) is not in fact made available to the Administrative Agent for the
account of the Letter of Credit Bank by such L/C Participant within three
Domestic Business Days after the date such payment is due, the Letter of Credit
Bank shall be entitled to recover from such L/C Participant, on demand, such
amount with interest thereon calculated from such due date at the rate per annum
then applicable to CIBC Alternate Base Rate Loans hereunder. A certificate of
the Letter of Credit Bank submitted to any L/C Participant with respect to any
amounts owing under this Section shall be conclusive in the absence of manifest
error.
(c) Whenever, at any time after the Letter of Credit Bank has
made payment under any Letter of Credit or any time draft drawn thereunder and
has received from any L/C Participant its pro rata share of such payment in
accordance with Section 3.4(a), the Letter of Credit Bank receives any payment
related to the Letter of Credit (whether directly from the Borrower or
otherwise, including proceeds of collateral applied thereto by the
Administrative Agent or the Letter of Credit Bank), or any payment of interest
on account thereof, the Letter of Credit Bank will distribute to such L/C
Participant its pro rata share thereof; provided, however, that in the event
that any such payment received by the Letter of Credit Bank shall be required to
be returned by the Letter of Credit Bank, such L/C Participant shall return to
the Letter of Credit Bank the portion thereof previously distributed by the
Letter of Credit Bank to it.
SECTION 3.5 Reimbursement Obligation of the Borrower. The
Borrower agrees to reimburse the Letter of Credit Bank, on each date on which
the Letter of Credit Bank notifies the Borrower of the date and amount of a
payment by the Letter of Credit Bank of a draft presented under a Letter of
Credit
<PAGE> 40
(whether a sight draft or time draft), for the amount of (a) such draft so paid
and (b) any taxes, fees, charges or other costs or expenses incurred by the
Letter of Credit Bank in connection with such payment. Each such payment shall
be made to the Letter of Credit Bank at its address for notices specified herein
in lawful money of the United States of America and in immediately available
funds. Interest shall be payable on any and all amounts remaining unpaid by the
Borrower under this Section from the date such amounts become payable (whether
at stated maturity, by acceleration or otherwise) until payment in full at the
rate which would be payable on any outstanding CIBC Alternate Base Rate Loans
which were then overdue.
SECTION 3.6 Obligations Absolute. The Borrower's obligations
under this Section 3 shall be absolute and unconditional under any and all
circumstances and irrespective of any set-off, counterclaim or defense to
payment which the Borrower may have or have had against the Letter of Credit
Bank, any Bank or any beneficiary of a Letter of Credit. The Borrower also
agrees with the Letter of Credit Bank and the Banks that neither the Letter of
Credit Bank nor any Bank shall be responsible for, and the Borrower's
Reimbursement Obligations under Section 3.5 shall not be affected by, among
other things, the validity or genuineness of documents or of any endorsements
thereon, even though the documents shall in fact prove to be invalid, fraudulent
or forged, or any dispute between or among the Borrower and any beneficiary of
any Letter of Credit or any other party to which the Letter of Credit may be
transferred or any claims whatsoever of the Borrower against any beneficiary of
the Letter of Credit or any such transferee. The Letter of Credit Bank shall not
be liable for any error, omission, interruption or delay in transmission,
dispatch or delivery of any message or advice, however transmitted, in
connection with any Letter of Credit, except for errors or omissions caused by
the Letter of Credit Bank's gross negligence or willful misconduct. The Borrower
agrees that any action taken or omitted by the Letter of Credit Bank under or in
connection with any Letter of Credit or the related drafts or documents, if done
in the absence of gross negligence or willful misconduct and in accordance with
the standards of care specified in the Uniform Commercial Code of the
jurisdiction in which is located the office of the issuer thereof from which
such Letter of Credit is issued, shall be binding on the Borrower and shall not
result in any liability of the Letter of Credit Bank to the Borrower.
SECTION 3.7 Letter of Credit Payments. If any draft shall be
presented for payment under any Letter of Credit, the Letter of Credit Bank
shall promptly notify the Borrower of the date and amount thereof. The
responsibility of the Letter of Credit Bank to the Borrower in connection with
any draft presented to it for payment under any Letter of Credit shall, in
addition to any payment obligation expressly provided for in such Letter of
Credit, be limited to determining that the documents (including each draft)
delivered under such Letter of Credit in
<PAGE> 41
connection with such presentment are in conformity with such Letter of Credit.
SECTION 3.8 Application. To the extent that any provision of
any Application related to any Letter of Credit is inconsistent with the
provisions of this Agreement, the provisions of this Agreement shall apply.
SECTION 3.9 Indemnification. Each Bank shall, ratably in
accordance with its Revolving Commitment Percentage, indemnify the Letter of
Credit Bank (to the extent not reimbursed by the Borrower and without limiting
the obligation of the Borrower to do so) against any cost, expense (including
counsel fees of outside and in-house counsel and disbursements), claim, demand,
action, loss, damage, penalty, judgment, disbursement or liability (except such
as result from the Letter of Credit Bank's gross negligence or willful
misconduct) that the Letter of Credit Bank may suffer or incur in connection
with the issuance of any Letter of Credit under this Agreement or any action
taken or omitted by the Letter of Credit Bank hereunder. The agreements in this
Section shall survive the payment of the Notes and all other amounts payable
hereunder.
SECTION 4. MONEY MARKET LOANS
SECTION 4.1 The Money Market Loans. Subject to the terms and
conditions of this Agreement, the Borrower may borrow Money Market Loans from
time to time during the Money Market Loan Commitment Period on any Domestic
Business Day (in the case of Money Market Loans made pursuant to an Absolute
Rate Money Market Loan Request) or any Euro-Dollar Business Day (in the case of
Money Market Loans made pursuant to an Index Rate Money Market Loan Request).
Money Market Loans shall be borrowed in amounts such that the sum of (i) the
Aggregate Outstanding Extensions of Revolving Credit of all the Banks and (ii)
the aggregate outstanding principal amount of all Money Market Loans of all the
Banks shall not at any time exceed the aggregate Revolving Commitments of all
the Banks at such time; provided that the sum of (i) the Aggregate Outstanding
Extensions of Revolving Credit of any Bank and (ii) an amount equal to such
Bank's Revolving Commitment Percentage multiplied by the aggregate outstanding
principal amount of all Money Market Loans made by all the Banks shall not at
any time exceed such Bank's Revolving Commitment at such time. Within the limits
and on the conditions hereinafter set forth with respect to Money Market Loans,
the Borrower from time to time may borrow, repay and reborrow Money Market
Loans.
SECTION 4.2 Procedure for Money Market Loan Borrowing. (a) The
Borrower shall request Money Market Loans by delivering a Money Market Loan
Request to the Administrative Agent, not later than 12:00 Noon (New York City
time) four Euro-Dollar Business Days prior to the proposed Borrowing Date (in
the case of an Index Rate Money Market Loan Request), and not later than 10:00
A.M. (New York City time) one Domestic Business Day prior
<PAGE> 42
to the proposed Borrowing Date (in the case of an Absolute Rate Money Market
Loan Request). Each Money Market Loan Request may solicit bids for Money Market
Loans in an aggregate principal amount of $5,000,000 or an integral multiple of
$1,000,000 in excess thereof and having not more than four alternative maturity
dates. The maturity date for each Money Market Loan shall be not less than 7
days nor more than 180 days after the Borrowing Date therefor (and in any event
shall be not later than the Revolving Termination Date). The Administrative
Agent shall notify each Bank promptly by facsimile transmission of the contents
of each Money Market Loan Request received by the Administrative Agent.
(b) In the case of an Index Rate Money Market Loan Request,
upon receipt of notice from the Administrative Agent of the contents of such
Money Market Loan Request, each Bank may elect, in its sole discretion, to offer
irrevocably to make one or more Money Market Loans at the Applicable Index Rate
plus or minus a margin determined by such Bank in its sole discretion for each
such Money Market Loan. Any such irrevocable offer shall be made by delivering a
Money Market Loan Offer to the Administrative Agent, before 10:00 A.M. (New York
City time) on the day that is three Euro-Dollar Business Days before the
proposed Borrowing Date, setting forth:
(1) the maximum amount of Money Market Loans for each maturity
date and the aggregate maximum amount of Money Market Loans for all
maturity dates which such Bank would be willing to make (which amounts
may, subject to subsection 4.1, exceed such Bank's Revolving
Commitment); and
(2) the margin above or below the Applicable Index Rate at
which such Bank is willing to make each such Money Market Loan.
The Administrative Agent shall advise the Borrower promptly but no later than
10:30 A.M. (New York City time) on the date which is three Euro-Dollar Business
Days before the proposed Borrowing Date of the contents of each such Money
Market Loan Offer received by it. If the Administrative Agent, in its capacity
as a Bank, shall elect, in its sole discretion, to make any such Money Market
Loan Offer, it shall advise the Borrower of the contents of its Money Market
Loan Offer before 9:45 A.M. (New York City time) on the date which is three
Euro-Dollar Business Days before the proposed Borrowing Date.
(c) In the case of an Absolute Rate Money Market Loan Request,
upon receipt of notice from the Administrative Agent of the contents of such
Money Market Loan Request, each Bank may elect, in its sole discretion, to offer
irrevocably to make one or more Money Market Loans at a rate of interest
determined by such Bank in its sole discretion for each such Money Market Loan.
Any such irrevocable offer shall be made by delivering a Money Market Loan Offer
to the Administrative Agent before 10:00 A.M.
<PAGE> 43
(New York City time) on the proposed Borrowing Date, setting forth:
(1) the maximum amount of Money Market Loans for each maturity
date, and the aggregate maximum amount for all maturity dates, which
such Bank would be willing to make (which amounts may, subject to
Section 4.1, exceed such Bank's Revolving Commitment); and
(2) the fixed rate of interest at which such Bank is willing
to make each such Money Market Loan.
The Administrative Agent shall advise the Borrower promptly but in no event
later than 10:30 A.M. (New York City time) on the proposed Borrowing Date of the
contents of each such Money Market Loan Offer received by it. If the
Administrative Agent, in its capacity as a Bank, shall elect, in its sole
discretion, to make any such Money Market Loan Offer, it shall advise the
Borrower of the contents of its Money Market Loan Offer before 9:45 A.M. (New
York City time) on the proposed Borrowing Date.
(d) Before 12:00 noon (New York City time) three Euro-Dollar
Business Days before the proposed Borrowing Date (in the case of Money Market
Loans requested by an Index Rate Money Market Loan Request) and before 11:00
A.M. (New York City time) on the proposed Borrowing Date (in the case of Money
Market Loans requested by an Absolute Rate Money Market Loan Request), the
Borrower, in its absolute discretion, shall:
(1) cancel such Money Market Loan Request by giving the
Administrative Agent telephone notice to that effect, or
(2) by giving telephone notice to the Administrative Agent
(immediately confirmed by delivery to the Administrative Agent of a
Money Market Loan Confirmation in writing or by fax transmission), (i)
subject to the provisions of Section 4.2(e), accept one or more of the
offers made by any Bank or Banks pursuant to Section 4.2(b) or Section
4.2(c), as the case may be, of the amount of Money Market Loans for
each relevant maturity date and (ii) reject any remaining offers made
by Banks pursuant to Section 4.2(b) or Section 4.2(c), as the case may
be.
If the Borrower fails to give any such notice prior to such time, such Money
Market Loan Request shall be deemed to have been canceled.
(e) The Borrower's acceptance of Money Market Loans in
response to any Money Market Loan Request shall be subject to the following
limitations:
<PAGE> 44
(1) The principal amount of Money Market Loans accepted for
each maturity date specified by any Bank in its Money Market Loan Offer
shall not exceed the maximum amount for such maturity date specified in
such Money Market Loan Offer;
(2) the aggregate principal amount of Money Market Loans
accepted for all maturity dates specified by any Bank in its Money
Market Loan Offer shall not exceed the aggregate maximum amount
specified in such Money Market Loan Offer for all such maturity dates;
(3) the Borrower may not accept offers for Money Market Loans
for any maturity date in an aggregate principal amount in excess of the
maximum principal amount requested in the related Money Market Loan
Request;
(4) if the Borrower accepts any of such offers, it must accept
offers based solely upon pricing for such relevant maturity date and
upon no other criteria whatsoever; and
(5) if two or more Banks submit offers for any maturity date
at identical pricing and the Borrower accepts any of such offers but
does not wish to (or by reason of the limitations set forth in Section
4.1 or in clause (3) of this paragraph, cannot) borrow the total amount
offered by such Banks with such identical pricing, the Borrower shall
accept offers from all of such Bank in amounts allocated among them pro
rata according to the amounts offered by such Banks (or as nearly pro
rata as shall be practicable after giving effect to the requirement
that Money Market Loans made by a Bank on a Borrowing Date for each
relevant maturity date shall be in a principal amount of $5,000,000 or
an integral multiple of $1,000,000 in excess thereof).
If the bids are either unacceptably high to the Borrower or are insufficient in
amount, the Borrower may cancel the auction.
(f) If the Borrower notifies the Administrative Agent that a
Money Market Loan Request is canceled pursuant to Section 4.2(d)(1), the
Administrative Agent shall give prompt telephone notice thereof to the Banks.
(g) If the Borrower accepts pursuant to Section 4.2(d)(2) one
or more of the offers made by any Bank or Banks, the Administrative Agent
promptly shall notify each Bank which has made such a Money Market Loan Offer of
(i) the aggregate amount of such Money Market Loans to be made on such Borrowing
Date for each maturity date and (ii) the acceptance or rejection of any offers
to make such Money Market Loans made by such Bank. Before 12:00 Noon (New York
City time) on the Borrowing Date specified in the applicable Money Market Loan
Request, each Bank whose Money Market Loan Offer has been accepted shall make
<PAGE> 45
available to the Administrative Agent at its office set forth in Section 11.1
the amount of Money Market Loans to be made by such Bank, in immediately
available funds. The Administrative Agent will make such funds available to the
Borrower as soon as practicable on such date at the Administrative Agent's
aforesaid address. As soon as practicable after each Borrowing Date, the
Administrative Agent shall notify each Bank of the aggregate amount of Money
Market Loans advanced on such Borrowing Date and the respective maturity dates
thereof.
SECTION 4.3 Money Market Loan Payments. (a) The Borrower shall
repay to the Administrative Agent for the account of each Bank which has made a
Money Market Loan (or the Money Market Loan Assignee in respect thereof, as the
case may be) on the applicable Money Market Loan Maturity Date the then unpaid
principal amount of such Money Market Loan. The Borrower shall not have the
right to prepay any principal amount of any Money Market Loan.
(b) The Borrower shall pay interest on the unpaid principal
amount of each Money Market Loan from the Borrowing Date to the applicable Money
Market Loan Maturity Date at the rate of interest specified in the Money Market
Loan Offer accepted by the Borrower in connection with such Money Market Loan
(calculated on the basis of a 360-day year for actual days elapsed), payable on
each applicable Money Market Loan Interest Payment Date.
(c) If all or a portion of the principal amount of any Money
Market Loan shall not be paid when due (whether at the stated maturity, by
acceleration or otherwise), such overdue principal amount shall, without
limiting any rights of any Bank under this Agreement, bear interest from the
date on which such payment was due at a rate per annum which is 2% above the
rate which would otherwise be applicable pursuant to the Money Market Loan Note
evidencing such Money Market Loan until the stated maturity date of such Money
Market Loan, and for each day thereafter at a rate per annum which is 2% above
the CIBC Alternate Base Rate, in each case until paid in full (as well after as
before judgment).
SECTION 4.4 Money Market Loan Notes. (a) The Money Market
Loans made by each Bank shall be evidenced initially by the Grid Money Market
Loan Note delivered to it pursuant to the Existing Credit Agreement. Each Bank
is hereby authorized to record the date and amount of each Money Market Loan
made by such Bank, the maturity date thereof, the date and amount of each
payment of principal thereof and the interest rate with respect thereto on the
schedule annexed to and constituting part of its Grid Money Market Loan Note,
and any such recordation shall constitute prima facie evidence of the accuracy
of the information so recorded; provided, however, that the failure to make any
such recordation or any error in any such recordation shall not affect the
obligations of the Borrower hereunder or
<PAGE> 46
under any Grid Money Market Loan Note. Each Grid Money Market Loan Note is dated
the Closing Date (as defined in the Existing Credit Agreement), and each Money
Market Loan evidenced thereby shall bear interest for the period from and
including the Borrowing Date of such Money Market Loan on the unpaid principal
amount thereof from time to time outstanding at the applicable rate per annum
determined as provided in, and such interest shall be payable as specified in,
Section 4.3(b).
(b) All Money Market Loans advanced by a Bank on a Borrowing
Date which have the same maturity date and interest rate shall be deemed to
constitute one Money Market Loan so long as such amounts remain evidenced by the
Grid Money Market Loan Note of such Bank. Any Bank that wishes such amounts to
constitute more than one Money Market Loan and to have each such Money Market
Loan evidenced by a separate promissory note payable to such Bank, substantially
in the form of Exhibit C-2 (an "Individual Money Market Loan Note") with
appropriate insertions as to Borrowing Date, principal amount and interest rate,
shall notify the Administrative Agent and the Borrower by facsimile transmission
of the respective principal amounts of the Money Market Loans to be evidenced by
each such Individual Money Market Loan Note, which principal amount shall not be
less than $5,000,000 for any Individual Money Market Loan Note. Not later than
three Domestic Business Days after receipt of such notice, the Borrower shall
deliver to such Bank an Individual Money Market Loan Note payable to the order
of such Bank in the principal amount of each such Money Market Loan and
otherwise conforming to the requirements of this Agreement. Upon receipt of such
Individual Money Market Loan Note, such Bank shall endorse on the Schedule
attached to its Grid Money Market Loan Note the transfer of such Money Market
Loan from such Grid Money Market Loan Note to such Individual Money Market Loan
Note.
SECTION 5. GENERAL CREDIT PROVISIONS
SECTION 5.1 General Provisions as to Payments. The Borrower
shall make each payment of principal of, and interest on, the Loans, of
Reimbursement Obligations, of commitment fees and letter of credit commissions
and of all other amounts payable hereunder not later than 11:00 A.M. (New York
City time) on the date when due, in Federal or other funds immediately available
in New York City, to the Administrative Agent at its address referred to in
Section 11.1; provided, that in the case of payments made with respect to Money
Market Loans, such payments shall be made directly to the Bank or Banks making
such Money Market Loans at the address specified for such Bank or Banks in
Schedule I hereto. Any such payments which are made later than 11:00 A.M. (New
York City time) shall be deemed to have been made on the next Domestic Business
Day or Euro-Dollar Business Day, as the case may be. The Administrative Agent
will promptly distribute to each Bank its pro rata share of each such payment
(other than payments in respect of Money Market Loans, which shall be made to
the Bank or Banks that made such Money Market
<PAGE> 47
Loans only) received by the Administrative Agent for the account of the Banks.
Whenever any payment of principal of, or interest on, the CIBC Alternate Base
Rate Loans or any Absolute Rate Money Market Loans, of Reimbursement Obligations
or of commitment fees and letter of credit commissions shall be due on a day
which is not a Domestic Business Day, the date for payment thereof shall be
extended to the next succeeding Domestic Business Day. Whenever any payment of
principal of, or interest on, the Euro-Dollar Loans or any Index Rate Money
Market Loans shall be due on a day which is not a Euro-Dollar Business Day, the
date for payment thereof shall be extended to the next succeeding Euro-Dollar
Business Day unless such Euro-Dollar Business Day falls in another calendar
month, in which case the date for payment thereof shall be the next preceding
Euro-Dollar Business Day. If the date for any payment of principal is extended
by operation of law or otherwise, interest thereon shall be payable for such
extended time.
SECTION 5.2 Computation of Interest, Commissions and Fees.
Interest payable by the Borrower on CIBC Alternate Base Rate Loans accruing
interest at the rate specified in clause (a) of the definition of "CIBC
Alternate Base Rate" and on commitment fees hereunder shall be computed on the
basis of a year of 365 days (or 366 days in a leap year) and paid for the actual
number of days elapsed (including the first day but excluding the last day).
Interest payable by the Borrower on Euro-Dollar Loans, CIBC Alternate Base Rate
Loans accruing interest at the rate specified in clause (b) of the definition of
"CIBC Alternate Base Rate", Money Market Loans and letter of credit commissions
shall be computed on the basis of a year of 360 days and paid for the actual
number of days elapsed from and including the first day thereof to but excluding
the last day thereof.
SECTION 5.3 Indemnification for Charges. (a) Except as
provided in the proviso to the second sentence of this paragraph (a), all
payments made by the Borrower hereunder and under any of the other Credit
Documents shall be made by the Borrower free and clear of, and without reduction
for or on account of, any present or future income, stamp or other taxes,
levies, imposts, duties, charges, fees, deductions or withholdings, now or
hereafter imposed, levied, collected, withheld or assessed by any Governmental
Authority excluding, in the case of the Administrative Agent and each Bank, net
income taxes and franchise taxes based upon net income imposed on the
Administrative Agent and such Bank by the jurisdiction under the laws of which
the Administrative Agent or such Bank is organized or any political subdivision
or taxing authority thereof or therein or by any jurisdiction in which such
Bank's Lending Office is located or any political subdivision or taxing
authority thereof or therein (all such non-excluded taxes, levies, imposts,
deductions, charges or withholdings being hereinafter called "Charges"). If any
Charges are required to be withheld from any amounts payable to the
Administrative Agent or any Bank hereunder or under the other Credit Documents,
the
<PAGE> 48
amounts so payable to the Administrative Agent or such Bank shall be increased
to the extent necessary to yield to the Administrative Agent or such Bank (after
payment of all Charges) interest or any other amounts payable hereunder or under
the other Credit Documents at the rates or in the amounts specified in this
Agreement and the other Credit Documents; provided, however, that in any case
where a Bank fails to provide the forms or other documents to the Borrower as
required by paragraph (b) of this Section or if the information contained
therein is no longer accurate in any material respect and the Borrower is, as a
result of such failure or inaccuracy, required to withhold Charges from a
payment hereunder or under the other Credit Documents in an amount greater than
it would have been required to withhold if such Bank had provided such required
forms or other documents or if such information was accurate, any additional sum
payable under this sentence shall be computed as if the Borrower had withheld
such lesser amount unless the reason for such failure to deliver such forms or
other documents or the reason for such inaccuracy is a change in United States
federal income tax law (including any regulation or amendment thereto, or
official interpretation thereof, any modification or revocation of an applicable
tax treaty or any change in the official position regarding the interpretation
thereof) occurring after the date hereof. Whenever any Charges are payable by
the Borrower, as promptly as possible thereafter, the Borrower shall send to the
Administrative Agent for the account of such Bank, a certified copy of an
original official receipt received by the Borrower showing payment thereof. If
the Borrower fails to pay any Charges when due to the appropriate taxing
authority or fails to remit to the Administrative Agent the required receipts or
other required documentary evidence, the Borrower shall indemnify the
Administrative Agent and the Banks for any incremental taxes, interest or
penalties that may become payable by the Administrative Agent or any Bank as a
result of any such failure.
(b) Each Bank that is not a United States Person as such term
is defined in ss. 7701(a)(30) of the Code (a "United States Person") shall
complete and deliver to the Borrower, prior to the date on which the first
payment to such Bank is due hereunder, a duly certified Internal Revenue Service
Form 1001 in duplicate claiming that it is entitled to complete exemption from
United States withholding tax under an income tax treaty to which the United
States is a party or a duly certified Internal Revenue Service Form 4224 in
duplicate claiming that the payments to be received under this Agreement are
effectively connected with the conduct of a trade or business of such Bank in
the United States, as appropriate. Each Bank further agrees to complete and
deliver to the Borrower from time to time (to the extent permissible under then
current law) any successor or additional form or certificate required by the
Internal Revenue Service in order to secure complete exemption from United
States withholding tax. If for any reason during the term of this Agreement, a
Bank becomes unable to submit the forms or certificate referred to above or the
information or representations contained therein is no longer
<PAGE> 49
accurate in any material respect, such Bank shall notify the Administrative
Agent and the Borrower in writing to that effect.
(c) Each Bank agrees to use reasonable efforts (including
reasonable efforts to change its Lending Office) to avoid the imposition of any
Charges on payments hereunder or under other Credit Documents or to minimize any
amounts which might otherwise be payable pursuant to this Section; provided,
however, that such efforts shall not cause the imposition on such Bank of any
additional costs or legal or regulatory burden deemed by such Bank to be
material.
(d) If the Borrower makes any additional payment to any Bank
pursuant to this Section in respect of any Charges, and such Bank determines
that it has received (i) a refund of such Charges or (ii) a credit against or
relief or remission for, or a reduction in the amount of, any tax or other
governmental charge solely as a result of any deduction or credit for any
Charges with respect to which it has received payments under this Section, such
Bank shall, to the extent that it can do so without prejudice to the retention
of such refund, credit, relief, remission or reduction, pay to the Borrower such
amount as such Bank shall have determined to be attributable to the deduction or
withholding of such Charges. If such Bank later determines that it was not
entitled to such refund, credit, relief, remission or reduction to the full
extent of any payment made pursuant to the first sentence of this paragraph, the
Borrower shall upon demand of such Bank promptly repay the amount of such
overpayment. Any determination made by such Bank pursuant to this paragraph
shall in the absence of bad faith or manifest error be conclusive, and nothing
in this paragraph shall be construed as requiring the Bank to conduct its
business or to arrange or alter in any respect its tax or financial affairs so
that it is entitled to receive such a refund, credit or reduction or as allowing
any Person to inspect any records, including tax returns, of any Bank.
SECTION 5.4 Capital Adequacy. (a) If any Bank shall have
determined that the adoption after the date hereof of any applicable law, rule
or regulation regarding capital adequacy, or any change after the date hereof
therein, or any change after the date hereof in the interpretation or
administration thereof by any Governmental Authority, central bank or comparable
agency charged with the interpretation or administration thereof, or compliance
by any Bank (or its Lending Office) with any request or directive regarding
capital adequacy (whether or not having the force of law) of any such authority,
central bank or comparable agency made subsequent to the date hereof, has or
would have the effect of reducing the rate of return on such Bank's capital as a
consequence of its obligations hereunder to a level below that which such Bank
could have achieved but for such adoption, change or compliance (taking into
consideration such Bank's policies with respect to capital adequacy) by an
amount deemed by such Bank to be material, then from time to time,
<PAGE> 50
within 45 days after demand by such Bank (with a copy to the Administrative
Agent), the Borrower shall pay to such Bank such additional amount or amounts as
will compensate such Bank for such reduction.
(b) Each Bank will promptly notify the Borrower and the
Administrative Agent of any event of which it has knowledge, occurring after the
date hereof, which will entitle such Bank to compensation pursuant to this
Section. A certificate of any Bank claiming compensation under this Section and
setting forth the additional amount or amounts to be paid to it hereunder shall
be conclusive in the absence of manifest error. In determining such amount, such
Bank may use any reasonable averaging and attribution methods.
SECTION 5.5 Funding Losses. If the Borrower makes any payment
of principal with respect to any Euro-Dollar Loan or Index Rate Money Market
Loan (pursuant to Section 2.8, 2.9, 5.8, 9 or otherwise) on (i) any day other
than the last day of the Interest Period applicable thereto or (ii) on the last
day of any Interest Period which has been shortened by operation of clause (c)
or (d) of the definition of "Interest Period", or if the Borrower fails to
borrow, convert to or continue any Euro-Dollar Loan or Index Rate Money Market
Loan after notice has been given to any Bank in accordance with Section 2.2(b),
Section 2.10(a) or (b) or 4.2(d), as the case may be, the Borrower shall
reimburse each Bank on demand for any resulting loss or expense (including,
without limitation, administrative costs) incurred by it (or by any existing or
prospective participant in the related Loan), including (without limitation) any
loss incurred in obtaining, liquidating or employing deposits from third
parties, but excluding loss of margin for the period after any such payment or
failure to borrow, convert or continue, provided that such Bank shall have
delivered to the Borrower a certificate as to the amount of such loss or
expense, which certificate shall be conclusive in the absence of manifest error.
Without limiting the effect of the preceding sentence, such reimbursement shall
include an amount equal to the excess, if any, of (i) the amount of interest
which otherwise would have accrued on the principal amount so paid, prepaid or
not borrowed, converted or continued for the period from the date of such
payment, prepayment, or failure to borrow, convert or continue to the last day
of the then current Interest Period (or, in the case of an Interest Period
shortened by operation of clause (c) or (d) of the definition of "Interest
Period", the last day of the Interest Period which would have applied but for
the operation of such clause (c) or (d)) for such Euro-Dollar Loan (or, in the
case of a failure to borrow, convert or continue, the Interest Period for such
Euro-Dollar Loan or Index Rate Money Market Loan which would have commenced on
the date specified for such borrowing, conversion or continuation) at the
applicable rate of interest for such Euro-Dollar Loan provided for herein
(excluding the Applicable Margin) over (ii) the interest component of the amount
such Bank (or any corporation controlling such Bank) would have
<PAGE> 51
bid in the London interbank market for U.S. Dollar deposits of leading banks in
amounts comparable to such principal amount and with maturities comparable to
such period (as reasonably determined by such Bank).
SECTION 5.6 Right of Set-Off. Whenever any amount owing to any
Bank by the Borrower shall not be paid when due (whether at the stated maturity
thereof, by acceleration or otherwise), such Bank is hereby authorized at any
time and from time to time, to the fullest extent permitted by law, to set off
and apply against such overdue amount any and all monies, securities and other
property of the Borrower and the proceeds thereof, now or hereafter held or
received by, or in transit to, such Bank from or for the Borrower, whether for
safekeeping, custody, pledge, transmission, collection or otherwise and all
deposits (general or special, time or demand, provisional or final) at any time
held and other indebtedness at any time owing by such Bank to or for the credit
or the account of the Borrower. Each Bank agrees promptly to notify the Borrower
after any such set-off and application made by such Bank, provided that the
failure to give such notice shall not affect the validity of such set-off and
application. The rights of each Bank under this Section are in addition to other
rights and remedies (including, without limitation, other rights of set-off)
which such Bank may have.
SECTION 5.7 Basis for Determining Interest Rate Inadequate or
Unfair. If on or prior to the first day of any Interest Period with respect to a
Euro-Dollar Borrowing or Index Rate Money Market Loan:
(a) the Administrative Agent is advised by the Euro-Dollar
Reference Bank that deposits in dollars (in the applicable amounts) are not
being offered to the Euro-Dollar Reference Bank in the relevant market for such
Interest Period, or
(b) in the case of Euro-Dollar Loans, Banks having 50% or more
of the aggregate amount of the Revolving Commitments or Tranche B Term Loan
Commitments (or, after the Tranche B Term Loan Commitments expire, are
terminated or are fully utilized, Tranche B Term Loans), as the case may be,
advise the Administrative Agent that the Adjusted London Interbank Offered Rate
as determined by the Administrative Agent will not adequately and fairly reflect
the cost to such Banks of funding their Euro-Dollar Loans for such Interest
Period (other than, in the case of any Bank, as a result of a deterioration in
the creditworthiness of such Bank), the Administrative Agent shall forthwith
give notice thereof to the Borrower and the Banks, whereupon until the
Administrative Agent notifies the Borrower that the circumstances giving rise to
such suspension no longer exist, the obligations of the Banks maintaining
Revolving Commitments or Tranche B Term Loan Commitments (or, after the Tranche
B Term Loan Commitments expire, are terminated or are
<PAGE> 52
fully utilized, Tranche B Term Loans), as the case may be, to make Euro-Dollar
Loans and/or Index Rate Money Market Loans, or to continue or convert into
Euro-Dollar Loans of the applicable type pursuant to Section 2.10, shall be
suspended; provided, however, that in the case of Euro-Dollar Borrowings, unless
the Borrower notifies the Administrative Agent at least two Domestic Business
Days before the date of any Euro-Dollar Borrowing for which a Notice of
Borrowing has previously been given that it elects not to borrow on such date,
such Borrowing shall be made as a CIBC Alternate Base Rate Borrowing.
SECTION 5.8 Illegality. If the adoption after the date of this
Agreement of any applicable law, rule or regulation, or any change after the
date of this Agreement therein, or any change after the date of this Agreement
in the interpretation or administration thereof by any Governmental Authority,
central bank or comparable agency charged with the interpretation or
administration thereof, or compliance by any Bank (or its Euro-Dollar Lending
Office) with any request or directive (whether or not having the force of law)
of any such authority, central bank or comparable agency made after the date of
this Agreement shall make it unlawful or impossible for any Bank (or its
Euro-Dollar Lending Office) to make, maintain or fund its Euro-Dollar Loans or
Index Rate Money Market Loans and such Bank shall so notify the Administrative
Agent, the Administrative Agent shall forthwith give notice thereof to the other
Banks and the Borrower, whereupon until such Bank notifies the Borrower and the
Administrative Agent that the circumstances giving rise to such suspension no
longer exist, the obligation of such Bank to make Euro-Dollar Loans shall be
suspended. Before giving any notice to the Administrative Agent pursuant to this
Section, such Bank shall designate a different Euro-Dollar 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
shall determine that it may not lawfully continue to maintain and fund any of
its outstanding Euro-Dollar Loans or Index Rate Money Market Loans to maturity
and shall so specify in such notice, the Borrower shall immediately prepay in
full the then outstanding principal amount of each such Euro-Dollar Loan,
together with accrued interest thereon and any amounts payable pursuant to
Section 5.5. Concurrently with prepaying each such Euro-Dollar Loan or Index
Rate Money Market Loan, the Borrower shall borrow a CIBC Alternate Base Rate
Loan or Absolute Rate Money Market Loan, as applicable, in an equal principal
amount from such Bank (on which, in the case of Euro-Dollar Loans, interest and
principal shall be payable contemporaneously with the related Euro-Dollar Loans
of the other Banks), and such Bank shall make such a CIBC Alternate Base Rate
Loan or Absolute Rate Money Market Loan, as applicable.
SECTION 5.9 Increased Cost and Reduced Return.
(a) If the adoption after the date hereof of any applicable law,
rule or regulation, or any change after the date hereof therein,
<PAGE> 53
or any change after the date hereof in the interpretation or administration
thereof by any Governmental Authority, central bank or comparable agency charged
with the interpretation or administration thereof, or compliance by any Bank (or
its Lending Office) with any request or directive (whether or not having the
force of law) of any such authority, central bank or comparable agency made
after the date hereof:
(i) shall subject any Bank (or its Lending Office) to
any tax, duty or other charge with respect to its Euro-Dollar Loans,
Index Rate Money Market Loans, its Notes, any Letter of Credit or its
obligation to participate in the Letters of Credit, any Application or
its obligation to make Euro-Dollar Loans or Index Rate Money Market
Loans, or shall change the basis of taxation of payments to any Bank
(or its Lending Office) of the principal of or interest on its
Euro-Dollar Loans or Index Rate Money Market Loans or any other amounts
due under this Agreement in respect of its Euro-Dollar Loans or Index
Rate Money Market Loans or its obligation to make Euro-Dollar Loans or
Index Rate Money Market Loans or issue or participate in the Letters of
Credit (except for changes in the rate of tax on the overall net income
of such Bank or its Lending Office imposed by the jurisdiction in which
such Bank's principal executive office or Lending Office is located);
or
(ii) shall impose, modify or deem applicable any
reserve, special deposit 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
Euro-Dollar Loan, any such requirement included in an applicable
Euro-Dollar Reserve Percentage) against assets of, deposits with or for
the account of, or credit extended by, any Bank (or its Lending Office)
or shall impose on any Bank (or its Lending Office) or on the London
interbank market any other condition affecting its Euro-Dollar Loans,
its Notes, any Letter of Credit, any Application or its obligation to
make Euro-Dollar Loans or Index Rate Money Market Loans or to
participate in the Letters of Credit;
and the result of any of the foregoing is to increase the cost to such Bank (or
its Lending Office) of making or maintaining any Euro-Dollar Loan or Index Rate
Money Market Loans or issuing or participating in Letters of Credit, or to
reduce the amount of any sum received or receivable by such Bank (or its Lending
Office) under this Agreement, under its Notes with respect thereto or with
respect to such Letters of Credit, by an amount deemed by such Bank to be
material, then, within 15 days after demand by such Bank (with a copy to the
Administrative Agent), the Borrower shall pay to such Bank such additional
amount or amounts as will compensate such Bank for such increased cost or
reduction.
<PAGE> 54
(b) Each Bank will promptly notify the Borrower and the
Administrative Agent of any event of which it has knowledge, occurring after the
date hereof, which will entitle such Bank to compensation pursuant to this
Section and will designate a different 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 and setting
forth the additional amount or amounts to be paid to it hereunder shall be
conclusive in the absence of manifest error. In determining such amount, such
Bank may use any reasonable averaging and attribution methods.
SECTION 5.10 CIBC Alternate Base Rate Loans Substituted for
Affected Euro-Dollar Loans. If (i) the obligation of any Bank to make
Euro-Dollar Loans has been suspended pursuant to Section 5.8 or (ii) any Bank
has demanded compensation under Section 5.9(a), and the Borrower shall, by at
least five Euro-Dollar Business Days' prior notice to such Bank through the
Administrative Agent, have elected that the provisions of this Section shall
apply to such Bank, then, unless and until such Bank notifies the Borrower that
the circumstances giving rise to such suspension or demand for compensation no
longer apply:
(a) all Loans which would otherwise be made by such Bank as
Euro-Dollar Loans shall be made instead as CIBC Alternate Base Rate Loans (on
which interest and principal shall be payable contemporaneously with the related
Euro-Dollar Loans of the other Banks), and
(b) after each of its Euro-Dollar Loans has been repaid, all
payments of principal which would otherwise be applied to repay such Euro-Dollar
Loans shall be applied to repay its CIBC Alternate Base Rate Loans instead.
SECTION 5.11 Fees. The Borrower shall pay to the
Administrative Agent and/or the Co-Agents, as appropriate, the fees in the
amounts and on the dates specified in the Fee Letter.
SECTION 6. CONDITIONS PRECEDENT
SECTION 6.1 All Loans and Letters of Credit. The obligation of
each Bank to make a Loan and the obligation of the Letter of Credit Bank to
issue, and the L/C Participants to participate in, any Letter of Credit, is
subject to the satisfaction of the following conditions precedent on the
relevant Borrowing Date:
(a) receipt by the Administrative Agent of notice of such
Borrowing as required by Section 2.2 (in the case of a Revolving Loan) or, with
respect to the issuance of such Letter of Credit, receipt by the Letter of
Credit Bank of an Application and the other materials required by Section 3.2;
<PAGE> 55
(b) the fact that, immediately after such borrowing or
issuance, as the case may be, no Default or Event of Default shall have occurred
and be continuing; and
(c) the fact that the representations and warranties of the
Borrower or any of its Subsidiaries, as the case may be, contained in this
Agreement and the other Credit Documents shall be true and correct in all
material respects on and as of the date of such borrowing or issuance.
Each borrowing hereunder and each issuance of a Letter of
Credit shall be deemed to be a representation and warranty by the Borrower on
the date of such borrowing or issuance as to the facts specified in clauses (b)
and (c) of this Section.
SECTION 6.2 Conditions to Effectiveness of this Agreement,
Initial Loans and Letters of Credit. The effectiveness of this Agreement, the
obligation of each Bank to make its Loans and of the Letter of Credit Bank to
issue any Letter of Credit on the Closing Date are subject to the satisfaction
or waiver by such Bank of the following conditions precedent, provided that,
each such condition be satisfied or waived no later than November 25, 1995:
(a) receipt by the Administrative Agent for the account of
each Tranche B Term Loan Bank of duly executed Tranche B Term Loan Notes, each
dated the Closing Date, complying with the provisions of Section 2.4;
(b) receipt by the Administrative Agent of (i) an opinion,
dated the Closing Date, of Blackwell, Sanders, Matheny, Weary & Lombardi, L.C.,
counsel for the Borrower, substantially in the form of Exhibit F-1 hereto,
covering such matters relating to the transactions contemplated hereby as the
Required Banks may reasonably request, and (ii) an opinion, dated the Closing
Date, of Wachtell, Lipton, Rosen & Katz, special New York counsel for the
Borrower, substantially in the form of Exhibit F-2 hereto, and covering such
additional matters relating to the transactions contemplated hereby as the
Administrative Agent may reasonably request;
(c) receipt by the Administrative Agent of Closing
Certificates signed by executive officers of the Borrower and Somerville,
substantially in the form of Exhibit G-1 and G-2 hereto, with appropriate
insertions and attachments satisfactory in form and substance to the
Administrative Agent;
(d) receipt by the Administrative Agent of all documents it
may reasonably request relating to the existence of the Borrower and its
Subsidiaries, the corporate authority for and the validity of this Agreement,
the Notes and the other Credit Documents, and any other matters relevant hereto
(including, without limitation, certified resolutions and
<PAGE> 56
incumbency certificates), all in form and substance satisfactory
to the Administrative Agent;
(e) there shall not have occurred since August 26, 1995, a
material adverse change, or development or event involving a prospective change,
which, in the reasonable judgment of the Banks, could have a material adverse
effect on (i) the assets, liabilities, properties, business, operations or
condition, financial or otherwise, or prospects of the Borrower and its
Subsidiaries, taken as a whole, (ii) their ability to perform their obligations
under the Credit Documents, or (iii) the rights and remedies of the Collateral
Agent, the Administrative Agent or the Banks under the Credit Documents, and
none of the Administrative Agent or any Bank shall have become aware of any
theretofore previously undisclosed materially adverse information with respect
to the matters described in subclause (i), (ii) or (iii) of this clause (e);
(f) all transactions contemplated hereby shall be in
compliance with and permitted by all applicable laws and regulations of the
United States and all laws and regulations of each state (including, without
limitation, environmental laws) except where the failure to so comply with or be
permitted by would not have a Materially Adverse Effect;
(g) there shall be no actions, suits or proceedings by any
Governmental Authority or other Person or investigation by any Governmental
Authority pending or known by the Borrower to be threatened with respect to the
Borrower or any of its Subsidiaries or (relating to the transactions
contemplated hereunder) the Administrative Agent or any Bank, as to which there
is a reasonable likelihood of a Materially Adverse Effect; there has occurred
since the date of this Agreement no development in any action, suit, proceeding,
governmental investigation or arbitration disclosed to the Banks prior to such
date as to which there is a reasonable likelihood of such an event, and there
shall be no judgment, order, injunction or other restraint prohibiting any of
the transactions contemplated hereby;
(h) receipt by the Administrative Agent of evidence
satisfactory to the Administrative Agent that all fees payable to the
Administrative Agent and the Banks on or prior to the Closing Date shall have
been paid in full;
(i) receipt by the Administrative Agent and the Collateral
Agent of this Agreement duly executed and delivered by all of the Banks, the
Borrower and, with respect to Section 11.15, Somerville (which agreement shall
be in full force and effect on the Closing Date);
(j) receipt by the Administrative Agent of all
consents, in form and substance satisfactory to the
Administrative Agent, from third parties, necessary to permit the
<PAGE> 57
execution, delivery and performance by the Borrower and
Somerville of their obligations under the Credit Documents;
(k) to the extent not previously provided under the Existing
Credit Agreement, receipt by the Administrative Agent of certificates of
insurance and loss payee and additional insured insurance endorsements, in form
and substance satisfactory to the Administrative Agent, with respect to the
insurance coverage required pursuant to Section 8.3 and of the schedule
described in Section 8.3(c);
(l) receipt by the Administrative Agent of evidence, in form
and substance satisfactory to the Administrative Agent, that the Borrower shall
then have a Consolidated Net Worth (excluding the book value of the Warrants and
common stock subject to puts and calls to the extent either is included in
stockholders' equity) in an amount equal to at least $400,000,000;
(m) receipt by the Administrative Agent of a notice delivered
in accordance with Section 2.6 of the Existing Credit Agreement providing for a
reduction in the Revolving Commitments by $35,000,000 on the Closing Date; and
(n) receipt by the Administrative Agent of such other
documents and agreements as may be reasonably requested by the Administrative
Agent in connection with the financing contemplated hereunder.
SECTION 7. REPRESENTATIONS AND WARRANTIES
To induce the Banks to enter into this Agreement and to make
the Loans, and to induce the Letter of Credit Bank to issue, and the L/C
Participants to participate in, the Letters of Credit, the Borrower makes the
following representations and warranties, all of which shall survive the
execution and delivery of this Agreement and the making of the Loans and the
issuance of the Letters of Credit and shall be deemed repeated and confirmed as
of the date of the making of each Loan and the issuance of each Letter of
Credit:
SECTION 7.1 Corporate Existence and Power. The Borrower is (a)
a corporation duly incorporated, validly existing and in good standing under the
laws of Iowa, and has all corporate powers and all governmental licenses,
authorizations, consents and approvals required to carry on its business as now
conducted and as proposed to be conducted, except for such licenses,
authorizations, consents and approvals, the failure to have which could not
reasonably be expected to have a Materially Adverse Effect, and (b) has duly
qualified and is authorized to do business and is in good standing in all
jurisdictions where the failure to do so could reasonably be expected to have a
Materially Adverse Effect.
<PAGE> 58
SECTION 7.2 Corporate Power and Authority. The Borrower has
the power and authority to execute, deliver and carry out the terms and
provisions of each of the Credit Documents (including, without limitation, the
granting of any Liens contemplated thereby) to which it is, or is to be, a
party. The Borrower has taken all necessary action to authorize the execution,
delivery and performance of each of the Credit Documents to which it is, or is
to be, a party. Each Credit Document when executed and delivered by the Borrower
will constitute the legal, valid and binding obligation of the Borrower
enforceable in accordance with its terms except as enforcement thereof may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium and
other similar laws affecting the enforceability of creditors' rights generally
and by general principles of equity.
SECTION 7.3 No Violation. Neither the execution, delivery or
performance by the Borrower of any of the Credit Documents to which it either
is, or is to be, a party nor compliance with any of the terms and provisions
thereof, nor the consummation of any of the transactions contemplated therein
(a) has contravened or will contravene any provision of any law, statute, rule
or regulation, including, without limitation, Rule 13e-3 under the Securities
Exchange Act of 1934, as amended, or any other law, statute, rule or regulation
or any order, writ, injunction or decree of any other Governmental Authority,
(b) has conflicted or been inconsistent with or will conflict or be inconsistent
with, or has resulted in or will result in any breach of, any of the terms,
covenants, conditions or provisions of, or has constituted or will constitute
(with or without notice or lapse of time or both) a default under, any
indenture, mortgage, deed of trust, agreement or other instrument to which the
Borrower or any of its Subsidiaries is a party, or any of their property or
assets are bound or to which any of them may be subject, in each such case the
contravention with which could reasonably be expected to have a Materially
Adverse Effect or (c) result in the creation or imposition of (or the obligation
to create or impose), any Lien upon any of the property or assets of the
Borrower or any of its Subsidiaries pursuant to the terms of any indenture,
mortgage, deed of trust, agreement or other instrument to which the Borrower or
any of its Subsidiaries is a party or by which they or any of their property of
assets are bound or to which any of them may be subject (other than as
contemplated by the Security Documents) or (d) has violated or will violate any
provision of the Restated Articles of Incorporation or by-laws of the Borrower
or any of its Subsidiaries.
SECTION 7.4 Margin Regulations. No part of the proceeds of the
Loans will be used to purchase or carry any Margin Stock in violation of
Regulation U or Regulation G or to extend credit for the purpose of purchasing
or carrying any Margin Stock in violation of Regulation U or Regulation G.
Neither the making of any Loan hereunder, nor the use of the
<PAGE> 59
proceeds thereof, will violate or be inconsistent with the provisions of
Regulation G, T, U or X of the Board of Governors of the Federal Reserve System.
SECTION 7.5 Approvals. Except for those registrations,
consents, waivers, approvals, notices and actions with any Governmental
Authority or other Person which have been obtained, given, filed or taken prior
to the date hereof (complete and correct copies of which have been delivered to
each Bank), the execution, delivery and performance by the Borrower of the
Credit Documents to which it is, or is to be, a party (including, without
limitation, the application of the proceeds of the Loans) did not, do not and
will not require any registration with, consent or waiver or approval of, or
notice to, or other action to, with or by, any (i) federal or Iowa Governmental
Authority or (ii) other Governmental Authority or any other Person, where the
failure so to obtain, give, file or take could reasonably be expected to have a
Materially Adverse Effect.
SECTION 7.6 Investment Company Act; etc. Neither the Borrower
nor any of its Subsidiaries will be after giving effect to the transactions
contemplated hereby or any borrowing or the issuance of any Letter of Credit to
be made hereunder (x) an "investment company" or a company "controlled" by an
"investment company", within the meaning of the Investment Company Act of 1940,
as amended or (y) subject to regulation under the Public Utility Holding Company
Act of 1935, the Federal Power Act or any foreign, federal or local statute or
regulation limiting its ability to incur indebtedness for money borrowed or
guarantee such indebtedness as contemplated hereby or by any other Credit
Document.
SECTION 7.7 True and Complete Disclosure. All financial
information heretofore or contemporaneously furnished by or on behalf of the
Borrower or any Subsidiary and all information contained in any of the Credit
Documents and the exhibits and schedules thereto is, and all other such
information hereafter furnished, including, without limitation, all information
contained in any of the Credit Documents, including any exhibits or schedules
thereto, by or on behalf of the Borrower or any Subsidiary to or on behalf of
any Bank will be, true and accurate in all material respects on the date as of
which such information is dated or certified (except for any projections
included therein, which projections shall have provided reasonable estimations
of future performance for the periods covered thereby subject to the uncertainty
and approximation inherent in any projections) and not incomplete by omitting to
state anything necessary to make such information not misleading at such time
except to the extent later information could reasonably have been expected to
supersede earlier information. There is nothing of which the Borrower is aware
which could reasonably be expected to have a Materially Adverse Effect which has
not been disclosed pursuant to the terms of this
<PAGE> 60
Agreement. All statements of fact and representations concerning the present and
anticipated business, operations and assets of the Borrower and its
Subsidiaries, the Credit Documents and the transactions referred to therein and
in the opinions, memoranda and rulings contained therein, are true and correct
in all material respects, and all assumptions with respect thereto contained
therein are reasonable in all material respects, each as of the date such
information is dated or certified.
SECTION 7.8 Subsidiaries. Schedule 7.8 hereto, as amended by
the Borrower from time to time, contains a true, correct and complete
description of each Subsidiary of the Borrower, its capitalization, its
jurisdiction of incorporation and its ownership (by holder and percentage
interest). Each Subsidiary of the Borrower is a corporation duly incorporated,
validly existing, and in good standing under the laws of its jurisdiction of
incorporation and has all corporate powers and all material governmental
licenses, authorizations, consents and approvals required to carry on its
business as now conducted and as proposed to be conducted, and each Subsidiary
has duly qualified and is authorized to do business and is in good standing in
all jurisdictions where the failure to do so could reasonably be expected to
have a Materially Adverse Effect. On the date of this Agreement, Somerville is
the only active Subsidiary of the Borrower and the only Subsidiary of the
Borrower with any substantial assets.
SECTION 7.9 Acknowledgement of Obligations; No Claims. As of
the date of this Agreement, the aggregate principal outstanding balance of the
Revolving Loans is $298,000,000 and the aggregate amount of the outstanding
Letters of Credit is $10,089,645.99, and neither the Borrower nor Somerville has
(i) any defense, set-off or counterclaim against the Bank Obligations or (ii)
any claim against the Administrative Agent, Collateral Agent, Letter of Credit
Bank or any other Bank arising out of or related to the Bank Obligations or the
Existing Credit Agreement.
SECTION 7.10 Financial Condition; Financial Statements;
Projections. (a) The Borrower is not entering into the arrangements contemplated
hereby with actual intent to hinder, delay or defraud either present or future
creditors. On and as of the Closing Date on a pro forma basis after giving
effect to all Debt (including, without limitation, the Loans and the Letters of
Credit) incurred, or to be created in connection therewith:
(i) no final judgments in actions for money damages
with respect to pending or threatened litigation will be rendered at a
time when, or in an amount such that, the Borrower or the affected
Subsidiary will be unable to satisfy any such judgments promptly in
accordance with their terms (taking into account the maximum reasonable
amount of such judgments in any such actions and the earliest
reasonable time at which such judgments might be rendered);
<PAGE> 61
the cash available after taking into account all other anticipated uses
of the cash of such Person is anticipated to be sufficient to pay all
such judgments promptly in accordance with their terms;
(ii) the present fair salable value of the assets of
each of the Borrower and its Subsidiaries will exceed the probable
liability of each of the Borrower and its Subsidiaries on its debts
(including its contingent obligations);
(iii) neither the Borrower nor any of its Subsidiaries
will have incurred or intends to, or believes that it will, incur debts
(including its contingent obligations) beyond its ability to pay such
debts as such debts mature (taking into account the timing and amounts
of cash to be received by such Person from any source, and of amounts
to be payable on or in respect of debts of such Person and the amounts
referred to in clause (i)); the cash available to each such Person
after taking into account all other anticipated uses of the cash of
such Person, is anticipated to be sufficient to pay all such amounts on
or in respect of debts of such Person, when such amounts are required
to be paid; and
(iv) the Borrower and each of its Subsidiaries will have
sufficient capital with which to conduct its present and proposed
business, and the property of the Borrower and each of its Subsidiaries
does not constitute unreasonably small capital with which to conduct
its present or proposed business.
For purposes of this paragraph "debt" means any liability on a
claim, and "claim" means (A) right to payment whether or not such a right is
reduced to judgment, liquidated, unliquidated, fixed, contingent, matured,
unmatured, disputed, undisputed, legal, equitable, secured, or unsecured; or (B)
right to an equitable remedy for breach of performance if such breach gives rise
to a payment, whether or not such right to an equitable remedy is reduced to
judgment, fixed, contingent, matured, unmatured, disputed, undisputed, secured,
or unsecured.
(b) There has heretofore been delivered to the Banks the
audited balance sheet of the Borrower and its Consolidated Subsidiary on a
consolidated basis, as of August 26, 1995 and the related consolidated
statements of income and cash flows for the year then ended accompanied by an
unqualified opinion of KPMG Peat Marwick. Such financial statements fairly
present, in conformity with generally accepted accounting principles applied on
a consistent basis, the consolidated financial position of the Borrower and its
Consolidated Subsidiary as of such date and their consolidated results of
operations and cash flows for such fiscal year. Neither the Borrower nor its
Subsidiary had as of the date of the foregoing financial statements any material
contingent obligation, contingent liability or liability for
<PAGE> 62
taxes, long-term lease or unusual forward or long-term commitment which is not
disclosed in the foregoing financial statements or the notes thereto.
(c) There have heretofore been delivered to the Banks pro
forma consolidated income projections for the Borrower and its Consolidated
Subsidiaries, pro forma consolidated balance sheet projections for the Borrower
and its Consolidated Subsidiaries and pro forma consolidated cash flow
projections for the Borrower and its Consolidated Subsidiaries, all for the
fiscal years ending 1995 through 2000, inclusive, each of which was prepared on
a cash flow basis ("Projected Cash Flow Financial Statements"). The Projected
Cash Flow Financial Statements have been prepared consistent with the Borrower's
past practices in its internal planning, the assumptions made in preparing the
Projected Cash Flow Financial Statements are reasonable, and all material
assumptions with respect to the Projected Cash Flow Financial Statements are set
forth therein; provided that the Projected Cash Flow Financial Statements have
not been prepared in accordance with generally accepted accounting principles.
The Projected Cash Flow Financial Statements provide reasonable estimations of
future performance on a cash basis, subject to the uncertainty and approximation
inherent in any projections.
(d) Since August 26, 1995, there has been no material adverse
change in the business, financial position, results of operations or prospects
of the Borrower and its Subsidiaries, considered as a whole. The most recent
financial statements of the Borrower and its Consolidated Subsidiaries delivered
to the Banks pursuant to Sections 8.1(a) and (b) fairly present, in accordance
with generally accepted accounting principles applied on a consistent basis, the
consolidated financial position of the Borrower and its Consolidated
Subsidiaries as of the date thereof and their consolidated results of operations
for the period covered by such financial statements.
SECTION 7.11 Tax Returns and Payments. The Borrower and each
of its Subsidiaries has filed all federal income tax returns and all other
material tax returns and reports, domestic and foreign, required to be filed by
it and has paid all material taxes, assessments, fees and other governmental
charges payable by it which have become due, other than those not yet
delinquent. The Borrower and each of its Subsidiaries has paid, or has provided
adequate reserves for the payment of, all material federal, state and foreign
income taxes applicable for all prior fiscal years and for the current fiscal
year to the date hereof. There is no proposed tax assessment against the
Borrower or any of its Subsidiaries which could, if the assessment were made,
reasonably be expected to have a Materially Adverse Effect. Other than the
fiscal year ended November 1986, which fiscal year remains open, the last closed
tax year of the Borrower and its Consolidated Subsidiaries is the fiscal year
ended November 1990.
<PAGE> 63
SECTION 7.12 Litigation; Adverse Facts. There is no action,
suit, proceeding or investigation by any Governmental Authority or other Person
pending or known by the Borrower to be threatened with respect to the Borrower,
any of its Subsidiaries or any of their Affiliates or any of their assets or any
of the Credit Documents or any of the transactions contemplated hereby or
thereby as to which there is a reasonable likelihood of a Materially Adverse
Effect and there has occurred no development in any action, suit, proceeding,
governmental investigation or arbitration previously disclosed to the Banks, as
to which there is a reasonable possibility of such an effect.
SECTION 7.13 Compliance with Laws and Charter Documents.
Neither the Borrower nor any of its Subsidiaries is (i) in violation of its
charter or by-laws or (ii) in violation of any law, statute, rule, regulation,
order, writ, injunction or decree of any Governmental Authority applicable to
any of them or any of their respective properties or assets, which violation
under this clause (ii), individually or in the aggregate, could reasonably be
expected to have a Materially Adverse Effect.
SECTION 7.14 Certain Fees. Except for fees payable to the
Administrative Agent and the Banks, no broker's or finder's fee or commission
will be payable with respect to the transactions contemplated by the Credit
Documents, or hereby, and the Borrower hereby indemnifies the Administrative
Agent and the Banks against and agrees that it will hold the Administrative
Agent and the Banks harmless from any claim, demand or liability for any
broker's or finder's fees or commissions alleged to have been incurred in
connection with any such offer, issue and sale, or any of the other transactions
contemplated hereby or by the other Credit Documents and any expenses including
reasonable legal fees, arising in connection with any such claim, demand or
liability.
SECTION 7.15 ERISA. (a) No ERISA Event has occurred or is
reasonably expected to occur with respect to any Plan in any fiscal year of the
Borrower that would result in any liability of the Borrower or any Subsidiary of
the Borrower in excess, together with the amount of all other liabilities of the
Borrower and its Subsidiaries which would result from all other ERISA Events
that have occurred or are reasonably expected to occur with respect to Plans
during such fiscal year, of $3,000,000.
(b) Schedule B (Actuarial Information to the annual report
(Form 5500 Series)) most recently completed with respect to each Plan, copies of
which have been filed with the Internal Revenue Service and delivered to the
Banks, is complete and accurate in all material respects and to the best
knowledge of the Borrower represents a reasonable estimate of the funding status
and financial condition of such Plan as of the date of such report, and since
the date of such Schedule B there has been no change in such funding status or
financial condition that
<PAGE> 64
could reasonably be expected to have a Materially Adverse Effect on the
operations, properties, performance or prospects of the Borrower taken
individually or the Borrower and its Subsidiaries taken as a whole.
(c) Neither the Borrower, any Subsidiary of the Borrower nor
any ERISA Affiliate of either of them has incurred, or is reasonably expected to
incur, any Withdrawal Liability to Multiemployer Plans in excess in any fiscal
year of the Borrower, of $3,000,000 in the aggregate for the Borrower, its
Subsidiaries and the ERISA Affiliates of any of them.
(d) Neither the Borrower, any Subsidiary of the Borrower nor
any ERISA Affiliate of either of them has received any notification that any
Multiemployer Plan is in reorganization or has been terminated, within the
meaning of Title IV of ERISA, and to the best knowledge of the Borrower, no
Multiemployer Plan is reasonably expected to be in reorganization or to be
terminated within the meaning of Title IV of ERISA, in either case where all
such reorganization or terminations would result in any liability of the
Borrower or any Subsidiary of the Borrower in any fiscal year of the Borrower in
excess of $3,000,000 in the aggregate for the Borrower and its Subsidiaries.
(e) With respect to each Plan which is an "employee pension
plan" within the meaning of Section 3(2) of ERISA and which is intended to
qualify under Section 401 of the Code, a favorable determination letter has been
received from the Internal Revenue Service stating that such Plan so qualifies,
and nothing has occurred since the date of the issuance of such determination
letter which would cause such Plan to cease to qualify under Section 401 of the
Code.
(f) None of the transactions contemplated by this Agreement or
by any Plan constitute a prohibited transaction as such term is defined in
Section 406 of ERISA or Section 4975 of the Code.
SECTION 7.16 Good Title to Properties. Each of the Borrower
and its Subsidiaries has good and marketable title to all its material
properties and assets, including, without limitation, the Collateral, subject to
no Liens, mortgages, pledges, security interests, encumbrances or charges of any
kind, except such as would be permitted under Section 8.10.
SECTION 7.17 Trademarks, Patents, etc. Each of the Borrower
and its Subsidiaries possesses all the trademarks, trade names, copyrights,
patents, licenses, or rights in any thereof, adequate in all material respects
for the conduct of its business as now conducted and presently proposed to be
conducted, without conflict with the rights or, to the best knowledge of the
Borrower, any presently claimed rights of others.
<PAGE> 65
SECTION 7.18 Labor Matters. Neither the Borrower nor any
Subsidiary of the Borrower has experienced any strike, labor dispute, slowdown
or work stoppage due to labor disagreements which could reasonably be expected
to have a Materially Adverse Effect and to the best knowledge of the Borrower,
there is no such strike, dispute, slowdown or work stoppage threatened against
the Borrower or any Subsidiary of the Borrower.
SECTION 7.19 Environmental Matters. To the best of the
Borrower's knowledge, except as set forth on Schedule 7.18:
(a) The Property does not contain any Hazardous Substance in
amounts or concentrations which (i) constitute a violation of, or (ii) could
reasonably give rise to liability under, Environmental Law except in either case
insofar as such violation or liability, or any aggregation thereof, is not
reasonably likely to result in a Materially Adverse Effect.
(b) The Property and all operations at the Property are in
compliance, and have in the last three years been in compliance, in all material
respects with all applicable Environmental Laws, and there is no contamination
at or under the Property, or violation of any Environmental Law with respect to
the Property or the operations at the Property, which is reasonably likely to
result in a Materially Adverse Effect.
(c) Neither the Borrower nor any of its Subsidiaries has
received any notice of violation, alleged violation, non-compliance, liability
or potential liability regarding environmental matters or compliance with
Environmental Law with regard to any of the Property or the operations at the
Property, nor does the Borrower or such Subsidiary have knowledge or reason to
believe that any such notice will be received or is being threatened except
insofar as such notice or threatened notice, or any aggregation thereof, does
not involve a matter or matters that is or are reasonably likely to result in a
Materially Adverse Effect.
(d) Hazardous Substances have not been transported or disposed
of from any of the Property in violation of, or in a manner or to a location
which could reasonably give rise to liability under, Environmental Law, nor have
any Hazardous Substances been generated, treated, stored or disposed of at, on
or under any of the Property in violation of, or in a manner that could
reasonably give rise to liability under, any applicable Environmental Law except
insofar as any such violation or liability referred to above, or any aggregation
thereof, is not reasonably likely to result in a Materially Adverse Effect.
(e) No judicial proceedings or governmental or administrative
action is pending, or, to the knowledge of the Borrower, threatened, under any
Environmental Law to which the Borrower is or will be named as a party with
respect to the Property or the operations at the Property, nor are there any
<PAGE> 66
consent decrees or other decrees, consent orders, administrative orders or other
orders, or other administrative or judicial requirements outstanding under any
Environmental Law with respect to the Property or such operations except insofar
as such proceeding, action, decree, order or other requirement, or any
aggregation thereof, is not reasonably likely to result in a Materially Adverse
Effect.
(f) There has been no release or threat of release of any
Hazardous Substance at or from the Property, or arising from or related to the
operations of the Property in connection with the Property or otherwise in
connection with such operations in violation of or in amounts or in a manner
that could reasonably give rise to liability under Environmental Law except
insofar as any such violation or liability referred to above, or any aggregation
thereof, is not reasonably likely to result in a Materially Adverse Effect.
SECTION 7.20 No Default. Neither the Borrower nor any of its
Subsidiaries is in default in the payment or performance of any of its or their
Contractual Obligations in any respect which could reasonably be expected to
have a Materially Adverse Effect. Neither the Borrower nor any of its
Subsidiaries is in default under any order, award or decree of any Governmental
Authority or arbitrator binding upon or affecting it or them or by which any of
its or their properties or assets may be bound or affected in any respect which
could reasonably be expected to have a Materially Adverse Effect and no such
order, award or decree could reasonably be expected to have a Materially Adverse
Effect on the ability of the Borrower and its Subsidiaries taken as a whole to
carry on their businesses as presently conducted or the ability of any Credit
Party to perform its obligations under any Credit Document to which it is a
party.
SECTION 8. COVENANTS
The Borrower agrees that, so long as any Bank has any
Revolving Commitment hereunder, any Letter of Credit or any time draft accepted
under any Letter of Credit remains outstanding or any amount payable hereunder
or under any Note or under any other Credit Document remains unpaid:
SECTION 8.1 Information. The Borrower will deliver to each of
the Banks:
(a) as soon as available and in any event within 90 days after
the end of each fiscal year of the Borrower, a consolidated balance sheet of the
Borrower and its Consolidated Subsidiaries as of the end of such fiscal year and
the related consolidated statements of income and statements of cash flows for
such fiscal year, setting forth in each case in comparative form the figures for
the previous fiscal year, all audited in a manner acceptable to the SEC by KPMG
Peat Marwick or other independent public accountants of nationally recognized
standing;
<PAGE> 67
(b) as soon as available and in any event within 45 days after
the end of each of the first three quarters of each fiscal year of the Borrower,
a consolidated balance sheet of the Borrower and its Consolidated Subsidiaries
as of the end of such quarter and the related consolidated statements of income
and statements of cash flows for such quarter and for the portion of the
Borrower's fiscal year ended at the end of such quarter, setting forth in each
case in comparative form the figures for the corresponding quarter and the
corresponding portion of the Borrower's previous fiscal year, all certified
(subject to normal year-end adjustments) as to fairness of presentation,
generally accepted accounting principles and consistency by the chief financial
officer or the chief accounting officer of the Borrower;
(c) simultaneously with the delivery of each set of financial
statements referred to in clauses (a) and (b) above, a certificate of the chief
financial officer or the chief accounting officer of the Borrower substantially
in the form of Exhibit K hereto (a "Compliance Certificate") (i) setting forth
in reasonable detail (x) the calculations required to establish whether the
Borrower was in compliance with the requirements of Sections 8.12 (the
calculations with respect to compliance with such Section 8.12 to be delivered
only with the delivery of the financial statements to be delivered under clause
(a) above), 8.16, 8.17 and 8.26 on the date of such financial statements and (y)
the calculation of "Excess Cash Flow" for the fiscal year ended on the date of
such financial statements (the calculation of such Excess Cash Flow to be
delivered only with the delivery of the financial statements to be delivered
under clause (a) above) and (ii) stating whether any Default or Event of Default
exists on the date of such certificate and, if any Default or Event of Default
then exists, setting forth the reasonable details thereof and the action which
the Borrower is taking or proposes to take with respect thereto;
(d) simultaneously with the delivery of each set of financial
statements referred to in clause (a) above, a statement of the firm of
independent public accountants which reported on such statements (i) as to
whether anything has come to their attention to cause them to believe that any
Default or Event of Default existed on the date of such statements and (ii)
confirming the calculations set forth in the officer's certificate delivered
simultaneously therewith pursuant to clause (c) above;
(e) forthwith upon the occurrence of any Default or Event of
Default, a certificate of the chief financial officer or the chief accounting
officer of the Borrower setting forth the details thereof and the action which
the Borrower is taking or proposes to take with respect thereto;
<PAGE> 68
(f) promptly upon the mailing thereof to the shareholders of
the Borrower generally, copies of all financial statements, significant reports
and proxy statements so mailed;
(g) promptly upon the filing thereof, copies of all
registration statements (other than the exhibits thereto and any registration
statements on Form S-8 or its equivalent) and reports on Forms 10-K, 10-Q and
8-K (or their equivalents) which the Borrower shall have filed with the SEC;
(h) simultaneously with the delivery of each set of financial
statements referred to in clauses (a) and (b) above, a certificate of the chief
financial officer of the Borrower, in form and substance reasonably satisfactory
to the Administrative Agent, describing all gains and losses by the Borrower and
its Consolidated Subsidiaries for such fiscal quarter just ended from the sale
or other disposition of their capital assets which do not constitute
extraordinary gains or losses under generally accepted accounting principles and
for which the sale price or book value for such asset at time of sale is greater
than $3,000,000;
(i) forthwith upon becoming aware of (i) any litigation or
other proceeding as to which there is a reasonable likelihood of a Materially
Adverse Effect or (ii) any default with respect to any contractual obligation or
any event or condition which could have a Materially Adverse Effect, notice
thereof;
(j) not later than forty-five days after the commencement of
each fiscal year of the Borrower, a one-year forecast of the financial condition
and results of operations of the Borrower for each such year, in all instances
in form, scope and detail satisfactory to the Administrative Agent;
(k) promptly upon becoming aware of any material adverse
change in the business, financial position, results of operations or prospects
of the Borrower and its Subsidiaries considered as a whole since August 26,
1995, notice thereof;
(l) (i) promptly and in any event within thirty days after
filing thereof with the Internal Revenue Service, copies of each
Schedule B (Actuarial Information) to the annual report (Form 5500
Series) with respect to each Plan;
(ii) promptly and in any event within fifteen days after
the Borrower knows or has reason to know that any ERISA Event has
occurred, a statement of the chief financial officer of the Borrower
describing such ERISA Event and the action, if any, which the Borrower,
any Subsidiary of the Borrower or any ERISA Affiliate of either of them
proposes to take with respect thereto;
<PAGE> 69
(iii) promptly and in any event within five Domestic
Business Days after receipt thereof by the Borrower or any Subsidiary
of the Borrower or any ERISA Affiliates of either of them, copies of
each notice from the PBGC stating its intention to terminate any Plan
or to have a trustee appointed to administer any Plan;
(iv) promptly and in any event within ten Domestic
Business Days after receipt thereof by the Borrower or any Subsidiary
of the Borrower or any ERISA Affiliate of either of them from the
sponsor of a Multiemployer Plan, a copy of each notice received by the
Borrower or any Subsidiary of the Borrower or any ERISA Affiliate of
either of them concerning (1) the imposition of Withdrawal Liability by
a Multiemployer Plan, (2) the reorganization or termination, within the
meaning of Title IV of ERISA, of any Multiemployer Plan or (3) the
amount of liability incurred, or which may be incurred, by the Borrower
or any Subsidiary of the Borrower or any ERISA Affiliate of either of
them in connection with any event described in clause (1) or (2) above;
and
(m) from time to time with reasonable promptness, such
additional information regarding the financial position or business of the
Borrower and its Subsidiaries as the Administrative Agent, at the request of any
Bank, may reasonably request.
SECTION 8.2 Payment of Obligations. The Borrower will pay and
discharge, and will cause each Subsidiary of the Borrower to pay and discharge,
at or before maturity, all their respective material obligations and
liabilities, including, without limitation, material tax liabilities, except
where the same may be contested in good faith by appropriate proceedings (and
with respect to taxes, only if the failure to make such payment shall not result
in a Lien on any Collateral or such Lien will not attach to any of the
Collateral in a manner which would have priority over the Lien of the Collateral
Agent thereon or risk the sale of or foreclosure on such Collateral), and will
maintain, and will cause the Borrower and each Subsidiary of the Borrower to
maintain, in accordance with generally accepted accounting principles,
appropriate reserves for the accrual of any of the same.
SECTION 8.3 Maintenance of Property; Insurance. (a) The
Borrower will keep, and will cause each Subsidiary of the Borrower to keep, all
material property useful and necessary in its business in good working order and
condition, ordinary wear and tear excepted.
(b) The Borrower will maintain, and will cause each of its
Subsidiaries to maintain, with financially sound and reputable insurance
companies insurance on all its property in at least such amounts (including
deductibles) and against at least
<PAGE> 70
such risks as are usually insured against in the same general area by companies
engaged in the same or a similar business, provided that such insurance shall
(i) insure the property of the Borrower and its Subsidiaries (other than motor
vehicles) against all risk of physical damage including, without limitation,
loss by fire, explosion, theft and such other casualties as may be reasonably
satisfactory to the Administrative Agent, but in no event in an amount less than
the replacement cost value thereof, and (ii) insure the Borrower, its
Subsidiaries, the Collateral Agent, the Administrative Agent and the Banks
against comprehensive general and automobile liability in an amount not less
than $1,000,000 per occurrence under primary insurance policies, with not less
than $45,000,000 per occurrence coverage under umbrella insurance policies for
personal injury, bodily injury and property damage relating to the Borrower's
and its Subsidiaries' property and operations, such policies to be in such form
and amounts and having such coverage as may be reasonably satisfactory to the
Administrative Agent. All such insurance shall (i) contain a breach of warranty
clause in favor of the Collateral Agent, the Administrative Agent, and the Banks
in all physical damage insurance policies and have a severability of interest
clause in all liability insurance policies, (ii) provide that no cancellation,
material reduction in amount or material change in coverage thereof shall be
effective until at least 30 days after written notice to the Administrative
Agent thereof, (iii) name the Administrative Agent as loss payee for physical
damage insurance with respect to property as to which a Lien has been granted
(provided, that (a) with respect to property to which a Lien permitted hereunder
has been granted to another creditor, such other creditor may also be named as
loss payee, with payment to be made as their interests may appear and (b) the
proceeds of any such physical damage insurance shall be applied in the manner
set forth in Section 2.8(c)) and name the Collateral Agent, the Administrative
Agent and the Banks as additional insureds for liability insurance, (iv) state
that neither the Administrative Agent or the Collateral Agent nor the Banks
shall be responsible for premiums, commissions, club calls, assessments or
advances, (v) shall contain a waiver of all rights of set-off, counterclaim,
deduction or subrogation against the Administrative Agent and the Banks and (vi)
be reasonably satisfactory in all other respects (including deductibles) to the
Administrative Agent with respect to physical damage exposures.
(c) The Borrower will furnish to the Administrative Agent
prior to the Closing Date, with a copy for each Bank, a schedule describing all
insurance maintained by the Borrower and its Subsidiaries, which schedule shall
set forth for each insurance policy the policy number, the scope of coverage,
the policy limits and deductibles, the insurer (and reinsurer, if applicable)
and the expiration date.
(d) The Borrower will furnish to the Administrative Agent,
with a copy for each Bank, original certificates of insurance containing
signatures of duly authorized
<PAGE> 71
representatives of the insurer at the Closing Date and prior to
policy termination, cessation or cancellation.
SECTION 8.4 Conduct of Business and Maintenance of Existence.
The Borrower will continue, and will cause each Subsidiary of the Borrower to
continue, to engage in business of the same general type as now conducted by the
Borrower and its Subsidiaries, and will preserve, renew and keep in full force
and effect, and, except as permitted by Section 8.11(b)(5)(z) and Section
8.11(g), will cause each Subsidiary of the Borrower to preserve, renew and keep
in full force and effect, their respective corporate existence and their
respective rights, privileges and franchises except for such rights, privileges
and franchises when the failure of which to preserve, renew and keep in full
force and effect could not reasonably be expected to have a Materially Adverse
Effect.
SECTION 8.5 Compliance with Laws. The Borrower will comply,
and cause each Subsidiary of the Borrower to comply, in all material respects
with all applicable laws, ordinances, rules, regulations, and requirements of
Governmental Authorities (including, without limitation, ERISA) except where the
necessity of compliance therewith is contested in good faith by appropriate
proceedings or where the failure to comply with could not reasonably be expected
to have a Materially Adverse Effect.
SECTION 8.6 Inspection of Property, Books and Records. The
Borrower will keep, and will cause each Subsidiary of the Borrower to keep,
proper books of record and account in which full, true and correct entries shall
be made of all dealings and transactions in relation to its business and
activities; and will permit, and will cause each Subsidiary of the Borrower to
permit, representatives or designees of any Bank at such Bank's expense and upon
notice to the Borrower to visit and inspect any of their respective properties,
to examine and make abstracts from any of their respective books and records and
to discuss their respective affairs, finances and accounts with their respective
officers, employees and independent public accountants, all at such reasonable
times and as often as may reasonably be desired.
SECTION 8.7 Restricted Payments. The Borrower will not declare
or make, or permit any Subsidiary of the Borrower to declare or make, any
Restricted Payment, except:
(i) regular, scheduled or mandatory payments or
prepayments of principal and interest on Debt for Borrowed Money (but
as to payments, if any, of principal of and interest on Senior
Subordinated Notes, only regularly scheduled payments thereof to the
extent such payments are permitted, if at all, under the subordination
provisions of the documents governing such Debt as in effect on the
date of execution thereof or as amended with the prior written consent
of the Required Banks);
<PAGE> 72
(ii) so long as there shall not exist a Default or Event
of Default, the payment by the Borrower of cash in lieu of shares of
capital stock of the Borrower upon the exercise of stock options
pursuant to and in accordance with the 1988 Payless Cashways, Inc.
Employee Stock Plan, the 1992 Payless Cashways Incentive Stock Program
and the Payless Cashways Director Option Plan in each case as in effect
on the date hereof or as amended, modified or supplemented from time to
time, provided, that the aggregate cash paid by the Borrower in lieu of
shares of capital stock of the Borrower as permitted by this clause
(ii) shall not exceed $2,000,000 subsequent to November 18, 1994;
(iii) transactions with Affiliates as expressly
permitted under Section 8.15;
(iv) payments to the Borrower by a Subsidiary or
payments to a Subsidiary by the Borrower on account of Debt
permitted under Section 8.8(v); and
(v) additional Restricted Payments made during any
fiscal year of the Borrower commencing with the Borrower's 1995 fiscal
year; provided, that such payments may be made only so long as the
Borrower maintains investment grade status from either S&P or Moody's;
provided, further, that the amount of such Restricted Payments made
during any such fiscal year, when added to (i) the amount of Minority
Investments made during such fiscal year pursuant to Section 8.9(ix)
and (ii) the amount of capital expenditures made and capital lease
obligations incurred during such fiscal year pursuant to the first
proviso to Section 8.12 (namely, those that would not have been
permitted during such fiscal year but for the operation of said
proviso), shall not exceed Excess Cash Flow for the previous fiscal
year of the Borrower calculated on a cumulative basis, such that any
amounts authorized by this proviso, but not actually utilized in the
year authorized, may be carried forward to succeeding fiscal years; and
provided, finally, that, notwithstanding the foregoing proviso, the
aggregate amount of such payments made during any one fiscal year, when
added to the aggregate amount of Minority Investments made during such
fiscal year pursuant to Section 8.9(ix), shall not exceed $5,000,000.
SECTION 8.8 Debt. The Borrower will not incur, assume or
suffer to exist, or permit any Subsidiary of the Borrower to incur, assume or
suffer to exist, any Debt, except:
(i) the Loans and the Letters of Credit;
(ii) the Senior Subordinated Notes;
(iii) Debt secured by Liens permitted by Section 8.10;
<PAGE> 73
(iv) Debt existing on the date hereof as set forth in
Schedule 8.8 hereto (including, without limitation, Debt incurred in
connection with the Prudential Real Estate Financing), but not the
increase, refunding, or extension of maturity thereof in whole or in
part;
(v) So long as Somerville shall be a subsidiary or
Somerville shall not have sold all or substantially all of its assets,
debt of the Borrower to Somerville, and any Debt owing by Somerville to
the Borrower representing advances made by the Borrower to Somerville
to enable Somerville to make capital expenditures and to pay
obligations with respect to capital leases to the extent expressly
permitted by Section 8.12, provided that no such Debt payable to the
Borrower shall at any time be evidenced by an instrument unless such
instrument shall have been pledged to the Collateral Agent, for the
benefit of the Collateral Agent, the Administrative Agent, the Banks,
and the Merchandise Letter of Credit Bank pursuant to a supplement to
the Note Pledge Agreement which shall be in form and substance
satisfactory to the Administrative Agent;
(vi) Debt of the Borrower and its Subsidiaries as
lessees under capital leases to the extent expressly
permitted under Section 8.12;
(vii) up to $30,000,000 in merchandise letters of
credit issued under the Merchandise Letter of Credit Facility;
(viii) Debt incurred under the GE Credit Program
Documents and other agreements permitted under Section 8.18;
and
(ix) Debt of the Borrower and its Subsidiaries (not
permitted by any of clauses (i) through (viii) of this Section) in an
aggregate principal amount not to exceed $1,000,000 at any one time
outstanding.
SECTION 8.9 Investments. The Borrower will not make or
acquire, and will not permit any Subsidiary of the Borrower to make or acquire,
any Investment in any Person, except:
(i) Investments existing on the date hereof in
the capital stock of Subsidiaries;
(ii) Temporary Cash Investments, provided, however, that
while any Loans are outstanding such Investments shall not exceed
$20,000,000 in the aggregate outstanding at any one time;
(iii) Investments in promissory notes representing the
non-cash purchase price for the sales of assets permitted under Section
8.11, provided that such promissory notes are pledged by the Borrower
to the Collateral Agent for the
<PAGE> 74
benefit of the Collateral Agent, the Administrative Agent, the Banks
and the Merchandise Letter of Credit Bank pursuant to a Pledge
Agreement Supplement, substantially in the form of Annex A to the Note
Pledge Agreement;
(iv) Investments existing on the date hereof as
set forth in Schedule 8.9 hereto, but not the increase in amount
thereof;
(v) civic or charitable type guarantees and
Investments not to exceed subsequent to November 18, 1994,
$500,000 in aggregate amount;
(vi) Investments in the National Equity Fund, provided,
that (A) the tax characteristics of investments in such fund are no
less advantageous to the Borrower as such characteristics are on the
date hereof and (B) new Investments therein shall not exceed $1,100,000
in the aggregate during each calendar year;
(vii) Investments made in connection with the
incurrence of Debt permitted by Section 8.8(v);
(viii) Investments in the Mexican Joint Venture not
to exceed $10,200,000 during the Borrower's 1995 fiscal year;
(ix) Minority Investments, in addition to those
permitted under any other clause of this Section, made during any
fiscal year of the Borrower commencing with the Borrower's 1995 fiscal
year; provided that the amount of such Minority Investments made during
any such fiscal year, when added to (i) the amount of Restricted
Payments made during such fiscal year pursuant to Section 8.7(v) and
(ii) the amount of capital expenditures made and capital lease
obligations incurred during such fiscal year pursuant to the first
proviso to Section 8.12 (namely, those that would not have been
permitted during such fiscal year but for the operation of said
proviso), shall not exceed Excess Cash Flow for the previous fiscal
year of the Borrower calculated on a cumulative basis, such that any
amounts authorized by this proviso, but not actually utilized in the
year authorized, may be carried forward to succeeding fiscal years; and
provided, further, that, notwithstanding the foregoing proviso, the
aggregate amount of such Minority Investments made during any one
fiscal year, when added to the aggregate amount of Restricted Payments
made during such fiscal year pursuant to Section 8.7(v), shall not
exceed $5,000,000; and
(x) Investments (not permitted by any of clauses (i)
through (ix) of this Section) in an amount not exceeding $1,000,000 in
the aggregate outstanding at any one time.
SECTION 8.10 Negative Pledge. The Borrower will not
<PAGE> 75
create, assume or suffer to exist, or permit any Subsidiary of the Borrower to
create, assume or suffer to exist, any Lien on any asset now owned or hereafter
acquired by it, except:
(i) existing Liens set forth on Schedule 8.10 hereto
(including, without limitation, Liens granted in connection with the
Prudential Real Estate Financing), but not any increase in the amount
thereof (except for increases in the amounts secured by the Liens
relating to accounts under the GE Credit Program Documents in
accordance with the terms of such documents);
(ii) Liens for taxes, assessments or governmental
charges or claims the payment of which is not at the time
required by Section 8.2;
(iii) statutory Liens of landlords and Liens of carriers,
warehousemen, mechanics, materialmen and other Liens imposed by law
incurred in the ordinary course of business for sums not yet delinquent
or being contested in good faith, if such reserve or other appropriate
provision, if any, as shall be required by generally accepted
accounting principles shall have been made therefor;
(iv) with respect to assets other than Collateral, Liens
(other than any Lien imposed by ERISA) incurred or deposits made in the
ordinary course of business in connection with workers' compensation,
unemployment insurance and other types of social security, or to secure
the performance of tenders, statutory obligations, bids, leases,
government contracts, performance, surety and return-of-money bonds and
other similar obligations (exclusive of obligations for the payment of
borrowed money);
(v) easements, rights-of-way, restrictions, minor
defects or irregularities in title and other similar charges or
encumbrances on real property and improvements owned by the Borrower or
any such Subsidiary not interfering in any material respect with the
ordinary conduct of the business of the Borrower or such Subsidiary;
(vi) purchase money mortgages or other purchase money
Liens or security interests by the Borrower or any of its Subsidiaries
(including, without limitation, capital leases) upon any fixed or
capital assets hereafter acquired, so long as (i) any such mortgage,
Lien or security interest does not extend to or cover any other asset
of the Borrower or such Subsidiary, (ii) such security interest,
mortgage or Lien secures the obligation to pay the purchase price of
such asset (or the obligation under such capital lease) only, and (iii)
the aggregate Debt secured by all such purchase money mortgages or
other purchase money Liens or security interests (other than capital
leases) shall not exceed in
<PAGE> 76
the aggregate for the Borrower and its Subsidiaries
$2,000,000 outstanding at any time;
(vii) in addition to other Liens permitted under this
Section, Liens by the Borrower on its partnership interest in the
National Equity Fund to secure the Borrower's investments in such fund
to the extent permitted under Section 8.9(vi);
(viii) purchase money Liens by the Borrower and its
Subsidiaries upon inventory of the Borrower and its Subsidiaries
securing the purchase price therefor not to exceed $1,000,000 in unpaid
purchase price in the aggregate at any one time;
(ix) judgment Liens to the extent that the
related judgement does not constitute an Event of Default under
Section 9.1(k);
(x) Liens securing the Merchandise Letters of
Credit as contemplated by the Merchandise Letter of Credit
Facility;
(xi) Liens granted pursuant to any Permitted Operating
Lease Transaction, provided that such Liens may extend only to the
underlying lease and to the specific assets being leased to the
Borrower pursuant to such Permitted Operating Lease Transaction; and
(xii) Liens (in addition to other Liens permitted under
this Section) on assets not constituting Collateral; provided that the
aggregate fair value of all such assets shall not at any time exceed 5%
of Consolidated Tangible Net Worth.
SECTION 8.11 Consolidations, Mergers and Sales of Assets. The
Borrower will not, and will not permit any Subsidiary of the Borrower to, (i)
consolidate or merge with or into any other Person or enter into a partnership
or joint venture with another Person, provided that the Borrower or any of its
Subsidiaries may acquire interests in other partnerships or joint ventures to
the extent permitted by Section 8.9, or (ii) sell, lease, assign or otherwise
transfer all or any part of its assets except (a) sales of inventory in the
ordinary course of business and customer receivable sales pursuant to the GE
Credit Program Documents or any similar program entered into in accordance with
Section 8.18; (b) sales or transfers (not permitted by any other provision of
this Section) of any assets of the Borrower to any Person, provided that (1) if
the sale price thereof is equal to or greater than $5,000,000 then such sale
price shall not be less than the fair market value of each such asset at the
time of sale thereof as determined in good faith by the Board of Directors of
the Borrower, (2) prior to or concurrently with each such sale which requires
that the sale
<PAGE> 77
price therefor be not less than the fair market value of such asset, the
Borrower shall deliver evidence to the Administrative Agent satisfactory to it
of the fair market value at the time of sale of the asset being sold as
determined by the Board of Directors of the Borrower, (3) not less than 50% of
the sale price for each such asset shall be payable in cash on the date of such
sale, (4) the non-cash portion of the sale price therefor, if any, shall be
evidenced by one or more promissory notes which shall be pledged to the
Collateral Agent as provided in Section 8.9(iii), (5) no such sale shall be
permitted unless (x) the asset so sold shall be listed on Schedule 8.11 or shall
be sold pursuant to a Permitted Pad Sale or (y) the sale price of the asset so
sold, together with the sale price of all assets (excluding assets described in
subclause (x) immediately above or subclause (z) immediately below) previously
sold under this clause (b) in the same fiscal year of the Borrower in which such
asset is being sold, shall not exceed $5,000,000 or (z) such sale is the sale of
the Borrower's ownership interest in Somerville (or, the sale by Somerville or
the Borrower of all or any part of the assets used in the business conducted by
Somerville) and (6) if such sale is to an Affiliate it is made in compliance
with Section 8.15; (c) the replacement in the ordinary course of business of
rolling stock and equipment of the Borrower and its Subsidiaries; (d) the sale
or other disposition, subject to the Lien of the Collateral Agent, by the
Borrower to any of its Subsidiaries which has executed a guaranty substantially
in the form of the Subsidiary Guarantee in the ordinary course of business of
machinery and equipment of the Borrower no longer necessary for the proper
conduct of the Borrower's business having a value together with the value of all
other property of the Borrower so sold or disposed of in the same fiscal year of
the Borrower of not greater than $5,000,000 and the sale or other disposition,
subject to the Lien of the Collateral Agent, by the Subsidiaries of the Borrower
to the Borrower in the ordinary course of business of machinery and equipment of
such Subsidiaries no longer necessary for the proper conduct of such
Subsidiaries' respective businesses having a value together with the value of
all other property of such Subsidiaries so sold or disposed of in the same
fiscal year of the Borrower of not greater than $5,000,000; (e) the lease by the
Borrower, as lessor, of those stores and real estate described in Schedule 8.11
hereto and other real property of the Borrower not necessary for the operations
of the Borrower or any of its Subsidiaries, in each instance under this clause
(e) having a fair market value of not greater than $5,000,000 individually, or
$40,000,000 in the aggregate at any one time for all real property leased under
this clause (e), provided that such leases shall be entered into with a Person
who is not an Affiliate of the Borrower on an arms-length basis for fair
consideration and such leases shall not be capital leases; (f) sales of assets
pursuant to sale/lease-back transactions permitted under Section 8.21; and (g)
the merger of any wholly owned Subsidiary of the Borrower into the Borrower or
the consolidation of any wholly owned Subsidiary of the Borrower with the
Borrower in which the Borrower shall be the surviving
<PAGE> 78
corporation. The Borrower shall deliver to the Administrative Agent no less than
three Domestic Business Days prior to the date of any expected sale or other
disposition permitted under clause (b) (but only if any such sale or disposition
under such clause (b) has a sale price of $1,000,000 or more) or (e) of this
Section written notice of the expected date of the closing of such sale or other
disposition and the expected date of receipt by the Borrower of the Net Cash
Proceeds with respect thereto.
SECTION 8.12 Capital Expenditures and Leases. The Borrower
will not make or accrue, and will not permit any of its Subsidiaries to make or
accrue, directly or indirectly, any expenditures for fixed or capital assets
(including, but not limited to (x) payments on account of any mortgages, Liens
or security interests permitted pursuant to Section 8.10(vi) and (y) goodwill
associated with any capital expenditure that would constitute an Investment but
for the application of clause (i) of the definition of such term), and the
Borrower will not incur any obligations in respect of, or permit any of its
Subsidiaries to incur any obligations in respect of, capital leases, in excess
in the aggregate for the Borrower and its Subsidiaries for all such expenditures
and leases, of the following amounts during the periods set forth below:
Period Amount
------ ------
1995 fiscal year
of the Borrower $70,000,000
1996 fiscal year
of the Borrower $55,000,000
1997 fiscal year
of the Borrower $35,000,000
1998 fiscal year
of the Borrower $30,000,000
1999 and each subsequent
fiscal year of the Borrower $65,000,000
provided, however, that the amount of such expenditures and leases permitted for
any fiscal year of the Borrower shall be increased by an amount which, when
added to (i) the amount of Minority Investments made during such fiscal year
pursuant to Section 8.9(ix) and (ii) the amount of Restricted Payments made
during such fiscal year pursuant to Section 8.7(v), equals Excess Cash Flow for
the previous fiscal year of the Borrower calculated on a cumulative basis, such
that any increased amounts authorized by this proviso, but not actually utilized
in the year authorized, may be carried forward to succeeding fiscal years;
provided, further, that if the aggregate amount of all such expenditures and
leases during any fiscal year of the Borrower (after the application of such
expenditures and leases first to
<PAGE> 79
amounts available for such expenditures and leases for such fiscal year pursuant
to the operation of this proviso) shall be less than the amount set forth in the
table above for such fiscal year then the amount of the permitted expenditures
and leases for the immediately succeeding fiscal year shall be increased by an
amount equal to such difference. In the event that the Borrower or any of its
Subsidiaries shall sell, or shall receive insurance proceeds in connection with
the destruction of, a fixed or capital asset owned by it and shall, within six
months after the sale or twenty-four months after the destruction of such fixed
or capital asset, purchase or enter into a capital lease with respect to a
substantially similar fixed or capital asset as a replacement for such sold or
destroyed fixed or capital asset, then for purposes of determining compliance
with this Section, only that portion of the purchase price or capitalized lease
obligation paid, incurred or accrued by the Borrower or such Subsidiary, as the
case may be, for such replacement fixed or capital asset in excess of the sale
price or insurance proceeds, as the case may be, of the sold or destroyed
similar fixed or capital asset shall be used in determining such compliance with
this Section and provided, further, that if the aggregate Net Cash Proceeds
received from the sale by the Borrower of its ownership interest in Somerville
or the sale by Somerville or the Borrower of all or any part of the assets used
in the business conducted by Somerville exceeds $35,000,000, an amount equal to
such excess shall be applied to increase the Borrower's permitted capital
expenditure amount for the fiscal year in which such sale takes place and
provided, finally, that if in connection with any such sale by Somerville the
purchaser does not purchase any or all of the inventory of Somerville, the
Borrower's permitted capital expenditure amount for the fiscal year in which
such sale takes place shall be increased by an amount equal to the book value of
the inventory not purchased. Notwithstanding anything to the contrary contained
in this Section, there shall be excluded from the determination of the amount of
capital expenditures made by the Borrower expenditures made during any fiscal
year to the extent of an amount equal to the net cash proceeds of Permitted Pad
Sales during such fiscal year of portions of real property acquired by the
Borrower after November 1, 1994. For purposes of this Section, (i) all
obligations incurred under a capital lease shall be deemed to have been incurred
on the date of execution of such lease and (ii) the amount of incurrence of
obligations with respect to a capital lease on such date of execution of the
lease shall be the capitalized amount thereof determined in accordance with
generally accepted accounting principles.
SECTION 8.13 No Negative Pledges. The Borrower will not, and
will not permit any Subsidiary of the Borrower to, enter into any agreement
(other than the Prudential Loan Agreement and the documents executed in
connection therewith) (a) prohibiting (or resulting in a default as a result of)
the creation or assumption of any Lien upon the properties or assets of the
Borrower or any of its Subsidiaries in favor of the Collateral
<PAGE> 80
Agent, the Administrative Agent or the Banks, except for restrictions contained
in any lease prohibiting the mortgaging of such lease or of the property leased
thereunder if either (i) such lease has a fair market value on the date of
execution thereof of less than $100,000 or (ii) the Borrower or such Subsidiary
shall have in good faith used reasonable efforts to obtain the agreement of the
lessor that is a party thereto to exclude such restrictions from such lease and
such lessor shall have refused so to agree, or (b) requiring, if any obligations
of the Borrower to the Administrative Agent or the Banks are secured, that the
Borrower or any Subsidiary also secure another obligation (except as may be
provided in the Senior Subordinated Note Indenture).
SECTION 8.14 Termination of Plans. The Borrower will not, and
will not permit any Subsidiary of the Borrower to take any action to terminate
any of its Plans which could result in a material liability of the Borrower to
any Person.
SECTION 8.15 Transactions with Affiliates. The Borrower will
not, and will not permit any Subsidiary of the Borrower to, directly or
indirectly, enter into any transaction, whether or not in the ordinary course of
business, with any Affiliate other than on terms and conditions at least as
favorable to the Borrower, or the affected Subsidiary, as those that would be
obtained through an arm's length negotiation with an unaffiliated third party;
provided that nothing herein shall preclude (i) transactions between the
Borrower and/or its Subsidiaries and employees of the Borrower and/or its
Subsidiaries which are authorized by the non-management directors of the
Borrower, (ii) transactions between the Borrower and the Mexican Joint Venture,
so long as such transactions relate to information transfers or to the provision
of intellectual property, goods (so long as the Borrower is fully compensated
for such transactions) or management, consulting or advisory services by the
Borrower, or (iii) the performance by the Borrower of that certain Supply
Agreement, dated as of August 4, 1988, between Masco Corporation and the
Borrower, as in effect on the date hereof.
SECTION 8.16 Consolidated Net Worth. At the last day of any
fiscal quarter, beginning the first fiscal quarter of fiscal year 1995, the
Borrower shall not permit Consolidated Net Worth to be less than $400,000,000;
provided, however, that such minimum amount shall be increased by (i) an amount
equal to 75% of positive net income for each fiscal quarter (other than any
fiscal quarter in respect of which the Borrower experienced a net loss)
commencing on or after November 26, 1994 and ending on or before such last day
of such fiscal quarter and (ii) an amount equal to 100% of the Net Cash Proceeds
of any equity issued by the Borrower subsequent to the Closing Date.
SECTION 8.17 Interest Coverage. The Interest Coverage
Ratio (as defined below) shall not, for any period of four
<PAGE> 81
consecutive fiscal quarters ending in any of the months set forth below, be less
than the ratio set forth opposite such month below:
Period Amount
------ ------
Month In Which Four
Consecutive Fiscal Quarters End Ratio
------------------------------- -----
November 1995, February,
May and August 1996 1.85 : 1.00
November 1996, February,
May and August 1997 2.00 : 1.00
November 1997 and February,
May and August 1998 2.00 : 1.00
November 1998 and February,
May and August 1999 2.15 : 1.00
November 1999 and February,
May and August 2000 2.25 : 1.00
Each November, February,
May and August thereafter 2.35 : 1.00
For purposes of this Section, "Interest Coverage Ratio" means, for any period of
the Borrower, the ratio of (x) the sum of (i) EBITDA for such period plus (ii)
Rent Expense of the Borrower and its Consolidated Subsidiaries for such period
plus (iii) cash interest income of the Borrower and its Consolidated
Subsidiaries for such period to (y) the sum of (i) cash interest expense
(without deduction of any cash interest income) plus (ii) Rent Expense of the
Borrower and its Consolidated Subsidiaries for such period.
SECTION 8.18 Customer Charge Sales. The Borrower will continue
to maintain a "Project Card" and commercial credit receivables sales and
administration program with Monogram Credit Card Bank of Georgia and General
Electric Capital Corporation pursuant to the GE Credit Program Documents or a
similar program (it being understood that a program shall not be deemed to be
dissimilar solely by virtue of the fact that the Borrower shall act as the
administrator or "servicer" of the receivables thereunder) with another Person
the terms and conditions of which are, in the aggregate, no less favorable to
the Borrower than those provided for in the GE Credit Program Documents as in
effect on the Closing Date.
SECTION 8.19 Accounting Changes. The Borrower will not, and
will not permit any of its Subsidiaries to, make any significant change in its
accounting treatment or financial reporting practices except as permitted or
required by generally
<PAGE> 82
accepted accounting principles in effect from time to time. The Borrower will
not change its fiscal year or the calculation of its fiscal quarter ends.
SECTION 8.20 Amendment and Modification of Certain Documents.
The Borrower shall not, directly or indirectly, amend, modify, supplement, waive
compliance with, or assent to noncompliance with, (i) any term, provision or
condition of the Restated Articles of Incorporation of the Borrower or (ii) any
term, provision or condition of any of the documents governing or evidencing the
Senior Subordinated Notes which, (A) in the case of either clause (i) or clause
(ii), the Administrative Agent deems material (including, without limitation,
relating to events of default, acceleration rights, interest rates, tenor,
subordination, covenants, prohibitions against amending the Credit Documents and
the definitions with respect thereto (including, without limitation, definitions
of "Senior Indebtedness" and "Permitted Indebtedness")) or (B) in the case of
clause (ii), places any further restrictions on the Borrower or its Subsidiaries
or increases the obligations of the Borrower thereunder or confers on the
holders thereof any additional rights. The Administrative Agent and the Banks
agree that if any of the documents governing or evidencing the Senior
Subordinated Notes must comply with the Trust Indenture Act of 1939 and the SEC
requires that certain changes be made to such documents to comply with such
statute, then such changes shall be permitted so long as (A) such changes do not
relate to covenants, events of default, tenor, rights of acceleration, interest
rates, subordination, prohibitions against amending the Credit Documents or the
definitions with respect thereto (including, without limitation, definitions of
"Senior Indebtedness" and "Permitted Indebtedness") and (B) such changes do not
place any further restrictions on the Borrower or its Subsidiaries or increase
the obligations of the Borrower thereunder or confer on the holders thereof any
additional rights. The Borrower shall not, and shall not permit or suffer any
Subsidiary to, directly or indirectly, amend, modify, supplement, waive
compliance with, or assent to noncompliance with, any term, provision or
condition of the Prudential Loan Agreement or any of the other documents
governing or evidencing the Prudential Real Estate Financing as in effect on the
date hereof (A) which the Administrative Agent deems material (including,
without limitation, relating to events of default, acceleration or other rights,
substitution of collateral, the non-recourse nature of such financing, covenants
and prohibitions against amending the Credit Documents) or (B) which the
Administrative Agent reasonably determines would place any further material
restrictions on the Borrower or its Subsidiaries or materially increase the
obligations of the Borrower or any of its Subsidiaries thereunder or confer on
the holders thereof any material additional rights.
SECTION 8.21 Sale/Lease-Backs. The Borrower will not, and will
not permit any Subsidiary of the Borrower to, enter into any arrangements,
directly or indirectly, with any Person,
<PAGE> 83
whereby the Borrower or any such Subsidiary shall sell or transfer any property,
whether now owned or hereafter acquired, used or useful in its business, in
connection with the rental or lease of the property so sold or transferred;
provided that the Borrower and its Subsidiaries may sell the St. Cloud property
(store number 257) and any other property acquired after the date hereof
pursuant to a sale/lease-back transaction so long as the economic terms of such
transaction are fair and reasonable.
SECTION 8.22 Environmental Matters. (a) The Borrower will not,
and will not permit any of its Subsidiaries to, use, generate, manufacture,
produce, store, release, discharge or dispose of on, under or about any real
property owned or leased (other than any such leased property which constitutes
a minor part of a larger piece of property over which neither the Borrower nor
any of its Subsidiaries has any control (such as a lease of a small number of
parking places in a large parking lot)) by the Borrower or any of its
Subsidiaries (such owned or leased real property, the "Property"), or transport
to or from the Property, any Hazardous Substance (as defined below), or (to the
extent within the Borrower's or such Subsidiary's control) permit any other
Person to do so, where such could reasonably be expected to have a Materially
Adverse Effect.
(b) The Borrower shall keep and maintain and shall cause each
Subsidiary of the Borrower to keep and maintain, the Property in compliance with
any Environmental Law (as defined below) where the failure to do so could
reasonably be expected to have a Materially Adverse Effect.
(c) In the event that any investigation, site monitoring,
containment, cleanup, removal, restoration or other remedial work of any kind or
nature (the "Remedial Work") with respect to the Property is required to be
performed by the Borrower or any of its Subsidiaries under any applicable local,
state or federal law or regulation, any judicial order, or by any governmental
entity because of, or in connection with, any current or future presence,
suspected presence, release or suspected release of a Hazardous Substance in or
into the air, soil, groundwater or surface water at, on, under or within the
Property (or any portion thereof) which could reasonably be expected to have a
Materially Adverse Effect, the Borrower or such Subsidiary shall, as soon as
practicable, commence and thereafter diligently prosecute to completion, all
such Remedial Work.
(d) The Borrower will defend, indemnify and hold harmless the
Administrative Agent, the Collateral Agent and the Banks, and their respective
employees, agents, officers and directors, from and against any claims, demands,
penalties, fines, liabilities, settlements, damages, costs and expenses of
whatever kind or nature known or unknown, contingent or otherwise, arising out
of, or in any way relating to the violation of, noncompliance with or liability
under any
<PAGE> 84
Environmental Law applicable to the operations of the Borrower or any Subsidiary
or the Property, or any orders, requirements or demands of Governmental
Authorities related thereto, including, without limitation, attorneys' and
consultants' fees, investigation and laboratory fees, response costs, court
costs and litigation expenses, except to the extent that any of the foregoing
arise out of the gross negligence or willful misconduct of the party seeking
indemnification therefor. This indemnity shall continue in full force and effect
regardless of the termination of this Agreement, the payment of the Notes and
all other amounts payable hereunder.
(e) As used herein, (i) "Environmental Law" means any federal,
state or local law, statute, ordinance, or regulation now or hereafter in effect
pertaining to health, industrial hygiene, or the environmental conditions on,
under or about the Property, and (ii) the term "Hazardous Substance" means those
substances included within the definitions of "hazardous substances", "hazardous
materials", "toxic substances", or "solid waste" under the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended, 42
U.S.C. ss.ss. 9601 et seq., the Resource Conservation and Recovery Act of 1976,
42 U.S.C. ss.ss. 6901 et seq. and the Hazardous Materials Transportation Act, 49
U.S.C. ss.ss. 1801 et seq., and in the regulations promulgated pursuant to said
laws, and such other substances, materials and wastes which are or become
regulated under applicable local, state or federal law, or which are classified
as hazardous or toxic under federal, state, or local laws or regulations or any
other substance which may give rise to liability under any Environmental Laws.
SECTION 8.23 Business Segments. The Borrower will not, and
will not permit any Subsidiary of the Borrower to, suspend the operation of a
segment material to the operation of its business as presently conducted, which
suspension would materially impair the operations of the Borrower and its
Subsidiaries taken as a whole.
SECTION 8.24 Subsidiary Guarantee. The Borrower will cause
each Subsidiary of the Borrower which at any time has a net payable owing to the
Borrower in excess of $10,000,000 to execute and deliver to the Collateral Agent
a guarantee of the Bank Obligations, and such other documents and opinions in
connection therewith as the Administrative Agent shall reasonably request, in
form and substance satisfactory to the Administrative Agent. Such guarantee and
such other documents shall be delivered to the Collateral Agent no later than
thirty days after the date on which such Subsidiary has such a net payable owing
to the Borrower.
SECTION 8.25 Further Assurances. The Borrower shall, at its
cost and expense, upon request of the Administrative Agent, duly execute and
deliver, or cause to be duly executed and delivered, such further instruments
and do and cause to be done
<PAGE> 85
such further acts as may be necessary or proper in the reasonable opinion of the
Administrative Agent to carry out more effectually the provisions and purposes
of this Agreement.
SECTION 8.26 Debt to EBITDA Ratio. The Borrower shall not
permit the Debt to EBITDA Ratio to be more, on the last day of any fiscal
quarter of the Borrower ending during any month set forth below, than the ratio
set forth opposite the applicable month below:
Month Ratio
----- -----
November 1995 4.40 to 1.00
February 1996 4.75 to 1.00
May 1996 4.55 to 1.00
August 1996 4.30 to 1.00
November 1996 3.80 to 1.00
February 1997 4.10 to 1.00
May 1997 4.00 to 1.00
August 1997 3.85 to 1.00
November 1997 3.65 to 1.00
February 1998 3.90 to 1.00
May 1998 3.75 to 1.00
August 1998 3.45 to 1.00
November 1998 3.20 to 1.00
February 1999 3.50 to 1.00
May 1999 3.30 to 1.00
August 1999 3.15 to 1.00
November 1999 3.00 to 1.00
February 2000 3.25 to 1.00
May 2000 3.10 to 1.00
August 2000 2.85 to 1.00
November 2000 2.70 to 1.00
SECTION 8.27 Independence of Covenants. All covenants
hereunder shall be given independent effect so that if a particular action or
condition is not permitted by any of such covenants, the fact that it would be
permitted by an exception to, or be otherwise within the limitations of, another
covenant shall not avoid the occurrence of a Default or Event of Default if such
action is taken or condition exists.
SECTION 9. DEFAULTS
SECTION 9.1 Events of Default. If one or more of the following
events ("Events of Default") shall have occurred and be continuing:
(a) the Borrower shall fail to pay when due any principal of
or interest on any Loan or any Reimbursement Obligation, any fees or any other
amount payable hereunder (including, without limitation, any prepayments
required to be made by Section 2.8) or under the Notes, the Applications, the
Security Documents or the Fee Letter;
<PAGE> 86
(b) the Borrower shall fail to observe or perform any covenant
contained in Section 8 hereof (other than Sections 8.1(a) and (b), 8.2, 8.3(a),
8.4 and 8.6), or shall fail to observe or perform any covenant contained in
Section 8.1(a) or (b) for 5 days, or shall fail to observe or perform any
covenant contained in Section 8.3(a) or 8.6 for 10 days, or shall fail to
observe or perform any covenant contained in Section 8.2 or 8.4 for 30 days
after written notice thereof has been given to the Borrower by the
Administrative Agent at the request of any Bank;
(c) the Borrower or any Subsidiary of the Borrower, as the
case may be, shall fail to observe or perform any covenant or agreement
contained in this Agreement (other than those covered by clause (a) or (b)
above) or any other Credit Document for 30 days after written notice thereof has
been given to the Borrower by the Administrative Agent at the request of any
Bank;
(d) any representation, warranty, certification or statement
made by the Borrower or any of its Subsidiaries in this Agreement, any other
Credit Document or in any certificate, financial statement or other document
delivered pursuant to this Agreement shall prove to have been incorrect in any
material respect when made (or deemed made);
(e) the Borrower or any Subsidiary of the Borrower shall fail
to make any payment in respect of any Debt aggregating $3,000,000 or more (other
than the Notes) when due or within any applicable grace period or any event or
condition shall occur which results in the acceleration of the maturity of any
Debt aggregating $3,000,000 or more of the Borrower or any Subsidiary of the
Borrower or the termination of any commitment to lend any Debt or enables (or,
with the giving of notice or lapse of time or both, would enable) the holder of
such Debt or any Person acting on such holder's behalf to accelerate the
maturity thereof or terminate any commitment to lend such Debt;
(f) the Borrower or any Subsidiary of the Borrower shall
commence a voluntary case or other proceeding seeking liquidation,
reorganization or other relief with respect to itself or its debts under any
bankruptcy, insolvency or other similar law now or hereafter in effect or
seeking the appointment of a trustee, receiver, liquidator, custodian or other
similar official of it or any substantial part of its property, or shall consent
to any such relief or to the appointment of or taking possession by any such
official in an involuntary case or other proceeding commenced against it, or
shall make a general assignment for the benefit of creditors, or shall fail
generally to pay its debts as they become due, or shall take any corporate
action to authorize any of the foregoing;
(g) an involuntary case or other proceeding shall be commenced
against the Borrower or any Subsidiary of the Borrower seeking liquidation,
reorganization or other relief with respect to it or its debts under any
bankruptcy, insolvency or other
<PAGE> 87
similar law now or hereafter in effect or seeking the appointment of a trustee,
receiver, liquidator, custodian or other similar official of it or any
substantial part of its property, and such involuntary case or other proceeding
shall remain undismissed and unstayed for a period of 60 days; or an order for
relief shall be entered against the Borrower or any Subsidiary of the Borrower
under the federal bankruptcy laws as now or hereafter in effect;
(h) any ERISA Event shall have occurred with respect to a Plan
and, 30 days after notice thereof shall have been given to the Borrower by the
Administrative Agent (i) such ERISA Event shall still exist and (ii) the sum
(determined as of the date of occurrence of such ERISA Event) of the
Insufficiency of such Plan and the Insufficiency of any and all other Plans with
respect to which an ERISA Event shall have occurred and then exist (or, in the
case of a Plan with respect to which an ERISA Event described in clauses (b),
(c), (e) and (f) of the definition of ERISA Event shall have occurred and then
exist, the liability related thereto) is equal to or greater than $3,000,000;
(i) the Borrower, any Subsidiary of the Borrower or any ERISA
Affiliate of either of them shall have been notified by the sponsor of a
Multiemployer Plan that it has incurred Withdrawal Liability to such
Multiemployer Plan in an amount which, when aggregated with all other amounts
required to be paid to Multiemployer Plans by the Borrower, any Subsidiary of
the Borrower or any ERISA Affiliate of either of them as Withdrawal Liability
(determined as of the date of such notification), exceeds $5,000,000 or requires
payments exceeding $2,000,000 per annum;
(j) the Borrower, any Subsidiary of the Borrower or any ERISA
Affiliate of either of them shall have been notified by the sponsor of a
Multiemployer Plan that such Multiemployer Plan is in reorganization or is being
terminated, within the meaning of Title IV of ERISA, if as a result of such
reorganization or termination the aggregate annual contributions of the
Borrower, the Subsidiaries of the Borrower and the ERISA Affiliates of either of
them to all Multiemployer Plans which are then in reorganization or being
terminated have been or will be increased over the aggregate amounts contributed
to such Multiemployer Plans for the respective plan year of each such
Multiemployer Plan immediately preceding the plan year in which the
reorganization or termination occurs by an amount exceeding $2,000,000;
(k) a judgment or order for the payment of money in excess of
$5,000,000 shall be rendered against the Borrower or any Subsidiary of the
Borrower and such judgment or order shall continue unsatisfied and unstayed for
a period of 20 days or an attachment or execution against any of the property of
the Borrower or any Subsidiary of the Borrower for an amount in excess of
$5,000,000 shall remain unstayed or undismissed for a period of 20 days;
<PAGE> 88
(l) this Agreement or any of the Credit Documents shall cease
for any reason to be in full force and effect other than by reason of any action
or inaction of the Collateral Agent, the Administrative Agent or the Banks, or
the Borrower or any of its Subsidiaries shall so assert in writing, or the
security interests created by the Security Documents shall cease to be
enforceable or shall not have the priority purported to be created thereby;
(m) there shall occur the loss, theft, substantial damage to
or destruction of any property of the Borrower or its Subsidiaries not fully
covered by insurance, which by itself or with other such losses, thefts, damages
or destructions could reasonably be expected to render the Borrower unable to
perform its material obligations hereunder or under the other Credit Documents,
or there shall occur the exercise of the right of condemnation or eminent domain
for any property of the Borrower or its Subsidiaries which by itself or with
other such exercises of the right of condemnation or eminent domain could
reasonably be expected to render the Borrower unable to perform its material
obligations hereunder or under the other Credit Documents; or
(n) a Change of Control shall have occurred; then, and in
every such event, the Administrative Agent shall (i) if requested by the
Required Banks, by notice to the Borrower terminate the Revolving Commitments
and they shall thereupon terminate, and (ii) if requested by the Required Banks,
by notice to the Borrower declare the Notes (together with accrued interest
thereon) and all other Bank Obligations and liabilities of the Borrower
hereunder and under the other Credit Documents (including, without limitation,
all amounts of L/C Obligations, whether or not the beneficiaries of the then
outstanding Letters of Credit shall have presented the documents required
thereunder) to be, and the Notes and all other Bank Obligations and liabilities
of the Borrower hereunder and under the other Credit Documents (including,
without limitation, all amounts of L/C Obligations, whether or not the
beneficiaries of the then outstanding Letters of Credit shall have presented the
documents required thereunder) shall thereupon become, immediately due and
payable without presentment, demand, protest or other notice of any kind, all of
which are hereby waived by the Borrower; provided that, without any notice to
the Borrower or any other act by the Administrative Agent or the Banks, in the
case of the occurrence of (x) any of the Events of Default specified in clause
(f) or (g) above with respect to the Borrower or any of the Events of Default
specified in clause (e) above with respect to the Prudential Real Estate
Financing as to which Prudential either accelerates the maturity of any of the
Debt owing by the Borrower or any of its Subsidiaries to Prudential with respect
thereto or otherwise exercises any of its rights or remedies to liquidate,
realize or foreclose upon any collateral securing such Debt, or (y) any of the
Events of Default specified in clause (e) above with respect to the Debt
evidenced or governed by the
<PAGE> 89
Senior Subordinated Notes, and the receipt by the trustee under the Senior
Subordinated Note Indenture of a notice from the Administrative Agent under
Section 1303 thereof, the Revolving Commitments shall thereupon terminate and
the Notes (together with accrued interest thereon) and all other obligations and
liabilities of the Borrower hereunder and under the other Credit Documents
(including, without limitation, all amounts of L/C Obligations, whether or not
the beneficiaries of the then outstanding Letters of Credit shall have presented
the documents required thereunder) shall become immediately due and payable
without presentment, demand, protest or other notice of any kind, all of which
are hereby waived by the Borrower.
With respect to all Letters of Credit with respect to which
presentment for honor shall not have occurred at the time of an acceleration
pursuant to the preceding paragraph, the Borrower shall at such time deposit in
a cash collateral account opened by the Collateral Agent an amount equal to 103%
of the aggregate then undrawn and unexpired amount of such Letters of Credit.
Amounts held in such cash collateral account shall be applied by the
Administrative Agent to the payment of drafts drawn under such Letters of Credit
and of such time drafts at the respective maturities thereof, and the unused
portion thereof after all such Letters of Credit shall have expired or been
fully drawn upon and all such time drafts shall have been paid, if any, shall be
applied to repay other Bank Obligations of the Borrower hereunder and under the
Notes and the other Credit Documents. After all such Letters of Credit shall
have expired or been fully drawn upon, all such time drafts shall have matured,
all Reimbursement Obligations shall have been satisfied and all other
obligations of the Borrower hereunder and under the Notes and the other Credit
Documents shall have been paid in full, the balance, if any, in such cash
collateral account shall be returned to the Borrower.
SECTION 9.2 Application Of Proceeds. After the occurrence of
an Event of Default and acceleration of the Bank Obligations, the proceeds of
the Collateral and all other payments received under this Agreement shall be
applied by the Administrative Agent to payment of the Bank Obligations in the
following order unless a court of competent jurisdiction shall otherwise direct:
(i) FIRST, to payment of all costs and expenses of the
Administrative Agent, the Collateral and the Banks incurred in
connection with the preservation, collection and enforcement of the
Bank Obligations or of the security interests granted to the Collateral
Agent pursuant to the Security Documents, including, without
limitation, any amounts advanced by the Administrative Agent, the
Collateral Agent or the Banks to protect or preserve the Collateral;
(ii) SECOND, to payment of that portion of the Bank
Obligations constituting accrued and unpaid
<PAGE> 90
interest and fees ratably amongst the Administrative Agent and the
Banks in accordance with the proportion which the accrued interest and
fees constituting the Bank Obligations owing to the Administrative
Agent and each such Bank at such time bears to the aggregate amount of
accrued interest and fees constituting the Bank Obligations owing to
the Administrative Agent and all of the Banks at such time until such
interest and fees shall be paid in full;
(ii) THIRD, to payment of the principal of the Bank
Obligations (including the face amount of and Reimbursement Obligations
in respect of the Letters of Credit) ratably amongst the Banks in
accordance with the proportion which the principal amount of the Bank
Obligations owing to each such Bank bears to the aggregate principal
amount of the Bank Obligations owing to all of the Banks until such
principal of the Bank Obligations shall be paid in full;
(iii) FOURTH, to the payment of all other Bank
Obligations ratably amongst the Banks in accordance with the proportion
which the amount of such other Bank Obligations owing to each such Bank
bears to the aggregate principal amount of such other Bank Obligations
owing to all of the Banks until such other Bank Obligations shall be
paid in full; and
(iv) FIFTH, the balance, if any, after all of the Bank
Obligations have been satisfied, shall be returned to the Borrower or
paid over to such other Person as may be required by law.
The Borrower acknowledges and agrees that it shall remain
liable to the extent of any deficiency between the amount of the proceeds of the
Collateral and all other payments received under this Agreement and the
aggregate amount of the sums referred to in the first through fourth clauses
above.
SECTION 10. THE ADMINISTRATIVE AGENT AND
THE COLLATERAL AGENT
SECTION 10.1 Appointment and Authorization. Each Bank
irrevocably appoints and authorizes the Administrative Agent to take such action
as agent on its behalf and to exercise such powers, under this Agreement and the
Notes and the other Credit Documents as are delegated to the Administrative
Agent and the Collateral Agent, as the case may be, by the terms hereof or
thereof, together with all such powers as are reasonably incidental thereto.
SECTION 10.2 Administrative Agent, Collateral Agent and
Affiliates. CIBC shall have the same rights and powers under this Agreement as
any other Bank and may exercise or refrain from exercising the same as though it
were not the Administrative
<PAGE> 91
Agent or the Collateral Agent, and CIBC and its Affiliates may accept deposits
from, lend money to, and generally engage in any kind of business with the
Borrower or any Subsidiary or Affiliate of the Borrower as if it were not the
Administrative Agent or the Collateral Agent.
SECTION 10.3 Action by Agents. The obligations of the
Administrative Agent and the Collateral Agent hereunder and under the other
Credit Documents are only those expressly set forth herein and therein. Without
limiting the generality of the foregoing, neither the Administrative Agent nor
the Collateral Agent shall be required to take any action with respect to any
Default, except as expressly provided with respect to the Administrative Agent
in Section 9 hereof and with respect to the Collateral Agent in the Security
Documents and except that the Administrative Agent and the Collateral Agent, as
the case may be, shall take such action with respect to such Default or Event of
Default as shall be reasonably directed by the Required Banks, provided that
unless and until the Administrative Agent or the Collateral Agent, as the case
may be, shall have received such directions, the Administrative Agent and the
Collateral Agent, as the case may be, may (but shall not be obligated to) take
such action, or refrain from taking such action, with respect to such Default or
Event of Default as it shall deem advisable in the best interests of the Banks.
SECTION 10.4 Consultation with Experts. Each of the
Administrative Agent and the Collateral Agent may consult with legal counsel
(who may be counsel for the Borrower), independent public accountants and other
experts selected by it and shall not be liable for any action taken or omitted
to be taken by it in good faith in accordance with the advice of such counsel,
accountants or experts.
SECTION 10.5 Liability of Agents. Notwithstanding any other
provision, express or implied, to the contrary in this Agreement or any other
Credit Document, neither the Administrative Agent or the Collateral Agent nor
any of their directors, officers, agents, or employees shall be liable for any
action taken or not taken by them in connection herewith or in connection with
any other Credit Document (i) with the consent or at the request of the Required
Banks or, in the case of any matter for which the consent of all the Banks is
required to effect an amendment pursuant to Section 11.5, with the consent of
all the Banks or (ii) in the absence of their own gross negligence or willful
misconduct. Neither the Administrative Agent or the Collateral Agent nor any of
their directors, officers, agents or employees shall be responsible for or have
any duty to ascertain, inquire into or verify (i) any statement, warranty or
representation made in connection with this Agreement, any other Credit Document
or any borrowing hereunder; (ii) the performance or observance of any of the
covenants or agreements of the Borrower; (iii) the satisfaction of any condition
specified in Section 6 (except where the satisfaction
<PAGE> 92
of the Administrative Agent is specifically required); or (iv) the validity,
effectiveness or genuineness of this Agreement, the Notes, any Letter of Credit,
any other Credit Document or any other instrument or writing furnished in
connection herewith or therewith. Neither the Administrative Agent nor the
Collateral Agent shall incur any liability by acting in reliance upon any
notice, consent, certificate, statement, or other writing (which may be a bank
wire or similar writing) believed by it in good faith to be genuine or to be
signed by the proper party or parties.
SECTION 10.6 Indemnification. Each Bank shall, ratably in
accordance with the amount of its Tranche B Term Loan Commitments (or, after the
Tranche B Term Loan Commitments expire, are terminated or are fully utilized,
outstanding Tranche B Term Loans) and its Revolving Commitments indemnify the
Administrative Agent and the Collateral Agent (to the extent not reimbursed by
the Borrower and without limiting the obligation of the Borrower to do so)
against any cost, expense (including counsel fees and disbursements), claim,
demand, action, loss, damage, penalty, judgment, disbursement or liability
(except such as result from the Administrative Agent's or the Collateral Agent's
gross negligence or willful misconduct) that the Administrative Agent or the
Collateral Agent may suffer or incur in connection with this Agreement or any
other Credit Document or any action taken or omitted by the Administrative Agent
or the Collateral Agent hereunder or thereunder. The agreements in this Section
shall survive the payment of the Notes and all other amounts payable hereunder.
SECTION 10.7 Credit Decision. Each Bank expressly acknowledges
that neither the Administrative Agent or the Collateral Agent nor any of their
officers, directors, employees, agents, attorneys-in-fact or Affiliates has made
any representations or warranties to it and that no act by the Administrative
Agent hereinafter taken, including any review of the affairs of the Borrower,
shall be deemed to constitute any representation or warranty by the
Administrative Agent or the Collateral Agent to any Bank. Each Bank acknowledges
that it has, independently and without reliance upon the Administrative Agent,
the Collateral Agent or any other Bank, and based on such documents and
information as it has deemed appropriate, made its own credit analysis and
decision to enter into this Agreement. Each Bank also acknowledges that it will,
independently and without reliance upon the Administrative Agent, the Collateral
Agent or any other Bank, and based on such documents and information as it shall
deem appropriate at the time, continue to make its own credit decisions in
taking or not taking any action under this Agreement. Except for notices,
reports and other documents expressly required to be furnished to the Banks by
the Administrative Agent hereunder, neither the Administrative Agent nor the
Collateral Agent shall have any duty or responsibility to provide any Bank with
any credit or other information concerning the business, operations, property,
condition (financial or
<PAGE> 93
otherwise), prospects or creditworthiness of the Borrower which may come into
the possession of the Administrative Agent, the Collateral Agent or any of their
officers, directors, employees, agents, attorneys-in-fact or Affiliates.
SECTION 10.8 Successor Agents. Each of the Administrative
Agent and the Collateral Agent may resign at any time by giving written notice
thereof to the Banks and the Borrower. Upon any such resignation, the Required
Banks shall have the right to appoint a successor Administrative Agent or
Collateral Agent, as the case may be. If no successor Administrative Agent or
Collateral Agent, as the case may be, shall have been so appointed by the
Required Banks, and shall have accepted such appointment, within 30 days after
the retiring agent's giving of notice of resignation, then the retiring agent
may, on behalf of the Banks, appoint a successor Administrative Agent or
Collateral Agent, as the case may be, 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. Upon the
acceptance of its appointment as Administrative Agent or Collateral Agent, as
the case may be, hereunder by a successor Administrative Agent or Collateral
Agent, as the case may be, such successor agent shall thereupon succeed to and
become vested with all the rights and duties of the retiring Administrative
Agent or Collateral Agent, as the case may be, and, upon such acceptance of
appointment, the retiring agent shall be discharged from its duties and
obligations hereunder. After any retiring agent's resignation hereunder as
Administrative Agent or Collateral Agent, the provisions of this Section 10
shall inure to its benefit as to any actions taken or omitted to be taken by it
while it was Administrative Agent or Collateral Agent, as the case may be.
SECTION 11. MISCELLANEOUS
SECTION 11.1 Notices. All notices, requests and other
communications to any party hereunder shall be in writing (including bank wire,
telecopy or similar writing) and shall be given to such party at its address or
telecopy number set forth on Schedule I hereof or such other address or telecopy
number as such party may hereafter specify for the purpose by notice to the
Administrative Agent and the Borrower. Each such notice, request or other
communication shall be given (i) by hand delivery, (ii) by nationally recognized
courier service or (iii) by telecopy, receipt confirmed, except that the
delivery of the financial statements required under Section 8.1(a) and (b)
(together with all other certificates to be delivered therewith) may also be
made by first class mail. Each such notice, request or communication shall be
effective (i) if delivered by hand or by nationally recognized courier service,
when delivered at the address specified in this Section, (ii) if given by
telecopy, when such telecopy is transmitted to the telecopy number, as the case
may be, specified in this Section and the appropriate
<PAGE> 94
answerback or confirmation is received, and (iii) with respect to the delivery
of the aforesaid financial statements and other certificates by first class
mail, when mailed.
SECTION 11.2 No Waivers. No course of dealing between the
Administrative Agent any Bank and the Borrower or any failure or delay by the
Administrative Agent or any Bank in exercising any right, power or privilege
hereunder or under any Note or other Credit Document shall operate as a waiver
of any right, power or privilege hereunder or under any Note or other Credit
Document, nor shall any single or partial exercise thereof preclude any other or
further exercise thereof or the exercise of any other right, power or privilege.
The rights and remedies herein provided shall be cumulative and not exclusive of
any rights or remedies provided by law.
SECTION 11.3 Expenses; Documentary Taxes. Whether or not any
Loans are made or Letters of Credit are issued hereunder, the Borrower shall pay
(i) all out-of-pocket expenses of the Administrative Agent and the Collateral
Agent, including, without limitation, reasonable fees and disbursements of
Simpson Thacher & Bartlett, counsel for the Administrative Agent and the
Collateral Agent, in connection with the preparation of this Agreement and the
other Credit Documents, any waiver or consent hereunder or thereunder, any
amendment hereof or thereof, any Default or alleged Default hereunder and the
protection, maintenance and preservation of the Collateral and (ii) if an Event
of Default occurs, all out-of-pocket expenses incurred by the Administrative
Agent, the Collateral Agent and the Banks, including, without limitation, fees
and disbursements of counsel (including, without limitation, the allocated costs
of in-house counsel), in connection with such Event of Default and collection
and other enforcement proceedings resulting therefrom. The Borrower shall
indemnify and hold harmless the Administrative Agent, the Collateral Agent and
each Bank against any transfer taxes, excise taxes, documentary taxes,
assessments or charges made by any Governmental Authority by reason of the
execution and delivery of this Agreement, the Notes or any other Credit
Document, any modifications thereof or in connection with the Collateral.
SECTION 11.4 Sharing of Set-Offs. Each Bank agrees that if it
shall, by exercising any right of set-off or counterclaim or otherwise, receive
payment of a proportion of the aggregate amount of principal and interest due
with respect to the Notes held by it or the Reimbursement Obligations owing to
it which is greater than the proportion received by any other Bank in respect of
the aggregate amount of principal and interest due with respect to the Notes
held by such other Bank and the Reimbursement Obligations owing to it, the Bank
receiving such proportionately greater payment shall purchase such participation
in the Notes held by the other Banks and/or the Reimbursement Obligations owing
to them, and such other adjustments shall be made, as may be required so that
all such payments of principal
<PAGE> 95
and interest with respect to the Notes held by the Banks or the Reimbursement
Obligations owing to them shall be shared by the Banks pro rata; provided that
nothing in this Section shall impair the right of any Bank to exercise any right
of set-off or counterclaim it may have and to apply the amount subject to such
exercise to the payment of indebtedness of the Borrower other than its
indebtedness under the Notes or the Reimbursement Obligations owing to it. Each
Bank further agrees that if it shall hold a Revolving Note and a Money Market
Loan Note, any payment in respect of such Notes resulting from its exercise of
any right described in this Section shall be applied first to the aggregate
amount owing under its Revolving Note and second, to the aggregate amount owing
under its Money Market Loan Note. The Borrower agrees, to the fullest extent it
may effectively do so under applicable law, that any holder of a participation
in a Note or Reimbursement Obligations, whether or not acquired pursuant to the
foregoing arrangements, may exercise rights of set-off or counterclaim and other
rights with respect to such participation as fully as if such holder of a
participation were a direct creditor of the Borrower in the amount of such
participation.
SECTION 11.5 Amendments and Waivers. Any provision of this
Agreement, the Notes or the other Credit Documents (other than the Money Market
Loan Notes) may be amended or waived if, but only if, such amendment or waiver
is in writing and is signed by the Borrower and the Required Banks (and, (i) if
the rights or duties of the Administrative Agent or the Collateral Agent are
affected thereby, by the Administrative Agent or the Collateral Agent, as the
case may be, and (ii) if the rights or duties of the Letter of Credit Bank are
affected thereby, by the Administrative Agent or the Collateral Agent and the
Letter of Credit Bank); provided, that no such amendment or waiver shall, unless
signed by all the Banks (other than Defaulting Banks) affected thereby (i)
increase or decrease the Revolving Commitment or the Tranche B Term Loan
Commitment of any Bank or subject any Bank to any additional obligation to
extend credit hereunder, (ii) reduce the principal of or rate of interest on any
Loan or any fees hereunder, (iii) postpone any of the semi-annual mandatory
commitment reductions referred to in Section 2.3(b) or the date fixed for any
payment of principal of or interest on any Loan or any fees hereunder, (iv)
change the definition of "Required Banks", (v) amend or waive any provision of
this Section, (vi) change the percentage of the Tranche B Term Loan Commitments,
the Revolving Commitments or the aggregate unpaid principal amount of the Notes
or the number of Banks which shall be required for the Administrative Agent, the
Banks or any of them to take any action under this Section or any other
provision of this Agreement, (vii) substitute, discharge, release or surrender
all or substantially all of the Collateral except as permitted in the Credit
Documents or (viii) release any Guarantee of the Bank Obligations; and provided,
further, that no such amendment or waiver shall change the ratable nature, as
between the Tranche B Term Loans, on the one hand, and the Revolving
<PAGE> 96
Commitments, on the other, of the application of amounts towards prepayment of
the Tranche B Term Loans and reduction of the Revolving Commitments,
respectively, provided for in paragraphs (b), (c), (d), (f) and (g) of Section
2.7 unless signed by the Required Tranche B Term Loan Banks or the Required
Revolving Credit Banks, whichever is adversely affected thereby.
SECTION 11.6A. Successors and Assigns; Participations;
Purchasing Banks.
(a) This Agreement shall be binding upon and inure to the
benefit of the Borrower, the Banks, the Administrative Agent, the Collateral
Agent, all future holders of the Notes and the Participating Interests and their
respective successors and assigns, except that the Borrower may not assign or
transfer any of its rights or obligations under this Agreement without the prior
written consent of each Bank.
(b) Any Bank may, in the ordinary course of its commercial
banking business and in accordance with applicable law, at any time sell to one
or more banks or other entities ("Participants") participating interests in any
Loan owing to such Bank, any Note held by such Bank, any Revolving Commitment of
such Bank or any other interest of such Bank hereunder and under the other
Credit Documents, including, without limitation, its interest in the L/C
Obligations. In the event of any such sale by a Bank of participating interests
to a Participant, such Bank's obligations under this Agreement to the other
parties to this Agreement shall remain unchanged, such Bank shall remain solely
responsible for the performance thereof, such Bank shall remain the holder of
any such Note for all purposes under this Agreement and the other Credit
Documents, and the Borrower and the Administrative Agent shall continue to deal
solely and directly with such Bank in connection with such Bank's rights and
obligations under this Agreement and the other Credit Documents. The Borrower
agrees that if amounts outstanding under this Agreement, the Notes or any other
Credit Document are due or unpaid, or shall have been declared or shall have
become due and payable upon the occurrence of an Event of Default, each
Participant shall be deemed to have the right of setoff in respect of its
participating interest in amounts owing under this Agreement and the other
Credit Documents to the same extent as if the amount of its participating
interest were owing directly to it as a Bank under this Agreement or the other
Credit Documents, provided that such Participant shall only be entitled to such
right of setoff if it shall have agreed in the agreement pursuant to which it
shall have acquired its participating interest to share with the Banks the
proceeds thereof as provided in Section 11.4. The Borrower also agrees that each
Participant shall be entitled to the benefits of Sections 5.3, 5.4, 5.5, 5.9 and
11.10 with respect to its participation in the Revolving Commitments and the
Loans outstanding from time to time; provided, that no Participant shall be
entitled to receive any greater amount pursuant to such Sections than the
transferor Bank would have
<PAGE> 97
been entitled to receive in respect of the amount of the participation
transferred by such transferor Bank to such Participant had no such transfer
occurred. Each Bank agrees that any agreement between such Bank and any
Participant in respect of such participating interest shall not restrict such
Bank's right to agree to any amendment, supplement or modification to this
Agreement or the other Credit Documents except (to the extent such Participant
would be affected thereby) in connection with the matters specified in clauses
(i) through (viii) of Section 11.5.
(c) Any Bank may, in the ordinary course of its commercial
banking business and in accordance with applicable law, at any time sell to any
Bank or any affiliate thereof and, with the consent of the Borrower (which shall
not be unreasonably withheld or delayed but shall not be required to be obtained
after the occurrence and during the continuance of an Event of Default), to one
or more additional banks, mutual funds or other financial institutions
("Purchasing Banks") all or a portion of its interests, rights and obligations
under this Agreement and the other Credit Documents (including, without
limitation, all or a portion of its Commitment and the same portion of the Loans
at the time owing to it and the Notes held by it, but excluding interests in
Money Market Loans and Money Market Loan Notes, which are addressed in Section
11.6B); provided, however, that each Assignment shall be of a constant, not a
varying, percentage of all of the assigning Bank's rights and obligations under
this Agreement; provided, further, that the Commitments purchased by any such
Purchasing Bank shall be equal to at least $10,000,000 in the case of a
Purchasing Bank that is not then a Bank (unless the Commitments so purchased
constitute 100% of the Commitments of the transferor Bank). Each sale pursuant
to this paragraph shall be effected pursuant to a Commitment Transfer
Supplement, substantially in the form of Exhibit I, executed by such Purchasing
Bank, such transferor Bank (and, in the case of a Purchasing Bank that is not
then a Bank or an affiliate thereof, by the Borrower and the Administrative
Agent) and delivered to the Administrative Agent for its acceptance for
recording in the Register. Upon such execution, delivery, acceptance and
recording, from and after the Transfer Effective Date (as defined in such
Commitment Transfer Supplement), (x) the Purchasing Bank thereunder shall be a
party hereto and, to the extent provided in such Commitment Transfer Supplement,
have the rights and obligations of a Bank hereunder and under the other Credit
Documents with a Commitment as set forth therein, and (y) the transferor Bank
thereunder shall, to the extent provided in such Commitment Transfer Supplement,
be released from its obligations under this Agreement (and, in the case of a
Commitment Transfer Supplement covering all or the remaining portion of a
transferor Bank's rights and obligations under this Agreement, such transferor
Bank shall cease to be a party hereto). Such Commitment Transfer Supplement
shall be deemed to amend this Agreement to the extent, and only to the extent,
necessary to reflect the addition of such Purchasing Bank and the resulting
<PAGE> 98
adjustment of Commitment Percentages arising from the purchase by such
Purchasing Bank of all or a portion of the rights and obligations of such
transferor Bank under this Agreement, the Notes (excluding the Money Market Loan
Notes) and the other Credit Documents. On or prior to the Transfer Effective
Date determined pursuant to such Commitment Transfer Supplement, the Borrower,
at its own expense, shall execute and deliver to the Administrative Agent in
exchange for the surrendered Notes, new Notes to the order of such Purchasing
Bank in an amount equal to the Commitment assumed by it pursuant to such
Commitment Transfer Supplement and, if the transferor Bank has retained a
Commitment hereunder, new Notes to the order of the transferor Bank in an amount
equal to the Commitment retained by it hereunder. Such new Notes shall be dated
the Closing Date and shall otherwise be in the form of the Notes replaced
thereby. The Notes surrendered by the transferor Bank shall be returned by the
Administrative Agent to the Borrower marked "cancelled".
(d) The Administrative Agent shall maintain at its address
referred to in Section 11.1 a copy of each Commitment Transfer Supplement and
each Money Market Loan Assignment delivered to it and a register (the
"Register") for the recordation of (a) the names and addresses of the Banks and
the Commitment of, and principal amount of the Loans owing to and the
Participating Interest of, each Bank from time to time and (b) with respect to
each Money Market Loan Assignment delivered to the Administrative Agent, the
name and address of each Money Market Loan Assignee and the principal amount of
each Money Market Loan owing to such Money Market Loan Assignee. The entries in
the Register shall be conclusive, in the absence of manifest error, and the
Borrower, the Administrative Agent and the Banks may treat each Person whose
name is recorded in the Register as the owner of the Loan or Participating
Interests recorded therein for all purposes of this Agreement and the other
Credit Documents. The Register shall be available for inspection by the Borrower
or any Bank or Money Market Loan Assignee at any reasonable time and from time
to time upon reasonable prior notice.
(e) Upon its receipt of a Commitment Transfer Supplement
executed by a transferor Bank and Purchasing Bank (and, in the case of a
Purchasing Bank that is not then a Bank or an affiliate thereof, by the
Borrower) together with payment to the Administrative Agent of a registration
and processing fee of $3,500 for each such transfer, the Administrative Agent
shall (i) promptly accept such Commitment Transfer Supplement and (ii) on the
Transfer Effective Date determined pursuant thereto record the information
contained therein in the Register and give notice of such acceptance and
recordation to the Banks and the Borrower. Upon its receipt of a Money Market
Loan Assignment executed by a transferor Bank and a Money Market Loan Assignee,
together with payment to the Administrative Agent of a registration and
processing fee of $3,500, the Administrative Agent promptly shall (i) accept
such Money Market Loan Assignment, (ii) record the
<PAGE> 99
information contained therein in the Register and (iii) give notice of such
acceptance and recordation to the transferor Bank, the Money Market Loan
Assignee and the Borrower.
(f) The Borrower authorizes each Bank to disclose to any
Participant, Purchasing Bank or Money Market Loan Assignee (each, a
"Transferee") and any prospective Transferee any and all financial and other
information in such Bank's possession concerning the Borrower and its affiliates
which has been delivered to such Bank by or on behalf of the Borrower pursuant
to this Agreement or which had been delivered to such Bank by or on behalf of
the Borrower in connection with such Bank's credit evaluation of the Borrower
and its affiliates prior to becoming a party to this Agreement.
(g) If, pursuant to this Section, any interest in this
Agreement or any Note or the other Credit Documents is transferred to any
Transferee which is not a United States Person, the transferor Bank shall cause
such Transferee, concurrently with the effectiveness of such transfer, (i) to
represent to the transferor Bank (for the benefit of the transferor Bank, the
Administrative Agent and the Borrower) that under applicable law and treaties no
taxes will be required to be withheld by the Administrative Agent, the Borrower
or the transferor Bank with respect to any payments to be made to such
Transferee in respect of the Loans, (ii) to furnish to the transferor Bank (and,
in the case of any Purchasing Bank registered in the Register, the
Administrative Agent and the Borrower) either U.S. Internal Revenue Service Form
4224 or U.S. Internal Revenue Service Form 1001 (wherein such Transferee claims
entitlement to complete exemption from U.S. federal withholding tax on all
interest payments hereunder) and (iii) to agree (for the benefit of the
transferor Bank, the Administrative Agent and the Borrower) to provide the
transferor Bank (and, in the case of any Purchasing Bank registered in the
Register, the Administrative Agent and the Borrower) a new Form 4224 or Form
1001 upon the expiration or obsolescence of any previously delivered form and
comparable statements in accordance with applicable U.S. laws and regulations
and amendments duly executed and completed by such Transferee, and to comply
from time to time with all applicable U.S. laws and regulations with regard to
such withholding tax exemption.
(h) Nothing herein shall prohibit any Bank from pledging or
assigning any Note to any Federal Reserve Bank in accordance with applicable
law.
(i) If the Euro-Dollar Reference Bank assigns its Notes to an
unaffiliated institution, the Administrative Agent shall, in consultation with
the Borrower and with the consent of the Required Banks, appoint another Bank to
act as the Euro-Dollar Reference Bank hereunder.
<PAGE> 100
SECTION 11.6B. Transfers of Money Market Loans. (a) Any Bank,
in the ordinary course of its commercial banking business and in accordance with
applicable law, at any time may assign to one or more banks or other financial
institutions ("Money Market Loan Assignees") any Money Market Loan owing to such
Bank and any Individual Money Market Loan Note held by such Bank evidencing such
Money Market Loan, pursuant to a Money Market Loan Assignment executed by the
transferor Bank and the Money Market Loan Assignee.
(b) Upon such execution, from and after the date of such Money
Market Loan Assignment, the Money Market Loan Assignee shall be deemed, to the
extent of the assignment provided for in such Money Market Loan Assignment and
subject to the provisions of Sections 11.6B(c) and 11.6B(d) to have the same
rights and benefits of payment and enforcement with respect to the principal of
and interest on such Money Market Loan and Individual Money Market Loan Note and
the same rights of setoff and obligation to share pursuant to Section 11.4 as it
would have had if it were a Bank hereunder.
(c) Unless such Money Market Loan Assignment shall otherwise
specify and a copy of such Money Market Loan Assignment shall have been
delivered to the Administrative Agent for its acceptance and recording in the
Register in accordance with Section 11.6A(d), the assignor under the Money
Market Loan Assignment shall act as collection agent for the Money Market Loan
Assignee thereunder, and the Administrative Agent shall pay all amounts received
from the Borrower which are allocable to the assigned Money Market Loan or
Individual Money Market Loan Note directly to such assignor without any
liability to such Money Market Loan Assignee.
(d) A Money Market Loan Assignee under a Money Market Loan
Assignment shall not, by virtue of such Money Market Loan Assignment, become a
party to this Agreement or have any rights to consent to or refrain from
consenting to any amendment, waiver or other modification of any provision of
this Agreement or any related document; provided that (1) the assignor under
such Money Market Loan Assignment and such Money Market Loan Assignee may, in
their discretion, agree between themselves upon the manner in which such
assignor will exercise its rights under this Agreement and any related document,
and (2) if a copy of such Money Market Loan Assignment shall have been delivered
to the Administrative Agent for its acceptance and recording in the Register in
accordance with Section 11.6A(d), neither the principal amount of, the interest
rate on, nor the maturity date of any Money Market Loan or Individual Money
Market Loan Note assigned to the Money Market Loan Assignee thereunder will be
modified without the written consent of such Money Market Loan Assignee.
(e) If a Money Market Loan Assignee has caused a Money Market
Loan Assignment to be recorded in the Register in accordance with Section
11.6A(d), such Money Market Loan Assignee
<PAGE> 101
may thereafter, in the ordinary course if its business and in accordance with
applicable law, assign such Individual Money Market Loan Note to any Bank, to
any affiliate or subsidiary of such Money Market Loan Assignee or to any other
financial institution that has total assets in excess of $1,000,000,000 and that
in the ordinary course of its business extends credit of the type evidenced by
such Individual Money Market Loan Note, and the foregoing provisions of this
subsection shall apply, mutatis mutandis, to any such assignment by a Money
Market Loan Assignee. Except in accordance with the preceding sentence, Money
Market Loans and Individual Money Market Loan Notes may not be further assigned
by a Money Market Loan Assignee, subject to any legal or regulatory requirement
that the Money Market Loan Assignee's assets must remain under its control.
SECTION 11.7 Collateral. Each of the Banks represents to the
Administrative Agent and each of the other Banks that it in good faith is not
relying upon any "margin stock" (as defined in Regulation U) as collateral in
the extension or maintenance of the credit provided for in this Agreement.
SECTION 11.8 New York Law. THIS AGREEMENT AND EACH NOTE SHALL
BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAW OF THE STATE OF NEW YORK
APPLICABLE TO CONTRACTS EXECUTED AND TO BE PERFORMED THEREIN.
SECTION 11.9 Counterparts; Integration; Effectiveness. This
Agreement may be signed in any number of counterparts, each of which shall be an
original, with the same effect as if the signatures thereto and hereto were upon
the same instrument. This Agreement, the other Credit Documents and the Fee
Letter constitute the entire agreement and understanding among the parties
hereto and supersedes any and all prior agreements and understandings, oral or
written, relating to the subject matter hereof. This Agreement shall become
effective when the Administrative Agent shall have received counterparts hereof
signed by all of the parties hereto.
SECTION 11.10 Indemnity. The Borrower agrees to indemnify and
hold harmless the Administrative Agent, the Collateral Agent and the Banks and
their directors, officers, Affiliates and agents (each, an "Indemnified Party")
from and against all costs, expenses (including fees and disbursements of
counsel, including without limitation, the allocated costs of in-house counsel)
and liabilities arising out of or relating to any investigation, litigation or
other proceedings (regardless of whether an Indemnified Party is a party
thereto) which relate to the Loans, any Letter of Credit, the use of the
proceeds of the Loans by the Borrower, the use of the Letters of Credit, or the
Collateral including, without limitation, the financing and other transactions
contemplated hereby, or any transactions connected with any of the foregoing,
but excluding any such losses, liabilities, claims, damages or expenses incurred
by reason of (i) the gross negligence or willful misconduct of the Indemnified
<PAGE> 102
Party, or (ii) claims of one Bank against another not involving acts or
omissions of the Borrower. This indemnity shall survive the termination of this
Agreement and payment of the Loans.
SECTION 11.11 Waiver of Jury Trial; Consent to Jurisdiction.
The Borrower, the Administrative Agent, the Collateral Agent, the Letter of
Credit Bank and each Bank hereby waives, to the extent permitted by applicable
law, trial by jury in any litigation in any court with respect to, in connection
with, or arising out of the Credit Documents and the Collateral, or the
validity, protection, interpretation, collection or enforcement thereof, or any
other claim or dispute howsoever arising, between the Borrower, on the one hand,
and the Administrative Agent, the Collateral Agent and/or any one or more of the
Banks, on the other hand. The Borrower hereby irrevocably consents to the
nonexclusive jurisdiction of the courts of the State of New York and, to the
extent permitted by applicable law, of any federal court located in the City of
New York in connection with any action or proceeding arising out of or relating
to any one or more of the Credit Documents or any document or instrument
delivered pursuant to this Agreement or any other Credit Document or the
Collateral. The Borrower hereby waives the defenses of forum non conveniens and
improper venue.
SECTION 11.12 Survival of Obligations Under Fee Letter.
Notwithstanding anything herein or in any other agreement to the contrary, the
execution and delivery of this Agreement shall not be deemed to impair or
otherwise affect any obligations of any party thereto under the Fee Letter
except to the extent that such obligations are satisfied by this Agreement and
the other Credit Documents.
SECTION 11.13 Invalidity. Whenever possible, each provision of
this Agreement shall be interpreted in such manner as to be effective and valid
under all applicable laws and regulations. If, however, any provision of this
Agreement shall be prohibited by or invalid under any such law or regulation, it
shall be deemed modified to conform to the minimum requirements of such law or
regulation or, if for any reason it is not deemed so modified, it shall be
ineffective and invalid only to the extent of such prohibition or invalidity
without the remainder thereof or any of the remaining provisions of this
Agreement being prohibited or invalid.
SECTION 11.14 Substitution of Banks. In the event that (i) the
Borrower shall at any time be required under Section 5.3 to withhold any Charges
in respect of any amount payable to any Bank under this Agreement or under any
other Credit Document, (ii) the Borrower shall be required to pay any amounts to
any Bank (but not the other Banks) pursuant to Section 5.4 or 5.9 or (iii) the
obligation of any Bank (but not the other Banks) to make Euro-Dollar Loans shall
be suspended pursuant to Section 5.8, then the Borrower may substitute another
bank or trust company acceptable to the Required Banks to assume
<PAGE> 103
the Commitments and/or the Loans of such Bank and to purchase the Notes and
other obligations owing by the Borrower to such Bank under the Credit Documents,
without recourse to or warranty by, or expense to, such Bank for a purchase
price equal to the outstanding principal/face amount of the Bank Obligations
payable to such Bank plus any accrued but unpaid interest on the Bank
Obligations and accrued but unpaid fees and other amounts in respect of that
Bank's Commitment and Loans plus any amount that would be payable to such Bank
pursuant to Section 5.5 hereof if its Bank Obligations were prepaid on such
date. Upon such purchase such Bank shall no longer be a party hereto or have any
rights or benefits hereunder (except for rights or benefits that such Bank would
retain hereunder and under the other Credit Documents upon payment in full of
all of the Bank Obligations) and, subject to Section 11.6A or 11.6B hereof, the
replacement bank shall succeed to the rights and benefits of such Bank
hereunder. The Administrative Agent and the Banks shall cooperate with the
Borrower to amend the Credit Documents to reflect such substitution.
SECTION 11.15 Effect of Amendment and Restatement of the
Existing Credit Agreement; Confirmation of Security Documents. On the Closing
Date, the Existing Credit Agreement shall be amended and restated to read as set
forth herein. The Borrower and, by its execution of this Agreement in the space
provided below, Somerville, as applicable, acknowledge and agree that (i) the
Liens and security interests as granted under the Security Documents securing
payment of the Bank Obligations are in all respects continuing and in full force
and effect and secure the payment of the Bank Obligations and that the Notes
outstanding under the Existing Credit Agreement are replaced by the Notes issued
hereunder, (ii) the term "Credit Agreement" as used in the Security Documents
shall hereafter mean this Agreement and (iii) upon the effectiveness of this
Agreement all outstanding letters of credit under the Existing Credit Agreement
will be converted into Letters of Credit hereunder, in each case upon the terms
and conditions set forth in this Agreement.
<PAGE> 104
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed by their respective authorized officers as of the
day and year first above written.
PAYLESS CASHWAYS, INC.
By: \s\ Stephen A. Lightstone
--------------------------------------------
Name:
Title:Senior Vice President - Finance
CANADIAN IMPERIAL BANK OF COMMERCE,
NEW YORK AGENCY, as Administrative
Agent and Collateral Agent
By: \s\ David McGowan
--------------------------------------------
Title: Director
CIBC INC.
By: \s\ David McGowan
--------------------------------------------
Title: Director
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION, as
Co-Agent and Bank
By: \s\ Patricia DelGrande
--------------------------------------------
Title: Managing Director
THE BANK OF NOVA SCOTIA,
as Co-Agent and Bank
By: \s\ F.C.H. Ashby
--------------------------------------------
Title: Sr. Manager Loan
Operations
NATIONSBANK OF TEXAS, N.A.,
as Co-Agent and Bank
By: \s\ Perry B. Stephenson
--------------------------------------------
Title: Senior Vice President
<PAGE> 105
BANK OF MONTREAL
By: \s\ Thomas E. McGraw
--------------------------------------------
Title: Manager
THE BANK OF NEW YORK
By: \s\ Natalie Egleston
--------------------------------------------
Title: Vice President,
Retailing Division
BOATMEN'S FIRST NATIONAL
BANK OF KANSAS CITY
By: \s\ Thomas J. Butkus
--------------------------------------------
Title: Vice President
DAI-ICHI KANGYO BANK
LTD., CHICAGO BRANCH
By: \s\ R. Yamauchi
--------------------------------------------
Title: Senior Vice President
FIRST BANK NATIONAL
ASSOCIATION
By: \s\ Merri B. Bernhardson
--------------------------------------------
Title: Vice President
THE INDUSTRIAL BANK OF
JAPAN, LTD.
By: \s\ Jennifer Bailey
--------------------------------------------
Title: Joint General Manager
NATIONAL CITY BANK, INDIANA
By: \s\ Michael J. Stewart
--------------------------------------------
Title: Vice President
<PAGE> 106
THE SUMITOMO BANK, LIMITED
By: \s\ H. Iwami
--------------------------------------------
Title: Joint General Manager
UNION BANK
By: \s\ James P. Johnson
--------------------------------------------
Title: Vice President
ABN AMRO BANK, N.V.
By: \s\ Steven C. Wimpenny
--------------------------------------------
Title: Senior Vice President
VAN KAMPEN MERITT PRIME RATE
INCOME TRUST
By: \s\ Jeffrey W. Maillet
--------------------------------------------
Title: Sr. Vice Pres. -
Portfolio Manager
Acknowledged and Accepted:
SOMERVILLE LUMBER AND
SUPPLY CO., INC.
By: \s\ Stephan A. Lightstone
------------------------------
Title:
<PAGE> 107
$420,000,000
AMENDED AND RESTATED CREDIT AGREEMENT
Dated as of
November 20, 1995
among
PAYLESS CASHWAYS, INC.,
THE BANKS LISTED HEREIN,
CANADIAN IMPERIAL BANK OF COMMERCE, NEW YORK AGENCY,
as ADMINISTRATIVE AGENT AND COLLATERAL AGENT,
THE BANK OF NOVA SCOTIA,
NATIONSBANK OF TEXAS, N.A., and
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION,
as CO-AGENTS
<PAGE> 108
TABLE OF CONTENTS*
Page
SECTION 1. DEFINITIONS
SECTION 1.1 Definitions.............................................1
SECTION 1.2 Other Definitional Provisions..........................25
SECTION 2. AMOUNT AND TERMS OF COMMITMENTS
SECTION 2.1 Commitments to Lend....................................26
SECTION 2.2 Method of Borrowing....................................27
SECTION 2.3 Notes..................................................28
SECTION 2.4 Interest Rates.........................................29
SECTION 2.5 Commitment Fees........................................30
SECTION 2.6 Optional Termination or Reduction of
Revolving Commitments...................31
SECTION 2.7 Mandatory Termination or Reduction of
Revolving Commitments and Mandatory
Prepayments.............................31
SECTION 2.8 Optional Prepayments...................................34
SECTION 2.9 Conversion and Continuation Options....................35
SECTION 2.10 Minimum Amount and Maximum Number of
Euro-Dollar Borrowings..................36
SECTION 3. LETTERS OF CREDIT
SECTION 3.1 L/C Commitment.........................................36
SECTION 3.2 Procedure for Issuance of Letters of
Credit..................................37
SECTION 3.3 Fees, and Other Charges................................38
SECTION 3.4 L/C Participation......................................38
SECTION 3.5 Reimbursement Obligation of the Borrower...............39
SECTION 3.6 Obligations Absolute...................................40
SECTION 3.7 Letter of Credit Payments..............................40
SECTION 3.8 Application............................................41
SECTION 3.9 Indemnification........................................41
SECTION 4. MONEY MARKET LOANS
SECTION 4.1 The Money Market Loans.................................41
SECTION 4.2 Procedure for Money Market Loan Borrowing..............41
SECTION 4.3 Money Market Loan Payments.............................45
SECTION 4.4 Money Market Loan Notes................................45
- --------
* The Table of Contents is not a part of this Agreement.
<PAGE> 109
Page
SECTION 5. GENERAL CREDIT PROVISIONS
SECTION 5.1 General Provisions as to Payments......................46
SECTION 5.2 Computation of Interest, Commissions and
Fees....................................47
SECTION 5.3 Indemnification for Charges............................47
SECTION 5.4 Capital Adequacy.......................................49
SECTION 5.5 Funding Losses.........................................50
SECTION 5.6 Right of Set-Off.......................................51
SECTION 5.7 Basis for Determining Interest Rate
Inadequate or Unfair....................51
SECTION 5.8 Illegality.............................................52
SECTION 5.9 Increased Cost and Reduced Return......................52
SECTION 5.10 CIBC Alternate Base Rate Loans
Substituted for Affected Euro-Dollar
Loans...................................54
SECTION 5.11 Fees..................................................54
SECTION 6. CONDITIONS PRECEDENT
SECTION 6.1 All Loans and Letters of Credit........................54
SECTION 6.2 Conditions to Effectiveness of this
Agreement, Initial Loans and Letters
of Credit...............................55
SECTION 7. REPRESENTATIONS AND WARRANTIES
SECTION 7.1 Corporate Existence and Power..........................57
SECTION 7.2 Corporate Power and Authority..........................58
SECTION 7.3 No Violation...........................................58
SECTION 7.4 Margin Regulations.....................................58
SECTION 7.5 Approvals..............................................59
SECTION 7.6 Investment Company Act; etc. ..........................59
SECTION 7.7 True and Complete Disclosure...........................59
SECTION 7.8 Subsidiaries...........................................60
SECTION 7.9 Acknowledgement of Obligations; No Claims..............60
SECTION 7.10 Financial Condition; Financial
Statements; Projections.................60
SECTION 7.11 Tax Returns and Payments..............................62
SECTION 7.12 Litigation; Adverse Facts.............................63
SECTION 7.13 Compliance with Laws and Charter
Documents...............................63
SECTION 7.14 Certain Fees..........................................63
SECTION 7.15 ERISA.................................................63
SECTION 7.16 Good Title to Properties..............................64
SECTION 7.17 Trademarks, Patents, etc. ............................64
SECTION 7.18 Labor Matters.........................................65
SECTION 7.19 Environmental Matters.................................65
SECTION 7.20 No Default............................................66
<PAGE> 110
Page
SECTION 8. COVENANTS
SECTION 8.1 Information............................................66
SECTION 8.2 Payment of Obligations.................................69
SECTION 8.3 Maintenance of Property; Insurance.....................69
SECTION 8.4 Conduct of Business and Maintenance of
Existence...............................71
SECTION 8.5 Compliance with Laws...................................71
SECTION 8.6 Inspection of Property, Books and Records..............71
SECTION 8.7 Restricted Payments....................................71
SECTION 8.8 Debt...................................................72
SECTION 8.9 Investments............................................73
SECTION 8.10 Negative Pledge.......................................74
SECTION 8.11 Consolidations, Mergers and Sales of
Assets..................................76
SECTION 8.12 Capital Expenditures and Leases.......................78
SECTION 8.13 No Negative Pledges...................................79
SECTION 8.14 Termination of Plans..................................80
SECTION 8.15 Transactions with Affiliates..........................80
SECTION 8.16 Consolidated Net Worth................................80
SECTION 8.17 Interest Coverage.....................................80
SECTION 8.18 Customer Charge Sales.................................81
SECTION 8.19 Accounting Changes....................................81
SECTION 8.20 Amendment and Modification of Certain
Documents...............................82
SECTION 8.21 Sale/Lease-Backs......................................82
SECTION 8.22 Environmental Matters.................................83
SECTION 8.23 Business Segments.....................................84
SECTION 8.24 Subsidiary Guarantee..................................84
SECTION 8.25 Further Assurances....................................84
SECTION 8.26 Debt to EBITDA Ratio..................................85
SECTION 8.27 Independence of Covenants.............................85
SECTION 9. DEFAULTS
SECTION 9.1 Events of Default......................................85
SECTION 9.2 Application Of Proceeds................................89
SECTION 10. THE ADMINISTRATIVE AGENT AND
THE COLLATERAL AGENT
SECTION 10.1 Appointment and Authorization.........................90
SECTION 10.2 Administrative Agent, Collateral Agent
and Affiliates..........................90
SECTION 10.3 Action by Agents......................................91
SECTION 10.4 Consultation with Experts.............................91
SECTION 10.5 Liability of Agents...................................91
SECTION 10.6 Indemnification.......................................92
SECTION 10.7 Credit Decision.......................................92
SECTION 10.8 Successor Agents......................................93
<PAGE> 111
Page
SECTION 11. MISCELLANEOUS
SECTION 11.1 Notices...............................................93
SECTION 11.2 No Waivers............................................94
SECTION 11.3 Expenses; Documentary Taxes...........................94
SECTION 11.4 Sharing of Set-Offs...................................94
SECTION 11.5 Amendments and Waivers................................95
SECTION 11.6A. Successors and Assigns; Participations;
Purchasing Banks......................96
SECTION 11.6B. Transfers of Money Market Loans....................100
SECTION 11.7 Collateral...........................................101
SECTION 11.8 New York Law.........................................101
SECTION 11.9 Counterparts; Integration; Effectiveness.............101
SECTION 11.10 Indemnity...........................................101
SECTION 11.11 Waiver of Jury Trial; Consent to
Jurisdiction..........................102
SECTION 11.12 Survival of Obligations Under Fee
Letter................................102
SECTION 11.13 Invalidity..........................................102
SECTION 11.14 Substitution of Banks...............................102
SECTION 11.15 Effect of Amendment and Restatement of
the Existing Credit Agreement;
Confirmation of Security Documents....103
<PAGE> 112
SCHEDULES
Schedule I Commitments, Lending Offices, Notices
Schedule II Existing Standby Letters of Credit
Schedule 7.8 Subsidiaries
Schedule 7.18 Environmental Matters
Schedule 8.8 Debt
Schedule 8.9 Investments
Schedule 8.10 Liens
Schedule 8.11 Certain Assets and Leased Property
EXHIBITS
Exhibit A Revolving Note
Exhibit B Tranche B Term Loan Note
Exhibit C-1 Grid Money Market Loan Note
Exhibit C-2 Individual Money Market Loan Note
Exhibit D Notice of Borrowing
Exhibit E Letter of Credit Application
Exhibit F-1 Opinion of Blackwell, Sanders, Matheny,
Weary & Lombardi
Exhibit F-2 Opinion of Wachtell, Lipton, Rosen & Katz
Exhibit G-1 Borrower Closing Certificate
Exhibit G-2 Subsidiary Guarantor Closing Certificate
Exhibit H-1 Money Market Loan Confirmation
Exhibit H-2 Money Market Loan Offer
Exhibit H-3 Money Market Loan Request
Exhibit I Commitment Transfer Supplement
Exhibit J Notice of Continuation/Conversion
Exhibit K Compliance Certificate
<PAGE> 1
Exhibit 4.4(q)
SIXTH MODIFICATION AGREEMENT
This SIXTH MODIFICATION AGREEMENT (hereinafter called this "Agreement")
dated as of the 21st day of November, 1995, by and among PAYLESS CASHWAYS, INC.,
an Iowa corporation (hereinafter called "Borrower"), SOMERVILLE LUMBER AND
SUPPLY CO., INC., a Massachusetts corporation (hereinafter called "Somerville")
(Borrower and Somerville are hereinafter individually called a "Related Person"
and collectively sometimes called "Related Persons"), and THE PRUDENTIAL
INSURANCE COMPANY OF AMERICA, a New Jersey corporation (hereinafter called
"Lender");
W I T N E S S E T H:
WHEREAS, Borrower has executed and delivered to Lender nine (9) certain
promissory notes dated June 20, 1989, payable to the order of Lender in the
original aggregate principal amount of $230,242,500 [including a promissory note
in the original principal amount of $57,013,750, which has been modified and
amended by (a) First Modification Agreement (hereinafter called the "First
Modification Agreement) dated October 18, 1991, by and among Related Persons,
Knox Home Centers, Inc., a Delaware corporation (hereinafter called "Knox"), and
Lender, and (b) Second Modification Agreement (hereinafter called the "Second
Modification Agreement) dated December 17, 1991, by and among Related Persons,
Knox and Lender] (said promissory notes are hereinafter collectively called the
"Note"), with interest and principal payable as therein provided, the
disbursement of which Note is governed by a Loan Agreement dated June 20, 1989,
by and among Related Persons and Lender (said Loan Agreement, as modified and
amended by (a) the First Modification Agreement, (b) the Second Modification
Agreement, (c) Third Modification Agreement [hereinafter called the "Third
Modification Agreement"] dated as of December 31, 1991, by and among Related
Persons, Knox and Lender relating to the merger of Knox into Borrower with
Borrower being the surviving entity, (d) Fourth Modification Agreement
[hereinafter called the "Fourth Modification Agreement"] dated as of March 8,
1993, by and among Related Persons and Lender, and (e) Fifth Modification
Agreement [hereinafter called the "Fifth Modification Agreement"] dated as of
May 25, 1995, by and among Related Persons and Lender, hereinafter called the
"Loan Agreement"), the payment of which Note is secured by the Mortgage,
reference being here made to the Mortgage and the record thereof, the Security
Documents, and all other agreements, certificates, affidavits or other documents
(other than legal opinions of Borrower's General Counsel) executed by any
Related Person or any officer of any Related Person and delivered at the Closing
being hereinafter collectively called the "Loan Documents";
WHEREAS, the Loan Agreement provides that each Related Person will
continuously maintain its existence and its right to
<PAGE> 2
do business in each state in which it owns Property together with its franchises
and trade names to the extent required by Applicable Laws;
WHEREAS, Borrower has requested that Lender consent to the merger of
Somerville, a Subsidiary of Borrower, into Borrower, with Borrower being the
surviving entity (hereinafter called the "Merger");
WHEREAS, Lender is willing to consent to the Merger on the
terms and conditions herein set forth; and
WHEREAS, Lender is the owner and holder of the Note and Somerville is
the owner of the legal and equitable title to the Somerville Property;
NOW THEREFORE, for and in consideration of the mutual covenants
contained herein and for other valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. Defined terms used herein which are defined in the Loan Agreement as
amended hereby, and are not otherwise defined herein, shall have the same
meaning as set forth in the Loan Agreement as amended hereby.
2. Lender hereby consents to the Merger and agrees that the Merger does
not constitute a Default or Event of Default under the Loan Agreement or the
other Loan Documents.
3. Borrower hereby assumes and promises to keep and
perform all of the covenants and obligations in the Somerville
Mortgage to be performed by the Mortgagor or Grantor, as
applicable, thereunder.
4. From and after the date hereof, Lender shall not be required and
shall have no obligation to send to Somerville any notice, request, consent,
demand or other communication required or permitted under the Loan Agreement or
any other Loan Document.
5. Concurrently herewith Related Persons shall deliver, or cause to be
delivered, to Lender the following, duly executed and delivered and in form,
substance and date satisfactory to Lender:
(a) Conveyancing Deeds (hereinafter called collectively the
"Deeds") and an Assignment and Bill of Sale transferring all of
Somerville's right, title and interest in and to the Somerville
Property located in the States of Massachusetts, New Hampshire and
Rhode Island to Borrower together with appropriate UCC-1 Financing
Statements (herein so called) filed with the Secretaries of State of
the States of Massachusetts, New Hampshire and Rhode Island listing the
Borrower, as debtor, and Lender, as secured party.
<PAGE> 3
(b) Favorable opinions from (i) Blackwell Sanders Matheny
Weary & Lombardi, L.C., counsel for Borrower (hereinafter called the
"Blackwell Sanders Opinion") and (ii) Linda French, General Counsel of
Borrower.
(c) A solvency and compliance certificate of a
representative of Borrower and Somerville acceptable to
Lender.
(d) An affidavit of a representative of Borrower
acceptable to Lender.
(e) A Notice and Agreement relating to Section 26.02
of the Texas Business and Commerce Code.
(f) A UCC-3 Financing Statement (herein so called) amending
the UCC-1 Financing Statement currently filed with the Secretary of
State of the State of Missouri listing the Borrower, as debtor, and
Lender, as secured party, to include the Somerville Property.
(g) Endorsements to the mortgagee policies of title insurance
insuring the liens of the Somerville Mortgage, to the effect that the
coverage of said title policies is in effect and unimpaired
notwithstanding the execution and delivery of the Deeds and the
consummation of the Merger, and containing such other assurances as
reasonably required by Lender.
(h) Documentation effecting the consummation of the
Merger (such documentation is hereinafter called the "Merger
Documentation").
This Agreement, together with the instruments described in clauses (a), (c),
(d), (e), (f), (g) and (h) are hereinafter collectively called the "Merger
Documents." The Merger Documents (except for the Merger Documentation) shall
hereinafter be deemed for all purposes to be "Loan Documents" as that term is
defined in the Loan Agreement.
6. Related Persons hereby represent and warrant that (a) before giving
effect to the Merger, Somerville is the sole legal and beneficial owner of the
Somerville Property; (b) after giving effect to the Merger, Borrower is the sole
legal and beneficial owner of the Somerville Property; (c) no Related Person is
in Default in the performance of any of the covenants and agreements contained
herein or in the Loan Documents; (d) no event has occurred and is continuing
which constitutes a Default; (e) each of Borrower, and, before giving effect to
the Merger, Somerville, is a corporation duly organized, validly existing and in
good standing under the laws of its state or organization, having all corporate
or partnership powers required to carry on its business and enter into and carry
out the transactions
<PAGE> 4
contemplated hereby; (f) before giving effect to the Merger, Somerville has all
requisite power and all governmental certificates of authority, licenses,
permits, qualifications and other documentation to own, lease and operate the
Somerville Property and to carry on its business as now conducted and as
contemplated to be conducted except where failure to obtain any such
governmental certificate of authority, license, permit, qualification or other
documentation would not have a Materially Adverse Effect; (g) Borrower has all
requisite power and all governmental certificates of authority, licenses,
permits, qualifications and other documentation to own, lease and operate the
Somerville Property and to carry on its business as now conducted and as
contemplated to be conducted except where failure to obtain any such
governmental certificate of authority, license, permit, qualification or other
documentation would not have a Material Adverse Effect; (h) each of Borrower
and, before giving effect to the Merger, Somerville is duly qualified, in good
standing and authorized to do business in the jurisdiction where the Somerville
Property is located; (i) each Related Person has duly taken all corporate action
necessary to authorize the execution and delivery by it of this Agreement and
the Merger Documents to which it is a party and to authorize the consummation of
the transactions contemplated thereby and the performance of its obligations
hereunder and thereunder; (j) the execution and delivery by Related Persons of
this Agreement and the Merger Documents, the performance by each of its
obligations under this Agreement and the Merger Documents, and the consummation
of the transactions contemplated by this Agreement and the Merger Documents, do
not and will not (1) conflict with any provision of (A) any applicable domestic
or foreign law, statute, decree, rule or regulation, except where failure to
comply therewith would not have a Materially Adverse Effect, (B) the articles or
certificate of incorporation, bylaws, charter or partnership agreement or
certificate of any Related Person or (C) any agreement, judgment, license, order
or permit applicable to or binding upon any Related Person, (2) result in the
acceleration of any debt owed by any Related Person, (3) result in or require
the creation of any Lien upon any assets or properties of any Related Person
except as expressly contemplated in this Agreement, the Merger Documents or the
Loan Documents, or (4) contravene, result in a breach of or constitute a default
under any mortgage, deed of trust, lease, promissory note, loan agreement or
other material contract or material agreement to which any Related Person is a
party or by which any Related Person or any of its properties may currently be
bound or affected; (k) no consent, approval, authorization or order of, and no
notice to or filing with, any court or governmental authority or third party is
required in connection with the execution, delivery or performance by any
Related Person of this Agreement or the Merger Documents or to consummate any
transactions contemplated by the Merger, this Agreement or the Merger Documents,
other than (1) the filing of the Deeds, the UCC-1 Financing Statements and the
UCC-3 Financing Statement in the appropriate locations or with the appropriate
officials and (2) the filing of the Merger Documentation in the
<PAGE> 5
locations as set forth in the Blackwell Sanders opinion; and (l) this Agreement
and the Merger Documents are legal and binding obligations of each Related
Person which is a party hereto or thereto, enforceable in accordance with their
respective terms, except as limited by bankruptcy, insolvency or similar laws of
general application relating to the enforcement of creditors' rights. Related
Persons agree to indemnify and hold Lender harmless against any loss, claim,
damage, liability or expense (including without limitation attorneys' fees)
incurred as a result of any representation or warranty made by them herein
proving to be untrue in any material respect.
7. Related Persons, upon request from Lender, agree to execute such
other and further documents as may be reasonably necessary or appropriate to
consummate the transactions contemplated herein or in the Merger Documents or to
perfect the liens and security interests intended to secure the payment of the
Note.
8. If (a) any Related Person shall fail to keep or perform any of the
covenants or agreements contained herein or in the Merger Documents and such
failure is not remedied within the Grace Period as provided in the Loan
Agreement with respect to an Event of Default for which a Grace Period is
provided under subsection (c) of Section 7.1 of the Loan Agreement, or (b) if
any statement, representation or warranty contained herein or in the Merger
Documents (other than the Merger Documentation) shall prove to have been false
or incorrect in any material respect as of the date hereof, and the represented
or warranted state of affairs does not become true within the Grace Period as
provided in the Loan Agreement with respect to an Event of Default for which a
Grace Period is provided under subsection (d) of Section 7.1 of the Loan
Agreement, or (c) with respect to any false or incorrect statement,
misrepresentation or breach of warranty contained in the Merger Documentation
which results in the Merger being nullified or otherwise set aside, an Event of
Default shall be deemed to have occurred under the Loan Agreement and Lender
shall be entitled at its option to exercise any and all of the rights and
remedies granted pursuant to the Loan Agreement or any other Loan Document or to
which Lender may otherwise be entitled, whether at law or in equity.
9. Except as provided or contemplated herein, the terms and provisions
of the Note, the Loan Agreement and the other Loan Documents shall remain
unchanged and shall remain in full force and effect. Any modification herein of
the Loan Agreement and the other Loan Documents shall in no way affect the
security of the Security Documents and the other Loan Documents for the payment
of the Note. Related Parties hereby agree, covenant and represent that the Note,
the Loan Agreement and the other Loan Documents as modified and amended hereby
are and remain valid and that nothing herein shall affect the validity or
enforceability thereof.
<PAGE> 6
10. Related Persons hereby acknowledge that the liens and security
interests created and evidenced by the Somerville Mortgage are valid and subs
sting and further acknowledge and agree that there are no offsets, claims or
defenses to the Note, the Loan Agreement or any other Loan Documents. Related
Persons further acknowledge that they have no knowledge that there are any
defects or deficiencies with respect to the validity of the liens and security
interests created and evidenced by any of the Security Documents.
11. Contemporaneously with the execution and delivery hereof, Borrower
shall pay, or cause to be paid, all costs and expenses incident to the
preparation hereof and the consummation of the transactions specified herein,
including but not limited to legal fees and expenses of outside counsel and
title costs.
12. This Agreement may be executed in any number of counterparts with
the same effect as if all parties hereto had signed the same document. All such
counterparts shall be construed together and shall constitute one instrument,
but in making proof hereof it shall only be necessary to produce one such
counterpart.
13. The terms and provisions hereof shall be binding upon
and inure to the benefit of the parties hereto and their
successors and assigns.
14. Related Persons hereby release, remise, acquit and forever
discharge Lender, together with its employees, agents, representatives,
consultants, attorneys, fiduciaries, servants, officers, directors, partners,
predecessors, successors and assigns, subsidiary corporations, parent
corporations, and related corporate divisions (all of the foregoing hereinafter
called the "Released Parties"), from any and all actions and causes of action,
judgments, executions, suits, debts, claims, demands, liabilities, obligations,
damages and expenses of any and every character, known or unknown, direct and/or
indirect, at law or in equity, of whatsoever kind or nature, whether heretofore
or hereafter accruing, for or because of any matter or things done, omitted or
suffered to be done by any of the Released Parties prior to and including the
date hereof, and in any way directly or indirectly arising out of or in any way
connected to this Agreement, the Loan Agreement, the Note, the Security
Documents, or any other document executed by Related Persons in connection with
any of the transactions associated therewith, or the Property, including
specifically but not limited to claims of usury.
<PAGE> 7
IN WITNESS WHEREOF, this Agreement is executed effective as of the date
first above written.
PAYLESS CASHWAYS, INC., an Iowa
corporation
By:
S/ Stephen A. Lightstone
---------------------------------
Name: Stephen A. Lightstone
Title: Sr. Vice President-
Finance and Treasurer
SOMERVILLE LUMBER AND SUPPLY CO.,
INC., a Massachusetts corporation
By:
S/ Stephen A. Lightstone
-----------------------------------
Name: Stephen A. Lightstone
Title: Treasurer
THE PRUDENTIAL INSURANCE COMPANY OF
AMERICA, a New Jersey corporation
By:
S/ Randall M. Hall
-----------------------------------
Name:
Randall M. Hall
-----------------------------
Title:
Vice President
-----------------------------
<PAGE> 1
Exhibit 10.17
PAYLESS CASHWAYS, INC.
DEFERRED COMPENSATION PLAN FOR DIRECTORS
Section 1. Introduction
1.1 Establishment. Payless Cashways, Inc., an Iowa corporation (the
"Company"), hereby establishes the Payless Cashways, Inc. Deferred Compensation
Plan for Directors (the "Plan") for those directors of the Company who are
neither officers nor employees of the Company. The Plan provides the opportunity
for Directors to defer receipt of all or a part of their cash compensation on a
pretax basis and, subject to approval of the Plan by shareholders, invest those
deferrals in the Company's Stock.
1.2 Purposes. The purposes of the Plan are to align the interests of
Directors more closely with the interests of other shareholders of the Company,
to encourage the highest level of Director performance by providing the
Directors with a direct interest in the Company's attainment of its financial
goals, and to help attract and retain qualified Directors.
1.3 Effective Date. This Plan shall be effective upon approval of the
Plan by the Board; provided that any fees deferred by a Director and interest
thereon shall not be invested until the later of (i) the date on which the Plan
is approved by the shareholders of the Company or (ii) the date specified in
Section 5.3. To the extent an investment or distribution of Stock may be made
under this Plan, the Plan is intended to qualify for the exemption from short
swing profits under Section 16(b) of the Securities Exchange Act of 1934, as
amended, provided by Rule 16b-3 of the Securities and Exchange Commission as now
in effect or hereafter amended. In the event the shareholders of the Company do
not approve this Plan at the Company's 1996 annual meeting of shareholders, a
participating Director may, within thirty days after the date of such meeting,
elect to terminate participation in this Plan and to receive a one-time
immediate cash distribution of the entire balance in the Deferred Account.
Section 2. Definitions
2.1 Definitions. The following terms shall have the meanings set forth
below:
(a) "Administrative Committee" means the committee designated in
Section 3 to administer the Plan.
(b) "Board" means the Board of Directors of the Company.
<PAGE> 2
(c) "Change in Control" means any of the events set forth below:
(i) any person, as defined in Sections 3(a)(9) and
13(d)(3) of the Securities Exchange Act of 1934 (the "Exchange
Act"), becomes the "beneficial owner" (as defined in Rule
13d-3 promulgated pursuant to the Exchange Act), directly or
indirectly, of securities of the Company having 25% or more of
the voting power in the election of directors of the Company,
excluding, however, any person or an "affiliate" (as defined
in the Exchange Act) of such person who is the beneficial
owner of any shares of any class (preferred or common) of the
Company's capital stock on January 31, 1993; or
(ii) the occurrence within any twelve-month period
during the term of the Plan of a change in the Board with the
result that the Incumbent Members (as defined below) do not
constitute a majority of the Company's Board. The term
"Incumbent Members" shall mean the members of the Board on the
date immediately preceding the commencement of such
twelve-month period, provided that any person becoming a
Director during such twelve-month period whose election or
nomination for election was approved by a majority of the
Directors who, on the date of such election or nomination for
election, comprised the Incumbent Members shall be considered
one of the Incumbent Members in respect of such twelve-month
period.
(d) "Common Stock Equivalent" means a hypothetical share of Stock
which shall have a value on any date equal to the Fair Market
Value of one share of Stock on that date.
(e) "Deferred Account" means the bookkeeping account established
by the Company in respect to each Director pursuant to Section
5.3 hereof and to which shall be credited the fees deferred by
the Director and interest thereon, if any, as provided in this
Plan and the Common Stock Equivalents into which such deferred
fees and interest are invested pursuant to the Plan.
(f) "Director" means a member of the Board who is neither an
officer nor an employee of the Company. For purposes of the
Plan, an employee is an individual whose wages are subject to
the withholding of federal income tax under section 3401 of
the Internal Revenue Code, and an officer is an individual
elected or appointed by the Board or chosen in such other
manner as may be prescribed in the Bylaws of the Company to
serve as such.
<PAGE> 3
(g) "Exchange Act" means the Securities Exchange Act of 1934, as
amended from time to time.
(h) "Fair Market Value" means as of any applicable date the
closing sale price of a share of the Company's Common Stock in
question on the Composite Tape for New York Stock
Exchange-Listed Stock, or, if such stock is not quoted on the
Composite Tape, on the New York Stock Exchange, or, if such
stock is not listed on such Exchange, on the principal United
States securities exchange registered under the Securities
Exchange Act of 1934 on which such stock is listed, or, if
such stock is not listed on any such exchange, the last
closing bid quotation with respect to a share of such stock
immediately preceding the time in question on the National
Association of Securities Dealers, Inc. Automated Quotations
System or any system then in use (or any other system of
reporting or ascertaining quotations then available), or if
such stock is not so quoted, the fair market value at the time
in question of a share of such stock as determined by the
Company's Board in good faith.
(i) "Internal Revenue Code" means the Internal Revenue Code of
1986, as amended from time to time.
(j) "Stock" means the $.01 par value common stock of the Company.
(k) "Payment Date" means each of the dates each year on which the
Company pays fees to Directors.
2.2 Gender and Number. Except when otherwise indicated by the context,
the masculine gender shall also include the feminine gender, and the definitions
of any term herein in the singular shall also include the plural.
Section 3. Plan Administration
The Plan shall be administered by the Administrative Committee,
comprised of the Senior Vice President of Human Resources and the Senior Vice
President of Finance of the Company. Subject to the limitations of the Plan, the
Administrative Committee shall have the sole and complete authority: (i) to
impose such limitations, restrictions and conditions as shall be deemed
appropriate, (ii) to interpret the Plan and to adopt, amend and rescind
administrative guidelines and other rules and regulations relating to the Plan
and (iii) to make all other determinations and to take all other actions
necessary or advisable for the implementation and administration of the Plan.
Notwithstanding the foregoing, the Administrative Committee shall have no
<PAGE> 4
authority, discretion or power to alter any terms or conditions specified in the
Plan, except in the sense of administering the Plan subject to the provisions of
the Plan. The Administrative Committee's determinations on matters within its
authority shall be conclusive and binding upon the Company, the Directors, and
other persons. The Plan shall be interpreted and implemented in a manner so that
Directors will not fail, by reason of the Plan or its implementation, to be
"disinterested persons" within the meaning of Rule 16b-3 under Section 16 of the
Exchange Act, as such rule may be amended.
Section 4. Stock Subject to the Plan
4.1 Number of Shares. There shall be authorized for issuance under the
Plan, in accordance with the provisions of the Plan, 250,000 shares of Stock.
This authorization may be increased from time to time by approval of the Board
and by the shareholders of the Company if such shareholder approval is required.
The Company shall at all times during the term of the Plan retain as authorized
and unissued Stock at least the number of shares from time to time required
under the provisions of the Plan, or otherwise assure itself of its ability to
perform its obligations hereunder. The shares of Stock issuable hereunder shall
be authorized and unissued shares or previously issued and outstanding shares of
Stock reacquired by the Company.
4.2 Other Shares of Stock. Any shares of Stock that are subject to a
Common Stock Equivalent and for any reason are not issued to a Director shall
automatically become available again for use under the Plan.
4.3 Adjustments Upon Changes in Stock. If there shall be any change in
the Stock of the Company, through merger, consolidation, reorganization,
recapitalization, stock dividend, stock split, spinoff, split up, dividend in
kind or other change in the corporate structure or distribution to the
shareholders, appropriate adjustments shall be made by the Administrative
Committee (or if the Company is not the surviving corporation in any such
transaction, the board of directors of the surviving corporation) in the
aggregate number and kind of shares subject to the Plan, and the number and kind
of shares which may be issued under the Plan. Appropriate adjustments may also
be made by the Administrative Committee in the terms of Common Stock Equivalents
under the Plan to reflect such changes and to modify any other terms on an
equitable basis as the Administrative Committee in its discretion determines.
Section 5. Deferrals and Distributions
5.1 Deferral Elections. A Director may elect to defer receipt of all or
a specified portion of the annual directors' fee, the annual committee chair's
fee,
<PAGE> 5
and/or meeting and other fees payable in cash to the Director for serving
on the Board or any committee thereof. A Director may make the elections
permitted hereunder by giving written notice to the Company in a form approved
by the Administrative Committee. The notice shall include: (i) the percentage of
fees to be deferred, (ii) the date as of which deferral is to commence and,
(iii) subject to the limitations of this Section 5, the year in which
distribution is to commence and whether lump sum or installments (not greater
than 5 years) are requested. Amounts deferred by a Director pursuant to this
Section 5.1 shall be converted into Common Stock Equivalents in accordance with
Section 5.3.
5.2 Time for Electing Deferral and Change in Election. An election to
defer fees shall be made prior to the latest to occur of the following: (i) the
beginning of the calendar year for which the fees are to be earned; (ii) such
Director's first day of Board service in that year; (iii) the thirty-first day
following the date the Director first becomes eligible to participate in the
Plan; provided that, an election made after the first day of a calendar year
shall only apply to fees earned after the date of the election. An election to
defer, once made, is irrevocable for the first calendar year with respect to
which the election is made, except as provided in Section 5.11 hereof. An
election to defer, once made, shall continue to be effective for succeeding
calendar years until revoked or modified by the Director by written request to
the Administrative Committee prior to the beginning of a calendar year for which
fees would otherwise be deferred, provided that any change in the election other
than a complete termination of the deferral shall not be effective until six
months and one day after the date of the notice by the Director.
5.3 Deferred Accounts. A Deferred Account shall be established for each
Director. Fees deferred by a Director shall be credited to such Account as of
the date such amounts would have otherwise been paid in cash to the Director,
and shall be converted into Common Stock Equivalents based on Fair Market Value
as of the later to occur of (i) the date such amounts would have otherwise been
paid in cash to the Director, (ii) the date on which this Plan is approved by
shareholders, or (iii) six months plus one day after the date of the Director's
election to defer; provided that any amount deferred by the Director shall earn
interest at eight percent (8%) per annum from the date on which the fees were
deferred until the date the fees are converted into Common Stock Equivalents as
provided in this sentence. A Director's Deferred Account shall also be credited
with dividends and other distributions pursuant to Section 5.4.
5.4 Hypothetical Dividends on Common Stock Equivalents. Dividends and
other distributions on Common Stock Equivalents shall be deemed to have been
paid as if such Common Stock Equivalents were actual shares of Stock issued and
outstanding on the respective record or distribution dates. Common Stock
Equivalents shall be credited to the Deferred Account in respect of cash
dividends and any other securities or property issued on the Stock in connection
<PAGE> 6
with reclassifications, spinoffs and the like on the basis of the value of the
dividend or other asset distributed and the Fair Market Value of the Common
Stock Equivalents on the date of the announcement of the dividend or asset
distribution, all at the same time and in the same amount as dividends or other
distributions are paid or issued on the Stock. Fractional shares shall be
credited to a Director's Deferred Account cumulatively, but the balance of
shares of Common Stock Equivalents in a Director's Deferred Account shall be
rounded to the next highest whole share for any distribution to such Director
pursuant to this Section 5.
5.5 Statement of Accounts. A statement will be sent to each Director as
to the balance of his or her Deferred Account at least once each calendar year.
5.6 Payment of Accounts. As soon as practicable following termination
of services as a Director, a Director shall receive a distribution of his
Deferred Account as directed by the Director in an election deferral notice.
Either a lump sum or the first of equal annual installments (not greater than
five) shall be paid in the year of termination. Succeeding installments (if any)
shall be paid on January 31 of each calendar year following the calendar year in
which the first payment was made. Such distribution(s) shall consist of one
share of Stock for each Common Stock Equivalent credited to such Director's
Deferred Account as of the Payment Date immediately preceding the date of
distribution.
5.7 Payments to a Deceased Director's Estate. In the event of a
Director's death before the balance of his Deferred Account is fully paid,
payment of the balance of the Director's Deferred Account shall then be made to
the beneficiary designated by the Director pursuant to Section 5.8 or, in the
absence of a designation of a beneficiary pursuant to Section 5.8, to his
estate, in the time and manner selected by the Administrative Committee. The
Administrative Committee may take into account the application of any duly
appointed administrator or executor of a Director's estate and direct that the
balance of the Director's Deferred Account be paid to his estate in the manner
requested by such application.
5.8 Designation of Beneficiary. A Director may designate a beneficiary
on a form approved by the Administrative Committee.
5.9 Change in Control. Notwithstanding any provision of this Plan to
the contrary, in the event a Change in Control of the Company occurs, within ten
(10) days of the date of such Change in Control, each Director shall receive a
lump sum distribution in the number of shares of Stock equal to the number of
Common Stock Equivalents credited to such Director's Deferred Account as of the
date of the Change in Control.
<PAGE> 7
5.10 Emergency Payments. In the event of an "unforeseeable emergency"
as defined herein, the Administrative Committee may determine the amounts
payable under Section 5 hereof and pay all or a part of such amounts in shares
of Stock without regard to the payment dates provided in Section 5, to the
extent the Administrative Committee determines that such action is necessary in
light of immediate and substantial needs of the Director (or his beneficiary)
occasioned by severe financial hardship. For the purposes of this Section, an
"unforeseeable emergency" is a severe financial hardship to the Director
resulting from a sudden and unexpected illness or accident of the Director or
beneficiary, or of a dependent (as defined in Section 152(a) of the Internal
Revenue Code of 1986, as amended) of the Director or beneficiary, loss of the
Director's or beneficiary's property due to casualty, or other similar
extraordinary and unforeseeable circumstances arising as a result of events
beyond the control of the Director or beneficiary. Payments shall not be made
pursuant to this Section to the extent that such hardship is or may be relieved:
(a) through reimbursement or compensation by insurance or otherwise, (b) by
liquidation of the Director's or beneficiary's assets, to the extent the
liquidation of such assets would not itself cause severe financial hardship, or
(c) by cessation of the Director's deferrals under the Plan. Such action shall
be taken only if a Director (or a Director's legal representatives or
successors) signs an application describing fully the circumstances which are
deemed to justify the payment, together with an estimate of the amounts
necessary to prevent such hardship, which application shall be approved by the
Administrative Committee after making such inquiries as the Administrative
Committee deems necessary or appropriate.
5.11 Payment of Taxable Amount. Notwithstanding any other provision of
this Section 5 or any payment schedule directed by a Director pursuant to this
Section 5 and regardless of whether payments have commenced under this Section
5, in the event that the Internal Revenue Service should finally determine that
part or all of the value of a Director's Deferred Account which has not actually
been distributed to the Director is nevertheless required to be included in the
Director's gross income for federal and/or State income tax purposes, then the
balance of the Deferred Account or the part thereof that was determined to be
includible in gross income shall be distributed in shares of Stock to the
Director in a lump sum as soon as practicable after such determination, without
any action or approval by the Administrative Committee. A "final determination"
of the Internal Revenue Service for purposes of this Section is a determination
in writing by said Service ordering the payment of additional tax, reporting of
additional gross income or otherwise requiring Plan amounts to be included in
gross income, which is not appealable or which the Director does not appeal
within the time prescribed for appeals.
<PAGE> 8
Section 6. General Creditor Status
Each Director, and each other recipient of a Director's Deferred
Amounts pursuant to Section 5, shall be and remain an unsecured general creditor
of the Company with respect to any payments due and owing to such Director
hereunder. All payments to persons entitled to benefits hereunder shall be made
out of the general assets, and shall be the sole obligations, of the Company.
The Plan is a promise to pay benefits in the future and it is the intention of
the parties that it be "unfunded" for tax purposes (and for the purposes of
Title I of the Employee Retirement Income Security Act of 1974 ("ERISA")).
Section 7. Claims Procedures
If a claim for benefits made by any person (the "Applicant") is denied,
the Administrative Committee shall furnish to the Applicant, within 90 days
after its receipt of such claim (or within 180 days after such receipt if
special circumstances require an extension of time), a written notice which: (i)
specifies the reasons for the denial, (ii) refers to the pertinent provisions of
the Plan on which the denial is based, (iii) describes any additional material
or information necessary for the perfection of the claim and explains why such
material or information is necessary, and (iv) explains the claim review
procedures. Upon the written request of the Applicant submitted within 60 days
after receipt of such written notice, the Administrative Committee shall afford
the Applicant a full and fair review of the decision denying the claim and, if
so requested: (i) permit the Applicant to review any documents which are
pertinent to the claim, (ii) permit the Applicant to submit to the
Administrative Committee issues and comments in writing, and (iii) afford the
Applicant an opportunity to meet with the Administrative Committee as a part of
the review procedure. Within 60 days after its receipt of a request for review
(or within 120 days after such receipt if special circumstances, such as the
need to hold a hearing, require an extension of time) the Administrative
Committee shall notify the Applicant in writing of its decision and the reasons
for its decision and shall refer the Applicant to the provisions of the Plan
which form the basis for its decision.
Section 8. Assignability
The right to receive payments or distributions hereunder shall not be
transferable or assignable by a Director other than by will or the laws of
descent and distribution.
<PAGE> 9
Section 9. Plan Termination, Amendment and Modification
The Plan shall automatically terminate at the close of business on the
tenth anniversary of the effective date unless sooner terminated by the Board.
The Board may at any time terminate, and from time to time may amend or modify
the Plan, provided, however, that no amendment or modification may become
effective without approval of the amendment or modification by the shareholders
if shareholder approval is required to enable the Plan to satisfy any applicable
statutory or regulatory requirements, and, provided further that no termination,
amendment or modification shall reduce the then existing balance of any
Director's Deferred Account or otherwise adversely change the terms and
conditions thereof without the Director's consent, and, provided further that no
amendment or modification shall be made more than once every six months that
would change the amount, price or timing of the Common Stock Equivalents, other
than to comport with changes in the Internal Revenue Code, the Employee
Retirement Income Security Act of 1974, as amended, or the rules promulgated
thereunder.
Section 10. Governing Law/Plan Construction
The Plan and all agreements hereunder shall be construed in accordance
with and governed by the laws of the State of Missouri. Nothing in this document
shall be construed as an employment agreement or in any way impairing the right
of the Company, its board, committees or shareholders, to remove a Director from
service as a director, to refuse to renominate or reelect such person as a
director, or to enforce the duly adopted retirement policies of the board of
directors of the Company.
<PAGE> 1
Exhibit 11.1
PAYLESS CASHWAYS, INC. AND SUBSIDIARY
COMPUTATION OF PER SHARE EARNINGS (LOSS)
- ---------------------------------------
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Fiscal Year End
-------------------------------------------------
November 25, November 26, November 27,
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
PRIMARY
- -------
Income (loss) before extraordinary item $(128,549) $ 52,132 $ 9,669
Less:
Preferred stock dividends (5,527) (5,106) (4,718)
---------- ---------- ----------
Income (loss) before extraordinary item
available to common shareholders (134,076) 47,026 4,951
Extraordinary loss -- (7,243) (45,828)
---------- ---------- ----------
Net income (loss) available to common shareholders $(134,076) $ 39,783 $ (40,877)
Weighted average common and dilutive common
equivalent shares outstanding 39,904 (1) 40,257 30,514
---------- ---------- ----------
Weighted average common shares outstanding (2) 39,904 39,791 29,875
---------- ---------- ----------
Income (loss) per common share before extraordinary item
and cumulative effect of change in accounting principle $ (3.36) $ 1.17 $ .16
Extraordinary item per common share -- (.18) (1.53)
---------- ---------- ----------
Net income per common share $ (3.36) $ .99 $ (1.37)
========== ========== ==========
FULLY DILUTED
- -------------
Income (loss) before extraordinary item $(128,549) $ 52,132 $ 9,669
Less:
Preferred stock dividends (5,527) (5,106) --
---------- ---------- ----------
Income (loss) before extraordinary item
available to common shareholders (134,076) 47,026 9,669
Extraordinary loss -- (7,243) (45,828)
---------- ---------- ----------
Net income available to common shareholders $(134,076) $ 39,783 $ (36,159)
---------- ---------- ----------
Weighted average common and dilutive common
equivalent shares outstanding 39,904 (1) 40,257 32,482
---------- ---------- ----------
Weighted average common shares outstanding (2) 39,904 39,791 29,875
---------- ---------- ----------
Income (loss) per common share before extraordinary item $ (3.36) $ 1.17 $ .30
Extraordinary loss per common share -- (.18) (1.53)
---------- ---------- ----------
Net income (loss) per common share $ (3.36) $ .99 $ (1.21)
========== ========== ==========
</TABLE>
<PAGE> 2
PAYLESS CASHWAYS, INC. AND SUBSIDIARY
COMPUTATION OF PER SHARE EARNINGS (LOSS)
- ---------------------------------------
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Quarter Ended
--------------------------------------------------------------------
February 25, May 27, August 26, November 25,
1995 1995 1995 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
PRIMARY
- -------
Net income (loss) $ (3,864) $ 4,613 $ 8,146 $(137,444)
Less:
Preferred stock dividends (1,341) (1,368) (1,395) (1,423)
---------- ---------- ---------- ----------
Net income (loss) available to common shareholders $ (5,205) $ 3,245 $ 6,751 $(138,867)
Weighted average common and dilutive common
equivalent shares outstanding 39,878 (1) 40,092 40,116 39,914 (1)
---------- ---------- ---------- ----------
Net income (loss) per common share $ (.13) $ .08 $ .17 $ (3.48)
========== ========== ========== ==========
FULLY DILUTED
- -------------
Net income (loss) available to common shareholders $ (5,205) $ 3,245 $ 6,751 $(138,867)
Weighted average common and dilutive common
equivalent shares outstanding 39,878 (1) 40,092 40,116 39,914 (1)
---------- ---------- ---------- ----------
Net income (loss) per common share $ (.13) $ .08 $ .17 $ (3.48)
========== ========== ========== ==========
</TABLE>
<PAGE> 3
PAYLESS CASHWAYS, INC. AND SUBSIDIARY
COMPUTATION OF PER SHARE EARNINGS (LOSS)
- ---------------------------------------
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Quarter Ended
--------------------------------------------------------------------
February 26, May 28, August 27, November 26,
1994 1994 1994 1994
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
PRIMARY
- -------
Income (loss) before extraordinary item $ (681) $ 16,956 $ 18,345 $ 17,512
Less:
Preferred stock dividends (1,239) (1,264) (1,289) (1,315)
---------- ---------- ---------- ----------
Income (loss) before extraordinary item
available to common shareholders (1,920) 15,692 17,056 16,197
Extraordinary gain (loss) -- 55 288 (7,586)
---------- ---------- ---------- ----------
Net income (loss) available to common shareholders $ (1,920) $ 15,747 $ 17,344 $ 8,611
Weighted average common and dilutive common
equivalent shares outstanding 39,628 (1) 41,013 40,320 40,066
---------- ---------- ---------- ----------
Weighted average common shares outstanding (2) 39,628 N/A N/A 39,874
---------- ---------- ---------- ----------
Income (loss) per common share before
extraordinary item $ (.05) $ .38 $ .42 $ .40
Extraordinary gain (loss) per common share -- -- .01 (.19)
---------- ---------- ---------- ----------
Net income (loss) per common share $ (.05) $ .38 $ .43 $ .21
========== ========== ========== ==========
FULLY DILUTED
- -------------
Income (loss) before extraordinary item $ (681) $ 16,956 $ 18,345 $ 17,512
Less:
Preferred stock dividends -- -- (1,289) (1,315)
---------- ---------- ---------- ----------
Income (loss) before extraordinary item
available to common shareholders (681) 16,956 17,056 16,197
Extraordinary gain (loss) -- 55 288 (7,586)
---------- ---------- ---------- ----------
Net income (loss) available to common shareholders $ (681) $ 17,011 $ 17,344 $ 8,611
Weighted average common and dilutive common
equivalent shares outstanding 39,628 (1) 43,449 40,321 40,066
---------- ---------- ---------- ----------
Weighted average common shares outstanding (2) 39,628 N/A N/A 39,874
---------- ---------- ---------- ----------
Income (loss) per common share before
extraordinary item $ (.02) $ .39 $ .42 $ .40
Extraordinary gain (loss) per common share -- -- .01 (.19)
---------- ---------- ---------- ----------
Net income (loss) per common share $ (.02) $ .39 $ .43 $ .21
========== ========== ========== ==========
<FN>
(1) Due to a loss being incurred for the period, dilutive common equivalent shares have not been computed as the resulting loss per
share would be antidilutive.
(2) Excludes dilutive common equivalent shares for computation of loss per common share.
</TABLE>
<PAGE> 1
Exhibit 13.1
ABOUT THE COMPANY
[This section not included in the EDGARized exhibit.]
TO OUR SHAREHOLDERS
[Shareholder letter not included in the EDGARized exhibit.]
<PAGE> 2
TO OUR SHAREHOLDERS (cont'd.)
[Shareholder letter is not included in the EDGARIzed exhibit.]
<PAGE> 3
TO OUR SHAREHOLDERS (cont'd.)
[Shareholder letter is not included in the EDGARIzed exhibit.]
<PAGE> 4
Payless Cashways, Inc. and subsidiary
QUARTERLY CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
First Second Third Fourth
Fiscal Year Ended November 25, 1995 Quarter Quarter Quarter Quarter
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Income
Net sales $ 556,218 $ 711,679 $ 737,237 $ 675,052
Other income 1,344 1,517 1,357 1,266
--------------------------------------------------------------
557,562 713,196 738,594 676,318
Costs and expenses
Cost of merchandise sold 389,065 513,418 530,402 479,735
Selling, general and administrative 142,669 158,984 159,272 158,664
Provision for depreciation and amortization 14,689 15,083 15,567 15,017
Interest expense 15,273 15,573 15,247 14,974
Special charges -- -- -- 153,667
--------------------------------------------------------------
561,696 703,058 720,488 822,057
--------------------------------------------------------------
INCOME (LOSS) BEFORE INCOME TAXES (4,134) 10,138 18,106 (145,739)
Federal and state income taxes (1,770) 4,550 8,985 (16,676)
---------------------------------------------------------------
Income (loss) before equity in loss of joint venture (2,364) 5,588 9,121 (129,063)
Equity in loss of joint venture (1,500) (975) (975) (8,381)
---------------------------------------------------------------
NET INCOME (LOSS) $ (3,864) $ 4,613 $ 8,146 $(137,444)
===============================================================
Net income (loss) per common share $ (.13) $ .08 $ .17 $ (3.48)
================================================================
Weighted average common and dilutive common
equivalent shares outstanding 39,878 40,092 40,116 39,914
==============================================================
<FN>
A lower-than-anticipated rate of inflation decreased the LIFO inventory
provision, after tax, by $.9 million, or $.02 per share, in the fourth quarter.
Special charges reflected in the fourth quarter consist of costs associated with
the closing of six stores, the sale of a distribution center and the
reorientation of several stores to concentrate on the professional customer.
Fourth quarter equity in loss of joint venture includes the $8.0 million, or
$.20 per common share, loss on the sale of the Company's Mexican joint venture
investment.
</TABLE>
<PAGE> 5
Payless Cashways, Inc. and subsidiary
QUARTERLY CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) (cont'd.)
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
First Second Third Fourth
Fiscal Year Ended November 26, 1994 Quarter Quarter Quarter Quarter
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Income
Net sales $ 542,053 $ 734,215 $ 744,112 $ 702,159
Other income 1,256 2,711 2,008 4,668
--------------------------------------------------------------
543,309 736,926 746,120 706,827
Costs and expenses
Cost of merchandise sold 375,281 518,659 530,402 494,332
Selling, general and administrative 137,882 156,358 149,569 150,215
Provision for depreciation and amortization 14,298 14,565 15,116 14,713
Interest expense 16,605 16,463 16,348 16,155
--------------------------------------------------------------
544,066 706,045 711,435 675,415
--------------------------------------------------------------
INCOME (LOSS) BEFORE INCOME TAXES (757) 30,881 34,685 31,412
Federal and state income taxes (76) 13,481 15,635 12,768
--------------------------------------------------------------
Income (loss) before equity in loss of joint venture and
extraordinary item (681) 17,400 19,050 18,644
Equity in loss of joint venture -- (444) (705) (1,132)
---------------------------------------------------------------
Income (loss) before extraordinary item (681) 16,956 18,345 17,512
Extraordinary item: early extinguishment of debt -- 55 288 (7,586)
---------------------------------------------------------------
NET INCOME (LOSS) $ (681) $ 17,011 $ 18,633 $ 9,926
==============================================================
Income (loss) per common share before extraordinary item $ (.05) $ .38 $ .42 $ .40
Extraordinary item: early extinguishment of debt -- -- .01 (.19)
---------------------------------------------------------------
Net income (loss) per common share $ (.05) $ .38 $ .43 $ .21
==============================================================
Weighted average common and dilutive common
equivalent shares outstanding 39,628 41,013 40,320 40,066
==============================================================
<FN>
A lower-than-anticipated rate of inflation decreased the LIFO inventory
provision, after tax, by $1.0 million, or $.03 per share, in the fourth quarter.
Other income includes gains of $1.9 million, $.9 million and $3.1 million in the
second, third and fourth quarters, respectively, related to settlements of 1993
flood losses.
</TABLE>
<PAGE> 6
Payless Cashways, Inc. and subsidiary
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following discussion of the Company's financial condition and results of
operations should be read in conjunction with the Consolidated Financial
Statements and notes thereto included elsewhere in this Annual Report to
Shareholders.
<TABLE>
<CAPTION>
Fiscal Year Ended
Nov. 25, Nov. 26, Nov. 27,
1995 1994 1993
-------------------------------------------
<S> <C> <C> <C>
OPERATING DATA (PERCENT OF NET SALES):
Net sales....................................................... 100.0 % 100.0 % 100.0 %
Other income.................................................... .2 .4 .2
Cost of merchandise sold........................................ 71.4 70.5 70.2
Selling, general and administrative............................. 23.1 21.8 21.9
Provision for depreciation and amortization..................... 2.2 2.2 2.2
Interest expense................................................ 2.3 2.4 4.8
Special charges................................................. 5.7 -- .1
--------------------------------------------
Income (loss) before income taxes............................... (4.5) 3.5 1.0
Federal and state income taxes.................................. (.2) 1.6 .6
Equity in loss of joint venture................................. (.4) (.1) --
--------------------------------------------
Income (loss) before extraordinary item......................... (4.8) 1.9 .4
Extraordinary item.............................................. -- (.3) (1.8)
---------------------------------------------
Net income (loss)............................................... (4.8)% 1.6 % (1.4)%
==============================================
</TABLE>
SALES
Net sales decreased 1.6% for fiscal 1995 from fiscal 1994, and increased 4.7%
for fiscal 1994 over fiscal 1993. Comparable-store sales (sales from stores that
have been open one full year) decreased by 4.5% for fiscal 1995, and increased
3.3% for fiscal 1994. Net sales for 1995 were negatively impacted by deflated
lumber costs, a slower housing environment, softness in consumer spending,
competitive pressures and, in a number of markets, an excess of retail space
devoted to the sale of building materials. Sales from professional customers
declined 1.9% in fiscal 1995 compared to double-digit gains in the past several
years. Six new stores were opened during 1995 and seven stores were opened
during 1994. Net sales for 1994 increased over the prior year primarily as a
result of the growth in business from professional customers.
Other income for fiscal year 1994 includes gains of $5.9 million related to
settlements of 1993 flood losses.
COSTS AND EXPENSES
The cost of merchandise sold, as a percent of sales, was 71.4% in fiscal 1995,
70.5% in fiscal 1994 and 70.2% in fiscal 1993. The increase in 1995 was
primarily due to the Company's pricing initiatives while the increase in 1994
was due primarily to the growth in sales to the professional customer whose
merchandise purchases include a higher percentage of commodity goods at margin
rates somewhat lower than the Company average. The LIFO provision in fiscal 1995
was $4.2 million compared to $3.1 million in fiscal 1994 and $2.0 million in
fiscal 1993, reflecting only slightly increased inflation rates in all three
years.
Selling, general and administrative expenses, as a percent of sales, were 23.1%,
21.8%, and 21.9% for fiscal 1995, 1994 and 1993, respectively. The primary
reasons for the 1995 increase over 1994 selling, general and administrative
expenses were costs associated with new stores and investment in approximately
two-hundred outside sales people. Lower sales in 1995 also contributed to the
increase in selling, general and administrative expenses as a percent of sales.
<PAGE> 7
Payless Cashways, Inc. and subsidiary
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (cont'd.)
Interest expense decreased to $61.1 million in fiscal 1995 from $65.6 million in
fiscal 1994, due to retirement of long-term debt and lower interest rates.
Interest expense for 1994 decreased from $125.2 million in fiscal 1993 due
primarily to the retirement of long-term debt in connection with a
recapitalization plan ("Recapitalization Plan") described below in Financing
Activities.
On December 15, 1995, the Company announced a restructuring plan which included
the closing of six underperforming stores on December 30, 1995, the sale of an
underutilized distribution center on December 22, 1995, and, during the first
quarter of fiscal 1996, the reorientation of several stores to concentrate on
the professional customer. The plan is expected to be completed during fiscal
1996, with the possible exception of completing all real estate sales. A pretax
special charge of $153.7 million was recorded in the fourth quarter of fiscal
1995 to reflect costs associated with the restructuring. The Company expects the
restructuring and the sale of the joint venture investment, described below, to
have an approximately $10 million positive impact on 1996 net earnings. Cash
store closing costs are expected to represent approximately $10 million. Over
time, the restructuring plan is expected to provide approximately $45 million of
cash benefit, including proceeds from real estate sales, tax benefits and
reduced working capital. Those proceeds will be used to reduce debt and to fund
capital expenditures. Additional details on the restructuring costs are set
forth in Note I to the Consolidated Financial Statements.
At the end of 1993, the Company decided to eliminate a layer of management in
the field organization and recognized a special charge of $4.0 million in the
fourth quarter of 1993 to reflect the associated costs. The elimination of this
management layer took place in January 1994.
NET INCOME (LOSS)
The Company had a loss before extraordinary item of $128.5 million in 1995
compared to income before extraordinary item of $52.1 million and $9.7 million
in fiscal 1994 and 1993, respectively. The 1995 loss before extraordinary item
reflects the pretax special charge of $153.7 million ($133.1 million net of tax)
in connection with the restructuring discussed above. Both 1995 and the 1994
results reflect the Company's share in its Mexican joint venture's operating
loss prior to the sale of this investment in October 1995. The 1995 equity in
the loss of joint venture also includes an $8.0 million, pretax, loss on the
sale of this investment. Without the restructuring charge and the sale of the
Mexican investment, income before extraordinary item for 1995 would have been
$12.5 million, a decrease from 1994 income before extraordinary item of $52.1
million due to lower sales and higher expense levels.
<TABLE>
<CAPTION>
COMPARATIVE OPERATING DATA Fiscal Year Ended November 25, 1995
--------------------------------------------
Pro Forma Historical
(Excluding (Including
(In thousands, except per share amounts) Special Charges) Special Charges)
--------------------------------------------
<S> <C> <C>
Net sales and other income $ 2,685,670 $ 2,685,670
Income from operations before depreciation and amortization $ 153,461 $ (206)
Income (loss) before extraordinary item $ 12,499 $ (128,549)
Income (loss) per common share before extraordinary item $ 0.17 $ (3.36)
Average common shares outstanding 39,904 39,904
</TABLE>
The increase in 1994 income before extraordinary item over 1993 is attributable
to reduced interest expense as a result of 1993 long-term debt retirements
related to the Recapitalization Plan and improved operating results The 1994 net
income reflects an extraordinary charge of $7.7 million, net of tax, in
connection with the write-off of previously deferred financing costs as a result
of refinancing the Company's bank credit agreement and a $.5 million
extraordinary gain from the redemption of $26.3 million aggregate principal
amount of its Senior Subordinated Notes. The 1993 net loss also includes $4.0
million ($2.5 million net of tax) of costs associated with the elimination of a
field management layer in early 1994, and a $45.8 million extraordinary charge,
net of tax, related to the early extinguishment of debt in connection with the
Recapitalization Plan.
<PAGE> 8
Payless Cashways, Inc. and subsidiary
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (cont'd.)
The effective tax rates for fiscal 1995, 1994 and 1993 were different from the
35% (34% in 1993) federal statutory rate primarily because the amortization of
costs in excess of net assets acquired (goodwill) is non-deductible.
Additionally, $1.2 million was charged to income tax expense in the third
quarter of 1993 to reflect the cumulative impact of the corporate income tax
rate changes enacted by the Omnibus Budget Reconciliation Act of 1993.
Effects of Inflation
- --------------------
The Company's inflation rates, included in the cost of merchandise sold, for
fiscal 1995, 1994 and 1993, were comparable. Approximately 83% of the Company's
inventory is valued using the LIFO inventory accounting method; therefore,
current costs are reflected in the cost of merchandise sold, rather than in
inventory balances. During 1995, the Company experienced price deflation in its
lumber inventory which is valued using the FIFO inventory accounting method. The
Company estimates that this price deflation had a negative 1.6% impact on
comparable-store sales.
Financing Activities
- --------------------
In November 1995, the Company amended and restated its five-year, $420 million
credit agreement (the "Amended Credit Agreement") to include a $40.0 million
term loan and to reduce the revolving credit facility to $380.0 million. As part
of the amendment, various covenants were modified and interest rates were
increased. In addition, in 1995 the Company entered into an interest rate cap
limiting the interest rates on $100 million of its floating rate debt to 8%
LIBOR through January 20, 1998. Also, during 1995, the Company entered into an
interest rate swap agreement under which it agreed to pay quarterly a 6-9/16%
fixed rate of interest effective December 1, 1995, through December 1, 1999 in
exchange for quarterly receipt of LIBOR on $36,000,000.
On December 22, 1995, the Company made a $16.5 million mortgage loan prepayment
in connection with the sale of a distribution center described below and in Note
I to the Consolidated Financial Statements.
In November 1994, the Company entered into a $420 million credit agreement to
replace its existing bank credit agreement and a multi-draw credit agreement.
Also during 1994, the Company repurchased and retired $26.3 million aggregate
principal amount of Senior Subordinated Notes with $25 million borrowed under
the multi-draw credit agreement.
In 1993, the Company developed and executed the Recapitalization Plan which
consisted of a series of transactions, completed during 1993, designed to
increase shareholder's equity, reduce the Company's debt and interest expense,
improve the Company's access to capital markets and improve the Company's
operating and financial flexibility. See Note B to the Consolidated Financial
Statements for further discussion of the Recapitalization Plan.
At November 25, 1995, Payless had approximately $640.1 million of indebtedness.
Payless expects from time to time to incur additional seasonal indebtedness.
Liquidity and Capital Resources
- -------------------------------
The Company's principal source of cash is from operations. Cash provided by
operating activities was $108.2 million for fiscal 1995, compared to $117.3
million for fiscal 1994 and $109.0 million for fiscal 1993. The primary reason
for the 1995 decrease in cash provided by operating activities was decreased
operating income. The primary reason for the 1994 increases in cash provided by
operating activities was increased operating income, resulting primarily from
reduced cash interest payments.
Borrowings are available under the Amended Credit Agreement to supplement cash
generated by operations. At November 25, 1995, $83.9 million was available for
borrowing. Working capital was $98.4 million and $139.1 million at the end of
fiscal 1995 and fiscal 1994, respectively. The current ratio was 1.29 to 1 and
1.45 to 1 at the end of fiscal 1995 and fiscal 1994, respectively. The primary
reasons for the decrease in working capital and the current ratio were decreased
levels of inventory and increased reserves accrued in connection with the
restructuring discussed earlier. The Company's inventory levels are at the
lowest levels during the seasonally low sales months of December through
February and are at the highest levels during the peak selling seasons of May
through September. During the peak period, inventory is financed by cash from
operations and trade accounts payable. During the winter months, inventory is
financed by cash from operations, trade accounts payable and borrowings under
the Amended Credit Agreement, as needed. The Company believes that cash
generated from operations and borrowings under the
<PAGE> 9
Payless Cashways, Inc. and subsidiary
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (cont'd.)
Amended Credit Agreement will adequately meet its working capital needs, debt
service and other obligations which will become due in fiscal 1996.
During 1995, the Company's primary investing activities continued to be capital
expenditures for new and existing stores and distribution centers. The Amended
Credit Agreement governs the amount of capital expenditures which can be made
and decreases capital expenditures to $35 million and $30 million in fiscal 1997
and 1998, respectively. The Company spent approximately $67.3 million, $81.9
million and $50.0 million in fiscal 1995, 1994 and 1993, respectively, for new
stores, renovated stores and distributions centers, and equipment. During 1995,
six new stores were opened and two stores were sold. The Company intends to
finance fiscal 1996 budgeted capital expenditures of approximately $55 million,
consisting primarily of strategic initiatives, renovation of existing stores,
and additional equipment, with funds generated from operations. During fiscal
1996, the Company will shift its emphasis from new store openings to an
initiative that further addresses the needs of professional and do-it-yourself
customers. Several stores will be reoriented to concentrate on the professional
customer. Also in support of the professional, the Company acquired a door and
trim manufacturer based in Phoenix, Arizona, during January 1996 and plans to
expand the manufacturing capability of one of its existing door plants. The
Company plans to add to its merchandise assortment to address do-it-yourself
customer demands for more choices of price, style and quality. The Company
expects to lease one new store in 1996.
During fiscal 1995, the Company also invested $9.3 million in its joint venture,
Total Home de Mexico, S.A. de C.V., prior to the sale of this investment in
October 1995. Significant changes in the Mexican economy caused the Company to
reassess its position and sell its Mexican investment to an affiliate of its
former joint venture partner.
The Company's most significant financing activity is and will continue to be the
retirement of indebtedness. Although the Company's consolidated indebtedness is
and will continue to be substantial, management believes that based upon
management's analysis of the Company's financial condition, the cash flow
generated from operations during the past 12 months and the expected results of
operations in the future, cash flow from operations and borrowings under the
Amended Credit Agreement should provide sufficient liquidity to meet all cash
requirements for the next 12 months without additional borrowings.
During fiscal 1995, the covenants relating to the $420 million credit agreement
and certain lease agreements were amended. The covenants relating to, among
other things, the maximum debt to earnings before interest, taxes, depreciation,
and amortization (EBITDA) ratios and minimum interest coverage ratios were
adjusted. Compliance with these covenants is determined on a "rolling
four-quarter" basis. First quarter 1996 results to date have not met the
Company's expectations and are likely to be below results for the same quarter
of the prior year. In order to achieve compliance with these covenants during
1996, the Company's operating results must substantially meet management's
expectations for the remainder of 1996. Management currently expects that it
will achieve compliance with these covenants throughout 1996; however, factors
beyond management's control, including economic conditions, lumber prices,
competitive conditions and weather, could cause noncompliance. If compliance
with these covenants is not achieved, the Company may be required to renegotiate
its existing covenants with lenders or to refinance borrowings. During the past
several years the Company has been able to negotiate operating flexibility with
its lenders, although future success in achieving any such renegotiations or
refinancings, or the specific terms thereof, including interest rates, capital
expenditure limits or borrowing capacity, cannot be assured.
Forward-looking statements in this Annual Report are made pursuant to the safe
harbor provisions of the Private Securities Litigation Reform Act of 1995. There
are certain important factors that could cause results to differ materially from
those anticipated by some of the statements made above. Investors are cautioned
that all forward-looking statements involve risks and uncertainty. In addition
to the factors discussed above, among the other factors that could cause actual
results to differ materially are the following: consumer spending and debt
levels; interest rates; housing activity, including existing home turnover and
new home construction; lumber prices; product mix; sale of certain real estate;
growth of certain market segments; competitive pressure on sales and pricing,
and an excess of retail space devoted to the sale of building materials.
Additional information concerning those and other factors is contained in the
Company's Securities and Exchange Commission filings, including but not limited
to the Form 10-K, copies of which are available from the Company without charge.
<PAGE> 10
Payless Cashways, Inc. and subsidiary
RESPONSIBILITY FOR FINANCIAL STATEMENTS
The consolidated financial statements of Payless Cashways, Inc. and subsidiary
have been prepared by management in accordance with generally accepted
accounting principles and necessarily include amounts based on management's
judgment and best estimates. The presentation, integrity and consistency of the
financial statements are the responsibility of management.
The consolidated financial statements have been audited by KPMG Peat Marwick
LLP, independent auditors. Their responsibility is to audit the Company's
consolidated financial statements in accordance with generally accepted auditing
standards and to express their opinion on these statements with respect to
fairness of presentation of the Company's financial position, results of
operations and cash flows.
To fulfill its responsibilities, management has developed a system of internal
controls designed to provide reasonable assurance that assets are safeguarded,
transactions are executed in accordance with management's authorizations and
financial records provide a reliable basis for preparing financial statements
and other data. Management believes the controls in place are sufficient to
provide this reasonable assurance. The controls include careful selection and
training of qualified personnel, appropriate division of responsibilities,
communication of written policies and procedures throughout the Company and a
program of internal audits.
The Board of Directors, through its Audit Committee composed of Directors who
are neither officers nor employees of the Company, is responsible for the
maintenance of a strong control environment and quality financial reporting. The
Board, on the recommendation of the Audit Committee, selects and engages the
independent auditors. The Audit Committee meets periodically with management,
the independent auditors and internal auditors to discuss the results of both
independent and internal audits, the adequacy of internal controls and financial
reporting matters. The independent auditors and the internal auditors have
direct access to the Audit Committee without the presence of management when
deemed appropriate.
s/David Stanley s/Stephen A. Lightstone
- ------------------------------- ----------------------------------------
David Stanley Stephen A. Lightstone
Chairman of the Board Senior Vice President-Finance/Treasurer
and Chief Executive Officer and Chief Financial Officer
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Payless Cashways, Inc.:
We have audited the accompanying consolidated balance sheets of Payless
Cashways, Inc. and subsidiary as of November 25, 1995, and November 26, 1994,
and the related consolidated statements of operations, shareholders' equity and
cash flows for each of the fiscal years in the three-year period ended November
25, 1995. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
represent fairly, in all material respects, the financial position of Payless
Cashways, Inc. and subsidiary as of November 25, 1995 and November 26, 1994, and
the results of their operations and their cash flows for each of the fiscal
years in the three-year period ended November 25, 1995 in conformity with
generally accepted accounting principles.
s/KPMG Peat Marwick LLP
Kansas City, Missouri
January 9, 1996
<PAGE> 11
Payless Cashways, Inc. and subsidiary
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Fiscal Year Ended
November 25, November 26, November 27,
(In thousands, except per share amounts) 1995 1994 1993
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income
Net sales $ 2,680,186 $ 2,722,539 $ 2,601,003
Other income--Note A 5,484 10,643 4,975
-------------------------------------------------------
2,685,670 2,733,182 2,605,978
Costs and expenses
Cost of merchandise sold 1,912,620 1,918,674 1,824,663
Selling, general and
administrative--Notes A, F, G and H 619,589 594,024 570,016
Provision for depreciation and amortization 60,356 58,692 56,213
Interest expense--Note C 61,067 65,571 125,247
Special charges--Note I 153,667 -- 4,000
-------------------------------------------------------
2,807,299 2,636,961 2,580,139
-------------------------------------------------------
INCOME (LOSS) BEFORE INCOME TAXES (121,629) 96,221 25,839
Federal and state income taxes--Note E (4,911) 41,808 16,170
-------------------------------------------------------
Income (loss) before equity in loss of joint venture and
extraordinary item (116,718) 54,413 9,669
Equity in loss of joint venture--Note A (11,831) (2,281) --
-------------------------------------------------------
Income (loss) before extraordinary item (128,549) 52,132 9,669
Extraordinary item: early extinguishment of
debt--Notes B, C and E -- (7,243) (45,828)
--------------------------------------------------------
NET INCOME (LOSS) $ (128,549) $ 44,889 $ (36,159)
========================================================
Net income (loss) attributable to common stock $ (134,076) $ 39,783 $ (40,877)
========================================================
Income (loss) per common share before extraordinary item $ (3.36) $ 1.17 $ .16
Extraordinary item: early extinguishment of debt -- (.18) (1.53)
-------------------------------------------------------
Net income (loss) per common share--Note A $ (3.36) $ .99 $ (1.37)
=======================================================
Weighted average common and dilutive common
equivalent shares outstanding--Notes A and D 39,904 40,257 30,514
=======================================================
<FN>
See notes to consolidated financial statements
</TABLE>
<PAGE> 12
Payless Cashways, Inc. and subsidiary
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
November 25, November 26,
(In thousands) 1995 1994
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 960 $ 2,680
Trade receivables -- 5,858
Merchandise inventories--Note A 392,604 406,066
Prepaid expenses and other current assets 29,375 25,717
Deferred income taxes--Note E 19,740 9,549
----------------------------------
TOTAL CURRENT ASSETS 442,679 449,870
OTHER ASSETS
Real estate held for sale 6,082 5,498
Cost in excess of net assets acquired,
less accumulated amortization of $95,372
and $82,355--Notes A and I 323,819 438,311
Deferred financing costs--Notes A and C 11,421 11,199
Other 14,925 17,706
LAND, BUILDINGS AND EQUIPMENT--Notes A and C
Land and land improvements 190,951 183,798
Buildings 507,339 481,409
Equipment 93,830 97,157
Automobiles and trucks 26,468 28,086
Construction in progress 7,867 20,375
Allowance for depreciation and amortization (280,945) (237,527)
-----------------------------------
TOTAL LAND, BUILDINGS AND EQUIPMENT 545,510 573,298
----------------------------------
$ 1,344,436 $ 1,495,882
==================================
<FN>
See notes to consolidated financial statements
</TABLE>
<PAGE> 13
Payless Cashways, Inc. and subsidiary
CONSOLIDATED BALANCE SHEETS (cont'd.)
<TABLE>
<CAPTION>
November 25, November 26,
(In thousands) 1995 1994
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of long-term debt--Note C $ 31,472 $ 20,269
Trade accounts payable 159,844 151,059
Salaries, wages and bonuses 24,106 30,059
Accrued interest 4,894 3,841
Insurance reserves 20,553 17,940
Other accrued expense--Notes F and I 75,611 55,315
Taxes, other than income taxes 21,114 20,876
Income taxes payable--Note E 6,685 11,383
----------------------------------
TOTAL CURRENT LIABILITIES 344,279 310,742
LONG-TERM DEBT, less portion classified as current
liability--Note C 608,627 654,131
NON-CURRENT LIABILITIES
Deferred income taxes--Note E 59,994 72,129
Other--Note G 23,373 23,015
SHAREHOLDERS' EQUITY--Notes A, C and D
Preferred Stock, $1.00 par value, 25,000,000
shares authorized; issued:
Cumulative Preferred Stock, 406,000 shares,
$72.6 million aggregate liquidation preference 40,600 40,600
Common Stock, $.01 par value:
Voting, 150,000,000 shares authorized, 37,663,922
and 37,624,222 shares issued, respectively 376 376
Non-Voting Class A, 5,000,000 shares authorized, 2,250,000
shares issued 23 23
Additional paid-in capital 487,083 486,326
Foreign currency translation adjustment -- (90)
Accumulated deficit (219,919) (91,370)
-----------------------------------
TOTAL SHAREHOLDERS' EQUITY 308,163 435,865
----------------------------------
COMMITMENTS AND CONTINGENCIES--Notes F, G, H and J
$ 1,344,436 $ 1,495,882
==================================
<FN>
See notes to consolidated financial statements
</TABLE>
<PAGE> 14
Payless Cashways, Inc. and subsidiary
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Fiscal Year Ended
November 25, November 26, November 27,
(In thousands) 1995 1994 1993
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Flows from Operating Activities
Net income (loss) $ (128,549) $ 44,889 $ (36,159)
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Depreciation and amortization 60,356 58,692 56,213
Non-cash interest -- Note C 2,351 4,803 39,119
Loss on early extinguishment of debt--Note C -- 7,243 45,828
Equity in loss of joint venture--Note A 11,831 2,281 --
Deferred income taxes (22,326) 7,753 (9,425)
Non-cash special charges--Note I 153,558 -- --
Other 927 1,674 835
Changes in assets and liabilities:
Decrease (increase) in trade receivables 5,858 8,770 (1,174)
Decrease (increase) in merchandise inventories 4,062 (23,663) (24,199)
Decrease (increase) in prepaid expenses
and other current assets 9,532 (8,831) 5,527
Increase in trade accounts payable 8,785 5,794 12,036
Increase in other current liabilities 2,043 7,925 20,426
------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 108,428 117,330 109,027
Cash Flows from Investing Activities
Additions to land, buildings and equipment (67,281) (81,906) (49,982)
Proceeds from sale of land, buildings and equipment 467 2,175 1,306
Investment in joint venture (9,254) (6,369) (490)
Decrease (increase) in other assets 3,049 (5,788) (1,082)
-------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (73,019) (91,888) (50,248)
Cash Flows from Financing Activities
Proceeds from long-term debt--Note C -- 369,999 524,999
Retirements of long-term debt and related premiums
and penalties -- Note C (34,301) (390,357) (983,076)
Fees and financing costs paid in connection with debt
refinancing -- Notes B and C (1,267) (3,094) (20,277)
Sale of Common Stock, $.01 par value -- Note B -- -- 385,444
Sale of Common Stock under stock option plan 16 2,326 2,189
Sale of Common Stock under warrants -- 133 --
(Decrease) increase in short-term borrowings -- (5,000) 5,000
Other (1,577) (442) (300)
-------------------------------------------------------
NET CASH USED IN FINANCING ACTIVITIES (37,129) (26,435) (86,021)
-------------------------------------------------------
Net decrease in cash and cash equivalents (1,720) (993) (27,242)
Cash and cash equivalents, beginning of period 2,680 3,673 30,915
------------------------------------------------------
Cash and cash equivalents, end of period $ 960 $ 2,680 $ 3,673
======================================================
<FN>
See notes to consolidated financial statements
</TABLE>
<PAGE> 15
Payless Cashways, Inc. and subsidiary
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Additional Foreign
(In thousands) Preferred Stock Common Stock Paid-in Currency Accumulated
$1.00 Par Value $.01 Par Value Capital Translation Deficit Total
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at November 28, 1992 $ 40,600 $ 66 $ 70,108 $ -- $ (100,100) $ 10,674
Net loss for the year (36,159) (36,159)
Sale of Voting Common Stock--Note B 322 385,122 385,444
Sale of Voting Common Stock under stock
option plan 2 2,825 2,827
Reclass Common Stock subject to puts
and calls and warrants subject to
puts--Note A 5 24,520 24,525
Redefine classes of Common Stock--Note D -- --
---------------------------------------------------------------------------------
Balance at November 27, 1993 $ 40,600 $ 395 $ 482,575 $ -- $ (136,259) $ 387,311
Net income for the year 44,889 44,889
Sale of Voting Common Stock under stock
option plan 3 3,337 3,340
Sale of Voting Common Stock under warrants -- 133 133
Tax benefit from stock option exercises 148 148
Restricted stock--Note D 1 133 134
Conversion of Non-Voting Class B Common
Stock to Voting Common Stock--Note D -- --
Foreign currency translation adjustment (90) (90)
----------------------------------------------------------------------------------
Balance at November 26, 1994 $ 40,600 $399 $ 486,326 $ (90) $ (91,370) $ 435,865
Net loss for the year (128,549) (128,549)
Sale of Voting Common Stock under
stock option plan -- 77 77
Tax benefit from stock option exercises 325 325
Restricted stock--Note D -- 355 355
Foreign currency translation adjustment (2,499) (2,499)
Sale of joint venture stock 2,589 2,589
---------------------------------------------------------------------------------
Balance at November 25, 1995 $ 40,600 $ 399 $ 487,083 $ -- $(219,919) $ 308,163
=================================================================================
<FN>
See notes to consolidated financial statements
</TABLE>
<PAGE> 16
Payless Cashways, Inc. and subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A-SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include the
accounts of Payless Cashways, Inc. and its wholly-owned subsidiary, referred to
herein as the "Company". All significant intercompany transactions and balances
have been eliminated in the accompanying consolidated financial statements.
Certain reclassifications have been made to prior period amounts to conform with
the 1995 presentation.
The Company was a 49% investor in Total Home de Mexico, S.A. de C.V., a joint
venture with a Mexican company, Alfa, S.A. de C.V., ("Alfa") until October 24,
1995. At that time the Company sold its ownership interest to an affiliate of
Alfa and an $8.0 million, or $.20 per common share, loss on the sale has been
reflected in the accompanying 1995 consolidated statements of operations as
equity in loss of joint venture. The Company had accounted for this investment
on the equity method.
DESCRIPTION OF BUSINESS: The Company is engaged in only one line of
business--the retail sale of building materials and supplies. At November 25,
1995, the Company operated 206 stores in 24 states located in the Midwest,
Southwest, Pacific Coast, Rocky Mountain and New-England areas. The Company's
primary customers include project-oriented do-it-yourselfers and professionals.
In recent years, the building materials retailing industry has experienced
increased levels of competition as several national chains have expanded their
operations.
MERCHANDISE INVENTORIES: Inventories are stated at the lower of cost
(approximately 83% at last-in, first-out method, and the remainder at first-in,
first-out method) or market. Had the first-in, first-out method been used for
all inventories, the carrying value of these inventories would have increased
approximately $27.5 million and $23.3 million at November 25, 1995, and November
26, 1994, respectively.
LAND, BUILDINGS AND EQUIPMENT: Land, buildings and equipment are stated on the
basis of cost. Provisions for depreciation of land improvements, buildings and
equipment are computed primarily by the straight-line method over the estimated
useful lives of the assets or the terms of the related leases, which range from
three to 39 years.
In July 1993 two of the Company's retail facilities were destroyed by the
midwestern floods. The Company carries property, business interruption, and
extra-expense insurance coverages. The Company operated temporary locations to
service its customers until these facilities were rebuilt or replaced.
Settlement proceeds in excess of net book value of $2.8 million related to the
flood-damaged real estate, fixtures and equipment and the $3.1 million
reimbursement of lost profits have been reflected in the accompanying 1994
consolidated statements of operations as other income.
DEFERRED FINANCING COSTS: Deferred financing costs are being amortized over the
respective borrowing terms using the interest method.
FOREIGN CURRENCY TRANSLATION: Prior to the sale of the investment on October 24,
1995, adjustments resulting from the currency translation of the Mexican joint
venture financial statements into U.S. dollars as of the balance sheet date were
reflected as a separate component of shareholders' equity.
COST IN EXCESS OF NET ASSETS ACQUIRED: The cost in excess of the fair value of
net assets acquired (goodwill) is being amortized using the straight-line method
over 40 years. When facts and circumstances indicate potential impairment, the
Company evaluates the recoverability of asset carrying values, including
associated goodwill, using estimates of undiscounted future cash flows over
remaining asset lives. When impairment is indicated, any impairment loss is
measured by the excess of carrying values over fair values.
COMMON STOCK SUBJECT TO PUTS AND CALLS AND WARRANTS SUBJECT TO PUTS: Prior to
March 15, 1993, certain shares of Common Stock and the warrants were subject to
redemption in specified events. Such shares and warrants were reported at their
redemption value (estimated fair value) and had been excluded from shareholders'
equity. In connection with the March 15, 1993, Common Stock issuance, put and
call features relating to certain shares of Common Stock terminated and such
shares have been reclassified as shareholders' equity. The warrants have been
reclassified as shareholders' equity because the Company will no longer be
compelled to offer to repurchase the warrants since it filed a registration
statement on September 8, 1993, covering the shares into which the warrants are
exercisable and intends to maintain the effectiveness of such registration
statement until November 1, 1996.
.
<PAGE> 17
Payless Cashways, Inc. and subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont'd.)
NET INCOME (LOSS) PER COMMON SHARE: Net income (loss) per common share has been
computed based on the weighted average number of common shares outstanding
during the period plus common stock equivalents, when dilutive, consisting of
certain stock options, warrants and shares subject to puts and calls (prior to
March 15, 1993), when applicable. For purposes of this computation, net income
(loss) was adjusted for dividend requirements on preferred stock, and changes in
the redemption value of both common stock subject to puts and calls and warrants
subject to puts (prior to March 15, 1993), when these items were dilutive.
INCOME TAXES: The Company accounts for income taxes based on Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes." Under the
asset and liability method of Statement 109, deferred tax assets and liabilities
are recognized for the future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred tax assets and liabilities
are measured using enacted tax rates applied to taxable income in the years in
which those temporary differences are expected to be recovered or settled. Under
Statement 109, the effect on deferred tax assets and liabilities of a change in
tax rates is recognized in income in the period that includes the enactment
date.
STATEMENT OF CASH FLOWS: For purposes of the statement of cash flows, the
Company considers investments in debt instruments with original maturities of
three months or less to be cash equivalents.
During 1995, 1994, and 1993, federal and state income taxes paid, net of
refunds, were $21.0 million, $32.2 million and $5.7 million, respectively.
Cash paid for interest, net of interest capitalized, was $60.0 million, $67.0
million and $302.2 million during fiscal 1995, 1994 and 1993, respectively.
SALE OF RECEIVABLES: The Company sells its commercial credit accounts to a
third-party administrator pursuant to an agreement. A substantial portion of the
Company's commercial credit sales are to remodelers and contractors. Under the
agreement, the Company pays a servicing fee and assumes the credit risk. At
November 25, 1995, and November 26, 1994, the outstanding balance of commercial
credit accounts sold to the third-party administrator was approximately $93.0
million and $86.5 million, respectively. The Company has provided a reserve of
$5.5 million at November 25, 1995, and $5.1 million at November 26, 1994, which
is believed to adequately cover its credit risk related to these accounts.
Under a third-party administrative servicing agreement for the Company's
private-label charge card program, charge card accounts are sold to the
administrator and the Company assumes no credit risk.
FAIR VALUE OF FINANCIAL INSTRUMENTS: Based on the borrowing rates currently
available to the Company for debt issuances with similar terms and maturities,
the fair value of long-term debt including the current portion is approximately
$617 million and $668 million at November 25, 1995 and November 26, 1994,
respectively. The Company believes the carrying amounts of cash and cash
equivalents, trade receivables, real estate held for sale, trade accounts
payable and accrued expenses are a reasonable estimate of their fair value.
DERIVATIVE FINANCIAL INSTRUMENTS: Premiums paid for purchased interest rate cap
and swap agreements are amortized to interest expense over the term of the
agreements. Unamortized premiums are included in deferred financing costs in the
consolidated balance sheet. Amounts received or paid under cap and swap
agreements are reflected as a reduction or increase of interest expense. At
November 25, 1995, the aggregate carrying value of such instruments was
approximately $1.2 million. The estimated amount the Company would have had to
pay at November 25, 1995, to cancel or transfer the agreements to other parties,
was approximately $1.0 million.
ACCOUNTING PERIOD: The Company's fiscal year ends on the last Saturday in
November. Fiscal years 1995, 1994 and 1993, consisted of 52 weeks each.
<PAGE> 18
Payless Cashways, Inc. and subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont'd.)
NOTE B-RECAPITALIZATION PLAN
The Company developed and executed a recapitalization plan (the
"Recapitalization Plan") which consisted of a series of transactions, completed
during 1993, designed to increase shareholders' equity, reduce the Company's
debt and interest expense, improve the Company's access to capital markets and
improve the Company's operating and financial flexibility.
The transactions comprising the Recapitalization Plan were as follows:
(i) The initial public offering of 32,200,000 shares of Common Stock, which
was completed on March 15, 1993, for net proceeds of $385.4 million.
(ii) The repayment on March 15, 1993, of $175.8 million of indebtedness
outstanding under the Company's previously existing bank credit
agreement, the 1988 Credit Agreement.
(iii) The prepayment on March 16, 1993, of $50 million of indebtedness
outstanding under the Company's $226.6 million mortgage loan payable to
an insurance company.
(iv) The issuance of 9-1/8% senior subordinated notes due 2003, which was
completed on April 20, 1993, for the aggregate principal amount of $200
million.
(v) The repurchase on April 15 and 16, 1993, of $99.9 million aggregate
principal amount of the Company's 16-1/2% junior subordinated debentures
due August 1, 2008, and the redemption of the remaining $291.1 million
aggregate principal amount of the junior subordinated debentures on July
30, 1993. (This resulted in an extraordinary charge of approximately
$15.1 million, net of tax, in the accompanying 1993 consolidated
statement of operations.)
(vi) Borrowings on November 1, 1993, of $325 million under an amended and
restated bank credit agreement entered into by the Company and certain
banks, the 1993 Credit Agreement. The 1993 Credit Agreement also provided
for a revolving credit facility of $85 million which was used to provide
a portion of the funds necessary to complete the Recapitalization Plan
and which was used to finance the working capital requirements of the
Company in the ordinary course of business.
(vii) The redemption on November 1, 1993, of $332.5 million aggregate principal
amount of the Company's 14-1/2% senior subordinated debentures due
November 1, 2000. (This resulted in an extraordinary charge of
approximately $27.2 million, net of tax, in the accompanying 1993
consolidated statement of operations.)
NOTE C--LONG-TERM DEBT
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
(In thousands) 1995 1994
------------------------------
<S> <C> <C>
Amended Credit Agreement, secured by certain
equipment and capital stock of a subsidiary,
variable interest rate, payable in varying
amounts through 2000 $ 326,000 $ 345,000
Mortgage loan payable to insurance company,
secured by certain real estate,
10.99% to 11.21%, payable in varying
amounts through 2003 138,987 154,195
Senior subordinated notes, 9-1/8%, due 2003 173,655 173,655
Other senior debt, 10% to 12%, payable in varying
amounts through 2004 1,457 1,550
------------------------------
640,099 674,400
Less portion classified as current liability (31,472) (20,269)
-------------------------------
$ 608,627 $ 654,131
==============================
</TABLE>
<PAGE> 19
Payless Cashways, Inc. and subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont'd.)
On November 18, 1994, the Company entered into a five-year revolving credit
facility providing borrowings initially of up to $420 million. The previous
credit agreement was repaid on this date, resulting in an extraordinary charge
of approximately $7.7 million, net of tax, in the accompanying 1994 consolidated
statement of operations. On November 20, 1995, the credit agreement was amended
(the "Amended Credit Agreement") to include a $40 million term loan and to
reduce the revolving credit facility to $380 million. The commitment for
available borrowings under the revolving credit facility will be reduced every
six months beginning on June 15, 1997, with final maturity on November 18, 1999.
The term loan principal is repayable annually with final maturity on November
18, 2000. At November 25, 1995, there were combined borrowings under the
agreement of $326 million as well as outstanding standby letters of credit of
$10.1 million. The Company had $83.9 million available for borrowing under this
agreement at the end of fiscal 1995. The Amended Credit Agreement is secured by
substantially all of the equipment of the Company and all capital stock of the
Company's subsidiary. The loans under the revolving credit facility bear
interest at fluctuating rates of either (1) an alternate base rate plus 0.0% to
1.0% per annum, fluctuating with the debt to earnings before interest, taxes,
depreciation and amortization ("EBITDA") ratio, (9-1/2% at November 25, 1995) or
(2) LIBOR plus 1.00% to 2.00% per annum, fluctuating with the debt to EBITDA
ratio, (7-9/16% at November 25, 1995). The term loan bears interest at
fluctuating rates of either (1) an alternate base rate plus 1.25% per annum (10%
at November 25, 1995) or (2) LIBOR plus 2.25% per annum (8-1/16% at November 25,
1995). In addition to the scheduled commitment reductions, certain asset sales,
receipt of certain insurance proceeds and excess cash flow, as defined, will
further reduce the commitment for available borrowings.
The Amended Credit Agreement contains a number of covenants, including, but not
limited to, a minimum net worth covenant, a minimum interest coverage ratio, a
maximum debt to EBITDA ratio, and limitations on capital expenditures and
capitalized leases. The Company is also prohibited from paying dividends on its
common and preferred stock. The covenants relating to, among other things, the
maximum debt to EBITDA ratios and minimum interest coverage ratios were adjusted
in connection with the November 20, 1995, amendment discussed above.
To reduce the impact of changes in interest rates with regard to the credit
agreement described above, during 1995 the Company entered into an interest rate
cap with an affiliate of an investment banking firm, limiting to 8% LIBOR the
interest rates on $100 million of its floating rate debt through January 20,
1998. Under the agreement, semiannual payments, if any, would be received,
although no amounts were received by the Company during fiscal year 1995.
On April 20, 1993, as part of the Recapitalization Plan described in Note B, the
Company issued senior subordinated notes. The senior subordinated notes are
unsecured obligations, subordinated to substantially all indebtedness of the
Company, and mature on April 15, 2003. Interest is payable on April 15 and
October 15 of each year at 9-1/8% per annum. The senior subordinated notes are
callable after April 15, 1998, at 104.5625% face value declining ratably to par
on and after April 15, 2000. The senior subordinated notes contain certain
covenants that, among other things, limit the ability of the Company and its
subsidiaries to incur certain indebtedness, pay dividends, issue preferred stock
of subsidiaries, issue guarantees and pledges of subsidiaries, engage in
transactions with stockholders and affiliates, create payment restrictions
affecting subsidiaries and engage in mergers and consolidations.
During 1994, the Company had borrowed $25 million under a multi-draw credit
agreement to repurchase and retire $26.3 million aggregate principal amount of
the 9-1/8% senior subordinated notes resulting in an extraordinary gain of
approximately $.5 million, net of tax, in the accompanying 1994 consolidated
statement of operations. The multi-draw credit agreement was prepaid on November
16, 1994.
<PAGE> 20
Payless Cashways, Inc. and subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont'd.)
The Company has a mortgage loan with an insurance company secured by certain
real estate. The Company made a $50 million mortgage loan prepayment on March
16, 1993, in connection with the Recapitalization Plan described in Note B
resulting in an extraordinary charge of approximately $1.2 million, net of tax,
in the accompanying 1993 consolidated statement of operations. The mortgage loan
is secured by land, land improvements and buildings having a net book value of
approximately $347.6 million at November 25, 1995. On December 22, 1995, the
Company made a $16.5 million mortgage loan prepayment in connection with the
sale of a distribution center described at Note I.
The Company defeased certain industrial revenue bonds during fiscal 1988 by
placing government securities in an irrevocable trust. Such industrial revenue
bond debt is considered to be extinguished and does not appear as a liability in
the accompanying consolidated balance sheets. Bonds in the amount of $8.4
million are outstanding as of November 25, 1995.
Scheduled maturities of long-term debt, including sinking fund requirements,
are:
(In thousands)
1996 $ 31,472
1997 16,274
1998 26,496
1999 300,968
2000 51,610
Thereafter 213,279
------------
$ 640,099
============
NOTE D--SHAREHOLDERS' EQUITY
In connection with the initial public offering during fiscal 1993, described in
Note B, the Company's articles of incorporation were amended, among other
things, to redefine the classes of Common Stock, $.01 par value. Therefore,
Class A Common Stock (3,195,000 shares) became Voting Common Stock, Class B
Common Stock (425,000 shares) became Non-Voting Class B Common Stock and Class D
Stock (2,250,000 shares) became Non-Voting Class A Common Stock. The total
number of shares of all classes of Common Stock which the Company has the
authority to issue is 160,000,000, consisting of 150,000,000 shares of Voting
Common Stock, 5,000,000 shares of Non-Voting Class A Common Stock and 5,000,000
shares of Non-Voting Class B Common Stock. All classes of Common Stock are
substantially identical except for voting rights. Shares of Non-Voting Class A
Common Stock are convertible at the option of the holder, subject to certain
restrictions, into a like number of shares of Voting Common Stock. During 1994,
1,125,000 outstanding shares of non-Voting Class B Common Stock were converted
into a like number of shares of Voting Common Stock under a similar right of
conversion. In the event of liquidation, all distributions on the Common Stock
of the Company are payable to all classes of Common Stock in a like manner.
Masco Capital, an affiliate of one of the Company's suppliers, owns 100% of the
Company's Cumulative Preferred Stock ("Preferred Stock"). The terms of the
Preferred Stock provide for dividends at an annual rate of eight percent until
2008 (at which time the rate increases) on a cumulative basis, whether or not
declared. At November 25, 1995, cumulative undeclared dividends on the Preferred
Stock were $32.0 million ($78.77 per share). The Preferred Stock is not
convertible into Common Stock. Each share of Preferred Stock is generally
entitled to 5.9994 votes on all matters on which holders of Common Stock are
entitled to vote.
The Company has 332,000 warrants outstanding as of November 25, 1995. Each
warrant entitles the holder thereof to purchase four shares of the Common Stock
of Payless at an exercise price of $11.11 per share, subject to adjustment in
certain events. The Company has filed a registration statement covering the
shares into which the warrants are exercisable and intends to maintain the
effectiveness of such registration statement until November 1, 1996.
<PAGE> 21
Payless Cashways, Inc. and subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont'd.)
The Company has adopted a deferred compensation plan for non-employee directors
(the "Director Deferred Comp Plan"). Under the Director Deferred Comp Plan, each
non-employee director may elect to defer receipt of all or part of his cash
compensation on a pretax basis and, subject to approval of the plan by
shareholders, invest those deferrals in the Company's Common Stock. The shares
of Common Stock issuable under the Director Deferred Comp Plan will be either
authorized and unissued shares or previously issued and outstanding shares
reacquired by the Company. Shares will be issued when a distribution is made
following a director's termination of services.
The Payless Cashways 1992 Incentive Stock Program (the "Program") has been
established to attract and retain outstanding individuals in certain key
positions. The Program provides for the grant of incentive stock options,
non-qualified stock options, stock appreciation rights, restricted stock awards
and performance units. All grants made after July 15, 1992, were under the
Program. The aggregate number of shares of Common Stock reserved for issuance
under the Program is equal to the sum of (1) the greater of (a) 3,500,000 shares
of Common Stock or (b) 5% of the sum of (i) the Common Stock outstanding at the
end of any fiscal year during the term of the Program and (ii) the Common Stock
reserved for issuance upon exercise or conversion of any options, warrants or
Preferred Stock outstanding at the end of any fiscal year during the term of the
Program; plus (2) any shares which remain available under the Plan (defined
below) or which are subject to options or awards outstanding on July 15, 1992,
and which expire, terminate or are cancelled after such date. The exercise price
for any incentive stock options will be at least 100% of the fair market value
of the Common Stock at the date of grant. The exercise price for any
non-qualified stock options will be at least 85% of the fair market value of the
Common Stock at the date of grant.
The Company has adopted an option plan for non-employee directors (the "Director
Option Plan"). Under the Director Option Plan, each non-employee director is
granted an option of $100,000 worth of the Company's Common Stock, valued on the
date on which the director is first elected, for an aggregate exercise price of
$100,000. In addition, each non-employee director will receive an option to
purchase 1,000 shares of Common Stock on the date immediately following the
Company's Annual Meeting so long as such non-employee director continues to
serve on the Company's Board of Directors. The exercise price for the annual
options will be the fair market value of the Company's Common Stock on such
anniversary date. Options granted under the Director Option Plan may be
exercised six months and one day after the grant date and expire on the earlier
of (a) 10 years after the date of grant, or (b) 1 year after the date on which
the director ceases to be a member of the Company's Board of Directors. An
aggregate of 350,000 shares of Common Stock are reserved for issuance under the
Director Option Plan.
The 1988 Payless Cashways, Inc. Employee Stock Plan (the "Plan") provided for
the conversion of options to purchase shares of the predecessor company Common
Stock into options to purchase shares of the successor company Common Stock, and
for the granting of options for the purchase of up to 1,643,781 shares of Common
Stock and awards of up to approximately 183,000 shares of restricted stock.
One-third of the options were performance-based and two-thirds vested without
regard to performance tests. All unvested options under the Plan vested as of
March 15, 1993, with the initial public offering described at Note B. The
exercise price for options was the fair market value of the Company's Common
Stock on the date of grant. After adoption of the Program (defined above), no
further grants were made pursuant to the Plan.
There were 66,300 shares of Restricted Stock, granted under the Program,
outstanding as of November 25, 1995. The shares of Restricted Stock are subject
to certain transfer restrictions and 29,800 shares and 36,500 shares vest in
February, 1997 and 1998, respectively.
<PAGE> 22
Payless Cashways, Inc. and subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont'd.)
The following sets forth details of shares under options for all three plans.
<TABLE>
<CAPTION>
1992 Incentive 1988 Employee
Stock Program Stock Plan Director Option Plan
-----------------------------------------------------------------------------------------------
Number Average Number Average Number Average
Of Shares Price Of Shares Price Of Shares Price
-----------------------------------------------------------------------------------------------
Fiscal Year 1993:
<S> <C> <C> <C> <C> <C> <C>
Options granted 1,440,048 $ 12.22 -- $ -- 48,692 $ 14.38
Options exercised (3,300) 12.00 (238,788) 9.00 -- --
Options terminated or
cancelled (45,580) 12.24 (35,419) 17.42 -- --
-----------------------------------------------------------------------------------------------
Options outstanding at
November 27, 1993 1,402,049 $ 12.22 2,253,321 $ 9.55 48,692 $ 14.38
===============================================================================================
Options exercisable at
November 27, 1993 88,838 $ 12.00 2,253,321 $ 9.55 48,692 $ 14.38
===============================================================================================
Fiscal Year 1994:
Options granted 963,758 $ 14.60 -- $ -- 8,000 $ 15.88
Options exercised (8,356) 11.98 (283,495) 7.85 -- --
Options terminated or
cancelled (283,626) 12.67 (8,784) 11.34 -- --
-----------------------------------------------------------------------------------------------
Options outstanding at
November 26, 1994 2,073,825 $ 13.26 1,961,042 $ 9.79 56,692 $ 14.59
===============================================================================================
Options exercisable at
November 26, 1994 346,159 $ 12.18 1,961,042 $ 9.79 56,692 $ 14.59
===============================================================================================
Fiscal Year 1995:
Options granted 1,549,325 $ 6.62 -- $ -- 20,903 $ 7.75
Options exercised -- -- (7,000) 2.22 -- --
Options terminated or
cancelled (286,727) 11.48 (70,748) 11.31 -- --
-----------------------------------------------------------------------------------------------
Options outstanding at
November 25, 1995 3,336,423 $ 10.33 1,883,294 $ 9.76 77,595 $ 12.75
===============================================================================================
Options exercisable at
November 25, 1995 768,892 $ 12.86 1,883,294 $ 9.76 77,595 $ 12.75
===============================================================================================
</TABLE>
<PAGE> 23
Payless Cashways, Inc. and subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont'd.)
NOTE E-INCOME TAXES
For the year ended November 25, 1995, an income tax benefit of $4,911,000 was
allocated to the loss before equity in loss of joint venture. No income tax
benefit was recorded for the equity in loss of the joint venture. A credit of
$325,000 to additional paid-in capital reflected the tax effect of the excess
tax deduction for employee stock options over the expense recognized for
financial reporting purposes.
Income taxes for the years ended November 26, 1994, and November 27, 1993, were
allocated to income before equity in loss of joint venture and extraordinary
item, and to the extraordinary item for early extinguishment of debt; see Note
C. For the year ended November 26, 1994, the income tax benefit allocated to the
extraordinary item was $4,829,000; the income tax expense allocated to income
before equity in loss of joint venture and extraordinary item was $41,808,000. A
credit of $148,000 to additional paid-in capital reflected the tax effect of the
excess tax deduction for employee stock options over the expense recognized for
financial reporting purposes. For the year ended November 27, 1993, the income
tax benefit allocated to the extraordinary item was $18,267,000; the income tax
expense allocated to income before extraordinary item was $16,170,000.
Included in the Company's 1993 deferred income tax expense was a charge of $1.1
million to reflect the cumulative impact of the corporate income tax rate
changes enacted by the Omnibus Budget Reconciliation Act of 1993.
Income tax expense (benefit) attributable to the income (loss) before equity in
loss of joint venture and extraordinary item consisted of the following:
<TABLE>
<CAPTION>
(In thousands)
1995 1994 1993
------------------------------------------------------
<S> <C> <C> <C>
Currently payable
Federal $ 14,915 $ 29,636 $ 6,045
State 2,500 4,419 1,284
------------------------------------------------------
17,415 34,055 7,329
Deferred
Federal $ (20,986) $ 7,288 $ 8,311
State (1,340) 465 530
------------------------------------------------------
(22,326) 7,753 8,841
------------------------------------------------------
$ (4,911) $ 41,808 $ 16,170
======================================================
</TABLE>
The differences between actual income tax expense and the amount computed by
applying the statutory federal income tax rate to the income (loss) before
income taxes, equity in loss of joint venture and extraordinary item were as
follows:
<TABLE>
<CAPTION>
1995 1994 1993
------------------------------------------------------
<S> <C> <C> <C>
Federal statutory rate (35.0)% 35.0 % 34.0 %
State income taxes,
net of federal tax benefit (1.5) 4.0 6.9
Amortization and write-off of goodwill 32.9 4.7 17.1
Permanent tax differences (.1) (.1) .7
Tax credits (.3) (.2) (1.2)
Cumulative impact of corporate income
tax rate change -- -- 4.8
Other -- -- .3
------------------------------------------------------
(4.0)% 43.4 % 62.6 %
======================================================
</TABLE>
<PAGE> 24
Payless Cashways, inc. and subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont'd.)
The tax effects of temporary differences and tax credits that give rise to
significant portions of the deferred tax assets and deferred tax liabilities are
as follows:
<TABLE>
<CAPTION>
(In thousands) 1995 1994
-------------------------------------
<S> <C> <C>
Deferred tax assets:
Special charges $ 17,065 $ --
Insurance reserves 11,360 9,572
Retirement, deferred compensation, restricted stock
and stock option plans 7,061 6,446
Post-retirement benefits 5,330 4,796
Vacation reserves 4,926 4,583
Reserves for bad debts 2,790 2,721
Other 2,239 1,820
------------------------------------
Total deferred tax assets 50,771 29,938
Less valuation allowance -- --
------------------------------------
Net deferred tax assets 50,771 29,938
------------------------------------
Deferred tax liabilities:
Land, buildings and equipment (70,063) (68,368)
Inventory basis difference (11,608) (5,248)
Acquisition fees (4,949) (15,464)
Other (4,405) (3,438)
-------------------------------------
Total deferred tax liabilities (91,025) (92,518)
-------------------------------------
Net deferred tax liability $ (40,254) $ (62,580)
=====================================
</TABLE>
NOTE F--PENSION PLANS
The Company has a non-contributory defined benefit pension plan covering
substantially all full-time employees. Benefits under the plan are based on
years of service and an employee's average compensation. Prior to January, 1995,
the Company had two defined benefit pension plans that were merged into a single
plan on January 1, 1995. The Company's funding policy is to contribute annually
the amount actuarially determined to provide the plan with sufficient assets to
meet future benefit payment requirements. Assets of the pension plan are
maintained in trust funds.
The Company also has a supplemental pension plan covering certain of its
officers. The plan is an unfunded, non-contributory defined benefit pension
plan. Benefits under the plan are based on years of service, age and the
employee's average compensation.
<TABLE>
<CAPTION>
Net pension cost included the following components:
(In thousands) 1995 1994 1993
-------------------------------------------------
<S> <C> <C> <C>
Service cost - benefits earned during the period $ 4,714 $ 4,623 $ 3,717
Interest cost on projected benefit obligation 3,987 3,684 3,168
Actual return on plan assets (6,741) (166) (3,245)
Net amortization and deferral 4,426 (2,295) 761
-------------------------------------------------
Net periodic pension cost $ 6,386 $ 5,846 $ 4,401
=================================================
</TABLE>
<PAGE> 25
Payless Cashways, Inc. and subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont'd.)
Significant assumptions used in accounting for defined benefit plans were as
follows:
<TABLE>
<CAPTION>
1995 1994 1993
---------------------------------------------
<S> <C> <C> <C>
Weighted average discount rate 7.5% 7.5% 7.5%
Rate of increase in future compensation levels 5.0% 5.0% 5.0%
Expected long-term rate of return on plan assets 8.5% 8.5% 8.5%
</TABLE>
The following table sets forth the plans' funded status and amounts recognized
in the consolidated balance sheets:
<TABLE>
<CAPTION>
(In thousands) 1995 1994
--------------------------------------------------------------
Supplemental Supplemental
Pension Pension Pension Pension
Plans Plan Plans Plan
--------------------------------------------------------------
<S> <C> <C> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation
Vested $ 36,840 $ 5,931 $ 34,849 $ 4,880
Non-vested 4,535 1,215 3,066 486
--------------------------------------------------------------
Total 41,375 7,146 37,915 5,366
Increase in benefits due to estimated
future compensation increases 9,655 1,451 9,611 2,177
--------------------------------------------------------------
Projected benefit obligation
for service rendered to date 51,030 8,597 47,526 7,543
Plan assets at fair value, primarily publicly traded
stocks and U.S. Government obligations 38,038 -- 33,996 --
--------------------------------------------------------------
Plan assets less than
projected benefit obligation (12,992) (8,597) (13,530) (7,543)
Unrecognized net loss from past
experience different from that assumed 3,519 1,139 6,704 1,665
Unrecognized prior service cost 1,378 849 2,375 269
Additional minimum liability -- -- (1,587) --
--------------------------------------------------------------
Accrued pension cost included
in other accrued expenses $ (8,095) $ (6,609) $ (6,038) $ (5,609)
===============================================================
</TABLE>
At November 26, 1994, an additional minimum liability of $1.6 million was
recorded to reflect the excess of the unfunded accumulated benefit obligation
over accrued pension costs for one of the pension plans. A corresponding asset
of $1.6 million is included in other assets in the accompanying consolidated
balance sheet at November 26, 1994.
In addition, the Company has sponsored several defined contribution plans. Under
the Payless Cashways, Inc. Employee Savings Plan, which covers substantially all
employees, the Company contributed an amount equal to a percentage of the amount
contributed by employees into the plan. In fiscal years 1994 and 1993, the
employees of Somerville Lumber and Supply Co. were covered by a profit sharing
plan for which contributions were made at the discretion of the Somerville Board
of Directors and approval of the Company's Compensation Committee. On October
23, 1995, the profit sharing plan was merged into the Payless Cashways, Inc.
Employee Savings Plan. The aggregate contributions to all defined contribution
plans were $2,927,000, $2,679,000 and $2,258,000 in 1995, 1994 and 1993,
respectively.
<PAGE> 26
Payless Cashways, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont'd.)
Note G--POST-RETIREMENT BENEFIT PLANS
The Company has certain unfunded post-retirement defined benefit plans that
provide health and life insurance benefits for retirees and eligible dependents.
The health plan is contributory and contains cost sharing features such as
deductibles and coinsurance.
Net post-retirement benefit cost included the following components:
<TABLE>
<CAPTION>
(In thousands) 1995 1994 1993
-----------------------------------------------
<S> <C> <C> <C>
Service cost - benefits earned during the period $ 1,098 $ 923 $ 621
Interest cost on accumulated post-retirement
benefit obligation 1,309 1,092 1,007
Amortization of unrecognized loss 140 48 --
-----------------------------------------------
Net periodic post-retirement benefit cost $ 2,547 $ 2,063 $ 1,628
===============================================
</TABLE>
The following table sets forth the plans' funded status and amounts recognized
in the consolidated balance sheets:
<TABLE>
<CAPTION>
(In thousands) 1995 1994 1993
----------------------------------------
<S> <C> <C> <C>
Accumulated post-retirement benefit obligation:
Retirees and beneficiaries $ 12,144 $ 9,830 $ 8,833
Fully eligible active plan participants 781 375 353
Other active plan participants 3,939 8,113 5,738
----------------------------------------
Total 16,864 18,318 14,924
Plan assets at fair value -- -- --
----------------------------------------
Accumulated post-retirement benefit obligation in excess of
plan assets 16,864 18,318 14,924
Unrecognized net loss from past experience different from
that assumed 749 3,684 2,502
Unrecognized prior service cost 885 932 --
----------------------------------------
Accrued post-retirement benefit cost included in other
non-current liabilities $ 15,230 $ 13,702 $ 12,422
========================================
</TABLE>
Significant assumptions used in accounting for post-retirement benefit plans
were as follows:
<TABLE>
<CAPTION>
1995 1994 1993
--------------------------------
<S> <C> <C> <C>
Weighted average discount rate 7.5% 7.5% 7.5%
Rate of increase in future compensation levels 5.0% 5.0% 5.0%
Health-care cost trend rate 8.1% 8.5% 11.2%
</TABLE>
In fiscal years 1995, 1994, and 1993, the health-care cost trend rate was
assumed to decrease gradually to 5.9% by the year 2001 and remain at that level
thereafter. The effect of a 1.0% annual increase in these assumed health-care
cost trend rates would increase the November 25, 1995, accumulated
post-retirement benefit obligation by $1,018,000 and the aggregate of the
service and interest cost components of net periodic post-retirement benefit
cost for the fiscal year ended November 26, 1995, by $76,000.
NOTE H--LEASES
The Company leases certain stores and other facilities under non-cancelable
operating leases. Aggregate minimum future rentals under non-cancelable
operating leases for the next five years are: 1996 -- $21,390,000; 1997 --
$16,563,000; 1998 -- $16,468,000; 1999 -- $15,538,000; 2000 -- $12,095,000;
thereafter -- $49,302,000. Rental expense under operating leases was $27,212,000
for 1995, $23,912,000 for 1994, and $20,577,000 for 1993.
During 1995, the Company entered into an agreement providing for the operating
lease of five stores, including a 1996 new store. The Company will have the
option to purchase the stores at the end of the lease terms in late 1999. In the
event the Company chooses not to exercise this option, it is obligated to
arrange the sale of the stores to an unrelated party and is required to pay the
lessor any difference between the net sales proceeds and the lessor's net
investment in stores ($29.7 million for the four stores completed at November
25, 1995), subject to certain limitations. Rental payments under the leases vary
with the level of interest rates. To reduce the impact of changes in interest
rates, during 1995 the Company entered into an interest rate swap agreement
under which it agreed to pay quarterly a 6-9/16% fixed rate of interest
effective December 1, 1995 through December 1, 1999 in exchange for quarterly
receipt of LIBOR on $36 million.
<PAGE> 27
Payless Cashways, Inc. and subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont'd.)
Note I--SPECIAL CHARGES
Costs of $153.7 million associated with a restructuring plan which included the
closing of six stores on December 30, 1995, the sale of a distribution center on
December 22, 1995, and the reorientation of several stores to concentrate on the
professional customer during the first two quarters of fiscal 1996, are
contained in the accompanying statement of operations for fiscal 1995 as special
charges. These charges include:
<TABLE>
<CAPTION>
Amount Amount Amount
Charged Utilized To be Utilized
(In millions) 1995 1995 at 11/25/95
----------------------------------------------
<S> <C> <C> <C>
Write-off of allocable cost in excess of assets acquired (goodwill) $ 101.5 $ 101.5 $ --
Real estate write down to fair market value 31.2 30.7 .5
Inventory liquidation and store closing costs 15.3 -- 15.3
Severance and other employment costs 3.9 1.0 2.9
Other 1.8 .4 1.4
--------------------------------------------
$ 153.7 $ 133.6 $ 20.1
</TABLE>
Historical financial data for the six closed stores is as follows for the fiscal
years presented:
<TABLE>
<CAPTION>
(In thousands) 1995 1994 1993
-------------------------------------------
<S> <C> <C> <C>
Net sales $ 61,969 $ 75,722 $ 87,700
Net operating loss $ (4,023) $ (3,891) $ (1,328)
</TABLE>
Special charges reflecting costs of $4.0 million associated with the elimination
of a layer from the Company's field management organization in early 1994 are
included in the accompanying statement of operations for fiscal 1993.
NOTE J--LITIGATION
The Company is a defendant in a lawsuit brought in connection with a reduction
in force pursuant to a January 1994 restructuring. The suit asserted a variety
of claims including federal and state securities fraud claims, alleged
violations of the Racketeer Influenced and Corrupt Organizations Act, federal
and state claims of age discrimination, alleged violations of the Employment
Retirement Income Security Act of 1974, and various state law claims including,
but not limited to, fraudulent misrepresentation allegations. No ruling has been
entered on the Company's motion to dismiss all pending claims except the federal
and state age discrimination claims, the state law fraudulent misrepresentation
claim and several other state law equitable claims.
The Company denies any and all claimed liability and is vigorously defending
this litigation, but, given the early state of this litigation, is unable to
estimate a potential range of monetary exposure, if any, to the Company or to
predict the likely outcome of this matter.
==========
<TABLE>
<CAPTION>
FIVE-YEAR OPERATIONAL SUMMARY
(Average sales per facility, number
of customers, gross square feet and
retail square feet are in thousands) 1995 (a) 1994 1993 1992 1991
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Number of retail facilities 206 202 196 195 195
Average sales per facility $ 13,114 $ 13,716 $ 13,284 $ 12,800 $ 12,242
Number of customers 59,685 60,812 60,678 62,641 62,603
Average sales per customer $ 42.84 $ 44.77 $ 42.69 $ 39.84 $ 38.13
Number of employees 18,122 18,406 18,093 17,784 17,475
Average sales per employee $ 141,109 $ 147,916 $ 143,167 $ 140,346 $ 136,609
Gross square feet (total) 19,453 18,730 18,095 18,013 18,054
Retail square feet (inside) 6,740 6,468 6,200 6,029 5,992
Sales per retail square foot $ 379.40 $ 420.92 $ 417.79 $ 413.98 $ 398.41
Percent increase (decrease) in comparable-
store sales on a 52-week basis (4.5)% 3.3% 4.1% 6.4% 5.5%
<FN>
(a) Includes six retail stores closed in December, 1995.
</TABLE>
<PAGE> 28
Payless Cashways, Inc. and subsidiary
FIVE-YEAR FINANCIAL SUMMARY
<TABLE>
<CAPTION>
(In thousands, except per share
amounts, percentages and ratios) 1995 1994 1993 1992 1991
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales and other income (a) $2,685,670 $2,733,182 $2,605,978 $2,500,364 $2,391,830
Cost of merchandise sold 1,912,620 1,918,674 1,824,663 1,739,396 1,663,508
Selling, general and administrative 619,589 594,024 570,016 551,479 531,115
Depreciation and amortization 60,356 58,692 56,213 55,429 57,291
Interest 61,067 65,571 125,247 153,780 155,066
Special charges (b) 153,667 -- 4,000 6,500 --
--------------------------------------------------------------------------------
Income (loss) before income taxes (121,629) 96,221 25,839 (6,220) (15,150)
Federal and state income taxes (benefit) (4,911) 41,808 16,170 2,780 (1,891)
---------------------------------------------------------------------------------
Income (loss) before equity in loss of
joint venture, extraordinary
item and cumulative effect of
change in accounting principle (116,718) 54,413 9,669 (9,000) (13,259)
Equity in loss of joint venture (c) (11,831) (2,281) -- -- --
Extraordinary item (d) -- (7,243) (45,828) -- --
Cumulative effect on prior years
of change in accounting principle (e) -- -- -- (6,902) --
--------------------------------------------------------------------------------
Net income (loss) $ (128,549) $ 44,889 $ (36,159) $ (15,902) $ (13,259)
=================================================================================
Income (loss) per common share before
extraordinary item and cumulative
effect of change in accounting principle $ (3.36) $ 1.17 $ .16 $ (2.10) $ (2.63)
Weighted average common and dilutive
common equivalent shares outstanding 39,904 40,257 30,514 6,571 6,571
Current ratio 1.29 1.45 1.25 1.21 1.19
Working capital $ 98,400 $ 139,128 $ 85,142 $ 74,911 $ 65,570
Total assets $1,344,436 $1,495,882 $1,458,481 $1,466,068 $1,481,889
Long-term debt $ 608,627 $ 654,131 $ 640,127 $ 986,155 $ 998,047
Common Stock subject to puts and calls $ -- $ -- $ -- $ 6,283 $ 5,621
Shareholders' equity $ 308,163 $ 435,865 $ 387,311 $ 10,674 $ 27,031
Capital expenditures $ 67,281 $ 81,906 $ 49,982 $ 36,612 $ 41,022
Income from operations before
depreciation and amortization (f) $ 153,461 $ 220,484 $ 207,299 $ 202,989 $ 197,207
<FN>
(a) Net sales and other income include gains of $5.9 million in 1994 related to
settlements of 1993 flood losses.
(b) Special charges for 1995 consisted of restructure costs associated with the
closing of six stores, the sale of a distribution center and the
reorientation of several stores to concentrate on the professional
customer. Special charges for 1993 consisted of costs associated with the
elimination of a layer from the Company's field management organization.
Special charges for 1992 consisted of fees and expenses incurred in
connection with the Company's withdrawn recapitalization plan.
(c) During fiscal 1995, the Company recorded an $8.0 million loss on the sale
of its Mexican joint venture investment.
(d) Represents losses on early extinguishment of debt.
(e) Effective December 1, 1991, the Company changed its method of accounting
for post-retirement benefits other than pensions.
(f) Income from operations before depreciation and amortization is utilized by
the Company as a measure for managing cash flow in its day-to-day
operations. The 1995 amount is before the special charge discussed at (b)
above.
</TABLE>
<PAGE> 29
BOARD OF DIRECTORS AND OFFICERS
[List not included in EDGARized exhibit.]
<PAGE> 30
1995 STORE LOCATIONS
[Map not included in EDGARized exhibit.]
<PAGE> 31
1995 STORE LOCATIONS (cont'd.)
[Map not included in EDGARized exhibit.]
<PAGE> 32
Payless Cashways common stock is traded on the New York Stock Exchange (ticker
symbol PCS). The number of registered holders of the Company's common stock at
November 25, 1995 was 965, one of which was a holder of Non-Voting Class A
Common Stock. No cash dividends have been declared on the common stock since
1988. Certain of the Company's debt instruments contain restrictions on the
declaration and payment of dividends on, or the making of any distribution to
the holders of, or the acquisition of, any shares of common stock or cumulative
preferred stock.
<TABLE>
<CAPTION>
1995 1994
--------------------------------------------------------------------------------------
Price range of common stock High Low High Low
-------------------------------------------------------------------------- -----------
<S> <C> <C> <C> <C>
First quarter 10 8-1/4 19-5/8 12-7/8
Second quarter 9-3/4 6-1/2 19-1/4 13-1/2
Third quarter 7-3/4 5-5/8 15-1/4 10-5/8
Fourth quarter 6-3/4 3-5/8 12-1/2 8-1/4
</TABLE>
Copies of the Payless Cashways, Inc. Form 10-K for fiscal 1995, filed with the
Securities and Exchange Commission, are available without charge. To obtain a
copy, please write to:
Payless Cashways, Inc.
Investor Relations
P.O. Box 419466
Kansas City, MO 64141-0466
Annual Meeting - April 18, 1996, 10:00 a.m. Independent Auditors
Two Pershing Square, 2300 Main Street KPMG Peat Marwick LLP
Kansas City, MO 64108 Kansas City, MO
Registrar and Transfer Agent Telephone Number of
United Missouri Bank, n.a. Payless Cashways, Inc. is
Kansas City, MO (816) 234-6000
<PAGE> 1
Exhibit 23.1
[KPMG Peat Marwick LLP Letterhead]
AUDITORS' CONSENT
----------------
The Board of Directors
Payless Cashways, Inc.:
We consent to incorporation by reference in the registration statements on Form
S-8 and Form S-3 of Payless Cashways, Inc. of our audit reports dated January 9,
1996, relating to the consolidated balance sheets of Payless Cashways, Inc. and
subsidiary as of November 25, 1995 and November 26, 1994 and the related
consolidated statements of operations, shareholders' equity and cash flows for
each of the fiscal years in the three-year period ended November 25, 1995, and
the related schedule, which reports appear in the November 25, 1995 annual
report on Form 10-K of Payless Cashways, Inc.
S/KPMG Peat Marwick LLP
Kansas City, Missouri
February 21, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the November
25, 1995, financial statements and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> NOV-25-1995
<PERIOD-END> NOV-25-1995
<CASH> 960
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 392604
<CURRENT-ASSETS> 442679
<PP&E> 826455
<DEPRECIATION> (280945)
<TOTAL-ASSETS> 1344436
<CURRENT-LIABILITIES> 344279
<BONDS> 608627
0
40600
<COMMON> 399
<OTHER-SE> 267164
<TOTAL-LIABILITY-AND-EQUITY> 1344436
<SALES> 2680186
<TOTAL-REVENUES> 2685670
<CGS> 1912620
<TOTAL-COSTS> 1912620
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 61067
<INCOME-PRETAX> (121629)
<INCOME-TAX> (4911)
<INCOME-CONTINUING> (128549)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (128549)
<EPS-PRIMARY> (3.36)
<EPS-DILUTED> 0
</TABLE>
